Ghislaine Clavet v. Her Majesty the Queen, [1996] 3 CTC 2338, 98 DTC 1958 (Informal Procedure)

Dussault J.T.C.C.: — This is an appeal from a reassessment contained in a notice dated April 22, 1994 for the appellant’s 1990 taxation year. By that assessment the Minister of National Revenue (the “Minister”) added to the appellant’s income an amount of $10,000 received as “severance pay” and not included in her income tax return.

By an amendment to the notice of appeal consented to by the respondent, counsel for the appellant first raised the question of prescription, arguing that the assessment dated April 22, 1994 was made after the usual three-year period from the original assessment, notice of which was dated April 22, 1991.

Counsel for the appellant further argued that the amount of $10,000 received by the appellant in 1990 is not taxable since she received it under a settlement of a claim for damages against her former union. He argued that the union did not protect and defend the appellant’s interests adequately following her dismissal by her former employer, Les Restaurants Marie-Antoinette Inc. (“the Marie-Antoinette Restaurants”) in 1989.

I will first consider the question of the validity of the assessment made on April 22, 1994.

Counsel for the appellant maintained essentially that the assessment is not valid since it was made over three years after the date on which notice of the original assessment was mailed. In his submission, paragraph 152(4)(c) of the Income Tax Act (the “Act”) as applicable in the 1990 taxation year provided that the three-year period should be calculated “à compter de” (“from”) the date on which the original notice of assessment was mailed, namely April 22, 1991, with the result that the period would have expired on April 21, 1994. He maintained that an amendment made in 1993 had the effect of replacing the phrase “à compter de” by the word “suivant”, but that though prior to the assessment of April 22, 1994 this amendment should not have a retroactive effect since it would negatively affect the appellant’s rights in her 1990 taxation year. In support of this argument counsel for the appellant referred by analogy to subsection 221(2) of the Act, which provides for the cases in which a regulation can be given retroactive effect.

This argument has no legal basis and must be dismissed forthwith. It is true that there was an amendment to the Act substituting the word “suivant” for the phrase “à compter de”. However, as counsel for the respondent noted, this amendment occurred in 1990 [1] and not in 1993. Moreover, it was followed by the repeal of subsection 152(4) and its replacement by a new provision stating in paragraph (c) that the Minister can make reassessments “within the normal reassessment period for the taxpayer in respect of the year”. The phrase “normal reassessment period” is defined in subsection 152(3.1), introduced concurrently with the new subsection 152(4), and means, according to paragraph 152(3.1)(b), if the taxpayer is an individual, a period of “three years after” the date on which a notice of an original assessment is mailed. It should be noted that the substitution of the word “suivant” for the phrase “à compter de” in the amendments mentioned only affects the French. In the English version of the old paragraph 152(4)(c) and in that of the new subsection 152(3.1), the word “after” was and still is used.

In my opinion, therefore, it is clear that, as the date of the original assessment and that of its mailing is April 22, 1991, the normal reassessment period was from April 23, 1991 to April 22, 1994. The assessment made on the latter date was thus within the period and is valid.

Turning now to the $10,000 received by the appellant in 1990.... The Minister in assessing the appellant relied on the facts stated in subparagraphs (a) to (f) of Paragraph 7 of the Reply to the Notice of Appeal, which read:

a. in an audit of the former employer’s books the Minister found that the appellant had received the sum of $10,000 from the employer on May 7, 1990;

b. in 1989 the appellant was apparently dismissed by the former employer;

c. on April 4, 1989 the appellant and the M tallos union (the “union”) filed a grievance challenging the appellant’s dismissal;

d. on May 7, 1990 an agreement was reached between the parties in which we find inter alia the following clauses:

i. the former employer cancelled the appellant’s dismissal;

ii. the appellant resigned in writing from her position as waitress with the former employer;

iii. the parties gave each other a mutual release from all rights and obligations that may have resulted from the employer/employee relationship between them;

iv. the parties gave each other a full and final mutual release of any claim for salary, or otherwise, resulting from this transaction;

e. as a consequence of this agreement the appellant received the sum of $10,000;

f. the Minister accordingly included in the appellant’s employment income the sum of $10,000 which she had failed to report as such.

