Louis Guay v. Her Majesty the Queen, [1996] 3 CTC 2384, 96 DTC 1534

Garon J.T.C.C.: — This is an appeal from an assessment by the Minister of National Revenue for the 1991 taxation year. In that assessment, the Minister of National Revenue included in the appellant’s income the sum of $9,735, which the appellant received from his employer, the Government of Canada, in 1991 as reimbursement of tuition fees for his children.

The facts are not in dispute. The allegations of fact on which the Minister of National Revenue relied in making the assessment in appeal appear in paragraph 5 of the Reply to the Notice of Appeal. The appellant admitted the various subparagraphs of paragraph 5 of the Reply to the Notice of Appeal, except for subparagraph (c). Paragraph 5 reads as follows:

5. In making the assessment, the Minister assumed in particular the following facts:

(a) the facts admitted above;

(b) the appellant resides at the following address:

38 Cartier Gatineau, Quebec J8T 5L1

(the “domicile”);

(c) the appellant received an amount of $9,735.00 from his employer as an education allowance for his children;

(d) the appellant’s children attend the Lycée Claudel educational institution, which is located at the following address:

1635 Riverside Dr. Ottawa, Ontario K1G 0E5;

(e) the appellant’s children reside at the following address:

38 Cartier Gatineau, Quebec J8T 5L1

which is the appellant’s domicile;

(f) during the school year, the appellant’s children are not required to live away from the domicile;

(g) the Lycée Claudel, which provides instruction in the official language of Canada primarily used by the appellant, is not the educational institution nearest the appellant’s domicile.

[Translation.]

With respect to subparagraph 5(c), the appellant admitted that he had received the sum of $9,735 from his employer, but denied that that sum was received as an “allowance” for his children’s education.

The appellant was the principal witness at the hearing of this appeal.

The appellant explained, first of all, that the Department of Foreign Affairs and International Trade, which, according to a document entitled “Basic Personnel Statistics”, dated April 5, 1995, had 2,014 rotational employees has recognized “the fact that parents who have chosen French as the language of instruction for their children...were at a disadvantage in that their only option to ensure continuity in their children’s education outside Canada was the French lycée system”. He added later on the following: [1]

In order for our children to be able to re-enter a French-language educational environment outside Canada, they must be eligible to do so, and I have documents to file in evidence in order to confirm this fact. These children must continue their education in the French lycée system.

In the greater Ottawa area, the only institution that offers a program of instruction that is universally consistent with the French lycée system, which is managed by the French Department of Education, is the Lycée Claudel.

Thus, if you would allow me to cite a brief example, this would enable me to take my children out of the Lycée Claudel here on October 29 and to enrol them at another in Santo Domingo on November 2. When they arrived, they would be working on the same book, and at the same page; it is the same system, etc. First of all, I would not be able to be posted otherwise, or probably not to Santo Domingo. I would have had to enrol my children in an English- language school because the only system that is inconsistent...! mean that the French-language system currently offered in Quebec and Ontario is inconsistent, has no connection or automatic equivalency with the universal French system.

It should be noted, however, that the Ontario English-language system and the Quebec English-language system have an automatic equivalency with the British and U.S. school systems. Once again, I have documents to file in evidence on this point.

In other words, in order to meet the commitment of rotational duty, i.e. the fact that I am a rotational employee, so that, somewhat like the fathers in overseas missions, they can post me at the king’s, the Minister’s, pleasure throughout the world, to enable me to be rotated and to ensure that I can be rotated, my employer considered or saw that there was a benefit in reimbursing the education expenses of children for whom French was chosen as the language of education in Canada during periods when those people or those children or those parents were posted in Canada.

[Translation.]

A brochure issued by the department concerned, clearly describing certain terms and conditions of employment of an officer with the department’s Foreign Service, was filed in evidence. Under the heading “Job rotation: Ottawa and abroad”, it reads in part as follows:

Officers in the Canadian Foreign Service have made a commitment to work on a rotational basis in Ottawa and at any of Canada’s missions abroad. Some officers may spend half to two thirds of their career working and living abroad.

Further on, under the title “Impact on Families”, that same document reads:

Potential Foreign Service Officers must consider very carefully what this nomadic lifestyle may mean for children’s education, spousal employment and family well-being.

Lastly, the brochure contains comments on “children’s education”:

Foreign Service parents make many decisions concerning their children’s schooling. Because the quality of overseas education can vary from country to country, it is not always possible to ensure continuity of subject matter and instructional methods for children. Abroad, most Canadian diplomatic children attend British, American or French schools.

