D
E
Taylor:—This
is
an
appeal
heard
in
Toronto,
Ontario,
on
March
5,
1982
against
an
income
tax
assessment
in
which
the
Minister
of
National
Revenue
reduced
the
amount
claimed
by
the
appellant
as
an
income
averaging
annuity
contract
in
the
year
1978.
The
amount
in
question
was
$11,383.50
and,
according
to
Mr
Hoyt,
arose
out
of
an
employment
agreement
dated
June
28,
1974
(the
agreement)
with
Can-Val
Supply
Ltd
(“Can-Vai”),
a
corporation
located
in
Kitchener,
Ontario.
As
amended
at
the
hearing,
the
notice
of
appeal
read
in
part:
The
question
in
dispute
is
whether
!
was
entitled
to
use
certain
money
to
purchase
an
income
averaging
annuity
as
described
in
S
61(1)
of
the
Act.
The
money
In
question
was
money
which
I
received
when
I
left
my
place
of
employment.
I
would
submit
that
it
could
fall
into
any
one
of
three
categories
in
the
list
set
out
in
S
61(2)
of
the
Act.
(1)
S
61
(2)(a)(ii)
—
I
did
retire
from
the
working
world
and
have
since
returned
to
law
school
to
further
my
education.
I
would
further
submit
that
the
list
in
S
61(2)
of
the
Act
is
not
exhaustive
and
that
my
use
of
this
money
to
purchase
an
income
averaging
annuity
falls
within
the
intent
of
the
Act.
I
purchased
this
annuity
in
order
to
provide
myself
with
some
sort
of
regular
income
for
the
three
years
that
I
would
be
required
to
attend
law
school.
There
was
no
attempt
on
my
part
to
avoid
or
evade
tax
but
merely
to
allocate
the
tax
liability
to
the
years
in
which
this
income
was
to
be
used.
The
respondent,
in
the
reply
to
notice
of
appeal,
contended:
—
The
appellant
was
employed
by
Can-Val
from
July
of
1974
to
sometime
in
1977;
—
In
1978
the
appellant
received
from
his
former
employer
remuneration
in
the
amount
of
$11,383.50
as
a
deferred
bonus
based
on
the
employer’s
earnings
from
1974
to
1977;
—
The
said
deferred
bonus
was
paid
to
the
appellant
in
1978
by
his
former
employer
pursuant
to
a
contractual
arrangement
between
the
employee
and
employer,
the
terms
of
which
are
set
out
in
the
agreee-
ment;
—
On
February
1,
1977
the
appellant
purchased
an
income
averaging
annuity
contract;
—
In
reporting
his
income
for
1978
the
appellant
claimed
a
deduction
(for
the
amount
in
question)
pursuant
to
section
61
of
the
Income
Tax
Act;
—
The
deferred
bonus
referred
to
and
paid
into
the
said
income
averaging
contract
was
on
account
of
remuneration
from
employment.
The
agreement
was
entered
as
evidence,
and
the
clauses
significant
to
this
appeal
were:
11.
In
addition
to
the
salary
above
provided
for
Hoyt
shall
be
entitled
to
receive
management
incentive
compensation
(hereinafter
called
“MIC”)
at
the
rate
of
three-tenths
(3/10)
of
five
per
cent
(5%)
of
the
annual
profits
of
the
corporation
before
income
taxes.
Such
MIC
shall
be
paid
to
Hoyt
with
respect
to
any
fiscal
year
of
the
Corporation
provided
that
he
was
employed
by
the
Corporation
for
the
full
fiscal
year.
Such
MIC
shall
be
paid
during
the
following
fiscal
period
within
four
(4)
weeks
of
the
holding
of
the
annual
meeting
of
the
Corporation.
12.
