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Citation: 2003TCC560
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Date: 20030812
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Docket: 2002-1702(IT)I
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BETWEEN:
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JIM W. LARSON,
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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
Bowie J.
[1] These appeals are brought from
reassessments under the Income Tax Act (the Act)
for the 1997, 1998 and 1999 taxation years. The only issue is
whether certain amounts that were paid to the Appellant by his
employer are taxable as benefits from his employment under
paragraph 6(1)(a) of the Act, or if they are exempt
from taxation by reason of subsection 6(6). The relevant parts of
those two provisions of the Act 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 the taxpayer in the year in respect of, in
the course of, or by virtue of an office or employment, except
any benefit
...
6(6) Notwithstanding subsection
(1), in computing the income of a taxpayer for a taxation year
from an office or employment, there shall not be included any
amount received or enjoyed by the taxpayer in respect of, in the
course or by virtue of the office or employment that is the value
of, or an allowance (not in excess of a reasonable amount) in
respect of expenses the taxpayer has incurred for,
(a) the
taxpayer's board and lodging for a period at
(i) a special
work site, being a location at which the duties performed by the
taxpayer were of a temporary nature, if the taxpayer maintained
at another location a self-contained domestic establishment as
the taxpayer's principal place of residence
(A) that was, throughout the period, available for the
taxpayer's occupancy and not rented by the taxpayer to any
other person, and
(B) to which, by reason of distance, the taxpayer could not
reasonably be expected to have returned daily from the special
work site, or
(ii) a location at
which, by virtue of its remoteness from any established
community, the taxpayer could not reasonably be expected to
establish and maintain a self-contained domestic
establishment,
if the period during which the taxpayer was required by the
taxpayer's duties to be away from the taxpayer's
principal place of residence, or to be at the special work site
or location, was not less than 36 hours; or
(b)
transportation between
(i) the
principal place of residence and the special work site referred
to in subparagraph (a)(i), or
(ii) the location
referred to in subparagraph (a)(ii) and a location in Canada or a
location in the country in which the taxpayer is employed,
in respect of a period described in paragraph (a) during which
the taxpayer received board and lodging, or a reasonable
allowance in respect of board and lodging, from the
taxpayer's employer.
Counsel for the Appellant identified eight separate conditions
that must be satisfied to bring a taxpayer within subsection
6(6). However, the Reply filed by the Respondent puts only two of
those in issue. It is pleaded that the Appellant's duties at the
special work site were not of a temporary nature, and that the
Appellant's residence at the temporary work site was his
principal residence, rather than his other residence that is
about five hours drive away. It is clear from the evidence that
all the other requirements of the subsection are met in this
case.
[2] Jim Larson has been an ironworker
since 1971 and is widely experienced in the trade. In 1989, he
started to work for a company called Southern Interior
Installations Ltd. in which his wife, Gayle Larson, had a 50 per
cent ownership interest. That company carried out contracts at
various industrial sites in the southern interior of British
Columbia, including the coal mines owned by Fording Coal Ltd.
(Fording) in Elk Valley, which is in the extreme southeastern
part of the province. There was considerable competition for the
available work, and Mr. Larson and the other employees often
found that they were laid off because the company did not have
contracts to keep them busy.
