Ronald Funnell v. Minister of National Revenue, [1991] 1 CTC 2498, 91 DTC 787

Brulé, T.C.J:—This appeal stems from the Minister reassessing the appellant for the 1984, 1985 and 1986 taxation years wherein it was alleged that there were unreported taxable benefits as follows:

At the outset, counsel for both parties agreed that the car allowance figures in 1985 and 1986 be settled at $2,400 and that the two amounts of $637 and $641 in 1985 cancel one another.

There are two main issues involved in this appeal. One represents travel expenses for the appellant and his wife, while the other deals with a deemed interest benefit on a loan the appellant's company provided.

Facts

The appellant was induced by International Warranty Co. Ltd. (the "company") to move from Toronto to Edmonton to work in an administrative capacity. To facilitate the relocation in Edmonton and to obtain a house comparable to the one owned in Toronto the company made an interest-free loan to the appellant of $50,000. This was in February 1979.

In September 1979 the appellant became president of the company. A great deal of his time was spent in selling warranty programs to car manufacturers, both domestic and foreign. Such endeavours required a great deal of travel, including automobile conventions, where he met and developed relationships with car dealers. Often at conventions the company sponsored ladies' events and the appellant's spouse assisted at these. Some of the travel was international. On all occasions the spouse attended with the approval of the company's board of directors.

Both the interest-free amounts and certain items of travel were not considered proper by Revenue Canada, and such are set out above.

Appellant's Position

The matter of the travel expenses was well put forth in the notice of appeal as follows:

In carrying out the terms of his contract of employment, the appellant was required to attend automobile conventions at the regional, national and international levels. The appellant was further required to have his spouse attend the said conventions. The appellant and his spouse were required to carry out numerous duties, including, but not restricted to the following:

a) overseeing of events sponsored by IW;

b) meeting with international representatives of various automobile manufacturers;

c) developing contacts with potential contacts for IW at the automobile dealership level;

d) maintaining IW's profile and goodwill with existing customers.

As to the deemed interest benefit on the loan provided by the company to assist in purchasing a home, counsel for the appellant put forth several authorities which I will deal with later. It was argued that the amount was really not a loan but an amount to put the appellant in the same equity position vis-a-vis his home ownership after his move from Toronto to Edmonton. It was said that the $50,000 was some sort of a housing subsidy and that any benefit under section 80.4 of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") should not be imposed on the appellant. The original payment did not carry any interest payable when made by the company. Counsel also referred to subsection 80.4(3) as a provision for removing the method of calculation in subsection 80.4(1) as it applies in this case.

Respondent's Position

No strong position was taken by the Minister's counsel respecting the travel expenses. It was suggested that the appellant as the company head made the decisions respecting his spouse and this was perhaps not correct. One trip to the Bahamas had at the outset a business purpose but not so at the end.

With respect to the $50,000 payment it was maintained that this was a loan, shown to be so in the company records, admitted as such by the appellant and therefore subject to interest benefits while outstanding. The notice of appeal refers to this amount as a housing loan and while there was no tax levied in 1979 when the appellant received the payment and for some years thereafter this does not stop the Minister from imposing an interest benefit for the years under appeal.

Analysis

I have no trouble in allowing the travel expenses. The appellant’s counsel referred to the case of Vernon C. Hale v. M.N.R., [1968] C.T.C. 477; 68 D.T.C. 5326 as setting the standard for such expenses. The evidence here conforms to that in the Hale case and I would quote from some passages by Cattanach, J. of the Exchequer Court. At pages 479-80 (D.T.C. 5328) we find:

It is my assessment of the evidence given before me that while the attendance of the wife of a branch manager may not be absolutely obligatory, nevertheless, in the absence of some very cogent and acceptable reason for not doing so, the necessity of her attendance is urged upon her husband by the Company, so much so that it is tantamount to being obligatory in that repeated refusals, without cause, might be detrimental to her husband's status or advancement in the Company.

Obviously the Company policy is that the wife’s attendance at these conferences is an essential part thereof and pressure is brought upon the husband to prevail upon the wife to attend.

And at page 482 (D.T.C. 5329):

The facts that it was pleasant for the appellant to have his wife along and that he enjoyed her company and assistance do not seem to me to be an economic advantage to him when her presence was due to his employer requiring it. Neither does it seem to me that the appellant received any advantage from his wife's presence at the conference additional to that he would receive from her in his home surroundings except that her assistance was exercised in a different milieu and as dictated by different circumstances.

It is not necessary to discuss other cases referred to by the appellant regarding the travel expenses.

With reference to the lump sum house payment the appellant is arguing that no taxable benefit arose and, relying on various cases to be discussed later, that the sum of $50,000 was given as reimbursement for the loss incurred in having to move to Edmonton. The appellant further argues that the money advanced does not constitute a loan but a housing benefit not taxable, and that subsection 80.4 of the Income Tax Act cannot be applied here as no economic benefit by virtue of employment hereby accrued. Alternatively, the appellant submits that subsection 80.4(3) applies and that the deemed rate of interest is nil.

The respondent submits that the money advanced constitutes a loan and that subsection 80.4(1) is applicable.

