Date: 199902226
Docket: 98-1147-IT-I
BETWEEN:
DAVID E. MIDDLESTEAD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for judgment
O'Connor, J.T.C.C.
[1] This appeal was heard at Calgary, Alberta on February 18,
1999 pursuant to the Informal Procedure of this Court.
ISSUE:
[2] The issue is whether a relocation allowance paid by the
Appellant's employer, The Bank of Nova Scotia, in 1990 in
relation to his transfer from Brandon, Manitoba to Calgary,
Alberta is to be included in his income for that year pursuant to
paragraphs 6(1)(a) and 6(1)(b) of the Income Tax
Act ("Act").
FACTS:
[3] The facts are well set forth in the Reply to the Notice of
Appeal as follows:
1. With respect to the allegations of fact stated in the
Notice of Appeal, he admits only:
(a) that, at his employer's request, the Appellant was
transferred from Brandon, Manitoba to Calgary, Alberta in mid
1990;
(b) that the Appellant was given a relocation allowance in the
amount of $5,962.00 and that tax in the amount of $2,980.90 was
withheld at source;
...
4. In computing income for the 1990 taxation year, the
Appellant reported income from office or employment in respect of
his employment with The Bank of Nova Scotia (the
"Employer") in the amount of $59,809.05.
...
8. In so reassessing the Appellant, the Minister made the
following assumptions of fact:
(b) as a result of the transfer from Brandon, Manitoba to
Calgary, Alberta, the Appellant received a relocation allowance
from his Employer in the amount of $5,962.00;
(c) the income from office or employment reported by the
Appellant in the amount of $59,809.05 included the relocation
allowance in the amount of $5,962.00;
(d) the relocation allowance was non-accountable;
(e) the relocation allowance was not in respect of a home
relocation loan or an amount paid to offset mortgage interest
differential;
(f) the relocation allowance was not calculated with respect
to an actual loss or a specified expenditure of the
Appellant;
...
(h) the Employer fully reimbursed the Appellant in respect of
all moving expenses incurred by the Appellant;
...
SUBMISSIONS:
[4] The Appellant submitted that he in fact obtained no
benefit from the payment because his increased costs in acquiring
a home and mortgage in Calgary amounted in the first year to a
total of $7,733 related primarily ($7,100) to the increased
mortgage interest he had to pay on the new home in Calgary. He
indicates that because of the increased interest rate he was in
fact worse off after one year alone (i.e. the allowance of $5,962
was not even sufficient to meet the costs of $7,733). The
Appellant adds further that considering the five year term of the
Calgary mortgage the total loss would be more in the
neighbourhood of $33,000. In calculating the $7,100 the
Appellant, as seen in Exhibit A-1, added $50,000 to the amount of
the mortgage in Brandon ($44,000) to arrive at a figure of
$94,000. The $50,000 he explained was the difference in land
costs for comparable lots in Calgary over Brandon. He correctly
did not further add the amount of the increase in the mortgage
arising from the fact he bought a more expensive house.
[5] The Appellant referred to various cases, in particular,
Côté v. M.N.R., 91 DTC 262 where Lamarre
Proulx, J. of this Court stated as follows at page 263 and
following:
Counsel for the respondent referred me to the Supreme Court of
Canada's decision in Gagnon v. The Queen [86 DTC
6179], [1986] 1 S.C.R. 264, in which, at page 272, Beetz J. defines
the term "allowance" as follows:
According to the definition in Pascoe, for a sum of
money to be regarded as an allowance it must meet three
conditions: (1) the amount must be limited and predetermined; (2)
the amount must be paid to enable the recipient to discharge a
certain type of expense; (3) the amount must be at the complete
disposition of the recipient, who is not required to account for
it to anyone.
