Guy
Tremblay
[TRANSLATION]:—This
case
was
heard
in
Montreal,
Quebec
on
May
9,
1978.
1.
Issue
The
issue
is
whether
the
sum
of
$33,940.28
received
by
the
appellant
from
his
employer
in
1974
constitutes
income.
According
to
the
appellant,
this
sum
was
received
as
compensation
for
wrongful
dismissal
and
is
therefore
not
taxable.
According
to
the
respondent
this
sum
constitutes
income
within
the
meaning
of
subsection
6(3)
and
section
5
of
the
new
Act,
inter
alia.
2.
Burden
of
Proof
The
burden
is
on
the
appellant
to
show
that
the
respondent’s
assessment
is
incorrect.
This
burden
of
proof
derives
not
from
one
particular
section
of
the
Income
Tax
Act,
but
from
a
number
of
judicial
decisions,
including
the
judgment
delivered
by
the
Supreme
Court
of
Canada
in
R
W
S
Johnston
v
MNR,
[1948]
CTC
195;
3
DTC
1182.
3.
Facts
3.1.
From
September
18,
1972
to
July
3,
1974,
the
appellant
held
the
position
of
general
manager
of
a
private
hospital
in
Montreal.
3.2
He
was
hired
in
August
1972
pursuant
to
a
contract
contained
in
a
letter
dated
August
22
(Exhibit
A-1),
which
the
appellant
signed
the
following
day,
on
August
23.
3.3
This
contract
of
employment
contained
the
following
terms,
in
brief:
[TRANSLATION]
(A)
Salary
is
set
at
$16,666
per
annum,
with
increases
according
to
the
scales
prescribed
by
the
Department
of
Social
Affairs.
(B)
Fringe
benefits
applicable
to
hospital
employees:
four
weeks’
vacation
per
annum,
fifteen
days
of
cumulative
sick
leave
and
statutory
holidays.
(C)
The
period
of
employment
is
to
commence
on
September
18,
1972.
The
time
from
September
to
December
1972
will
be
considered
an
adaptation
period.
The
employment
will
be
for
a
minimum
period
of
twelve
months,
renewable
automatically.
Three
months’
notice
is
to
be
given
by
either
one
of
the
parties
under
the
terms
of
the
agreement.
3.4
An
order
in
council
(DC
3276-73,
published
in
the
Official
Gazette
of
26/09/73,
page
5451)
made
under
Bill
65
on
September
12,
1973,
had
the
effect
of
altering
the
length
of
the
contract,
which
was
extended
until
May
27,
1976.
Moreover,
the
position
became
a
full-time
one
and
the
appellant
could
not
hold
other
employment.
3.5
At
a
meeting
on
November
13,
1973,
the
hospital’s
board
of
directors
passed
a
resolution
confirming
and
renewing
the
contract
of
employment
until
May
27,1976,
as
appears
from
the
minutes
of
that
meeting
filed
as
Exhibit
A-2.
3.6
Since
the
hospital
in
question
had
been
placed
under
trusteeship
shortly
before
the
appellant
arrived,
his
position
as
general
manager
was
particularly
delicate.
According
to
the
appellant,
there
were
difficult
personnel
re-evaluations
and
compulsory
layoffs
that
did
not
make
the
manager,
the
appellant,
popular
among
the
employees.
The
discovery
of
illegal
acts
(committed
before
the
appellant
arrived)
with
respect
to
a
sum
of
over
$50,000
in
connection
with
a
trust
account
containing
funds
of
longterm
employees
also
caused
a
stir
and
led
to
dissatisfaction
with
the
hospital.
3.7
The
appellant
took
the
necessary
steps
to
obtain
a
grant
of
$750,000
to
renovate
the
hospital.
3.8
Even
though
the
appellant
was
criticized
by
some,
his
work
was
nonetheless
also
appreciated
since
on
April
4,
1974
the
hospital’s
board
of
directors
recommended
an
increase
in
salary,
in
a
letter
addressed
to
the
Department
of
Social
Affairs
filed
as
Exhibit
A-3.
