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Appeals : Confirmed
Referee Decisions : #41 - March 4th, 2002
Decision of the Court having jurisdiction
in the Class Action - May 29, 2002
REFEREE DECISION
March 4th, 2002
- Issue
- The issue on this reference is whether in determining
compensation for loss of income under the 1986-1990
Hepatitis C Settlement Agreement (the "Agreement"),
the Administrator erred in concluding that Unemployment
Insurance/Employment Insurance benefits ("UI/EI
benefits") should not be considered part of Earned
Income for the purpose of calculating the Claimant's
Pre-claim Net Income.
- This reference centres on the legal question of whether
Earned Income, as defined in the Transfused HCV Plan
(the "Plan"), includes UI/EI benefits for
the purpose of calculating Pre-claim Net Income of an
Approved HCV Infected Person. In this case, the Claimant
typically earned employment income for only parts of
a calendar year before being disabled by HCV. During
other parts of the calendar year he received UI/EI benefits.
By being employed he qualified for UI/EI benefits. He
argues that those benefits should be included in his
Pre-claim Net Income to calculate his income loss. In
reply, the Administrator says that by design the specific
wording of the Plan excludes UI/EI benefits for the
purposes of calculating Pre-claim Net Income but includes
such benefits in the calculation of Post-claim Net Income,
also defined in the Plan. In short, the Administrator
says that it was intended that a claimant would not
get the advantage of such benefits in determining Pre-claim
Net Income, on one side of the ledger, but a claimant
would have to account for such benefits in calculating
Post-claim Net Income on the other side of the ledger.
Since income loss is essentially based on 70% of annual
loss of net income, arrived at by subtracting Post-claim
Net Income from Pre-claim Net Income, a claimant's loss
of income may be considerably reduced if UI/EI benefits
are not included in the calculation of Pre-claim Net
Income.
- Facts
- The Claimant has the Hepatitis C virus ("HCV").
The Claimant meets the definition of an Approved HCV
Infected Person within the meaning of the Plan, as an
HCV Infected Person whose claim has been accepted by
the Administrator. He was awarded compensation under
the Plan including loss of income payments. The Claimant
is recognized as an Approved Class Member. He met the
disability criteria for loss of income as a claimant
who had earned income but due to HCV is unable to perform
the substantial duties of his employment such that he
no longer works more than 20% of his usual work week.
- The claim for loss of income was based on the Claimant's
total income before deductions as indicated on his income
tax returns for 1994, 1995 and 1996. His income for
taxation purposes included UI/EI benefits.
- In calculating the Claimant's compensation for loss
of income, the Administrator deducted UI/EI benefits
received by the Claimant in determining his Pre-claim
Net Income. Under the Plan, compensation is based on
70% of the Annual Loss of Net Income for each calendar
year where such loss occurs until age 65. The Administrator
must first calculate the Claimant's Pre-claim Net Income
based upon the Claimant's best three consecutive years
of earned income before the year of disability.
6. In August of 2001 the Administrator informed the
Claimant and his solicitor that the calculation of Earned
Income would not include the Claimant's UI/EI benefits.
On August 27, 2001, the Claimant requested a review
of the Administrator's decision concerning the interpretation
of Earned Income as excluding UI/EI benefits. The Claimant
took the position that he was taxed on UI/EI benefits
as income in his pre-claim years and he required that
income to afford to live. The Claimant requested the
review to be conducted by a Referee.
- In a letter dated October 30, 2001, the
Administrator confirmed the earlier decision to exclude
UI/EI benefits from Earned Income for the purposes of
calculating the Claimant's Pre-claim Net Income. The
essence of the Administrator's position was that UI/EI
benefits are not included in the definition of Earned
Income as set out in section 4.02(2)(d) of the Plan
which states that "Earned Income means taxable
income for the purposes of the Income Tax Act (Canada)
from an office or employment or from the carrying on
of an active business …". [emphasis added
by Administrator]
- Counsel for the Claimant and Fund counsel for the
Administrator both filed supplementary written submissions.
