T-1579-77
Jacqueline J. Loeb (Plaintiff)
v.
The Queen (Defendant)
Trial Division, Addy J.—Ottawa, November 29
and 30, 1977 and January 6, 1978.
Income tax — Income calculation — Exclusions from
income — Strike pay — Contract of employment created
between plaintiff and Ontario Secondary School Teachers'
Federation for period of strike in order to overcome difficul
ties re the superannuation scheme — Whether money received
from Federation during strike is strike pay and not taxable, or
pay pursuant to contract and taxable — The Teachers' Super-
annuation Act, R.S.O. 1970, c. 455, s. 1 — Income Tax Act,
S.C. 1970-71-72, c. 63, ss. 5(1), 6(3)(a),(6).
The plaintiff participated in a teachers' strike as a member of
the Ontario Secondary School Teachers' Federation (the Fed
eration). She claims the amount received by her during the
strike constituted strike pay, and therefore was not to be
considered taxable income. The defendant, on the other hand,
claims that it was pay received from her employment under an
agreement with the Federation signed in order to overcome
difficulties relating to the superannuation scheme whereunder
she was employed as an officer of the Federation for the
duration of the strike, and therefore constitutes a salary proper
ly taxable as income. Plaintiff appeals the Minister's assess
ment of her 1975 income.
Held, the appeal is dismissed. Plaintiff was employed by the
Federation during the period of the strike. A salary paid that
would permit qualification under The Teachers' Superannua-
tion Act would entail liability to pay tax under the Income Tax
Act since what constitutes an officer or employee under The
Teacher's Superannuation Act is broad enough to encompass
the concept of officer or employee under the Income Tax Act.
The relationship created by the agreement is caught by para
graphs 6(3)(a) and (b).
INCOME tax appeal.
COUNSEL:
Bernard Shinder for plaintiff.
E. A. Bowie and Alison Scott Butler for
defendant.
SOLICITORS:
Goldberg, Shinder, Shmelzer, Gardner &
Kronick, Ottawa, for plaintiff.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
ADDY J.: This is an appeal against the taxation
assessment of the plaintiff by the Minister of
National Revenue for the taxation year 1975.
The plaintiff, a secondary school teacher, par
ticipated in a teachers' strike in 1975, in Ottawa,
as a member of the Ontario Secondary School
Teachers' Federation (hereinafter called "the Fed
eration"). She claims that the amount of $786.56
received by her during the strike constituted strike
pay and was therefore not to be considered as
taxable income. The defendant on the other hand
claims that it was pay received from her employ
ment under an agreement with the Federation
whereunder she was employed as an officer of the
Federation for the duration of the strike and,
therefore, constitutes a salary or emolument prop
erly taxable as income.
It appears that a great number of secondary
school teachers are interested in the outcome of
this case and, being therefore a test case, it is of
somewhat greater importance than the actual
amount involved would indicate.
Pursuant to The Teachers' Superannuation Act'
a person could contribute to the Teachers' Super-
annuation Fund and consider, as a period of
employment counting toward superannuation, not
only those periods during which that person was
employed as a teacher but also periods during
which the person was engaged in other related and
approved occupations such as that of a supervising
officer in a board of education or in the Depart
ment of Education, an officer of certain associa
tions of trustees and, more particularly for the
purposes of this case, an officer of the Federation.
Section 1(e)(ix) of the aforesaid Act reads as
follows:
' R.S.O. 1970, c. 455.
1. In this Act,
(e) "employed" means engaged under contract for any
period,
(ix) as an officer of an association or body of teachers
engaged in advancing the interests of education and desig
nated by the regulations,
The Federation is an association designated in
the regulations.
Obviously a teacher who was merely on strike
after a contract of employment had expired, as in
the present case, could not contribute toward the
Superannuation Fund. The Assistant Secretary of
the Federation, who testified on behalf of the
plaintiff, stated that teachers as a group are
always very security minded and feel that it is
extremely important to protect their pensions at all
times. The Federation was anxious to find a solu
tion which would ensure that these normal con
cerns not interfere with any decision as to possible
strike action. Furthermore, the Federation in fact
received specific directions from its membership to
arrange matters in such a way that, if possible, no
striking teacher would forego any pension right
during a period of work stoppage.
In anticipation of the strike and as a result of
the direction received from its membership, the
Federation, after consultation with officers of the
Department of Education and of the Teachers'
Superannuation Commission, devised the scheme
or stratagem of allowing each of its striking teach
ers to enter into a written agreement with it pursu
ant to which the teacher would purportedly be
employed as an officer of the Federation for the
duration of the strike and would be paid as such.
