T-2032-81
Jan C. O'Brien (Plaintiff)
v.
The Queen (Defendant)
INDEXED AS: O'BRIEN v. R.
Trial Division, Walsh J.—Vancouver, March 12,
13 and 19, 1985.
Income tax — Income calculation — Supplemental strike
benefits — Joint council of striking unions operating newspa
per during strike — Union members working on paper not paid
therefor, but supplemental strike benefits from profits of
operating newspaper distributed according to formula in union
constitution — Argued that paper operated by union members
as individual contractors — Individual union members not
liable to tax — Wipf v. The Queen and Goldman v. Minister of
National Revenue distinguished as here no agreement re:
distribution of profits — Joint council not agent for individual
union members as no instructions as to distribution of profits
— Tax Review Board decision in Ferris case holding supple
mental strike benefits taxable, considered and disagreed with
— Not simply flowthrough of profits of newspaper to Union
members, as not all profits distributed, and part of distribu
tion from other sources — Result that profits of successful
business tax exempt — Remedy lying in amendment to Act —
Income Tax Act, S.C. 1970-71-72, c. 63, s. 149(1)(k).
CASES JUDICIALLY CONSIDERED
DISTINGUISHED:
Wipf v. The Queen, [1975] F.C. 162; [1975] CTC 79
(C.A.); Goldman v. Minister of National Revenue,
[1953] 1 S.C.R. 211; 53 DTC 1096; Heaton Transport
(St. Helens) Ltd. v. Transport and General Workers'
Union, [1973] A.C. 15 (H.L.).
CONSIDERED:
Ferris, T.E. et al. v. M.N.R. (1977), 77 DTC 17
(T.R.B.); Coast Steel Fabricators Ltd. et al. v. Minister
of Finance, [1973] 4 W.W.R. 701 (B.C.S.C.); Chappell
v. Times Newspapers Ltd., [1975] 1 W.L.R. 482 (C.A.);
Ministre du Revenu National v. Eastern Abbatoirs Ltd.,
[1963] Ex.C.R. 251; [1963] C.T.C. 19.
COUNSEL:
P. N. Thorsteinsson, Q. C. and Lorne A. Green
for plaintiff.
Ingebord E. Lloyd for defendant.
SOLICITORS:
Thorsteinsson, Mitchell, Little, O'Keefe &
Davidson, Vancouver, for plaintiff.
Deputy Attorney General of Canada for
defendant.
EDITOR'S NOTE
The Editor has decided that an abridgment of
the facts of this case will suffice.
During a strike, which lasted several months,
against the Vancouver Sun and Province, a news
paper titled the Vancouver Express was pro
duced. It was published, according to its mast
head, by Pugstem Publications, a joint venture of
the unions involved in the labour dispute. Pugstem
Publications was the name of a dormant limited
company. The Express was operated with a view
to making a profit and to maintain readership and
advertising pending a return to normal operations.
About 250 out of 1,400 unionized employees
worked on the Express. The union members were
not paid for their work on the Express but supple
mental strike benefits, resulting from profits from
the operation of the newspaper, were distributed
according to a formula in the union constitution.
The amounts received were unrelated to the
hours worked. The members excluded from ben
efits were those who refused to picket or do other
work for the union during the strike.
The labour unions were exempted from income
tax under paragraph 149(1)(k) of the Income Tax
Act, S. C. 1970-71-72, c. 63. The issue in this
case was whether the individual unionists were
liable to tax in respect of the amounts which they
received as supplemental benefits.
The following are the reasons for judgment
rendered in English by
WALSH J.: Since Pugstem Publications was
merely a name used by the unions operating it as a
joint venture, it was not seriously disputed that the
profits made by the Vancouver Express were
exempt from taxation under paragraph 149(1)(k)
of the Act. The defendant does not contend that
the union members, or even those actually working
in the operation of the newspaper, were employees
or that the amounts received as supplemental ben
efits constituted remuneration for work performed.
The contention is, however, that the Vancouver
Express was operated as a joint venture by the
1,400-odd union members rather than by the
unions themselves, that the members were all
individual contractors and that whatever sums
they received in supplemental benefits were tax
able as income derived from the operation of a
business in the nature of distribution of profits
from its operation and that the flow-through of
such payments from the unions themselves to the
individual members does not alter their taxability
for these receipts.
In the Federal Court of Appeal case of Wipf v.