The parties waived the requirement for an oral hearing.
- The Plan
- To assist in understanding the analysis
of this issue, I set out below the relevant sections
of the Plan.
1.01 Definitions
"Approved HCV Infected Person" means a HCV
Infected Person whose Claim made pursuant to Section
3.01 or 3.02, as the case may be, has been accepted
by the Administrator.
4.02 Compensation for Loss of Income
(2) Each Approved HCV Infected Person who is entitled
to receive compensation for past, present or future
loss of income caused by his or her infection with HCV
will be paid, subject to the provisions of Section 7.03.
an amount each calendar year equal to 70% of his or
her Annual Loss of Net Income for such year until he
or she attains the age of 65 years determined in accordance
with the following provisions:
- "Annual Loss of Net Income" for a year
means the excess of the Approved HCV Person's Pre-claim
Net Income for such year over his or her Post-claim
Net Income for such year.
- "Pre-claim Net Income" of an Approved
HCV Infected Person for a year means an amount determined
as follows:
- an amount equal to the average of the person's
three highest consecutive years of Earned Income
preceding the HCV Infected Person's entitlement
to compensation under this Section 4.02 multiplied
by the ratio that the Pension Index for the
year bears to the Pension Index for the middle
year of the foregoing three consecutive years,
or, if the Approved HCV Infected Person or the
Administrator demonstrates on a balance of probabilities
that his or her Earned Income for such year
would have been higher or lower than such average
but for the HCV Infected Person's infection
with HCV, such higher or lower amount, (the
applicable amount being hereinafter referred
to as the "Pre-claim Gross Income"),
provided that the amount determined under this
Section 4.02(2)(b)(i) will not exceed $75,000
multiplied by the ratio that the Pension Index
for the year bears to the Pension Index for
1999, minus
- the Ordinary Deductions that would be payable
by the Approved HCV Infected Person on the amount
determined under Section 4.02(2)(b)(i) on the
assumption that such amount was the Approved
HCV Infected Person's only income for such year.
- "Post-claim Net Income" of an Approved
HCV Infected Person for a year means an amount determined
as follows:
- the total of (A) the Approved HCV Infected
Person's Earned Income for the year or, if the
Administrator demonstrates on a balance of probabilities
that the Approved HCV Infected Person's Earned
Income for such year would have been higher
than such amount but for the person claiming
a level of impairment greater than the person's
actual level of impairment, such Earned Income
as determined by the Administrator, (B) the
amount paid or payable to the person in respect
of the Canada Pension Plan or the Quebec Pension
Plan on account of illness or disability for
the year, (C) the amount paid or payable to
the person in respect of Unemployment Insurance
and/or Employment Insurance for the year, (D)
the amount paid or payable to the person for
income replacement under a sickness, accident
or disability insurance plan for the year, and
(E) the amount paid or payable to the person
pursuant to the EAP, MPTAP and/or the Nova Scotia
Compensation Plan, (such total being hereinafter
referred to as the "Post-claim Gross Income"),
provided that the amount determined under Section
4.02(2)(b)(i) for such year that the Approved
HCV Infected Person's Post-claim Gross Income
for such year is of such person's Pre-claim
Gross Income for such year, minus
- the Ordinary Deductions that would be payable
by the Approved HCV Infected Person on the amount
determined under Section 4.02(2)(c)(i) on the
assumption that such amount were such person's
only income for such year.
- "Earned Income" means taxable income
for the purposes of the Income Tax Act (Canada)
from an office or employment or from the carrying
on of an active business and any taxable income
for purposes of the Income Tax Act (Canada) of a
corporation from the carrying on of an active business
to the extent that the person establishes to the
satisfaction of the Administrator that the person
has a significant shareholding in such corporation
and that such income is reasonably attributable
to the activities of such person.
