|
Citation: 2005TCC32
|
|
Date: 20050131
|
|
Docket: 2003-2219(EI)
|
|
BETWEEN:
|
|
ADÉQUAT SERVICE INFORMATIQUE INC.,
|
|
Appellant,
|
|
and
|
|
|
|
THE MINISTER OF NATIONAL REVENUE,
|
|
Respondent.
|
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
ParisJ.
[1] This is an appeal from an
assessment made on March 25, 1999, by the Minister of
National Revenue ("the Minister") under the
Employment Insurance Act
("the Act") in relation to the year 1996.
The issue is whether certain amounts that the appellant paid
its employees as a housing allowance during the year 1996 should
be included in computing their insurable employment for the
purposes of the Act.
[2] At the relevant time, subsection
3(1) of the Unemployment Insurance (Collection of Premiums)
Regulations stipulated:
|
3.(1) For the purposes of this Part, a
person's earnings from insurable employment means any
remuneration, whether wholly or partly pecuniary, received
or enjoyed by him, paid to him by his employer in respect
of insurable employment except:
. . .
(d) any amount excluded as income pursuant to
paragraph 6(1)(a) or (b) or
subsection 6(6) or (16) of the Income Tax
Act.
|
3.(1) Aux fins de la présente partie, la
rémunération d'une personne provenant d'un
emploi assurable correspond a toute rétribution,
entièrement ou partiellement en espèces,
qu'elle reçoit ou dont elle bénéficie
et qui lui est versée par son employeur relativement
à cet emploi, à l'exception....
. . .
(d) de tout montant qui est exclu du revenu en
vertu des alinéas 6(1)a) ou b) ou
des paragraphes 6(6) ou (16) de la Loi de
l'impôt sur le revenu.
|
[3] The plaintiff submits that since
the housing allowances did not have to be included in computing
their income under the Income Tax Act, the allowances did
not constitute earnings within the meaning of the
Regulations.
[4] The evidence discloses that the
appellant, a Quebec-based corporation, has been operating a
computer-related business since 1994 and provides services to
foreign customers, primarily in France. For this purpose, the
company recruits workers in Canada to work in France. The workers
are pre-selected in Quebec and then sent to France on a
preliminary basis to meet the customers to whom they are
assigned. If the customer accepts the worker, the worker
returns to Quebec to sign an employment contract with the
appellant. Normally, the appellant hires the workers for a
12-month period, which coincides with the duration of work
permits issued by the French authorities.
[5] A copy of a contract between the
appellant and Manon Croteau, dated
September 29, 1995, was tendered in evidence. According
to the testimony of Michel Teman, the appellant's founder and
president, the contract in question was representative of all the
contracts the appellant carried out during the period in issue.
The contract states the worker's salary and says that she
will receive additional remuneration in the form of a monthly
housing allowance payable at the same time as her salary. The
amount of the housing allowance was determined using two
criteria: the worker's civil or family status, and the
neighbourhood in which the workplace was located. The payment was
4,000 francs a month for a single person and 5,000 to 6,000
francs for a married worker. The amount could vary depending on
the neighbourhood in which the workplace was located. However,
Mr. Teman did not provide any specific example of the latter
type of variation. The appellant established these amounts based
on the average rent of furnished apartments in Parisian
neighbourhoods.
[6] The employment contract also
specified that the worker would have to arrive in Paris 15 days
before the work began in order to find an apartment. According to
Mr. Teman, the appellant wanted to provide housing to its
employees, but was unable to do so for legal reasons. To help the
workers, the appellant maintained a list of available furnished
apartments close to the customers' workplaces, and offered
the list to new employees. An administrative team set up by the
appellant would verify the rents for the apartments and the terms
and conditions of the leases. It appears that the worker
could choose one of these apartments but was under no obligation
to do so. The appellant required the workers to promise, upon
signing the employment contract, that they would use their
housing allowance to pay their rent. The workers gave the
appellant a solemn undertaking to this effect. Eight of these
undertakings were tendered in evidence. If the employment
contract was renewed, the appellant would ask for another solemn
undertaking at the beginning of the second contract.
[7] Mr. Teman insisted that if a
worker moved or was in a situation where he no longer had to pay
rent, the appellant would stop paying the housing allowance.
However, he did not say whether the appellant ever did stop
paying a housing allowance. He also said that the appellant would
have known if a worker had changed apartments while his contract
was in effect because employees must provide their new addresses.
