Richard Binette v. Minister of National Revenue, [1983] CTC 2447, 83 DTC 416

Guy Tremblay [TRANSLATION]:—This case was heard at Montreal, Quebec, on January 13, 1982. The Board took this case under advisement on September 10, 1982 after the last written pleading was received by the Board.

1. Point at Issue

At issue is whether the appellant, a police officer with the Montreal Urban Community, is entitled to claim $2,272.86, allegedly withheld from his salary by his employer, as a deduction when computing the payment of taxes for taxation year 1978, or $1,683.94, which is the amount appearing on his T-4 slip.

The respondent claims that the deductions made during the year were only provisional and that an adjustment was consequently made to reduce the sum from $2,272.86 to $1,683.94.

2. Burden of Proof

2.01 The burden of proof is on the appellant to show that the respondent’s assessment is incorrect. This burden of proof derives not from one particular section of the Income Tax Act, SC 1970-71-72, chapter 63, as amended, but from a number of judicial decisions, including the judgment delivered by the Supreme Court of Canada in Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

2.02 The facts alleged by the respondent are listed in subparagraphs (a) to

(d) of paragraph 7 of his reply to the notice of appeal. This paragraph reads as follows:

7. In assessing the appellant for the taxation year 1978, the respondent relied inter alia on the following allegations of fact:

(a) in his initial tax return for 1978, the appellant indicated that he had received a salary of $17,864.85 from the Montreal Urban Community and that federal tax withheld at source by the MUC totalled $1,683.94;

(b) the return thus filed by the appellant was in accordance with the information on the T-4 income slip issued to him by his employer;

(c) subsequently, the appellant filed an amended income tax return for 1978, in which he declared that his salary from the MUC was $19,041.09 and that federal tax withheld at source by his employer totalled $2,272.86;

(d) the respondent assumed that the information on the T-4 income slip was accurate in every respect and that:

(i) the appellant’s salary from the MUC was $17,864.85 for the year 1978;

(ii) federal income tax deducted by the MUC totalled $1,683.94;

3. Facts

Since the appellant’s case was a test case for more than 800 other possible appellants, the facts of the case were explained at length and in great detail.

3.01 In 1978, the appellant was a police officer employed by the Montreal Urban Community (MUC).

3.02 During 1978, the appellant was absent from work for a period of 35 working days (from May 5 to June 25) as a result of an injury sustained while on duty (trans p 49).

3.03 For this period of disability, the appellant received compensation totalling $1,921.19 from the Commission des accidents du travail du Québec (CATQ) (Exhibit A-2). Both parties agreed that under paragraph 81 (1 )(h) of the Income Tax Act this sum is not taxable. Moreover, an equivalent amount in salary was not paid by the MUC so that the total amount of money received was the same as it would have been had the appellant not been injured and not received workmen’s compensation.

3.04 At the beginning of 1979, the appellant received a T-4 slip from the MUC indicating that $1,683.94 had been deducted at source for federal tax (Exhibit 1-9, page 3).

The appellant filed his tax return in accordance with this T-4 slip.

3.05 Having later noticed that the stub of his last pay cheque for the period ending December 29, 1978 (Exhibit A-1) indicated $2,272.86 as the total federal tax deducted for the said year, the appellant filed an amended tax return taking the said amount of $2,272.86 as a credit for federal tax. This is, moreover, the amount indicated in the MUC’s books of account (Exhibit 1-9, page 9, entitled “List of accumulated total pay for police, including 29.12.78 pay”).

3.06 The respondent maintained the original assessment, taking it for granted that the T-4 slip issued reflected reality. The evidence has shown, however, that the method used in computing the source deduction in 1978 was different from that used in previous years, this difference resulting from an agreement between the MUC and the Fraternité des Policiers de la Communauté Urbaine de Montreal Inc.

3.07 In order to clearly understand the point at issue in this case, which consists in the interpretation of article XX of the 1978 agreement, the Board believes that all the facts which preceded and followed the application of this article must be understood, including the facts relating to article XX of the 1974 agreement and article XX of the 1980 agreement, as these facts were submitted in evidence.

3.08 Article XX of the 1974 collective agreement (Exhibit I-2) stipulates: “In case of accidents sustained or illnesses contracted in the performance of his duties, the police officer shall receive his full salary . ..”. The application of this article and the tax exemption provided in paragraph 81 (1 )(h) of the Act for compensation received from the CATQ, led, in the short term, to unexpected results.

3.09 In fact, according to the testimony of Mr Denis Legendre, consulting actuary for the MUC, application of these two provisions would mean that a police officer who was absent owing to injury on duty would receive net total earnings that were higher than those of his colleague of the same rank who worked the entire year. The gross amount received was the same, for example $22,445 for 1976, but because an amount equal to the compensation received from the CATQ (for example, $13,500) was not in fact paid by the MUC (although the MUC did pay it temporarily and was later reimbursed by the CATQ, according to Mr Legendre’s testimony, trans p 99) and the compensation received was not taxable, the police officer receiving compensation for illness paid less tax and other source deductions. When all was said and done, the injured police officer’s net income ($19,601.56) was higher than that of the police officer on duty the whole year ($14,496.63) (Exhibit I-4).