The appellant also placed great emphasis in his testimony on this condition of employment for a Foreign Service officer: rotational duty. This condition of employment, which has not substantially changed over the years, was also described at one time, which was not specifically stated, in a letter sent to the candidates to a Foreign Service officer position of the department in question to whom an employment offer had been made:

By entering the service of the Department of External Affairs, you are accepting the principle of rotational duty inherent in that service and you must be prepared to accept every posting that the Department may deem useful or necessary, either in Ottawa or at any one of Canada’s diplomatic or consular missions outside Canada.

[Translation.]

The appellant also mentioned a Foreign Service directive, FSD 33, which came into effect on September 1, 1993. According to the appellant, this directive reflects an administrative practice that dates back to the early 19803. It contains the following paragraph:

The purpose of this directive is to provide financial assistance to career foreign service employees and RCMP liaison officers while serving in Ottawa/Hull, in enroling their dependent children at the Lycée Claudel, in order to ensure continuity in French-language education while serving outside Canada.

The appellant also filed in evidence the “Lycée Claudel Claims Form”, which must be used by the Foreign Services’ rotational employees in claiming tuition fees and other expenses incurred with respect to their dependent children enrolled at the Lycée Claudel in Ottawa. In that form, the claimant must indicate in particular whether he is a rotational Foreign Service employee of the aforementioned department. It also contains the following note:

Please note: if you have been at headquarters for two consecutive years you are required to furnish a letter from your assignment officer stating that you have not been offered a posting or that you did not refuse a posting. Reimbursement can only be authorized upon receipt of this letter.

The appellant also emphasized during his testimony that, particularly at the relevant time, Foreign Service’s officers had to indicate in particular in the annual performance appraisal form whether or not they were rotational or whether certain restrictions applied to their rotational status.

The appellant noted in his testimony what he called the “self-governing nature” of the French lycée system. On this point, he produced a document issued by the Headmaster of the Lycée Claudel in Ottawa. That document, which is of particular interest, reads as follows:

The network of French institutions outside France under the jurisdiction of the A.E.F.E. (Agence pour l’Enseignement Français a l’étranger - Agency for French Education Outside France) comprises some 400 lycées or schools in 127 countries.

As part of this network (the lycée signed an agreement with the A.E.F.E. in 1991), the Lycée Claudel offers the programs of France's Department of Education (with a few additional courses specific to Canada: Canadian literature and Canadian history/geography, in parallel, at the secondary level; and English at a distinctly more advanced level than in France). The attached brochure describes the main features of the curriculum.

As you may readily see from this brochure, the organization of classes (kindergarten, elementary, secondary) and, in particular, the division of the programs into the various disciplines (less clear in that document alone, but very real in practice), are very different from what is offered in the Canadian system.

At the Lycée Claudel, as in all schools in France and all those in the A.E.F.E network, the schedules and programs of France’s Department of National Education are strictly applied, which explains:

- the very high degree of educational cohesion throughout the A.E.F.E. network;

- the very great difficulty for students from another system, whatever the intrinsic merits of that system, in entering the A.E.F.E. network, particularly at the secondary level.

It should also be noted that all the lycées in the A.E.F.E. network give priority to students from another institution of that network.

In conclusion, it can only be recommended that families required to travel throughout the world, for professional reasons in particular, enrol their children in a school in the French system as early as possible, if that is their wish, as it will then be a very easy matter to find a school or lycée in the same system in any major city of the world.

The later a child is enrolled, the more difficult it is to enter the French system, and it becomes virtually impossible for students from another educational system to do so starting in the fourth form. At best, a student is required to repeat the previous form, but this is not always enough to correct certain weak areas. One or two changes of system in the course of a child’s schooling are sufficient to hold the student back a year or two or indeed to place him in a situation where he will fail.

To have effect for all legal purposes.

Made at Ottawa, September 29, 1995,

S. Albinet, Headmaster

[Translation.]

Lastly, the appellant referred to a study dated April 29, 1977 that was submitted to the department concerned. In that study, the department was asked to take the necessary steps so that a tuition fee reimbursement policy be introduced as soon as possible for parents wishing to enrol their children at the Lycée Claudel. The document in question was produced by the appellant.

The appellant also submitted in his testimony that this principle of rotational duty requires in return the department to make available to its employees measures to ensure that that rotational duty is fair and equal. The appellant also confirmed that, as a general rule, the department’s Foreign Service employees spent at least half of their career outside Canada.

