Clarence Olson Et Al* v. Minister of National Revenue, [1973] CTC 2274, 73 DTC 226

The Assistant Chairman:—This is the appeal of Clarence Olson from an income tax assessment in respect of the appellant’s 1971 taxation year. Counsel for the parties concerned agreed that the evidence adduced and the decision rendered in the appeal of Clarence Olson would apply to the appeals of the following appellants in respect of their 1971 taxation years:

After a motion for an order for a change of venue was made by counsel for the appellant and granted by the Board, the appeals of O R Coombe, David J Read, Frances M Fielding and Herma I Pozniak were also included in the above list of appeals to be heard simultaneously and on common evidence with the Clarence Olson appeal.

The appellant has been employed by the British Columbia Hydro and Power Authority (hereinafter referred to as “BC Hydro”) since 1968. As a result of a collective agreement in 1946 between BC Hydro and the Office and Technical Employees’ Union, the employees customarily received a pass for use on the BC Hydro buses which was not taxed by the Department of National Revenue as benefit income in the hands of the employees.

The day the appellant was employed by BC Hydro he was informed of the work he was expected to carry out, the salary he was to be paid, and he was issued a bus pass. Evidence reveals that the appellant in fact never utilized the pass.

By a collective agreement entered into between the Office and Technical Employees’ Union and BC Hydro effective April 1, 1971, BC Hydro agreed to pay each employee in service on June 25, 1971 a once-only cash payment of $100 in exchange for the surrender of the entitlement to the bus pass. Alternatively, the employee could retain entitlement to the pass by authorizing a payroll deduction of $10 a year. Employees hired after June 25, 1971 were not entitled to a pass and BC Hydro’s offer to those who had passes extended to May 31, 1972. The appellant, who accepted BC Hydro’s offer and received a $100 cash payment in 1971 was assessed income tax on the $100 payment.

In objecting to the Minister’s assessment, the appellant claimed that the $100 payment was not income in the hands of the appellant and was not “remuneration” within the meaning of subsection 5(1) and section 25 of the Income Tax Act.

Counsel for the appellant bases his argument principally on subparagraphs (i), (ii) and (iii) of section 25 and contends that the $100 payment is not income because it cannot reasonably be regarded as having been received under any of these three subparagraphs. It would appear to me that, although from the facts of the case subparagraph

(iii) of section 25 may not be relevant, subparagraphs (i) and (ii) are very pertinent.

The appellant, on entering a contract of employment with the BC Hydro was advised the amount of salary he was to receive for services required of him and, furthermore, was issued a bus pass as a result of a negotiated agreement between BC Hydro and the Office and Technical Employees’ Union which formed part of the conditions of employment of that company at the time and, as such, could reasonably be regarded as a consideration or inducement for entering into the contract of employment.

Since the appellant never made use of his pass, counsel for the appellant contends that the pass had no value for the appellant and, since remuneration is defined as “a reward for services rendered”, counsel concludes that the pass cannot be considered as a partial remuneration for services rendered.

The appellant, of course, was free to use the pass or not as he wished. Whether the pass had any value while in the possession of the appellant, or what value should be placed on the pass at that time is, to my mind, immaterial to this appeal because in 1971 when the appellant surrendered his entitlement to the pass it was worth $100 which the appellant in fact received, and it is the nature of the payment of this $100 which is the basic issue in this appeal.

According to the April 1, 1971 collective agreement between BC Hydro and the Office and Technical Employees’ Union, it was agreed that the original conditions of employment be changed and that the employees who possessed bus passes would, on the surrender of their entitlement, receive a once-only cash payment of $100—otherwise the employees could retain entitlement to the passes by authorizing a payroll deduction of $10 per year.

Although some of the conditions of employment resulting from the new collective agreement may have changed from the time the bus passes were freely issued to BC Hydro employees, the alternatives offered to the employees in possession of the passes in 1971 still remained, in my opinion, an integral part of the original consideration for entering into a contract of employment and/or a partial remuneration for services under the contract of employment with the difference, however, that a specific value for the passes was established and given to employees who surrendered their entitlement. The value of the pass to the appellant is $100 and not, as suggested by counsel for the appellant, some arbitrary percentage of that figure.

In my opinion the nature of the $100 payment received by the appellant in 1971 is income in that it constitutes remuneration in relation to the appellant’s employment ‘and falls within the provisions of subsection 5(1) and section 25 of the Income Tax Act.

I find it very difficult indeed to consider, under the circumstances of this case, that the entitlement to the bus passes given to the employees as a fringe benefit resulting from a collective agreement and dealing with conditions of employment at BC Hydro can in any way be considered as a capital asset which was sold for $100.

In my view, the present appeal has no similarity whatsoever with the case of Walter F Wilson v MNR, 23 Tax ABC 396; 60 DTC 115, cited by counsel for the appellant and which deals with the sale of shares by the appellant. Nothing in the agreements of sale in that case dealt with services rendered or to be rendered by the appellant. In the case before us the issuance of bus passes was a necessary condition of employment at BC Hydro. It was an inducement and fringe benefit that was enjoyed by all the employees at that time, but exclusively in relation to their employment. The appellant further contends that since the Minister, pursuant to Department of National Revenue Information Bulletin No 32, dated September 28, 1966, did not tax as a benefit the bus passes issued to the BC Hydro employees, the Minister is precluded from taxing the payment made in substitution of the passes.

The Board of course is not bound by anything other than the Income Tax Act and decisions from higher courts. According to counsel for the respondent, the practice of the department was, pursuant to the said Information Bulletin No 32, not to consider bus passes as a taxable benefit even though it may have had a legal right to do so. The fact that the department did not tax the bus passes does not preclude it from taxing the payments made in substitution thereof. As far as the Board is concerned, the only valid criterion is whether the $100 payments in the circumstances of these appeals fall within the meaning of subsection 5(1) and section 25 and, for the reasons heretofore stated, I consider that they do and I hold that they are income in that they constitute remuneration relative to the appellant’s employment.

The appeal is therefore dismissed.

Appeal dismissed.