The Queen, [1975] F.C. 162; [1975] CTC 79 (The
Hutterian case) the Court of Appeal decided in a
judgment later confirmed in the Supreme Court,
and held at page 165 F.C.; at pages 80-81 CTC:
In my opinion neither the farming operations nor the profits
therefrom are, in any relevant sense, those of the individual
members of the communities. The operations in each commu
nity are those of the trustees or the corporation, as the case
may be, and for their account. The profits, as well, of such
operations are theirs for the purposes for which they have been
established. The individual members are not entitled to such
profits at any stage either in individual shares or collectively.
When becoming members they engage to devote their time and
effort to the operation without wages or reward and without
entitlement to any form of return save the subsistence to be
provided by the trustees or corporation for them and their
families. Such subsistence, as I see it, is all that the individual
members are ever entitled to under the arrangements and, in
my opinion, its value represents the full extent of the individual
member's income for the purposes of the Income Tax Act.
It must be noted, however, that in that case there
was a definite agreement upon becoming members
of the community that the individuals would
devote their time and effort to the operation with
out wages or reward save for subsistence.
In the present case there was no such agreement
as to what the members of the joint council operat
ing the newspaper would distribute to the individu
al unions or what amounts, if any, the union
executives would then distribute to the members,
although it was certainly implied that at least
some, if not all of the profits, would eventually be
received by the union members as in fact took
place. It is also of interest to note the tax problem
created by the Wipf case was cured by an amend
ment to the Income Tax Act, section 143 being
substituted by S.C. 1977-78, c. 1, s. 71 applicable
to 1977 and subsequent years.
The defendant referred to a number of authori
ties from which counsel fell some principles might
be derived which would be applicable to the
present highly unusual case. The Supreme Court
case of Goldman v. Minister of National Revenue,
[1953] 1 S.C.R. 211; 53 DTC 1096, is authority
for the principle that taxation cannot be avoided
by using an intermediary as a conduit for the
flow-through of what would otherwise be taxable
income. At pages 217-218 S.C.R.; at page 1100
DTC the judgment states:
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.
There is no dispute about this principle but the
facts in the present case do not support its applica
tion, since there was no agreement with the union
members as to how the profits of the newspaper
were to be distributed.
In the British case of Heaton Transport (St.
Helens) Ltd. v. Transport and General Workers'
Union, [1973] A.C. 15 (H.L.), the President of the
House of Lords states at page 102:
But questions of delegation from "the top," to use the phrase
adopted by Roskill L.J. do not arise if authority to take
industrial action has either expressly or implicitly been con
ferred directly upon shop stewards from "the bottom" i.e. the
membership of the union, whose agreement is also the ultimate
source of authority of the general executive council itself.
In the present case, while the members of the
union certainly did not disagree with the decision
of the steering committee, the unions or joint
council or whatever one wishes to call it, to publish
a newspaper during the strike, their agreement to
do so was never sought. In fact, the meeting of
November 1 merely reported to them what steps
had been taken towards such publication.
The case of Chappell v. Times Newspapers
Ltd., [1975] 1 W.L.R. 482 (C.A.) does not help
the defendant. Reference was made to the state
ment by Lord Denning at page 500, which is
merely authority for the fact that if a press release
is issued by the union on behalf of all of the men
then it must bind each individual member who
must be deemed to have authorized it unless he
has disavowed it. The British Columbia Supreme
Court case of Coast Steel Fabricators Ltd. et al. v.
Minister of Finance, [1973] 4 W.W.R. 701, is a
joint venture case. It was held that the joint ven
ture was merely a vehicle of convenience used by
two contractors jointly for coordinating and
administering their contract which must at all
times be considered as having been performed by
them even though undertaken through the agency
of the joint venture, which was merely an account
ing device.
It is defendant's contention that in the present
case the joint council which was operating the
newspaper was merely an agent for all the
individual union members who were joint ventur-
ers or independent contractors. This appears to me
to be an argument which does not accord with the
reality of the facts. It is difficult to conceive of any
agency agreement whether written, oral or even
implied, in which the principal confides the opera
tion of a business to an agent without giving any
instructions as to the distribution of the profits so
that the agent is free to eventually distribute all,
part of (as in the present case) or none of the
profits to the principal. While the general funds of
the unions eventually received all of the profits
from the operation of the newspaper on a pro rata
basis in accordance with the numbers of their
members, it was their executive who then decided
how they should be distributed to the members in
accordance with the union constitution during the
strike and retained the rest in the general funds
after the strike when no further distribution could
be made in the nature of supplemental strike pay.
