Bonner,
T.C.J.:—This
is
an
appeal
from
an
assessment
of
income
tax
for
the
appellant’s
1983
taxation
year.
The
issue
is
whether
an
amount
received
by
the
appellant
from
his
former
employer
pursuant
to
a
judgment
of
the
Supreme
Court
of
British
Columbia
was,
as
the
appellant
contends,
an
amount
entering
into
the
calculation
of
a
“termination
payment"
as
defined
by
section
248
of
the
Income
Tax
Act
or,
as
found
by
the
respondent,
an
amount
deemed
by
subsection
6(3)
to
be
remuneration
for
services
rendered
during
the
period
of
employment
and
thus
taxable
in
full
under
section
5
of
the
Act.
An
agreed
statement
of
facts
was
filed.
The
body
of
it
reads:
Agreed
Statement
of
Facts
1.
By
Order
of
the
Honourable
Mr.
Justice
Spencer
dated
October
18,
1982,
Mr.
Ballard
was
awarded
the
sum
of
$48,650.15.
According
to
the
Court
Order,
the
basis
for
the
award
was
an
agreement
with
Mr.
Ballard’s
former
employer,
The
Canadian
Fishing
Company
Ltd.,
as
incorporated
in
a
letter
written
by
that
company
to
Mr.
Ballard
and
other
of
its
employees.
The
letter,
as
it
appears
on
Page
7
of
the
Reasons
for
Judgment
of
Mr.
Justice
Spencer,
reads
as
follows:
The
Canadian
Fishing
Company
Limited
has
been
restructured
to
meet
the
economic
pressures
prevailing
in
the
B.C.
fishing
industry
and
in
line
with
the
Company’s
current
assets
and
strengths.
As
a
result
of
this
reorganization,
a
number
of
Canfisco
employees
either
elected
early
retirement
or
it
was
necessary
to
terminate
their
employment.
To
those
who
will
continue
as
part
of
the
restructured
Canfisco,
the
Company
wishes
to
assure
them
that
for
the
two
years
commencing
April
1,
1980,
unless
an
employee
is
dismissed
for
just
cause,
takes
normal
or
early
retirement,
or
voluntarily
terminates
his/her
employment,
such
employee
will
receive
a
proper
settlement
allowance
in
accordance
with
the
Company’s
current
policy
relating
to
severance,
should
further
restructuring
of
the
Company
result
in
termination
of
employment
of
an
employee
without
cause.
The
Reasons
for
Judgment
of
Mr.
Justice
Spencer
and
the
Statement
of
Claim
and
Statement
of
Defence
in
the
action
are
attached
as
Schedules
"A’,
‘B’
and
'C’.
2.
The
Court
held
that,
in
accordance
with
this
agreement,
Mr.
Ballard
was
entitled
to
a
settlement
allowance
upon
his
termination
of
employment
with
The
Canadian
Fishing
Company
Ltd.
The
Court
further
held
that
the
consideration
given
to
the
company
by
Mr.
Ballard
and
by
the
other
employees
involved
was
their
continuing
in
the
employment
of
The
Canadian
Fishing
Company
Ltd.
after
receipt
of
the
letter.
3.
The
Reasons
for
Judgment
of
the
Honourable
Mr.
Justice
Spencer
indicate,
firstly,
that
Mr.
Ballard’s
termination
of
employment
by
The
Canadian
Fishing
Company
Ltd.
was
as
a
result
of
the
sale
by
that
company
of
its
Sterling
shipyard
division
to
Riv
Tow.
Secondly,
the
Reasons
for
Judgment
indicate
that
immediately
upon
the
sale
of
the
Sterling
shipyard
division
to
Riv
Tow,
Mr.
Ballard
became
employed
by
Riv
Tow
at
his
old
job,
at
his
old
pay
rates
and
at
almost
the
same
conditions
of
employment
as
he
had
enjoyed
with
The
Canadian
Fishing
Company
Ltd.
The
sole
consequence
of
the
termination
of
Mr.
Ballard’s
employment
was
found
by
the
Honourable
Mr.
Justice
Spencer
to
have
been
his
loss
of
seniority
of
employment
back
to
the
date
of
his
original
employment
with
The
Canadian
Fishing
Company
Ltd.
Mr.
