Kirsti A.I. McMillan v. Her Majesty the Queen (Informal Procedure), [1993] 2 CTC 2489

Taylor, T.C.C.J.:— This is an appeal heard in Vancouver, B.C., on June 1, 1993 under informal procedure of the Tax Court of Canada, against an income tax assessment for the year 1988, in which the respondent increased the taxable income of the taxpayer by an amount of $5,890, classed as a "benefit" under paragraph 6(1)(a) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act").

The appellant testified that during the period 1987 to 1989, she had been employed by Teleflex Canada Ltd. (Teleflex) as the operations manager, mainly supervising customers service work. She had not been part of the sales staff and she was not part of any “incentive” program or on commission. She was on salary. Teleflex had arranged with Toshiba Canada Ltd. (its supplier) to provide the sales staff, through an incentive program, the opportunity to visit the manufacturing sites and major sales office of Toshiba in Japan. Several members of the sales staff had so qualified, and were granted the trips, but there were two unfilled places, and Teleflex requested the appellant to consider going on the trip — the only condition being that she must be accompanied by her husband — also at Teleflex expense. According to Teleflex, there would be no direct cost to her — for either herself or her husband — only personal purchases or souvenirs. Further she was informed that there would not be any income tax disadvantages. It was to be a five day period of time in Japan as guests of Toshiba, during which there would be several outside visits

— also in attendance with other Toshiba representatives or staff. She had agreed to go on this trip with considerable reluctance, but she felt obliged to assist her employer in this way — Teleflex indicating to her that it would be embarrassing to the management if the quota of such visits to Japan provided by Toshiba was not filled. She stated that she did not believe there would have been repercussions if she had declined the offer. The offer had come so quickly, and ready acceptance required so soon, that time was barely available to obtain the necessary passports, etc. She was very impressed and believed it had benefited her work and that the experience and knowledge she gained as well as the personal contacts, had been of great assistance to her after her return to Canada from the trip. She readily agreed that the trip, while tiresome and stressful, had been a very enjoyable and rewarding experience from a personal viewpoint — culturally and educationally — but the emphasis had always been on the business aspect of it.

Counsel for the respondent introduced as an exhibit the itinerary of the trip, and it certainly contained the usual mix of social events, as well as the informative direct Toshiba oriented portions. Counsel questioned the appellant, on these more social aspects, and her answers continued to emphasize the constant attendance and availability of Toshiba personnel at all events, and the thrust of the trip to provide the participants with a broad understanding of Toshiba products, service capability and objectives. Counsel contended that the trip in question had come to the appellant — by virtue of her employment

— and the appellant accepted that proposition. The witness called by the respondent, Mr. Chang, an Appeal Officer with Revenue Canada pointed out that the original amount assessed against Mrs. McMillan was $10,000, supported by a T-4 slip "Prepared from the Payroll Records by Revenue Canada — Vancouver P.R.A.”. This had been reduced later to the present $5,890 which was composed of the following elements:

As I understand the source of the original $10,000, on the T-4 slip above coming from the payors’ records, it represented the amount originally charged off as a business expense by the payor not at that time as some form of benefit to the appellant. Some of this can not now be verified completely, since Teleflex is no longer in business and no one responsible in that company is available. While counsel for the respondent asserted that the appellant might have been more successful in bringing some Teleflex representatives to the hearing, I would suggest that under the circumstances of this appeal — the impugned T-4 slip for $10,000, and the adjustment to $5,890 all done at the direction of the respondent, that it might well have been appropriate to look to Revenue Canada to directly support that basis of the assessment with Teleflex representatives — if possible.

Counsel for the respondent referred to two cases as establishing some grounds for the disputed assessments:

Gancher v. M.N.R., [1977] C.T.C. 2596, 78 D.T.C. 1005 (T.R.B.)

Affettuso v. M.N.R., [1981] C.T.C. 2450, 81 D.T.C. 389 (T.R.B.)

