André Coté v. Minister of National Revenue, [1990] 2 CTC 2617, 91 DTC 261

Lamarre Proulx, T.C.J. [Translation]:—This is an appeal against a reassessment by the respondent, the Minister of National Revenue, with respect to the 1986 taxation year.

The issue is whether installation expenses for a new residence are deductible as moving expenses under section 62 of the Income Tax Act, R.S.C. 1952,

c. 148 (am. S.C. 1970-71-72, c. 63) (the 'Act"), or whether an amount received from the appellant's employer as compensation for move-related expenses is an allowance that must be included in the calculation of his income within the meaning of paragraph 6(1)(b) of the Act.

The facts are not in dispute. The appellant is a senior manager in the Quebec Department of Recreation, Fish and Game. In 1986, he moved from Cap-Rouge, near Quebec City, to St-Bruno, near Montreal, at the request of his Department. In 1986, the Quebec Treasury Board directive governing the working conditions of senior managers contained the following provision:

[Translation]

144. A relocated senior manager is entitled, as compensation for expenses related to his move, to an allowance equal to four weeks' salary, unless complete facilities are made available to him at his new work location.

Pursuant to this section, the appellant received an amount of $3,461 in 1986.

The respondent contends, first, that this expense incurred by the appellant does not qualify as a moving expense within the meaning of section 62 of the Act and that it is therefore not deductible in the calculation of the appellant's income for 1986; and, second, that this amount constitutes an allowance for personal or living expenses or an allowance for some other purpose, which is not covered by the exclusions in paragraph 6(1)(b) and must therefore be included in the calculation of the appellant's income for 1986.

The appellant argues that he may deduct certain installation expenses for his new residence as moving expenses, and, secondarily, that the amount received for related expenses is not an allowance of the type specified in paragraph 6(1)(b) of the Act.

The installation expenses claimed as moving expenses were incurred for curtains and wallpaper, floor sanding and finishing, paint and miscellaneous accessories. The amount spent is not at issue and is higher than the amount for related expenses.

Subsection 62(3) defines moving expenses as follows:

(3) In subsection (1), "moving expenses" includes any expense incurred as or on account of

(a) travelling costs (including a reasonable amount expended for meals and lodging), in the course of moving the taxpayer and members of his household from his old residence to his new residence,

(b) the cost to him of transporting or storing household effects in the course of moving from his old residence to his new residence,

(c) the cost to him of meals and lodging near the old residence or the new residence for the taxpayer and members of his household for a period not exceeding 15 days,

(d) the cost to him of cancelling the lease, if any, by virtue of which he was the lessee of his old residence,

(e) the selling costs in respect of the sale of his old residence, and

(f) where his old residence is being or has been sold by the taxpayer or his spouse as a result of the move, the cost to him of legal services in respect of the purchase of his new residence and of any taxes imposed on the transfer or registration of title to his new residence,

but for greater certainty, does not include costs (other than costs referred to in paragraph (f)) incurred by the taxpayer in respect of the acquisition of his new residence.

In the context of the present appeal, the last part of this definition seems to me indicative of Parliament's intent with regard to costs related to the acquisition of a new residence. Moving expenses do not include expenses incurred by the taxpayer for the acquisition of his new residence, except for the costs described in paragraph (f) of the definition. We should recall in this connection the decision by Collier, J. of the Federal Court in Marvin R.V. Storrow v. The Queen, [1979] 1 F.C. 595; [1978] C.T.C. 792; 78 D.T.C. 655, which was rendered in circumstances similar to those of the present appeal. I quote Collier, J.'s remarks at page 795 (D.T.C. 6553-54; F.C. 599):

The disputed outlays were not, to my mind, moving expenses in the natural and ordinary meaning of that expression. The outlays or costs embraced by those words are, in my view, the ordinary out-of-pocket expenses incurred by a taxpayer in the course of physically changing his residence. The expression does not include (except as may be specifically delineated in subsection 62(3)) such things as the increase in cost of the new accommodation over the old (whether it be by virtue of sale, lease, or otherwise), the cost of installing household items from the old residence (such as drapes, carpeting, etc). Moving expenses, as permitted by subsection 62(3) do not, as I see it, mean outlays or costs incurred in connection with the acquisition of the new residence. Only outlays incurred to effect the physical transfer of the taxpayer, his household, and their belongings to the new residence are deductible.

