Sarchuk,
T.C.C.J.:—
This
is
an
appeal
by
Daniel
Dragovich
(Dragovich)
from
an
assessment
of
tax
for
the
1989
taxation
year.
Pursuant
to
the
provisions
of
section
18.1
of
the
Tax
Court
of
Canada
Act
the
appellant
has
elected
to
have
the
informal
procedure
apply.
The
issue
is
whether
the
Minister
was
correct
in
assessing
Dragovich
on
the
basis
that
the
amount
of
$15,561.46
received
by
him
in
the
year
from
Sun
Life
Assurance
Co.
of
Canada
(Sun
Life)
as
disability
benefits
should
have
been
included
in
computing
his
income,
in
accordance
with
the
provisions
of
paragraph
6(1)(f)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act").
The
circumstances
giving
rise
to
this
appeal
can
be
set
out
as
follows.
At
all
relevant
times
Dragovich
was
an
employee
of
Employment
and
Immigration
Canada.
As
a
result
of
his
contract
of
employment
he
was
insured
under
a
Sun
Life
group
policy
providing
long
term
disability
benefits.
Dragovich
was
involved
in
a
vehicle
accident
on
July
20,
1985,
sustained
injuries
and
suffered
loss
of
employment
income.
As
a
result
of
this
accident
Dragovich
instituted
an
action
for
recovery
of
damages
against
Allen
Edward
Seguin
by
way
of
a
statement
of
claim
issued
May
5,
1987
by
the
Supreme
Court
of
Ontario.
Sun
Life
paid
disability
benefits
to
Dragovich
for
the
period
from
October
19,
1985
until
January
16,
1988.
On
January
17,
1988
he
returned
to
his
regular
-employment
and
was
no
longer
considered
by
Sun
Life
to
be
totally
disabled
under
the
terms
of
the
policy.
On
March
5,
1988
Dragovich
stopped
reporting
for
work
and
as
a
result
suffered
further
loss
of
employment
income.
Sun
Life
paid
further
benefits
under
the
policy
for
the
period
from
March
5,
1988
until
May
31,
1988
at
which
time
it
discontinued
payment
of
benefits,
again
on
the
basis
that
he
was
no
longer
totally
disabled
as
defined
in
the
group
policy.
As
a
result
of
the
cessation
of
these
benefits
an
action
was
commenced
on
August
11,1989
by
Dragovich
against
Sun
Life
for
an
order
directing
payment
to
him
of
disability
payments
owing,
past,
present
and
future;
general
and
special
damages;
damages
for
breach
of
contract;
punitive
damages
and
costs.
Sun
Life
defended.
Negotiations
ensued
and
ultimately
the
dispute
was
resolved
by
Sun
Life
paying
$15,561.46
to
Dragovich
which
amount
represented
the
reinstatement
of
benefits
from
June
1,
1988
through
May
31,
1989
and
by
granting
a
waiver
to
Dragovich
of
all
its
subrogation
rights
against
him.
Appellant's
position
The
amount
of
$15,561.46
paid
by
Sun
Life
to
the
appellant
does
not
represent
strictly
payment
of
lost
income
for
a
specified
period
of
time
but
rather
represented
an
all
inclusive
settlement
of
a
civil
action
for
breach
of
contract,
bad
faith,
punitive
damages,
general
and
special
damages,
interest
and
costs,
and
most
notably,
a
release
of
subrogation
rights
relating
to
the
third
party
action.
It
is
Sun
Life's
position
with
respect
to
its
subrogation
rights
that
distinguishes
this
case
from
others.
Counsel
argued
that
Sun
Life
had
exercised
what
was
a
clear
contractual
right
to
recover
their
subrogated
interest
by
way
of
letter
dated
April
28,
1989
(Exhibit
A-5),
and
suggested
that
the
value
of
the
release
to
Dragovich
could
be
as
much
as
$35,000.
The
thrust
of
his
submissions
was
that
the
payment
of
the
amount
of
$15,561.46
to
the
appellant
by
Sun
Life
was
not
merely
income
replacement
but
included
the
other
heads
of
damage
claimed
and
particularly
reflected
the
waiver
of
subrogation.
Thus
the
appellant's
counsel
submits
that
the
amount
received
does
not
fall
within
the
ambit
of
paragraph
6(1)(f)
of
the
Act.
