Date: 20000128
Docket: 98-1176-IT-I
BETWEEN:
SUZANNE JOLIVET,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Lamarre, J.T.C.C.
[1] This is an appeal under the informal procedure against an assessment issued to the appellant for her 1995 taxation year.
[2] The appellant was employed as a receptionist for A929 Algoma and District Dental Group 17 under the direction of Dr. Harvey R. Snider, from December 12, 1994 to May 25, 1995.
[3] According to the appellant, she was a probationary employee for the first three months of her employment. In her testimony, she said that her employer was verbally abusive to her during the time of her employment. At that time, she was a member of the Canadian Union of Public Employees ("CUPE") and she informed one of her union representatives of the situation. She was advised by the union to refuse to talk to Dr. Snider in his office without the presence of a union steward. According to the appellant's testimony, when she followed that advice, Dr. Snider fired her. She was given a two-week salary and vacation pay in the amount of $1,630.00.
[4] The appellant stated that during her temporary employment, she was paid $12.00 per hour. In paragraph 5(b) of the Reply to the Notice of Appeal, the respondent assumed that the appellant's salary and wages from her employment for the period January 1, 1995 to May 26, 1995 was in the amount of $10,467.00. This assumption has not been challenged by the appellant.
[5] In her Notice of Appeal, the appellant states that her union representative recommended that she file a grievance since Dr. Snider "had no just cause to let her go and [her] termination was arbitrary, capricious and callous". The union representative and the employer's lawyer then decided to settle the case before it went to court. The appellant was offered $10,000.00 and she did accept it. She received a cheque for that amount from her employer in September 1995. A letter was sent by the employer's lawyer to the union on September 22, 1995 stating that the sum of $10,000.00 constituted damages.
[6] On October 4, 1995, she signed a release whereby she declared the following:
I, Suzanne Jolivet, of the Province of Ontario, for the sole consideration of $10,000.00, from A929 Algoma and District Dental Group 17, the sufficiency and receipt whereof by me is hereby expressly acknowledged, do hereby remise, release and forever discharge Dr. Harvey Snider of and from all actions, causes of action, suits, debts, demands, dues, bonds, accounts, covenants, contracts and claims whatsoever, which I ever had, now have, or which I can, shall or may hereafter have for or by reason of any cause, matter, or thing whatsoever, including without limiting the generality of the foregoing, any actions, causes of action, suits, debts, rights and obligations, demands, or claims relating to my employment with Dr. Harvey Snider or the termination of such employment.
I hereby specifically covenant, represent and warrant to the Releasee that I have no further claim against the Releasee for or arising out of employment with Dr. Harvey Snider or the termination of such employment including, without limiting the generality of the foregoing, any claims for pay, notice of termination, pay in lieu of such notice, severance pay, expenses, bonus, commission, overtime pay, interest, benefits and/or vacation pay and specifically including any claim under the Canada Labour Code, the Employment Standards Act (Ontario), or any other similar legislation. In the event that I should hereafter make any claim or demand or commence or threaten to commence any action, claim or proceeding against the Releasee for or by reason of any cause, matter or thing, this document may be raised as an estoppel and complete bar to any such claim, demand, action, proceeding or complaint.
I further agree and understand that the aforesaid consideration received by me includes all amounts to which I may have been entitled under the Canada Labour Code, the Employment Standards Act (Ontario) as amended, or any other relevant labour or employment legislation.
I have read the above Release and have been given an opportunity to obtain independent legal advice with respect thereto and I understand that it contains a full and final release of all claims that I have or may have against the Releasee relating to my employment or the termination of such employment and that there is no admission of liability on the part of the Releasee and that any such liability is denied.
All of the foregoing shall enure to the benefit of the Releasee, his heirs, executors, administrators, successors and assigns, and be binding upon me and my respective heirs, executors, administrators and assigns.
IN WITNESS WHEREOF I have duly executed this Release this 4th day of October, 1995.
[7] The appellant acknowledged that had she not signed the Release, she would not have received the $10,000.00 amount.
[8] The employer first issued a T4A slip indicating that that $10,000.00 payment was for wage damages. The appellant immediately contacted her union representative as she did not believe that the amount of $10,000.00 was taxable income. She thereafter received an amended T4A slip indicating this time that the $10,000.00 payment was for "damages – settlement". No income tax was withheld at source. She did not include that amount in her income tax return as she had been assured by her union representative that this amount was tax-exempt. There was correspondence in 1997 between the appellant's union representatives and counsel for her former employer, reiterating that the $10,000.00 amount was paid to the appellant for damages.
