T-1179-83
The Queen (Plaintiff)
v.
Wally Fries (Defendant)
Trial Division, Collier J.—Vancouver, June 20,
1984; Ottawa, November 15, 1985.
Income tax — Income calculation — Income or capital gain
— Strike pay — Union agreeing to pay members of Liquor
Board bargaining unit full take-home pay while on strike in
support of other striking unionists — Carlill v. Carbolic
Smoke Ball Company, [1893] 1 Q.B. 256 (C.A.) applied —
Contract between Union and individual members enforceable
once employees accepting offer by going out on strike —
Monies received constituting income as directly related to
length of time over which payee acted and based on usual
salaries — Nothing in Act exempting strike pay, or strikers
from taxation — Income Tax Act, S.C. 1970-71-72, c. 63, ss.
3 (a), 4 ( 1 )(a).
This is an appeal from a finding of the Tax Review Board in
favour of the taxpayer. The Union paid the defendant the
equivalent of his take-home pay while on strike in support of
other striking unionists. The defendant was a member of the
Liquor Board bargaining unit which voted to support the Public
Service Bargaining Unit strike. A letter, dated before the strike
commenced, confirmed that the Liquor Board employees would
be reimbursed for full pay loss. The defendant was paid
$880.80 out of the strike fund, which came from union dues
paid by the members. The normal "strike stipend" was $10.00
a week. The Minister of National Revenue had never before
assessed union members on strike stipends.
The plaintiff argued that the arrangement between the
defendant and his Union was either a contract of services or a
contract for services; the payment received pursuant to that
contract was therefore taxable. Alternatively, the amount
received was "income from a source" and therefore caught by
sections 3 and 4 of the Act. For the first argument, reliance was
placed on the letter which was characterized as an agreement
to pay the defendant an amount of money in consideration of
going out on strike in support of the strike of the Public Service
Bargaining Unit. Carlill v. Carbolic Smoke Ball Company,
[1893] 1 Q.B. 256 (C.A.) was invoked. That case established
that binding contracts can be created where an offer is made to
a class of persons, and where individuals who are part of the
group to whom the offer is addressed, act in conformity with
the terms of the offer. Acceptance need not be communicated
before performance. The defendant replies that it was the
group that decided to go on strike, or that accepted the offer.
The defendant also argued that as both the Provincial Execu
tive and the Liquor Board Employees Agreement Group are
members of the same legal entity, the Saskatchewan Govern
ment Employees' Union (S.G.E.U.), and since, with reference
to the strike, they each could contract only on behalf of the
same principal, no contract could exist. A legal person cannot
contract with himself or itself.
Held, the appeal should be allowed.
Goldman v. Minister of National Revenue, [1953] 1 S.C.R.
211 establishes that in order for an amount to be taxable as
income for services rendered, the existence of a legally enforce
able contract between the payor and the payee is not required.
The Tax Review Board stated in Ferris (TE) v MNR, [1977]
CTC 2034 that basic strike benefits are taxable. However, the
Federal Court, Trial Division in O'Brien (JC) v The Queen,
[1985] 1 CTC 285 found that strike benefits were not taxable.
There the unions operated a newspaper to provide funds to
support a newspaper strike and increase the strike fund. Strik
ers were paid a percentage of their salaries unrelated to the
number of hours worked. The newspaper was operated for
profit by the unions on their own and not as agents for the
union members. There was no agreement as to how the profits
would be distributed. Here there was a distinct understanding
that the Liquor Board employees, unlike other strikers, would
receive full take-home pay as strike stipends.
There was an enforceable contract between the S.G.E.U. and
the individual members employed by the Liquor Board. The
obligation to pay the full take-home pay in return for with
drawing services from the Liquor Board was enforceable, once
the employees had complied with the offer, by each such
individual against the S.G.E.U. The principles in the Carbolic
Smoke Ball case apply. Although the contract did not consti
tute either a contract of services, or a contract for services,
since no actual work was done, by going on strike the Liquor
Board employees were rendering a service to the S.G.E.U. by
re-enforcing the strike action of the members of the Public
Service Bargaining Unit.
