Pierre Belisle v. Minister of National Revenue, [1980] CTC 2002, 80 DTC 1001

The President:—This the appeal of Pierre Belisle from an assessment in respect of the 1977 taxation year.

Facts

There is no dispute as to the facts of this appeal, as stated in the pleadings, and the issue is clearly set out therein.

Re: Notice of Re-Assessment No 702350

Please find set out herein an Appeal with respect to the above-noted reassessment.

BACKGROUND

The Taxpayer on the above-noted re-assessment was employed with Information Canada in Paris, France from September 15th, 1974 through until March 31st, 1976. During this posting he received excess rental allowances in the amount of $12,574.92 as a result of mistakes made by his employer. These allowances were non-taxable pursuant to Section 6(1 )(b)(iii) and Section 250(1 )(c) of the Income Tax

Act.

In April of 1977 Mr Belisle was laid-off by the successor to Information Canada, Supply and Services. In order to affect partial repayment of the overpayment made between September 15th, 1974 and March 31st, 1976 Supply and Services seized Mr Belisle’s accumulated Superannuation, severance pay and vacation pay. As a result of that seizure, a T4A was issued by Supply and Services in the amount of $8,070.18.

GROUNDS FOR APPEAL:

1. The monies which were the subject of the T4A slip in the amount of $8,070.18 were never received by the taxpayer and as such they do not constitute income to be included in income for the year 1977 pursuant to Section 56(1)(a) of the Income Tax Act.

2. In the alternative, even if it could be said that the monies despite not being received are deemed to be income, the method of seizure by Supply and Services deprived the taxpayer of the benefit of an income averaging annuity contract. Therefore it is submitted in the alternative that any tax payable should take this into account.

Paragraphs 6-10 of the reply to the notice of appeal read as follows:

6. The Minister of National Revenue, when making his assessments for the Appellant’s 1977 taxation year based himself on the following facts, inter alia:

(a) The Appellant’s employment with the Department of Supply and Services was terminated in the month of April 1977;

(b) The Appellant, in his 1977 taxation year, received a refund of superannuation in the amount of $5,658.34;

(c) The Appellant, in his 1977 taxation year, received severance pay in the amount of $2,411.84 from the Department of Supply and Services.

B. STATUTORY PROVISIONS UPON WHICH THE RESPONDENT RELIES AND THE REASONS WHICH HE INTENDS TO SUBMIT

7. He relies, inter alia, on sections 3, 5 and 56 of the Income Tax Act, RSC 1952, c 148 as amended by s 1 of c 63 SC 1970-71-72 as it applied to the 1977 taxation year.

8. The Respondent submits that the refund of superannuation in the amount of $5,658.34 and the severance pay in the amount of $2,411.84 were received by the Appellant in his 1977 year.

9. The Respondent submits that the said amount of $5,658.34 is to be included in computing the income of the Appellant for the 1977 taxation year pursuant to subparagraph 56(1 )(a)(i) of the Income Tax Act.

10. The Respondent submits that the said severance pay in the amount of $2,411.84 is to be included in computing the Appellant’s income for the 1977 taxation year as income from office or employment pursuant to subsection 5(1) of the Income Tax Act.

Submissions

The appellant contends that the overpayment of rent allowances paid to him during the period of 1974 to 1976 was due to error attributable to the Department of Supply and Services. He submits that there was no written agreement which authorized the Department of Supply and Services to apply the appellant’s credit account against the amount of rent overpayment to be recovered. The appellant also contends that he did not, in fact or in law, receive the amounts added to his 1977 income and that he cannot be deemed to have received these amounts within the meaning of subsection 56(2) of the Income Tax Act, SC 1970-71-72, c 63, as amended, because the appellant did not concur, nor did he direct, that his superannuation fund and severance pay be paid to the Department of Supply and Services. He concludes that the said amounts, not having been received by him, were not taxable. The appellant also suggests that if the amounts are considered as having been received by him, then the error made by the Department in making the overpayment caused a prejudice to the appellant in that by seizing his superannuation refund and his severance pay, the appellant was precluded from entering an income averaging annuity contract and submits that that fact should be considered in establishing the tax payable.

