Marshall Kulka v. Minister of National Revenue, [1979] CTC 2989, 79 DTC 817

The Chairman:—The appeal of Dr Marshall Kulka is from an assessment by which the Minister added to the appellant’s income an amount of $20,960 for the 1977 taxation year. As I understand it, the issue is whether $20,000, received by the appellant as a bonus from his employer, is income. No evidence was adduced as to the source of the $960 received by the appellant in the pertinent taxation year and I am unable to determine whether that amount is taxable or not.

The Facts

The appellant, a research chemist, was employed with Uniroyal Research Laboratory for a period of 33 years. In the course of his employment the appellant made a number of discoveries in the field of agricultural compounds which are presently manufactured solely in Canada and sold in Canada and abroad.

On March 1, 1976, the appellant, having reached the compulsory retirement age of 65, his employment as manager of the research laboratory was terminated.

The appellant, however, was retained by the employer as a special consultant and was paid for his services on the basis of the number of chemical compounds produced, as well as on the basis of his attendance at the laboratory.

By letter dated May 27, 1977, the appellant was informed that he had been awarded a bonus of $50,000 by the Executive Committee of the Corporation. The one-time award was payable $20,000 on May 10, 1977, $15,000 on January 1, 1978, and $15,000 on January 1, 1979, (Exhibit A-1).

The issue in this appeal is whether the amount of $20,000 received by the appellant in the 1977 taxation year is taxable income.

The Submissions

The appellant contended that the $50,000 award was gratuitously presented to him more than a year after he had retired from Uniroyal. There was no contractual obligation for the Corporation to give the appellant the award and the appellant had no reason to expect such an award and could not have taken any action to claim it if it had not been granted.

The appellant submitted that the award was made in acknowledgement of his achievements as a scientist which gave rise to important advances in the agricultural industry throughout the world and resulted in financial benefits for the Corporation. The appellant referred to the case Her Majesty the Queen v George R McLaughlin, [1978] CTC 602; 78 DTC 6406, in support of his contention and concluded that the $50,000 award was not income and that the $20,000 received in 1977 was not taxable.

It was the respondent’s submission that the $50,000 awarded to the appellant was income in the form of “other remuneration’’ from his employment and was given as a result of the valuable work done by the appellant as an employee within the meaning of subsection 5(1) of the Income Tax Act, SC 1970-71-72, c 63, as amended. The respondent contended that the award was given on the basis of an employer-employee relationship, either in recognition of long service or as a retirement allowance which is taxable pursuant to subparagraph 56(1 )(a)(ii) of the Act.

The respondent sought to distinguish the facts of the instant appeal from those of the McLaughlin (supra) case cited by the appellant. In that case Mr McLaughlin, a successful dairy farmer, was Chairman of the Ontario Milk Marketing Board and, as a result of his achievements in the field of agriculture, was granted a $10,000 award by a committee composed of the President of the University of Guelph and the deans of various agricultural colleges. The Minister of National Revenue, on the basis of paragraph 56(1 )(n) of the Income Tax Act, included the amount of the award in the appellant’s income. The Tax Review Board allowed the taxpayer’s appeal, finding that since the award was not a prize given as a result of a competitive situation, but was an award received for meritorious conduct in the field of endeavour to which he devoted his life, it was not taxable under paragraph 56(1 )(n). In the Minister of National Revenue’s appeal to the Trial Division of the Federal Court the Board’s decision was confirmed.

The distinction properly made by the respondent was that in the McLaughlin (supra) case the award was not made by the appellant’s employer, but by a third party, whereas in the instant appeal the award was made by the appellant’s employer and he suggested that subsection 5(1) of the Act is therefore applicable.

The respondent cited the case of Mr C v MNR, 2 Tax ABC 6; 50 DTC 206, in which a judge who had presided on a Royal Commission was paid in honorarium of $15,000 which he considered as a gift because he was prohibited by section 38 of the Judges Act, RSC 1927, c 105, from receiving extra renumeration for his services. The then Chairman of the Tax Appeal Board held that the amount received was a fee and was taxable under section 3 of the Income War Tax Act.

Findings in Fact and in Law

I am satisfied, on the basis of the evidence and particularly on the basis of Uniroyal’s letter dated May 27, 1977, that the award of $50,000 was not a retiring allowance for long service within the meaning of subsection 248(1) of the Act, but a tangible acknowledgement by the employer of the appellant’s excellence and ingenuity in carrying out his work. Three is no doubt in my mind that the $50,000 “gross” was intended by the employer as a voluntary surprise payment or a bonus to a very valuable employee.

The wording of subsection 5(1), however, is so broad that it encompasses such a voluntary payment, even made by the employer after the appellant’s retirement, since the payment made by the employer is directly related to the work done by the appellant while he was employed by Uniroyal.

Conclusion

I must therefore conclude that the amount of $20,000 received by the appellant in 1977 from Uniroyal is income within the meaning of subsection 5(1) of the Income Tax Act, and the appeal must be dismissed.

Appeal dismissed.