Both of these represented trips — alleged to be business by the appellants — which appeals were dismissed.

The appellant in this appeal, noted for the Court that these cited cases were from persons having some business element — in one case a part owner of an automobile dealership, in the other a commission salesman.

Analysis

I will deal first with the two cases cited above by counsel for the respondent. In Gancher, supra, the respondent assessed the appellant for one-half of the cost of his trip, and the total cost for the same trip taken by his wife. That was upheld by the Court. The fact that the appellant was a "commissioned salesman” — thereby entitled to some flexibility in deductions under paragraph 8(1)(f) of the Act, not necessarily available to regular employees, appeared to be the respondent's rational for allowing even the 50 per cent noted above to the appellant. In Affettuso, supra, there is no indication that value to the business was a major factor in the decision to go on the trip to Japan.

In my view, there are major differences to be noted between the above cases and the instant appeal. Mrs. McMillan was a regular ordinary employee, she did not have the authority or opportunity to arrange or approve, or pay for the trip, as did Affettuso, supra and she was not on commission or incentive program of any kind under which she could earn the trip, such as in Gancher, supra. This trip by Mrs. McMillan was not merely offered to her by her employer, she was politely, but I gathered firmly, requested to go by her employer. The testimony is that she went reluctantly, and recognizing that it would involve some costs, and at the minimum the time of her husband would be taken from his work or earning capacity, perhaps from his own holiday times. Under these circumstances, I am not prepared to be bound by the results obtained in these two above cases, on a direct comparison with the facts in this matter. But also, the circumstances of this appeal must be looked at in the light of more recent judgments dealing with essentially the same basic point which in my view is, did the cost of the trip provided benefit" to the appellant, in the sense of advantage or profit on a personal or individual level? After all, she is being assessed in that way, that she received some personal benefit similar to added salary or wages, and is therefore taxable on a personal basis, irrespective of whether any amount is deductible as an expense to the payor Teleflex. I am not unmindful of the fact that the appellant asserted she believed she was of increased value to the employer as a result of the trip, but it has not been shown that this element resulted in additional remuneration to her. However, I would extract from the evidence that Teleflex anticipated, at least hoped, that some value would accrue to the company and I am prepared to agree that some benefit probably did accrue to Teleflex. Certainly there was no indication provided to the Court that the noted $10,000 “ business deduction" by Teleflex was challenged or disallowed by the respondent.

On this “benefit” point I would refer to a recent judgment of this Court: Stevens v. M.N.R., [1993] 1 C.T.C. 2429, 93 D.T.C. 291, at page 2432 (D.T.C. 293):

I do not doubt that Adventure Tours did in fact benefit in the manner just described from having its employees take these complimentary trips but such benefit to Adventure Tours is not inconsistent with an employee like the appellant receiving her own kind of benefit from the free vacation.

That view could also apply in the instant appeal, if indeed the circumstances indicated a“ "free vacation”, or some personal benefit of that nature, related to the assessed amount at issue. But, I do not see it that way. If there is any major difference between this situation, and one in which an employee is simply sent on a course or a seminar, related to his or her employment, at the expense of the employer, it has not been made obvious to me.

I would also add that the reduction of the original $10,000 expense charge — on the T4 slip — to some $6,200 and then further to $5,890, does not indicate a very firm grasp on the subject by the respondent, either as to policy or to practice let alone legality of the assessment. Simply put, if the cost of the trip was $10,000 — as an expense to Teleflex, then what rationale would lead to a different — albeit a lesser charge to the appellant of $6,200, other than some arbitrary division between the two parties. And to add to the dilemma why and how would anyone arrive at the conclusion that a further 10 per cent of the appellant's trip ($310) was somehow business oriented, for the appellant directly? The efforts by the respondent to find some compromise acceptable to the appellant regarding the assessment, in reducing the original $10,000 amount to $6,200 and further to $5,890, while laudable and understandable nevertheless seem to muddy the waters.

