Minister of National Revenue v. Schwartz, (1996) 193 N.R. 241 (SCC)

• Judge: La Forest, L'Heureux-Dubé, Sopinka, Gonthier, McLachlin, Iacobucci and Major, JJ.
• Court: Supreme Court of Canada
• Case Date: Thursday February 22, 1996
• Jurisdiction: Canada (Federal)
• Citations: (1996), 193 N.R. 241 (SCC);1996 CanLII 217 (SCC);60 ACWS (3d) 1257;[1996] SCJ No 15 (QL);[1996] 1 SCR 254;193 NR 241;50 DTC 6103;17 CCEL (2d) 141;[1996] ACS no 15;133 DLR (4th) 289;[1996] 1 CTC 303

MNR v. Schwartz (1996), 193 N.R. 241 (SCC)

MLB headnote and full text

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Alan M. Schwartz (appellant) v. Her Majesty The Queen (respondent)

(24093)

Indexed As: Minister of National Revenue v. Schwartz

Supreme Court of Canada

La Forest, L'Heureux-Dubé, Sopinka, Gonthier, McLachlin, Iacobucci and Major, JJ.

February 22, 1996.

Summary:

A taxpayer received $360,000 as compen­sation for breach of a contract for future employment. The Minister of National Rev­enue included the amount in taxable income. The taxpayer appealed.

The Tax Court of Canada, in a decision reported [1993] 2 C.T.C. 2125; 93 D.T.C. 555, allowed the appeal. The Minister appealed.

The Federal Court of Appeal, in a decision reported 167 N.R. 35, allowed the appeal, set aside the judgment and referred the tax­payer's income tax return to the Minister for reassessment, directing that $342,000 of the amount be included in taxable income. The taxpayer appealed.

The Supreme Court of Canada allowed the appeal.

Income Tax - Topic 10

General - Income - What constitutes - The Supreme Court of Canada stated that s. 3(a) of the Income Tax Act contem­plates taxable income arising from sources other than those enumerated in s. 3(a) - See paragraphs 47 to 51 - The court stated that "[i]n order to determine if a specific amount is taxable under the gen­eral provi­sion of s. 3(a) of the Act, various con­siderations should be taken into account. Without providing a list of such consider­ations or attempting to suggest an approach to taxation under the general provision of s. 3(a) in an exhaustive way, I note that one must obviously go back to the concept of income and consider the whole scheme of the Act in order to pro­perly analyze the issue in a given case." - See paragraph 52.

Income Tax - Topic 10

General - Income - What constitutes - [See Income Tax - Topic 530 ].

Income Tax - Topic 526

Income from office or employment - Income from employment - What consti­tutes - [See first Income Tax - Topic 528 ].

Income Tax - Topic 528

Income from office or employment - Income from employment - Damages for breach of employment con­tract - A taxpayer received $360,000 for breach of a contract for future employment - Docu­mentation indicated that, but for the breach, he would have received $250,000 annually and shares worth $267,000 - Took employment for $75,000 less - The trial judge concluded that the $360,000 was mostly for embarrassment, anxiety and inconvenience and excluded it from tax­able income - The Federal Court of Appeal concluded that the judge's failure to weigh the documentary evidence against the taxpayer's viva voce evidence was a palpable and overriding error and held that $342,000 (the shares plus the income deficiency) was taxable income, where the source of the right was the breach of the employment contract and not a windfall - The Supreme Court of Canada restored the trial judgment, holding that there was insufficient evidence to justify interfering with the trial judge's findings of fact.

Income Tax - Topic 528

Income from office or employment - Income from employment - Damages for breach of employment con­tract - A taxpayer received damages for breach of a contract for future employment - The Minister of National Revenue asserted that the amount was taxable as a retiring allowance (Income Tax Act, s. 56(a)(ii)) - At issue was whether the amount was received "in respect of a loss of an office or employment" within the definition of "retiring allowance" under s. 248(1) - Section 248(1) defined "employ­ment" as the "position of an individual in the service of some other person" - To be an "employee", s. 248(1) required one to be "in the service" of another - The Supreme Court of Canada held that the taxpayer could not have a "loss of em­ployment" before becoming obligated to provide services, because he could not, before that moment, have been "in the service" of his future employer - Accord­ingly, the amount was not taxable as a retiring allowance - See paragraphs 55 to 63.

