Delmer
E
Taylor:—This
is
an
appeal
heard
in
the
City
of
Vancouver,
British
Columbia,
on
June
27,
1979,
against
an
income
tax
assessment
for
the
year
1974
in
which
the
Minister
of
National
Revenue
added
to
the
appellant’s
income
amounts
totalling
$14,107
received
by
her
from
McDonald
Holdings
Ltd
(hereinafter
referred
to
as
“Holdings”).
The
respondent
relied,
inter
alia,
upon
section
3,
subsections
5(1),
6(1),
248(1),
and
paragraph
56(1)(a)
of
the
Income
Tax
Act,
SC
1970-71-72,
c
63,
as
amended.
Background
The
appellant
is
now
in
her
94th
year
and
is
in
poor
health.
In
1954
Holdings
was
incorporated,
and
assumed
the
ownership
and
management
of
apartment
buildings
previously
owned
and
operated
by
the
appellant.
The
appellant
was
the
principal
shareholder
in
Holdings.
In
1960,
pursuant
to
an
estate
plan,
the
appellant
transferred
her
shares
in
Holdings
to
Selkirk
Estates
Ltd
(hereinafter
referred
to
as
“Selkirk”),
a
family
holding
company
controlled
by
the
appellant’s
children.
The
appellant
was
a
director
of
Holdings
until
September
20,
1973,
when
she
was
removed
as
a
director
by
a
shareholders’
resolution.
By
a
directors’
resolution
dated
December
11,
1973,
Holdings
undertook
to
pay
the
appellant
a
retirement
allowance
commencing
December,
1973
in
recognition
of
the
appellant’s
long
years
of
service
with
Holdings
and
the
discontinuance
of
her
services.
In
1974,
Holdings
paid
amounts
totalling
$14,107
to
the
appellant
pursuant
to
the
directors’
resolution
and
deducted
the
said
$14,107
as
a
business
expense
for
its
1974
taxation
year.
Contentions
It
was
the
position
of
the
appellant
that:
—
in
September
1973,
she
was
wrongfully
removed
against
her
will
from
her
dual
role
as
a
director
of
and
manager
of
the
assets
of
McDonald
Holdings
Ltd,
which
positions
she
had
a
right
to
retain
for
life
by
an
agreement
between
herself,
McDonald
Holdings
Ltd
and
her
children,
which
had
been
a
pre-condition
to
her
entering
into
an
estate-freeze
of
her
shares
in
McDonald
Holdings
Ltd;
—the
said
amount
of
$14,107
received
by
her
was
for
damages
for
breach
of
contract
and
was
therefore
capital
in
nature;
—
in
the
alternative,
if
there
is
not
found
to
be
contract
of
the
nature
as
alleged,
which
is
not
admitted
but
is
specifically
denied,
her
children
caused
McDonald
Holdings
Ltd
to
pay
the
said
amount
to
her
as
gifts
for
the
care,
maintenance
and
support
and,
as
such,
were
payments
of
a
capital
nature.
The
respondent’s
position
was
as
follows:
—from
1965
to
1973
inclusive,
Holdings
paid
management
fees
to
the
appellant;
—during
this
period,
the
appellant
provided
management
services
to
Holdings
but
by
September
20,1973,
had
ceased
providing
such
services;
—there
was
no
contract
of
service
between
the
appellant
and
Holdings
or
other
agreement,
the
breach
of
which
would
entitle
the
appellant
to
damages.
Evidence
and
Argument
This
is
largely
an
intra-family
matter,
and
no
useful
purpose
would
be
accomplished
by
a
detailed
recital
of
the
conflicting
evidence
and
testimony
presented
to
the
Board
by
the
parties
involved.
Counsel
for
the
appellant
argued
that
the
contract
of
employment
enjoyed
and
fulfilled
by
Mary
McDonald
from
the
time
of
incorporation
of
Holdings
up
until
1973
(including
the
period
after
the
entry
of
“Selkirk”
into
the
picture)
had
been
breached
and
the
payment
in
question
was
for
unjust,
unwarranted
and
wrongful
dismissal,
therefore
to
be
treated
as
on
capital
account
according
to
the
decision
in
Her
Majesty
The
Queen
v
Robert
B
Atkins,
[1975]
CTC
377;
75
DTC
5263;
[1976]
CTC
497;
76
DTC
6258.
Counsel
for
the
respondent
put
forward
that,
at
best,
there
could
only
be
an
implied
contract
and
that
the
removal
of
the
appellant
from
whatever
functions
she
fulfilled
was
for
cause
(her
inability
to
perform
adequately)
and
that
no
right
of
damages
flowed
therefrom.
Further,
the
moneys
received
by
the
appellant
between
1954
and
1965
from
Holdings
had
not
been
regarded
as
income
by
the
appellant—they
were
payment
to
her
of
her
capital
investment
in
the
apartment
buildings
sold
to
Holdings.
The
payments
from
1965
to
1973,
although
treated
by
the
appellant
as
income,
were
really
a
method
of
providing
financial
support
to
her.
After
her
removal
as
manager
and
director
in
1973,
the
payment
in
dispute
for
1974
was
clearly
a
retiring
allowance,
with
the
same
purpose
in
mind—to
provide
financial
support—it
was
a
payment
“for
the
loss
of
office”.
