Date:
20020930
Docket:
2000-4087-IT-G
BETWEEN:
PARAMBIR
KAUR DHILLON,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Reasons
for Judgment
Hershfield, J.T.C.C.
[1]
The Appellant is an R.C.M.P. constable who attended the R.C.M.P.
Cadet Training Program ("training program") from
January 26, 1998 to August 4, 1998.
[2]
During the training program the Appellant was required to stay at
the R.C.M.P. Training Academy in Regina. At the time her
residence was at her parents' home in Toronto. During the term of
the training program the Appellant was paid a bi-weekly allowance
from which deductions were made for lodging, meals and for
health, life and disability insurance. During the training
program the Appellant was attributed a total allowance of
$9,520.00 from which was deducted $2,483.00 for meals, $970.54
for lodging and $320.00 for various insurance coverage items
("training expenses").
[3]
The Appellant's 1998 taxation year was assessed on the basis
that she was an employee of the R.C.M.P., that the total
allowance of $9,520.00 was income from employment and that the
training expenses were non-deductible. In filing her return for
the 1998 year the Appellant did not include the training
allowance and did not deduct amounts for training expenses. At
trial the Appellant took the position that her taxable income was
her net receipt - $5,747.00. While not accepting that she was an
employee, she was willing to accept that she had gross income
from a non-enumerated source of $9,520.00 from which the training
expenses were deductible in calculating income for tax purposes.
In the alternative, if she was an employee, she asserted that the
training allowance included a non-taxable benefit and must be
reduced accordingly. The issues were thereby limited to
categorizing and quantifying the inclusion amount, gross and net,
for tax purposes.
[4]
In simpler terms, the issues in this appeal are the status of the
Appellant during the training program, the nature of the training
allowance and whether the training expenses are deductible or
properly included in the first place as part of the Appellant's
income for tax purposes.
Facts:
[5]
The Appellant testified at the hearing. A training officer, Dr.
G.L. Bell, was also called on behalf of the Appellant. The
Respondent called an appeals officer, Mr. R. Davidson.
The following are my findings in respect of their testimony and
the exhibits tendered in a joint book of documents.
[6]
The Appellant first interviewed for a constable position with the
R.C.M.P. in October of 1995. She was required to take a written
exam in Kitchener, Ontario and attend at a suitability interview
in Toronto. A medical exam was required and physical fitness
levels required certification.
[7]
In April of 1996, the Appellant received a letter from the
R.C.M.P. confirming that her application for a constable position
had been recommended for further processing. The Appellant's
name was placed on the R.C.M.P. post-interview ranking list and
her file was forwarded for a background investigation and final
medical clearance. She was provided with a Conditional Offer of
Enrolment which she was asked to sign and return. Although the
enrolment offer was conditional, the letter advised that the
Appellant should be prepared to be enrolled anytime within the
next two to eight months and that she could expect to be enrolled
before the end of October 1996. In fact, her enrolment was
delayed until January 1998.
[8]
The Appellant explained that the delay in her enrolment was
primarily due to background investigation enquiries having to be
made overseas. During this time the Appellant maintained a regime
of vigorous physical training and completed a number of programs
to ensure that additional qualifications specified in the
Conditional Offer of Enrolment would be met. These included first
aid and CPR certificates as well as required typing
skills.
[9]
The Conditional Offer of Enrolment provided that the enrolment
was conditional on the Appellant obtaining a top secret level of
security clearance. It also provided that, at the time of
enrolment, the Appellant was required to respect the principles
of the Conflict of Interest and Post-Employment Code for Public
Office Holders and Commissioners Standing Orders enacted pursuant
to section 69 of that Code as they apply to regular members of
the R.C.M.P. (paragraphs (h) and (i) of the Conditional Offer of
Enrolment). Further, acceptance of the conditional offer was on
the following terms:
I accept
this offer of enrolment and understand that it is conditional
upon my remaining suitable, in all aspects, as set out above. I
also understand that I cannot be appointed a Regular Member of
the RCMP unless I successfully complete the Cadet Training
Program at the RCMP Training Academy at Regina, Saskatchewan. By
accepting this offer of enrolment I agree that upon appointment
as a Regular Member of the RCMP I will receive my pay through
direct deposit to the financial institution of my choice and
provide you with the information required for this
purpose.