[Emphasis mine.]

I must conclude from this that the appellant may not, in the calculation of his income for 1986, deduct as moving expenses amounts spent for settling into his new residence.

However, must he include in the calculation of his income the amount that was paid by his employer for related expenses on the grounds that it would be an allowance within the meaning of paragraph 6(1)(b) of the Act?

Section 144 of the directive, quoted above, provides for the payment of related expenses unless complete facilities are made available to the employee at his new work location. No evidence or argument was presented with regard to incomplete facilities. That would have been useful for obtaining a clearer overall picture of the case.

Counsel for the respondent referred me to the Supreme Court of Canada's decision in Gagnon v. The Queen, [1986] 1 S.C.R. 264; [1986] 1 C.T.C. 410; 86 D.T.C. 6179, in which, at 415 (D.T.C. 6182; S.C.R. 272), Beetz, J. defines the term "allowance" as follows:

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.

However, in the circumstances of the present appeal, I am of the opinion that, in order to complete this study of the meaning to be given to the word "allowance" in the context of paragraph 6(1)(b) of the Act, I must give careful consideration to Richard D. McNeill v. The Queen, [1987] 1 F.C. 119; [1986] 2 C.T.C. 352; 86 D.T.C. 6477. I quote Rouleau, J.'s remarks at pages 357-58 (D.T.C. 6481; S.C.R. 128) of that decision:

Counsel for the plaintiff disputed the allegation that the amount paid to the plaintiff was an "allowance" within the meaning of the Act. He conceded that there was no obligation placed upon the recipients of the so-called “allowance” to actually purchase another home in order to qualify, but he had in fact purchased a residence and he maintained that the amount in question could not be considered an allowance as the taxpayer had, as anticipated, increased mortgage costs.

In the present case, the appellant also adduced evidence that he had incurred related costs higher than the amount received from his employer. Counsel for the respondent, however, referred me to Rouleau, J.'s remarks at page 362 (D.T.C. 6485; S.C.R. 135):

But more importantly, the payment of the allowance with which I am concerned was primarily motivated by considerations extraneous to employment, namely public and labour relations considerations.

Thus she is saying that, unlike the situation in McNeil], the amounts received by the appellant in the present case were received pursuant to a directive governing the conditions of employment of senior managers.

I do not believe that the reason given by Rouleau, J. in the excerpt quoted above was the determining argument in McNeill, for two reasons:

(a) Another allowance paid under the same agreement was considered an employment benefit within the meaning of paragraph (1)(a) of the Act because of "the absence of any proof put forward by the plaintiff to show that he actually suffered other losses due to his relocation equal to the [amount] he received [. . .] (McNeill, supra at page 364 (D.T.C. 6486; S.C.R. 138)) and

(b) Because the judge said the following regarding the meaning to be given to the word "allowance"-.(McNeill, supra at pages 363-64 (D.T.C. 6485; S.C.R. 137)).

Counsel for the Crown further suggested that the payment received by the taxpayer was one for which he was unaccountable and that the taxpayer was under no obligation to purchase a home in the Ottawa area. It was this argument which appears to have persuaded the Tax Court and led it to the following conclusion:

It was his choice to acquire a home and he received money without even having to prove a loss. The formula was set up and the formula was followed. Had the appellant seen fit to rent an apartment or live with relatives or friends, he still would have received the same amount of money.

In my opinion, that reason is neither here nor there. Firstly, the decision of the Tax Court is not based on the facts of the case which are that the plaintiff taxpayer did purchase a home. Secondly, the taxpayer was forced to accept the transfer in order to retain his employment. Under those circumstances, I would think it was not only his choice but his right to purchase a home in the Ottawa area and attempt to put himself in the same position he was in prior to being moved from his home in Montreal. From the evidence adduced, it is manifestly clear that the plaintiff "put nothing in his pocket but merely saved the pocket."

In light of the decision rendered in McNeil], I am of the opinion that the amount received by the appellant for expenses related to his move should not be considered as an allowance within the meaning of paragraph 6(1)(b), because the appellant actually incurred expenses related to his move for the amounts received.

The appeal is allowed without costs.

Appeal allowed.