Citation: 2013TCC256
Date: 20130822
Docket: 2011-2498(IT)G
BETWEEN:
ROLLIE SHAW,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
V.A. Miller J.
[1]
This appeal relates to
Mr. Shaw’s 2006 and 2007 taxation years. The Minister of National Revenue (the
“Minister”) included the amounts of $47,000 and $93,000 in his income in 2006
and 2007, respectively, on the basis that these amounts were income from
employment pursuant to subsections 5(1) and 6(1) of the Income Tax Act (the
“Act”). The Appellant claims that they were gifts he received from his
former employer.
[2]
Two witnesses testified
at the hearing – the Appellant and Leo Robert on behalf of the Appellant.
[3]
The parties submitted a
Statement of Agreed Facts which reads in part as follows:
1.
At all material times, the Appellant was an
individual resident in Canada and Alberta for the purposes of the Act.
2.
Prior to May of 2006, the Appellant was employed
as the equipment manager for L. Robert Enterprises Ltd. (“Robert Ltd.”) in Fort McMurray, Alberta. The Appellant had held this and other positions with Robert Ltd.
for at least 14 years prior to 2006.
3.
At all material times, Leo Robert (“Leo”), an
individual resident in Canada, controlled Robert Ltd.
4.
During 2006, Robert Ltd. agreed to sell its
business and assets (the “Asset Sale”) to L. Robert Enterprises Corp. (Robert
Corp.) a newly incorporated subsidiary of CEDA International Corporation
(“CEDA”).
5.
On May 1, 2006, subsequent to the Asset Sale,
Robert Ltd. changed its name to 236419 Alberta Ltd. (“236419”) and ceased to
carry on the business formerly carried on by Robert Ltd. For the purposes of
this Statement of Agreed Facts, we will continue to use Robert Ltd. to identify
236419.
6.
Subsequent to the Asset Sale, the Appellant
became employed by Robert Corp. as the equipment manager.
7.
On or about September 28, 2006, the Appellant
received a letter informing him that he would be in receipt of a payment. A
copy of that letter, with handwritten notations of the Appellant, was attached
to the Statement of Agreed Facts.
8.
Starting in December 2006, Leo directed Robert
Ltd. to make payments to the Appellant and other former managers of Robert Ltd.
(the “Payments”). The Payments to the Appellant were as follows:
(a)
A payment of $47,000 on December 8, 2006;
(b)
A payment of $47,000 on January 8, 2007; and,
(c)
A payment of $46,000 on November 28, 2007.
9.
The Payments were paid out of that corporation’s
shareholder loan account owed to Leo. Copies of the Shareholders’ Loan ledger
of L. Robert Enterprises Ltd. showing the payments to the Appellant were
attached to the Statement of Agreed Facts.
10.
The amounts in Robert Ltd.’s shareholder loan
account owed to Leo were tax paid, that is the balance arose from bonuses
declared to Leo, but not paid to him in cash, in previous years.
11.
Robert Ltd. did not withhold any amounts on the
Payments since the Payments represented a repayment of Leo’s Shareholder Loan.
In particular:
(a)
The Shareholder Loan account was reduced by
amounts corresponding to the Payments to the Appellant; and,
(b)
Robert Ltd. did not claim any income tax
deduction for the Payments to the Appellant.
12. On or about June 24, 2009, the Appellant received a letter
informing him that he had received Payments of $140,000 in total.
[4]
The letter dated
September 28, 2006 which was referred to in paragraph 7 of the Statement of
Agreed Facts reads, in principal part:
The sale of the L. Robert Group of Companies to CEDA International
marks a new beginning for all of us. For me, it is retirement and enjoying life
in Kelowna. For you, it is a new beginning with CEDA and numerous opportunities
within the group.
As
a Thank You for your years of service and for helping me make the company a
success, I will be rewarding you with a bonus that will be paid out to you over
the next three years on the anniversary date of the sale. The bonus will be
$10,000 per year of service with the company and will only be payable to you if
you remain an employee of the CEDA Group. This bonus will not be taxable to you
as the tax will be paid by the company.
[5]
The letter dated June
24, 2009 which was referred to in paragraph 12 of the Statement of Agreed Facts
reads, in principal part:
This letter is confirmation of the bonus received from Leo Robert
after the sale of the company.
