Granville K. Sheldon v. Minister of National Revenue, [1988] 2 CTC 2039, 88 DTC 1392

Brulé T.CJ.:—The present appeal, heard at Thunder Bay, Ontario, on March 30, 1988, is from a notice of assessment for the taxpayer’s 1985 taxation year by which the Minister added the sum of $63,000 to the taxpayer's income as a benefit received in the course of employment.

The facts in the present appeal are not disputed. The appellant was employed by Griffith Mines from 1970 to March 1985 at which time his employment was terminated due to the permanent closure of the mine. In September 1985 the taxpayer received the sum of $63,000 from Griffith Mines as a "housing subsidy” to compensate the taxpayer for the decrease in resale value his home would suffer as a result of the mine closure. Payment of the allowance was made pursuant to the Employee Assistance Agreement, filed by the taxpayer as Exhibit A-1.

The agreement reads in part as follows:

Appendix A

Employee Assistance Agreement

between

THE GRIFFITH MINE

and

THE UNITED STEELWORKERS OF AMERICA

AND ITS LOCAL 7020

Dated: March 26, 1985

The parties agree that the following provisions shall apply to hourly employees who are terminated from employment as a result of the permanent closure of The Griffith Mine.

Housing Subsidy

In consideration of the effect that the mine closure may have on housing values of employees who own their own homes in the Red Lake, Ear Falls area and who were not on layoff as of October 1, 1984, the Company will pay to any such employee a percentage of the municipal assessed value of the home in effect as of November 15, 1984. Any assessment in effect that is based on a year prior to 1978 shall be increased five (5) percent for each such year prior to 1978. Such percentage subsidy shall be:

Forty percent (40%) for homes in Red Lake.

Sixty percent (60%) for homes in Ear Falls.

The payment made to an employee by the Company as specified above shall not be construed in any way as transferring ownership or any contractual right or obligation in such home to the Company. The employee shall continue to retain ownership of and title to the property.

Such payment shall be made within either six (6) months following closure of the mine or within six (6) months from the date of termination of employment. Some alternative date may be mutually agreed to between the Company and the employee.

The said assistance agreement formed Appendix A of a memorandum of agreement between the same parties dated March 26, 1985. The memorandum deals with the Collective Agreement that will bind the parties from September 1, 1984 to April 1, 1986 and refers to 'Appendix A" in the following terms:

MEMORANDUM OF AGREEMENT

between

THE GRIFFITH MINE

and

THE UNITED STEELWORKERS OF AMERICA

AND ITS LOCAL 7020

Dated: March 26, 1985

The parties agree that the term of the Collective Agreement shall be from September

1, 1984 to April 1, 1986.

10. During negotiations for the new Collective Agreement, the parties reached agreement on provisions that will apply to hourly employees affected by the permanent closure of the Griffith Mine. These provisions are incorporated as part of this Memorandum of Agreement as Appendix A — Employee Assistance Agreement, attached to this document.

The appellant's counsel raised two arguments against the inclusion of the amount he received from the Griffith Mines (the Company) in the calculation of his income. He first argued that the amount was not a payment which arose by virtue or in respect of the appellant's employment but constituted a reimbursement of the losses he suffered, by way of reduced resale value of his house as a result of the mine's closure. Appellant’s counsel also argued that the inclusion of the amount in the taxpayer's income would constitute a breach of subsection 15(1) of the Charter of Rights and Freedoms providing for equality before the law.

I shall first address the argument pertaining to the nature of the payment received by the appellant. It is trite law to state that the Court can in no way be guided in this matter by the term "Housing subsidy" chosen by the parties to describe the payment. Counsel for the appellant relied on the case of Cyril John Ransom v. M.N.R., [1967] C.T.C. 346; 67 D.T.C. 5235. The Exchequer Court, as it then was, therein determined that the reimbursement by the employer, of the loss suffered by an employee selling his home following a job transfer was not taxable. A similar decision was reached by the Tax Court in the case of Erwin Greisinger v. M.N.R., [1986] 2 C.T.C. 2441; 86 D.T.C. 1802.

Counsel for the appellant argued that such reasoning applied also to the reimbursement of the loss suffered by someone selling his home following the closure of the mine. Counsel referred to paragraph 36 of Interpretation Bulletin 407 which reads in part as follows:

In ordinary circumstances, if an employer reimburses his employee for a loss suffered by the latter when he sells his house because he has been required by the employer to move to another locality or because he has retired from employment in a remote area, the amount so reimbursed is not income of the employee if it is not greater than the actual loss to the employee, calculated as the amount by which the cost of the house to him exceeds the net selling price he received for it. In similar situations where a guarantee is made whereby the employee is "reimbursed" by the employer for any excess of the fair market value of the house as independently appraised, over the actual selling price obtained, the "reimbursement" is not income of the employee.

