John R O’gorman v. Minister of National Revenue, [1981] CTC 2400, 81 DTC 281

D E Taylor:—This is an appeal heard in Toronto, Ontario, on February 23, 1981, against an income tax assessment for the year 1976 in which the Minister of National Revenue disallowed an amount of $1,054.61 claimed by the taxpayer as “moving expenses’’, described by an appellant as:

For the purposes of the hearing the appellant revised his claim and provided additional detail:

— existing carrying costs on house for sale (mortgage interest

and property taxes)	$ 832.12
— interest on loan necessitated by move from Kitchener to
Hamilton (Note: This is not the regular mortgaging on either
residence, $24,300.00 @ 12 /4% for 35 days)	279.61

Counsel informed the Board that the Minister was prepared, for purposes of the hearing, to accept the mathematical validity of the $832.12 rather than the $775 since the appellant stated the earlier amount had only been an estimate. The principle at issue in the appeal remained the same.

The notice of appeal provided the following summary:

I was offered a job in Hamilton in April ’76, started working there in May commuting from Kitchener (80 miles round trip); moved into new Hamilton residence on July 26/76 but sale of former residence did not close until December 1/76.

Because of the different closing dates my equity in former residence was not available at time of closing of purchase of new residence, necessitating the arrangement of a “bridge loan’’. This loan was interest free for a limited time, but due to a complete slump in the real estate market in 1976, I incurred interest cost of $279.61.

In addition, due to moving into new residence while former residence was unoccupied, a further cost of $832.12 was incurred on the former residence.

Both of these I consider to be costs of selling the former residence.

Reasons for my considering these expenses to be deductible: (Note: “Moving Expenses” as defined in subsection 62(3) of the Income Tax Act includes far more than “moving”, eg cost of cancelling lease, selling costs in respect of the sale of old residence, legal etc, and in 78 DTC 6551, the judge commented that moving expenses includes not only those things declared to be included, but such other things “. . . as the word signifies according to its natural import.”)

1. The expenses claimed are:

— not specifically excluded

— not to make the former residents more saleable

—not in respect of any loss on sale of former residence

—not in respect of any capital expenditure on new residence, (in other words, they are costs related purely to moving)

—reasonable, and all the requirements of section 62 are met.

2. The cost of cancelling an unexpired lease on a former residence is deductible; the cost of selling one’s former residence including mortgage penalty when paid off before maturity is deductible. Both of these unusual “moving expenses” are due to the timing of the actual move and are deductible. (Moving Expenses, Tax Information Pamphlet from Revenue Canada, page 3) The expenses not allowed as deductions to me are also due to the timing of my actual move and should therefore be deductible.

3. If the timing of the closings (of the house sales) had been reversed (ie if I had sold former residence prior to new residence being vacant) the cost of temporary board and lodging would be deductible (approx $1,500). To repeat, cancelling a lease, mortgage prepayment penalty (often quite substantial) and temporary lodging, which are all due to timing to move, are allowable deductions. So also are the costs I incurred, which are quite reasonable.

Conclusion: Section 62 is careful to exclude capital items or any expense which would put the taxpayer in a better financial position than before the move. This is not the case here. I am only claiming as tax deductible expenses, expenses I incurred due solely to moving residences and the timing of dates of closing on the purchase and sale.

The contentions of the respondent were:

“The $775 ($832.12) claimed by the appellant as a deduction from income in respect of carrying costs on the old residence, was neither a moving expense nor a selling cost of the old residence;

—the $279.61, claimed as a deduction from income by the Appellant in respect of additional interest cost on a third mortgage upon the old residence required to close the purchase of a new house, was neither a moving expense nor a selling cost of the old residence, but was a cost in respect of the acquisition of his new residence.

In assessing the appellant, the respondent relied, inter alia, upon section 3 and subsections 62(1) and (3) of the Income Tax Act, SC 1970-71-72, c 63, as amended.

The appellant is a registered industrial accountant and during the year in question was a field audit supervisor with Revenue Canada Taxation. His argument in essence is that the expenses he claimed were not dissimilar to others allowed as moving expenses under Interpretation Bulletin IT-178R2. His further written comments in connection with the appeal were:

(i) I have always been prudent in incurring any expense for the department, and in my move I was desirous of speeding up move as much as possible to avoid travelling costs from residence in Kitchener to duties in Hamilton. [Note memo from personnel suggesting I cut costs as much as possible.] The result was I bought a home in Hamilton before selling house in Kitchener, which resulted in con- siderable additional expenses, (b) and (c) (classify as you wish—moving, selling or something else) incurred because of my move to Hamilton. [Note memo from Regional Director of Personnel— ... interest on a loan necessitated as a result of his move to Hamilton”. Please keep in mind also that on the date of sale—despite having $25,000 equity in the house—I was short of money to pay legal and commission fees, due to my move to Hamilton. (see memo attached) Surely these are all expenses incurred as a result of moving?

