T-4130-76
Domenic Cirella (Plaintiff)
v.
The Queen (Defendant)
Trial Division, Thurlow A.C.J.—Hamilton,
November 22; Ottawa, December 7, 1977.
Income tax — Income calculation — Damages awarded for
personal injuries in motor vehicle accident — Reasons for
judgment indicating a portion of damages awarded for loss of
income — Whether or not that sum should be included in
income Income Tax Act, S.C. 1970-71-72, c. 63, ss. 3,
5(1), 9.
Plaintiff, in 1972, was awarded judgment for damages for
personal injuries and the reasons for judgment indicated that a
portion represented special damages in respect of loss of
income. The Minister included that sum in his reassessment of
plaintiff's income for that year. Plaintiff now appeals from the
Tax Review Board's decision to uphold the Minister's
reassessments.
Held, the appeal is allowed. What the Court awards in
personal injury cases is damages to compensate the injured
person for the wrong done him. Although the impairment of the
injured person's earning capacity is often an element involved
in such awards, the damages are all of the same nature for
there is but one tort and one impairment. The damages were in
no sense earned or gained in the pursuit of any calling or trade
or from property, and they were not of an income character.
The description of them in the judgment as damages for loss of
income does not characterize the amount awarded as income
but merely indicates the method by which a portion of the total
award, which is of a capital rather than an income nature, was
calculated.
Groves v. United Pacific Transport Pty. Ltd. [1965] Qd.R.
62, applied. Graham v. Baker (1961) 106 C.L.R. 340,
applied. London and Thames Haven Oil Wharves, Ltd. v.
Attwooll [1967] 2 All E.R. 124, distinguished. Raja's
Commercial College v. Gian Singh & Co. Ltd. [1977]
A.C. 312, distinguished.
APPEAL.
COUNSEL:
M. Mazza for plaintiff.
N. Helfield for defendant.
SOLICITORS:
Mazza, Mazza & Mazza, Hamilton, for
plaintiff.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
THURLOW A.C.J.: The issue in this appeal is
whether the plaintiff is liable for income tax in
respect of an amount of $14,500, being part of a
total amount of $34,400 awarded him by a judg
ment of the Supreme Court of Ontario in 1972 for
damages for personal injuries sustained by him in
a motor vehicle accident in 1968. The reasons for
judgment indicate that the particular amount of
$14,500 was awarded as special damages in
respect of the plaintiff's loss of income for the
period from the time of the injury to the end of
1971.
The plaintiff is a welder. At the time of the
injury he was employed as such by a company
known as "Indofab" and earning $108 per week.
He went back to his employer after his recovery
but, because of the permanent disability arising
from his injuries, he was unable to do the heavy
work involved in his job. Since then he has carried
on a light-welding business of his own. The precise
date when the business was started is not clear, the
evidence of the plaintiff being that it was in 1970
or 1971.
In reassessing the plaintiff for the 1972 taxation
year, the Minister included the $14,500 in the
plaintiff's income and his action in so doing was
upheld by the Tax Review Board.
In support of the assessment, the defendant in
the defence cited sections 3 and 9 of the Income
Tax Act. The same statutory provisions had been
cited by the Minister in his notification under
subsection 165(2). But as the evidence indicated
that, prior to the injury, the plaintiff had been an
employee of Indofab rather than engaged in carry
ing on his own business, counsel for the Crown also
referred to and relied on subsection 5(1).
Section 3 of the Act requires that there be
brought into the computation of the income of a
taxpayer for a taxation year:
3. ...
(a) ... the aggregate of amounts each of which is the
taxpayer's income for the year ... from a source inside or
outside Canada, including, without restricting the generality
of the foregoing, his income for the year from each office,
employment, business and property ... .
Under subsection 5(1):
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.
Under subsection 9(1):
9. (1) Subject to this Part, a taxpayer's income for a taxa
tion year from a business or property is his profit therefrom for
the year.
