Peter Seary v. Minister of National Revenue, [1979] CTC 2116, 79 DTC 117

The Assistant Chairman:—When the appellant filed his individual income tax return for the 1975 taxation year, he attached to that return a 1975 T-4 supplementary slip which he had received from his employer, the University of Toronto. That slip showed total earnings of $42,644.61. However, on his income tax return he only showed a portion of that amount as total earnings. The respondent however was of the view that his total earnings for 1975 was in the amount shown by his employer, and assessed accordingly. The appellant objected to that assessment and, following confirmation thereof, appealed to this Board. At the commencement of the hearing of the appeal an amended notice of appeal was filed and it contended, in effect, that the total earnings the appellant received from his employer was considerably less than the amount shown on the T-4 supplementary slip. The respondent’s counsel did not oppose the amendment.

In 1966 the appellant was engaged by University College of the University of Toronto as a lecturer in its English Department. At that time at that university, there was not a potential relationship between the university and a lecturer called “tenure”. That relationship was provided for in the next year, 1967. At the end of five years of lecturing, as explained by the viceprovost of the University of Toronto, a lecturer’s capabilities and performance were judged by some of his peers automatically, without application. If those peers concluded that the performance of the person being considered was satisfactory, that person was granted tenure—that is, he in effect was granted permanent employment which could only be terminated for cause. If the person so being considered was held by his peers to be wanting, then he was not granted tenure. When this happened, that person was then granted a one-year terminal appointment. He had to leave at the end of the following academic year. There was an appeal procedure provided which included a review of the decision of the group of peers and ultimately a review by the president of the university, which was the last avenue of appeal. He and only he could set aside the denial of tenure.

In the spring of 1972 the position of the appellant was considered since he was then completing his fifth lecturing year under the tenure rules, which started in 1967. The decision of the committee was that he was to be denied tenure. He was granted a terminal appointment to June of 1973. He appealed the decision with respect to failure to receive tenure and his appeal was unsuccessful. Insofar as the university was concerned, his employment ceased in June 1973. The vice-provost stated that, as far as the university was concerned, not only did it not have any further obligation towards the appellant, but he had no obligation towards it.

Professor Seary could not accept the decision that he was denied tenure and, while the formal avenues of appeal might have been exhausted, he still persisted in his endeavour to show that the decision was wrong and he should have been granted tenure. In mid-1974 a new system of appeal on denial of tenure was set up by the university and the president of the university granted him a review hearing. The review hearing, after considering his case, agreed that his position should be considered by a second tenure committee. This second tenure committee commenced to consider his case in March of 1975 and, in September 1975, it advised that he be granted tenure. In accordance with that decision, he was re-employed by the university.

From June 1973 until at least March of 1975, the appellant received no pay cheques from the university. He stated that he went on unemployment insurance after June 1973 and he received benefits until he had exhausted his entitlement. He had no office, no classes, performed no services, and had no connection with the university except that he persisted in his endeavour in that period to have the decision reversed. He stated that, insofar as access to the library was concerned, he had only the access that one of the public would have, not that which a member of the staff or a student enjoyed. Following June 1973, amounts which he had contributed to a university pension plan were repaid to him. During this period he applied, I believe, for a position at 22 other institutions, all without success. He knows that two institutions where he applied were interested in him but, once he advised them he had been denied tenure at the University of Toronto, their interest collapsed. According to the appellant, he never resigned from his position with the university but as far as he knew his employment was ended. Clearly from the day the appellant first heard he was denied tenure until he was advised he had been granted tenure, he left no stone unturned to endeavour to have tenure granted to him. He wrote letters to the administration and received replies. He consulted with colleagues and circulated a petition. He went to the faculty association for assistance. He also sought help from the Canadian Association of University Teachers. In addition, he consulted a lawyer as to what he could do.

By letter of February 12,1975, the president of the university advised Professor Seary that the university’s Tenure Appeal Committee had reported to him their decision on his appeal from denial of tenure and the letter continued that he would now establish a special committee to review the Original tenure decision. By letter of February 14,1975, the appellant replied to that letter and, in addition to discussing at great length matters relating to his tenure, made pointed references to the financial straits in which he found himself as a result of the denial of tenure. The last sentences of that letter read as follows:

I shall, therefore, have to instruct my lawyer, Mr Bruce Scott, to begin proceedings before the Supreme Court of Ontario, if I have not heard from you by 3 March 1975. I am hopeful that my legal costs will be borne by CAUT.

The president replied to that letter and, after setting forth matters relating to the committee which was to hear the question relating to tenure, concluded the letter as follows:

5. A $1,000 per month stipend will be paid to you on a monthly basis from the time of the Tenure Appeal Committee decision to the completion of the tenure hearing, provided the hearing will be completed within a reasonable time. This stipend payment is being made on compassionate grounds and should not be considered to be acknowledgement of any liability regarding your appeal.

Within 48 hours of your acceptance of the terms outlined in this letter, I will make the necessary arrangements for issuance of the first monthly cheque.

Further correspondence passed between the office of the president or viceprovost and the appellant. The letter from the vice-provost of April 29, 1975, in the first paragraph contained the following sentence:

There can be no decision regarding your return to regular employment in the University until the question of your tenure is reconsidered by the special review committee.

