La
Forest
J.:
-
This
appeal
involves
the
issue
whether
compensation
received
by
an
“employee”
from
his
“employer”
pursuant
to
a
settlement
regarding
liability
for
the
employer’s
unilateral
decision
to
cancel
a
contract
of
employment
before
the
employee
had
become
under
obligation
to
provide
services
is
taxable
as
income
from
an
unenumerated
source
under
the
general
provision
of
paragraph
3(a)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(now
R.S.C.,
1985,
c.
1
(5th
Supp.)),
or,
in
the
alternative,
as
a
retiring
allowance
under
subparagraph
56(
1
)(a)(ii)
of
the
Act.
I.
Background
In
the
spring
of
1988,
Mr.
Schwartz,
a
lawyer,
received
a
verbal
offer
of
employment
from
the
Dynacare
Health
Group
Inc.’s
Chairman,
Albert
J.
Latner.
The
appellant
accepted
on
the
basis
that
the
employment
would
begin
on
completion
of
an
assignment
by
the
appellant
for
the
Government
of
Ontario,
which
was
expected
in
November.
Later,
in
May
1988
Mr.
Schwartz
wrote
Mr.
Latner
a
letter
outlining
the
terms
of
their
agreement.
Mr.
Latner
accepted
the
proposed
terms
and
signed
the
letter.
They
agreed
that
the
appellant
was
to
receive
a
salary
of
$250,000
annually
as
well
as
the
option
to
acquire
1.25%
of
the
existing
non-voting
shares
of
Dynacare,
calculated
at
the
date
of
the
agreement,
for
the
price
of
$0.01
per
share.
The
agreement
provided
that
the
shares
would
“vest
in
three
equal
amounts
[on
the
date
of
commencement
of
the
employment
and
on
the
first
and
second
anniversary
dates]”.
They
also
agreed
that
every
effort
would
be
made
to
minimize
taxes
payable
by
both
parties.
Within
days,
the
appellant
notified
his
partners
of
his
intention
to
withdraw
from
the
partnership
at
the
end
of
his
assignment.
The
contract
was
never
carried
out.
In
late
September,
Dynacare
informed
the
appellant
that
his
services
would
not
be
required.
Later,
the
appellant
received
a
letter
dated
October
6,
1988
from
Dynacare’s
solicitors
confirming
the
cancellation
of
the
employment,
recognizing
Dynacare’s
contractual
obligation
towards
the
appellant
and
offering
him
$75,000
in
exchange
for
a
full
and
final
release.
The
letter
also
made
reference
to
the
fact
that
the
appellant
had
an
obligation
to
mitigate
his
damages.
The
appellant
refused
the
offer.
He
continued
to
practise
law
until
he
withdrew
from
the
partnership
on
January
31,
1989,
as
he
had
agreed
with
his
partners.
He
commenced
employment
with
an
investment
firm
the
next
day
at
an
annual
salary
of
$175,000.
Negotiations
for
settlement
were
conducted
by
the
parties’
lawyers
during
the
course
of
which
two
letters,
later
filed
at
trial,
were
exchanged.
The
first,
dated
June
13,
1989,
was
from
Dynacare’s
solicitors
and
was
addressed
to
the
appellant’s
solicitors.
It
dealt
specifically
with
the
value
of
Mr.
Schwartz’s
stock
options
and
concluded
that
Dynacare
considered
them
to
be
worth
$267,000
for
the
purposes
of
the
settlement.
Dynacare’s
solicitors
also
stated
that
their
client
was
“prepared
to
be
flexible
around
the
range
of
$267,000”.
The
appellant’s
solicitors
replied
in
a
letter
dated
June
22,
1989,
expressing
disagreement
with
Dynacare’s
method
of
calculating
the
value
of
the
stock
options
and
stating
that
the
appellant
was
owed
$75,000
as
lost
salary.
That
letter
contained
an
offer
to
settle
the
dispute
for
$400,000
plus
costs.
A
settlement
was
reached
and
a
release
was
signed
on
August
21,
1989.
Dynacare
agreed
to
pay
the
appellant
a
lump
sum
of
$360,000
as
damages
plus
$40,000
on
account
of
costs.
At
trial,
Mr.
Schwartz
testified
that
in
arriving
at
the
amount
of
$360,000,
losses
on
stock
options,
salary,
embarrassment,
anxiety
and
inconvenience
resulting
from
the
breach
of
the
employment
contract
by
Dynacare
were
considered,
but
no
specific
allocation
among
such
losses
was
made.
The
respondent
Crown
assessed
the
damages
as
constituting
a
“retiring
allowance”
taxable
under
subparagraph
56(l)(a)(ii)
of
the
Act.
The
appellant
filed
a
notice
of
objection,
but
the
respondent
confirmed
the
assessment
initially
made.
The
appellant
then
appealed
the
assessment
successfully
to
the
Tax
Court
of
Canada,
[1993]
2
C.T.C.
2125,
93
D.T.C.
555,
from
whose
decision
the
respondent
appealed
to
the
Federal
Court
of
Appeal,
which
allowed
the
appeal:
[1994]
2
C.T.C.
99,
94
D.T.C.
6249.
This
Court
granted
the
appellant
leave
to
appeal
the
latter
decision
on
October
13,
1994,
[1994]
3
S.C.R.
xi.
II.
Relevant
Statutory
Provisions
The
provisions
of
the
Act
to
which
I
will
refer
during
the
course
of
these
reasons
are
the
following:
3.
The
income
of
a
taxpayer
for
a
taxation
year
for
the
purposes
of
this
Part
is
his
income
for
the
year
determined
by
the
following
rules:
(a)
determine
the
aggregate
of
amounts
each
of
which
is
the
taxpayer’s
income
for
the
year
(other
than
a
taxable
capital
gain
from
the
disposition
of
a
property)
from
a
source
inside
or
outside
Canada,
including,
without
restricting
the
generality
of
the
foregoing,
his
income
for
the
year
from
each
office,
employment,
business
and
property;
5.
(1)
Subject
to
this
Part,
a
taxpayer’s
income
for
a
taxation
year
from
an
office
or
employment
is
the
salary,
wages
and
other
remuneration,
including
gratuities,
received
by
him
in
the
year.
6.
(1)
There
shall
be
included
in
computing
the
income
of
a
taxpayer
for
a
taxation
year
as
income
from
an
office
or
employment
such
of
the
following
amounts
as
are
applicable:
(a)
the
value
of
board,
lodging
and
other
benefits
of
any
kind
whatever
received
or
enjoyed
by
him
in
the
year
in
respect
of,
in
the
course
of,
or
by
virtue
of
an
office
or
employment,
except
any
benefit
...
56.
(1)
Without
restricting
the
generality
of
section
3,
there
shall
be
included
in
computing
the
income
of
a
taxpayer
for
a
taxation
year,
(a)
any
amount
received
by
the
taxpayer
in
the
year
as,
on
account
or
in
lieu
of
payment
of,
or
in
satisfaction
of,
(ii)
a
retiring
allowance,
other
than
an
amount
received
out
of
or
under
an
employee
benefit
plan,
a
retirement
compensation
arrangement
or
a
salary
deferral
arrangement
...
80.4
(1)
Where
a
person
or
partnership
received
a
loan
or
otherwise
incurred
a
debt
by
virtue
of
the
office
or
employment
or
intended
office
or
employment
of
an
individual,
or
by
virtue
of
the
services
performed
or
to
be
performed
by
a
corporation
carrying
on
a
personal
services
business
(within
the
meaning
assigned
by
paragraph
125(7)(d)),
the
individual
or
corporation,
as
the
case
may
be,
shall
be
deemed
to
have
received
a
benefit
in
a
taxation
year
equal
to
that
amount,
if
any,
by
which
the
aggregate
of
(b)
the
aggregate
of
all
amounts
each
of
which
is
an
amount
of
interest
that
was
paid
or
payable
in
respect
of
the
year
on
such
a
loan
or
debt
by
(i)
a
person
or
partnership
(in
this
paragraph
referred
to
as
the
“employer”)
that
employed
or
intended
to
employ
the
individual,
...
248(1)
In
this
Act,
“employment”
means
the
position
of
an
individual
in
the
service
of
some
other
person
(including
Her
Majesty
or
a
foreign
state
or
sovereign)
and
“servant”
or
“employee”
means
a
person
holding
such
a
position;
“retiring
allowance”
means
an
amount
(other
than
a
superannuation
or
pension
benefit,
an
amount
received
as
a
consequence
of
the
death
of
an
employee
or
a
benefit
described
in
subparagraph
6(l)(a)(iv))
received
(a)
upon
or
after
retirement
of
a
taxpayer
from
an
office
or
employment
in
recognition
of
his
long
service,
or
(b)
in
respect
of
a
loss
of
an
office
or
employment
of
a
taxpayer,
whether
or
not
received
as,
on
account
or
in
lieu
of
payment
of,
damages
or
pursuant
to
an
order
or
judgment
of
a
competent
tribunal
by
the
taxpayer
or,
after
his
death,
by
a
dependant
or
a
relation
of
the
taxpayer
or
by
the
legal
representative
of
the
taxpayer;
III.
Judgments
Below
Tax
Court
of
Canada,
[1993]
2
C.T.C.
2125,
93
D.T.C.
555
The
Crown’s
principal
contention
before
the
Tax
Court
of
Canada
was
that
the
settlement
amount
was
taxable
as
a
“retiring
allowance”.
In
considering
this
contention,
Rip
J.T.C.C.
relied
heavily
on
the
ordinary
meaning
of
the
words
of
the
Act
dealing
with
retiring
allowances.
In
his
view,
the
ordinary
meaning
of
the
words
“employment”,
“office”,
“employee”,
“officer”,
“position”
and
“holding”
ought
not
be
altered.
The
definition
of
“retiring
allowance”,
he
stated,
does
not
refer
to
an
“intended”
or
“prospective”
employment,
and
one
should
not
read
into
it
words
that
are
not
present
there.
He
confirmed
that
finding
by
considering
English
dictionary
definitions
of
the
word
“position”
and
the
French
equivalent
“poste”
and
found
(at
page
560)
that
an
officer
is
“one
who
holds,
has
possession
of
or
fills
a
position
which
grants
him
a
right
to
stipend
or
remuneration”
and
that
an
employee
is
one
who
“occupies
a
position
in
the
service
of
another”.
The
consideration
of
various
factors
led
the
trial
judge
to
the
conclusion
that
Mr.
Schwartz
was
not
an
“employee”
or
in
the
“employment”
of
Dynacare
when
the
cancellation
of
the
employment
agreement
occurred.
The
appellant
was
still
a
partner
in
his
law
firm
at
the
time.
He
was
not
performing
any
services
for
Dynacare,
nor
was
he
under
any
obligation
to
do
so.
He
was
not
receiving
any
kind
of
remuneration
and
the
directors
of
Dynacare
had
not
yet
appointed
him.
What
the
appellant
lost
when
the
contract
was
cancelled,
Rip
J.T.C.C.
held,
was
not
his
employment
or
his
position,
but
the
legal
right
entitling
him
to
employment
in
the
future.
Rip
J.T.C.C.
rejected
the
respondent’s
submission
that
parliamentary
documents
and
earlier
cases
supported
its
position
by
underlying
the
importance
of
the
distinction
to
be
made
between
termination
of
employment
contracts
occurring
when
employment
had
already
commenced
and
those
occurring
before
the
employee
had
started
providing
any
services
to
his
employer.
He
therefore
concluded
that
the
damages
were
not
a
“retiring
allowance”
within
the
meaning
of
subsection
248(1)
of
the
Act.
The
judge
also
rejected
the
respondent’s
first
alternative
argument
that
if
the
damages
were
not
a
retiring
allowance,
they
had
been
received
by
the
appellant
as
a
benefit
by
virtue
of
an
office
or
employment
and
therefore
fell
within
the
purview
of
paragraph
6(1
)(a)
of
the
Act.
He
followed
the
Federal
Court
of
Appeal’s
decisions
in
R.
v.
