Gordon Christopher McRae v. Her Majesty the Queen, [1996] 3 CTC 2482 (Informal Procedure)

Bonner J.T.C.C.: — This is an appeal from an assessment of income tax for the appellant’s 1991 taxation year. On assessment the Minister of National Revenue included in the computation of the appellant’s income the sum of $5,582.50 paid to the appellant by his employer, the Royal Canadian Mounted Police (“RCMP”), in respect of costs incurred as a consequence of the relocation of the appellant’s place of work from Saskatoon, Saskatchewan to St. John’s, Newfoundland. As a result of that move it became necessary for the appellant to sell the family home in Saskatoon. The appellant’s position in this appeal is that the inclusion in income was correct but that he was entitled to deduct the same amount because he applied it to reduce the mortgage debt on a new home which he purchased in St. John’s. The only issue is whether the appellant is entitled to the deduction.

There is no real dispute about the facts. The appellant is a member of the RCMP. In 1991 he was stationed in Saskatoon. He lived there with his family in a dwelling which he owned. In March of 1991 he was transferred to Newfoundland. He listed the home for sale and it remained on the market until August 1991 when he received an offer to purchase at a price $5,512.12 less than the amount which he had invested in the house. Acting on advice given to him by the real estate agent, he accepted the offer. When he bought another home in St. John’s he reduced the amount of the mortgage debt which he would otherwise have undertaken by an amount equal to the allowance received.

The appellant testified that the RCMP offered to members of the force who were transferred some measure of protection against losses incurred on the sale of their houses. The allowance now in question was not paid under that plan because the appellant was unable to demonstrate that the price of houses in Saskatoon had declined to the extent required to trigger the operation of the plan. He indicated that the allowance which he did receive was not directly related to losses on the sale of homes. Rather it was a lump sum paid to every member of the force who is transferred regardless of housing arrangements or costs incurred in the particular case. In the case of married members of the force it is fixed at 1/12 of the member’s salary. In addition to the allowance, the RCMP apparently pays some of the member’s expenses of moving such as legal and real estate fees and the cost of moving household goods.

The short answer to the appellant’s contention is that the deduction which he seeks is prohibited by subsection 8(2) of the Income Tax Act (“Act”). That provision reads:

Except as permitted by this section, no deductions shall be made in computing a taxpayer’s income for a taxation year from an office or employment.

No deduction of the sort in issue is permitted by section 8.1 observe as well that the inclusion in income of the payment as an allowance under paragraph 6(1 )(b) of the Act is in accordance with the current state of the jurisprudence including the decisions of this court in Oster v. R., (sub nom. Oster v. Canada) [1995] 1 C.T.C. 2224, 95 D.T.C. 104 and McLay v. Minister of National Revenue, [1992] 2 C.T.C. 2649, 92 D.T.C. 2260 and at least some of the decisions of the Federal Court of Appeal such as Phillips v. Minister of National Revenue [1994] 1 C.T.C. 383, (sub nom. R. v. Phillips) 94 D.T.C. 6177; leave to appeal to S.C.C. refused (sub nom. Minister of National Revenue v. Phillips) (1994), 179 N.R. 320 note and Canada (Attorney General) v. MacDonald, (sub nom. Canada v. MacDonald) [1994] 2 C.T.C. 48, 94 D.T.C. 6262. The amount paid to the appellant was fixed by reference to an arbitrary criterion, the appellant’s salary, and not by reference to costs resulting from the transfer. The appellant was not required to account for the money. He was free to spend it in any way he wished. The manner in which he actually spent it is irrelevant. Having said that however I feel compelled to add my voice to the chorus of disapproval of the state of the law in this area. Form triumphs over substance and common sense when tax is exigible on a receipt because it is an allowance when, in otherwise identical circumstances, the same amount paid as an indemnity is not taxable. If the RCMP had chosen to indemnify the appellant in respect of the actual loss suffered by him (or at least realized by him) upon the sale of the Saskatoon house, the appellant would not have been taxed on the amount received. At the very least, it would be helpful if employers such as the RCMP made a diligent attempt to reimburse transfer costs with precision and thereby bring the amounts received under the umbrella of Ransom) [1]

The appeal will be dismissed.

Appeal dismissed.