Frank v. The Queen, docket 97-3611-IT-I (Informal Procedure)

Date: 19981218

Docket: 97-3611-IT-I

BETWEEN:

JAMES M. FRANK,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for judgment

RIP, J.T.C.C.

[1] James M. Frank appeals from an income tax assessment for 1996 in which the Minister of National Revenue ("Minister") included in his income for the year the amount of $1,057 on the basis that such amount was income from employment pursuant to section 3 and subsection 5(1) of the Income Tax Act ("Act"). The appellant claims the sum of $1,057 was not income to him but damages for settlement of a grievance against his employer and is therefore not to be included in his income.

[2] A taxpayer's income for a year includes income from an office, employment, business, property or other source: sections 3 and 4 of the Act. A taxpayer's income for the year from employment is salary, wages and other remuneration, including gratuities, received by the taxpayer in the year: subsection 5(1). Included in computing a taxpayer's income for the year from employment is the value of other benefits whatever received or enjoyed by the taxpayer in the year in respect of, in the course of, by virtue of an office or employment: paragraph 6(1)(a).

[3] The appellant was one of several inspectors employed by the Human Rights Commission who grieved that they were improperly classified and paid. A reclassification would result in an increase in salary. Mr. Frank filed his grievance in January 1992. The Ontario Government, as part of its social contract legislation, prevented the grievance procedure from proceeding along its normal course. The government created a contingency fund of $20,000,000 for distribution to the grievers as a "grievance payout". Representatives of the Ontario Public Service Employees Union ("OPSEU") and of the government were appointed as disbursing agents. The agents determined the criteria or formula under which the grievers would be paid. These criteria included the grievance itself, the date the employee grieved and the hours worked by the griever. Those who grieved first got a better settlement award. Mr. Frank's share of the fund was $1,057[1], which amount he received in 1996.

[4] Mr. Frank's position is that what he received was a general settlement award because he could not proceed with his grievance. The amount of the award did not represent an adjustment to his salary. In cross-examination, he said he lost in excess of $9,000 he believed he was entitled to if his position had been reclassified and the amount he received was a "mere fraction" of his entitlement. The money he received, he argued, was not in recognition of any work he performed and was not in respect to his employment. The money represented a form of "go away and don't bother us" by the Ontario Government.

[5] The amount allocated by the union and management committee to Mr. Frank and paid to him by the Ontario Government, represented by the Ministry of Citizenship, Culture and Recreation, the Ministry employing Mr. Frank at time of payment, was a benefit he received in respect of his employment with the Human Rights Commission. In The Queen v. Elizabeth Joan Savage, 83 DTC 5409, at 5414 Dickson J., as he then was, stated, that the meaning of "benefits of any kind whatsoever ..." in paragraph 6(1)(a) of the Act is "clearly quite broad". He also suggested that a payment received by an employee need not partake of the character of remuneration for services to be included in income.

[6] In Nowegijick v. H.M.Q., 83 DTC 5041, the Supreme Court of Canada, per Dickson, J., as he then was, said, at page 5045, that:

The words "in respect of" [in paragraph 6(1)(a)] are, in my opinion, words of the widest possible scope. They import such meanings as "in relation to", "with reference to", or "in connection with". The phrase "in respect of" is probably the widest of any expression intended to convey some connection between two related subject matters[2].

Dickson, J., agreed with Evans, J.A., in R. v. Poynton, [1972] 3 O.R. 727 at page 738, [72 DTC 6329 at pp. 6335-6], with respect to the meaning of benefits received or enjoyed in respect of, in the course of, or by virtue of an office or employment:

I do not believe the language to be restricted to benefits that are related to the office or employment in the sense that they represent a form of remuneration for services rendered. If it is a material acquisition which confers an economic benefit on the taxpayer and does not constitute an exemption, e.g. loan or gift, then it is within the all-embracing definition of s. 3.[3]

[7] Thus in Merrins v. H.M.Q., 94 DTC 6669 (F.C.T.D.), after a taxpayer who lost his employment filed a grievance under a collective agreement, an arbitrator directed the taxpayer's employer to pay him a lump sum of $60,000 and the $60,000 was held correctly to be included in the taxpayer's income as a "retiring allowance". The Court found that the sum of $60,000 was received by the taxpayer "in respect of" his employment.

[8] In Norman v. M.N.R., 87 DTC 556, the sum of $5,000 received by an employee from his employer in return for withdrawing a grievance was included in the taxpayer's income.

[9] Also, where an employer breached a collective agreement between it and the taxpayer's union, the compensation received by the taxpayer from the employer for breach of the agreement was held to be income from employment, notwithstanding the taxpayer's claim the compensation was received for personal injury for the loss of amenities he sustained as a result of the employer's breach: Vincent v. M.N.R., 88 DTC 1422, Sarchuk, J.T.C.C. reviewed the issue, raised by Mr. Frank, that an award for damages is not included in income and after reviewing the cases, concluded at page 1428, that:

[i]n income tax matters, the receipt of compensation by way of "damages" is neutral without further evidence as to the nature and quality of the reward. The receipt of an award of "damages" may or may not result in the receipt being taxable income. (See Donald Hart v. M.N.R., 59 DTC 1134 at 1135.)

[10] It is obvious that the sum of $1,057 received by Mr. Frank was a benefit he received with respect to his employment with the Government of Ontario and is to be included in his income for 1996 as income from employment.

[11] The appeal is dismissed.

Signed at Ottawa, Canada, this 18th day of December 1998.

"Gerald J. Rip"

J.T.C.C.