McNeill v. The Queen, 86 DTC 6477, [1986] 2 CTC 352, [1986] 2 CTC 364, [1986] DTC 6486 (FCTD)

Rouleau, J.:—This is an appeal from a decision of the Tax Review Board delivered on March 12, 1982. The plaintiff, an air traffic controller, was employed by Transport Canada at the Air Traffic Control Tower at Dorval Airport until placed on a transfer roster on August 1, 1976, and then relocated to the Ottawa International Airport. The official reason for the plaintiff's transfer was stated to be accelerated implementation of bilingualization in the air traffic control towers in Quebec where, until then, the official working language had been English. The issue to be determined concerns the tax liability of a payment in 1976 made by the employer to the taxpayer termed “Air Traffic Control Linguistic Relocation Allowance".

The plaintiff, a lifelong resident of the Montreal area, was fluently bilingual. One cannot help but conclude that his relocation was attributable to some other reason than that which brought about the transfer of those who were bilingual English-speaking controllers and were unable or unwilling to undertake specialized language training. Though not expressly stated, one can infer from the facts and circumstances that certain personnel, though bilingual, were not welcomed by the francophone group whose voice dominated the Local. A high degree of tension was prevalent in the tower and serious personal relationship problems had developed among the personnel, to the point where air safety was in jeopardy owing to the uncooperative and militant attitude adopted by some of the employees over the language issue. For these reasons, the Department of Transport sought to defuse the atmosphere before it became uncontrollable and thus offered three options to its employees: preretirement, relocation or that they undertake specialized language training in the air traffic control field in order to achieve functional bilingualism.

Negotiations between a group of anglophone bilingual as well as unilingual air traffic controllers, who had accepted transfer, and Transport Canada resulted in an approach to Treasury Board in order to secure some compensation for those who would incur relocation expenses.

Following a three-month study by a Special Task Force, Treasury Board authorized a relocation payment which was dubbed “Air Traffic Control Linguisitic Relocation Allowance". Two aspects of compensation were intended. The first, termed Accommodation Differential, assumed from the Special Task Force report that the purchase of similar accommodation in another major metropolitan centre would be costlier and would result in an increased mortgage. This payment was to lessen the impact of the cost of accommodation brought about by increases in mortgage costs; it was defined as follows:

— an annual payment for a period not to exceed the five years to cover only the identified increases in mortgage costs at the new place of duty based on the cost of interest, at recognized current mortgage rates, when applied solely to the difference in the appraised value or the sales price of the controller's accommodation in Montreal and the assessed value of similar accommodation at the new place of duty by applying residential market costs reported quarterly by nationwide reputable real estate firms.

The second was referred to as a Social Disruption Allowance and was calculated according to the following formula: a lump sum payment of one per cent of the employee's annual salary multiplied by the total number of years of service; the minimum amount payable being $500, the maximum $5,000.

In return for the allowance, the transferring air traffic controllers were required to execute an undertaking in which they agreed not to live in the Province of Quebec, not to make press releases, and agreed to remain at their new destination for five years. Failure to comply incurred repayment of the allowance, pro rata, to the day of default.

In 1973 the plaintiff purchased a home in the municipality of Pointe Claire, Quebec, for approximately $19,500, assuming a $17,500 mortgage with interest at ten per cent per annum. It was ideally located for easy commuting to work. One or two weeks prior to leaving Dorval, he sold it for $31,000 and he paid out the balance owing on his mortgage. Since the plaintiff had contracted not to take up residence in the Province of Quebec upon transferring to his new post in Ottawa, he could not avail himself of the lower housing market in Hull, Quebec. He was unable to find similarly- priced accommodations within the city limits of Ottawa itself and was constrained to looking to the outskirts of the capital to purchase a home he could reasonably afford. He settled in Mountain, Ontario, a rural community some 30 miles south of Ottawa. He purchased a farm house for $46,500 which was encumbered by a $26,500 mortgage bearing interest at the rate of 11 Z> per cent per annum. Adjustment to rural life proved difficult for the plaintiff and his family, and he eventually moved. He received an Accommodation Differential payment totalling $11,160 to compensate over a five- year period for the interest payable on the amount of his increased mortgage as well as the increased rate of interest. In addition, he was awarded a further sum of $1,349.65 under the terms of the Social Disruption Allowance.

