David Krull v. Her Majesty the Queen (Informal Procedure), [1995] 2 CTC 2204, 95 DTC 206

Taylor J.T.C.C.:-This is an appeal heard under the informal procedure in Toronto, Ontario on May 20, 1994, against an income tax assessment in which the respondent included as a taxable benefit an amount of $8,842.34 arising from the housing assistance provided by the employer-Petro Canada Inc. ("Petro-Can") when Mr. Krull relocated from Calgary, Alberta to Oakville, Ontario.

The appellant’s position was:

—the point to be decided is whether the appellant received an economic advantage as a consequence of the mortgage assistance.

[Emphasis added.]

The respondent stated the issue as:

-whether the appellant received a benefit in the amount of $8,842.34 in respect of, in the course of, or by virtue of his office or employment;

[Emphasis added. I

For the respondent, the basic facts were:

-the appellant was at all relevant times employed by Petro-Can;

-in 1991, Petro-Can transferred the appellant from Calgary, Alberta to Oakville, Ontario;

-under Petro-Can’s housing assistance program, an employee who owned a home and was transferred to an area where housing costs exceeded those in his former location was eligible to receive the mortgage interest subsidy to assist him to purchase a home in the new area that was comparable in quality to his former residence;

-Petro-Can made the mortgage interest subsidy available to its employees through an exclusive arrangement with Confederation Life Insurance Company ("Confederation Life") whereby Confederation Life would provide mortgages to employees of Petro-Can in the amount of the difference between the employees’ equity in their former residences and the purchase price of their new residences and Petro-Can would pay a portion of the interest on its employees’ mortgages to Confederation Life directly;

-in 1991, the appellant obtained a mortgage loan (the "mortgage loan") from Confederation Life pursuant to the terms of Petro-Can’s housing assistance program;

-the appellant received the mortgage loan by virtue of his office or employment with Petro-Can;

-in 1992, in accordance with the terms of its housing assistance program, Petro-Can paid interest in respect of the year in the amount of $8,842.34 on the appellant’s mortgage loan directly to Confederation Life.

The appellant contested the point of the "source" of the payment-as the employment contract. But in my view that only serves to cloud the issue. The relevant case law satisfies me that the payment was by virtue of his employment with Petro-Can.

There was little dispute as to the basic facts. In argument the appellant relied substantially on-

1. the distinctions he could see between his case and the case of Phillips v. M.N.R., [1994] 1 C.T.C. 383, 94 D.T.C. 6177 (F.C.A.), in which the amount at issue therein was held to be taxable by the Federal Court of Appeal;

2. Splane v. Canada, [1990] 2 C.T.C. 199, 90 D.T.C. 6442 (F.C.T.D.) aff d [1991] 2 C.T.C. 224, 92 D.T.C. 6021 (F.C.A.), in which the appellant was successful; and

3. Greisinger v. M.N.R., [1986] 2 C.T.C. 2441, 86 D.T.C. 1802 (T.C.C.), also in which the taxpayer was successful.

For the respondent the critical case was Phillips, supra, and reference was also made to R v. Savage, [1983] 2 S.C.R. 428, [1983] C.T.C. 393, 83 D.T.C. 5409. I would note an oft quoted passage from Savage, supra, found at page 440 (C.T.C. 399; D.T.C. 5414) thereof:

The meaning of "benefit of whatever kind" is clearly quite broad; in the present case the cash payment of $300 easily falls within the category of "benefit". Further, our Act speaks of a benefit "in respect of" an office or employment. In Nowegijick v. The Queen, [1983] 1 S.C.R. 29, [1983] C.T.C. 20, 83 D.T.C. 5041 this Court said, at page 39 (C.T.C. 25; D.T.C. 5045), that:

The words “in respect of" are, in my opinion, words of the widest possible scope. They import such meanings as "in relation to", "with reference to" or "in connection with". The phrase "in respect of" is probably the widest of any expression intended to convey some connection between two related subject matters.

As noted above, the point emphasized between the parties in this matter is whether there was an "economic advantage" (appellant) or a "benefit" (respondent). It might be argued that it is a mere play on words—but when considered in the light of the jurisprudence going back to Ransom v. M.N.R., [1967] C.T.C. 346, 67 D.T.C. 5235 (Ex. Ct.), it has at least historical significance to relate "benefit" to "economic advantage". Ransom, supra, says at page 362 (D.T.C. 5245):

—the amount received by the appellant represents in my view a fair calculation of the real expenses incurred by him as a result of his transfer to Montreal and should not be added to his income.

[Emphasis added.]

It is in Splane, supra, at page 203 (D.T.C. 6445) that the terminology becomes "economic benefit":

No economic benefit of any significant value was conferred upon this plaintiff.

