Linden
J.A.:—The
sole
issue
raised
in
these
five
cases
before
this
Court
is
whether
a
mortgage
interest
subsidy
received
by
a
taxpayer,
after
a
relocation
to
a
more
expensive
housing
area,
is
taxable
under
either
paragraph
6(1
)(a)
or
section
80.4
of
the
Income
Tax
Act.
Facts
The
relevant
facts
are
not
in
dispute.
The
five
taxpayers
were
each
required
in
1991
by
their
employer,
Petro-Canada,
to
relocate
from
Calgary
to
the
Toronto
area
as
part
of
a
company-wide
reorganization.
The
relocation
was
mandatory,
with
affected
employees
given
the
option
of
moving
or
losing
their
jobs.
The
relocation
was
also
purely
geographical
and
in-
volved
no
change
in
employee
income.
To
defray
higher
housing
costs
in
the
Toronto
region
and
to
encourage
affected
employees
to
accept
relocation,
Petro-Canada
instituted
a
relocation
incentive
that
worked
as
follows:
A
national
real
estate
company
was
consulted
to
determine
the
market
price
differential
between
similar
homes
in
Calgary
and
Toronto,
which
at
the
time
of
relocation
came
to
1.55.
Petro
Canada
then
offered
to
pay
any
increase
in
interest
charges
on
mortgages
taken
on
costlier
Toronto
homes
to
a
maximum
set
by
the
differential.
Thus,
a
house
that
cost
$100,000
in
Calgary
would
be
deemed
to
cost
$155,000
in
Toronto.
The
owner
of
such
a
house
would
be
eligible
for
an
interest
subsidy
paid
by
the
employer
to
the
extent
of
the
interest
payable
on
the
increase
in
principal,
that
is,
$55,000.
The
Relocation
Program
booklet
distributed
to
the
employees
says
the
following
about
the
interest
subsidy:
The
Company
will
subsidize
the
interest
on
a
portion
of
your
mortgage
financing.
The
maximum
portion
that
the
Company
will
subsidize
will
be
the
differential
in
housing
prices
as
determined
by
the
Company....
The
subsidy
will
be
equal
to
the
normal
mortgage
interest
cost
on
a
declining
balance
of
your
original
differential
in
housing
prices
or
the
balance
of
your
mortgage,
whichever
is
the
lessor
[sic]...
As
indicated,
the
mortgage
interest
subsidy
was
payable
for
ten
years
on
a
declining
percentage
basis,
100
per
cent
interest
differential
paid
in
the
first
year
reducing
gradually
down
to
50
per
cent
in
the
tenth.
It
would
cease
upon
termination
of
employment.
The
subsidy
was
directed
solely
at
defraying
increased
interest
charges
and
it
could
not
be
applied
to
principal.
Also
important
to
note
is
that
the
financing
taken
on
the
homes
was
to
be
arranged
through
normal
methods
by
the
relocated
employees.
The
employer
played
no
role
assisting
in
this
process,
except
that
the
mortgages
were
available
only
from
Confederation
Life,
which
billed
Petro-Canada
directly
for
the
subsidy
amount
each
year.
Is
the
mortgage
interest
subsidy
taxable
under
paragraph
6(1
)(a)?
Paragraph
6(1
)(a)
reads
as
follows:
6(1)
Amounts
to
be
included
as
income
from
office
or
employment-
There
shall
be
included
in
computing
the
income
of
the
taxpayer
for
a
taxation
year
as
income
from
an
office
or
employment
such
of
the
following
amounts
as
are
applicable:
(a)
value
of
benefits—
the
value
of
board,
lodging
and
other
benefits
of
any
kind
whatever
received
or
enjoyed
by
him
in
the
hear
in
respect
of,
in
the
course
of,
or
by
virtue
of
an
office
or
employment...
Four
of
the
five
Tax
Court
Judges
decided
that
the
interest
subsidy
was
not
a
taxable
benefit
pursuant
to
paragraph
6(1
)(a).
The
sole
question
hinged
on
whether
the
receipt
was
a
"benefit"
within
the
meaning
of
paragraph
6(l)(a).
The
matter
of
whether
it
was
"in
respect
of",
"in
the
course
of"
or
"by
virtue
of
employment
did
not
cause
any
difficulty;
all
agreed
that
the
receipt
was
sufficiently
linked
to
the
employment.
The
first
issue
to
consider
therefore,
is
whether
there
was
a
’’benefit".
The
classic
statement
of
what
comprises
a
taxable
benefit
derives
from
the
Supreme
Court
of
Canada
case,
R.
v.
Savage
(sub
nom.
The
Queen
v.
Savage),
[1983]
2
S.C.R.
428,
[1983]
C.T.C.
393,
83
D.T.C.
5409.
In
that
case
Mr.
Justice
Dickson,
as
he
then
was,
explained
in
clear
and
simple
terms
the
principle
which
distinguishes
taxable
from
non-taxable
receipts:
If
it
is
a
material
acquisition
which
confers
an
economic
benefit
on
the
taxpayer
and
does
not
constitute
an
exemption,
eg.
loan
or
gift,
then
it
is
within
the
all-embracing
definition
of
section
3.
According
to
the
Supreme
Court
of
Canada,
then,
to
be
taxable
as
a
"benefit",
a
receipt
must
confer
an
economic
benefit.
In
other
words,
a
receipt
must
increase
the
recipient’s
net
worth
to
be
taxable.
Conversely,
a
receipt
which
does
not
increase
net
worth
is
not
a
benefit
and
is
not
taxable.
Compensation
for
an
expense
is
not
taxable,
therefore,
because
the
recipient’s
net
worth
is
not
increased
thereby.
Our
jurisprudence
has
long
accepted
the
focus
on
net
gain
as
the
basis
for
determining
whether
a
receipt
is
a
"benefit"
and
whether
it
is
therefore
taxable.
In
the
1967
decision
of
the
Exchequer
Court
of
Canada,
Ransom
v.
Minister
of
National
Revenue,
[1967]
C.T.C.
346,
67
D.T.C.
5235,
Noël
J.
applied
the
net
gain
concept
to
circumstances
not
too
dissimilar
from
the
present.
An
employee
was
transferred
by
the
employer
company
to
a
different
city
and
was
reimbursed
by
that
company
for
losses
incurred
on
the
sale
of
a
house.
In
deciding
that
these
reimbursements
were
not
income,
Noel
J.
stated:
In
a
case
such
as
here,
where
the
employee
is
subject
to
being
moved
from
one
place
to
another,
any
amount
by
which
he
is
out
of
pocket
by
reason
of
such
a
move
is
in
exactly
the
same
category
as
ordinary
travelling
expenses.
His
financial
position
is
adversely
affected
by
reason
of
that
particular
facet
of
his
employment
relationship.
When
his
employer
reimburses
him
for
any
such
loss,
it
cannot
be
regarded
as
remuneration,
for
if
that
were
all
that
he
received
under
his
employment
arrangement,
he
would
not
have
received
any
amount
for
his
services.
Economically,
all
that
he
would
have
received
would
be
the
amount
that
he
was
out
of
pocket
by
reason
of
the
employment.
This
is
merely
another
way
of
describing
the
net
gain
idea
that
a
receipt
is
not
taxable
if
it
does
not
improve
the
economic
situation
of
the
taxpayer;
if
it
only
reimburses
for
an
amount
for
which
an
employee
would
otherwise
be
"out
of
pocket",
it
is
not
a
"benefit".
He
treats
relocation
costs
in
the
same
way
as
ordinary
travelling
expenses.