No case was cited, and I am not aware of any, in
which the particular problem raised by this appeal,
viz., the liability of a taxpayer for income tax in
Canada in respect of special damages awarded for
loss of income over a particular period of time
resulting from the impairment of his earning
capacity by personal injuries, has been decided. I
was told by counsel for the plaintiff—without pro
test by counsel for the defendant—that such
amounts have not heretofore been assessed. But
whether that is so or not, the point was left open
by the majority of the Supreme Court in The
Queen v. Jennings'. There, in the course of dis
cussing the application in this country of the deci
sion of the House of Lords in British Transport
Commission v. Gourley [[19561 A.C. 185], Judson
J. said at page 544:
For what it is worth, my opinion is that an award of damages
for impairment of earning capacity would not be taxable under
the Canadian Income Tax Act. To the extent that an award
includes an identifiable sum for loss of earnings up to the date
of judgment the result might well be different. But I know of no
decisions where these issues have been dealt with and until this
has been done in proceedings in which the Minister of National
Revenue is a party, any expression, of opinion must be insecure.
Such litigation would have to go through the Board of Tax
Appeals or direct to the Exchequer Court with a final appeal,
in appropriate cases, to this Court. As matters stand at present
this ground alone is perhaps sufficient for the rejection of the
principle in Gourley.
The substance of the argument put forward by
counsel for the defendant, as I understood it, was
that the amount here in question was not damages
for the loss of anything of a capital nature but was
1 [1966] S.C.R. 532.
for loss of income for a particular period of time,
that as such it replaced or compensated the plain
tiff for income he would have earned and thus it
should be brought into his income for tax purposes.
He relied in particular on London and Thames
Haven Oil Wharves, Ltd. v. Attwooll 2 , where an
amount recovered for loss of use of a jetty for 380
days during repair following a collision by a ship
with it was held to have been properly assessed as
income, and Raja's Commercial College v. Gian
Singh & Co. Ltd.', where damages recovered for
loss of the opportunity to earn a higher rent during
a period in which tenants, who had been given
notice to quit, overheld were considered to be
assessable as income of the landlord.
I do not think the principle of these cases bears
on the present situation. They were concerned with
elements to be brought into account in computing
the profits of businesses or properties where there
had been a decrease or shortfall in the revenue, in
the first case by damage done to an income-pro
ducing asset of the business and in the second by a
tortious overholding of an income-producing prop
erty. In each case, the loss had been compensated
for by the damages awarded. Here, there was no
property in respect of which any loss arose and for
any part of the period involved in the calculation
of the damages here in question in which it might
be concluded that the plaintiff was carrying on his
newly-commenced business it cannot, in my view,
be affirmed that there was any loss or shortfall of
revenue of that business attributable to the tort for
which he was compensated since the injuries had
been incurred long before the business was com
menced. I should add that I also doubt that the
plaintiff could properly be regarded as an asset of
his own business so as to treat damages recovered
for personal injuries occasioned to him as filling a
hole or shortfall of the revenue of the business
resulting from his injury. In my view, therefore,
the amount in question is not assessable in whole
or in part as income of the plaintiff's business.
2 [1967] 2 All E.R. 124.
3 [1977] A.C. 312.
Nor do I think the amount can be regarded as
income from employment. It was not salary or
wages or a gratuity or other remuneration of
employment, and it was not paid or received as
such 4 . It was not earned by working for or serving
anyone. And it was not paid or received to induce
the plaintiff to work for or serve anyone 5 .
Moreover, in defining income from employment,
the statute is very precise as to what is to be
included, but nowhere does it specify that such an
amount is to be included as such income.
There remains the question whether the amount
is otherwise of an income nature so that it ought to
be regarded as income from a source of income
within the meaning of section 3. The wording of
the judgment describes the amount in terms
suggestive of income and calculates it in part on
the basis of prospective income that, but for the
injury, might have been earned. But the nature of
the amount, as I see it, is determined not by that
but by the nature of the award itself. What a court
awards in personal injury cases is damages to
compensate the injured person for the wrong done
him. One of the elements frequently involved in
such awards is the impairment of the earning
capacity of the injured person resulting from his
injuries and, in such cases, it is usual to assess the
damages in respect thereof in two parts: one con
sisting of the loss up to the time of the judgment,
which can generally be calculated with some
approach to accuracy because the relevant events
have already occurred; and the other, the loss for
the future which can never be better than an
informed and reasonable estimate. In both
instances, however, they are for the same injury,
the same impairment of earning power. There is
but one tort and one impairment and, in my
opinion, the damages therefor are all of the same
nature.