In Greinsinger, supra, at page 2444 (D.T.C. 1805) we note:

The rationale why this reimbursement should not be taxable is that there must be harmony and balance between the employee that is transferred to another city and the employee that is not. Indeed, the first may suffer losses as the second is in a stable position. A company, in order to render those transfers more economically favourable, will compensate its employee. Consequently, an economical balance has been created and for this reason, this reimbursement should not be taxed.

[Emphasis added.]

In the above context I believe "compensate" is the appropriate word, and for Mr. Greisinger there may have been a real "transfer" as contrasted with the applicable term in the instant appeal "relocation". Ransom, supra, also refers to "transfer" and contains the following significant sentence:

It was a practice of the company to move its employees from one location to another, because of their experience, skill and qualifications, the employees having no say in the matter as the transfer is the decision of the company and not the employee.

We also note in Phillips, supra, at page 391 (D.T.C. 6183) a comment by the learned Justice in coming to grips with the concept of ’’harmony and balance" in Greisinger, supra, as the out of pocket proposition from Ransom, supra, is termed therein:

Two employees performing the same work for the same employer should receive the same tax treatment in respect of their employment.

This explanation accords with Parliament’s intent that employees receive equal tax treatment in respect of their employment incomes.

I have some difficulty with the propositions outlined in Greinsinger, supra, in the context of this appeal. The comments of course would not extend such principles to apply to having all of a company’s employees even at different locations treated in an equivalent way simply because they were performing the same work. It could also be argued that ’’harmony and balance" between the newly relocated employee who receives a subsidy, and other employees, whether of the same or of different employers, has been seriously disrupted. I am not sure that "harmony and balance" can be so finely prescribed as to include only the relocated employee, and another one of his colleagues who was not relocated. The question might also be raised of satisfactory compensation under the taxing system for those arguably disadvantaged by relocation—by virtue of the absence of any benefit arising from such employer-sponsored policies in companies where they are employed. One can understand in Ransom, supra, how the concept of not being "out of pocket" became part of the lexicon, and such transfer awards became equated with travelling expenses and termed "reimbursements". It would appear based on Ransom, supra, that the amount at issue in Greinsinger, supra, is a "reimbursement" and is to be excluded from income tax impact, as neither remuneration, benefit or allowance. The concept of the reimbursement of actual losses as noted in Ransom, supra, appears to be sustained in Phillips, supra, but on page 393 (D.T.C. 6185) thereof the narrow basis is described:

Once the subjective value argument is dismissed, it is quite evident that the $10,000 payment enabled the respondent to acquire a more valuable asset. CNR did more than save his pocket-it put money into it. Of course, the respondent will doubtless suffer short-term hardships which inevitably accompany job relocation. However, grasping for a tax-free benefit is neither an appropriate nor meaningful way of acknowledging the true costs of employment relocation.

[Emphasis added.]

"Reimbursement" does not appear in the relevant section of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the ’’Act”) and while it may have certain application, it might be necessary to rely more on "remuneration” and "benefits” as the operative words in the relevant sections of the Act for purposes of this appeal.

In this instant appeal, the subsidy is based on both a higher interest rate, and a principal amount which reflects the higher housing costs. I quote from the information supplied by Mr. Krull when filing the notice of appeal:

At the time of the transfer, the market differential factor between Calgary and Toronto was 1.55. Since the appraisal value of the appellant’s Calgary house was $222,500 it was established that a comparable house in the Toronto area would cost $344,875. This was $122,375 more than the appraised value of the Calgary house. All proceeds from the sale of the Calgary house were transferred to the Oakville house. This was required by Petro-Canada’s relocation program. The additional money needed was $122,375. The appellant then applied for and obtained a mortgage from Confederation Life. Petro-Canada made payments directly to Confederation to cover the mortgage interest differential.

I assume Petro-Can could have paid to Mr. Krull an amount of $122,375, some part of it, or the present value of it, if company policy had provided for such a lump sum payment. That would have made him "whole"-and it might have been treated as some form of capital payment-I do not say necessarily a non-taxable capital payment.

The relevant case law makes some distinction between that called a "capital loss" and that called "expenses occasioned (by) higher housing prices"-Phillips, supra, also at page 389 (D.T.C. 6181). Linden J.A., while he concurs with the Phillips, supra, decision, implies in his later individual comments in Phillips, supra, there are several possible variations on each situation, many of which might have some elements of taxability. In this appeal, amounts representing only the "subsidy' on the mortgage rate differential were paid directly to the mortgagor, according to a formula declining over a period of ten years. While interesting and intricate, in my view, the form of the arrangement is not critical to the simple determination of the issue before the Court. The substance of the agreement is that the appellant received financial assistance for his housing accommodation at the new location, a benefit not provided to his other colleagues or other employees, and one nominally regarded as a personal benefit. In my view, the different methods or mechanics of striving to provide the elusive "harmony and balance" may be more a matter of internal administrative preference rather than any reality based in the taxing statutes. A simple two party agreement between an employee and an employer which had as its object, its "rationale", to sustain "harmony and balance", should be relatively simple to achieve—without either party necessarily resorting to the vagaries or the benevolences of the Act.

