Wally Fries v. Minister of National Revenue, [1983] CTC 2124, 83 DTC 117

D E Taylor:—This is an appeal heard in Regina, Saskatchewan, on October 5, 1982, against an income tax assessment in which the Minister of National Revenue added an amount of $880.80 to the reported income of the appellant for the year 1979. The notice of appeal read:

1. The Appellant was at all relevant times an employee of the Saskatchewan Liquor Board and a member of the Saskatchewan Government Employees’ Union (formerly the Saskatchewan Government Employees’ Association).

2. On November 16, 1979, the Public Service and Labour Service Employees represented by the Saskatchewan Government Employees’ Union (hereinafter referred to as “SGEU”) called a strike.

3. On November 22, 1979, the Provincial Executive of the SGEU passed Provincial Executive Resolution No 255-79 which authorized financial assistance for any Saskatchewan Liquor Board Employees who withdrew their services in support of the strike referred to in paragraph 2 herein.

4. On November 24, 1979, the Saskatchewan Liquor Board Employees voted to strike in support of the Public Service Employees and subsequent to this vote the Appellant withdrew his services from the Saskatchewan Liquor Board from November 26, 1979 to December 17, 1979.

5. Pursuant to the Resolution referred to in paragraph 4 herein, the SGEU proceeded to pay the Appellant $880.80 (hereinafter referred to as the “amount paid”) in the form of strike pay.

6. That the Minister of National Revenue has included the amount paid in computing the Appellant’s income in accordance with the provisions of Section 3 and subsection 1 of Section 5 of the Income Tax Act and has confirmed this assessment in a Notification of Confirmation dated the 8th day of January, 1982 and attached hereto is a true copy of the said Confirmation.

7. The Appellant submits that the amount paid should not be considered as income from office or employment as set out in Section 5(1) of the Income Tax Act.

8. The Appellant submits that at no time during the period of the withdrawal of services was he an employee of or employed by SGEU and at no time was there a contract of service or an agreement to provide services for the SGEU.

9. It is the Appellant’s respectful submission that the amount paid represents strike pay which resulted from the withdrawal of service by the Appellant.

10. The Appellant submits that since the amount paid is strike pay, it is not taxable under the provisions of the Income Tax Act.

The Minister replied:

1. He denies the allegations of fact or law contained in the Notice of Appeal except to the extent he admits same.

2. He admits paragraphs 1, 2 and 6 of the said Notice of Appeal.

3. He admits paragraph 5 of the Notice of Appeal to the extent that the Appellant received $880.80 in 1979 from the Saskatchewan Government Employees’ Union but otherwise specifically denies this paragraph.

4. He has no knowledge of paragraph 3 of the Notice of Appeal herein and consequently does not admit same and further puts the Appellant to strict proof that there was such a resolution referred to therein.

5. He admits paragraph 4 of the Notice of Appeal herein to the extent that the Appellant withdrew his services from the Saskatchewan Liquor Board from November 26, 1979 to December 17, 1979 but otherwise had no knowledge of and does not admit the said paragraph.

6. He specifically denies paragraphs 7, 8, 9, 10 and 11 of the Notice of Appeal herein.

7. By way of an Assessment notice of which was dated November 17, 1980, the Respondent assessed the Appellant for his 1979 taxation year by including in income the amount of $880.80 received by him from the Saskatchewan Government Employees’ Union and in doing so relied upon the following assumptions of fact, inter alia:

(a) in 1979 the Appellant entered into a contract of service with the Saskatchewan Government Employees’ Union and as a consequence of the said contract, the Appellant withdrew his services from the Saskatchewan Liquor Board during the period November 26, 1979 to December 17, 1979;

(b) the Appellant received $880.80 from the Saskatchewan Government Employees’ Union in 1979 for services rendered to that Union in the period November 26, 1979 to December 17, 1979:

(c) during the period November 26, 1979 to December 17, 1979, the Appellant was an employee of the Saskatchewan Government Employees’ Union and the Respondent puts the Appellant to strict proof of the contrary of this assumption.

8. He relies, inter alia, upon sections 3, 4, and 5 of the Income Tax Act, RSC 1952, c 148 as amended by S 1, c 63, SC 1970-71-72.

9. He submits that the amount of $880.80 received by the Appellant from the Saskatchewan Government Employees’ Union in 1979 was income of the Appellant.