A question arises as to whether there must be actual work
done, or services rendered requiring the expenditure of labour,
which relates to the money received. Money received for one's
own benefit is either a receipt of a capital nature or an income
receipt. When applying the ordinary concept and usage of the
word "income", the monies received must be income, as
opposed to a capital payment. They were not a gift or a
windfall, nor payment for an asset or benefit of a permanent or
semi-permanent nature. They were directly and solely related
to the length of time over which the defendant payee acted. The
monetary calculation was based on usual salaries. The amounts
smacked of income.
Nothing in the Act makes payments from a strike fund
exempt from taxation, nor exempts the defendant, by the mere
fact that he was on strike, from payment of tax on amounts
received.
The departmental policy of not taxing ordinary strike ben
efits has no bearing here.
CASES JUDICIALLY CONSIDERED
APPLIED:
Carlill v. Carbolic Smoke Ball Company, [1893] 1 Q.B.
256 (C.A.); Goldman v. Minister of National Revenue,
[1953] 1 S.C.R. 211; Curran v. Minister of National
Revenue, [1959] S.C.R. 850.
DISTINGUISHED:
O'Brien (JC) v The Queen, [1985] 1 CTC 285
(F.C.T.D.).
CONSIDERED:
Ferris (TE) v MNR, [1977] CTC 2034 (T.R.B.); Camp-
bell, S.M., v. M.N.R. (1958), 21 Tax A.B.C. 145.
REFERRED TO:
Herbert v. McQuade, [1902] 2 K.B. 631 (C.A.).
COUNSEL:
W. H. G. Heinrich for plaintiff.
Jennifer L. Garvie for defendant.
SOLICITORS:
Deputy Attorney General of Canada for
plaintiff.
Balfour, Moss, Milliken, Laschuk & Kyle,
Regina, for defendant.
The following are the reasons for judgment
rendered in English by
COLLIER J.: This is an appeal, on behalf of the
Minister of National Revenue, from a finding of
the Tax Review Board in favour of the defendant
taxpayer, in respect of an income tax assessment
made by the Minister for the 1979 taxation year.
(See [1983] CTC 2124 (T.R.B.).)
The issue involves payment, by a union, of an
amount of $880.80 to the defendant who was an
employee of the Saskatchewan Liquor Board. He,
and fellow employees, went out on a strike in
support of other striking unionists. The $880.80
was equivalent to the defendant's normal net take-
home pay during the period he was on strike.
In 1979, there existed, in Saskatchewan, a some
what complicated organization in respect of
employer-employee relationships with the provin
cial government, its various departments and other
entities. The employees of forty-seven depart
ments, boards, commissions or other agencies, con
trolled or operated by the Saskatchewan govern
ment, were divided into bargaining units. Among
them was the Liquor Board. There were approxi
mately 500 members in that bargaining unit. The
largest bargaining unit of the Saskatchewan gov
ernment employees' organization was the Public
Service Bargaining Unit with roughly 12,000
members. Their employer was the Public Service
Commission.
All employees in the various bargaining units
were members of the Saskatchewan Government
Employees' Union (S.G.E.U.). That Union had a
Provincial Executive of twenty-eight members who
came from twenty branches of the Union.
The Provincial Executive did not participate in
the bargaining process between the various bar
gaining units and their particular employers. That
was done by the bargaining committee of each of
the bargaining units.
The collective agreement between the Public
Service Commission and the Public Service Bar
gaining Unit had expired on October 1, 1979. On
November 17, 1979, that unit went out on a legal
strike.
The collective agreement with the Liquor Board
did not come up for renewal until March, 1980.
The evidence discloses that any contract,
reached with the Public Service Bargaining Unit,
usually became a flagship contract, setting the
pattern for other agreements with other bargaining
units, and other employers.
The evidence indicates the negotiations, in what
I will term the Public Service strike, were not
proceeding satisfactorily from the Union's point of
view. It was decided to bring pressure on the
employer to speed up negotiations and to try and
obtain better offers. Meetings were held between
representatives of the Provincial Executive of the
S.G.E.U. and representatives of the bargaining
unit of the Saskatchewan Liquor Board. The
defendant, Fries, was chairman of the Liquor
Board Branch of the Union. The first meeting
discussed "... the question of taking Liquor Board
Branch members off the job to escalate the Public
Service/Government Employment strike". At a
later meeting with the Tier 1 Committee, or Advi
sory Committee of the Provincial Executive, Fries
is said to have stated he was prepared
... subject to a guarantee that members would be provided
payloss for the days off the job and approval of the Executive of
the Liquor Board Branch, to take a vote of the membership of
the Liquor Board Branch on Saturday, November 24th regard
ing support for the Public Service/Government Employment
Agreement group strike.