The Crown has taken the position that the entire amount of the Air Traffic Control Linguistic Relocation Allowance constituted taxable income in the hands of the taxpayer for the 1976 taxation year. To buttress that contention, Crown counsel advanced three main arguments. He argued that the sum paid to the plaintiff amounted to “other remuneration” within the meaning of subsection 5(1) of the Income Tax Act (“the Act") which provides:

5.(1) Income from office or employment.— 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.

An alternative argument on this point was also advanced: if the money received by the plaintiff did not constitute “other remuneration" per se, it should nevertheless be regarded as deemed remuneration for the purposes of section 5 of the Act by virtue of subsection 6(3) of the Act which reads:

6(3) Payments by employer to employee — 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 immediately 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 remunerated 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 or legal effect thereof, it cannot reasonably be regarded as having been 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.

Crown counsel submitted that none of the exceptions contemplated by subsection 6(3) applied. He also stressed that the source of the payment was the employer-employee relationship. Counsel conceded that the compensation was not part of the initial employment contract, but he asserted rather forcefully that it did not arise from a collateral arrangement between employer and employee either. He also appeared to argue that, by moving, the plaintiff was rendering a service or performing a duty for his employer.

Counsel for the Crown further contended that sums paid to the plaintiff were amounts to be included in his income from office or employment by virtue of paragraphs 6(1 )(a) and (b) of the Act. Paragraph 6(1)(a) of the Act as it stood in 1976 states:

Amounts to be Included as Income from Office or Employment

6.(1) There shall be included in computing the income of a taxpayer for a taxation year as income from an office or employment such of the following amounts as are applicable:

Value of Benefits

(a) the value of board, lodging and other benefits of any kind whatever (except the benefit he derives from his employer’s contributions to or under a registered pension fund or plan, group sickness or accident insurance plan, private health services plan, supplementary unemployment benefit plan, deferred profit sharing plan or group term life insurance policy) received or enjoyed by him in the year in respect of, in the course of, or by virtue of an office or employment;

[Emphasis added.]

Crown counsel argued that the payment of this so-called ‘‘allowance” to the taxpayer should be treated as a benefit accruing to the latter by virtue of his office or employment regardless of whether or not the amount was sufficient to adequately compensate the plaintiff for the real loss incurred upon his transfer to Ottawa. Finally he pointed out that the amount received by the plaintiff did not qualify as one of the exceptions which are provided in paragraph 6(1)(b) of the Act:

Personal or Living Expenses

6(1)(b) all amounts received by him in the year as an allowance for personal or living expenses or as an allowance for any other purpose, except

(i) travelling or personal or living expense allowances

(A) expressly fixed in an Act of the Parliament of Canada, or

(B) paid under the authority of the Treasury Board to a person who was appointed or whose services were engaged pursuant to the Inquiries Act, in respect of the discharge of his duties relating to such appointment or engagement,

(ii) travelling and separation allowances received under service regulations as a member of the Canadian Forces,

(iii) representation or other special allowances received in respect of a period of absence from Canada as a person described in paragraph 250(1)(b), (c) or (d),

(iv) representation or other special allowances received by an agent-general of a province in respect of a period while he was in Ottawa as the agentgeneral of the province,

(v) reasonable allowances for travelling expenses received by an employee from his employer in respect of a period when he was employed in connection with the selling of property or negotiating of contracts for his employer,

(vi) reasonable allowances received by a minister or clergyman in charge of or ministering to a diocese, parish or congregation for expenses for transportation incident to the discharge of the duties of his office or employment,

(vii) allowances (not in excess of reasonable amounts) for travelling expenses received by an employee (other than an employee employed in connection with the selling of property or negotiating of contracts for his employer) from his employer if they were computed by reference to time actually spent by the employee travelling away from

(A) the municipality where the employer's establishment at which the employee ordinarily worked or to which he ordinarily made his reports was located, and

(B) the metropolitan area, if there is one, where that establishment was located,

in the performance of the duties of his office or employment,

(viii) such part of the aggregate of allowances received by a volunteer fireman from a government, municipality or other public authority for expenses incurred by him in respect of, in the course of, or by virtue of the discharge of his duties as a volunteer fireman, as does not exceed $300, or

