Federal Court of Appeal Decisions

Date: 20020703

Docket: A-653-01

Neutral citation: 2002 FCA 282

CORAM:        Linden J.A.

Rothstein J.A.

Sharlow J.A.

BETWEEN:

                                                                     JOHN SUCHON

                                                                                                                                                       Applicant

                                                                                 and

                                                        HER MAJESTY THE QUEEN

                                                                                                                                                   Respondent

                                               Heard at Toronto, Ontario, on June 12, 2002

                                       Judgment delivered at Ottawa, Ontario on July 3, 2002

REASONS FOR JUDGMENT BY:                                                                               SHARLOW J.A.

CONCURRED IN BY:                                                                                                            LINDEN J.A

                                                                                                                                        ROTHSTEIN J.A..

Date: 20020703

Docket: A-653-01

Neutral citation: 2002 FCA 282

CORAM:        Linden J.A.

Rothstein J.A.

Sharlow J.A.

BETWEEN:

                                                                     JOHN SUCHON

                                                                                                                                                       Applicant

                                                                                 and

                                                        HER MAJESTY THE QUEEN

                                                                                                                                                   Respondent

                                                        REASONS FOR JUDGMENT

Sharlow J.A.

[1]                 This is an appeal from the decision of the Tax Court rendered on October 10, 2001, reported as Suchon v. Canada (2001), [2002] 1 C.T.C. 2094, [2001] T.C.J. No. 695 (QL). I have concluded, for the reasons below, that this application for judicial review must be dismissed.

[2]                 Mr. Suchon testified in the Tax Court that he was seriously injured in 1982 while attending a social function organized by his employer, IBM Canada Ltd. His injuries left him confined to a wheelchair. Despite his injuries he returned to work at IBM. At some point his duties were changed so that he was moved to a location where the floors were carpeted, unlike the floors at his former location. The carpets made it more difficult to move his wheelchair. In October or November of 1987 he experienced a sharp pain in his neck, which he attributed to the difficulty of wheeling his chair on the carpeted floor. The injury led to progressive weakness and ultimately Mr. Suchon could no longer function as an employee of IBM. By December of 1987 Mr. Suchon had been placed on IBM's disability program under which he received an income for a number of years, including 1994, 1995 and 1996.

[3]                 Mr. Suchon's income tax returns for 1994, 1995 and 1996 were assessed on the basis that the payments he received from IBM under its disability program were taxable under paragraph 6(1)(a) of the Income Tax Act, R.S.C. 1985, c. 1 (5^th Supp). The relevant parts of paragraphs 6(1)(a) read as follows:

[4]                 It is undisputed that the exceptions referred to in paragraph 6(1)(a) have no application to this case.

[5]                 Mr. Suchon appealed his 1994, 1995 and 1996 assessments on the basis that the payments in issue should not have been considered taxable income. To support his position, he wished to cite a press release dated January 8, 1985 issued by the Minister of National Revenue at the time. It reads as follows:

The Honourable Perrin Beatty, Minister of National Revenue, today announced a change in the tax treatment of workers' compensation awarded to injured workers who receive payments which are more generous than the amount of a Workers' Compensation award.

Currently, if the payments made to an injured worker by an employer do not exceed an equivalent award of workers' compensation (which is only a proportion of normal salary), the amount received by the worker is tax free. On the other hand, if the full amount of an injured worker's wages was guaranteed by an employer, or if the percentage of wages paid to a worker was greater than the percentage of salary payable as workers' compensation, the entire amount paid to a worker by an employer was taxed.

The change announced today by Mr. Beatty will treat all injury related remuneration alike, regardless of the contractual or other arrangements between employees and their employers. In every case, an injured worker will only be taxed on any amount received from an employer which exceeds the amount of workers' compensation awarded to the worker or, in other words, the portion of any amount paid to a worker which is not greater than an award of workers' compensation will be tax-free in every instance.

Employees taxed on the equivalent of workers' compensation since 1982 can apply to National Revenue Taxation for refunds.

A notice will be sent shortly to all employers advising of the relevant change which the Minister said follows a legal review of the matter, and is consistent with recommendations of the P.C. Task Force Report on Revenue Canada.