The above excerpts are taken from minutes
attached to an agreed statement of facts (Exhibit
2). At that stage, there was a recommendation by
the Provincial Executive Advisory Committee that,
if the Liquor Board union members went out in
support, they be paid "pay loss for the duration of
the time that they are out". The Provincial Execu
tive adopted the minutes of the Advisory
Committee.
The Liquor Board Branch employees voted in
favour of a supporting strike. The members knew
there would be a recommendation that they be
reimbursed their full loss of pay. A letter, dated
November 23, 1979, from the Provincial Execu
tive, addressed to the defendant, as "chairperson",
and to all Liquor Board Branch members, read as
follows:
This is to confirm that the Advisory Committee of the Provin
cial Executive, on behalf of the Provincial Executive, has
agreed that in the event the employees of the Liquor Board
agree to support the striking members of the Public Service/
Government Employment Agreement, full pay loss will be paid
to insure that Liquor Board members do not suffer any eco
nomic loss, including loss of pension benefits, etc.
From November 26 to December 17, 1979, a
large number of Liquor Board employees, includ
ing the defendant, went on strike in support of the
Public Service Bargaining Unit. The admission in
the pleadings is as follows:
7. The Defendant withdrew his services from his employer,
the Saskatchewan Liquor Board, for the period November 26
to December 17, 1979.
In the Province of Saskatchewan, at that time,
the strike by the Liquor Board employees was, in
the circumstances, entirely legal, although their
collective agreement with the Board did not expire
until March 1980.
The defendant was paid the $880.80 out of the
defence fund, or "strike fund", set up in the
S.G.E.U. accounts. That fund, and other funds,
came from union dues paid by the members,
including the defendant.
The normal "strike stipend", the term used by
the Union, when any members were on strike, was
usually $10 a week.
The Provincial Executive had the sole right to
make the decision as to payment of strike stipend,
and as to the amounts to be paid. Evidence was
adduced to show that, in other cases, the Executive
had authorized strike stipend payments of up to
eighty per cent of gross pay. In this particular
case, it authorized strike stipends of full take-home
pay.
The evidence was that in other situations, the
Minister of National Revenue had never assessed
any union members on the strike stipends received.
Mr. Fries' case is a test case. Other striking
employees of the Liquor Board received stipends
or "strike pay" and, as I understand it, similar
assessments have been made by the Minister
against them.
I now turn to the law and to the arguments
advanced by the parties.
The issues depend on the interpretation of para
graph 3(a) and paragraph 4(1)(a) of the Income
Tax Act, as amended by S.C. 1970-71-72, c. 63.
Paragraph 3(a) provides that a taxpayer's income
for the year is to be calculated by first determin
ing, and I quote:
3....
(a) ... the aggregate of amounts each of which is the
taxpayer's income for the year (other than a taxable capital
gain from the disposition of a property) from a source inside
or outside Canada, including, without restricting the general
ity of the foregoing, his income for the year from each office,
employment, business and property;
The relevant portions of paragraph 4(1)(a) read
as follows:
4. (1) ...
(a) a taxpayer's income ... for a taxation year from an
office, employment, business, property or other source, or
from sources in a particular place, is the taxpayer's income
... computed in accordance with this Act ....
Counsel appearing on behalf of the Minister
argued that the arrangement between the defend
ant and his Union amounted to either a contract of
services or, more probably, a contract for services;
the payment received pursuant to that contract
was therefore taxable. Alternatively it was argued
that, in any event, the amount received constituted
"income from a source" and was therefore caught
by the earlier quoted provisions of sections 3 and 4
of the Act.