- "Ordinary Deductions" means income taxes,
Unemployment Insurance and/or Employment Insurance
and Canada Pension Plan and/or Quebec Pension Plan
deductions applicable in the Province or Territory
where the person is resident.
…
- For the purposes of all income tax
calculations required under this Section 4.02(2),
the only deductions and tax credits that apply to
the Approved HCV Infected Person which will be taken
into account will be his or her alimony and maintenance
payments deduction, basic personal tax credit, married
person's or equivalent to a married tax credit,
disability tax credit, Unemployment or Employment
Insurance premium tax credit and Canada Pension
Plan or the Quebec Pension Plan contribution tax
credit.
- Submissions of the Parties
The Claimant
- Counsel on behalf of the Claimant submits
that the Claimant's net income for the applicable period
should include UI/EI benefits because UI/EI benefits are
treated as income for income tax purposes. Counsel submits
that (i) net income as defined under the Income Tax Act
(Canada) includes UI/EI benefits received by the taxpayer,
(ii) the taxpayer must claim those benefits as income
and, (iii) the taxpayer must pay taxes on that income.
Counsel argues that the underlying implication of the
Agreement as it relates to compensation for lost income
is that the parties to the Agreement understood that HCV
would prevent Approved HCV Infected Persons from working
through no fault of their own. The settlement must have
been intended to compensate such disabled persons in a
way that they would be able to provide themselves the
necessities of life. Whether the pre-claim income was
through salary or UI/EI benefits or other benefits, such
income provided the means for claimants to provide themselves
with the standard of living to which they had become accustomed.
Counsel argues that, on a purposive approach, the Agreement
must have been intended and must be interpreted to provide
claimants with 70% of their pre-claim means to survive.
Counsel further submits that in the case of the Claimant
his job was such that he would work for periods of time
and at times he would be without employment. In those
times of unemployment he relied upon UI/EI benefits to
meet his obligations. He argues that the Claimant's employment
entitled him to receive UI/EI benefits as well as salary.
He submits that UI/EI benefits were a direct result of
his employment, just the same as salary. Therefore he
argues that UI/EI benefits fall under the definition of
Earned Income as taxable income from employment.
Fund Counsel
- Fund counsel submits that the Administrator was correct
in failing to include UI/EI benefits in the calculation
of the Claimant's Earned Income as defined in section
4.02(2)(d) of the Plan. The definition restricts Earned
Income to "taxable income for the purposes of the
Income Tax Act (Canada) from an office or employment or
from the carrying on of an active business …".
Income from UI/EI benefits is not taxed as income from
an office or employment or from the carrying on of an
active business but rather is taxed as an "other
source of income" under different provisions of the
Income Tax Act (Canada). Fund counsel submits that the
issue turns on the proper interpretation of Earned Income.
Fund counsel makes the point that the Administrator must
administer the Plan in accordance with its terms and the
Administrator has no discretion to allow compensation
not in accordance with the Plan. He submits that the Administrator
properly interpreted the definition of Earned Income.
Additionally he makes the point that while the definition
of Post-claim Net Income includes UI/EI benefits, the
definition of Pre-claim Net Income excludes reference
to UI/EI benefits. Thus, it must be inferred that the
intention of the Agreement was to limit Pre-claim Net
Income to income from employment or a business while including
other benefits that a claimant is receiving, such as UI/EI
benefits, for the purpose of calculating Post-claim Net
Income. This would thereby reduce the claims for compensation
for lost income against the Fund. He suggests that when
the terms of the Agreement were settled, the financial
sufficiency of the Fund was a major consideration. This
approach, while also a purposive approach, is quite the
opposite of the purposive approach which this Claimant
argues.
- Analysis
- The benefits at issue in this case were
actually provided under the Unemployment Insurance Act,
R.S.C. 1985, c. U-1, repealed, 1996, c. 23, s. 155. This
statute has since been replaced by the new Employment
Insurance Act, S.C. 1996, c. 23. I have referred to both
UI and EI benefits as the Plan refers to both and for
the purposes of this decision it is irrelevant whether
the benefits were received as UI or EI benefits.
