Date: 19971122
Docket: 96-4163-IT-I
BETWEEN:
SYLVIA MENDES-ROUX,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Léger, D.J.T.C.C.
[1] The Appellant, who happens to be a lawyer, was employed with the Translation Bureau of New Brunswick for a period of seven years from 1987 to 1993. She acted as co-ordinator for Court interpreters. Her place of work was Bathurst, New Brunswick. The employment consisted of training, evaluating court interpreters and being a liaison officer betwen judges, lawyers, court interpreters and the Translation Bureau.
[2] In April of 1993, the Appellant applied for and was granted maternity leave which was effective from June 7 to August 27, 1993. During her leave and without prior notice or discussion, she was informed that the Bathurst office of the Translation Bureau was to be closed and the court interpretation co-ordinating service was to continue to operate at the City of Fredericton effective September 1, 1993. She was also told she would be assigned to other duties but her salary and classification would remain the same. Finally in September 1993, the Appellant went to work at the Bathurst office and was told to report to the Fredericton office or her employment would be terminated under the heading of "Abandonment of Position".
[3] The Appellant told us in effect that the Director of the province's Translation Bureau, her immediate superior, was a very cunning individual. She suspected he had reasons to be apprehensive of her and had a desire not to have her in his employ.
[4] She was asked to elaborate on the above. She was very emotional during the time she gave evidence and counsel for the Respondent did not object to our hearing her contention. She told us that during the course of her employment she had uncovered and reported that a certain court interpreter was cheating the Translation Bureau. The discipline of the said employee had to be dealt with by her immediate superior, that is the Director of the Translation Bureau. The said Director was not amused.
[5] The Appellant alleged that it later appeared that the Director himself was involved in less than proper activities. These activities were in conflict with his duties and are described in a newspaper clipping attached to her written submission and marked K-2. Her submission is that her boss had an apprehension if she continued in her present position she might blow the whistle on his illicit activities. She submits the said Director organized a transfer of the Bathurst office to Fredericton while she was on leave. The allegations of the Appellant in regards to the motives of her boss to transfer the said office are just that, allegations and not proof. She also alleges the Director, being aware of her family commitments, knew she could not or would not accept a transfer to Fredericton.
[6] The evidence discloses that the Appellant had three infant children of tender age and that her husband who is a lawyer was engaged in the practice of law in the City of Bathurst. The distance between Bathurst and Fredericton is far greater than acceptable to allow the Appellant to commute daily and still be able to attend to the needs of her husband and family.
[7] After having heard the evidence it is obvious to this Court that the Appellant was wrongfully dismissed.
[8] The Appellant after her dismissal claimed damages from her former employer for the wrong she suffered and the loss of benefits which she endured.
[9] Some of the benefits lost can be summarised as follows:
Group pension half paid by employer
Sick leave paid by employer
Paid Vacation paid by employer
Blue Cross half paid by employer
The benefit of being in a group (approximately $2,300/year).
Group life insurance for herself, her husband and three children.
Group health and dental insurance for herself, her husband and three children.
Annual Bar dues paid by her and reimbursed by her employer (about $900/year).
[10] The evidence discloses that the husband of the Appellant, being a lawyer, negotiated a settlement with the province of New Brunswick which resulted in her receiving the sum of $25,376 according to a "Release" signed September 30, 1994.
[11] The said Release which is set out in the 8th page from the end of the Appellant's submission reads as follows:
"I, SYLVIA MENDES-ROUX, of the City of Bathurst, in the County of Gloucester and Province of New Brunswick in consideration of the payment to me of the sum of One Dollar ($1.00) and other valuable consideration, the receipt of which is hereby acknowledged, as payment of special damages incurred, general damages, legal costs and interest, by Her Majesty the Queen in right of the Province of New Brunswick as represented by the Minister of Supply and Services (thereinafter called the "Minister"), do hereby RELEASE, REMISE AND FOREVER DISCHARGE the Minister, his successors and assigns, from any and all claims of every nature and kind, including costs and interest thereon, which I may have against the Minister arising from the termination of my employment with the Translation Bureau of the Department of Supply and Services, in September, 1993.
