Her Majesty the Queen v. Wally Fries, [1989] 1 CTC 471, 89 DTC 5240

Urie, J.A.: — The parties hereto have agreed that, despite the small amount involved, this appeal is an important one since it is a test case for a substantial number of other potential appellants whose appeals from assessments of income tax arising from largely similar facts, depend on the outcome of the appeal. The appeal is from a judgment of Collier, J. in the Trial Division in which he allowed the appeal of the respondent from a decision of the Tax Review Board ("the Board") whereby the Board held that the assessment of the Minister of National Revenue ("the Minister"), taxing the payment of $880.80 to the appellant, by a union, as income received by him in the 1979 taxation year, was valid and properly levied.

It is not in dispute that the learned trial judge accurately summarized the facts as follows:

The issue involves payment, by a union, of an amount of $880.80 to the defendant who was an employee of the Saskatchewan Liquor Board. He, and fellow employees, went out on a strike in support of other striking unionists. The $880.80 was equivalent to the defendant's normal net take home pay during the period he was on strike.

In 1979, there existed, in Saskatchewan, a somewhat complicated organization in respect of employer-employee relationships with the provincial government, its various departments and other entities. The employees of forty-seven departments, boards, commissions or other agencies, controlled or operated by the Saskatchewan government, were divided into bargaining units. Among them was the Liquor Board. There were approximately 500 members in that bargaining unit. The largest bargaining unit of the Saskatchewan Government employees organization was the Public Service Bargaining Unit with roughly 12,000 members. Their employer was the Public Service Commission.

All employees in the various bargaining units were members of the Saskatchewan Government Employees' Union (S.G.E.U.). That union had a Provincial Executive of twenty-eight members who came from twenty branches of the union.

The Provincial Executive did not participate in the bargaining process between the various bargaining units and their particular employers. That was done by the bargaining committee of each of the bargaining units.

The collective agreement between the Public Service Commission and the Public Service Bargaining Unit had expired on October 1, 1979. On November 17, 1979, that unit went out on a legal strike.

The collective agreement with the Liquor Board did not come up for renewal until March 1980.

The evidence discloses that any contract, reached with the Public Service Bargaining Unit, usually became a flagship contract, setting the pattern for other agreements with other bargaining units, and other employers.

The evidence indicates the negotiations, in what I will term the Public Service strike, were not proceeding satisfactorily from the union’s point of view. It was decided to bring pressure on the employer to speed up negotiations and to try and obtain better offers. Meetings were held between representatives of the Provincial Executive of the S.G.E.U. and representatives of the bargaining unit of the Saskatchewan Liquor Board. The defendant, Fries, was chairman of the Liquor Board Branch of the union. The first meeting discussed ”. . . the question of taking Liquor Board Branch members off the job to escalate the Public Service/ Government Employment strike”. At a later meeting with the Tierl Committee, or Advisory Committee of the Provincial Executive, Fries is said to have stated he was prepared

subject to a guarantee that members would be provided payloss for the days off the job and approval of the Executive of the Liquor Board Branch, to take a vote of the membership of the Liquor Board Branch on Saturday, November 24th regarding support for the Public Service/Government Employment Agreement group strike.

The above excerpts are taken from minutes attached to an Agreed Statement of Facts (Exhibit 2). At that stage, there was a recommendation by the Provincial Executive Advisory Committee that, if the Liquor Board union members went out in support, they be paid "pay loss for the duration of the time that they are out”. The Provincial Executive adopted the minutes of the Advisory Committee.

The Liquor Board Branch employees voted in favour of a supporting strike. The members knew there would be a recommendation that they be reimbursed their full loss of pay. A letter, dated November 23, 1979, from the Provincial Executive, addressed to the defendant, as "chairperson", and to all Liquor Board Branch members, read as follows:

This is to confirm that the Advisory Committee of the Provincial Executive, on behalf of the Provincial Executive, has agreed that in the event the employees of the Liquor Board agree to support the striking members of the Public Service/Government Employment Agreement, full pay loss will be paid to insure that Liquor Board members do not suffer any economic loss, including loss of pension benefits, etc.

