Paul Viau v. Minister of National Revenue, [1986] 1 CTC 2570, 86 DTC 1437

Tremblay, T.C.J. [TRANSLATION]:—This appeal was heard on January 9, 1986 at Montreal, Quebec.

1. Issue

According to the notice of appeal and the reply to the notice of appeal, the issue is whether the appellant, an accountant, is justified in not including in his income the total sum of $60,000, which he claimed to have received as damages. The appellant maintained that he had been hired in early 1981 by the board of directors of the Fédération de Montréal des Caisses Desjardins, as general manager of Fiducie populaire Inc, Crédit Fed- mont and Pressograph Inc. This employment was conditional upon the appellant abandoning his partnership in the accounting firm Bouchard, Viau, Duhamel & Cie., as well as his position as leader of the Longueuil Parti municipal.

When the Fédération de Montréal merged with the Desjardins movement in the fall of 1981, the position of general manager of the above organizations could not be retained.

According to the appellant this resulted in a loss of prestige and influence for him. A settlement giving him damages of $60,000 was signed on November 11, 1981 by the parties to the merger. On the basis of the legislation in force on that date, the appellant included only $30,000 in his income.

The respondent maintained that the termination of employment occurred in early January 1982 and that the legislation at the time required that the entire $60,000 be included in the appellant’s income.

2. Burden of Proof

2.01 The burden is on the appellant to show that the respondent’s assessment is incorrect. This burden of proof derives not from one particular section of the Income Tax Act, S.C. 1970-71-72, c. 63 as amended, but from a number of judicial decisions, including the judgment delivered by the Supreme Court of Canada in Johnston v. M.N.R., [1948] S.C.R. 486; [1948] C.T.C. 195; 3 D.T.C. 1182.

2.02 The facts assumed by the respondent are set out in subparagraphs (a) to (e) of paragraph 6 of the reply to the notice of appeal, which reads as follows:

6. In assessing the appellant for his 1982 taxation year, the Minister of National Revenue relied on the following facts, inter alia:

(a) during 1981 the appellant was employed by the Fédération de Montréal des Caisses Desjardins, as a general manager;

(b) during January 1982 the appellant’s employment with the Fédération de Montréal des Caisses Desjardins terminated;

(c) upon the termination of the appellant’s employment, on or about January

4, 1982, the Fédération de Montréal des Caisses Desjardins ceased to exist;

(d) the said sum of $60,000 was paid to the appellant during the 1982 taxation year and when the Fédération de Montréal des Caisses Desjardins paid the said sum of $60,000, the said Fédération made the appropriate source deductions, by withholding from the said sum of $60,000 a sum of $9,000 for federal income tax, the whole as indicated on the T4-A statement issued in the appellant’s name with respect to the said taxation year;

(e) the $60,000 in question, which is a sum paid with respect to the loss of employment, constitutes taxable remuneration;

3. Facts

3.01 On December 11, 1980, the appellant was hired by the Fédération de Montréal des Caisses Desjardins as a general manager.

The contract entered into at the time, in the form of a letter and reply on the same document (Exhibit 1-1, pages 20, 21), reads as follows:

Dear Sir:

In the absence of the Fédération’s President, allow me, as Vice-President, to confirm the offer of employment we made to you at our most recent meeting.

Duties:	General manager of the Fédération de Montréal
	des Caisses Desjardins.
Salary:	$60,000 a year plus car according to the
	Fédération’s current policy.
	Other benefits: You will receive all the fringe
	benefits the Fédération gives its employees.
Vacation:	You will be entitled to five weeks of vacation
	a year beginning in 1981.
Starting date:	We are counting on your being able to start by
	January 5, 1981.
Resignation:	You will retain the privilege of terminating
	your employment upon one month’s notice and
	the Fédération may do the same.

If you accept this offer, would you please confirm this by countersigning a copy hereof and returning it, within five days, to the attention of Mr. Paul-Emile Blain, President of the Fédération.

Yours truly,

(signed)

Yvon Paquette

Vice-President

YP:cd

I accept this offer of employment and will start on

(signed)

Paul Viau

3.02 As a result of a proposed merger of the Fédération de Montréal des Caisses Desjardins, the Fédération des Caisses Populaires Desjardins de Montréal et de l’Ouest du Québec and the Confédération des Caisses populaires et d'économie Desjardins du Québec, the appellant could no longer retain his position owing to a number of circumstances.

