A-1007-85
The Queen (Respondent) (Plaintiff)
v.
Wally Fries (Appellant) (Defendant)
INDEXED AS: CANADA v. FRIES (C.A.)
Court of Appeal, Urie, Hugessen and Desjardins,
JJ.A.—Regina, April 28; Ottawa, May 5, 1989.
Income tax — Income calculation — Strike pay — Appeal
from trial judgment holding money received from Union
income within Income Tax Act, s. 3(a) — Appellant, Liquor
Board employee, striking in support of other striking public
servants — Union paying amount equivalent to net pay during
strike — Administrative practice not to tax amounts paid by
union to members during strike, unless providing services to
union under employment contract — Trial Judge finding
enforceable contract between Union and Board employees —
Such finding unnecessary as (l) Act not specifically exempting
strike pay from taxation, and (2) administrative policy not
determinative — Onus on person contesting assessment to
show amount received not income — Trial Judge correctly
finding amounts income within s. 3(a) — Strike fund,
accumulated from monthly deductions from members' wages,
source of funds — As members losing control over money paid
to Union, no analogy to personal strike fund, withdrawals
from which not taxable as return of own money upon which
tax already paid.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Income Tax Act, S.C. 1970-71-72, c. 63, ss. 3(a),
149(1)(k).
CASES JUDICIALLY CONSIDERED
APPLIED:
Nowegijick v. The Queen, [1983] 1 S.C.R. 29; [1983]
C.T.C. 20; Curran v. Minister of National Revenue,
[1959] S.C.R. 850.
COUNSEL:
Jennifer L. Garvie Pritchard for appellant
(defendant).
Max J. Weder for respondent (plaintiff).
SOLICITORS:
Deputy Attorney General of Canada for
respondent (plaintiff).
Balfour, Moss, Milliken, Laschuk & Kyle,
Regina, Saskatchewan, for appellant (defen-
dant).
The following are the reasons for judgment
rendered in English by
URIE J.A.: The parties hereto have agreed that,
despite the small amount involved, this appeal is
an important one since it is a test case for a
substantial number of other potential appellants
whose appeals from assessments of income tax
arising from largely similar facts, depend on the
outcome of the appeal. The appeal is from a
judgment of Collier J. in the Trial Division
[[1985] 2 F.C. 378] in which he allowed the
appeal of the respondent from a decision of the
Tax Review Board ("the Board") whereby the
Board held that the assessment of the Minister of
National Revenue ("the Minister"), taxing the
payment of $880.80 to the appellant, by a union,
as income received by him in the 1979 taxation
year, was valid and properly levied.
It is not in dispute that the learned Trial Judge
accurately summarized the facts as follows [at
pages 380-383]:
The issue involves payment, by a union, of an amount of
$880.80 to the defendant who was an employee of the Sas-
katchewan 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 somewhat com
plicated organization in respect of employer-employee relation
ships with the provincial government, its various departments
and other entities. The employees of forty-seven departments,
boards, commissions or other agencies, controlled or operated
by the Saskatchewan government, 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 government employees'
organization was the Public Service Bargaining Unit with
roughly 12,000 members. Their employer was the Public Ser
vice 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 bargain
ing process between the various bargaining units and their
particular employers. That was done by the bargaining commit
tee of each of the bargaining units.
The collective agreement between the Public Service Com
mission and the Public Service Bargaining 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 Advisory 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 member
ship of the Liquor Board Branch on Saturday, November
24th regarding 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 Com
mittee 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 Executive 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 recom
mendation 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
Provincial 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 economic loss, including loss of pension benefits,
etc.
From November 26 to December 17, 1979, a large number
of Liquor Board employees, including 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 employ
er, 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 author
ized 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.
The learned Trial Judge, at trial, accepted the
argument of counsel for Her Majesty that an
enforceable contract existed between the S.G.E.U.
and the individual members thereof employed by
the Liquor Board. He said [at page 387] that:
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 obligation
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 arrange
ment 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.'
' Appeal Book, Vol 2, pp. 212-213.
The appellant, through his counsel, vigorously
contested this finding. However, we do not find it
necessary either to agree or to disagree with it
since we are of the opinion that the appeal may be
decided solely on the more basic issue of whether
or not the payment received by the appellant from
his union was income in his hands. It would appear
that Collier J. made his finding as to the existence
of the contract largely because that was the way
that the case was argued before him for the reason
that will shortly appear. More importantly, he held
that the payments were income in nature within
the meaning of paragraph 3(a) of the Income Tax
Act [S.C. 1970-71-72, c. 63], ("the Act") which
reads as follows:
3. The income of a taxpayer for a taxation year for the
purposes of this Part is his income for the year determined by
the following rules:
(a) determine 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;
Counsel for the appellant's primary contention
was that the payment to the appellant was a strike
benefit and strike benefits paid by a union to its
members are not income for the purposes of the
Act and, therefore, are not taxable. She conceded
that nothing in the Act exempts them from being
included in taxable income but pointed to Interpre
tation Bulletin IT-334R as indicating the Minis
ter's administrative position with respect to strike
benefits. Paragraph 3 of the Bulletin reads as
follows:
Payments Received by Union Members
3. Financial assistance paid by a union to its members
during the course of a strike is not necessarily income of the
member for the purposes of the Act. Such amounts, when
received by a member, will be taxable if they are received as a
consequence of the member being an employee of the union.
