Richard D McNeill v. Minister of National Revenue, [1982] CTC 2201, 82 DTC 1192, [1982] CTC 2206

The Assistant Chairman:—Mr McNeill (“the appellant’) is, and has been since 1968, an air traffic controller for the Department of Transport. Until late January 1976, he was located in Montreal. Around 1973 he, in his wife’s name, bought a home in Pierrefonds, which home cost about $15,000. He had a mortgage on the home in the principal sum of $13,500. The mortgage had a term of 5 years and required interest at the rate of 8%. In 1976 the appellant, not being bilingual, could no longer perform his duties in the Province of Quebec. In late January 1976 he was relocated to Ottawa. He succeeded in selling his house in Pierrefonds around April 1976 and, at that time, bought a home on the outskirts of Ottawa.

When the decision was taken to have air traffic controllers bilingual, it was realized that some controllers who were unilingual English would not be able to achieve the standard of bilingualism sufficient so that they could carry on their duties. The unilingual air traffic controllers, as a group, had a committee which met with officers of the Department of Transport. As a result of discussions, the Department of Transport approached the Treasury Board and, as a result, a relocation payment was authorized. The relocation payment contemplated two areas of payment. One was called the Social Disruption Allowance, which amount was calculated on the basis of 1% of the employee’s annual salary, multiplied by his total number of years of government service. There was a provision that the minimum allowance in this respect would be $500 and the maximum $5,000. The second area of payment was called Accommodation Differential. This was based on the increase in cost for an air traffic controller to acquire a home in the area to which he was relocated similar to what he owned in the Montreal area. Mr McNeill received one cheque in the amount of $17,727.16, being comprised of $2,155.47 Social Disruption Allowance and $15,571.69 Accommodation Differential. In these Reasons, when the word “sum” is used, it is intended to cover both allowances. The issue in this appeal is whether or not that sum is taxable to the appellant.

The appellant stated that, when he was looking to purchase a house in the Ottawa vicinity, he was shocked at the prices compared to Pierrefonds. He suggested that they were approximately double. When he did acquire a home in Ottawa, he had to mortgage it and, while the mortgage was for a five-year term, the interest rate was 9 /2%. The appellant stated that, in his opinion, were he not granted the sum of money to maintain his same living accommodations in Ottawa, he would have had to reduce his standard of living considerably. To maintain the same standard of living he would have had to acquire accommodation which would have been considerably inferior to that which he had in Pierrefonds.

While negotiations were taking place between the committee for the air traffic controllers and the task force for the Department of Transport, efforts were made to get the Department to agree that the sum was not taxable. Such an agreement however was not reached.

The appellant picked up his cheque before his house had been sold in Pierrefonds and, so that a comparison could be made, an appraisal was made on a similar house here in Ottawa, which appraisal was paid for by the government. It was in this fashion, in this instance, that the Accommodation Differential was determined. The appellant confirmed that he would be entitled to the Accommodation Differential even if he did not buy a house in the Ottawa area; that is, if he rented an apartment he would still get the same amount of money. At the time of receiving the cheque, he was asked to sign a letter agreeing that if, during the ensuing 5 years, he left the employ of the Department of Transport he would have to reimburse the Depart- ment of Transport a prorated portion of the amount he received. He continued that, had he not signed the letter, he would not have received the cheque.

Another air traffic controller who was in a situation similar to Mr McNeil, namely, Mr Sheldon Segall, also gave evidence. In effect, his evidence corroborated that of Mr McNeill. He had owned a home in Pointe Claire, Quebec, which he had purchased in 1973 for about $20,000. It had a mortgage for $17,500, with interest at 10% and a term of 25 years. He sold his home before he left the Montreal area and purchased another home at Mountain, Ontario — a community some 40 miles south of Ottawa. It was purchased in 1976 for $46,500, with a mortgage of $26,500. Interest ran at the rate of 112% and its term was 5 years. The total payment he received was $12,509.65.