The appellant would supposedly have known if mail addressed to
the worker had been returned to the appellant following an
unannounced move by the worker.
[8] In short, counsel for the
appellant submits that the payments are neither a benefit to the
worker within the meaning of paragraph 6(1)(a) of the
Income Tax Act, nor an allowance within the
meaning of paragraph 6(1)(b) of that Act. Consequently, he
says that the payments are excluded from income under these
provisions and cannot constitute insurable earnings because they
are expressly excluded by paragraph 3(1)(d) of the
Regulations.
[9] Before we proceed, it is useful to
review the relevant parts of paragraphs 6(1)(a) and (b) of the
Income Tax Act:
|
Amounts to be included as income from office
or employment.
(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:
|
Éléments à inclure
à titre de revenu tiré d'une charge ou
d'un emploi.
(1) Sont à
inclure dans le calcul du revenu d'un contribuable
tiré, pour une année d'imposition,
d'une charge ou d'un emploi, ceux des
éléments suivants qui sont applicables :
|
|
a) Value of benefits -
the value of board, lodging and other benefits of any kind
whatever received or enjoyed by the taxpayer in the year in
respect of, in the course of, or by virtue of an office or
employment, except any benefit
...
(b) Personal or living expenses -
all amounts received by the taxpayer in the year as an
allowance for personal or living expenses or as an
allowance for any other purpose, except*
...
|
a) Valeur des avantages - la
valeur de la pension, du logement et autres avantages
quelconques qu'il a reçus ou dont il a joui au
cours de l'année au titre, dans l'occupation
ou en vertu d'une charge ou d'un emploi, à
l'exception des avantages suivants* :
...
b) Frais personnels ou de
subsistance - les sommes qu'il a reçues au
cours de l'année à titre
d'allocations pour frais personnels ou de subsistance
ou à titre d'allocations à toute autre
fin, sauf *:
...
|
*(none of the exceptions stipulated in these provisions
applies to the instant case)
[10] It is clear that, for the purposes of
the Regulations, all benefits and allowances that an employee
receives from an employer, and are not excluded from income by
paragraphs 6(1)(a) and (b), constitute insurable
earnings.
[11] I will first consider the question
whether the payments in issue constitute an allowance paid to the
appellant's workers. In order to be considered an allowance,
a payment must meet three conditions. The Federal Court of Appeal
described these conditions as follows in MacDonald v.
Canada, [1994] F.C.J. No. 378 (QL) at
paragraph 14:
Nonetheless, following Ransom, Pascoe and Gagnon the general
principle defining an "allowance" for purposes of
paragraph 6(1)(b) is composed of three elements. First, an
allowance is an arbitrary amount in that it is a predetermined
sum set without specific reference to any actual expense or cost.
As I noted above, however, the amount of the allowance
may be set through a process of projected or average expenses or
costs. Second, paragraph 6(1)(b) encompasses allowances for
personal or living expenses, or for any other purpose, so that an
allowance will usually be for a specific purpose. Third, an
allowance is in the discretion of the recipient in that the
recipient need not account for the expenditure of the funds
towards an actual expense or cost.
[12] In the instant case, counsel for the
appellant concedes that the payments made by the appellant meet
the first two conditions which the Court of Appeal describes and
which must be met in order for them to constitute an allowance.
However, as to the third condition, counsel submits that the
workers were not free to use the amounts as they saw fit. He
states that the workers in the instant case were required to use
the amounts to pay their rent, and, since they gave their
appellant solemn undertakings, they had to account for the use of
the money. Consequently, counsel concludes that once the amounts
in question were received, the workers did not have the freedom
to dispose of them according to their wishes.
[13] I agree with counsel for the appellant
on this point. I find that the appellant made the payment of the
housing allowance for workers conditional on its being used
solely to pay the rent. By signing the solemn undertaking, the
workers accepted this condition and would have been required to
account for the expenditure of the funds if the appellant had
requested that they do so. In other words, the workers had no
choice with regard to the way in which they could spend the money
paid to them as a housing allowance.
[14] I see no reason not to lend credence to
Mr. Teman's testimony that the appellant would have
ceased to pay the housing allowance to a worker if it had learned
that the worker was not using it to pay his rent. I therefore
find that the workers were not free to dispose of the payments as
they saw fit, and therefore, that the amounts in issue were not
an allowance and did not have to be included in income by virtue
of paragraph 6(1)(b) of the Income Tax
Act.
