René Touchette v. Her Majesty the Queen (Informal Procedure), [1994] 1 CTC 2674

Christie, A.C.J.T.C.C.:—This appeal is governed by the informal procedure prescribed by section 18 and following sections of the Tax Court of Canada Act, R.S.C. 1985, c. T-2.

At the outset of the hearing it was agreed that the year under appeal is 1991, not 1992, and the amount in dispute is $9,688, not $9,800. Incorporating these changes, the notice of appeal reads:

A. Statement of Facts

1. On July 15, 1992 a notice of reassessment pertaining to the 1991 taxation year of the appellant was issued by the Minister, increasing the appellant's taxable income by $9,688.

2. On July 29,1992 the appellant filed a notice of objection with the Minister, disputing the inclusion of the $9,688 in his 1991 income.

3. On March 19, 1993 the Minister varied the reassessment by confirming the inclusion of $9,688 in the appellant’s 1991 income but adjusting the total income for purposes of the Goods and Service tax credit to correct an administrative error in processing the reassessment.

B. Reason for Appeal

4. The Minister has incorrectly determined that the $9,688 received by the appellant was other income by virtue of paragraph 6(1)(f) of the Act.

5. It is the appellant’s position that the payments were not received from a fund within the meaning of paragraph 6(1)(f) of the Act and accordingly the inclusion in income is incorrect.

6. Furthermore, although the appellant’s employer has designated the moneys advanced to the appellant in the 1991 taxation year as disability payments, paid from the Ecclesiastical Society of Saint Boniface, these payments do not qualify within the definitions and rules contained in the society’s constitution and by-laws.

7. The appellant further states that the employer advanced moneys to him in 1991 to assist him in a time of need and that these payments were more correctly categorized as a loan or advance and accordingly not subject to taxation.

8. That, notwithstanding the issue of whether the appellant will have to repay his employer advances received in 1991, the moneys received should be categorized as social assistance pursuant to paragraph 81 (1 )(h) of the Act and exempt from taxation by virtue of the section.

9. The appellant relies inter alia on paragraphs 6(1)(f) and 81 (1 )(h) of the Act.

In the course of argument counsel for the appellant informed the Court that he was no longer relying on paragraph 81 (1)(h) [1] of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act").

Paragraphs 1 to 6 inclusive of the reply to the notice of appeal read:

1. With respect to paragraph 1 of the notice of appeal, he states that the notice of reassessment dated July 15, 1992 is in respect of the appellant’s 1991 taxation year and that the appellant's taxable income was increased by $9,688.

2. With respect to paragraph 2 of the notice of appeal, he states that the notice of objection was received by the Minister of National Revenue (the "Minister") on July 30, 1992 and that the amount in dispute was $9,688.

3. He essentially admits the allegations of fact in paragraph 3 of the notice of appeal, but states that the amount in question is $9,688 rather than $9,800.

4. In reporting his income for the 1991 taxation year the appellant failed to include employment insurance benefits or sick benefits in the amount of $9,688.

5. In reassessing the appellant for the 1991 taxation year by notices of reassessment dated July 15, 1992 and March 19, 1993, the Minister of National Revenue (the "Minister") added the said employment insurance benefits or sick benefits to the appellant’s income.

6. In so reassessing the appellant, the Minister made the following assumptions of fact:

(a) the appellant is a Priest who, prior to 1991, was employed by the St-Jean Baptiste Parish (the "Parish") in St-Boniface, Manitoba;

(b) the appellant was suspended by the Parish on September 15, 1990;

(c) the appellant continued to receive his regular monthly salary in the amount of $1,392 until April 30, 1991;

(d) commencing on May 1, 1991, the appellant was placed by the Parish/La Corporation Archiépiscopale C.R. de St-Boniface/La Société Ecclésiastique de St-Boniface (the "employer") on the employer's private pension and disability plan (the "plan");

(e) employees (priests) contribute five per cent of their monthly salary to the plan and parishes contribute two per cent of their Sunday collections;

(f) no allocation between the pension plan and the disability plan is made with respect to employees’ contributions;