- The purpose of employment insurance legislation was
described by Ritchie J. in Bliss v. Canada (A.G.), [1979]
1 S.C.R. 183, referring to the old regime as follows at
p. 186:
Under the scheme embodied in the Act, the Government is
cast in the role of an insurer and the individual unemployed
members of the work force who have contributed by way
of premiums and who have otherwise qualified to receive
benefits are characterized as "beneficiaries".
The Act is replete with references to the unemployed individuals
who have fulfilled the statutory qualifications as "the
insured" and the payments to which such persons are
entitled under the Act are throughout referred to as "benefits".
- Counsel for the Claimant alludes to the principle of
reparation, restitutio in integrum, a principle derived
from the law of damages. In Andrews v. Grand & Toy
Limited, [1978] 2 S.C.R. 229 at pp. 240 241 this principle
of damages law is summarized. Counsel argues the purpose
of awarding income loss must be to put claimants in the
position to annually receive 70 per cent of the income
that they had been accustomed to living on prior to becoming
disabled. It is not full compensation for income loss
but full compensation to 70 per cent of prior income.
- Indeed, there is authority in the realm of personal
injury case law supporting the rationale that for the
purposes of calculating a plaintiff's loss of earnings,
UI/EI benefits should be taken into account. For example,
in Coghill v. Thon, [1999] B.C.J. No. 2788 (S.C.), the
court, in quantifying past loss of earnings, took into
consideration EI benefits earned by the plaintiff in the
period prior to his accident. The plaintiff was a logger
whose employment was subject to normal layoff. As a result,
the court calculated the past wage loss based on projected
income from employment and from employment insurance.
- Foregone UI/EI benefits were also added to past income
loss awards in Gerow v. Reid (1988), 88 N.S.R. (2d) 34
(N.S.S.C.T.D.) and Rowley v. Sobeys Inc. (2000), 228 N.B.R.
(2d) 56 (N.B.Q.B.). In Gerow the court made the following
observations:
In addition the work pattern of the plaintiff included
a portion of the year when he was on U.I. benefits.
The wrongdoers have deprived him of his ability to earn
income which income generated U.I. benefits. He has lost
the income and also the U.I. benefits. I consider the
loss of eligibility for U.I. payments to be a real loss
for which he should be compensated.
- The Newfoundland Court of Appeal in Briffett v. Gander
and District Hospital (1996), 29 C.C.L.T. (2d) 251 (Nfld.C.A.)
confirmed the correctness of the inclusion of unemployment
insurance benefits as part of the past remuneration pattern
in calculating lost income. The principle I glean from
the authorities is that if the plaintiff had an ability
to earn income from employment, which employment income
typically generated UI/EI benefits, the UI/EI benefits
may be included in an income loss claim. The courts may
recognize a loss of eligibility for UI/EI benefits to
be a compensable loss based upon the principle of restitutio
in integrum.
- This reference, dealing as it does with compensation
for loss of income, turns on the meaning of Earned Income
within the context of section 4.02 of the Plan. While
there may be some analogy between a loss of income claim
in personal injury damages and a claim for loss of income
under the Plan, the wording of the Plan must govern the
analysis and outcome. A better analogy than the calculation
of compensatory damages is the interpretation of a contract
of disability insurance but without the contra proferentum
rule: one must construe the contract.
- The definition of Earned Income in section 4.02(2)(d)
has been specifically narrowed to taxable income for the
purposes of the Income Tax Act (Canada) from an office
or employment or from the carrying on of an active business.
Other sources of income which are taxable under the Income
Tax Act (Canada) are not included in that definition.
Under the Income Tax Act (Canada) UI/EI benefits are taxable
as other sources of income and not income from an office
or employment or from the carrying on of an active business.
