Jean-Pierre Vinette v. Minister of National Revenue, [1984] CTC 2257, 84 DTC 1237

Taylor, TCJ [TRANSLATION]:—This appeal, which ws heard in Montreal, Quebec on October 12, 1983, is from a tax assessment for 1979 in which the Minister of National Revenue relied on the fact that the sum of $2,781.56 received by the taxpayer should be included in computing his income pursuant to subsections 5(1) and 6(3) and section 3 of the Income Tax Act, SC 1970-71-72, c 63, as amended.

In his notice of appeal Mr Vinette stated the following:

— I lost my job on August 16, 1979.

— I received cheques for the sum of $4,399.13, broken down as follows:

$1,752.72 one month’s salary for notice

$876.36 vacation from September 14 of September 28, 1979

$1,399.17 reimbursement for vacation (last year and 1979-80)

$370.88 lump sum.

— All these amounts were taxed.

— I succeeded (taking into account the amount received, which is the subject of this claim) in finding a temporary job (during my vacation), which I have kept since.

— In order to obtain this employment I had to accept a salary reduction of $6,000 a year; I chose to accept this reduction and work rather than living off society (unemployment insurance).

— The money I received for this work (during my vacation) was taxed as well (thus double taxation).

— I also received $2,781.56, free of tax, in compensation for breach of contract.

The respondent, on the other hand, noted the following:

— During his 1979 taxation year the appellant was employed by the Centre d’accueil de Ville Laval;

— Since June 19, 1978 the appellent had been employed by the Centre d’accueil de Ville Laval as director of administrative services under an oral contract for an indefinite term;

— In 1979, as a result of a change in administrative organization caused by a major development of the Centre d’accueil de Ville Laval, whose activities were intergrated with those of two other centres, the employer notified the appellant that there would be no position he could fill owing to a lack of qualifications and/or experience;

— On August 16, 1979 the appellant submitted his resignation to the Centre d’accueil de Ville Laval, effective September 14, 1979;

— The appellant continued to work and to receive a salary during a normal notice period of one month, until September 14, 1979;

— From September 14 to 28, 1979 the appellant was on annual vacation leave;

— Notwithstanding the appellant’s resignation, the Centre d’accueil de Ville Laval gave him an additional $2,781.56 on or about September 28, 1979;

— The said amount of $2,781.56 was not the subject of any judgment or the result of any grievance; it was paid after the appellant had resigned, and there can therefore be no question for breach of contract;

— The said sum of $2,781.56 is, remuneration from employment, or more simply income, in addition to being a termination of employment payment.

In my view, the issue in this case is why the Centre d’accueil de Ville Laval made a final payment of $2,781.56 to Mr Vinette on September 28, 1979. In light of the events which occurred between August 16, 1979 and September 28, 1979,1 do not accept that the appellant was dismissed “without notice” as of September 28, 1979. If he was dismissed at all, and that is certainly open to question, then it would have been on August 16, 1979. The jurisprudence would appear to indicate that the employer had an obligation to give either adequate notice of termination, or payment in lieu of such notice of termination. Notice of termination, as I understand that term, is simply notice that at some time in the future, an existing employment will be terminated. The length of time that is considered “reasonable” depends on the individual and the circusmstances of each case, but that is not the issue before the Court in this matter.

In my view, payments received during the period covered by an appropriate “notice of termination” are normally taxable, since they arise out of the contract of employment. The same situation obtains, in my view, when an employee is given payment (or other compensation) “in lieu of notice of termination”, but in that case the termination may be effective immediately. Such receipts are also taxable, arising as they do out of the contract of employment. The only case where an issue arises as to taxability is where the payment received results from the termination of employment, as a consequence of the fact that neither “notice of termination” nor compensation “in lieu of notice of termination” accompanied the termination.

A comment by Pigeon, J of the Supreme Court of Canada in Jack Cewe Ltd v Jorgenson [1980] CTC 314; 80 DTC 6233, at 6234, may be of some relevance:

With respect to income tax, the Company’s submission rests on the premise that respondent is not liable to income tax on the damages awarded. This is based on the judgment of the Federal Court of Appeal in The Queen v Atkins (76 DTC 6258) affirming the judgment of Collier J (75 DTC 5263). This judgment is contrary to the decision of Cattanach J in Quance v The Queen (74 DTC 6210) as to which Jackett CJ said, speaking for the Federal Court of Appeal:

Having regard to the weight placed by the appellant on the decision of the Trial Division in Quance v The Queen, 74 DTC 6210, [1974] CTC 225,1 deem it advisable to state in my own words what I regard as the basic fallacy in the appellant’s position.

Once it is conceded, as the appellant does, that the respondent was dismissed “without notice”, monies paid to him (pursuant to a subsequent agreement) “in lieu of notice of dismissal” cannot be ragarded as “salary”, “wages” or “remuneration” or as a benefit “received or enjoyed by him . . . in respect of, in the course of, or by virtue of the office or employment”. Monies so paid (ie, “in lieu of notice of dismissal”) are paid in respect of the “breach” of the contract of employment and are not paid as a benefit under the contract or in respect of the relationship that existed under the contract before that relationship was wrongfully terminated. . . .

I have grave doubt as to the validity of this reasoning. Damages payable in respect of the breach of a contract of employment are certainly due only by virtue of this contract, I fail to see how they can be said not to be paid as a benefit under the contract. They clearly have no other source.

It might be inferred from the above that even so-called “damages” are taxable. However, I am not required for purposes of this appeal to determine whether such an interpretation should apply, since the evidence does not support a conclusion that the amount at issue is indeed “damages”. I recognize that in law there may be no distinction, but since these are not “damages”, the appellant’s claim must rest on the contention that he was dismissed “without notice” on August 16, 1979, and was therefore entitled to adequate compensation in lieu of notice.

In my view, there is nothing that would allow the Court to distinguish this payment of $2,781.56 from any of the other amounts or benefits received by the appellant after August 16, 1979, which were referred to above. The only conclusion I can reach is that the appellant views any “lump sum” payment received in connection with the termination of employment as non-taxable. He cited certain extracts from Revenue Canada Interpretation Bulletins as well as certain cases on which he based this conclusion. I do not agree that such an interpretation is correct, or that it can be inferred from the material submitted.

I would refer to the case of Raymond Brackstone v Her Majesty the Queen, [1979] CTC 2277; 79 DTC 284, a decision of the Tax Review Board reversed on appeal to the Federal Court, [1980] CTC 89; 80 DTC 6060. The facts as presented to the Federal Court differ in one very material aspect from the facts established before the Tax Review Board (concerning events of September 7, 1976), and this may account for the different result. In any event, it was determined by the learned judge of the Federal Court, as I read it, that the “firing” and the “negotiating” were two separate and distinct operations, the second resulting from the first. In the present case there is no connection evident to me between the events of August 16, 1979 and the payment on September 28, 1979 (let alone as regards the subsequent negotiations). Whether the amount of $2,781.56 was paid pursuant to an agreement reached on or after August 16, 1979, or whether it was paid voluntarily and gratuitously by the employer, is not relevant for purposes of this case; it was not paid as a result of the termination of employment “without notice” on August 16, 1979.

For the above reasons, the appeal is dismissed.

Appeal dismissed.