Karrawan v. The Queen, 2006 TCC 192 (Informal Procedure)

REASONS FOR JUDGMENT

(Delivered orally from the Bench at Toronto, Ontario

on February 24, 2006)

Bowman, C.J.

[1]       These appeals purport to be from assessments for the 1998 and 2001 taxation years.

[2]       For the reasons that will follow, I regret that I am unable to assist Mr. Karrawan, and I have tried to find some basis upon which I could help him but I am afraid that my ingenuity is not up to the task.

[3]       Mr. Karrawan was injured prior to 1998, I don't know when, and he was covered by an insurance policy to which both he and his employer contributed. He had to retain a lawyer to sue the insurance company and ultimately they paid him $46,000.00, which was substantially less than the amount that he was entitled to under the policy. For this purpose he paid legal fees of about $17,000.00.

[4]       The insurance company issued a T4A slip showing that this was taxable income. Mr. Karrawan believed that it was not, and apparently he was told so by his lawyer. Notwithstanding that, the CRA assessed him on the $48,000.00 on October 17, 2000. He filed a notice of objection, and the Minister of National Revenue reassessed on March 26, 2001 for the 1998 taxation year.

[5]       By that reassessment the Minister continued to include the $46,000.00 in income, but allowed him a deduction of legal expenses in the amount of $17,862.00. There is no evidence whatsoever that he has filed a notice of objection to that recent assessment for 1998.

[6]       He did, however, receive an assessment for the year 2001 on January 2, 2003, and while the tax for that year was relatively small, roughly $400.00, the notice of reassessment also included an amount owing from the previous reassessment for 1998 in the amount of $17,826.64.            Mr. Karrawan believes that he does not owe this and that it is not properly taxable. He has now filed an appeal to this court from that reassessment.

[7]       Leaving aside the fact that the notice of objection, which is dated January 10, 2003, related to the assessment for 2001, and the notice of appeal with this court is in fact out of time, because the confirmation of the assessment for 2001 following his objection of January 10, 2003 was dated May 15, 2003, and the notice of appeal was not filed in this court until June 7, 2005, we will ignore all of that for the moment.

[8]       The problem about the objection to the year 1998 is that there was no objection filed following the March 26, 2001 reassessment. Therefore, the statutory requirement for objecting to the assessment for 1998 has not been met. There is no other objection really to the 2001 assessment, apart from the fact that it includes a reference to the amount owing from the 1998 assessment; therefore I would have to dismiss the appeal in any event. However, I think that Mr. Karrawan is entitled to at least understand why I think the assessment is correct in any event.

[9]       His previous lawyer, Mr. Wilton, corresponded with the tax department and finally told Mr. Karrawan that he would not object to the assessment or take an appeal to this court without a substantial retainer, which it turns out was $5,000.00. Mr. Karrawan was unwilling to pay this, but, quite frankly, I don't think it would have done him much good if the lawyer had appealed on a timely basis. I think the amount that he received from the insurance company is taxable in any event on the basis of paragraph 6(1)(f) of the Income Tax Act, which taxes the total of all amounts received by the taxpayer in the year, that were payable to the taxpayer on a periodic basis in respect of a loss of all or part of the taxpayer's income from an office or employment pursuant to sickness or accident, insurance plan, a disability insurance plan, or an income maintenance insurance plan to, or under which, the taxpayer's employer has made a contribution. Mr. Karrawan informed me that his employer did contribute 50 percent of the premiums.

[10]      Now, of course, I continue to be of the view that this is not payable on a periodic basis because it was a lump sum settlement with the insurance company and I expressed that opinion in my decision in Tsiaprailis v. The Queen, 2002 DTC 1563, but unfortunately, the majority of the Federal Court of Appeal and the majority of the Supreme Court of Canada held that the fact that it was not payable on a periodic basis did not affect the amounts from being taxable under paragraph 6(1)(f).

[11]      A decision of the Supreme Court was that a lump sum settlement with an insurance company was taxable on a principle described by the Latin phrase surrogatum.

[12]      Quite frankly, apart from the fact that Mr. Karrawan did not file his objection to the 1998 assessment on a timely basis or at all, I think that even if he had, the Supreme Court of Canada would have made the amount that he received taxable in any event. It is not a result that I wish to come to, but it is a result that I am bound to come to because of the law.

[13]      For those reasons I must dismiss the appeal.

[14]      I am, however, also asking that the Minister look very carefully at finding some means of permitting Mr. Karrawan to pay off this liability on a basis that he can live with. He is obviously a person in very straitened circumstances. I would ask the Minister to find some compassionate and humane method of allowing him to satisfy this debt. The Minister can also, of course, apply the Fairness package to relieve him of any penalties or interest that might be payable. I have no power to recommend that, but I certainly ask that it be done.

Signed at Ottawa, Canada, this 4^th day of April 2006.

Bowman, C.J.