3.9
According
to
the
appellant,
there
was
nonetheless
pressure
on
the
appellant
to
resign,
mostly
from
representatives
of
socio-economic
groups.
3.10
The
appellant
was
approached
early
in
July
1974
regarding
this
subject.
He
said
he
was
willing
to
agree,
but
on
condition
that
the
hospital
respect
his
contract
and
pay
him
in
a
lump
sum
the
money
that
would
have
been
owing
to
him
up
to
May
27,
1976.
3.11
At
a
meeting
of
the
board
of
directors
on
July
3,
1974
the
following
resolution
(Exhibit
A-5)
was
passed:
[TRANSLATION]
Whereas:
(1)
The
members
of
the
Board
of
Directors
of
(name
of
hospital)
recognize
the
administrative
abilities
of
their
General
Manager
Mr
Yves
Varin,
and
his
integrity;
(2)
Since
the
serious
problems
in
1971
(and
prior
to
that
date),
the
hospital
has
made
remarkable
progress
under
Mr
Varin’s
direction;
(3)
Owing
to
conflicts
beyond
the
control
of
the
Board
and
the
General
Manager
and
in
view
of
the
social
situation,
where
there
is
pressure
from
all
sides
to
control
the
means
of
management
in
a
hospital,
the
Board
of
Directors
feels
it
is
obliged
to
adopt
a
delicate
and
difficult
position
in
order
to
keep
peace
in
the
hospital;
(4)
The
contract
between
the
hospital
and
its
General
Manager
is
in
effect
until
May
27,
1976
under
the
laws
of
Quebec;
It
is
accordingly
resolved:
that
the
General
Manager’s
resignation
be
accepted
at
his
suggestion
and
with
regret
on
July
3,
1974;
that
his
salary
and
other
benefits
be
paid
to
him
until
May
27
in
the
form
of
a
lump
sum
on
or
before
July
10,
1974,
without
other
privileges
or
remedies;
that
the
references
given
to
the
General
Manager
upon
his
departure
fully
reflect
the
spirit
and
letter
of
this
resolution.
3.12
In
accordance
with
a
letter
dated
July
10,
1974
(Exhibit
1-1),
the
appellant
received
two
cheques
dated
the
same
day:
one
for
the
sum
of
$8,824.47,
representing
the
appellant’s
salary
from
July
3,1974
to
December
31,
1974,
and
the
other
for
the
sum
of
$25,115.81,
representing
the
salary
from
January
1,
1975
to
May
27,
1976.
These
payments
totalled
$33,940.28.
3.13
In
an
assessment
issued
on
December
5,
1975
the
respondent
treated
as
income
the
lump
sum
of
$33,940.28
received
by
the
appellant.
3.14
On
March
2,
1976
the
appellant
filed
a
notice
of
objection.
The
Minister’s
reply,
dated
March
24,
1977,
confirmed
the
earlier
assessment.
3.15
On
June
15,
1977
an
appeal
was
brought
to
the
Tax
Review
Board.
4.
Act,
Case
Law
and
Comments
4.1
The
principal
provisions
involved
are
subsection
6(3)
and
section
5
of
the
new
Act:
6(3)
Payments
by
employer
to
employee.