Reimbursement
for
out
of
pocket
expenses
incurred
as
a
result
of
a
move,
explains
Noel
J.,
cannot
be
considered
a
benefit
because
it
adds
nothing
of
value
to
the
recipient’s
economic
situation.
He
states:
It
appears
to
me
quite
clear
the
reimbursement
of
an
employee
by
an
employer
for
expenses
or
losses
incurred
by
reason
of
the
employment
(which
as
stated
by
Lord
McNaughton
in
Tenant
v.
Smith,
(1892)
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"....
The
approach
of
Savage
and
Ransom
was
adopted
by
this
Court
in
Huffman
v.
Canada
where
the
issue
was
whether
a
clothing
expense
which
was
reimbursed
to
a
plain
clothes
police
officer
was
a
benefit.
Heald
J.A.,
quoting
from
the
Tax
Court
Judge
and
echoing
Mr.
Justice
Dickson
in
Savage,
held
that
it
was
not,
describing
the
applicable
test
as
follows:
It
is
therefore
necessary
to
consider
whether
the
facts
here
show
that
there
was
a
material
acquisition
in
conferring
an
economic
benefit
on
the
taxpayer.
Mr.
Justice
Heald
went
on
to
conclude:
the
taxpayer
was
simply
being
restored
to
the
same
economic
situation
he
was
in
before
his
employer
ordered
him
to
incur
the
expenses.
This
Court
once
again
applied
this
principle
in
affirming
the
decision
of
Cullen
J.
in
Splane
v.
R.
(sub
nom.
Splane
v.
Canada),
[1990]
2
C.T.C.
199,
90
D.T.C.
6442
(F.C.T.D.),
at
page
6446
(affirmed
92
D.T.C.
6021
(F.C.A.)).
There,
a
relocated
employee
was
reimbursed
for
costs
pertaining
to
an
increased
interest
rate
on
a
mortgage.
Deciding
that
such
reimbursement
does
not
constitute
a
benefit,
Cullen
J.
stated:
The
taxpayer
gained
no
extra
money
in
his
pocket.
Instead
the
payments
only
allowed
him
to
maintain
the
same
position
as
that
which
he
occupied
prior
to
his
transfer,
and
prevented
him
from
having
accepted
the
lateral
transfer
position
at
a
loss.
At
another
point
in
the
case,
Cullen
J.,
in
characterizing
the
economic
effects
of
the
receipt,
explained
that
"the
plaintiff
was
simply
restored
to
the
economic
situation
he
was
in
before
he
undertook
to
assist
his
employer
by
relocating...."
Therefore,
the
question
to
be
decided
in
each
of
these
instances
is
whether
the
taxpayer
is
restored
or
enriched.
Though
any
number
of
terms
may
be
used
to
express
this
effect-for
example,
reimbursement,
restitution,
indemnification,
compensation,
make
whole,
save
the
pocket—the
underlying
principle
remains
the
same.
If,
on
the
whole
of
a
transaction,
an
employee’s
economic
position
is
not
improved,
that
is,
if
the
transaction
is
a
zero-sum
situation
when
viewed
in
its
entirety,
a
receipt
is
not
a
benefit
and,
therefore,
is
not
taxable
under
paragraph
6(1
)(a).
It
does
not
make
any
difference
whether
the
expense
is
incurred
to
cover
costs
of
doing
the
job,
of
travel
associated
with
work
or
of
a
move
to
a
new
work
location,
as
long
as
the
employer
is
not
paying
for
the
ordinary,
every
day
expenses
of
the
employee.
It
is
clear
that
both
our
economy
and
our
tax
system
favour
the
mobility
of
employees
and
others
to
areas
where
economic
advantage
beckons.
Specific
deductions
in
the
Income
Tax
Act,
for
example,
are
available
to
employees
who
pay
their
own
costs
of
moving.
Parliament
has
thereby
indicated
that
employment
mobility
should
not
be
impeded,
but
rather
encouraged.
Indeed,
such
mobility
rights
have
been
enshrined
in
our
Constitution
as
a
Charter
value
and
deserve
judicial
respect
so
as
to
prevent
barriers
being
erected
to
erode
it.
The
decisions
of
the
Supreme
Court
of
Canada
and
this
Court
are
in
harmony
with
this
value
as
enshrined
in
section
6
of
the
Charter
insofar
as
reimbursement
of
costs
of
moving
and
relocation
are
not
taxable
as
long
as
the
employee
is
not
better
off
as
a
result.
Although
certainly
not
binding
on
this
Court,
Revenue
Canada’s
Interpretation
Bulletin
IT-470R,
which
deals
with
employee
benefits,
sets
out
a
position
reflecting
the
established
jurisprudence.
Of
particular
interest
is
paragraph
37
under
"Removal
Expenses"
where
the
Bulletin
reads:
37.
In
ordinary
circumstances,
if
an
employer
reimburses
an
employee
for
a
loss
suffered
by
the
latter
in
selling
the
family
home
upon
being
required
by
the
employer
to
move
to
another
locality
or
upon
retirement
from
employment
in
a.
remote
area,
the
amount
so
reimbursed
is
not
income
of
the
employee
if
it
is
not
greater
than
the
actual
loss
calculated
as
the
amount
by
which
the
cost
of
the
home
to
the
employee
exceeds
the
net
selling
price
received
for
it....
This
same
understanding
is
echoed
in
a
companion
Interpretation
Bulletin
IT-178R3
concerning
moving
expenses.
Paragraph
4
reads
in
part
as
follows:
4.
...
Where
an
employer
pays
or
reimburses
an
employee
for
reasonable
moving
expenses
which
are
not
eligible
for
deduction
under
section
62,
such
reimbursement
is
not
usually
regarded
as
a
taxable
benefit
conferred
on
the
employee.
This
paragraph
reveals
the
tension
between
Parliament’s
desire
for
certainty
in
tax
matters
and
the
continuing
necessity
of
deciding
tax
issues
on
a
principled
basis.
It
recognizes
that
the
moving
expense
deductions
of
section
62
are
not
a
complete
code
regarding
the
tax
treatment
of
costs
incurred
by
relocating
workers.
The
same
can
be
said
for
the
section
8
employment
deductions:
they
also
do
not
constitute
a
comprehensive
code.
Receipts
not
specifically
mentioned
in
those
sections
must
still
be
categorized
for
taxation
purposes;
they
must
still
come
within
paragraph
6(l)(a),
as
explained
by
Ransom
and
Savage,
to
be
taxable.
Thus,
as
desirable
as
clearly
specified
rules
of
taxation
may
be,
many
tax
issues
remain
to
be
decided
on
a
case
to
case
basis
in
accordance
with
general
principles
established
in
the
case
law.
Clearly,
no
once
and
for
all
pronouncement
can
resolve
all
the
cases,
as
wonderful
as
that
would
be.
Our
system
does
not
tax
every
dollar
received
by
a
taxpayer.
Receipts
must
be
characterized
as
income
or
a
"benefit"
before
that
occurs.
True,
all
money
paid
to
an
employee
is
a
"benefit"
in
the
sense
that
the
employee
is
better
off
than
if
the
money
were
not
received.
But,
whether
such
a
payment
is
legally
a
"benefit"
according
to
paragraph
6(1
)(a)
is
an
entirely
different
question,
one
that
depends
on
the
specific
facts
of
each
individual
case.
To
further
complicate
matters,
the
form
of
a
transaction
is
important
in
the
characterization
process.
To
repeat
something
I
wrote
in
another
context
(Friedberg
v.
