Date: 20010420
Docket: 2000-1643-IT-I
BETWEEN:
MARVIN KANT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
O'Connor, J.T.C.C.
[1] This appeal was heard at Sudbury, Ontario, on February 23, 2001.
Facts
[2] The Minister assessed the Appellant by Notice dated September 27, 1999 and included an amount of $19,000.00 from a wage loss replacement plan.
[3] The Appellant was involved in a motor vehicle accident on October 18, 1993 which left him permanently disabled and unable to work. The Appellant commenced a legal action against Millie Baird, the motorist responsible for the accident and the action was settled on April 10, 1997. The Appellant received $490,000.00 for all of his damages, which included general damages for pain and suffering, pre-trial loss of income, loss of future earning capacity, housekeeping expenses, as well as pecuniary out-of-pocket expenses.
[4] The Appellant had been receiving amounts of $950.00 per month from a wage loss replacement plan with London Life Insurance Company (“London Life”) subscribed to by his employer, Lac Minerals Ltd. The Judgment of the Ontario Court (General Division), dated April 10, 1997 also provided:
5. THIS COURT ORDERS AND DECLARES that from the date of this Judgment, the Plaintiff, Marvin Kant, shall hold in trust for the Defendant, Millie Baird, and pay over to her any weekly income or long term disability income benefits received or to be received by him from London Life Insurance Company and Allstate Insurance Company.
6. THIS COURT ORDERS AND DECLARES that all rights and entitlement held by the Plaintiff, Marvin Kant, to the payment of weekly or long term disability income benefits pursuant to policies of insurance issued by London Life Insurance Company and Allstate Insurance Company shall and hereby are assigned to the Defendant.
[5] The inclusion of the above paragraphs stems from subsection 267(1) of the Insurance Act, R.S.O. 1990, c. I-8, which reads as follows:
267. (1) COLLATERAL SOURCE RULE NOT TO APPLY. The damages awarded to a person in a proceeding for loss or damage arising directly or indirectly from the use or operation of an automobile shall be reduced by,
(a) all payments that the person has received or that were or are available for no-fault benefits and by the present value of any no-fault benefits to which the person is entitled;
(b) all payments that the person has received under any medical, surgical, dental, hospitalization, rehabilitation or long term care plan or law and by the present value of such payments to which the person is entitled;
(c) all payments that the person has received or that were or are available for loss of income under the laws of any jurisdiction or under an income continuation benefit plan and by the present value of any such payments to which the person is entitled; and
(d) all payments that the person has received under a sick leave plan arising by reason of the person’s occupation or employment. [emphasis added]
[6] The Appellant states that all benefits received up until April 10, 1997 were deducted from the award and that since the present value of the future benefits could not be determined, it was agreed that they be assigned to the Defendant, Millie Baird. The Appellant asserts that, with the exception of errors made by London Life, all income replacement benefits were paid to Millie Baird in care of her solicitors, Smith Lyons. He states that by error of London Life, the Appellant continued to receive payments from London Life from May, 1997 until April, 1998. The Appellant, however, does not take issue with these amounts since London Life withheld taxes at source.
[7] From June 17, 1998, London Life made payments to Millie Baird, care of Smith Lyons, but neglected to withhold taxes. The only amount that the Appellant included for the 1998 taxation year is the amount of $4,750.00 for the period from January to May, amounts on which taxes had been withheld.
[8] For the 1998 taxation year, London Life issued a T4A to the Appellant for $19,000.00 which the Appellant states is made up of:
(a) payments received by the Appellant from January to May, 1998 totalling $4,750.00;
(b) payments not received by the Appellant from June to December, 1998 of $6,650.00; and,
(c) the sum of $7,600.00 which represents payments from October, 1997 to May, 1998 of which the Appellant received $4,750.00, already included in (a) above.
[9] The Minister states that the Appellant was entitled to receive the amount of $19,000.00 during the 1998 taxation year but in paragraph 8 of the Reply, he concedes an amount of $4,750.00 as it has been included twice. It would therefore seem that the amount at issue is $14,250.00.