  

[6]                 This release apparently obtained some publicity. For example, the Toronto Star published the following article on January 9, 1985, which Mr. Suchon also wished to rely on in his tax appeal:

                                            Many injured workers eligible for refunds on income tax

Many workers who have been injured and off the job could land thousands of dollars in tax refunds because of a rule change by the federal government.

The refunds will apply to workers who have been paying full income tax on wages received from their employers while they have been off work.

Because of a flaw in the Income Tax Act, many injured workers - the government has no idea how many - have been taxed when they should not have been. The new rule will change that.

Injured workers are entitled to collect compensation payments equal to 75 per cent of their income without paying taxes - as long as the amount is within a provincially established ceiling.

Only income in excess of the limits is taxable. Weekly income ceilings range from $245.16 in Prince Edward Island to $533.64 in Newfoundland. Ontario's limit is $394.04.

The workers affected by the refunds are those who have received full pay from their employers while off work due to injury. They should have been credited with a deduction for the income allowed under provincial ceilings, the department said yesterday.

Effective immediately, it added, all injured workers will again be treated uniformly and only income that exceeds all allowable benefits will be taxable.

Workers who were overcharged between 1982 and 1984 are eligible to apply for refunds, the department said.

Dave Watson, a departmental official, said overpayments could be substantial in cases where workers were injured for lengthy periods but continued to pay normal income tax rates.

He added, however, that the department has no way of knowing how many workers are affected or how much money is involved.

"I wouldn't even hazard a guess," he said.

[7]                 Revenue Canada's Interpretation Bulletin IT-202R2 dated September 19, 1985, entitled "Employees' or Workers' Compensation", was released later in 1985. It deals specifically with paragraph 56(1)(v) and subparagraph 110(1)(f)(ii) of the Income Tax Act, the relevant parts of which read as follows:

  

[8]                 Paragraphs 1, 4 and 5 of IT-202R2 read as follows:

1. In this bulletin

(a)            "compensation board" includes any employees' or workers' compensation board or commission in any province or territory of Canada, and

(b)           "compensation" refers to the amount of an award, as adjudicated by a compensation board, which a worker or his or her dependants will receive as a result of the worker having suffered illness, injury or death in the performance of his or her duties of employment and includes any such compensation to which entitlement is provided under the Government Employees Compensation Act or any employees' or workers' compensation Act or Ordinance of a province or territory of Canada.

                                                                                                             [...]

4. For the purpose of paragraph 56(1)(v) [of the Income Tax Act] the amount of compensation may be received either from a compensation board or from the employer or former employer of the person entitled thereto. An employee may, under the terms of an employment contract or collective agreement, or by reason of being granted injury leave with pay under the Financial Administration Act, be entitled to receive salary or wages during a period in which the employee is also entitled to compensation. Where, in these circumstances, the employee receives no payment from a compensation board, the amount received from his or her employer, to the extent that it does not exceed the compensation amount, will be included in the employee's income for the year, as compensation, under paragraph 56(1)(v). The excess, if any, will be included in the employee's income under subsection 5(1).

5. For 1982 and subsequent taxation years, any compensation received by a taxpayer in a taxation year, that was included in the taxpayer's income under paragraph 56(1)(v), may, by virtue of subparagraph 110(1)(f)(ii), be deducted in computing the taxpayer's taxable income for the year, except any such compensation received by the taxpayer as the employer or former employer of the person in respect of whom the compensation was paid.

  

[9]                 IT-202R2 is similar to the 1985 press release, in the sense that both state that the tax treatment afforded workers' compensation payments may apply to certain payments from an employer. However, IT-202R2 includes a condition precedent not mentioned in the press release, which is the requirement that the compensation in question be adjudicated by a workers' compensation board or commission.

[10]            No evidence was presented in the Tax Court as to whether Mr. Suchon's injuries or disability would have been compensable under any provincial or federal employees' or workers' compensation law. Despite the absence of evidence on that point, however, there is a tax case that appears to favour Mr. Suchon's position. It involves a former Toronto firefighter named Harold Hepburn.