I acknowledge that this payment is made without any admission of liability by the Minister, and I promise to keep confidential the details hereof.
Dated at Bathurst, New Brunswick this 30 day of September, 1994.
SIGNED, SEALED AND DELIVERED
in the presence of:
(indecipherable) signed by Sylvia Mendes-Roux
(SYLVIA MENDES-ROUX"
[12] The important words used in this Release are:
"in consideration of the payment to me of the sum of One dollar ($1.00) and other valuable consideration...
...as payment of special damages incurred, general damages, legal costs and interest...
...arising from the termination of my employment with the Translation Bureau..."
[13] The details of the settlement was not set out in any document. The Province obviously recognized the Appellant had a good course of action since it paid her the sum involved. For whatever reason the Province desired to keep the details of the settlement confidential.
[14] The only document which throws any light on the subject is the Record of Employment (Exhibit "M") attached to the submission of the Appellant. This is a form required by Revenue Canada which must be filled out by the employer. In answer to question number 15 the insurable earnings are set out as being $745 for one week. In answer to question number 17 "Payments or Benefits (other than regular pay)" it is indicated "vacation pay $1,610.40 (8 1/4 days)"; and "Other monies (specify)" it is stated "see below number 22 - $25,376" which reads: "comments/* was on child care leave prior to this record. **She was dismissed. She made a claim for damages and the claim was settled".
[15] Over and above this memo we have the sworn testimony of the Appellant. She said she does not know precisely how the amount of the settlement was calculated or arrived at. She told us she believed it was based on three months of salary, compensation for overtime earned, sick leave and earned vacation pay. The wages for three months would amount to about $8,900, the vacation pay $1,610.40; these amount to a total of $10,510.40. The other items were not proven. The Appellant claimed that most of the amounts accepted by her were for wrongful dismissal, loss of fringe benefits, legal fees, interest and pain and suffering. The Respondent has not refuted this claim.
[16] The Respondent relies on the provisions of subparagraph 56(1)(a)(ii) and subsection 248(1) of the Income Tax Act and claims that the sum of $25,376 was received by the Appellant from the Province of New Brunswick as a retirement allowance as defined by the above sections of the Act.
[17] Subparagraph 56(1)(a)(ii) of the Act reads as follows:
"Amounts to be included in income for year.
(1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,
(a) Pension benefits, unemployment insurance benefits, etc. - any amount received by the taxpayer in the year as, on account or in lieu of payment of, or in satisfaction of,
...
(ii) a retiring allowance, other than an amount received out of or under an employee benefit plan, a retirement compensation arrangement or a salary deferral arrangement,
..."
Subsection 248(1) of the Act defines "retiring allowance" and reads as follows:
"retiring allowance" - means an amount (other than a superannuation or pension benefit, an amount received as a consequence of the death of an employee or a benefit described in subparagraph 6(1)(a)(iv)) received
...
(b) in respect of a loss of an 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,
by the taxpayer or..."
[18] The cases cited to me by the parties are going to be reviewed by me one at a time.
[19] Claude A. Vachon v. Her Majesty the Queen [1996] 3 C.T.C. 2306D: the facts in this case are that the taxpayer was an employee of D Inc. and on April 12, 1993 his employment was terminated. He accepted a lump sum of $5,000 as a full and complete settlement of all claims arising from the termination of his employment. The issue was whether the $5,000 payment was a retiring allowance within the meaning of subsection 248(1). The taxpayer did not give evidence in this case. The release was introduced in evidence and relieved the employer from any action against it by reason of the cessation of the employment. The Court declared that the amount of $5,000 was a retirement allowance within the meaning of the Act.
