Date: 19990407
Docket: 98-1004-IT-I
BETWEEN:
KEITH F. McGUIRE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for judgment
Hamlyn, J.T.C.C.
[1] This appeal arises from a Notice of Reassessment dated
April 13, 1995 in which the Minister of National Revenue
(the "Minister") disallowed a portion of the moving
expenses claimed by the Appellant in the 1991 taxation year
pursuant to subsection 62(1) of the Income Tax Act
(the "Act").
[2] The Appellant is an RCMP officer, who made a work related
move. The RCMP provides an allowance of one month pay when it
requires that a transfer be made. This money is provided to cover
expenses related to the move.
[3] On August 26, 1991, the Appellant moved as a result
of an employment transfer and received $4,475, one month's
salary, from the RCMP. The Minister submits that the Appellant
had complete discretion over the allowance and did not have to
account for its use and that the allowance was provided to
compensate the Appellant for the inconvenience of the move and
that the Appellant's actual moving expenses were paid by his
employer.
[4] The Minister further states that the Appellant properly
included this allowance as income from office or employment for
the 1991 taxation year. In addition, the Appellant claimed moving
expenses in the amount of $5,072.73 and noted that the allowance
was not income.
[5] The Appellant submits that the allowance was not an
economic benefit to himself as it was used to defray the costs of
the move. He submits that he incurred moving expenses in excess
of $10,500. He states that the allowance offset part of these
expenses but left $6,025 unaccounted for. The Appellant states
that he has a dependent family of five and submits that due to
the size of the new house, he had to undertake extensive
renovations to the house in order to accommodate his family.
These renovations cost in excess of $10,000. He submits that
these expenses are "moving expenses" for the purpose of
the subsection 62(1) deduction.
[6] The Appellant claimed the allowance as a deduction for his
1991 taxation year. The Appellant was issued a refund in the
amount of $4,235.15 on July 15, 1992. On April 6, 1995,
the Minister notified the Appellant that his claim for moving
expenses had been reduced. This was followed by a Notice of
Reassessment that included an interest charge. The Appellant
submits he should not be charged interest on the amount alleged
by the Minister because he acted in good faith and that the delay
in making the assessment was not caused by himself and that he
should not be charged interest on a debt that he did not know
existed.
[7] The Appellant submits that his right to security of
person, section 7 of the Canadian Charter of Rights and
Freedoms (the "Charter") has been breached.
He submits that the RCMP provided the allowance in order to
offset economic losses which might result from his transfer.
Thus, it was put in place in order to preserve the member's
security of person. The Appellant submits that taxing such an
allowance as income thus threatens the individual's security
and therefore breaches section 7.
[8] The Appellant also submits that he was subject to cruel
and unusual punishment and therefore had his section 12
Charter rights violated. He bases this supposition on the
fact that he was initially told by Revenue Canada that his tax
return was acceptable and was subsequently issued a refund for
the moving expenses claimed. He submits that it is cruel and
unusual to charge interest on the outstanding amount for the
three years following the issuance of the refund and prior to
informing the Appellant that an error had been detected on his
1991 income tax return. Furthermore, the Appellant states that
Revenue Canada collections incorrectly enacted a statutory
set-off of his wages in the amount of $550. He states that he
later received an apology concerning this action against him. The
Appellant outlined, for this latter problem, what he considered
was outrageous dealings by Revenue Canada in relation to
himself.
[9] The Appellant further submits that he has not been treated
equally before the law pursuant to his section 15
Charter rights on the basis that he was not advised of the
problem with his taxes until three years after they had been
filed and had been charged interest for this period.
ISSUES
[10] The issues are:
- Should the relocation allowance provided by the RCMP be
included in the Appellant's income for the 1991 taxation
year, pursuant to paragraph 6(1)(b) of the
Act?
- Is the Appellant entitled to claim moving expenses in the
amount of $4,475 pursuant to subsection 62(1) of the
Act?
- Was the interest calculated by the Minister correct?
- Does the Tax Court of Canada have the necessary jurisdiction
to grant interest relief to the Appellant?
- Have the Appellant's Charter rights been breached
by the conduct of the Minister?
ANALYSIS
RELOCATION ALLOWANCE
[11] The provision of the Act which is relevant to this
issue reads 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:
...
(b) all amounts received by him in the year as an
allowance for personal or living expenses or as an allowance for
any other purpose, except
...
[12] The Appellant submits that the allowance he received from
his employer should not be included in his income for the 1991
taxation year. The Minister disagrees.
[13] The Queen v. Phillips,
94 DTC 6177 (F.C.A.), concerned an employee who was
required to move due to a job transfer and as a result incurred
increased housing prices at his new work location. Consequently,
the employer compensated him for the increased housing costs of
the replacement property. Robertson J. stated that the
payment created a temporary increase in wages that was not
available to all employees.