[11]            Mr. Hepburn was injured while on duty in 1953. He received workers' compensation benefits for a certain period, but from 1956 on he was declared permanently disabled and received benefits under the Toronto Fire Department Superannuation and Benefit Fund. That income was assessed as fully taxable. Mr. Hepburn appealed his assessment for 1965 on the basis that the income was exempt from tax under the statutory predecessor to what is now subparagraph 110(1)(f)(ii), but that appeal failed: Hepburn v. Minister of National Revenue (1967), 67 D.T.C. 675, [1967] Tax A.B.C. 1006 (T.A.B.). In that case, Assistant Chairman Fordman, Q.C. held that the payments were not workers' compensation payments, but superannuation or pension benefits, which were required to be included in income under subparagraph 6(1)(a)(iv) of the Income Tax Act as it read at that time.

[12]            Mr. Hepburn later appealed his assessment for 1972, making the same argument that had failed in 1967. That appeal succeeded: Hepburn v. Minister of National Revenue (1974), 77 D.T.C. 29 (T.R.B.). Chairman K.A. Flanigan, Q.C. said this in his reasons for decision:

The facts have not changed so far as this individual is concerned nor has the wording of the new Act. The only thing really that has changed is perhaps the philosophy of this Board as compared to the philosophy of the previous Board.

[...]

I cannot quarrel with the fact that tax statutes must be strictly interpreted but I do feel that we should not be slaves to past history, that we should recognize wherever possible social evolution and the everyday facts of life as they exist in the lives of individuals as well as how they are printed in government studies.

The appellant who has represented himself in this case has pointed out that very few people fall under the category that he would fall under, that in his view it is not superannuation - and I am paraphrasing - perhaps by any ordinary dictionary definition, because one would hardly expect a man 35 or 37 or eight, whatever he was at the material time, to be superannuated from any job.

It seems clear to me that what has happened in his case is that because of the nature of the work that he did and because of the nature of the fund to which he contributed, which made it impossible for him to recover anything had he been injured in an accident while not on duty, that this is not a true superannuation or pension benefit fund by any interpretation that might be placed on the typical type plan under the Act. To me it is no more than the substitution of a plan for the normal workmen's compensation plans that exist from province to province, and I can find or I have no difficulty in reading into Section 81(1)(h) of the new tax legislation which was substantially the same in the old legislation, that this is really compensation for disability and the amount should not be included in his income for any given year. I say this with all due respect to the learned assistant chairman who made his decision as he saw best in 1967, but I cannot agree that we can avoid, as I have said, the facts of life by hiding behind the veil of strict interpretation where there are other interpretations that can be found in a given set of circumstances. And I am not to be taken by this decision as meaning that tax statutes should not be strictly interpreted but that they should be interpreted strictly in the light of the social changes that exist and that have taken place over the years since 1967.

The Crown did not appeal this decision. However, it is an open question whether it was correctly decided.

[13]            Mr. Suchon wished to cite the 1974 Hepburn decision in his Tax Court appeal. In addition, in order to provide some facts relating to the current tax treatment of payments made to disabled Toronto firefighters, he wished to rely on a letter dated March 23, 2001 from David Neufeld, an official with the City of Toronto, to Mr. Suchon. That letter reads as follows:

Further to our conversation of March 20^th concerning the income tax treatment of disability benefits from the Toronto Fire Department Superannuation and Benefit Fund (the Benefit Fund), I provide the following background.

The Benefit Fund is jointly funded with the City of Toronto as employer making additional special payments to pay for past service upgrades and unfunded liabilities. Currently the past service contributions are approximately $1.5 million per year.

In 1944 the Toronto Fire Fighters Association applied for and was granted an exemption from the Workers Compensation program on the basis that disability benefits under the plan were greater than those available under the WCB program. This exemption has been carried forward in the WCB and WSIB regulations to this day. There are approximately 800 fire fighters currently receiving benefits under the "disabled in the line of duty" and "worn out in the service" provisions of the plan.

As you are aware through your research, several disabled fire fighters (Tushingham and Hepburn) successfully appealed the assessment of their disability benefits arguing that they were the equivalent of workers compensation benefits. We were instructed in 1977 to treat disability benefits under the plan as non taxable and to stop reporting them on T4A's for income tax purposes. In the early 1990's the Income Tax Act was amended and we started reporting the benefits on Form T5007 as WCB benefits. Since 1982 the minimum pension and disability benefits by the City was calculated in accordance with the indexing granted by the Workers Compensation Board of Ontario.