(ix) allowances (not in excess of reasonable amounts) received by an employee from his employer in respect of any child of the employee living away from the employee's domestic establishment in the place where the employee is required by reason of his employment to live and in full-time attendance at a school in which the language primarily used for instruction is the official language of Canada primarily used by the employee if

(A) a school suitable for that child primarily using that language of instruction is not available in the place where the employee is so required to live,

and

(B) the school that the child attends is the school closest to that place in

which that language is the language primarily used for instruction;

Counsel for the plaintiff, on the other hand, submitted that the payment did not constitute income from office or employment. The effective source of the income was not for services rendered by the plaintiff to his employer, but rather a separate and distinct contract between the parties. In counsel's opinion, the payment of the money was intended as an incentive for the employees to leave the Province of Quebec without stirring up a controversy.

He further argued that the compensation paid to the air traffic controllers for their relocation did not confer a benefit on them since it did not improve their position vis-a-vis those employees who remained in the Province of Quebec. To counsel’s mind, the “allowance" was a one-shot payment to compensate for what constituted a capital loss brought about by the increased cost in change of accommodation required by the transfer to another place of employment.

Counsel for the plaintiff disputed the allegation that the amount paid to the plaintiff was an “allowance" within the meaning of the Act. He conceded that there was no obligation placed upon the recipients of the so- called “allowance" to actually purchase another home in order to qualify, but he had in fact purchased a residence and he maintained that the amount in question could not be considered an allowance as the taxpayer had, as anticipated, increased mortgage costs.

Concerning the amount received by the plaintiff which was termed Social Disruption Allowance, counsel did not press his argument. He pointed out the inadequacy of the compensation when one considers the stress suffered by the plaintiff and his family in adapting to rural life; so much so that they eventually moved further from Ottawa to Cornwall, thus isolating himself even more from his co-workers and further increasing the plaintiff’s daily travel distance to work.

With these facts in mind, I restate the issue to be resolved: should the sum paid to the taxpayer in the 1976 taxation year be considered other remuneration, or a benefit arising by reason of an office or employment, or, yet, an allowance for unexempted personal or living expenses or for any other purpose and consequently be included in his income for that year?

Much relevant authority dealing with subsection 5(1) and paragraphs 6(1)(a) and (b) of the Act was referred to by counsel for the plaintiff. My own research provided some useful decisions.

The plaintiff made reference to the following cases: J.R. Scanlan v. M.N.R., 3 Tax A.B.C. 329; 51 D.T.C. 84 (T.A.B.); Laidler v. Perry (Inspector of Taxes), [1965] 2 All E.R. 121 (H.L.); George Smith Buchanan v. M.N.R., [1966] C.T.C. 317; 66 D.T.C. 5257 (Ex. Ct.); M.N.R. v. Wilbrod Bherer, [1967] C.T.C. 272; 67 D.T.C. 5186 (Ex. Ct.); Cyril John Ransom v. M.N.R., [1967] C.T.C. 346; 67 D.T.C. 5235 (Ex. Ct.); The Honourable Mr. Justice Edouard Martel, Judge of the Superior Court v. M.N.R., [1970] C.T.C. 269; 70 D.T.C. 6204 (Ex. Ct.); The Queen v. Morton Pascoe, [1975] C.T.C. 656; 75 D.T.C. 5427 (F.C.A.); Gilles Lepine v. M.N.R., [1978] C.T.C. 2895; 78 D.T.C. 1637 (T.R.B.); Thomas Dauphinée v. The Queen, [1980] C.T.C. 332; 80 D.T.C. 6267 (F.C.T.D.); The Queen v. Télesphore Demers, [1981] C.T.C. 282; 81 D.T.C. 5256 (F.C.T.D.); The Queen v. E.J. Savage, [1983] C.T.C. 393; 83 D.T.C. 5409 (S.C.C.); Cut- more et al. v. M.N.R., [1986] 1 C.T.C. 2230; 86 D.T.C. 1146 (T.C.C.); and Jean-Paul Gagnon v. The Queen, [1986] 1 C.T.C. 410; 86 D.T.C. 6179 (S.C.C.).

Counsel for the Crown only relied on the Ransom decision, supra.