Minister
of
National
Revenue,
[1992]
1
C.T.C.
1,
92
D.T.C.
6031
(F.C.A.),
at
page
2
(D.T.C.
6032),
per
Linden
J.A.),
form
matters.
Form
may
not
rule,
but
it
does
matter.
And
because
form
matters,
one
may
structure
one’s
affairs
so
as
to
minimize
the
tax
payable
on
certain
transactions.
There
is
nothing
wrong
with
this.
Subject
to
provisions
such
as
section
245,
it
is
neither
illegal
nor
immoral.
Some
of
the
best
legal
minds
in
Canada
are
devoted
exclusively
to
this
enterprise.
Tax
liability
may
sometimes
be
minimized
if
certain
formal
steps
are
followed.
That
is
the
case
in
this
context,
as
well
as
in
many
others.
Thus
if
a
company
gives
$500
to
an
employee
as
a
lump-sum
payment
to
offset
some
cost
or
expense,
but
does
not
require
receipts,
the
money
is
taxable.
However,
if
receipts
for
actual
costs
incurred
are
required
in
order
to
get
reimbursement,
the
amount
may
not
be
taxable.
If
a
company
gives
a
lump
sum
payment
to
an
employee
to
offset
higher
housing
costs
on
relocation,
the
payment
is
taxable,
if
he
is
better
off
as
a
result.
But,
if
such
aid
comes
by
way
of
a
reimbursement
for
the
loss
of
a
favourable
mortgage
rate,
it
is
not
taxable.
So
too,
if
a
company
reimburses
its
employees
for
expenses
incurred
by
means
of
a
general
wage
increase,
the
amount
of
the
increase
is
obviously
taxable.
Notwithstanding
that
each
of
these
varying
methods
of
reimbursement
may
have
a
similar
goal
in
mind,
the
different
forms
of
transaction
may
be
treated
differently,
that
is,
some
may
be
taxed
and
others
may
not.
This
is
in
no
way
inequitable.
This
is
not
improper
circumvention
of
the
tax
laws.
The
facts
of
each
case
are
unique
and
Courts
must
deal
with
them
accordingly.
It
is
just
common
sense,
therefore,
for
taxpayers
to
consider
the
tax
consequence
of
their
financial
dealings
and
to
structure
them
wisely
so
as
to
keep
tax
liability
to
a
minimum.
Having
dwelled
upon
the
deceptively
simple
principles
set
out
in
Ransom
and
Savage,
I
must
now
wade
into
the
murky
waters
of
employee
relocation
benefits
to
determine
whether
the
payments
made
under
the
interest
subsidy
scheme
in
these
cases
are
taxable.
As
was
stated
above,
four
of
the
five
Tax
Court
Judges
who
considered
these
five
cases
decided
that
the
mortgage
interest
subsidy
is
not
a
taxable
benefit.
The
primary
reason
for
this,
they
indicated,
was
that
the
mortgage
interest
subsidy
scheme
established
in
these
cases
did
not
increase
the
mortgagors’
equity
in
their
homes.
No
economic
gain
accrued
to
any
of
the
taxpayers
as
a
result
of
the
subsidy.
Their
net
worth
was
not
increased.
Thus,
a
fundamental
requirement
of
paragraph
6(1
)(a)
was
unfulfilled.
Where
no
economic
gain
is
present,
a
receipt
is
not
to
be
taxed.
Sobier
J.T.C.C.
put
it
succinctly
in
the
Hoefele
reasons:
The
appellant’s
equity
in
the
new
house
remained
the
same.
The
house
in
Toronto
may
be
a
significantly
more
valuable
asset
but
the
Appellant’s
ownership
in
the
asset
did
not
increase.
In
Calgary,
the
Appellant’s
equity
in
his
home
was
$98,600.00.
In
Toronto,
the
Appellant’s
equity
position
was
still
$98,600.00.
A
person’s
economic
position
is
not
advanced
by
maintaining
the
same
ownership
in
a
more
valuable
asset.
The
Appellant
assumed
all
responsibility
for
payments
on
account
of
increased
principal.
In
fact,
his
monthly
mortgage
payments
were
greater
in
Toronto
than
Calgary.
If
employment
ceased
or
the
employee
was
relocated
back
to
Calgary,
the
assistance
ceased.
The
assistance
received
by
the
Appellant
was
not
a
colourable
attempt
to
increase
the
Appellant’s
remuneration;
it
is
merely
a
reimbursement
for
an
expense
incurred
by
virtue
of
employment.
I
am
in
full
agreement
with
this
conclusion,
for
it
is
entirely
consistent
with
the
jurisprudence
of
the
Supreme
Court
of
Canada
and
of
this
Court.
It
is
also
mainly
a
finding
of
fact,
something
this
Court
cannot
alter
except
in
the
rarest
of
circumstances.
This
conclusion
is,
in
my
view,
not
inconsistent
with
the
decision
in
Phillips.
The
facts
in
that
case,
a
lump
sum
payment
to
employees
that
clearly
benefitted
them
economically
by
increasing
their
net
worth,
are
not
before
us
here.
In
Phillips,
I
concurred
in
the
result
on
those
facts.
These
facts
are
different.
The
employees
here
simply
traded
a
house
in
Calgary
for
a
similar
one
in
Toronto.
The
employer
defrayed
some
of
the
extra
costs
of
doing
so,
without
increasing
any
of
the
homeowners’
equity
in
the
homes.
Unlike
the
situation
in
Phillips,
their
net
worth
was
not
increased
in
these
cases.
There
is
no
need
to
reverse
Splane,
as
urged
by
counsel
for
the
Crown.
Nor
is
there
any
reason
to
disparage
or
to
limit
Ransom.
On
the
contrary,
Splane
and
Ransom
continue
to
be
good
law.
The
Ransom
case
was
decided
some
28
years
ago
by
a
distinguished
jurist
on
the
basis
of
an
eminently
reasonable
principle.
It
has
not
been
challenged
by
this
Court
since.
The
Ransom
principle
is
consistent
with
Savage.
It
reflects
common
sense.
It
is
fair.
It
deserves
to
survive.
Should
Parliament
wish
to
reverse
the
principle,
it
is
at
liberty
to
do
so.
I
see
no
reason
why
this
Court
should.
Is
the
mortgage
interest
subsidy
taxable
under
subsections
80.4(1)
And
6(9)?
The
second
issue
in
this
appeal
is
whether
the
interest
subsidy
qualifies
as
a
taxable
benefit
under
subsection
80.4(1),
which
reads:
80.4(1)
Whereas
person
or
partnership
receives
a
loan
or
otherwise
incurs
a
debt
because
of
or
as
a
consequence
of
a
previous,
the
current
or
an
intended
office
or
employment
of
an
individual,
or
because
of
the
services
performed
or
to
be
performed
by
a
corporation
carrying
on
a
personal
services
business,
the
individual
or
corporation,
as
the
case
may
be,
shall
be
deemed
to
have
received
a
benefit
in
a
taxation
year
equal
to
the
amount,
if
any,
by
which
the
total
of
(a)
all
interest
on
all
such
loans
and
debts
computed
at
the
prescribed
rate
on
each
such
loan
and
debt
for
the
period
in
the
year
during
which
it
was
outstanding,
and
(b)
the
total
of
all
amounts
each
of
which
is
an
amount
of
interest
that
was
paid
or
payable
in
respect
of
the
year
on
such
a
loan
or
debt
by
(i)
a
person
or
partnership
(in
this
paragraph
referred
to
as
the
"emplqyer")
that
employed
or
intended
to
employ
the
individual,
(ii)
a
person
(other
than
the
debtor)
related
to
the
employer,
or
(iii)
a
person
or
partnership
to
or
for
whom
or
which
the
services
were
or
were
to
be
provided
or
performed
by
the
corporation
of
a
person
(other
than
the
debtor)
who
does
not
deal
at
arm’s
length
with
that
person
or
any
member
of
that
partnership,
exceeds
the
total
of
(c)
the
amount
of
interest
for
the
year
paid
on
all
such
loans
and
debts
not
later
than
30
days
after
the
end
of
the
year,
and
(d)
any
portion
of
the
total
determined
in
respect
of
the
year
under
paragraph
(b)
that
is
reimbursed
in
the
year
or
within
30
days
after
the
end
of
the
year
by
the
debtor
to
the
person
or
entity
who
made
the
payment
referred
to
in
that
paragraph.
