John P. Oster v. Her Majesty the Queen, [1995] 1 CTC 2224, 95 DTC 104

Sobier J.T.C.C.:-This appeal was heard under the general procedure of this Court.

The appellant appeals from the assessments for his 1987 and 1990 taxation years whereby the Minister of National Revenue (the "Minister”) included in his income transfer allowances paid by his employer the Royal Canadian Mounted Police (the "RCMP”) in those years relating to moves resulting from transfers made in 1987 and 1989, respectively.

The appellant is presently a corporal in the RCMP In 1987 he was a senior constable and was transferred from Kingston, Nova Scotia to Sherwood/Parkdale, Prince Edward Island. In 1989 he was transferred from Sherwood/Parkdale, Prince Edward Island to Bridgewater, Nova Scotia.

As a result of these transfers the appellant received from the RCMP by way of transfer allowances $3,210.75 with respect to 1987 and $3,789 with respect to 1989 (the. ’’transfer allowances") although the transfer allowance for 1989 was not received until 1990.

As part of the RCMP policy on relocation a transfer allowance is provided for members of the Force. For those with dependants such as the appellant the transfer allowance is equal to one month’s pay.

In addition the RCMP paid the usual moving costs such as movers’ charges, cost of house hunting trips, some meals and accommodation before and after the move, real estate commissions, costs of selling the old house and legal fees for the purchase of the new one. In addition to this he received a non-accountable payment of $500 and mortgage differential payments resulting from higher interest costs of his new home.

The following information dealing with the transfer allowances appeared in the RCMP related publication known as the "Pony Express”:

The following background information is supplied by Compensation Branch concerning the rationale for this allowance.

It is recognized that a requirement exists for the Force to remain mobile, while at the same time ensuring, insofar as possible, that members of the RCMP are adequately compensated for the financial, social, personal and family disruptions occasioned by relocations generated by Force policy.

Relocations are unquestionably a disutility for members of the Force and invariably adopt the following forms:

And there follows some examples such as change of culture, adjustment of lifestyles, difference of taxes, wear and tear on home furnishing and appliances, clothing costs and food costs variances. It is the appellant’s contention that these items are of the type to be covered by the transfer allowances and that since they are spelled out they are to be characterized in the same fashion as the type of moving expenses enumerated above and therefore not to be included in the appellant’s income. He maintains that they should be considered as being reimbursements for expenses, although they cannot be quantified.

Counsel for the appellant invited the Court to look at the purpose of the transfer allowances which he claims is a reimbursement for other costs or losses and for inconvenience. In other words he would have the transfer allowances being reimbursement of expenses of the type predetermined by the policy which was used in establishing the transfer allowances. Put another way counsel argues that the funds are impressed with a trust for reimbursing unspecified losses.

The appellant and his spouse prepared lists of those things which they believed should be covered by the transfer allowances and therefore not taxable. The 1987 list covered such things as loss of his spouse’ s income, driving children to school, forfeited part-time and summer income of the children, loss of children’s friends, and loss of extra curricular activities such as piano and ballet lessons. In addition since the appellant built a new home in Prince Edward Island and left a mature one in Kingston, Nova Scotia, he left mature fruit trees, shrubs and other garden items and was required to replace them in the new home. For the most part the same type of expenses are set out in the list for the 1989 move from Prince Edward Island to Bridgewater, Nova Scotia.

Counsel for the respondent argues that what was received by the appellant were taxable allowances under paragraph 6(1 )(b) of the Income Tax Act , R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the ’’Act”) being amounts received by the appellant as an allowance for personal or living expenses or as an allowance for any other purpose. [1]

It was not denied but admitted by the appellant that the payment was made to him because of the transfer and resulting move and that his employer did not require that he account for the way the moneys were spent. It was also admitted that the monies were received by him in the course of his employment.

The issue therefore is whether the transfer allowances were taxable as allowances under paragraph 6(1 )(b) and if not, whether they were benefits under paragraph 6(1 )(a) and in the alternative that the amounts paid by the appellant were for moving expenses paid under subsection 62(3) of the Act and therefore deductible.

I will first deal with the issue of whether the transfer allowances were taxable allowances under paragraph 6(1 )(b).

One of the leading cases dealing with allowances is Gagnon v. The Queen, [1986] 1 S.C.R. 264, [1986] 1 C.T.C. 410, 86 D.T.C. 6179 (S.C.C.). The issue in Gagnon, supra, Was whether an amount paid by a husband to his former spouse was an allowance under paragraph 60(b) of the Act. In dealing with allowances the Court referred to The Queen v. Pascoe, [1975] C.T.C. 656, 75 D.T.C. 5427 (F.C.A.) and at page 272 (C.T.C. 415, D.T.C. 6182) of Gagnon set forth the Pascoe definition of allowances:

According to the definition in Pascoe, for a sum of money to be regarded as an ’’allowance" it must meet three conditions: (1) the amount must be limited and predetermined; (2) the amount must be paid to enable the recipient to discharge a certain type of expense; (3) the amount must be at the complete disposition of the recipient, who is not required to account for it to anyone.

The Court in Gagnon agreed with the first two conditions but had some comments to make on the third condition, namely, accountability.

At page 273 (C.T.C. 416, D.T.C. 6183) of Gagnon the Court stated:

However, the condition could also mean that the recipient must be able to dispose of the amount completely, and that, provided she benefits from it, it is not relevant that she has to account for it and that she cannot apply it to certain types of expense at her complete discretion.

and

What matters is not the way in which a taxpayer may dispose of, or be required to dispose of, the amounts he receives, but rather the fact of whether he can dispose of them or not.