Whatever the merit of the counsel’s argument concerning employees who have in fact sold their homes, such reasoning cannot be applied to the appellant who has not disposed of his home. One cannot be reimbursed for a loss which has not yet occurred. Only when the taxpayer sells his home will he possibly be liable to suffer a loss on the sale of his house and only then will the extent of this loss be known. The Income Tax Act does not recognize a taxpayer has the right to claim losses on an asset he continues to own merely because market fluctuations would render the sale of the asset less profitable. Because the appellant has suffered no loss he cannot be said to have received a reimbursement for the loss.

In both the Ransom and Greisinger cases, the taxpayers had actually suffered a loss on the sale of their homes and the reimbursement was held to be non-taxable only to the extent it reflected the amount of the loss. In the case before the Court, the appellant, not having sold his home, cannot be said to have incurred a loss or an expense. No loss or expense having been incurred there can be no reimbursement.

In Ransom, supra, Noël, J. states at page 359 (D.T.C. 5243):

. . . Furthermore, and this is really the answer to the respondent's case, a reimbursement of an expense actually incurred in the course of the employment or of a loss actually incurred in the course of the employment is not a “allowance” within the meaning of the word in section 5(1)(b) as an allowance implies an amount paid in respect of some possible expense without any obligation to account.

In the light of the statement of Noël, J., there can be little doubt that the amount received by the appellant falls within the definition of allowance within paragraph 6(1)(b) which states:

6(1) There shall be included in computing the income of a taxpayer for a taxation year as income from an office or employment such of the following amounts as are applicable:

(b)—all amounts received by him in the year as an allowance for personal or living expenses or as an allowance for any other purpose, except. . .

It must be noted that contrary to other provisions of section 6 of the Act, paragraph 6(1)(b) does not require that the allowance be received “in respect of, in the course of, or by virtue of an office or employment". It could be argued that because of this omission in the wording of the provision, any allowance received from an employer, that does not fall within the exceptions provided in the paragraph, must be included in income whether or not it is received in respect of employment.

In the present case however, it is clear the amount received was in respect of employment. In the case of Gene A. Nowegijick v. The Queen, [1983] C.T.C. 20; 83 D.T.C. 5040, Dickson, J. speaking for the majority. of the Supreme Court of Canada stated at page 25 (D.T.C. 5045) of the report:

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 connec- tion with”. The phrase “in respect of" is probably the widest of any expression intended to convey some connection between two related subject matters.

Even a casual reading of the agreement under which the allowance was granted indicate it was being paid, in the words of Dickson, J. “with reference to" or “in relation to" the taxpayer's employment. Any other conclusion would require a finding that the amount was paid purely as a personal gift by the employer to his employee.

In the case of Reginald S.W. Fordham v. M.N.R., [1975] C.T.C. 2071; 75 D.T.C. 106, the Tax Review Board as it then was, found that amounts paid on a legally non-enforceable claim received in lieu of “leave” fell within the definition of gratuities found in subsection 5(1) and was therefore taxable. A similar decision had previously been reached in the case of Mr. C. v. M.N.R., 2 Tax ABC 6; 50 D.T.C. 206 by the Tax Appeal Board. The Supreme Court of Canada reiterated in the case of The Queen v. Elizabeth Joan Savage, [1983] C.T.C. 393; 83 D.T.C. 5409, that an employee could be taxed on a sum received from his employer even though it did not constitute remuneration for services. At page 399 (D.T.C. 5414) of the report Dickson, J. referring to the case of Estate of George Farnsworth Phaneuf v. The Queen, [1978] C.T.C. 21; 78 D.T.C. 6001, stated for the majority of the Court:

With great respect, however, I do not agree with the latter part of the passage last quoted and in particular the statement that, to be received in the capacity of employee, the payment must partake of the character of remuneration for services. Such was the conclusion in the English cases but based on much narrower language. Our Act contains the stipulation, not found in the English statutes referred to, "benefits of any kind whatever . . . in respect of, in the course of, or by virtue of an office or employment". 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 that same case Dickson, J. stated at page 398 (D.T.C. 5413) of the report:

In Phaneuf, supra the issue was whether Mr. Phaneuf was liable for income tax in respect of a benefit received by him on the purchase of shares. He acquired the shares in Charles Ogilvy Limited, his employer, pursuant to a bequest of the Company's principal shareholder. The bequest gave the right to the Company's employees to acquire a number of shares at par value. The Company's Board of directors revised the list of employees entitled to purchase shares and approved a formula for distribution based on service to some extent. Mr. Phaneuf bought shares of a par value of $2 although they had a market value at the time of $17.25. In the Federal Court, Mr. Justice Thurlow, then A.C.]. of the Trial Division, held that the benefit was conferred on Mr. Phaneuf as a person and not as an employee and as a personal gift rather than as remuneration, and hence not a taxable benefit.

He added at page 399 (D.T.C. 5414) of the report:

I agree that the appropriate test in Phaneuf was whether the benefit had been conferred on Mr. Phaneuf as an employee or simply as a person. It would seem that Mr. Phaneuf received as a person, the right to acquire the shares and therefore the case was correctly decided.