(ii) With regard to IT-178R2 The expenses claimed are:

— reasonable

— not specifically excluded

— not to make property more saleable

— not in respect of any loss on sale

—not in respect of any capital expenditure

and otherwise all the requirements of section 62 are met

(iii) If the cost of cancelling and unexpired lease on former residence is deductible (and it is)—excluding any rental payment for a period during which the residence was occupied (exactly my situation—I am claiming under (b), in lieu of rent, interest and property taxes while the house was unoccupied), why is my bridge financing, also due timing of move, not deductible?

(iv) If a mortgage penalty, usually three months interest which is often substantial, is deductible—again due to a timing problem, in my case not coinciding dates of purchase and sale—why is my expense not deductible?

(v) If the timing of closings (of house sales) had been reversed, I would have incurred costs for temporary board and lodging, which costs are specifically deductible. To repeat, cancelling a lease, mortgage prepayment, temporary lodging—all due to timing (of move) problems are deductible.

Conclusion

When first introduced, section 62 was careful to exclude capital items and this position has not changed and I concur with it. A trend toward broader interpretation to the meaning of real moving expenses however, is evident and I think the spirit of the legislation is not to exclude the deductibility of expenses of the kind I incurred.

The appellant rested his case on a comment from Marvin Fl V Storrow v The Queen, [1978] CTC 792; 78 DTC 6551, at 794 and 6553 respectively:

I agree with certain initial propositions put forward by counsel for the plaintiff:

(a) Where a definition section uses the words “includes”, as it does in subsection 62(3), then the expression said to be defined includes not only those things declared to be included, but such other things “. . . as the word signifies according to its natural import”.**

(b) The words “moving expenses” must be construed in their ordinary and natural sense in their context in the particular statute.***

** The King v BC Fir and Cedar Lumber Co Ltd (1932), AC 441 at 448 (JCPC).

***See: Dridger The Construction of Statutes 1974 (Butterworth’s, Canada) p 67. Cross Statutory Interpretation 1976 (Butterworth’s England) p 29 ff.

In argument, counsel for the Minister referred to the cases of Jack R Gold v Her Majesty The Queen, [1977] CTC 616; 77 DTC 5430, and Marvin R V Storrow v Her Majesty The Queen, [1978] CTC 792; 78 DTC 6551, particularly the following quotations:

From Gold (supra) at 618 and 5431 respectively:

From this subsection it seems abundantly clear that the words “moving expenses” mean the expenses incurred in physically moving and in actually changing residence and certain other very specific expenses relating directly to the actual move and reinstallation and do not mean an amount to compensate for incidental disturbances or damages not related to the actual move and reinstallation in the new residence.

From Storrow (supra) at 795 and 6553 respectively:

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 taken from the old residence to the new, or the cost of replacing or re-fitting 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.

The Board would first note that IT-178R2 is not the Bulletin in effect for the taxation year under review. While not determinative, such bulletins do provide parameters and guidelines for taxpayers. They do serve an important role in the assessment process, but they have little merit in an appeal against such an assessment. In the instant matter it is the task of the appellant to place the claimed costs in paragraph 62(3)(e) of the Act since I am unable to see any possible avenue for him in the other categories.

Paragraph 62(3)(e) reads:

(3) “Moving expenses’’ defined. In subsection (1), ‘moving expenses’ includes any expense incurred as or on account of

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

I fail to see any material difference between the two amounts for purposes of this appeal in view of the requirement to categorize them both as “selling costs in respect of the sa/e of the old residenc”. Further, in my view they represent the costs arising from keeping, not selling the former residence. They are both directly dependent upon one factor—the amount of money he was willing to accept as the sale price for his old residence. That was an amount, according to the evidence, agreed to between the real estate agent and the appellant, and adjusted downward several times until finally a sale was made. Prior to engaging a real estate agent, he had been unsuccessful in selling the house by his own efforts. A valid position for the Minister, in my view, might be that if the house had been offered for sale at a proper price on the day the appellant accepted the transfer, it might have sold immediately and the claimed costs avoided by the taxpayer. Seen from that perspective, the costs claimed were incurred in his attempt to maximize his return from the sale of the old residence. While this is an understandable goal for the taxpayer, I do not view subsection 62(3) of the Act as allowing for some sliding scale of costs related to the risk for personal gain considered warranted by the taxpayer. The Minister was not party to the valuation, arrangements or efforts to sell the former residence, and/or the timing of the sale related to the purchase of the new one. Those are elements of risk to be considered, weighed and decided by the taxpayer. I find no basis upon which the Minister should be brought in retroactively to share in that risk. The appellant’s basic premise that the costs he claimed are similar to other allowed under subsection 62(3) of the Act is not tenable, as I read the relevant jurisprudence.

Decision

The appeal is dismissed.

Appeal dismissed.