However, in the circumstances of the present appeal, I am of
the opinion that, in order to complete this study of the meaning
to be given to the word "allowance" in the context of
section 6(1)(b) of the Act, I must give careful
consideration to Richard D. McNeill v. The Queen, [86 DTC
6477], [1987] 1 FC 119. I quote Rouleau J's remarks at page
128 of that decision:
Counsel for the plaintiff disputed the allegation that the
amount paid to the plaintiff was an "allowance" within
the meaning of the Act. He conceded that there was no obligation
placed upon the recipients of the so-called "allowance"
to actually purchase another home in order to qualify, but he had
in fact purchased a residence and he maintained that the amount
in question could not be considered an allowance as the taxpayer
had, as anticipated, increased mortgage costs.
In the present case, the appellant also adduced evidence that
he had incurred related costs higher than the amount received
from his employer. Counsel for the respondent, however, referred
me to Rouleau J.'s remarks at page 135:
But more importantly, the payment of the allowance with which
I am concerned was primarily motivated by considerations
extraneous to employment, namely public and labour relations
considerations.
Thus she is saying that, unlike the situation in
McNeill, the amounts received by the appellant in the
present case were received pursuant to a directive governing the
conditions of employment of senior managers.
I do not believe that the reason given by Rouleau, J. in the
excerpt quoted above was the determining argument in McNeill, for
two reasons:
a) another allowance paid under the same agreement was
considered an employment benefit within the meaning of section
16(1)(a) of the Act because of "the absence of any
proof put forward by the plaintiff to show that he actually
suffered other losses due to his relocation equal to the [amount]
he received [...]"; and
b) Because the judge said the following regarding the meaning
to be given to the word "allowance";
Counsel for the Crown further suggested that the payment
received by the taxpayer was one for which he was unaccountable
and that the taxpayer was under no obligation to purchase a home
in the Ottawa area. It was this argument which appears to have
persuaded the Tax Court and led it to the following conclusion
[...]:
It was his choice to acquire a home and he received money
without even having to prove a loss. The formula was set up and
the formula was followed. Had the appellant seen fit to rent an
apartment or live with relatives or friends, he still would have
received the same amount of money.
In my opinion, that reason is neither here nor there. Firstly,
the decision of the Tax Court is not based on the facts of the
case which are that the plaintiff taxpayer did purchase a home.
Secondly, the taxpayer was forced to accept the transfer in order
to retain his employment. Under those circumstances, I would
think it was not only his choice but his right to purchase a home
in the Ottawa area and attempt to put himself in the same
position he was in prior to being moved from his home in
Montreal. From the evidence adduced, it is manifestly clear that
the plaintiff "put nothing in his pocket but merely saved
the pocket".
In light of the decision rendered in McNeill, I am of
the opinion that the amount received by the appellant for
expenses related to his move should not be considered as an
allowance within the meaning of section 6(1)(b) because
the appellant actually incurred expenses related to his move for
the amounts received.
RESPONDENT'S SUBMISSIONS:
[6] Counsel for the Respondent submitted that the $5,962 was
properly included into income in that either it was an allowance
as contemplated in paragraph 6(1)(b) of the Act or
a taxable benefit contemplated in paragraph 6(1)(a)
of the Act. Counsel canvassed the usual cases in this
area.
ANALYSIS AND DECISION:
[7] The paragraphs in question read as follows:
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, except
... (none of the exceptions apply)
...
(b) 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 (none of the exceptions apply) ...
[8] A further review of some of the decided cases in this area
will be helpful. In Attorney General of Canada v. Enrique
Hoefele et al, 95 DTC 5602, the Federal Court of Appeal dealt
with paragraph 6(1)(a) of the Act and held that to
be taxable as a benefit a receipt must confer an economic
benefit, i.e. must increase the net worth of the recipient and
held that interest equalization payments which had been
established by Petro-Canada for transfer of certain employees
from Calgary to Toronto were not taxable.