Appellant’s counsel took the position that the sum which the appellant received was not within the provisions of subsection 5(1) or subparagraph 6(1 )(b) of the Income Tax Act after tax reform. From a case point of view, his reliance was on the case of Cyril John Ransom v MNR, [1967] CTC 346; 67 DTC 5235, a decision of Mr Justice Noël of the Exchequer Court of Canada. His submission was that the payment was not within the ambit of subsection 5(1) inasmuch as the amount received was not salary, and was not wages or other remuneration. He continued that those expressions impled a fixed, regular amount. The payment in this case was once and for all and was a calculated amount. In so far as paragraph 6(1)(b) is concerned, he contended that the payment was not an allowance, either for personal or living expenses or for any other purpose. His submission was that it was compensation for loss the appellant would suffer on moving. The payment was not made because of employment, but as a result of a decision made by the federal government, after representations from the air traffic controllers. In referring to the Ransom case (supra) and what is now paragraph 6(3)(a), appellant’s counsel submitted that, as Mr Justice Noël found in the Ransom case, the sum which the appellant received was not:

(i) “as consideration or partial consideration for accepting the office or entering into contract of employment” as the evidence discloses that it had nothing to do with his engagement as an employee; (ii) “as remuneration or partial remuneration for services as officer or under the contract of employment” as the evidence discloses that the appellant was receiving under his service contract the full salary appropriate to his appointment. Furthermore, the source of the payment was not the services rendered by the appellant but resulted from the fact that he availed himself of the procedure whereby he could claim compensation for the capital loss sustained as a result of his transfer from Sarnia to Montreal.

Mr Justice Noël continued:

(iii) nor can it be said that the payment received by the appellant was “in consideration or partial consideration for covenant with reference to what the officer or employee is, or is not, to do before or after the termination of the employment”.

Counsel’s contention was that Mr Justice Noël concluded that the reimbursement of an expense is not an allowance within the meaning of that expression in the Income Tax Act.

Counsel for the Minister took the position that the amount was taxable because of any or all of subsection 5(1) and paragraphs 6(1 )(a) and (b) of the Act. He contended that the amount the appellant received was: other remuneration pursuant to subsection 5(1); a benefit pursuant to paragraph 6(1)(a); and, an allowance pursuant to paragraph 6(1)(b) of the Act.

Counsel for the Minister made reference to the case of The Queen v Téle- sphore Demers, [1979] CTC 3132; 80 DTC 6326. In the year 1975, Mr Demers was employed by the Organization of American States in Haiti. He was paid a salary and certain expenses and a cost of living allowance. The Minister assessed on the basis that the cost of living allowance was income to the appellant. The Federal Court of Canada held, as is indicated by the head- note:

. . . The cost of living allowance was intended as compensation for increased expenses and therefore was an adjustment of the taxpayer’s base salary. It was accordingly part of his income from office or employment . . .

Counsel submitted that, in the Demers case, he received and was taxable on an amount received by him to compensate him for the cost of living. He continued that the principle is the same in this case; namely, he was being compensated for the cost of relocation.

Counsel for the Minister pointed out that, if the appellant stayed in the Province of Quebec, he received nothing pursuant to the decision of the federal government which had been conveyed to the Department of Transport. The reason for the payment of the sum was the employer-employee relationship and it was made while that relationship existed and was received by the appellant while he was an employee. He referred to the case of Laidler v Perry, [1965] 2 All ER 121. The background of this case was that an employer gave to each member of the staff who had been employed with them for longer than 10 months, regardless of their rate of remuneration or circumstances, a voucher for £10 face value which they could spend as they pleased. The question was whether or not the amount of that voucher was taxable. At 125, Lord Reid stated:

The real question appears to me to be whether these vouchers can be said to be mere personal gifts, inspired not by hope of some future quid pro quo from the donee but simply by personal goodwill appropriately signified at Christmas time. That is a question of fact, and in their decision the commissioners say “we hold that the vouchers were made available in return for services rather than as gifts not constituting a reward for services” and “reward for services” may not be very aptly chosen, but this finding does appear to me to negative mere personal gift, and it appears to me to be unassailable.

Lord Morris of Borth-Y-Gest stated at 127:

. . . but on the facts as found the reasons for the distribution are to be found in the employer-employee relationship. The vouchers were not distributed to the staffworkers on any individual or personal grounds nor were there any special or particular reasons which were peculiar to any of them. Though the impulses of generosity and of kindly and seasonal goodwill were not lacking the facts as found show that there was manifested that form of gratitude which is “a lively sense of future favours”. The directors were planning for good and loyal future service so that the company would prosper and be advantaged. In the result the vouchers were distributed by the employers in their capacity as employers and because they were employers: they were received by the employees in their capacity as employees and because they were employees. In these circumstances the emoluments were from the employment.