Of the above, in my view, the most pertinent dealing with two of the issues is the Ransom case which was concerned with the reimbursement of an employee for the loss on the sale of his house upon transferring to another city. Others worthy of detailed examination are the cases of Pascoe (supra) and Gagnon (supra) which dealt with the definition of “allowance” for the purposes of paragraph 6(1)(b) of the Act.

The remainder of the authorities appear confined to their own set of facts.

“Other Remuneration”: Subsection 5(1)

The expression “other remuneration” is not defined in the Act; it is included in section 5 in the phrase “salary, wages and other remuneration, including gratuities. . . .” Given its location, I am inclined to give effect to the ejusdem generis rule of interpretation and read “other remuneration” as an amount of the same nature as its antecedents in the sentence, namely “salary” and “wages”. They are defined in subsection 248(1) of the Act, but by the express words of that subsection, they have no application to section

5. It therefore becomes necessary to look elsewhere in order to interpret the word “remuneration”, for the purposes of section 5. In this respect, I have taken the liberty of quoting from the Shorter Oxford English Dictionary (3rd ed.), Clarendon Press, Oxford, 1973:

remunerate . . . 1. trans. To repay, requite, make some return for (services, etc.). 2. To reward (a person); to pay (a person) for services rendered or work done . . . Hence remuneration, reward, recompense, repayment, payment, pay.

salary, . .. 1. Fixed payment made periodically to a person as compensation for regular work; now usu. non-manual or non-mechanical work (as opp. to wages).

2. [obsolete] Remuneration for services rendered; fee, honorarium . . .

wage, . . . [1. obsolete] 2. A payment to a person for service rendered; now esp. the amount paid periodically for the labour or service of a workman or servant. Freq. pl. . . .

[The square brackets are mine]

These definitions presume compensation for a service rendered.

The Ransom case, supra, also emphasized a similar connection between the rendering of service and the payment of the amount before the compensation was to be considered income from an office or employment. At the time of the Ransom decision, the present subsection 5(1) was combined with paragraphs 6(1)(a) and (b). Noël, J., referring to the old section 5 as a whole, wrote at 358 (D.T.C. 5242):

In order, however, to properly evaluate its intent it is, I believe necessary to bear in mind firstly, that section 5 of the Act is concerned solely with the taxation of income identified by its relationship to a certain entity, namely, an office or employment and in order to be taxable as income from an office or employment, money received by an employee must not merely constitute income as distinct from capital, but it must arise from his office or employment ... Secondly, the question whether a payment arises from an office or employment depends on its causative relationship to an office or employment, in other words, whether the services in the employment are the effective cause of the payment.

The payment with which I am concerned did not form any part of, or adjustment to, the plaintiff's normal salary. He received his full annual wages; the amount in question was in addition to normal compensation and in no way related to services performed by the taxpayer. The amount paid to the plaintiff was intended to defray the additional cost of a greater mortgage he would have to assume upon relocating.

This payment, offered to transferring employees, did not arise by virtue of the contract of employment. Its source is the object of a special, collateral arrangement between employer and employee arrived at just prior to the transfer. This arrangement was not part of the terms of employment either before or after; the scheme was designed to indemnify transferring employees for a capital loss and to quell a possible labour relations catastrophe. The payment never arose under the contract of employment nor in relation to services rendered to the employer by the employee; I fail to see how this compensation can, on the face of it, constitute “other remuneration" within the meaning of subsection 5(1) of the Act.

Deemed Remuneration: Subsection 6(3)

Subsection 6(3) of the Act creates a presumption that an amount paid by an employer to an employee:

6(3)(a) during the course of the employment period; or

6(3)(b) pursuant to an obligation arising out of an agreement made between the employer and the employee immediately prior to, during, or after, such period

constitutes remuneration for the purposes of section 5 of the Act. Prima facie, in the absence of any evidence to the contrary, one would have to conclude that the amount at issue falls within subsection 6(3) and therefore becomes “remuneration" for the purposes of section 5.

To rebut this presumption, that the payment is to be treated as remuneration, the taxpayer must establish that the amount could not reasonably be regarded as one of three things:

6(3)(c) consideration or partial consideration for accepting the office or entering into the contract of employment;

6(3)(d) remuneration or partial remuneration for services as an officer or under the contract of employment;

6(3)(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.

