Citation: 2007TCC317
Date: 20070601
Docket: 2006-3250(IT)I
BETWEEN:
PRISCILLE G. MONTGOMERY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1] What is the meaning
of the word “interest” for purposes of paragraph 12(1)(c) of the Income Tax
Act (the “ITA”)? That question arises here in context of an award received
by Priscille Montgomery under pay-equity legislation.
[2] In the late 1970s,
Parliament enacted the Canadian Human Rights Act (the “CHRA”) which,
among other things, prohibits the federal government from paying wages that
discriminate on the basis of gender.
[3] Mrs. Montgomery,
who was a federal government clerical worker at the relevant time, received a
retroactive adjustment of wages under that legislation in 2000. The payment was
made under an award issued by the Canadian Human Rights Tribunal, following a
complaint filed on behalf of a large number of clerical employees. The
complaint was filed on December 19, 1984 and the Tribunal issued its decision
on July 29, 1998. The employees affected were awarded an adjustment to wages retroactive
to March 8, 1985, and interest on that amount to the date of payment.
[4] The Tribunal’s
decision was upheld on a judicial review to the Federal Court – Trial Division.
Shortly thereafter, the parties settled some outstanding details, which details
were embodied in a consent order issued by the Tribunal.
[5] The award to Mrs.
Montgomery included an amount of $12,186.25 which was reported by her employer
on a T5 slip as interest. It appears that most of this amount constitutes what
is usually described as “pre-judgment interest” and a small portion represents
“post-judgment interest.”
[6] Mrs. Montgomery
submits that this amount is not taxable because it is not interest. The Crown
concedes that the amount is not taxable unless it is, in fact, interest.
[7] By way of
background, I understand that several other taxpayers have also challenged the
taxation of the interest portion of the award.
[8] The first appeal to
come before this Court was Burrows v. The Queen, 2006 D.T.C. 2172
(T.C.C.), in which an argument was made that the taxation of the interest portion
of the award breached the provisions of the Canadian Charter of Rights and
Freedoms. Ms. Burrows did not take issue with the characterization of the
amount as “interest.” The appeal was dismissed by Lamarre J.
[9] More recently, this
Court has heard other appeals which I understand have all been dismissed orally
from the Bench. At the time of writing, several other appeals are pending.
[10] The relevant
section, paragraph 12(1)(c) of the ITA, provides:
12.(1) There shall be
included in computing the income of a taxpayer for a taxation year as income
from a business or property such of the following amounts as are
applicable
[…]
(c) subject to subsections (3) and (4.1), any
amount received or receivable by the taxpayer in the year (depending on the
method regularly followed by the taxpayer in computing the taxpayer's income) as,
on account of, in lieu of payment of or in satisfaction of, interest to the
extent that the interest was not included in computing the taxpayer's income
for a preceding taxation year;
(Emphasis added.)
[11] Mrs. Montgomery, who
was self-represented at the hearing, makes several arguments. First, she submits
that s. 12(1)(c) does not apply to all interest, but only to interest arising from
a business or property. In her view, the amount at issue does not relate to
either a business or property source.
[12] Second, Mrs.
Montgomery submits that the generally-accepted meaning of the word “interest”
as found in dictionaries encompasses only amounts paid with respect to borrowed
money. There is no borrowed money involved here, she notes.
[13] Reference was made to
the following definition of “interest” which Mrs. Montgomery had discovered
by way of a computer dictionary search:
[n] a fixed charge for
borrowing money; usually a percentage of the amount borrowed; “how much
interest do you pay on your mortgage.”
[14] Further, Mrs. Montgomery
submits that s. 12(1)(c) should be interpreted in a manner similar to the
provision which provides for the deduction of interest, s. 20(1)(c). She argues
that the deduction is limited to interest paid on borrowed money and submits
that a similar limitation should be read into the inclusion provision in s.
12(1)(c).
[15] Unfortunately for the
appellant, I am unable to agree with these submissions.
[16] As for whether the
interest portion of the award has a business or property source, in my view it
has a source from property. The federal government’s failure to pay wages to
female clerical employees commensurate with the wages paid to men who were
employed in comparable work gave rise to a right of compensation under the
CHRA. This right is property, which term is broadly defined in s. 248(1) of the
ITA.
[17] Second, I do not agree
with Mrs. Montgomery’s argument that the generally-accepted dictionary meaning
of the word “interest” is restricted to situations involving borrowed money.
[18] Mrs. Montgomery
referred to an extract from a computer search that links interest to borrowed
money. The original source of that definition is not apparent from the extract
provided.
[19] In my view, the
definition cited by Mrs. Montgomery is overly restrictive. I note the following
definition of “interest” from The Canadian Oxford Dictionary, 2nd
edition, 2004: “money paid for the use of money lent, or for not requiring the
repayment of a debt.” This definition suggests that interest may be referable
to any type of debt, and not just debt in the form of borrowed money.
[20] Mrs. Montgomery also
argues that s. 12(1)(c) should be interpreted in a manner similar to s.
20(1)(c) which, she submits, applies only to interest on borrowed money.
[21] I cannot agree with
this submission. First, s. 20(1)(c) is not restricted to situations involving
borrowed money as Mrs. Montgomery suggests. In addition, the language used in
the two provisions is different, and this suggests that Parliament did not
intend that they have a similar scope. There is no reason to restrict interest
in s. 12(1)(c) to situations involving borrowed money.
[22] In my view, the interest
portion of the award received by Mrs. Montgomery is properly characterized
as “interest” which is included in computing income under s. 12(1)(c). During
the period covered by the award, the wages received by Mrs. Montgomery contravened
the provisions of the CHRA. The interest portion of the award was paid to her
as compensation for the retention of monies which properly should have been
paid as wages.
[23] The decision of Reed
J. in Miller v. The Queen, 85 D.T.C. 5354 (FC-TD), is relevant to this
case. In Miller, interest paid on a retroactive payment of wages was
determined to be interest for purposes of the $1,000 deduction in s. 110.1 of
the ITA that was in force at the relevant time. The wage adjustment was
determined by binding arbitration pursuant to a collective agreement.
[24] The judge summed up
her conclusion as follows:
In my view the $62.51
was genuinely a payment of interest. The parties agreed that their relationship
would be governed on the basis of the retroactive agreement. This involved the
retention of monies owing to the Plaintiff for which compensation was
ultimately paid. The compensation paid was described by the parties and the
arbitration board as interest. It was calculated on an accrual basis by reference
to a normal rate of interest then current or with respect to the employer’s
cost of borrowing. I can see no reason why this does not fall within the
meaning of the word “interest” as it is used in section 110.1 of the Income Tax
Act.
[25] The facts in this
appeal are analogous to the facts in Miller and I see no reason not to
follow that decision here.
[26] Despite Mrs.
Montgomery’s valiant efforts, I conclude that the interest portion of the award
received by her in 2000 is properly included in computing income under s.
12(1)(c). The appeal is dismissed.
Signed at Toronto, Ontario, this 1st day of June 2007.
"J. Woods"
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