[14] Robertson J. then addressed the argument that the
taxpayer's new house was inferior to his old residence and
that he effectively paid "more for less". He concluded
that a loss for taxation purposes could not be based on the
subjective opinion of the taxpayer. Rather, a loss must be
determined based on established legal benchmarks. He continued at
pages 6184-5:
Comparative analyses of floor space and house amenities
comprise personal value judgments. To contrast a
storey-and-a-half house in Moncton with a Winnipeg bungalow by
reference to "ball park figures" regarding on-average
housing costs is valuable to the consumer but unacceptable as a
legal benchmark for determining so-called actual loss. There is
an obvious reason why an employer would only partially compensate
employees for higher housing costs. House selection is as
dependent on personal taste and lifestyle as it is on cost. After
all, location is the touchstone for determining value in real
estate.
The foregoing criticisms are not intended to detract from the
respondent's conviction that he received "less" for
"more". What is important for him and the other CNR
employees who await the outcome of this decision to recognize is
that "economic benefit" cannot be assessed on the basis
of subjective criteria and that the taxation of benefits cannot
be made to depend on the perceptions of individual taxpayers. The
Tax Court's decision in Cutmore v. M.N.R., [1986] 1
C.T.C. 2230; 86 DTC 1146 (T.C.C.), illuminates this point.
[15] The Court concluded that the taxpayer had received a
taxable benefit from his employer.
[16] In summary, an allowance exists if it can be determined
that the amount received was arbitrary, was paid in lieu of
reimbursement, may be spent in any manner by the recipient, and
that the recipient need not account for his use of the funds.
[17] To the extent that an allowance is actually used for
"moving expenses" within the definition of
subsection 62(3), the taxpayer can deduct such expenses thus
offsetting the allowance included in his or her income by virtue
of paragraph 6(1)(b). The end result being that the
taxpayer is only taxed on that portion of the allowance which is
not used to pay for moving expenses.
[18] In this case, the allowance received by the Appellant did
not require him to account for its use and the figure was
arbitrarily determined. The allowance should be included in the
Appellant's taxable income pursuant to
paragraph 6(1)(b). The fact that the Appellant
believes that he has received "less for more" is
irrelevant to this appeal, pursuant to Robertson J.'s
comments in Phillips (supra).
MOVING EXPENSES
[19] The Appellant submits that he is entitled to claim moving
expenses in the amount of $4,475 in the 1991 taxation year,
pursuant to subsection 62(1) of the Act. The Minister
submits that the Appellant's employer paid for all of the
Appellant's moving expenses and that the expenses claimed by
the Appellant are not "moving expenses" within the
definition of subsection 62(3) of the Act. The
Appellant submits that these are legitimate expenses, monies
expended in house renovations were incurred in order to restore
his family to the position it held prior to his transfer.
[20] "Moving expenses" are defined in
subsection 62(3) of the Act to include travelling
costs for the taxpayer and his family, the cost of transporting
furniture, the cost of food and lodging at the old or new
location for up to 15 days, costs associated with cancelling
a lease on a former residence, the cost of selling the former
residence and the cost of legal services related to the new
residence, if the old residence is sold. It should be noted
however, that this list is not exhaustive.
[21] The renovations to the new residence cannot be classified
as expenditures incurred for changing one's residence. As was
noted by Robertson J. in Phillips (supra),
personal value judgements of the new residence are irrelevant for
taxation purposes. The Appellant's conviction that the
renovations were necessary for the well being of his family are
merely personal preferences which do not reflect actual expenses
incurred for the transfer of his family to his new job
location.
INTEREST ON UNPAID REASSESSED TAX
[22] The provision of the Act which is relevant to this
issue, reads as follows:
161(1) Where at any time after the day on or before which a
taxpayer is required to pay the remainder of his tax payable
under this Part for a taxation year,
(a) the amount of his tax payable for the year under
this Part
exceeds
(b) the aggregate of all amounts each of which is an
amount paid at or before that time on account of his tax payable
and applied as at that time by the Minister against the
taxpayer's liability for an amount payable under this Part
for the year,
the person liable to pay the tax shall pay to the Receiver
General interest at the prescribed rate on the excess computed
for the period during which that excess is outstanding.
[23] The Appellant submits that it is unjust to charge him
interest on the alleged unpaid tax for the period prior to
Revenue Canada's error being brought to his attention. In
Stephen v. The Queen, 96 DTC 3253, on
page 6 of the full written Reasons for Judgment I found:
It should be pointed out that the interest which is levied on
the amount owing is meant to place both the Minister and the
taxpayer in a position closer to that in which they would be had
the taxpayer paid the amount which he owed. The payment of such
interest presupposes the accuracy of the reassessment issued by
the Minister. During the 32 months until the issuance of the
reassessment, the Appellant has had use of the unremitted money
while the Crown has not had use of the money to which it was
entitled. The payment of interest is meant to equalize this
situation.
