Moore v. R., [1996] 1 CTC 3004, 97 DTC 47

Teskey J.T.C.C.: - The Appellant in his Notice of Appeal wherein he appealed his assessment of income tax for the year 1988 elected to have his appeal heard pursuant to the Informal Procedure.

Issue

The issue herein is whether all or part of $15,000 which the Appellant received from his employer, the Province of Ontario, in 1988 is taxable.

Facts

In 1988, it was suggested to the Appellant that he should apply for the position of regional assessment commissioner for Simcoe County. This the Appellant did and through a successful competition, was named Regional assessment commissioner for Simcoe County which required him to move from Stratford to Barrie.

At the time, the Ontario Government had an Enhanced Relocation Plan (the “Plan”). The Appellant applied for this one time lump sum payment of $15,000 and received the same. The terms of references of the Plan was approved by the Management Board of Cabinet on November 25, 1986 and reads as follows:

Part 4: Enhanced Relocation Plan

Deputy heads have nondelegable authority to negotiate a one-time, lump- sum, housing-cost differential payment to a maximum of $15,000. The purpose of this provision is to lessen the impact of relocation on those employees relocating to higher-cost housing. The enhanced relocation plan must only be offered when the following conditions exist, and when the deputy head initiates such action:

- the relocation has been initiated by the ministry or the Human Resources Secretariat;

- the relocation has identifiable benefits for both the ministry and the employee;

- employees have provided adequate documented evidence of their housingcost differentials to justify the amount of the lump-sum payment to be authorized by the deputy head. The extent of the financial assistance must be governed by the actual cost of differential of comparable living accommodation based on current indices of property values, first- mortgage interest-rate differentials and property-taxes differentials.

Directive

Although it is irrelevant to my decision, it is interesting to note that the Appellant in his submission of September 21, 1988 (Exhibit A- 4) states in paragraph number 5:

The money received must be declared as taxable income, therefore actual assistance upon employees classification, might only be 60 per cent of the subsidy.

Exhibit A-3 is a two-page document, the first page sets out the three criteria for the Plan, namely:

A. - Housing Cost Subsidy (not to exceed $15,000)

B. - Mortgage Interest Rate Subsidy - (covers one year)

C. - Property Tax Subsidy - (one year period).

The second page is the Appellant’s calculation work sheet which is attached hereto as schedule “A”. The total subsidy cannot exceed $15,000 which is the amount the Appellant received.

The undisputed evidence is that the Appellant sold his Stratford residence (at a profit) for $140,500 and purchased a smaller house in Barrie for $151,000, for a variance of $10,500. The Appellant convinced the necessary people that he ought not to be penalized for buying down to a smaller house in Barrie.

The Appellant’s request for the maximum reimbursement under the Plan was approved on October 3, 1988. The Appellant was advised of this by letter on October 21, 1988. Exhibit A-5 contains these two documents.

The approval memorandum dated October 3, 1988 states:

As you are also aware, Mr. Moore’s situation is somewhat unique. He has provided documented evidence that the housing cost differential of comparable housing to that which he owned at his former location, Stratford, is well in excess of $15,000. However, he has stated that due to a higher market cost in Barrie, and the necessity of assuming a higher mortgage, he was forced to “buy down” at his new location. More specifically, he has argued that the home at his new location is not comparable accommodation as it differs significantly in terms of age, size, quality and features, to that at his previous location.

After reviewing the material submitted, I referred this matter to Mr. John Dunn, the Management Board analyst responsible for relocation expense policy. Mr. Dunn advised that the intention of the Enhanced Relocation Policy is to lessen the impact of relocation on those employees relocating to a higher-cost housing market. He further stated that cost differentials should be based on an analysis of comparable accommodation as outlined in both the Directives and Guidelines Manuals. Mr. Dunn was of the opinion that an employee should not be penalized for “buying down”, especially when this is done out of necessity. It was understood that in such situations, an employee’s actual cost differential may not equate to $15,000; however, it was also recognized that the differential may exceed $15,000 (as it does in this case), when an analysis of comparable accommodation is substituted into the equation.

Based on the detailed information provided by Mr. Moore, and my discussion with Mr. Dunn, I believe that this request for a payment of a one-time, comparable housing cost differential in the amount of $15,000 is justified and consistent with the intent of the Enhanced Relocation Policy.

Based on the Federal Court of Appeal decision in Phillips v. Minister of National Revenue [1994] 1 C.T.C. 383, (sub nom. R. v. Phillips), 94 D.T.C. 6177,1 am satisfied that whatever portion of the $15,000 received by the Appellant as cost differential is an allowance and not a reimbursement and therefore is taxable.

The Federal Court of Appeal in the recent unreported decisions released October 11, 1995 in Hoefele v. R. in Action A-484-94; Zaugg v. R. in Action A-492-94; Mikkelson v. R. in Action A-547-94; Krall v. R. in Action A-604-94; Krull v. R. in Action A-123-95, all [reported at Krull v. Canada (Attorney General) (sub nom. Canada (Attorney General) v.

Hoefele),], [1996] 1 C.T.C. 131, 95 D.T.C. 5602, dealt with the question of interest payments on mortgages after transfers from one location to another.

Linden J.A., in his reasons which were concurred in by MacGuigan J.A., dealt with both paragraph 6(1 )(a) and subsections 80.4(1) and 6(9) of the Income Tax Act (the “Act”). He said at page 5606 (in Krull) of his reasons: “If a company gives a lump sum payment to an employee to offset higher housing costs on relocation, the payment is taxable, if he is better off as a result”. For his authority, he refers to Phillips (supra). He then goes on to say: “But, if such aid comes by way of a reimbursement for the loss of a favourable mortgage rate, it is not taxable”. For his authority, he refers to Splane v. R. (sub nom. R. v. Splane) 92 D.T.C. 6021.

At page 5606 of his reasons, he stated that he was in full agreement with my colleague Sobier’s reasons in Krull wherein he said:

The Appellant’s equity in the new house remained the same. The house in Toronto may be significantly more valuable asset but the Appellant’s ownership in the asset did not increase. In Calgary, the Appellant’s equity in his home was $98,600. In Toronto, the Appellant’s equity position was still $98,600. A person’s economic position is not advanced by maintaining the same ownership in a more valuable asset. The Appellant assumed all respon- sibility for payments on account of increased principal. In fact, his monthly mortgage payments were greater in Toronto than Calgary. If employment ceased or the employee was relocated back to Calgary, the assistance ceased. The assistance received by the Appellant was not a colourable attempt to increase the Appellant’s remuneration; it is merely a reimbursement for an expense incurred by virtue of employment.

At page 5607 of his reasons, Linden, J.A. confirms that: “Splane and Ransom v. Minister of National Revenue, [1967] C.T.C. 346, 67 D.T.C. 5235 continue to be good law”.

On the evidence before me, I am unable to find that any portion of the $15,000 was in consideration of the mortgage rate differential. From the evidence before me, I can only conclude that the whole of the $15,000 was awarded on the basis of cost differential between the two housing markets.

Therefore, the appeal is dismissed.

Appeal dismissed.