Télesphore Demers v. Minister of National Revenue, [1979] CTC 3132, 79 DTC 917

The Chairman [TRANSLATION]:—The appeal of Mr Télesphore Demers against a tax assessment for 1975 was heard in the city of Ottawa, Ontario on October 1, 1979.

The respondent based his assessment on the following facts, as they appear on page 2 of his reply to the notice of appeal:

5. In assessing the appellant for his 1975 taxation year the respondent relied on the following facts, inter alia'.

(a) the appellant resided in Canada during the 1975 taxation year;

(b) during the 1975 taxation year the appellant was employed by the Organization of American States in Haiti from January to December 31;

(c) the appellant received the sum of $22,954.25 in salary from the Organization of American States;

(d) the expenses of $9,377.44 which the appellant deducted from his income represented personal or living expenses.

B. STATUTORY PROVISIONS ON WHICH THE RESPONDENT RELIES AND THE REASONS HE INTENDS TO PUT FORWARD

6. The Minister of Natonal Revenue relies, inter alia, on the provisions of sections 2(1), 5(1), 18(1)(a) and 18(1)(b) of the Income Tax Act, SC 1970-71-72, c 63, as amended.

7. He maintains that the salary of $22,954.25 the appellant received from the Organization of American States was duly included in computing his income pursuant to the provisions of section 2 and 5 of the Act.

8. He also maintains that the expenses of $9,377.44 deducted from the income represented personal or living expenses within the meaning of paragraph 18(1)(h) of the Act.

At the hearing the taxpayer admitted that he was resident in Canada during 1975 although he was working in Haiti for the Organization of American States. In his tax return for 1975 he apparently omitted to include in his income a sum of $22,954.25 received from this organization and stated that he had never claimed an exemption of $9,197.54.

The taxpayer maintained that part of the amount of $22,954.25, namely $4,280.92, is not part of the salary from his employment but comes from an entirely different source and should not be included in his income.

No written contract indicating the working conditions and fees was filed. The taxpayer merely filed a notice of vacancy for the position he occupied during 1975 (Exhibit A-1). It appears from this notice that the salary for the position ranges from a minimum of $16,542 to a maximum of $21,294. An allowance for the employee’s wife and children is also provided for. The taxpayer relied specifically on a cost of living adjustment of $4,280.92 which he stated was included in the total remuneration he received from the Organization of American States in 1975.

There was no dispute regarding the amount of $22,954.25 the appellant received, nor regarding the amount of $4,280.92 he stated was a cost of living adjustment. It has been established that the appellant lived alone in Haiti and that he was not required to pay any tax to that country. The only issue to be decided is whether the amount of $4,280.92 paid as a cost of living adjustment is taxable.

Submission

The appellant maintained that the amount of $4,280.92 is not part of his income from his employment but that it comes from an entirely different source distinct from his work and is instead related to the expenses incurred. In support of this distinction he referred to subsection 6(3) of the Income Tax Act, SC 1970-71-72, c 63, as amended. He submitted that subsection 5(1), paragraphs 6(1 )(a) and 6(1 )(b) of the Act do not apply to cost of living adjustments since this is not income from an office or employment and concluded that the amount of $4,280.92 is not taxable.

In support of his submission the appellant cited Cyril John Ransom v MNR, [1967] CTC 346; 67 DTC 5235. In that case the appellant was transferred to another city by his employer as part of his job and received $2,809 from the latter to cover his moving expenses. The Minister added the said sum to the appellant’s income. The latter objected and filed an appeal. The learned Noël, J, then of the Exchequer Court, held that the sum of $2,809 was not part of his income and that the reimbursement of an employee by the employer for expenses or losses incurred by reason of the employment is not remuneration or a benefit within the meaning of paragraphs 5(1)(a) and 5(1 )(b) of the Income Tax Act, RSC 1952, c 148, as amended. The learned judge held that even if the payment had been made to the taxpayer by reason of his employment, this was not a salary derived from his employment for the services generally rendered by the employee and allowed the appeal.

The respondent, taken somewhat by surprise by the appellant’s change of position at the hearing of the appeal, relied on paragraphs 6(1)(a) and 6(1)(b) of the new Act to maintain that the sum of $4,280.92 the employer paid to the taxpayer should be included in the latter’s income.

Evidence

The evidence is that the appellant, who was resident in Canada, was employed by the Organization of American States, in Haiti, during 1975.