[14]            Mr. Suchon had also obtained and wished to rely on a letter from Dr. K.P. Siren dated October 6, 2000, which reads as follows:

TO: Whom It May Concern

RE: John Suchon Disability

In 1986, John's Department, IBM Direct, was transferred from the IBM location at Consumer's Road to the IBM location at the Consilium in Scarborough. The work environment at Consumers Road was at the ground floor level close to the building entrance. It had been selected and designed by a Vocational Rehabilitation Consultant which IBM had hired. In the new Consilium location John was located on the 11^th floor far from the main entrance. Access to his workspace and attendance in meetings necessitated wheeling long distances over carpets. The workspace which had previously been specifically designed now consisted of the basic standard furniture and files which required extra effort to use.

As a result of the difficult work environment at the Consilium location John began to experience further loss of shoulder, arm and hand function. This made it impossible to operate his wheelchair and perform his work tasks and he was unable to continue work on a regular basis. In December 1987 the IBM Medical Director and Human Resources Committee removed him as a regular employee and placed him on Disability Benefits.

  

[15]            Mr. Suchon's appeal was dismissed by the Tax Court Judge after a trial under the informal procedure. In this application for judicial review, Mr. Suchon argues that the Tax Court Judge made a number of errors that should entitle him to a new trial.

Merits of the Case

[16]            Fundamentally, Mr. Suchon's position is that, under the assessing policy disclosed in the 1985 press release, the payments he received from IBM under its long term disability program should be tax free to the extent of equivalent workers' compensation benefits to which he would have been entitled by reason of the disability caused by the 1987 injury. The argument for the Crown is that the 1985 press release should be ignored in favour of the less generous assessing policy in IT-202R2, and that Mr. Suchon had failed to bring himself within the scope of IT-202R2 because his entitlement to workers' compensation benefits was not the result of a workers' compensation board or commission adjudication.

[17]            In this regard, consideration must be given to the case of Whitney v. Canada, [2000] 2 C.TC. 2714, 2001 D.T.C. 423 (T.C.J.), another case that could be read as favouring Mr. Suchon's position. In that case, an issue was raised as to the tax treatment of payments made to an employee of the Government of New Brunswick who was injured at work. The Government of New Brunswick was not covered by the provincial workers' compensation law. However, the collective agreement applicable to Ms. Whitney provided that injured employees who were unable to work would receive their regular pay if a claim was made under the workers' compensation legislation and the injury was found to be compensable by the standards of the workers' compensation legislation. It appears that the provincial workers' compensation board cooperated with the employer by adjudicating claims when asked, even though the legislation did not require it to do so and it would not be obliged to pay any compensation. The Tax Court Judge held that payments made to Ms. Whitney under those arrangements were within the scope of paragraph 56(1)(v) and subparagraph 110(1)(f)(ii).

[18]            The Crown appealed that decision. The appeal was heard by another panel of this Court on June 13, 2002 and reversed in a decision released on June 21, 2002: Her Majesty the Queen v. Whitney, 2002 FCA 266. The Court held that an amount is not within the scope of paragraph 56(1)(v) and subparagraph 110(1)(f)(ii) unless it is paid in accordance with a workers' compensation law. A payment made under a contractual arrangement, even one that includes an extra-statutory adjudication by a workers' compensation board or commission, is outside the scope of those provisions. To the extent that IT-202R2 is inconsistent with this interpretation, it is wrong in law.

[19]            Having reviewed carefully all of the relevant jurisprudence, I agree with the interpretation of paragraph 56(1)(v) and subparagraph 110(1)(f)(ii) adopted by this Court in Whitney. Under that interpretation, the payments received by Mr. Suchon in 1994, 1995 and 1996 under his IBM long term disability program are not within the scope of those provisions. Neither IT-202R2 nor the 1985 assessing policy can dictate a contrary result. It follows that the payments in issue are taxable under paragraph 6(1)(a) of the Income Tax Act, and the assessments under appeal are correct.

[20]            This conclusion is sufficient to justify a dismissal of this application for judicial review. However, Mr. Suchon presented several cogent arguments on certain procedural and evidentiary points that merit further comment.