3.10 Exhibit I-4 displays the salaries and application of source deductions in five columns. These figures are essential to an understanding of the evidence. The first two columns clearly illustrate the inequality explained above in paragraph 3.09. It should be noted that the $13,500 compensation would be for a police officer who had in fact been injured for the entire year (trans page 178). The first column describes an officer who was on duty for 52 weeks. The remaining four columns describe a police officer who was on sick leave for 52 weeks: with application of the collective agreement for 1974 to 1977 (column 2), of the Quebec Department of Revenue’s suggestion (column 3) and of the 1978 collective agreement (columns 4 and 5).

ILLUSTRATION OF THE INCOME OF A POLICE OFFICER ABSENT DUE TO OCCUPATIONAL DISABILITY

					Officer injured 52 weeks
	(col 1)		(col 2)		(col 3)		(col 4)		(col 5)
	Situation —		1974-1977		Suggestion			Situation 1978
	Officer on		Agreement		of Department Reductions				Reductions
	duty —		1976 Situation		of Revenue —		Article XX		T-4 — TP-4
	52 weeks		Deductions on Quebec
			$22,445		Situation —
					Deductions on
					$8,945
		$		$		$	$		$
Salary	22 445,00		8 945,00		8 945,00		2 834,75		19 610,25
			(22 445 -				(996,63 -
			13 500)				1	838,12)
Source deductions
Quebec Pension
Plan		169,20		169,20		143,01		33,03	136,17
MUC pension
plan	1	626,40	1	169,20	1	652,59	1	762,57	(136,17)
UIC		187,20		187,20		134,17		42,52	144,68
Health program
contributions		235,00		235,00		101,20		—	235,00
Provincial tax	3 017,68		3 017,68			487,50		—	3 017,68
Federal tax	2 712,89		2 712,89			324,97		—	2 712,89
Total:	7 948,37		7 948,37		2 843,44		1	838,12
Net salary received
from employer	14 496,63			996,63	6 101,56			996,63
			(8 945 -			(14 496,63-
			7 948,37)				13 500)
Benefits payable
under the
Workmen’s Com
pensation Act		—	13 500,00		13 500,00		13 500,00
Tax repayments		—	5 104,93			—		—
Total net income	14 496,63		19 601,56		19 601,56		14 496,63
Source: Table of source deductions for 1978
1981.11.16

3.11 In paragraphs 5, 6, 7, 8, 9, 10 and 11 of his pleading, counsel for the respondent provided a good summary of the facts explained by witnesses regarding the 1978 amendments. The Board quotes from them with the appropriate references:

5. As explained by Mr Legendre, the MUC wished to reduce absenteeism among police officers and also the length of disability periods (trans pp 96 and 97). Moreover, as acknowledged by the treasurer of the Fraternité des policiers, Mr Blaise Grégoire (trans pp 250 and 251), it seemed unfair for an officer who was absent to earn more than an officer on duty the entire year.

Thus, on the basis of the principle of “no more, no less”, the MUC in February of 1977 entered into negotiations in which Mr Legendre took an active part. At the end of a long night of negotiations, the parties agreed on the principle. The evidence revealed that the MUC, in return, made considerable concessions in the area of pension plans (approximately $2,500,000) (trans pp 226 and 227). This “no more, no less” idea still had to be put into mathematical form, of course, and incorporated into the text of the agreement.

Several methods were studied during numerous working sessions with experts from both the MUC and the Fraternité des policiers. Finally, on March 30, 1977, the parties signed an agreement, article IX of which repealed and replaced article XX of the 1974 collective agreement (Exhibit 1-5). The MUC and Fraternité des policiers had, however, agreed in advance not to put this new article XX into effect immediately, as it seemed desirable to meet with officials from the Department of National Revenue of Quebec (letter to these departments dated March 25, 1977 — Exhibit I-6).

6. During these meetings, officials of the Quebec Department of Revenue proposed the formula contained in the third column of Exhibit I-4 (see table in para 3.10 above). The MUC could not, however, adopt this method, since, in fact, the net earnings of the injured officer were exactly the same as under the system in the old article XX: the injured officer still received a net income that was higher than that of his colleague on duty, and the problem remained unsolved (trans pp 97, 98).

On January 13, 1978, the Deputy Minister of Revenue of Quebec sent a letter to the MUC’s lawyers, in which he informed them that the Department of Revenue could not accept the system of deductions contained in the new article XX (Exhibit A-3). There followed numerous meetings between representatives of the MUC and Officials of the Department of Revenue, including the Deputy Minister, Mr André Gauvin. As indicated by the MUC’s consulting actuary, Mr Denis Legendre, the oral agreement was: “Do it, go ahead, we'll see” (trans p 226).

7. Owing to the discussions under way with the taxation authorities, the formula contained in the new article XX was not applied in 1977. It was not until 1978 that this method was used (trans pp 114 and 115).

8. The MUC’s consulting actuary described the factors which had had to be taken into account when the formula contained in the new article XX was being prepared. The first requirement was efficiency: it was necessary to avoid compromising the smooth operation of the MUC’s entire pay system. Secondly, the delays in the collection of information had to be taken into account: there are some 65 data collection units in the MUC police service and inevitable delays between the time of an accident and the filing of time sheets result. The third factor to be taken into account, according to the witness, was the fact that the collection of data has to be halted sufficiently in advance to allow for preparation of the cheques; moreover, a pay cheque issued on Wednesday also covers Thursday and Friday: as indicated by Mr Legendre, .. there are always two days of unknowns, plus a possible delay in the production of the pay cheques — in other words, a total of some fourteen (14) or fifteen (15) days”.

