Date: 19980623
Docket: 97-2257-IT-I
BETWEEN:
GÉRARD ROY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Agent for the Appellant: Johanne Roy
Counsel for the Respondent: Annie Poirier
Reasons for Judgment
(decision delivered orally from the bench at Montréal,
Quebec on April 27, 1998)
Pierre Archambault, J.T.C.C.
[1] Gérard Roy is challenging an assessment made
by the Minister of National Revenue ("the Minister")
for the 1995 taxation year. The Minister added $94,574.36 to
Mr. Roy's income. This amount represents salary paid to
him in 1995 following a legal action which lasted nearly ten
years. The action concerned Mr. Roy's employment
classification and an adjudicator allowed his claim. As a result
of his new classification, Mr. Roy was entitled to a higher
salary. According to the evidence before the Court, the
$94,574.36 represents additional pay Mr. Roy should have
received between 1985 and 1993 but which was not paid to him
until 1995.
Analysis
[2] Mr. Roy argued essentially that the $94,574.36 should
be spread over the period from 1985 to 1993, so that this income
would not be taxed at a marginal rate higher than that which
would have applied if he had received it in the period 1985 to
1993. Mr. Roy maintained that he should not be penalized
because of his employer's mistake.
[3] As his second argument, Mr. Roy maintained that the
amount he received constitutes damages and that no provision of
the Income Tax Act ("the Act") imposes a tax on
damages.
[4] Finally, as his last argument Mr. Roy referred to
various provisions of the Act under which certain income can be
spread out.
[5] Unfortunately for Mr. Roy, this Court cannot allow
his appeal. The amount of tax owed by a taxpayer must be
determined according to the provisions of the Act, not the rules
of fairness. Although I fully understand Mr. Roy's
frustration, this Court has no choice but to apply s. 5 of
the Act, which expressly provides that all employment income must
be included in income for the year in which it was received.
[6] For Mr. Roy to be successful, there would have had to
be a provision in the Act under which his income could be spread
out. As his agent acknowledged, there seems to be no provision in
the Act under which income can be spread out in this way and the
Court knows of none that can be applied in the circumstances of
the instant case.
[7] The fact that some provisions of the Act permit income to
be spread out in some way confirms that this Court cannot grant
such treatment if there is no such provision.
[8] Finally, as to the argument based on the concept of
damages, I consider that the amounts Mr. Roy received do not
constitute damages. What Mr. Roy claimed was additional pay
to which he was entitled in view of the position he held. The
adjudicator, the Quebec Superior Court and the Quebec Court of
Appeal ruled in his favour. The amounts paid to him were
calculated in terms of a higher salary for each of the taxation
years included in the adjustment period.
[9] Damages are paid when a party cannot obtain specific
performance of an obligation. In such a case the creditor seeks
compensation through a monetary equivalent. In the instant case
the employer was required to pay a salary, that is, a sum of
money, so it was possible to obtain specific performance of his
obligation. In The Queen v. Atkins, 76 DTC 6258, to
give one example, a taxpayer was dismissed without reasonable
notice. In such a case the courts have awarded damages in lieu of
the notice the employer should have given but did not give.
[10] Accordingly, the amount of $94,574.36 which Mr. Roy
received in 1995 constituted salary, and under s. 5 of the
Act this amount must be included in his income for the year in
which he received it.
[11] Furthermore, it would have been impossible to add the
additional pay earlier since the amount was uncertain as long as
the legal action was still pending. It would in fact have been
entirely unfair to add this amount of $94,574.36 to
Mr. Roy's income before 1995, since there could have
been a decision unfavourable to him and he would then have been
taxed on money he had never received.
[12] Clearly, the Act taxes a salary in the year it is
received, namely the year in which the taxpayer benefits from it,
because it is then certain that the taxpayer will have the money
needed to pay the tax on it. It would have been difficult for
Mr. Roy to pay tax from 1985 to 1993 on an amount of
$94,574.36 he would not actually have until 1995.
[13] Although this tax policy may make sense in most cases,
that does not mean that there cannot also be untoward
consequences for the taxpayer, as appears to be the case with
Mr. Roy. However, this Court has no jurisdiction to do away
with such consequences.
[14] For all these reasons, the appeal is dismissed without
costs.
Signed at Ottawa, June 23, 1998.
"Pierre Archambault"
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 25th day of November
1998.
Stephen Balogh, Revisor
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