From November 26, to December 17, 1979, a large number of Liquor Board employees, including the defendant, went on strike in support of the Public Service Bargaining Unit. The admission in the pleadings is as follows:

7. The defendant withdrew his services from his employer, the Sas- kachewan Liquor Board, for the period November 26 to December 17, 1979.

In the province of Saskatchewan, at that time, the strike by the Liquor Board employees was, in the circumstances, entirely legal, although their collective agreement with the Board did not expire until March 1980.

The defendant was paid the $880.80 out of the defence fund, or “strike fund”, set up in the S.G.E.U. accounts. That fund, and other funds, came from union dues paid by the members, including the defendant.

The normal "strike stipend”, the term used by the union, when any members were on strike, was usually $10 a week.

The Provincial Executive had the sole right to make the decision as to payment of strike stipend, and as to the amounts to be paid. Evidence was adduced to show that, in other cases, the Executive had authorized strike stipend payments of up to eighty per cent of gross pay. In this particular case, it authorized strike stipends of full take home pay.

The evidence was that in other situations, the Minister of National Revenue had never assessed any union members on the strike stipends received.

The learned trial judge, at trial, accepted the argument of counsel for Her Majesty that an enforceable contract existed between the S.G.E.U. and the individual members thereof employed by the Liquor Board. He said that:

Once the S.G.E.U. had offered to pay the employees of the Liquor Board their full take home pay in return for their withdrawing their own services from the Liquor Board, and once the employees had complied, there existed an obligation by the S.G.E.U. to pay that money to each of the employees. That obligation became legally enforceable by each such individual against the S.G.E.U. What was merely an arrangement or unenforceable agreement between the S.G.E.U. and the Liquor Board Employees Agreement Group, once made and communicated to the employees themselves, became an offer to pay in consideration of a service rendered. [1]

The appellant, through his counsel, vigorously contested this finding. However, we do not find it necessary either to agree or to disagree with it since we are of the opinion that the appeal may be decided solely on the more basic issue of whether or not the payment received by the appellant from his union was income in his hands. It would appear that Collier, J. made his finding as to the existence of the contract largely because that was the way that the case was argued before him for the reason that will shortly appear. More importantly, he held that the payments were income in nature within the meaning of paragraph 3(a) of the Income Tax Act, ("the Act") which reads as follows:

SEC. 3 Income for taxation year.

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;

Counsel for the appellant's primary contention was that the payment to the appellant was a strike benefit and strike benefits paid by a union to its members are not income for the purposes of the Act and, therefore, are not taxable. She conceded that nothing in the Act exempts them from being included in taxable income but pointed to Interpretation Bulletin IT-334R as indicating the Minister's administrative position with respect to strike benefits. Paragraph 3 of the Bulletin reads as follows:

Payments Received by Union Members

3. Financial assistance paid by a union to its members during the course of a strike is not necessarily income of the member for the purposes of the Act. Such amounts, when received by a member, will be taxable if they are received as a consequence of the member being an employee of the union. Where union members receive funds that originated, or will originate, from the operation of a business by the union, the amounts will be treated as income subject to tax regardless of whether or not the receiving members participated in the business activity. Similarly, any amounts are taxable which are received by a taxpayer who is employed by or a consultant to a union, either permanently or as a member of a temporary committee, or who has withdrawn his services from his employer and has agreed to provide services, pursuant to an employment contract, to the union.

It was apparently to counter the effect of this Bulletin that counsel for the respondent endeavoured, successfully, to persuade the trial judge that the appellant and his union had entered into a contract whereby Mr. Fries would perform some sort of service on behalf of the union which would make the payment received for such service taxable in his hands. It was not necessary, in our view, to make such a finding for two reasons. First, as already noted, there is nothing in the Act which exempts strike pay, in its strictest sense, from taxability. Secondly, while administrative policy as set out in Interpretation Bulletins is "entitled to weight and can be 'an important factor’ in case of doubt about the meaning of legislation" [2] , it cannot be determinative. Such doubt cannot exist in this case since there is no applicable legislation possibly giving rise to doubt. The Act does not provide specifically for the exclusion of strike benefits from taxation although administratively the Minister, apparently, does not usually assess tax thereon. That this is so does not mean that strike pay is not taxable. If, as here, he decides to assess, the person contesting such assessment must show that the benefits or pay he receives is not income in his hands within the meaning of that word in the Act. He cannot rely simply on past administrative practice as the foundation for his claim for exemption of such benefits from tax.

