Stevens v. MNR, 93 DTC 291, [1993] 1 CTC 2429 (TCC)

Mogan, T.C.C.J.:— The appellant is an employee of Adventure Tours, a division of Akard Enterprises Ltd., a Quebec corporation engaged in the business of vacation travel. Adventure Tours assembles and sells tour packages to popular vacation destinations. These tour packages are sold by Adventure Tours only to travel agents for resale to the general public. Adventure Tours does not deal directly with the ultimate consumer (i.e. the person travelling on vacation) and is in a sense only a wholesaler. The two basic kinds of tour package are the ITC (inclusive tour charter) and the ABC (advance booking charter). The ITC is a combination of return air fare plus hotel accommodation and perhaps other land arrangements like meals, ground transportation at the destination and certain activities. The ABC is only the return air fare to the vacation destination.

Adventure Tours has a policy of permitting each employee, after one ear’s service, to take one free vacation each year by using one of the tour packages which has not been purchased by the travel agencies. In 1986, the appellant used an ITC to travel with her cousin to Manzanillo, Mexico. She and her companion had free air fare and hotel accommodation. In 1987, the appellant used an ITC to travel with her cousin to St. Kitts in the Caribbean. They again had free air fare and hotel accommodation. Adventure Tours took the position that the cost of the hotel accommodation was a taxable employee benefit and included that amount in the appellant's T4 Form which was delivered to her at the end of 1986 and 1987. No amount was included in either T4 Form with respect to the air fare. Upon assessing tax for 1986 and 1987, the respondent added to the appellant's reported income the value of the air fare to Manzanillo and St. Kitts respectively. The only issue in these appeals is whether the value of the air fare to Manzanillo and St. Kitts should be included in computing the appellant's income as an employee benefit under section 6 of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act").

Sandra Green, a senior employee of Adventure Tours, explained how the business operated. The buyers for Adventure Tours first decide which destinations they would like to sell as part of tour packages for the coming vacation season and they then contract with various airline companies. For some destinations (like Florida) they will charter the entire aircraft and be responsible for filling the seats on a certain number of flights over a period of weeks. For other destinations, they will contract for only a portion of the seats (perhaps 50 or 100) on each flight over a defined travel period. In either case, the number of seats is established by contract for a particular travel season. The percentage of occupancy/vacancy varies depending on the different weeks in the season. For destinations in the sun belt (Florida, Mexico, etc.) the planes would be filled over Christmas and the March school break but would be less than 100 per cent in the summer months.

Adventure Tours has about 200 employees working in different divisions like product (buyers who negotiate with hotels), pay load (buyers who charter aircraft), marketing (produce brochures and promote the product to travel agents), reservations (on the phone taking bookings and inquiries from travel agents), ticketing, accounting and administration. If some tour packages are not sold as the departure date draws near, they will be discounted and offered to special travel agents like a "Last Minute Club”. The aircraft seats in a tour package are at risk to Adventure Tours because they are purchased in bulk (for all or a portion of the aircraft) and not in relation to any named passenger. If a flight takes off with some of those seats empty, the cost is borne by Adventure Tours and not the charter carrier. The hotel accommodation in a tour package is not necessarily at risk because it is usually booked only in the name of a particular guest. Adventure Tours will contract with a hotel to take a certain number of rooms by the week over an entire holiday season and those rooms can be shuffled around so long as the total number is purchased by Adventure Tours within the season. This situation probably explains the position taken by Adventure Tours that the cost of the hotel accommodation was a taxable employee benefit but the air fare was not.

It is the probability of unoccupied aircraft seats and unused hotel accommodation which makes possible the vacation policy of Adventure Tours set out in a four page document entered in evidence as Exhibit A-1. It states in part:

Staff with between one and five years’ service with Adventure Tours will receive a comp vacation for one week for two people or two weeks for one person after one year worked.