[10] The
Appellant enrolled in the training program in January of 1998 and
signed the Cadet Training Agreement on January 23, 1998. The
training period was to consist of approximately 27 weeks of
instruction at the Training Academy in Regina. Upon successful
completion of the program, the cadet was expected to be engaged
as a regular member of the R.C.M.P. if she accepted her first
posting. Indeed, on completion of the cadet program the Appellant
was offered a posting at Fisher Branch. She accepted and was
sworn in as a constable of the R.C.M.P.
[11] The
training agreement provided for the allowance and training
expenses as follows:
Allowances
1.
During the training period, the RCMP will provide the Cadet a
bi-weekly allowance, less deductions for meals, accommodation,
income tax, CPP, UIC and other deductions as deemed necessary by
the RCMP.
Accommodation
1.
During the
training period, the RCMP will provide accommodation at
"Depot" Division, or at locations where developmental
training is being provided (if applicable), at a cost to the
Cadet as determined by the RCMP.
The amount
deducted for training expenses, although not set out in the
agreement, was set out in correspondence to the Appellant prior
to her entering into it.
[12] The
training agreement expressly provided that until such time as an
offer of engagement was made and accepted, the cadet would
neither be a member of the R.C.M.P. nor an employee of the
Government of Canada. While the agreement did not speak of the
terms of engagement once the Appellant became an employee of the
R.C.M.P., correspondence to her in early January 1998 stated that
once she had successfully completed all the requirements of the
training program and was engaged as a regular member constable,
she would receive an engagement rate salary of $31,172.00 per
annum and that after six months of service and successful
completion of recruit field training, her salary would increase
to $39,083.00 per annum. There was a further increase after
18 months of service.
[13] The
Appellant as a cadet was not a participant in the pension plan
and received no vacation benefits.
[14] The
Appellant testified that throughout the 27-week training period
she was accommodated with seven other women in a dormitory
referred to as the "pit". It was a basement dormitory
allowing her approximately 50 square feet of living space. She
had a single bed with a three-drawer chest. The women's
washrooms and shower facilities were not a part of the
dormitory.
[15] All meals
were at designated times. No food was allowed in the dormitory.
All lunches and breakfasts had to be taken at the mess hall. More
time was allotted for dinner which permitted occasional getaways.
However, the Appellant testified that the workload only permitted
the troop to leave the compound a few times during the course of
the 27 weeks so that practically speaking all but a few dinners
were required to be had at the mess hall.
[16] Although
the Appellant made no reference to dormitory living rules, other
than giving the impression that life was highly regulated, I note
that Exhibit A-1, Tab 12 sets out strict rules
for dormitory living. For example, consider the following
extract:
Uniform
articles of kit and civilian clothing will be separated by (4)
hangers. These hangers will be of the same consistency, i.e.: all
wire hangers or all wood hangers. One of each type is not
acceptable. When removing an article of kit from your closet, DO
NOT LEAVE the empty hanger between pieces of clothing. You may
include this particular hanger to complete the set of (4)
separating your clothes or you may put it in the drying room
where your "extra" hangers should be kept.
The note
goes on as follows:
Uniform
articles of kit are to be positioned in your closet as shown in
the diagram and nothing different. Ensure that you are completely
familiar with the clothing layout as described by numbers in your
handout. Pit partners will position articles in a mirror image
fashion with each other.
[17] The
Appellant referred to the Cadet Training Handbook which included
a recitation of the training program objectives. Objectives
included the following:
·
know the law,
R.C.M.P. Policy and Code of Conduct sufficiently to ensure that
you exercise discretion responsibly and
lawfully;
·
manage evidence,
exhibits and crime scenes effectively;
·
gather information
and evidence necessary to effective policing;
·
work effectively as
part of a policing team;
·
handle firearms
safely and proficiently;
·
be comfortable with
electronic communication technology and R.C.M.P. information
systems; and
·
understand policing
as a career, vocation and service for self and
family.
·
[18] The
handbook also set out that the daily routine started at 6:00 a.m.
and ended 10:30 p.m. with lights out at 10:45 p.m. The Appellant
testified that in fact wake-up actually started at between 5:15
and 5:30 each morning. There were seven hours of scheduled
classes daily as well as two daily parades. She was in uniform
until approximately 4:40 p.m. each day after which she was
permitted to put on civilian attire unless after hour assignments
required her to be in uniform which was often the
case.
[19] The
handbook underlined that the training was very intensive and
demanding. It provided that "in order to meet the
requirements, you will be given work assignments in the evening,
on the weekends and in exceptional circumstances, during
statutory holidays".
