Butler v Canada : Tax Filing Guidelines for Workplace Compensation Claims

Facts of the Case

In the case of Butler v Canada, 2016 FCA 65 [Butler] Mr. Butler appealed a decision made last January at the Tax Court of Canada, where he was required to repay the Old Age Security Pension (“OASP”) approximately $3000.

Mr. Butler received a lump sum award under Nova Scotia’s Workers’ Compensation Act, SNS 1994-95, c 10 (“The Act”). The Worker’s Compensation Board of Nova Scotia had issued a T5007 slip for Mr. Butler for his OASP, but he failed to include it as an additional income when filing his taxes. He alleged that the reason for this was that it did not actually constitute income, because it was an award given to him to compensate for his injury, and should thus be considered a non-economic payment. He drew a parallel between his OASP and damages received in a tort claim, which are not declared as income. He used the Ontario Workplace Safety and Insurance Board’s website as evidence to show that they do not issue such slips for payments relating to non-economic loss compensation to their workers.

At the Tax Court of Canada

 Paragraph 56(1)(v) of the Income Tax Act (“ITA”), RSC 1985, c 1 (5th Supp) clearly states that compensation that is received under either a Canada or provincial law relating to employer’s compensation regarding an injury should be included as constituting income for the taxpayer. Here, the Tax Court, citing the Supreme Court of Canada’s (“SCC”) decision in Nowegijick v The Queen, [1983] 1 SCR 29 [Nowegijick], noted that the statute’s reference of the compensated injury has to be interpreted broadly to account for the entire amount that is paid for the injury.

Mr. Butler tried to argue that the Canada Revenue Agency’s (“CRA”) “T5007 Guide – Return of Benefits” publication noted that many different types of payments that are received from the Worker’s Compensation Board do not have to be reported as income – particularly, awards relating to medical expenses incurred by the employee and if compensation is a form of interest. He alleged that his OASP payment was not for the loss of wage replacement and that some parts of his award were for interest, and thus should not be reported as income.

Mr. Butler also purported that the Tax Court did not give enough consideration to the letter that he received from the Income Tax Rulings Directorate that seemed to suggest that he did not have to declare the OASP as income. The Tax Court, however, did not believe that the letter was relevant to Mr. Butler’s case.

At the Federal Court of Appeal

The FCA noted that Mr. Butler’s arguments relating to the CRA’s publication were inadmissible because they were not made before the Tax Court and as such cannot be brought up on a further appeal. Furthermore, the FCA agreed with the Tax Court’s ruling that the letter was insufficient to determine the case because it is a matter of law that cannot be satisfied via a letter.

The FCA noted that although the Tax Court did not address whether the OASP was considered to be non-economic, it would not have changed the outcome of the case. On the facts, the FCA noted that the OASP received by Mr. Butler did in fact constitute income within the meaning of the ITA. The FCA also held that the policies outlined by the Worker’s Compensation Board are not determinative, as:

The provision is sufficiently broad to encompass non-economic loss payments received by injured workers under provincial workers’ compensation legislation to compensate them for pain and suffering. Such payments are clearly “compensation” and also are received “in respect of an injury” or “in respect of a disability”, within the meaning of paragraph 56(1)(v) of the ITA. (Butler, para 10)

The FCA notes that this holding is consistent with that of a similarly held Ontario case, Larouche v Canada (Human Resources and Social Development), 2007 TCC 743, 2007 CCI 743 regarding income claims under the province’s workers’ compensation provisions. Furthermore, Mr. Butler’s argument relating to the CRA’s publication is an invalid comparison, as those payments are not considered to be compensation, but are more analogous to repayments for expenses that were incurred by an injured party. Accordingly, Justice Gleason, writing for the court, dismissed Mr. Butler’s appeal and concluded that the Tax Court was correct in holding that the OASP constituted income.