Belusic v. R., [1997] 3 C.T.C. 2908

Bowman T.C.J.:

1 This appeal is from an assessment for the taxation year 1994 whereby the Minister of National Revenue refused to allow the appellant to deduct in computing income the sum of $3,281.30 paid by Canada Post to the City of London purportedly as a repayment of social assistance benefits. As will be apparent from the reasons that follow, the issue as I see it is not whether the amount is deductible in computing income but rather whether the payment should have been included in income in the first place.

2 In 1992, the appellant worked for Canada Post and he was discharged. He and another employee filed grievances and the matter came on for hearing before an arbitrator, Mr. Tom Jolliffe. The arbitration appears to have been protracted, extending over five days between August 6, 1992 and March 1, 1993. On September 24, 1993, the arbitrator issued an award reinstating the grievors as letter carriers. The award read at p. 62 as follows:

1. The grievors Debbie Grace and Renato Belusic shall be reinstated as letter carriers at London, Ontario forthwith.

2. Their reinstatement shall be without loss of seniority or other benefits to which they may be entitled under the collective agreement.

3. They shall be compensated by payment to them of one-half ((1/2) their lost wages (not including overtime) from the time of their initial enforced leave without pay to the present time less any normal contractual or statutory deductions.

3 Following the award, the parties determined that the dollar amount should be $38,273.76. In fact the T-4 slip issued by Canada Post in respect of the award was in the amount of $38,303.44. Nothing turns on this small difference.

4 In 1992, after he had been discharged, the appellant received $12,636 in unemployment insurance benefits and $3,281.30 as social assistance payments from the City of London. In filing his return of income for 1992 he included in income the unemployment insurance benefits of $12,636 and, at line 147, the social assistance benefits of $3,281.30. He then deducted, at line 250, the same amount of $3,281.30. I need not reproduce the statutory provisions relating to this inclusion/exclusion of such social assistance benefits beyond noting that paragraph 56(1)(u) requires their inclusion in income and paragraph 110(1)(f) permits an offsetting deduction. The practical effect is that such benefits are not taxed.

5 In 1994, when the amount payable under Mr. Jolliffe's award was settled, Canada Post paid to the Unemployment Insurance Commission $14,580, representing a repayment of unemployment insurance benefits received by the appellant in 1991 and 1992. It also paid to the City of London $3,281.30 as a repayment of the social assistance payments received by the appellant in 1992. In fact, as the result of these and other deductions the appellant ended up with about $4,900.

6 In computing his income for 1994 the appellant included the sum of $38,303.44, the amount shown on the T-4 slip, and deducted $17,861.30, being the aggregate of the $14,580 unemployment insurance repayment and the $3,281.30 social assistance repayment. The Minister allowed only $14,580 under paragraph 60(v.1).

7 It is, I think, helpful to compare the statutory régime relating to the repayment of unemployment insurance benefits with that relating to social assistance payments.

8 The Unemployment Insurance Act is quite specific. Section 37 reads:

Where a claimant receives benefit in respect of a period and, pursuant to a labour arbitration award or court judgment, or for any other reason, an employer or any other person subsequently becomes liable to pay earnings, including damages for wrongful dismissal, to that claimant in respect of the same period and pays the earnings, that claimant shall pay to the Receiver General as repayment of an overpayment of benefit an amount equal to the benefits that would not have been paid if the earnings had been paid or payable at the time the benefit was paid.

9 Section 5 of Regulations 537, the General Welfare Assistance Regulations made under the authority of paragraph 14(h) of the General Welfare Assistance Act of Ontario is less explicit.

10 It reads:

5.--(1) Where money is due and owing or may become due and owing to an applicant, recipient or dependent which if received would be included in income for the purpose of section 15, the welfare administrator may require as a condition of eligibility for assistance that the applicant, recipient or dependent agrees in writing to reimburse the municipality, band or Ontario, as the case may be, for all or any part of the assistance advanced or to be advanced when the money becomes payable. O. Reg. 625/90, s.1(1).

(2) Subsection (1) applies whether the money is in the nature of income or capital.

