Canada v. Siftar (C.A.) [2003] 4 F.C. 137
Date: 20030317
Docket: A-661-01
Neutral citation: 2003 FCA 137
CORAM: STRAYER J.A.
BETWEEN:
HER MAJESTY THE QUEEN
Appellant
and
ANTONIJA SIFTAR
Respondent
Heard at Toronto, Ontario, on November 28, 2002.
Judgment delivered at Ottawa, Ontario, on March 17, 2003.
REASONS FOR JUDGMENT BY: PELLETIER J.A.
CONCURRED IN BY: STRAYER J.A.
DISSENTING REASONS BY: EVANS J.A.
Date: 20030317
Docket: A-661-01
Neutral citation: 2003 FCA 137
CORAM: STRAYER J.A.
EVANS J.A.
PELLETIER J.A.
BETWEEN:
HER MAJESTY THE QUEEN
Appellant
and
ANTONIJA SIFTAR
Respondent
REASONS FOR JUDGMENT
PELLETIER J.A.
[1] This case was, for all practical purposes, heard concurrently with Tsiaprailis v. The Queen, 2003 FCA 136, in which this Court held that the portion of a settlement of a claim under a disability insurance policy attributable to payments in arrears is taxable in the hands of the insured pursuant to paragraph 6(1)(f) of the Income Tax Act, R.S.C. 1985, (5th Supp.), c. 1, as amended. It was significant to the outcome of that case that the amount of the settlement attributable to arrears was clearly identified in the Agreed Statement of Facts and in the documents leading to the settlement. The question to be decided in this case is the treatment of a settlement when there is no allocation between different heads of damage.
[2] Ms. Siftar suffered injuries which gave rise to claims against two insurers for three causes of action. One claim was against the disability insurer under the plan provided for her by her employer. The other two claims were against a line insurer for no-fault benefits under the statutory scheme and, in addition, in its capacity as the liability insurer of the at-fault motorist. Because of the overlapping nature of the claims, negotiations were conducted between Ms. Siftar's counsel and one counsel on behalf of both insurers (who were separately represented). Counsel for Ms. Siftar was interested only in the quantum of the final settlement and was content to leave the apportionment of the settlement between defendants to them. Furthermore, there was no allocation between arrears and future rights of the portion of the settlement attributed to the disability insurer. The Minister assessed Ms. Siftar on the basis that all amounts received from the disability insurer were taxable. In reasons reported at 2001 DTC 938, the Tax Court of Canada held that no part of the disability insurer's contribution to settlement was taxable in Ms. Siftar's hands on the ground that it was not an amount "payable on a periodic basis".
[3] As noted above, the decision of this Court in Tsiaprailis, supra, decided that the portion of such a settlement attributable to arrears accruing due to the date of settlement is taxable. The issue, on the facts of this case, is to address how Tsiaprailis is to be applied in a case where there is no allocation.
[4] In my view, the question of whether a settlement of a disability insurance claim includes a component which represents payments payable on a periodic basis accruing due to the date of settlement is a question of fact, and one of the relevant facts is the intention of the parties. There is no presumption that there is an "arrears" portion to every claim settlement. Furthermore, the nature of the claim can have a significant impact upon the structure of the settlement. All of these are factors which can influence the nature of the settlement to which the parties may come.
[5] Given that the question as to whether a portion of settlement amount is taxable under paragraph 6(1)(f) is a question of fact, the failure to establish an allocation cannot be determinative of the issue. Such failure is evidence to be considered in the light of the balance of the evidence, but it cannot, by itself, preclude an inquiry into the makeup of the settlement amount.
[6] Given that the basis of our tax system is self-assessment, it is for the taxpayer to declare the portion of a settlement which is to be included in his or her income. Given that one is dealing with the calculation of the value to be attributed to the right to receive a certain income stream over a period of time, and that these calculations proceed along predictable lines, there is a certain ability to determine whether declarations are reasonable or not. If the Agency is not satisfied that the taxpayer's declaration reflects the reality of the transaction, then it can use the tools at its disposal under the Act to reassess the taxpayer. At that point, the taxpayer, who has the greater knowledge of his or her own affairs, bears the burden of establishing the facts in support of his or her position.