In the fourth place, account had to be taken of the delay between an accident and a decision by the Commission des accidents du travail. In practice, therefore, a police officer injured in December cannot be declared eligible for benefits until the following year. Finally, deduction tables can change during the year; this is in fact what happened in 1978 (trans pp 102 to 106).

9. These considerations thus led the MUC and the Fraternité des policiers to opt for a new formula, the one contained in the new article XX. Columns four and five of Exhibit I-4 (para 3.10) describe this method.

From the net income of $14,496.63 for a police officer who worked for the entire year are subtracted the benefits payable under the Workmen’s Compensation Act, $13,500.00, resulting in a net salary of $996.63. On the basis of this net salary of $996.63, the corresponding gross salary, prior to deductions, must be calculated. To solve this equation, which contains several unknowns, an iterative computer calculation is required (“trial-and-error”). In this case, after such a calculation, the gross salary corresponding to a net salary of $996.63 was found to be $2,834.75. (This is the accumulation of data for 26 pay periods. The computer operation is in fact done for each of the 26 pay periods.)

The benefits payable under the Workmen’s Compensation Act being $13,500.00 and the net salary received from the MUC $996.63, the injured police officer therefore receives the same net pay as his colleague on duty, or $14,496.63.

When these calculations have been done, both the provisional salary and provisional deductions indicated on the initial pay record are corrected, again by computer. The final pay record thus shows a gross salary of $2,834.75 and federal tax deductions totalling zero. This final pay record is the one used for the preparation of T-4 and TP-4 slips. All the computer calculations mentioned above must be completed in January and February of the subsequent year (Mr Legendre — trans pp 106 to 110).

10. This formula, described in paragraph 9 above, is the one found in article XX of the 1978 collective agreement. Article XX reads as follows (Exhibit 1-7):

“Article XX Accidents and Occupational Diseases

20.00

(a) In case of absence due to an accident sustained or illness contracted in the performance of his duties, a police officer shall be entitled to the medical, surgical and hospital benefits paid for by his employer until his full recovery or until the employer’s physician, or the Commissioin des accidents du travail in cases under its jurisdiction since August 1, 1964, reports that he is suffering from a permanent disability, total or partial, making him unable to perform his duties.

(b) Notwithstanding the third paragraph of this clause, the police officer shall, in accordance with article XXII, continue to receive an amount equal to his salary, as established in article II of the collective agreement on the basis of his rank, plus his seniority bonus. This amount shall include the compensation payable under the Workmen’s Compensation Act, which is paid to him by his employer on behalf of the Commission des accidents du travail.

(c) The salary of the said police officer shall be equal to his net salary, minus the compensation payable for his period of absence under the Workmen’s Compensation Act, plus his contribution to the pension plan and the deductions for taxes and public benefits applicable to this salary.

(d) The net salary is the police officer’s salary as set by the collective agreement on the basis of his rank, plus his seniority bonus, minus his contribution to the pension plan and the deductions for taxes and public benefits applicable to this salary and bonus.

(e) The obligations contained in this clause cancel and replace those previously in force. The cancellation or inapplicability of any one of the paragraphs of this clause does not cancel the other paragraphs or obligations contained herein.”

Paragraph (d) of article XX (which corresponds to the first column of the original of Exhibit 1-4): (para 3.10) provides that the “net salary” is the “police officer’s salary as set by the collective agreement on the basis of his rank, plus his seniority bonus” (or $22,445.00), minus his “contribution to the pension plan and the deductions for taxes and public benefits applicable to this salary and bonus” (in total, $7,948.37). The result is a “net salary” of $14,496.63, as indicated in the first column of the original of Exhibit I-4.

Paragraph (c) of article XX (which corresponds to the fourth column of the original of Exhibit I-4) (para 3.10) stipulates that the salary of this police officer is equal to his “net salary” ($14,496.63), minus the “compensation payable for his period of absence under the Workmen’s Compensation Act” ($13,500.00), plus his “contribution to the pension plan and the deductions for taxes and public benefits applicable to this salary and bonus” (in total, $1,838.12). The result is a “salary” of $2,834.75, as indicated in the fourth column of the original of Exhibit 1-4 (para 3.10).

As mentioned above, the provisional pay record in fact indicates a provisional salary of $22,445.00 and provisional deductions totalling $7,948.37. For the practical reasons mentioned in paragraph 8, which the treasurer of the Fraternité (Mr Blaise Grégoire) acknowledged were valid (trans pp 250 to 253), the final pay record was not completed until January and February 1979. This final pay record indicates a gross salary of $2,834.75 and federal tax deductions totalling zero. (The police officer in this example had been disabled for the entire year and his net salary totalled only $996.63.) As we have seen, this final record was the one used in the preparation of T-4 and TP-4 slips (Mr Denis Legendre — trans pp 116 to 122).

