Jasper v. R., [1998] 1 CTC 2690, 98 DTC 1253

Bonner T.C.J.:

This is an appeal from an assessment of income tax for the 1989 taxation year. In making the assessment the Minister of National Revenue included in the Appellant’s income as a benefit described in paragraph 6(1 )(a) of the Income Tax Act or as a retiring allowance taxable under subparagraph 56(l)(a)(ii) of the Act, the sum of $45,000 in respect of a premium paid by the Appellant’s former employer for disability insurance coverage of the Appellant. That inclusion has given rise to this appeal.

From July 1980 to September 30, 1987 the Appellant was employed as executive vice-president and chief insurance operations officer of Wellington Insurance Company. On September 30, 1987 Wellington terminated the Appellant’s employment and asked him to negotiate a separation agreement. On October 1, 1987 the Appellant and Wellington entered into an agreement described in the evidence as a termination agreement. It recited the prior employment and that it was intended to amicably resolve all issues surrounding the termination.

The Appellant, while employed by Wellington, was covered by an employee group long-term disability insurance plan. He indicated in evidence that because of his age and excessive weight he believed that it would be difficult for him to obtain, on an individual basis, long-term disability insurance coverage to replace the coverage which he had under Wellington’s employee group plan. As a consequence when he was terminated he sought an arrangement with Wellington regarding this aspect of the situation. It is to be found in clause 3.3 of the termination agreement which reads:

3.3 Wellington agrees to make application for and, upon acceptance of the application, pay the necessary premium to obtain long-term disability coverage on Jasper’s behalf for the period from the date of execution of this agreement until December 31, 1988. Jasper agrees that he will be required to undergo a full medical including electrocardiogram to obtain such coverage. Coverage continued under Wellington Ltd. plan until application accepted provided Jasper completes and submits application to doctor on or before October 9, 1987. Jasper will [do] all in his power to have doctor complete for immediate submission.

In 1989 Wellington paid a lump sum premium of $45,000 to Citadel General Assurance Company for the issuance of a policy of disability insurance. The policy provided for payment to the Appellant, in the event of total disability, of $5,000 per month for 24 months commencing on the 120th day of disability. The owner of the policy was Wellington. The insured person was the Appellant. The Appellant testified that he did not, either during 1989 or thereafter, claim or receive any benefit under the Citadel policy. He also stated, somewhat remarkably in light of clause 3.3 of the termination agreement, that he did not ask Wellington to pay the premium to Citadel. This statement is correct only if taken very literally. The Citadel policy was arranged and the $45,000 was paid by Wellington in the course of discharging its obligations under clause 3.3.

The issue in this appeal is whether the Minister was right in including the $45,000 in the computation of the Appellant’s 1989 income.

The Appellant’s counsel argued that the action of Wellington in providing the Appellant with the policy of insurance issued by Citadel did not result in receipt by the Appellant in 1989 of any benefit falling within paragraph 6(1 )(a) of the Act.

In my view the $45,000 payment cannot be included in the Appellant’s income as the “... value of board, lodging and other benefits of any kind whatever received or enjoyed by him in the year in respect of, in the course of, or by virtue of an office or employment, ...” within the meaning of paragraph 6(1 )(a) of the Act because of the decision of the Federal Court of Appeal in R. v. Atkins. [1] That decision has been criticized but not reversed and it remains binding on this Court. [2] In Atkins, Jackett C.J. stated at page 6258:

Once it is conceded, as the appellant does, that the respondent was dismissed “without notice”, monies paid to him (pursuant to a subsequent agreement) “in lieu of notice of dismissal” cannot be regarded as “salary”, “wages” or “remuneration” or as a benefit “received or enjoyed by him ... in respect of, in the course of, or by virtue of the office or employment”. Monies so paid (i.e., “in lieu of notice of dismissal”) are paid in respect of the “breach” of the contract of employment and are not paid as a benefit under the contract or in respect of the relationship that existed under the contract before that relationship was wrongfully terminated.

It is clear on the evidence that subsection 6(3) cannot assist the Respondent. Its application is excluded by paragraphs (c), (d) and (e).

The only serious question is whether the payment is a retiring allowance which is to be included in the Appellant’s income under subparagraph 56(1 )(a)(ii) of the Act which provides:

56(1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,

(a) any amount received by the taxpayer in the year as, on account or in lieu of payment of, or in satisfaction of,

(ii) a retiring allowance, other than an amount received out of or under an employee benefit plan, a retirement compensation arrangement or a salary deferral arrangement,

The term “retiring allowance” is defined by subsection 248(1) of the Act as follows:

“retiring allowance’ means an amount ... received...

(b) in respect of a loss of an office or employment of a taxpayer, whether or not received as on account or in lieu of payment of, damages or pursuant to an order or judgment of a competent tribunal.

by the taxpayer or, ...

There can be no doubt on the evidence that the payment, if an amount received by the Appellant, was received in respect of the loss of his employment. Counsel for the Appellant argued however that the payment to Citadel was not “received” by the Appellant. His position was that all that was received was an intangible deferred benefit, that is to say the coverage under the policy of insurance and that such benefit cannot be regarded as an “amount” as defined in subsection 248(1) of the Act. That definition reads in part as follows:

“amount” means money, rights or things expressed in terms of the amount of money or the value in terms of money of the right or thing, except that, ...

Counsel argued that the coverage under the Citadel policy was of no value until the Appellant became entitled to make a claim. His position was that any payment which might in future be made as a benefit under the terms of the policy was to be regarded as a deferred benefit and taxed only when received by the Appellant.

I do not agree. In my view an amount was received by the Appellant when the rights which constituted coverage under the Citadel policy were conferred on him. The value of the rights in terms of money was obviously equal to the consideration which Wellington was obliged to pay to secure them. Moreover what the Appellant sought in clause 3.3 of the termination agreement was Wellington’s covenant to “pay the necessary premium to obtain ... coverage...”. Wellington did just that when it paid the $45,000 to Citadel. Subsection 56(2) of the Act applies to require the inclusion of the $45,000 in the computation of the Appellant’s income to the extent that it would have been had the payment been made directly to him. That subsection reads:

56(2) A payment or transfer of property made pursuant to the direction of, or with the concurrence of, a taxpayer to some other person for the benefit of the taxpayer or as a benefit that the taxpayer desired to have conferred on the other person ... shall be included in computing the taxpayer’s income to the extent that it would be if the payment or transfer had been made to him.

The payment was made to Citadel pursuant to clause 3.3. It was therefore clearly made with the concurrence of the Appellant as expressed by his signature on the contract. It was made for the benefit of the Appellant since it was the consideration for the long-term disability coverage which the Appellant sought. Payment by Wellington of the premium for the coverage was the benefit sought by the Appellant under clause 3.3 and that is what he received. Accordingly I have concluded that the $45,000 payment was a retiring allowance taxable in the hands of the Appellant under subparagraph 56(1 )(a) of the Act.

The appeal will be dismissed with costs.

Appeal dismissed.