Guy
Tremblay:—The
case
at
bar
was
heard
at
Montreal,
Quebec,
on
May
9,
1978.
1.
Point
at
Issue
The
question
here
is
whether
the
amount
of
$22,846.27
received
by
the
appellant
in
1974
resulting
from
a
judgment
of
the
Superior
Court
of
Quebec,
District
of
Montreal,
is
taxable
in
the
same
manner
as
a
salary.
2.
Burden
of
Proof
The
appellant
has
the
burden
of
showing
that
the
respondent’s
assessment
was
not
justified.
This
burden
of
proof
is
based
not
on
a
particular
section
of
the
Income
Tax
Act
but
on
several
judicial
decisions,
among
them
a
decision
of
the
Supreme
Court
of
Canada
rendered
in
RWS
Johnston
v
MNR,
[1948]
CTC
195;
3
DTC
1182.
3.
Facts
3.1
In
1963
the
appellant
had
worked
as
President
for
Canadian
Adhesives
Limited
to
build
up
the
company.
In
1964
and
later,
specifically
on
September
18,
1968,
a
written
contract
of,
employment
(Exhibit
A-1)
was
introduced
to
confirm
his
employment
as
President
and
make
the
provision
for
the
payment
of
a
pension.
3.2
Paragraphs
2,
4
and
7
of
Exhibit
A-1
read
as
follows:
2.
The
Company
shall
pay
to
Love
for
his
services
such
salary
at
such
rate
as
may
from
time
to
time
be
determined
by
mutual
agreement
between
the
Company
and
Love,
but
which,
until
otherwise
determined,
shall
be
at
the
rate
of
not
less
than
$1,560
per
month;
4.
If
Love
be
dismissed
or
resign
from
the
employ
of
the
Company
during
any
fiscal
year,
the
Company
shall
pay
to
Love,
within
1
month
following
the
termination
of
such
fiscal
year
5%
of
the
net
income
of
the
Company
before
any
and
all
taxes
on
income
as
reported
in
a
statement
of
income
and
expenditures
of
the
auditors
of
the
Company
for
such
year,
for
that
part
of
such
year
up
to
the
effective
date
of
such
dismissal
or
resignation.
7.
Nothing
herein
contained
shall
prevent
the
Company
from
dismissing
Love
from
its
employ
at
any
time
upon
90
days
prior
notice
in
writing
of
such
dismissal,
and
nothing
herein
contained
shall
prevent
Love
from
resigning
from
the
employ
of
the
Company
at
any
time
upon
90
days
prior
notice
of
such
resignation.
However,
in
the
event
that
Love
leaves
the
employ
of
the
Company
for
any
reason
whatsoever,
other
than
being
dismissed
for
gross
misconduct,
the
Company
will
pay
to
Love,
in
addition
to
the
pension
provision
of
paragraph
6
hereof,
the
amount
of
salary
as
set
forth
in
paragraph
2
above,
or
such
other
amount
as
may
have
been
agreed
to
between
Love
and
the
Company
subsequent
to
the
execution
of
these
presents,
payable
monthly,
for
a
period
of
one
year
from
effective
date
of
such
termination.
Nevertheless
the
payment
of
such
salary
shall
cease
forthwith
from
the
date
that.
Love
may,
directly
or
indirectly
engage
in
any
business
whether
as
principal,
significant
shareholder,
director
or
employee
which
manufactures,
produces
or
sells
any
of
the
products
sold
by
the
Company
or
in
any
other
way
competes
with
the
Company
in
that
part
of
Canada
east
of
the
border
of
the
provinces
of
Ontario
and
Manitoba.
3.3
On
March
10,
1973,
the
appellant
was
dismissed
from
his
position
on
the
basis
that
he
had
illegally
increased
his
salary
without
the
resolution
of
the
Board
of
Directors.
An
amount
of
$9,758.79
was
demanded
to
be
reimbursed.
3.4
The
appellant
refused
to
pay,
alleging
he
had
the
approbation
of
the
Vice-President
and
main
shareholder
of
the
company.
That
method
of
increasing
salaries
had
been
used
since
1964,
and
was
confirmed
by
Exhibit
A-1.
