http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/109220/index.do 
Parker v. The Queen (April 17, 2015 – 2015 TCC 86, Paris J.).
Précis: Mr. Parker was a minister who was retired on a full disability pension. When he was working he had paid the costs of his disability insurance personally so the amounts he now received were treated as free of tax. He also received Canada Pension Plan (“CPP”) disability payments against which he applied a clergy residence deduction of $10,000. That reduced his taxable income and permitted him to transfer disability tax credits to his wife; it also permitted Ms. Parker a spousal amount deduction. His wife was the appellant as CRA had denied the transfer to the tax credits to her because they argued that Mr. Parker was not entitled to the clergy residence deduction since he had no income from employment against which to apply the deduction. The Tax Court agreed that neither his private disability payments nor his CPP disability payments constituted income from employment. Accordingly he was not entitled to the clergy residence deduction. The Court also rejected the argument that his CPP disability payments were not taxable based on the surrogatum principle. As a result Ms. Parker’s appeal was dismissed.
Decision: The basic issues in this appeal were whether Mr. Parker could transfer federal disability tax credits to his wife, Ms. Parker, who was the appellant, as well as whether Ms. Parker was entitled to a spousal amount deduction. That in turn depended upon the amount of Mr. Parker’s taxable income and the treatment of his CPP disability benefits:
[1] Ms. Parker is appealing the disallowance of her claim for a spousal amount and a portion of her claim for a federal disability amount transferred from her spouse, Gregory Neil Parker, for her 2011 taxation year. Ms. Parker was reassessed after the Minister of National Revenue (the “Minister”) denied Mr. Parker’s claim for a clergy residence deduction in his 2011 taxation year, which increased his net income by $10,000.
[2] The issues in appeal are whether Mr. Parker was entitled to the clergy residence deduction pursuant to paragraph 8(1)(c) of the
Income Tax Act (the “Act”) and, if not, whether the Canada Pension Plan disability benefits he received in 2011 were required to be included in his income.
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[5] Mr. Parker has been employed as a Minister by McKernan Baptist Church (the “Church”) in Edmonton since 1994. He has been on long term disability leave from that employment, and has not performed any employment duties with the Church since September 2005.
[6] Under his employment contract with the Church, Mr. Parker obtained long term disability insurance under a group insurance policy. Mr. Parker paid all of the premiums for the long term disability benefit himself.
[7] Mr. Parker began receiving long term disability (“LTD”) benefits under the policy in January 2006. According to the terms of the policy, he was required to apply for Canada Pension Plan disability benefits and any benefits he received would reduce his LTD benefits under the policy dollar-for-dollar.
[8] Effective March 1, 2007, he began receiving CPP disability benefits and his LTD benefits were reduced by an equal amount accordingly.
[9] In 2011, Mr. Parker received CPP disability benefits of $11,239 which he reported on his 2011 income tax return. After claiming a clergy residence deduction in the amount of $10,000, Mr. Parker reported net income of $1,239.
[10] Mr. Parker’s LTD benefits were not included in his income because all premiums paid for the insurance were paid by him.
[11] In her 2011 tax return, Ms. Parker claimed a spousal amount of $8,843, on the basis that Mr. Parker’s net income was $1,239. She also claimed a federal disability amount of $7,341 transferred from Mr. Parker.
[12] The Minister reassessed Mr. Parker to deny his claim for the clergy residence deduction, on the basis that Mr. Parker did not receive any remuneration from his employment with the Church in 2011. In the Minister’s view, the limitation found in paragraph 8(1)(c) after clause (ii)(C)- that the amount of the deduction not exceed “the taxpayer’s remuneration for the year from the office or employment” – resulted in Mr. Parker being ineligible for the any amount in respect of the clergy residence deduction.
[13] As a consequence of the increase to Mr. Parker’s net income, Ms. Parker was reassessed to disallow her claim for the spousal amount deduction and to reduce the federal disability amount transferred from spouse by $1,156 to $6,185.
The Court concluded that Mr. Parker’s CPP disability benefits could not be equated to income from his former employment as a minister for the purposes of the clergy residence deduction:
[25] I find there is not a sufficient connection between Mr. Parker’s employment and the receipt by him of the CPP disability benefits to qualify those benefits as remuneration from his employment with the Church. The facts of this case are distinguishable from those before the Court in Shaw, where the wage loss benefits were found (at paragraph 20) to have been provided under the taxpayer’s contract of employment
[26] Here, the CPP benefits were not provided by the Church under Mr. Parker’s employment contract. Entitlement to CPP benefits is not something provided by an employer to an employee in return for services provided by the employee, it is provided under a statutory scheme. The fact that CPP premiums were paid in part from Mr. Parker’s employment income and in part by his employer, the Church, does not result in the CPP disability payments being a benefit provided by the Church.
[27] Furthermore, again unlike the wage replacement benefits received by the taxpayer in Shaw, the LTD benefits received by Mr. Parker were not benefits provided by his employer because all the LTD insurance premiums were paid by Mr. Parker. For this reason, they were not required to be included in his income from employment. The fact that the CPP benefits reduced the amount of Mr. Parker’s LTD benefits is therefore not indicative of a connection between the CPP disability benefits and Mr. Parker’s employment with the Church.
[28] As a result, I find that the CPP benefits that Mr. Parker received in 2011 were not remuneration from his employment with the Church within the meaning of paragraph 8(1)(c) of the Act.
The Court also rejected the alternative argument that the CPP benefits were not taxable based on the surrogatum principle:
[31] The surrogatum principle is used to determine whether awards of damages and settlement payments, which are inherently neutral for tax purposes, are taxable or not. It provides that tax consequences of damages and settlement payments will depend on what the payment is intended to replace: Tsiaprailis v. Canada, 2005 SCC 8 at paragraphs 6 and 7, citing London & Thames Haven Oil Wharves Ltd. vs. Attwooll (H.M. Inspector of Taxes), [1967] 2 All E.R. 124 (C.A.).
[32] In my view, the Appellant’s surrogatum argument must fail because it is premised on the assumption that the CPP benefits received by Mr. Parker were tax neutral payments in the nature of insurance proceeds. I find that the CPP payments in this case were neither tax neutral nor were they akin to insurance proceeds.
[33] CPP disability benefits are expressly included in a taxpayer’s income under paragraph 56(1)(a) of the Act as “other income” and therefore cannot be said to be tax neutral.
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[35] Finally, even if the surrogatum principle had applied to Mr. Parker’s CPP benefits, I would have found that the CPP benefits were not intended to replace non-taxable LTD benefits and therefore would not have also been non-taxable. Rather, CPP benefits are intended to replace taxable employment income which is lost because the recipient is unable to work due to disability.
As a result the appeal was dismissed.