A document entitled "CONTRACT OF EMPLOY
MENT" dated the 26th of February, 1975 was duly
executed at that time by the plaintiff together with
a further document entitled "STRIKE AND PICKET
AND INFORMATION LINE CONTRACT." Both these
documents were contained on the same sheet of
paper, the text of which is reproduced hereunder:
Member's copy—green Ottawa, Ontario
Federation's copy—white February 26, 1975
CONTRACT OF EMPLOYMENT
The Ontario Secondary School Teachers' Federation contracts
to employ the undersigned as a Federation Officer effective
February 26, 1975. Remuneration and terms of such employ
ment to be governed by the terms of the Memorandum of
Agreement between District 26, OSSTF, and the Provincial
Executive of OSSTF as finalized on February 11, 1975.
Witness Signature of Employee
Witness Representative of Provincial
Executive, OSSTF
Witness L. M. Richardson,
General Secretary, OSSTF
School
Name of Employee
Home Address
Telephone
Salary Information
STRIKE AND PICKET AND INFORMATION LINE CONTRACT
NAME:
Please Print
The undersigned hereby agreed to withhold services on Febru-
ary 27, 1975, and/or subsequent to that date and further that I
will carry out "Picket Line" duties or other duties as assigned
by the Provincial Executive Takeover Team through the Chair
man of the Provincial Executive Takeover Team. Such agree
ment to cease when an agreement is arrived at and is ratified by
District 26 OSSTF membership together with the Ottawa
Board of Education.
Signature
The above referred to memorandum of agree
ment between District No. 26 OSSTF and the
Provincial Executive of OSSTF, finalized on the
11th of February, 1977, is not in fact or in law an
agreement. District 26 is not a distinct legal entity
but is an integral part of the Federation (refer
section 1 of Article 7 and section 1 of Article 9 of
the constitution of the Federation). Furthermore,
the Provincial Executive as such is not a legal
entity and has no right to contract except on
behalf of the Federation. This memorandum of
agreement is therefore nothing but an internal
administrative document or a memorandum be
tween two elements of the same organization. In
any event it does, in paragraph 14 thereof, provide
for the payment during a strike of a percentage of
the regular salaries of the teachers plus 100% of
the fringe benefits. A letter, also dated the 26th of
February, 1975, signed by the General Secretary
of the Federation was delivered to the plaintiff at
the time of delivery of the above-mentioned agree
ment for signature. The first paragraph of the
letter reads as follows:
At this time you have signed a Memorandum of Agreement
employing you as a federation officer with duties to commence
on the first day the board does not pay salaries as a result of
absence authorized by the Provincial Executive Takeover Team
and the Provincial Executive. In signing that agreement you
have come under the direction of the General Secretary and
have agreed to carry out such duties and perform such services
as he deems appropriate. Specifically, therefore, I ask you:
(a) to be readily available as the situation demands, to
attend all meetings called by the Federation, and
(b) to assume appropriate responsibilities in attending and
forwarding any programmes initiated by the Federation in
your division.
On the 27th of February, 1975, that is, the
following day, the teachers went on strike.
The plaintiff testified at trial that it was her
understanding that, as she would not be able to
contribute to the .Superannuation Fund unless
employed either as a teacher by the School Board
or as an officer of the Federation, the above-men
tioned document merely constituted a "technical
form to meet a technical condition." As to the
second undertaking regarding pickets she merely
stated that it was a means of determining who
would be doing picket duty.
She also testified that, although she did perform
some services during the strike by undertaking
picket line duties and assisting in paying the strik
ers and that she would have performed other
duties if requested, it was never as a result of a
request from the Federation to perform such duties
as an officer thereof. She further stated that the
duties she did perform and those additional duties
which she would have been willing to perform
arose out of her status as a member of the Federa
tion and not as a result of any agreement or
contract.
The personal motivation of the plaintiff in ren
dering the services which she did render is of no
consequence if there existed an agreement under
which these services and other services could, as of
right, have been required of her by the Federation.
Furthermore, the fact that the plaintiff was in fact
never called upon to perform services by the Fed
eration is really immaterial, especially where the
document provides on the face of it, that she must
hold herself available to perform certain services if
requested. A mere undertaking to hold oneself
available for services constitutes a good consider
ation flowing from the employee to the employer
and payment for such constitutes payment under
an employment contract. (Refer Bell v. M.N.R. 2 )
The monies were paid to her from the contin
gency fund of the Federation which was in fact the
fund constituted for the purpose of compensating
its members when on strike. However, the fund
from which the remuneration was paid does not
affect the nature of the agreement itself.
It is interesting to note that the employee's and
the employer's share of both the Canada pension
contributions and unemployment insurance premi
ums were paid. Both created certain additional
entitlements to benefits and the payment of both
depends on a relationship of employer and
employee. Notwithstanding this, at no time has
any protest been made nor has any attempt what
soever been made to have these deductions either
cancelled, annulled or refunded.
The plaintiff also testified that, from the time
she received her first cheque during the strike, she
was aware that deductions were in fact being made
by the Federation for these items as well as for
income tax, yet, nothing whatsoever was done in
an attempt to change the situation in so far as
future cheques were concerned or to cancel out
any deductions made. It was only when she made
out her income tax return after the end of the year
that the plaintiff first claimed that the deductions
should not have been made for income tax pur
poses and requested from the Department of Na
tional Revenue an exemption of tax on the amount
in issue.