- The determination of taxable income for the purposes
of the Income Tax Act (Canada) is covered in Part 1 of
the Act by Division A (Liability for Tax) and Division
B (Computation of Income). Section 3 stipulates that the
taxpayer's income for the taxation year is based upon
the total of all amounts from an office, employment, business,
or property as well as other amounts set out in Division
B. Division B is broken down into subdivisions a through
k. Subdivision a deals with income from an office or employment.
Subdivision b deals with the income from business or property.
Subdivision d deals with other sources of income. Income
from an office or employment is stated in section 5.(1)
to be the salary, wages and other remuneration, including
gratuities, received by the taxpayer in the year. Amounts
to be included as income from an office or employment
are set out in section 6.(1). Income from a business or
property, pursuant to section 9.(1), is the taxpayer's
profit from that business or property for the year. It
is under subdivision d - Other Sources of Income, at section
56.(1)(a)(iv), that UI/EI benefits are taxed. Thus it
is apparent from an analysis of the Income Tax Act (Canada)
that taxable income from an office or employment or from
the carrying on of an active business does not include
UI/EI benefits.
- The Plan provides that a claimant entitled to compensation
will receive 70% of "Annual Loss of Net Income"
for each year, which is defined as the excess of "Pre-claim
Net Income for such year over … Post-claim Net Income
for such year". The Plan specifically defines Post-claim
Net Income in section 4.02(2)(c) to be the total of Earned
Income and, among other things, an amount paid or payable
to the person in respect of Unemployment Insurance and/or
Employment Insurance. It is clear that the drafters of
the Plan must have specifically addressed the treatment
of UI/EI benefits in determining the formula for calculating
loss of net income. The Plan mandates that benefits such
as UI/EI benefits are to be included in the calculation
of Post-claim Net Income. If Earned Income included UI/EI
benefits, the definition of Post-claim Net Income would
not have specifically referred to UI/EI benefits as additional
amounts to be added to the calculation.
- In my opinion, the Plan excludes sources of income
such as UI/EI benefits in the calculation of Earned Income.
Earned Income is limited to a claimant's income from an
office or employment or from the carrying on of an active
business. I can only conclude that the exclusion of UI/EI
benefits from the definition of Earned Income was deliberate
and as Fund counsel submits, reflected the financial sufficiency
of the Fund as a concern.
- Conclusion
- In my opinion, the Administrator correctly
interpreted the Plan in excluding the Claimant's UI/EI
benefits in calculating Earned Income for the purposes
of determining the Claimant's compensation for loss
of income. I conclude that the Administrator was correct
in the interpretation of the Plan. The Administrator
must administer the Plan in accordance with its terms.
As a Referee, I do not have the authority to ignore
or vary any of the provisions of the Plan, which the
submissions of the Claimant would require me to do.
- For the foregoing reasons the decision of the Administrator
is upheld.
DATED: March 4, 2002
SIGNED:
Vincent R.K. Orchard,
Referee
DECISION of the Court having jurisdiction in the Class
Action
May 29, 2002
[1] The Claimant who is an approved HCV infected person for
purposes of the 1986-1990 Hepatitis C Settlement Agreement,
opposes confirmation of a Referee's decision upholding the
Administrator's ruling that Employment Insurance benefits
must be excluded in the calculation of "Pre-claim Net
Income" for the purposes of computing the Claimant's
loss of income benefit under the Settlement Agreement.
[2] The claimant states his reasons as follows:
The Claimant wishes to reiterate his position that Employment
Insurance Benefits should be included in Earned Income for
the purposes of calculating Pre-Claim Net Income. His right
to claim E.I. Benefits is a direct result of his earning income
from employment and said benefits are taxable income for the
purposes of the Income Tax Act (Canada). The Referee's decision
was based on his conclusion that E.I. Benefits were excluded
from the definition of Earned Income, reflecting a concern
for the financial sufficiency of the Fund. With respect, the
Claimant submits that the reason for the Fund being created
in the original instance was to ensure the Claimants were
adequately financially compensated. Surely the priority of
the parties negotiating the Settlement was to properly compensate
the individual Claimants who have been rendered incapable
of providing for themselves by this disease. Accordingly,
the sufficiency of the Fund must have been secondary to the
financial well being of the Claimants. The Claimant requests
that the Referee's decision be overturned and that he be entitled
to have Employment Insurance Benefits included in this Pre-Claim
Net Income.
