Date: 19980114
Docket: 95-130-IT-G
BETWEEN:
STEVE FAUBERT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Sarchuk, J.T.C.C.
[1] These are appeals by Steve Faubert (the Appellant) from
reassessments of tax with respect to his 1992 and 1993 taxation
years. The sole issue is whether the Appellant received benefits
in respect of, in the course of, or by virtue of his employment
with Revenue Canada in the amounts of $2,002 and $1,900 in the
1992 and 1993 taxation years, respectively.
Facts
[2] The Appellant commenced employment with Revenue Canada in
January 1985 and became a permanent employee in or about
July 1986. Approximately one year later, he successfully competed
for a position in the Enquiries and Office Examination Section at
the Program Manager 1 level (PM1).
[3] In the summer of 1989, the Appellant heard a rumour that a
PM2 competition was to be held in the Corporate Audit Division
and that to be considered, candidates were expected, at a
minimum, to be enrolled in a course leading to an accounting
designation such as Certified Management Accountant (CMA) or
Certified General Accountant (CGA). Just prior to becoming a PM1,
the Appellant had been enrolled at Fanshaw College in its basic
business accounting program. That was not sufficient for the PM2
competition and in August 1989, the Appellant enrolled in
the CMA program. In November 1989, he successfully competed for a
position in the Audit Division at the PM2 level. He continued
with the CMA program until 1990 when he switched to the CGA
program and ultimately received that designation in October 1994,
at which point in time he qualified to compete for tax auditor
(AU) positions.
[4] The courses in issue were taken by the Appellant both
through correspondence and by attending classes - usually one
evening per week. As a general rule, examinations were also
conducted in the evenings. Much of his off-work time was
devoted to studying although Revenue Canada did provide paid time
off from his employment for the purpose of preparing for and
writing examinations.
[5] The Appellant was aware that it was Revenue Canada’s
policy to reimburse tuition fees expended by Audit Division
employees upon the successful completion of a particular course
and to make a financial contribution towards the cost of certain
computer hardware required for such courses.
[6] Since the completion of his program, the Appellant has
successfully competed for both AU1 and AU3 positions, achieving
the latter as of July 31, 1995. In all instances, the promotions
involved salary increases. In fact, his salary had increased by
some $20,000 in the six years as he progressed from the PM1 level
to the AU3 level. He did not dispute that the courses he took
towards his CGA gave him the right to compete for these positions
and assisted him in obtaining them.
[7] Evidence was adduced on behalf of the Appellant from Wayne
Humber (Humber), Assistant Director of Verification and
Enforcement Revenue Canada. Humber took up his position at the
London, Ontario office in August 1991. In that position, he had
the overall responsibility for managing the Verification and
Enforcement Division which is in essence, the audit division. As
such, he was the delegated manager for staffing which included
responsibility for hiring staff both internally and externally.
In 1992, an external search for staff was carried out. According
to Humber, this was the last external competition and from that
point onward as a general rule, Verification and Enforcement has
looked to other divisions such as collections, client assistance,
and appeals as feeder groups for its staff.
[8] More specifically, there were two major classifications in
the audit area, PM and AU.[1] Employee movement into these classifications or
promotions within them occurred through an internal competition
process. A Board would be convened and it conducted the
competitions based upon the merit principle.[2] Humber testified that in
considering applicants, the staffing committee’s
expectation was that certain basic academic qualifications were
met.[3] In addition
to the academic requirements, the committee reviewed a
candidate’s personal suitability, past performance and
references. As well, if employees were actively involved in
taking courses, whether University or professional accounting
courses, to advance themselves and to further improve their
academic standing, the committee looked favourably on such
initiative. Educational improvement was desirable since it
created a career path for the employee and concurrently, enabled
Revenue Canada to meet its staffing requirements internally.