Application to admit additional evidence after adjournment

[21]            At the conclusion of the trial in the Tax Court, it was agreed that the parties would make legal submissions in writing by certain deadlines, and the proceedings were adjourned for that purpose. In his submission, Mr. Suchon asked for an opportunity to adduce evidence in reply, and explained that the presentation of the Crown's case had surprised him in certain respects and he wished to have an opportunity to clarify the facts. In particular, he was concerned that the evidence might have misled the Tax Court into believing that he was working at IBM during a period when he was not in fact working. The request was denied without explanation.

[22]            I have some sympathy for Mr. Suchon, who did not appreciate until too late that the Crown's case may have contained inaccurate information. However, an application to reopen a trial to permit reply evidence is a matter within the discretion of the Tax Court Judge. In this case, the application was made long after the close of the evidence phase, and the alleged factual error appeared to be not a critical one. Although a Tax Court Judge may often be less demanding on lay litigants, especially in an informal proceeding, I cannot conclude that the Tax Court Judge erred in exercising his discretion to refuse Mr. Suchon's request to adduce reply evidence.

Mr. Suchon's subpoena of a Crown official

[23]            Mr. Suchon was of the view that the "legal review" referred to in the last paragraph of the January 8, 1985 press release (quoted above) might assist his case. He was not entitled to a formal examination for discovery because his appeal was commenced under the informal procedure. He apparently attempted to obtain the "legal review" by way of an application under the Access to Information Act, R.S.C. 1985, c. A-1 but was met with a claim of legal privilege. He then attempted to serve a subpoena on Mr. Brett Putland, a tax official who had some connection to this matter, directing him to attend the hearing and to bring with him a copy of the "legal review".

[24]            The subpoena was not correctly served. Rather than being served personally on Mr. Putland as required by Rule 19 of the Tax Court of Canada Rules (Informal Procedure), SOR/90-688b, it was sent by registered mail in an enveloped addressed to Mr. Putland at the tax office where Mr. Suchon believed Mr. Putland worked. The evidence indicates that the subpoena was received at the tax office to which it was addressed, but did not come to Mr. Putland's attention prior to the hearing. Counsel for the Crown learned of the existence of the subpoena from Mr. Suchon, and instructed Mr. Putland to attend the hearing as a witness, which he did. However, Mr. Putland was not instructed to bring the "legal review" and he did not do so.

[25]            I cannot conclude that the Tax Court Judge erred in offering no remedy to Mr. Suchon in this regard. Having failed to serve the subpoena correctly, Mr. Suchon cannot complain of Mr. Putland's failure to bring the "legal review" to the Tax Court hearing.

Admissibility of evidence

[26]            The Tax Court Judge refused to admit as evidence the 1985 press release, the newspaper article, the letter from Mr. Neufeld, and the letter from Dr. Siren. Mr. Suchon argues that the Tax Court Judge was wrong to refuse to admit these documents as evidence. He cites subsection 18.15(4) of the Tax Court of Canada Act, R.S.C. 1985, c. T-2, which reads as follows:

[27]            The Tax Court Judge held that this provision does not mean that in an informal proceeding, the laws of evidence can simply be ignored. He considered all of the documents to be hearsay and inadmissible on that ground alone. He expressed the view that in any event they could not be admitted except through the author. He also said that the press release, the newspaper article, and the letter from Mr. Neufeld were not relevant, and that the letter from Dr. Siren was not necessary as Mr. Suchon had already testified as to the facts.

[28]            In my view, the approach of the Tax Court Judge to the admissibility of these documents discloses a misapprehension of the relevant principles, and a misinterpretation of subsection 18.15(4) of the Tax Court of Canada Act.

[29]            First, there is no absolute prohibition against the admissibility of hearsay evidence. Hearsay evidence may be admitted if it is necessary and reliable: Ethier v. Canada (RCMP, Commissioner) (C.A.), [1993] 2 F.C. 659 (C.A.), following R. v. Khan, [1990] 2 S.C.R. 531 and R. v.Smith, [1990] 2 S.C.R. 915. If hearsay evidence is admitted, the fact that it is hearsay goes to its weight. If hearsay evidence is tendered in an appeal before the Tax Court, the Tax Court Judge cannot reject it outright. Rather, consideration must be given to the questions of necessity and reliability, and a determination made as to whether the evidence ought to be admitted even though it is hearsay. The weight to be given to the evidence is, of course, a matter for the Tax Court Judge to determine.