The relevant sections of the Income Tax Act are as follows: subsections 5(1), 6(3), paragraphs 6(1 )(a) and 6(1)(b). Subsection 6(3) reads as follows:

(3) Payments by employer to employee. An amount received by from another

(a) during a period while the payee was an officer of, or in the employment of, the payer, or

(b) on account or in lieu of payment of, or in satisfaction of, an obligation arising out of an agreement made by the payer with the payee immediately prior to, during or immediately after a period that the payee was an officer of, or in the employment of, the payer,

shall be deemed, for the purposes of section 5, to be remuneration for the payee’s services rendered as an officer or during the period of employment, unless it is established that, irrespective of when the agreement, if any, under which the amount was received was made or the form or legal effect thereof, it cannot reasonably be regarded as having been received

(c) as consideration or partial consideration for accepting the office or entering into the contract of employment,

(d) as remuneration or partial remuneration for services as an officer or under the contract of employment, or

(e) in consideration or partial consideration for a covenant with reference to what the officer or employee is, or is not, to do before or after the termination of the employment.

In other words, a sum paid by an employer to his employee shall be deemed, for the purposes of section 5, to be remuneration for the payee’s services, unless the sum received cannot reasonably be regarded as consideration for an office, remuneration for services or consideration for a convenant; this reflects the comments of the learned Noël, J, in Ransom (supra).

The various paragraphs in section 6 also deal with income from an office or employment, but the section extends the scope of the payments covered and specifies which ones must be included as income.

Paragaphs 6(1 )(a) and 6(1)(b) reads as follows:

Amounts to be included as income from office or employment.

(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:

(a) Value of benefits.—the value of board, lodging and other benefits of any kind whatever (except the benefit he derives from his employer’s contributions to or under a registered pension fund or plan, group sickness or accident insurance plan, private health services plan, supplementary unemployment benefit plan, deferred profit sharing plan or group term life insurance policy) received or enjoyed by him in the year in respect of, in the course of, or be virtue of an office or employment;

(b) Personal or living expenses.—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

(i) travelling or personal or living expense allowances

(A) expressly fixed in an Act of the Parliament of Canada, or

(B) paid under the authority of the Treasury Board to a person who was appointed or whose services were engaged pursuant to the Inquiries Act, in respect of the discharge of his duties relating to such appointment or engagement,

(ii) travelling and separation allowances received under service regulations as a member of the Canadian Forces,

(iii) representation or other special allowances received in respect of a period of absence from Canada as a person described in paragraph 250(1)(b), (c) or (d),

(iv) representation or other special allowances received by an agent-general of a province in respect of a period while he was in Ottawa as the agentgeneral of the province,

(v) reasonable allowances for travelling expenses received by an employee from his employer in respect of a period when he was employed in connection with the selling of property or negotiating of contracts for his employer,

(vi) reasonable allowances received by a minister or clergyman in charge of or ministering to a diocese, parish or congregation for expenses for transportation incident to the discharge of the duties of his office or employment,

(vii) allowances (not in excess of reasonable amounts) for travelling expenses received by an employee (other than an employee employed in connection with the selling of property or negotiating of contracts for his employer) from his employer if they were computed by reference to time actually spent by the employee travelling away from

(A) the municipality where the employer’s establishment at which the employee ordinarily worked or to which he ordinarily made his reports was located, and

(B) the metropolitan area, if there is one, where that establishment was located,

in the performance of the duties of his office or employment,

(viii) such part of the aggregate of allowances received by a volunteer fireman from a government, municipality or other public authority for expenses incurred by him in respect of, in the course of, or by virtue of the discharge of his duties as a volunteer fireman, as does not exceed $300, or

(ix) allowances (not in excess of reasonable amounts) received by an employee from his employer in respect of any child of the employee living away from the employee’s domestic establishment in the place where the employee is required by reason of his employment to live and in full-time attendance at a school in which the language primarily used for instruction is the official language of Canada primarily used by the employee if

(A) a school suitable for that child primarily using the language of instruction is not available in the place where the employee is so required to live,

and

(B) the school that the child attends is the school closest to that place in

which that language is the language primarily used for instruction.

The provisions of paragraphs 6(1)(a) and 6(1)(b) of the new Act are identical to those of paragraphs 5(1 )(a) and 5(1 )(b) of the old Act and do not apply to the facts of this appeal. Moreover, if in Ransom (supra) the reimbursement of moving expenses was not regarded by the learned Noël, J as being a benefit, or amounts received during the year as an allowance for personal or living expenses in the course or by virtue of an office or employment, it is very difficult to conclude in the present appeal that the payments to counteract the cost of living in a foreign country are part of the remuneration from an employment for the services rendered by the appellant.

Moreover, the personal and living expenses in the amount of $9,197.54 which the appellant in fact incurred while he was living in Haiti (which he did not claim) reflect the difference in the cost of living in Haiti to which the appellant was subjected and for which he was reimbursed.

In line with the decision of the learned Noël, J in Ransom, I find that the amount of $4,280.92, even if it was paid by reason of his employment, was neither remuneration nor an allowance nor a benefit of any sort paid by the employer and received by the appellant as income from his employment for services rendered.

Conclusion

For these reasons the appeal is allowed and the matter referred back to the Minister for reassessment taking into account that the amount of $4,280.92 cannot be included in the appellant’s income for 1975.

Appeal allowed.