William R. Phillips v. Minister of National Revenue, [1990] 1 CTC 2372, 90 DTC 1274

Mogan, T.C.J.: —In 1987, the appellant was paid $10,000 by his employer in connection with the relocation of his work from Moncton, New Brunswick to Winnipeg, Manitoba. The issue in this appeal is whether the appellant is required to include the amount of $10,000 in computing his income for 1987.

At all relevant times, the appellant was employed by the Canadian National Railway Company ("CNR") as a "carman" working on the repair and maintenance of freight cars. In 1986, the CNR had three main facilities located respectively at Montréal (Pt. St. Charles), Winnipeg (Transcona) and Moncton where its repair and maintenance work was done. In the spring of 1986, the CNR announced its plans to close the Moncton shop and relocate the work to its other main facilities at Montréal and Winnipeg. The closure of the Moncton shop involved about 1,200 people of whom 950 were represented by seven different unions and the remaining 250 were management or non-union personnel. The appellant was a member of the Moncton local of the Canadian Brotherhood of Railway Carmen.

Soon after the announcement of the Moncton closure, there were negotiations between the CNR and the seven unions to determine what would be done to relieve the burden on those employees at Moncton whose work would be moved to Montréal or Winnipeg. In the course of those negotiations, the CNR concluded that a house in Montréal or Winnipeg would cost about $20,000 to $25,000 more than a similar house in Moncton. On February 5, 1987, the CNR entered into a special agreement with four of the unions (including the Canadian Brotherhood of Railway Carmen) with respect to "conditions and benefits to apply to employees adversely affected by the closure of the Moncton Main Shop Complex”. The special agreement contained the following provisions:

Transfer of Work

1.1 When work that is normally performed by the employees in the Moncton Main

Shop complex is transferred to Transcona or Pt. St. Charles Shops, a sufficient number of employees shall be given the opportunity in seniority order to transfer with such work as per the applicable Collective Agreement.

1.2 An employee who elects to relocate as a result of the transfer of work will be

eligible for relocation expenses as provided in Article 6 of the Employment Security and Income Maintenance Plan(s) identified in Appendix "A".

1.3 Employees who elect to transfer with their work will carry their seniority rights

with them and will be dovetailed into the respective seniority lists to which transferred.

1.4 An employee who is a home owner at Moncton and accepts transfer with his

work under the provisions of this Article I will be allowed a special relocation allowance of $10,000.00. An employee who is not a home owner at Moncton and accepts transfer with his work under the provisions of this Article I will be allowed a special relocation allowance of $3,500.00.

There is no doubt that the special agreement of February 5, 1987 was distinct from the ordinary collective agreements between the CNR and the respective unions representing Moncton employees; and it was also distinct from the employment security and income maintenance plans which required the CNR to reimburse employees for certain moving expenses. All of the requirements for the $10,000 payment described in Article 1.4 were not spelled out in the special agreement and there was uncontradicted evidence that payment of the $10,000 was subject to the following conditions:

(i) A Moncton employee had to own a home at Moncton;

(ii) He had to accept a transfer of his work from Moncton to Montréal (Pt. St. Charles) or Winnipeg (Transcona);

(iii) He had to sell his home at Moncton;

(iv) He had to purchase a home in Montréal or Winnipeg; and

(v) He had to report for work and take possession of his new home in Montréal or Winnipeg.

To prove that he had satisfied the conditions, an employee like the appellant would take to CNR management at Moncton a copy of the sale agreement for his Moncton house and a copy of the purchase agreement for his new house at Winnipeg. At that time, the CNR would issue a $10,000 cheque and send it to Winnipeg for safekeeping until the employee took possession of his house and reported for work in Winnipeg. In the words of the appellant, he thought the $10,000 was "to partially reimburse me for the difference in the cost of housing between Moncton and Winnipeg". The appellant's view of the $10,000 was confirmed by Mr. D.C. Fraleigh, the Assistant Vice-President of Labour Relations for the CNR, who testified in this appeal. Mr. Fraleigh stated that none of the CNR agreements are designed to completely eliminate the adverse effects of moving one or more employees.