To enable the Court to grasp the extent of the tax effects of this arrangement on his personal situation, the appellant submitted the hypothetical case in which, if he had had to return to Ottawa during 1994-1995, he would have had to add about $25,000 to his income in order to take into account the amounts reimbursed by the Government of Canada for his children’s education, as he would have had five children attending the Lycée Claudel at that time. He stated that it would follow that the marginal tax rate would be higher than it would otherwise have been if he had not had to include in his income the amount paid by the Government of Canada for his children’s tuition fees.

An authorized officer of the Department of Foreign Affairs and International Trade of Canada confirmed that the employees of that department who have rotational employee status may claim a refund for tuition fees and expenses for school supplies and books or textbooks, except reference works, including dictionaries. These persons must complete the reimbursement form referred to above and attach invoices or any other proof of payment. An employee who has spent more than two years in Ottawa must state on the form that he has not refused a foreign posting. This is the procedure that must be followed in order to be eligible for reimbursement of those expenses.

Only a few days after the hearing of this appeal, which was held on October 4 last, the Federal Court of Appeal rendered a judgment dated October 11, 1995, in Hoefele v. R. (sub nom. Hoefele v. Canada) (sub nom. Krull v. Canada (Attorney General)) [1996] 1 C.T.C. 131, (sub nom. Canada (Attorney General) v. Hoefele), 95 D.T.C. 5602 (F.C.A.), which mainly concerned the application of paragraph 6(1 )(a) of the Income Tax Act. A few weeks later, while the instant case was taken under consideration, I was reading the decision by the Federal Court of Appeal in Hoefele, supra, when I came to the conclusion that the resolution of the issue in the instant case did not depend on the interpretation of paragraph 6(1 )(b) of the Income Tax Act, as the respondent had contended in her Reply to the Notice of Appeal, but rather on the application of paragraph 6(1 )(a) of that Act to the facts of the instant case. In these circumstances, it seemed to me appropriate to reopen the hearing, as article 138 of the Tax Court of Canada Rules (General Procedure) permits, in order to obtain comments from the parties on the application of the Federal Court of Appeal decision in Hoefele to the facts of the instant case. I took the opportunity to request brief commentaries from the parties on the effect of paragraph 6(1 )(b) in resolving the issue in the instant case. I then had the benefit of reading the written submissions by the appellant and the respondent, the latter of these being received on March 13 last.

Appellant's claims

As to the facts and reasons for his appeal, the appellant referred, in his Notice of Appeal, to his letter dated April 27, 1993, to Revenue Canada. In that letter, the appellant wrote in part as follows:

I am a Foreign Service Officer with the Department of External Affairs of Canada and, in that capacity, am required to work outside Canada in a number of countries for a large part of my career.

Consequently, enrolling my children in an educational institution such as the Lycée Claudel enables my children, even though they are educated in French:

- to enter the same grade when they change schools, without having to take examinations or remedial courses, in every institution in the “lycée network” in every other country of the world where a similar institution operates;

— and thus to avoid being held back or put into a lower grade in order to adjust to a new academic system, factors that would prevent us from working outside Canada.

This problem does not arise for those of my colleagues who choose to have their children educated in English.

This therefore enables my employer to post my family and me outside Canada for long periods of time in accordance with the statutory and contractual requirements of my employment.

As you yourself will conclude, the benefit is not mine and, for this reason, I cannot agree that this amount should be included in computing my income.

It should be noted that this institution is the only one in the Ottawa area to provide this “universal” program. There is therefore no alternative in terms of choice of institution or choice of a career.

The obligation for my children to attend the Lycée Claudel stems solely from the contractual requirements of mobility and “rotational duty” of my employment.

[Translation.]

The appellant, who was not represented by counsel at the time, in substance reiterated at the hearing the same type of argument for not including the amount reimbursed by the Government of Canada in respect of his children’s education expenses in his income for 1991.

