Delmer
E
Taylor:—This
is
an
appeal
heard
at
the
City
of
Toronto,
Ontario,
on
February
26,1979
and
deals
with
an
income
tax
assessment
in
which
the
Minister
of
National
Revenue
assessed
to
tax
in
the
year
1976
an
amount
of
$17,500
received
in
connection
with
the
termination
of
the
appellant’s
employment.
The
respondent
relied,
inter
alia,
upon
subsections
5(1)
and
6(3)
of
the
Income
Tax
Act,
SC
1970-71-72,
c
63
and
amendments
thereto.
Facts
During
the
year
1976
the
appellant
was
employed
by
United
Trust
Company
Limited,
Toronto,
Ontario
(hereinafter
referred
to
as
“United”).
On
September
28,
1976,
an
agreement
was
reached
between
the
appellant
and
United
under
which
he
received
the
disputed
amount
of
$17,500.
Contentions
The
position
of
the
appellant
was
as
follows:
—On
September
16,
1976,
he
was
dismissed
from
his
employment
without
notice.
—
He
received
the
amount
of
$17,500
as
damages
with
respect
to
his
wrongful
dismissal.
The
assertions
of
the
respondent
were
that:
—On
or
about
September
16,
1976,
the
appellant’s
employer
informed
him
that
his
contract
of
employment
was
to
be
terminated
and
the
employer
offered
him
three
months
pay
definite
and
a
contract
of
employment
as
a
hiring
consultant
for
the
said
three
months;
further
if
he
remained
unemployed
at
the
end
of
the
three-month
period,
then
a
maximum
of
a
further
three
months’
salary
until
such
time
as
he
found
employment.
During
this
period
he
was
to
be
provided
with
the
use
of
his
office
and
a
car
provided
by
the
employer.
—The
appellant
refused
to
accept
such
offer
from
his
employer
and
negotiated
with
his
employer
until
a
written
settlement
was
executed
by
both
himself
and
the
employer
whereby
he
was
to
receive
the
sum
of
$17,500
representing
six
months’
salary,
the
use
of
the
employer’s
automobile
for
a
period
of
six
months
or
until
such
time
as
the
appellant
became
employed
with
some
other
employer
and
the
employer
was
to
give
the
appellant
a
mortgage
loan,
not
to
exceed
$64,000
principal
amount,
to
mature
in
four
years
at
an
interest
rate
of
6
A°/o
per
annum.
—The
appellant
was
not
in
fact
wrongfully
dismissed
by
his
employer
but
after
receiving
notice
of
termination
of
his
employment
by
the
employer,
the
appellant
was
able
to
negotiate
compensation
from
the
employer
in
lieu
of
notice.
—The
said
$17,500
was
not
damages
paid
to
the
appellant
for
wrongful
dismissal.
—The
said
sum
of
$17,500
was
either
salary,
wages
or
other
remuneration
received
by
the
appellant
from
his
employer
during
the
1976
taxation
year
within
the
meaning
of
subsection
5(1)
of
the
Income
Tax
Act
or
was
an
amount
received
by
the
appellant
from
his
employer
during
the
period
while
the
appellant
was
in
the
employment
of
the
employer
and
such
amount
was
on
account
of,
or
in
lieu
of
payment
of,
or
in
satisfaction
of
an
obligation
arising
out
of
an
agreement
made
by
the
employer
with
the
appellant
(being
the
obligation
of
the
employer
to
give
the
appellant
reasonable
notice
of
termination
of
the
employment
agreement)
immediately
prior
to,
during
or
immediately
after
a
period
that
the
appellant
was
in
the
employment
of
the
employer.
Evidence
The
evidence
provided
by
the
appellant
was
a
review
of
the
circumstances
surrounding
his
separation
from
United.
His
employment
had
commenced
on
June
14,
1976,
according
to
a
letter
from
United
entered
as
Exhibit
A-1.
Shortly
thereafter,
United
was
sold
to
Royal
Trust
Company
Limited,
in
the
result
that
the
majority
of
senior
executives
of
United
found
themselves
without
continued
employment
under
the
new
Company.
Early
in
September
1976,
the
appellant’s
turn
arrived
and
although
precise
dates
are
difficult
to
establish,
the
evidence,
physical
and
oral,
would
indicate
that
the
approximate
chronology
of
the
separation
from
United
was
as
follows:
September
9—First
specific
indication
to
appellant
that
there
would
be
no
place
in
the
marketing
organization
for
him—but
there
was
no
particular
offer
of
another
position
(Mr
Root).
September
11
—Indication
that
there
would
be
no
further
duties
for
him
at
all
(Mr
Pillis).
Appellant
was
to
see
Personnel
Director
to
discuss
monetary
issues.