[20] The
Appellant testified that homework was assigned daily and there
were compulsory competency assignments as well. Weekly
competencies worked on outside of formal training hours included
training in firearms, police driving, defence tactics, physical
fitness and applied police sciences. The Appellant testified that
there was virtually no free time. She did not get leave on
holidays with the exception of one trip home. As to weekends, she
testified that she had occasional weekend time off, perhaps once
a month.
[21] Progress
reports were maintained and each progress report measured some 30
competencies, progress for which was being regularly evaluated
and documented. Two "unsatisfactory" notations on a
competency report meant termination and two "needs
improvement" notations in the same area constituted one
unsatisfactory grade.
[22] The
Appellant testified that she also routinely partook in various
work duties. The duties were assigned by the Sergeant Major's office after classes and weekends. All duties
were mandatory. In respect of all these duty
"assignments" she was required to wear R.C.M.P. cadet
attire.
[23] A
description of work duties was included in the book of documents.
Duties included roving patrol; front desk receptionist in guard
room (answering the phone, signing out vehicles, signing out keys
for various buildings, etc.); front gate (guarding the front
entrance to the base to allow only authorized personnel to
enter); museum guide (giving visitors' tours and being stationed
at the front desk answering phone). The Appellant testified that
she was involved in all of these working duties in four or
eight-hour shifts on weekends or after hours during the week. The
duties were required for a total of eight hours every two weeks
or some 108 hours over the course of the program.
[24] With
respect to roving patrol duty, same was carried out in unmarked
cars and the Appellant acknowledged that while on patrol she had
no duties in relation to law enforcement. Patrols were training
exercises.
[25] In
addition, the Appellant recalled two ceremonial parades (the
125th Anniversary Parade and the Pan Am Games Parade). This was
also required duty for which R.C.M.P. attire had to be
worn.
[26] I accept
the Appellant's testimony that the entire program was a
rigorous series of classes, work assignments, duty assignments,
drills and deportment exercises.
[27] Dr. Bell
confirmed much of the Appellant's evidence regarding the
rigours of the program. He acknowledged that the term
"pit" was an accurate description of the facilities
afforded cadets and he acknowledged that the program was as set
out in the materials and as testified to by the
Appellant.
[28] Dr. Bell is
a doctor of psychology and is a training officer for the Cadet
Training Program. Since 1996, he has been in charge of the
curriculum and evaluation in respect of the program. He had also
previously been involved in recruitment and training. All the
staff of the training program reported to Dr. Bell who in
turn reported to the commanding officer.
[29] Dr. Bell
testified that the approach to training and hiring had changed
since 1994; the current cadet program being fully implemented in
1996. Under the former system the recruits were hired as
employees of the R.C.M.P. on recruitment. The new methodology was
to sign up recruits as cadets and only take them on as employees
once they were sworn in as constables of the R.C.M.P. which was
when they had successfully completed the training program and
accepted their first posting.
[30] Dr. Bell
suggested that the primary reason for the change in the system
had to do with termination. The old system required that recruits
who failed to qualify be fired, whereas under the new system
cadets who did not qualify would not be hired. Further, the
change permitted a learning style approach. Regina was recast as
a learning centre.
[31] Dr. Bell
testified that there was approximately a six percent attrition
rate in the program. Approximately one-half of which, three
percent, did not complete the program due to unsatisfactory
performance and the other half of which, another three percent,
were dropouts. He testified that the rate of attrition was the
same in the old program and the new program. He noted, however,
that in the current system there was an automatic termination
where competency reports were inadequate. In the former system
retesting was permitted, the inference being that automatic
termination was more acceptable where the cadets were not treated
as employees. Notwithstanding this difference (which underlines
the rationale for the switch in systems) there was, as stated, no
difference in the rate of attrition between the two systems. The
recruiting of constables was done on the same basis before and
after the change in the training system; namely, the number of
recruits or cadets taken on was and is determined by the number
of available positions on the force. The program and the pool of
trainees enrolled to take it still serve one purpose which is to
fill vacancies on the force. Recruitment and training are
unchanged. With respect, the process as I see it, is wholly
unchanged except the "employment" commencement line has
contractually been moved.