Subsection
6(9)
reads
as
follows:
6.
...
(9)
Amount
in
respect
of
interest
on
employee
debt.
Where
an
amount
in
respect
of
a
loan
or
debt
is
deemed
by
subsection
80.4(1)
to
be
a
benefit
received
in
a
taxation
year
by
an
individual,
the
amount
of
the
benefit
shall
be
included
in
computing
the
income
of
the
individual
for
the
year
as
income
from
an
office
or
employment.
Thus,
for
the
1992
and
following
taxation
years,
a
receipt
must
be
from
a
loan
or
debt
incurred
"because
of
or
as
a
consequence
of"
employment.
For
taxation
years
prior
to
1992
,
such
loan
or
debt
must
have
been
incurred
"by
virtue
of"
employment.
There
is
a
slight
difference
in
wording
between
the
older
and
newly
amended
sections
signifying
little,
if
anything.
Regardless,
the
focus
of
both
versions
is
on
the
debt
and
not
the
receipt.
It
is
not
the
benefit
that
must
arise
"because
of",
"as
a
consequence
of",
or
"by
virtue
of"
the
employment;
rather
the
loan
or
debt
itself
must
be
incurred
"because
of"
or
"as
a
consequence
of"
of
"by
virtue
of"
employment.
In
the
present
circumstances,
the
mortgage
interest
subsidy
may
well
have
been
received
"because
of",
"as
a
consequence
of"
or
"by
virtue
of"
the
taxpayers’
employment.
But
this
is
not
the
question
before
us.
What
must
be
determined
is
whether
those
portions
of
the
mortgage
loans
taken
out
by
the
taxpayers
in
respect
of
the
Toronto
homes,
and
to
which
the
interest
subsidy
was
directed,
came
about
"because
of",
"as
a
consequence
of"
or
"by
virtue
of
employment.
In
resolving
this
question,
one
must
first
note
that
subsection
80.4(1),
whether
in
its
older
or
newly
amended
form,
requires
a
close
connection
between
the
loan
or
debt
and
employment,
a
connection
much
closer
than
that
required
by
paragraph
6(1
)(a)
as
between
benefit
and
employment.
In
the
latter,
a
benefit
may
arise
if
it
is
received
merely
"in
respect
of"
employment.
The
phrase
"in
respect
of"
connotes
only
the
slightest
relation
between
two
subjects
and
is
intended
to
convey
very
wide
scope.
In
Nowegijick
v.
v.
R.
(sub
nom.
Nowegijick
v.
The
Queen),
[1983]
1
S.C.R.
29,
[1983]
C.T.C.
20,
83
D.T.C.
5041,
at
page
39
(C.T.C.
25;
D.T.C.
5045),
per
Dickson
J,
the
Supreme
Court
of
Canada
stated
the
following
concerning
the
words
"in
respect
of":
The
words
"in
respect
of"
are,
in
my
opinion,
words
of
the
widest
possible
scope.
They
import
such
meanings
as
"in
relations
to",
"with
reference
to"
or
“in
connection
with".
The
phrase
"in
respect
of"
is
probably
the
widest
of
any
expression
intended
to
convey
some
connection
between
two
related
subject
matters.
On
the
other
hand,
the
phrases
used
in
the
amended
subsection
80.4(1),
"because
of",
or
"as
a
consequence
of",
as
well
as
in
the
original
version,
"by
virtue
of",
require
a
strong
causal
connection.
I
find
little
or
no
difference
between
the
meanings
of
the
phrases
"because
of",
"as
a
consequence
of"
and
"by
virtue
of".
Each
phrase
implies
a
need
for
a
strong
causal
relation
between
subject
matters,
not
merely
a
slight
linkage
between
them.
I
do
not
see
any
strong
causal
relationship
on
the
facts
before
us
here.
The
employees
who
accepted
the
interest
subsidy
all
owned
houses
prior
to
being
relocated.
To
the
extent
that
they
incurred
costs
in
trading
a
house
in
Calgary
for
a
like
house
in
the
Toronto
region
they
had
to
take
mortgages
out
to
cover
those
costs.
Whether
this
meant
simply
increasing
the
principal
on
an
already
existing
mortgage
or
taking
out
a
new
mortgage
for
the
extra
amount
is
of
no
consequence
for
subsection
80.4(1).
Each
taxpayer
had
simply
to
do
what
that
taxpayer
had
to
do.
Each
employee
owned
a
house
before
relocating
and
traded
like
for
like
in
the
relocation.
Each
did
what
was
needed
to
finance
the
trade
and
obtained
such
financing
largely
independently
of
employer
involvement.
They
each
had
to
qualify
for
the
loans
on
their
own
merits.
And
each,
in
the
end,
was
given
an
interest
subsidy,
on
a
declining
ten-year
basis,
to
defray
part
of
the
interest
increases
involved.
I
fail
to
see
in
this
scenario
a
loan
or
debt
incurred
"because
of",
"as
a
consequence
of"
or
"by
virtue
of"
employment.
No
employee
jumped
from
a
rental
to
a
mortgage
situation,
and
none
traded
a
principal
residence
for
a
non-principal
residence.
Such
loans
or
debts
that
were
incurred
in
each
of
these
cases
were
incurred,
then,
in
order
to
retain
ownership
of
a
house,
not
"because
of",
"as
a
consequence
of"
nor
"by
virtue
of"
employment.
In
conclusion,
the
mortgage
interest
subsidy
was
therefore
neither
a
benefit
under
paragraph
6(1
)(a)
nor
a
loan
or
debt
under
subsection
80.4(1).
The
appeals
are
decided
in
favour
of
the
employees.
The
four
appeals
by
the
Crown
will
be
dismissed
with
costs.
The
appeal
by
the
taxpayer
will
be
allowed
with
costs
and
the
matter
will
be
remitted
to
the
Minister
to
be
reassessed
in
accordance
with
these
reasons.
Robertson
J.A.:-In
Phillips
v.
Minister
of
National
Revenue,
[1994]
1
C.T.C.
383,
94
D.T.C.
6177,
this
Court
held
that
a
$10,000
lump
sum
payment
made
by
an
employer
to
an
employee,
for
the
purpose
of
defraying
higher
housing
costs
at
the
latter’s
new
work
location,
was
a
taxable
employment
benefit
within
the
purview
of
paragraph
6(1
)(a)
of
the
Income
Tax
Act
(the
"Act").
One
of
the
principal
issues
raised
in
these
five
cases
is
whether
the
payment
of
a
mortgage
interest
subsidy
(ranging
from
$3,000
to
$12,000
per
year)
by
an
employer
to
an
employee’s
mortgage
lender,
and
made
for
the
same
purpose,
is
also
a
taxable
benefit.