[15] It remains for me to decide whether the
amounts in question were benefits received by the workers in the
performance of their employment under
paragraph 6(1)(a) of the Act. In Dionne v.
Canada, 97 D.T.C. 265, Judge Archambault reviewed the
relevant case law and held that a reimbursement or a payment
received from an employer is not a benefit contemplated in
paragraph 6(1)(a) of the Act in the reimbursement is
actually intended to repair a prejudice suffered by the employee
by reason of his employment. Judge Archambault states as
follows at 271:
[TRANSLATION]
. . . by repairing the harm suffered by the
employee, the employer is merely restoring the employee to the
situation in which he would have been had he not suffered the
harm. If the question whether a reimbursement constitutes a
benefit is considered in this light, I believe it is easier
to determine the extent to which a reimbursement must be included
in a taxpayer's income or, conversely, excluded from it.
[16] Counsel for the appellant submits that
the workers' employment contract with the appellant required
them to assume the costs of maintaining two residences: one in
Quebec and the other in Paris. He says that a payment by the
appellant to defray the additional costs associated with the
maintenance of a residence in Paris did not enrich the employees;
rather, it merely repaired the prejudice that the workers
suffered by reason of their employment.
[17] Counsel for the respondent submits that
the evidence adduced by the appellant is insufficient to enable
me to conclude that the workers were required to maintain a
residence in Quebec. In addition, he says the payments served to
defray rent, a personal expense by nature. Thus, he submits that
the payments are a benefit for the workers.
[18] I am satisfied that French law required
the workers to maintain a residence in Quebec in order to be
entitled to a work permit for the duration of their stay in
France. Mr. Teman's testimony was not contradicted, and
the respondent provided no evidence on this point. In fact, in
the factual assumptions on which the Minister's assessment is
based, the respondent admits that [TRANSLATION] "most of the
appellant's employees retained their residence in Canada
during their relocation."
[19] I accept that Mr. Teman is familiar
with the legal requirements for obtaining a work permits since
the appellant's main activity was to provide Canadian
computer workers to French clients. Thus, in order to comply with
the Act that governed their presence in French, the workers
needed to retain their residence in Quebec.
[20] The appellant's workers were in
France for the appellant's benefit, not for their personal
benefit. The appellant needed them to be in France temporarily so
that they could work with customers, and the workers incurred
additional expenses in order to be there. It seems to me that the
instant case is like the following example that Judge Archambault
discussed in Dionne (at 271) because the costs associated
with the maintenance of a temporary residence in Paris in
addition to a residence in Quebec would be a prejudice suffered
by the workers, and the housing allowance seeks to remedy this
harm:
[TRANSLATION]
Before we go on, it must be recognized that an
employer's reimbursement of an employee's personal
expense should generally be considered a benefit for the purposes
of paragraph 6(1)(a) of the Act. The best example
remains the "lodging" or "board" referred to
in paragraph 6(1)(a). However, this is not necessarily always the
case. Consider the example of a Montréal employer that
sends its representative to Vancouver for a week to negotiate a
contract. Nobody would deny that a reimbursement of
hotel and restaurant costs does not constitute a benefit under
the paragraph in question. Yet eating and drinking are among an
individual's most personal activities. These are clearly
personal expenses for an employee. Why does no benefit stem from
the reimbursement of such expenses? Simply because the
representative is deriving no advantage from the reimbursement.
He is in Vancouver for his employer's benefit, not his own.
He has housing in Montréal and must continue to assume the
cost of that housing. The fact that he is sleeping in a Vancouver
hotel adds nothing to his assets and does not improve his
situation. As for the restaurant costs, they are not considered a
benefit, since the employee does not have access to his own
cooking for nourishment. The fact that he can save the
cost of the food he would have eaten at home is rather minimal in
relation to the restaurant costs, and is ignored for the purposes
of paragraph 6(1)(a) of the Act.
[21] In sum, while the costs associated with
an individual's lodging would normally be considered a
personal expense, I find that the reimbursement does not
constitute a benefit for the workers under the circumstances of
this case. The reimbursement of these costs gave them no
benefit and did not enrich them. Rather, it merely compensated
them for the additional costs incurred by reason of their
work.
[22] For all these reasons, the appeal is
allowed.
Signed at Ottawa, Canada, this 31st day of January 2005.
Paris J.
Translation certified true
on this 24th day of February 2005.
Jacques Deschênes, Translator
Email this Content