In the written submission filed after the hearing reopened, after reviewing Ransom v. Minister of National Revenue, [1967] C.T.C. 346, 67 D.T.C. 5235, R. v. Savage (sub nom. Savage v. Revenue Canada), [1983] 2 S.C.R. 428, [1983] C.T.C. 393, 83 D.T.C. 5409, Splane v. R. (sub nom. Splane v. Canada), [1990] 2 C.T.C. 199, 90 D.T.C. 6442 (F.C.T.D.), additional reasons at [1991] 1 C.T.C. 406, 91 D.T.C. 5130 (F.C.T.D.), affirmed (sub nom. R. v. Splane), 92 D.T.C. 6021 (F.C.A.), Phillips v. Minister of National Revenue, [1994] 1 C.T.C. 383, (sub nom. R. v. Phillips) 94 D.T.C. 6177 (C.A.), leave to appeal to S.C.C. refused (1994), 5 C.C.P.B. 41 (note), (sub nom. Minister of National Revenue v. Phillips) 179 N.R. 320 (note) (S.C.C.), Blanchard v. R. (sub nom. Blanchard v. Canada) (sub nom. Canada v. Blanchard) [1995] 2 C.T.C. 262, 95 D.T.C. 5479 (C.A.), leave to appeal to S.C.C. refused (May 2, 1996), Doc. 24942 (S.C.C.) and Hoefele, supra, the appellant submitted through his counsel that, according to the decision in Hoefele, the reimbursement of tuition fees and certain other expenses relating to the education of his children should not be considered as a benefit. He then advanced the following arguments: [2]

(1) the reimbursement of tuition fees did not in any way improve the appellant’s economic situation and merely restored him to a situation comparable to that of other Canadian taxpayers whose children receive free primary, secondary and college-level educations in public educational institutions in Canada;

(2) the purpose of the payment was to continue to meet an essential condition in the appellant’s contract of employment, i.e. the rotational duty, and did not constitute an incentive or reward;

(3) the employer limited the reimbursement of tuition fees to the Lycée Claudel only, which shows that these measures are intended to secure access to the “universal system” of French instruction provided at that institution, not access to instruction that might be of superior quality;

(4) the appellant’s situation is similar to that in Huffman v. R. (sub nom. Huffman v. Canada), [1990] 2 C.T.C. 132, (sub nom. R. v. Huffman) 90 D.T.C. 6405 (C.A.) — which concerned the reimbursement of clothing expenses incurred by a police officer — on three essential points in that:

(a) the expense was incurred in order to obtain a common good possessing a special characteristic: universality;

(b) the expense secured a greater benefit for the employer, which thus ensured that the condition of rotational duty required of the employee was met, than for the appellant, who had to meet the requirement;

(c) the reimbursement did not enrich the appellant in any way, as he found himself in the same economic situation as before he had paid the tuition fees.

Furthermore, continuing his comparison of the appellant’s situation with that in Huffman, counsel for the appellant added the following:

Besides, an even more convincing fact than in Huffman, where the issue had to do with clothing, personal effects that every Canadian must necessarily buy and pay for out of his own money, is that the appellant in the instant case simply found himself in the same economic situation as any Canadian taxpayer whose children attend, free of charge, a public primary, secondary or college- level educational institution presumably as good as, if not of better quality than the Lycée Claudel, except as regards the universal characteristic of the French lycée system required by the appellant’s contractual requirement of rotational duty.

[Translation.]

On the question of the application of paragraph 6(1 )(b), the appellant referred in particular to the decision in R. v. Pascoe, [1975] C.T.C. 656, 75 D.T.C. 5427 (F.C.A.) and to the three conditions that must be met for an amount to constitute an allowance. He then claimed that two of the three conditions for characterizing an amount as an ‘allowance’ within the meaning of paragraph 6(1 )(b) were not met. The appellant clarified his approach to that question as follows:

First, the amount paid to the appellant by the employer, i.e. the amount of the tuition fees at the Lycée Claudel, is not fixed, limited and predetermined, as the first two conditions require (see Exhibit A-5, Foreign Service Directive 33, and page 21 of the transcript). That amount fluctuates in accordance with the financial decisions of a third party, the Lycée Claudel, which is not a party to the agreement between the appellant and his employer.

[Translation.]

The appellant contended in the alternative that:

..even if paragraph 6(1 )(b) had in some way applied in this case, subparagraph 6( 1 )(b)(iii) would have excepted or excluded the reimbursement of the Lyc*e Claudel tuition fees from taxable allowances because it would have been part of “representation or other special allowances received in respect of a period of absence from Canada as a person described in paragraph 250(1)(b), (c), (d) or (d.l).

[Translation.]

The appellant also vigorously disputed the relevance of paragraph 6(1 )(b) in interpreting paragraph 6(1 )(a) and thus stated that, in his view, the respondent’s argument is not based on any rule of legal or fiscal interpretation and goes directly against the broad guidelines laid down by the case law, and confirmed by Hoefele, for the interpretation and application of the word “benefit” in paragraph 6(1 )(a) of the Act. Furthermore, he claimed that the respondent’s argument is invalid in that, contrary to the case law, it gives that word a residual meaning and assumes that paragraphs 6(1 )(a) and (b) are “communicating vessels”.