With
respect
to
four
of
the
decisions
rendered
below,
each
of
the
learned
Tax
Court
of
Canada
judges
concluded
that
the
subsidies
in
question
were
immune
from
taxation.
In
large
part,
their
legal
reasoning
rested
on
the
applicability
of
Splane
v.
Canada,
(1991),
92
DTC
6021
(F.C.A.),
aff’g
[1990]
2
C.T.C.
199,
90
DTC
6442,
36
F.T.R.
35
(F.C.T.D.)
and,
in
turn,
Ransom
v.
Minister
of
National
Revenue,
[1967]
C.T.C.
346,
67
D.T.C.
5235,
[1968]
1
Ex.C.R.
293.
The
decision
in
Phillips
was
distinguished
on
myriad
grounds.
The
fifth
judge,
relying
principally
on
the
legal
reasoning
advanced
in
Phillips
and
the
Supreme
Court’s
decision
in
The
Queen
v.
Savage,
[1983]
2
S.C.R.
428,
[1983]
C.T.C.
393,
83
D.T.C.
5409
concluded
otherwise:
see
Hoefele
v.
Canada,
[1994]
1
C.T.C.
2177,
94
D.T.C.
1878,
S.C.C.P.B.
31
(T.C.C.);
Mikkelsen
v.
R
(sub
nom.
Mikkelsen
v.
The
Queen
(1994),
95
D.T.C.
118,
5
C.C.P.B.
14
(T.C.C.);
Zaugg
v.
R.
(sub
nom.
Zaugg
v.
Canada),
[1994]
2
C.T.C.
2425,
94
D.T.C.
1882
(T.C.C.);
Krall
v.
R.
(sub
nom.
Krall
v.
Canada),
[1995]
1
C.T.C.
2570,
95
D.T.C.
411
(T.C.C.);
and
Krull
v.
R.
(sub
nom.
Krull
v.
The
Queen),
[1995]
2
C.T.C.
2204,
95
D.T.C.
206
(T.C.C.).
Linden
J.A.,
(MacGuigan
J.A.
concurring),
has
determined
that
the
interest
subsidies
in
question
do
not
qualify
as
a
taxable
benefit
under
either
paragraph
6(1
)(a)
or
section
80.4
of
the
Act.
In
my
respectful
view,
the
legal
reasoning
and
the
result
reached
in
Phillips
are
equally
applicable
to
the
decisions
under
review
and,
therefore,
the
payment
of
the
subsidies
constitutes
a
taxable
benefit
under
paragraph
6(1
)(a)
of
the
Act.
Furthermore,
that
conclusion
is
consistent
with
the
Supreme
Court
decision
in
Savage.
Paragraph
6(1
)(a)
of
the
Act
brings
into
employment
income
a
"benefit
of
any
kind
whatever"
received
by
the
taxpayer
"in
respect
of,
in
the
course
of,
or
by
virtue
of"
his
or
her
employment.
The
Supreme
Court
of
Canada
in
Savage
concluded
that
the
meaning
to
be
ascribed
to
the
term
"benefit"
is
quite
broad.
At
440-41
(C.T.C.
399),
(D.T.C.
5414),
Dickson
J.
(as
he
then
was),
speaking
for
a
unanimous
Court,
held:
The
meaning
of
"benefit
of
whatever
kind"
is
clearly
quite
broad:
in
the
present
case
the
cash
payment
of
$300
easily
falls
within
the
category
of
"benefit".
Further,
our
Act
speaks
of
a
benefit
"in
respect
of"
an
office
or
employment.
In
Nowegijick
v.
The
Queen,
83
D.T.C.
5041
this
Court
said,
at
page
5045,
that:
The
words
"in
respect
of"
are,
in
my
opinion,
words
of
the
widest
possible
scope.
They
import
such
meanings
as
“in
relation
to",
"with
reference
to"
or
"in
connection
with".
The
phrase
"in
respect
of"
is
probably
the
widest
of
any
expression
intended
to
convey
some
connection
between
two
related
subject
matters...
I
agree
with
what
was
said
by
Evans
J.A.
in
R.
v.
Poynton,
[1972]
3
O.R.
727
at
page
738,
speaking
of
benefits
received
or
enjoyed
in
respect
of,
in
the
course
of,
or
by
virtue
of
an
office
or
employment:
...If
it
is
a
material
acquisition
which
confers
an
economic
benefit
on
the
taxpayer
and
does
not
constitute
an
exception,
e.g.,
loan
or
gift,
then
it
is
within
the
all-embracing
definition....
(Emphasis
added)
A
mortgage
interest
subsidy
may
also
be
found
to
be
taxable
under
section
80.4
of
the
Act
and
its
related
provisions.
Section
80.4
and
subsection
6(9)
bring
into
income
an
amount
which
the
Act
deems
a
benefit.
That
benefit
arises
in
circumstances
where
an
employee
receives
a
loan
at
a
lower
than
prevailing
rate
of
interest
"because
of
or
as
a
consequence
of
[that]
employment".
In
short,
the
Act
seeks
to
ensure
that
the
employee
pays
tax
on
that
portion
of
a
loan
which
is
subsidized
by
his
or
her
employer.
At
the
same
time,
the
Act
provides
that
if
the
loan
qualifies
as
a
"home
relocation
loan",
as
defined
in
subsection
248(4),
then
the
employee/taxpayer
may
be
entitled
to
a
deduction
as
calculated
under
paragraph
110(
1
)(j)
of
the
Act.
The
combined
effect
of
these
provisions
is
that
within
prescribed
limits
the
taxpayer
is
not
obligated
to
pay
tax
on
the
full
amount
of
the
subsidy.
With
few
exceptions,
the
Act
ignores
variations
in
the
cost
of
living
from
one
part
of
the
country
to
another.
One
exception
is
section
110.7
which
provides
that
certain
travel
and
housing
expenses
can
be
deducted
by
individuals
who
live
in
a
"prescribed
area"
of
Canada.
Another
is
subsection
6(6)
(commonly
referred
to
as
the
northern
resident’s
deduction),
which
provides
that
certain
allowances
received
by
employees
at
special
work
sites
and
remote
locations
are
not
to
be
included
in
income.
The
relevant
facts
may
be
summarized
as
follows.
Each
of
the
five
taxpayers
was
transferred
from
Calgary
to
the
Toronto
area
by
their
employer,
Petro-Canada.
Each
was
entitled
to
financial
assistance
available
under
Petro-Canada’s
relocation
program
which
includes
a
monthly
mortgage
interest
subsidy.
The
monthly
subsidy
is
intended
to
help
offset
the
interest
costs
associated
with
the
need
to
take
out
a
larger
mortgage
when
purchasing
a
"comparable"
but
more
costly
home
at
the
new
work
location.
As
required
by
the
employee
relocation
program,
a
third
party
established
a
mathematical
differential
for
the
difference
in
the
cost
or
value
of
the
employee’s
home
in
Calgary
and
a
"comparable"
one
in
Toronto,
which
at
the
time
of
relocation
was
determined
to
be
approximately
1.50.
Once
an
employee’s
house
in
Calgary
was
sold,
the
differential
was
multiplied
by
the
sale
price
in
order
to
establish
the
comparable
price
of
a
home
in
Toronto.
The
difference
between
the
sale
price
of
the
employee’s
home
in
Calgary
and
the
price
of
a
comparable
home
in
Toronto
established
the
maximum
mortgage
differential
on
which
a
mortgage
interest
subsidy
was
available.
