Gaëtan Dorval v. Minister of National Revenue, [1979] CTC 2888, 79 DTC 736

The Chairman [TRANSLATION]:—This is an appeal by Mr Gaétan Dorval from a tax assessment for the 1975 taxation year. The facts in the appeal are not in dispute. During the taxation year the appellant was employed by the federal government, at the Department of National Revenue in Trois- Rivières, Quebec.

According to the 1975 T-4 form, on page 5 of Exhibit 1-1 (book of documents filed by the respondent), the appellant received a salary of $16,205.63. On January 7, 1975, after he had applied to Treasury Board fora supplement for health insurance in the amount of $140.76, pursuant to section 14 of the Public Service Health Insurance Regulations (Exhibit 1-1, page 27), the supplement was granted, as appears from the 1975 T-4 Supplementary (Exhibit 1-1, page 5). The appellant did not regard this sum of $140.76 to be income and did not include it in his tax return. In his assessment the respondent added $140.76 to the appellant’s income for 1975; it is this sum which is at issue in this dispute.

Issue

At issue is the actual nature of the $140.76 which the government paid the appellant. Although there is a slight difference between the amount referred to by the appellant in his notice of objection ($167.76) and that used by the respondent in his reply to the notice of appeal, this is obviously a question of principle and not of quantum. Moreover, counsel for the respondent explained the disparity between the two amounts and the appellant did not object. The sum of $140.76 will therefore be treated by the Board as the quantum of the dispute.

Submissions by the appellant

The appellant’s notice of objection reads as follows:

—Assessment on an amount of $167.76 received from DSS in reimbursement of a health insurance supplement.

— Reason for the objection:

1. This payment cannot be additional income, since the salary of a federal employee is determined according to the collective agreement, and no supplementary amount can be paid.

2. This payment represents a reimbursement of deductions made from the monthly pay cheques for health insurance premiums, which are to be paid by the employer and not the employee under the collective agreement. For its own reasons, however, the employer prefers to make pay deductions and reimburse the employees at the end of the year.

3. These premiums are not deductible as such under Canadian tax legislation and payment of these premiums by a third party can consequently not be regarded as income for the beneficiary thereof.

4. The health insurance premiums paid by an employer are not considered by Canadian tax legislation to be an allowance or benefit taxable in the hands of the employee.

PS—If this case should be referred to the Federal Court, I would like it to be heard in Ottawa so that I can call as witnesses Treasury Board personnel who authorized this procedure for employees residing in Quebec and also Public Service Alliance representatives who negotiated the fringe benefits paid for by the employer.

His notice of appeal reads as follows:

Trois-Rivières, PQ

December 1, 1977

Registrar of the Tax Review Board

381 Kent Street

Ottawa, Ontario

K1A 0M1

Subject: Appeal from a decision concerning an assessment for the year ending on December 31, 1975

Dear Sir:

I am enclosing a photocopy of the notice from the Minister rejecting a notice of objection concerning an assessment for 1975.

The principal argument against this assessment is that the reimbursement received from the employer cannot be taxable if expenditures of the same nature were made that are of the same amount as or an amount higher than the amount of reimbursement. References to the Act will be given when the appeal is heard.

I would like the appeal to be heard in Ottawa since I will be able to obtain free legal assistance from the Public Service Alliance in defending my position, since this appeal is regarded as a test case.

In his arguments the appellant submitted that the respondent erred in relying on subsection 5(1) of the Income Tax Act, SC 1970-71-72, c 63, as amended, to include the sum of $140.76 in his income since this was a reimbursement of expenses and not income. He added that the employer, in this case the federal government, cannot pay a salary greater than the one provided for in the collective agreement. The appellant maintained that the payment of $140.76 was a reimbursement calculated and made pursuant to the Public Service Health Insurance Regulations.

In order to establish that this was in fact a reimbursement the appellant filed as Exhibit A-1 an excerpt from the personnel administration guide which sets out the amounts of supplements paid to employees working in Quebec during 1976. The appellant, who has more than one dependant, was entitled to a health insurance supplement of $15.82 per month, or $189.84 per year (adjusted to $140.76).

The appellant submitted that the sum of $140.76 paid by the government was a reimbursement of the contributions deducted from his salary. He suggested that since ordinary medical expenses are allowed, contributions to health insurance should also be deductible.

Submissions by the Respondent

The respondent for his part maintained that the sum of $140.76 represented income in the form of a gratuity or social benefit which the appellant received from his employer and was taxable under section 5 of the Income Tax Act. The respondent submitted that this was a voluntary contribution from the appellant’s employer (the federal government) to indemnify its employees for part of the amount they paid for Quebec health insurance.

The respondent gave a history of the health insurance plan, which may be Summarized as follows.

In 1963 the federal government, in its capacity as an employer, introduced and contributed up to 50% of the cost of a group surgical-medical insurance plan for Public Service employees. In 1968 and 1969 the governments of the various provinces set up their own health insurance plans with benefits differing from one province to another.

In 1968 the federal government enacted the Medical Care Act (Exhibit 1-1, page 54), which made basic provisions for the different provincial health insurance plans, and undertook to pay 50% of the cost of the plans to provinces that met certain criteria for medical care.

In 1973 the federal government’s Surgical-Medical Plan was repealed and replaced by the Public Service Health Insurance Regulations (Exhibit 1-1, page 22), which we are concerned with here. Once all the provinces had set up their own health insurance plans, the federal government was no longer obliged to pay 50% of the cost of health insurance, not even as an employer, but it made contributions to the provinces, which covered all those within their jurisdiction, including federal employees working in their province.

