Date: 20010103
Docket: 1999-1239-IT-I
BETWEEN:
JACQUES HENDLISZ,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
(Judgment pronounced orally from the bench on
March 30, 2000 in Montreal, Québec)
Lamarre Proulx, J.T.C.C.
[1]
This is an appeal by way of the informal procedure concerning the
1994 taxation year.
[2]
The issue is to determine whether the forgiveness of an
Appellant’s debt in the amount of $25,000, granted in 1994
to the Appellant by his former employer, was made to reimburse
him of economic losses or was a benefit received by the Appellant
in respect of an employment, within the meaning of section 6
of the Income Tax Act (the "Act").
[3]
The Appellant’s representative submitted that the
forgiveness was made to reimburse the Appellant for losses that
he incurred on a Montreal house by taking employment with a
Toronto medical institution. The Respondent’s
representative submitted that the amount of $25,000 was the
forgiveness of a loan owed by the Appellant to his former
employer and as such was an employment benefit pursuant to
paragraph 6(1)(a) and subsection 6(15) of the
Act.
[4]
The witnesses were, for the Appellant’s part, the Appellant
and his wife, Ms. Sandra Hendlisz, and for the
Respondent’s part, Ms. Johanne Soucy, an appeals
officer.
[5]
The Appellant explained that in 1991, while he was a general
director of a hospital in Montreal, he was recruited by Baycrest
Centre for Geriatric Care. A former colleague, a
Mr. Herbert, was president and chief executive officer of
this institution. He was the one who wanted him most particularly
although the board of directors of this institution wanted the
recruitment to be formally made by a recruiting agency.
[6]
The Appellant stated that the negotiations were to the effect
that the moving costs as well as the losses on the sale of the
property would be reimbursed. When the contract was signed
however, only the moving costs were included. The Appellant
suggested that Mr. Herbert then assured him that these
losses would be taken care of, by way of bonuses or otherwise. (I
open a parenthesis here to say that a bonus has to be included in
the calculation of income).
[7]
The Appellant produced as Exhibit A-1, a letter sent to
Revenue Canada on the Appellant’s behalf. It includes
a) the original listing at a price of $519,000. This listing
bears the date of May 20, 1991; b) the reduced listing at a price
of $429,000, which is undated and; c) an accepted
counter-offer made on October 9, 1991 for the price of
$385,000 with occupancy January 1992. The Appellant said that the
fair market value was the value written down in the original
listing. In the Notice of Appeal it is stated that the fair
market value had been estimated by the Appellant. Losses would
have been incurred on the difference between the amount shown in
the original listing and which is submitted as the fair market
value and the sale price. Otherwise, in actual costs the Montreal
house was purchased in 1981 for $150,000 and was sold in 1992 for
$385,000.
[8]
The employment began in August 1991. The employment agreements
were not produced. The employment was terminated on May 28, 1992.
The severance agreement dated October 28, 1992, was produced as
Exhibit A-2. Paragraph 4 of this agreement states
that the loan for the mortgage on the Toronto house is extended
to November 27, 1993. At that time, the entire amount
becomes due and payable. In this severance agreement, there is no
mention of reimbursement of losses regarding the Montreal house.
There is no such mention either in the release attached to this
agreement. These documents are signed by the Appellant and the
former employer.
[9]
The Appellant and his wife related that after that agreement,
Ms. Hendlisz phoned the president of the board of directors
and submitted to him that the family had suffered great losses
from this employment situation and that it would only be
reasonable and decent that they not be asked to repay the amount
of the loan. It is further to this phone conversation that the
agreement on the mortgage loan extension arrangements was
reached. The Appellant produced it as Exhibit A-3. It is
dated March 9, 1994. This is the document evidencing the
forgiveness. It states in part the following:
1.
The term of the Mortgage Loan is extended to November 27,
1994.
2.
If paid on or before November 27, 1994, Baycrest will accept
$75,000 together with interest accrued since
November 27, 1993 at the rate applicable prior to
November 27, 1993 in full payment of the Mortgage Loan
obligation.
3.
If not paid on or before November 27, 1994, the full principal
amount being $100,000, together with interest accrued since
November 27, 1993 at the rate applicable prior to
November 27, 1993 shall become immediately due and
payable.
4.
In the event of the sale or transfer of the property charged by
the Mortgage Loan, the Mortgage Loan shall become immediately due
and payable.
These amended terms are extended to you by Baycrest ex
gratia to assist in your situation. No obligation to
provide these amended terms is admitted or acknowledged and no
further extension of the term of the mortgage loan will be
granted.
[10]
Exhibit A-5 is a letter dated December 2, 1994
acknowledging receipt of a payment in the amount of $75,000 on a
$100,000 mortgage loan.
