Dubé v. R., [1999] 2 CTC 2704

Tardif T.C.J.:

This is an appeal from an assessment for the 1993 taxation year. The Minister relied in particular on section 120.3, subsections 5(1), 56(8) and 248( 1 ), and on paragraph and subparagraph 56( 1 )(«)(i) of the Income Tax Act (the “Act’) as amended and applicable to the 1993 taxation year.

At the start of the hearing, counsel for the Minister of National Revenue stated that the point at issue had been improperly identified and incorrectly worded. He then said that the point at issue was whether the $33,264.44 and $190.63 paid by the Commission administrative des régimes de retraite et d’assurance (“CARRA”) had been correctly included in the appellant’s income for the 1993 taxation year.

Both the appellant and his agent Maurice Legault admitted that this was the real point at issue and furthermore gave their consent for the appropriate amendments to be made.

In 1989, the appellant was absent from his work for health reasons. During this period of temporary total disability, he received monthly benefits of approximately $2,000 from the Mutuelle des fonctionnaires du Québec (SSQ).

Noting the serious health problems of the appellant, who was receiving health insurance benefits for temporary total disability, the SSQ recommended that he start the process and approach CARRA and the Régie des Rentes du Québec (RRQ) to obtain permanent total disability (total disability) benefits.

The appellant indeed set about attempting to qualify for permanent total disability benefits. He then underwent a medical assessment. After examining him, Dr. Maurice Leduc confirmed his permanent total disability. The appellant was thus declared permanently unable to return to his work starting on April 19, 1991.

The RRQ then paid total disability benefits retroactive to 1989 on the basis of the medical recognition of his permanent disability status. CARRA recognized his permanent total disability starting in April 1991.

Once his total disability was recognized, the appellant was granted compensation retroactive to 1989 by the RRQ and to 1991 by CARRA.

As a result of the retroactive payments made by CARRA, the appellant repaid $15,277.97 to the SSQ.

The amount awarded by the RRQ was paid to him without any deduction being made; however, the amount paid by CARRA was subject to the usual provincial and federal tax withholdings.

According to the appellant, the $190.63 and $33,264.44 paid by CARRA in 1993 did not constitute taxable income in that taxation year. He further contended that the $15,277.97 paid to the SSQ as a repayment of health insurance benefits received between 1991 and 1993 should be deducted from the amounts received for which a T-4 was issued for 1993.

Recognition of his permanent total disability by CARRA and the RRQ entitled him to permanent total disability insurance benefits starting in April 1991 for CARRA and 1989 for the RRQ.

In 1993, the RRQ paid the appellant $40,121 for the period from 1989 to 1993 inclusive; no tax was withheld from the payment.

At the SSQ’s request, the appellant repaid $15,277.97 to it (Exhibit A- 3). This figure corresponded to repayment of the amounts that the SSQ had paid him when the disability had not yet been determined to be permanent and total.

The two amounts, $33,264.44 and $190.63, for which a T4 was issued were paid to the appellant pursuant an insurance contract for the period from 1991 to 1993. According to the evidence, these amounts were paid as benefits for retirement for serious health reasons (permanent total disability).

The appellant and his agent contended that these were not retirement benefits since, in their view, the appellant had not had the choice or the freedom to terminate the relationship with his employer. The appellant contended that retirement must be the result of a free and voluntary decision. He therefore argued that permanent termination for health reasons should not be likened to or considered to be retirement since it is, so to speak, imposed on the recipient of the benefits, who must accept it.

Did the amounts that the appellant received from CARRA constitute income within the meaning of the Acf?

It appears from the evidence that the SSQ made advances, so to speak, to the appellant during the period when he was waiting for the medical decision regarding his health.

Once a physician declared him disabled, he became eligible for benefits, which he in fact received in a lump sum in the form of two cheques for $33,264.44 and $190.63, respectively. The SSQ then claimed and obtained from the appellant the amounts which it had paid him, hence the repayment of $15,277.97 which the appellant would like to have substracted from the lump-sum amounts received from CARRA.

The allocation of the money paid by CARRA may not be taken into consideration in characterizing the lump-sum retroactive payment; how it is characterized is essentially a function of the source of the income. The source in the instant case is obvious and moreover was defined by the T4 issued by the payer (CARRA).

I understand that the appellant wishes to dispute the taxability of amounts he claims he never received, because of the repayment made to the SSQ. This argument is mistaken, however, since the appellant received equivalent amounts during the period before his disability status was medically recognized. Furthermore, the fact that he repaid the SSQ does not in any way alter the fact that, in legal terms, he did in fact receive the amount.

The fact that the appellant was required under an agreement or a contract to repay a portion or all of the amounts paid by the SSQ during the waiting period does not in any way change or alter the fact that those amounts constituted income within the meaning of the Act. Consequently, the two amounts paid by CARRA, $33,264.44 and $190.63, had to be included in computing the appellant’s income for the 1993 taxation year. The repayment of $15,277.97 cannot in any way be set up against the respondent and therefore may not be deducted from the total amounts paid by CARRA for the 1993 taxation year.

For these reasons, the appeal is dismissed.

Appeal dismissed.