Ballard’s
seniority
of
employment
with
Riv
Tow
dated
only
from
the
date
of
his
employment
by
that
company,
which
the
Reasons
for
Judgment
indicate
was
on
or
about
April
1,
1981.
4.
In
filing
his
tax
return
for
his
1983
taxation
year,
being
the
year
in
which
he
received
the
amount
of
$48,650.15
from
The
Canadian
Fishing
Company
Ltd.,
Mr.
Ballard
characterized
the
amount
received
as
a
“termination
payment”
and
included
in
his
taxable
income
a
portion
of
the
payment
approximately
equal
to
50%
of
his
salary
for
the
12
months
preceding
the
date
of
the
termination
of
his
employment
by
The
Canadian
Fishing
Company
Ltd.
5.
By
Notice
of
Reassessment
dated
December
24,
1984,
the
Minister
of
National
Revenue
reassessed
Mr.
Ballard’s
1983
taxation
year
by
including
therein
the
entire
amount
received
by
him
pursuant
to
the
aforesaid
Court
Order.
By
Notice
of
Objection
dated
January
2,
1985,
Mr.
Ballard
objected
to
the
Notice
of
Reassessment
and
a
Notice
of
Confirmation
by
the
Minister
dated
February
8,
1985,
confirms
the
reassessment
of
Mr.
Ballard’s
1983
taxation
year.
The
notifica-
tion
indicates
that
the
amount
of
$48,650.15
received
by
Mr.
Ballard
has
been
deemed
to
be
remuneration
from
office
or
employment
in
accordance
with
the
provisions
of
Subsection
6(3)
of
the
Income
Tax
Act
(the
“Act").
6.
By
his
Notice
of
Appeal
to
the
Tax
Court
of
Canada,
Mr.
Ballard
has
appealed
the
Notice
of
Confirmation
by
the
Minister
on
the
basis
that
the
amount
received
by
him
from
The
Canadian
Fishing
Company
Ltd.
does
not
comprise
remuneration
from
office
or
employment
in
accordance
with
the
provisions
of
Subsection
6(3)
of
the
Act
and
should
properly
be
considered
to
be
a
“termination
payment”
as
defined
by
the
Act.
It
is
not
necessary
to
reproduce
the
schedules.
The
termination
which
gave
rise
to
the
payment
to
the
appellant
took
place
on
March
31,
1981.
The
section
248
definition
of
“termination
payment"'
applicable
with
respect
to
amounts
received
in
respect
of
terminations
after
November
16,
1978,
and
before
November
12,
1981,
is:
“termination
payment",
for
a
taxation
year,
means
an
amount
equal
to
the
lesser
of
(a)
the
aggregate
of
all
amounts
each
of
which
is
an
amount
received
in
the
year
in
respect
of
a
termination
of
an
office
or
employment,
whether
or
not
received
pursuant
to
an
order
or
judgment
of
a
competent
tribunal,
other
than
(i)
an
amount
required
by
any
provision
of
this
Act
(other
than
subparagraph
56(1
)(a)(viii))
to
be
included
in
computing
the
income
of
a
taxpayer
for
a
year,
(ii)
an
amount
in
respect
of
which
an
election
has
been
made
under
subsection
40(1)
of
the
Income
Tax
Application
Rules,
1971,
and
(iii)
an
amount
received
in
the
year
as
a
consequence
of
the
death
of
an
employee,
and
(b)
the
amount
by
which
50%
of
the
aggregate
of
all
amounts
each
of
which
is
the
amount
that
may
reasonably
be
considered
to
be
the
employee’s
salary,
wages
and
other
remuneration
from
an
office
or
employment
for
the
12
months
preceding
the
date
that
is
the
earlier
of
(i)
the
date
on
which
the
office
or
employment
was
terminated,
and
(ii)
the
date
on
which
an
agreement,
if
any,
in
respect
of
the
termination
was
entered
into
exceeds
the
amount
determined
under
paragraph
(a)
for
each
previous
year
in
respect
of
that
termination
whether
the
recipient
is
the
officer
or
employee
whose
office
or
employment
was
terminated
or
a
dependant,
relation
or
legal
representative
of
the
officer
or
employee;
It
was
common
ground
that
the
payment
was
.
in
respect
of
a
termination
of
.
.
.
employment
.
.
.