Respondent's claims

Paragraphs 8 and 9 of the Reply to the Notice of Appeal clearly outline the respondent’s principal claims put forward at the hearing. Those paragraphs read as follows:

8. He maintains that the $9,735.00 allowance received by the appellant from his employer was not used to pay the costs incurred as a result of the fact that he had to send his children away from the place in which his domicile is located to educate them in the official language of Canada primarily used by the appellant, as provided for by subparagraph 6(l)(b)(ix) of the Act, because the educational institution which they attended, the Lycée Claudel, is located in the same area as the appellant’s domicile, does not have the necessary boarding facilities for students and is not the educational institution nearest the appellant’s domicile offering instruction in the official language of Canada primarily used by the appellant.

9. He maintains that the $9,735.00 allowance received by the appellant from his employer is an amount received as an allowance for personal or living expenses in accordance with paragraph 6(1 )(b) of the Act.

[Translation.]

In her written submission filed after the hearing reopened, the respondent then admitted that the amounts thus paid to the appellant did not constitute an allowance for tuition fees, but rather a reimbursement of the actual costs incurred by the appellant.

In that same written submission, the respondent contended that the facts of the instant appeal differed from those in Hoefele in that:

(1) the tuition fees in the instant case constituted a personal expense; the respondent emphasized that the appellant had made this career choice and had been warned of the conditions inherent in that choice;

(2) the reimbursement was not calculated using a ratio designed to exclude the personal portion of the expense. The respondent contended that such a situation would be possible only “if the employer reimbursed only the difference between the Canadian tuition fees and foreign tuition fees in the case of instruction in a foreign country”.

In her answer, the respondent [3] responded to the arguments put forward by the appellant as follows:

(1) tuition is free only in the public education system; in the instant case, however, the appellant benefitted from certain additional services not offered within the public system; thus, the appellant received an economic benefit;

(2) although the appellant’s employer required that rotational duty be served, it was not shown that this condition also applied to the employees’ families; the employee could choose to take his family with him to a foreign country, but this was not a condition of employment;

(3) the respondent contended that, in Huffman, the employee had received no personal benefit from the purchase of clothing, which could only be worn in the performance of his work; in the instant appeal, however, the respondent considered that “the expense is not payable by reason of the employment”. Analysis

It seems clear to me first of all that the amount of $9,735 received by the appellant from his employer, the Government of Canada, as reimbursement of expenses in respect of the education of the appellant’s children which the appellant had paid to the Lycée Claudel is not an allowance within the meaning of paragraph 6(1 )(b) of the Income Tax Act. The concept of allowance has been considered by the courts on a number of occasions, in particular in the context of paragraph (6)(l)(b) of the Act.

In Ransom v. Minister of National Revenue, supra, Noël J., who was later to become Associate Chief Justice of the Federal Court of Canada, made the following comments at page 359 (D.T.C. 5243):

à reimbursement of an expense actually incurred in the course of the employment or of a loss actually incurred in the course of the employment is not an “allowance” within the meaning of the word in subsection 5(1 )(b) [now paragraph 6(1 )(b)J as an allowance implies an amount paid in respect of some possible expense without any obligation to account.

The judge continued as follows at page 360 (D.T.C. 5244):

An allowance is quite a different thing from reimbursement. It is, as already mentioned, an arbitrary amount usually paid in lieu of reimbursement. It is paid to the employee to use as he wishes without being required to account for its expenditure. For that reason it is possible to use it as a concealed increase in remuneration and that is why, I assume, “allowances” are taxed as though they were remuneration.

That decision was followed by that of the Federal Court of Appeal in Canada (Attorney General) v. MacDonald (sub nom. Canada v. MacDonald), [1994] 2 C.T.C. 48, 94 D.T.C. 6262 (F.C.A.) in which Linden J.A. defined the term “allowance” as follows, at page 51 (D.T.C. 6264):

Nonetheless, following Ransom, Pascoe and Gagnon, the general principle defining an “allowance” for purposes of paragraph 6(1 )(b) is composed of three elements. First, an allowance is an arbitrary amount in that it is a predetermined sum set without specific reference to any actual expense or cost. As I noted above, however, the amount of the allowance may be set through a process of projected or average expenses or costs. Second, paragraph 6(1 )(b) encompasses allowances for personal or living expenses, or for any other purpose, so that an allowance will usually be for a specific purpose. Third, an allowance is in the discretion of the recipient in that the recipient need not account for the expenditure of the funds towards an actual expense or cost.

