Barbara Ann Phillips v. Minister of National Revenue, [1990] 2 CTC 2495, 90 DTC 1899

Couture, C.J.T.C.:—The assessments under appeal are in respect of the appellant's 1985 and 1986 taxation years. The issue before the Court is whether subsection 19(1) of the Income Tax Application Rules, 1971 (the "Rules") enacted as Part III of Chapter 63, S.C. 1970-71-72 which modifies the application 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") is applicable under the circumstances of this case.

The appellant is a registered nurse. In 1963 she began to experience severe back pains and following a consultation with an orthopedic surgeon she was hospitalized, placed in traction and given pain-killer medication, muscle relaxants and anti-inflammatory drugs. She began to suffer the pain after commencing work as a nurse and she attributed the cause to heavy lifting, one of the many requirements of her profession. From 1963 until 1974 she pursued her nursing career.

In 1972 while attending a dog show, she fell down a flight of stairs. The diagnosis was that she damaged her lumbar vertebrae L-5. She consulted her family doctor and because of the imminent move of the family from Winnipeg, where they lived at the time, to Maple Ridge near Vancouver he prescribed pain-killers, heat and rest and suggested that she consult a doctor once she would be in Maple Ridge. She did this and the same treatment was prescribed. She continued nursing for two years in Maple Ridge and the family then moved to Toronto in 1974. At this time she had to give up her nursing career because her back condition prevented her from engaging in heavy lifting. In 1976 the family moved to Prince George where she became a dicta-typist working for Underwriters Bureau Ltd. The family then moved to Edmonton where she continued working for the same employer. Throughout the period of 1972 to 1982 she experienced severe pain.

In October 1982 on bending over to pick up a book she herniated a disc at the L-5 level which was the same disc she had injured when she fell in 1972. She was in great pain and consulted her family doctor who referred her to an orthopedic surgeon. The surgeon performed a myelogram, a process described as involving the injection of dye into the spinal cord to outline the perimeters of the discs. After this a discectomy was performed that involved back surgery to repair the disc. This took place in November 1982. The appellant returned to work in January 1983. In March of that year she went on a short-term disability. In December 1984 the appellant took long-term disability and began receiving benefits under her employer's wage loss benefit plan. In subsequent years she was examined by Dr. Glasgow, an orthopedic surgeon, at the request of the insurance company which was administering her employer's plan. In 1986 Dr. Glasgow performed a partial lamenectomy which improved her condition, but in February 1987 a fall on ice caused her condition to revert to what it was prior to the partial lamenectomy.

She received benefits amounting to $6,876.80 in 1985 and $9,425.60 in 1986.

It is the position of Counsel for the appellant that these amounts are not taxable because of subsection 19(1) of the Rules. His submission is that the event which triggered their payment under the employer's plan occurred before 1974 as required under the subsection, and that the plan had been established before June 19, 1971.

Counsel for the respondent says that the event which gave rise to these payments happened in 1982 when in October of that year the appellant picked up the book already referred to. If this is the correct view it would follow that subsection 19(1) is not applicable to exempt the payments from the application of paragraph 6(1)(f) of the Act.

Paragraph 6(1 )(f) of the Act 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:

(f) 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

(i) a sickness or accident insurance plan,

(ii) a disability insurance plan, or

(iii) an income maintenance insurance plan

to or under which his employer has made a contribution, not exceeding the amount, if any, by which

(iv) the aggregate of all such amounts received by him pursuant to the plan before the end of the year and

(A) where there was a preceding taxation year ending after 1971 in which any such amount was, by virtue of this paragraph, included in computing his income, after the last such year, and

(B) in any other case, after 1971,

exceeds

(v) the aggregate of the contribution made by the taxpayer under the plan before the end of the year and

(A) where there was a preceding taxation year described in subparagraph (iv), after the last such year, and

(B) in any other case, after 1967.

Subsection 19(1) of the Rules reads:

19. (1) Income maintenance payments. Notwithstanding section 9, paragraph 6(1)(f) of the amended Act is not applicable in respect of amounts received by a taxpayer in a taxation year that were payable to him in respect of the loss, in consequence of an event occurring before 1974, of all or any part of his income from an office or employment, pursuant to a plan described in that paragraph that was established before June 19, 1971.

Dr. Glasgow, with the consent of counsel for the respondent, adduced evidence by way of an affidavit in which he said:

2. That on July 29, 1986 I examined the Appellant at the request of Equifax Services Ltd. for an evaluation as to her employability at that time, and to verify a claim for long term disability payments.

3. That I am advised by counsel to the Appellant, and do verily believe that in late June, 1972, the Appellant suffered an injury accident while attending a dog show in Winnipeg, Manitoba, and as a result of such accident, suffered an injury to Lumbar Vertebrae L-5, although I have no independent notes from the Appellant to that effect.