[3] There is no dispute with respect to the facts. The Claimant
was infected with the Hepatitis C virus by blood transfusion.
The Administrator determined that the Claimant was eligible
for loss of income compensation under the Settlement Agreement.
The Claimant received Employment Insurance benefits in the
pre-claim period which the Administrator excluded in the calculation
of Pre-claim Net Income. The sole issue on this application
is whether the Administrator properly construed the terms
of the Settlement Agreement regarding the calculation of Pre-claim
Net Income when excluding the benefits from the calculation.
[4] The relevant definitions in the Settlement Agreement are
the following:
1.01 Definitions
"Approved HCV infected Person" means a HCV Infected
Person whose Claim made pursuant to Section 3.01 or 3.02,
as the case may be, has been accepted by the Administrator.
4.02 Compensation for Loss of Income
(2) Each Approved HCV Infected Person who is entitled to
receive compensation for past, present or future loss on income
caused by his or her infection with HCV will be paid, subject
to the provisions of Section 7.03. an amount each calendar
year equal to 70% of his or her Annual Loss of Net Income
for such year until he or she attains the age of 65 years
determined in accordance with the following provisions:
(a) "Annual Loss of Net Income" for a year means
the excess of the Approved HCV Person's Pre-claim Net Income
for such year over his or her Post-claim Net Income for such
year.
(b) "Pre-claim Net Income" of an Approved HCV Infected
Person for a year means an amount determined as follows:
(i) an amount equal to the average of the person's three
highest consecutive years of Earned Income preceding the HCV
Infected Person's entitlement to compensation under this Section
4.02 multiplied by the ratio that the Pension Index for the
year bears to the Pension Index for the middle year of the
foregoing three consecutive years, or, if the Approved HCV
Infected Person or the Administrator demonstrates on a balance
of probabilities that his or her Earned Income for such year
would have been higher or lower than such average but for
the HCV Infected Person's infection with HCV, such higher
or lower amount, (the applicable amount being hereinafter
referred to as the "Pre-claim Gross Income"), provided
that the amount determined under this Section 4.02(2)(b)(i)
will not exceed $75,000 multiplied by the ratio that the Pension
Index for the year bears to the Pension Index for 1999, minus
(ii) the Ordinary Deductions that would be payable by the
Approved HCV Infected Person on the amount determined under
Section 4.02(2)(b)(i) on the assumption that such amount was
the Approved HCV Infected Person's only income for such year.
(c) "Post-claim Net Income" of an Approved HCV
Infected Person for a year means an amount determined as follows:
(i) the total of (A) the Approved HCV Infected Person's Earned
Income for the year or, if the Administrator demonstrates
on a balance of probabilities that the Approved HCV Infected
Person's Earned Income for such year would have been higher
than such amount but for the person claiming a level of impairment
greater than the person's actual level of impairment, such
Earned Income as determined by the Administrator, (B) the
amount paid or payable to the person in respect of the Canada
Pension Plan or the Quebec Pension Plan on account of illness
or disability for year, (C) the amount paid or payable to
the person in respect of Unemployment Insurance and/or Employment
Insurance for the year, (D) the amount paid or payable to
the person for income replacement under a sickness, accident
or disability insurance plan for the year, and (E) the amount
paid or payable to the person pursuant to the EAP, MPTAP and/or
the Nova Scotia Compensation Plan, (such total being hereinafter
referred to as the "Post-claim Gross Income"), provided
that the amount determined under Section 4.02(2)(b)(i) for
such year that the Approved HCV Infected Person's Post-claim
Gross Income for such year is of such person's Pre-claim Gross
Income for such year, minus
(ii) the Ordinary Deductions that would be payable by the
Approved HCV Infected Person on the amount determined under
Section 4.02(2)(c)(i) on the assumption that such amount were
such person's only income for such year.