[11] The
Appellant’s representative referred me to an excerpt of an
interpretation issued by Technical Interpretation, Business and
General Division, on July 23, 1992 and entitled
"Relocation of Employees — Bridge Financing —
Loss on old Home". It reads as follows:
It is also Revenue Canada's position that, where an employee
is reimbursed by an employer for an actual loss incurred on the
disposition of the old home, or where an employer guarantees to
give the employee an amount equal to the amount by which the fair
market value of the old home (as independently appraised) exceeds
the actual selling price, such amount will not be included in the
employee's income.
[12] The first
part of this policy statement would be in line with the decision
of the Federal Court Trial Division in Ransom v. M.N.R.,
67 DTC 5235. There is no evidence in this appeal of the
Appellant’s actual losses respecting his Montreal house.
Regarding the second part of the policy statement, I was not
referred to a court decision which would be its basis. In any
event, there is no such evidence of the employer having
guaranteed to give the Appellant an amount equal to the amount by
which the fair market value of the old home (as independently
appraised) exceeds the actual selling price. In addition, as
previously noted, it does not appear that an independent
appraisal was made. One must conclude regarding the evidence on
the loss incurred by the Appellant on the disposition of his
Montreal house that it is very vague. However, this imprecision
is not the basis of the ensuing decision.
[13] The
Respondent’s representative submitted that there is no
evidence whatsoever that the forgiveness was made for the purpose
of reimbursing losses. Rather, the evidence would indicate that
it was made for the purpose of obtaining repayment of the
mortgage loan and end a conflictual employment situation. She
referred the Court to a few decisions of this Court, and among
them to the decision in McArdle v. the Queen, 84 DTC
1251, at pages 1252 and 1253:
I am satisfied that the forgiveness of the balance of the loan
was an integral part of the arrangements under which the
appellant's employment with Integrated was brought to an end
by mutual agreement. This means there was a direct nexus between
the course of action adopted by Integrated in respect of the loan
and the appellant's employment. The thing which motivated the
forgiveness of the loan was the existence of the contract of
employment. This brings the $14,774.72 within those provisions of
paragraph 6(1)(a) of the Income Tax Act ("the
Act") which require that there shall be included in
computing the income of a taxpayer for a taxation year as income
from employment the value of a benefit of any kind whatever
received by him in the year in respect of, in the course of, or
by virtue of that employment. In delivering the Judgment of the
Supreme Court of Canada in Nowegijick v. The Queen, 83 DTC
5041, Mr. Justice Dickson said at page 5045:
The phrase "in respect of" is probably the widest of
any expression intended to convey some connection between two
related subject matters.
I am also of the opinion that, in the context of this appeal,
subsection 5(1) of the Act is, in all probability,
duplicative of paragraph 6(1)(a) in the sense that the
$14,774.72 constitutes income of the appellant for 1978 as being
"other remuneration" within the meaning of subsection
5(1) which reads:
5(1) Subject to this Part, a taxpayer's income for a
taxation year from an office or employment is the salary, wages
and other remuneration, including gratuities, received by him in
the year.
In view, however, of my express finding regarding the
applicability of paragraph 6(1)(a), it is unnecessary to
be definitive about subsection 5(1).
Conclusion
[14] The
courts must deal with what the taxpayer actually did and not what
he would like it to be. In a matter of agreements, the courts
have to determine the common purpose of the parties in reaching
the agreement. There is no documentary evidence suggesting that
the forgiveness of the amount of $25,000 was related to losses
incurred by the Appellant on the disposition of his Montreal
house. There had been no undertaking given by the
Appellant’s former employer to such a thing. No document
executed by both the Appellant and his former employer made the
slightest reference to these losses. The evidence has rather
shown that the forgiveness of part of the loan was an integral
part of a severance package relating to the Appellant's
employment. I refer to the decision of the Federal Court of
Canada in Klein v. the Queen, 98 DTC 6214. In
that matter, the taxpayer's corporate employer, upon his
resignation, agreed to forgive three loans owing by him totalling
$145,212. That Court decided at page 6215:
...there was ample basis for him [the Judge] to conclude
that the loan agreement was part of a total package in respect of
the termination of the appellant's employment. ... that
the loan agreement was part of a settlement involving a benefit
conferred in respect of the appellant's employment.
[15]
Similarly, in the present instance, the forgiveness was not made
for the purpose of reimbursing any of the Appellant's
economic losses, but was made as a part of a total package in
respect of the termination of an employment contract. Such a
forgiven amount must be included in the calculation of the
Appellant's income as a benefit conferred in respect of an
employment, pursuant to paragraph 6(1)(a) and
subsection 6(15) of the Act.
[16] The
appeal is accordingly dismissed.
Signed at Ottawa, Canada, this 3rd day of January, 2001.
"Louise Lamarre Proulx"
J.T.C.C.
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