All Managers with one or more years' service, and all full time staff with more than five years' with Adventure Tours will also be entitled to two comp chartered air seats to any of Adventure Tours” destinations provided that:

(a) the seats are on risk and

(b) they are taken only on a standby basis.

The phrase" only on a standby basis” means that the seats cannot be booked in advance but can be booked and ticketed only in the week before departure. The employee can be bumped off the flight any time up to six hours before departure for a customer of Adventure Tours (booked through one of their travel agents) but, if a competitor wholesaler has overbooked its block of seats on the same flight and wants to purchase seats from Adventure Tours, the competitor could purchase seats any time up to boarding the aircraft, and an employee using the "free fare" could be bumped off the flight for such sale to a competitor. An employee using free fare who has actually boarded the aircraft, however, cannot be bumped off in favour of a paying traveller.

The appellant commenced working for Adventure Tours in 1979 and was given the vacation policy statement to read at that time. She was pleased with the possibility of complimentary vacations and has been taking a free trip as part of that policy each year since 1980. She has been bumped off her flights only twice, both times in the Bahamas on the day of her scheduled return to Toronto, and each time she was able to arrange alternative transportation home via the U.S.A. without having to spend an extra day away.

For 1986, the respondent added $610 to the appellant's reported income as the value of the air fare provided to the appellant and her companion for the trip to Manzanillo, Mexico. For 1987, the respondent added $592 to the appellant's reported income as the value of the air fare provided to the appellant and her companion for the trip to St. Kitts in the Caribbean. These amounts were added pursuant to paragraph 6(1)(a) of the Income Tax Act, the relevant portion of which states:

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:

(a) the value of board, lodging and other benefits of any kind whatever received or enjoyed by him in the year in respect of, in the course of, or by virtue of an office or employment. . . .

If an employee has received or enjoyed a benefit by virtue of the employment, it is the value of that benefit which is to be included in computing income. In these appeals, the value of the alleged benefit was determined by taking the aggregate cost to Adventure Tours of all the seats which it had chartered on each flight used by the appellant and her companion, and then dividing such aggregate cost by the number of seats chartered. In other words, the value of the alleged benefit for assessment purposes was the average cost to Adventure Tours of each seat used by the appellant and her companion without regard to how many of the seats actually chartered by Adventure Tours on that flight were in fact occupied. Also, the value was not determined by reference to the price at which the seats would have been sold by Adventure Tours to its client travel agents. The assessor who testified explained that he determined the value by reference to average cost because it was lower than the amount at which the seats would have been sold by the appellant.

Counsel for the appellant argued that there was no employee benefit because these trips were of assistance to Adventure Tours; the employees acquired first hand knowledge of the facilities at the vacation sites; the employees were expected to visit other hotels at the same site to see if a better package could be put together for the next season; and the employees were required to complete a''destination report" for each complimentary trip commenting on the flight, airport reception, hotel, food, baggage handling and whether brochures accurately described the site. Also, the employees were expected to dress and act in a manner that would compliment Adventure Tours. I do not doubt that Adventure Tours did in fact benefit in the manner just described from having its employees take these complimentary trips but such benefit to Adventure Tours is not inconsistent with an employee like the appellant receiving her own kind of benefit from the free vacation.

I am inclined to the view that the free transportation by aircraft to Manzanillo in 1986 and to St. Kitts in 1987 was a benefit received or enjoyed by the appellant in respect of her employment within the meaning of paragraph 6(1)(a) of the Act. This view is reinforced by the decision of the Supreme Court of Canada in The Queen v. Savage, [1983] 2 S.C.R. 428, [1983] C.T.C. 393, 83 D.T.C. 5409 in which Dickson, J. delivering reasons for the majority stated at page 440-41 (C.T.C. 399, D.T.C. 5414):

. . . in the present case the cash payment of $300 easily falls within the category of "benefit". Further, our Act speaks of a benefit” in respect of” an office or employment. In Nowegijick v. The Queen, [1983] C.T.C. 20, 83 D.T.C. 5041 this Court said, at page 25 (D.T.C. 5045) that:

The words “in respect of” are, in my opinion, words of the widest possible scope. They import such meanings as “in relation to”, “with reference to” or “in connection with". The phrase “in respect of” is probably the widest of any expression intended to convey some connection between two related subject matters.