Minister's
position
The
respondent's
position
is
that
the
amount
was
paid
by
Sun
Life
in
satisfaction
of
disability
benefits
that
the
appellant
would
otherwise
have
been
entitled
to
under
the
terms
of
his
insurance
policy
and
that
accordingly
the
amount
was
received
by
him
in
respect
of
the
loss
or
any
part
of
his
income
from
employment
and
is
to
be
included
in
computing
his
income
in
accordance
with
paragraph
6(1)
(f)
of
the
Act.
Counsel
for
the
respondent
submitted
that
the
emphasis
placed
by
the
appellant
on
the
subrogation
issue
was
not
warranted.
Subrogation
is
irrelevant
in
determining
what
the
payment
of
$15,561.46
was
for.
The
settlement
documents
clearly
identified
the
amount
as
payment
of
disability
benefits.
Conclusions
I
am
satisfied
that
the
position
taken
by
the
respondent
is
correct.
It
is
important
to
note
that
the
first
six
heads
of
the
appellant's
statement
of
claim
against
Sun
Life
referred
specifically
to
his
entitlement
to
disability
benefits
for
the
period
June
1,
1988
to
May
31,
1989.
On
December
4,
1989
in
the
course
of
negotiations
counsel
for
Sun
Life
wrote
to
appellant's
counsel
as
follows:
I
wish
to
advise
that
Mr.
Dragovich's
file
and
the
medical
brief
that
you
forwarded
to
me
by
letter
dated
November
7,
1989
have
now
been
reviewed
in
detail
by
Sun
Life's
medical
consultants.
Our
medical
consultants
continue
to
be
of
the
view
that
Mr.
Dragovich
was
not
totally
disabled
as
that
term
is
defined
in
the
policy
such
that
he
was
capable
of
returning
to
work
in
June,
1988.
Nevertheless,
we
recognize
that
your
client
underwent
surgery
in
April,
1989.
In
the
circumstances
I
am
instructed,
on
a
without
prejudice
basis,
to
offer
the
all-inclusive
sum
of
$15,561.46
in
full
and
final
settlement
of
the
plaintiff's
claim.
That
payment
represents
the
reinstatement
of
benefits
from
June
1,
1988
through
May
31,
1989.
This
was
followed
by
a
letter
dated
December
15,
1989
from
counsel
for
Sun
Life
to
Mr.
Wilson
confirming
the
settlement
on
the
following
basis:
1.
Sun
Life
will
pay
to
the
plaintiff
the
sum
of
$15,561.46,
inclusive
of
both
prejudgement
interest
and
legal
costs.
The
settlement
cheque
will
be
made
payable
to
Parioan,
Raphael,
Courey,
Cohen
&
Houston
in
Trust.
2.
Sun
Life
agrees
to
release
its
subrogation
claim
against
any
moneys
that
may
be
recovered
by
Mr.
Dragovich
in
his
personal
injury
action.
Releases
were
executed
and
on
December
28,1989
Dragovich's
action
against
Sun
Life
was
dismissed,
on
consent,
without
costs.
I
conclude
that
this
payment
must
be
categorized
as
a
reinstatement
of
benefits.
This
was
not
a
lump
sum
payment
for
the
impairment
of
his
earning
Capacity
nor
was
it
compensation
for
loss
of
expected
future
income.
The
payment
represents
the
total
of
the
amounts
that
were
payable
to
him
on
a
periodic
basis
in
respect
of
the
loss
of
his
income
from
employment,
pursuant
to
an
insurance
plan
to
or
under
which
the
employer
made
a
contribution.
Its
characterization
as
a
disability
benefit
payment
does
not
change
merely
because
it
was
not
paid
on
time
and
was
paid
in
lump
sum
form.
Furthermore,
the
fact
that
Sun
Life
released
its
subrogation
rights
which
may
have
been
ultimately
of
substantial
monetary
benefit
to
the
appellant
does
not
change
the
nature
or
characterization
of
the
payment.
The
Minister
correctly
concluded
that
the
amount
in
issue
was
to
be
included
in
the
computation
of
the
appellant's
income.
The
appeal
is
dismissed.
Appeal
dismissed.
Email this Content