11. Realizing that the salaries of injured police officers were lower than that provided in article Il of the 1978 collective agreement, resulting in lower deductions and tax remittances due, the MUC had actualy decreased the amount of its remittances to the taxation authorities. Exhibit I-8, which was authenticated by the deputy treasurer of the MUC, reveals the following reductions in payments to the Department of National Revenue (trans pp 22 and 122 to 124):

I hereby certify that the following sums were withheld to adjust the provisional remittances made by the Montreal Urban Community, for the purposes of source deductions, for the year 1978.

remitted on	amount
	$
78-10-15	50,000.00
78-11-15	50,000.00
78- 12-15	50,000.00
79- 01-05	125,000.00
79-03-15	84,588.13
Total	359,588.13
Yours sincerely,
(sgd)
Roger Joannette, CA
Deputy Treasurer

3.12 Evidence was then submitted regarding the application of article XX to the calculation of the appellant’s income. Paragraph 16 of the pleading of counsel for the respondent clearly describes this evidence, but first, the essentials of pages 2, 3, 4 and 5 of Exhibit I-4 should perhaps be reproduced here:

ILLUSTRATION OF THE APPLICATION OF ARTICLE XX OF THE COLLECTIVE AGREEMENT OF POLICE OFFICERS OF THE MONTREAL URBAN COMMUNITY

I — BASIC DATA

Salary in accordance with his rank

plus seniority bonus:	$20,426.64
Benefits payable under the Workmen’s
Compensation Act:	1,817.34

Il — CALCULATION OF NET SALARY ACCORDING (I-4), p 3)

TO PARAGRAPH (d) OF ARTICLE XX

						Health Program
Pay No	Gross Salary	Quebec Tax		Federal Tax Contributions
Total:	20 426,64	2 699,19			2 210,26		117,52
	MUC Plan QPP		QPP UIC		UIC		Net Salary
	1 464,84		169,26		187,20		13 578,47
	III — CALCULATION OF NET SALARY ACCORDING						(I-4), p 4)
	TO PARAGRAPH (c) OF ARTICLE XX
						Health Program
Pay No	Gross Salary	Quebec Tax		Federal Tax		Contributions
Total:	17 329,21*	2 012,95*			1 621,34*		112,58
QPP	MUC Plan		QPP		UIC		Net Salary
	1 464,84		169,26		187,20		11 761,13

Amount adjusted for rounding off purposes.

IV — STATEMENT OF EARNINGS AND DEDUCTIONS			(I-4, p 5)
	FOR 1978
	A	B	C
	($)	($)	($)
Income
— Salary	20 488,30	3 097,43	17 390,87
— Overtime	473,98	—	473,98
Total:	20 962,28	3 097,43	17 864,85
Deductions
— Federal tax	2 272,86	588,92	1 683,94
— Quebec tax	2 785,23	686,24	2 098,99
— MUC pension plan	1 458,92	—	1 458,92
— QPP	169,20	—	169,20
— Unemployment insurance	187,20	—	187,20
— Health program contributions	145,80	4,94	140,86
Total:	7 019,21	1 280,04	5 739,11
A: Provisional totals as of December 29, 1978
B: Adjustments to totals reflecting the application of article XX

C: Totals according to the pay record for 1978 entered on 1978-T-4 and TP-4 slips and not including the benefits payable under the Workmen’s Compensation Act

1981.11.16

16. Continuing his testimony, the consulting actuary for the MUC explained the MUC’s procedure in the case of the appellant, police officer Binette, using Exhibit I-4.

The second page of Exhibit I-4 provides the basic data. On page three, the net salary is calculated according to paragraph (d) of article XX. As indicated by Mr Legendre, the MUC applied paragraph XX(d), first taking into account the “police officer’s salary set by the collective agreement according to his rank, plus his seniority bonus”, $20,426.64. From this amount $20,426.64, was subtracted the “contribution to the pension plan and the deductions for taxes and public benefits applicable to this salary and bonus”, in total, $6,848.17. The result was thus a “net salary” of $13,578.47.

The second stage involved calculating police officer Binette’s salary according to paragraph XX(c) of the agreement. Page four of Exhibit I-4 contains the relevant information. Applying paragraph XX(c), the MUC first took into account the “net salary” of police officer Binette, $13,578.47. It then subtracted from the $13,578.47 the “compensation payable for his period of absence under the Workmen’s Compensation Act”, $1,817.34. To the amount thus obtained, $11,761.13, were added the “contribution to the pension plan and the deductions for taxes and public benefits applicable to this salary and bonus”, in total, $5,568.08. Police officer Binette’s “salary” was thus established at $17,329.21.

In the third stage, the statement of salary and deductions for 1978 had to be drawn up. For this, refer to page five of Exhibit I-4, which is self-explanatory. Column A provides the provisional totals to December 29, 1978. This is the same data as found in the MUC’s provisional record (Exhibit I-9, p 9) and on the stub of the appellant’s last cheque (Exhibit A-1). Column B explains the adjustments to the provisional totals resulting from the application of article XX. The same information is found in the control lists of computer transactions relating to provisional salaries, provisional federal tax deductions and other provisional deductions (Exhibit 1-9, pp 5 to 8). Column C indicates the appellant’s salary, $17,864.85, and the federal tax deduction, $1,683.94. These two amounts are also found in the extract from the final record (Exhibit 1-9, p 2) and on the appellant’s 1978 T-4 slip (Exhibit -9, p 3).

3.13 Around March 1979, the appellant and the other police officers who had received workmen’s compensation in 1978, having noticed the disparity between the total deductions at the end of 1979 and their T-4 and other slips issued by the MUC, discussed interpretation of the said article with the MUC. The discussions did not convince the MUC to change its mind. The Fraternité des policiers did not file a grievance regarding interpretation of the said article XX within the allowed three (3) months from the event giving rise to the grievance, in accordance with clause 13 of article XXVII of the collective agreement.

