Roy v. R., [1999] 2 CTC 2642

Archambault T.C.J. (orally):

Gérard Roy is challenging an assessment made by the Minister of National Revenue (“the Minister”) for the 1995 taxation year. The Minister added $94,574.36 to Mr. Roy’s income. This amount represents salary paid to him in 1995 following a legal action which lasted nearly ten years. The action concerned Mr. Roy’s employment classification and an adjudicator allowed his claim. As a result of his new classification, Mr. Roy was entitled to a higher salary. According to the evidence before the Court, the $94,574.36 represents additional pay Mr. Roy should have received between 1985 and 1993 but which was not paid to him until 1995.

Analysis

Mr. Roy argued essentially that the $94,574.36 should be spread over the period from 1985 to 1993, so that this income would not be taxed at a marginal rate higher than that which would have applied if he had received it in the period 1985 to 1993. Mr. Roy maintained that he should not be penalized because of his employer’s mistake.

As his second argument, Mr. Roy maintained that the amount he received constitutes damages and that no provision of the Income Tax Act (“the Act”) imposes a tax on damages.

Finally, as his last argument Mr. Roy referred to various provisions of the Act under which certain income can be spread out.

Unfortunately for Mr. Roy, this Court cannot allow his appeal. The amount of tax owed by a taxpayer must be determined according to the provisions of the Act, not the rules of fairness. Although I fully understand Mr. Roy’s frustration, this Court has no choice but to apply s. 5 of the Act, which expressly provides that all employment income must be included in income for the year in which it was received.

For Mr. Roy to be successful, there would have had to be a provision in the Act under which his income could be spread out. As his agent acknowledged, there seems to be no provision in the Act under which income can be spread out in this way and the Court knows of none that can be applied in the circumstances of the instant case.

The fact that some provisions of the Act permit income to be spread out in some way confirms that this Court cannot grant such treatment if there is no such provision.

Finally, as to the argument based on the concept of damages, I consider that the amounts Mr. Roy received do not constitute damages. What Mr. Roy claimed was additional pay to which he was entitled in view of the position he held. The adjudicator, the Quebec Superior Court and the Quebec Court of Appeal ruled in his favour. The amounts paid to him were calculated in terms of a higher salary for each of the taxation years included in the adjustment period.

Damages are paid when a party cannot obtain specific performance of an obligation. In such a case the creditor seeks compensation through a monetary equivalent. In the instant case the employer was required to pay a salary, that is, a sum of money, so it was possible to obtain specific performance of his obligation. In The Queen v. Atkins, 76 D.T.C. 6258, to give one example, a taxpayer was dismissed without reasonable notice. In such a case the courts have awarded damages in lieu of the notice the employer should have given but did not give.

Accordingly, the amount of $94,574.36 which Mr. Roy received in 1995 constituted salary, and under s. 5 of the Act this amount must be included in his income for the year in which he received it.

Furthermore, it would have been impossible to add the additional pay earlier since the amount was uncertain as long as the legal action was still pending. It would in fact have been entirely unfair to add this amount of $94,574.36 to Mr. Roy’s income before 1995, since there could have been a decision unfavourable to him and he would then have been taxed on money he had never received.

Clearly, the Act taxes a salary in the year it is received, namely the year in which the taxpayer benefits from it, because it is then certain that the taxpayer will have the money needed to pay the tax on it. It would have been difficult for Mr. Roy to pay tax from 1985 to 1993 on an amount of $94,574.36 he would not actually have until 1995.

Although this tax policy may make sense in most cases, that does not mean that there cannot also be untoward consequences for the taxpayer, as appears to be the case with Mr. Roy. However, this Court has no jurisdiction to do away with such consequences.

For all these reasons, the appeal is dismissed without costs.

Appeal dismissed.