Findings
The
salient
facts
as
I
see
them
are:
—There
was
a
contract
of
employment
between
the
appellant
and
Holdings,
up
to
and
including
the
date
of
her
removal
from
active
involvement
in
the
affairs
of
Holdings.
—There
is
no
substantive
evidence
that
the
duties
required
of
the
appellant
were
not
being
fulfilled
adequately.
—That
contract
of
employment
was
terminated
by
Holdings
on
September
20,
1973,
without
notice.
—Such
termination
was
within
the
authority
and
capacity
of
Holdings.
—
No
settlement
or
financial
arrangement
was
made
with
the
appellant
by
Holdings
upon
termination
at
September
20,
1973.
—The
appellant
was
in
a
position
on
September
20,
1973
to
demand
some
form
of
settlement
or
financial
arrangement
arising
from
the
termination
of
employment
by
Holdings.
—There
is
some
evidence
that
legal
action
was
considered
or
commenced
by
the
appellant
against
Holdings.
—On
December
11,
1973,
the
arrangement
described
in
these
proceedings
calling
for
payment
of
a
“retirement
allowance”
to
the
appellant
was
approved
by
the
directors
of
Holdings.
—
Holdings
had
the
authority
and
capacity
to
award
such
a
retirement
allowance.
I
would
refer
to
the
recent
decision
of
this
Board,
presently
under
appeal,
Raymond
Brackstone
v
MNR,
[1979]
CTC
2277;
79
DTC
284,
in
which,
at
2281
and
287
respectively,
the
Board
commented:
A
contract
of
employmemt
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
section
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.
I
note
with
interest
that
the
Minister
in
this
present
appeal
did
not
assess
the
taxpayer
under
subsection
6(3)
of
the
Act
covering
amounts
arising
under
a
contract
of
employment,
even
though
the
reply
to
notice
of
appeal
contains
reference
to
such
general
subsections
as
5(1)
and
6(1)
of
the
Act.
The
Minister’s
right
to
tax,
therefore,
is
founded
solely
upon
whether
or
not
the
amount
in
question
is
covered
by
paragraph
56(1)(a)
of
the
Act
which
reads
(as
it
relates
to
this
appeal):
(1)
Without
restricting
the
generality
of
section
3,
there
shall
be
included
in
computing
the
income
of
a
taxpayer
for
a
taxation
year,
(a)
.
.
.
any
amount
received
in
the
year
as,
on
account
or
in
lieu
of
payment
of,
or
in
satisfaction
of,
(ii)
a
retiring
allowance.
It
is
to
be
noted
also
that
the
distinction
made
by
the
Board
in
Robert
L
Coombe
v
MNR,
[1978]
CTC
3201;
78
DTC
1840,
between
the
terms
“upon
his
retirement”,
and
“upon
or
after
retirement”,
as
they
are
found
in
subsection
61(2)
of
the
Act,
does
not
apply
in
the
present
appeal
since
there
is
no
question
of
the
amount
of
$14,107
being
used
to
purchase
a
qualifying
income
averaging
annuity
as
in
the
Coombe
matter
(supra).
Holdings,
having
decided
to
make
an
award
to
the
appellant
(whether
under
threat
of
legal
action
for
damages
resulting
from
the
termination
of
the
contract
or
not),
was,
in
my
view,
perfectly
within
its
rights
to
identify
the
amount
to
be
paid
in
any
way
it
(Holdings)
saw
fit.
The
main
point
being
made
by
counsel
for
the
appellant,
as
I
understood
it,
is
that
since
the
employment
contract
with
the
taxpayer
had
been
terminated
without
notice
on
September
20,1973,
any
amount
received
by
the
taxpayer
after
that
date
represented
settlement
for
damages
or
potential
damages
for
which
Holdings
was
liable.
I
have
already
expressed
the
view
that
on
the
basis
of
the
evidence
available
to
the
Board,
a
claim
against
Holdings
for
damages
arising
out
of
the
termination
of
the
contract,
or
in
lieu
of
proper
notice,
might
well
have
been
considered
by
the
appellant.
However,
there
is
no
evidence
that
the
appellant
had
any
entitlement
to
a
retirement
allowance
from
Holdings,
whether
that
retirement
came
voluntarily
or
involuntarily.
I
fail
to
see
therefore
that
the
appellant
has
bridged
the
gap
between
the
gratuitous
award
of
a
retirement
allowance
from
Holdings,
and
the
possible
claim
for
damages
in
connection
with
the
termination
of
the
employment
contract
of
the
appellant.
If
such
a
claim
for
damages
existed
at
September
20,
1973,
then
it
was
not
extinguished
by
the
action
of
Holdings
in
granting
the
retiring
allowance.
The
appellant
has
failed
to
establish,
as
her
primary
contention,
that
the
amount
of
$14,107
in
question
should
be
characterized
as
anything
other
than
a
retiring
allowance.
The
alternative
proposition
of
the
appellant
that
the
payments
were
gifts
for
“care,
maintenance
and
support,
and
as
such
were
payments
of
a
capital
nature”,
was
not
actively
pursued
by
counsel
for
the
appellant,
and
the
Board
finds
no
reason
to
consider
that
issue.
Decision
The
appeal
is
dismissed.
Appeal
dismissed.
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