On the first argument, the plaintiff says that the
S.G.E.U. approached the defendant to obtain
assistance in the strike which was already in
progress. Particular reliance was placed on the
November 23 letter, to which I have referred. This
was characterized as an agreement by the Provin
cial Executive on behalf of the Union to pay the
defendant and his co-workers an amount of money
in consideration of their going out on strike in
support of the strike of the Public Service Bargain
ing Unit. The classic case of Carlill v. Carbolic
Smoke Ball Company, [1893] 1 Q.B. 256 (C.A.),
was invoked. That case established the principle
that in certain circumstances binding legal con
tracts can be created where an offer is made to the
public generally, or to a class of persons, and
where individuals, who are part of the group to
whom the offer is addressed, act in conformity
with the terms of the offer. In those cases, con
forming to the conditions of the offer constitutes
acceptance; such acceptance need not be com
municated before performance, where it is appar
ent from the circumstances that the offeror would
not require previous acceptance.
The defendant replies, however, that he is not
the person who decided to go on strike, but rather
the Liquor Board Employees Agreement Group
collectively, as the result of a majority vote of that
group; that he, under the constitution of the
S.G.E.U., was obliged to go on strike as a member
of that group. The offer, in other words, was that
of the Provincial Executive of the Union; the
acceptance can only be considered as coming from
the Liquor Board Employees Agreement Group.
The defendant further argued that as both the
Provincial Executive and the Liquor Board
Employees Agreement Group are members of the
same legal entity, namely the S.G.E.U. and since,
with reference to the strike, they each could con
tract only on behalf of the same principal, no
contract could exist at law. It is of course trite law
and, indeed, common sense that a legal person
cannot contract with himself or itself.
The case of Goldman v. Minister of National
Revenue, [1953] 1 S.C.R. 211, touches upon the
issue of whether a legally enforceable contract is
required in order to make a sum received, taxable
as the income of the payee for services rendered.
Kellock J., (the Chief Justice, Locke and Fauteux
JJ., concurring) approved this statement of the law
in the English case of Herbert v. McQuade in the
following terms (page 214):
In Herbert v. McQuade ([1902] 2 K.B. 631 (C.A.)), the
question for consideration arose under Schedule E., of the
Income Tax Act, 1842, which imposed tax on "the persons
respectively having, using or exercising the offices or employ
ments of profit" in Schedule E for "all ... profits whatsoever
accruing by reason of such offices, (or) employments ...".
Collins M.R., at p. 649, referring to an earlier decision said
that,
a payment may be liable to income tax although it is
voluntary on the part of the persons who made it, and that
the test is whether, from the standpoint of the person who
receives it, it accrues to him in virtue of his office; if it does,
it does not matter whether it was voluntary or whether it was
compulsory on the part of the persons who paid it.
In my view this reasoning is equally applicable to payments
made to a person "in connection with" an office or
employment.
Rand J., who agreed with the result in the case,
but wrote separate reasons, had this to say (pages
217-218):
That both parties intended the money to be paid and received
as remuneration for services rendered by Goldman as commit
tee chairman is not open to doubt. The solicitor became in fact
a conduit between the company and Goldman. It was urged
that the payment was voluntary. Apart from the question of a
declared trust, it can be assumed that the solicitor was not
legally bound to make the payment; but that he was bound by
the common understanding, whatever it may be called or
whatever its nature, is equally beyond doubt. He voluntarily
undertook the obligation at least of his word given in an
economic relation; but voluntariness of his consequent action is
not to be confused with that present in gift.
The Goldman case was under the Income War
Tax Act [R.S.C. 1927, c. 97]. It, nevertheless to
my mind, establishes the proposition that, in order
for an amount to be taxable as income for services
rendered, the existence of a legally enforceable
contract between the payor and the payee is not
required.
In Campbell, S.M., v. M.N.R. (1958), 21 Tax
A.B.C. 145, the Tax Appeal Board, applying the
Goldman and McQuade decisions, held that a
gratuitous payment of $5,000 by a newspaper to a
professional swimmer for her praiseworthy
attempt to cross Lake Ontario was income to her
resulting from services rendered. This, though
there was no legal obligation on the part of the
newspaper to pay the sum as the swimmer had not
succeeded in crossing the lake.