Though counsel did not address this issue in argument, I am satisfied that the taxpayer has met the evidentiary burden of proof required of him to displace the presumption that the amount he received constituted remuneration under subsection 6(3). On the facts of this case, it cannot be supported

— that the payment was made to entice the plaintiff “into accepting the office or entering into the contract of employment";

— that it was remuneration or partial remuneration for services;

— that the payment was related to consideration for a covenant undertaken by the employee as to what he was to do or not do, before or after termination of the employment.

Money paid as an incentive to compensate for a capital loss brought about by an involuntary transfer while remaining in the employ of the same employer and providing no economic benefit to either party is not caught by subsection 6(3).

Benefit Received in Respect of, in the Course of or by Virtue of an Office or Employment: Paragraph 6(1 )(a)

Paragraph 6(1)(a) states that there is to be included in an employee's income other benefits of any kind whatever received or enjoyed by him in the year in respect of, in the course of, or by virtue of an office or employment. Exempt from tax are benefits derived by an employee from his employer's contributions to or under a registered pension fund or plan, group sickness or accident insurance plan, supplementary unemployment benefit plan, deferred profit sharing plan or group term life insurance policy, under an employee benefit plan or employee trust, or a benefit in relation to the use of an automobile, except to the extent that it relates to the operation of the automobile.

My interpretation of paragraph 6(1 )((a) leads me to the conclusion that a determination must be made as to whether the payment received by the taxpayer did in fact constitute a benefit and whether it was received “in respect of, in the course of, or by virtue of an office or employment”.

As previously stated, I am satisfied that the payment made to the taxpayer in question did not arise in relation to his office of employment; substantially it was made in order to avoid a potential labour dispute and directed to the plaintiff as a person rather than in his capacity as an employee.

The case of Phaneuf Estate v. The Queen, [1978] 2 F.C. 564; [1978] C.T.C. 21; 78 D.T.C. 6001 (T.D.) fashioned a test for determining whether a payment constitutes an employment benefit. Thurlow, A.C.J. (as he then was) said at 6005:

While the language of the statutes differ, the test expressed by Viscount Cave L.C. (supra) appears to me to express, as well as it can be expressed, the essence of what falls within the taxing provision of the Income Tax Act. Is the payment made “by way of remuneration for his services” or is it “made to him on personal grounds and not by way of payment for his services”? It may be made to an employee but is it made to him as employee or simply as a person. Another way of stating it is to say is it received in his capacity as employee, but that appears to me to be the same test. To be received in the capacity of employee it must, as I see it, partake of the character of remuneration for services. That is the effect that, as it seems to me, the words “in respect of, in the course of, or by virtue of an office or employment” in paragraph 6(1)(a) have.

The Supreme Court of Canada in Savage (supra) accepted this test but not without reservation. It disagreed with the statement that, to be received in the capacity of employee, the payment had to be characterized as remuneration for services; it cited the passage from The Queen v. Poynton, [1972] 3 O.R. 727; [1972] C.T.C. 411; 72 D.T.C. 6329; (C.A.) which appears to be authority for the proposition of “conferring an economic benefit”. Evans, J.A. speaking for the Court, said at 419-20 (D.T.C. 6335-36; O.R. 738):

I am of the opinion that there is no difference between money and money's worth in calculating income. They are both benefits and fall within the language of section 3 and 5 [now 6] of the Act, being benefits received or enjoyed by the respondent in respect of, in the course of, or by virtue of his office or employment. I do not believe the language to be restricted to benefits that are related to the office or employment in the sense that they represent a form of remuneration for services rendered. If it is a material acquisition which confers an economic benefit on the taxpayer and does not constitute an exemption, e.g. loan or gift, then it is within the all-embracing definition of section 3 [i.e. the definition of “income”].

[Square brackets and italics are mine]

In Savage, supra, the Court in distinguishing the Phaneuf case, supra, wrote as follows at 399-400 (D.T.C. 5414):

It is difficult to conclude that the payments by Excelsior to Mrs. Savage were not in relation to or in connection with her employment. As Mr. Justice Grant said, the employee took the course to improve his or her knowledge and efficiency in the company business and for better opportunity of promotion.

