Bertrand v. R., [1996] 1 CTC 2992, 95 DTC 479

Archambault J.T.C.C.: — In 1990, Mr. Bertrand lived in a two- bedroom apartment situated in the Byward Market neighbourhood in Ottawa. He received a promotion from his employer Tele-Direct Publications Inc. (Tele-Direct) which required him to move to Montréal. Wishing to live near his place of work, Mr. Bertrand rented a one-bedroom apartment that cost him $345 more per month, without reckoning that he would henceforth have to pay his own heating costs. In 1992, Mr. Bertrand received the sum of $3,373.30 to compensate him for these higher housing costs in Montréal. The Minister of National Revenue (Minister) considered this sum as a taxable benefit and Mr. Bertrand as a non-taxable reimbursement of expenses.

Facts

Mr. Bertrand revealed in his testimony that he had rented his apartment in the Byward Market when he was a student. He had worked at the same time as a waiter in a restaurant and claimed that he had earned a good income. He shared this apartment with his girlfriend who worked as an accountant. After completing his education, he accepted employment with Tele-Direct. While the restaurant was located in the Byward Market, the Tele-Direct office was farther away, that is about 10 kilometers from his home. His apartment in Montréal was located in the neighbourhood known as the “McGill ghetto” and his office on the corner of Guy and René- Lévesque.

When he signed the lease for the Montréal apartment, Mr. Bertrand did not know that he would obtain compensation for his higher housing costs. Tele-Direct paid all his moving expenses as well as a penalty for terminating his lease on the Ottawa apartment. He further received a promotion bonus representing 1.3 per cent of his salary which was to compensate him for certain costs involved in his move. None of these amounts form the subject of the issue before the Court.

Mr. Bertrand explained that consultants retained by Tele-Direct determined an amount of $4,400 as compensation related to his housing costs for the first year. For this purpose, Mr. Bertrand had to provide them with the leases on the Ottawa apartment and that in Montréal. According to Mr. Bertrand, the consultants took into account a number of factors including the location, proximity to work, size of the apartment, value of the properties and general quality of life.

The amount of the compensation was paid to him monthly to enable him to pay his rent. After each 12-month period, that compensation was reduced by 20 per cent so that there was no longer any entitlement after five years. The difference between the rent paid in Ottawa and that in Montréal represented the sum of $4,140. If the payment method described by Mr. Bertrand is applied, one arrives at the amount of $4,253 for 1991 and $3,373 for 1992.

In June 1992, Mr. Bertrand purchased a house on the south shore. However, he continued to receive the housing cost compensation agreed upon at the time of his move to Montréal.

Parties’ Claims

Mr. Bertrand insisted that the sum of $3,373 constituted reimbursement of additional disbursements that he had made in order to house himself in Montréal. As to counsel for the Minister, he contended that the sum represented an allowance as defined by the case law. Moreover, the additional rent paid by Mr. Bertrand did not constitute an economic loss, but represented a normal additional expense for a student who wishes to obtain an apartment of better quality corresponding to his new financial ability. In support of his claims, counsel cited a number of decisions including Ransom v. Minister of National Revenue, [1967] C.T.C. 346, 67 D.T.C. 5235, R. v. Pascoe, [1975] C.T.C. 656, 75 D.T.C. 5427, Gagnon v. R., [1986] 1 S.C.R. 264, [1986] 1 C.T.C. 410, 86 D.T.C. 6179, McLay v. Minister of National Revenue, [1992] 2 C.T.C. 2649, 92 D.T.C. 2260, and lastly a very recent decision by the Federal Court of Appeal dated March 14, 1994 in Phillips v. Minister of National Revenue, [1994] 2 C.T.C. 27, (sub nom. R. v. Phillips) 94 D.T.C. 6177, leave to appeal to S.C.C. refused (1994), 5 C.C.P. B. 41 (note), (sub nom. Minister of National Revenue v. Phillips) 179 N.R. 320 (note) (S.C.C.).

In addition, during his argument, counsel for the Minister filed a document prepared by the Canada Mortgage and Housing Corporation entitled “Canada Housing Statistics 1993”. At Table 34, we learn that the average rent of apartments located in private buildings of six units or more in October 1991 was $490 in Montréal and $676 in Ottawa. These were two-bedroom apartments.

Analysis

The Minister relied on paragraphs 6(1 )(a) and 6(1 )(b) of the Income Tax Act (the Act) in order to include the sum of $3,373 in Mr. Bertrand’s income. Those paragraphs provide:

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 him in the year in respect of, in the course of, or by virtue of an office or employment, except any benefit

(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.... [1]

If this sum constituted an allowance, as counsel for the Minister claimed, it must be included in Mr. Bertrand’s income. If it does not constitute an allowance, it must then be determined whether it represents a benefit which Mr. Bertrand received or which he enjoyed in 1992.

Let us first address the issue of the allowance. In Ransom, Judge Noël of the Exchequer Court of Canada distinguished between the notions of remuneration, reimbursement of expenses and allowance. After admitting that it could be difficult in a given case to decide in which class a payment in fact falls, he gave clearer examples of an employer who reimburses an employee for his business travel expenses in another place. Moreover, an employee who is reimbursed for the expenses of a move required by an employer finds himself in a similar situation: [2]

In a case such as here, where the employee is subject to being moved from one place to another, any amount by which he is out of pocket by reason of such a move is in exactly the same category as ordinary travelling expenses. His financial position is adversely affected by reason of that particular facet of his employment relationship. When his employer reimburses him for any such loss, it cannot be regarded as remuneration, for if that were all that he received under his employment arrangement, he would not have received any amount for his services.

