Murray L. Vickery v. Her Majesty the Queen, [1993] 2 CTC 2678, 93 DTC 993

Brulé, T.C.C.J.:—This appeal involves the taxpayer's 1990 taxation year in which Revenue Canada added $22,000 to the declared income and disallowed $1,150.85 expenses claimed by the appellant.

At the outset the Court was advised that the expense item was not in dispute as being disallowed because the appellant did not have any receipts to prove his claim.

Facts

The appellant was a locomotive engineer employed by Via Rail Canada Inc. and resided in and operated from London, Ontario.

Effective January 15, 1990, the employer made certain changes in passenger service which abolished some positions and services between Toronto and London.

As a consequence of the changes, the appellant's union, the Brotherhood of Locomotive Engineers, and the appellant's employer negotiated a special agreement ("agreement") under which a lump sum allowance of $22,000 was payable to employees who could not hold an assignment at their terminal and met some other conditions. Under the agreement, the employees, as an alternative, were given the option to elect to receive relocation benefits; in addition the employees, depending on their seniority, could bid to operate from another terminal.

The appellant who met all the conditions under the agreement, elected to receive the lump sum allowance of $22,000 and to operate from the Toronto terminal.

The lump sum allowance received in 1990 was considered by Revenue Canada to be a taxable benefit from employment and to be included in the computation of the appellant's income in the 1990 taxation year.

Issue

The sole issue is the treatment by the appellant of the $22,000 received by him in 1990 as to whether or not it Was a taxable benefit.

Analysis

In considering the payment received by the appellant one must look at the relevant sections of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the"Act"). Subsection 8(2) states:

Except as permitted by this section, no deductions shall be made in computing a taxpayer's income for a taxation year from an office or employment.

Paragraphs 8(1)(e) and 8(1)(g) do make exceptions for certain expenses but in this case there are no receipts to confirm amounts spent. One must follow the provisions of subsection 230(1) of the Act which reads:

Every person carrying on business and every person who is required, by or pursuant to this Act, to pay or collect taxes or other amounts shall keep records and books of account (including an annual inventory kept in prescribed manner) at his place of business or residence in Canada or at such other place as may be designated by the Minister, in such form and containing such information as will enable the taxes payable under this Act or the taxes or other amounts that should have been deducted, withheld or collected to be determined.

Subsection 5(1) states:

Subject to this Part, a taxpayer's income for a taxation year from an office or employment is the salary, wages and other remuneration, including gratuities, received by him in the year.

In the Act, paragraph 6(1)(a) provides:

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 received or enjoyed by him in the year in respect of, in the course of, or by virtue of an office or employment. . . .

The meaning of the words “other benefits of whatever kind" has been described as “clearly quite broad" by the Supreme Court of Canada in The Queen v. Savage, [1983] 2 S.C.R. 428, [1983] C.T.C. 383, 83 D.T.C. 5409 (discussed below).

Paragraph 6(1)(b) states:

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:

(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. . . [exceptions not important to this case]

The agreement between Via Rail and the Union specifically mentions the choice of a lump sum allowance or relocation benefits. It was stressed that only one of the benefits could be received.

For reasons which the appellant explained to the Court he could not conveniently relocate and therefore chose the lump sum allowance.

The treatment of receiving an allowance is dealt with in different cases.

In The Queen v. Savage, supra, the Supreme Court of Canada established that a benefit received by virtue of an office or employment can be taxable even though it is not in a form of remuneration for services. The taxpayer had received from her employer an award of $300 for passing three life insurance courses. The Court had to determine whether that amount was a taxable benefit. The Supreme Court accepted in large part the test proposed by Thurlow, J., in Phaneuf Estate v. M.N.R., [1978] C.T.C. 21, 78 D.T.C. 6001 (F.C.A.) at page 27 (D.T.C. 6005). In determining the nature of an amount received, the test provides:

Is the payment made "by way of remuneration for his services” or is it "made to him on personal grounds and not by way of payment for his services"? . . . Another way of stating it is to say is it received in his capacity as employee, but that appears to me to be the same test. To be received in the capacity of employee it must, as I see it, partake of the character of remuneration for services. That is the effect that, as it seems to me, the words “in respect of, in the course of, or by virtue of an office or employment" in paragraph 6(1)(a) have.

The Supreme Court did not agree that the payment had to be in the nature of remuneration for services to constitute a benefit by virtue of employment because of the encompassing wording of paragraph 6(1)(a) which provides for the taxation of "benefits of any kind whatever . . . in respect, in the course of, or by virtue of an office or employment".

In Trottier et al. v. M.N.R., [1981] C.T.C. 2581, 81 D.T.C. 572 (T.R.B.), the appellant's employer, Hydro-Québec, placed in 1963, at the disposal of all its employees working in a particular generating station, a common transportation service from certain pick-up points to the place of their employment. On May 4, 1978, Hydro-Québec and the union representing the employees signed a letter of agreement that provided for the abolishment of the transportation system as of August 4, 1978. The agreement also provides that within 30 days following the signature of the letter the employees would receive a lump sum payment of $6,500. It appeared to be the contention of Hydro-Québec that this sum was granted in compensation for the withdrawal of the common transportation system. The Minister of National Revenue claimed that the sum of $6,500 was duly included in income in accordance with the provisions of subsection 5(1) and paragraph 6(1)(a) of the Act. The Tax Review Board held that the sum was a gratuity payment to all employees from the employer and was received by the taxpayers by virtue of the employer—employee relationship and was therefore taxable as income from employment.

The leading definition of "allowance" is found in the case of The Queen v. Pascoe, [1975] C.T.C. 656, 75 D.T.C. 5427, wherein Pratte, J., for the Federal Court of Appeal said at page 658 (D.T.C. 5428):

An allowance is, in our view, a limited predetermined sum of money paid to enable the recipient to provide for certain kinds of expense; its amount is determined in advance and, once paid, it is at the complete disposition of the recipient who is not required to account for it. A payment in satisfaction of an obligation to indemnify or reimburse someone or to defray his or her actual expenses is not an allowance; it is not a sum allowed to the recipient to be applied in his or her discretion to certain kinds of expense.

This is exactly the situation in this case and the allowance granted in lieu of relocation as negotiated in the agreement.

There are no provisions for specific losses in the allowance paid. The change in employment caused more expenses to the appellant but these were not defined nor could the appellant account specifically, nor did he have to.

The cases of Phillips v. M.N.R., [1990] 1 C.T.C. 2372, 90 D.T.C. 1274 (T.C.C.) and Tennant v. Smith, [1892] A.C. 150, 3 T.C. 158, cited by the appellant are quite different from the present case. The former involves relocation expenses while the latter deals with reimbursement.

It follows from the above-mentioned cases that an amount given by an employer to his employee will not be a taxable benefit if the appellant can demonstrate that he actually suffered a loss due to his employment. In applying the above-mentioned cases to the facts of this particular case, it would appear that the appellant must show that the amount received was designed to compensate him for an economic loss; otherwise, it is a taxable benefit under paragraph 6(1)(a) of the Act.

The situation with the appellant is not one of reimbursement for specific expenses but rather a non-accountable allowance which is taxable.

The appeal is dismissed, with costs to the Minister of National Revenue.

Appeal dismissed.