The Queen v. Demers, 81 DTC 5256, [1981] CTC 282 (FCTD)

Marceau, J, [TRANSLATION]:—Toward the end of 1974, shortly after he had retired as a federal government employee, the defendant applied for and obtained employment with the Organization of American States (OAS). The employment was intended to be for a one-year term in Port-au-Prince, Haiti. The defendant in fact held it from January 18 to December 31, 1975. He lived alone in Haiti during this period, while his wife remained in Ottawa in the apartment in which he had been residing and is still residing at present. While he was working for the OAS the defendant received a total of $22,954.25 from his employer. The Minister of National Revenue considered this sum to be taxable in its entirety under the Income Tax Act (RSC 1952, c 148, as amended) and issued an assessment accordingly. The defendant disputed the assessment and finally convinced the Tax Review Board that $4,280.92 of the $22,954.25 he had received should not be considered remuneration from his employment and therefore did not have to be included in his income for 1975. It is this decision of the Tax Review Board which is the subject of the present action.

With respect to the facts and evidence, the defendant relied on a single document, the notice prepared by the OAS advertising the position to be filled, the notice on the basis of which he was hired. This notice divided the remuneration payable to the incumbent of the position advertised into three items, namely: (a) “salary per annum”, ranging from a set minimum to a set maximum; (b) “dependence allowance pa”, a sum established on the basis of three possible categories: spouse, child or dependant; and (c) “post adjustment pa”, an amount between the minimum and maximum indicated, “variable according to cost of living and to dependency status”. The defendant did not sign a contract with the OAS, he was paid every month by cheque and he received only one cheque covering one twelfth of the total net annual amount of the remuneration to which he was entitled. He maintained, however — and this was not disputed by the Minister — that this annual remuneration which he received was in fact made up of the three items set out in the notice, namely: $18,291.30 for salary, $382,03 for the allowance for dependants and $4,280.92 for the cost of living adjustment. With respect to the law, the defendant’s first and chief submission was that this adjustment of $4,280.92 was not received by him as income from an office or employment within the meaning of subsections 5(1) or 6(1) of the Act, or as an allowance for personal or living expenses within the meaning of paragraph 6(1 )(b), but was paid to him as a reimbursement of expenses incurred as a result of his departure from Canada. This amount was therefore not taxable. He then submitted in the alternative that if this was an allowance it would have been exempt from tax under the provisions of subsections 6(6) and 6(7) of the Act.

This argument put forward by the defendant, although favourably received by the Tax Review Board and ably defended before me by his counsel, seems to me to be quite simply untenable.

The basic rule set out in the new Income Tax Act for determining a taxpayer’s taxable income is contained, as we know, in subsection 5(1), which reads as follows:

5. (1) Subject to this part, a taxpayer’s income for a taxation year from an office or employment is the salary, wages and other remuneration, including gratuities, received by him in the year.

This rule is complemented by the series of provisions in section 6 setting out the amounts to be included in income, subsection 3 of which reads as follows:

6. (3) An amount received by one person from another

(a) during a period while the payee was an officer of, or in the employment of, the payer, or

(b) on account or in lieu of payment of, or in satisfaction of, an obligation arising out of an agreement made by the payer with the payee immediately

prior to, during or immediateley after a period that the payee was an officer of, or in the employment of, the payer,

shall be deemed, for the purposes of section 5, to be remuneration for the payee’s services rendered as an officer or during the period of employment, unless it is established that, irrespective of when the agreement, if any, under which the amount was received was made or the form of legal effect thereof, it cannot reasonably be regarded as having being received

(c) as consideration or partial consideration for accepting the office or entering into the contract of employment,

(d) as remuneration or partial remuneration for services as an officer or under the contract of employment, or

(e) in consideration or partial consideration for a covenant with reference to what the officer or employee is, or is not, to do before or after the termination of the employment.

I do not see how this $4,280.92 adjustment included in the remuneration payable to the defendant in compensation for his services could not be covered by these provisions. The interpretation which the defendant suggested should be given to the contents of the job notice in support of his position seems to me to be without foundation in fact. The provisions con- cerning the items that must be included in computing remuneration simply do not make it possible to maintain that the “adjustment” constituted a reimbursement of expenses incurred as a result of the fact that the cost of living was higher in Haiti than in Canada. There is nothing to indicate that such a specific comparison was considered by the employer. It seems to me, on the contrary, that the provisions exist to meet the needs of the OAS, which, since it has employees at the same level in different countries, must maintain a similar remuneration base for all of them but must also take into account the variations that may exist in the cost of living in the different countries. All employees in the same category are entitled to the same basic Salary, “adjusted” on the basis of the cost of living in the country in which each of them works. In my view it is the salary itself which is adjusted. The legal consequences of this are clear; if this is an adjustment of salary, the provisions relied on by the defendant do not come into play.

Counsel for the defendant, like the Tax Review Board, would like the dec- sion of Noël, J in Cyril John Ransom v MNR, [1967] CTC 346; 67 DTC 5235, to serve as a precedent in his favour, but I do not see how this can be so. That case involved a sum paid by the employer in reimbursement of the loss the employee had suffered as a result of his transfer to another city; this was thus truly a reimbursement of a specific loss, the payment of specific compensation to cover injury resulting from an exceptional event that occurred in the course of employment. There are no such circumstances in the present case.

In my view this $4,280.92 which the defendant received was part of the remuneration attached to the position he occupied. The argument that this is an amount paid in reimbursement of expenses incurred as a result of his departure from Canada seems to me impossible to maintain, and the idea that this is an ‘’allowance” to which subsection 6(6) of the Act could apply does not seem to me to be based on any evidence.*

First, the sum was never paid or received as an “allowance”, and secondly, there is nothing in the record to indicate the existence of any of the items referred to in subsection 6(6). The defendant stated that he had kept his residence in Ottawa, where his wife lived. The mere fact, however, that a person occupying a position for which his presence is normally and continuously required in a certain place maintains or establishes his residence in another place does not allow him, in my view, to rely on the exemptions in

*Paragraph (a) of subsection 6(6), the provision relied on reads as follows:

(6) Notwithstanding subsection (1), in computing the income of a taxpayer for a taxation year from an office or employment, there shall not be included

(a) the value of, or an allowance (not in excess of a reasonable amount) in respect of expenses incurred by him for, board and lodging received by him

(i) in respect of, in the course of or by virtue of his office or employment at a special work site from which, by reason of distance from the place where he maintained a self-contained domestic establishment (in this subsection referred to as his “ordinary place of residence”) in which he resided and actually supported a spouse or a person dependent upon him for support and connected with him by blood relationship, marriage or adoption, he could not reasonably be expected to return daily to his ordinary place of residence, and

(ii) in respect of a period while he was required by his duties to be away, for a period of not less than 36 hours, from his ordinary place of residence;

subsection 6(6). Grant, J in Her Majesty the Queen v James F Forestell [1979] CTC 370; 79 DTC 5289; which was also relied on by counsel for the defendant in support of his alternative submission, certainly does not maintain anything of the kind.

It is therefore impossible for me to accept the defendant’s position and I must reject it. I am of the opinion that the Minister was correct in considering that the $4,280.92 received by the defendant as a “post adjustment” constituted part of his salary and remuneration as an employee of the OAS and that as such this sum was taxable. The appeal is therefore allowed, the decision of the Tax Review Board is set aside and the assessment of the defendant for the 1975 taxation year is reinstated.

With respect to costs, it is clear that the provisions of subsection 178(2) of the Act providing for payment by the Minister of “all reasonable and proper costs of the taxpayer” in connection with the appeal are applicable, and it is hereby ordered accordingly.