The Chairman:—This appeal was brought from an assessment made in respect of the appellant’s income for the 1968 taxation year. By notice of appeal, the taxpayer complained that the Minister erroneously added an amount of $1,662 to his reported net income for income tax purposes. The appellant alleged that the Minister, in adding this amount as the value of a mortgage discharge, had incorrectly assumed that the said discharge constituted a benefit within the meaning of paragraph 5(1 )(a) of the Income Tax Act. By notice of reply counsel for the respondent affirmed the latter’s position. The appellant, at that time residing at Cassiar, British Columbia, thereupon intimated in a letter to counsel for the Minister that, in view of the costs of time and travel and the lack of legal counsel, he wished to abandon his appeal. Having been informed of this understandable, though regrettable reaction on the part of the appellant, the Registrar of the Board communicated with the parties concerned who eventually agreed upon statements of fact and. written submissions were received from the appellant and counsel for the respondent. On this basis, I will summarize the facts and nature of the dispute as follows:
The appellant was an employee of International Minerals & Chemical Corporation (Canada) Limited (referred to hereinafter as IMC) which operated a potash plant at Esterhazy, Saskatchewan, from approximately November 1961 to December 1968. In 1962 he built a residence in Esterhazy and, in doing so, he took advantage of the program provided by IMC for its employees. Pursuant to this program, IMC offered houses or building lots near the village of Esterhazy on attractive financial terms in order to encourage employees to own their own homes.
For each employee who wanted to build his own house IMC made a building lot available at a price of $18 per foot frontage (ordinarily 70 feet). However, a second mortgage for the full purchase price was to be held by IMC in order to enable the employee to obtain a first mortgage on the land and the house to be consructed thereon from a mortgage loan company to a maximum of 90% of the appraised value. If the employee remained in the employ of IMC for five years after the date of the purchase of the property and occupied the house during those years, the second mortgage would be discharged.
In 1962 the appellant, as an employee of IMC, took advantage of this program and entered into, inter alia, a mortgage in favour of Esteroy Realties Ltd in the amount of $1,662, which amount represented the value of the lot acquired by him.
On February 14, 1968 the appellant received from IMC a discharge of the above mortgage which the appellant had caused to be registered. Pursuant to the program the appellant had made no payments on the mortgage at any time during its term.
In December 1968 the appellant left Esterhazy due to a decline in the potash industry but could not sell his property until August 1970, at which time he sustained a loss. In his notice of appeal he now complains: “As I cannot deduct this loss from earnings over that period, why should I have to pay tax on a supposed benefit from a previous period?” In the alternative, he submits that the benefit — if any — should have been spread over the taxation years 1962 to 1967, in which case the Taxation Division should have collected the additional tax from IMC.
It could be said at this point that the alternative claim of the appellant has no legal basis since the alleged benefit did not materialize before the five-year employment period had been completed. Confining my consideration to the first claim, the question seems to be whether there was indeed a benefit conferred on the appellant by virtue of his contract of employment with IMC.
It appears that, at the time the appellant purchased the land in 1962, the opportunity to buy the land and to construct a house thereon seemed to be an attractive arrangement which the appellant decided to accept as part of the employment package. Nobody foresaw at that time that the potash industry would decline to such an extent that the appellant would leave Esterhazy and be forced to sell his house. The second mortgage, obtained through his employer with the prospect of discharge after five years, was a bonus which would not have caused any complaint if things had gone well and the appellant had stayed in Esterhazy or had been able to sell his house at a good price. The fact that the appellant lost money on a more or less forced liquidation of his real estate in Esterhazy was unfortunate, but he should not forget that his loss would have been $1,662 greater if the second mortgage had not been discharged. He sold the property in 1970 for $14,903.49, ie some $2,200 in excess of the first mortgage.
In these circumstances the income tax levy on the amount of $1,662 may have seemed to be an insult added to injury but was actually the assessment of a real benefit because the discharge of the second mortgage decreased the appellant’s loss on the disposal of a capital asset in Esterhazy. The fact that the creditors’ benefit from the various improvements made to the property and paid for by the appellant enhanced the security for the loans provided by them does not affect the problem to be decided herein.
The words of paragraph 5(1 )(a) in this connection are so Clear that it is not necessary to refer to any jurisprudence concerning the interpretation of its provisions.
The appeal is, therefore, dismissed.
Appeal dismissed.
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