Date: 20020201
Docket: 2001-3087-IT-I
BETWEEN:
DEBRA FARROW,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
O'Connor, J.T.C.C.
[1] This appeal was heard at London, Ontario on January 10, 2002 pursuant to the Informal Procedure of this Court.
Issue
[2] The issue is whether an amount of $17,748.60 received in 1999 by the Appellant from Clarica Life Insurance Company ("Clarica") as a long-term disability benefit is taxable.
Facts
[3] I find the relevant facts to be as follows:
1. The Appellant commenced employment with LifeScan Canada Ltd. ("LifeScan") in 1988.
2. From 1992, and possibly earlier, to the end of 1998 the Appellant paid 100% of the long-term disability premiums. In other words, up to at least December 31, 1998 the plan in force with Mutual Life (predecessor of Clarica) was an employee pay-all plan, the result of which under section 6 of the Income Tax Act (the "Act") is that any benefits received are not included in taxable income which contrasts with an employer pay-all plan the result of which is that the long-term disability benefits received are subject to tax.
3. At the outset counsel for the Appellant stated that there was no objection with respect to the claimed disability amount of $4,233 and that the only issue before the Court was the one described above with respect to the $17,748.60.
4. Notwithstanding some errors and confusion discussed below, the long-term disability plan applicable to employees of LifeScan was changed to an employer pay-all plan effective January 1, 1999, thus changing the plan from an employee pay-all to an employer pay-all plan.
5. The Appellant became eligible for long-term disability benefits on July 27, 1999.
6. Janssen-Ortho Inc. ("Janssen") had been the administrator of the plan of LifeScan and since January 1, 1999. Clarica became the carrier for the long-term disability plan.
7. Janssen had not provided Clarica with proper information, which resulted in Clarica setting up the Appellant under section 1 which relates to long-term disability payments which are not taxable.
8. By letter dated June 15, 1999 Barbara Starnes ("Starnes"), benefits administrator for Janssen, wrote to the Appellant (Exhibit R-2) stating as follows:
As you are aware you have been off on Short Term Disability since January 26, 1999 and are eligible for Long Term Disability effective approximately July 26, 1999.
The letter also states:
Long Term Disability income benefits will begin after you have been on Short Term Disability for 26 weeks due to illness. These benefits are equal to 66 2/3% of your monthly earnings and are taxable.
9. Four payments were made by Clarica as long-term benefits, each in the amount of $3,550. The dates of payment were August 25, 1999, September 25, 1999, October 25, 1999 and November 25, 1999. No tax was withheld on any of these payments. Tax was withheld on all payments from and after December 25, 1999.
10. A letter of Clarica dated August 6, 1999 (Exhibit A-6) informs the Appellant that her long-term disability benefits claim had been approved effective July 26, 1999 and further indicates that those benefits are considered to be non-taxable income and that the Appellant would not receive a tax slip and would not be required to report the benefits as income on her tax return. In the margin of that letter where this tax information is recited, there is a handwritten note of Starnes, which states that "This is incorrect. I have requested a revised letter.".
11. By a letter to the Appellant dated September 9, 1999 Starnes encloses the Appellant's first long-term disability payment in the amount of $3,550. This letter also states that Starnes was enclosing a copy of the letter from Clarica that has some wrong information in it and indicating that Starnes will forward a new letter as soon as she receives it.
12. By letter dated October 1, 1999 Clarica advises the Appellant that her long-term disability benefits are considered taxable income and that she would receive a tax slip for income tax purposes.
13. On February 7, 2000 the Appellant writes a letter to Janssen stating as follows:
I enclose my cheque in the amount of three hundred seven dollars and eighty-six cents ($307.86), to reimburse you for the premiums paid on my behalf regarding my long term disability benefit for 1999.
14. Once the Appellant became eligible for long-term disability benefits on July 26, 1999 the obligation of the employer to make any more premium payments ceased. This was the same situation under the prior employee pay-all plan. The said cheque for $307.86 was cashed by Janssen.