In the case of Ferris (TE) y MNR, [ 1977] CTC
2034, the Tax Review Board stated (although it
appears to be obiter dictum) that basic strike
benefits are taxable. My colleague, Walsh J., in a
recent decision, O'Brien (JC) y The Queen, [1985]
1 CTC 285 (F.C.T.D.), disputed that view
expressed in the Ferris case. In the O'Brien case,
several unions, in order to provide funds to support
a newspaper strike and generally increase the
strike fund, opened and operated during the strike,
a newspaper which produced profits. Ordinary
strike benefits and supplemental benefits were paid
to the striking newspaper employees in accordance
with a set formula contained in the constitution of
the union. The formula was based on a percentage
of the salary which each member earned before
the strike. The amounts received bore no relation
ship whatsoever to the hours worked on the news
paper during the strike. The only persons excluded
from these benefits were those who refused to
perform picket duty or to do any work during the
strike. The plaintiff's strike benefits were, in those
circumstances, held not to be taxable.
In the O'Brien case, it was found as a fact, the
unions operated the newspaper for profit purposes,
on their own, and not as agents for the union
members.
It was further found there was no agreement
with the union members as to how the profits of
the newspaper would be distributed.
This certainly cannot be said of the case before
me. There was a distinct understanding by the
Liquor Board employees with the S.G.E.U. that,
unlike the members of the Public Service Bargain
ing Unit, they would receive the equivalent of full
take-home pay as strike stipends.
In any event, in the circumstances of the present
case, I am prepared to hold there was an enforce
able contract in existence. Not one between the
S.G.E.U. and the Liquor Board Employees Agree
ment Group; the latter formed a legal component
of the S.G.E.U. But one between the S.G.E.U. and
the individual members employed by the Liquor
Board. Once the S.G.E.U. had offered to pay the
employees of the Liquor Board their full take-
home pay in return for their withdrawing their
own services from the Liquor Board, and once the
employees had complied, there existed an obliga
tion by the S.G.E.U. to pay that money to each of
the employees. That obligation became legally
enforceable by each such individual against the
S.G.E.U. What was merely an arrangement or
unenforceable agreement between the S.G.E.U.
and the Liquor Board Employees Agreement
Group, once made and communicated to the
employees themselves, became an offer to pay in
consideration of a service rendered. The principles
of the Carbolic Smoke Ball case would apply.
Although the contract did not constitute what is
commonly known as either a contract for services
or a contract of services, since no actual work was
done, by going on strike the employees of the
Liquor Board were undoubtedly rendering a ser
vice to the S.G.E.U., by re-enforcing the strike
action of the members of its Public Service Bar
gaining Unit.
This leads to the question whether, in order to
constitute income, there must be actual work done
or services rendered requiring the expenditure of
labour, the performance of some activity or the
employment of some degree of skill, expertise,
thought or energy on the part of the payee which
relates somehow to the money received. In that
sense, the only service rendered by the defendant
would appear to be the performance of regular
picket duties during the strike. That service, of
course, would be minimal when compared to the
benefit derived by the S.G.E.U. from the defend
ant withdrawing his labour from the liquor Board
or, in other words, doing nothing.
The nature of the word "income", as used in the
Income Tax Act, was considered by the Supreme
Court of Canada in the case of Curran v. Minister
of National Revenue, [1959] S.C.R. 850. The
facts are not at all similar to the present case. The
Curran decision involved the payment of some
$250,000 in consideration of the taxpayer resign
ing from one company and accepting employment
with a firm in which the payor was interested. The
question in issue was whether this was a capital or
an income receipt. In its decision, the Court held
that, as there was no extensive description of
"income" in the 1948 Income Tax Act, the word
had to be given its ordinary meaning, bearing in
mind the distinction between capital and income,
and the ordinary concepts and usages of mankind.
Kerwin C.J., with whom Locke and Judson JJ.
concurred, said at pages 854-855:
As has been pointed out in the recent judgment of this Court in
Bannerman v. Minister of National Revenue, there is no exten
sive description of income such as appeared in The Income War
Tax Act. The word must receive its ordinary meaning bearing
in mind the distinction between capital and income and the
ordinary concepts and usages of mankind. Under the authori
ties it is undoubted that clear words are necessary in order to
tax the subject and that the taxpayer is entitled to arrange his
affairs so as to minimize the tax. However, he does not succeed
in the attempt if the transaction falls within the fair meaning of
the words of the taxing enactment.