An
amount
received
by
one
person
from
another
(a)
during
a
period
while
the
payee
was
an
officer
of,
or
in
the
employment
of,
the
payer,
or
(b)
on
account
or
in
lieu
of
payment
of,
cr
in
satisfaction
of,
an
obligation
arising
out
of
an
agreement
made
by
the
payer
with
the
payee
immediately
prior
to,
during
or
immediately
after
a
period
that
the
payee
was
an
office
of,
or
in
the
employment
of,
the
payer.
shall
be
deemed,
for
the
purposes
of
section
5,
to
be
remuneration
for
the
payee’s
services
rendered
as
an
officer
or
during
the
period
of
employment,
unless
it
is
established
that,
irrespective
of
when
the
agreement,
if
any,
under
which
the
amount
was
received
was
made
or
the
form
of
legal
effect
thereof,
it
cannot
reasonably
be
regarded
as
having
been
received
(c)
as
consideration
or
partial
consideration
for
accepting
the
office
or
entering
into
the
contract
of
employment,
(d)
as
remuneration
or
partial
remuneration
for
services
as
an
officer
or
under
the
contract
of
employment,
or
(e)
in
consideration
or
partial
consideration
for
a
covenant
with
reference
to
what
the
officer
or
employee
is,
or
is
not,
to
do
before
or
after
the
termination
of
the
employment.
5.
Income
from
office
or
employment.
(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.
The
definitions
of
“office”
and
“employment”
in
subsection
248(1)
should
also
be
cited,
however:
“office”
means
the
position
of
an
individual
entitling
him
to
a
fixed
or
ascertainable
stipend
or
remuneration
and
includes
a
judicial
office,
the
office
of
a
Minister
of
the
Crown,
the
office
of
a
member
of
the
Senate
or
House
of
Commons
of
Canada,
a
member
of
a
legislative
assembly
or
a
member
of
a
legislative
or
executive
council
and
any
other
office,
the
incumbent
of
which
is
elected
by
popular
vote
or
is
elected
or
appointed
in
a
representative
capacity
and
also
includes
the
position
of
a
corporation
director;
and
“offer”
means
a
person
holding
such
an
office;
“employment”
means
the
position
of
an
individual
in
the
service
of
some
other
person
(including
Her
Majesty
or
a
foreign
state
or
sovereign)
and
“servant”
or
“employee”
means
a
person
holding
such
a
position;
4.2
The
following
cases
were
cited
by
the
parties:
Dale
v
de
Soissons,
[1950]
1
All
ER
912;
[1950]
2
All
ER
460;
Hof
man
v
Wadman,
[1946]
KB
192;
T
G
Quance
v
Her
Majesty
the
Queen,
[1974]
CTC
225;
74
DTC
6210;
Peter
Moss
v
MNR,
[1963]
CTC
535;
63
DTC
1359;
R
R
Junkin
v
MNR,
[1971]
Tax
ABC
771;
71
DTC
530;
Her
Majesty
the
Queen
v
R
B
Atkins,
[1975]
CTC
377;
75
DTC
5263;
[1976]
CTC
497;
76
DTC
6258;
Paul
Girouard
v
MNR,
[1977]
CTC
2588;
78
DTC
1011;
W
Unaitis
v
MNR,
[1978]
CTC
2279;
78
DTC
1193.
4.3
Comments
The
sum
of
$33,940.28
that
is
the
subject
of
this
dispute
was
received
“in
lieu
of
payment
of,
or
in
satisfation
of,
an
obligation
arising
out
of
an
agreement
made
by
the
payer
with
the
payee
immediately
prior
to,
during
or
im-
mediately
after
a
period
that
the
payee
was
an
officer
of,
or
in
the
employment
of,
the
payer”.
The
evidence
is
clear
on
this
point,
according
to
paragraphs
3.11
and
3.12
of
the
facts.
In
the
Board’s
view
it
is
clear
from
this
fact
that
the
presumption
in
subsection
6(3)
that
the
sum
received
“shall
be
deemed
to
be
remuneration
for
the
payee’s
services
rendered
as
an
officer
or
during
the
period
of
employment”
applies
prima
facie.
This
presumption
can
be
rebutted,
however,
where
the
three
conditions
set
out
in
paragraph
(c),
(d)
and
(e)
of
subsection
6(3)
cited
above
are
met.
This
section
operates
strongly
against
the
taxpayer
and
it
should
be
noted
that
the
latter
must
prove
that
the
three
conditions
apply
for
the
presumption
to
be
rebutted.