At page 275 (C.T.C. 417, D.T.C. 6184) the Court then corrected the third condition in Pascoe as follows:

Seen in this context, the third condition imposed by Pascoe must be corrected: for an amount to be an allowance within the meaning of paragragh 60(b) of the Income Tax Act, the recipient must be able to dispose of it completely for his own benefit, regardless of the restrictions imposed on him as to the way in which he disposes of it and benefits from it.

In Canada (A.-G.) v. MacDonald, [1994] 2 C.T.C. 48, 94 D.T.C. 6262, the Federal Court of Appeal dealt with housing subsidies paid by the RCMP to one of its members when he moved from Regina to Toronto. In MacDonald, supra, the Court applied the Gagnon/Pascoe principles to allowances under paragraph 6(1 )(b). At page 51 (D.T.C. 6264) of MacDonald the Court said:

Nonetheless, following Ransom, Pascoe and Gagnon, the general principle defining an "allowance" for purposes of paragraph 6(1 )(b) is composed of three elements. First, an allowance is an arbitrary amount in that it is a predetermined sum set without specific reference to any actual expense or cost. As I noted above, however, the amount of the allowance may be set through a process of projected or average expenses or costs. Second, paragraph 6(1 )(b) encompasses allowances for personal or living expenses or for any other purpose, so that an allowance will usually be for a specific purpose. Third, an allowance is in the discretion of the recipient in that the recipient need not account for the expen- diture of the funds towards an actual expense or cost.

Applying these principles in this case, the housing subsidy has all the legal characteristics of a taxable allowance. This is not a case of reimbursement for a particular expense. First, the respondent received the $700 as a limited, predetermined, "round" amount, which might also be described as arbitrary, in that it was not calculated with respect to an actual cost or expense of the respondent’s. Second, the money was for a particular purpose, namely to subsidize the respondent’s accommodation costs. This is certainly a personal or living expense within the meaning of paragraph 6(1 )(b) and paragraph 248(1 )(a). Finally, the respondent received the money totally in his discretion; he was not required to account for buying a house in Toronto or paying a certain rent in order to receive the subsidy. No receipts had to be submitted. Indeed the respondent was not required to incur any accommodation expenses whatsoever in order to receive the monthly payment. We have here, therefore, a ’'hidden” or "concealed increase in remuneration" which, in all fairness, must be treated as income.

In McLay v. M.N.R., [1992] 2 C.T.C. 2649, 92 D.T.C. 2260, Judge Mogan of this Court dealt with a fact situation identical to those in this appeal, that is the receipt by a member of the RCMP, of a transfer allowance resulting from a transfer from Vancouver, British Columbia to St. John’s, Newfoundland.

Judge Mogan dealt with the issue of the allowances and also dealt with McNeill v. The Queen, [1986] 2 C.T.C. 352, 86 D.T.C. 6477 (F.C.T.D.). In dealing with the allowance issue he said at page 2656 (D.T.C. 2266):

In the absence of a precise summary of all amounts received by the appellant from the RCMP as a direct consequence of his move from Vancouver to St. John’s, I am inclined to regard this amount of $4,166.58 as an "allowance" because all three conditions are satisfied. The amount itself is predetermined as one month’s salary. The amount is paid only when a member of the RCMP is relocated and, I assume, it is intended to enable the recipient to discharge certain unspecified kinds of moving expense. And finally, the amount is at the complete disposition of the recipient who is not required to account for it,

In dealing with McNeill, supra, he pointed out that Rouleau J. differentiated between the two types of payments made to the appellant. One being made to defuse a labour problem, the other made qua employee. The first type was not taxable, however the second was found to be a benefit of employment. He pointed out at page 2656 (D.T.C. 2266):

Returning briefly to the decision of the Federal Court-Trial Division in McNeill, Rouleau J. went out of his way to find that the Accommodation Differential was not part of McNeill’s terms of employment. In addition to the passage quoted above at page 359 (D.T.C. 6842), he further stated at page 361 (D.T.C. 6843):

As previously stated, I am satisfied that the payment made to the taxpayer in question did not arise in relation to his office or employment; substantially it was made in order to avoid a potential labour dispute and directed to the plaintiff as a person rather than in his capacity as an employee.

Judge Mogan then concluded:

In this appeal, by way of contrast, the "transfer allowance" was part of the appellant’s terms of employment; it was available to any member of the RCMP who was relocated; and it was not related to any particular expense or capital cost. In my opinion, the amount of $4,166.58 must be included in the appellant’s 1985 income as an "allowance" within the meaning of paragraph 6(1)(b) of the Act.

Although appellant’s counsel was quite eloquent and resourceful in his attempt to characterize transfer allowances as a reimbursement using the policy statements and reasons for establishing the transfer allowances, he cannot use this to overcome the specific provisions of paragraph 6(1 )(b) of the Act. Those policy statements have no force of law. They are merely an expression of the reasoning behind the introduction of transfer allowances into the benefits package afforded members of the RCMP They do not change the character of the payments which are governed by the Act.

The transfer allowances are undoubtedly allowances under paragraph 6(1 )(b). They meet all the conditions set forth in Pascoeas modified by Gagnon and applied in McDonald and McLay. The allowances were set arbitrarily and were predetermined and were not referable to any actual expense. They were used for personal or living expense and enabled the appellant to discharge unspecified kinds of moving expenses. The appellant was not required to account for the way the amounts were spent.

Dealing with the issue of moving expenses, the appellant was not able to identify for what purpose the allowances were used and therefore could not establish that they were moving expenses.

I find no merit in the argument of the impressed trust.

For these reasons, the appeals are dismissed.

Since it was the respondent who required that this appeal be heard under the General Procedure of this Court and the respondent has undertaken to pay the appellant’s costs, there will be no order as to costs.

Appeals dismissed.