(g) the plan paid the appellant 87 per cent of his regular monthly salary, namely 87 per cent of $1,392 = $1,211;

(h) during the 1991 taxation year the appellant received disability (sick) benefits from May to December, i.e., 8 X $1,211 $9,688;

(i) the employer charged the said disability benefits to its general ledger account #7202 "Maladie" (sickness);

(j) the employer considered these disability benefits not to be taxable in the appellant's hands, and therefore made no deduction (of tax, etc.) and did not issue a T4 slip to the appellant in respect of these benefits; and

(k) the appellant did not repay any portion of the said benefits received by him in the 1991 taxation year.

The issue to be determined is whether in reassessing the appellant’s liability to income tax for 1991 the Minister of National Revenue properly included the sum of $9,688 in computing the appellant's income for that year. The respondent makes particular reference to section 3 and paragraph 6(1 )(f) of the Act. Section 3 will be cited later. What is relevant in paragraph 6(1 )(f) for the purpose of this appeal provides that there shall be included in computing the income of a taxpayer for a taxation year as income from an office or employment such of the following amounts as are applicable: the aggregate of amounts received by him in the year that were payable to him on a periodic basis in respect of the loss of all or any part of his income from an office or employment, pursuant to a sickness or a disability insurance plan to or under which his employer has made a contribution, not exceeding an amount that is determined by a formula that follows in the paragraph.

The evidence of the appellant is that in 1990 he was employed as pastor in the Parish of St-Jean Baptiste in Manitoba. In September of that year the Archbishop of the Diocese placed him on leave of absence with pay. His employer from that time forward was La Corporation Archiépiscopale C.R. de Saint-Boniface ("the corporation"). Prior to September he had been paid by the Parish. He received a salary from the corporation in 1990 and continued to receive one in 1991 until the end of April in that year at which time his employer "cut me off the payroll". After that an amount was deposited monthly directly to the credit of the appellant's bank account during the remainder of 1991. The amounts of these post-April 1991 deposits were $1,211 each. The amounts he had been receiving by cheque each month prior to the end of April were $1,170. The difference in amounts received was $41.

When this change in amounts received occurred the appellant had not been informed that his employment had been terminated. He had received his pre-April 1991 cheques from the office of the comptroller of the corporation and the postApril deposits were made by the same source.

In March 1992 the appellant, not having received a T4 slip for the purpose of preparing his return of income for 1991, called the office of the comptroller. He was informed the following day that failure to send him a T4(1991) was an oversight. When he received the document it stated employment income before deductions to be $5,576, which is less than the amount he actually received in 1991. Further inquiries revealed that the $5,576 represented what the appellant received in 1991 to the end of April. He was told the total of amounts placed to his credit after April, i.e., $9,688, were "from a different program" and a further T4(1991) would not be sent. Apparently no deductions were made after April for unemployment insurance, Canada Pension Plan, income tax.

At the end of March 1992 he attended at the office of Mr. James E. Court. [2] On April 9, 1992, Court wrote the corporation about the discrepancy in the amounts received by the appellant and on April 14, 1992. He received this reply from Mr. Guy Delaquis, an accountant with the corporation:

M. l’abbé René Touchette

Further to your letter of April 9, please be advised that M. l'abbé Touchette received an allowance equivalent to a priest's salary for January-April 1991 from which regular deductions were made and remitted. These amounts appear on his T4.

As of May 1991 until January 1992 he received an advance of $1211 per month to tide him over while he was not employed.

The appellant placed in evidence an Employment and Immigration form called Record or Employment. The corporation is described as the employer and the appellant the employee. It is dated June 6, 1992. It shows that the appellant was employed by the corporation from September 1, 1988 to April 30, 1991. The reason given for issuing the document is "K", a code designation included in a list of other codes that relate to reasons for the termination of employment. "K" stands for "other". The form directs that the letter "K" is to be explained in the comment section of the document, but that is blank. Anyone requiring further information was invited to contact Guy Delaquis.

