Jean-Yves Trottier, Jean-Paul Carrier v. Minister of National Revenue, [1981] CTC 2581, 81 DTC 572

Roland St-Onge [TRANSLATION]:—The appeals of Messrs Jean-Yves Trottier and Jean-Paul Carrier came on before me on October 31, 1980 in the city of Montreal, Quebec. It is necessary to determine whether the sum of $6,500 received by each from his employer in 1978 must be added to income for the said year.

The facts and the grounds of appeal are well stated in paragraphs 1 to 22 of the notice of appeal, which read as follows:

1. The appellant Jean-Paul Carrier is in the employ of Hydro-Quebec and works at the Carillon Generating Station and has resided at St-André East, County of Ar- genteuil, since 1962.

2. As soon as the construction work on the Carillon Generating Station was completed during 1963, Hydro-Quebec became responsible for the administration and operation thereof.

3. In 1963 Hydro-Quebec placed at the disposal of all its employees working at the Carillon Generating Station a common transportation service, providing vehicles to transport these employees from certain pick-up points to the place of their employment, namely, Carillon.

4. The only condition required for an employee to take advantage of this common transportation system was that he report to the pick-up point determined by his employer.

5. Justifiably and for various reasons the employer, its employees and authorities of the Department of National Revenue never regarded the establishment of this common transportation system as constituting a taxable benefit conferred on employees of Hydro-Quebec.

6. On May 4, 1978 Hydro-Quebec and the union representing its employees at the Carillon Generating Station signed a letter of agreement that provided as follows:

“Notwithstanding any provisions to the contrary in the collective agreement,

The parties agree as follows:

1. The transportation system for employees of the Carillon Generating Station

currently in effect shall be discontinued on August 4, 1978.

2. Within thirty (30) days following the signature of this letter of agreement permanent and trainee employees currently employed by Hydro-Quebec, Carillon Generating Station, whose names appear on the attached list shall receive a lump-sum payment of six thousand five hundred dollars ($6,500).

3. This agreement shall constitute an exceptional case and shall not be invoked as a precedent in any other circumstances.”

7. Hydro-Quebec had first informed its employees that it would discontinue the common transportation service without providing any compensation whatsoever and only because of the formal objection of employees, one of whom was the appellant, did Hydro-Quebec have to negotiate and undertake to sign this letter of agreement.

8. The letter of agreement just mentioned was accordingly signed following negotiations between Hydro-Quebec and its employees, primarily on the strength of claims by Hydro-Quebec that this sum was granted in compensation for the withdrawal of the common transportation system then in force at the Carillon Generating Station and that Hydro-Quebec no longer maintained any such system elsewhere.

9. Thus during 1975 the appellant received the sum of six thousand five hundred dollars ($6,500) that has just been mentioned.

10. For whatever reason, Hydro-Quebec decided to regard this sum of six thousand five hundred dollars ($6,500) as taxable since it sent to the appellant early in 1979 a T-4 supplementary on which a sum of six thousand five hundred dollars ($6,500) was entered in box “C” and on which it had added that this sum constituted a salary allowance for transportation.

11. Furthermore, Hydro-Quebec had deducted a sum of six hundred and fifty dollars ($650) from the sum of six thousand five hundred dollars ($6,500) as tax deducted at source.

12. For these reasons the appellant sent the Deputy Minister of National Revenue a notice of objection following receipt of the notice of assessment for 1978 that regarded the sum of six thousand five hundred dollars ($6,500) as taxable income in that year.

13. The appellant has never had an opportunity to assert the arguments in support of his position, with the exception of those contained in the notice of objection, before the appropriate authorities in the Department of National Revenue.

14. On January 8, 1980 the respondent, acting through his Regional Director of Appeals, dismissed the appellant’s notice of objection and confirmed the notice of assessment for 1978.

15. The respondent’s decision to reject the appellant’s notice of objection also applies to the other employees affected by the letter of agreement; however, only the appellant was notified.

B. GROUNDS OF APPEAL

16. The respondent’s decision is based in particular on the claim:

“that the sum of $6,500 received from his employer Hydro-Quebec was duly included in income in accordance with the provisions of subsection 5(1) and paragraph 6(1 )(a) of the Act”.

17. The appellant maintains that the sum of six thousand five hundred dollars ($6,500) did not have to be included in his taxable income for 1978 and that HydroQuebec was not justified in deducting any sum whatsoever since a payment made by an employer to his employee following the discontinuation of a service offered is not made pursuant to a contract of employment.

18. The appellant also contends that a sum received as compensation for a discontinuation of a service offered cannot be regarded as received pursuant to a contract of employment and is not therefore covered by the provisions of paragraph 6(1)(a) of the Income Tax Act.

19. Furthermore, and notwithstanding the foregoing, the appellant asserts that the benefit he obtained from the common transportation system was never regarded as a taxable benefit and that this position may be reconciled with the policy of the Department of National Revenue stated in Interpretation Bulletin IT-71 R, dated April 18, 1977, entitled “Employees’ Fringe Benefits” and in particular the provisions of paragraph 29 of this Bulletin.

20. The appellant also contends that the sum of six thousand five hundred dollars ($6,500) constitutes damages paid to him by Hydro-Quebec and that, as such, the amount may not be included in his taxable income.

21. Moreover, it hardly seems fair and in compliance with the Act and administrative practice that a sum paid in respect of a transportation service that had been in effect for more than fifteen (15) years and as compensation for the discontinuation of a service provided for several years should be taxed in one and the same year.

22. Finally and without prejudice to any of the foregoing arguments, the appellant submits that the establishment of the transportation service conferred a right on him that is included in the concept of “property”, as defined in the Income Tax Act, that the effect of the letter of agreement was that the appellant disposed of a property, that he could then make a capital gain or sustain a capital loss as a result of the disposition of a capital property and that it is accordingly necessary to apply the rules provided for this purpose in the Income Tax Act and the transitional provisions relating to the application of this Act.

The respondent admitted paragraphs 1 to 3, 6, 9 to 12 and 14 of the notice of appeal and contended that the sum of $6,500 is taxable under subsection 5(1) and paragraph 6(1 )(a) of the Income Tax Act.

The oral evidence supplemented the evidence of facts stated in the said notice of appeal. It also showed that even the employees who did not use the transportation received the compensation and that Hydro-Quebec was not required by law to pay such compensation. In this case the sum in question became a gratuity from Hydro-Quebec and subsection 5(1) applies. I quote:

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.

The Board does not think that the sum of $6,500 paid by the employer, Hydro-Quebec, to each of these employees mentioned in a list may be interpreted as the disposition of a property. There is here no relationship of vendor and purchaser but rather a relationship of employer and employee. Consequently, the amount received by the employee was paid pursuant to a contract of employment and for no other reason. As a result William T Harvey v MNR, [1980] CTC 2826; 80 DTC 1701, does not apply here.

Furthermore, a very recent decision of the Supreme Court of Canada has settled once and for all how the amounts received by an employee from an employer are to be interpreted. This unanimous decision casts doubt on the validity of two decisions of the Federal Court that had been the law previously. These decisions are The Queen v Robert B Atkins, [1975] CTC 377; 76 DTC 6258, and Thomas G Quance v MNR, [1974] CTC 225; 74 DTC 6270.

In Jack Cewe Ltd v Jorgenson, [1980] CTC 314; 80 DTC 6234, the Supreme Court made the following comment on these two cases:

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.

These comments are of great use to me in deciding that in the instant case the sum of $6,500 was received by each of the two appellants much more by virtue of an employer-employee relationship than for any other reason.

The appeals are accordingly dismissed.

Appeals dismissed.