Atkins
(sub
nom.
The
Queen
v.
Atkins),
[1976]
C.T.C.
497,
76
D.T.C.
6258,
and
Pollock
v.
R.
(sub
nom.
Pollock
v.
The
Queen),
[1984]
C.T.C.
353,
84
D.T.C.
6370,
and
found
that
the
damages
received
by
the
appellant
could
not
be
regarded
as
“salary”,
“wages”
or
“remuneration”
or
as
a
benefit
“received
or
engaged
[sic]
by
him...in
respect
of,
in
the
course
of,
or
by
virtue
of
the
office
or
employment”
within
the
meaning
of
section
5
and
paragraph
6(1
)(a)
of
the
Act.
He
added
that
the
fact
that
the
appellant
had
not
commenced
employment
at
the
time
the
breach
occurred
made
the
reasoning
even
more
persuasive.
Finally,
Rip
J.T.C.C.
dealt
with
the
respondent’s
argument
that
the
damages
were
taxable
under
section
3
as
being
“income
from
a
source”,
the
source
being
the
employment
contract.
He
found
that
the
amount
received
by
the
appellant
could
not
be
considered
“income”,
because
the
ordinary
concept
of
income
pertained
to
recurring
receipts
and
did
not
extend
to
a
lump
sum
received
because
a
source
of
income
had
been
taken
away
or
destroyed.
Consequently,
in
a
case
such
as
the
one
at
bar,
compensation
for
damages
relating
to
future
services
was
not
to
be
considered
“income”.
He
noted
that
in
the
present
situation,
the
damages
received
by
the
appellant
did
not
relate
in
any
way
to
past
services.
In
the
course
of
his
reasons,
Rip
J.T.C.C.
stated
(at
page
557)
that
there
was
no
evidence
indicating
any
allocation
of
the
settlement
amount
and
made
the
following
finding
of
fact,
which
was
disturbed
by
the
Federal
Court
of
Appeal
and
which
is
at
issue
before
our
Court,
at
page
2135
(D.T.C.
562):
Schwartz
suffered
inconvenience
and
prejudice
when
he
was
informed
his
services
would
not
be
required.
He
had
given
notice
of
withdrawal
to
his
law
partnership.
He
had
to
begin
to
look
for
employment.
Schwartz
was
never
an
employee
of
officer
of
the
purported
employer.
The
damages
he
received
was
[sic]
in
a
small
part,
if
any,
for
loss
of
income
for
future
services
and
to
a
larger
part,
according
to
the
evidence,
for
embarrassment,
anxiety
and
inconvenience.
[Emphasis
added.]
Federal
Court
of
Appeal
(Mahoney,
Stone
and
McDonald
JJ.A.),
[1994]
2
C.T.C.
99,
94
D.T.C.
6249
The
respondent
did
not
argue
that
the
damages
constituted
a
retiring
allowance
before
the
Federal
Court
of
Appeal.
Mahoney
J.A.
for
the
court
nonetheless
held
that
he
was
in
substantial
agreement
with
Rip
J.T.C.C.’s
finding
that
the
damages
did
not
constitute
a
retiring
allowance
as
contemplated
by
subparagraph
56(
1
)(a)(ii)
and
subsection
248(1)
of
the
Act.
The
critical
issue
before
the
Federal
Court
of
Appeal
was
the
Tax
Court
of
Canada’s
finding
of
fact
relating
to
apportionment.
After
stating
the
guidelines
laid
down
by
our
Court
in
Stein
v.
“Kathy
K”,
[1976]
2
S.C.R.
802,
62
D.L.R.
(3d)
1,
Mahoney
J.A.
concluded
that
the
Federal
Court
of
Appeal
was
justified
in
overturning
Rip
J.T.C.C.’s
finding
of
fact
because
the
latter
had
omitted
to
consider
relevant
documentary
evidence.
He
found
that
the
letters
dated
June
13,
1989
and
June
22,
1989
from
the
parties’
solicitors
were
contradictory
to
the
oral
evidence
on
the
issue
of
allocation
and
he
held
that,
on
a
balance
of
probabilities,
$75,000
had
been
allocated
for
loss
of
salary
and
$267,000
for
loss
of
the
stock
options,
and
that
there
was
thus
no
reason
not
to
conclude
that
$18,000
had
been
awarded
for
embarrassment,
anxiety
and
inconvenience
suffered
by
Mr.
Schwartz.
He
preferred
the
documentary
evidence
over
the
appellant’s
testimony
because
par.
4
of
the
May
1988
agreement,
which
indicated
concerns
by
both
parties
regarding
taxes,
and
the
self-serving
nature
Mr.
Schwartz’s
testimony
raised
doubts
as
to
his
credibility.
The
Federal
Court
of
Appeal
therefore
held
that
the
damages
relating
to
lost
salary
and
stock
options
($342,000)
were
taxable
under
section
3
of
the
Act
as
income
from
employment.
It
followed
the
English
decision
London
&
Thames
Heaven
Oil
Wharves
Ltd.
v.
Attwooll,
[1967]
2
All
E.R.
124,
43
T.C.
491
(C.A.),
which
was
approved
by
the
Federal
Court
of
Appeal
in
R.
v.
Manley
(sub
nom.
Manley
v.
The
Queen),
[1985]
1
C.T.C.
186,
85
D.T.C.
5440
(leave
to
appeal
to
this
Court
refused:
[1986]
1
S.C.R.
xi),
and
stated,
at
page
106
(D.T.C.
6254):
Where,
pursuant
to
a
legal
right,
a
person
receives
from
another
compensation
for
the
failure
to
receive
a
sum
of
money
or
benefit
which,
if
it
had
been
received,
would
have
been
income
from
an
employment
or
office,
the
compensation
is
to
be
treated
for
income
tax
purposes
in
the
same
way
as
if
the
benefit
or
sum
of
money
had
been
received
instead
of
the
compensation.
The
Federal
Court
of
Appeal
held
(at
page
106
(D.T.C.
6254))
that
the
source
of
the
appellant’s
right
was
the
contract
of
employment,
“a
source
of
income
within
the
express
contemplation
of
paragraph
3(a)”,
and
that
the
$342,000
was
therefore
taxable
as
income
from
employment.
IV.
Analysis
Before
this
Court,
the
Crown
argued
that
the
damages
received
by
the
appellant
were
taxable
in
two
ways.
Its
main
contention
was
that
the
money
received
by
Mr.
Schwartz
relating
to
lost
salary
and
stock
options
was
taxable
as
income
from
an
unenumerated
source
under
the
general
provision
of
paragraph
3(a)
of
the
Act
—
such
unenumerated
source
being
the
employment
contract
terminated
by
Dynacare.
The
Crown
also
put
forward
an
alternative
argument,
namely
that
the
whole
of
the
damages
($360,000)
received
by
Mr.
Schwartz
were
taxable
under
subparagraph
56(l)(a)(ii)
of
the
Act
as
a
retiring
allowance.
For
the
reasons
that
follow,
I
am
of
the
opinion
that
the
appeal
should
be
allowed.
To
deal
with
the
substance
of
the
Minister’s
main
argument,
it
is
necessary
to
address
the
correctness
of
the
Federal
Court
of
Appeal’s
decision
to
overturn
Rip
J.T.C.C.’s
finding
of
fact
with
respect
to
the
allocation
made
by
Dynacare
and
Mr.
Schwartz
of
the
compensation
agreed
upon.
I
conclude
that
the
Federal
Court
of
Appeal
was
wrong
in
doing
so,
a
conclusion
that
is
sufficient,
technically,
to
dispose
of
the
Crown’s
main
argument
in
favour
of
the
appellant.
However,
the
substance
of
the
Minister’s
main
argument
raises
important
questions
that
merit
attention
by
this
Court
and
it
having
been
fully
argued
by
the
parties,
I
think
it
appropriate
to
deal
with
it
on
its
merits.
Regarding
this
issue,
I
have
come
to
the
conclusion
that
paragraph
3(a)
of
the
Act
does
contemplate
taxability
of
income
arising
from
sources
other
than
those
specifically
provided
for
in
paragraph
3(a)
and
in
subdivision
d
of
Division
B
of
Part
I
of
the
Act.
However,
in
the
case
at
bar,
an
analysis
of
the
way
Parliament
handled
the
taxability
of
payments
such
as
the
one
received
by
Mr.
Schwartz
demonstrates
that
it
is
to
the
rules
relating
to
retiring
allowances
that
one
should
turn
in
assessing
taxability.
This
brings
us
to
a
consideration
of
the
Crown’s
alternative
argument
and,
like
the
trial
judge
and
the
Federal
Court
of
Appeal,
I
have
come
to
the
conclusion
that
the
damages
received
by
Mr.
Schwartz
do
not
constitute
a
retiring
allowance.
Before
dealing
specifically
with
the
issues
raised
in
this
appeal,
however,
I
find
it
advisable
to
consider
the
manner
in
which
Parliament
has
historically
chosen
to
deal
with
the
taxability
of
monies
received
by
an
employee
from
his
ex-employer
as
a
result
of
the
latter’s
cancellation
of
the
employment
contract.
A.
The
Historical
Background
The
provisions
on
which
the
Crown
relies
in
arguing
that
the
amount
received
by
Mr.
Schwartz
is
taxable
are
all
found
in
Part
I
of
the
Act,
which
is
entitled
“Income
Tax”.
Section
3
states
the
basic
rules
to
be
applied
in
determining
a
taxpayer’s
income
for
a
given
year
and
identifies,
in
para,
(a),
the
five
principal
sources
from
which
income
can
be
generated:
office,
employment,
business,
property
and
capital
gains.
Subdivisions
a,
b
and
c
of
Division
B
of
Part
I
contain
specific
provisions
relating
to
the
characterization
of
income
as
being
from
either
office,
employment,
business,
property
or
as
constituting
capital
gains.
Section
56(l)(a)(ii)
—
which
provides
for
the
taxability
of
retiring
allowances
—
is
found
in
subdivision
d
of
Division
B
of
Part
I,
entitled
“Other
Sources
of
Income”.
As
noted
by
Professor
V.
Krishna,
The
Fundamentals
of
Canadian
Income
Tax
(4th
ed.
1992),
at
page
525,
these
“other
sources”
relate
to
“certain
types
of
income
which
cannot
conveniently
be
identified
as
originating
from,
or
relating
to”
the
five
sources
enumerated
in
paragraph
3(a)
of
the
Act.
Initially,
damages
received
by
an
employee,
from
his
ex-employer,
as
a
result
of
the
latter’s
cancellation
of
the
employment
contract,
did
not
constitute
income
from
office
or
employment
taxable
under
subsection
5(1);
nor
did
they
constitute
a
retiring
allowance
taxable
under
subparagraph
56(l)(a)(ii).
On
the
first
of
these
propositions,
the
Federal
Court
of
Appeal,
in
Atkins,
supra,
stated
that
such
payments
did
not
constitute
taxable
income
from
an
office
or
employment
under
subsection
5(1).
That
was
so
because
these
amounts
were
not
considered
to
be
in
the
nature
of
income
for
tax
purposes.
Jackett
C.J.,
confirming
the
decision
rendered
by
Collier
J.
at
trial
([1975]
C.T.C.
377,
75
D.T.C.
5263),
held,
at
pages
498
(D.T.C.
6258-59):
Once
it
is
conceded,
as
the
appellant
does,
that
the
respondent
was
dismissed
“without
notice”,
monies
paid
to
him
(pursuant
to
a
subsequent
agreement)
“in
lieu
of
notice
of
dismissal”
cannot
be
regarded
as
“salary”,
“wages”
or
“remuneration”
or
as
a
benefit
“received
or
enjoyed
by
him
...
in
respect
of,
in
the
course
of,
or
by
virtue
of
the
office
or
employment”.
Monies
so
paid
(1.e.,
“in
lieu
of
notice
of
dismissal”)
are
paid
in
respect
of
the
“breach”
of
the
contract
of
employment
and
are
not
paid
as
a
benefit
under
the
contract
or
in
respect
of
the
relationship
that
existed
under
the
contract
before
that
relationship
was
wrongfully
terminated.