[3] Ms. Larson decided to remedy this,
and in 1994 she incorporated S.I.I.L. Maintenance Inc. (SIILM),
with the intention that it would bid specifically on the Fording
contracts and not attempt to compete for the other work in other
locations. She was the only shareholder, and she also managed all
of the company's affairs. She prepared the bids and did all the
financial and business management of the company. The Appellant
did the estimating, checked on safety issues, acted as the field
representative for the company, and was engaged in setting up and
executing the work along with the other tradespersons, all work
for which he was well suited by his prior experience. SIILM was
very successful, and by 1997 it had 120 employees. Virtually all
the work was at the three mine sites of Fording in
Elk Valley, and it involved maintenance of existing
equipment, installation of new equipment, work associated with
the periodic shutdown and reopening of mines, and a variety of
other similar jobs. All the work that SIILM did for Fording
during the period between 1997 and 1999 was as the successful
bidder on contracts for specific jobs, with the exception of a
small amount of work that was done on the basis of an hourly rate
that was negotiated at the beginning of each year. The contracts
were generally for work that would be completed in anything from
a few days to a few weeks; almost all the contracts were
completed in less than three months. The longest took about eight
months. The work that was done on an hourly rate without a
competitive bidding process was even smaller jobs. SIILM was
successful in making competitive bids, and it was well known by
Fording to be a reliable firm, with the result that it got a lot
of Fording's business. It did not get all of it, however, and
there was never a guarantee of any work beyond that covered by
the current signed contracts. As a result, therefore, although
SIILM was able to keep a substantial number of employees busy
working on contracts with Fording over a period beginning in 1994
and continuing beyond the end of 1999, there was never any
assurance of the continuation of work for them at the Fording
mine sites beyond a few months into the future.
[4] SIILM is a closed shop. Employment
there, including that of the Appellant, is governed by a
collective agreement between the company and Local 97 of the
International Association of Bridge, Structural and Ornamental
Ironworkers. That agreement made provision for employees to be
laid off if there was insufficient work, and that did in fact
happen from time to time. The number of employees on the SIILM
payroll was reduced from 120 to about 75 in 1998, and to about 30
in 1999. The collective agreement also contained a clause
requiring the employer to pay a living-out allowance to employees
who did not reside in the vicinity at which they were working.
SIIML paid this allowance to the great majority of its employees,
including Jim Larson. The amounts that were paid to him, and so
are the subject of these appeals, are $21,860 in 1997, $21,420 in
1998 and $20,040 in 1999. The Respondent does not suggest that
SIIML should not have paid these amounts to Mr. Larson, but only
that he did not qualify to receive them free of taxation because
he could not bring himself within subsection 6(6) of the
Act.
[5] Mr. Larson was born in Trail, B.C.
and raised in Fruitvale, a small town nearby. He continued to
live there, even though his work for all his previous employers
had required him to travel extensively throughout the province,
often staying at temporary job sites for months or even years.
Most of his close family live in Fruitvale, or near there; he has
only some cousins living near Sparwood. He and Gayle own a 1,600
square foot split level home in Fruitvale, with attractive
landscaping and a swimming pool in the basement. They acquired
the home in 1976, and since then have added to it, and made
extensive renovations and improvements. One of their daughters
and her family live next door. They have many friends and
relatives in the area, with whom they enjoy spending time at
hobbies and activities such as fishing, woodworking, gardening.
They enjoy the outdoor life in an attractive rural setting near
Kootenay Lake, the Arrow Lakes and the Columbia River. From
Fruitvale to Sparwood is about a five-hour drive; it is four and
one-half hours to the closest of the Fording jobsites.
[6] Clearly, it was not feasible for
the Appellant to drive daily from Fruitvale to the Fording mines
and back. The Respondent does not dispute that. When the
Appellant started working for SIILM, he stayed during the week in
rented rooms or motels in and around Sparwood B.C., as he had on
previous occasions when he worked in the area at other jobs. None
of these arrangements were very convenient or comfortable for
him, or for Gayle, who also had to spend a certain amount of time
in the area, even though she ran the company principally from the
family home in Fruitvale. In 1996, the company purchased a
building in Sparwood with three equipment bays and an office.
Gayle continued to do a certain amount of the office work at
Fruitvale, but from then on she spent more time in Sparwood than
she had previously. In June 1997, the Appellant and his wife
bought a small condominium apartment in Sparwood, in order to
have a somewhat more comfortable place to live in when they were
there. It was in an unattractive building, which offered few
amenities. They paid $40,000 for it, and considered it to be
simply an alternative to the motels and rented trailers that they
had been living in during the week up to that point. They have
few relatives or friends in or around the Sparwood area. Such
friends as they have are the people that they work with. They own
a trailer that is parked about one and one-half hours drive from
there, and sometimes on weekends when he does not return to
Fruitvale, the Appellant goes fishing there. It was abundantly
clear from the evidence that the Appellant and his wife much
prefer to spend their time at Fruitvale than at Sparwood. They go
there for as many weekends as they can throughout the year, and
enjoy celebrating holidays and family events with their friends
and relatives. It is difficult for the Appellant to spend many
weekends there because he has to work at least five days each
week at the mine sites where the contract work is. However, he
does spend as many weekends as he can there each year. Gayle is
able to spend more time in Fruitvale than the Appellant does,
because she can do some of her work there, and so is able to stay
there for extended weekends.