The amount received by the appellant in the instant case represented an actual expense which could be reimbursed to him by his employer only upon presentation of vouchers. It was not an amount that could be spent at his discretion and for which he was not accountable.

Furthermore, even if this amount were an allowance, it would undeniably not be tax exempt under subparagraph 6(l)(b)(ix) of the Act. One should remember that the argument at the hearing concerned, to a large degree, the application of that subparagraph. For that subparagraph to apply, the children must, in particular, live away from the employee’s domicile. However, it was established in the instant case that the appellant’s children lived at his domicile during the year in issue.

It also seems fairly clear to me that, assuming the reimbursement of tuition fees by the Government of Canada constituted an allowance, that allowance could not be an allowance of the same kind as those described in paragraph 6(1 )(b)(iii), which concerns “representation or other special allowances received in respect of a period of absence from Canada as a person described in paragraphs 250(1 )(b), (c), (d) or (d.l)”. The allowances in question in subparagraph 6(l)(b)(iii) are not included in income. With respect to that subparagraph, I do not share the view of counsel for the appellant on the scope of the expression “in respect of’. That subparagraph clearly contemplates a period in which the employee is absent from Canada. The context of subsection 250(1) and the wording of paragraph 250(1 )(c), the only subparagraph that must be considered on this issue, leave no doubt on this point.

In any case, as the parties admitted in their written submissions filed at the Court’s request that the reimbursement of the expenses that the appellant incurred in 1991 in respect of his children’s education did not constitute an allowance within the meaning of paragraph 6(1 )(b) of the Income Tax Act, it does not seem to me necessary to consider that question any further.

I therefore conclude that paragraph 6(1 )(b) does not apply here in requiring that that amount of $9,735 be included in the appellant’s income for the 1991 taxation year.

It must now be determined whether the amount received by the appellant had to be included in income under paragraph 6(1 )(a) of the Income Tax Act. This paragraph reads 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 any benefit

(i) derived from his employer’s contributions to or under a registered pension plan, group sickness or accident insurance plan, private health services plan, supplementary unemployment benefit plan, deferred profit sharing plan or group term life insurance policy,

(ii) under a retirement compensation arrangement, an employee benefit plan or an employee trust,

(iii) that was a benefit in relation to the use of an automobile, except to

the extent that it related to the operation of the automobile,

(iv) derived from counselling services in respect of

(A) the mental or physical health of the taxpayer or an individual related to the taxpayer, other than a benefit attributable to an outlay or expense to which paragraph 18(1 )(1) applies, or

(B) the re-employment or retirement of the taxpayer; or

(v) under a salary deferral arrangement, except to the extent that the benefit is included under this paragraph by reason of subsection (11).

It is the introductory words of paragraph 6(1 )(a) that must be analyzed more closely for the purposes of this case. I refer to the following passages of the paragraph in both versions, and more particularly to the parts that I have underlined:

(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 any benefit

a) la valeur de la pension, du logement et autres avantages de quelque nature que ce soit qu’il a reçus ou dont il a joui dans l’année au titre, dans l’occupation ou en vertu d’une charge ou d’un emploi,

It seems to me appropriate to take Noël J.’s decision in Ransom v. Minister of National Revenue, supra, as a starting point. That case concerned an employee who had incurred a loss on the sale of his house in Sarnia in order to take up employment with the same employer in Montreal:

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 Tenant 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” so it does not fall within the introductory words of subsection 5(1) or within paragraph (a) [today 6(1 )(a)]. [4]

He also stated the following:

in other words, whether the services in the employment are the effective cause of the payment [by the employer]....in the legal source of the payment.... 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. [5]

Noël J. had to decide whether the reimbursement for that loss by the employer did not constitute a benefit for the employee within the meaning of paragraph 6(1 )(a) of the Income Tax Act.

In a unanimous judgment in The Queen v. Savage, supra, Dickson J., who was later to become Chief Justice of the Supreme Court of Canada, made general remarks on the scope of the part of paragraph 6(1 )(a) that concerns us in the instant case. He wrote as follows at page 440 (C.T.C. 399): [6]

Our Act contains the stipulation, not found in the English statutes referred to, “benefits of any kind whatever...in respect of, in the course of, or by virtue of an office or employment”. The meaning of “benefits of whatever kind” is clearly quite broad; 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. R., [1983] 1 S.C.R. 29, [1983] C.T.C. 20, 83 D.T.C. 5041, this Court said, at page 39, 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 772.