Martland J., in coming to the same conclusion on
the appeal, did not deal directly with the meaning
of the word "income".
In my view, where amounts, in this case money,
are received by a person for his or her own benefit,
those amounts, generally speaking, must be con
sidered either as a receipt of a capital nature or as
an income receipt. I know of no other categories;
all tax cases appear to place such receipts in either
one category or the other, unless, perhaps, the
amounts are some kind of mere reimbursement.
Gifts may, perhaps, be in a separate category—a
kind of no-man's land.
In the circumstances of the present case, when
applying the ordinary concept and usage of the
word "income", I cannot conceive the monies
received as being anything else but a receipt of
income as opposed to a capital payment. They
were neither a gift nor a windfall, nor payment for
an asset or benefit of a permanent or semi-perma
nent nature. On the contrary, they were directly
and solely related to the length of time over which
the defendant payee acted (or refused to act) and
the time during which the payor benefited from
what the payee agreed to do.
The defendant, and his compatriots, received
amounts similar to those normally received from
their employer. The monetary calculation was
based on their usual salaries. During the period in
issue, the stipend amounts were paid from a new
source, other than the employer. The Liquor Board
employees exercised their then right to provide or
withdraw their services to or from their employer,
for tactical purposes, in union vs. management
strategies.
While the test is not: if it is not capital, then it
must inevitably be income, the amounts here
received smack of income, rather than something
else.
All "income" is obviously not taxable under the
Income Tax Act. There are exceptions covering
certain persons, corporations or organizations and
also certain types of income depending on its
source or nature. Paragraph 3(a) of the Act pro
vides that "income . .. from a source inside or
outside Canada" is taxable. The source in the
present case was the S.G.E.U. and more particu
larly the strike fund of the S.G.E.U. I can find
nothing in the Act which makes payments from a
strike fund exempt from taxation. As to the
beneficiary of the payment as well as to the nature
of the payment, again, I can find nothing in the
Act, nor in any relevant legislation, which would
lead one to conclude the defendant, by the mere
fact that he was on strike, would be exempted
from payment of tax on amounts received. Nor can
I conclude the payments made in the context of
the present situation would somehow be exempt.
Evidence was led to the effect it has been the
consistent policy of the Department and of assess
ing officers not to assess, for taxation, any ordi
nary strike benefits received by a taxpayer and
paid as a result of a labour dispute. I fully accept
that evidence. But it can have no real bearing on
the issue here. The manner in which the provisions
of a statute are applied, by officers charged with
their implementation, can never change or affect
the substance or meaning of those provisions. The
administrative decision to refrain from taxing ordi
nary strike benefits might well have been taken for
no reason, other than it was politically less
controversial.
I cannot concur in the reasoning of the presiding
Tax Review Board member, nor in his result.
I am driven to the conclusion the amounts
received by the defendant were income, and not
exempt from tax.
I add this. Those of us brought up in the
common law tradition normally rely so heavily on
precedents, that an administrative practice applied
over a prolonged period can frequently create the
impression that it, in fact, conforms to substantive
law. It may be Parliament should stipulate wheth
er or not ordinary strike pay and any supplemen
tary or extraordinary strike benefits should or
should not be taxable. It appears this question was
in fact raised, but never actually dealt with, when
amendments to the Income Tax Act were enacted.
On this subject, I quote from paragraph 26,460 of
Income Taxation in Canada, Vol. II, published by
Prentice-Hall Canada Inc.:
Strike pay is an anomaly. The amounts (union dues) from
which strike pay is paid are fully deductible in the hands of
employees, as are, for example, unemployment insurance pre
miums. By contrast, however, unemployment insurance benefits
are taxed. On the assumption that strikes are voluntary and
unemployment is involuntary, if there was to be an exception,
one would have thought it might be unemployment benefits
that were exempt. This anomaly, clearly, occurred at the
cabinet table, as the first tax reform bill showed `strike pay' as
a marginal note for amounts to be included in income, but
without the corresponding legal language.
The appeal is allowed. The assessment is con
firmed. The plaintiff is entitled to costs.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.