[10] The Minister is of the opinion that the Appellant received the amounts and that a constructive receipt took place in the 1998 taxation year.
Issue
[11] Whether the amount of $14,250.00 should be included into the Appellant’s income for the 1998 taxation year.
[12] There is no quarrel in the present appeal as to the character of the payments. Both parties agree that the amounts at issue are “wage loss replacement income” or “income replacement benefits”. Nor does the Appellant contest the fact that such payments would normally be included into income pursuant to paragraph 6(1)(f) of the Income Tax Act (the “Act”). It provides:
6(1)(f) [private] employment insurance [plan] benefits — 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 the taxpayer's employer has made a contribution, not exceeding the amount, if any, by which
(iv) the total of all such amounts received by the taxpayer pursuant to the plan before the end of the year and
(A) where there was a preceding taxation year ending after 1971 in which any such amount was, by virtue of this paragraph, included in computing the taxpayer's income, after the last such year, and
(B) in any other case, after 1971,
exceeds
(v) the total of the contributions made by the taxpayer under the plan before the end of the year and
(A) where there was a preceding taxation year described in clause (iv)(A), after the last such year, and
(B) in any other case, after 1967; [emphasis added]
[13] The Appellant takes issue with the tax on the payments in that they were not received as is required by paragraph 6(1)(f) of the Act. The term "received" is not defined in the Act.
[14] In Blais v. M.N.R., 90 DTC 1499 (T.C.C.), which was a case dealing with the inclusion of alimony pursuant to paragraph 56(1)(b). Garon J., as he then was, dealt with the meaning of the word "received" at 1502:
Paragraph 56(1)(b) provides that “any amount received by the taxpayer in the year” shall be included in the taxpayer’s income. In fact, the expression “received” involves the idea of being put in possession of something. Whether the amount is “paid” or “received”, both expressions involve the idea of a physical operation involving a transfer of funds.
It is of some interest to note that Parliament has created no legal fiction in either paragraph 60(b) or paragraph 56(1)(b) to extend the scope of the concepts expressed by the words “paid” and “received”. For example, Parliament does not say in paragraph 60(b) “any amount paid or deemed to have been paid”. Similarly, in paragraph 56(b) [sic], there is no attempt to expand the meaning of the concept “received” by including operations that resemble it. In many other provisions of the Income Tax Act, however, Parliament has used this technique of legislative drafting, notably in the same case of alimony, in sections 56.1 and 60.1, in which it is enacted that certain amounts, on certain conditions, are deemed to have been paid to the taxpayer and received by him for the purposes of certain paragraphs of sections 56 and 60. [emphasis added]
[15] Although Blais dealt with alimony, the wording is similar in paragraph 6(1)(f) in that it refers to “amounts received...that were payable to the taxpayer on a periodic basis”. Similarly, no legal fiction was created here deeming the receipt of amounts.
[16] Can it be said, in the present appeal, that the Appellant derived a benefit or an advantage from the wage loss replacement income after the judgment of the Ontario Court, dated April 10, 1997?
[17] Paragraph 5 of the judgment clearly orders the payment of such benefits to the defendant, Millie Baird and paragraph 6 states that the all rights and entitlement held by Marvin Kant to the payment of the amounts are assigned to the defendant, Millie Baird.
[18] From April 10, 1997 on all rights were assigned and the Appellant clearly no longer had any right to “receive” these amounts nor did he continue to receive benefits or advantages from the amounts.
[19] The assignment was not voluntary and resulted from the application of section 267 of the Insurance Act. The main object of tort law which is that it seeks to place the victim in the same position he was in before the accident occurred. Section 267 of the Insurance Act seeks to prevent double recovery from collateral sources by reducing the damage award received as a result of an automobile accident by certain specific amounts received from other sources. McLachlin J., dissenting in part in Cunningham v.Wheeler, [1994] 1 S.C.R. 359 (S.C.C.). accurately summarized the applicable principles at 368-69:
The fundamental principle is that the plaintiff in an action for negligence is entitled to a sum of damages which will return the plaintiff to the position the plaintiff would have been in had the accident not occurred, in so far as money is capable of doing this. This goal was expressed in the early cases by the maxim restitutio in integrum... The watchword is restoration; what is required to restore the plaintiff to his or her pre-accident position. Double recovery is not permitted.