[7] The Appellant and his wife have
fully maintained their associations with the Fruitvale community.
Not only do they continue to have family and friends there with
whom they spend time, but they have always maintained their bank
accounts and their mailing address there. Their house has never
been rented, and they continue to keep the telephone and
utilities available and paid up. Their driver's licences show
their Fruitvale address.
[8] I have no doubt that the
Appellant's duties working for SIILM in Elk Valley during the
years under appeal were of a temporary nature. He was dependant
on a continuing series of contracts, each of which had to be bid
for competitively, for the continuation of his employment. If the
company failed to get contracts, then the work would simply dry
up and the Appellant would be laid off. His situation was no
different than that considered by Tremblay J.T.C. in
Dubé v. The Queen.[1] In that case the Appellant worked for an
employer who obtained a series of one-year contracts for the work
to be done. In the present case, the contracts are for much
shorter periods, and it appears to me that the Appellant's
livelihood is less secure, or at least no more secure than that
which Judge Temblay found to be of a temporary nature in
Dubé.
[9] I am also of the view that the
Appellant's principal residence is at Fruitvale and not at
Sparwood. Both the house at Fruitvale and the apartment at
Sparwood are residences of the Appellant and his wife. The
Appellant does not dispute that he spent more nights at the
apartment than at the house in each of the years under appeal.
However, the determination which residence is the principal one
is not simply a matter of counting nights spent there. If that
were the intention of Parliament it would have been very easy to
say so. The question is one that must be answered qualitatively
rather than quantitatively. This is inescapable in a world where
working people must devote more days to labour than to
leisure.
[10] The ordinary meaning of the word
"principal" is:
1. first in rank or importance; chief 2. main, leading.[2]
The purpose of subsection 6(6) is to ensure that taxpayers who
must work temporarily at such a distance from their homes that
commuting is impossible should not be taxed on living allowances
while they continue to incur unabated the normal expenses
associated with a home to which they will return when the
temporary work is done. No doubt it is unusual for a worker to
solve the temporary accommodation problem by purchasing rather
than renting, but nothing in the language of subsection 6(6)
precludes it from applying to such a situation. The Minister put
her case before the Court on the basis that Sparwood is the
Appellant's principal residence, but she did not take that
position until he stopped renting and bought an apartment there.
The question to which she should have addressed her mind is not
whether he owned or rented in Sparwood, but of the two homes that
he owned, which was a substitute for the rented rooms and motels
that he had been living in at the work site. The answer to that
is obvious. The issue may also be approached by considering in
which of these owned premises the taxpayer would live if he were
not employed at the special work site. Most frequently, the
answer to this question will be the home that he lived in before
starting the temporary work; however that is a determination that
must be made on the particular facts of each case. In this case,
I have no hesitation in concluding that if Mr. Larson were not
working at Sparwood he would not live in the apartment there. If,
for example, he were to retire, then he would certainly live
permanently in his house in Fruitvale. Whether he would retain
the apartment at Sparwood as an investment is, of course,
irrelevant; the only relevant inquiry is as to where he would
choose to live, and that is certainly Fruitvale. That is his
principal residence.
[11] The appeals are allowed and the
assessments are referred back to the Minister for reconsideration
and reassessment on the basis that the amounts paid to the
Appellant by SIILM as living out allowances are exempt from
taxation by reason of subsection 6(6) of the Act. The
Appellant is entitled to his costs.
Signed at Ottawa, Canada, this 12th day of August, 2003.
Bowie J.
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