10. Alternatively, the Respondent submits that the amount of $880.00 received by the Appellant from the Saskatchewan Government Employees’ Union [in] 1979 was received by the Appellant pursuant to a contract for services performed by him for the aforesaid Union.

At the commencement of proceedings, counsel for the respondent notified the Board that he would be including in his argument the point that “strike pay” in itself was taxable. Counsel for the appellant objected to this notification, contending that it was an unwarranted extension of the pleadings at this point in time. The Board noted that it was the appellant himself (in the notice of appeal quoted above) who had raised the issue that “strike pay” was not taxable, and that the Minister was entitled to respond to that contention, provided the Minister stayed within the bounds of section 3, 4 and 5 of the Act in so doing, which were the sections relied upon in the reply.

The fact that the Board has chosen not to repeat much of either evidence or argument in this decision should not be regarded as any reflection on the dedication or the efforts of either counsel. Indeed, it was a case which was dealt with extremely well on both sides. The necessary references particularly from the argument of counsel are adequately reflected in the findings of the Board, without other detail. Essentially, the Saskatchewan Liquor Board Employees’ Union was a “local bargaining unit” of the Saskatchewan Government Employees’ Union (SGEU). By far the largest “local” of the SGEU was the Public Service Employees’ Union which had commenced a strike on or about November 14, 1979. Although not at the end of their own labour contract, the Saskatchewan Liquor Board employees voted to go on strike in support of the Public Service unit on or about November 22, 1979. The Public Service unit members were receiving $10 per day while on strike. The arrangement which the appellant and his colleagues in the Saskatchewan Liquor Board Employees’ unit made provided them with their “net pay cheque” while on strike. The effect of the support strike was to close down the retail sale of liquor and the demands of the Public Service unit were met rather quickly, both strikes coming to an end on or about December 17, 1979. It was the claim of the witnesses for the appellant (who consisted of Mr Orban, the Controller of SGEU; Mr Brown, chief executive officer of SGEU; and the appellant himself) that the appellant and his colleagues were aware that the terms and tone of the contracts coming up for negotiation (including their own contract) after the Public Service unit, would be set by the results obtained by that unit. In effect, their argument was that they had to go out on a support strike to protect their own interests, but at the same time they recognized the enormous pressure for settlement of the Public Service unit strike that would be exerted by the withdrawal of the services of the Liquor Board employees and the closing of the retail outlets.

The Minister’s primary contention was that the amount at issue is income from employment. I do not wish to minimize the possibility that just such a contract could ensue from the kind of arrangements described at the hearing which were made between the parties noted in this appeal. Every effort was made by the witnesses for the appellant, and by the appellant himself, to contend that no arrangement which they could comprehend as employment (a contract of service) was intended or established. I would agree that their recollection of the events and the transactions does not easily lead to the basic contention put forward by the Minister, which contention was that the Union paid the employees for not doing something — that something being not to provide their services to the employer. Efforts were made unsuccessfully, by both counsel, to outline for the Board the chronology involved in the various events as they unfolded, culminating in the receipt by the appellant of the amount at issue. Whether the understanding between the Executive of the Liquor Board Employees’ Local (represented by the appellant) and SGEU (represented by Mr Brown) came before, concurrent with, or after a strike vote was taken by the Liquor Board employees is difficult to determine. While that might be nice to know, I am not certain it would add greatly to the relevant evidence. Suffice it to be said that the testimony and evidence support only one conclusion — that the Liquor Board employees knew they would be getting their “net pay” cheques while on strike

— when they agreed to go on strike and that, without that understanding, they would not have gone on strike. That does come perilously close to making the “employment” arrangement suggested by the Minister. However, in the very unusual circumstances of this case, the appellant led evidence that neither party (the payor SGEU or the payee, the appellant) intended such an arrangement or did anything which would give it characteristics as such. In my view, at that juncture it rested with the Minister to support with separate evidence his contention that the amount was from employment and that the Minister did not do.

