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Citation: 2003TCC94
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Date: 20030228
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Docket: 2002-113(IT)I
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BETWEEN:
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JOHN MACINNIS,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Teskey J.
[1] The Appellant, in
his Notice of Appeal wherein he appealed his assessment of income
tax for 1999, elected the informal procedure.
[2] The issue herein
is whether the cost of moving from Trenton, Ontario back to
Sydney, Nova Scotia, which was paid by the Canadian
Military, is a taxable benefit under the provisions of the
Income Tax Act (the "Act").
[3] The facts are not
in dispute and can be summarized as follows:
(i) the
Appellant lived in Sydney, Nova Scotia when he joined the
military;
(ii) during his
military career, the military, at its sole discretion, could and
did move the Appellant from place to place. If the Appellant did
not follow orders, he could have ended up in jail;
(iii) the Appellant
was stationed in Trenton, Ontario at the time of his
retirement;
(iv) although the
policy of the military is to pay all expenses to move a retiree
to the location of his own choice, anywhere in Canada; herein,
the Appellant wanted to move back to Sydney, Nova Scotia at
his leisure;
(v) the military
calculated what the total cost would be to move the Appellant
back to Sydney, Nova Scotia and the Appellant agreed to take
a lump sum payment of 80 percent of the calculated amount,
being $12,394;
(vi) the Appellant
received a cheque for $12,394 and has paid in legitimate expenses
more than that amount;
(vii) if the Appellant had
moved immediately to Sydney, the military would have paid all the
expenses and that would have ended the matter as far as the
military was concerned;
(viii) herein, the military
issued a T4 for the $12,394 as income from employment, which they
would not have done if it had paid all the actual expenses.
(ix) what the
Appellant has done herein has saved the military money.
[4] The general inclusion provision
under paragraph 6(1)(a) of the Act is relevant to
this appeal because employer-paid moving expenses are not
specifically enumerated elsewhere in the Act. The relevant
portions of section 6 state:
6(1) Amounts to be included as
income from office or employment - 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) 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 ...
The Test
[5] The Supreme Court of Canada in
Savage v. The Queen, [1983] 2 S.C.R. 428, 83 DTC
5409, considered two aspects of paragraph 6(1)(a) in
isolation, such as to create a two-part test. This test can be
phrased as follows:
1. There must be a
benefit.
2. The benefit must be
received in respect of employment.
[6] It is clear that
the payment was received in respect of employment so the issue
before this Court is whether there exists a benefit.
Analysis
[7] Although the
military will pay all the expenses for a retiree to move anywhere
in Canada, herein the Appellant just wanted to move back to
Sydney, Nova Scotia from where he had come from. If the
amount is taxable, he cannot afford to move to Sydney and yet he
has already sold his home in Trenton and purchased a building lot
in Sydney.
[8] The Supreme Court of Canada in
Savage states that the term "benefits of any kind
whatever" is clearly quite broad. Nevertheless, a benefit
can be discerned by examining its impact on the employee's
economic position. The Federal Court of Appeal in Phillips v.
The Queen, 94 DTC 6177, explains that a conferment of
economic advantage is taxable, whereas a reimbursement of a loss
is not.
[9] A policy reason for the economic
position analysis is enunciated in Ransom v. M.N.R.,
[1968] 1 Ex. C.R. 293, at 310:
When his employer reimburses him for any such loss, it cannot
be regarded as remuneration, for if that were all 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.
[10] Another policy reason was articulated
by the Federal Court of Appeal in Phillips, supra
at page 6183, quoting Judge Brulé in Greisinger v.
M.N.R., 86 DTC 1802, at page 1805:
...there must be harmony and balance between the employee
that is transferred to another city and the employee that is
not. Indeed, the first may suffer losses as the second is
in a stable position. A company, in order to render those
transfers more economically favourable, will compensate its
employee. Consequently, an economical balance has been
created and for this reason, this reimbursement should not be
taxed.
[11] The Respondent's
position is that the $12,394 is a taxable benefit and referred
the Court to two Federal Court decisions, namely: Phillips
(supra) and Canada v. Hoefele, [1996] 1 F.C.
322 (Q.L.).
[12] In the Phillips
decision, the Court was dealing with a $10,000 payment paid by
Phillips's employer, the CNR, to offset the higher housing
prices in Winnipeg where they moved Phillips to from Moncton.
[13] The Court held that
the $10,000 was taxable as it conferred an economic advantage to
Phillips.
[14] In the Hoefele
decision, the Federal Court, in a split decision, held that
mortgage and interest subsidy paid by the employer,
Petro Canada, to employees moved to Toronto, was not a
benefit under paragraph 6(1)(a) of the
Act.
[15] Linden J.A. said
in paragraph 7 thereof:
The classic statement of what comprises a taxable benefit
derives from the Supreme Court of Canada case, R. v.
Savage. In that case Mr. Justice Dickson, as he then
was, [quoting from R. v. Poynton, [1972] 3
O.R. 727, at p. 738] 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,
e.g., loan or gift, then it is within the all-embracing
definition of s. 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.
and again in paragraph 8 and 11, he
said:
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, Cyril
John v. Minister of National Revenue, 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, Noël 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 traveling expenses.
Reimbursement for out of pocket expenses incurred as a result of
a move, explains Noël 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 that 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. 150, puts nothing in the pocket but merely
saves the pocket) is neither remuneration as such or a benefit
"of any kind whatsoever".
...
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.
[16] A hypothetical situation may help
illustrate the matter. Assume two brothers sign up for the
military in Sydney, Nova Scotia. After signing up, one brother,
after numerous positions, ends up in Trenton, Ontario while the
other, after numerous positions, ends up in Sydney. After
25 years the military pays the moving costs of the brother
in Trenton to move back to Sydney. That payment would have to be
non-taxable in order to maintain economic harmony and balance
between the two brothers.
[17] Herein, the military
was simply moving the Appellant back to where he came from when
he joined the military and he has received no economic gain,
advantage or benefit.
[18] The appeal is allowed
with costs.
Signed at Ottawa, Canada, this 28th day of
February 2003.
J.T.C.C.
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