Rachel Kowalczyk v. Minister of National Revenue, [1986] 2 CTC 2092, 86 DTC 1552

Brulé, T.C.J.:—This is an appeal concerning a reassessment of income tax for the 1982 taxation year in the amount of $8,271.99.

In 1982, the appellant was employed by the Scarborough General Hospital. On August 31, 1982 she was advised by letter that she was dismissed from her employment by the hospital due to “unsatisfactory work performance". This letter contained an offer of settlement for her dismissal, and a few days later, on September 8, the appellant received a second letter from the hospital enclosing certain cheques and offering to settle whatever claim the appellant might have due to her dismissal. In part the letter read as follows:

A-2

WITHOUT PREJUDICE

September 8th, 1982

Dear Mrs. Kowalckzyk,

Further to my letter of August 31st, 1982 enclosed find three cheques and final documents of employment.

The letter was signed by the assistant executive director, Mr. Greve, one of the witnesses at the hearing. When the hospital issued a T-4 for 1982 to the appellant, the amount of the three cheques plus an amount of $58.34 representing “other taxable benefits” were included with the rest of the income she had earned previously during the year; these totalled 8,271.99. The appellant never signed the Agreement of September 9 nor presented the cheques for payment. Her solicitor had advised her not to cash them saying in fact that it might prejudice any claim she might have as a result of her dismissal. He thought at the time that the cheques could be conditional to acceptance of the Agreement. It was only in 1985 after a great deal of exchange of correspondence with the hospital that the solicitor was assured the cheques were not issued conditional on signing the Agreement. As a result and upon advice from her solicitor when the appellant filled out her tax return for 1982 she did not add to her income the amounts of the cheques believing that they could not be income since she had never received payment for them. The Minister for his part assessed her on the basis of the T-4 issued by the hospital. She objected, resulting in the proceedings before this Court.

Analysis

Before looking more closely at the arguments, I would like to deal with the question of payments made by cheque. Courts have had to deal with this problem on a number of occasions. The conclusion generally accepted is that a payment by cheque is equivalent to a payment in cash as long as no special circumstances lead to another conclusion, and of course, that the cheque is not dishonoured on presentation for payment. Mr. Justice Thurlow, then at the Exchequer Court, said in Moody v. M.N.R., [1957] C.T.C. 110 at 117; 57 D.T.C. 1050 at 1054:

. . . In the absence of some special circumstance indicating a contrary conclusion such as, for example, post-dating or an arrangement that the cheque, is not to be used for a specified time, a payment made by cheque although conditional in some respects, is nevertheless presumably made when the cheque is delivered and, in the absence of such special circumstance, there is, in my opinion no ground for treating such a payment other than as a payment of cash made at the time the cheque was received by the payee.

Similar conclusions can be found in Nourse v. M.N.R., 27 Tax ABC 353; 61 D.T.C. 571, Frankish v. M.N.R., 14 Tax ABC 456; 56 D.T.C. 178, Furk v. M.N.R., 21 Tax ABC 413; 59 D.T.C. 205 and Johnston v. M.N.R., 4 Tax ABC 221; 51 D.T.C. 226. The solution in the case at bar then depends on whether there were any “special circumstances” to lead to the conclusion that the cheques were not payments equivalent to cash. If no such circumstances exist then the appellant fails in her appeal.

As to “special circumstances” at the time the cheques were delivered, the solicitor for the appellant felt that the wording of the letter of September 8, 1982 led one to the conclusion that the cheques were conditional to the agreement being accepted. The evidence submitted on behalf of the appellant indicates clearly that her solicitor was worried as to the consequences of receiving payment for the cheques. Indeed the correspondence between her solicitor and the hospital’s representatives and his testimony have shown that he tried on several occasions to clarify if the cheques could be cashed without prejudicing other claims the appellant might have. I question whether such extreme caution was called for.

Looking at the first cheque (#209697), it is said to represent moneys owing up to and including August 30, 1982. The appellant’s counsel argued that the appellant was dismissed on August 31, 1982 and therefore cashing the cheque might have put her in a position where she would not have been able to recover payment for her last day. In my view, I do not think that accepting the Agreement or cashing the cheque would have forbidden her from recovering whatever moneys, if any, were due to her for the 31st; the agreement indicates clearly that the payment is up to the 30th. Surely any date thereafter is not included therein and constitutes an entirely different matter.

Were the moneys however conditional to the settlement? I do not believe so. As can be seen in the letter of September 8, 1982 those moneys represent an amount that was owed to the appellant. It was argued that the Agreement said “‘all the monies” and that she was afraid it might constitute a settlement, but no evidence was tendered to show that the amounts should have been otherwise. Indeed the amount is specifically classified as “monies owed” to the appellant. It does not purport to constitute anything other than payment for an established debt of the hospital in favour of the appellant. It follows that whether or not the appellant accepted the agreement, the moneys covered by the cheques would still be owed by the hospital. This cheque (#209697) might have been part of the letter of agreement but in no way can it be said that cashing it was conditional to acceptance of the settlement. Indeed the money was owed regardless.

I reach the same conclusion for the third cheque (#138160) issued as payment under the terms of the Sick Plan.

Remaining is the cheque representing payment for eight weeks in lieu of notice. The appellant’s contention is that she was not an employee but instead was part of management. In her view, she was not covered by the Employment Standards Act and the cheque was not due. This might have been true but no evidence was tendered to support the arguments. In any event that payment cannot be conditional to the agreement; indeed it stems not from the employer's will to settle with the appellant but from a legal requirement related to the appellant’s status which the hospital believed to be its obligation. Once again the moneys were owed regardless of acceptance or refusal of the agreement by the appellant. It may have turned out that the appellant was not entitled to this cheque in view of her status at the hospital, but at the time she received the cheque I think that it was inaccurate to view it as conditional to any Agreement.

With respect to the three cheques, I conclude that the hospital was correct in issuing the T-4 to the appellant including the amount of $18,271.99, and that the Minister was correct in assessing her as he did. True the appellant did not receive payment for these cheques in 1982 but I do not think that her decision not to present the cheques for payment can prevent the Minister from assessing her as if she had cashed them and as if the income was received. It was out of an over-abundance of caution that the appellant's solicitor advised not to seek payment. There may be some fault with the hospital for not indicating sooner that it did not consider the cheques as being conditional to the Agreement but the Agreement did not set any conditions on the appellant with respect to the three cheques and therefore no “‘special circumstances" existed to allow the Court to view the payments by cheque as anything other than payments in the normal course of operation.

For all the above reasons, I dismiss the appeal.

Appeal dismissed.