[9] The Minister of National Revenue assessed the appellant and added the amount of $10,000.00 to her income for the 1995 taxation year, on the basis that it was income from a retiring allowance in accordance with subparagraph 56(1)(a)(ii) and subsection 248(1) of the Income Tax Act ("Act").
[10] The appellant submits that the settlement was never intended to be a severance or retiring allowance of any kind. According to her, that amount is significantly more than the one month damages normally awarded to a six-month employee. It was given to prevent legal proceedings concerning Dr. Snider's course of conduct and the manner in which the termination occurred.
[11] The appellant relies on Interpretation Bulletin IT-337R3, dated January 30, 1998, on retiring allowances. There is a comment in paragraph 9 of that bulletin on damages. It reads as follows:
9. As described in 2(b) above, a retiring allowance includes an amount received in respect of a loss of office or employment of a taxpayer, whether or not received as, on account or in lieu of payment of, damages or pursuant to an order or judgment of a competent tribunal. Special damages, such as those received for lost (unearned) wages or employee benefits, are taxable under subsection 5(1) or paragraph 6(1)(a) if the employee retains his or her employment or is reinstated or as a retiring allowance if the employee loses his or her office or employment. An amount paid on account of or in lieu of general damages, that is, damages for loss of self-respect, humiliation, mental anguish, hurt feelings, etc., or pursuant to an order or judgment of a competent tribunal may be a retiring allowance if the payment arises from a loss of office or employment of a taxpayer. However, if a human rights tribunal awards a taxpayer an amount for general damages, the amount is normally not required to be included in income. When a loss of employment involves a human rights violation and is settled out of court, a reasonable amount in respect of general damages can be excluded from income. The determination of what is reasonable is influenced by the maximum amount that can be awarded under the applicable human rights legislation and the evidence presented in the case. Damages do no include a reimbursement to a taxpayer for legal costs.
[12] A retiring allowance is defined in subsection 248(1) as an amount received, inter alia, "in respect of a loss of an office or employment of a taxpayer, whether or not received as, on account of or in lieu of payment of, damages or pursuant to an order or judgment of a competent tribunal". If the amount received was in respect of the loss of employment, then it would be characterized as a retiring allowance. In Nowegijick v. The Queen, 83 DTC 5041, Dickson J. of the Supreme Court of Canada said the following at page 5045:
The words "in respect of" are, in my opinion, words of the widest possible scope. They import such meanings as "in relation to", "with reference to" or "in connection with". The phrase "in respect of" is probably the widest of any expression intended to convey some connection between two related subject matters.
[13] In the case of Anderson v. The Queen, 98 DTC 1190, Judge Rip of this Court said that for the purposes of determining whether the sum received by a taxpayer is a retiring allowance, the words "in respect of" in subsection 248(1) "direct that a broad scope of inclusion be considered as to what constitutes a sufficient connection between the loss of employment and the amounts received".
[14] I find here that the Release signed by the appellant is clear enough and indicates that the $10,000.00 amount was received by the appellant in respect of the loss of her employment. She admitted that if she had not signed the Release, she would not have been paid. It is equally clear to me that, as was said by Pinard J. in Merrins v. M.N.R., 94 DTC 6669 (F.C.T.D.), "had there been no loss of employment, there would have been no grievance, no settlement, no award and, therefore, no payment of the sum to the appellant". Pinard J. went on to say that:
... the use of [the words "in respect of"] within the definition of "retiring allowance" as found in subsection 248(1) of the Act surely conveys a connection between the plaintiff's loss of employment and his subsequent receipt of the amount of $60,000 as paid by his former employer, ...
[15] The fact that both parties intended to characterize the $10,000.00 as damages does not change the fact that the appellant, indeed, received that amount as a consequence of the loss of her employment.
[16] It is purely hypothetical to say that had the appellant not lost her employment, she would have received that amount. I can only conclude that such amount paid on account of damages is a retiring allowance because there exists a sufficient nexus between the receipt and the loss of employment (see Overin v. M.N.R., 98 DTC 1299).
[17] Furthermore, I do not find that the evidence disclosed that the settlement amount was received by the appellant as damages in compensation for a human rights violation. The Release signed by the appellant specifically provides that there is no admission of liability on the part of the employer and that any such liability is denied. It is therefore impossible for me to attribute a reasonable amount in respect of general damages caused by such a human rights violation.
[18] In the circumstances, I am of the opinion that the $10,000.00 amount is caught within the definition of a retiring allowance and is therefore to be included in the appellant's income for the 1995 taxation year, pursuant to subparagraph 56(1)(a)(ii) of the Act.
[19] The appeal is dismissed.
Signed at Ottawa, Canada, this 28th day of January 2000.
“Lucie Lamarre”
J.T.C.C.