At about the same time certain major employers decided to pay part of their employees’ contributions. At the request of the Public Service unions the federal government followed suit and paid part of the amount its employees had to pay to the provincial health insurance plans.

In his submissions the appellant had maintained that the federal government did not have the right to pay its employees a salary higher than what had been agreed upon in the collective agreement and concluded that the amount of $140.76 was therefore not income but a reimbursement.

Counsel for the respondent noted that the federal government, as an employer, was governed by section 7 of the Financial Administration Act (Exhibit 1-1, p 18), which reads as follows:

. . . the Treasury Board may, in the exercise of its responsibilities in relation to personnel management including its responsibilities in relation to employer and employee relations in the public service, and without limiting the generality of section 5 and 6,

(d) determine and regulate the pay to which persons employed in the public service are entitled for services rendered, the hours of work and leave of such persons and matters related thereto.

Counsel for the respondent concluded that the collective agreement does not govern all relations between the employer and its employees and that the right of administration given to the federal government by section 7 must be taken into account. It is under this section that the federal Health Insurance Regulations were enacted, constituting in essence a supplementary health insurance plan.

The appellant applied for supplementary remuneration under section 14 of the Public Service Health Insurance Regulations, which reads as follows (Exhibit 1-1, p 27):

14.(1) Subject to this section, upon receipt, before the time limit, of evidence satisfactory to the Minister that a person, while he was an employee, a member of the Force, member of the forces or pensioner, was a resident of Canada, the Minister may pay to such person an amount equal to the amount determined by the Minister in accordance with column III of Schedules, V, VI, XVI or Schedules VII, IX, X, XI, XII, XIII, XIV, or XV, as the case may be, representing the share of the Government of Canada of costs of the provincial medical care insurance incurred by that person in respect of each month during which he was an employee, a member of the Force, member of the forces or pensioner.

This section is discretionary since it states that “the Minister may pay’’ (italics mine) and the amounts he may pay are found in Schedule X (Exhibit 1-1, p 39) entitled Table of Monthly Government Contributions— Quebec.

The Health Insurance Act (Exhibit 1-1, p 44) provides that the provincial government may claim from any individual residing in Quebec a contribution of 8 per cent of that individual’s net income to cover health insurance costs (section 64 of the Health Insurance Act, Exhibit 1-1, p 45). This amount, which is deducted at source by the federal government, is paid directly to the government of the province of Quebec. In the present case the appellant, as a resident of Quebec, would thus have indirectly paid $119.51 to cover Quebec health insurance costs (form TP4 (G)—Supplementary for 1975, Exhibit 1-1, p 6). Counsel for the respondent explained that the difference between the amount the appellant paid, $119.51, and the amount he received, $140.76, for the Health Insurance Plan was a result of the way in which the Quebec Government financed its Plan. The federal government used a nation-wide formula as a basis for its supplementary remuneration and took into account the sources of income used by the province of Quebec to pay the cost of its Plan.

Counsel for the respondent concluded that the sum of $140.76 received by the appellant from his employer constituted an advantage or benefit arising from his employment and was taxable under section 5 of the Income Tax Act.

In support of his arguments counsel for the respondent cited the following cases: Donald J Plumb v MNR, [1964] CTC 228; 64 DTC 5145, and Rudolph Meyer v MNR, [1977] CTC 2581; 77 DTC 413.

The issue to be determined here is whether the $140.76 received by the appellant constitutes a benefit from employment and is accordingly taxable.

Certain distinctions must be made, I think, between the facts of this case and those in the cases cited. In Donald J Plumb (supra) the insurance premiums were paid in full by the employer and the issue was whether the benefit or advantage Mr Plumb may have derived from the contributions made by the employer had been made under a group insurance plan. It ~eems to me that the facts in Rudolph Meyer (supra) are not comparable and the issue is quite different from the one in the present appeal.

In the case before us the appellant in effect paid a high percentage of the supplementary remuneration he received from the federal government and the financial benefit he may have derived from it is minimal seen from this point of view.

The point I would stress in particular is that the Quebec Health Insurance Plan and the federal regulations concerning provincial health insurance plans are legislation with a nation-wide application. They are identical to other social legislation in the country and are set up independently of any collective agreements that may exist between employers and employees. The very nature and purpose of health insurance differ considerably from those of group health or accidental insurance plans in that there is no financial compensation for wage loss but rather a health insurance plan under which medical expenses are paid by the provinces.

Paragraph 6(1 )(a) of the Act, to which counsel for the respondent referred, reads as follows:

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) 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 service 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.

In my view the health insurance plans of the various provinces are not included in any of the exceptions set out in paragraph 6(1)(a) of the Act. On the other hand sections 3 and 4 of the federal Medical Care Act (Exhibit 1-1, pp 43 and 53 respectively) establish clearly the distinction to be made between health insurance and the various social plans referred to in paragraph 6(1 )(a) of the Income Tax Act.

According to the account of health insurance legislation in Canada given by counsel for the respondent, in the absence of federal regulations on medical care the appellant would nonetheless have had to contribute his share to the Quebec health insurance plan without being entitled to any reimbursement. The federal government was not obliged to reimburse the taxpayer for part of the cost of a provincial health plan. It was its choice and policy to so so independently of any collective agreement with the public service unions. This legislation of the federal government that gave rise to a refund to its employees for their contributions to a provincial insurance plan is nonetheless an advantage or benefit derived by the appellant from his employment.

Conclusion

For these reasons I find that the $140.76 received by the appellant from his employer during the 1975 taxation year is income derived from his employment and is taxable under the provisions of section 5 of the Income Tax Act.

Decision

The appeal is therefore dismissed.

Appeal dismissed.