[32] With
respect to work duties, Dr. Bell was asked whether or not the
cadets were viewed as a labour force. Dr. Bell testified that
under the old system the recruits were definitely viewed as part
of the labour force and were consolidated as such. He testified
that after the change in the system working duties were regarded
more as simulated training exercises. He acknowledged, however,
that, at least, they had a dual aspect. Dr. Bell agreed that some
people would acknowledge that cadets were a cheap source of
labour. He acknowledged some of their work was as labour
replacement.
[33] Dr. Bell
acknowledged that the objectives of the program were to ensure
that officers were job ready on completion of the program. He
acknowledged that the program was there to ensure training for
R.C.M.P. constables and it was not there to train others. He
confirmed that cadets were always hired if they successfully
completed the program and accepted a posting. This was qualified
in that there was one last screening process before induction.
Further, after induction there was a three-month probationary
period. Regardless of these qualifications, it remains the case
that in Dr. Bell's experience all cadets completing the
program and accepting a posting were sworn in as
constables.
[34] As to the
testimony of the Respondent's witness, Mr. Davidson, I can
only say that he was not able to add much in the way of valuable
input. He acknowledged that he only became involved with the file
after confirmation of the reassessment had been issued. The
appeals officer who had dealt with the objection had been
reassigned and was not available. Mr. Davidson's knowledge of
the matter was only based on having read file reports of the
appeals officer who actually reviewed the file on
objection.
[35] He confirmed
that a matching process had triggered the reassessment given that
the R.C.M.P. had issued T-4 slips in respect of the full amount
of the training allowance. That is, in spite of their own
contract, introduced when it changed its system, the R.C.M.P.
administratively continued to treat the cadets as employees and
to issue T-4 slips. Mr. Davidson
acknowledged that there was no record of any interviews with
anyone at the R.C.M.P. in respect of its practice of issuing
T-4 slips in the face of the express language of the
training agreement. He acknowledged that there had been a
direction from Ottawa to the effect that a cadet in the R.C.M.P.
training program, although not an employee for certain purposes,
was an employee for the purposes of the administration of the
Income Tax Act (the "Act") and that the allowance
was in lieu of wages.
[36] Mr. Davidson
confirmed his view that since training expenses were deducted at
source, it was proper to regard them as received and to include
them in the amount paid in lieu of wages. He confirmed his view
that they were not deductible under any provision of the
Act.
[37] Mr. Davidson
had been examined for discovery. Portions of the transcript of
that examination were read into the record by reference. It is
clear from such transcript that Mr. Davidson was unable to field
questions relating to issues that arose when this matter was
being discussed with the Appeals Section. He was unable to
explain, for example, why certain administrative practices
allowing that employee training expenses were not taxable
benefits had not been applied. IT News-13
for example, provided that courses taken for maintenance or
upgrading in the context of ongoing employment will generally be
considered to primarily benefit the employer and therefore be
non-taxable. He could only reply that the appeals officer may
have made the distinction between training for maintenance or
upgrading of employer related skills, the costs for which are not
treated as taxable employee benefits, and initial or job-ready
training. Counsel for the Appellant pointed out that IT News-13
made no such distinction. I would also point out that the
distinction drawn is not well founded once it is determined (as
the C.C.R.A. has done in this case) that the trainee was already
an employee during the training program. That is, once this
determination is made, there is no question in this case that the
training upgraded employer-related skills and was primarily for
the benefit of the employer since vacancies on the regular force
needed to be filled with personnel trained in this program. Food
and lodging were provided as necessary incidents of such
employer-related program, not as a benefit for cadets.
Accordingly, if the Appellant was an employee during the training
program, there can be no taxable benefit here at least if IT
News-13 reflects a proper construction of the
Act.
Analysis:
[38] The Reply
provides that the reassessment relies on section 3,
subsections 5(1), 6(1), 6(6), 8(2) and paragraphs
8(1)(h) and 56(1)(n) of the Act.
[39] Counsel for
the Respondent relied principally on subsection 5(1) which
provides that a taxpayer's income for a taxation year from an
office or employment is the salary, wage or other remuneration
received by the taxpayer in the year. Alternatively, he argued
that paragraph 6(1)(b) applied. That paragraph includes in
the income of an employee all amounts received by the taxpayer in
the year as an allowance for personal or living expenses. He
relied on paragraph 8(1)(h) and subsection 8(2) in respect
of the administrative position that no deduction could be claimed
for meals or lodging.