Income Tax - Topic 530

Income from office or employment - Income from employment - Inclusions - Severance payments - A taxpayer received $360,000 for breach of a contract for future employ­ment - Documentation indi­cated that, but for the breach, he would have received $250,000 annually and shares worth $267,000 - Took employ­ment for $75,000 less - The Minister of National Revenue asserted, inter alia, that the $360,000 was taxable as income from an unenumerated source under s. 3(a) of the Income Tax Act - The Supreme Court of Canada concluded that the $360,000 was not taxable under the general provi­sion of s. 3(a), where Parliament had chosen to deal with tax­ability of such payments under the provi­sions relating to retiring allowances - See paragraphs 45 to 54.

Income Tax - Topic 549

Income from office or employment - Income from employment - Inclusions - Acquisition of employer's shares (stock options) - [See first Income Tax - Topic 528 ].

Practice - Topic 8800

Appeals - Duty of appellate court regard­ing findings of fact by a trial judge - The Supreme Court of Canada discussed the circumstances under which an appellate court will be justified in interfering with the trial judge's findings of fact - See paragraphs 32 to 35.

Practice - Topic 8822

Appeals - Duty of second appeal court regarding findings of fact by a trial judge - The Supreme Court of Canada discussed a second appellate court's role regarding findings of fact made by a trial judge that have been overturned by a first appellate court - The court stated that if a second appellate court agrees with the first appel­late court on the ground upon which the first appellate court intervened, the second is not required to show deference towards the first appellate court's assessment of the balance of probabilities - If the second appellate court agrees that the trial judge made an error that justifies intervention but disagrees with the first appellate court's assessment, it may reconsider the evidence and substitute its own find­ings of fact - See paragraphs 36, 37.

Practice - Topic 9098

Appeals - Supreme Court of Canada - Duty respecting a judgment of a court of appeal - [See Practice - Topic 8822 ].

Statutes - Topic 502

Interpretation - Intention of legislature - The Supreme Court of Canada stated that "... policy concerns ... should not and cannot be relied on in disregard of Parliament's clearly expressed intention: 'interpretatio cessat in claris'" - See para­graph 50.

Statutes - Topic 1607

Interpretation - Extrinsic aids - Policy of legislation - [See Statutes - Topic 502 ].

Statutes - Topic 2408

Interpretation - Interpretation of words and phrases - Variation within statute - The Supreme Court of Canada stated that "[i]t is a well-established principle of interpre­tation that words used by Parliament are deemed to have the same meaning throughout the same statute ... This, as all principles of interpretation, is not a rule, but a presumption that must give way when circumstances demonstrate that such was not the intention pursued by Parlia­ment." - See paragraph 61.

Words and Phrases

Employment - The Supreme Court of Canada discussed the meaning of "employment" as used in the Income Tax Act, R.S.C. 1952, c. 148 - See paragraphs 57 to 63.

Words and Phrases

Retiring allowance - The Supreme Court of Canada discussed the meaning of "retir­ing allowance" as used in the Income Tax Act, R.S.C. 1952, c. 148 - See paragraphs 55 to 63.

Cases Noticed:

Atkins v. Minister of National Revenue (1976), 13 N.R. 338; 76 D.T.C. 6258 (F.C.A.), affd. (1975), 75 D.T.C. 5263 (F.C.T.D.), consd. [para. 11].

Pollock v. Minister of National Revenue (1984), 84 D.T.C. 6370 (F.C.A.), consd. [para. 11].

Stein Estate v. Ship Kathy K, [1976] 2 S.C.R. 802; 6 N.R. 359; 62 D.L.R.(3d) 1, consd. [para. 15].

London and Thames Haven Oil Wharves Ltd. v. Attwooll, [1967] 2 All E.R. 124 (C.A.), consd. [para. 16].

Manley v. Minister of National Revenue, [1985] 2 F.C. 208; 57 N.R. 364 (F.C.A.), leave to appeal refused [1986] 1 S.C.R. xi; 67 N.R. 400, refd to. [para. 16].

Krivy v. Minister of National Revenue (1979), 79 D.T.C. 121 (T.R.B.), refd to. [para. 22].

R. v. Girouard (1980), 35 N.R. 433; 80 D.T.C. 6205 (F.C.A.), refd to. [para. 22].

Beck v. Minister of National Revenue (1980), 80 D.T.C. 1747 (T.R.B.), refd to. [para. 22].

Grozelle v. Minister of National Revenue (1977), 77 D.T.C. 310 (T.R.B.), refd to. [para. 22].

Specht v. Minister of National Revenue, [1975] F.C. 150 (T.D.), consd. [para. 24].

No. 45 v. Minister of National Revenue (1952), 52 D.T.C. 72 (T.A.B.), refd to. [para. 24].

Larson v. Minister of National Revenue (1967), 67 D.T.C. 81 (T.A.B.), refd to. [para. 24].