[24] The Appellant in the instant case had use of the tax
refund for three years prior to the reassessment. The interest is
not a penalty but rather a means of compensating the Minister for
the use of the money for that period. If such interest was not
assessed then the Appellant would unfairly benefit from the use
of this money. In any event the discretion to waive interest lies
with the Minister, not with the Tax Court, pursuant to
subsection 220(3.1).
INTEREST AFTER REASSESSMENT
[25] The Appellant is seeking to have the Court declare that
interest should not be payable due to the unfair conduct of
Revenue Canada throughout the appeal process and the Appellant
submits that the interest was incorrectly calculated based on
payments that have been made following the Reassessment.
[26] Subsection 171(1) states that the Court may dispose
of an appeal by dismissing it, vacating or varying the assessment
or by referring the assessment back to the Minister for
reconsideration and reassessment. The provision does not permit
the Court to make declaratory statements such as that sought by
the Appellant.
[27] Hence, it is outside the jurisdiction of the Court to
state that the Appellant is granted relief from interest on the
basis that Revenue Canada has treated him unfairly. The Court may
only allow the appeal and change the assessment if it is
determined that the assessment is incorrect.
[28] In Godsell v. The Queen,
96 DTC 1292 (T.C.C.), Lamarre Proulx J. stated
that the Tax Court of Canada did not have jurisdiction to reduce
the amount of interest payable. At page 1294 she stated
that:
[T]here is no legislative provision in the Act that gives the
Court the power to reduce the amount of interest payable. In
addition, the payment of such interest cannot be deducted in the
calculation of a taxpayer's income.
[29] Hence, the Tax Court is precluded from reducing the
Appellant's interest liability if the assessment is
correct.
ALLEGED CHARTER BREACHES
[30] There is no doubt this Appellant feels unfairly and
unjustly dealt with by Revenue Canada throughout the assessment,
reassessment objection and appeal processes.
[31] The Appellant submits that the Minister breached
sections 7, 12, and 15 of the Charter.
[32] The Appellant submits that the Minister violated his
section 7 Charter rights by including the allowance
in his taxable income. He submits that his employer provided the
allowance in order to defray economic losses which result from
his employment transfer. The inclusion of this amount in his
income threatens his security of person, according to the
Appellant.
[33] In Taylor v. The Queen,
95 DTC 591 (T.C.C.), Sobier J. found that
section 7 of the Charter does not safeguard economic
rights. He cited with approval the words of McLachlin, J. of the
British Columbia Court of Appeal, in Whitbread v.
Walley, [1988] 5 W.W.R. 313 at pages 323-4, at
page 599:
To date s. 7 has been applied mainly in cases where the
physical liberty of the complainant has been infringed or is in
danger of infringement. Imprisonment and detention by the state
offers classic examples of situations where s. 7 clearly applies:
...
...
At the other end of the scale, it appears clearly that purely
economic claims are not within the purview of s. 7 of the
Charter. No one suggests, for example, that imposition of a
monetary disability on a corporation would infringe s. 7 if not
effected in accordance with the principle of fundamental
justice.
[34] Hence, the Appellant can not claim that the inclusion of
the allowance in his taxable income constitutes a breach of his
section 7 rights, as section 7 does not encompass
security of economic rights.
[35] The Appellant also submits that he has been subject to
cruel and unusual punishment in breach of section 12 of the
Charter on the basis that the reassessment did not occur
until three years after he was issued a refund on this 1991
income tax return and that he was now required to pay interest on
the use of these funds. The Supreme Court of Canada established
that cruel and unusual punishment occurs when the punishment is
so excessive as to outrage standards of decency. In other words,
the effect of the punishment must be grossly disproportionate to
the crime.[1] In
A. Schindeler v. Canada, [1994]
1 C.T.C. 2379 (T.C.C.), the Court held that an
obligation to pay income tax did not constitute cruel and unusual
punishment within the meaning of section 12 of the
Charter.
[36] Finally, the Appellant has argued that he has been
treated unequally before the law and that his
subsection 15(1) Charter rights have been violated.
The basis for this supposition is that he was not advised of his
tax situation until three years after he filed his 1991 income
tax return and was charged interest during this period. The basis
of a valid subsection 15(1) violation is a denial of
equality based on personal characteristics which constitutes
discrimination based on an enumerated or analogous ground.[2] The Appellant in
the instant case has failed to show that he has been denied
equality based on a personal characteristic. Hence, he must fail
on this issue.
DECISION
[37] The appeal is dismissed.
Signed at Ottawa, Canada, this 7th day of April 1999.
"D. Hamlyn"
J.T.C.C.
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