3.14 During 1978, 891 police officers received compensation from the CATQ and were subject to the application of article XX of the agreement. During all of 1978, these police officers received their salary every two weeks as if they had continued to work, without receiving compensation from the CATQ. In January and February 1979, with the application of article XX, the appellant’s salary was reduced by $3,097.43. For the MUC, there was also a reduction in expenditure of $1,900,000 for the regular salaries of the 891 police officers (Exhibit 1-12, trans pp 23 and 24). Deductions from these salaries for social benefits (QPP and so forth) come to $32,120.52, resulting in a total reduction of $1,932,120.52. This reduction results from a recovery of $931,641.03 in compensation from the CATQ. The so-called provisional remittances total $359,588.13 for federal tax and $440,851.80 for provincial tax. In addition, on December 31, 1978, an account receivable of $205,599.30 was outstanding from the CATQ (Exhibit 1-12, trans pp 150 to 155).

3.15 The MUC’s interpretation of article XX was explained to the Fraternité des policiers in January 1979 with the help of the example given above (Exhibit I-4, para 3.10). There was no opposition at that time.

3.16 During 1979 and 1980, negotiations between the Fraternité des policiers and the MUC continued, leading to an amendment, in June 1980, to article XX of the agreement, applicable as of 1980. In this regard, Mr Legendre states (trans 156):

(Translation)

As in all negotiations, there are arguments for and against, and at some point a settlement is made somewhere in the middle.

The new article reads as follows:

Article XX Accidents and Occupational Diseases

20.00 (a)

1. In the case of any police officer who is absent due to an accident sustained or illness contracted in the performance of his duties, the Employer agrees to pay compensation, the total of which, plus the benefits payable under the Workmen’s Compensation Act, shall be such that the net income of the police officer for the period of leave is equal to the net regular salary he would have received during this period had he not been affected by an occupational disability.

2. The net regular salary shall be the salary of the police officer as established by article Il of the collective agreement, plus his seniority bonus, minus his contribution to the pension plan and the deductions for taxes and public benefits applicable to this salary.

3. The net income of the police officer shall be the compensation due the police officer for the period of absence, plus benefits payable under the Workmen’s Compensation Act for the period concerned, minus his contribution to the pension plan and the deductions for taxes and public benefits applicable to this salary.

(b) For administrative purposes, payments made by the Employer during the

period or periods of absence shall be governed by the following provisions.

1. Such a police officer shall for every pay period receive in this regard:

(A) an amount representing the compensation payable under the Workmen’s Compensation Act, which the Employer shall pay on behalf of the Commission des accidents du travail for each day of absence;

(B) with regard to the compensation, for each day of absence, a net amount equal to the difference between his net regular salary for each day of absence and the benefits payable for such days under the Workmen’s Compensation Act.

2. By February 28 of each year at the latest, the employer shall determine the amount of compensation to which the police officer was entitled for the period(s) of absence in the previous year; each police officer shall receive a statement of the adjustments made by the employer and a copy shall be sent to the Fraternité.

3. For the purposes of paragraph (b) above, the method to be used shall be based on a daily calculation according to the procedure for recovery of the compensation payable by the Commission des accidents du travail.

(c) Any period of absence due to illness in a previous year, recognized as of January 1, 1980 or subsequently by the Commission des accidents du travail as eligible for compensation under the Act, shall be governed by the provisions of article 20.00, paragraphs (a) and (b).

(d) 1. In case of absence due to an accident or an illness contracted in the performance of his duties, the police officer shall be entitled to medical, surgical and hospital benefits paid for by the employer, until his complete recovery or until the employer’s physician, or the Commission des accidents du travail in cases under its juridiction since August 1, 1964, reports that he is suffering from a permanent disability, total or partial, which makes him unable to perform his duties.

2. In such cases, even if the Commission des accidents du travail ceases to pay compensation for temporary total disability, the police officer shall continue to receive his full salary until the first of the following events:

(A) the provision of other suitable employment by the service;

(B) his removal from the force because of his occupational disability.

In the cases provided for in subparagraph (A), when the police officer is absent and this absence is related, in the opinion of the employer’s physician and police officer’s personal physician, to the accident or the illness which caused his disability, the police officer remains subject to the provisions of this paragraph; if there is disagreement between the physicians, the dispute shall be submitted to the medical arbitration provided for in this article.

The basic point of the amendment is that the corrections are made only for the period of disability, and not for each of the 26 pay periods, as was done in 1978 and 1979. For the period of disability, the method of calculation remains the same and the computer calculations are done in January and February of the following year, as previously. The example of police officer X who is ill for pay weeks 18 and 19 has been given to explain the interpretation of the new article XX. For a better understanding, the case of the same police officer X has also been calculated using the 1978 method:

ILLUSTRATION OF THE APPLICATION OF ARTICLE XX

OF THE COLLECTIVE AGREEMENT OF MUC POLICE OFFICERS FOR 1980

18th pay	19th pay
After	After After
application	application	Total

On of of Reduction On On of of Reduction Reduc-

	Duty	article XX T-4 - TP-4 Duty			article XX T-4— TP-4 tion
NAME: Mr X
Pay No:
Salary	961,05	285,27	675,81	961,05	850,88	110,17	785,95
Deductions
Federal tax	92,17	—	92,17	92,17	73,03	19,14	111,31
Provincial tax	113,08	—	113,08	113,08	88,15	24,93	138,01
Qpp and
pension plan	76,88	76,88	—	76,88	76,88	—	—
UIC	7,83	—	7,83	7,83	7,83	—	7,83
Total	289,96	76,88		289,96	245,89
Net salary
received
from employer	671,09	208,39		671,09	604,99
Benefits under
the Workmen’s
Compensation
Act		462,70			66,10
Net total salary	671,09	671,09		671,09	671,09