Where union members receive funds that originated, or will
originate, from the operation of a business by the union, the
amounts will be treated as income subject to tax regardless of
whether or not the receiving members participated in the
business activity. Similarly, any amounts are taxable which are
received by a taxpayer who is employed by or a consultant to a
union, either permanently or as a member of a temporary
committee, or who has withdrawn his services from his employ-
er and has agreed to provide services, pursuant to an employ
ment contract, to the union.
It was apparently to counter the effect of this
Bulletin that counsel for the respondent
endeavoured, successfully, to persuade the Trial
Judge that the appellant and his Union had
entered into a contract whereby Mr. Fries would
perform some sort of service on behalf of the
Union which would make the payment received for
such service taxable in his hands. It was not neces
sary, in our view, to make such a finding for two
reasons. First, as already noted, there is nothing in
the Act which exempts strike pay, in its strictest
sense, from taxability. Secondly, while administra
tive policy as set out in Interpretation Bulletins is
"entitled to weight and can be an `important fac
tor' in case of doubt about the meaning of
legislation", 2 it cannot be determinative. Such
doubt cannot exist in this case since there is no
applicable legislation possibly giving rise to doubt.
The Act does not provide specifically for the exclu
sion of strike benefits from taxation although
administratively the Minister, apparently, does not
usually assess tax thereon. That this is so does not
mean that strike pay is not taxable. If, as here, he
decides to assess, the person contesting such
assessment must show that the benefits or pay he
receives is not income in his hands within the
meaning of that word in the Act. He cannot rely
simply on past administrative practice as the foun
dation for his claim for exemption of such benefits
from tax.
The nature of the word "income" as used in the
Act was, as pointed out by Collier J., considered
by the Supreme Court of Canada in Curran v.
Minister of National Revenue 3 where it was held
by three of the members of the panel that:
The word must receive its ordinary meaning bearing in mind
the distinction between capital and income and the ordinary
concepts and usages of mankind.
2 Nowegijick v. The Queen, [1983] 1 S.C.R. 29, at p. 37;
[1983] C.T.C. 20, at p. 24.
3 [1959] S.C.R. 850, at p. 854.
The Trial Judge on this basis made this finding
[at page 389]:
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 considered 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 sonic kind of mere
reimbursement. Gifts may, perhaps, be in a separate catego-
ry—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-permanent 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 simi
lar to those normally received from their employer. The mone
tary 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.
We agree that Mr. Justice Collier has accurate
ly and succinctly demonstrated that the amounts
paid to the appellant and others like him by his
Union are income in nature within the meaning of
paragraph 3(a) of the Act, provided that the
income is from a source inside or outside Canada.
Among the possible sources is income from each
office, employment, business and property but the
source clearly is not confined to the specific enu
merated sources.
The source of the payments in this case was
from the "defence fund" or the strike fund set up
by the union from the dues paid to it by its
members. Those dues, which, according to the
evidence, were deducted at source monthly from
the members' wages, were paid at the rate of 1.2%
per month. The money received was then divided
into three separate funds, namely (a) an operation
al account for the day-to-day operations of the
union, (b) a defence fund which was accumulated
by deducting from the monthly dues paid by each
the sum of $1.50, and (c) a contingency fund. The
annual dues paid by each member are deductible
in the calculation of his or her taxable income. The
gross income derived from such is not taxable in
the hands of the Union by virtue of paragraph
149(1) (k) of the Act.
The appellant submitted that the source of funds
available for strike benefits is the members'
income from their employment. There is, in coun
sel's submission, no new source. She analogized
this situation to one in which each individual
member might set up, by deductions from his
income, his or her own personal strike fund. In
such event, she said, withdrawals made by such
person during a strike would not be taxable
because they would be simply a return of that
person's own money upon which he or she had
already paid tax.
We do not agree that this is any way analogous
to what was done here if only because personally
compiled strike benefits would be paid only until
the special fund was exhausted whereas, in the
case of payments from a union's strike fund, they
would be made for the duration of the strike or
until the union executive decided to terminate the
payments for whatever reason. However, the real
difference, as the evidence clearly discloses, is that
as soon as the dues are received by the union they
go into a common fund which is divided in the
manner earlier described, with no right of with
drawal by the paying members. The funds derived
from such dues have completely lost their identity
so far as each contributing member is concerned.
The members have lost all control over them and
their disposition is solely determined by the union,
presumably through its executive. They, thus, pro
vided the source of the income of the appellant's
strike pay as the learned Trial Judge found. It is
again, a conclusion with which we agree. Since,
under the Act, such payments are income, they
become subject to tax and assessment therefor.
There is no basis, therefore, upon which the appel
lant can found his appeal.
Accordingly, the appeal will be dismissed with
costs.
HUGESSEN J.A.: I concur.
DESJARDINS J.A.: I agree.
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.