For
fiscal
years
of
the
Corporation
ending
on
or
before
the
31st
day
of
December,
1978,
the
Corporation
shall
set
aside
a
sum
equal
to
the
MIC
to
which
Hoyt
is
entitled
to
under
the
provisions
of
paragraph
11
and
upon
such
sum
equalling
Thirteen
Thousand
Dollars
($13,000)
any
excess
over
Thirteen
Thousand
Dollars
($13,000)
shall
be
paid
to
Hoyt
as
additional
compensation;
further
the
balance
of
such
sum
shall
be
paid
to
Hoyt
if
he
leaves
the
employ
of
the
Corporation
as
provided
in
paragraph
5
hereof
and
the
balance
of
such
sum
shall
be
paid
to
him
in
any
event
if
he
is
in
the
employ
of
the
Corporation
on
the
31st
day
of
December,
1978.
In
the
event
that
Hoyt
voluntarily
terminates
his
employment,
Hoyt
forfeits
all
rights
to
any
sums
set
aside
in
accordance
with
this
paragraph.
13.
Notwithstanding
the
provisions
of
paragraph
12,
the
Corporation
shall
have
the
right
to
pay
any
sum
that
would
otherwise
be
set
aside
but
not
payable
at
an
earlier
time
or
times
at
its
sole
and
uncontrolled
discretion.
The
appellant
stated:
I
commenced
employment
with
the
particular
employer
in
July
of
1974.
I
was
one
of
the
original
employees
of
the
company,
a
shareholder
in
the
company
also,
a
minority
shareholder.
I
signed
the
employment
contract
which
we
have
already
referred
to
and
I
ceased
employment,
I
gave
notice
in
September
of
1977,
and
I
finished
working
at
the
end
of
February
of
1978.
In
the
employment
contract
there
are
different
provisions.
I
guess
the
relevant
one
here
is
the
provision
whereby
my
employer
agreed
to
put
aside
a
sum
of
money
into
a
plan
of
sorts,
but
not
a
registered
plan,
and
this
money
would
be
held
for
me
until
December
the
31st,
1978.
If
I
was
still
an
employee
of
the
company
at
that
particular
time
then
all
the
monies
that
were
held
for
me
would
be
then
turned
over
to
me.
The
reason
for
this
was,
as
I
say,
the
company
was
just
starting
up.
the
majority
shareholders
wanted
to
ensure
that
we
would
remain
in
the
employ
until
the
company
was
able
to
get
on
its
feet.
Therefore,
they
set
up
this
contingency
plan
as
a
bonus
to
be
paid
to
us
to
entice
us
to
stay
there
in
case
we
ever
had
the
desire
to
leave.
As
witnessed
in
paragraph
12
of
my
employment
contract,
at
the
very
bottom
of
that
paragraph,
if
I
voluntarily
terminated
my
employment,
I
forfeited
any
right
to
those
sums
set
aside.
I
voluntarily
forfeited
my
employment
because
I
got
the
desire
to
become
a
lawyer,
so
I
applied
to
law
school
and
was
accepted
and,
based
on
that,
I
retired
from
my
employment
and
I
knew
at
the
time
that
I
was
forfeiting
that
amount
of
money
but
I
had
a
sufficient
amount
of
money
to
see
me
through
and
it
wasn’t
really
a
concern
of
mine.
.
.
.
my
employer
was
not
bound
by
the
contract
nor
was
there
any
action
of
any
sort
to
force
him
to
pay
this.
Therefore,
it
was
a
voluntary
payment
on
his
part.
secondly,
there
is
also
a
question
of
a
person
leaving
the
job
voluntarily,
not
being
dismissed
or
being
fired
for
reasons
or
whatever
and,
again,
I
guess
you
only
have
my
word
for
that
but
I
retired
voluntarily
from
my
job
and
I
gave
six
months’
notice
and
I
worked
out
the
six
months’
notice.
Consequently,
this
money
wasn’t
in
lieu
of
notice.
It
wasn’t
anything
except,
as
I
say,
a
gratuitous
payment.