It appears difficult to successfully contend that
what they did was done as agents for the individu
al members, save in the very general sense that
democratically elected union executives can always
be said to be acting on behalf of the members in
everything they do.
Defendant's argument really is derived from
Interpretation Bulletin 334R, which of course is no
authority for the Court but merely expresses the
way in which defendant contends the interpreta
tion should be made. It states in paragraph 3:
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.
Finally, the principle authority relied on by
defendant is the Tax Review Board case of Ferris,
T.E. et al. v. M.N.R. (1977), 77 DTC 17, dealing
with a similar situation which arose in Victoria in
1973 when there was a strike at Victoria Press
Limited which published the Victoria Times and
Daily Colonist and striking employees published a
paper known as the Victoria Express during the
strike. They were held to be taxable on the supple
mental strike benefits paid to them by their unions
out of the newspaper profits which were, as in the
present case, turned over to their unions for distri
bution. This judgment was appealed but the appeal
has never been proceeded with since counsel
advised that as a matter of policy it was decided to
appeal the present case directly to the Federal
Court leaving the appeal of the Ferris case dor
mant until a decision on the same issue was
reached in this Court. It is therefore no authority
for the Crown's position in the present case, but
the judgment should be attentively read. The deci
sion contains one statement with which I cannot
agree and with which even defendant does not
agree where it concludes that since there is no
statutory sanction for not assessing basic strike
pay it also should be taxed in the same manner as
the supplemental benefits on the basis that the
general strike fund is built up by a proportion of
the union dues paid by each of the members which
are tax deductible from income, and therefore, as
in the case of pension plans or registered retire
ment savings plans, the amounts received should
then be taxable as income when they are paid out
to the taxpayer.
In the case of Ministre du Revenu National v.
Eastern Abbatoirs Ltd., [1963] Ex.C.R. 251;
[1963] C.T.C. 19, Noël J., as he then was, dealing
with the return of pension contributions, stated, at
page 256 Ex.C.R.; at page 23 C.T.C.:
[TRANSLATION] It is true that the Income Tax Act provides
in certain cases for the taxation of certain sums deducted and
later recovered but this is only when a text of the law clearly so
provides.
It is now common ground whether as a matter of
policy or otherwise, that union benefits paid out of
the general strike fund are not taxable and the
defendant is not attempting to do so in this case
(nor was the Minister in the Ferris case).
The Ferris judgment concludes, at page 19:
As to the supplementary strike pay or benefits, I do not think
that placing the taxable income from a commercial venture
within the four walls of a union and then getting it back by way
of a distribution pursuant to certain formula, renders it tax
exempt. The form cannot change the substance.
If this were simply a flow-through from profits
of the newspaper to the individual members of the
unions through the intermediary of the unions
themselves, this conclusion could be accepted, but
as has been indicated, dealing with the facts is far
more complex than that. Not only were not all of
the profits distributed, but part of this distribution,
although admittedly a small part, came from other
sources (donations and contributions from other
unions), and the individuals taxed had no right to
claim them and were dependent on the unions
themselves with respect to the amount of such
profits so distributed. As indicated I cannot accept
the argument that the newspaper was being oper
ated by the 1,400-odd members of the union, most
of whom did not even work on it but merely
carried out union strike duties. It was operated by
the unions themselves as appears from the mast
head of the paper. They were certainly doing this
for the benefit of their members but not as agents
of them or under their direction.
Admittedly this conclusion hardly seems fair to
the Department of National Revenue. By virtue of
paragraph 149(1)(k) the unions who were actually
operating the newspaper for the joint council are
exempt from tax, and by virtue of the judgment
herein, individual members of the union who
received most of the profits from the operation are
also exempt from tax, not being found to be
individuals engaged in a business. As a result, the
profits of a highly successful business remain tax
exempt. The remedy may well lie in an amend
ment to the Act as was done following the Wipf
case, (supra) to deal with this problem, but as the
law now stands I must maintain the appeals and
refer the assessments of each of the plaintiffs
herein back to the Minister for reassessment on
the basis that supplemental strike benefits are not
taxable. As all six cases were argued simultaneous
ly on the same proof there will be only one set of
costs, save for disbursements payable with respect
to each of the six actions.
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.