Citation: 2008TCC141
Date: 20080307
Docket: 2006-3303(IT)I
BETWEEN:
BRIAN BARTLEY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Rossiter, J.
Introduction/Background
[1] The Appellant is an
employee of Dow Chemical Canada Inc. (“Dow”) and the father of eight children.
In 2004, three of his children were attending university and they each received
an award of $3,000 from Dow’s “Higher Education Award Program” (“HEAP”) in partial reimbursement
of their tuition fees. The Canada Revenue Agency (“CRA”) included the $9,000 in
the income of the Appellant on the basis that the award was a taxable benefit
under paragraph 6(1)(a) of the Income Tax Act (the “Act”). The
taxpayer has appealed and submits that the HEAP award is scholarship income to his
daughters.
Issue
[2] The issue in this appeal is whether the $9,000 paid to the Appellant’s
children by Dow was an employment benefit to the Appellant that is to be
included in the Appellant’s income by virtue of paragraph 6(1)(a) of the
Act.
Facts
[3] In 2004, the Appellant
was an engineer employed by Dow. He is married and the father of eight
children, three of whom were attending university in 2004. Each of the
university attendees was in receipt of $3,000 from HEAP paid directly to them
in the form of a cheque from Dow. Alysia Bartley (Alysia), age 23, was
attending Lakehead University; Carolyn Bartley (Carolyn), age 21 and
Johanna Bartley (Johanna), age 19 were attending Wilfrid Laurier
University (collectively, “the children”).
[4] The particulars of HEAP are fully
described in the “Benefits Guide Higher Education Award Program (HEAP) for
Employees of Dow Chemical Canada Inc.” (the “Guide”). Some highlights of HEAP
are described as follows:
1. HEAP
was established for the purpose of recognizing the scholastic achievement of
children of eligible employees, as well as retired, expatriated and deceased
employees, and to provide financial assistance as a means of encouraging them
to undertake post-secondary education.
2. HEAP
is an annual reimbursement program that covers base tuition for post-secondary
university studies for up to 100 students each year. The program covers the
student’s full tuition, to a maximum of $3,000 per school year.
3. In
order to qualify for an award, the student must be the child of a current,
disabled, retired or deceased employee of Dow and must attend an approved
university, college or institute. The student must have an average of 70% in
the graduating year of high school. If there are more than 100 qualified
applicants in any given year, the awards will be distributed based on the
highest averages of the applicants.
4. Provided
that the student maintains good academic standing, the award can be renewed
annually, for a maximum of four awards.
5. The
employer, Dow, has the right to modify or terminate the Program or any part of
the Program without prior notification to the employees or the recipients.
[5] As a result of an audit conducted by
CRA in 2004, payments made to students are treated as taxable income to the
employees.
[6] In addition to the HEAP award, the children were each
awarded other scholarships. They also each received loans from the Canada-Ontario
Integrated Student Loan Program (OISLP). The children used the scholarship and
loan money as well as money from their personal savings to pay for their
tuition and other expenses. The Appellant reached into his pocket on occasion
to help his children out with their education and in 2004 he probably helped
all three children.
Position of the Appellant
[7] The Appellant submits
that the scholarships:
1. Were not a benefit received
or enjoyed by the Appellant and therefore are not income as contemplated in
paragraph 6(1)(a) of the Act;
2. Were not payments by
an employer to an employee as contemplated in subsection 6(3) of the Act;
3. Were not a benefit
conferred on a person as contemplated in section 246(1) of the Act;
4. Were on account of a
scholarship, bursary or prize for achievement in the field of endeavour
ordinarily carried on by the respective children as provided in paragraph
56(1)(n) of the Act;
5. If the scholarships
funds were income to the Appellant then the funds should be excluded from the
Appellant's income because they meet the requirements of subparagraph 6(1)(b)(ix)
of the Act.
[8] Finally the Appellant
argued that if all other arguments fail, then I should consider decision of Rip, J. (as he then was) in Detchon v. Canada,
[1995] T.C.J. No. 1342, that:
[60] ... If it was the practice of Revenue
Canada not to enforce its published policy and
therefore gave some comfort to taxpayers like the appellants, the Minister
should recommend, pursuant to the Financial Administration Act,
remission of the tax and interest assessed on the benefits.
Position of the Respondent
[9] The Respondent takes
the position that the scholarships were benefits to the Appellant pursuant to
paragraph 6(1)(a) or subsection 56(2) of the Act because, but for
the Appellant's employment status, the dependents could not apply for the scholarship
and would not be eligible for the scholarships. The Respondent submits that these
benefits were no different than any other benefits the Appellant was entitled
to in the course of employment, whether it be medical coverage, dental coverage,
prescription coverage or pension fund credits.
[10] The Respondent also
argues, that in any event, these scholarships are not scholarships as defined
in paragraph 56(1)(n) because there was not a fixed number of
scholarships available; the scholarships are not truly based on the scholastic
records of the applicants since the threshold is only 70%; there is no real
evaluation or selection process; and/or there was not any real committee doing
an evaluation or selection of the applicants for the scholarships.
Law and Analysis
[11] I have had occasion to
consider whether the HEAP awards are a taxable benefit in my judgment of even
date in John DiMaria v. Her Majesty The Queen (2006-1400(IT)G). In DiMaria
I determined that the awards were not a benefit received or enjoyed by the
Appellant. I also addressed whether the award was a scholarship within the
meaning of paragraph 56(1)(n) and whether the award should be included
in the Appellant’s income by virtue of subsections 6(3) or 246(1). Given that the case at bar
deals with the same award program as DiMaria, I adopt my comments of
that decision and will not repeat them here.
[12] I conclude that nothing was received or enjoyed by the Appellant
in relation to the HEAP award to his children and as result the monies in
question are not taxable in the hands of the Appellant. I also find that the
amounts qualify as scholarships to the children within the meaning of paragraph
56(1)(n) of the Act and that subsections 6(3) and 256(1) of the Act
have no application to the facts of this case.
[13] I do think that this
case is a stronger illustration than DiMaria of the policy arguments
that support the finding that the amounts should be taxable in the hands of the
children. Here we have a father of eight, who has three children attending
university at the same time. The children all qualified at one point or another
for government loans through the OISLP. Each of the children wrote a letter, entered
as exhibits, confirming that she had qualified for a loan. Carolyn included in
her letter that the administrators of the OISLP view the HEAP award as
scholarship income to the student and that her loan eligibility was reduced by
$3,000 accordingly. I include reference to these letters only to add to my Reasons
in DiMaria wherein I wrote that if Parliament, in its wisdom, does
decide that employer-provided scholarships ought to be taxed in the hands of
the parent, factors such as the income of the parent and the number of
dependents, and how these relate to federal and provincial loan and bursary
programs, should be considered to ensure Parliament will be achieving its
objectives – whether it be to increase the tax burden of certain parents or
provide some financial relief to taxpayers of the future – the student.
[14] This appeal is allowed. The Appellant shall have his costs
which are fixed in the amount of $500. Because I have found for the Appellant,
there is no need to address his alternative arguments concerning subparagraph 6(1)(b)(ix) and
Rip J.’s comments in Detchon. I refer the matter back to the Minister for
reconsideration and reassessment based upon the foregoing.
Signed at Ottawa, Canada, this 7th day of March, 2008.
"E. P. Rossiter"
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