The following agreement, in the form of a letter (Exhibit 1-1, pages 22, 23), was concluded on November 11, 1981. It reads as follows:

November 10, 1981

Mr Paul Viau, CA

Dear Sir:

The Fédération de Montréal des Caisses Desjardins hired you as general manager of the Fédération with a mandate to make the latter profitable again. The Fédération de Montréal des Caisses Desjardins now intends to merge with the Fédération des Caisses Populaire Desjardins de Montréal et de l’Ouest du Québec, an initiative which does not come from you in any way, with the result that you have expressed a desire not to form part of the staff of the federation resulting from the merger. You have indicated to us that in the circumstances you would not be seeking a renewal of your contract of employment with the Fédération.

Your employment with the Fédération will therefore terminate on January 4, 1982.

As compensation for any damages of any nature whatsoever that you might suffer as a result of the termination of your employment with our Fédération, including, without restricting the generality of the foregoing, any damages for insufficient or late notice of non-renewal of your employment, the Fédération de Montréal des Caisses Desjardins undertakes to pay you, on January 4, 1982, a sum of $60,000, plus the rental charges on the car you are currently using, until the leasing contract currently in effect for that car expires. Your acceptance of this sum of $60,000 will automatically constitute a waiver of any claim of any kind whatsoever against our Fédération resulting from the termination of your employment with our Fédération.

It is understood that the undertakings contained in this letter are conditional on the merger of the above-mentioned organizations being approved by the members of those organizations before January 4, 1982, otherwise all the undertakings will become null and void. It is also understood that you waive any claim, of any kind whatsoever, against the Fédération des caisses populaires Desjardins de Montréal et de l’Ouest-du- Québec and against the Confédération des caisses populaires et d’économie Desjardins du Québec.

Yours truly,

LA FEDERATION DE MONTRÉAL DES CAISSES DESJARDINS

per: (signed)

Charles E. Lebrun, President

We, the undersigned, have read the above letter and approve the undertakings contained therein.

Montréal, November 10, 1981

(signed)

Guy Bernier, President of the Fédération des caisses populaires Desjardins de Montréal et de l’Ouest-du- Québec

(signed)

Raymond Blais, President of the Confédération des caisses populaires et d’économie Desjardins du Québec

Accepted this 11th day of November, 1981

(signed)

Paul Viau

3.03 The appellant testified that he left for Florida on November 12, 1981. He returned on January 4, 1982. He explained that owing to the circumstances surrounding the merger negotiations, it was preferable that he be away from the city at the time. His employer felt the same way.

3.04 When he returned, he was given (or received in the mail) the balance of his pay up until January 4, 1982, pursuant to the contract of December 10, 1980 (Exhibit 1-1, pages 20, 21) cited above (para. 3.02).

3.05 In February or March 1982, according to the appellant, the Fédération gave him $60,000 at his own request (minus $9,000 in a source deduction for Revenue Canada and another amount for the Quebec Department of Revenue).

The respondent maintained, however, that the said sum was received in early January 1982, pursuant to a letter written by the appellant himself, on October 6, 1982, that refers to the said sum as having been received in early January 1982.

3.06 In accordance with the third paragraph (last part) of the termination agreement (Exhibit I-1, pages 22, 23) cited earlier (para. 3.02), the caisse paid the automobile rental expenses ($500 a month), until February 1983.

4, Act — Analysis

4.01 The principal provisions of the Income Tax Act involved in this case are subparagraphs 56(1)(a)(ii) and (viii) and the definition of retirement allowance as it existed at November 12, 1981 and also as it existed after November 12, 1981. Parliament amended the Act at that time, with the said amendment coming into force on November 13, 1981.