The
situation
is
not
altered
by
the
fact
that
such
a
payment
is
frequently
referred
to
as
so
many
months’
“salary”
in
lieu
of
notice.
Damages
for
breach
of
contract
do
not
become
“salary”
because
they
are
measured
by
reference
to
the
salary
that
would
have
been
payable
if
the
relationship
had
not
been
terminated
or
because
they
are
colloquially
called
“salary”.
The
situation
might
well
be
different
if
an
employee
was
dismissed
by
a
proper
notice
and
paid
“salary”
for
the
period
of
the
notice
even
if
the
dismissed
employee
was
not
required
to
perform
the
normal
duties
of
his
position
during
that
period.
Having
regard
to
what
I
have
said,
it
is
clear,
in
my
view,
that
the
learned
Trial
Judge
was
correct
in
holding
that
the
payment
in
question
did
not
fall
within
section
5
of
the
Income
Tax
Act
as
applicable
to
the
taxation
year
in
question.
[Emphasis
added.
I
The
principle
laid
down
in
Atkins,
which
was
decided
by
the
Federal
Court
of
Appeal
in
May
of
1976,
was
therefore
accepted
as
authoritative
both
by
the
courts
and
commentators
(see
Krivy
v.
Minister
of
National
Revenue,
[1979]
C.T.C.
2108,
79
D.T.C.
121
(T.R.B.);
Girouard
v.
R.
(sub
nom.
Girouard
v.
The
Queen),
[1980]
C.T.C.
284,
80
D.T.C.
6205
(F.C.A.);
Beck
v.
Minister
of
National
Revenue,
[1980]
C.T.C.
2851,
80
D.T.C.
1747
(T.R.B.);
Grozelle
v.
Minister
of
National
Revenue,
[1977]
C.T.C.
2432,
77
D.T.C.
310
(T.R.B.);
E.
C.
Harris,
Canadian
Income
Taxation
(1979),
at
page
116;
R.
B.
Goodwin,
“Personal
Damages”
in
Canadian
Tax
Foundation,
Report
of
the
Proceedings
of
the
Twenty-Eighth
Tax
Conference
(1977),
813,
at
pages
820-21;
also
W.
A.
MacDonald
and
G.
E.
Cronkwright,
eds.,
Income
Taxation
in
Canada
(1977
(loose-leaf)),
vol.
2,
at
T17,521;
and
L.
M.
Collins,
“The
Terminated
Employee:
Minimizing
the
Tax
Bite”,
in
Report
of
the
Proceedings
of
the
Forty-Fifth
Tax
Conference
(1994),
31.1,
at
pages
31:18
and
31:19),
although
some
questioned
the
correctness
of
the
legal
reasoning
adopted
by
the
Federal
Court
of
Appeal
at
the
time
(see
V.
Krishna,
“Characterization
of
Wrongful
Dismissal
Awards
for
Income
Tax”
(1977),
23
McGill
L.J.
43).
P.W.
Hogg
and
J.
E.
Magee,
in
their
recent
textbook
Principles
of
Canadian
Income
Tax
Law
(1995),
at
pages
164-65,
address
this
historical
reality
in
these
words:
Before
1978,
if
the
departing
employee
sued
the
employer
for
wrongful
dismissal
and
recovered
damages,
then
the
damages
would
be
received
free
of
tax.
This
was
because
an
award
of
damages
for
breach
of
contract
(or
for
a
tort
or
other
cause
of
action)
is
not
income
for
tax
purposes.
This
was
so,
even
though
the
amount
of
a
damages
award
for
wrongful
dismissal
would
be
computed
by
reference
to
exactly
the
same
considerations
(that
is,
the
amount
of
salary
that
would
have
been
paid
during
a
required
period
of
notice)
as
would
be
applied
to
the
computation
of
a
consensual
severance
payment.
Since
court-awarded
damages
were
free
of
tax,
it
was
also
held
that
an
out-of-court
settlement
of
a
wrongful
dismissal
action
also
escaped
tax.
The
position
taken
by
the
courts
towards
such
payments
was
clearly
accepted
by
the
Minister
of
National
Revenue.
In
Interpretation
Bulletin
IT-365,
dated
March
21,
1977,
and
entitled
“Damages,
Settlements,
and
Similar
Receipts”,
it
is
stated:
Receipts
in
Respect
of
Termination
of
Employment
2.
An
amount
that
a
taxpayer
receives
on
the
termination
of
his
employment
may
consist
of
many
components
such
as
amounts
in
respect
of
salaries,
accumulated
leave
credits,
retiring
allowances,
compensation
for
loss
of
job
opportunity
or
for
lack
of
adequate
or
reasonable
notice,
or
other
similar
amounts.
That
part
of
the
amount
that
represents
salary
or
wages
that
the
taxpayer
would
have
received
under
the
contract
is
taxable
pursuant
to
the
provisions
of
section
5
of
the
Act.
The
portion
of
the
amount
that
is
damages
for
breach
of
contract
or
loss
of
future
job
opportunity
is
not
taxable.
It
is
a
question
of
fact
whether
all
or
some
portion
of
the
amount
received
is
on
account
of
salary,
retiring
allowance,
or
an
obligation
arising
out
of
an
agreement.
For
example
a
taxpayer
may
be
dismissed
with
proper
notice
and
be
paid
“salary”
(which
would
be
taxable)
for
the
period
of
notice
even
if
the
dismissed
employee
was
not
required
to
perform
the
normal
duties
of
his
position
during
that
period.
On
the
other
hand,
the
fact
that
damages
may
be
calculated
by
reference
to
salary
that
would
have
been
payable
if
the
relationship
had
not
been
terminated
or
because
they
are
colloquially
called
“salary”
does
not
alter
the
character
of
the
payments
to
one
of
“salary”.
[Emphasis
added.
]
It
was
also
settled
that
such
payments
did
not
constitute
retiring
allowances
as
contemplated
by
the
Act.
The
definition
of
“retiring
allowance”
was
different
then
and
read:
248(1)...
“retiring
allowance”
means
an
amount
received
upon
or
after
retirement
from
an
office
or
employment
in
recognition
of
long
service
or
in
respect
of
loss
of
office
or
employment
(other
than
a
superannuation
or
pension
benefit),
whether
the
recipient
is
the
officer
or
employee
or
a
dependant,
relation
or
legal
representative;
At
that
time,
retiring
allowances
related
only
to
payments
made
by
an
employer
following
voluntary
cessation
of
employment
on
the
part
of
the
ex-employee
or
again
following
cessation
upon
the
arrival
of
a
condition
agreed
upon
by
the
parties,
thus
excluding
from
the
scope
of
the
definition
payments
made
by
the
employer
in
pursuance
of
a
judicial
order
or
in
settlement
of
pending
or
threatened
litigation
following
unilateral
dismissal
of
the
ex-employee.
The
position
adopted
by
the
courts
is
best
explained
by
reference
to
Collier
J.’s
reasons
in
Specht
v.
R.
(sub
nom.
Specht
v.
The
Queen),
[1975]
C.T.C.
126,
75
D.T.C.
5069
(F.C.T.D.),
where
the
taxpayer
had
received
from
his
ex-employer
a
payment
in
compensation
for
the
consequences
of
the
latter’s
unilateral
decision
to
terminate
employment.
There
Collier
J.
had
this
to
say,
at
page
133
(D.T.C.
5073):
In
my
view,
the
payment
here
was
not
made
upon
or
after
the
plaintiffs
retirement.
The
plaintiff
did
not
retire
or
go
into
retirement
from
his
occupation
with
MacMillan
Bloedel
within
the
ordinary
meaning
of
“retire”
or
“retirement”.
That
is,
he
did
not
withdraw
from
his
employment
because
he
had
reached
a
mutually
stipulated
age,
or
generally
withdraw
from
his
occupation
or
business
activity.
I
have
obtained
some
assistance
on
this
point,
in
endeavouring
to
ascertain
the
ordinary
meaning
of
“retirement”,
from
dictionary
definitions:
The
Shorter
Oxford
English
Dictionary
(3rd
ed.
rev):
“withdrawal
from
occupation
or
business
activity”
The
Living
Webster
(1st
ed.):
“retire”
“to
withdraw
from
business
or
active
life”.
The
contract
of
employment
in
this
case
(Exhibit
1)
uses
the
words
“retire”
and
“retirement”
in
clauses
1
and
2.
Age
65
was
stipulated,
but
extensions
could
be
agreed
upon.
In
my
view,
“retirement”
was
used
by
the
parties
in
its
ordinary
meaning
as
set
out
above:
a
cessation
of
or
withdrawal
from
work
because
of
an
age
stipulation
or
because
of
some
other
condition
agreed
between
employer
and
employee.
Although
Collier
J.
did
not
refer
to
any
authority
on
the
issue,
his
position
was
consistent
with
the
jurisprudence
applicable
at
that
time;
see
No.
45
v.
Minister
of
National
Revenue
(1952),
5
Tax
A.B.C.
417,
52
D.T.C.
72
(T.A.B.);
Larson
v.
Minister
of
National
Revenue,
[1967]
Tax
A.
B.C.
112,
67
D.T.C.
81
(T.A.B.);
Jones
v.
Minister
of
National
Revenue,
[1968]
Tax
A.B.C.
1243,
69
D.T.C.
4
(T.A.B.);
see
also
R.
B.
Goodwin,
supra,
at
pages
829-32;
B.
G.
Hansen,
“The
Taxation
of
Employees”,
in
B.
G.
Hansen,
V.
Krishna
and
J.
A.
Rendall,
eds.,
Canadian
Taxation
(1981),
117,
at
page
160;
and
A.
R.
A.
Scace,
The
Income
Tax
Law
of
Canada
(4th
ed.
1979),
at
page
63.
Collier
J.
reiterated
his
position
in
Atkins,
and
applied
the
reasoning
laid
down
in
Specht.
The
Federal
Court
of
Appeal
did
not
deal
with
the
issue
in
its
reasons
because,
apparently,
the
Crown
had
abandoned
the
retiring
allowance
argument
on
appeal:
Goodwin,
supra,
at
page
830,
and
Krishna,
“Characterization
of
Wrongful
Dismissal
Awards
for
Income
Tax”,
supra,
at
page
53.
Here
again,
Interpretation
Bulletins
offer
some
helpful
hindsight.
The
Minister
wrote,
in
Interpretation
Bulletin
IT-337R,
dated
November
19,
1979,
and
entitled
“Retiring
Allowances”:
1.
Amounts
received
by
a
former
employee
arising
out
of
or
in
consequence
of
the
termination
of
employment
are
usually
included
as
income
from
that
employment
under
subsection
5(1)
alone
or
together
with
paragraph
6(3)(b)
(see
IT-196R),
or
as
a
retiring
allowance
under
subparagraph
56(l)(a)(ii).
One
common
exception
is
where
the
payment
constitutes
damages
in
respect
of
a
breach
of
the
contract
of
employment
by
the
former
employer.
[Emphasis
added.]
Clearly
then,
at
the
end
of
the
1970s,
it
had
been
settled
and
accepted
by
all,
including
the
Minister
of
Revenue,
that
damages
received
by
an
employee,
from
his
ex-employer,
as
à
result
of
the
latter’s
cancellation
of
the
employment
contract,
did
not
constitute
income
from
office
or
employment
taxable
under
subsection
5(1)
or
a
retiring
allowance
taxable
under
subparagraph
56(l)(a)(ii)
of
the
Act.
This,
without
doubt,
constitutes
the
mischief
Parliament
intended
to
remedy
in
1979
when
it
amended
the
Act
and
introduced
the
concept
of
“termination
payments”.
Termination
payments
were
rendered
taxable
through
subparagraph
56(l)(a)(viii)
and
were
defined
in
subsection
248(1)
in
the
following
manner:
248(1)
...