According to Humber, the thrust of Revenue Canada’s policy
was to encourage employees to take courses outside working hours
to enhance their academic qualifications and their career
opportunities both within and outside of Revenue Canada if they
so desired. The policy also encouraged managers and supervisors
to discuss employees’ training needs and career development
expectations to mutually come up with a training program on an
individual employee basis. In order to effectively do so, Revenue
Canada encouraged upgrading skills by being prepared to consider
long-term leave, both with and without pay for this purpose, and
was prepared to reimburse all of the tuition costs directly
relevant to courses and provided days off in order to prepare for
and write professional accounting course exams.[4]
[9] It is the Appellant’s position that the educational
course in issue was undertaken primarily for the benefit of his
employer rather than himself. This flows from the fact that the
tuition payments by Revenue Canada were reimbursements of amounts
expended by the Appellant as a result of Revenue Canada’s
policy which in effect mandated the taking of the required
courses. Accordingly, the reimbursement was not in the nature of
a benefit received by him in the course of or by virtue of his
office or employment. Counsel for the Appellant argues that a
number of decisions establish that reimbursements such as these
are exceptions to the provisions of paragraph 6(1)(a) of
the Income Tax Act.[5] Counsel further contends that the decision of the
Supreme Court in The Queen v. Savage[6] is distinguishable in that the
amount paid to the Appellant therein was not a reimbursement.
[10] Counsel for the Appellant also argued that the fact
Revenue Canada prohibited outside work by employees as
accountants, auditors, bookkeepers, collectors, tax advisors,
real estate appraisers or in any other capacity said to
constitute a conflict of interest, was a relevant factor which
supported the Appellant’s position.
[11] The relevant provision of the Act relating to the
taxability of employee benefits is paragraph 6(1)(a). The
applicable parts read as follows:
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:
(a) the value of board, lodging and 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, ...
Two basic conditions must be met for an amount to be taxable
under paragraph 6(1)(a). Firstly, the amount must be
received or enjoyed in the taxpayer’s capacity as an
employee and secondly, the amount must result in a benefit to the
employee. In the present appeal, it cannot seriously be disputed
that the Appellant received the amounts of $2,002 and $1,900 in
1992 and 1993 and that he received these amounts in respect of,
in the course of, or by virtue of his employment. Nonetheless, it
is the Appellant’s position that these were reimbursements
for costs actually incurred which are not caught by
paragraph 6(1)(a) of the Act.
[12] In my view, the decision of the Supreme Court in The
Queen v. Savage[7] is applicable. In that case, Savage was
employed by Excelsior Life Insurance Company and received the
amount of $300 for successful completion of the Life Office
Management Association series of examinations. Dickson J. (as he
then was) observed that:
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 s. 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 consideration 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 s. 3 of the Act.
I conclude on this point that, unless s. 56(1)(n) of
the Income Tax Act relieves, Mrs. Savage is subject to
income tax in respect of the $300 which she received from her
employer.
[13] The position of this Appellant is not at all similar to
that in which the Appellants, Hoefele, Guay
andRansom, found themselves in. Although Revenue
Canada’s policy reflected its desire for employees to
progress within the organization and to improve their accounting,
auditing and related skills, the educational upgrading in issue
was encouraged but not mandated. The decision to enter the
relevant program and to do what was necessary to complete it was
entirely that of the Appellant. He was never directed by Revenue
Canada to enroll nor was there any suggestion that failure to
obtain the necessary accreditation would have led to a loss of
employment. Furthermore, the Appellant, for his part, conceded
that he had career aspirations and that failure to have the
necessary educational qualifications would have impacted on
possible advancement since the education so obtained enabled him
to compete successfully at the AU level.
[14] The evidence does not support the suggestion that this
Appellant was in some fashion legally obliged or was faced with
job loss consequences if he failed to upgrade his skills. He was
aware that specific qualifications existed for a position to
which he aspired. The decision to seek educational upgrading for
that purpose was purely personal in nature. Whether in government
or in the private sector, the fact that an employer encourages
the upgrading of skills cannot be equated with a requirement to
do so. The courses taken were primarily for the Appellant’s
benefit and in my view, the amount paid by his employer
constitutes a taxable benefit in his hands under paragraph
6(1)(a) of the Act. The appeals are dismissed.
[15] One set of costs shall apply to these appeals and the
appeal of David W. Jex (94-3219(IT)G).
Signed at Ottawa, Canada, this 14th day of January, 1998.
"A.A. Sarchuk"
J.T.C.C.
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