Collier, J:
1 This is an appeal and cross-appeal from a decision of the Tax Review Board. In 1971 the defendant received $18,000 from his former employer Rolph- Clark-Stone Limited. The Minister of National Revenue took the view the amount should be included in computing the defendant's income for that year, and assessed the defendant accordingly. The defendant appealed. The Tax Review Board found that $6,000 should not have been included as income but the remaining $12,000 was correctly included in income. The Board added the qualification that the $12,000 should be treated as a retiring allowance under subparagraph 6(1)(a)(v) of the Act,[FN1: <p>RSC 1952, c 148 and amendments (what is now informally called the“old” Act).</p>] so that the defendant would have the advantage of the averaging provisions of subsection 36(1).
2 Both parties have appealed to this Court.
3 The defendant is now 53 years old. He has a Bachelor of Science in Printing from the Carnegie Institute of Technology and holds an MBA from the University of Toronto. He commenced employment with Rolph-Clark-Stone Limited in 1952 as an assistant to the sales manager. The company was and is engaged in various aspects of the printing business. His salary when he started was $5,200 per year. He steadily progressed with the company. In 1965 he was appointed an officer (secretary). His salary was then $15,400 per year. He was provided with a car which the company leased. He paid the company in respect of private personal use a certain portion of the car expenses. It was less than what it would have cost him to operate his own personal automobile.
4 In February of 1968 he became the vice-president and general manager of the company's Paper Printing Division. He was also a member of the Operating Committee of the company. As a vice-president, he reported to the president of the company. He was provided with a car on the same basis as earlier stated. In addition to his salary, he and some other senior employees were entitled to share in profits, but there was a maximum of $2,000 per annum. The terms of the profit-sharing scheme were rewritten each year. In February 1968 his salary was $19,700. As of October 13, 1970 it was $22,300.
5 The company had a pension scheme to which both it and the defendant contributed over the years. There was also a group life insurance scheme to which the defendant belonged. There was as well a university scholarship plan for children of employees. There may have been other what are sometimes called “fringe benefits”.
6 In 1970 the company began to experience some financial difficulties apparently because of a general downturn in the printing industry. The sales in the defendant's particular division were up 121/2% in 1970, but the other business of the company had fallen off.
7 The defendant was, without warning, dismissed. A few days before October 13, 1970 he was called into the office of the President and, with no discussion, was handed a letter dated October 13, 1970 (Exhibit 1-A). I quote the letter in full:
Dear Mr. Atkins:
The purpose of this letter is to set forth the arrangements for the termination of your employment with Rolph-Clark-Stone Limited (herein called the “Company”) effective October 13, 1970 (herein called the “date of termination”), which are as follows:
1. The Company releases you from all of your obligations and duties as an employee of the Company and as an officer and/or director of the Company or any of its subsidiary companies. You acknowledge and represent that there are no other outstanding contracts between you and the Company.
2. You acknowledge and understand that the board of directors of the Company has terminated your appointment as “Vice-President and General Manager, Cheque Printing Division” of the Company effective the date of termination. After the date of termination, you shall not and you agree not to visit any of the premises of the Company or make any use of its facilities or employees without the consent of the President of the Company.
3. Your present salary, fringe benefits and arrangements as to expenses (all less the usual deductions, if any) will continue up to and including the date of termination, except that the present arrangements for your car allowance and group insurance will be continued until November 30, 1970. Enclosed is a company cheque covering the pro rata share of your salary and fringe benefits payable to the date of termination, subject to the usual deductions. You should submit your final expense account by November 13, 1970 according to the Company's usual procedures.
4. In addition, you have the right under the Company's Pension Plan to elect one of the options available to you. Attached is a letter from the Company's Pension Consultant explaining the various options available to you and quoting estimated benefits based upon contributions as at December 31, 1969. The actual benefits will be based upon contributions to the date of termination. Please advise us by December 31, 1970 what option you wish to exercise under the said Plan.
5. (a) Subject to subparagraph (b) of this paragraph 5, during the period October 14, 1970 to August 13, 1971, the Company will pay you a severance allowance of $18,000 in satisfaction of all your claims against the Company for the termination of your employment and under any other arrangements with the Company, payable monthly at the rate of $1,800 on the 13th day of each month during such period, commencing on November 13, 1970 and ending on August 31, 1971.