ILLUSTRATION OF THE APPLICATION OF ARTICLE XX OF THE COLLECTIVE AGREEMENT OF MUC POLICE OFFICERS ACCORDING TO THE 1978 METHOD

Police officer

ill for 2 weeks Reduction Police officer After After according on duty 52 application Reduction to 1980

weeks o[ article XX T-4 TP-4 method

NAME: Mr X

PAY NO:

Salary 25 073,10 24176,64 896,46 785,95

Deductions

Federal Tax 2 360,06 2201,20 158,86 111,31 Provincial tax 2950,39 2741,71 208,68 138,01 QPP and pension plan 2005,84 2 005,84 — — UIC 203,58 203,58 — 7,83

Total 7519,87 7152,23

Net salary received

from employer 17 553,23 17 024,41

Benefits under the

Workmen’s Compensation

Act			528,82
Total net salary		17 553,23	17 553,23
4.	Act — case law — analysis
4.01	Act

The principal legislative provisions involved in this case are sections 81 (1)(h), 153(1), 153(3), 227(4), 227(9), 227(12) and 238(2) of the Income Tax Act, sections 100(1), 101, 102(1), 106(2), and 108(1) of the Income Tax Regulations, and Article 1060 of the Civil Code of the province of Quebec. These sections read as follows:

Sec. 81 Amounts not included in income.

(1) There shall not be included in computing the income of a taxpayer for a taxation year,

81(1)(h)

(h) Workmen’s compensation. — compensation received under an employees’ or workmen’s compensation law of Canada or a province in respect of an injury, disability or death, except any such compensation received by a person as the employer or former employer of the person in respect of whose injury, disability or death the compensation was paid;

153(1) Withholding.

(1) Every person paying

(a) salary or wages or other remuneration . . .

at any time in a taxation year shall deduct or withhold therefrom such amount as may be prescribed and shall, at such time as may be prescribed, remit that amount to the Receiver General on account of the payee’s tax for the year under this Part.

153(3)

(3) Effect of deduction. When an amount has been deducted or withheld under subsection (1), it shall, for the purposes of this Act, be deemed to have been received at that time by the person to whom the remuneration, benefit, payment, fees, commissions or other amounts were paid.

227(4)

(4) Idem. Every person who deducts or withholds any amount under this Act shall be deemed to hold the amount so deducted or withheld in trust for Her Majesty.

227(9)

(9) /dem. Every person who has failed to remit or pay

(a) an amount deducted or withheld as required by this Act or a regulation, or

is liable to a penalty of 10% of that amount or $10, whichever is the greater, in addition to the amount itself, together with interest on the amount at the rate per annum prescribed for the purposes of subsection (8).

227(12)

(12) Idem. Where this Act requires an amount to be deducted or withheld, an agreement by the person on whom that obligation is imposed not to deduct or withhold is void.

238(2)

(2) Idem. Every person who has failed to comply with or contravened subsection 116(3), 127(3.1) or (3.2), 153(1), 227(5), 230.1(1) or 230.1(2), or section 230 or 231 is guilty of an offence and, in addition to any penalty otherwise provided, is liable on summary conviction to

(a) a fine of not less than $200 and not exceeding $10,000, or

(b) both the fine described in paragraph (a) and imprisonment for a term not exceeding 6 months.

Reg. 100(1)

“Remuneration” includes any payment that is

(a) in respect of salary or wages to an officer or employee,

Reg. 101

Any person who makes a payment described in subsection 153(1) of the Act shall deduct or withhold therefrom, and remit to the Receiver General of Canada, such amount, if any, as is prescribed in this Part.

Reg. 102(2)

Except as otherwise provided in this Part, the amount to be deducted or withheld by an employer from any payment of remuneration to an employee shall be determined in the case of an employee who reports for work at an establishment of the employer

(e) in Quebec, in accordance with Table 324,

Reg. 106(2)

In lieu of deducting or withholding an amount from a payment of remuneration under subsection 102(1) or (2) an employer may, with the approval of the Minister, deduct or withhold from such payment the amount that would be required to be deducted or withheld therefrom if subsection (1) were applicable thereto.

Reg. 108(1)

Amounts deducted or withheld under subsection 153(1) of the Act shall be paid to the Receiver General of Canada on or before the fifteenth day of the month next following the month in which the amounts were deducted or withheld.

Civil Code of the province of Quebec

Art 1060. An obligation must have for its object something determinate at least as to its kind.

The quantity of the thing may be uncertain, provided it be capable of being ascertained — N. 1129. C. 1026, 1151, 1474.