“termination
payment”,
for
a
taxation
year,
means
an
amount
equal
to
the
lesser
of
(a)
the
aggregate
of
all
amounts
each
of
which
is
an
amount
received
in
the
year
in
respect
of
a
termination
of
an
office
or
employment,
whether
or
not
received
pursuant
to
an
order
or
judgment
of
a
competent
tribunal,
other
than
(i)
an
amount
required
by
any
provision
of
this
Act
(other
than
subparagraph
56(l)(a)(viii))
to
be
included
in
computing
the
income
of
a
taxpayer
for
a
year,
(ii)
an
amount
in
respect
of
which
an
election
has
been
made
under
subsection
40(1)
of
the
Income
Tax
Application
Rules,
1971,
and
(iii)
an
amount
received
in
the
year
as
a
consequence
of
the
death
of
an
employee,
and
(b)
the
amount
by
which
50%
of
the
aggregate
of
all
amounts
each
of
which
is
the
amount
that
may
reasonably
be
considered
to
be
the
employee’s
salary,
wages
and
other
remuneration
from
an
office
or
employment
for
the
12
months
preceding
the
date
that
is
the
earlier
of
(i)
the
date
on
which
the
office
or
employment
was
terminated,
and
(ii)
the
date
on
which
an
agreement,
if
any,
in
respect
of
the
termination
was
entered
into
exceeds
the
amount
determined
under
paragraph
(a)
for
each
previous
year
in
respect
of
that
termination
whether
the
recipient
is
the
officer
or
employee
whose
office
or
employment
was
terminated
or
a
dependant,
relation
or
legal
representative
of
the
officer
or
employee;
In
Interpretation
Bulletin
IT-365R,
dated
March
9,
1981,
the
Department
of
National
Revenue
stated
its
position
on
termination
payments
and
emphasized
that
the
portion
of
a
payment
exceeding
the
amount
to
be
considered
a
“termination
payment”
under
subsection
248(1)
was
considered
to
be
a
non-taxable
benefit.
This
is
consistent
with
the
fact
that
before
this
amendment,
amounts
such
as
those
received
by
Mr.
Schwartz
were
not
taxable
under
the
Act.
Parliament
again
addressed
the
issue
in
1983
by
making
termination
payments
of
this
kind
taxable
as
retiring
allowances.
To
that
end,
subparagraph
56(1
)(a)(viii)
and
the
definition
of
“termination
payment”
found
in
subsection
248(1)
were
repealed,
and
the
definition
of
“retiring
allowance”
was
amended
in
a
form
that
is
substantially
the
same
as
the
definition
applicable
to
this
appeal.
The
purpose
of
this
second
series
of
amendments
was
to
somehow
broaden
the
scope
of
the
Act
with
respect
to
such
payments,
which
became
fully
taxable,
as
opposed
to
the
partial
taxability
of
termination
payments.
As
will
become
evident
throughout
these
reasons,
this
historical
perspective
must
be
steadily
kept
in
mind
in
considering
the
proper
scope
and
the
applicability
to
the
case
at
bar
of
the
provisions
relied
upon
by
the
Minister
in
assessing
the
compensation
received
by
Mr.
Schwartz.
I,
therefore,
turn
to
the
specific
grounds
relied
upon
by
the
Crown
before
our
Court.
B.
The
Taxability
of
the
Compensation
Received
by
Mr.
Schwartz
As
I
noted
at
the
outset,
the
Minister
argued
that
the
amount
of
compensation
relating
to
lost
salary
and
stock
options
($342,000)
constitutes
in-
come
from
a
source
taxable
under
the
general
provision
of
paragraph
3(a)
of
the
Act,
such
source
being
the
contract
of
employment.
I
pause
here
to
mention
that
what
the
Crown
argued
before
us
differs
somewhat
from
the
approach
adopted
by
the
Federal
Court
of
Appeal.
Mahoney
J.A.
found
that
$342,000
of
the
$360,000
was
income
from
employment
since
it
had
been
received
by
Mr.
Schwartz
to
compensate
for
loss
of
moneys
that,
if
duly
received,
would
have
constituted
income
from
employment
taxable
under
subsection
5(1).
Before
us,
the
Crown
did
not
argue
that
this
amount
constitutes
income
from
employment.
It
first
submitted
that
the
application
of
the
surrogatum
principle,
developed
in
the
London
&
Thames
case,
supra,
leads
to
the
conclusion
that
$342,000
of
the
$360,000
received
by
Mr.
Schwartz
must
be
characterized
as
income
from
a
source,
since
it
compensates
Mr.
Schwartz
for
loss
of
moneys
that,
if
received,
would
have
constituted
income
from
a
source.
The
Minister
then
identifies
that
source
as
being
the
employment
contract,
a
source
other
than
the
five
enumerated
in
paragraph
3(a)
and
the
“other
sources”
provided
for
in
subdivision
d
of
Division
B
of
Part
I
of
the
Act.
The
difference
lies
in
the
Minister’s
argument
relating
to
the
specific
source
of
the
damages
received
by
the
appellant.
(1)
Income
from
a
Source:
Taxability
under
Section
3(a)
of
the
Act
In
order
to
deal
with
the
substance
of
the
Crown’s
main
argument,
it
is
necessary
to
analyze
the
correctness
of
the
premise
on
which
it
is
based.
This
requires
us
to
deal
with
the
Federal
Court
of
Appeal’s
decision
to
reconsider
Rip
J.T.C.C.’s
finding
regarding
the
apportionment
that
was
made
by
the
parties
of
the
compensation
received
by
Mr.
Schwartz.
(a)
The
Finding
of
Fact
It
has
long
been
settled
that
appellate
courts
must
treat
a
trial
judge’s
findings
of
fact
with
great
deference.
The
rule
is
principally
based
on
the
assumption
that
the
trier
of
fact
is
in
a
privileged
position
to
assess
the
credibility
of
witnesses’
testimony
at
trial.
Lord
Shaw
thus
explained
the
underlying
principles
of
the
rule
in
Clarke
v.
Edinburg
and
District
Tramways
Co.,
[1919]
S.C.
(H.L.)
35,
56
S.L.R.
303,
at
S.C.
pages
36-37:
When
a
Judge
hears
and
sees
witnesses
and
makes
a
conclusion
or
inference
with
regard
to
what
is
the
weight
on
balance
of
their
evidence,
that
judgment
is
entitled
to
great
respect,
and
that
quite
irrespective
of
whether
the
Judge
makes
any
observation
with
regard
to
credibility
or
not.
I
can
of
course
quite
understand
a
Court
of
Appeal
that
says
that
it
will
not
interfere
in
a
case
in
which
the
Judge
has
announced
as
part
of
his
judgment
that
he
believes
one
set
of
witnesses,
having
seen
them
and
heard
them,
and
does
not
believe
another.
But
that
is
not
the
ordinary
case
of
a
cause
in
a
Court
of
justice.
In
Courts
of
justice
in
the
ordinary
case
things
are
much
more
evenly
divided;
witnesses
without
any
conscious
bias
towards
a
conclusion
may
have
in
their
demeanour,
in
their
manner,
in
their
hesitation,
in
the
nuance
of
their
expressions,
in
even
the
turns
of
the
eyelid,
left
an
impression
upon
the
man
who
saw
and
heard
them
which
can
never
be
reproduced
in
the
printed
page.
See
also,
inter
alia,
Dorval
v.
Bouvier,
[1968]
S.C.R.
288,
at
page
293;
Beaudoin-Daigneault
v.
Richard,
[1984]
1
S.C.R.
2,
51
N.R.
288,
37
R.F.L.
(2d)
225,
at
S.C.R.
pages
8-9;
Laurentide
Motels
Ltd.
v.
Beauport
(City),
[1989]
1
S.C.R.
705,
94
N.R.
1,
23
Q.A.C.
1,
at
S.C.R.
page
794;
Lapointe
v.
Hôpital
Le
Gardeur,
at
S.C.R.
page
358;
and
my
comments
in
Hodgkinson
v.
Simms,
[1994]
3
S.C.R.
377,
95
D.T.C.
5135,
at
page
426
(D.T.C.
5148).
Others
have
also
pointed
out
additional
judicial
policy
concerns
to
justify
the
rule.
Unlimited
intervention
by
appellate
courts
would
greatly
increase
the
number
and
the
length
of
appeals
generally.
Substantial
resources
are
allocated
to
trial
courts
to
go
through
the
process
of
assessing
facts.
The
autonomy
and
integrity
of
the
trial
process
must
be
preserved
by
exercising
deference
towards
the
trial
courts’
findings
of
fact;
see
R.
D.
Gibbens,
“Appellate
Review
of
Findings
of
Fact”
(1992),
13
Adv.
Q.
445,
at
pages
445-48;
Fletcher
v.
Manitoba
Public
Insurance
Co.,
[1990]
3
S.C.R.
191,
74
D.L.R.
(4th)
636,
116
N.R.
1,
at
S.C.R.
page
204.
This
explains
why
the
rule
applies
not
only
when
the
credibility
of
witnesses
is
at
issue,
although
in
such
a
case
it
may
be
more
strictly
applied,
but
also
to
all
conclusions
of
fact
made
by
the
trial
judge;
see
Hodgkinson,
at
page
425
(D.T.C.
5148).
The
courts
have
thus
adopted
a
general
rule
concerning
situations
where
an
appellate
court
will
be
justified
in
intervening
in
a
trial
judge’s
findings
of
fact
and
substituting
its
own
assessment
of
the
evidence
presented
at
trial.
The
generally
accepted
formulation
of
the
applicable
standard
is
as
stated
by
Ritchie
J.
in
The
Ship
“Kathy
K”,
supra,
where,
after
reviewing
the
relevant
authorities,
he
wrote,
at
page
808:
These
authorities
are
not
to
be
taken
as
meaning
that
the
findings
of
fact
made
at
trial
are
immutable,
but
rather
that
they
are
not
to
be
reversed
unless
it
can
be
established
that
the
learned
trial
judge
made
some
palpable
and
overriding
error
which
affected
his
assessment
of
the
facts.
While
the
Court
of
appeal
is
seized
with
the
duty
of
re-examining
the
evidence
in
order
to
be
satisfied
that
no
such
error
occurred,
it
is
not,
in
my
view,
a
part
of
its
function
to
substitute
its
assessment
of
the
balance
of
probability
for
the
findings
of
the
judge
who
presided
at
the
trial.
[Emphasis
added.
]
This
Court
has
also
held,
in
Beaudoin-Daigneault,
supra,
at
pages
8-9,
that
an
appellate
court
will
be
justified
in
disturbing
the
trial
judge’s
findings
of
fact
only
if
a
specific
and
identifiable
error
made
by
the
trial
judge
convinces
it
that
the
conclusion
of
fact
reached
is
unreasonable,
and
not
one
that
constitutes
a
mere
divergence
of
opinion
as
to
the
assessment
of
the
balance
of
probabilities.
Further,
it
was
held
that
a
second
appellate
court
should
only
intervene
in
a
first
appellate
court’s
decision
to
overturn
findings
of
fact
made
at
trial
if
it
is
convinced
that
the
first
appellate
court’s
intervention
was
not
justified.
What
thus
constitutes
an
error
justifying
an
appellate
court’s
intervention
in
the
findings
of
fact
made
at
trial?
In
the
present
case,
the
respondent
successfully
argued
before
the
Federal
Court
of
Appeal
that
the
trial
judge
had
clearly
omitted
to
consider
documentary
evidence
that
contradicted
the
appellant’s
testimony
regarding
the
allocation
made
by
the
parties
of
the
damages.
It
is
now
accepted
that
a
clear
omission
of
evidence
by
the
trier
of
fact
is
the
kind
of
error
that
can
and
will
justify
a
reconsideration
of
the
evidence
by
an
appellate
court.
In
Chartier
v.
Québec
(Attorney
General),
[1979]
2
S.C.R.
474,
104
D.L.R.
(3d)
321,
27
N.R.
1,
the
appellant
sued
the
Province
of
Québec
after
being
unjustly
convicted
of
causing
the
death
of
another
person
during
a
fist
fight.