[20] It seems fairly well accepted in the interpretation of section 267 of the Insurance Act and its predecessors that in circumstances where the present value of future benefits is impossible to ascertain, the assignment of those future benefits is the method that more accurately gives effect to the rule against double recovery: see Sharp v. Hall (1997), 34 O.R. (3d) 24, and Nutikka et al. v. Rental Services Inc. et al. (1996), 31 O.R. (3d) 271. This is commonly called a “Cox v. Carter order and assignment” (1976), 13 O.R. (2d) 717.
[21] Knowing that a rule exists in tort law which seeks to prevent double recovery and thus a plaintiff from obtaining a windfall as a result, one can easily conclude that the Appellant was faced with a choice. He had to choose between the “wage loss replacement income” and the damage award but he could not have both. Since the Ontario Court could not determine the present value of the future “wage loss benefits” in order to deduct them from the damage award, it was forced to assign all rights and entitlement to such benefits to the defendant.
[22] Counsel for the Minister submits that Chapman v. R., 98 DTC 1443 (T.C.C.) is authority for the proposition that the amounts should be included into the Appellant’s income in the present appeal. In Chapman, the Appellant was injured in a motor vehicle accident and she received benefits from her employer’s disability insurer and her automobile insurer. Her automobile insurer provided for 80 percent of gross weekly income, reduced by any amounts from the disability insurer. The disability insurer stopped payment and the Appellant assigned her rights of action to the automobile insurer who obtained an amount from the former. The Minister included this amount into the Appellant’s income. Mogan J. dismissed the taxpayer’s appeal and found constructive receipt of the amount. Distinguishing factors to be noted, however, are that he found that the automobile insurer had acted as agent for the Appellant and that the insurer had recovered disability benefits on her behalf. Moreover, the Appellant had willingly assigned her rights of action to the automobile insurer.
[23] In the present appeal, all rights were assigned by operation of law and by Court Order.
[24] The Minister then states that a constructive receipt of the amounts occurred in 1998. Constructive receipt of something implies that even if one does not receive something in his hands, he may derive benefits from it being paid to a third party or someone other than himself. Couture J., as he then was, provided a good definition for “constructive receipt” in Markman v.M.N.R., 89 DTC 253 (T.C.C.) at 255.
[I]n the context of the making of a payment in cash or in kind, the doctrine applies only when a payment has been made by a payor to a party who is not the payee, but was made for the benefit of the payee or in satisfaction of an obligation contracted by him. As the expression “constructive receipt” implies there must have been a payment and that payment must have been received by someone before the doctrine may be invoked.
[25] In the case at bar, the Appellant derived no benefits whatsoever from the amounts being assigned to the defendant, Millie Baird. After the Ontario Court’s judgment, not only could the Appellant not receive these amounts in his hands but he also did not derive any benefits or advantages from these amounts. The Appellant was entitled to the damage award notwithstanding the existence of the “wage loss replacement” benefits he was receiving. I conclude therefore that the Appellant did not, and could not “receive” the amounts as is required by paragraph 6(1)(f) of the Act. In lieu of those amounts, the Appellant received the damage award which is non-taxable Cirella v. The Queen, 77 DTC 5442 (F.C.T.D.), confirmed in Cunningham v. Wheeler, supra. To include in taxable income an amount which goes to reduce the damages in effect is to tax damages, which as mentioned, are not taxable.
[26] Consequently the appeal is allowed.
Signed at Ottawa, Canada, this 20th day of April, 2001.
"T. O'Connor""T.P. O'Connor"
J.T.C.C.