[OFFICIAL ENGLISH TRANSLATION]
Date:
20030114
Docket:
2001-2904(IT)I
BETWEEN:
YVES
ANDRÉ RIO,
Appellant,
and
HER
MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
(delivered from the bench at the hearing
on June 4, 2002, at Montréal, Quebec,
and subsequently revised for
greater clarity)
Archambault,
J.T.C.C.
[1] Yves André Rio has challenged an
assessment made by the Minister of National Revenue (the Minister) with
respect to the 1999 taxation year. The Minister disallowed the deduction of a
$10,500 expense that Mr. Rio had claimed in computing his income. The expense
concerns the rent that he paid for an apartment in Toronto when he was living
in that city during the 1999 taxation year.
Facts
[2] Mr. Rio is an employee of the Ministère du
Revenu du Québec (the Ministère), who at his employer’s request, but
without being required to do so, agreed to be transferred to the Toronto office
to work as a large business auditor. He moved to Toronto with his spouse in May
1992 and stayed there until August 1, 1999. To compensate him for the expenses
resulting from this transfer, his employer reimbursed him for his moving expenses.
[3] With regard to the living expenses incurred in Toronto, the Ministère’s policy was to pay several kinds of monthly allowances. There
was a housing allowance the amount of which was determined in 1999 as follows:
from the amount of $3,450, considered to correspond to the cost of an
apartment, $687 representing a reasonable rent that a person living in Montréal
would be required to pay was deducted. In addition to the housing allowance, an
official duties allowance of $830.55 and a high cost of living allowance of
$116.74 were paid.
[4] For personal reasons, Mr. Rio had decided to keep his apartment in
Montréal, which belonged to his parents and for which he paid a monthly rent of
$500. Among other things, he wanted to encourage stays
in Quebec and make things easier for his spouse who sometimes had contracts to
carry out in Montréal.
[5] At that time, an employee of the Ministère
would generally be transferred for a three-year period—the transfer being
renewable for another two years. At the time, those employees had to return to
Quebec at the end of five years. Because of the lack of interest of some
employees at the Ministère in such transfers, the policy was changed to allow a
longer stay in Toronto. Mr. Rio stayed there for seven years. Some employees
even extended their stay to 12 years. In recent years, the policy was changed
once again to requiring employees to return to Quebec after five years.
[6] Mr. Rio indicated that the monthly rent
for his apartment in Toronto was $1,500 and that it remained the same from 1992
to 1999. Were it not for the excellent relationship he had with its owner, his
rent could have been higher.
[7] During the period from 1992 to 1999, the
policy of the Ministère appeared to take the tax payable on the housing allowance
into account, although this was not very clear. In recent years, however, it
has been more explicitly and clearly indicated that the amount of the allowance
takes into account the tax that the employee will have to pay on the allowance.
Moreover, in round figures, the net amount of the housing allowance represents
approximately $2,700 (which comes out to $1,350 when tax at 50% has been
calculated), whereas the cost of the rent in Mr. Rio’s case was $1,500. Thus it
is reasonable to believe that the Ministère’s policy was to take the tax
payable into account, even though the amount granted may have been insufficient
given the rent actually paid in Toronto.
Parties’ position
[9] In the respondent’s view, irrespective of whether the amounts paid
by Mr. Rio’s employer are considered a reimbursement of expenses or an
allowance, they represent a taxable benefit that must be included in Mr. Rio’s
income from employment. The two leading decisions cited
in support of the respondent’s position is the one of my colleague Judge Teskey
in MacDonald v. Canada, [1992] T.C.J. No. 299 (QL); and the one I
rendered in Dionne v. Canada, [1996] T.C.J. No. 1691 (QL).
[10] In the first decision, Judge Teskey
concluded, at page 4, that the decisions in McNeill v. Canada, [1987] 1
F.C. 119, (86 DTC 6477); Splane v. The Queen, 90 DTC
6442; Phillips v. M.N.R., 90 DTC 1274; and Côté v. M.N.R., 91 DTC
261, could not be applied to facts similar to those in that case. Judge Teskey
stated as follows at page 4:
... However, these four decisions are distinctly
different from this case. They each dealt with a one time lump sum payment, the
purpose of which was to reimburse a specific loss. Here, the Appellant is
receiving monthly amounts as long as he is employed in the Toronto office and
lives in a designated area subject to the adjustments referred to in paragraphs
2, 3 and 4 of the Bulletin. It makes no difference to the amount whether the
recipient purchases a residence, rents a residence or lives rent free with
parents. The only criteria, to obtain what is referred to as the "housing
subsidy", is a transfer to Toronto and to live in the designated area.
In the next
paragraph, he went on to say:
Based on the evidence before me and the decision of
Noël J. in Ransom, I am satisfied that these payments are an allowance within
the meaning of paragraph 6(1)b) of the Act and not a reimbursement.
[11] In Dionne, counsel for the
respondent specifically cited the passage in paragraph 55 in which I
concluded that, in order to determine whether a taxpayer suffered prejudice,
one must adopt the taxpayer’s point of view in relation to his fellow citizens
in the city where he lives and not in relation to the inhabitants of where he
came from (where he lived before the transfer). The passage in question is
reproduced below:
[55] In my view, it seems fair to compare this
taxpayer to his new fellow citizens in order to determine whether he is
actually suffering prejudice by reason of his employment. As the old saying
goes, "When in Rome, do as the Romans do." This is also the approach
used by my colleague Judge Bonner in Gernhart v. The Queen, [1996] C.T.C. 462,
96 D.T.C. 1672.
Analysis
[12] In my opinion, MacDonald and Dionne are relevant in assessing the relevant facts of
this appeal and in applying the appropriate tax rules to dispose of this
appeal. This is not a taxpayer who is required to live in a city other than his
place of residence on a temporary basis, namely, a few weeks or even several
months. Rather, this is a taxpayer who decided to move for a minimum period of
three years. Quite clearly, unforeseen circumstances could have shortened this
stay. In actual fact, however, the stay in Toronto lasted seven years, that is,
from 1992 to 1999.
[13] In a context such as that, it is my opinion that it is important
to determine whether Mr. Rio suffered prejudice the compensation of which would
not be taxable. To resolve this issue, his situation
must be compared with that of other Toronto residents. From that viewpoint, Mr.
Rio did not suffer prejudice and, consequently, the compensation that he
received from the Ministère was an allowance for personal or living expenses
that must be included in his income under
paragraph 6(1)(a)
of the Act.
[14] Although Dionne involved a taxpayer
who lived in a remote region in Canada’s North, I do not believe that the rule
that a living allowance or reimbursement for living expenses must be included
in income from employment is to be interpreted differently depending on whether
the person lives in a remote area or in a major Canadian city.
[15] For these reasons, I conclude that the appeal of Mr. Rio must be
dismissed.
Signed at Drummondville, Quebec, this 14th
day of January 2003.
J.T.C.C.
Translation
certified true
on this 26th day of February 2004.
Sophie Debbané,
Revisor
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