I agree with what was said by Evans J.A. in R. v. Poynton, [1972] 3 O.R. 727 at page 738, 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 respresent [sic] 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. (footnote omitted)

In that same decision, the Supreme Court of Canada held that the amount received by the taxpayer for having passed exams was a taxable benefit under paragraph 6(1 )(a) of the Act. The following comments at page 441 (C.T.C. 400) should be noted:

As Crown counsel submits, the sum of $300 received by Mrs. Savage from her employer was a benefit and was received or enjoyed by her in respect of, in the course of or by virtue of her employment within the meaning of subsection 6(1 )(a) of the Income Tax Act; it was paid by her employer in accordance with company policy upon the successful completion of courses “designed to provide a broad understanding of modern life insurance and life insurance company operations” and “to encourage self-upgrading of staff members”; the interest of the employer “was that the courses would make her a more valuable employee”; Mrs. Savage took the courses to “improve [her] knowledge and efficiency in the company business and for better opportunity for promotion”. Distinguishing this case from Phaneuf, there was no element of gift, personal bounty or of considerations extraneous to Mrs. Savage’s employment.

I would hold that the payments received by Mrs. Savage were in respect of employment. That, of itself, makes them income from a source under section 3 of the Act.

In McNeill v. Minister of National Revenue (sub nom. McNeil] v. R.), [1986] 2 C.T.C. 352, 86 D.T.C. 6477 (F.C.T.D.) one point for determination was whether the amount received by the taxpayer from his employer to compensate for higher housing costs as a result of his transfer from Montréal to Ottawa constituted a taxable benefit within the meaning of paragraph 6(1 )(a). Rouleau J.’s reasoning is clearly summarized in the summary of that case in the following two paragraphs:

Although it may not be necessary to make a finding as to whether the payment constituted a benefit, this appears to be an appropriate case in which to examine the meaning of the phrase “benefit of any kind whatever” as used in paragraph 6(1 )(a) of the Act. This provision is intended to provide a method to tax perks received in addition to salaries. It is not intended to impose taxation upon an employee for an amount received as reimbursement when it cannot be found in the exemption provisions of paragraph 6(1 )(b).

While it was suggested that the taxpayer did not have to account for the payment and that he was under no obligation to purchase a home in the Ottawa area, the fact is that the plaintiff did purchase a house and was forced to accept the transfer in order to retain his employment.

In Splane, supra, the taxpayer had had to move at his employer’s request from Smith Falls, Ontario, to Edmonton, Alberta, and had been reimbursed for additional mortgage interest payments that he had had to make as a result of the purchase of a new house in Edmonton. The interest rate payable on the loan in respect of the purchase of the Smith Falls house was 12.5 per cent, whereas the rate payable on the mortgage granted on the house in Edmonton was 14.25 per cent. The reimbursement applied to the amounts paid by the taxpayer concerned in respect of interest representing this rate differential just mentioned. Cullen J. of the Federal Court of Canada, Trial Division, held that the amount represented a reimbursement of expenses and that it was not a benefit within the meaning of paragraph 6(1 )(a) of the Income Tax Act.

The following passage by Cullen J. is of particular interest:

Based on the preceding comments, it is apparent that these Mortgage Interest Differential Payments did not constitute taxable benefits under paragraph 6(1 )(a) of the Act. No economic benefit of any significant value was conferred upon this plaintiff. The plaintiff moved at the request of his employer, incurred certain expenses in the move, and suffered a loss. The reimbursement of these expenses cannot be considered as conferring a benefit within the terms of the Act. The plaintiff was simply restored to the economic situation he was in before he undertook to assist his employer by relocating to the Edmonton office. [7]

That judgment by Cullen J. was confirmed by the Federal Court of Appeal, which merely stated that it generally concurred in the remarks by the trial judge.

In The Queen v. Huffman, supra, the Federal Court of Appeal was asked to rule as to whether an amount of $500 paid by an employer to a police officer to enable him to pay for the purchase of oversize clothing in order to carry out his duties was a taxable benefit within the meaning of paragraph 6( 1 )(a) of the Act. Heald J.A. wrote for that Court as follows:

Based on this passage, the learned Trial Judge set out the test which he applied to the facts at bar (A.B. page 99):

It is therefore necessary to consider whether the facts here show that there was a material acquisition conferring an economic benefit on the taxpayer.