(b) When making any payments under the said severance allowance to you, the Company will deduct therefrom the appropriate amount to be withheld on account of income taxes pursuant to the Income Tax Act of Canada; and promptly, when required by law, the Company will deliver to you T4 supplemental forms showing the amount of severance allowance and the amount so deducted therefrom.
6. As a condition precedent to the provisions made for you under this letter agreement, including the payment of the severance allowance provided for in paragraph 5 (a) hereof, you agree to release the Company from all claims which you may directly or indirectly have against the Company and/or its subsidiary companies in respect of any matter (except the arrangements made for you under this letter agreement), and you agree to deliver to the Company (at the same time as you deliver an executed copy of this letter to us) and executed release in the form attached hereto (two copies).
If this letter accurately sets forth the terms of the arrangements between us, please indicate your acceptance by signing the enclosed copy of this letter in the place provided below and returning it to us by October 31, 1970. Otherwise this letter shall constitute notice of termination of your employment in accordance with paragraphs 1 to 4 inclusive hereof effective the date of termination.
8 The pension plan alternatives referred to in the document and available to the defendant were as follows:
I Maximum Deferred Pension and Minimum Cash Refund
(a) Cash Refund on Termination Nil
plus
(b) Annual Deferred Pension payable monthly from age
65 and guaranteed for at least 10 years $2,164.96
plus (estimated)
(c) Death Benefit on Death before age 65 (increased by
interest from 31.12.69 to date of death) $7,716.67II Minimum Deferred Pension and Maximum Cash Refund
(a) Cash Refund on Termination $5,066.81
plus
(b) Annual Deferred Pension payable monthly from age
65 and guaranteed for at least 10 years $1,028.09
plus
(c) Death Benefit on Death before age 65 (increased by
interest from 31.12.69 to date of death) $2,642.68
9 The defendant read the letter. He said he was flabbergasted. He did not sign the letter then, or on October 13. He told the president he wanted to think it over as he contemplated seeking legal advice.
10 He in fact sought legal advice. His solicitor expressed the view the defendant was possibly entitled to claim one year's salary. He authorized his solicitor to take up the matter with the solicitors for the company.
11 That was done. Ultimately, a settlement was negotiated which the defendant, on his solicitor's advice, accepted, rather than pursuing the matter further by litigation. The settlement agreement was reached on November 27, 1970. For the purpose of putting the agreement into writing, certain amendments were made, by letter, to Exhibit 1-A. The material portions of the amending letter are as follows:
The purpose of this letter is to set forth certain amendments to the arrangements for the termination of the employment of your client, Mr R B Atkins (the “employee”), with Rolph-Clark-Stone Limited (the “Company”), as outlined in the Company's letter dated October 13, 1970 (the “original letter”). The original letter as amended by this letter is herein sometimes called the “termination agreement”. The said amendments are as follows:1. The present scholarship for the daughter of the employee will be continued as long as she continues to meet the Company's rules in respect thereof.
2. The Company will supply the employee with a list of shareholders so that he can canvas them with a view to sale of his shares.
3. The Company will exercise its discretion under the pension plan so that the employee will obtain credit for company purchased benefits prior to January 1, 1965.
4. Varying the terms of paragraph 5(a) of the original letter, the Company will pay the severance allowance of $18,000 to the employee in two amounts, being $6,000 not more than ten days after executed copies of the termination agreement and the employee's release are received; and $12,000 on February 15, 1971.
Subject as aforesaid, the provisions of the original letter are confirmed.
If the termination agreement accurately sets forth the terms of the arrangements between the employee and the Company, please indicate your acceptance by signing the enclosed copy of this letter in the place provided below and returning it to us, along with a copy of the original letter so accepted by the employee and his release as required under paragraph 6 of the original letter.
12 The date of payment of the sum of $18,000 was subsequently varied. The fact is not material to the decision in this case.
13 The facts outlined above come from the oral testimony of the defendant and from the documentary evidence. No one from Rolph-Clark-Stone Limited was called to relate the company's reason for dismissing the defendant, the company's version as to what was or was not included in the “severance allowance”, nor what its view was as to the requirement of notice or what in the industry might have been considered to be reasonable notice. The defendant could only speculate as to the reason for his summary dismissal; he felt it was probably attributable to the overall financial problems of the company. In my view, it was not incumbent upon the defendant to elicit evidence from the company.
