Kenneth W King v. Minister of National Revenue, [1980] CTC 2026, 80 DTC 1037

Guy Tremblay:—This case was heard in Vancouver, BC on February 20, 1979. Following the written submissions, this case was taken under advisement on April 27, 1979.

1. Point at Issue

The point is whether the appellant is correct for not including as income for the years 1973 and 1974 the amounts of $3,930 and $2,492 received from his employer as allowance for board and lodging in the course of his employment on the Kootenay Canal project. The appellant contends that it is ‘‘a special work site” in the meaning of subsection 6(7) of the Income Tax Act, and that subsection 6(6) must apply in not taxing the aforesaid amounts. The respondent’s contention is that the Kootenay Canal project is not “a special work site”.

2. Burden of Proof

The appellant has the burden of showing that the respondent’s assessment is not justified. This burden of proof is based not on a particular section of the Income Tax Act, but on several judicial decisions, among them a decision of the Supreme Court of Canada rendered in R W S Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

3. The Facts

3.01 For the years 1973 and 1974, the appellant was a shift supervisor whose habitual residence was 4426 Chartwell Drive in the City of Victoria, Province of British Columbia.

3.02 He had been a shift supervisor since 1964. The appellant explained that because of the nature of his work he had had to move from one project to another. An examination of Mr King’s entire job history indicates that he has to date worked at no less than twelve different sites, and has been laid off twice in 23 years. The appellant, however, said that he had never had any employment terminated because his work was unsatisfactory. His main employers have been HG Acres, Fraser River Development Board, Manitoba Hydro, and International Power and Engineering Consultants (IPEC), the design and construction subsidiary of BC Hydro.

3.03 The appellant affirmed that he was not a permanent employee of Hydro even if he had moved from one Hydro project to another. His duties at the Hydro sites had been confined to construction periods when he was needed. For 8 months during any years, he was unemployed due to a lack of work at any Hydro site.

3.04 While his family were young, they moved from place to place, but after the children reached school age, the appellant acquired a permanent home in Victoria, BC, near his own parent’s home there. The need for a permanent home for his family was also reinforced when Mr King and his wife applied to adopt their daughter. The social worker, who assisted Mr and Mrs King in completing the necessary adoption forms, as much as stated that they would not qualify to adopt a child unless they ceased their transient ways and established a permanent home.

3.05 Since 1962, his father had been a brittle diabetic. In 1971, the father had a chronic heart condition and his physician, Dr R Spicer, informed the appellant that he could die at any time. Indeed, he did die in June 1974 (Exhibit A-1).

3.06 In the year 1972, the appellant was assigned by BC Hydro (IPEC) to work at its Kootenay Canal project located more than 400 miles from Victoria. His family remained in the family home in Victoria. His children, aged 10 and 16, had no desire to leave their friends and the familiar surroundings of Victoria, and his mother required family assistance and moral support.

3.07 The evidence shows that there were established communities having substantial population and the basic amenities of life, namely Castlegar (population 12,000) and Nelson (population 7,000) within 17 and 13 miles of the Kootenay Canal Dam site. Thereupon, the appellant established himself at Castlegar.

3.08 It was admitted by both parties that the appellant received from his employer an allowance of $3,930 and $2,492.

3.09 At the Kootenay Canal Dam project, the appellant was initially given the position of inspector, which required him to inspect the work done by the contractors on the project. As an inspector, Mr King was regarded as a union employee, and could be laid off on five days’ notice in accordance with the union contract then in effect.

3.10 On November 15, 1973 Mr King was removed from Kootenay Canal Contract and assigned to the Power House Contract.

3.11 In April, 1974 Mr King was promoted to the salaried position of assistant shift supervisor.

3.12 When Mr King was promoted to assistant shift supervisor his duties were initially restricted to supervising the inspectors on the Kootenay Canal Contract. Later his duties changed to include intermittent supervision on the Power House Contract.

3.13 Around the time that Mr King was promoted to the position of assistant shift supervisor, his employer changed from IPEC to BC Hydro and Power Authority.

3.14 In September of 1975 Mr King’s duties at this site terminated and he was re-assigned to the 7-Mile Project situated approximately 12 miles east of Trail.

3.15 In filing his 1973 and 1974 returns, the appellant did not include these amounts in the computation of his income. Indeed, he considered these allowances as received for expenses incurred by him for board and lodging in respect of, in the course of or by virtue of his employment at the aforesaid work site.

3.16 On June 21, 1977, the respondent issued notices of re-assessment that included the aforesaid allowances in the appellant’s income for the concerned taxation years on the basis that they were allowances for personal or living expenses.

3.17 Following the notice of objection produced on August 9, 1977, the respondent maintains the aforesaid notices of assessment by notification of confirmation dated January 3, 1978.