A. Act in force on November 12, 1981.

56. (1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,

(a) any amount received by the taxpayer in the year as, on account or in lieu of payment of, or in satisfaction of,

(ii) a retiring allowance, other than an amount received out of or under an employee benefit plan,

(viii) a termination payment;

248. (1) “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;

B. Act in force on November 13, 1981 and thereafter.

56. (1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,

(a) any amount received by the taxpayer in the year as, on account or in lieu of payment of, or in satisfaction of,

(ii) a retiring allowance, other than an amount received out of or under an employee benefit plan,

Parliament then repealed subparagraph 56(1 )(a)(viii) as well as the definition of "termination payment” in section 248. It also amended the definition of “retiring allowance". The new definition reads as follows:

“retiring allowance” means an amount (other than a superannuation or pension benefit or an amount received as a consequence of the death of an employee) received

(a) upon or after retirement of a taxpayer from an office or employment in recognition of his long service, or

(b) in respect of a loss of an office or employment of a taxpayer, whether or not received as, on account or in lieu of payment of, damages or pursuant to an order or judgment of a competent tribunal,

by the taxpayer or, after his death, by a dependant or a relation of the taxpayer or by the legal representative of the taxpayer.

[Emphasis added.]

4.02.1 In light of the above-mentioned statutory provisions, the parties agree that if the termination of employment took place prior to November 13, 1981, 50 per cent of $60,000, or $30,000, must be included in income.

If, on the other hand, the termination of employment took place after November 12, 1981, the entire $60,000 must be included in income.

We must therefore establish, on the basis of the evidence presented, whether the termination of employment took place after November 13 or prior to November 12, 1981.

4.02.2 The agreement pertaining to the appellant’s termination of employment, dated November 10, 1981 (Exhibit I—1, pages 22, 23) and cited earlier in paragraph 3.02, is the governing document.

It is clear that it was at the appellant’s request that his contract of employment was not renewed as of January 4, 1982. The agreement concluded as follows: “Your employment with the Fédération will therefore terminate on January 4,1982."

It seems at first glance that the idea expressed is clear and that the appeal should be dismissed without further consideration.

It often happens, however, that a word or even a sentence in a contract is not consistent with the substance of the contract as a whole. Thus, for example, a contract of sale may be entitled “lease". It is the substance of the various clauses that will reveal whether this is in fact a contract of sale or a lease.

In the present case, is the sentence “Your employment with the Fédération will therefore terminate on January 4, 1982," consistent with the contract as a whole?

First of all, the words used mean what they say: the contract of employment will terminate on January 4, 1982. This date of January 4, 1982 can be determined, moreover, from the contract of employment signed on December 11, 1980 (Exhibit I-1, pages 20, 21), which is cited in paragraph 3.03 above) stipulates that the sum will be paid on the same date, namely January 4, 1982. Even if this is not a very strong argument, the payment of compensation on that date confirms to a certain extent that this is the last day of the contract of employment.

Finally, in the last paragraph of the said agreement, the same date of January 4, 1982 is again used, but this time as the deadline for approval of the merger by those concerned, the said merger being a condition of the “undertakings contained in this letter . .."

However, the appellant’s main argument is that he left his employment on November 11, 1981 and returned only to pick up his cheques. Thus he did not occupy his position as of November 12, 1981. He referred to the definition of the word “employment" in the Income Tax Act (subs. 248(1)): “employment" means the position of an individual in the service of some other person . . .”. The appellant thus concluded that he did not hold his employment after November 11, 1981.

The Court is of the view that someone can “hold a position” within the meaning of the Income Tax Act without necessarily being physically present at his work for a certain period of time. This is especially true in the present case since even the appellant’s employer did not wish to see him on the premises and preferred to know that he was far away during the period following November 11 (para. 3.03).

The sum of $60,000 chosen as compensation shows that the intention was to give him the equivalent of one year’s salary, since this is the salary that is mentioned in the contract of employment of December 10, 1981. This fact, together with the fact the appellant was paid pursuant to the said contract of employment until January 4, 1982, also confirms that the date of termination of employment was indeed January 4, 1982 (para. 3.04).

The Court therefore finds that the various elements of the termination contract and the other facts adduced in evidence confirm that the statement “. .. your employment will terminate on January 4, 1982” does indeed express the substance of the contract.

Finally, this agreement meets the requirements of Articles 1670 and 1138 of the Civil Code of the province of Quebec.

Article 1670 reads as follows:

The rights and obligations arising from the lease or hire of personal service are subject to the rules common to contracts.

Article 1138 concerning the extinction of obligations provides as follows:

An obligation becomes extinct . . . by the expiration of the time limited by law or by the parties for its duration.

[Emphasis added.]

4.03 The appellant has not discharged his onus of proof and the assessment issued against him must be upheld.

5. Conclusion

The appeal is dismissed for the above reasons for judgment.

Appeal dismissed.