September
11
(same
day)—Offer
of
3
months’
definite,
3
months’
indefinite
based
on
salary
(Mr
Milligan).
Between
September
11-14—Meeting
with
personal
solicitor
(Mr
Lax)
requesting
legal
advice
regarding
termination.
September
14—Letter
from
Mr
Lax
to
appellant—Exhibit
A-2.
September
16—Second
meeting
with
Mr
Milligan.
No
offer
of
further
compensation
except
a
firmer
position
with
regard
to
the
second
3-month
period—recommended
meeting
with
President
of
Royal.
Between
September
16-28—Meeting
with
President—Agreement—Exhibit
A-3.
The
following
excerpts
are
taken
from
the
documentary
evidence
noted
above,
which
was
submitted
by
the
appellant:
Exhibit
A-1
This
letter
will
confirm
your
appointment
as
Vice-President
Trust
Services
of
United
Trust
to
take
effect
no
later
than
June
14,
1976.
Your
salary
will
be
$35,000
per
year.
You
will
have
the
use
of
an
automobile
in
the
Oldsmobile
Cutlass
class.
United
Trust
will
make
available
to
you
a
first
mortgage
on
your
residence
at
92
Chudleigh
Avenue
in
the
amount
of
$40,000
with
interest
at
5%
and
a
25
year
amortization.
The
term
of
the
loan
will
be
5
years
with
payments
monthly.
In
the
event
of
your
ceasing
to
be
an
employee
of
United
Trust
for
any
reason
the
loan
would
become
due
within
90
days
of
your
termination.
Exhibit
A-2
I
have
reviewed
with
you
the
circumstances
surrounding
the
takeover
of
The
United
Trust
Company
by
the
Royal
Trust
Company,
the
result
of
which
is
that
your
continued
employment
is
unlikely.
You
have
asked
me
to
review
all
of
the
facts
and
to
express
my
opinion
as
to
the
length
of
notice
or
damages
in
lieu
of
notice
applicable
to
your
case.
Exhibit
A-3
WHEREAS
Brackstone’s
employment
with
United
was
terminated
on
September
16,
1976;
and
WHEREAS
the
terms
of
Brackstone’s
termination
have
now
been
agreed
upon.
NOW
THEREFORE
THIS
AGREEMENT
WITNESSETH
that
in
consideration
of
the
sum
of
$1
and
other
good
and
valuable
consideration
(the
receipt
whereof
is
hereby
acknowledged),
the
parties
hereto
hereby
agree
as
follows:
1.
Brackstone
shall
receive
and
United
shall
pay
his
normal
remuneration
for
the
pay
period
September
16,
1976
to
September
30,
1976
forthwith,
provided,
it
is
hereby
agreed
that
such
remuneration
includes
any
vacation
pay
due
to
him.
2.
Brackstone
shall
receive
and
United
shall
pay
in
recognition
of
Brackstone’s
loss
of
office
and
termination
of
employment
the
sum
of
$12,250
forthwith,
having
withheld
the
sum
of
$5,250
for
income
tax,
provided,
that
the
said
sum
of
$12,250
shall
be
deemed
to
include
any
entitlement
to
vacation
pay.
In
evidence
and
cross-examination,
it
was
determined
that
the
appellant
had
not
been
offered
a
“contract
of
employment
as
a
hiring
consultant”
or
was
to
be
provided
with
the
“use
of
his
office”
(respondent’s
contentions).
However,
in
my
view
neither
of
these
points
is
significant.
Further,
the
testimony
of
the
witness
indicated
that
before
he
had
his
meeting
with
the
President
(between
September
16
and
September
28),
the
best
he
could
hope
for
from
United
was
an
amount
equivalent
to
six
months’
salary,
but
there
was
no
consideration
for
the
use
of
the
automobile
or
for
the
continuity
of
the
personal
mortgage,
which
had
been
part
of
his
contract
of
employment.
Argument
Counsel
for
the
appellant
pointed
out
that
Brackstone
had
been
dismissed
no
later
than
September
16,
and
probably
before
that
date,
as
early
as
the
first
meeting,
depending
on
the
significance
to
be
attached
to
the
words
used
at
various
times
by
officials
of
United
or
Royal.
The
negotiation
of
the
settlement
agreement
subsequent
to
that
date
meant
that
the
proceeds
thereunder
were
in
the
form
of
damages
and
not
compensation
under
a
contract
of
employment.
The
case
of
Her
Majesty
The
Queen
v
Robert
B
Atkins
(an
appeal
and
cross
appeal
from
a
decision
of
the
Tax
Review
Board
(unreported)),
[1975]
CTC
377;
75
DTC
5263;
[1976]
CTC
497;
76
DTC
6258,
(Crown’s
appeal
dismissed
(FCA))
was
cited
as
complete
authority
for
the
proposition
of
counsel
that
damages
need
not
be
only
the
result
of
specific
legal
action,
and
that
the
amount
involved
in
this
appeal
qualified
precisely.