That does not dipose of the second arrow in the Minister’s bow — that the amount is “income . .. from a source”. As I followed the argument of counsel for the respondent, that breaks down into two sub-areas:

(a) that leaving aside the point that the amount might be labelled “strike pay”, it is income — “from a source” — the source being the Public Service unit, and the amount should be taxable because of the general and all-inclusive nature of section 4 of the Act and the clause “without restricting the generality of the foregoing” in section 3 of the Act; and/or (b) even if labelled “strike pay”, that strike pay would be and should be caught by the same provisions under sections 3 and 4 of the Act. I point out here, just for the record, that no effort was made by the Minister to include the amount at issue as “taxable” by virtue of the provisions of section 6 of the Act — and I do not imply that it would be so taxable, merely to note that the Board has not considered that possibility.

As I follow this aspect of the Minister’s argument, in either event (a) or (b) above, the critical word is “income” in my opinion. It is neither of the phrases “from a source” or “without restricting the generality of the foregoing” so strongly stressed by counsel from section 3 of the Act. Simply put, if the amount at issue is not “income”, it is not taxable no matter from what “source”. I have already decided it is not “income from employment with SGEU” as the employer. Any contention that in some way the appellant could be the employee of the Public Service Union (with SGEU only acting as an intermediary agent) is even further removed as a possibility in my opinion. SGEU undoubtedly showed the amount as a “disbursement of funds” in some way, but there is no evidence that it was shown as an expense of doing the business of the Union — and indeed it would not have been. I am not persuaded that merely naming a “payor” or a third party related to a payment as the “source” of that payment identifies the payment axiomatically as “income”.

The Board then turns to the real question in this appeal — the taxability of strike pay. Everything else aside, whether the arrangement under which the appellant received the amount at issue was proper, moral, or even perhaps legal, the fact is he did receive it as pay from SGEU while he had withdrawn his services from his employer as a result of a strike vote, and he received the amount in question, in my view, for being on strike. It was strike pay and must be regarded as such in this decision.

In an over-simplified definition, “strike pay” could be described as the return to an employee when he is on strike, of the periodic contributions he has made to a central fund when he was employed. It represents something like the payment of an insurance policy upon which he has paid premiums. Certain individuals might never receive any return because they would never be on strike; in other instances, the amount received by individuals could far outweigh their own contribution or that of the group where the central fund receives contributions from a number of “locals”. The amount itself (the initial contribution) has already been included in income as part of the employee’s total earnings under subsection 4(1) of the Income Tax Act. In a theoretical situation wherein the “strike pay” received by a taxpayer exactly equalled the deduction claimed for contributions he had made to a central fund, I doubt that the Minister would contend that the receipt was income.

The rationale which would transform that non-taxable return of contribution receipt into a taxable receipt, merely by virtue of a difference in quantum (whether greater or less) has not been explained to the Board. The fact that an individual contributor relinquishes his particular right to and control over the exact contribution he makes to such a fund is not relevant, as I see it. In my view, the Minister would face a serious obstacle to including the amount as income (considering it to be only a return of contributions) because of the prohibition in subsection 4(4) of the Act which would read as it applies to this matter:

Unless a contrary intention is evident, no provision of this Part shall be read or construed to require the inclusion . . . in computing the income of a taxpayer for a taxation year . . . from a particular source . . . of any amount to the extent that that amount has been included . . . in computing such income . . . in accordance with or by virtue of any other provision of this Part.

However, it does not appear that the Minister has relied to any great extent on the contention that the mere return of contributions would be taxable. Rather, the prime basis for the Minister’s contention that “strike pay” is taxable appears to be founded in the fact that a deduction from income was made for the above contribution under paragraph 8(1 )(i) of the Act. The Minister’s assessment in this matter can only succeed if it can be shown that there is a specific provision of the Act requiring the inclusion of the amount in income.

An effort was made by counsel for the respondent to equate the receipt of “strike pay” with receipts of other amounts such as registered retirement savings plans, unemployment insurance, etc, where deductions from income of contributions is allowed under the Act. In my view, they are not equatable simply because the legislators in their wisdom have made specific provision in the Act to require inclusion of these amounts (registered retirement savings plans, unemployment insurance, etc) in income for the second time, but the legislators did not see fit to do so in the case of “strike pay” or the return of contributions relevant to strike pay. The Board need express no opinion on the principle involved — whether “strike pay” should or should not be taxable even though that principle was vigorously contested by the parties. It is only required that the Board express an opinion on whether the Act as it now stands provides for the taxation of the amount in question as well as it can be identified and described. The Act does not provide for such taxation.

The appeal is allowed and the matter referred back to the respondent for reconsideration and reassessment accordingly.

Appeal allowed.