.”
Subparagraph
(a)(i)
of
the
foregoing
definition
excludes
amounts
which
must
be
included
in
income
by
virtue
of
any
provision
of
the
Act
other
than
subparagraph
56(1)(a)(viii),
a
provision
which
requires
the
inclusion
of
termination
payments.
Subsection
6(3)
provides:
6.
(3)
An
amount
received
by
one
person
from
another
(a)
during
a
period
while
the
payee
was
an
officer
of,
or
in
the
employment
of,
the
payer,
or
(b)
on
account
or
in
lieu
of
payment
of,
or
in
satisfaction
of,
an
obligation
arising
out
of
an
agreement
made
by
the
payer
with
the
payee
immediately
prior
to,
during
or
immediately
after
a
period
that
the
payee
was
an
officer
of,
or
in
the
employment
of,
the
payer,
shall
be
deemed,
for
the
purposes
of
section
5,
to
be
remuneration
for
the
payee’s
services
rendered
as
an
officer
or
during
the
period
of
employment,
un-
less
it
is
established
that,
irrespective
of
when
the
agreement,
if
any,
under
which
the
amount
was
received
was
made
or
the
form
or
legal
effect
thereof,
it
cannot
reasonably
be
regarded
as
having
been
received
(c)
as
consideration
or
partial
consideration
for
accepting
the
office
or
entering
into
the
contract
of
employment,
(d)
as
remuneration
or
partial
remuneration
for
services
as
an
officer
or
under
the
contract
of
employment,
or
(e)
in
consideration
or
partial
consideration
for
a
covenant
with
reference
to
what
the
officer
or
employee
is,
or
is
not,
to
do
before
or
after
the
termination
of
the
employment.
If
the
payment
to
the
appellant
which,
without
doubt,
is
one
described
in
paragraph
6(3)(b)
does
not
escape
the
deeming
provision
by
reason
of
paragraphs
(c),
(d)
and
(e)
thereof,
it
is
brought
into
income
by
subsection
5(1)
of
the
Act
which
reads:
5.
(1)
Subject
to
this
Part,
a
taxpayer’s
income
for
a
taxation
year
from
an
Office
or
employment
is
the
salary,
wages
and
other
remuneration,
including
gratuities,
received
by
him
in
the
year.
Counsel
for
the
respondent
argued
that
the
payment
was
consideration
described
in
either
paragraph
6(3)(c)
or
6(3)(e).
As
to
6(3)(c)
he
contended
that
it
does
not
apply
only
to
cases
involving
the
commencement
of
a
contract
of
employment.
He
said
that
if
that
provision
were
to
be
interpreted
as
limited
to
"signing
bonuses’"
the
words
of
paragraph
6(3)(b),
which
include
amounts
received
arising
out
of
agreements
made
"during""
the
employment,
would
be
ignored.
He
suggested
that
the
appellant,
by
continuing
in
employment
after
receipt
of
the
letter
from
his
employer,
had
in
effect
entered
into
a
new
contract,
one
with
different
contractual
obligations.
I
do
not
agree.
In
my
view
the
words
of
paragraph
6(3)(c)
are
quite
clear.
They
relate
to
amounts
received
as
consideration
for
the
formation
of
the
contract
of
employment.
The
fact
that
one
of
the
contractual
terms
may
change
does
not
lead
invariably
to
a
conclusion
that
a
new
contract
of
employment
has
been
entered
into.
The
old
contract
may
be
seen
to
continue
to
exist
in
slightly
altered
form.
Thus
one
would
not,
in
ordinary
English
usage,
describe
a
long-term
employee
who
has
just
received
a
salary
increase
as
a
person
who
has
just
entered
into
a
new
contract
of
employment.
The
position
may
be
different
where
extensive
changes
have
been
made
to
the
contract,
but
that
did
not
happen
here.
The
old
contract
remained
in
force
with
the
new
term
grafted
on.
In
my
view
the
payment
in
question
cannot
reasonably
be
regarded
as
consideration
of
the
type
described
in
paragraph
6(3)(c).
The
respondent's
counsel
relied
as
well
on
paragraph
6(3)(e).
He
submitted
that
the
letter
".
.
.
is
clearly
a
covenant
which
relates
to
what
the
employee
is
to
do;
he
is
to
continue
working
for
Canadian
Fishing
Company
and
on
termination
he
will
receive
that
amount.