[40] Counsel for
the Appellant was prepared to concede that the monies received by
the Appellant from the R.C.M.P. were income from a source
pursuant to section 3 of the Act. He took issue, however,
with the amount of income that was derived from such source and
with the characterization of the source as employment income.
Appellant's counsel argued that the source was not one
specifically set out in section 3. He cited a number of cases
which confirmed the principle that the enumeration of sources in
section 3, employment, business, property and capital gains, were
not exhaustive sources and that it was open for me to find that
the allowance in question was income from a non-enumerated
source. He went on to argue
that the statutory limitations in respect of employment
deductions were not applicable to such other sources and that the
income amount must be determined after recognizing costs related
to deriving income from such other sources. He argued
training expenses would thereby reduce the income of the
Appellant in the subject year to the net amount she would
acknowledge as income. Of course another aspect of his argument
is whether or not the training expense portion of the training
allowance was an amount received as opposed to a
benefit received. If the training expenses are viewed as a
benefit in paragraph 6(1)(a), he argues that they are not
properly brought into income even if the Appellant is an
employee. In that event he argues that paragraph 6(1)(a)
better categorizes the training expenses than do
subsection 5(1) which refers to salary, wages and other
remuneration received or paragraph 6(1)(b) which includes
amounts received as personal living allowances. If the training
expenses are better categorized as a benefit received and taxable
only to the extent included under paragraph 6(1)(a), it is
contended that they will not be taxable as the training program
was for employer-related skills. I agree with the latter
position.
[41] In my view,
there is little doubt in this case that the Appellant was an
employee of the R.C.M.P. throughout the training program. The
training agreement was clearly a contract of service. By
partaking in the program, the cadets were in the service of the
R.C.M.P. and fulfilling its needs. To find otherwise would wholly
ignore the master-servant relationship that existed during the
training period. That, linked with the high probability that the
master-servant relationship that existed in the training program
would continue on completion of the program (where that linkage
was the raison d'être for the program being offered
and taken), makes a compelling case for finding the Appellant to
be an employee of the R.C.M.P. during the training program. The
connections between the job and the program have such a degree of
continuity and interdependence as to make it impossible, in my
view, to avoid this conclusion.
[42] The change
in the system and the essentially unilateral imposition of a new
employment commencement date in the standard form of agreement
used by the R.C.M.P. are not of such substance as to change the
fundamental character of the relationship. That cadets were bound
by certain enactments relating to codes of conduct applicable to
regular members of the R.C.M.P. strongly suggests that they were
considered members of the force although not regular members.
This is further supported by the work duties they performed and
by the administrative decision for tax purposes to regard cadets
as employees and to issue T-4 slips in respect of their
allowance. The allowance in part at least was viewed as
remuneration in respect of employment. Indeed this decision to
issue T-4 slips casts doubt on whether the non-employee provision
in the training agreement was intended to alter the true nature
of the relationship during training as opposed to introducing a
different mindset for dealing with recruits who failed to meet
the requirements of continued retention as regular members of the
force.
[43] Of course
there is no special categorization of a relationship that exists
simply for tax purposes. One is an employee at law or not. Even
the contractual classification of a relationship will not be
determinative. The true nature of the relationship must be
determined on the facts of each case. In the case at bar the
contractual attempt to preclude employment classification was
founded in the perception that it made termination easier. The
true nature of the relationship was hardly a consideration in the
formulation of the provision. When considering the impact of a
contractual provision so added, a contrary position taken by the
party that sought to impose that provision becomes quite
relevant. By unilaterally issuing T-4 slips, the R.C.M.P. has
largely offset any weight that might be given to the amended form
of agreement imposed on the Appellant. In the circumstances she
had no say and even if she did, her agreement to her
non-employment classification is of little help in determining
the nature of the relationship.
[44] The program
was not intended to offer an education in policing. It was
intended to train cadets for their role as a constable in the
R.C.M.P. Knowledge of R.C.M.P. systems, policies and codes of
conduct were an integral part of the program. These are
employer-related skills that pertain to this particular employer.
It was constable training for a regular position then available
and anticipated by both contractors to be filled by cadets. In
this context their service with the R.C.M.P. commenced when they
signed the training agreement. From this point on they were in
the service of the R.C.M.P. The only question is what are the
services being provided under this contract of service? The work duties
attested to by the Appellant as set out in paragraph 23 of these
Reasons are likely sufficient in this regard even if they are not
the primary focus of the training program. Dr. Bell's
testimony is also likely sufficient to support a finding that
there was a contract of service on the facts of this case (see
paragraph 32 of these Reasons). Regardless, I think it is
sufficient a service - in the context of supporting a finding of
there being a contract of service - to subject oneself to the
training regime of, and for, the person who recruited you to
provide the services for which you are being trained.