(d) "Earned Income" means taxable income for the
purposes of the Income Tax Act (Canada) from an office or
employment or from the carrying on of an active business and
any taxable income for purposes of the Income Tax Act (Canada)
of a corporation from the carrying on of an active business
to the extent that the person establishes to the satisfaction
of the Administrator that the person has a significant shareholding
in such corporation and that such income is reasonably attributable
to the activities of such person.
(e) "Ordinary Deductions" means income taxes, Unemployment
Insurance and/or Employment Insurance and Canada Pension Plan
and/or Quebec Pension Plan deductions applicable in the Province
or Territory where the person is resident.
...
(g) For the purposes of all income tax calculations required
under this Section 4.02(2), the only deductions and tax credits
that apply to the Approved HCV Infected Person which will
be taken into account will be his or her alimony and maintenance
payments deduction, basic personal tax credit, married person's
or equivalent to a married tax credit, disability tax credit,
Unemployment or Employment Insurance premium tax credit and
Canada Pension Plan or the Quebec Pension Plan contribution
tax credit.
[5] The Referee stated his reasons to confirm the Administrator's
determination as follows:
This reference, dealing as it does with compensation for loss
of income, turns on the meaning of Earned Income within the
context of section 4.02 of the Plan. While there may be some
analogy between a loss of income claim in personal injury
damages and a claim for loss of income under the Plan, the
wording of the Plan must govern the analysis and outcome.
A better analogy than the calculation of compensatory damages
is the interpretation of a contract of disability insurance
but without the contra proferentum rule: one must construe
the contract.
The definition of Earned Income in section 4.02(2)(d) has
been specifically narrowed to taxable income for the purposes
of the Income Tax Act (Canada) from an office or employment
or from the carrying on of an active business. Other sources
of income which are taxable under the Income Tax Act (Canada)
are not included in that definition. Under the Income Tax
Act (Canada) UI/EI benefits are taxable as other sources of
income and not income from an office or employment or from
the carrying on of an active business.
The determination of taxable income for the purposes of the
Income Tax Act (Canada) is covered in Part 1 of the Act by
Division A (Liability for Tax) and Division B (Computation
of Income). Section 3 stipulates that the taxpayer's income
for the taxation year is based upon the total of all amounts
from an office, employment, business, or property as well
as other amounts set out in Division B. Division B is broken
down into subdivisions a through k. Subdivision a deals with
income from an office or employment. Subdivision b deals with
the income from business or property. Subdivision d deals
with other sources of income. Income from an office or employment
is stated in section 5.(1) to be the salary, wages and other
remuneration, including gratuities, received by the taxpayer
in the year. Amounts to be included as income from an office
or employment are set out in section 6.(1). Income from a
business or property, pursuant to section 9.(1), is the taxpayer's
profit from that business or property for the year. It is
under subdivision d - Other Sources of Income, at section
56.(1)(a)(iv), that UI/EI benefits are taxed. Thus it is apparent
from an analysis of the Income Tax Act (Canada) that taxable
income from an office or employment or from the carrying on
of an active business does not include UI/EI benefits.
[6] I concur in the result stated by the Referee although
we differ somewhat in the analysis of the structure provided
by the Settlement Agreement for the determination of a Claimant's
income loss resulting in the exclusion of Employment Insurance
benefits for Pre-claim Net Income.
[7] Where, as in the present case, the Claimant has agreed
to accept compensation for his injury under the Settlement
Agreement, he has agreed to be bound by its terms. The Administrator
must construe the Agreement as it was written and not as it
could have been written had the parties to the Agreement decided
to provide some other means to determine the amount of compensation
to be paid in any particular circumstances.