The
other
issue
that
the
courts
have
dealt
with
is
the
issue
of
substance
and
in
several
cases
which
I
have
found,
the
courts
or
the
Board,
whichever
the
case
may
be,
have
stated
that
the
substance
of
a
transaction,
rather
than
the
form
of
a
transaction
was
that
I
did
legitimately
retire,
that
my
employer
did
pay
me
a
gratuitous
payment
for
whatever
reason.
According
to
Mr
Hoyt,
he
could
not
have
had
“longer
service”
with
Can-
Val
—
he
had
been
with
the
company
right
from
its
beginning.
Counsel
for
the
Minister
took
the
position
that
the
amount
was
paid
pursuant
to
the
employment
contract
and
was
therefore
employment
income;
that
in
any
event
the
appellant
did
not
retire
—
he
terminated
his
employment,
granted
this
was
done
on
mutual
consent
with
his
employer
but,
nevertheless,
his
employment
was
terminated.
The
appellant
had
simply
resigned
his
position
and
could
not
claim
that
he
retired.
Counsel
held
the
view
that
some
three
and
one
half
years
could
not
be
regarded
in
any
event
as
“long
service”.
The
major
part
of
the
dispute
between
the
parties
centred
on
whether
it
was
possible
to
interpret
the
“substance”
of
the
agreement
so
that
it
favoured
the
appellant,
or
if
the
“form”
precluded
the
interpretation
of
the
term
“retirement”
found
in
the
relevant
section
of
the
Act
which
reads:
61.
(2)
For
the
purposes
of
subsection
(1),
an
amount
described
in
this
subsection
in
respect
of
an
individual
for
a
taxation
year
is
any
following
amount:
(a)
any
single
payment
received
by
him
in
the
year
(ii)
upon
his
retirement
as
an
employee
in
recognition
of
long
service
and
not
made
out
of
or
under
a
superannuation
fund
or
plan,
The
appellant
asserted
that
under
his
circumstances,
to
resign
was
even
the
Same
as
to
retire
—
since
no
clear
distinction
had
been
made
between
the
two
terms
by
the
Minister.
Counsel
for
the
Minister
did
make
reference
to
certain
case
law
which
attempted
such
a
distinction
but
agreed
it
was
not
Clear.
In
my
view,
the
only
argument
against
considering
the
resignation
of
the
appellant
as
retirement
would
be
his
short
three
and
one
half
years
with
the
company,
as
it
can
be
related
to
his
five-year
contract.
I
am
not
certain
that
would
be
a
point
to
be
considered
fatal
to
his
case
—
because
it
would
raise
a
question
regarding
the
length
of
service
necessary
before
a
resignation
would
be
effective
as
retirement.
Certainly
if
Mr
Hoyt’s
contract
had
been
for
35
years
and
he
had
resigned
at
the
end
of
25
years
to
go
back
to
University,
I
would
think
it
difficult
for
the
Minister
to
argue
he
had
not
effected
“retirement
as
an
employee”.
However,
the
problem
for
the
Board
does
not
rest
there,
as
I
see
it.
It
rests
with
the
term
“in
recognition
of
long
service”.
What
is
at
issue
for
the
appellant
is
not
to
show
that
he
had
“long
service”
but
rather,
to
show
that
the
payment
was
made
by
the
company
“in
recognition
of
long
service”.
It
really
does
not
matter
how
Mr
Hoyt
may
perceive
or
wish
to
perceive
the
payment,
there
is
no
evidence
that
the
employer
ever
consid-
ered
the
amount
as
any
recognition
of
long
service
—
if
it
was
based
upon
anything,
it
was
based
on
the
employment
contract
which
has
no
reference
at
all
to
long
service.
Certainly
the
amount
in
question
was
calculated
according
to
the
terms
of
clause
12
of
the
Agreement,
and
paid
under
the
provisions
of
clause
13.
The
“sum”
in
clause
13
is
that
which
was
“set
aside
but
not
payable’,
and
that
sum
was
in
recognition
of
his
contribution
as
an
employee
under
the
contract,
not
in
recognition
of
long
service.
The
appeal
is
dismissed.
Appeal
dismissed.