Counsel
for
the
respondent
noted
that
the
decision
in
Thomas
G
Quance
v
Her
Majesty
The
Queen,
[1974]
CTC
225;
74
DTC
6210,
was
more
applicable
to
this
particular
case
and
relied
heavily
on
a
quotation
to
be
found
at
229
and
6213
respectively:
As
I
have
pointed
out
above
the
damages
that
the
plaintiff
would
received
for
dismissal
without
notice
are
to
replace
the
income
he
was
deprived
of
by
not
being
given
reasonable
notice.
That
is
the
reason
for
awarding
that
item
of
damages
for
breach
of
a
contract
of
employment.
Accordingly
such
an
award
is
imbued
with
the
quality
of
income.
Findings
Dealing
first
with
the
particular
reference
quoted
above
from
Quance
(supra),
the
Board
would
note
that
such
an
observation
from
the
learned
Justice
followed
an
expression
of
opinion
of
appellant’s
counsel
in
that
case
to
be
found
at
the
same
pages
respectively:
During
his
argument
on
behalf
of
the
plaintiff
counsel
conceded
that
payments
of
salary
made
in
lieu
of
notice
of
termination
of
an
indefinite
hiring
are
properly
taxable
as
an
obligation
arising
out
of
the
agreement
of
employment
but
he
contended
that
when
the
employee
must
sue
to
enforce
that
contract
what
is
received
are
damages.
In
the
decision
of
the
Federal
Court,
Trial
Division
in
Atkins
(supra),
the
Court
reviewed
this
point
without
benefit
of
any
similar
concession
from
counsel,
with
the
following
result
to
be
found
at
pages
385
and
5268
respectively:
Undoubtedly,
the
usual
yardstick
to
measure
the
damages
is
very
often
the
salary
that
would
have
been
earned.
But
that
does
not
mean
the
only
compensation
recoverable
is
salary,
nor
that
whatever
compensation
in
fact
is
obtained
is,
in
law
(tax
or
otherwise),
salary.
In
my
opinion,
the
more
significant
comment
from
Quance
(supra)
as
it
relates
to
this
appeal
is
to
be
found
at
pages
229
and
6213:
The
amounts
so
received
by
the
plaintiff
from
his
employer
were
in
satisfaction
of
an
obligation
arising
out
of
the
contract
of
employment
between
the
plaintiff
and
his
employer.
That
obligation
was
to
give
the
plaintiff
reasonable
notice
of
the
termination
of
his
employment
and
upon
failing
to
do
so
to
pay
him,
in
lieu
thereof,
the
salary
that
would
have
been
earned
during
the
period
of
notice.
A
contract
of
employment
implicitly
(and
often
explicitly)
contains
an
obligation
to
provide
notice
of
termination.
Obviously,
such
notice
of
termination
can
only
be
given
when
the
contract
of
employment
is
operative—it
cannot
be
given
later.
Financial
or
other
compensation
offered,
arranged,
negotiated
or
extracted
after
termination
of
the
contract
may
often
be
designated
as
“in
lieu
of
notice
of
termination”.
In
my
view,
this
is
only
a
convenient
form
of
terminology,
at
least
from
an
income
tax
viewpoint.
I
am
unable
to
conceive
of
“notice
of
termination”
after
the
contract
has
been
terminated,
and
therefore
unable
to
feature
anything
in
lieu
of
that.
The
Minister’s
position
in
this
appeal
would
appear
to
be
that
any
such
amount
would
be
taxable
as
employment
income.
In
my
view,
very
few
of
such
amounts
would
fit
under
subsections
(c),
(d)
or
(e)
of
subsection
6(3)
of
the
Income
Tax
Act,
particularly
subsection
(d)
“as
remuneration
.
.
.
for
services”.
No
services
could
be
or
would
be
performed
after
the
termination,
under
the
contract
of
employment.
For
purposes
of
determining
income
tax
liability,
in
order
to
fit
clearly
under
subsection
6(3)
of
the
Act,
compensation
for
termination
of
a
contract
of
employment
might
best
be
agreed
before
or
concurrent
with
termination.
I
recognize
that
in
light
of
the
Quance
decision
(supra),
an
offer
made
at
that
time
in
lieu
of
notice
might
produce
the
same
taxing
result.
In
Quance
(supra),
the
appellant
was
dismissed
“as
of
5
o’clock
that
day”.
There
was
no
doubt
about
that—the
only
matter
at
issue
was
that
he
had
refused
the
concurrent
offer
of
“six
and
one-half
months’
salary
in
lieu
of
notice’,
and
attempted
to
negotiate
a
greater
amount.
