Louis M Gabrielle v. Minister of National Revenue, [1984] CTC 2722, [1984] DTC 1635

Taylor, TCJ:—This is an appeal heard in Toronto, Ontario on June 21, 1984 against an income tax assessment for the year 1978. The issue is covered by reference to the notice of appeal and reply to the notice of appeal:

Notice of Appeal

A. STATEMENT OF FACTS

— The Appellant resides in the Municipality of Metropolitan Toronto and Province of Ontario.

— The Appellant was employed by the Ontario Government until the 26th day of October, 1976.

— The Appellant ceased to be actively employed by the Ontario Government because of a disability resulting from a form of mental illness which had developed over a number of years and became serious during 1973.

— Upon ceasing to be employed by the Ontario Government the Appellant began to receive payments from London Life under a disability insurance plan funded by his employer, the Government of Ontario.

— In 1978, the Appellant received payments of $17,348.88 from the plan.

— In computing his income for the 1978 taxation year, the Appellant excluded the payments under the disability insurance plan from income.

— The Appellant relies, inter alia, on paragraph 6(1)(f) of the Income Tax Act, SC 1970-71-72, c 63, as amended and subsection 19(1) of the Income Tax Act Application Rules, 1971.

— The Appellant says that the payments received by him under the disability insurance plan in the amount of $17,348.88 were not subject to tax by virtue of subsection 19(1) of the Income Tax Application Rules in that they constituted an amount payable to him in respect of a loss, in consequence of an event occurring before 1974 and they were from a plan that was established before June 1971.

— For the purposes of subsection 19(1) of the Income Tax Application Rules, the “event occurring before 1974’’ was the onset of the Appellant’s serious mental illness.

Reply to Notice of Appeal

3. In so assessing the Appellant for the 1978 taxation year, the Respondent made the following assumptions and findings of fact:

— the Appellant has received wage loss replacement payments from London Life Insurance Company (hereinafter referred to as “London Life”) since October 26, 1976;

— the Appellant received $17,348.88 in wage loss replacement payments from London Life in the taxation year 1978;

— the plan under which the Appellant received wage loss replacement payments was established in 1965;

— the wage loss replacement payments received by the Appellant in the 1978 taxation year were not in consequence of an event occurring before 1974.

— The Respondent submits that, as the Appellant received $17,348.88 as wage replacement payments in the taxation year 1978 in consequence of an event which occurred after 1973, the Respondent correctly included such amount in computing the Appellant’s income for the 1978 taxation year, by virtue of paragraph 6(1 )(f) of the Income Tax Act.

The appellant and a Dr Thomas Enright, psychiatrist, gave testimony regarding the medical condition at the base of this appeal. Mr Gabrielle had been in the armed forces several years ago, and began to suffer seriously, by his description from attacks of depression and panic about the year 1970. Earlier he had been hospitalized in Rhodesia and Tanzania. He presented a letter from a certain Dr Tackoor written in 1973, which described his condition as mental strain and acute anxiety, but the appellant recalled for the Court, that similar occurrences had happened to him as early as 1943. Counsel for the Minister noted that Dr Tackoor was not present for the hearing, but out of regard for the most unusual nature of this case, he was most considerate in not objecting to either questionable documentation or to opinion testimony expressed by the appellant.

Subsection 19(1) of the Income Tax Application Rules reads as follows:

19. Income maintenance payments.

(1) Notwithstanding section 9, paragraph 6(1)(f) of the amended Act is not applicable in respect of amounts received by a taxpayer in a taxation year that were payable to him in respect of the loss, in consequence of an event occurring before 1974, of all or any part of his income from an office or employment, pursuant to a plan described in that paragraph that was established before June 19, 1971.

Certain specific comments from counsel in argument serve most appropriately to put the matter into context:

For the appellant:

The issue is whether — I want to make sure I get the words right so I will turn to the actual provision — whether the payment arose as a result of the loss in consequence of an event occurring before 1974. The payments in this case are the disability payments. The loss is the loss of income which arose because he was disabled. The taxpayer’s position is that it was in consequence of an event that occurred before 1974. The payments were paid to the taxpayer because he was disable[d] and he became disabled because he contracted the disease or he had the disease and he had the disease prior to 1974. We do not know what event caused it, perhaps it was his birth. But, at some stage the chain had to start. There had to be a beginning. Possibly the illness first manifested itself in 1943. Perhaps that is the stage at which the illness first manifested itself. But, at some stage we have to have a beginning.