[7] In this case, the learned Tax Court judge allowed the appeal on the basis that, as a matter of law, settlements of disability insurance claims were not payable on a periodic basis and were therefore not taxable pursuant to paragraph 6(1)(f) of the Act. As a result of this Court's decision in Tsiaprailis, some portion of the settlement in this case may be taxable under paragraph 6(1)(f) of the Act. Consequently, the matter must be remitted to the Minister for reassessment in accordance with the decision of this Court in Tsiaprailis, supra, as well as these reasons.
[8] In the circumstances, I think it is appropriate that each party bear their own costs.
"J.D.Denis Pelletier"
J.A.
"I agree
B.L. Strayer"
EVANS J.A. (dissenting)
[9] This appeal was heard immediately before Tsiaprailis v. The Queen, 2003 FCA 136, in which this Court allowed in part an appeal by the Crown from a decision of the Tax Court that a lump sum paid pursuant to a settlement of an action for the non-payment of disability benefits under a contract of insurance with the claimant's employer was not subject to income tax.
[10] The issue to be decided in this appeal is the same as that in Tsiaprailis. However, there are some factual differences between that case and the instant appeal. For example, Ms. Siftar's settlement was part of an overall settlement with the disability benefits insurer and another insurer. The claims were not only for the non-payment of disability benefits, but also for tort damages and statutory no-fault benefits. While Ms. Siftar's lawyer agreed to an overall settlement for $122,500.00, he was not involved in its allocation among the three components because, he assumed, it was of no concern to his client.
[11] In addition, the $44,495.83 that the disability insurer paid in 1997 as its portion of the $122,500.00, in full and final settlement of Ms. Siftar's action for the non-payment of disability benefits, included an unquantified amount for interest, legal fees, disbursements and GST.
[12] Moreover, unlike the settlement in Tsiaprailis, Ms. Siftar's settlement with the disability insurer did not reveal on what basis the parties had concluded that $44,495.83 was regarded as an appropriate amount to settle her claim for compensation, nor did it allocate the total sum paid between "arrears" and future payments.
[13] The disability insurer issued a T4A for $44,495.83 but, because Ms. Siftar did not include this amount in her income, the Minister reassessed and included the lump sum in her income for 1997. Ms. Siftar appealed to the Tax Court from the reassessment.
[14] In my opinion, the facts of this case indicate even more clearly that those in Tsiaprailis why it would be inappropriate to treat any portion of the lump sum payment made to Ms. Siftar under the settlement as if it were made pursuant to the disability insurance contract, "payable on a periodic basis" and, as such, taxable as income under paragraph 6(1)(f).
[15] In particular, I would note that Ms. Siftar and her counsel acted on the reasonable assumption that the division of the total settlement figure between the insurers had no impact on Ms. Siftar's interests and therefore need not concern him. Nor is there any indication of how the payment made by the disability insurer was allocated between "arrears" and future payments or whether it included any other item that might have been claimed as general damages for breach of contract.
[16] For these reasons, and for those that I gave in Tsiaprailis, I would dismiss the appeal with costs.
"John M. Evans"
J.A.
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-661-01
STYLE OF CAUSE: HER MAJESTY THE QUEEN Appellant
- and -
ANTONIJA SIFTAR
Respondent
PLACE OF HEARING: TORONTO, ONTARIO
DATE OF HEARING: NOVEMBER 28, 2002
REASONS FOR JUDGMENT BY: PELLETIER J.A.
CONCURRED IN BY: STRAYER J.A
DISSENTING REASONS BY: EVANS J.A.
DATED: MARCH 17, 2003
APPEARANCES:
Mr. Daniel Bourgeois FOR THE APPELLANT
Mr. Ronald Reaume FOR THE RESPONDENT
SOLICITORS OF RECORD:
Department of Justice FOR THE APPELLANT
Tax Litigation Section
Ottawa, Ontario
Caw Legal Services Plan FOR THE RESPONDENT
Windsor, Ontario