14 The defendant stated, and this is undoubtedly true, by refusing to accept the terms set out in the letter of October 13, 1970, and by instructing solicitors (with the obvious threat of suit if an acceptable compromise could not be reached), he obtained from his former employer or compelled it to grant a good deal more than had originally been tendered. Legally, he may not have been able to compel the company to credit him with its pension contributions made prior to January 1, 1965. Nevertheless, the company eventually agreed to do that. It seems the company did not have to carry the defendant's daughter in the scholarship plan after termination of her father's employment. Nevertheless, the company agreed to that term as well. I have no difficulty in concluding that one of the motivating reasons was the threat of litigation. The defendant could put only a rough monetary value on these two items. He estimated them to be worth to him approximately $5,300.
15 The defendant's position is that the company, on October 13, 1970, was in breach of the contract of employment. It had purported to dismiss him without giving reasonable notice. I agree with that contention. Counsel for the plaintiff did not disagree.
16 The defendant further contends that the sum of $18,000 and the other concessions obtained were damages or in the nature of damages for breach of contract. He asserts they are not taxable as income. He relied on a number of decisions.[FN2: <p><em>Henley v. Murray</em>, [1950] 1 All E.R. 908;<em>J H Millman v. MNR</em>, 4 Tax A.B.C. 373, 51 D.T.C. 305;<em>D E Jones v. MNR</em>, [1968] Tax A.B.C. 1243, 69 D.T.C. 4;<em>B R McDade v. MNR</em>, [1971] Tax A.B.C. 1007, 71 D.T.C. 684.</p>]
17 Counsel for the Minister argued the $18,000 sum was taxable income:(1) As salary in lieu of notice and, therefore, caught by subsection 5(1) of the Income Tax Act.
(2) As a benefit received by the defendant by virtue of his office or employment, and therefore caught as income by the words of paragraph 5(1)(a) “... salary ... plus ... other benefits of any kind whatsoever ... received ... in respect of, in the course of, or by virtue of the office or employment ...”.
(3) As a payment received on account of or in lieu of payment of, or in satisfaction of, an obligation arising out of an agreement made by the employer with the defendant immediately prior to, during, or after a period that the defendant was in the employment of Rolph-Clark-Stone Limited. Under paragraph 25(b) of the Income Tax Act, payments of that kind are deemed to be, for the purposes of section 5, remuneration. (I shall deal later with paragraph 25 and its exempting subparagraphs.)
(4) As a retiring allowance. Reliance was placed on subparagraph 6(1)(a)(v) and paragraph 139(1)(aj).
18 I turn to the first submission made on behalf of the plaintiff. It raises the question as to how the payment in question (and, in theory, the additional concessions) should be characterized for tax purposes. The defendant urges the characterization should be as damages. The plaintiff says the $18,000 is an amount equal to approximately 42 weeks of salary; 42 weeks was a reasonable period of notice; the sum in question is simply salary in lieu of notice; it is therefore taxable as “salary” (subsection 5(1)).
19 On the facts of this case, I cannot agree the sum in question is simply salary in lieu of notice.
20 Where no express length of term has been agreed upon between an employer and employee (as in this case), the contract of employment is for an indefinite hiring. There were, here, no express terms between the defendant and the company as to how the employment contract could be terminated, or what notice, if any, was to be given. In those circumstances there was, in law, an implied term that the company would give reasonable notice to the defendant of its intention to terminate the contract. The company did not in fact give reasonable notice; it gave no notice at all. There was a breach of contract. The remedy of the defendant was compensation for the breach. In my view, the general principles of damages for breach of contract apply to cases of wrongful dismissal. The classic statement as to the compensation (usually referred to as damages) for which the offending party will be liable is set out in Hadley v. Baxendale (1854), 9 Exch 341at 354–5:[FN3: <p>See also<em>Victoria Laundry v. Newman</em>, [1949] 2 K.B. 528, where the rule was restated by Asquith, LJ at 539–40.</p>]
We think the proper rule in such a case as the present is this: where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, ie according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. Now, if the special circumstances under which the contract was actually made were communicated by the plaintiffs to the defendants and thus known to both parties, the damages resulting from the breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated. But, on the other hand, if these special circumstances were wholly unknown to the party breaking the contract, he, at the most, could only be supposed to have had in his contemplation the amount of injury which would arise generally, and in the great multitude of cases not affected by any special circumstances, from such a breach of contract. For, had the special circumstances been known, the parties might have specially provided for the breach of contract by special terms as to the damages in that case; and of this advantage it would be very unjust to deprive them. Now the above principles are those by which we think the jury ought to be guided in estimating the damages arising out of any breach of contract.
