Teskey T.C.J. (orally):
HIS HONOUR: The Appellant appeals an assessment of income tax for the years 1991, 1992 and 1993. In his Notice of Appeal he elected the Informal Procedure.
This matter first came on before me on February the 25th, 1998. The facts that were established before me at the trial that was held that day in February was that the Appellant was a young man and a master welder, and that it was his life’s ambition to be a welder. He took the necessary courses and training and became a welder and commenced work for an employer. Tragically he was injured on the job and became permanently disabled.
The employer had a group plan with its employees for short-term and long-term disability with Great West Life. The Appellant went on disability, short-term and then went on long-term disability. Shortly thereafter the carrier, Great West Life Assurance Company, stopped its monthly payments to the Appellant. The Appellant retained counsel and sued Great West Life, and after an extensive trial before The Honourable Madam Justice E.I. Picard, the Court ordered that the Appellant herein had judgment against Great West Life in the amount of $96,637.46 inclusive of interest pursuant to the Judgment Interest Act. That’s the first paragraph of the Court Order.
The second paragraph thereof said the Plaintiff shall have a declaration that he suffers total disability within the meaning of the Group Long-Term Disability Income Assurance Policy, which is the subject of these proceedings, and the Defendant shall accordingly forthwith resume paying the monthly benefit amount to the Plaintiff in accordance with the provisions of said policy. And the last paragraph awards costs.
Great West Life appealed this judgment and lost the appeal.
When the reasons of The Honourable Madam Justice Picard, are reviewed, it is quite obvious that the $98,859.06 that she awarded to the Appellant herein as a lump sum was a calculation of the legitimate claim that the Appellant had from the date that Great West stopped paying to the date of trial. General damages or damages out of a lawsuit have to be looked at as to how they are calculated and what is the purpose. Obviously general damages for pain and suffering are not taxable. But where from the reasons of the trial judge the lump sum general damages are calculated to exactly recompense the Plaintiff therein for what should have been paid to him previously and which would have been income, then the lump sum damages do not magically take on the veil of being non taxable income. So that herein the lump sum damages are income.
There are provisions in the Act that where the premiums for the disability is solely paid by the employer, then any recovery is tax free. There are also provisions that where the premiums are split between the employer and the employee, the employee is entitled to get a deduction on the monies received up to the total amount of the premiums that he or she may have paid.
At the conclusion of the first trial, as I was about to render judgment, the Appellant said, what about my legal fees. When asked he indicated that his personal legal fees, over and above what was obtained, were in the neighbourhood of $70,000. At that point I offered to adjourn the case and did adjourn the case so that the Appellant could get an accounting of his legal fees from his lawyers. At that time I strongly recommended to him that the deductibility of legal fees was a very unique legal problem, and perhaps he should obtain the services of a legal counsel to argue that issue before me. And he was then instructed to get an accounting of how much premiums he personally had paid towards the long-term disability.
At the conclusion of trial this date, he has no paper backing up his claim whatsoever that his portion of the premium was $17.00 a month or there about, and it was for two years. He claims that the employer will not give him anything and just stonewalls him saying, you’re no longer an employee, in essence buzz off. I have advised him that there is a procedure that he could subpoena the person in charge of the employment records at that company and bring him into court to prove what his premiums were. The Appellant declined. The Appellant also said that his lawyers will not talk to him, and would not return his calls. I advised him that there is a procedure where that lawyer could be subpoenaed or the bookkeeper could be subpoenaed and he could prove what his legal bills were. I stated to him that it was not acceptable to put the Court in the position of having to accept his word solely to the amount of $70,000 there abouts, when it is quite capable of proving exactly how much was paid. The Appellant does not wish a further adjournment.
His position is simply that all monies received from Great West Life, including the lump sum and the monthly payments are tax free and that’s it. Unfortunately, it’s not it.
The Act is quite clear when you read the sections, that the monies received is income. The Act is quite clear that the premium that he paid for this insurance is deductible. And it’s just a shame that the premium was not proven in this court. Unless counsel for the Respondent wants to admit to the $408 as a deduction, I feel I cannot give it.
Any comment, counsel?
MS. WONG: Your Honour, we are prepared to accept that there was a two-thirds/one-third split, of course, between the worker and Bow Valley. As to the amount, we would require some --
HIS HONOUR: You’re not prepared?
MS. WONG: No.
HIS HONOUR: Counsel advises me that without something from Bow Valley they are not prepared to consent, and I’m not prepared under the circumstances to assess the amount paid.
Now in regards to legal fees. It appears from the statute that they are not deductible. However, if the figure had been proven to me, I was prepared to deduct the legal fees from income. The Supreme Court of Canada in Evans v. Minister of National Revenue (1960), 60 D.T.C. 1047 (S.C.C.), stands for the proposition that legal expenses incurred to establish a right to an income in circumstances where the Appellant could not or would not get any access to the capital and that she was only entitled to the income therefrom, was a deductible expense incurred to earn income from property. I was prepared to grant the appeal in favour of the Appellant, give him the full deduction of his portions of his insurance premiums and his full legal costs that were not recovered on the basis of the Evanscase.
The Appellant herein sued the Great West Life for an income stream, a stream that was taxable. He did not sue the Great West Life for its capital assets, he sued for the stream of income and obtained it, and on that authority I believe his legal expenses were deductible. I am shocked and amazed that the Appellant herein would not bring in receipts, or ask for a subpoena, and ask for an adjournment so that he could prove his claim, which undoubtedly would have improved his taxable income in the first year by thousands and thousands of dollars. But he is over 21.
Although I think he made the mistake of his life time, there’s nothing left for me to do but to dismiss his appeal.
Appeal dismissed.
Email this Content