The appelant says that the first notice in writing that he received about the status of his employment is a letter dated January 3, 1992, from the Archbishop of Saint Boniface. It expresses sympathy for the appellant in his plight and refers to the appellant's stay at Southdown (a therapeutic centre in Ontario). The appellant read these passages from the letter in evidence:

The waiting period has lasted long enough and I have the conviction that the Diocese does not have to help you financially each month any more, as it has generously done since sixteen months already. At an opportune time I will ask the Diocesan Comptroller to review with you the expenses which are debited to your account with the Diocese. According to the eventual means available to you, it belongs to you to bear a share of this financial burden. It would only be justice towards the Diocesan Church that you want to reimburse these substantial expenses occasioned with the firm hope to help you thus to face your unsure future.

Also, for the good of the faithful and of the diocese itself, the time has come for you to resign from the pastoral charge of St-Jean-Baptiste. Indeed it becomes urgent to open the way to the nomination of a new pastor, so that the life of the parish resume a more normal course. Your resignation will have to be signed from your hand and submitted as soon as possible to the Chancery that I may accept it in needed time.

The last payment received by the appellant was in January 1992.

He placed in evidence a charitable donation receipt issued to him by the corporation dated December 31, 1991, for $360. On the face of it, it makes reference to the Ecclesiastical Society and a seminary tax. The latter is said to pertain to the education of the clergy. The constitution and by-laws of the Ecclesiastical Society of Saint Boniface are in evidence. These are selected extracts from that document:

I. AIM

1. The aim of the Ecclesiastical Society of Saint Boniface, hereafter referred to as the “Society” is to provide financial assistance to those of its members who have reached the age of 65 and to those who, because of illness or other incapacity, find it impossible to exercise any priestly Ministry. In the latter case the opinion of a doctor and that of the Ordinary are required. In some cases however, the decision of the Ordinary will suffice.

2. The society was founded to assist its members and for all practical purposes may be considered as a pension and sick benefit plan following a schedule established by its board of directors.

3. To reach this goal the society requires of its members the payment of premiums as established by its Board upon due approval of a majority of its members.

HI. OBLIGATIONS

1. Individual Premiums

All priests incardinated in the Archdiocese of Saint Boniface, ministering within or outside the Archdiocese, are required to pay an annual premium of up to a maximum of five per cent of their salary as established by diocesan regulation. Exceptionally a delay may be granted for a justified request.

2. Parish and other Premiums

(a) A yearly premium shall be assessed from all parochial and other administrations

employing priests under the jurisdiction of the Ordinary of the Archdiocese.

(b) Every parish, mission or chaplaincy will contribute a premium equal to 1.5 per cent of both regular and prescribed collections.

The membership is confined to the clergy and provision is made for pension benefits, sick benefits and disability coverage.

The final exhibit entered by the appellant is a translation from the French of a letter dated February 11, 1991, to the Archbishop from A. de Rocquigny, M.D. It reads:

Following our meeting of January 22, 1991, I had the opportunity to complete an evaluation of Rev. Father René Touchette. It is my opinion that his state of psychic health would well permit him to resume his previous pastoral activities in the parish ministry. His aptitudes are such that, in my opinion, he is in the present and in the near future well disposed to bring to good purpose the responsibilities which will be entrusted to him.

I am worried nonetheless that it shall remain difficult for the parishioners and for Father Touchette to resume an interrupted relationship for reasons which will remain very obscure to the first. Considering the allegations, I am not of the opinion that Rev. Father Touchette be followed regularly by myself, but he will always be welcome to share with me.

In cross-examination it was established that the problems relating to the appellant's employment arose out of allegations that culminated in criminal proceedings being instituted against him. He was convicted and that is under appeal.

The appellant went to Southdown for treatment at the insistence of his employer. He was there for five months from May to September 1991. He presumes that the corporation paid for this because he did not.

In June 1992 he received a T4A(1991) from Revenue Canada which, of course, was after the date for filing his return of income for 1991. He had only included the amount of employment income in his return that was specified in the T4(1991) that he had received.