21 The matter was succinctly put another way in the opinion of the Privy Council (Lord Atkinson) in Wertheim v. Chicoutimi Pulp Company, [1911] A.C. 301at 307, as follows:
And it is the general intention of the law that, in giving damages for breach of contract, the party complaining should, so far as it can be done by money, be placed in the same position as he would have been in if the contract had been performed. That is a ruling principle. It is a just principle.
22 It is sometimes loosely said that the damages recoverable in a wrongful dismissal action are the salary which would have been earned if the discharged employee had continued to be paid during the period of the notice.[FN4: <p>See, for example, the flat statement at page 471 in Fridman,<em>The Modern Law of Employment</em>, 1963: “Since a failure to give reasonable notice is a breach of an implied term in the contract of employment, a dismissal without such notice will be actionable; and the damages recoverable will be the wages which would have been earned during the period of the notice.” In fairness to the author, the statement is qualified to some extent at page 495: “Normally the damages recoverable will be the amount of wages or salary ... However, there may be circumstances in which more may be recovered. ...” Further, at page 496: “In certain cases the damages recoverable for wrongful dismissal may go beyond the actual loss of salary ...”</p><p>In<em>McGregor on Damages</em>, 13th ed, 1972, para 884 (page 594) under the heading “Normal measure”, it is said: “The measure of damages for wrongful dismissal is prima facie the amount that the plaintiff would have earned ...” The author then later discusses consequential losses which may be included in damages (paras 894–9).</p>] I think it more accurate to say that the damages recoverable will probably include that salary; they are not restricted to it. Undoubtedly, the usual yardstick to measure the damages is very often the salary that would have been earned. But that does not mean the only compensation recoverable is salary, nor that whatever compensation in fact is obtained is, in law (tax or otherwise), salary. In Batt, The Law of Master and Servant, 1967, 5th ed, pages 259–60, it is stated:
In an action for damages the servant sues for a sum which he alleges represents the loss he has sustained by the master's breach of contract or tort. A claim for damages is frequently joined with a claim for wages where the facts of the case so justify, that is, where wages are also in arrear. The measure of damages in all actions for breach of contract is the same, namely, the pecuniary loss sustained, provided such loss flows naturally from the breach in question, and this will be the case whenever the loss is such as any reasonable person, knowing all the circumstances existing at the time of the breach which are known or ought to be known by the defendant, would have contemplated as likely to result by the breach in question.
At pages 262 ff, the author goes on and states (accurately in my view) the legal position to be that the wages or salary for the period of notice required is not necessarily the measure of damages.23 For example, an apprentice wrongfully dismissed can be awarded more than a sum equivalent to the lost wages. The economic loss caused by not being given the training or the opportunity to be trained and to learn by experience is compensable.[FN5: <p>See<em>Dunk</em>v<em>George Waller & Son Ltd</em>, [1970] 2 Q.B. 163. The principles stated in that case can well apply to more than apprenticeship training. One can imagine highly trained technicians or professionals working in places such as laboratories or research hospitals whose future economic earning ability may be affected by wrongful dismissal and their premature removal from the opportunity to learn and experiment.</p>] In certain types of employment (actors and others in the entertainment business or in the performing arts) damages in respect of loss of publicity, as well as for actual salary, have been awarded of publicity, as well as for actual salary, have been awarded in wrongful dismissal cases.[FN6: <p>See<em>Withers v. General Theatre Corporation</em>, [1933] 2 K.B. 536.</p>] The same reasoning has been applied in the case of an author.[FN7: <p><em>Tolnay et al v. Criterion Film Productions</em>, [1936] 2 All E.R. 1625.</p>] It has been said in one case that compensation need not be limited to the wages lost; that a jury might take into consideration the time the plaintiff would require to find new employment.[FN8: <p><em>Maw v. Jones</em>(1980), 25 Q.B.D. 107.</p>] That statement was impliedly criticized by Lord Loreburn, LC in Addis v. Gramophone Co, [1909] A.C. 488. I have been unable to find any Canadian decisions dealing with the point.