4. That the Appellant informed me, on July 29, 1986, that on or about October, 1982, she suffered a protruded intervertebral disc in Lumbar Vertebrae L-5 which was operated on by Dr. Narang, an orthopaedic surgeon practising in the City of Edmonton.

5. That assuming the above facts to be true in relation to the 1972 injury accident, it is my expert opinion that in consequence of the 1972 injury to the Appellant's Lumbar Vertebrae L-5, Lumbar Vertebrae L-5 was left in such a weakened state that it was susceptible to any further minor trauma or stress and that the protruded intervertebral disc in Lumbar Vertebrae L-5 which the Appellant suffered in 1982 was in consequence of the injury sustained by the Appellant in the 1972 injury accident.

The sole question to be determined by the Court is: Was it what occurred in 1972 or 1982 that caused the appellant's incapacity in 1984? There is no issue regarding the date of the implementation of the employer's plan. The evidence is clear that it was established in 1968.

Counsel for the appellant in his written argument states:

14. The Appellant submits that the loss of employment income in December, 1984 for which she was compensated under the long-term disability plan, was “in consequence" of the injury which the Appellant sustained in the June 1972 accident.

15. The Appellant was able to find only one tax case which considered the phrase “in consequence of". That case was a decision of the Supreme Court of Canada in M.N.R. v. Armstrong, [1956] S.C.R. 446; [1956] C.T.C. 93; 56 D.T.C. 1044 (Tab 7) which held that “in consequence of” meant less than "pursuant to”.

16. The Appellant submits that given the lack of judicial consideration of the phrase “in consequence of” in tax cases, and given that the phrase does not have a specific trade or technical meaning, the ordinary, dictionary meaning should be given to the phrase. On page 483 of Webster's Third New International Dictionary (Tab 8) “in consequence of" is defined to mean "by reason of” or "as a result". On page 482 "consequence is defined as: "something that is produced by a cause or follows from a form of necessary connection or from a set of conditions: a natural or necessary result”. The definitions contained in the Shorter Oxford English Dictionary are substantially the same.

17. The Appellant submits that in the present case the reason for the Appellant's herniated disc in 1982 and total physical disability in December of 1984 was as a result of the 1972 back injury. As was established by the Appellant's uncontroverted testimony, the testimony of a registered nurse, the same lumbar vertebrae which was injured in the 1972 accident was the vertebrae which suffered the herniated disc. The herniated disc and associated physical disability follows from or was necessarily connected to the 1972 back injury. The herniated disc and associated physical disability were a natural result of the 1972 injury.

He also referred the Court to Interpretation Bulletin IT-428. These bulletins which are issued by Revenue Canada are not vested with legal authority and do not purport to be. Nevertheless they outline Revenue Canada's understanding of the meaning and application of the various provisions of the Act and in some instances are very helpful to the Court in judicially interpreting those provisions.

The portion of IT-428 that has some bearing on the meaning of subsection 19(1) reads:

It is to be noted that, for 1974 and subsequent taxation years, the exemption in section 19 of the ITAR is applicable only if amounts received by a taxpayer are attributable to an event occurring before 1974. In this context, the word event has reference to the thing that caused the disability. In the case of an accident, for example, although the effect on the taxpayer's health may not have become noticeable or serious until 1974 or a later year, the event would have occurred before 1974 if the accident took place before 1974 and the later disability was directly attributable to the accident. Similarly, in the case of a degenerative disease such as muscular dystrophy, the event is the onset of the disease however much later the incapacity occurs. On the other hand, a recurring disease, such as a seasonal allergy or a chronic tonsillitis, would qualify as an event only for the particular period of one attack.

Counsel for the respondent argued as follows:

5. The phrase "in consequence of" requires more than just a passing connection. The receipt of the amounts must be a result of, or by reasons of the "event" which occurred. The receipt of the amounts must be a natural and necessary result of the “event”.

6. The Appellant contends that it was the event which occurred in 1972 which gave rise to her ability to collect the amounts under the plan. However, it was not until after the event in 1982 that the Appellant actually became entitled to receive any money under the plan. There is a direct connection between the 1982 event and the receipt of money. There is no much connection between the 1972 incident and the receipt of money by the Appellant. The Appellant, because of the passage of time and occurrence of other events, cannot show that the amounts were a natural and necessary result of the incident in 1972.

7. It is submitted that had the event in 1982 not occurred the Appellant might well still be employed and not entitled to receipt of any sums under the plan. The Appellant, to be successful, must be able to demonstrate that in 1972 a natural and necessary result of the incident was her ability to receive amounts under a wageloss replacement plan. The facts do not support this.

In the alternative he said that the appellant had become entitled to the amounts in question as a result of a medical condition as opposed to an occurrence or event.