The
subsidy
is
payable
for
a
maximum
of
ten
years
on
a
declining
basis
(100
per
cent
in
the
first
year
to
50
per
cent
in
the
tenth).
The
following
table,
found
at
page
112
of
the
Applicant’s
Application
Record
in
Hoefele,
supra,
illustrates
the
extent
to
which
the
subsidy
is
available:
|
MORTGAGE
|
MONTHLY
|
ESTIMATED
|
|
PERCENTAGE
OF
DIFFERENTIAL
|
SUBSIDY
|
MONTHLY
|
YEAR
IN
DIFFERENTIAL
|
AMOUNT
|
PAID
BY
PETRO-
|
TAXABLE
|
ERQQRAM
SUBSIDIZED
|
SUBSIDIZED
CANADA
|
BENEFIT
|
1
|
100%
|
$100,000
|
$896
|
$550
|
2
|
97%
|
$97,000
|
$869
|
$525
|
3
|
94%
|
$94,000
|
$843
|
$500
|
4
|
90%
|
$90,000
|
$807
|
$475
|
5
|
85%
|
$85,000
|
$762
|
$450
|
6
|
80%
|
$80,000
|
$717
|
$600
|
7
|
75%
|
$75,000
|
$672
|
$550
|
8
|
70%
|
$70,000
|
$627
|
$500
|
9
|
60%
|
$60,000
|
$538
|
$450
|
10
|
50%
|
$50,000
|
$448
|
$375
|
Based
on
an
interest
rate
of
11%.
|
|
is
warranted.
In
Phillips,
the
taxpayer
received
$10,000
from
his
employer
to
assist
with
the
purchase
of
a
home
in
Winnipeg
to
replace
the
one
he
had
sold
in
Moncton
after
closure
of
the
employer’s
facility
in
that
city.
It
was
agreed
that
the
average
cost
of
a
comparable
home
in
Winnipeg
was
at
least
$23,000
higher
than
in
Moncton.
In
concluding
that
the
payment
was
a
taxable
benefit,
this
Court
held
that
it
fell
outside
the
parameters
of
a
tax-free
benefit
established
in
Savage,
Ransom
and
Splane.
Writing
for
the
Court,
(Stone
J.A.
concurring,
Linden
J.A.
concurring
in
the
result),
I
concluded
at
(C.T.C.
384)
(D.T.C.
6178),
page
688:
"In
my
view
the
$10,000
did
not
restore
the
[taxpayer]
to
his
previous
financial
state.
Rather
it
increased
his
net
worth
by
$10,000."
Simply
stated,
the
taxpayer
in
Phillips
was
$10,000
richer
the
day
after
the
move
than
he
was
the
day
before.
The
payment
did
not
have
the
effect
of
restoring
him
to
his
prior
financial
state,
rather
it
increased
his
net
financial
worth
and
this
is
true
irrespective
of
whether
the
replacement
home
in
Winnipeg
could
be
characterized
as
"comparable"
to
the
one
in
Moncton.
With
respect
to
the
cases
at
bar,
the
taxpayers’
argument
is,
for
all
intents
and
purposes,
identical
to
that
advanced
in
Phillips.
It
is
now
maintained
that
the
subsidy
payments
do
not
constitute
an
"economic
benefit"
as
they
do
not
have
the
effect
of
placing
money
in
the
taxpayers’
pockets.
Rather
the
subsidies
enabled
them
to
purchase
comparable
homes
and,
in
so
doing,
restored
them
to
the
financial
position
they
were
in
prior
to
moving
to
the
Toronto
area.
In
other
words,
the
subsidy
payments
did
not
have
the
effect
of
increasing
the
taxpayers’
net
worth
and
should
be
treated
no
differently
than
a
reimbursement
for
moving
expenses.
I
cannot
agree.
The
taxpayers’
argument
is
flawed
in
that
it
rests
on
the
mistaken
assumption
that
a
taxpayer
is
entitled
to
comparable
housing
at
the
new
work
location.
The
question
to
be
asked
is
not
whether
the
payments
have
the
effect
of
restoring
a
taxpayer
to
the
same
standard
of
living
he
or
she
enjoyed
prior
to
the
relocation.
The
proper
question
is
whether
the
payments
have
the
effect
of
enhancing
the
taxpayers
overall
financial
worth:
that
is
to
say,
whether
the
payments
confer
an
“economic
benefit”
on
the
taxpayers.
As
I
pointed
out
in
Phillips
at
pages
700-01
(C.T.C.
391;
D.T.C.
6183):
section
6
of
the
Act
seeks
to
limit
tax
avoidance
relating
to
monetary
and
non-monetary
compensation
not
reflected
in
wages
or
salaries.
Another
primary
and...overriding
objective...is
to
ensure
that
“employees
who
receive
their
compensation
in
cash
are
on
the
same
footing
as
those
who
receive
compensation
in
some
combination
of
cash
and
kind”.
The
payments
in
question
represent
Petro-Canada’s
way
of
compensating
its
employees
for
the
higher
cost
of
living
in
the
Toronto
area,
without
resorting
to
an
increase
in
salaries.
Such
payments
are
a
means
of
defraying
a
personal
living
expense
and
clearly
confer
an
“economic
benefit”
on
the
taxpayers.
In
short,
the
subsidies
are
monetary
compensation
not
reflected
in
wages
or
salaries,
and
as
such
are
taxable
benefits
within
paragraph
6(1
)(a)
of
the
Act.
While
the
taxpayers
sought
to
distinguish
Phillips
on
myriad
grounds,
one
did
gain
acceptance.
In
a
few
cases,
it
was
argued
successfully
that
while
the
taxpayers’
homes
in
Toronto
may
have
been
significantly
more
valuable
assets
than
the
ones
in
Calgary,
the
“equity”
in
each
remained
the
same
and,
therefore,
there
could
be
no
increase
in
the
taxpayers’
individual
net
worth.
In
my
respectful
view,
this
reasoning
fails
to
acknowledge
the
continuing
effect
of
the
interest
subsidies
paid
by
Petro-Canada.
Although
the
taxpayers
may
not
have
been
better
off
financially
the
day
immediately
following
the
relocation,
as
soon
as
Petro-Canada
paid
the
first
monthly
subsidy
payment
to
Confederation
Life,
the
taxpayers’
financial
positions
were
improved
by
that
amount,
and
this
is
true
irrespective
of
whether
their
standards
of
living
remained
unchanged.
A
brief
explanation
should
suffice.
Because
of
the
monthly
interest
subsidies,
the
taxpayers
do
not
have
to
shoulder
the
full
cost
of
acquiring
a
more
valuable
asset.
The
full
cost
includes
not
only
the
principal
amount
of
the
mortgage
loan,
but
also
accruing
interest.
But
for
the
subsidies,
each
of
the
taxpayers
would
have
been
required
to
use
after-tax
dollars
in
order
to
retire
the
interest
component
of
the
mortgage
loan.
With
the
subsidies,
the
taxpayers
are
in
a
position
to
spend
those
after-tax
dollars
as
they
wish.
It
is
in
this
sense
that
the
taxpayers’
net
worth
increases.
To
reiterate
what
I
said
above,
the
fallacy
in
the
taxpayers’
argument
can
be
traced
to
the
mistaken
belief
that
they
are
entitled
to
comparable
housing
in
the
Toronto
area.
The
subsidies
in
question
may
well
have
the
effect
of
restoring
the
taxpayers
to
the
same
standards
of
living
they
enjoyed
prior
to
moving
to
the
Toronto
area.