I appreciate that the government’s tax department’s Interpretation Bulletins are not law; however, I would like to refer to the government’s IT Bulletin, IT-428, paragraph 3, simply because it states our argument so forcefully, so eloquently, much better than we could do. A copy of the bulletin is in Exhibit A-l that I have given you. In the bulletin, and I will read the words, and I am taking it out of context a bit perhaps, but I think this is fair.

“In this context, the word ‘event’ has reference to the thing that caused the disability. In the case of an accident, for example, although the effect on the ‘taxpayer’s’ health may not have become noticeable or serious until 1974 or a later year, the ‘event’ would have occurred before 1974 if the accident took place before 1974 and the later disability was directly attributable to the accident. Similarly, in the case of a degenerative disease such as muscular dystrophy, the ‘event’ is the onset of the disease however much later the incapacity occurs.”

Our position is indeed that this disease ultimately caused the disability. The disease got worse over a period of years. We do not know when the disease actually started. The best evidence we have is that it manifested itself in 1943, although it may have been latent prior to that.

Very briefly, our position is that the event was the onset of the illness when the taxpayer developed the illness. We would suggest that that is an event. The circumstances that gave rise to the loss or the disability, the event that gave rise to the disability, was the onset of the illness. An event happened when Mr Gabrielle developed the illness. Now, the fact that he had a genetic predisposition to this particular illness or perhaps if he already had it, I do not think means that there was no event that occurred, that he never at some stage became ill. I would suggest that when somebody who is born with a weak back, that at some stage during his life that problem may manifest itself. He does not have a bad back, he does not have a medical problem with his back until the problem manifests itself. I would suggest that this is the event and the same would apply to Mr Gabrielle.

For the respondent

I find myself, as sometimes happens, arguing a different case from the case I thought I would be arguing at the outset of the hearing. The words of consequence, if I may, in 19(1), or the scheme of the Act as such is that these amounts are taxable unless they fall within 19(1). 19(1) would then take them out of taxability. The onus therefore is on the Appellant to show that 19(1) does apply and that the amounts received were payable to him in respect of the loss in consequence of an event occurring before 1974 of all or any part of his income, et cetera. The question is, is there an event occurring before 1974 the consequence of which these disability payments were received.

In terms of the repressed trauma theory, there is no evidence of Dr Enright on the part of Mr Gabrielle of any incident that might satisfy the possibility as a cause of the disorder. As a matter of whether being born with a congenital condition satisfies the requirement of an event causing the disorder, I really do not have an argument to make

— “That being born with a condition is not an event’’. I make it simply a question for this Court and I wish I could be of more assistance to the Court in laying out every possibility. But, in the absence of any evidence of a traumatic experience that might have caused the event, and in the absence of any happening of any kind to which we can root or trace the disorder, the question may be before this Court as to whether genital disease which flares up at the time after 1974 satisfies the requirement of 19(1).

As I see it, the question before the Court is whether subsection 19(1) covers a medical condition as opposed to an occurrence which adversely affects health and/or physical capacity for work, to the degree that loss of employment results. I do not believe that it does. Even stretching to the limit the usefulness and applicability of the reference Interpretation Bulletin, I am unable to conclude that any “event” in this matter has been shown to have the qualities of an “onset of the disease”. However, I have great difficulty even fitting that part of the Interpretation Bulletin into the words of the Act itself. While the view that some specific chronological timeframe is mandated by the term “event”, may appear harsh and restrictive, I can reach no other conclusion. Any other interpretation would indeed leave open for consideration the ultimate date referenced by counsel for the appellant — “perhaps it was his birth”. In a comparable example, one might easily think of the situation of an employee (and there probably are many) who continues to work for years or decades while a disease such as arthritis gradually becomes worse, eventually incapacitating. To carry the rationale put forward on behalf of the appellant in this matter to its ultimate conclusion, I suggest one would have great difficulty excluding from the provision of subsection 19(1) ITAR, even the income received by an employee retired simply on account of his age. I am not prepared on the basis of this appeal, to view the parameters of subsection 19(1) of ITAR in that liberal a manner.

The appeal is dismissed.

Appeal dismissed.