Robert Lapalus v. Minister of National Revenue, [1980] CTC 2035

Guy Tremblay [TRANSLATION]:—This case was heard at Quebec City, Quebec on October 19, 1979.

1. Point at Issue

The question is whether the appellant, an employee of Hydro-Quebec, is correct in not including in the calculation of his income $1,576 and $840 for the years 1975 and 1976 respectively, amounts received from his employer as a non-sedentary indemnity, which the appellant categorized as moving expenses. The respondent, on the other hand, categorized these payments as isolation premiums and included them in calculating the income.

2. Burden of Proof

The burden is on the appellant to show that the respondent’s assessment is incorrect. This burden of proof derives not from one particular section of the Income Tax Act, but from a number of judicial decisions, including the judgment delivered by the Supreme Court of Canada in R W S Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

3. Facts

3.01 In 1975 and 1976, the appellant was a full-time employeee of HydroQuebec and worked as a project inspector. He is married and the father of two children, aged 9 and 12.

3.02 His job often required him to move from one place to another with his family. These moves occurred at least once every 18 months. (He in fact moved twice in one month.) He was regarded as a non-sedentary employee and as such received a non-sedentary indemnity of $8 a day. In 1975, he moved from Sept-lles to Matane and in 1976 from Matane to Trois-Rivières.

3.03 In 1975, he received this indemnity in the amount of $1,576, and in 1976, $840, as admitted by him and as also appeared in salary statements filed as Exhibits A-6 and A-7.

3.04 In the appendix (Exhibit A-1), the schedule to the collective agreement between Hydro-Quebec and the employees’ union entitled “Hydro-Quebec policy on moving expenses’’, paragraph (a) of section 4, “Non-sedentary Indemnity”, states:

(a) a full-time employee the nature of whose work requires him to move at least once in every 18 months shall be regarded as non-sedentary and shall receive a fixed indemnity of $8 a day.

3.05 In clause 10,4,1 of the chapter of the Hydro-Quebec regulations headed “Removal indemnities, employees transferred at the request of Hydro-Quebec” (Exhibit A-3, the following is stated:

10,4,1 APPLICABILITY

(A) These regulations

—apply to all employees transferred to positions authorized in the budget, to full-time site employees and to temporary site employees;

—do not in general apply when the distance between the old and new place of work of the transferred employee is less than thirty miles.

(B) Employees receiving the non-sedentary indemnity (10,1,3) and temporary site employees transferred to positions authorized in the budget or to another site may not benefit from the privileges set forth in paragraphs 10,4,3-D (breaking lease), 10,4,3-E (sale of house), 10,4,3-F (storage) and clause 10,4,5 (period following move).

3.06 The appellant stated that he had bought a trailer and that he moved it from one place to another in accordance with his employer’s instructions. His employer paid the cost of moving the trailer, but not the cost of disconnecting and re-connecting the trailer. Hydro-Quebec also paid the travel expenses of the family.

3.07 However, in accordance with regulations 10,4,1 previously cited, Hydro-Quebec never paid him the portion of moving expenses relating to:

(a) breaking a lease (three months’ rent);

(b) the sale of a house, including a trailer ($500 plus 12% of the market value); (c) storage;

(d) the period following the move (5 to 8 weeks’ basic salary for the new position, depending on the salary). For a salary of $18,000 and over, an indemnity of 8 weeks’ salary is paid. This indemnity pays for carpets, curtains, disconnecting and re-connecting of electrical appliances, cleaning and so on.

3.08 Mr Paul Séguin, personnel consultant to Hydro-Quebec and a witness for the respondent, argued that the non-sedentary indemnity is paid for hardship sustained by the appellant. He was not able to give too many examples of hardship, but he mentioned absence from home. The witness also emphasized that moving expenses would become excessive for HydroQuebec if they had to be paid to sedentary employees in their entirety—that is why indemnities relating to the four points covered in clause 10,4,1 of the regulations were excluded.

3.09 According to the appellant, when a non-sedentary employee goes to work on a particular site, he is entitled to receive an allowance of $18 a day, but then he does not receive the non-sedentary indemnity of $8 a day.

3.10 The appellant further submitted that this non-sedentary indemnity had never been included in income by the respondent before 1975; while HydroQuebec did not include it on the T-4 and paid it by a separate cheque.