Phillips, supra, reviews and explains Ransom, supra, and Splane, supra, in language which seems quite encompassing to me, and the reliance

is ultimately placed on the taxpayer at pages 392-93 (D.T.C. 6184):

When the above concerns are contemplated in light of the clear wording of paragraph 6(1 )(a) of the Act, the reasoning in Savage and Parliamentary intent, it seems plain that the $10,000 payment is a taxable benefit unless the respondent can satisfy this Court that it did not confer an economic advantage upon him. This marks the respondent’s final effort to gain a $10,000 tax-free benefit and his real complaint. [1]

[Emphasis added. I

On pages 387-88 (D.T.C. 6180) of Phillips, supra, such circumstances are described:

On the contrary, the employees’ continuing employment was facilitated. ...

It is indisputable that CNR’s agreement with the respondent was motivated primarily by a desire to protect and promote both parties’ economic interests by providing a mutually acceptable solution to a labour dispute.

[Emphasis added.]

I would also note a point cogently observed in Ransom, supra, at page 359 (D.T.C. 5242):

—the agreement to pay this compensation to the appellant gave to the company the advantage of an employee whose production would not be affected by the prospect of sustaining a loss on the house he was leaving to proceed to another city....

I would suggest that the economic advantage to both parties of the arrangement under review is clear-the employer retained a valuable and satisfied employee, and the employee retained a contract of service. PetroCan obviously was quite prepared to pay for the economic advantage to the company-and quite aside from the point at issue in this appeal probably would have expected the cost to be a deductible expense. The issue in this appeal is whether the opposite side of the coin, the payment to the employee should be regarded as similar under the Act to the salary he was able to continue to earn. The learned justices in Phillips, supra, discreetly left intact the basic principles permitting the possibility of some amounts to be considered "non-taxable”. In my view however, the broader principles arising out of the same Phillips, supra, appear to cover most situations, certainly this one. Those principles provide to an appellant the opportunity of demonstrating that he fits within the strict boundaries of the other two cases—Ransom, supra, and Splane, supra, if that can be done.

In my view, careful thought should be given to the fact that in this appeal, the employee’s continuing employment was facilitated by the subsidy. It is clear to me that Mr. Krull’s employment was in fact terminated-he certainly did not have the option of continuing employment in Calgary if he had refused the opportunity to move to Toronto under whatever circumstances. 1 quote from some of the material supplied to the Court by Mr. Krull in filing this appeal.

—The relocation involved only a geographical move. It was not part of a career development plan, and it did not involve a promotion.

-The appellant was given no reasonable alternative. Had he refused to relocate, he would have been laid off, ending his (at the time) 15-year career with the company as an engineer.

Whether Mr. Krull would have moved to Toronto without the added incentive of the mortgage subsidy was not explored. The simple set of circumstances is that at the moment he was approached with the prospect of moving to Toronto, he no longer had an economic future in Calgary with this employer. Looked at from that perspective I have no difficulty viewing the prospect and the provision of the mortgage subsidy as an economic advantage or a benefit.

Summary

I am not persuaded that Mr. Krull has shown that no recognizable economic advantage resulted from his relocation or that the payments represented strictly reimbursements. I would point out the following:

A. the subsidy arrangement was a benefit in that it added at least some inducement-a positive element-to his consideration of the bare alternative of loss of employment, and

B. non-taxability of the amount in Mr. Krull’s hands could create as much dislocation on a broader scale, as it could provide equilibrium in the narrow sense, and

C. it is for the affected employee to demonstrate that no economic advantage ensued.

My examination of the somewhat competing perspectives—Ransom, supra, and Splane, supra, on one side, as contrasted with Savage, supra, and Phillips, supra, on the other, leads me to the conclusion that the latter provide the better route, even if I follow it somewhat reluctantly, since I have had the opportunity of reviewing some excellent analyses, and contemporary judgments of this Court on the subject, which conflict with my conclusions. With apologies to the renowned Justice Noël in Ransom, supra, I would paraphrase his comments as:

Although I have no doubt, as a matter of substance, that the payment received by the appellant should be included in his income, I have had some difficulty in expressing the reasons why such a result should be obtained.

[Emphasis added.]

The appeal is dismissed.

Appeal dismissed.