If
any
one
of
the
three
conditions
does
not
apply,
the
presumption
must
be
upheld.
The
facts
set
out
in
paragraph
3.9,
3.10
and
3.11
are
substantially
as
follows:
the
appellant
agreed
to
resign
on
July
3,
1974
on
condition
that
his
employer
pay
him
in
a
lump
sum
the
money
that
would
have
been
owing
to
him
up
the
date
on
which
the
contract
legally
expired,
namely
May
27,1976.
The
Board
is
of
the
view
that
paragraph
6(3)(c)
does
not
apply,
that
is,
that
the
sum
of
$33,940.28
was
not
received
for
accepting
the
office
of
director
or
entering
into
a
contract
of
employment.
It
should
be
noted
here
that
the
word
“conclusion”
in
the
French
version
does
not
mean
“the
end,
the
termination
of
a
contract
of
employment”
but
rather
“the
entering
into
of
a
contract
of
employment”.
The
English
version
is
clearer:
“for
entering
into
the
contract
of
employment”.
It
should
also
be
noted
that
the
words
“entering
into
the
contract
of
employment”
are
to
be
contrasted
with
“accepting
the
office”.
The
words
“office”
and
“employment”
are
defined
separately
in
subsection
248(1).
Paragraph
6(3)(e)
does
not
apply
either.
The
resolution
of
the
Board
cited
in
paragraph
3.11
does
not
contain
any
covenant
with
reference
to
what
the
appellant
“is,
or
is
not,
to
do
before
or
after
the
termination
of
the
employment”.
Paragraph
6(3)(d)
seems
more
difficult
to
interpret
at
first
sight:
(d)
as
remuneration
or
partial
remuneration
for
services
as
an
officer
or
under
the
contract
of
employment.
Firstly,
the
sum
of
$33,940.28
was
not
paid
on
the
face
of
it
for
“services
rendus
à
titre
de
cadre”.
The
appellant
in
fact
received
this
sum
in
compensation
for
the
services
he
would
have
rendered
if
he
had
worked
from
July
3,
1974
to
May
23,1976.
This
sum
was
therefore
paid
for
services
that
were
not
rendered.
The
English
version,
however,
does
not
say
“for
rendered
services
as
an
officer”
but
simply
“for
services
as
an
officer”.
It
seems
to
the
Board
that
the
terms
mean
the
same
thing.
These
words
should
be
interpreted
as
including
services
that
might
have
been
rendered
in
the
future
and
for
which
payment
is
being
made.
The
decided
cases
are
to
this
effect.
The
courts
have
considered
this
type
of
payment
to
be
taxable.
Even
the
Atkins
case,
which
decided
that
the
taxpayer
should
not
be
taxed,
makes
it
clear
that
this
was
not
an
amount
paid
as
salary,
as
in
the
Quance
case,
but
rather
compensation
for
breach
of
contract,
compensation
not
previously
provided
for
in
the
contract.
In
the
Paul
Girouard
decision
such
compensation
had
been
provided
for
in
the
contract
of
employment.
In
the
present
case
the
amount
had
been
agreed
upon
before
the
employment
terminated,
and
the
agreement
was
that
the
amount
would
be
the
total
salary
provided
for
in
the
contract.
It
cannot
even
be
said
that
the
salary
lost
merely
served
as
a
guide
for
establishing
the
compensation.
The
resolution
of
the
board
of
directors
is
clear:
that
the
salary
and
other
benefits
be
paid
to
him
until
May
27,1976
in
the
form
of
a
lump
sum
on
or
before
July
10,
1974,
without
other
privileges
or
remedies.
The
Board
has
no
choice
but
to
confirm
the
assessment
and
dismiss
the
appeal.
5.
Conclusion
The
appeal
is
dismissed
in
accordance
with
the
above-mentioned
reasons
for
judgment.
Appeal
dismissed.
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