The nature of the word "income" as used in the Act was, as pointed out by Collier, J., considered by the Supreme Court of Canada in Curran v. M.N.R, [1959] S.C.R. 850; [1959] C.T.C. 416, where it was held by three of the members of the panel that [C.T.C. page 421] :

The word must receive its ordinary meaning bearing in mind the distinction between capital and income and the ordinary concepts and usages of mankind.

The trial judge on this basis made this finding [1986] 1 C.T.C. at page 10:

In my view, where amounts, in this case money, are received by a person for his or her own benefit, those amounts, generally speaking, must be considered either as a receipt of a capital nature or as an income receipt. I know of no other categories; all tax cases appear to place such receipts in either one category or the other, unless, perhaps, the amounts are some kind of mere reimbursement. Gifts may, perhaps, be in a separate category—a kind of no-man's land.

In the circumstances of the present case, when applying the ordinary concept and usage of the word “income”, I cannot conceive the monies received as being anything else but a receipt of income as opposed to a capital payment. They were neither a gift nor a windfall, nor payment for an asset or benefit of a permanent or semi-permanent nature. On the contrary, they were directly and solely related to the length of time over which the defendant payee acted (or refused to act) and the time during which the payor benefited from what the payee agreed to do.

The defendant, and his compatriots, received amounts similar to those normally received from their employer. The monetary calculation was based on their usual salaries. During the period in issue, the stipend amounts were paid from a new source, other than the employer. The Liquor Board employees exercised their then right to provide or withdraw their services to or from their employer, for tactical purposes, in union vs. management strategies.

While the test is not: if it is not capital, then it must inevitably be income, the amounts here received smack of income, rather than something else.

We agree that Mr. Justice Collier has accurately and succinctly demonstrated that the amounts paid to the appellant and others like him by his union are income in nature within the meaning of paragraph 3(a) of the Act, provided that the income is from a source inside or outside Canada. Among the possible sources is income from each office, employment, business and property but the source clearly is not confined to the specific enumerated sources.

The source of the payments in this case was from the "defence fund" or the strike fund set up by the union from the dues paid to it by its members. Those dues, which, according to the evidence, were deducted at source monthly from the members' wages, were paid at the rate of 1.2 per cent per month. The money received was then divided into three separate funds, namely (a) an operational account for the day to day operations of the union, (b) a defence fund which was accumulated by deducting from the monthly dues paid by each the sum of $1.50, and (c) a contingency fund. The annual dues paid by each member are deductible in the calculation of his or her taxable income. The gross income derived from such is not taxable in the hands of the union by virtue of paragraph 149(1)(k) of the Act.

The appellant submitted that the source of funds available for strike benefits is the members' income from their employment. There is, in counsel's submission, no new source. She analogized this situation to one in which each individual member might set up, by deductions from his income, his or her own personal strike fund. In such event, she said, withdrawals made by such person during a strike would not be taxable because they would be simply a return of that person's own money upon which he or she had already paid tax.

We do not agree that this is any way analogous to what was done here if only because personally compiled strike benefits would be paid only until the special fund was exhausted whereas, in the case of payments from a union's strike fund, they would be made for the duration of the strike or until the union executive decided to terminate the payments for whatever reason. However, the real difference, as the evidence clearly discloses, is that as soon as the dues are received by the union they go into a common fund which is divided in the manner earlier described, with no right of withdrawal by the paying members. The funds derived from such dues have completely lost their identity so far as each contributing member is concerned. The members have lost all control over them and their disposition is solely determined by the union, presumably through its executive. They, thus, provided the source of the income of the appellant's strike pay as the learned trial judge found. It is again, a conclusion with which we agree. Since, under the Act, such payments are income, they become subject to tax and assessment therefor. There is no basis, therefore, upon which the appellant can found his appeal.

Accordingly, the appeal will be dismissed with costs.

Appeal dismissed.