4. Act— Case Law—Comments

4.1 Act

The most appropriate section to be cited in the case at bar is subsection 62(3), which gives a definition of moving expenses. This definition reads as follows:

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, and

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

4.2 Case Law

The case law cited by the respondent is as follows:

1. Kenneth W Blackman, Joseph Kenneth Weaver and Robert Raymond Quenneville v MNR, [1967] Tax ABC 480; 67 DTC 347;

2. Fergusson v Noble, 7 TC 176;

3. Gilles Lépine v MNR, [1978] CTC 2895; 78 DTC 1637;

4. The Queen v Morton Pascoe, [1975] CTC 58 and 656; 75 DTC 5427;

5. Ricketts v Colquhoun, [1925] 10 TC 118;

6. J R Scanlan v MNR, 3 Tax ABC 329; 51 DTC 84;

7 . WA A Sheaffer Pen Company of Canada Limited v MNR, [1953] Ex CR 251; [1953] CTC 345; 53 DTC 1223;

8. Marvin R V Storrow v Her Majesty the Queen, [1978] CTC 792; 78 DTC 6551.

4.3 Comments

4.3.1 The problem in fact consists in determining whether the non- sedentary indemnity is comparable to an isolation premium or an expenditure for personal or living expenses, as the respondent contended, or to moving expenses, as the appellant argued.

4.3.2 Isolation Premium

In support of his argument the respondent stated that this was an isolation premium and cited the testimony of Mr Séguin that the hardship covered by the indemnity, inter alia, is absence from home. However, the evidence was that a non-sedentary employee takes his family with him from one location to another. He is therefore not absent from home.

When he is in fact absent from home, it is in order to go to a particular site. He then receives an allowance of $18 a day (which moreover is non- taxable under subsections 6(6) and 6(7) of the Act), but he does not receive the non-sedentary indemnity (paragraph 3.10 of the facts). In the opinion of the Board the payment in the case at bar cannot be an isolation premium. The case law cited by the respondent concerning isolation premiums is accordingly not relevant.

4.3.3 Personal and Living Expenses

The respondent maintained that, if the non-sedentary indemnity is not an isolation premium, it must be regarded as personal and living expenses and should be included in computing income in accordance with paragraph 6(1 )(b):

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

In the opinion of the Board, because of the very wide terms of the foregoing legal provision the non-sedentary indemnity should be included in personal and living expenses, unless it can be identified with another expense, reimbursed by the employer, which would not be taxable under the Income Tax Act. This is in fact what the appellant maintains, classifying the payments as moving expenses. Let us examine the force of this contention.

4.3.4 Moving Expenses

The definition of moving expenses contained in subsection 62(3) is cited above (paragraph 4.1).

The argument of the appellant is that the non-solidarity indemnity replaces a part of what his employer regarded as moving expenses, which are not taxable.

Subsection 62(1) provides that payments by an employer to an employee of moving expenses will not be taxed. This point is not at issue.

What is important, first, is to compare the factors which the Act gives as forming part of the definition of moving expenses with the factors which Hydro-Quebec, the appellant’s employer, considered in determining moving expenses.

A comparison of the points included in subsection 62(3), cited above at length, with those described in paragraph 3.07 of the facts (whether or not the appellant was compensated on the basis of these factors) indicates that they are in essence identical. Moreover, the evidence is that the respondent does not include in the income of Hydro-Quebec employees expenses described by the regulations and paid for as moving expenses.

The testimony of the appellant, confirmed by clause 10,4,1 of the HydroQuebec regulations (see paragraph 3.05 of the facts), is clearly to the effect that anyone receiving the non-sedentary indemnity does not receive the part of moving expenses described in the said regulations.

The witness Paul Séguin in fact explained that it would cost HydroQuebec too much to pay 200 to 300 non-sedentary employees their moving expenses in their entirety. The non-sedentary indemnity replaced a portion of these expenses.

The Board calculated how much the appellant would have received (if he had not received the non-sedentary indemnity) for each move in 1974 and 1975 under the single item of expenses relating to “the period following the move” (see paragraph 3.07(d) of the facts). He would have received more than $3,000 a year. Under this single item, the appellant would have been entitled to eight weeks’ salary. In 1975 and 1976, he earned more than $24,000 a year according to his income tax returns, that is, over $460 a week ($460 x 8 = $3,680). The evidence was that in 1975 and 1976 he moved twice, that is more than $6,000.

During these years, he received in the form of the non-sedentary indemnity $2,416 (1974: $1,576 and 1975: $840).

That leaves little room for the hardships referred to by Mr Séguin.

The Board can come to no other conclusion than that the non-sedentary indemnity is in fact a part of moving expenses, and that it should not be included in income.

5. Conclusion

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

Appeal allowed.