It was established that the $360 referred to in the charitable receipt issued by the corporation represented five per cent of the appellant's salary for the first four months of 1991 plus 1.5 per cent of that salary for the same period. The five per cent went to the Ecclesiastical Society and the 1.5 per cent to education. There was also a contribution to the society by the employer. The evidence of the appellant is equivocal about whether the $1,211 received by him each month from May to December 1991 came from a fund established by the Society and whether he was aware of this.

Mr. Roland Marion, an auditor employed by Revenue Canada, testified on behalf of the respondent. He made inquiries about what is in issue in this appeal and ascertained from employees of the corporation that, at the end of April 1991, the appellant went to Southdown and was there until the following September. The corporation paid $27,370.63 for his treatment there.

He confirmed the allocation of $360 to be five per cent of the appellant’s salary for The Ecclesiastical Society of Saint Boniface and 1.5 per cent for a seminary education tax. Marion continued with this statement: "Then discussions ensued as to the nature of this private sickness and benefit plan and the employer was stating that they had put him (the appellant), as of May 1, on the sickness plan". He was referring to the plan of the Ecclesiastical Society of Saint Boniface. Later he added that he ascertained that each payment of $1,211 was “mailed directly to the bank” and the payment was characterized as "a disability/sickness payment".

Based on the whole of the evidence I am of the opinion that the $9,688 received by the appellant for the period May to December 1991 was in respect of the loss of his income from his office or employment as a priest employed by the parish of St-Jean Baptiste and then by the corporation. The money was paid to him as sick benefits or disability coverage or both under the plan of the Ecclesiastical Society of Saint Boniface. It follows that in reassessing, the Minister of National Revenue properly included the $9,688 under paragraph 6(1)(f) of the Act in computing the appellant’s income for 1991.

Further, even if it could be said that paragraph 6(1)(f) is not applicable, I believe the $9,688 is to be included in computing the appellant’s income for that year under paragraph 6(1 )(a) of the Act. Paragraph 6(1 )(a) reads:

6 (1) There shall be included in computing the income of a taxpayer for a taxation year as income from an office or employment such of the following amounts as are applicable:

(a) the value of board, lodging and other benefits of any kind whatever received or enjoyed by him in the year in respect of, in the course of, or by virtue of an office or employment, except any benefit

(i) derived from his employer's contributions to or under a registered pension plan, group sickness or accident insurance plan, private health services plan, supplementary unemployment benefit plan, deferred profit sharing plan or group term life insurance policy,

(ii) under a retirement compensation arrangement, an employee benefit plan or an employee trust,

(iii) that was a benefit in relation to the use of an automobile, except to the extent that it related to the operation of the automobile,

(iv) derived from counselling services in respect of

(A) the mental or physical health of the taxpayer or an individual related to the taxpayer, other than a benefit attributable to an outlay or expense to which paragraph 18(1 )(l) applies, or

(B) the reemployment or retirement of the taxpayer; or

(v) under a salary deferral arrangement, except to the extent that the benefit is included under this paragraph by reason of subsection (11);

Unquestionably the appellant received the amount in issue and it strikes me that the only rational explanation for the payment having been made is because of his employment prior to May 1, 1991. It follows that the $9,688 is a benefit received by the appellant "in respect of" or “by virtue of" an office or employment within the meaning of paragraph 6(1)(a).

What was in issue in Cutmore v. M.N.R., [1986] 1 C.T.C. 2230, 86 D.T.C. 1146 (T.C.C.), is succinctly put in the headnote which reads in part (D.T.C. 1146):

The taxpayers were all senior executives of a large integrated steel company. In 1978, the employer offered its senior executives tax and other financial counselling services as an optional "perk". However, beginning in 1980, the company decided that it would require its senior executives to have their personal income tax returns prepared by a professional income tax specialist in order to prevent embarrassment or damage to its reputation should any of its senior executives experience income tax difficulties. The company paid the costs of these professional services and claimed a deduction therefor. The Minister included the amounts paid on behalf of the taxpayers in their personal incomes and the taxpayers appealed to the Tax Court of Canada.