The
Québec
Superior
Court
and
the
Court
of
Appeal
both
dismissed
Chartier’s
claim.
The
trial
judge,
whose
findings
were
endorsed
by
the
Court
of
Appeal,
mentioned
only
the
deposition
of
the
provincial
police
officers
and
disregarded
evidence
relating
to
the
baldness
of
the
true
assailant
which
had
been
observed
by
four
eyewitnesses
and
which
had
not
been
taken
into
account
by
the
Québec
Police
Force
in
preparing
a
composite
sketch.
Pigeon
J.,
for
the
majority,
found
that
a
reconsideration
of
the
trial
judge’s
findings
of
fact
in
that
case
was
justified.
He
stated,
at
page
493:
The
question
now
is
on
what
basis
could
the
trial
judge
dismiss
the
claim
when
faced
with
these
facts
that
are
practically
all
established
by
undisputed
documents.
Counsel
for
the
Attorney
General
relies
on
our
rule
against
interference
with
concurrent
findings.
But
this
rule
admits
of
certain
exceptions,
particularly
where
the
courts
below
have
misapprehended
or
overlooked
material
evidence.
Here
it
must
be
noted
that,
out
of
all
the
evidence,
the
trial
judge
mentioned
only
the
deposition
of
the
provincial
police
officers.
He
did
not
say
a
word
of
the
baldness
of
the
true
assailant,
which
was
observed
by
four
eyewitnesses,
and
which
the
Québec
Police
Force
did
not
take
into
account
in
preparing
the
composite
sketch.
An
appellate
court
will
be
justified
in
interfering
with
the
trial
judge’s
findings
of
fact
if
certain
relevant
evidence
was
not
considered.
This
means
that
the
appellate
court
will
be
justified
in
conducting
its
own
assessment
of
the
balance
of
probabilities,
taking
into
consideration
the
omitted
elements.
It
does
not
necessarily
mean,
however,
that
the
appellate
court
will
come
to
a
different
conclusion
from
that
arrived
at
by
the
trial
judge.
It
could
be
that
a
reconsideration
of
the
evidence,
taking
into
consideration
the
omitted
evidence,
calls
for
a
different
conclusion
on
a
given
factual
situation.
It
could
also
be
that
the
omitted
evidence,
even
when
considered,
would
not
have
led
to
a
different
conclusion,
in
view
of
the
weight
to
be
given
it.
In
that
sense,
the
appellate
court
must,
in
order
to
disturb
the
trial
judge’s
findings
of
fact,
come
to
the
conclusion
that
the
evidence
in
question
and
the
error
made
by
the
trial
judge
in
disregarding
it
were
overriding
and
determinative
in
the
assessment
of
the
balance
of
probabilities
with
respect
to
that
factual
issue.
This
Court
has
also
developed
principles
to
guide
a
second
appellate
court’s
role
regarding
findings
of
fact
made
by
the
trial
judge
that
have
been
overturned
by
a
first
appellate
court.
In
Beaudoin-Daigneault,
supra,
Lamer
J.,
as
he
then
was,
referred
to
this
Court’s
decision
in
Demers
v.
Montreal
Steam
Laundry
Co.
(1897),
27
S.C.R.
537,
at
pages
538-39,
where
Taschereau
J.
stated
what
was
subsequently
held
to
be
the
governing
principle
on
the
power
of
a
second
appellate
court
to
reconsider
a
first
appellate
court’s
decision
to
disturb
a
finding
of
fact
made
by
the
trial
judge:
For
it
is
settled
law
upon
which
we
have
often
acted
here,
that
where
a
judgment
upon
facts
has
been
rendered
by
a
court
of
first
instance,
and
a
first
court
of
appeal
has
reversed
that
judgment,
a
second
court
of
appeal
should
interfere
with
the
judgment
on
the
first
appeal,
only
if
clearly
satisfied
that
it
is
erroneous;
[Emphasis
added.]
Seventy
years
later,
Fauteux
J.,
in
Dorval,
supra,
at
page
294,
shed
some
light
on
the
scope
and
meaning
of
Taschereau
J.’s
reasons
in
Deniers.
Commenting
on
the
above
cited
excerpt,
he
wrote:
That
is
the
rule
followed
in
this
Court
and
applied
again
recently
in
Pelletier
v.
Shykofsky,
[1957]
S.C.R.
635.
Thus,
in
order
to
intervene
in
this
case,
it
would
be
necessary
to
be
clearly
satisfied
that
the
judgment
of
the
Court
of
Appeal
is
erroneous,
either
with
respect
to
the
reason
for
its
intervention
or
with
respect
to
its
assessment
of
the
evidence
in
the
record.
[Translation;
Emphasis
added.]
(See
also
Beaudoin-Daigneault,
at
page
8.)
Clearly,
if
the
ground
upon
which
a
first
appellate
court
relies
to
justify
disturbance
-
being
a
question
of
law
-
is,
in
the
eyes
of
a
second
appellate
court,
ill-founded,
the
trial
judge’s
decision
will
be
restored
by
the
second
appellate
court.
If
a
second
appellate
court
agrees
with
the
first
appellate
court
on
the
ground
upon
which
the
latter
intervened,
must
it
show
some
kind
of
deference
towards
the
first
appellate
court’s
assessment
of
the
balance
of
probabilities
or
can
it
only
substitute
its
own
assessment
of
the
evidence?
In
my
view,
nothing
justifies
a
second
appellate
court
in
showing
that
kind
of
deference
to
the
assessment
of
the
balance
of
probabilities
made
by
the
first
appellate
court.
If
the
second
appellate
court
agrees
that
the
trial
judge
made
some
kind
of
error
that
justifies
intervention,
it
should
be
free
to
reconsider
the
evidence
and
substitute
its
own
findings
of
fact
to
that
of
the
first
court
of
appeal’s
if
disagreement
occurs.
The
first
appellate
court
is
not
in
a
more
advantageous
or
privileged
position
than
the
second
court
of
appeal
in
assessing
the
evidence.
It
does
not
see
or
hear
the
witnesses
testifying,
nor
benefit
from
the
general
insight
that
comes
from
participating
at
the
trial.
Moreover,
judicial
policy
concerns
referred
to
earlier
regarding
a
trial
court’s
role
would
obviously
not
justify
deference
towards
the
assessment
made
by
an
appellate
court.
There
is
therefore
no
reason
to
impose
any
duty
of
deference
on
a
second
court
of
appeal
in
those
specific
circumstances.
With
that
in
mind,
I
now
move
on
to
a
consideration
of
the
factual
issue.
The
essence
of
the
Crown’s
argument,
before
the
Federal
Court
of
Appeal
and
this
Court,
is
that
Rip
J.T.C.C.
erred
because
in
assessing
the
evidence
on
the
question
of
apportionment,
he
failed
to
consider
evidence
which
contradicted
Mr.
Schwartz’s
testimonial
evidence.
Rip
J.T.C.C.
found
that
the
amount
received
by
Mr.
Schwartz
in
compensation
was
mostly
for
mental
distress
suffered
as
a
result
of
the
termination
of
the
contract
and
that
no
specific
allocation
had
been
agreed
upon
by
the
parties.
In
the
Federal
Court
of
Appeal’s
opinion,
that
contradictory
evidence
consisted
in
the
June
letters,
in
which
the
parties’
solicitors
made
offers
to
settle
the
litigation
and
calculated
the
proposed
amounts
by
reference
to
lost
salary
and
stock
options.
To
find
that
Rip
J.T.C.C.
erred
in
overlooking
contradictory
evidence
on
the
allocation
made
by
the
parties
of
the
settlement
amount,
one
must
obviously
first
be
convinced
that
the
June
letters
in
fact
do
constitute
evidence
as
to
the
allocation
made
by
the
parties
of
the
settlement
amount
and
that
such
evidence
is
in
contradiction
of
Mr.
Schwartz’s
testimonial
evidence.
I
do
not
think
that
is
the
case.
The
June
letters
certainly
do
constitute
evidence
that
is
relevant
to
this
litigation.
They
establish
that
in
arriving
at
the
final
settlement
amount
of
$400,000,
both
Dynacare
and
Mr.
Schwartz
considered
losses
of
salary
and
stock
options,
thereby
supporting
the
appellant’s
testimony
on
this
point.
In
that
sense,
the
June
letters
are
evidence
of
the
fact
that
the
amount
of
$360,000
is
composed,
at
least
in
part,
of
amounts
paid
to
Mr.
Schwartz
in
compensation
for
losses
of
salary
and
stock
options.
But
can
they
be
considered
evidence
as
to
what
portion
of
the
$360,000
was
allocated
to
such
losses?
A
global
analysis
of
the
evidence
on
the
issue
convinces
me
that
this
is
not
the
case.
There
is
no
evidence
that
the
$267,000
offered
by
Dynacare
for
the
stock
options
was
accepted
by
the
appellant.
Nor
is
there
any
evidence
that
the
$75,000
claimed
by
the
appellant
for
lost
salary
was
agreed
upon
by
Dynacare.
The
letters
were
written
in
June,
while
the
final
release
was
signed
by
the
parties
at
the
end
of
August.
In
cross-
examination,
Mr.
Schwartz
gave
the
following
testimony
as
to
how
the
parties
arrived
at
the
final
settlement
amount:
Q.
And
at
that
time,
in
[the
October
6,
1988
letter],
you
were
offered
$75,000?
A.
That
is
correct.
Q.
You
didn’t
agree
with
that
sum
of
money?
A.
That
is
correct.
Q.
You
thought
you
were
entitled
to
more?
A.
That
is
correct.
Q.
And
you
felt
that
the
income
that
you’d
lost
as
a
result
of
Dynacare’s
breaking
this
contract
was
greater
than
$75,000?
Q.
In
the
colloquial
sense,
money
that
you
lost,
it
was
worth
more
than
$75,000?
A.
In
the
broadest
sense.
I
mean,
I
think
when
-
I
think
I
considered
that
the
money
was
more.
But
there
were
many
other
factors
involved.
There
was
the
pain
and
humiliation.
There
was
the
inducement
to
leave
my
partnership.
This
was
about
many
things.
The
money
was
one
of
them.
Q.
And
you
put
in
a
counter-offer
of
$400,000?
A.
That’s
correct.
Q.
And
this
was
calculated
—
and
I
use
“calculated”
in
the
very
broad
sense
—
based
on,
amongst
other
things,
the
loss
of
stock
option
and
the
lost
income?
A.
I
would
say
that
that’s
true
in
the
very
broad
sense
of
the
word.
I
know
that
my
counsel
and
I
and,
in
fact,
counsel
for
Dynacare
struggled
to
find
some
way
of
finding
a
number
that
one
could
rationalize
because
this
involved
a
number
of
factors,
as
I
mentioned
earlier.
My
view
is,
in
the
end,
we
never
did
and
never
could
and
the
number
was,
in
some
sense,
picked
from
the
air.
Q.
I’d
just
like
you
to
flip
to
Tab
9,
please,
Mr.
Schwartz,
pages
33
and
34.
That
is
a
copy
of
the
letter
from
your
lawyer?
A.
Yes.
Q.
At
the
top
of
page
34,
there
is
a
discussion
there
about,
“apart
from
the
shares,
he
is
entitled
to
$75,000
for
lost
income”.
A.
That’s
all
correct.
Q.
So
that
was
part
of
the
way
in
which
the
amount
was
calculated?
That
was
taken
into
account?
A.
As
I
said,
I
think
it
was
taken
into
account
in
the
broadest
sense.
It
was
part
of
the
hurly-burly
of
the
discussions.
But,
ultimately,
it
didn’t
seem
to
me
that
that
became
terribly
relevant.
Q.
The
final
amount
you
actually
did
settle
on
was
$360,000
plus
costs
for
$40,000?
A.
That’s
correct.
It
is
difficult
to
see
how
the
solicitors’
letters
could
be
seen
as
constituting
evidence
as
to
apportionment
when
Mr.