[8] In the absence of ambiguity, the Administrator must not
be concerned with factors that might have prompted the parties
to the Agreement to settle upon the terms reflected in the
agreement. The issue for the Administrator is to construe
the terms of the Agreement and make the computations required
by its specific terms.
[9] The compensation arrangement provided by the Agreement
requires a determination of Pre-claim Net Income defined as
the average of the Claimant's three highest Earned Income
years preceding the year in which entitlement arose. Once
determined, Pre-claim Net Income is reduced by the amount
of Ordinary Deductions that would be payable by the Claimant
were Pre-claim Net Income the Claimant's only income for the
year. Ordinary Deductions are income taxes, Employment Insurance
and Canada Pension Plan deductions applicable in the Province
where the Claimant is resident, in this case British Columbia.
The Employment Insurance and Canada Pension Plan deductions
are the premiums paid by the Claimant under either or both
of those plans.
[10] The next step in the computation of the Claimant's income
loss is the determination of Post-claim Net Income for a year.
That amount is the total of four amounts: the Claimant's Earned
Income for the year; the amounts paid or payable for the year
to the Claimant as illness or disability benefits under the
Canada Pension Plan; amounts paid or payable for the year
to the Claimant as Employment Insurance benefits; and amounts
paid or payable for the year to the Claimant under any sickness,
accident or disability insurance plan. Had the Claimant been
a resident of Nova Scotia, amounts received under the Nova
Scotia Compensation Plan would have been included as well.
Once determined, Post-claim Net Income is reduced by the amount
of Ordinary Deductions that would be payable by the Claimant
were Post-claim Net Income the Claimant's only income for
the year.
[11] The principal ingredient in the computation of Pre-claim
and Post-claim Net Income is Earned Income. Earned Income
is defined as "taxable income for the purposes of the
Income Tax Act (Canada) from an office or employment"
or "taxable income of a corporation...from the carrying
on of an active business to the extent" the Claimant
has a significant shareholding in the corporation and its
income is reasonably attributable to the Claimant's activities.
[12] Section 2(2) of the Income Tax Act defines the Claimant's
taxable income as income for the year plus the additions and
minus the deductions permitted by Division C of Part I of
the Act. The definition of Earned Income in the Settlement
Agreement is restrictive in that it is defined to be taxable
income from an office or employment. While there is only taxable
income for purposes of the Act and no such thing as taxable
income from office or employment, the meaning of the Settlement
Agreement is readily apparent. The Claimant's taxable income
for income tax purposes is to be determined on the assumption
that the Claimant had no source of income except that from
office of employment as that source is defined by the Income
Tax Act.
[13] The Claimant's income from office or employment is determined
in accordance with the rules in Part I, Division B, Subdivision
a of the Act. The Subdivision identifies the nature of the
amounts that comprise income from office or employment and
specifies the deductions that may be made in computing income
from office or employment. Notable by their absence on the
inclusion side of the equation are Employment Insurance benefits.
Such benefits are not derived from employment but from the
absence of it. The benefits are therefore included in income
under s. 56(1)(a)(iv) in Subdivision d of the Act directed
to "other sources of income"
[14] The fact that Employment Insurance benefits must be excluded
in the calculation of taxable income from office or employment
under the Agreement is evident from the definition of Post-claim
Net Income which is the aggregate of four amounts, two of
which are Earned Income and Employment Insurance benefits.
Were one to endorse the Claimant's suggestion that Earned
Income includes Employment Insurance benefits for purposes
of computing Pre-claim Net Income, they would also be part
of Earned Income for purposes of the Post-claim Net Income
calculation. On that view, they would be counted twice in
the determination of Post-claim Net Income, a result that
is unreasonable on any view of the matter.
[15] It follows that the Claimant's application to oppose
confirmation of the Referee's decision must be dismissed.
"The Honourable Mr. Justice Pitfield"
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