[9] In Her Majesty the Queen v. Phillips, 94 DTC 6177,
the Federal Court of Appeal held that the payment by CNR of
$10,000 to one of its employees as the result of the move by the
employee from Moncton to Winnipeg was a taxable allowance. In
that case Robertson, J. conducted a lengthy review of other cases
and held that the said payment increased the taxpayer's net
worth and held as follows:
Held: The Crown's appeal was allowed. The trial judge
erred in characterizing the payment of $10,000 as a non-taxable
reimbursement for expenses incurred as a consequence of
employment. The sum of $10,000 did not restore the taxpayer to
his previous financial state. Rather, it increased his net worth
by $10,000. It, therefore, fell outside the legal parameters for
tax-free benefits established in The Queen v. Savage (83
DTC 5409), Ransom v. M.N.R. (67 DTC 5235) and The Queen
v. Splane (92 DTC 6021). The rule established in the
Ransom case, moreover, was that a loss suffered by an employee in
selling a house following a job transfer is not taxable to the
extent that the payment reflects the employee's actual loss.
In this case, however, the payment made by CNR to the taxpayer
was to compensate him for increased housing costs on the purchase
of a replacement property, so that the rationale in the Ransom
case became inapplicable to the situation. Also to be noted was
the fact that the Ransom decision had become so involved in the
conception of taxable benefits that it was left for the Supreme
Court or Parliament to set aside its logic. Therefore, the sum of
$10,000 in issue ought to have been included in the
taxpayer's income from employment for 1987. The
Minister's original assessment was restored.
[10] In Attorney General of Canada v. MacDonald, 94 DTC
6262 the Federal Court of Appeal held as follows:
Held: The Crown's application was granted. Paragraph
6(1)(b) of the Act requires taxpayers to include in their income
from office or employment all amounts received in the year as an
allowance for personal or living expenses or as an allowance for
any other purpose. The wording of that paragraph, however,
provides little in the way of assistance in determining what
constitutes an "allowance". Applying the principles
laid down by the Exchequer Court in Ransom v. M.N.R. (67
DTC 5235), by the Federal Court of Appeal in The Queen v.
Pascoe (75 DTC 5427) and by the Supreme Court of Canada in
Gagnon v. The Queen, [1986] 1 S.C.R. 265, however, it
can be seen that an "allowance" for purposes of
paragraph 6(1)(b) of the Act is composed of three elements. These
three elements, moreover, were present in the taxpayer's
situation: (a) he received the $700 in issue as a limited,
predetermined, "round" amount which had not been
calculated with respect to any actual cost or expense which he
might incur; (b) the money was for a particular purpose, i.e., to
subsidize his accommodation costs; and (c) he received the money
and was not required to account therefor. In the result, the
amount involved was a taxable allowance within the meaning of
paragraph 6(1)(b) of the Act. The decision of the Tax Court Judge
was accordingly set aside and the Minister's reassessment was
restored.
[11] In this appeal the three elements described above in
MacDonald were present and since a decision of the Federal
Court of Appeal is binding on me, I find that what the Appellant
received was an allowance within the meaning of paragraph
(6)(1)(b).
[12] Admittedly the Appellant did have increased interest
expenses but, contrary to the facts in Hoefele et al, the
relocation allowance plan of the Bank of Nova Scotia was not
designed to compensate for interest differential payments. In
fact the plan, which is set forth in Exhibit A-2, states that the
allowance assists in defraying relocation expenses not
specifically referenced elsewhere in the Bank's manuals and
quotes some of the more common items for which this allowance was
intended. The plan lists numerous items which the allowance is
directed at. None of those, as mentioned, relate to interest
differentials. In fact, of the various items referred to, many of
them fall within the category of personal and living
expenses.
[13] In McNeill, relied upon in
Côté cited above, Rouleau, J. although
allowing the taxpayer to exclude from income an allowance related
to increased mortgage costs did not allow the exclusion of a
"Social Disruption Allowance" related to matters other
than increased mortgage costs.
[14] Although not fatal to the Appellant's case it is of
note that the Employer considered the amount as a taxable amount
and included it in the T4 slips of the Appellant. Moreover, the
Employer did pay all of the Appellant's moving expenses.
[15] Having found that the amount in question is taxable as an
allowance contemplated in paragraph 6(1)(b) of the
Act it is not necessary to discuss whether it might also
be a benefit as contemplated in paragraph 6(1)(a).
Consequently, for the above reasons, the appeal is dismissed.
Signed at Ottawa, Canada this 26th day of February, 1999.
"T.P. O'Connor"
J.T.C.C.
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