.
.
.""
The
covenant
referred
to
in
paragraph
6(3)(e)
is
a
covenant
made
by
an
employee,
not
an
employer.
It
is
clear
that
no
covenant
was
given
by
the
appellant
with
reference
to
anything
which
he
was
or
was
not
to
do,
either
before
or
after
the
termination
of
the
employment.
He
accepted
the
employer’s
offer
by
conduct.
He
continued
to
serve,
but
did
not
give
a
covenant
to
continue
to
serve.
The
payment
cannot
reasonably
be
regarded
as
falling
within
para-
graph
6(3)(e).
Counsel
for
the
respondent
did
not
suggest
that
the
payment
could
reasonably
be
regarded
as
having
been
received
as
remuneration
for
services
within
the
meaning
of
paragraph
6(3)(d).
It
is
plain
that
it
could
not
be
so
regarded.
However,
it
may
be
useful
to
observe
that
the
employer
was
not
liable
to
make
any
payment
pursuant
to
the
letter
sent
to
the
appellant
unless
there
was,
to
use
the
words
of
the
letter,
..
termination
of
the
employment
of
an
employee
without
cause”.
The
employer,
by
that
letter,
in
substance
fixed
a
minimum
quantum
of
damages
payable
in
respect
of
dismissal
during
the
two-year
period
named
in
the
letter.
The
decision
of
the
Federal
Court
of
Appeal
in
Paul
Girourd
v.
The
Queen,
[1980]
C.T.C.
284;
80
D.T.C.
6205
is
conclusive.
There
the
taxpayer
was
employed
for
a
five-year
term
under
a
contract
which
provided
that
he
could
elect
to
receive
$30,000
as
liquidated
damages
if
dismissed
without
cause
before
the
expiry
of
the
term.
At
page
285
(D.T.C.
6206)
Pratte,
J.,
speaking
for
the
Court,
had
this
to
say:
The
$5,000
received
by
the
appellant
was
paid
to
him
as
liquidated
damages
to
compensate
him
for
the
detriment
he
suffered
as
a
result
of
the
loss
of
his
employment.
If
the
agreement
liquidating
the
amount
of
these
damages
had
been
concluded
after
appellant's
dismissal,
it
is
clear
from
the
decision
of
this
Court
in
The
Queen
v.
R.
B.
Atkins,
[1976]
C.T.C.
497;
76
D.T.C.
6258
that
the
sum
of
$5,000
would
not
have
constituted
“salary”,
“wages”,
“remuneration”
or
a
“benefit”
received
by
appellant
by
virtue
of
his
employment.
I
do
not
see
how
the
fact
that
Villa
Medica
Inc.’s
obligation
to
pay
damages
was
anticipated
and
liquidated
before
rather
than
after
the
contract
was
terminated
can
alter
the
nature
of
the
amount
in
question:
both
cases
involve
damages
liquidated
by
agreement.
The
second
argument
made
by
counsel
for
the
respondent
was
that
the
sum
of
$5,000
is
deemed,
under
section
25
of
the
Act,
to
have
been
received
by
appellant
as
remuneration
for
his
services.
This
argument
requires
the
Court
to
consider
whether
on
the
evidence
the
sum
of
$5,000
can
reasonably
be
regarded
as
having
been
received
by
appellant
under
one
of
the
headings
described
in
clauses
(i),
(ii)
and
(iii)
of
section
25.
In
answer
to
this
question
I
would
say,
first,
that
appellant
definitely
did
not
receive
this
sum
in
the
circumstances
provided
for
by
clauses
25(i)
and
(ii):
it
was
not
paid
to
him
either
to
induce
him
to
enter
into
a
contract
of
employment
or
as
remuneration
for
services
which
he
had
rendered.
Section
25
of
the
former
Act
was
virtually
identical
to
the
present
subsection
6(3).
The
appeal
will
therefore
be
allowed
with
costs
and
the
assessment
referred
back
to
the
respondent
for
reconsideration
and
reassessment
on
the
basis
that
the
payment
in
question
is
to
be
included
in
the
computation
of
a
“termination
payment''
as
defined
by
subsection
248(1)
of
the
Income
Tax
Act.
Appeal
allowed.