The last paragraph of that letter read as follows:

Finally, regarding your request for an increase in the stipend authorized by the President on March 4, Dr Evans has agreed to an increase of $300 in the monthly payment, raising the total amount from $1,000 to $1,300 a month. This increase is made on the same basis as the original stipend arrangement, ie on compassionate grounds and not as admission of any liability on the part of the University.

As previously stated, the appellant was advised that he was granted tenure in September 1975 and was then taken back on staff. He was paid at least for November and December 1975 on the basis of an annual rate of pay of $20,147. The appellant was not certain whether or not he was paid salary at the same rate for October. In addition, after he was advised that he had been granted tenure, the appellant was paid the sum of $15,000. It is to be noted that nothing was paid to the appellant after June 30, 1973, until March 1975 and then a monthly amount was paid until the early fall of that year when tenure was granted. Even after tenure was granted it appears that same monthly amount was paid for a month or two, while for November and December he was paid regular salary. In addition there was the lump sum payment of $15,000 after the granting of tenure. The vice-provost stated that the $1,000 per month (later $1,300) was paid because at that time the appellant had the opportunity of getting a positive decision regarding tenure. Had the decision ultimately given been unfavourable to the appellant, the payments would have stopped immediately. Likewise, had the appellant not been granted tenure he would not have been paid the $15,000 nor, of course, would he have been rehired. As to why the amount of $1,000 (later $1,300) a month was paid, the vice-provost stated that the financial welfare of the appellant was considered and it was concluded that he was in dire financial straits. As to the reason for the payment of the $15,000, it was stated that it was an attempt to give him an amount approximately equal to what he would have received by that date, had he been granted tenure when it was originally considered.

As can be seen from the assessment notice, the respondent included in the appellant’s income all amounts he received from the University of Toronto. The appellant contends that the assessment is incorrect in two respects:

(a) the monthly amount of $1,000 (later $1,300) received for some months in 1975 was not income, and

(b) the lump sum payment of $15,000 was not income.

As I view the appeal, the startling point to determine the two issues is—What was the relationship between the appellant and the University of Toronto from June 30, 1973 to December 31, 1975? I have no hesitation in holding that in the period between June 30,1973 and September 1975 (when he was advised he had been granted tenure) there was no relationship between those two parties, and especially, there was no employer-employee or employer-officer relationship. The most one could say with respect to a relationship between them in this period would be that the appellant was a former employee doing all that he could do to cause his former employer to rehire him in his previous position. He received money in the last few months of this 27-month period from that former employer. He received it because he might be getting his position back—not because he was an employee or was a person who had made a contract with his former employer and was about to become, in the next week or so, once again an employee. The evidence was clear that, had the decision in September 1975 been not to grant him tenure, the monthly payment of $1,000 or $1,300 would have ceased immediately; he would not have received the $15,000; and, of course, he would not have been rehired, with the further result that he would not have become once again an employee of the University of Toronto. On the facts of this case I cannot see how those monthly payments can be considered to be within subsection 5(1) or paragraph 6(1 )(a) of the Income Tax Act after tax reform. The relevant portion of each section is as follows:

5. (1) 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.

6. (1) There shall be included in computing the income of a taxpayer for a taxation year as income from an office or employment such of the following amounts as are applicable:

(a) the value of . . . 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.

The appellant was unemployed and had no contract with the University of Toronto when those monthly payments were received, as he had not had for some 20 months previously. How can it be said that they were received by him in respect of, in the course of or by virtue of (his) office or employment? If he had no employment or held no office for the year—How can he have income from the nonexistent office or employment? On this phase of the appeal, judgment will issue on the basis that the amounts the appellant received in 1975 from the University of Toronto prior to being advised he had been granted tenure are not income to the appellant.

The issue remaining is the taxability of the amounts received by the appellant after he had been advised that he had been granted tenure. I have used this phraseology as I do not know the date in September 1975 when he was advised with regard to tenure, nor do I know on what date in each month the appellant was paid the $1,000 (later $1,300). The appellant does not dispute that the regular salary, received after tenure was granted, is income. The remaining dispute relates to the other amount or amounts received from the University of Toronto after that date in September 1975. The appellant had indicated that he would consider legal action for improper steps he believed the University of Toronto had taken in initially not granting him tenure. He did not however actually take any steps, nor did any solicitor on his behalf issue a writ. The appellant contended the sum received was an ex gratia payment by the university and so was not income. It is clear the amounts received after tenure was granted were amounts received after he was rehired by the university. It is clear from the evidence of the vice-provost that, had the appellant not been granted tenure and rehired, those payments would not have been made. They were payments by an employer to an employee during the year in which that relationship existed and, while it might be said that they were not salary or wages (even though the evidence was that the amount of $15,000 paid was an amount which would approximate the amount the appellant would have received to that date had he been granted tenure on June 30, 1972), I cannot see how they could not, in the circumstances, be classified as a “gratuity”. In any event, even if I were incorrect in this approach in light of the evidence of the vice-provost that the amounts paid after tenure was granted would not have been paid if tenure were denied—How could I say that those amounts were not “received or enjoyed by him in the year in respect of, in the course of or by virtue of an office or employment”?

The result is that, with respect to the amounts received by the appellant from the University of Toronto after tenure was granted, the assessment was properly made and the appeal is dismissed.

In summary, the appeal is allowed and the assessment referred back to the respondent for variation to delete from the income of the appellant the amounts received by him from the University of Toronto prior to the date in September 1975 when he was granted tenure. In all other respects the appeal is dismissed.

Appeal allowed in part.