I would make reference to the recent case of Phillips v. M.N.R., [1993] 2 C. T.C. 27, 93 D.T.C. 5247 (F.C.A.) in which Jerome, A.C.J. allowed the appeal and thereby upheld the earlier decision of this Court ([1990] 1 C.T.C. 2372, 90 D.T.C. 1274) dealing with an amount of $10,000 by which the appellant Phillips was reimbursed for the additional costs of transferring from Moncton, New Brunswick to Winnipeg, Manitoba. I will quote from the F.C.A. reasons for judgment at pages 31-33 (D.T.C. 5250-51):

With respect to the taxable benefit submission, jurisprudence in this Court and in the Tax Court of Canada has confirmed that employees in the position of this defendant, facing this kind of transfer decision, are entitled to be financially restored to similar circumstances related to their previous residence without it being considered a taxable benefit. Clearly, the key word is restored".

. . . it is questionable whether I need make a finding as to whether the payment in question in fact constituted a benefit. Nevertheless, this appears to be an appropriate case to expound further upon the meaning of the phrase "benefits of any kind whatever" as it is used in paragraph 6(1)(a) of the Act.

I think it is clear that the purpose of paragraph 6(1)(a) is to include in the taxable income of a taxpayer those economic benefits arising from his employment which render the taxpayer's salary of greater value to him.

There is no evidence in the present case to support a finding that the payment in question meets the criteria of a benefit. The Crown's contention that Mr. Phillips did not have to move to Winnipeg, and having done so, did not have to purchase a house, has no merit. To maintain his current employment status with CNR, which included performing work as a carman and which was of a secure and long-term nature, Mr. Phillips was required to relocate from Moncton to Winnipeg. He incurred expenses in doing so, most significantly in terms of increased housing prices. As those expenses arose in consequence of his employment, his employer undertook to partially indemnify him against them. I cannot see that he has acquired any profit from the reimbursement of those expenses whatsoever. As in Splane v. Canada, [1990] 2 C.T.C. 199, 90 D.T.C. 6442 (F.C.T.D.), Mr. Phillips was merely restored, although only partially, to the financial state he was in before he moved.

In my view, the assertion of the respondent in this matter that there was a “benefit” to the appellant personally for her trip to Japan does not accord with the facts outlined at the trial. The amount of $2,790 is therefore not to be included in her income. On the other hand, I am not persuaded that the amount now attributed to the appellant which arose from her husband's portion of the costs ($3,100) can properly be considered in the same light. It might well be argued, as I have noted above, that at least this part of the total cost ($3,100 of $10,000) should be disallowed as an expense to the company rather than assessed against the appellant, but I repeat, that is not the problem before the Court. Failing that I can only reach the conclusion that the cost of her husband's trip, $3,100, is an appropriate amount to be attributed to the appellant as a "benefit". I note that the company might not have sent Mrs. McMillan without her husband, and that she understood there would be no charges or tax consequences occurring from her husband accompanying her. Irrespective of these elements, she did agree to take her husband, and since his trip was of no benefit to the company of which I am aware, it must have been of personal benefit to her, or to him for which she is responsible. That portion of the total amount under appeal will remain untouched in the assessment and I believe that is a realistic comprehension of the use of paragraph 6(1)(a) of the Act, under these circumstances.

In summary, I am satisfied that there was no initiative on the part of the appellant and no structured opportunity for her to take the trip to Japan. There is no evidence that it had as its basic purpose a personal value to her, such as a "free vacation" even though the trip did encompass some pleasurable aspects. The trip was taken by the appellant at the request, virtually the insistence of her employer and it was to accommodate the employer. The trip was more mandated than voluntary. On the other hand she did agree to take her husband, and while I am well aware that rejecting that condition might have meant she did not go on the trip, I regard it as a voluntary concession on her part.

The appeal is allowed in part in order that the amount at issue be reduced by $2,790. In all other respects the appeal is dismissed. There is no award as to costs.

Appeal allowed in part.