However,
in
doing
so,
the
subsidies
improve
the
taxpayers’
financial
positions.
To
suggest
that
the
subsidies
go
toward
only
the
increased
interest
component
of
the
mortgage
and
not
the
principal,
and
therefore
the
payments
made
by
the
taxpayers’
employer
do
not
have
the
effect
of
increasing
the
taxpayers’
net
worth,
is
simply
to
mask
the
reality
of
the
situation.
In
Phillips,
I
alluded
to
the
fact
that
a
valid
distinction
could
not
be
drawn
between
a
lump
sum
payment
which
is
used
to
reduce
the
principal
amount
of
the
loan
and
a
payment
which
is
applied
directly
against
accruing
interest.
The
reason
being
that
if
you
reduce
the
principal
amount
of
a
loan,
by
means
of
a
lump
sum
payment,
you
necessarily
reduce
the
amount
of
interest
that
can
accrue
in
the
future.
In
other
words,
the
form
in
which
the
payment
is
made
should
not
detract
from
the
legal
reality
that
the
taxpayers
have
received
financial
assistance
to
defray
what
is,
in
fact,
a
personal
living
expense.
In
argument,
counsel
for
the
taxpayers
acknowledged
that
one
cannot
do
indirectly
what
cannot
be
done
directly,
but
took
refuge
in
a
passage
found
in
the
concurring
reasons
of
Linden
J.A.
in
Phillips
where
it
was
noted
that
the
structuring
of
tax-free
compensation
packages
for
employees
required
to
relocate
remained
a
possibility
as
long
as
it
was
done
“legally”
at
page
686
(C.T.C.
394;
D.T.C.
6185).
Now
it
is
argued
that
the
PetroCanada
compensation
scheme
represents
such
a
structured
package.
So
too
must
this
argument
fail.
First,
the
conversion
of
a
lump
sum
payment
into
a
monthly
interest
subsidy
cannot
be
considered
professional
tax
planning.
Form,
by
itself,
does
not
prevail
over
substance.
Second,
the
tax
planning
involved
in
Petro-Canada’s
relocation
program
was
premised
on
the
belief
that
the
subsidy
is
a
taxable
benefit
and,
as
I
see
it,
purposely
structured
so
as
to
take
advantage
of
the
home
relocation
deduction.
While
I
have
concluded
that
the
interest
subsidies
are
taxable
benefits
under
paragraph
6(1
)(a),
it
remains
to
be
determined
whether
this
conclusion
conflicts
with
either
Splane
or
Ransom.
In
Phillips,
I
attempted
to
address
the
growing
uncertainty
surrounding
the
taxation
of
employee
compensation
and
benefits
in
the
context
of
relocation
payments.
My
analysis
sought
to
show
that
the
jurisprudence
revealed
two
emerging
factual
patterns
relating
to
the
tax
treatment
of
payments
received
by
employees
required
to
relocate.
One
pattern
involves
payments
to
compensate
for
higher
housing
costs
at
the
new
work
location.
Such
cases
may
be
said
to
be
governed
by
the
rule
in
Phillips.
The
other
pattern
involves
reimbursement
of
actual
monetary
losses
incurred
on
the
sale
of
an
employee’s
home.
This
type
of
case
is
governed
by
the
rule
in
Ransom
and,
at
this
point,
it
is
helpful
to
revisit
it.
The
rule
in
Ransom
exempts
from
taxation
those
amounts
paid
to
an
employee
to
compensate
for
actual
losses
suffered
by
the
employee
upon
being
requested
to
relocate.
In
that
case,
the
employee
sold
his
home
for
a
price
less
than
he
had
paid
out,
thus
incurring
a
capital
loss
(see
Phillips
at
page
698
(C.T.C.
390;
D.T.C.
6182).
Reimbursement
for
actual
monetary
losses
was
held
to
be
non-taxable
because
it
merely
restores
the
taxpayer
to
his
or
her
previous
financial
position.
In
Phillips,
counsel
for
the
Minister
argued
that
the
$10,000
payment
did
not
fall
within
the
rule
in
Ransom
as
held
by
the
trial
judge.
Alternatively,
he
argued
that
if
the
rule
in
Ransom
applied,
it
could
no
longer
be
considered
good
law
in
light
of
the
subsequent
decision
of
the
Supreme
Court
in
Savage.
None
of
the
judges
in
Phillips
was
prepared
to
jettison
the
rule
in
Ransom.
At
page
702
(C.T.C.
391,
D.T.C.
6183)
I
concluded:
In
the
27
years
since
Ransom
was
decided,
the
Act
has
undergone
extensive
revisions
which
touch
on
the
issues
under
consideration.
None,
however,
contradicts
or
represents
a
threat
to
the
rule
in
Ransom.
Some
even
complement
it;
see,
for
example,
paragraph
62(3)(d)
of
the
Act,
which
addresses
the
loss
suffered
by
a
tenant/employee
in
cancelling
a
lease.
Moreover,
Ransom
has
been
applied
by
this
Court
on
several
occasions.
In
my
opinion,
Ransom
has
become
so
enmeshed
in
our
conception
of
taxable
benefits
that
it
is,
in
my
view,
for
the
Supreme
Court
or
Parliament
to
set
aside
its
logic.
That
being
said,
I
was
not
prepared
to
extend
the
rule
in
Ransom
for
the
following
reasons
at
pages
702-04
(C.T.C.
392;
(D.T.C.
6184):
The
extension
of
the
Ransom
principle
as
a
stop-gap
cost-of-living
equalizer
may
well
also
negate
the
effect
of
other
provisions
of
the
Act.
Parliament
has
explicitly
recognized
and
addressed
potential
injustices
relating
to
dramatic
cost-of-living
variations
from
one
part
of
the
country
to
another:
see
Report
of
the
Task
Force
on
Tax
Benefits
for
Northern
and
Isolated
Areas
(Ottawa:
Supply
and
Services
Canada,
1989).
Section
110.7
of
the
Act,
for
example,
entitles
taxpayers
in
prescribed
areas
of
Canada
to
make
special
deductions
with
respect
to
housing
and
travel
expenses
in
computing
taxable
income.
Similarly,
section
80.4
brings
into
income
the
benefit
accrued
when
an
employer
loans
an
employee
funds
at
lower
than
the
prevailing
interest
rate,
subject
to
a
deduction
created
in
paragraph
110(l)(/).
The
potential
impact
of
extending
Ransom
prompted
one
commentator
to
query
whether
it
could
offer
an
opportunity
to
circumvent
the
policy
underlying
the
imputed
interest
rules
in
section
80.4
of
the
Act:
see
V.
Krishna,
"Taxation
of
Employee
Benefits",
supra,
at
C-175.
After
all,
a
$10,000
payment
can
as
easily
be
used
to
prepay
interest
as
to
reduce
the
principal
amount
of
a
mortgage
loan.
Perhaps
the
most
persuasive
rationale
for
limiting
the
application
of
Ransom
lies
in
the
myriad
expenses
which
its
extension
could
exempt
from
taxation.
The
respondent
effectively
argues
that
any
payment
received
from
an
employer
to
compensate
an
employee
for
higher
housing
costs
in
a
new
work
location
only
serves
to
make
the
employee
whole.
As
we
have
seen,
this
rationale
is
flawed.
Moreover,
nothing
bars
the
extension
of
this
same
faulty
reasoning
to
other
purchases,
such
as
new
cars
or
appliances,
in
provinces
with
higher
costs
of
living.