3.18 An appeal was lodged on February 28, 1978, before the Tax Review Board.

4. Law—Case Law—Comments

4.1 Law

The two main legal provisions of the new Act involved in that case are subsections 6(6) and 6(7) which read as follows:

6.(6) Notwithstanding subsection (1), in computing the income of a taxpayer for a taxation year from an office or employment, there shall not be included

(a) the value of, or an allownce (not in excess of a reasonable amount) in respect of expenses incurred by him for, board and lodging received by him

(i) in respect of, in the course of or by virtue of his office or employment at a special work site from which, by reason of distance from the place where he maintained a self-contained domestic establishment (in this subsection referred to as his “ordinary place of residence”) in which he resided and actually supported a spouse or a person dependent upon him for support and connected with him by blood relationship, marriage or adoption, he could not reasonably be expected to return daily to his ordinary place of residence, and

(ii) in respect of a period while he was required by his duties to be away, for a

period of not less than 36 hours, from his ordinary place of residence; or

(b) the value of, or an allowance (not in excess of a reasonable amount) in respect of expenses incurred by him for, transportation between his ordinary place of residence and the special work site referred to in subparagraph (a)(i) J received by him

(i) in respect of in the course of or by virtue of his office or employment described in subparagraph (a)(i), and

(ii) in respect of a period described in subparagraph (a)(ii), during which he received board and lodging, or a reasonable allowance in respect of expenses incurred by him for board and lodging, from his employer.

6.(7) For the purposes of subsection (6) “special work site” in respect of a taxpayer means a site

(a) at which the duties performed by him were of a temporary nature, or

(b) the location of which was such that the taxpayer could not reasonably be expected to establish and maintain a self-contained domestic establishment for his spouse or a person described in subparagraph (6)(a)(i) at or near the site. 4.2 Case Law

The precedent cited by the parties are:

A. Canadian cases

1. E M Russell v MNR, [1949] CTC 13; 49 DTC 536;

2. W C Smith v MNR, [1973] CTC 2097; 73 DTC 85;

B. American cases

3. Harvey v CIR, 283 F 2d 491 (1960);

4. Harold C Pike and Zula Pike v Commissioner of Inland Revenue, Dec 31, 012(M) TC Memo 1971-252, p 190;

5. Blatnick v Commissioner of Internal Revenue, 56 United States Tax Court Reports p 1344.

4.3 Comments

4.3.1 Conditions to meet

The Board agrees with the appellant’s solicitor that if the seven following conditions are met, the allowances received by the appellant will be exempt from income by the above-quoted subsections 6(6) and 6(7):

1. The appellant was employed at a “special work site’’ as defined in the said subsection 6(7);

2. The allowance for board and lodging was received by the appellant by virtue of his employment at a special work site from which he could not reasonably be expected to return daily to his ordinary place of residence because of the distance;

3. The “ordinary place of residence’’ referred to in (2) was a place where the appellant maintained a “self-contained domestic establishment”. Subsection 248(1) defines a “self-contained domestic establishment” as a dwelling house, apartment, or similar place of residence in which a person as a general rule sleeps and eats;

4. The appellant resided in the self-contained domestic establishment referred to in (3);

5. The appellant actually supported in that self-contained domestic establishment a spouse or a person dependent upon him for support and connected with him by blood relationship, marriage or adoption;

6. The allowance for board and lodging was received by the appellant in respect of a period of absence from the self-contained domestic establishment of not less than 36 hours duration; and

7. The allowance received must have been reasonable.

The evidence and the admission of the respondent’s solicitor are to the affect that conditions (2) through (7) inclusive are fulfilled.

Indeed, the only issue in this appeal is whether the appellant was employed at a special work site defined in subsection 6(7).

4.3.2 The Kootenay Canal Project, a special work site, subsection 6(7) specifies two alternate conditions: a) that the duties performed by the appellant at the Kootenay Canal Project were of a temporary nature; b) that the location of the Kootenay Canal Project was such that the appellant could not reasonably be expected to establish and maintain a self- contained domestic establishment for his wife and children there.

4.3.3 After studying the evidence in regard to the above two alternate conditions, the Board arrived at the conclusion that the last condition is met for the following reasons:

First, the wording of paragraph 6(7)(b) implies that the decisions not to establish and maintain a self-contained domestic establishment at Castlegar or Nelson can be based on personal circumstances of the appellant, and not only on the particular characteristics of the location of the Kootenay Project.

It is necessary again to quote paragraph 6(7)(b):

For the purposes of subsection (6) ‘special work site’ in respect of a taxpayer means a site

(b) the location of which was such that the taxpayer could not reasonably be expected to establish and maintain a self-contained domestic establishment for his spouse or a person described in subparagraph 6(a)(i) at or near the site.

The French version reads as follows:

6.(7) Aux fins du paragraphe (6) “chantier particulier” signifie, en ce qui concerne un contribuable, un endroit

(b) dont la situation géographique était telle que nul ne pourrait raisonnablement s’attendre à ce que le contribuable crée et tienne à cet endroit ou dans son voisinage un établissement domestique autonome pour son conjoint ou une personne visée au sous-alinéa (6)(a)(i).

It is the Board’s opinion, by using the word “taxpayer” twice in the same sentence with the wording all around, this subsection cannot be strictly interpreted, but in the meaning that the personal circumstances of the appellant and his family must be taken into account to base the decision not to establish a self-contained domestic establishment at a special work site. The facts described in paragraphs 3.04, 3.05 and 3.06 are sufficient to base such a decision. Even if it had been possible physically for the appellant and his family to live in Castlegar or Nelson, “it could not be reasonably expected” that the appellant would establish and maintain there a self- contained domestic establishment because of family reasons.

Moreover, if one takes into account the fact that the appellant could be laid off on a five days’ notice in 1973 and on a one month’s notice in 1974, (Paragraphs 3.09 and 3.11), this confirms that the appellant’s decision not to move his family to Castlegar was reasonable.

As one of the two alternate conditions is met, the Board must allow the appeal.

5. Conclusion

The appeal is allowed and the matter referred back to the respondent for reassessment in accordance with the above reasons for judgment.

Appeal allowed.