In R. Orrin J. Splane v. Canada, [1990] 2 C.T.C. 199; 90 D.T.C. 6443, the taxpayer received from his employer mortgage interest differential payments to reimburse claims for the increased interest payments which he had to make following his purchase of a home in Edmonton to replace his Ottawa home. It was held that the payments were neither " benefits” nor “allowances” under subsections 6(1)(a) and 6(1)(b). A benefit involves the receipt of something of economic significance in excess of a mere reimbursement for a loss and an “allowance” comprises a predetermined amount paid in advance to be used by the recipient at his own discretion to meet a certain known expense. The payments at issue were merely reimbursements intended to restore the taxpayer to the economic situation in which he had found himself before undertaking to assist his employer by relocating to Edmonton.

In William R. Phillips v. M.N.R., [1990] 1 C.T.C. 2372; 90 D.T.C. 1274, the taxpayer was given $10,000 by his employer to assist him in the purchase of a home to replace the one sold when he agreed to work at a new facility following the closure of the one he worked at. The Court held that the amount was a reimbursement for additional costs involved in moving to the new location, it was not part of his remuneration (subsection 5(1)) nor a benefit or allowance derived from employment under subsections 6(1 )(a) or (b).

The Court referred extensively to the case of Cyril John Ransom v. M.N.R., [1967] C.T.C. 346; 67 D.T.C. 5235, in which Noël, J. stated, at pages 358-359 (D.T.C. 5242):

The cause of the payment is not the services rendered, although such services are the occasion of the payment, but the fact that because of the manner in which the services must be rendered or will be rendered, he will incur or have to incur a loss which other employees paying taxes do not have to suffer.

It may indeed be inferred from the evidence that, as in the English cases, the “company policy pursuant to which the present claim and reimbursement was made, was introduced by the appellant's company "not to provide increased remuneration for employees, but as part of a general staff policy to secure a contented staff and ease the minds of employees compelled to move from one city to another as the result of the company's action”.

and further at page 361 (D.T.C. 5244):

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 MacNaughton in Tennant v. Smith, [1892] A.C. 162, puts nothing in the pocket but merely saves the pocket) is neither remuneration as such or a benefit "of any kind whatsoever". . .

It is the concept of an actual loss suffered by virtue of the employment that is the common thread of all these cases or, to put in other words, the restoration of the economic situation enjoyed by the taxpayer before undertaking a loss or expense by virtue of his employment.

In Erwin Greisinger v. M.N.R., [1986] 2 C.T.C. 2441; 86 D.T.C. 1802, it was held again that actual losses reimbursed are not taxable. In that case, a loan of $140,000 was given to the taxpayer by his employer to assist him in purchasing a home in Edmonton where he had been transferred. The employer forgave part of the amount loaned and showed this amount in its books as a " bonus”. This was an indication and not conclusive of the true character; the taxpayer had received a reimbursement from his employer for losses suffered as a result of his transfer.

It is to be noted that in the case of Richard D. McNeil! v. The Queen, [1986] 2 C.T.C. 352; 86 D.T.C. 6477, the Court found that a payment made as a relocation allowance was not taxable as it could not be caught within the meaning of the phrase of “salary, wages or other remuneration”, nor was it a benefit received by virtue of the taxpayer's employment as it did not arise by virtue of the contract of employment, but pursuant to a separate agreement.

It can therefore be concluded from all these cases that the primary question to be answered as to the applicability of subsection 6(1)(a) is whether an economic advantage has been granted. When an actual loss has been suffered by virtue of an employment, a benefit granted as reimbursement will not be taxable. An actual loss will be established when a taxpayer already employed is subjected to an economic disadvantage by virtue of his employment. This is not the situation here, as the sum was granted as a term of acceptance of a contract of employment; the taxpayer did not incur a loss by virtue of employment e.g., while employed, being required to move.

Another point at issue was whether the money received was pursuant to a loan or simply a benefit or allowance, It seems clear to me that the sum of $50,000 granted was a loan. A loan exists therefore where there is a debtorcreditor relationship between the parties (see M.N.R. v. T.E. McCool Ltd., [1949] C.T.C. 395; 49 D.T.C. 700 or as was said in Gerald Doyon v. M.N.R., [1990] 1 C.T.C. 2242; 90 D.T.C. 1132 at 2244 (D.T.C. 1134): “For there to be a loan, as in any contract, certain things must be clear. In the case of a loan, the amount loaned and the intention to lend and to borrow must be certain.There must be a meeting of minds on a purpose."

In the case at bar, I am of the opinion that there is such a debtor-creditor relationship. Although this is not conclusive, the parties seem to have agreed that the money has been loaned as a condition of the contract of employment. More importantly, the money advanced has to be reimbursed as has been clearly established in evidence.

The $50,000 granted to the taxpayer constitutes a loan and not a non-taxable benefit as argued by the appellant. Subsection 6(9) refers to subsection 80.4(1) which is imposing a benefit to the account of a deemed interest calculated at the prescribed rate. Subsection 80.4(3), which covers housing loans defined at 80.4(7), has no application here.

Conclusion

The appeal is allowed on the basis that in 1985 and 1986 the car allowance figure be settled at $2,400 in each year, all travel expenses are allowed as claimed in 1984 and 1985 but interest amounts charged to the appellant in 1984, 1985 and 1986 in relation to the interest-free loan are to remain as reassessed. There will be no order as to costs.

Appeal allowed in part.