Thomas Dauphinee v. Minister of National Revenue, [1979] CTC 2782, 79 DTC 680

Guy Tremblay:—This case was heard on common evidence December 6, 1978, at Ottawa, Ontario, with the cases of Paul H. Serson (78-544) and Dr Sai Hoi Tsao (78-546).

1. Point at Issue

The problem is whether the appellant is correct not to include in his income for the 1976 taxation year the amount of $5,336.32 received as an award from Canadian Patent and Development Limited, pursuant to the Public Servants Inventions Act.

2. Burden of Proof

The burden is on the appellant to show that the respondent’s assessment is incorrect. This burden of proof results especially from several 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. The Facts

The facts are not actually in dispute.

3.01 In 1976, the appellant was employed by the National Research Council.

3.02 During 1976 he received an amount of $5,336.32 from Canadian Patent and Development Limited, a Crown Corporation.

3.03 The said payment was made pursuant to the Public Servants Inventions Act, 1970 RSC c P-31 and Regulations issued thereunder.

3.04 The award related to six general inventions, one of which was a liquid conductivity apparatus known as a laboratory salinometer, and other equipment for measuring temperature electrical conductivity and depths of the world’s oceans.

3.05 The taxpayer performed no services in 1976 for the employer for which the awards were paid.

3.06 The respondent included the said amount of $5,336.32 in the appellant’s income for the 1976 taxation year on the assumption that it related to inventions made by the appellant while acting within the scope of his duties with facilities and equipment provided by his employer.

3.07 According to the appellant, it is an important part of a scientist’s job to find solutions to problems: “I do make inventions”.

3.08 In his testimony, the appellant admitted that he used the facilities and equipment provided by his employer to create his inventions.

4. Law—Jurisprudence—Comments

4.1 Law

a) Income Tax Act

The main sections of the new Act involved in the present case are 3,5 and 6. These sections will be quoted further if necessary.

b) Public Servants Inventions Act

It is necessary to quote sections 3 and 10:

INVENTIONS VESTED IN THE CROWN

3. The following inventions, and all rights with respect thereto in Canada or elsewhere, are vested in Her Majesty in right of Canada, namely,

(a) an invention made by a public servant

(i) while acting within the scope of his duties or employment, or

(ii) with facilities, equipment or financial aid provided by or on behalf of Her Majesty, and

(b) an invention made by a public servant that resulted from or is connected with his duties or employment. 1953-54, c 40, s 3.

AWARDS

10. Subject to the regulations, the appropriate Minister may authorize the payment of an award to a public servant who makes an invention that is vested in Her Majesty by this Act, in such amount as the appropriate Minister and the public servant may agree upon or as the appropriate Minister determines. 1953-54, c 40, s 10.

4.2 Jurisprudence

The cases referred to by the parties are:

1. A Mansfield v MNR, 28 Tax ABC 404; 62 DTC 134;

2. Rudolph DeBuda v MNR, [1968] Tax ABC 559; 68 DTC 471;

3. MNR v L Gagnon, [1965] CTC 423; 65 DTC 5268;

4. MNR v F H Watts, [1966] CTC 260; 66 DTC 5212;

5. George W Offley v MNR, [1974] CTC 2139; 74 DTC 1101.

4.3 Comments

The main relevant facts are that the appellant during the year 1976 was a public servant employed by National Research Council of Canada and during that year he received awards for inventions he created during the former years. As it is alleged in the Notice of Appeal, these awards were received pursuant to the Public Servants Inventions Act, especially sections 3 and 10 quoted above.

When reading those sections, it is not possible for the Board to conclude but that the awards received are quoted within the scope of subsection 5(1) and paragraph 6(1)(a) of the new Act:

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.

6. Amounts to be included as income from office or employment.

(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) Value of benefits.—the value of board, lodging and other benefits of any kind whatever (except the benefit he derives from his employer’s contributions to or under a registered pension fund or plan, group sickness or accident insurance plan, private health services plan, supplementary unemployment benefit plan, deferred profit sharing plan or group term life insurance policy) received or enjoyed by him in the year in respect of, in the course of, or by virtue of an office or employment.

(The italics is from the Board.)

There is no doubt that the award is a reward given for services rendered by the appellant.

In the Gagnon case cited above, the former Exchequer Court considered as taxable as income from employment an amount received by the appellant, a civil servant, for a suggestion that was estimated to have saved another department of the Government $2,175 in the preparation of census figures.

At 425 [5270] Jackett, P said:

In my view, also, the creation, and formulation in usable form, of a suggestion for improvement in business or governmental operations, is a service of the kind that an employer may obtain either from officers or servants or from independent contractors (e.g., accountants, efficiency experts, etc.). It follows that, in my view, a payment for a suggestion is a payment for a service.

The Board thinks that an invention is of the same nature (but with more strength) as a simple suggestion and that the awards received by the appellant are an income from employment.

The fact that in section 10 of the Public Servants Inventions Act the Minister is not obliged to give an award does not change the fact that when he gives it, he does it ‘‘in respect of, in the course of, or by virtue of an office or employment”.

The fact that the award was received after the year the appellant had created the invention does not change the nature of the amount received and it is taxable in the year it was received. The appellant indeed is an employee and the income taxable is only the one he has received during that year.

5. Conclusion

The appeal is dismissed in accordance with the above reasons for judgment.

Appeal dismissed.