In the case at hand, even no reasonable construction of the agreement under which the payment was made would allow the Court to find the amount received constituted a personal gift made by the employer to the appellant.

The circumstances in the case of Frederick D. Cousins v. M.N.R., [1972] C.T.C. 2017; 72 D.T.C. 1055 bear some resemblance to the facts before us. In that case the employer held a mortgage on the taxpayer's home. Pursuant to an agreement between the taxpayer and his employer, the taxpayer received a discharge of his mortgage in 1968. Later than same year, the employee was forced to leave the area because of a decline in the employer's industries, but was unable to sell his house. The Tax Review Board found that the value of the mortgage discharge constituted a taxable benefit in the year it was received.

In the case of James F.R. McArdle v. M.N.R., [1984] C.T.C. 2277; 84 D.T.C. 1251, the taxpayer's employer waived repayment of a housing loan following the employee's departure. At page 2278 (D.T.C. 1252) of the report, Christie, C.J.T.C. as he then was stated:

I am satisfied that the forgiveness of the balance of the loan was an integral part of the arrangements under which the appellant's employment with Integrated was brought to an end by mutual agreement. This means there was a direct nexus between the course of action adopted by Integrated in respect of the loan and the appellant's employment. The thing which motivated the forgiveness of the loan was the existence of the contract of employment. This brings the $14,774.72 within those provisions of paragraph 6(1)(a) of the Income Tax Act ("the Act”) which require that there shall be included in computing the income of a taxpayer for a taxation year as income from employment the’ value of a benefit of any kind whatever received by him in the year in respect of, in the course of, or by virtue of that employment.

I am satisfied in the present case that the housing subsidy did not constitute a reimbursement for a loss or expense incurred by the taxpayer and was not a gift conferred by the employer to the appellant personally. The amount the appellant received did constitute income from employment and was therefore properly taxed.

Counsel for the appellant's second argument rests on the taxpayer's right to equal benefit of the law guaranteed him under subsection 15(1) of the Canadian Charter of Rights and Freedoms which states:

15.(1) Every individual is equal before and under the law and has the right to the equal protection and equal benefit of the law without discrimination and, in particular, without discrimination based on race, national or ethnic origin, colour, religion, sex, age or mental or physical disability.

The rights set out in subsection 15(1) are subject to section 1 of the Charter which states:

1. The Canadian Charter of Rights and Freedoms guarantees the rights and freedoms set out in it subject only to such reasonable limits prescribed by law as can be demonstrably justified in a free and democratic society.

Counsel for the appellant submits that the appellant is not receiving equal treatment before the law in that he is taxed on the reimbursement for the loss of value of his home merely because he has chosen not to sell his home. He argues that if he had sold his home and experienced a loss for which his employer had reimbursed him he would not be taxed. By including the "housing subsidy” in the taxpayer's income the Minister is, in the counsel's view, applying the Income Tax Act in a discriminatory fashion on the grounds that the appellant has chosen not to sell his home and to remain in the community.

It may be that, in the present case, the application of the Income Tax Act to former employees who have sold their homes results in different tax liabilities than that incurred by the taxpayer. As previously stated, this different tax treatment is due to the fact that, contrary to employees who have sold their homes, the taxpayer has not incurred a loss and therefore cannot be reimbursed for such a loss. Had the taxpayer in fact sold his home and suffered a loss, he would have received identical treatment under the Income Tax Act as that received by other taxpayers in similar circumstances.

The fact that the Income Tax Act does not allow a taxpayer to be compensated, without adverse tax consequence, for a loss or expense he has not yet incurred, while allowing a tax-free reimbursement to those who have, constitutes a limit prescribed by law, to equal treatment under the Act, which is entirely reasonable in a free and democratic society.

I entirely agree with the views expressed by Galligan, J. of the Ontario High Court of Justice in the case of Ontario Public Service Employees Union et al. v. The National Citizens Coalition Inc. et al. [1987] 2 C.T.C. 59 at 61; 87 D.T.C. 5270 at 5272:

The argument advanced with respect to subsection 15(1) is that the circumstances disclosed in paragraphs 10 and 11 of the statement of claim show that certain taxpayers could be disentitled to equal benefit of the tax laws. I have some difficulty in understanding how tax laws can be said to bestow benefits on taxpayers. But, having said that, it is clear that some taxpayers are entitled to certain deductions from their income while others are not. The Income Tax Act is full of examples where one taxpayer for certain reasons has certain deductions which another taxpayer does not have. Also, certain taxpayers are called upon to pay more taxes than others. Some taxpayers are called upon to pay taxes at a higher rate than others.

The Charter, as it has been said in many, many cases, too numerous to mention, is an important piece of legislation which constitutionally protects important rights and freedoms of people who live in this country. It seems to me that it comes very close to trivializing that very important constitutional law, if it is used to get into the weighing and balancing of the nuts and bolts of taxing statutes.

For those reasons the appeal is dismissed.

Appeal dismissed.