As Crown counsel submits, the sum of $300 received by Mrs. Savage from her employer was a benefit and was received or enjoyed by her in respect of, in the course of or by virtue of her employment within the meaning of paragraph 6(1 )(a) of the Income Tax Act; it was paid by her employer in accordance with company policy upon the successful completion of courses “designed to provide a broad understanding of modern life insurance and life insurance company operations” and “to encourage self-upgrading of staff members”; the interest of the employer “was that the courses would make her a more valuable employee”; Mrs. Savage took the courses to “improve [her] knowledge and efficiency in the company business and for better opportunity for promotion.” Distinguishing this case from Phaneuf, there was no element of gift, personal bounty or of considerations extraneous to Mrs. Savage’s employment.

I would hold that the payments received by Mrs. Savage were in respect of employment. That, of itself, makes them income from a source under section 3 of the Act.

It is clear to me that on the facts in Savage there was no element of gift, personal bounty or of consideration extraneous to the taxpayer's employment. The Court was satisfied that the award of $300 for having successfully completed a course recommended by the company was “in accordance with company policy . . . designed to provide a broad understanding of modern life insurance . . . to encourage self-upgrading of staff members . . . make for a more valuable employee . . . more efficient in the company business and for better opportunity for promotion”. These words clearly imply that, though some relation between the payment and employment are inevitable, the primary purpose of the allowance, in order to qualify as exempt, must be completely extraneous to the employment and the amount should not constitute a benefit either to the employer or to the employee in relation to the employment. In the case before me the payment was to the taxpayer in his capacity as a person. The employee had no choice in accepting the transfer. The motivation was political and was brought about by a labour dispute. The transfer to Ottawa was involuntary and certainly did not improve traffic safety at the Ottawa International Airport. The payment of this sum cannot be related to company policy, to providing greater understanding of air traffic control or better understanding of company operations, to upgrading the staff member, to making the taxpayer a more valuable employee nor did it create an opportunity for promotion.

In the case of Roy v. M.N.R., [1980] C.T.C. 2007; 80 D.T.C. 1005 (T.R.B.), the employer had set up a “redundancy program” under which it paid a substantial sum to the taxpayer over a period of years following his peremptory dismissal. The payments were based on the taxpayer's length of service, salary level, age, number of years to pension age, insurance and so on. The Tax Review Board held at 2009 (D.T.C. 1007):

The formula under the redundancy fund was carefully calculated and motivated by the company to preclude litigation or threat thereof by an employee who was dismissed. The payments made to the appellant under its redundancy fund were not benefits received by virtue of the contract of employment of the appellant but rather they arose under an arrangement subsequent to the termination of the employment contract.

Similarly, in the present case, the payments made to the transferring air traffic controllers did not arise by virtue of the contract of employment but rather pursuant to a separate agreement, which was entered into before the effective date of the transfers as opposed to after termination of the employment as in Roy (supra). But more importantly, the payment of the allowance with which I am concerned was primarily motivated by considerations extraneous to the employment, namely public and labour relations considerations. This is further evidenced by the requirement that the transferring employees avoid contact with the media and not reside in the Province of Quebec for five years and, further, failing which they would have to reimburse.

For the above reasons I am of the opinion that the Crown has failed to establish that the payment received by the plaintiff taxpayer in this case was paid “in respect of, in the course of, or by virtue of an office or employment” as required by paragraph 6(1)(a) of the Act.

Having so found, it is questionable whether I need make a finding as to whether the payment in question in fact constituted a benefit. Nevertheless, this appears to be an appropriate case to expound further upon the meaning of the phrase “benefits of any kind whatever” as it is used in paragraph 6(1)(a) of the Act.

I think it is clear that the purpose of paragraph 6(1)(a) is to include in the taxable income of a taxpayer those economic benefits arising from his employment which render the taxpayer's salary of greater value to him. I am persuaded that if there was a recipient of any alleged benefit which may have arisen from the circumstances of this case, it was certainly not the plaintiff taxpayer. I cannot equate it to an economic advantage such as free board and lodging which is mentioned in paragraph 6(1 )(a).

I am of the view that paragrph 6(1 )(a) is in the Act to provide a method to tax all those individuals who receive perks in addition to their salaries. Employers may offer a wide variety of inducements ranging from pensions and death benefits to liberal expense accounts and allowances, to more imme- diate advantages, such as country club facilities and the use of company cars, boats and other property. It is only fair that these items be added to income and taxed. Those with greater economic advantages should pay their fair share. A disparity in the tax treatment of an employee who receives all his compensation as salary and wages and one who receives the same amount of compensation but partly in the form of fringe benefits and allowances is not defensible.