Schwartz
clearly
testified
to
the
contrary
and
Rip
J.T.C.C.
made
no
negative
finding
as
to
Mr.
Schwartz’s
credibility.
It
is
also
noteworthy
that
the
record
at
trial
reveals
that
the
Minister
did
not
even
argue
that
the
letters
constituted
evidence
as
to
apportionment
contrary
to
Mr.
Schwartz’s
testimony.
Logically,
the
Minister
should
not
have
the
burden
of
presenting,
in
every
case
where
the
apportionment
of
a
general
award
is
at
issue,
specific
evidence
amounting
to
an
explicit
expression
of
the
concerned
parties’
intention
with
respect
to
that
question.
However,
there
must
be
some
evidence,
in
whatever
form,
from
which
the
trial
judge
will
be
able
to
infer,
on
a
balance
of
probabilities,
which
part
of
that
general
award
was
intended
to
compensate
for
specific
types
of
damages.
I
believe
that
the
solicitors’.
letters,
considered
in
the
global
evidentiary
context
of
the
case
at
bar,
are:
insufficient
to
serve
as
a
basis
for
such
an
inference.
The
Federal
Court
of
Appeal
was,
therefore,
incorrect
in
inferring
from
the
letters
that
the
parties
had
agreed
to
allocate
$342,000
of
the
$400,000
to
losses
of
income
relating
to
salary
and
stock
options;
consequently,
it
was
wrong
to
conclude
that
the
trial
judge
had
failed
to
consider
contradictory
evidence.
It
should
also
be
noted
that
the
Federal
Court
of
Appeal’s
conclusions
as
to
Mr.
Schwartz‘s
credibility
-
as
opposed
to
those
arrived
at
by
Rip
J.T.C.C.
who,
needless
to
say,
had
the
benefit
of
seeing
the
appellant
testify
—
constitute
in
the
present
circumstances
unjustified
and
inappropriate
intervention
by
an
appellate
court
on
a
matter
which
is
at
the
core
of
a
trial
judge’s
duties.
At
the
very
most,
these
letters
establish
that
the
parties
considered
losses
relating
to
salary
and
stock
options
in
arriving
at
the
final
settlement
amount
of
$400,000.
I,
therefore,
conclude
that
the
Federal
Court
of
Appeal
erred
in
disturbing
the
trial
judge’s
finding
with
respect
to
apportionment.
As
mentioned
earlier,
the
conclusion
that
the
Federal
Court
of
Appeal
was
wrong
in
interfering
with
the
trial
judge’s
finding
of
fact
respecting
apportionment
disposes
of
the
Minister’s
main
argument.
This
is
so
because
in
order
to
find
that
some
of
the
amount
received
by
Mr.
Schwartz
was
taxable
under
paragraph
3(a)
as
income
from
the
employment
contract,
one
must
be
able
to
identify
what
portion
of
the
$360,000
was
paid
to
Mr.
Schwartz
in
compensation
for
amounts
that
he
would
have
been
entitled
to
receive
under
the
contract
of
employment.
Since
the
Federal
Court
of
Appeal
erred
in
its
decision
relating
to
the
trial
judge’s
assessment
of
the
evidence,
the
factual
situation
is
that
there
is
evidence
that
the
amounts
received
by
Mr.
Schwartz
were,
in
part,
received
to
compensate
for
the
loss
of
amounts
to
which
he
would
have
been
entitled
under
the
employment
contract
entered
into
with
Dynacare
and,
in
part,
to
compensate
for
embarrassment,
anxiety
and
inconvenience
suffered
by
the
appellant,
and
that
there
is
no
evidence
tending
to
establish
what
portion
of
the
$360,000
was
allocated
to
which
head.
Thus,
absent
a
proper
determination
of
that
factual
situation,
the
damages
received
by
Mr.
Schwartz
cannot,
in
whole
or
in
part,
be
found
to
be
taxable
under
paragraph
3(a)
of
the
Act
as
income
from
the
employment
contract.
As
I
mentioned
at
the
beginning
of
my
analysis,
however,
I
propose
to
deal
with
the
substance
of
the
Minister’s
main
contention
since
it
raises
important
issues
that
merit
attention
and
have
been
fully
argued
by
the
parties.
I,
therefore,
turn
to
these
submissions.
(b)
The
Surrogatum
Principle
and
Unenumerated
Sources
The
Crown
relies
on
the
principle
developed
by
Diplock
L.J.
in
London
&
Thames,
supra,
and
argues
that
the
portion
of
damages
received
by
Mr.
Schwartz
relating
to
lost
salary
and
stock
options
constitutes
income
from
a
source.
In
London
&
Thames,
Diplock
L.J.
had
this
to
say,
at
page
134:
Where,
pursuant
to
a
legal
right,
a
trader
receives
from
another
person,
compensation
for
the
trader’s
failure
to
receive
a
sum
of
money
which,
if
it
had
been
received,
would
have
been
credited
to
the
amount
of
profits
(if
any)
arising
in
any
year
from
the
trade
carried
on
by
him
at
the
time
when
the
compensation
is
so
received,
the
compensation
is
to
be
treated
for
income
tax
purposes
in
the
same
way
as
that
sum
of
money
would
have
been
treated
if
it
had
been
received
instead
of
the
compensation.
The
Minister,
quite
correctly,
noted
that
this
principle
was
adopted
and
applied
by
the
Federal
Court
of
Appeal
in
Manley,
supra.
There
the
Minister
had
assessed
damages
received
by
the
taxpayer
in
compensation
for
a
finder’s
fee
he
was
entitled
to
pursuant
to
a
commercial
agreement
as
constituting
profit
from
a
business
taxable
under
subsection
9(1)
of
the
Act.
Mahoney
J.A.,
for
the
court,
after
citing
relevant
excerpts
from
London
&
Thames,
stated,
at
page
191
(D.T.C.
5155):
In
the
present
case,
the
respondent
was
a
trader;
he
had
engaged
in
an
adventure
in
the
nature
of
trade.
The
damages
for
breach
of
warranty
of
authority,
which
he
received
from
Benjamin
Levy
pursuant
to
a
legal
right,
were
compensation
for
his
failure
to
receive
the
finder’s
fee
from
the
Levy
family
shareholders.
Had
the
respondent
received
the
finder’s
fee
it
would
have
been
profit
from
a
business
required
by
the
Income
Tax
Act,
to
be
included
in
his
income
in
the
year
of
its
receipt.
The
damages
for
breach
of
warranty
of
authority
are
to
be
treated
the
same
way
for
income
tax
purposes.
In
the
present
case,
the
Federal
Court
of
Appeal
applied
this
principle
and
found
that,
since
part
of
the
damages
received
by
the
appellant
replaced
lost
salary
and
stock
options
which,
if
they
had
been
paid
to
Mr.
Schwartz,
would
have
constituted
income
from
employment
taxable
under
subsection
5(1),
such
damages
had
to
be
treated
in
the
same
manner
for
tax
purposes,
i.e.,
as
income
from
office
or
employment
taxable
under
subsection
5(1)
of
the
Act.
The
solution
arrived
at
by
the
Federal
Court
of
Appeal
is
in
contradiction
with
the
findings
in
the
Atkins
case,
supra,
where
the
same
court
held
that
such
damages
could
not
be
characterized
as
income
from
office
or
employment
under
subsection
5(1).
The
correctness
of
the
conclusion
arrived
at
in
Atkins
was
reaffirmed
in
1984
by
the
Federal
Court
of
Appeal
in
Pollock,
supra,
despite
the
doubts
expressed
in
an
obiter
dictum
by
Pigeon
J.
in
Jorgenson
v.
Jack
Cewe
Ltd.,
[1980J
1
S.C.R.
812,
[1980]
C.T.C.
314,
80
D.T.C.
6233,
at
pages
815-16
(C.T.C.
315;
D.T.C.
6235).
However,
the
correctness
of
Atkins
is
not
at
issue
before
us
since
the
Minister,
as
I
have
explained,
is
not
arguing
that
the
amounts
are
taxable
as
income
from
employment,
but
submits,
rather,
that
they
are
income
from
an
unenumerated
source
taxable
under
the
general
provision
of
paragraph
3(a)
of
the
Act.
Pigeon
J.,
in
Jack
Cewe,
had
pointed
out
that
the
Federal
Court
of
Appeal,
in
Atkins,
had
not
considered
whether
such
amounts
were
alternatively
taxable
under
the
general
provision
of
paragraph
3(a):
This
Court
might
well
disagree
with
the
conclusion
reached
by
the
Federal
Court
of
Appeal
in
Atkins.
In
this
respect,
I
will
note
that
in
that
case
consideration
appears
to
have
been
given
only
to
the
question
whether
the
damages
for
wrongful
dismissal
were
income
“from
an
office
or
employment”
within
the
meaning
of
sections
5
and
25
of
the
Income
Tax
Act
(R.S.C.
1952).
No
consideration
appears
to
have
been
given
to
the
broader
question
whether
they
might
not
be
income
from
an
unspecified
source
under
the
general
provision
of
section
3.
I
pause
here
again
to
reaffirm
what
was
implied
by
Pigeon
J.
in
Jack
Cewe,
that
paragraph
3(a)
does
contemplate
the
possibility
that
income
arising
from
sources
other
than
those
enumerated
in
paragraph
3(a)
and
subdivision
d
of
Division
B
of
Part
I
of
the
Act
may
nonetheless
be
taxable.
Parliament
has
stated
very
clearly
in
that
section
that
the
five
sources
identified
in
paragraph
3(a)
do
not
constitute
an
exhaustive
enumeration.
This
is
evident
from
the
emphasized
words
in
the
paragraph,
which
I
here
reproduce:
3.
…
(a)
determine
the
aggregate
of
amounts
each
of
which
is
the
taxpayer’s
income
for
the
year
(other
than
a
taxable
capital
gain
from
the
disposition
of
a
property)
from
a
source
inside
or
outside
Canada,
including,
without
restricting
the
generality
of
the
foregoing,
his
income
for
the
year
from
each
office,
employment,
business
and
property;
[Emphasis
added.]
Mr.
Schwartz
argues
that
the
sources
of
income
other
than
those
contemplated
in
paragraph
3(a)
are
the
“other
sources”
referred
to
in
subdivision
d
of
Division
B
of
Part
I
of
the
Act
and
relies
on
this
statement
by
E.
C.
Harris,
Canadian
Income
Taxation
(4th
ed.
1986),
at
page
99:
While
the
Act
recognizes
that
there
may
be
other
sources
of
income
than
[those
specifically
provided
for
in
paragraph
3(a)],
the
case
law
under
the
former
Act
suggests
that
the
only
other
sources
of
income
and
loss
that
are
likely
to
be
recognized
are
those
that
are
specifically
recognized
in
the
Act.
However,
this
conclusion
disregards
the
fact
that
Parliament,
in
the
introductory
part
of
subsection
56(1)
of
the
Act,
made
clear
that
the
enumeration
that
followed
was
not
to
be
interpreted
as
restricting
the
generality
of
section
3:
56(1)
Without
restricting
the
generality
of
section
3,
there
shall
be
included
in
computing
the
income
of
a
taxpayer
for
a
taxation
year....
[Emphasis
added.]
Mr.
Schwartz
also
submitted
that,
for
policy
reasons,
an
interpretation
to
the
contrary
would
defeat
the
purpose
and
fundamental
structure
of
the
Act.
However,
as
noted
by
Krishna,
similarly
valid
policy
concerns
can
be
invoked
to
support
an
interpretation
to
the
contrary.
In
his
textbook
The
Fundamentals
of
Canadian
Income
Tax,
supra,
at
pages
129-30,
he
writes:
The
better
view
is
that
the
named
sources
(office,
employment,
business,
and
property)
are
not
exhaustive
and
income
can
arise
from
any
other
unnamed
source.
Hence,
income
from
any
source
inside
or
outside
Canada
should
be
taxable
under
paragraph
3(a)
of
the
Act.