3.5
The
company,
in
the
legal
action
before
the
Superior
Court
of
the
province
of
Quebec,
demanded
that
the
Court
declare
the
contract
rescinded
since
1973,
and
the
appellant
be
condemned
to
pay
to
the
plaintiff
the
amount
of
$9,758.79.
3.6
In
his
plea
the
appellant
pleaded
inter
alia
that
he
had
the
right
to
the
advantages
provided
in
paragraphs
2,
4
and
7
of
the
contract
of
employment.
He
also
claimed
an
amount
of
$25,000
as
damages
to
his
reputation.
3.7
In
his
judgment
rendered
July
31,
1974,
(Exhibit
A-4)
the
Honourable
Maurice
Cousine-au,
Judge,
agreed
with
the
plaintiff
company
concerning
the
amount
of
$9,592.07
because
the
defendant’s
increases
of
salary
had
not
been
approved
by
a
resolution
of
the
Board
of
Directors
as
provided
in
the
contract.
The
Court,
however,
refused
to
qualify
the
conduct
of
the
defendant
as
“gross
misconduct”
and
agreed
with
the
conclusion
of
the
plea
of
the
defendant
concerning
the
advantages
provided
in
the
contract.
Le
défendeur
a
droit,
dans
l’opinion
de
cette
Cour,
de
recevoir
tous
les
montants
auxquels
la
demanderesse
s’est
engagée
suivant
les
ententes
intervenues
qui
demeurent
en
vigeur,
tenant
compte
du
salaire
annuel
du
défendeur
fixé
en
vertu
du
contrat
de
1968,
tel
qu’amendé
par
l’entente
intervenue
en
1971.
Ces
montants
se
divisent
comme
suit:
3.8
The
litigation
before
the
Board
is
valued
at
$23,846.27
which
is
the
amount
to
be
found
in
paragraphs
“c”
and
“f”
as
quoted
in
my
paragraph
3.7.
The
other
amounts
were
included
in
the
appellant’s
revenue
when
he
filed
his
1974
income
tax
return.
|
a)
une
semaine
de
vacances
qui
n’a
pas
été
prise
en
1972:
|
$
|
390.00
|
|
b)
préavis
de
trois
mois
pour
mettre
fin
au
contrat:
|
|
4,680.00
|
|
c)
douze
fois
le
salaire
mensuel
prévu
au
contrat
au
moment
|
|
|
du
congédiement:
|
|
18,720.00
|
|
d)
4%
du
salaire
gagné
du
1er
mai
1972
au
10
mars
1973
|
|
|
(45
semaines
à
$390.00-4%
de
$17,550.00)
|
|
702.00
|
|
e)
contribution
de
la
demanderesse
au
fonds
de
pension
du
|
|
|
défendeur
en
excédant
de
ce
qui
a
déjà
été
payé:
|
|
12,635.22
|
|
f)
indemnité
de
départ
suivant
la
clause
4
de
l’exhibit
D-5,
|
|
|
soit
5%
du
revenu
net
de
la
demanderesse:
|
|
5,126.27
|
|
le
tout
formant
un
grand
total
de:
|
$42,253.49
|
3.9
Concerning
the
amount
of
$25,
000
for
damages
claimed.
the
judgment
reads:
Le
défendeur,
dans
sa
demande
reconventionnelle,
réclame
une
somme
additionnelle
de
$25,000
à
titre
de
dommages,
alléguant
que
la
demanderesse
a
porté
atteinte
à
son
intégrité
personnelle
et
à
sa
réputation.
Le
défendeur
cependant,
par
l’entremise
de
son
procureur,
s’est
désisté
à
l’enquête
de
cette
partie
de
sa
réclamation,
ayant
reconnu
qu’il
n’avait
effectivement
subi
aucun
dommage
quant
à
ce
chef
de
réclamation.
3.10
The
notice
of
assessment
dated
October
10,
1975,
includes
the
amount
of
$23,846.27
in
the
revenue
of
the
appellant:
3.11
Following
the
notice
of
objection
filed
on
December
15,
1976,
the
Minister
of
National
Revenue
sent
a
notification
dated
February
23,
1977,
confirming
the
notice
of
assessment.
