Date: 20010419
Docket: 2000-2407-IT-I
BETWEEN:
KARUNARATNE HIPPOLA,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Hamlyn, J.T.C.C.
[1]
This is an appeal from an assessment of tax for the 1998 taxation
year.
[2]
By Notice of Assessment dated June 24, 1999, the Minister of
National Revenue initially assessed the Appellant for the 1998
taxation year.
[3]
By Notice of Reassessment dated October 19, 1999, the Minister
reassessed the Appellant for the 1998 taxation year and
disallowed the moving expenses.
[4]
At all material times, the Appellant owned and maintained a
residence located at 123 Saphir Avenue, Navan, Ontario. During
the 1996 taxation year, the Appellant commenced employment with
Dalsa Inc. in Waterloo, Ontario. While so employed, he resided in
rental accommodation in Waterloo; his wife, son and daughter,
however, continued to reside in Navan . In late 1998, the
Appellant returned to the Ottawa area and started working for the
Mitel Corporation.
[5]
The Minister assumed that the Appellant had not changed
residences or acquired a new residence within the meaning of
subsection 62(3) of the Income Tax Act.[1]
[6]
The Appellant states that he moved to Waterloo in 1996 for
employment purposes. Since his wife, son and daughter could not
relocate with him, he continued to maintain the residence in
Navan even though he was not living there, although he did try to
sell the Navan residence between September 8, 1996 and June 30,
1997. Considering the increased expenses incurred as a
consequence of maintaining these two residences and considering
the desires of his family, the Appellant planned in 1998 to start
a consulting business in his field of work in the Ottawa area. He
stated that he moved back to the Ottawa area for the purpose of
starting this business. However, while in the process of setting
up the business in the Ottawa area, he was approached by Mitel
Corporation and hired by Mitel after he moved back to Navan.
STATUTORY FRAMEWORK FOR MOVING
EXPENSES
[7]
Subsection 62(1) provides the deduction for moving expenses.
[8]
Subsection 248(1) defines "eligible relocation":
"eligible relocation" means a relocation of a
taxpayer where
(a) the relocation occurs to enable the taxpayer
(i) to carry on a business or to be employed at a location in
Canada ...
[9]
Subsection 62(3) provides a list of expenses considered as moving
expenses.
[10] As a side
note – the Respondent took issue with the Appellant's
citation and reproduction of subsection 62(1) moving expenses and
related sections on the basis that the sections cited were only
effective for the 1999 taxation year and thereafter. However the
amendments in 1999 to section 62 are applicable after 1997 and
the amendments to subsection 248(1) in 1999 are applicable to all
taxation years.
ANALYSIS
Whether the Appellant is entitled to deduct moving expenses
in his 1998 taxation year.
[11] According
to the Minister, the Appellant did not change residences or
acquire a new residence within the meaning of subsection 62(3) of
the Act when he moved back to Navan in 1998. In other
words, the Minister maintains that the Appellant still resided in
Navan while working in Waterloo. The first issue is to determine
what constitutes a residence for the purposes of section 62.
[12] Former
section 62 referred to the taxpayer's old residence as the
place where the taxpayer ordinarily resided, the meaning of which
was examined in Rennie v. M.N.R.,90 DTC 1050
(T.C.C.).
[13] In the
Rennie case, the Appellant had moved from Montreal to
Edmonton for the purposes of his employment. When he left his
home in Montreal, he was uncertain regarding his length of
employment in Edmonton, so he only took with him a minimum of
household effects and moved to a rented apartment. He turned his
Montreal home over to a relative, while it was understood that
the Appellant could return and occupy his home at any time it
suited him. While the Appellant and his wife were in Edmonton,
they maintained ties with Montreal and when they visited
Montreal, they stayed at the Appellant's home. About two
years later, the Appellant obtained employment in Victoria and
thus moved from Edmonton to Victoria. When the Appellant and his
wife decided to make Victoria their permanent home, they sold the
Montreal home and claimed moving expenses with respect to the
move from Montreal to Victoria.
[14] Christie
A.C.J.T.C. found that the Appellant did not ordinarily reside in
Montreal before he moved to Victoria. Relying on the Supreme
Court's decision in Thomson v. M.N.R., 2
DTC 812 (S.C.C.), Judge Christie determined the Appellant's
residence as the place where, in the settled routine of his life,
he regularly, normally or customarily lived. He thus found that
the Appellant ordinarily resided in Edmonton at that time.
[15] Based on
the above reasoning, I conclude the Appellant, in the present
appeal for 1998, ordinarily resided in Waterloo before he moved
back to Navan in the latter part of 1998. In the present case,
the Appellant's family stayed in the residence in Navan while
he was living in Waterloo. However, in the settled routine of the
Appellant's life he nevertheless regularly, normally or
customarily lived in Waterloo during that period.
[16] With this
finding it is then necessary to determine whether the other
conditions of subsection 62(1) of the Act are met.
Pursuant to paragraph 62(1)(c), an amount may be deducted
for expenses incurred in respect of an eligible relocation to the
extent that it does not exceed the taxpayer's income for the
year from his employment at the new work location or from
carrying on a business at the new work location, as the case may
be. In this appeal, the Appellant contends that he moved back to
the Ottawa area for the purposes of starting to carry on a
business. In fact he did not gain any income from the purported
business since the Mitel Corporation offered him permanent
employment, which he accepted instead of starting his business.
Moreover, since the intention of working towards setting up his
business, he has not gained any income from the business, nor
indeed as the business got off the ground. Therefore, the
Appellant is not entitled to the deduction of any amount since
his income for the year from his business was nil.
[17] My
conclusion would be different if the evidence showed that Mitel
hired the Appellant before he actually moved to Navan. If so, the
Appellant could then submit that he moved back to Navan for the
purposes of employment and accordingly could deduct his moving
expenses to the extent that they did not exceed his income from
this employment. However, it is only after the Appellant had
moved back to Navan that Mitel approached him and offered him
employment. The Appellant did not move to Navan to enable him to
be employed by Mitel. Such a conclusion is consistent with the
reasons of Tremblay T.C.J. in Pelchat v. M.N.R., 84
DTC 1865 (T.C.C.), in which he stated, at page 1867, that
"when a taxpayer in fact moves, he must have already found
employment in the new location in order to benefit from the
deduction provided for by s. 62". On this basis the appeal
is dismissed.
CONCLUSION
[18] With this
conclusion it is not necessary to determine whether the amounts
claimed were reasonable in the circumstances. Nor is the
Appellant's alternative claim for purported Waterloo
employment expenses viable because Waterloo was the place he
ordinarily resided before he moved back to Navan in 1998.
Moreover, the Appellant has not shown any basis for such a claim
under the Income Tax Act.
DECISION
[19] The
appeal is dismissed.
Signed at Ottawa, Canada, this 19th day of April 2001.
"D. Hamlyn"
J.T.C.C.
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