Jacqueline J Loeb v. Her Majesty. The Queen, [1978] CTC 56, 78 DTC 6118

Addy, J :—This is an appeal against the taxation assessment of the plaintiff by the Minister of National Revenue for the taxation year 1975.

The plaintiff, a secondary school teacher, participated in a teachers’ strike in 1975, in Ottawa; as a member of the Ontario Secondary School Teachers’ Federation (hereinafter called ‘‘the Federation”). She claims that the amount of $786.56 received by her during the strike constituted strike pay and was therefore not to be considered as taxable income. The defendant on the other hand claims that it was pay received from her employment under an agreement with the Federation whereunder she was employed as an officer of the Federation for the duration of the strike and, therefore, constitutes a salary or emolument properly taxable as income.

It appears that a great number of secondary school teachers are interested in the outcome of this case and, being therefore a test case, it is of somewhat greater importance than the actual amount involved would indicate.

Pursuant to The Teachers’ Superannuation Act, RSO 1970, c 455, a person could contribute to the Teachers’ Superannuation Fund and consider, as a period of employment counting towards superannuation, not only those periods during which that person was employed as a teacher but also periods during which the person was engaged in other related and approved occupations such as that of a supervising officer in a board of education or in the Department of Education, an officer of certain associations of trustees and, more particularly for the purposes of this case, an officer of the Federation. Subclause 1 (e)(ix) of the aforesaid Act reads as follows:

1. In this Act,

(e) “employed” means engaged under contract for any period,

(ix) aS an officer of an association or body of teachers engaged in advancing the interests of education and designated by the regulations,

The Federation is an association designated in the regulations.

Obviously a teacher who was merely on strike after a contract of employment had expired, as in the present case, could not contribute towards the Superannuation Fund. The Assistant Secretary of the Federation, who testified on behalf of the plaintiff, stated that teachers as a group are always very security minded and feel that it is extremely important to protect their pensions at all times. The Federa tion was anxious to find a solution which would ensure that these normal concerns. not interfere with any decision as to possible strike action. Furthermore, the Federation in fact received specific directions from its membership to arrange matters in such a way that, if possible, no striking teacher would forgo any pension right during a period of work stoppage.

In anticipation of the strike and as a result of the direction received from its membership, the Federation, after consultation with officers of the Department of Education and of the Teachers’ Superannuation Commission, devised the scheme or stratagem of allowing each of its striking teachers to enter into a written agreement with it pursuant to which the teacher would purportedly be employed as an officer of the Federation for the duration of the strike and would be paid as such.

A document entitled “Contract of Employment’’ dated February 26, 1975 was duly executed at that time by the plaintiff together with a further document entitled “Strike and Picket and Information Line Contract”. Both these documents were contained on the same sheet of paper, the text of which is reproduced hereunder:

The Ontario Secondary School Teachers’ Federation contracts to employ the undersigned as a Federation Officer effective February 26, 1975. Remuneration and terms of such employment to be governed by the terms of the Memorandum of Agreement between District 26, OSSTF, and the Provincial Executive of OSSTF as finalized on February 11, 1975.

Witness	Signature of Employee
Witness	Representative of Provincial
	Executive, OSSTF
Witness	L. M. Richardson,
	General Secretary, OSSTF
School	.
Name of Employee
Home Address
Telephone
Salary Information

STRIKE AND PICKET AND INFORMATION LINE CONTRACT

NAME

Please Print

The undersigned hereby agreed to withhold services on February 27, 1975, and/or subsequent to that date and further that I will carry out “Picket Line” duties or other duties as assigned by the Provincial Executive Takeover Team through the Chairman of the Provincial Executive Takeover Team. Such agreement to cease when an agreement is arrived at and is ratified by District 26 OSSTF membership together with the Ottawa Board of Education.

Signature

The above referred to memorandum of agreement between District No 26 OSSTF and the Provincial Executive of OSSTF, finalized on February 11, 1977, is not in fact or in law an agreement. District 26 is not a distinct legal entity but is an integral part of the Federation (refer section 1 of Article 7 and section 1 of Article 9 of the constitution of the Federation). Furthermore, the Provincial Executive as such is not a legal entity and has no right to contract except on behalf of the Federation. This memorandum of agreement is therefore nothing but an internal administrative document or a memorandum between two elements of the same organization. In any event it does, in paragraph 14 thereof, provide for the payment during a strike of a percentage of the regular salaries of the teachers plus 100% of the fringe benefits. A letter, also dated February 26, 1975, signed by the General Secretary of the Federation was delivered to the plaintiff at the time of delivery of the above-mentioned agreement for signature. The first paragraph of the letter reads as follows:

At this time you have signed a Memorandum of Agreement employing you as a federation officer with duties to commence on the first day the board does not pay salaries as a result of absence authorized by the Provincial Executive Takeover Team and the Provincial Executive. In signing that agreement you have come under the direction of the General Secretary and have agreed to carry out such duties and perform such services as he deems appropriate. Specifically, therefore, I ask you:

(a) to be readily available as the situation demands, to attend all meetings called by the Federation, and

(b) to assume appropriate responsibilities in attending and forwarding any programmes initiated by the Federation in your division.

On February 27, 1975, that is, the following day, the teachers went on strike.

The plaintiff testified at trial that it was her understanding that, as she would not be able to contribute to the superannuation fund unless employed either as a teacher by the School Board or as an officer of the Federation, the above-mentioned document merely constituted a “technical form to meet a technical condition”. As to the second undertaking regarding pickets she merely stated that it was a means of determining who would be doing picket duty.