With respect to the plan under which the appellant was covered he submitted that the word "plan" in subsection 19(1) of the ITAR Rules must be interpreted as an agreement between a taxpayer and an insurer, and this led to the conclusion that since the appellant did not become qualified under her employer's plan until 1977 that the plan was not in existence prior to 1971.

I will deal first with counsel for the respondent's argument with respect to the meaning that must be assigned to the word "plan" in subsection 19(1).

The word “plan” refers to a plan described in paragraph 6(1)(f) of the Act which merely lists three kinds of plans under which amounts payable to a taxpayer must be included in his income for a taxation year if these payments exceed his contributions to the plan made within a certain period. There is nothing in this paragraph that even suggests that a plan must be in the form of an agreement between the taxpayer and an insurance company or any other administrator of such a plan.

What is required under the combined provisions of paragraph 6(1)(f) and subsection 19(1) is that a plan must have been in existence prior to June 19, 1971 and that amounts were paid to a taxpayer in consequence of an event which occurred before 1974. The meaning attributed to a plan to which paragraph 6(1)(f) applies by Revenue Canada is found in paragraph 5 of Interpretation Bulletin IT-428. It reads:

Meaning of a “Wage Loss Replacement Plan"—\n the Department's view, a plan to which paragraph 6(1)(f) applies is any arrangement, however styled, between an employer and employees, or between an employer and a group or association of employees, under which provision is made for indemnification of an employee, by means of benefits payable on a periodic basis, if an employee suffers a loss of employment income as a consequence of sickness, maternity or accident. This arrangement may be formal in nature, as evidenced by a contract negotiated between an employer and employees, or it may be informal, arising from an understanding on the part of the employees, that wage loss replacement benefits would be made available to them by the employer.

For these reasons I reject counsel's argument as to the meaning of the word “plan” in the legislation.

With respect to his argument regarding what "event" triggered the payments to the appellant, I have difficulty in accepting his proposition that it is what occurred in 1982 when she picked up the book. If the human back is that fragile there would be a great deal more incapacity among the population because bending down to pick something up is a common and normal thing to do. I favour the contention of counsel for the appellant that the "event" was falling down the stairs in 1972. To my mind such a fall would be sufficient to damage a specific area of the appellant's back leaving it in a highly weakened condition and vulnerable to physical movement on her part that would exert pressure or stress to that area of her body. This is my understanding of the opinion expressed by Dr. Glasgow.

It must be kept in mind that after the accident the appellant went back to nursing, but had to give up her career after a couple of years because of the physical efforts that it required. She explained that the pain was aggravated by sitting, standing and any lifting. As already indicated she carried on working after giving up nursing, but in the less physically demanding employment of a dicta-typist.

Counsel for the respondent suggested that no weight should be given to Dr. Glasgow's evidence because his opinion was based on medical information that he received from counsel for the appellant and that he had no personal knowledge of the nature of the injury suffered by the appellant in 1972.

He submitted the following comments with respect to Dr. Glasgow's evidence:

The evidence of Dr. Glasgow indicated that he had no prior knowledge of the 1972 incident. The Affidavit must be assumed to set out all the facts known to Dr. Glasgow. If so, having regard to the lack of detailed facts, the absence of any evidence indicating that he reviewed medical reports from 1972 or any independ ent reports about the 1972 incident, and had no information with respect to the extent of any injury, the evidence which he gave in his affidavit with respect to the 1972 incident should be given no weight.

In this regard it must be noted that the affidavit is not in the nature of a medical evaluation of the appellant's physical condition. It is merely a conclusion based on an assumption of certain facts, all of which were established in evidence, that in his opinion as an orthopedic surgeon the cause of the incapacity of the appellant in 1984 was the fall in 1972. Admittedly Dr. Glasgow's affidavit may not be as explicit as it could have been, but its conclusion is based on an opinion by an individual who by reason of his profession and training is concerned with the skeletal system of the body and its associated structure and who is therefore qualified, I believe, to express an opinion on the consequences of the appellant's fall in 1972 in relation to her back.

Further if counsel regarded the information in the affidavit as incomplete, he could have cross-examined Dr. Glasgow on it. This was not done. In the circumstances his attempt to cast doubt on the validity of the opinion by way of argument is not at all convincing.

In my opinion the position of the appellant supported by the affidavit of Dr. Glasgow makes much more sense regarding the cause of her incapacity than does placing reliance on the theory that bending down to pick up the book by itself caused an injury to the appellant of such severity that she could not carry on the duties of her employment. In the absence of medical evidence attesting to that possibility, I have to rely on the evidence before me. Even in the absence of Dr. Glasgow's affidavit I would arrive at the same determination.

For the above reasons the appeals for the 1985 and 1986 taxation years are allowed and the appellant is entitled to her costs on a party-to-party basis.

Appeals allowed.