This
is
justifiable
both
on
the
basis
of
the
language
of
the
statute
and
on
policy
grounds.
To
the
extent
that
the
income
tax
is
based
on
the
ability
to
pay,
all
accretions
to
wealth
of
an
income
nature
are
a
measure
of
that
ability
and
should
be
taxable
regardless
of
source.
[Emphasis
added.
I
In
any
event,
policy
concerns
such
as
those
raised
by
the
appellant
should
not
and
cannot
be
relied
on
in
disregard
of
Parliament’s
clearly
expressed
intention:
interpretatio
cessât
in
Claris.
In
paragraph
3(a),
when
Parliament
used
the
words
“without
restricting
the
generality
of
the
foregoing”,
great
care
was
taken
to
emphasize
that
the
first
step
in
calculating
a
taxpayer’s
“income
for
the
year”
was
to
determine
the
total
of
all
amounts
constituting
income
inside
or
outside
Canada
and
that
the
enumeration
that
followed
merely
identified
examples
of
such
sources.
The
phrasing
adopted
by
Parliament,
in
paragraph
3(a)
and
in
the
introductory
part
of
subsection
56(1)
is
probably
the
strongest
that
could
have
been
used
to
express
the
idea
that
income
from
all
sources,
enumerated
or
not,
expressly
provided
for
in
subdivision
d
or
not,
was
taxable
under
the
Act.
This
interpretation
is
also
consistent
with
the
approach
adopted
by
this
Court
in
the
few
other
cases
where
this
question
was
at
issue.
In
Curran
v.
Minister
of
National
Revenue,
[1959]
S.C.R.
850,
[1959]
C.T.C.
416,
59
D.T.C.
1247,
the
taxpayer
had
received
a
$250,000
payment
by
a
third
party
in
return
for
which
he
was
to
resign
from
his
employment
and
start
working
for
another
company.
The
payment
did
not
constitute
income
from
employment,
since
it
had
not
been
paid
by
the
taxpayer’s
employer,
but
was
assessed
as
constituting
“income
from
a
source”
under
the
general
provision
of
section
3
of
the
Act.
This
assessment
was
upheld
by
the
Exchequer
Court
of
Canada
([1957]
C.T.C.
384,
57
D.T.C.
1270).
The
relevant
provisions
found
in
section
3
of
the
Act
were,
at
that
time,
similar
to
those
found
in
paragraph
3(a)
in
today’s
version
of
the
Act:
3.
The
income
of
a
taxpayer
for
a
taxation
year
for
the
purpose
of
this
Part
is
his
income
for
the
year
from
all
sources
...
and
without
restricting
the
generality
of
the
foregoing,
includes
income
for
the
year
from
all
(a)
businesses
(b)
property,
and
(c)
offices
and
employments.
Dumoulin
J.,
after
concluding
that
the
impugned
payment
was
in
the
nature
of
income,
held
that
it
was
taxable.
He
stated,
at
page
399
(D.T.C.
1277):
For
reasons
somewhat
differing
from
those
propounded
by
respondent,
I
agree
that
the
sum
of
$250,000
constitutes
income.
Audette
J.
in
re
Morrison
v.
Minister
of
National
Revenue,
(1917-27)
C.T.C.
343,
1
DTC
113,
at
page
350
(D.T.C.
116),
spoke
thus:
Now
the
controlling
and
paramount
enactment
of
section
3
defining
the
income
is
“the
annual
net
profit
or
gain
or
gratuity”.
Having
said
so
much
the
statute
proceeding
by
way
of
illustration,
but
not
by
way
of
limiting
the
foregoing
words,
mentions
seven
different
classes
of
subjects
which
cannot
be
taken
as
exhaustive
since
it
provides,
by
what
has
been
called
the
omnibus
clause,
a
very
material
addition
reading
“and
also
the
annual
profit
or
gain
from
any
other
sources”.
The
words
“and
also”
and
“other
sources”
make
the
above
illustration
absolutely
refractory
to
any
possibility
of
applying
the
doctrine
of
ejusdem
generis
set
up
at
the
hearing.
The
balance
of
the
paragraph
is
added
only
ex
majori
cautel
...
The
net
is
thrown
with
all
conceivable
wideness
to
include
all
bona
fide
profits
or
gain
made
by
the
subject.
Despite
a
lapse
of
years,
this
interpretation
of
section
3
is
still
true
of
the
amended
text
as
it
read
in
1951.
In
very
wide
terms,
section
3
renders
taxable
“income
for
the
year
from
all
sources
and
without
restricting
the
generality
of
the
foregoing...”
Therefore,
this
controversial
payment
meets,
I
believe,
the
statutory
meaning
of
income
for
the
year
from
a
source
other
than
those
particularized
by
subsections
(a),
(b)
and
(c)
and
was
properly
assessed
as
such.
[Emphasis
in
original.]
This
decision
was
later
confirmed
by
this
Court.
More
recently,
in
Fries
v.
R.
(sub
nom.
Fries
v.
Canada,
[1989]
1
C.T.C.
471,
89
D.T.C.
5240,
the
Federal
Court
of
Appeal
expressly
recognized
that
income
from
unenumerated
sources
was
taxable
under
the
general
provision
of
paragraph
3(a)
of
the
Act.
In
that
case,
the
taxpayer
was
contesting
the
Minister’s
assessment,
including
in
his
yearly
income
strike
pay
he
had
received
from
his
union.
The
court
dismissed
the
taxpayer’s
claim
and
found
that
the
amounts
were
taxable
as
constituting
income
from
a
source
within
the
purview
of
paragraph
3(a)
of
the
Act.
Our
Court,
however,
while
implicitly
holding
that
income
from
unenumerated
sources
was
in
fact
taxable
under
the
general
provision
of
paragraph
3(a)
of
the
Act,
reversed
this
decision
on
the
basis
that
the
payments
were
not
in
the
nature
of
“income
...
from
a
source”
within
the
meaning
of
paragraph
3(a);
see
Fries,
[1990]
2
S.C.R.
1322,
[1990]
2
C.T.C.
439,
90
D.T.C.
6662.
In
the
case
at
bar,
I
do
not
think
the
Minister’s
argument
should
be
accepted.
In
order
to
determine
if
a
specific
amount
is
taxable
under
the
general
provision
of
paragraph
3(a)
of
the
Act,
various
considerations
should
be
taken
into
account.
Without
providing
a
list
of
such
considerations
or
attempting
to
suggest
an
approach
to
taxation
under
the
general
provision
of
paragraph
3(a)
in
an
exhaustive
way,
I
note
that
one
must
obviously
go
back
to
the
concept
of
income
and
consider
the
whole
scheme
of
the
Act
in
order
to
properly
analyze
the
issue
in
a
given
case.
In
the
present
case,
accepting
the
argument
made
by
the
Crown
would
amount
to
giving
precedence
to
a
general
provision
over
the
detailed
provisions
enacted
by
Parliament
to
deal
with
payments
such
as
that
received
by
Mr.
Schwartz
pursuant
to
the
settlement.
As
indicated
earlier,
Parliament
adopted
a
specific
solution
to
a
specific
problem
that
resulted
from
a
number
of
rulings
by
the
courts
respecting
the
taxability
of
payments
similar
to
the
one
received
by
the
appellant.
Under
these
rulings,
damages
paid
with
respect
to
wrongful
dismissal
were
not
taxable
as
income
from
office
or
employment
under
subsection
5(1);
nor
were
they
taxable
as
constituting
retiring
allowances.
The
Crown
had
at
that
point
many
options.
The
Minister
could
have
argued
that
such
damages
were
taxable
as
income
from
a
source
under
the
general
provision
in
paragraph
3(a)
of
the
Act.
It
could
also
have
sought
an
amendment
to
the
Act
making
such
payments
expressly
taxable
as
income
from
office
or
employment.
But
neither
of
these
courses
was
taken.
Instead,
the
Act
was
amended
twice
so
that
such
amounts
could
be
taxable
under
section
56
as
income
from
“another”
source.
First,
it
was
provided
that
termination
payments
were
taxable.
Then,
the
Act
was
amended
to
make
such
a
payment
taxable
as
constituting
a
retiring
allowance.
It
is
thus
pursuant
to
these
provisions
that
taxability
should
be
assessed.
To
do
otherwise
would
defeat
Parliament’s
intention
by
approving
an
analytical
approach
inconsistent
with
basic
principles
of
interpretation.
This
Court
has
always
refused
to
interpret
the
Act
in
such
a
manner.
For
example,
in
R.
v.
Savage
(sub
nom.
The
Queen
v.
Savage),
[1983]
2
S.C.R.
428,
[1983]
C.T.C.
393,
83
D.T.C.
5409,
the
taxpayer
received
$300
from
her
employer
as
a
prize
for
achievement.
Paragraph
56(1
)(n)
of
the
Act
provided
that
such
gifts,
when
worth
over
$500,
constituted
taxable
income.
The
prize
was
not,
therefore,
caught
by
this
provision.
The
Minister,
however,
argued
that
the
amount
also
fell
within
the
purview
of
paragraph
6(1
)(a)
of
the
Act
as
a
general
benefit,
and
as
such
was
taxable
as
income
from
an
office
or
employment.
Dickson
J.,
as
he
then
was,
rejected
this
argument.
At
page
446
(C.T.C.
402;
D.T.C.
5416),
he
stated:
If
a
prize
under
$500
would
still
be
taxable
under
sections
5
and
6,
it
would
have
to
follow
on
the
Crown’s
argument
that
a
prize
under
$500
would
equally
be
taxable
under
section
3.
That
cannot
be
right.
That
would
mean
that
a
prize
over
$500
would
be
taxable
under
paragraph
56(1
)(n)
and
a
prize
up
to
$500
would
be
taxable
under
section
3.
The
$500
exclusion
in
paragraph
56(l)(n)
would
never
have
any
effect.
It
seems
clear
that
the
first
$500
of
income
received
during
the
year
falling
within
the
terms
of
paragraph
56(1
)(n).
Any
amount
in
excess
of
$500
falls
under
paragraph
56(1
)(n)
and
is
taxable
accordingly.
If
that
is
not
the
effect,
what
purpose
is
served
by
the
subsection?
The
situation
here
is
analogous.
To
find
that
the
damages
received
by
Mr.
Schwartz
are
taxable
under
the
general
provision
of
paragraph
3(a)
of
the
Act
would
disregard
the
fact
that
Parliament
has
chosen
to
deal
with
the
taxability
of
such
payments
in
the
provisions
of
the
Act
relating
to
retiring
allowances.
It
is
thus
to
those
provisions
that
I
will
turn
in
assessing
taxability.
(2)
Retiring
Allowance:
Taxability
under
Subparagraph
56(l)(a)(ii)
Before
this
Court,
the
Crown
argued,
alternatively,
that
the
damages
received
by
Mr.
Schwartz
were
taxable
under
subparagraph
56(1
)(a)(ii)
of
the
Act
as
constituting
a
retiring
allowance.
Both
courts
below
refused
to
find
these
amounts
could
be
so
characterized,
although
the
Crown
abandoned
this
argument
before
the
Federal
Court
of
Appeal.
At
issue
is
whether
the
damages
agreed
to
were
received
by
Mr.
Schwartz
“in
respect
of
a
loss
of
an
office
or
employment”
within
the
meaning
of
para.
(b)
of
the
definition
of
“retiring
allowance”
found
in
subsection
248(1)
of
the
Act.
Section
248(1)
also
defines
the
words
“employment”
and
“employee”.
In
the
recent
case
of
Québec
(Communauté
urbaine)
v.
Corp.
Notre-
Dame
de
Bon-Secours
(sub
nom.
Notre-Dame
de
Bon-Secours
(Corp.)
v.
Québec
(Communauté
urbaine)),
[1994]
3
S.C.R.
3,
[1995]
1
C.T.C.
241,
95
D.T.C.
5017,
my
colleague
Gonthier
J.
clarified
the
proper
rules
governing
the
interpretation
of
tax
legislation.