He wrote as follows respecting the notion of allowance: [3]

... An allowance is quite a different thing from reimbursement. It is, as already mentioned, an arbitrary amount usually paid in lieu of reimbursement. It is paid to the employee to use as he wishes without being required to account for its expenditure. For that reason it is possible to use it as a concealed increase in remuneration and that is why, I assume, “allowances” are taxed as though they were remuneration.

In 1975, the Federal Court of Appeal in Pascoe [4] described more precisely the notion of allowance: [5]

An allowance is, in our view, a limited predetermined sum of money paid to enable the recipient to provide for certain kinds of expense; its amount is determined in advance and, once paid, it is at the complete disposition of the recipient who is not required to account for it. [6]

In support of his claims, Mr. Bertrand cited the decisions of the Federal Court, Trial Division in McNeil] v. Minister of National Revenue [1986] 2

C. T.C. 352, (sub nom. McNeil v. R.), 86 D.T.C. 6477, and a decision of this Court in Côté v. Minister of National Revenue, [1990] 2 C.T.C. 2617, 91 D.T.C. 261. I do not believe that McNeil applies here since it was concluded in that judgment that the allowance had not been paid under the beneficiaries’ contract of employment. The facts of the case were entirely exceptional. The taxpayer was an air traffic controller who had received a relocation allowance as a result of the language disputes that occurred in Dorval in 1977. There is no doubt in this case that the sum of $3,373 was part of Mr. Bertrand’s conditions of employment. The sums were paid by Tele-Direct under a long-established system to provide financial assistance to its employees who were required to move as a result of a promotion.

As to Côté, there are also significant factual differences. Judge Lamarre Proulx observed that the taxpayer had incurred loans greater than the sum received from his employer. In this case, even if it can be supposed, the evidence did not show that Mr. Bertrand had incurred costs greater than the compensation paid by Tele-Direct. In any case, in McLay, supra at page 2655 (D.T.C. 2265), Mogan J. did not adopt the reasoning of Coté. He made the following comments on the relevance of whether the taxpayer had paid an amount greater than the amount of the compensation:

In my view, the essence of the second condition in Pascoe is that the predetermined amount is paid to enable the recipient to discharge certain expenses. That being the situation, the actual payment or incurring of those expenses should not by itself change a taxable allowance into a non-taxable reimbursement.

I share the view of Mogan J.

Did the sum of $3,373 represent an allowance for Mr. Bertrand? I believe so. This was a sum determined in advance. Tele-Direct undertook to pay the allowance for a period of five years. Mr. Bertrand was to receive the sum of $4,400 in the first year and that sum was to be reduced by 20 per cent of the initial amount in each of the following four years. This sum was determined taking into account the higher living expenses in Montréal, while considering the apartment’s location, its proximity to work, the size of the apartment and the quality of life in general. The evidence showed that the additional rental cost in Montréal was $4,140. The allowance for the first year was $4,400. The evidence did not show what the difference of $260 represented. I believe that Mr. Bertrand’s heating costs greatly exceeded that sum. If the allowance represented a reimbursement of expenses, it is not known which expenses they were. For an allowance to be reasonable, one must reasonably estimate the costs that a person must incur. However, this does not make an allowance a reimbursement of expenses.

In my view, the other elements essential to the notion of allowance are present. There is no doubt that the sum paid was to enable him to pay certain types of expenses. Lastly, the sum paid by Tele-Direct was entirely at Mr. Bertrand’s disposal. He was not accountable to anyone. Mr. Bertrand had to provide the leases on his Ottawa and Montréal apartments so that Tele-Direct could determine the amount of the allowance. However, he had no vouchers to provide to his employer to establish the exact amount of the additional housing expenses incurred by Mr. Bertrand in Montréal.

Although there could be some doubt as to whether Tele-Direct’s payment constituted an allowance, that doubt dissipates when one observes that the payment was made to Mr. Bertrand after he stopped leasing his apartment in the McGill ghetto. Mr. Bertrand confirmed that once the payment was determined, the employer continued to pay it in accordance with its customary policy, even though Mr. Bertrand had purchased a house on the south shore. In my view, this is a sound indicator confirming the nature of the payment made by Tele-Direct. If the payment was really a reimbursement of expenses relating to the additional rental costs, that reimbursement would have stopped when Mr. Bertrand moved in June 1992. The amount was determined specifically for the McGill ghetto apartment. At the very least, the amount could have been adjusted to take into account Mr. Bertrand’s new circumstances.

To sum up, when all the circumstances surrounding Tele-Direct’s payment of compensation are considered, one realizes that it was a sum determined in advance which did not vary on the basis of disbursements or of the loss which Mr. Bertrand actually incurred or suffered. It was an allowance entirely at the disposal of Mr. Bertrand, who was not accountable to anyone. Since the sum constituted an allowance for personal or living expenses received in accordance with Mr. Bertrand’s conditions of employment, that sum must be included in his income under paragraph 6(1 )(b) of the Act.

For these reasons, the Court dismisses Mr. Bertrand’s appeal and confirms the Minister’s assessment for the 1992 taxation year.

Appeal dismissed.