24 It may well be that in the 1970's some compensatory allowance for that aspect might well be made. I have in mind the dismissal of executives at ages where prospective new employers refuse to engage them, not because of lack of ability, but because of their age and the disturbances which might be caused to existing seniority stratas, and because of the difficulties of injecting new middle-aged (or older) persons into pension schemes. If, for example, the defendant here had eschewed settlement and litigated the breach of contract, he may well have put forward a claim for compensation on this aspect. He was 49 years old at the time of dismissal. Sometime in 1971 he found employment with Ryerson Polytechnical Institute. He is now chairman of the Graphic Arts Management Institute. He is paid $18,000 a year. There was no evidence, one way or the other, as to difference in fringe benefits, pension rights, etc.
25 I do not suggest that the facts in the Dunk, Withers, Tolnay and Maw cases are applicable here. I use those cases in support of my rejection of the plaintiff's contention that the damages, where no reasonable notice has been given, are purely and simply the salary which would have been earned; that any amount so paid or recovered is caught by the opening words in subsection 5(1) “Income ... is the salary ...”.
26 It may well be, in a particular case, the compensation assessed by a court will be salary simpliciter. There also may well be cases where the dismissed employee and employer agree on an amount of compensation which is purely and simply salary. As I see it, that was really the ultimate agreement (by implication) in Quance v Minister of National Revenue, [1974] C.T.C. 225, 74 D.T.C. 6210. The plaintiff was offered precisely 91/2months' salary after having been dismissed without notice. The plaintiff accepted the continuing payments (at the same periods of time, for the same semi-monthly amounts (less tax) as before) at first on account only of his claim for damages for wrongful dismissal. Subsequently, on solicitor's advice, and after he had found other employment and received the payments described for 91/2months, he did not pursue his claim further. As I understand the decision, no releases were exchanged nor was any written agreement made in respect of the moneys received. The court found, on the facts before it, the amount received must be characterized as salary and nothing else, and therefore income. Counsel for the plaintiff relied heavily on the Quance case, and argued it was, for practical purposes, conclusive in the instant case. I agree with the ultimate result in the Quance case: that on the particular facts the moneys paid were salary, and became taxable as such.[FN9: <p>I have in mind the words of the Earl of Halsbury, LC in<em>Quinn v. Leathem</em>, [1901] A.C. 495at 496:<blockquote><p>“... that every judgment must be read as applicable to the particular facts proved, or assumed to be proved, since the generality of the expressions which may be found there are not intended to be expositions of the whole law, but governed and qualified by the particular facts of the case in which such expressions are to be found. The other is that a case is only an authority for what it actually decides. I entirely deny that it can be quoted for a proposition that may seem to follow logically from it. Such a mode of reasoning assumes that the law is necessarily a logical code, whereas every lawyer must acknowledge that the law is not always logical at all. ...”</p></blockquote>and of Viscount Haldane, LC in<em>Kreglinger v. New Patagonia Meat & Cold Storage Co, Ltd</em>, [1914] A.C. 25at 40:<blockquote><p>“... To look for anything except the principle established or recognized by previous decisions is really to weaken and not to strengthen the importance of precedent. The consideration of cases which turn on particular facts may often be useful for edification, but it can rarely yield authoritative guidance.”</p></blockquote>I was informed by counsel for the plaintiff, who was Junior counsel for the defendant in the<em>Quance</em>case, that the statement from Fridman at page 471 (which I criticize in the first footnote on p 385) was put before the Court at the hearing of the<em>Quance</em>case. An excerpt beginning at line 25 of page 468 was, I am told, also cited. The Court was, however, apparently not referred to pages 495–6.</p>] The facts before me are quite different. There is no evidence that the sum of $18,000 was intended by the employer or by the defendant to represent salary purely and simply, or that other factors deserving of compensation in damages were not included.