Jones v. Minister of National Revenue (1969), 69 D.T.C. 4 (T.A.B.), refd to. [para. 24].

Clarke v. Edinburg and District Tramways Co., [1919] S.C. (H.L.) 35, consd. [para. 32].

Dorval v. Bouvier, [1968] S.C.R. 288, consd. [para. 32].

Beaudoin-Daigneault v. Richard et al., [1984] 1 S.C.R. 2; 51 N.R. 288, consd. [para. 32].

Laurentide Motels Ltd. et al. v. Beauport (Ville) et al., [1989] 1 S.C.R. 705; 94 N.R. 1; 23 Q.A.C. 1, refd to. [para. 32].

Lapointe v. Hôpital Le Gardeur, [1992] 1 S.C.R. 351; 133 N.R. 116; 45 Q.A.C. 262; 90 D.L.R.(4th) 7; 10 C.C.L.T.(2d) 101; 9 C.P.C.(3d) 78, refd to. [para. 32].

Hodgkinson v. Simms et al., [1994] 3 S.C.R. 377; 171 N.R. 245; 49 B.C.A.C. 1; 80 W.A.C. 1; [1994] 9 W.W.R. 609; 117 D.L.R.(4th) 161; 22 C.C.L.T.(2d) 1, refd to. [para. 32].

Fletcher v. Manitoba Public Insurance Co., [1990] 3 S.C.R. 191; 116 N.R. 1; 71 Man.R.(2d) 81; 44 O.A.C. 81; 74 D.L.R.(4th) 636, refd to. [para. 32].

Chartier v. Quebec (Attorney General), [1979] 2 S.C.R. 474; 27 N.R. 1, consd. [para. 34].

Demers v. Montreal Steam Laundry Co. (1897), 27 S.C.R. 537, consd. [para. 36].

Jorgenson v. Cewe (Jack) Ltd., [1980] 1 S.C.R. 812; 32 N.R. 1; [1980] 4 W.W.R. 494; [1980] C.T.C. 314; 80 D.T.C. 6233; 10 B.L.R. 287; 22 B.C.L.R. 297; 111 D.L.R.(3d) 577, consd. [para. 46].

Curran v. Minister of National Revenue, [1959] S.C.R. 850, affd. (1957), 57 D.T.C. 1270 (Ex. Ct.), consd. [paras. 51, 73].

Minister of National Revenue v. Fries, [1989] 3 F.C. 362; 99 N.R. 208 (F.C.A.), revd. [1990] 2 S.C.R. 1322; 114 N.R. 150, refd to. [paras. 51, 73].

Savage v. Revenue Canada, [1983] 2 S.C.R. 428; 37 N.R. 567; [1983] C.T.C. 393; 83 D.T.C. 5409, consd. [paras. 54, 71].

Québec (Communauté urbaine) et autres v. Corporation Notre-Dame de Bon-Secours, [1994] 3 S.C.R. 3; 171 N.R. 161; 63 Q.A.C. 161, consd. [para. 56].

Stubart Investments Ltd. v. Minister of National Revenue, [1984] 1 S.C.R. 536; 53 N.R. 241; [1984] C.T.C. 294; 84 D.T.C. 6305, refd to. [para. 56].

Golden et al. v. Minister of National Rev­enue, [1986] 1 S.C.R. 209; 65 N.R. 135; [1986] 3 W.W.R. 1; [1986] 1 C.T.C. 274; 25 D.L.R.(4th) 490; 86 D.T.C. 6138; 39 R.P.R. 297, refd to. [para. 56].

Johns-Manville Canada Inc. v. Minister of National Revenue, [1985] 2 S.C.R. 46; 60 N.R. 244, refd to. [para. 56].

Imperial General Properties Ltd. v. Minis­ter of National Revenue, [1985] 2 S.C.R. 288; 56 N.R. 137; [1985] 2 C.T.C. 299; 85 D.T.C. 5500, refd to. [para. 56].

Phyllis Barbara Bronfman Trust - see Bronfman (Phyllis Barbara) Trust v. Minister of National Revenue.

Bronfman (Phyllis Barbara) Trust v. Min­ister of National Revenue, [1987] 1 S.C.R. 32; 71 N.R. 134; [1987] 1 C.T.C. 117; 87 D.T.C. 5059, consd. [para. 56].

McClurg v. Minister of National Revenue, [1990] 3 S.C.R. 1020; 119 N.R. 101; [1991] 2 W.W.R. 244; [1991] 1 C.T.C. 169; 91 D.T.C. 5001; 76 D.L.R.(4th) 217; 50 B.L.R. 161, refd to. [para. 56].