Minister’s counsel also made reference to the case of George Smith Buchanan v MNR, [1966] CTC 317; 66 DTC 5257. In that case the appellant was a solicitor who had come to Canada four years earlier for a position and was dismissed without notice by the firm which had employed him in Canada. He was paid $1,903 in semi-monthly instalments. The issue was whether or not that sum was income. Mr Justice Cattanach in deciding against the appellant stated, as is mentioned in the headnote at page 5258: “It was impossible to escape the conclusion that the payment was intended to be remuneration rather than a gift personal to the appellant”. Counsel continued that, in the instant appeal, the payments received came about as a result of a proposal by the Department of Transport to Treasury Board. The proposal was filed as Exhibit A-1 to these proceedings. Counsel pointed out that the introductory portion of the said proposal stated:

To obtain Treasury Board approval under Section 7(1)(i) of the financial Administration Act, to provide for Air Traffic Controllers in the Province of Quebec who cannot continue to be employed in their speciality in that Province . . .

He drew the Board’s attention to the section of the Financial Administration Act, RSC 1970, c F-10 referred to in the above quotation. Paragraph 7(1 )(i) of the said Act reads as follows:

7. (1) Subject to the provisions of any enactment respecting the powers and functions of a separate employer but notwithstanding any other provision contained in any enactment, the Treasury Board may, in the exercise of its responsibilities in relation to personnel management including its responsibilities in relation to employer and employee relations in the public service, and without limiting the generality of sections 5 and 6,

(i) provide for such other matters, including terms and conditions of employment not otherwise specifically provided for in this subsection, as the Treasury Board considers necessary for effective personnel management in the public service.

Counsel stressed that there was no agreement between the parties as to the terms of the employment — the air traffic controllers got what the proposal Said.

As to a benefit within paragraph 6(1 )(a), counsel for the Minister referred to the Buchanan case (supra), namely, the settlement for relocation was a benefit and so taxable. Referring to paragraph 6(1 )(b) under allowance, he referred to the decision of the Federal Court of Appeal in the case of The Queen v Morton Pascoe, [1975] CTC 656; 75 DTC 5427. In that particular case the issue was whether or not the payments in question constituted the payment of an allowance within the meaning of paragraph 11 (1 )(1) of the Income Tax Act before tax reform. The Court stated at 5428:

An allowance is, in our view, a limited predetermined sum of money paid to enable the recipient to provide for certain kinds of expense; its amount is determined in advance and, once paid, it is at the complete disposition of the recipient who is not required to account for it. A payment in satisfaction of an obligation to indemnify or reimburse someone or to defray his or her actual expenses is not an allowance; it is not a sum allowed to the recipient to be applied in his or her discretion to certain kinds of expense.

Counsel stated that what the appellant received here was a predetermined sum according to the guidelines. Not only did he not have to buy a home in the city in which he was relocated, but he did not have to account for the sum when received. Unlike the Ransom decision (supra), the appellant was not being reimbursed for a loss on the disposition of his home and the acquisition of a new one. He just had to justify the fact that the house he owned in Pierrefonds cost considerably less than a similar house would cost in Ottawa — there was no accountability.

Counsel for the Minister also referred to the case of MNR v Wilbrod Bherer, [1967] CTC 272; 67 DTC 5186. The issue in that particular case was whether or not the travelling and entertainment allowances which the appellant received in 1958 and 1959 were income. The Court held that a portion of each amount was income to the appellant as having been amounts received in part as an allowance for personal expenses and in part as an allowance for other purposes.

He also made reference to the case of Gilles Lepine v MNR, [1978] CTC 2895; 78 DTC 1637, a decision of this Board. In the years under appeal, the appellant, who was in Guinea, received an isolation bonus. The Minister added it to his income. The Board held that the amounts were within paragraph 6(1)(b) of the Income Tax Act.

In conclusion, counsel for the Minister stressed that the appellant in no way suggested that the sum received by him from the Department of Transport was within any one of the subparagraphs of paragraph 6(1 )(b).

As I view this matter, the sum was an allowance as defined in the Pascoe case (supra) which was paid to the employees of the Department of Transport on the relocation out of the Province of Quebec. If they did not own a home, they did not receive any Accommodation Differential. If a home were owned, an Accommodation Differential was received regardless of whether or not the transferred employee acquired a new home in the city to which he was relocated. It was his choice to acquire a home and he received the 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 the result, judgment will go dismissing the appellant’s appeal.

Appeal dismissed.