Subsequent actions of parties to a contract can
have no bearing on their original intention nor can
2 62 DTC 1155.
they be used by one of the parties to a written
contract in an attempt to vary its express terms
against the right of another party to the contract.
However, where a stranger to the contract is
involved and especially where, as in the present
case, the parties to the document claim that it
might in fact represent something other than
appears by its express terms, the subsequent
actions of the parties are quite admissible to deter
mine what the intention of the parties was and to
determine its precise nature and effect.
The document on its face is a contract of
employment for a fixed remuneration. The evi
dence furnished by both parties to the document
did not constitute a denial of an intention to
contract. On the contrary, the evidence adduced
was rather an explanation of the motives which
governed the decision of the parties to enter into
an agreement: it established the reason why the
document was executed. The evidence also estab
lishes that there was no intention to deceive the
Superannuation Commission. It is clear and
undenied that, at the time the document was
signed, the parties considered that they were sign
ing a contract and that by that contract they
intended to create a relationship between them
selves which would permit the plaintiff to continue
to contribute to and to benefit from the provisions
of The Teachers' Superannuation Act during the
strike. The only possible relationship which would
qualify was that of employer and employee or that
of an approved teachers' association and an officer
of that association. The document by its text pur
ported to cover both these situations and the letter,
to which I have referred above and which accom
panied the agreement, clearly stipulated what was
to be expected of the plaintiff under the contract.
Section 20(1) of The Teachers' Superannuation
Act provides that "Every person who is employed
... shall contribute to the Fund ...." Section 1(e),
which I have quoted earlier stated that
" `employed' means engaged under contract for
any period, ...."
In my view, the plaintiff and the Federation
succeeded in fact and in law in creating the rela
tionship which they sought and I find that the
plaintiff was indeed employed by the Federation
during the period of the strike and that this
employment was in accordance with the agreement
in issue pursuant to which the plaintiff received
the sum of $786.56.
In The Teachers' Superannuation Act there is
no special statutorily limited or restricted meaning
to be attached to the general concept of employ
ment or to the definition of the words "employee"
or "officer." What constitutes an employee or an
officer under that Act is undoubtedly broad
enough to encompass the concept of an employee
or an officer as contemplated in the Income Tax
Act. It follows that a salary or emolument paid to
an employee or an officer which would permit
qualification under The Teachers' Superannuation
Act would necessarily entail a liability to pay tax
on that amount under the Income Tax Act.
Section 5(1) of the Income Tax Act reads as
follows:
5. (1) Subject to this Part, a taxpayer's income for a taxa
tion year from an office or employment is the salary, wages and
other remuneration, including gratuities, received by him in the
year.
The relevant parts of section 6(3) provide:
6....
(3) An amount received by one person from another
(a) during a period while the payee was an officer of, or in
the employment of, the payer, or
(b) ... in satisfaction of, an obligation arising out of an
agreement made by the payer with the payee immediately
prior to, during or immediately after a period that the payee
was an officer of, or in the employment of, the payer,
shall be deemed, for the purposes of section 5, to be remunera
tion for the payee's services rendered as an officer or during the
period of employment, ...
[Here follow exceptions which have not been established by the
plaintiff and are therefore inapplicable.]
The relationship created by the agreement
would, in my view, be caught by the provisions of
both paragraphs (a) and (b) of section 6(3). Since,
during the strike, the plaintiff was in the employ of
the Federation pursuant to the written agreement
in issue and since the amount of $786.56 was paid
to her as provided for in the agreement, it becomes
unnecessary for me to decide two other questions
which were argued at some length during the trial,
that is to say, whether the plaintiff was filling an
"office" as defined in interpretation section 248 of
the Income Tax Act and whether in order to be
considered an "officer" in section 6(3) one neces
sarily has to be filling an "office" as defined in
section 248.
It seems apparent that the only way the rela
tionship expressed in the document could be
denied would be on the grounds that neither of the
parties intended to create it. Having regard to the
carefully planned and deliberate manner in which
the document was conceived and brought into
existence by the Federation on behalf of its mem
bers, this would lead to the inescapable conclusion
that the plaintiff and members of the Executive of
the Federation representing the Secondary School
Teachers of Ontario had conspired together to
create a sham by means of which the Teachers'
Pension Commission would be deceived and the
plaintiff would fraudulently obtain benefits to
which she was not entitled.
It is unthinkable that either of the parties could
have been capable of taking part in a deception of
this nature and, furthermore, the evidence clearly
points to the contrary: they, as any citizen may
lawfully do, set about to create a bona fide legal
relationship by means of which the plaintiff would
become eligible for certain benefits. They succeed
ed and, having done so, must live with the
consequences.
Under the circumstances, it is difficult to under
stand why the matter was taken this far.
The appeal is dismissed with costs and the
assessment complained of is confirmed.
Judgment shall issue accordingly.
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