The respondent, on the other hand, contends that the appellant, in law, received the superannuation refund and severance pay, and that these amounts were seized pursuant to subsections 95(1) and (2) of the Financial Administration Act, RSC 1952, c 116, and set off against the overpayment made to the appellant.

The respondent also contends that subsection 56(2) of the Income Tax Act does not apply to the facts of this appeal since the issue here is not that of an indirect payment, but of a legal seizure or garnishment. The respondent concludes that the appellant received the advantages and the benefits of the amounts in his credit account and that, in law, he is considered as having received those taxable amounts which were rightly included in his 1977 income.

In support of his contention that the appellant legally received the amounts in his credit account, the respondent cited, among several others, the decision of the Federal Court of Canada, Trial Division in Her Majesty The Queen v Canadian-American Loan and Investment Corporation Limited, [1974] CTC 101; 74 DTC 6104 where Mr Justice Cattanach states at 106 [6108]:

The mere fact that there was no handing of money back and forth and the embodiment of the transactions consisted of book entries is still the equivalent of the payment and receipt of money.

The same conclusion was reached by Mr Justice Lacroix of the Federal Court of Canada, Trial Division, in the case of Jean-Paul Morin v Her Majesty The Queen, [1975] CTC 106; 75 DTC 5061, where he states at 110 [5064]:

We regret to say that this proposition seems to us absolutely inadmissible, because the word ‘receive’ obviously means to get or to derive benefit from something, to enjoy its advantages without necessarily having it in one’s hands. Findings

The question of who was responsible for the overpayment to the appellant is, in my view, immaterial to the issue since it is an accepted principle of law that the Crown is not bound by errors committed by its employees.

It is an agreed fact that during the period of 1974 to 1976, the appellant received an overpayment in the amount of $12,574.92. The Department of Supply and Services suggested an arrangement for the recovery of the overpayment by monthly deductions over an extended period (Exhibit A-2). When the appellant’s lay-off appeared imminent, he was advised of the credits he had in his account receivable, as well as the amounts he owed, and was asked how he proposed to meet the balance of the overpayment recovery in the amount of $4,033.15 (Exhibit A-3). The appellant filed as Exhibit A-4, a T4A-1977 form which indicated that the amounts of $5,658.34 and $2,411.84 (Superannuation refund and severance pay) were to be reported in his income tax return as having been received in the 1977 taxation year. By notice of assessment dated February 9, 1979, these amounts were added to the appellant’s 1977 income by the Minister of National Revenue.

Dealing with the question of the Minister’s seizure of the appellant’s superannuation refund and his severance pay, and setting them off against the overpayment made to the appellant, there can be no doubt as to the Crown’s authority to do so.

Subsections 95(1) and (2) of the Financial Administration Act, pursuant to which the Crown acted in this matter, reads as follows:

(1) Where, in the opinion of the Minister of Justice, any person is indebted to Her Majesty in right of Canada in any specific sum of money, the Treasury Board may authorize the Receiver General to retain by way of deduction or set-off the amount of any such indebtedness out of any sum of money that may be due or payable by Her Majesty in right of Canada to such person.

(2) Notwithstanding subsection (1), the Receiver General may recover any overpayment made out of the Consolidated Revenue Fund on account of salary, wages, pay or pay and allowances out of any sum of money that may be due or payable by Her Majesty in right of Canada to the person to whom such overpayment was made.

By applying the appellant’s superannuation refund and severance pay against his debts to the Crown, the appellant received the benefits and the advantages of those amounts and in law has indeed received the payment of his superannuation refund and severance pay which were taxable in 1977.

The fact that the conditions of subsection 56(2) have not been met, as suggested by the appellant, is material to the issue since that section has no application to the facts of this appeal.

As to the prejudice which the seizure allegedly caused the appellant by preventing him from benefiting from an income averaging annuity contract, it is difficult to see how the appellant could have benefited from such a contract because in fact and in law he had, in 1977, no income to average.

Decision

I hold that the amounts of $5,658.34 and $2,411.84, superannuation refund and severance pay respectively, were received by the appellant in the 1977 taxation year and were properly included in the appellant’s income for that year.

The appeal is therefore dismissed.