27 Counsel for the plaintiff contended there was evidence, certainly a strong inference, that the employer intended to compensate only in respect of loss of salary; that $18,000 represented approximately 42 weeks of salary in lieu of notice; that if notice of dismissal had in fact been given, 42 weeks was a reasonable period. No witness from the company was called to say what was in the corporate mind, what the company felt would have been reasonable notice, what matters, in economic values, added up to $18,000, whether that figure was “salary” only. For all I know, the company and its advisers may well have considered (in initially offering $18,000, and later making further concessions) that the total settlement package covered many more compensable items than mere salary. I note that clause 5(a) of Exhibit 1-A does not describe the $18,000 as “salary” but as a “severance allowance ... in satisfaction of all your claims against the company for the termination of your employment and under any other arrangements with the Company ...”. In paragraph 6, the employee is to release “the Company from all claims which you may directly or indirectly have against the Company ... in respect of any matters ...”. Did the company have in mind claims for loss of use of the leased car, for company contributions to the pension plan, in respect of the scholarship plan, loss of group life insurance coverage, loss of poten tial profit sharing, and other matters on which one might realistically speculate? The evidence is silent. No reasonable inference can be drawn that the company and the defendant considered loss of salary as the sole matter for compensation. Further, it is impossible to say what portion of the $18,000 one, or either, party attributed to that aspect of the defendant's loss.
28 I do not agree with the plaintiff that 42 weeks' notice of dismissal would, in any event, have been reasonable. I am not certain it is necessary to decide this point. The submission was made. I feel I should comment. The decisions cited on behalf of the plaintiff were elderly. In changing social and economic conditions, that does not mean such decisions become vintage. Reliance was placed on a statement that “... it seems to be well established in Ontario that six months as the greatest period of notice which can be required”.[FN10: <p>Ontario CED (2nd) vol 13, 1955, page 220. No reference was made inargument to the two permanent supplements. McRuer, CJ in<em>Bardal</em>v<em>The Globe and Mail Ltd</em>(1960), 24 D.L.R. (2d) 140 at 144, said of an almost identical comment at page 227 of the same volume of the CED: “I am convinced this is not a correct statement of the law.”</p>] In my view, recent cases indicate that the reasonable notice required may be considerably longer than 6 months.[FN11: <p><em>Bardal v The Globe and Mail Ltd</em>(<em>supra</em>)—one year. In that case the damages included salary and loss of pension rights.<em>Johnston</em>v<em>Northwood Pulp Ltd et al</em>(1968), 70 D.L.R. (2d) 15—one year's notice.<em>Gillespie et al</em>v<em>Bulkley Valley Forest Industries Ltd</em>, [1973] 6 W.W.R. 551—one year. The damages included not only one year's salary but loss in respect of the failure of the employer to repurchase, pursuant to the employment contract, the employee's residence. Berger, J said at page 560: “The law is that an employee's claim for damages is not limited to the wages or salary he would have received had he been given proper notice. The dismissal, if wrongful, is a breach of contract, and all damages flowing therefrom are recoverable.”<em>Shtabsky</em>v<em>Dubeta et al</em>, [1974] 4 W.W.R. 324—12 months' notice.<em>Carey</em>v<em>F Drexel Co Ltd</em>, [1974] 4 W.W.R. 492—15 months' notice should have been given. Damages included salary for that period plus compensation for loss of director's fees, profit-sharing, and other benefits.<em>Robinson</em>v<em>Canadian Acceptance Corp Ltd</em>(1973), 43 D.L.R. (3d) 301.<em>Red Deer College v. Michaels et al</em>(SCC, unreported, May 20, 1975)—12 months' notice.</p>] I express here a guarded opinion: that there ought to have been one year's notice, perhaps more. I am reluctant to express a positive view because, in the way this point comes up for argument, one cannot be sure all the material evidence is present. If the defendant had pursued the matter into litigation, the particular court having jurisdiction would have heard evidence and argument on all aspects as to reasonableness (including the employer's position). That did not occur in this Court.
29 I turn now to the second submission on the part of the Minister: even if the money payment is “damages” and not simply salary then it is to be included in income, because it is made up of salary, wages, and other remuneration plus “... other benefits of any kind whatsoever ... received ... in respect of, in the course of, or by virtue of the office or employment ...” (para 5(1)(a)). I do not agree with counsel's proposition that damages recoverable for breach of the contract of employment (where the basis is wrongful dismissal) are simply the replacement of the income and other benefits, and therefore merely “fill a hole in the defendant's salary”. For the reasons given earlier, I say there is more to it than that. Moreover, in this case, there is (as I have earlier observed) no evidence as to what the $18,000 covers, nor any practical, realistic, or reasonable means of dissecting it to discover its components.