[45] I have been
referred to two cases that require mention: Brewster
Transportation & Tours v. M.N.R.
and Eastern Ontario
Health Unit v. Canada (M.N.R.).
Both cases involved pre-employment
programs that were found not to give rise to employment
relationships prior to completion of the program and commencement
of regular duties. In both programs attendance was a precondition
to job commencement. In Eastern the program was clearly an
application or selection process. It was preliminary in nature.
It consisted of information and assessment sessions. There was no
meaningful correlation between those participating and those who
were given a job. The program was given by a third party. There
were no services performed. That case is readily distinguished
from the case at bar. In Brewster, however, the facts are
closer to the one at bar. Bus drivers to be employed by Brewster
were required to complete a driver training program. While there
was no suggestion that there was a full-time job waiting,
successful applicants could bid for openings, failing which they
were placed on a "spare board" and guaranteed a minimum
salary each month. While these facts demonstrate that a degree of
continuity and interdependence existed between the program and
the employment, it was clearly less than in the case at bar. The
program in Brewster created an inventory of potential
regular employees as opposed to constituting the group selected
to fill known and available positions of regular duty. As well,
in Brewster, contract, licensing and union considerations
pointed on the whole of the evidence to a non-employment
relationship. Further, trainees were not paid any remuneration
for services. Indeed, no services were performed by the trainees.
These factual differences are sufficient to distinguish the
cases. In the case at bar I am satisfied on the whole of the
evidence that employment commenced when the remuneration
commenced which is to say when the cadets were admitted to the
program.
[46] This finding
makes it unnecessary for me to consider whether the training
allowance might be considered a non-enumerated source under
section 3 or whether it is income pursuant to paragraph
56(1)(n) dealing with bursaries. What must now be
considered is subsection 5(1) and paragraphs 6(1)(a) and
(b) in order to determine the taxability of the
allowance.
[47] I am
satisfied on the facts and contextual evidence in this case that
it is appropriate to break down the allowance into two parts. The
allowance net of training expenses is, in my view, brought into
income under subsection 5(1) as income from an office or
employment. This part of the allowance at least is remuneration
received by the taxpayer in the year paid in lieu of wages. If
nothing else, it reflects compensation for services if not
servitude.
[48] As to the
training expenses portion of the allowance, the method of dealing
with them under the training agreement (see paragraph 11 of these
Reasons) tends to support a finding that these are to be taken as
part of the allowance that should be brought into income under
subsection 5(1) as well. The agreement provides net remuneration
by netting out the training expenses and other source deductions
that are clearly and properly meant to be included as part of the
allowance and included as income. These other source deductions
are: income tax, CPP and UIC. Since training expenses are
similarly deducted, the inference is that they are to be treated
in the same way - added back to the gross amount of the allowance
for the purpose of determining income. This is how the T-4 slips
were prepared and is the basis for the reassessment including the
training expenses as part of the income received. While generally
such inference and treatment would be the end of the matter, I
find it necessary in this case to consider whether the proper
construction of the arrangement taken as a whole warrants
negating the inference of the source deduction aspect of the
agreement. Keeping in mind that the agreement was cast as a
"non-employment" agreement it is hard to conclude that
the mechanics of providing room and board were intended to
reflect one "employment" tax consequence versus
another. It seems likely that this whole issue has been
unwittingly created and exacerbated by T-4 slips, the preparation
and impact of which were not considered when the training
agreement was recast. In any event, the circumstances support a
finding in this case that the remuneration amount for the
purposes of subsection 5(1) is the portion of the
"allowance" that excludes the training expenses - the
latter more properly being dealt with under paragraph
6(1)(a) or, as the Respondent has argued, under
paragraph 6(1)(b).
[49] Dealing
firstly with the application of paragraph 6(1)(b), it is
difficult to imagine the portion of the allowance relating to
training expenses as being an allowance for the purposes
of that paragraph since such an allowance is an amount received
and over which the employee recipient has discretion as to use. The reason that an
allowance is taxable is that it is possible that it conceals
remuneration. In the case at bar the
allowance is set to match living expenses charged by the
employer. The Appellant is given absolutely no choice as to the
expenditure in terms of where or how it is spent or how much to
spend. The reality here is that the Appellant has an
out-of-pocket expense incurred by reason of employment and is
being reimbursed for that expense. Such reimbursements are not
taxed under subsection 5(1) or paragraphs 6(1)(a) or
(b). That she receives the
reimbursement in fixed monthly amounts does not change its
essential character.
