Otto John Rath v. Her Majesty the Queen, [1979] CTC 183, 79 DTC 5140

Mahoney, J:—The plaintiff appeals re-assessments of his 1974 and 1975 income tax returns disallowing claims, as deductions under section 62 of the Income Tax Act,* [1] of the uninsured value of household goods and personal effects destroyed by fire while in storage in the course of a move.

The plaintiff is a senior officer in a federal government department. He was employed at Edmonton, Alberta. In August, 1973, he began a leave of absence for educational purposes. He moved with his family and a portion of his household goods and personal effects to Berkeley, California. Toward the end of his leave he was offered, and accepted, a posting from his Edmonton appointment to an Ottawa appointment, effective July 15, 1974. The goods and effects in Berkeley were, as common sense dictated, shipped direct to Ottawa and put in storage while the plaintiff, with his family, returned to Edmonton to settle both his official and personal affairs before proceeding to Ottawa. A new house was acquired in Ottawa. The goods and effects that had been left in Edmonton were shipped and moved directly into the Ottawa house; they are not involved in the issue here. The goods and effects shipped from Berkeley, while in storage in Ottawa, were totally destroyed by fire.

The total valuation put on the lost goods was $74,808.19.t [2] Insurance covered $22,000 of the loss. The plaintiff claimed the $52,869.19 balance as a section 62 deduction in his 1974 return. That amount exceeded his 1974 earnings at his new work location and the deduction was disallowed to the extent of the excess only in the initial assessment of the return. The disallowed balance was claimed and allowed in 1975. Large refunds ensued upon the initial assessments and the reassessments in issue have resulted in demands for their repayment.

The defendant says, firstly, that the loss of the value of the goods and effects destroyed or, in the alternative, the cost of replacing them, is not a moving expense at all and, secondly, that it is not deductable, even if it is a moving expense, because it was not incurred in the course of moving them between two points in Canada. The relevant provisions of the Income Tax Act, as it stood in 1974, follows:

62.(1) Where a taxpayer

(a) has, at any time,

(i) ceased to carry on business or to be employed at the location or locations, as the case may be, in Canada at which he ordinarily so carried on business or was so employed, . . .

and commenced to carry on business or to be employed at another location in Canada (hereinafter referred to as his “new work location”), . . .

and by reason thereof has moved from the residence in Canada at which, before the move, he ordinarily resided on ordinary working days (hereinafter referred to as his “old residence”) to a residence in Canada at which, after the move, he ordinarily so resided (hereinafter referred to as his “new residence”), so that the distance between his old residence and his new work location is not less that 25 miles greater than the distance between his new residence and his new work location, in computing his income for the taxation year in which he moved from his old residence to his new residence or for the immediately following taxation year, there may be deducted amounts paid by him as or on account of moving expenses incurred in the course of moving from his old residence to his new residence, the extent that .. .

The limitations that follow are not in issue. The only one applicable, contained in paragraph (f), has been referred to. It required a portion of the deduction to be deferred. Subsection 62(2) has no application. Subsection

(3) provides:

(3) In subsection (1), “moving expenses’’ includes any expense incurred as or on acount 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 or 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.

While the plaintiff was represented by counsel before the Tax Review Board, his case, in this Court, was presented by his wife, who was the only witness. The plaintiff did not, himself, testify. It appears desirable, in those circumstances, to deal with some matters which, while not material to the issue, are obviously very important to them. The facts that the Ottawa storage arrangements were made by the Edmonton office of the Department of Supply and Services while they were in Berkeley and that, as a result, they were frustrated in their efforts to buy adequate insurance because they could not get the particulars of the construction of the warehouse, its distance from a fire hydrant and so on, and the further fact that the refunds had long been spent to replace the lost goods when their repayment was demanded with, to add insult to injury, interest, all render most understandable the very genuine grievance which they obviously feel. Like the learned Assistant Chairman of the Tax Review Board, I have every sympathy for them. While the plaintiff holds a well paid office, the returns in evidence do not lead to the conclusion that the family is wealthy and the loss was substantial, if not ruinous. Obviously, not all the surrounding circumstances are in evidence and it is not for the Court to say whether the plaintiff would be wise to seek to have the Governor in Council consider the matter on an ex gratia basis.

Returning to the Act as it stood in 1974, the term “residence” as used in section 62 is clearly defined, modified by the adjectives “old” and “new”, as a location within Canada at which the taxpayer ordinarily resided on working days. I have no hesitation in finding that the plaintiff’s old residence was Edmonton, not Berkeley, and he was entitled to deduct “amounts paid by him as or on account of moving expenses incurred in the course of moving” from Edmonton to Ottawa. The basis of the deduction is a move by the taxpayer from his old to new residence. The Act does not stipulate that the movement of his goods and effects must invariably be between the same two points although, it stands to reason, that would generally be so. Here, it was entirely reasonable, indeed necessary, if a prodigal waste were not to result, for the plaintiff, in the course of his move from Edmonton to Ottawa, to transport the subject goods from Berkeley to Ottawa and to store them in Ottawa. I am satisfied that, if the amount claimed were on acount of a moving expense at all, it would, in the circumstances, be deductible.

I do not intend here to dwell upon the import of the word “paid” in section 62. It may be that the fact that the deduction is apparently limited to “amounts paid” would exclude the plaintiff’s claim in any case. That, however, is a point that would be better dealt with on an occasion when the Court has the benefit of hearing counsel on both sides. It is not necessary to decide it here.

In Storrow v The Queen, [1978] CTC 792 at 795; 78 DTC 6551 at 6553, Mr Justice Collier dealt with a number of expenses which, like the plaintiff’s loss, would not have been incurred had the taxpayer not moved. Their nature appears in the following passage from the judgment.

The disputed items 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 ss 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 ss 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.

While the subject matter of the deductions sought in the Storrow case are entirely different from those here: costs incurred in connection with the acquisition of the new residence, rather than damage incurred in transit, the principle is the same.

The quantum of the damage suffered by the plaintiff in the destruction of his goods and effects, even if that amount can be considered to have been paid by him, is simply not a moving expense in the natural and ordinary meaning of that term. The outlays necessarily incurred to replace those goods were not outlays incurred to effect their physical transfer nor were they specifically allowed by subsection 62(3).

JUDGMENT

The plaintiff’s action is dismissed with costs.