Citation: 2007TCC370
Date: 20070619
Docket: 2006-1792(IT)I
BETWEEN:
CATHARINA J. VAN ELSLANDE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
(Delivered orally from the
Bench on June 8, 2007)
Woods J.
[1] These are oral
reasons in the appeal of Catharina Van Elslande v. Her Majesty the
Queen in respect of an assessment for the 2000 taxation year.
[2] The appeal
concerns the income tax consequences of a pay equity award received by the
appellant under the Canadian Human Rights Act. The award was received by
thousands of persons who were employed by the federal government and who were
determined to be victims of discrimination on the basis of sex.
[3] The
circumstances surrounding the award are outlined in a prior decision of this
Court, Burrows v. The Queen and I will not repeat them here. In
general, the award provided compensation for wage differentials for periods of
employment beginning March 8, 1985, plus interest.
[4] The appellant,
Catharina Van Elslande, worked for the federal government from 1985 to 1987,
and was a member of the bargaining unit that was entitled to the award.
[5] The issue in
this appeal concerns the nature of the award that Ms. Van Elslande
received and accordingly I will attempt to use neutral terminology to describe
it. I will refer to the amount received for the wage differential as the
“principal component” of the award and the interest portion as the “interest
component.”
[6] In the 2000
taxation year, the appellant received a principal component in the amount of
$3,972.31, for which her employer issued a T4 slip characterizing the amount as
remuneration. She also received an interest component in the amount of
$3,455.14, for which she received a T5 slip characterizing the amount as
interest.
[7] The income tax
assessment issued to the appellant for the 2000 taxation year included both
amounts in income.
[8] The appellant
objected to the assessment on the basis that both amounts should be non-taxable
as damages. The Canada Revenue Agency placed the objection on hold pending the
outcome of the Burrows case, which challenged the taxation of the
interest component on Charter grounds.
[9] After Burrows
was decided, the assessment was confirmed.
[10] I would note at
the outset that the appellant feels aggrieved by the way her objection was
handled by the Canada Revenue Agency. According to the appellant, there was no
consultation during the objection stage and, after a period of four years, she
received a rather poor explanation for the confirmation of the assessment. I
would add to this that the Burrows decision did not consider either of the
arguments made by the appellant in this case and the letter from the Canada
Revenue Agency which accompanied the confirmation was misleading in that it
inferred that the Court in Burrows had considered whether the interest
component was taxable under s. 12(1)(c). In fact, the Court only considered a
Charter argument and not whether the interest was taxable under the Income
Tax Act. While I have sympathy for the appellant with how her objection
appears to have been handled, I cannot allow an appeal on grounds that the
taxpayer was unfairly treated during the audit and objection stages.
[11] I turn now to the
main issue.
[12] The award
provided to the appellant stemmed from complaints under the Canadian Human
Rights Act filed by the Public Service Alliance of Canada alleging that the
federal government had failed to provide members of the appellant’s bargaining
group with equal pay for work of equal value.
[13] A tribunal was
set up to consider the complaint and after a lengthy and complex proceeding, the
tribunal agreed that there had been discrimination, and ordered a wage
adjustment retroactive to March 8, 1985, plus interest.
[14] The appellant
submits that the principal component of the award is not in fact wages but
non-taxable damages for personal injury. She also argues that the interest
component has the same character and should similarly be non-taxable.
[15] I will first
consider the nature of the award and then go to consider the tax consequences.
[16] The award was
made pursuant to s. 53(2)(c) of the Canadian Human Rights Act. This
section provides that the tribunal may make an award against an employer of
compensation for wages that the victim of the discrimination was deprived of.
[17] In this case, the
tribunal’s decision makes it clear that the nature of the award is compensation
for lost wages rather than some other type of damages.
[18] As for the tax
principles that apply in this situation, neither party brought any prior
judicial decisions to my attention on the issue. Upon a brief review of the
case law, I discovered that there was a decision of the Federal Court of Appeal
dealing with the taxation of a pay equity award. The decision, Morency
v. The Queen, was issued in January 2005 and concerned a pay equity
award in respect of an employee of the Quebec government. The claim in Morency was made for
wage discrimination under the Quebec Charter of Human Rights and Freedoms,
which is similar to the pay equity legislation that governs the award to Ms.
Van Elslande. The Federal Court of Appeal upheld the decision of the Tax Court
and decided that the award was taxable as income. In the appellate court, Noel
J. states:
The amount in question will count
as income if the payment compensates the appellant for the pay she was entitled
to receive but did not receive.
[19] I do not see a
basis to distinguish the Morency decision in this case and since it is
from a higher court, it is binding on me. Accordingly the principal component
of the award received by Ms. Van Elslande should be included in computing
income.
[20] Before leaving
this issue, I feel compelled to note that I am perplexed, and dismayed, as to
the Crown’s failure to refer Ms. Van Elslande to the Morency decision
prior to this hearing, and as to counsel’s failure to refer it to me during the
hearing. To my knowledge this is the first appeal involving this pay equity
award in which a recipient has challenged the taxation of the principal
component of the award as opposed to just the interest. I would have thought
that this issue, which affects thousands of taxpayers, was sufficiently
important to justify more care and attention than appears to have been given it
on the part of the Crown.
[21] I turn now to the
interest component, which the Morency decision does not deal with. Ms.
Van Elslande’s argued that the interest component was also non-taxable damages.
This position cannot be accepted given my conclusion on the principal
component. I see no reason not to characterize the interest component as
interest which is included in income under s. 12(1)(c) of the Act. This
is in accordance with the recent decisions of this Court, including my decision
in Montgomery v. The Queen.
[22] For the reasons
above, I am compelled to dismiss Ms. Van Elslande’s appeal. In light of the rather
dismissive approach by the government to the appellant’s claim, I would suggest
that the Crown give consideration to exercising their discretion to waive the
interest on the assessment, if there is any owing. It appears, though, that
there may not be interest owing, because Ms. Van Elslande included the award in
her initial tax return.
Signed at Toronto, Ontario this 19th day of June 2007
"J. Woods"
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