See also Paterson v. Chadwick, [1974] 2 All E.R. 772 (Q.B.D.) at page 775.

I agree with what was said by Evans, J.A. in R. v. Poynton, [1972] 3 O.R. 727, [1972] C.T.C. 411, 72 D.T.C. 6329 at page 738 (C.T.C. 420, D.T.C. 6335-36), speaking of benefits received or enjoyed in respect of, in the course of, or by virtue of an office or employment:

I do not believe the language to be restricted to benefits that are related to the office or employment in the sense that they represent a form of remuneration for services rendered. If it is a material acquisition which confers an economic benefit on the taxpayer and does not constitute an exemption, e.g., loan or gift, then it is within the all-embracing definition of section 3.

There is no question that the appellant looked on these trips as a benefit because in 1979 when she commenced working for Adventure Tours she was pleased at the prospect of taking such trips, and she took one in each year from and after 1980. Also, there is no question that Adventure Tours looked on complimentary staff vacations as a benefit because they are part of the employer's "Vacation Policy” (Exhibit A-1); and they are more generous in relation to employment seniority. I therefore conclude that the free transportation by aircraft to Manzanillo and St. Kitts was a benefit within the meaning of paragraph 6(1)(a).

The appellant raises two further questions as to whether the benefit can be valued and, if so, whether in equity it ought to be assessed. I will consider first the question of valuation.

Paragraph 6(1)(a) requires "the value” of a benefit to be included in the computation of income. Elsewhere, the Act refers to “fair market value” as in subsections 45(1) and 69(1). I assume that “value” in paragraph 6(1)(a) means value in a market sense. There is an obvious difference between price and value but, in the circumstances of these appeals, the price (per seat) at which Adventure Tours would purchase a block of seats from an airline is probably equal to value in a wholesale market. It goes without saying that Adventure Tours must increase that price to a retail level when putting together a tour package (air fare plus hotel) if it is to earn a profit from its business. Therefore, the only two prices identified in the evidence are what I refer to as the wholesale and retail prices. The assessor used the wholesale price (cost to Adventure Tours) as the lower amount when determining the value of the purported employment benefit to the appellant.

Appellant's counsel argues that the aircraft seats in question have no value because, if they were not used by employees like the appellant on a standby basis, they would not be occupied: proof that they have no value because they can never be sold after the flight has departed. There is a certain attraction to this argument because it distinguishes an unoccupied seat on a particular flight from unsold merchandise in a store window which can always be discounted and eventually sold. The aircraft seat, like advertising time on radio and television, has a limited commercial life and after a certain point in time it can never be sold. This argument, however, does not overcome the fact that an aircraft seat actually used by a person to travel from city A to city B for whatever reason has value to the person who wants to go from A to B.

It is the appellant who filled out the employee application forms in the fall of 1986 and 1987 stating her desire to travel in mid-November to Manzanillo and St. Kitts respectively. Her choice of the destinations and the travel time (midNovember) indicate to me that the opportunity for free air transportation to those destinations at those times had real value to the appellant. I think that that value to the appellant was less than the ordinary retail price paid by other vacationers through travel agents or she would not have travelled on a standby basis. The only evidence of other value is what I have called the wholesale price: the average price per seat which Adventure Tours paid to the airline for its block of seats. That wholesale price was the value used for assessing purposes, and the appellant has failed to discharge the onus of proving that some other value is more reasonable.

Finally, I turn to the question of whether in equity the benefit ought to be assessed. Counsel for the appellant referred to policy statements made by the respondent in certain interpretation bulletins to indicate that this kind of benefit isnot normally valued and included in income for tax purposes. Interpretation Bulletin IT-71R dated April 18, 1977 contains the following statement in paragraph 24.