After
explaining
the
underlying
principles
of
the
traditional
rule
providing
for
a
strict
construction
of
fiscal
statutes,
he
analyzed
the
evolution
that
had
occurred
on
the
issue
during
the
past
decade.
As
he
explained,
at
pages
15-16,
this
evolution
was
the
logical
consequence
of
the
recognition
of
the
social
and
economic
purposes
of
such
legislation.
In
light
of
this
Court’s
decisions
in
Stubart
Investments
Ltd.
v.
R.
(sub
nom.
Stubart
Investments
Ltd.
v.
The
Queen),
[1984]
1
S.C.R.
536,
[1984]
C.T.C.
294,
84
D.T.C.
6305,
R.
v.
Golden
(sub
nom.
The
Queen
v.
Golden),
[1986]
1
S.C.R.
209,
[1986]
1
C.T.C.
274,
86
D.T.C.
6138,
Johns-Manville
Canada
Inc.
v.
R.
(sub
nom.
Johns-Manville
Canada
Inc.
v.
The
Queen),
[1985]
2
S.C.R.
46,
[1985]
2
C.T.C.
Ill,
85
D.T.C.
5373,
Imperial
General
Properties
Ltd.
v.
R.
(sub
nom.
The
Queen
v.
Imperial
General
Properties
Ltd.),
[1985]
2
S.C.R.
288,
[1985]
2
C.T.C.
299,
85
D.T.C.
5500,
and
Bronfman
Trust
v.
R.
(sub
nom.
Bronfman
Trust
v.
The
Queen),
[1987]
1
S.C.R.
32,
[1987]
1
C.T.C.
117,
87
D.T.C.
5059,
Gonthier
J.
held,
at
page
17
(C.T.C.
250;
D.T.C.
5022):
[T]here
is
no
longer
any
doubt
that
the
interpretation
of
tax
legislation
should
be
subject
to
the
ordinary
rules
of
construction.
At
page
87
of
his
text
Construction
of
Statutes
(2nd
ed.
1983),
Driedger
fittingly
summarizes
the
basic
principles:
“...the
words
of
an
Act
are
to
be
read
in
their
entire
context
and
in
their
grammatical
and
ordinary
sense
harmoniously
with
the
scheme
of
the
Act,
the
object
of
the
Act,
and
the
intention
of
Parliament”.
[Emphasis
added.]
(See
also
McClurg
v.
R.
(sub
nom.
McClurg
v.
Canada),
[1990]
3
S.C.R.
1020,
[1991]
1
C.T.C.
169,
91
D.T.C.
5001;
Friesen
v.
Canada,
[1995]
3
S.C.R.
103,
[1995]
2
C.T.C.
369,
95
D.T.C.
5551;
Symes
v.
Canada,
[1993]
4
S.C.R.
695,
[1994]
1
C.T.C.
40,
94
D.T.C.
6001,
at
pages
744-51;
R.
v.
Thibaudeau
(sub
nom.
Thibaudeau
v.
Canada),
[1995]
2
S.C.R.
627,
[1995]
1
C.T.C.
382,
95
D.T.C.
5273;
Antosko
v.
R.
(sub
nom.
Canada
v.
Antosko),
[1994]
2
S.C.R.
312,
[1994]
2
C.T.C.
25,
94
D.T.C.
6314,
at
page
326.)
The
essence
of
the
Minister’s
argument
is
that
“employment”
as
understood
in
subsection
248(1)
of
the
Act
commences
the
moment
the
contract
of
employment
is
entered
into
by
the
parties,
regardless
of
whether
or
not
the
employee
has
the
obligation
to
provide
services
from
that
point.
Therefore
Mr.
Schwartz,
by
losing
the
benefit
of
the
contract
of
employment
entered
into
with
Dynacare,
lost
“employment”,
and
the
damages
received
fall
within
the
purview
of
subparagraph
56(l)(a)(ii)
of
the
Act.
I
do
not
think
the
Minister’s
position
is
correct
in
law,
in
light
of
the
definitions
given
by
Parliament
to
the
word
“employment”
and
of
the
ordinary
meaning
of
the
words
chosen
by
Parliament
to
define
this
term.
The
Minister’s
position
is
also
inconsistent
with
the
way
Parliament
has
used
the
term
“employment”
in
at
least
one
other
provision
of
the
Act,
while
also
being
untenable
when
one
considers
the
context
in
which
the
1983
amendment
was
made.
The
key
element
in
the
words
chosen
by
Parliament
to
deal
with
this
situation
is
the
definition
of
“employment”
which
is
the
“position
of
an
individual
in
the
service
of
some
other
person”.
The
statutory
requirement
that
one
must
be
“in
the
service”
of
another
person
to
be
characterized
as
an
“employee”
excludes,
in
my
opinion,
any
notion
of
prospective
employment
when
the
phrase
is
given
its
ordinary
meaning.
An
employee
is
“in
the
service”
of
his
or
her
employer
from
the
moment
he
or
she
becomes
under
obligation
to
provide
services
under
the
terms
of
the
contract.
At
the
basis
of
every
situation
of
employment
is
a
contract
of
employment;
however,
employment
does
not
necessarily
begin
from
the
moment
the
contract
is
entered
into.
Before
having
any
obligation
to
provide
services,
one
cannot
be
considered
to
be
“in
the
service”
of
his
or
her
employer
or,
more
accurately,
his
or
her
future
employer.
Consequently,
there
cannot
be
any
loss
of
a
position
that
has
yet
to
be
held,
under
the
definition
of
“retiring
allowance”
found
in
subsection
248(1).
I
cannot
see
how,
in
the
present
case,
Mr.
Schwartz
could
be
“in
the
service”
of
Dynacare
from
the
moment
the
contract
of
employment
was
entered
into
in
the
spring
of
1988
and
how
he
could
have
“lost”
employment
when
the
contract
was
unilaterally
cancelled
by
Dynacare.
Both
parties
had
agreed
that
Mr.
Schwartz
would
start
working
upon
completion
of
his
assignment
with
the
Government
of
Ontario.
They
both
had
agreed
that
the
contract
that
had
been
entered
into
was
a
contract
for
future
employment.
Mr.
Schwartz
was
not
in
any
way
-
and
had
never
been
—
obliged
to
provide
any
services
to
Dynacare
at
that
moment;
he
was
not
“in
the
service”
of
Dynacare.
Therefore,
when
one
considers
the
ordinary
meaning
to
be
given
to
the
definition
of
“employment”
in
the
Act,
a
distinction
must
be
made
between
the
start
of
the
contractual
relationship
agreed
upon
by
the
employer
and
the
employee
and
the
moment,
according
to
the
terms
of
the
contract,
at
which
the
employee
is
bound
to
start
providing
services
to
the
employer.
It
is
noteworthy
that
the
Crown
does
not
seriously
contest
the
interpretation
to
be
given
under
the
ordinary
meaning
of
the
words
Parliament
chose
to
use.
During
oral
argument,
counsel
admitted
that
an
ordinary
person
would
find
that
Mr.
Schwartz
was
not
an
employee
of
Dynacare
when
the
contract
was
cancelled.
The
Minister’s
position
is
also
inconsistent
with
Parliament’s
use
of
the
word
“employment”
in
subsection
80.4(1)
of
the
Act.
Section
80.4
is
included
in
subdivision
f
of
Division
B
of
Part
I
of
the
Act,
“Rules
Relating
to
Computation
of
Income”.
It
provides
the
method
for
determining
how
an
amount
in
respect
of
interest-free
or
low-bearing-
interest
loans
will
be
characterized
as
a
benefit
taxable
as
income
from
office
or
employment
under
subsection
6(9)
of
the
Act,
or
again,
in
the
case
of
corporations,
as
income
from
a
business
or
property
under
paragraph
12(l)(w)
of
the
Act.
For
the
sake
of
convenience,
I
repeat
the
relevant
provision,
while
underlining
the
crucial
passages:
80.4
(1)
Where
a
person
or
partnership
received
a
loan
or
otherwise
incurred
a
debt
by
virtue
of
the
office
or
employment
or
intended
office
or
employment
of
an
individual,
or
by
virtue
of
the
services
performed
or
to
be
performed
by
a
corporation
carrying
on
a
personal
services
business
(within
the
meaning
assigned
by
paragraph
125(7)(d)),
the
individual
or
corporation,
as
the
case
may
be,
shall
be
deemed
to
have
received
a
benefit
in
a
taxation
year
equal
to
that
amount,
if
any,
by
which
the
aggregate
of
...
A
parallel
can
be
drawn
between
the
concept
of
“intended
employment”
of
an
individual
and
services
“to
be
performed”
by
a
corporation
carrying
on
a
personal
services
business,
in
light
of
the
fact
that
“employment”
refers
to
the
situation
of
an
individual
being
“in
the
service”
of
a
person.
Clearly,
in
both
cases,
the
intention
of
Parliament
was
to
include
within
the
scope
of
subsection
80.4(1)
such
loans
made
by
virtue
of
a
legal
relationship
involving
the
provision
of
services,
by
an
individual
or
by
a
corporation,
regardless
of
whether
or
not
the
loans
were
made
before
the
borrower
became
under
obligation
to
provide
any
services.
The
distinction
made
by
Parliament
is
an
implicit
recognition
that
the
term
“employment”
does
not,
in
itself,
have
such
a
broad
meaning.
It
is
a
well-established
principle
of
interpretation
that
words
used
by
Parliament
are
deemed
to
have
the
same
meaning
throughout
the
same
statute;
see,
for
recent
applications
of
the
principle
by
this
Court,
R.
v.
Zeolkowski,
[1989]
1
S.C.R.
1378,
61
D.L.R.
(4th)
725,
95
N.R.
149,
and
Thomson
v.
Canada
(Deputy
Minister
of
Agriculture),
[1992]
1
S.C.R.
385,
89
D.L.R.
(4th)
218,
133
N.R.
345.
This,
as
all
principles
of
interpretation,
is
not
a
rule,
but
a
presumption
that
must
give
way
when
circumstances
demonstrate
that
such
was
not
the
intention
pursued
by
Parliament.
However,
in
the
present
circumstances,
I
see
no
reason
to
depart
from
that
principle
since,
to
the
contrary,
it
confirms
and
is
consistent
with
the
ordinary
meaning
of
the
words
“employment”
and
“retiring
allowance”
chosen
by
Parliament.
The
Minister’s
position
is
also
untenable
when
one
considers
the
context
in
which
the
1983
amendment
was
made.
The
amendment
made
by
Parliament
to
subsection
80.4(1)
of
the
Act
was
made
through
An
Act
to
amend
the
statute
law
relating
to
income
tax
(No.
2),
S.C.
1980-81-82-83,
c.
140,
the
same
legislation
by
which
the
definition
of
“retiring
allowance”
was
amended
in
1983.
If
Parliament
had
wanted
to
include
as
retiring
allowances
payments
made
in
respect
of
the
cancellation
of
an
employment
contract
occurring
before
the
employee
had
become
under
obligation
to
provide
services
to
the
employer,
it
would,
as
counsel
for
the
appellant
argued,
have
specifically
referred
to
the
notion
of
prospective
or
intended
employment
as
it
did
in
subsection
80.4(1).
This
argument
seems
to
me
to
be
compelling
and
clearly
establishes
that
the
objective
Parliament
sought
by
amending
the
definition
of
“retiring
allowance”
was
limited
to
termination
of
the
employment
relationship
once
the
employee
had
come
under
the
obligation
to
provide
services
to
the
employer.
The
$360,000
received
by
Mr.
Schwartz
cannot,
therefore,
be
considered
a
retiring
allowance.
As
I
have
explained,
“loss
of
employment”
cannot
occur
before
Mr.
Schwartz
became
under
obligation
to
provide
services
to
Dynacare
because
he
could
not,
before
that
moment,
have
been
“in
the
service”
of
his
future
employer.
V.
Disposition
For
all
these
reasons,
I
would
allow
the
appeal
and
restore
the
decision
of
the
Tax
Court
of
Canada
with
costs
throughout.
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