(3) The written agreement referred to in subsection (1) may include,

• (a) an authorization and direction to the person or agency by whom the money is payable to deduct and pay the money directly to the municipality, band or Ontario, as the case may be; and

• (b) an assignment by the applicant, recipient or dependant to the municipality, band or Ontario, as the case may be, of the right to be paid the money by the person or agency by whom the money is payable.

(4) Where the subject of the agreement under subsection (1) is periodic payments of money, the agreement will only be for the reimbursement of that assistance which is payable for the same period in relation to which the applicant, recipient or dependant is owed or will receive a payment of money. O. Reg.625/90, s.1(2).

(5) The amount of the assistance for which a municipality, band or Ontario is entitled to be reimbursed under the agreement in subsection (1) shall not exceed,

• (a) the total amount of the assistance paid to the recipient during the period in respect of which the money is payable; or

• (b) the proportion of the assistance payable to the applicant or recipient on behalf of the dependant who receives or will receive the payment of money, except where the dependant is the spouse of the applicant or recipient.

(6) An applicant or recipient is not ineligible for assistance solely by reason of the failure of any other person or authority to deduct and remit money to a municipality, band or Ontario under an authorization and direction or an assignment under subsection (3). O. Reg.625/90, s.1(3).

11 There is no evidence that the appellant ever agreed to reimburse the municipality or that he ever directed or authorized the repayment by Canada Post to the municipality of the $3,281.30 received by him in 1992 and the existence of such agreement, authorization or direction was not assumed as a basis of assessing. I find as a fact that the payment by Canada Post to the City of London was without his authorization or knowledge. In fact he spoke to his Member of Parliament but was told that it was the law that he had to repay the social assistance benefits.

12 When unemployment insurance benefits are repaid pursuant to section 37 of the Unemployment Insurance Act, they are deductible in computing income under paragraph 60(v.1) of the Income Tax Act. No similar provisions govern the repayment of social assistance benefits probably because they are not taxable in the first place. They must be reimbursed to the municipality if and only if there is a written agreement under section 5 of Regulations 537. No provision of the Income Tax Act authorizes their deduction.

• (a) the appellant would need to have authorized or in any event acquiesced in the payment; or

• (b) even if he had not authorized or acquiesced in the payment, at least he would have had to be under a legal obligation to make the repayment so that the payment by Canada Post to the City of London had the effect of relieving him of that obligation.

14 On the evidence neither condition applies here and my conclusion is that the payment by Canada Post to the City of London was unauthorized.

• (a) The unemployment insurance benefits are taxable under subparagraph 56(1)(a)(iv); the social assistance benefits are, by the combined operations of paragraphs 56(1)(u) and 110(1)(f), not.

• (b) The repayment of unemployment insurance benefits is deductible under paragraph 60(v.1). No similar provision applies to the repayment of social assistance payments.

• (c) The appellant was under a legal obligation to repay the unemployment insurance benefits under section 37 of the Unemployment Insurance Act. The evidence does not disclose that he was under such an obligation with respect to the social assistance benefits.

• (d) It follows from (c) that the repayment of the unemployment insurance benefit to the commission, albeit without the appellant's knowledge or concurrence, constituted constructive receipt by him in that it satisfied a legal obligation that he had and it thereby relieved him of it. Thus he received the $14,580 as part of the award and deducted it under paragraph 60(v.1).

16 The same cannot be said of the repayment of the social assistance benefits. These were never received by him, either constructively or actually. On the evidence Canada Post had no right to pay the amount thereof to the City of London. I am therefore allowing the appeal, not because the sum of $3,281.30 is deductible from the $38,303.44 shown on the T-4 slip but because he did not receive it and the T-4 slip should have reflected a payment to him of $35,022.14. I emphasize that I am basing my decision on the very narrow ground that on the evidence in this case he did not have an obligation to refund the social assistance benefits. Had the evidence disclosed facts that supported the existence of such an obligation the result would have been different.

17 The appeal is allowed and the assessment is referred back to the Minister of National Revenue for reassessment and reconsideration to delete from the appellant's income for 1994 the sum of $3,281.30. The appellant is entitled to his costs, if any, in accordance with the tariff to the Tax Court of Canada Rules (Informal Procedure).