24. Where, in the transportation industry, an employee is given the privilege of a free pass for himself and his family on vehicles operated by his employer, the pass is not regarded as being a taxable benefit. This does not extend to a cash payment an employee receives in exchange for the surrender of the entitlement to the free pass.

IT-71R applied only for 1980 and prior years and it was cancelled in 1986. The new policy is expressed in Interpretation Bulletin IT-470R dated April 8, 1988 which states in part:

42. Airline passes available to airline employees will become taxable only if the employee travels on a space-confirmed basis and is paying less than 50 per cent of the economy fare available on that carrier for that trip on the day of travel. The value of the benefit will be the difference between 50 per cent of the economy fare and any amount reimbursed to the carrier for that trip.

43. Employees of bus and rail companies will not be taxed on the use of passes.

44. Retired employees of transportation companies will not be taxed on pass benefits under any circumstances.

Counsel argued that the appellant's employer is in the transportation industry and, for all practical purposes, is like an airline. Therefore, if the respondent has decided not to value and assess tax on the use of airline passes unless the employee travels on a space-confirmed basis, then the appellant should not be taxed in the circumstances of these appeals because she did not travel on a space-confirmed basis. He submits that, as a matter of equity, all employees in a particular industry should be taxed on the same basis.

I am not inclined to accept this so-called equitable argument for three reasons. Firstly, Adventure Tours is not an airline. It does not own or operate any aircraft and it does not employ any pilots, air crew, ground crew or mechanics. It is in the vacation tour business and not the transportation business. To the extent that Adventure Tours may charter an entire aircraft for a particular flight to Florida or Mexico and attempt to sell all of the seats as an ABC (advance booking charter), it is still only a wholesaler of seats to a vacation destination because the airline could earn a profit from the operation of the aircraft on that particular flight while Adventure Tours suffers a loss as wholesaler.

Secondly, an interpretation bulletin is only a declaration of policy. If I must choose between upholding an assessment which applies the plain meaning of the Income Tax Act to a given set of facts and striking down that same assessment because it is in conflict with the plain meaning of a published interpretation bulletin, the choice is obvious. I must uphold the assessment because it is based on the law whereas an interpretation bulletin is only a statement of policy frequently based on administrative convenience or what is practical in a particular sector of the commercial community. In these appeals, there is no such choice because Adventure Tours is not an airline but only a wholesaler of accommodation in aircraft and hotels.

And thirdly, the respondent is not estopped from assessing in a manner not consistent with one of his published interpretation bulletins. The principal purpose of the bulletins is to inform the public of policies which the respondent has adopted for the administration of legislation as broad and complex as the Income Tax Act. The respondent may determine that it is not practical or even possible to value the use of free passes given to many employees of airline, rail and bus companies. The value of a seat used on a standby basis is obviously less than the value of a seat on a space-confirmed basis; ana the cost to the airline of a seat on a particular flight is much more difficult to determine than the cost to a wholesaler (like Adventure Tours) of a block of seats purchased on that same flight. When the respondent concludes that an employee has received a significant benefit in respect of his or her employment, and the value of the benefit is relatively easy to measure, the respondent has no choice but to apply paragraph 6(1)(a) of the Income Tax Act whatever a published interpretation bulletin may say. In my view, the principle in Harel v. Deputy Minister of Revenue for Quebec, [1978] 1 S.C.R. 851, [1977] C.T.C. 441, 77 D.T.C. 5438, at page 859 (C.T.C. 448, D.T.C. 5442) may apply only when the meaning of the legislation is in doubt. There was no argument submitted to me concerning the manner in which paragraph 6(1)(a) should be construed.

I conclude that the appellant received a benefit in respect of her employment when she was permitted to use two seats on each of the return flights to Manzanillo and St. Kitts. The value of each benefit was determined in a reasonable manner by the respondent in the assessments under appeal for the 1986 and 1987 taxation years. The appeals are dismissed.

Appeals dismissed.