The
total amount paid to you was $140,000 with $47,000 paid in December of 2006,
$47,000 paid to you in January of 2007 and the remaining $46,000 paid to you in
November of 2007. These amounts were not taxable to you as these amounts were
paid from my shareholder’s loan account on money that the tax had already been
paid by the company.
[6]
The Appellant was one
of nine managers employed by Robert Ltd. in 2006 when its business was sold to
the CEDA group. Mr. Robert gave each of the nine managers $10,000 for each year
they had been employed by Robert Ltd. The highest amount received by a manager
was $210,000 and the lowest amount received was $30,000. Mr. Robert estimated
that he gave $880,000 in total to the managers of Robert Ltd. The Appellant
received $140,000.
[7]
I will refer to the
amounts received by the Appellant and the other managers as the Payments.
[8]
It was the Appellant’s
position that he and Mr. Robert were friends and the Payments which he received
were a gift which Mr. Robert wished to bestow on him as a friend. Counsel for
the Appellant argued that the amount of $140,000 was given to the Appellant in
his personal capacity and not as an employee of Robert Ltd.
[9]
In his testimony, the
Appellant described how he met Mr. Robert and became employed by Robert Ltd.
His evidence centered on the relationship he had with Mr. Robert and the social
events he attended with him.
[10]
Mr. Robert stated that
he intended the Payments to the managers to be gifts. He said that the letters
dated September 28, 2006 and June 24, 2009 were written for him and signed on
his behalf by Kevin Shulko, the CFO of Robert Ltd. In these letters, Mr. Shulko
had written that the Payments were bonuses and Mr. Robert disagreed with this
terminology. In his view, a bonus was something the managers received at
Christmas. He stated that the Payments to the managers had nothing to do with
the work. He had already sold Robert Ltd. and he gave them the Payments as a
thank you for giving him “a hand” when they were working together.
[11]
The relevant provision
of the Act is paragraph 6(1)(a). It was described by Linden J.A.
in Blanchard v Canada, [1995] 2 CTC 262 (FCA) as an all-embracing
provision. In Blanchard, Linden J.A. gave guidelines for the
interpretation of paragraph 6(1)(a) and he listed situations where it
was found not to be applicable. He wrote:
4 …It provides that all “benefits of any kind whatever” are
to be included as employment income if they were received “in respect of, in
the course of, or by virtue of an office or employment.” The section casts a
wide net, incorporating two broadly worded phrases. The first is “benefits of
any kind whatever.” The scope contemplated by this phrase is plain and
unambiguous: all types of benefits imaginable are to be included. Speaking for
the majority in The Queen v. Savage , Dickson J. (as he then was) stated
that paragraph 6(1)(a) was “quite broad” and covered any “material acquisition
which confers an economic benefit.”
5 The second phrase is a group of three phrases: “in
respect of,” “in the course of,” and “by virtue of.” In Nowegijick v. The
Queen , the Supreme Court of Canada explained the words “in respect of”:
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. 3
6 The above comments are relevant in interpreting
paragraph 6(1)(a). Parliament, has added the phrases “in the course of” and “by
virtue of”, to the phrase “in respect of” in order to emphasize that only the
smallest connection to employment is required to trigger the operation of the
section.
7 Paragraph 6(1)(a) leaves little room for exceptions, but
a few have surfaced in the jurisprudence. First, reimbursements paid by an
employer to an employee for expenses incurred by that employee are not taxable.
They are not benefits. They do not put anything in the taxpayer's pocket, but
merely save the pocket of the taxpayer. 4 In other words, they are merely payments in an overall zero-sum
transaction. Speaking to the facts underlying the case, Cullen J. in Splane
v. Canada stated:
The plaintiff moved at the request of his employer, incurred certain
expenses in the move, and suffered a loss. The reimbursement of these expenses
cannot be considered as conferring a benefit within the terms of the Act. The
plaintiff was simply restored to the economic situation he was in before he
undertook to assist his employer by relocating to the Edmonton office. 5
8 Reimbursements for costs actually incurred are,
therefore, not caught by paragraph 6(1)(a).