30 To my mind, the sum of $18,000 and the other concessions obtained from the employer cannot be characterized as benefits received by virtue of the employment. They were not benefits, in the sense of matters having pecuniary value, agreed (on the making of the contract of employment or during its subsistence) to be paid or conferred as part of the terms of the contract. Here, the settlement agreement reached was not made pursuant to or by virtue of the contract of employment; it was a separate arrangement made afterwards for breach or improper termination of the employment contract. It is true that, without the original contract and the employment, there could not have been a breach and a consequent legal right to compensation. But, as I see it, that cannot be transformed into, or interpreted as, some kind of benefit received by virtue of the employment. I note that paragraph 5(1)(a) excludes, among other things, benefits derived from employer's contributions to a pension plan and benefits derived from a group insurance plan. It is impossible to say whether the loss of group insurance plan benefits, for example, are included or not in the $18,000 figure.
31 The third position asserted by the Minister is that, no matter how the payment is characterized, it falls within section 25 of the statute. The relevant portions of the section are:
25. An amount received by one person from another,(b) on account or in lieu of payment of, or 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,
(i) as consideration or partial consideration for accepting the office or entering into the contract of employment,
(ii) as remuneration or partial remuneration for services as an officer or under the contract of employment, or
(iii) in consideration or partial consideration for covenant with reference to what the officer or employee is, or is not, to do before or after the termination of the employment.
32 This contention depends to a large extent on the Minister's basic position that the payment in question represents salary (and nothing else) lost by premature termination of the contract. Once more the Quance case is relied upon and particularly the following (p 229 [6213]):
The amounts so received by the plaintiff from his employer were in satisfaction of an obligation arising out of the contract of employment between the plaintiff and his employer. That obligation was to give the plaintiff reasonable notice of the termination of his employment and upon falling to do so to pay him, in lieu thereof, the salary that would have been earned during the period of notice.
In my view those facts fall precisely within section 25 of the Income Tax Act and accordingly the amounts paid are deemed thereby to be remuneration for the payee's services during his period of employment for the purposes of subsection 5(1) of the Act.
33 Again, in my view, the Quance case is quite distinguishable on its facts. The payment there received by the ex-employee was salary and nothing else. It does not appear to have been received in satisfaction of an obligation arising out of an agreement (as described in paragraph 25(b)) other than perhaps the contract or agreement of employment itself.[FN12: <p>It may be that a separate agreement of some kind can be implied from thefact that defendant retained the 91/2months' salary offered, and did nothing further to obtain a greater sum of money.</p>] Nor, apparently, did the taxpayer there establish that it could not reasonably be regarded as having been received in one of the qualities set in the last three subparagraphs (in particular subparagraph (ii): that it could not reasonably be regarded as remuneration for services under the contract of employment).
34 The situation here is dissimilar. The sum of money and the additional promises of the employer were in satisfaction of the breach of the employment contract and the right to damages that breach carried. One might argue the payment was received pursuant to an obligation arising out of the settlement agreement: the employer's obligation to pay arose once the compromise was agreed to. I do not think that is the type of agreement the legislators intended to include in section 25. If no compromise had been reached, and compensation for the breach had been fixed by a court, it could not be argued the amount then received in satisfaction of the judgment arose out of some agreement. I cannot see any real distinction between a damage judgment payment (which I suggest is not caught by section 25) and a compromise damage payment agreed to without judgment.[FN13: <p>I have not overlooked that, while paragraph (b) specifically refers to anobligation arising out of an agreement, later words apparently contemplateamounts received not pursuant to an agreement: “... irrespective ofwhen the agreement, if any ...”.</p>] Assuming, however, the payment here sought to be taxed as income was received in satisfaction of an obligation arising out of the settlement agreement, then that agreement was not made, in my view, immediately after the employment period.
35 Finally, on this aspect of the case, the defendant testified the payment was not received in any of the qualities listed in subparagraphs (i), (ii), or (iii). His evidence was not challenged. That of course is not conclusive; it must be determined whether, as a matter of law, the exempting provisions there set out have been established. It seems to me obvious the amount received cannot reasonably be regarded as falling within (i) or (ii). Nor do I think it can reasonably be regarded, factually or legally, as having been received as remuneration or partial
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