Friesen v. Minister of National Revenue, [1995] 3 S.C.R. 103; 186 N.R. 243, refd to. [para. 56].

Symes v. Minister of National Revenue, [1993] 4 S.C.R. 695; 161 N.R. 243; [1994] 1 C.T.C. 40; 110 D.L.R.(4th) 470; 19 C.R.R.(2d) 1; 94 D.T.C. 6001, refd to. [para. 56].

Thibaudeau v. Minister of National Rev­enue, [1995] 2 S.C.R. 627; 182 N.R. 1, refd to. [para. 56].

Antosko v. Minister of National Revenue, [1994] 2 S.C.R. 312; 168 N.R. 16; [1994] C.T.C. 25; 94 D.T.C. 6314, refd to. [para. 56].

R. v. Zeolkowski, [1989] 1 S.C.R. 1378; 95 N.R. 149; 58 Man.R.(2d) 63, refd to. [para. 61].

Thomson v. Canada (Minister of Agricul­ture), [1992] 1 S.C.R. 385; 133 N.R. 345, refd to. [para. 61].

Statutes Noticed:

Income Tax Act, Interpretation Bulletin IT-337R, generally [para. 25]; Interpre­tation Bulletin IT-365, generally [paras. 23, 27].

Income Tax Act, R.S.C. 1952, c. 148, sect. 3(a) [paras. 7, 48]; sect. 5(1), sect. 6(1)(a) [para. 7]; sect. 56(1) [para. 48]; sect. 56(1)(a)(ii) [para. 7]; sect. 80.4(1) [para. 60]; sect. 80.4(1)(b)(i), sect. 248(1) [para. 7].

Interpretation Bulletin - see Income Tax Act, Interpretation Bulletins.

Authors and Works Noticed:

Arnold, Brian J., Edgar, Tim, and Li, Jinyan, Materials of Canadian Income Tax (10th Ed. 1993), p. 51 [para. 69].

Collins, Lisa M., The Terminated Employee: Minimizing the Tax Bite, in Report of the Proceedings of the Forty-Fifth Tax Conference (1994), pp. 31:18, 31:19 [para. 22].

Gibbens, R.D., Appellate Review of Find­ings of Fact (1992), 13 Adv. Q. 445, pp. 445 to 448 [para. 32].

Goodwin, Robert B., Personal Damages, in Canadian Tax Foundation, Report of the Proceedings of the Twenty-Eighth Tax Conference (1977), pp. 820, 821 [para. 22]; 829 to 832 [para. 24].

Hansen, Brian G., The Taxation of Employees, in Canadian Taxation (1981), p. 160 [para. 24].

Harris, Edwin C., Canadian Income Tax­ation (1979), p. 116 [para. 22].

Harris, Edwin C., Canadian Income Tax­ation (4th Ed. 1986), p. 99 [paras. 48, 69].

Hogg, Peter W., and Magee, Joanne E., Principles of Canadian Income Tax Law (1995), pp. 164, 165 [para. 22].

Krishna, Vern, Characterization of Wrong­ful Dismissal Awards for Income Tax (1977), 23 McGill L.J. 43, generally [para. 22]; p. 53 [para. 24].

Krishna, Vern, The Fundamentals of Canadian Income Tax (4th Ed. 1992), pp. 129 [para. 49]; 130 [paras. 49, 67]; 525 [para. 20].

MacDonald, W.A., and Cronkwright, G.E., Income Taxation in Canada (1977)(Looseleaf), vol. 2, para. 17,521 [para. 22].

Rendall, James A., Defining the Tax Base, in Canadian Taxation (1981), generally [para. 69].

Scace, Arthur R.A., The Income Tax Law of Canada (4th Ed. 1979), p. 63 [para. 63].

Counsel:

Benjamin Zarnett and Carrie Smit, for the appellant;

J.S. Gill, Q.C., Susan Van Der Hout and Elizabeth Chasson, for the respondent.

Solicitors of Record:

Goodman, Phillips & Vineberg, Toronto, Ontario, for the appellant;

George Thomson, Deputy Attorney Gen­eral of Canada, Toronto, Ontario, for the respondent.

This appeal was heard on October 6, 1995, before La Forest, L'Heureux-Dubé, Sopinka, Gonthier, McLachlin, Iacobucci and Major, JJ., of the Supreme Court of Canada.

The decision of the court was delivered on February 22, 1996, in both official lan­guages, including the following opinions:

La Forest, J. (L'Heureux-Dubé, Gonthier and McLachlin, JJ., concurring) - see paragraphs 1 to 64;

Major, J. (Sopinka and Iacobucci, JJ., concurring) - see paragraphs 65 to 77.