She also testified that, although she did perform some services during the strike by undertaking picket line duties and assisting in paying the strikers and that she would have performed other duties if requested, it was never as a result of a request from the Federation to perform such duties as an officer thereof. She further stated that the duties she did perform and those additional duties which she would have been willing to perform arose out of her status as a member of the Federation and not as a result of any agreement or contract.

The personal motivation of the plaintiff in rendering the services which she did render is of no consequence if there existed an agreement under which these services and other services could, as of right, have been required of her by the Federation. Furthermore, the fact that the plaintiff was in fact never called upon to perform services by the Federation is really immaterial, especially where the document provides on the face of it, that she must hold ‘herself available to perform certain services if requested. A mere undertaking to hold oneself available for services constitutes a good consideration flowing from the employee to the employer and payment for such constitutes payment under an employment contract. (Refer R P Bell v MNR, [1962] CTC 253; 62 DTC 1155.)

The moneys were paid to her from the contingency fund of the Federation which was in fact the fund constituted for the purpose of compensating its members when on strike. However, the fund from which the remuneration was paid does not affect the nature of the agreement itself.

It is interesting to note that the employee’s and the employer’s share of both the Canadian pension contributions and unemployment insurance premiums were paid. Both created certain additional entitlements to benefits and the payment of both depends on a relationship of employer and employee. Notwithstanding this, at no time has any protest been made nor has any attempt whatsoever been made to have these deductions either cancelled; annulled or refunded.

The plaintiff also testified that, from the time she received her first cheque during the strike, she was aware that deductions were in fact being made by the Federation for these items as well as for income tax, yet nothing whatsoever was done in an attempt to change the situation in so far as future cheques were concerned or to cancel out any deductions made. It was only when she made out her income tax return after the end of the year that the plaintiff first claimed that the deductions should not have been made for income tax purposes and requested from the Department of National Revenue an exemption of tax on the amount in issue.

Subsequent actions of parties to a contract can have no bearing on their original intention nor can they be used by one of the parties to a written contract in an attempt to vary its express terms against the right of another party to the contract. However, where a stranger to the contract is involved and especially where, as in the present case, the parties to the document claim that it might in fact represent something other than appears by its express terms, the subsequent actions of the parties are quite admissible to determine what the intention of the parties was and to determine its precise nature and effect.

The document on its face is a contract of employment for a fixed remuneration. The evidence furnished by both parties to the document did not constitute a denial of an intention to contract. On the contrary, the evidence adduced was rather an explanation of the motives which governed the decision of the parties to enter into an agreement: it established the reason why the document was executed. The evidence also establishes that there was no intention to deceive the Superannuation Commission. It is clear and undenied that, at the time the document was signed, the parties considered that they were signing a contract and that by that contract they intended to create a relationship between themselves which would permit the plaintiff to continue to contribute to and to benefit from the provisions of The Teachers’ Superannuation Act during the strike. The only possible relationship which would qualify was that of employer and employee or that of an approved teachers’ association and an officer of that association. The document by its text purported to cover both these situations and the letter, to which I have referred above and which accompanied the agreement, clearly stipulated what was to be expected of the plaintiff under the contract.

Subsection 20(1) of The Teachers’ Superannuation Act provides that “Every person who is employed . . . shall contribute to the Fund . .

Clause 1(e), which I have quoted earlier stated that ‘employed’ means engaged under contract for any period ..

In my view, the plaintiff and the Federation succeeded in fact and in law in creating the relationship which they sought and I find that the plaintiff was indeed employed by the Federation during the period of the strike and that this employment was in accordance with the agreement in issue pursuant to which the plaintiff received the sum of $786.46.

In The Teachers’ Superannuation Act there is no special statutorily limited or restricted meaning to be attached to the general concept of employment or to the definition of the words “employee” or “officer”. What constitutes an employee or an officer under that Act is undoubtedly broad enough to encompass the concept of an employee or an officer as contemplated in the Income Tax Act. It follows that a salary or emolument paid to an employee or an officer which would permit qualification under The Teachers’ Superannuation Act would necessarily entail a liability to pay tax on that amount under the Income Tax Act.

Subsection 5(1) of the Income Tax Act reads as follows:

5. (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 relevant parts of subsection 6(3) provide:

6. (3) 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) . . . 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 officer 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 . . . .* [1]

The relationship created by the agreement would, in my view, be caught by the provisions of both paragraphs (a) and (b) of subsection 6(3). Since, during the strike, the plaintiff was in the employ of the Federation pursuant to the written agreement in issue and since the amount of $786.56 was paid to her as provided for in the agreement, it becomes unnecessary for me to decide two other questions which were argued at some length during the trial, that is to say, whether the plaintiff was filling an “office” as defined in interpretation section 248 of the Income Tax Act and whether in order to be considered an “officer” in subsection 6(3) one necessarily has to be filling an “office” as defined in section 248.

It seems apparent that the only way the relationship expressed in the document could be denied would be on the grounds that neither of the parties intended to create it. Having regard to the carefully planned and deliberate manner in which the document was conceived and brought into existence by the Federation on behalf of its members, this would lead to the inescapable conclusion that the plaintiff and members of the Executive of the Federation representing the Secondary School Teachers of Ontario had conspired together to create a sham by means of which the Teachers’ Pension Commission would be deceived and the plaintiff would fraudulently obtain benefits to which she was not entitled.

It is unthinkable that either of the parties could have been capable of taking part in a deception of this nature and, furthermore, the evidence clearly points to the contrary: they, as any citizen may lawfully do, set about to create a bona fide legal relationship by means of which the plaintiff would become eligible for certain benefits. They succeeded and, having done so, must live with the consequences.

Under the circumstances, it is difficult to understand why the matter was taken this far.

The appeal is dismissed with costs and the assessment complained of is confirmed.

Judgment shall issue accordingly.