The appellant decided to transfer to Winnipeg because he had only 16 years service with the CNR; he was too young to retire; and there was greater job security in Winnipeg than in eastern Canada. If he wanted to stay with the CNR until retirement, the appellant regarded the transfer to Winnipeg as his only option. In April 1987, the appellant sold his Moncton house for $63,000 and he purchased a house in Winnipeg for $91,000. The extensive evidence given at the hearing comparing the two houses is summarized in the table below:

In Moncton, the appellant could walk from his home to work in 10 minutes whereas, in Winnipeg, he drove his car 25 minutes to get to work. Exhibits A-4 and A-5 are photographs of the Moncton house and Winnipeg house respectively. I am satisfied that the appellant's house in Moncton was superior to his house in Winnipeg notwithstanding the fact that he paid $28,000 more for the Winnipeg house than he received for the Moncton house, and the city taxes in Winnipeg were 2'/2 times higher than in Moncton. In the spring of 1987, the appellant received the $10,000 described in Article 1.4 of the special agreement when he reported for work and took possession of his new house in Winnipeg.

The respondent added to the appellant's reported income for 1987 the sum of $8,500 with respect to the $10,000 which the appellant received. It is not clear why the respondent added only $8,500 and not the full $10,000. In any event, the difference is not material because the issue is one of principle as to whether any part of the $10,000 is income. The respondent relies on subsections 5(1) and 6(3) and on paragraphs 6(1)(a) and 6(1)(b) of the Income Tax Act. The relevant parts of those provisions are set out below:

5 (1) 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.

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. . .

(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. . .

6 (3) An amount received by one person from another

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

(b) . . .

shall be deemed . . . to be remuneration for the payee's services rendered as an officer or during the period of employment, unless it is established that . . . it cannot reasonably be regarded as having been received

(c) . . .

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

(e) . . .

In this case, there was a real meeting of the minds between and among the CNR, the Brotherhood of Railway Carmen and the appellant concerning the purpose of the $10,000 amount described in Article 1.4 of the special agreement. That amount was intended by all parties to reimburse the appellant, in part, for the additional housing cost he would incur when moving from Moncton to Winnipeg. It was not part of his remuneration under subsection 5(1); it was not a benefit or allowance under paragraphs 6(1)(a) or (b); and it was not an amount described in subsection 6(3). The $10,000 amount was not paid pursuant to the collective agreement between the CNR and the Brotherhood of Railway Carmen but it was paid pursuant to a special agreement between the CNR and four unions which applied only "to employees adversely affected by the closure of the Moncton Main Shop Complex”.

The facts in this case are similar to the facts in Ransom v. M.N.R., [1968] 1 Ex. C.R. 293; [1967] C.T.C. 346; 67 D.T.C. 5235 in which Noël, J. (as he then was) stated at pages 358-59 (D.T.C. 5242):

The cause of the payment is not the services rendered, although such services are the occasion of the payment, but the fact that because of the manner in which the services must be rendered or will be rendered, he will incur or have to incur a loss which other employees paying taxes do not have to suffer.

It may indeed be inferred from the evidence that, as in the English cases, the company policy pursuant to which the present claim and reimbursement was made, was introduced by the appellant's company "not to provide increased remuneration for employees, but as part of a general staff policy to secure a contented staff and ease the minds of, employees compelled to move from one city to another as the result of the company's action”.

and further, at page 361 (D.T.C. 5244):

It appears to me quite clear that reimbursement of an employee by an employer for expenses or losses incurred by reason of the employment (which as stated by Lord MacNaughton in Tennant v. Smith, (1892) A.C. 162, puts nothing in the pocket but merely saves the pocket) is neither remuneration as such or a benefit ‘of any kind whatsoever'. . .

The decision in Ransom was followed in McNeil! v. The Queen, [1986] 2 C.T.C. 352; 86 D.T.C. 6477.

A branch manager for Royal LePage Residential Real Estate Services testified on behalf of the appellant and proved through a "Survey of Canadian House Prices" that the value in 1987 of a detached bungalow in Winnipeg was at least $23,000 higher than the value of a similar dwelling in Moncton. This evidence was supported by the appellant's own experience in 1987 when he sold a three- bedroom house with one and one-half storeys in Moncton for $63,000 and purchased a three-bedroom bungalow on a smaller lot in Winnipeg for $91,000. In these circumstances, no part of the $10,000 was remuneration or an employment benefit received or enjoyed by the appellant within the meaning of sections 5 and 6 of the Income Tax Act. The appeal is allowed with costs.

Appeal allowed.