Aurelio D Vasconcelos v. Minister of National Revenue, [1978] CTC 3110

Roland St-Onge:—The appeal of Mr Aurelio D Vasconcelos came before me on September 19, 1978, at the City of Montreal, Quebec, and the issue is whether a sum of $14,500 received by the appellant at the termination of his employment is income or capital receipt in his 1971 taxation year.

The facts of this appeal are well spelled out in the amended reply to the notice of appeal at paragraph (8), subparagraphs “a” to “k” inclusive. This paragraph should be an integral part of my judgment:

8. In assessing the appellant for his 1971 taxation year, the respondent relied, among others, on the following assumptions of facts:

(a) the appellant was first employed by “West India Co’’, hereby referred to as the company, in 1967, aS a manager;

(b) in 1970, the appellant became director and vice-president and officer of the said company;

(c) there was no written contract and therefore the appellant was hired for an indefinite period of time;

(d) for the year 1971, the appellant’s salary was intended to be an amount of $15,000;

(e) at the end of April 1971, the company ceased its operations and let go of all its employees;

(f) upon leaving the employ of the said company, the appellant immediately formed a new company under the name of “West India Trading Co”, which company began its operations during the month of June 1971;

(g) appellant acquired 75% of the outstanding issued stock for an amount of $14,500;

(h) upon respondent’s inquest into the new corporation affairs, it was established and uncontradicted that appellant had received during the first part of the year 1971 an amount of $14,500 from is [sic] former employer;

(i) appellant did also receive regular salary as employee of ‘‘West India Co’’, until the end of April 1971 ;

(j) the appellant did not include this amount of $14,500 in the computation of his income for the 1971 taxation year;

(k) by notice of re-assessment, dated April 26, 1976, respondent added the said amount to the appellant’s income for the 1971 taxation year.

At the hearing the appellant was the only witness heard. He filed a letter which was written to him from London, England, by one Mr Jessel, dated March 30, 1971. The substance of this letter should be an integral part of my judgment:

Dear Vasco,

My Board have very carefully considered the future of our Canadian interests and have decided to carry out the policy stated in last year’s accounts, of not maintaining any company whose profits do not seem likely to exceed £100,000. Consequently, we have reluctantly come to the conclusion that the business of the West India Company should be discontinued. I am very sorry that in the circumstances you should be disappointed but, I have asked Mr Barlow to arrange a payment to you of whatever sum seems reasonable, on completion of the clearing up of outstanding matters.

I appreciate that your time with the Group has been very difficult, and I would like to take this opportunity of thanking you for your work on our behalf. Naturally, I shall always be pleased to supply a reference on request.

With kindest regards,

Yours sincerely.

After this letter was received, the appellant learned that a sum of $50,000 was to be distributed amongst the five employees and pensioners of the company.

At the beginning of April 1971, a meeting took place between the appellant, Mr Barlow representing the English company and Mr Pen- hale, Montreal lawyer for the company and the purpose of this meeting was to allocate the $50,000 to the employees and pensioners of the company.

Following this meeting and more specifically on May 3, 1971, the appellant signed a document under the title “Receipt, Release and Discharge” which was in full and final settlement of any claims, demands, actions that the appellant might have against West Indian Co (Canada) Ltd.

The appellant testified that this document was signed so that the amount of $14,500 would be exempt from taxes. Then he explained that while he was still on the company payroll, he took the necessary steps to wind up the company. Thereafter, he incorporated his own company and received the authorization from his former employer to use the same name and was able to retain the same clients.

Counsel for appellant argued that this payment of $14,500 was in settlement of a right that the appellant had against the company for the loss of his employment without any notice. He referred the Board to three cases:

The Queen v Robert B Atkins, [1976] CTC 497; 76 DTC 6258:

W G Burgess v MNR, [1976] CTC 2146; 76 DTC 1119;

L Grozelle v MNR, [1977] CTC 2432; 77 DTC 310.

In the light of these decisions, he said that the appeal should be allowed because the amount received by the appellant was for the loss of his employment without notice.

Counsel for respondent argued that there were many important distinctions to be made between the Atkins case and the one at bar. In the Atkins’ appeal, the employee had 18 years of service, he was fired without notice and the company was under threats of litigation whereas in the case at bar the appellant had only some three years of service. He lost his employment because he was asked to wind up the company and he never threatened to sue the company. On the contrary the company was willing to pay him a reasonable sum of money. Counsel for respondent stated that the appellant obtained his $14,500 very easily. He did not have an employment contract for a definite date and was still on the payroll when he neogtiated the winding up of the company. She also stated that the appellant failed to discharge the onus of proof because he did not prove any wrongful dismissal nor could he show any legitimate damages.

According to counsel for respondent, the appellant falls under sections 3 and 25 of the old Act because he recieved the amount of $14,500 while he was still on the payroll of the company.

In the present appeal, the appellant was reassessed because the Minister believed that it was not a wrongful dismissal. As a matter of fact, the appellant did not have any written employment contract for a definite period of time. He was not fired and because the company was wound up, he received $14,500 as compensation. There is no evidence to show why the appellant received this money and the appellant did not prove the damages that he could have claimed against his employer for the simple reason that there was no wrongful dismissal. The fact that he had not received any notice for the termination of his employment is not sufficient to say that it was a wrongful dismissal but the fact that he did not prove any damages shows that there was no wrongful dismissal.

Counsel for respondent was right when she said that the appellant failed to prove that the assessment was ill-founded in fact and in law.

Consequently the appeal is dismissed.

Appeal dismissed.