4 Compare The Queen v. Atkins [1976] C.T.C. 497, 76 DTC
6258.
5 Compare Curran v. M.N.R. [1959] S.C.R. 850.
The point is put thus in the thirteenth edition of
McGregor on Damages at page 296:
The only feature which is not actually decided by Gourley's
case is whether these particular damages would themselves be
liable to tax, for it was agreed that they would not be. Earl
Jowitt alone gave his opinion on the correctness of this, saying
that he thought that it was rightly agreed. And indeed it would
seem that there is no "source" from which the amount given as
damages can be said to come as income, for it represents not so
much loss of earnings as the loss of future earning capacity,
which is a capital value. Further, no distinction was taken in
Gourley's case between the special damages for loss of earnings
up to the time of judgment and the general damages for loss of
future earning capacity. This is correct, and it would be falla
cious to regard the special damages as taxable on the ground
that they are loss of income and the general damages as not
taxable on the ground that they are loss of a capital asset. For
both are of the same nature, and it is only the accident of the
time when the action is heard that will put a particular sum
into the one category or the other. If the general damages for
loss of future earning capacity are to be regarded as not
taxable, then the same should be said in respect of the special
damages, which in this case only represent a portion of the
general damages for loss of earning capacity in a crystallised
form. And indeed the plaintiff has not specifically earned, by
working for them, the sums of damages awarded as special.
To the same effect is the reasoning of the High
Court of Australia in Graham v. Baker 6 . The
Court (Dixon C.J. and Kitto and Taylor JJ.) said
at page 346:
So far the matter has been discussed as if the right of a
plaintiff whose earning capacity has been diminished by the
defendant's negligence is concerned with two separate matters,
i.e. loss of wages up to the time of trial and an estimated future
loss because of his diminished earning capacity. It is, we think,
necessary to point out that this is not so. A plaintiff's right of
action is complete at the time when his injuries are sustained
and if it were possible in the ordinary course of things to obtain
an assessment of his damages immediately it would be neces
sary to make an assessment of the probable economic loss
which would result from his injuries. But for at least two
obvious reasons it has been found convenient to assess an
injured plaintiff's loss by reference to the actual loss of wages
which occurs up to the time of trial and which can be more or
less precisely ascertained and then, having regard to the plain
tiff's proved condition at the time of trial, to attempt some
assessment of his future loss.
6 (1 96 1 ) 106 C.L.R. 340.
This view was followed by Gibbs J. in Groves v.
United Pacific Transport Pty. Ltd.':
Although it is usual and convenient in an action for damages
for personal injuries to say that an amount is awarded for loss
of wages or other earnings, the damages are really awarded for
the impairment of the plaintiff's earning capacity that has
resulted from his injuries. This is so even if an amount is
separately quantified and described as special damages for loss
of earnings up to the time of trial. Damages for personal
injuries are not rightly described as damages for loss of income.
Adopting, as I do, this view of the nature of the
right of the plaintiff to the damages in question
and having regard as well to the fact that they
were in no sense earned or gained in the pursuit of
any calling or trade or from property but arose
from the injury done him, I am of the opinion that
these damages are not of an income character and
that the description of them in the judgment as
damages for loss of income and the reasoning
applicable thereto do not characterize the amount
awarded as income but merely indicate the method
by which a portion of the total award, which is of a
capital rather than an income nature, was calculat
ed. See The Glenboig Union Fireclay Co., Ltd. v.
The Commissioners of Inland Revenue' and The
Queen v. Atkins (supra).
The appeal will be allowed with costs and the
reassessment will be referred back to the Minister
for reassessment accordingly.
' [1965] Qd.R. 62 at page 65.
8 (1922) 12 T.C. 427.
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.