4.02 Case Law

Counsel referred to the following case law and legal theory in their pleadings:

A Case law

1. Robert S Jaw! v MNR, [1968] Tax ABC 860; 68 DTC 624;

2. Roy A Hromada v MNR, 34 Tax ABC 178; 64 DTC 7;

3. Pure Spring Company Limited v MNR, [1946] CTC 169; 2 DTC 844;

4. Pauzé v Gauvin, [1954] SCR 15;

5. Michel Lord v MNR, [1981] CTC 2513; 81 DTC 445;

6. Syndicat catholique des employés de magasins de Québec Inc v La Cie Paquet Ltée, [1959] SCR 206;

7. Aubie Jacob v MNR, [1980] CTC 3008; 80 DTC 1878;

8. Board of Industrial Relations v AVCO, [1979] 2 SCR 699;

9. Jean-Paul Morin v The Queen, [1975] CTC 106; 75 DTC 5061;

10. General Motors of Canada Co Ltd v Brunet, [1977] 2 SCR 537:

11. Grottoli v Lock & Son Ltd (1963), 39 DLR (2d) 128;

12. Cape Brandy Syndicate v IRC, [1921] 1 KB 64:

13. Canadian Eagle Oil Co v IRC, [1946] AC 119;

B Legal theory

14. Baudouin, Jean-Louis, Les Obligations, Montreal, PUM, 1970, page 123;

15. Traité de droit civil du Québec, vol 12, by Léon Faribault, Montreal, Wilson & Lafleur Ltée, 1951, p 18:

16. Mignault, P B, Le Droit civil canadien, Montreal, Wilson & Lafleur Ltée, 1906, vol 7, p 220;

17. Planiol, Marcel and Ripert, Georges, Traité pratique de droit civil français, 2nd ed, Paris, LGDJ 1956, vol 10, p 602;

18. Craies’ Statute Law, 7th ed, 1971, pp 98 and ff.

4.03 Analysis

4.03.1 The appellant’s argument:

The appellant’s argument is straightforward and is clearly summarized in his counsel’s pleading:

17. In short, we submit that it is better not to complicate the discussion, but simply to ask the following questions.

(a) How much was deducted at source, provisionally or otherwise? The answer is $2,272.86.

(b) What is the consequence of this deduction at source? The answer is that this amount is on account of Richard Binette’s tax under subsection 153(1) and is deemed to have been received by him under subsection 153(3).

(c) Was the MUC obliged to act in this way? The answer again is yes: each time the MUC paid an amount in respect of remuneration (regulation 100(1)), in this case $785.64, it had to deduct the prescribed amount (regulation 101 and table 324), in this case $56.08 for the first four pays and $90.27 for those following;

(d) Could the MUC deduct a different amount? Section 106(2) of the Regulations is clear; the MUC could not change this amount without the consent of the Minister and no evidence was submitted that such consent existed in the case at bar.

Case law on this point is rather limited and this is, even in the view of the respondent, a test case. However, we draw the Board’s attention to two decisions which in fact enabled a taxpayer to obtain a credit for deductions at source that were higher than those declared by the employer. In both cases, a situation identical to the one in the case at bar was involved, namely the amounts declared on the T-4 were lower than the deductions actually made. These decisions are Jawl v MNR [1968] Tax ABC 860 and Hromada v MNR, 34 Tax ABC 1978. In the latter decision, the following conclusion was reached, on page 180:

“The appellant having declared under oath that such deductions had been made from his wages, even though the pay record books do not show them, it must be noted that in the case of one-employee enterprises, it is common not to keep proper records. Furthermore, the assessor did not make an investigation into the matter. He relied only upon the return and the T4 received from the employer and, as usually happens with all companies in the country, their figures were taken for granted. It must be noted that the employer is a trustee of the Minister and, as such, the assessor should have been more diligent in investigating the matter, instead of assuming, without further checking, that the forms supplied by the employer were accurate.”

4.03.2 The respondent’s argument:

In his submission, counsel for the respondent outlined the problem by asking three questions and proposing his solutions as follows:

(a) What is the total salary paid to the appellant by the MUC for the year 1978? Is it $17,864.85, as the respondent maintains, with the support of the MUC, or $19,041.09, as the appellant appears to indicate?

The respondent adopts the MUC’s solution.

In short, the MUC maintains that it paid the appellant only $17,864.85 and not $19,041.09. It paid only $17,864.85 because the collective agreement authorized this and provided for the method of doing so (trans. pages 24 and 25).

(b) How much was deducted at source by the MUC for the year 1978? Was it $1,683.94, as claimed by the respondent and confirmed by the MUC, or $2,272.86, as stated by the appellant?

Briefly, the solution suggests that the total salary being $20,962.28, deductions at source form an integral part of the employee’s salary and, in substance, the amount of federal tax deducted by the MUC is $1,683.94, in accordance with the agreement, Act and Regulations.

(c) How much tax was remitted by the MUC on behalf of the appellant in 1978? Was it a total of $1,683.94, as maintained by the respondent and confirmed by the MUC, or $2,272.86, as the appellant seems to indicate?

Because of the smaller amounts paid by the MUC to the tax authorities from October 1978 to March 1979 to adjust the provisional remittances already made (para. 3.11(11)), as regards the appellant, the Minister of National Revenue neither benefited from nor received tax over the amount of $1,683.94.