[20] The case of Hugh Merrins v. Her Majesty the Queen [1995] 1 C.T.C. 111: in May 1985, the taxpayer was laid off from his employment. He filed a grievance seeking reinstatement for breach of seniority provisions of the collective agreement. On April 7, 1988, the employer agreed to pay to the taxpayer the sum of $60,000 in order to conclude the arbitration proceedings. The Minister considered the $60,000 payment a "retiring allowance" within the meaning of subsection 248(1) and included it in the taxpayer's income pursuant to subparagraph 56(1)(a)(ii). The taxpayer appealed and the Court held that on the facts of this case the amount received was in relation to his loss of his employment and therefore taxable.
[21] George Niles v. The Minister of National Revenue [1991] 1 C.T.C. 2540: here an employee filed a complaint of discrimination under the Ontario Human Rights Code after being laid off. After negotiation, the parties settled the claim and the employee was awarded $5,000 in settlement of his claim for loss of employment. There was no finding of discrimination nor that the award might have altered the character of the payment. The Court held that the amount was taxable as a retirement allowance.
[22] The case of John James Young v. The Minister of National Revenue, 86 DTC 1567, was also cited. Here the facts are that the Appellant was awarded damages by court order in the following amounts:
$10,000 for wrongful dismissal,
$12,500 for exemplary damages,
$12,500 for mental distress,
$ 5,000 for costs.
[23] The Minister claimed all of the above amounts were taxable as being a retirement allowance. The Appellant did not testify. The above facts were agreed to by the parties. The Court dismissed the appeal and in so doing said the following in the second last paragraph of his decision:
"...it would have taken some direct evidence or testimony to fulfil the appellant's total obligation thereunder, and the critical question of the origin of the amounts at issue was not addressed by the appellant."
Based on the above finding the Court declared the total amounts to be taxable.
[24] The next case is Louis-Phillipe Bédard v. The Minister of National Revenue [1991] 1 C.T.C. 2323: in this case the Appellant was unjustly dismissed from his position with Relais Jeune Est of Matane. The reasons for his termination were broadcasted on radio and television where the Appellant lived. The Appellant denied the reasons and sought reinstatement and a public retraction. An arbitrator was brought in to settle the dispute and an agreement was reached whereby the Appellant was to receive six months salary and "$32,000 (net) by way of compensation for the damage suffered". The Appellant claimed the $32,000 was meant to be non-taxable as he had received it as compensation for both economic loss and moral harm. The Respondent claimed that the amount was directly related to the Appellant's loss of employment and taxable as such.
[25] The Court ruled that $16,000 should be included in the Appellant's income as compensation after he lost his job. The balance constituted damages for defamation that were not within the definition of retiring allowance and therefore not taxable as such. The appeal was allowed in part.
[26] The appeal court judge reviewed the evidence in great detail and reviewed all the precedents cited to him. In the other cases, the decisions reached were that the amounts were taxable because there was a lack of evidence to establish the true nature of the payments. In this case, as well as in the case at bar, there was testimony upon which the Court could determine the amount which was paid for loss of employment and damages resulting from damages for loss of fringe benefits, mental distress, interest and costs.
[27] I have thoroughly studied the cases cited. I have also given consideration to the evidence adduced before this Tribunal. After having given consideration to the proof advanced, this Court finds and decides that the Appellant has established that the settlement obtained by her included a sum for loss of wages of approximately three months compensation for earned overtime, earned vacation and earned sick leave. These items are taxable. The other factors such as damages for mental distress and costs are not taxable because they do not enter into the definition of retirement allowance as defined in subsection 248(1) of the Income Tax Act.
[28] After having considered all of the evidence, the Court finds and declares that 50% of the sum of $25,376 was received by the Appellant as a "retirement allowance" and is therefore taxable. The balance was received by her as compensation for damages and is not taxable.
[29] The appeal is therefore allowed and the matter is returned to the Respondent with a direction to reassess the Appellant in accordance with the above findings.
Shenstone, New Brunswick, November 22, 1997.
"C.I.L. Léger"
D.J.T.C.C.