The
employer
had
recognized
and
fulfilled
his
obligation—to
give
notice
or
compensation
in
lieu
of
notice
under
the
contract
of
employment,
the
dispute
revolved
around
the
quantum.
The
learned
Justice
at
pages
229
and
6213
respectively
emphasized
this
point:
The
amounts
so
received
by
the
plaintiff
from
his
employer
were
in
satisfaction
of
an
obligation
arising
out
of
the
contract
of
employment
between
the
plaintiff
and
his
employer.
That
obligation
was
to
give
the
plaintiff
reasonable
notice
of
the
termination
of
his
employment
and
upon
failing
to
do
so
to
pay
him,
in
lieu
thereof,
the
salary
that
would
have
been
earned
during
the
period
of
notice.
This
is
in
sharp
contrast
to
the
facts
in
Atkins
(supra)
where
there
had
been
a
dismissal
without
notice,
but
there
had
been
no
compensation
arranged
or
even
offered
before
the
termination.
However,
not
every
case
of
this
kind
permits
of
the
clear
discernment
of
the
dismissal
(whether
with
or
without
notice,
or
in
lieu
of
it)
as
was
the
case
in
Quance
(supra)
and
that
in
Atkins
(supra).
In
the
present
case,
I
interpret
the
evidence
of
the
appellant
to
mean
that
at
all
times
from
the
first
indication
his
employment
would
cease
until
September
28,
1976
when
he
signed
the
settlement
agreement,
discussions
with
United
had
continued
but
revolved
around
the
quantum
and
the
terms
of
a
settlement
of
the
termination
of
employment.
This
evidence
is
not
precise
as
to
which
date
in
early
September
his
immediate
superior
originally
opened
up
the
subject
with
him,
but
his
counsel
at
the
hearing
indicated
perhaps
it
was
a
week
before
September
16,
1976.
Neither
are
we
aware
exactly
what
transpired
at
that
first
meeting
whether
there
was
any
discussion
at
all
regarding
compensation.
But
it
would
be
only
if
he
were
dismissed
summarily
and
unilaterally
at
that
meeting
(about
one
week
before
September
16,
1976)
without
a
direct
offer
for
compensation
in
lieu
of
notice
that
his
case
could
succeed.
From
the
evidence
I
am
certain
that
he
was
not
so
dismissed—it
is
clear
he
was
still
employed
on
September
14,
1976,
and
sought
legal
advice
(Exhibit
A-2)
on
termination
arrangements.
Therefore,
before
September
16,
1976,
efforts
to
reach
agreement
on
compensation
were
under
way.
I
can
appreciate
that
the
appellant
perhaps
did
not
consider
these
efforts
adequate
and
he
eventually
did
negotiate
better
arrangements.
However,
the
evidence
is
that
he
was
offered
before
that
date
at
least
an
amount
of
three
months’
definite,
and
three
months’
indefinite,
based
on
his
salary,
and
probably
six
months’
definite.
In
my
view,
during
the
period
from
September
9
to
September
16,
the
employer
was
negotiating
(no
matter
how
reluctantly
or
defensively,
in
the
eyes
of
the
employee)
the
terms
under
which
the
obligation
to
give
notice
under
the
contract
could
be
fulfilled,
and
the
appellant
was
fully
aware
that
separation
from
his
employment
was
imminent.
By
September
16,
the
approximate
offer
of
the
company
was
the
equivalent
of
six
months’
salary.
This
was
not
completely
acceptable
to
the
appellant,
the
termination
became
effective
however,
but
he
was
permitted
an
opportunity
to
improve
the
offer
in
a
meeting
with
the
President.
He
managed
to
do
so
and
signed
an
agreement
covering
everything
on
September
28,
1976.
Based
on
the
comments
made
earlier
in
this
decision,
the
value
of
the
compensation
(automobile,
personal
mortgage,
etc)
which
he
negotiated
after
September
16,
1976,
might
not
be
considered
as
arising
from
an
obligation
under
the
contract
of
employment
(the
contract
having
been
terminated
September
16,
1976)
but
rather
under
the
settlement
agreement.
However,
the
Minister
has
not
attempted
to
tax
these
amounts
in
any
event.
There
can
be
no
such
characteristic
of
non-taxability
attributed
to
the
compensation
based
on
six
months’
salary—it
was
open
to
him
to
accept
when
the
contract
was
terminated,
and
when
it
was
received
by
him,
it
arose
from
an
obligation
under
the
contract
of
employment.
I
do
not
hold,
however,
that
it
was
“salary”
per
se.
The
amount
of
$17,500
at
issue
in
this
appeal
is
taxable
by
virtue
of
paragraph
6(3)(d)
of
the
Act.
Decision
The
appeal
is
dismissed.
Appeal
dismissed.
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