I think it is correct interpretation of paragraph 6(1)(a) in light of recent decisions in the Supreme Court of Canada, in Stubart, supra, etc., and Lor- Wes Contracting Ltd. v. The Queen, [1985] 2 C.T.C. 79; 85 D.T.C. 5310 (F.C.A.) where Mr. Justice MacGuigan wrote at 83 (D.T.C. 5313):

[. . .] The only principle of interpretation now recognized is a words-in-total- context approach with a view to determining the object and spirit of the taxing provisions.

Accordingly, the purpose of paragraph 6(1)(a) is not to impose taxation upon an employee for an amount received by him as reimbursement when it cannot be found in the exemption provisions of paragraph 6(1)(b). Although the Crown relied heavily on the decision in Ransom (supra) suggesting that, if employment gave rise to a payment, it necessarily constituted income unless exempt, counsel failed to point out the true interpretation which Noël J. attributed to payments made in these particular types of situations when he wrote at 361 (D.T.C. 5244):

An allowance is quite a different thing from reimbursement. It is, as already mentioned, an arbitrary amount usually paid in lieu of reimbursement. It is paid to the employee to use as he wishes without being required to account for its expenditure. For that reason it is possible to use it as a concealed increase in remuneration and that is why, I assume, “allowances” are taxed as though they were remuneration.

It appears to me quite clear that reimbursement of an employee by an employer for expenses or losses incurred by reason of the employment (which as stated by Lord MacNaughton in Tennant v. Smith, [1982] A.C. 162, puts nothing in the pocket but merely saves the pocket) is neither remuneration as such or a benefit “of any kind whatsoever” so it does not fall within the introductory words of section 5(1) or within paragraph (a). It is equally obvious that it is not an allowance within paragraph (b) for the reasons that I have already given.

Counsel for the Crown further suggested that the payment received by the taxpayer was one for which he was unaccountable and that the taxpayer was under no obligation to purchase a home in the Ottawa area. It was this argument which appears to have persuaded the Tax Court and led it to the following conclusion:

It was his choice to acquire a home and he received money without even having to prove a loss. The formula was set up and the formula was followed. Had the appellant seen fit to rent an apartment or live with relatives or friends, he still would have received the same amount of money.

In my opinion, that reasoning is neither here nor there. Firstly, the decision of the Tax Court is not based on the facts of the case which are that the plaintiff taxpayer did purchase a home. Secondly, the taxpayer was forced to accept the transfer in order to retain his employment. Under those circumstances, I would think it was not only his choice but his right to purchase a home in the Ottawa area and attempt to put himself in the same position he was in prior to being moved from his home in Montreal. From the evidence adduced, it is manifestly clear that the plaintiff “put nothing in his pocket but merely saved the pocket”.

It will be recalled that there were two aspects to the Air Traffic Control Linguistic Relocation “Allowance”. Throughout my reasons for judgment, I have only dealt with the Accommodation Differential, which, by virtue of the above, I conclude is not to be computed in the plaintiff’s taxable income, be it as “other remuneration”, “deemed remuneration”, another “benefit of any kind whatever” or as an “allowance for any other purpose” within the intendment of subsections 5(1) and 6(3) and paragraphs 6(1)(a) and (b) of the Act, respectively. As far as the second aspect of the “allowance” is concerned, that is the Social Disruption “Allowance”, in the absence of any proof put forward by the plaintiff to show that he actually suffered other losses due to his relocation equal to the $1,349.65 he received, I must conclude that a benefit accrued to him within the meaning of paragraph 6(1)(a) of the Act. Such amount did not constitute remuneration under subsection 5(1), deemed remuneration for the purposes of subsection 6(3), or an allowance within the purview of paragraph 6(1 )(b) for the same reasons as the Accommodation Differential does not come under the above provisions.

I therefore allow this appeal and declare that the Accommodation Differential Allowance in the amount of $11,160 paid to the plaintiff by Her Majesty the Queen in the Right of Canada is not taxable; but that the Social Disruption Allowance in the amount of $1,349.65 is to be included in computing the taxpayer's income for 1976. Costs to the plaintiff.

Appeal allowed in part.