In her testimony the appellant explained that she was very active in the union for several years. For instance, she was the union representative from 1982 to 1989, secretary-treasurer of the Syndicat des Métallos from 1986 to 1987 and took an active part in recruiting members in 1982 and 1988 when the new Marie-Antoinette restaurants were opened. However, differences arose between her and certain members of the union executive on the claiming of expenses for which she said she required documentation. She also publicly opposed other members of the union executive at a meeting concerning a memorandum of agreement with the employer-side preparatory to the signature of a collective agreement. As a result of these events her position as union representative was not renewed in 1989 and she also lost her job as the union’s secretary-treasurer.

In 1989 the appellant was dismissed by her employer Les Restaurants Marie-Antoinette. She then filed a complaint for unlawful dismissal under section 16 of the Quebec Labour Code (the “Labour Code”) and a grievance on the same ground pursuant to the collective agreement. The appellant was subsequently told by the union president that she could not exercise the two remedies together and she discontinued her action under section 16 of the Labour Code. It was not until six months later that the appellant said she learned she could have exercised both remedies. This fact and what she described as the union’s carelessness or neglect in proceeding with the grievance procedure under the collective agreement led her to meet with the union president and tell her she intended to claim damages from the union in the amount of $22,000. The appellant was then unemployed, having lost several subsequent jobs as a result of her reputation as a union activist, and she was suffering from depression. She then proposed discontinuing the grievance which was still pending in return for an amount of $22,000. A union representative subsequently offered her $10,000. At a meeting with this union representative in the offices of the union lawyers, the appellant said she was given a cheque for $10,000 drawn on the latter’s account provided she submitted her resignation to her employer Les Restaurants Marie-Antoinette and signed a transaction prepared by counsel for the union to which, in addition to the appellant herself, Les Restaurants Marie-Antoinette, the Syndicat des Métallos and the Union des employés-e-s de la restauration were parties. The essential points in this transaction, signed by the parties or their representatives on May 7, 1990, are set out in substance in subparagraph 7.d. of the Reply to the Notice of Appeal, reproduced above.

Miville Morais, an auditor with Revenue Canada, testified for the respondent. He explained that it was during an audit of the Restaurants Marie-Antoinette, when he requested documentation for a payment of $10,000, that he was told that the amount had been paid to a firm of lawyers in connection with the appellant’s dismissal. A copy of the aforementioned transaction was given to him and Mr. Morais concluded that the employer had paid the appellant “severance pay”.

The position of the appellant’s counsel was essentially that she had received the sum of $10,000 from her union to compensate for damage suffered and claimed following the union’s failure to adequately defend her rights against the employer and that this amount received as damages in such circumstances is not taxable. In support of his position he referred to the Supreme Court decision in R. v. Fries (sub nom. The Queen v. Fries), (sub nom. Canada v. Fries), [1992] 2 S.C.R. 1322 (sub nom. Fries v. Canada), [1990] 2 C.T.C. 439, (sub nom Fries v. R.), 90 D.T.C. 6662.

Counsel for the respondent, for her part, argued that the amount of $10,000 came from the employer and was paid to the appellant pursuant to the transaction in order to settle the grievance filed by the appellant as a result of her dismissal. In her submission the amount represents a “retiring allowance” in the meaning given to this phrase by subsection 248(1) of the Act and is taxable under subparagraph 56(l)(a)(ii) of the Act.

In assessing the appellant the Minister assumed that she had received the sum of $10,000 from her former employer in settlement of the grievance filed for unlawful dismissal. It was for the appellant to show on a balance of probabilities that this was not the case. No such evidence was presented: quite the contrary. In my view, the sum of $10,000 received by the appellant was received as damages in respect of the loss of employment and as such represents a retiring allowance within the meaning of the definition of subsection 248(1) of the Act. Such an amount must be included in income pursuant to subparagraph 56( 1 )(a)(ii) of the Act.

The appeal is dismissed.

Appeal dismissed.