[30]            Second, there is no absolute prohibition on the admission of documents if the author is not a witness. The purpose of tendering a document through a witness is to permit the author to give evidence of authenticity and to permit cross-examination. In the case of the press release, for example, the inability to cross-examine would go only to the weight to be attached to the document. The oral evidence of the author is one way of proving authenticity, but it is not the only way. Therefore, a document tendered as evidence cannot be rejected simply because it is not authenticated by the author. Consideration must be given to whether or not the authenticity of the document can be established by other evidence, or by inference. For example, in this case there is no real doubt about the authenticity of the 1985 press release. The Crown did not object to its admissibility on the basis of lack of proof of authenticity; indeed, Mr. Suchon indicated that he obtained his copy from the Crown.

[31]            Finally, contrary to the view expressed by the Tax Court Judge, subsection 18.15(4) of the Tax Court of Canada Act may require the Tax Court Judge in an informal proceeding to ignore the technical and legal rules of evidence, including the provisions of the Canada Evidence Act, R.S.C. 1985, c. C-5, if to do so would facilitate an expeditious and fair hearing of the merits of the appeal. Evidence tendered in an informal proceeding cannot be excluded simply because it would be inadmissible in an ordinary court proceeding.

[32]            That is not to say that a Tax Court Judge in an informal proceeding is obliged to accept all evidence that is tendered. There is no such requirement. However, it is an error for a Tax Court Judge in an informal proceeding to reject evidence on technical legal grounds without considering whether, despite the ordinary rules of evidence or the provisions of the Canada Evidence Act, the evidence is sufficiently reliable and probative to justify its admission. In considering that question, the Tax Court Judge should consider a number of factors, including the amount of money at stake in the case and the probable cost to the parties of obtaining more formal proof of the facts in issue.

[33]            The Tax Court Judge must also consider whether the evidence sought to be adduced is relevant, in the sense that it could assist in resolving the issues in dispute. It is not an error, even in an informal proceeding, to reject irrelevant evidence. In this case, the Tax Court Judge did consider that question, and concluded that the documents referred to above were not relevant. In my view, he erred in that conclusion with respect to three of the four documents.

[34]            First, the letter from Dr. Siren is relevant because it contains factual information about the cause of Mr. Suchon's disability. That is so even though there was other evidence on that point provided by Mr. Suchon. Second, bearing in mind that Mr. Suchon was attempting to make his case on the basis of what he believed was an assessing policy, evidence as to the existence and content of the assessing policy is relevant. This would include at least the 1985 press release. Third, the letter relating to the tax position of disabled Toronto firefighters is also relevant because it illustrates what is apparently a practical application of the assessing policy.

[35]            The newspaper article, however, is not relevant. It is simply an interpretation of the 1985 assessing policy and its implications, and is not capable of proving the existence or content of the assessing policy.

Conclusion

[36]            Despite the errors made by the Tax Court Judge relating to the admissibility of evidence, it would be futile to order a new hearing of this matter. I would dismiss this application for judicial review. In the circumstances, no costs should be awarded.

  

"K. Sharlow"

J.A.

"I agree

A.M. Linden J.A."

"I agree

Marshall Rothstein J.A."

FEDERAL COURT OF CANADA

Names of Counsel and Solicitors of Record

DOCKET:                                                          A-653-01

STYLE OF CAUSE:                                        JOHN SUCHON v. HER MAJESTY THE QUEEN

DATE OF HEARING:                                     June 12, 2002

REASONS FOR JUDGMENT BY:             SHARLOW J.A.

CONCURRED IN BY:                                    LINDEN J.A.

MALONE J.A.

DATED:                                                             JULY 3, 2002

     

APPEARANCES BY:

Mr. John Suchon                                                  Representing himself

Ms. Livia Singer                                                   For the Respondent

SOLICITORS OF RECORD

Mr. Morris Rosenberg

Deputy Attorney General of Canada                  

Ottawa, Ontario                                                   For the Respondent