4.03.3 Moreover, in his reply, counsel for the appellant provided a new approach by emphasizing new points:

9. Now that the parties agree that deductions were made from each pay, for a total of $2,272.86, and were remitted to the Minister, what did the MUC do? Ac- cording to the evidence, it reimbursed itself by remitting to the Minister at the end of the year and the beginning of the following year certain amounts which are detailed in the letter from Mr. Joannette reproduced on page 13 of the respondent’s submission (para. 3.11(11)). It seems appropriate to study this action by the MUC:

(a) as we already mentioned in our principal submission, the employer, in this case the MUC, must remit the amounts deducted to the Minister on account of the payee’s tax, which it did;

(b) after doing this, not only for the appellant but for all police officers who were injured on duty in 1978, the MUC withheld amounts from the deductions it had made on the regular salaries of the police officers in the last months of 1978 and early in 1979; thus, the MUC deducted amounts from the normal pay of its police officers and then withheld amounts varying from $50,000 to $125,000 from the deductions at source;

(c) we submit that this procedure followed by the MUC is illegal: in fact, section 227(4) of the Act states that any amount so deducted is held in trust for the Minister, and Regulation 108(1) requires that amounts deducted be remitted to the Minister or a penalty of 10% provided in subsection 227(9) of the Act will be applied.

10. In short, we submit that the amounts deducted, whether provisional or not, as suggested by the respondent, must be remitted to him and belong to the employee on behalf of whom these deductions, once again whether provisional or not, were made: subsections 153(1) and 153(3) of the Act.

4.03.4 The Fraternité des policiers and the MUC, by accepting application of the “no more, no less” principle for the year in question, 1978, in fact agreed that a police officer absent due to injury on duty should not receive a net salary that was higher or lower than the salary received by his colleague of the same rank on duty the whole year.

Equity and the desire to reduce absenteeism and the length of disability periods were the basis of this agreement (para. 3.11). If a comparison is made with the full salary principle applied since 1974 (para. 3.08), the parties, by making such an agreement, were consenting to a decrease in the net salaries of police officers who were receiving compensation for injury. Moreover, negotiations for application of the “no more, no less” principle led to an important concession on the part of the MUC with regard to the pension plan, on the order of $2,500,000 in favour of the Fraternité des policiers (para. 3.11(5)).

These negotiations and agreements must be taken into account by the Tax Review Board. In particular, once the parties have freely agreed on the principle of an equal net income (or net amount received) and on the general procedure for its application (article XX of the 1978 agreement), the Board is bound by these agreements and article XX.

4.03.5 The problem now is whether the sections of the Income Tax Act relating to source deductions were properly applied in the case at bar.

The basic section is subsection 153(1) quoted above (para. 4.01). Considering its importance, however, it might be useful to quote it again here:

153 (1) Withholding.

(1) Every person paying

(a) salary or wages or other remuneration . . .

at any time in a taxation year shall deduct or withhold therefrom such amount as may be prescribed and shall, at such time as may be prescribed, remit that amount to the Receiver General on account of the payee’s tax for the year under this Part.

What is the appellant’s real salary in accordance with the agreement between the MUC and the Confrérie des policiers? Is it $20,962.28 (regular salary of $20,488.30 + overtime of $473.98), as if he had been on duty all year? Certainly not, because he received non-taxable compensation total- ling $1,921.19. Is it then $19,041.09, or $20,962.28 — $1,921.19, as the appellant claims? To answer in the affirmative would be to ignore the “no more, no less” agreement applicable in 1978 and to maintain the “full salary” agreement applied from 1974 to 1977. It was in fact the use of the “full salary” method which resulted in the injustice (para. 3.09) and led the parties to make the new “no more, no less” agreement for 1978.

With the evidence submitted before the Board, the “salary or wages or other remuneration” provided for in subsection 153(1) and received by the appellant are the $17,864.85 and the appropriate deduction at source for federal tax, $1,683.94, as indicated in Exhibit I-4, pages 2 to 5, and according to the explanations provided by the witness (para. 3.12(16)). Despite the contradiction which exists in the evidence regarding the amount of compensation received from the CATQ by the appellant ($1,817.34 according to Exhibit 1-4 and $1,921.19 according to Exhibit A-2), the Board believes that this is a difference in the final calculation which does not affect the fundamental principle involved in the case at bar. If, however, the difference could possibly favour the appellant, the assessment would have to be modified. In the opposite case, there would be no need to modify it.

The appellant’s counsel referred the Board to Roy A Hromada, (supra), (para. 4.02). That case involved a single employee who maintained that his employer had deducted more than was indicated on his T-4 slip. The Court accepted his evidence, in part because the assessor had made no investigation of the employer and could not contradict the appellant’s evidence.

The case at bar is completely different. The large number of employees, the electronic automation of the system, the agreement of the MUC to advance compensation to the injured employee to be reimbursed at a later date by the CATQ, all these facts require a complicated administration including the presumption, arising from payment in advance of the compensation owed by the CATQ by the MUC, that no employee is injured and that the deductions at source, and remittances to the Department of Revenue, are made from the employee’s salary accordingly during the entire year. Once the electronic machines are programmed in this way, they are not changed for the calculation of the bi-monthly salary of the employee, even if, beginning in October 1978, the company began to remit smaller amounts, in the order of $50,000, on the total deductions for all the employees to the Department of Revenue (para. 3.11(11)).

The Board is of the opinion that whatever the administrative procedure used in making the payments, source deductions and remittances, it is the substance of the agreement which must be considered to determine the real salary paid and the deductions and remittances actually made.

The Board concludes that the terms of subsection 153(1) were applied. The interpretation of other sections, regarding source deductions, quoted in paragraph 4.01, arise from the interpretation of subsection 153(1).

5. Conclusion

The appeal is dismissed in accordance with the foregoing reasons for judgment.

Appeal dismissed.