Michel Pelchat v. Minister of National Revenue, [1984] CTC 2964

Tremblay, TCJ [TRANSLATION]:—This case was heard on September 28, 1983 in Quebec City, Quebec.

1. The Point at Issue

The question is whether the appellant was correct to deduct the amount of $3,052.87 for moving expenses in calculating his income for the 1979 taxation year.

The respondent disallowed the expense on the ground that the requirements of section 62 of the Income Tax Act had not been met.

2. The Burden of Proof

2.01 The appellant has the burden of showing that the respondent’s assessment is incorrect. This burden of proof results not from a particular section of the Income Tax Act but from several judicial decisions, including a judgment of the Supreme Court of Canada in Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

2.02 The facts assumed by the respondent are described in subparagraphs (a) to (e) of paragraph 6 of the respondent’s reply to the notice of appeal. This paragraph reads as follows:

6. In assessing the appellant for the taxation year 1979, the Minister of National Revenue relied inter alia on the following facts:

(a) until January 20, 1979 the appellant had a residence located on Rang Gonfar, Ste-Agathe, county of Lotbinière;

(b) on or about January 20, 1979 the appellant moved and from that time onward resided in the town of Sorel;

(c) the distance between Ste-Agathe and Sorel is approximately 135 miles;

(d) the purpose of the move was to enable the appellant to take a new job with a new employer, Beloit Canada Ltée, located in Sorel;

(e) before this move, the appellant was unemployed and receiving unemployment insurance benefits.

3. The Facts

In the appellant’s absence, counsel for the respondent admitted the following facts given by the appellant’s representative.

3.01 In June, July and August 1978 the appellant worked in Quebec City for F4 Dion as a cleaner of forestry machinery. He was then living on Rang Gosford, Ste-Agathe de Lotbinière, in a house jointly owned by him with someone else.

3.02 After losing his job late in August 1978, he continued living in Ste-Agathe until late October, and received unemployment insurance.

3.03 Late in October 1978, he went to Sorel and lived with his sister and brother-in-law for a few days, while looking for work. He in fact found work with Beloit Canada Ltée.

3.04 The appellant put his house up for sale. An agreement written on a form approved by the Quebec Real Estate Association was signed by the two sellers and the buyer on February 26, 1979, after an offer and counter-offer by the parties (Exhibit 1-3).

The notarized contract was concluded on May 1, 1979 (Exhibit I-1).

3.05 The move to Sorel was made in late April 1979.

3.06 The representative informed the Court that the question of the admissibility of the expense had been resolved with the respondent. Only the amount was at issue. To confirm his statement, he filed as Exhibits A-l and A-2 two letters which were written by counsel for the respondent. In this letter [sic], it is explained that the costs of $3,052.87 cannot be accepted in their entirety, since the appellant was not the sole owner of the house, only a half owner. The respondent accordingly agreed to accept $1,527, but subject to the following clause (Exhibit A-l):

In order to reach a quick settlement of the matter, I am prepared to accept at this stage the principle that the expenditures are deductible. However, if this informal offer is rejected we would have to challenge even this principle in Court.

3.07 Regarding the move, the appellant claimed the following expenses:

No valid evidence was presented as to the surveyor, and no explanation was provided regarding the payment made to the notary. A notary’s fees are ordinarily paid by the buyer.

4. Act — Analysis

4.01 Act

This principal provision of the Income Tax Act involved in the case at bar is section 62(l)(a) and (b) and (3), which reads as follows:

62. (1) Where a taxpayer

(a) has, at any time,

(i) ceased to carry on business or to be employed at the location or locations, as the case may be, in Canada at which he ordinarily so carried out business or was so employed, or

(ii) ceased to be a student in full-time attendance at an educational institution in Canada that is a university, college or other educational institution providing courses at a post-secondary school level,

and commenced to carry on a business or to be employed at another location in Canada (hereinafter referred to as his “new work location’’), or

(b) has, at any time, commenced to be a student in full-time attendance at an educational institution (hereinafter referred to as his “new work location’’) that is a university, college or other educational institution providing courses at a postsecondary school level,

and by reason thereof has moved from the residence in Canada at which, before the move, he ordinarily resided on ordinary working days (hereinafter referred to as his “old residence’’) to a residence in Canada at which, after the move, he ordinarily so resided (hereinafter referred to as his “new residence’’), so that the distance between his old residence and his new work location is not less than 25 miles greater than the distance between his new residence and his new work location, in computing his income for the taxation year in which he moved from his old residence to his new residence or for the immediately following taxation year, there may be deducted amounts paid by him as or on account of moving expenses incurred in the course of moving from his old residence to his new residence, to the extent that . . .

62. (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.

4.02 Analysis

4.02.1 Quantum of expenses

With regard to the quantum of expenses, the Court is of the view that if the expense meets the conditions of the Act, the following items should be deducted:

As regards the commission of $2,400 paid to the real estate agent, the Court can only allow the share of the appellant, not the share of the other co-owner. The latter cannot waive his own share ($1,200) in favour of the appellant or anyone else unless this is expressly provided for in the Act. There is no express reference in section 62 or in any other provision to this effect regarding moving expenses.

4.02.2 Does the appellant meet the conditions of subsection 62(1)? Did the appellant “at any time” cease to be employed at one location and commence to be employed at another location in Canada? According to the respondent’s interpretation, the answer should be no. On the evidence, the appellant ceased to work in Quebec City in late August and began working in Sorel towards the end of October. The respondent maintained that the taxpayer must cease working at one location and begin working at another location at the same “time”.

[English text of subsection 61(1) follows]

The phrase “at any time” appears to be closer to the reality reflected in the provision as a whole. It appears to me that “at any time” does not bind a taxpayer who ceases working to find employment on the same day at once in order to benefit from section 62. At some time he ceases working at one location, and at some other time he begins working at another location.

As regards a tazpayer who ceased to be a full-time student (which usually happens in May or June), according to the interpretation of the respondent he would have to have found employment before ceasing to be a student, and this is not realistic. In short, such an interpretation would avoid the application of section 62 in most of the cases where someone moves in order to work in a new location.

However, the Court considers that the interpretation to be given is that, when the taxpayer in fact moves, he must have already found employment in the new location in order to benefit from the deduction provided for by section 62.

It appears to the Court that this interpretation corresponds to the spirit and the letter of the Act.

The appellant meets the conditions of this provision and the amount of $1,474.53 must be allowed as a deduction.

5. Conclusion

The appeal is allowed in part and the whole is referred back to the respondent for reassessment in accordance with the foregoing reasons for judgment.

Appeal allowed in part.