After citing paragraph 6(1)(a) the reasons for judgment say this commencing at page 2234 (D.T.C. 1148):

It was at one time erroneously thought that in order for a benefit to be within the ambit of these words it must have been received as remuneration for services rendered as an employee, i.e. the causative factor for the conferring of the benefit was services rendered by the recipient: see for example Phaneuf Estate v. The Queen, [1978] C.T.C. 21, 78 D.T.C. 6001, and Ransom v. M.N.R., [1967] C.T.C. 346, 67 D.T.C. 5235. In Phaneuf, Thurlow, A.C.J. (as he then was) said at page 27 (D.T.C. 6005):

While the language of the statutes differ, the test expressed by Viscount Cave, L.C. in Seymour v. Reed, [1927] A.C. 554 at page 559 appears to me to express, as well as it can be expressed, the essence of what falls within the taxing provision of the Income Tax Act. Is the payment made "by way of remuneration for his services” or is it "made to him on personal grounds and not by way of payment for his services"? It may be made to an employee but is it made to him as employee or simply as a person. Another way of stating it is to say is it received in his capacity as employee, but that appears to me to be the same test. To be received in the capacity of employee it must, as I see it, partake of the character of remuneration for services. That is the effect that, as it seems to me, the words “in respect of, in the course of or by virtue of an office or employment" in paragraph 6(1)(a) have.

The payments in issue in this appeal are not of that kind. The misconception referred to was rectified in The Queen v. Savage, [1983] 2 S.C.R. 428, [1983] C.T.C. 393, 83 D.T.C. 5409. [3] Dickson, J. (as he then was) delivered the judgment of four of the five members of the Supreme Court of Canada who heard that appeal. After quoting the passage just cited from Phaneuf he said at page 440 (C.T.C. 399, D.T.C. 5414):

With great respect, however, I do not agree with the latter part of the passage last quoted and in particular the statement that, to be received in the capacity of employee, the payment must partake of the character of remuneration for services. Such was the conclusion in the English cases but based on much narrower language. Our Act contains the stipulation, not found in the English statutes referred to, “benefits of any kind whatever . . . in respect of, in the course of, or by virtue of an office or employment". The meaning of “benefit of whatever kind" is clearly quite broad; in the present case the cash payment of $300 easily falls within the category of "benefit". Further, our Act speaks of a benefit “in respect of" an office or employment. In Nowegijick v. The Queen, [1983] 1 S.C.R. 29, [1983] C.T.C. 20, 83 D.T.C. 5041, this Court said, at page 39 (C.T.C. 25, D.T.C. 5045), that:

The words ”in respect of" are, in my opinion, words of the widest possible scope. They import such meanings as “in relation to”, “with reference to" or “in connection with”. The phrase “in respect of" is probably the widest of any expression intended to convey some connection between two related subject matters.

See also Paterson v. Chadwick, [1974] 2 All E.R. 772 (Q.B.D.) at page 775.

Reference is also made to paragraph 3(a) of the Act. It provides:

3. The income of a taxpayer for a taxation year for the purposes of this Part is his income for the year determined by the following rules:

(a) determine the aggregate of amounts each of which is the taxpayer's income for the year (other than a taxable capital gain from the disposition of a property) from a source inside or outside Canada, including, without restricting the generality of the foregoing his income for the year from each office, employment, business and property;

In Savage, supra, Dickson, J. said this at page 441 (C.T.C. 399, D.T.C. 5414):

I agree with what was said by Evans, J.A. in R. v. Poynton, [1972] C.T.C. 411, 72 D.T.C. 63, at page 420 (D.T.C. 6335-36), speaking of benefits received or enjoyed in respect of, in the course of, or by virtue of an office or employment:

I do not believe the language to be restricted to benefits that are related to the office or employment in the sense that they represent a form of remuneration for services rendered. If it is a material acquisition which confers an economic benefit on the taxpayer and does not constitute an exemption, e.g., loan or gift, then it is within the all-embracing definition of section 3. [4]

The appeal is dismissed.

Appeal dismissed.