3.12
On
April
14,
1977,
an
appeal
was
lodged
before
the
Tax
Review
Board.
4.
Law
—
Judgments
—
Comments
4.1
Subsection
6(3)
of
the
Income
Tax
Act,
SC
1970-71-72,
c
63,
as
amended,
is
the
main
section
which
is
implied
in
the
case
at
bar.
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)
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,
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,
unless
it
is
established
that,
irrespective
of
when
the
agreement,
if
any,
under
which
the
amount
was
received
was
made
or
the
form
or
legal
effect
thereof,
it
cannot
reasonably
be
regarded
as
having
been
received
(c)
as
consideration
or
partial
consideration
for
accepting
the
office
or
entering
into
the
contract
of
employment,
(d)
as
remuneration:
or
partial
remuneration
for
services
as
an
officer
or
under
the
contract
of
employment,
or
(e)
in
consideration
or
partial
consideration
for
a
covenant
with
reference
to
what
the
officer
or
employee
is,
or
is
not
to
do
before
or
after
the
termination
of
the
employment.
4.2
The
following
judgments
were
cited
by
the
parties:
Dale
(HM
Inspector
of
Taxes)
v
de
Soissons,
32
TC
118;
[1950]
1
All
ER
912;
[1950]
2
All
ER
460;
Henry
(HM
Inspector
of
Taxes)
v
Arthur
Foster,
16
TC
605,
145
LT
225;
Peter
Moss
v
MNR,
[1963]
CTC
535;
63
DTC
1359;
Thomas
G
Quance
v
Her
Majesty
the
Queen,
[1974]
CTC
225;
74
DTC
6210;
Her
Majesty
the
Queen
v
Robert
B
Atkins,
[1975]
CTC
377;
75
DTC
5263;
[1976]
CTC
497;
76
DTC
6258;
Paul
Girouard
v
MNR,
[1977]
CTC
2588;
78
DTC
1011.
4,3
Comments
The
judgment
of
the
Superior
Court
in
fact
condemning
the
company
to
pay
to
the
appellant
the
amount
of
$23,846.27
was
based
on
paragraphs
2,
4
and
7
of
the
contract
(paragraph
3.2
of
thie
facts)
signed
on
September
18,
1968.
Consequently,
it
is
clear
to
the
Board
that
the
presumption
provided
in
paragraph
6(3)(b)
operates
against
the
appellant
and
the
said
amount
“is
deemed,
for
the
purposes
of
section
5,
to
be
remuneration
for
the
payee’s
services’’
as
an
officer.
This
presumption
can
be
rebutted
if
the
appellant
can
prove
that
all
the
conditions
described
in
paragraphs
(c),
(d)
and
(e)
of
subsection
6(3)
of
the
new
Act
do
not
exist
in
this
case.
It
is
quite
difficult
for
the
Board
to
decide
if
condition
(d)
is
not
filled.
as
remuneration
or
partial
remuneration
for
services
as
an
officer
or
under
the.contract
of
employment.
It
is
clear
in
the
judgment
rendered
by
the
Honourable
Maurice
Cousineau,
Judge:
Le
défendeur
a
droit,
dans
l’opinion
de
cette
Cour,
de
recevoir
tous
les
montants
auxquels
la
demanderesse
s’est
engagée
suivant
les
ententes
intervenues
qui
demeurent
en
vigueur
.
.
.
Consequently,
it
is
clear
that
the
said
amount
of
$23,846.27
was
a
remuneration
“under
the
contract
of
employment”.
The
said
amount
is
certainly
not
for
damages
(see
paragraph
3.9
of
the
facts).
The
Board
has
studied
the
cited
judgments
but
found
they
cannot
be
applied
to
the
case
at
bar
to
benefit
the
appellant.
The
Board
states
that
subsection
6(3)
is
“dura
lex
sed
lex’’
and
it
must
be
strictly
construed.
In
the
opinion
of
the
Board,
it
has
no
alternative
but
to
confirm
the
assessment.
5.
Conclusion
The
appeal
is
dismissed
in
accordance
with
the
reasons
for
judgment
stated
above.
Appeal
dismissed.
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