Maurice Alexander Clegg v. Minister of National Revenue, [1973] CTC 2014, 73 DTC 10

The Chairman (orally):—First of all, may I say this is not the first time that this particular problem has come before me, and it is never easy to explain my decision to the appellants.

This is an appeal by Maurice A Clegg against a reassessment by the Minister of National Revenue for the 1970 taxation year wherein the Minister has added to the income of the appellant a certain sum arrived at by a calculation made under paragraph 6(1)(db) of the Income Tax Act. This is one of the sections of the Act that supposedly provides a simple formula that might be understood by the average taxpayer on the street when computing his income tax for the year. To me it is one of the most difficult sections in the Act to interpret, and it is my fervent wish that someone wcuid make the section what it should be—clear and unequivocal to the untrained mind of an ordinary taxpayer.

The section deals with the provision of insurance on the life of an employee by an employer. In order to prevent abuses, Parliament in its wisdom has set a maximum under paragraph 6(1)(db) that an employer may grant, namely, $25,000. This does not prohibit the employee from obtaining additional coverage equal to the amount provided by the employer provided that the group policy in question so permits.

However, the cost of the insurance coverage in excess of $25,000 paid by the employer is clearly added to the income of the taxpayer as a benefit derived by him from his employment.

The problem here is this: Should the premium that an individual pays in exercising his option to obtain the extra coverage granted by the group-policy makers—in this case Mutual Life—be taken into consideration in calculating the benefit to him envisaged by the Act?

As has been pointed out by myself and by others in many cases, the Income Tax Act is an Act that is applicable to most citizens of Canada. Therefore, owing to the sheer complexity and multiplicity of the problems of taxpayers from coast to coast, on any given set of facts it may appear to be, and in fact occasionally is, unfair and unjust to certain individual taxpayers. However, I cannot say in all conscience that I can foresee any way that Parliament can avoid such isolated instances.

I must say that, in my first year on this Board following a term on the Bench of a court of law, the ingenuity of the taxpayer, his agents or counsel in the arguments that they submit to support their clients’ claims for redress against the Minister of National Revenue has never ceased to amaze me. In almost every case their arguments are plausible, logical and would seem without answer.

The argument presented by the taxpayer in this case today, who has presented his own argument, is as logical and as plausible as anyone could wish. However, the problem I face is that I cannot make law for one individual who may be aggrieved by the general interpretation of a given section of the Act, because to do so might grant relief from taxation to many thousands of taxpayers who are not entitled to such relief; and, of course, relief would be granted at the expense of all other taxpayers.

The appellant’s position is as follows: Under the terms of my contract of employment my employer provides me with $26,000 worth of group life insurance. This benefit is tax free by virtue of paragraph 5(1 )(a) (old) of the Act as read in connection with paragraph 6(1)(db)

(old) to the extent of the first $25,000 of the said amount. In other words the only taxable benefit I receive under my contract of employment is the premium for $1,000 worth of insurance. This cost amounts to $5.49 which I have added to my net income for tax purposes. It is true that I have made use of a provision in the group insurance policy allowing me to buy an additional amount of coverage as provided by my employer ($26,000) bringing the total of my insurance coverage to an amount of $56,000. However, this additional insurance does not constitute any benefit to me under the terms of the Income Tax Act because the full premium for the additional insurance was paid for by my employer who withheld the money from my salary after taxes. I can therefore not understand how the Minister managed to consider my premium contribution, which I voluntarily paid out of my own pocket, as a benefit conferred on me and on which I now again have to pay income tax.

This prima facie logical approach, eloquently presented by the appellant, is, unfortunately for him, not in accordance with the provisions of the Act. What the appellant has overlooked is the fact that there was in this case only one group life insurance policy, a single contract (paragraph 139(1 )(sb), old), to which the appellant was a party and by virtue of which he was able to secure additional coverage. It is possible that the taxpayer would have been better off if he had arranged life insurance with another company, at least not under the group insurance policy to which he was already a party by virtue of his contract of employment, but he chose to make use of the existing policy, thereby affecting the benefit which he might enjoy as a result of the incentive provided in paragraphs 5(1 )(a) and 6(1)(db) of the Act.

The provision 6(1)(db) prescribes a calculation of a taxpayer employee’s benefit under a group life insurance plan in case of additional insurance and it appears that after the “underbrush” of this provision has been cut away the calculation is basically as follows: (1) calculate the premium cost per unit of insurance for the entire group insurance policy; (2) calculate the taxpayer’s contribution per unit of his insurance under the policy, ie not of the additional insurance only but of the entire amount of insurance for which the taxpayer is covered (in this case $56,000); (3) deduct this contribution per unit from the cost per unit as calculated under (1) and multiply the difference by the number of units of insurance in excess of the $25,000 worth of insurance which is exempt. The outcome is the benefit which the taxpayer enjoys, as a result, for the excess, including additional insurance under the terms of that group life insurance policy.

Why the legislature enacted this provision as it reads is a moot question and of little or no concern to us. However complicated the Act may be for those who try to insert their own concept of “reasonableness” into the Act, thereby ignoring the unambiguous statutory phraseology, the Act is on this point nevertheless unequivocal.

Therefore, on an interpretation of the Act, I cannot find that the Minister is wrong in law in the interpretation that he has put on this particular section; on the contrary, his interpretation is the correct one and one that, in my view, must be followed by employers generally.

It is of little solace to the taxpayer concerned that he has presented a fine and logical argument and yet has lost. As I say, his logical and plausible interpretation of the section is nevertheless not the legal and lawful interpretation that must be placed upon it, and which is placed upon it by this Board. The appeal will therefore be dismissed.

Appeal dismissed.