I
also
observe
that
the
problem
of
compensation
directed
at
tax
equalization
is
apparently
of
concern
to
tax
lawyers
familiar
with
the
U.S.
multi-national
practice
of
"grossing
up"
salaries
of
executives
transferred
to
Canada:
see
J.
D.
Bradley,
"Measuring
Employee
Benefits",
Report
of
Proceedings
of
the
Forty-Third
Tax
Conference
(Canadian
Tax
Foundation,
1991)
8:36,
at
page
8:59;
and
R.
B.
Thomas
and
T.
E.
McDonnell,
supra,
at
pages
941-942.
What
of
the
employee
who
moves
to
a
province
with
higher
marginal
rates
of
taxation?
Why
should
he
or
she
not
be
able
to
claim
a
tax-free
benefit
as
well,
assuming
the
employer
is
willing
to
provide
such
compensation?
In
my
opinion,
it
is
evident
that
the
decision
below
creates
a
window
of
opportunity
for
those
intent
on
structuring
tax-free
compensation
packages
for
employees
required
to
relocate
to
urban
centres
where
costs
of
living
are
appreciably
higher.
[Emphasis
added.]
It
is
obvious
to
me
that
the
rule
as
found
in
Ransom
has
no
application
to
cases
such
as
Phillips
or
those
under
review.
The
only
decision
which
is
potentially
problematic
is
Splane.
Unfortunately,
the
facts
as
outlined
by
the
trial
judge
in
that
case
are
not
comprehensive.
At
the
time
Phillips
was
argued,
it
was
unclear
whether,
on
the
facts,
Splane
fell
within
the
rule
in
Ransom
or
that
in
Phillips.
Because
of
that
factual
lacuna,
the
binding
or
persuasive
effect
of
Splane
did
not
have
to
be
addressed
in
Phillips
and
was
purposely
avoided
by
this
Court
(see
Phillips
at
page
389
(D.T.C.
6181)
page
697).
That
lacuna
has
now
been
filled.
The
record
before
us
includes
the
terms
of
the
relocation
assistance
which
was
available
to
Splane,
a
federal
government
employee.
We
now
know
that
he
did
not
receive
any
monies
for
the
purpose
of
defraying
his
housing
costs
at
his
new
work
location.
Rather,
he
was
compensated
for
the
loss
of
a
favourable
mortgage
interest
rate,
which
loss
arose
on
the
sale
of
his
home.
At
the
time
of
the
relocation,
the
mortgage
rates
were
1.75
per
cent
higher
than
that
specified
in
Splane’s
mortgage.
Under
the
federal
government’s
relocation
program,
Splane
was
limited
to
recovering
an
amount
equal
to
the
difference
between
the
rate
specified
in
that
mortgage
and
that
available
at
the
time
of
relocation,
based
on
the
principal
amount
of
the
mortgage
owing
at
the
time
of
its
discharge
over
the
unexpired
term
of
the
mortgage.
Given
these
facts,
it
is
clear
to
me
that
Splane
falls
within
the
rule
in
Ransom.
Financially
speaking,
the
taxpayer
was
no
better
off
the
day
after
the
relocation
than
the
day
before.
In
my
view,
Splane
neither
undermines
nor
contradicts
the
rule
or
reasoning
advanced
in
Phillips,
or
vice
versa.
However,
in
light
of
my
colleagues’
decision
in
these
applications,
the
result
in
Phillips
becomes
more
problematic.
In
my
view,
there
is
no
justification
for
holding
that
Mr.
Phillips
must
pay
tax
on
the
monies
he
received
if
the
taxpayers
in
these
applications
do
not.
Equally
disturbing
to
me
is
the
reality
that
the
majority
position
paves
the
way
for
other
tax-free
benefits
intended
to
redress
variations
in
the
cost
of
living
from
one
region
of
Canada
to
another.
For
the
astute
tax
planner,
today’s
decision
represents
a
window
of
opportunity.
What
is
required
is
a
fundamental
re-examination
of
the
jurisprudence
surrounding
paragraph
6(1
)(a)
of
the
Act.
It
is
no
longer
sensible
to
search
for
rational
ways
of
distinguishing
cases
when,
in
fact,
there
is
no
underlying
doctrinal
thread
that
ties
them
together.
Strictly
speaking,
it
is
unnecessary
for
me
to
express
an
opinion
on
the
applicability
of
section
80.4
and
its
related
provisions.
The
Minister’s
position
is
that,
if
the
interest
subsidies
in
question
are
held
to
be
taxable
under
paragraph
6(1
)(a)
or
section
80.4,
the
taxpayers
are
entitled
to
the
home
relocation
deduction
under
paragraph
110(l)(/)
of
the
Act.
This
is
so
despite
the
fact
that
the
taxpayers
have
argued
that
they
do
not
come
within
the
ambit
of
section
80.4
and,
therefore,
are
not
entitled
to
the
deduction.
I
am
prepared
to
comment
briefly
on
the
validity
of
the
taxpayers’
argument,
for
if
it
goes
unchallenged,
I
am
afraid
that
section
80.4
may
well
be
rendered
meaningless;
see
V.
Krishna,
"Taxation
of
Employee
Benefits"
(1984)
1:35
Can.
Curr.
Tax
C
173
at
C
175.
Section
80.4
presently
provides
that
when
a
"person
receives
a
loan
.
.
.
because
of
or
as
a
consequence
of.
.
.
[that]
employment",
that
person
shall
be
deemed
to
have
received
a
benefit
equal
to
the
amount
which
effectively
constitutes
a
subsidized
interest
rate.
Prior
to
1992,
section
80.4
included
the
expression
"by
virtue
of
.
.
.
[that]
employment"
but
the
change,
in
my
view,
is
of
no
importance.
The
taxpayers’
argument
is
straight
forward.
It
is
submitted
that
they
did
not
receive
the
mortgage
loan
from
Confederation
Life
"because
of
or
as
a
consequence
of"
their
employment
with
PetroCanada
but,
rather
because
they
met
the
former’s
lending
criteria.
The
existence
of
the
subsidy
had
no
bearing
on
the
mortgage
indemnity
and
approval
requirements.
In
my
view,
the
taxpayers’
argument
can
be
disposed
of
readily.
But,
for
their
employment
with
Petro-Canada,
the
taxpayers
would
not
have
received
a
monthly
interest
subsidy.
But,
for
that
subsidy,
and
for
the
fact
that
Petro-Canada
paid
that
subsidy
directly
to
Confederation
Life,
the
taxpayers
would
not
have
received
a
mortgage
loan
in
which
their
monthly
mortgage
obligations
were
reduced
by
the
amount
of
the
subsidy
paid
by
Petro-Canada:
see
Hoefele,
supra,
Applicant’s
Application
Record
at
94.
In
effect,
the
taxpayers
received
their
loans
at
a
reduced
interest
rate,
which
is
exactly
what
section
80.4
was
designed
to
capture.
In
conclusion,
I
am
of
the
view
that
the
mortgage
interest
subsidies
in
question
are
taxable
benefits
under
paragraph
6(1
)(a)
of
the
Act
and,
therefore,
the
applications
in
A-484-94,
A-491-94,
A-547-94
and
A-604-94
should
be
allowed,
the
respective
judgments
of
the
Tax
Court
of
Canada
set
aside,
and
the
cases
referred
back
for
redetermination
on
the
basis
that
the
taxpayers’
appeals
to
the
Tax
Court
of
Canada
be
dismissed.
The
taxpayers
in
the
above
noted
applications
are
entitled
to
all
reasonable
and
proper
costs
of
this
application.
The
application
in
A-123-95
should
be
dismissed.
Application
dismissed.