15. Submitted as Exhibit R-1 are pages 28 to 31 of an apparent manual outlining the various benefits of the plan, which commenced on January 1, 1999. This manual indicates that the employer pays the premium. On page 31 the following appears:
Revenue Canada will consider any LTD benefits you receive to be taxable income, including benefits received from the Company-provided Basic Long Term Disability benefit.
16. An e-mail dated October 25, 2000 (Exhibit R-3) from a representative of LifeScan indicates that the cheque for $307.86 was paid in error and cashed by Janssen's accounts receivable in error and that Janssen had no right to hold onto the money and that they would arrange for a cheque for $307.86 plus interest from February 17, 2000 (the date the cheque was cashed) to the date of the new cheque to be sent to the Appellant as soon as possible. By further e-mail dated October 25, 2000 the Appellant advised that she does not want the money to be returned to her at this time.
17. The amended T-4A 1999 was issued to the Appellant indicating an amount of $17,748.60 as other income with a clarification that this represented wage loss replacement. However the Appellant submitted a T1 adjustment request with her Notice of Objection on November 1, 2000 requesting that the income she received in 1999 from Clarica, in the amount of $17,748.60, be considered as non-taxable long-term disability payments as she had paid the full premium on the plan.
18. LifeScan's letter of November 1, 2000 (Exhibit R-5) sends the Appellant a cheque for $307.86 plus interest of $16.16. The Appellant chose not to cash that cheque.
Analysis and Decision
[4] Paragraph 6(1)(f) of the Act reads in part:
6.(1) There shall be included in computing the income of a taxpayer for a taxation year as income from an office or employment such of the following amounts as are applicable:
...
(f) the total of all amounts received by the taxpayer in the year that were payable to the taxpayer on a periodic basis in respect of the loss of all or any part of the taxpayer's income from an office or employment, pursuant to
(i) a sickness or accident insurance plan,
(ii) a disability insurance plan, or
(iii) an income maintenance insurance plan
to or under which his employer has made a contribution, not exceeding the amount, if any, by which ...
[5] Notwithstanding all the confusion and mistakes of some of the companies involved, the fact is that the employer paid the premiums from January 1, 1999. The attempt by the Appellant to try and have the policy considered as an employee pay-all policy, thus producing non-taxable income, was only carried out in February, 2000 when the Appellant sent the cheque for $307.86. Further, that amount plus interest was refunded to her on November 1, 2000.
[6] Also the very first notification to the Appellant of the nature of the new plan was contained in Janssen's letter of June 15, 1999 and that letter indicated that the benefits were taxable. Thus when the Appellant became eligible in July, 1999 and commenced receiving cheques in August, 1999 she had already been advised that the benefits were taxable.
[7] I do not believe the mistakes mentioned above, including the cashing in error by Janssen of the $307.86 cheque, suffice to change the nature of the policy from one, which is an employer pay-all to an employee pay-all policy.
[8] Consequently paragraph 6(1)(f) of the Act is applicable. The amount of $17,748.60 was taxable income to the Appellant in 1999 and therefore the appeal is dismissed.
Signed at Ottawa, Canada, this 1st day of February, 2002.
|
"T. O'Connor" |
J.T.C.C.
COURT FILE NO.: 2001-3087(IT)I
STYLE OF CAUSE: Debra Farrow v. The Queen
PLACE OF HEARING: London, Ontario
DATE OF HEARING: January 10, 2002
REASONS FOR JUDGMENT BY: The Honourable Judge Terrence O'Connor
DATE OF JUDGMENT: February 1, 2002
APPEARANCES:
Counsel for the Appellant: J. Douglas Skinner
Counsel for the Respondent: Rosemary Fincham
COUNSEL OF RECORD:
For the Appellant:
Name: J. Douglas Skinner
Firm: Harrison Pensa LLP
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2001-3087(IT)I
BETWEEN:
DEBRA FARROW,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on January 10, 2002 at London, Ontario, by
the Honourable Judge Terrence O'Connor
Appearances
Counsel for the Appellant: J. Douglas Skinner
Counsel for the Respondent: Rosemary Fincham
JUDGMENT
The appeal from the assessment made under the Income Tax Act for the 1999 taxation year is dismissed in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 1st of February, 2002.
|
"T. O'Connor" |
J.T.C.C.