[50] Looking at
the training expenses from a different perspective, I note that
there is also a question in the circumstances of this case as to
whether it is proper to regard the Appellant as having
received that portion of the allowance. While it is true
that one receives something when one derives the benefit
from it, it is surely open in this case to suggest that the
"something" is the benefit itself, not the monies
attributed as having been applied to provide the benefit. This is
true, or so it seems to me, when the connection between the
attributed funds and the benefit are pre-determined and cast in
stone so as to afford the employee no choice. In fact the
Appellant has contracted to forego the receipt of funds in favour
of her employer who contracted to pay it, which is to say she
agreed to take less compensation. In exchange she received
accommodation and meals the value of which might be taxable under
paragraph 6(1)(a). To suggest otherwise makes the employer
the party responsible to determine both what constitutes a
benefit and what value to give it for tax purposes. The
taxability under paragraph 6(1)(a) of any benefit
conferred is not the amount the employer determines as pay
foregone but the value of the benefit as determined in accordance
with principles applicable for the purposes of that
paragraph.
[51] The essence
of the question of the taxability of the training expenses in
this case is that it reflects a benefit for boarding and lodging.
The value of such benefit can be included in income under
paragraph 6(1)(a). It is commonly understood however
that to include any value in income it must first be determined
to be a benefit that benefits the employee as opposed to being
primarily for the benefit of the employer. At this point I
note that the analysis of the training expenses being a
non-taxable reimbursement merges in theory with the finding that
they are not a benefit. Expenses incurred by an employee in the
course of employment and reimbursed by the employer reflect
benefits that primarily benefit the employer. While I believe it
is sufficient that I have found that the training expenses were
incurred in this case in the course of employment and thereby not
taxable, I have no hesitation on the facts of this case, to add
that, in my view, there was virtually no benefit to the Appellant
in the provision of the training expenses and that the amount
incurred in respect of such expenses were incurred by the
employer for its own account and for its own benefit. It needed
to round up and plant recruits at a location convenient to it. It
was essential to the deportment training, if nothing else, to
house recruits where their every action could be graded. How else
could the position in the closet of articles of kit be monitored
as being in a mirror image fashion with one's pit partner? The
economic benefit to an employee of affording an employer such
monitoring advantage and of being sequestered in a
"pit" away from the amenities of home escapes
me.
[52] Accordingly,
the appeal is allowed. The income from employment subject to tax
is the training allowance received, namely $5,747.00, which
excludes the training expenses attributed to the Appellant as
wages deducted at source.
Signed at
Ottawa, Canada, this 30th day of September 2002.
J.T.C.C.
COURT FILE
NO.:
2000-4087(IT)G
STYLE OF
CAUSE:
Parambir Kaur Dhillon and
Her Majesty the Queen
PLACE OF
HEARING:
Winnipeg, Manitoba
DATE OF
HEARING:
July 17, 2002
REASONS FOR
JUDGMENT BY: The Honourable Judge J.E.
Hershfield
DATE OF
JUDGMENT:
September 30, 2002
APPEARANCES:
Counsel
for the Appellant: Cy M. Fien
Counsel
for the
Respondent:
Gerald Chartier
COUNSEL OF
RECORD:
For the
Appellant:
Name:
Cy M. Fien
Firm:
Fillmore & Riley
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2000-4087(IT)G
BETWEEN:
PARAMBIR
KAUR DHILLON,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Appeal heard
on July 17, 2002 at Winnipeg, Manitoba, by
the
Honourable Judge J.E. Hershfield
Appearances
Counsel
for the Appellant: Cy M. Fien
Counsel
for the
Respondent:
Gerald Chartier
JUDGMENT
The appeal from the assessment made under the Income Tax
Act for the 1998 taxation year is allowed, without costs, and
the assessment is referred back to the Minister of National
Revenue for reconsideration and reassessment on the basis that
the Appellant received in the year employment income of
$5,747.00.
The Appellant is entitled to no further relief.
Signed at
Ottawa, Canada, this 30th day of September 2002.
J.T.C.C.
Email this Content