9 Second,
a benefit that is wholly “extraneous” or “collateral” to one's employment, that
is, one that is received in one's “personal capacity” only, may fall outside
paragraph 6(1)(a). 6 This exception is very
narrow and is available only where there is no connection or link to the
employment relationship.
[12]
In The Queen v
Savage, [1983] 2 S.C.R. 428, the Supreme Court accepted that a benefit must be
conferred on a taxpayer in his capacity as an employee in order for the benefit
to be taxable. However, in Savage, supra, Dickson J. stated that
the benefit need not have the character of remuneration for services in order
to be included in income.
[13]
As stated earlier, it
is the Appellant’s position that he received the Payments in his personal capacity
and as a gift from his former employer. The Payments were definitely a benefit
received by the Appellant but the question is whether they were wholly
‘extraneous’ or ‘collateral’ to his employment.
[14]
Counsel for the
Appellant relied on the Federal Court of Appeal decision in The Queen
v Phillips, [1994] 2 FC 680 (FCA) to argue that the question of whether
the Payments are gifts or the result of considerations extraneous to the
Appellant’s employment relationship should be decided by referring to Mr. Robert’s
intention in making the Payments.
[15]
Mr. Robert testified
that he intended the Payments to be gifts to the managers and he intended that
they should not have to pay taxes on the Payments.
[16]
I note that in the
letter dated September 28, 2006, Mr. Robert informed the Appellant that the
Payments would not be taxable to him because the tax would be paid by the
company. Although Mr. Robert disagreed with the use of the word “bonus” in this
letter, he did not disagree with this statement in the letter. However, I also
note that in the letter dated June 24, 2009, Mr. Robert gave a different reason
for the non-taxability of the Payments.
[17]
A review of the
evidence and in particular, Mr. Robert’s evidence, has led me to conclude that
the Appellant did not receive the Payments from Mr. Robert because he was a
friend. Rather, he received the Payments because he was a manager of Robert
Ltd. at the time that it was sold. All managers received Payments that were
calculated in accordance with their years of service with Robert Ltd. Mr.
Robert gave the Payments to each of the managers in their capacity as employees
and he did not distinguish the Appellant from the other managers.
[18]
The September 28, 2006
letter stipulated that the Payments would be paid to the Appellant over a three
year period and would be made to the Appellant only if he remained an employee
of the CEDA group. Mr. Robert said that his rationale for including this
condition in the letter was that he wanted the managers to stay with the CEDA
group so that they would have continuity in their lives. Also, in 2006, it was
difficult to find and keep employees in Fort McMurray and this requirement
would also send a message to the CEDA group to treat his former managers with
respect. The evidence disclosed that the Appellant worked with the CEDA group
until June 2011.
[19]
Although Mr. Robert
stated that he intended the Payments to be a gift, his letter dated September
28, 2006 clearly connect the Payments to the Appellant’s employment with Robert
Ltd.
[20]
When I apply the principles
outlined in Savage, Phillips and Blanchard, I conclude
that the Appellant received the payment of $140,000 in respect of, in the
course of and by virtue of his employment. When a taxpayer received a payment
on the condition that he continue to work for a particular employer, then that
payment can hardly be said to have arisen from considerations extraneous to his
employment: Phillips (supra) at paragraph 19. That one manager
left the CEDA group prior to the expiration of three years and he received $10,000
directly from Mr. Robert does not alter that the condition was made and adhered
to by the Appellant. The September 28, 2006 letter clearly stated that the
Appellant was receiving the Payment in respect of and by virtue of his
employment with Robert Ltd. The Payment was received “as a thank you” for his
years of service with Robert Ltd.
[21]
The fact that the
Appellant was not employed by Mr. Robert when he received the Payment does not
alter my conclusion. Paragraph 6(1)(a) speaks to including benefits in
computing the income of “the taxpayer for a taxation year as income from an
office or employment”. Although the taxpayer must be an employee or an officer,
it is not necessary that he be the employee or officer of the person who
bestowed the benefit at the time the benefit was given: C v Minister
of National Revenue, 1950 CarswellNat 33 (TAB). All that is necessary is
that the taxpayer received the benefit “in respect of, in the course of, or by
virtue of an office or employment”.
[22]
The appeal is dismissed
with costs.
Signed at Halifax, Nova Scotia, this 22nd
day of August 2013.
“V.A. Miller”
Email this Content