He then proceeded to review the evidence and to make the findings of fact referred to supra. In applying the Savage test as enunciated supra to the factual situation at bar, he stated (A.B. page 102):

Based on the jurisprudence defining benefit in subsection 6(1 )(a) of the Income Tax Act, I am unable to conclude in these circumstances that the plaintiff received a benefit. The plaintiff was required, in order to carry out his duties as a plainclothes officer and receive a salary as such, to incur certain expenses regarding his clothing, and reimbursement of these expenses should not be considered as conferring a benefit under subsection 6(1 )(a) of the Act.… The taxpayer was simply being restored to the economic situation he was in before his employer ordered him to incur the expenses.

I agree with the Trial Judge. The findings of fact which he made are amply supported by the evidence. I also think that he correctly applied the relevant jurisprudence to the facts in this case. [8]

In Detchon v. R., [1996] 1 C.T.C. 2475 an educational institution had provided free instruction to the children of two employees. Those employees were members of the teaching body of Bishop’s College School (“BCS”) in Lennoxville, Quebec. Judge Rip of this Court held that the provision of free instruction to the children of those two taxpayers constituted a taxable benefit under paragraph 6(1 )(a) of the Act. He wrote in part as follows: [9]

It is quite a stretch to consider that only BCS obtains a benefit when its teachers’ children attend the school. While it may be useful for its purposes to have its teachers’ children attend BCS, it is no less an advantage for the employees of BCS to avail their children of a product that demands a good amount of money in the education marketplace.

There is simply no evidence that the appellants were legally obligated to send their children to BCS or horrendous consequences would ensure. The appellants would not have been discharged from their teaching positions. There may have been professional and community pressure to send the children to BCS, but nothing more. The appellants may have been obligated under their contract with BCS to do certain things, such as live on campus, eat in the cafeteria, be available at all times, but sending their children to BCS was not one of the obligations.

I agree with Me Lefebvre that the free tuition was a benefit for purposes of paragraph 6(1 )(a). The free tuition represented something of value in a material or economic sense to the appellants. The appellants, as a result of the free tuition, were not being returned to a previous economic state, as in R. v. Huffman, 90 D.T.C. 6405, at page 6407, for example. To put it succinctly: the appellants got something for nothing.

In Phillips, supra, the taxpayer was an employee of CN at its Moncton shops when CN announced that its shops would close in 1987. Under an agreement reached between CN and the various unions concerned, a $10,000 relocation payment was established for each employee who precisely met the following five requirements: (a) owned a house in Moncton, (b) was transferred from Moncton to Winnipeg, (c) sold his Moncton house, (d) purchased a house in Winnipeg and (e) reported for work in Winnipeg. The taxpayer in that case met the five requirements set under that agreement and accordingly received the $10,000 payment. The Minister of National Revenue included that amount in the income of the taxpayer in question, who disputed the assessment’s validity. The point at issue was whether this relocation payment made to compensate for the higher housing prices at the new place of work constituted employment income.

In allowing the appeal from the judgment by the Federal Court, Trial Division, the Federal Court of Appeal, per Robertson J.A., held that the $10,000 payment constituted a taxable benefit under paragraph 6(1 )(a) of the Act. Robertson J.A. accepted two main arguments in support of his conclusion. He wrote as follows, at page 702:

Just as the appellant sought to convince us that Ransom should be deemed to have been wrongly decided, so would the respondent have us extend Ransom to embrace CNR’s $10,000 payment to him. While I support the rule in Ransom, it has no application in a case concerning an expenditure as opposed to a capital loss. This interpretation is compelled both by the Supreme Court’s decision in Savage, the concept of tax equity underlying section 6 and the structure of the Act as a whole.

It is apparent on the facts before us that the respondent’s net worth qua employee increased. Even if the $10,000 payment is taxable, he gains con- siderable disposable income. The compensatory payment effectively represents a temporary wage increase not available to all employees. Second, he gains an advantage over fellow employees resident in the community with higher housing costs. I find it difficult to accept that the respondent has a valid claim to a $10,000 tax-free benefit which can be used in the purchase of a house, while other Winnipeg employees are forced to expend after-tax dollars in order to gain entry into the housing market.

At pages 703 and 704 of the same report, the same judge stated the second argument in the following terms:

Perhaps the most persuasive rationale for limiting the application of Ransom lies in the myriad expenses which its extension could exempt from taxation. The respondent effectively argues that any payment received from an employer to compensate an employee for higher housing costs in a new work location only serves to make the employee whole. As we have seen, this rationale is flawed. Moreover, nothing bars the extension of this same faulty reasoning to other purchases, such as new cars or appliances, in provinces with higher costs of living.

I also observe that the problem of compensation directed at tax equalization is apparently of concern to tax lawyers familiar with the U.S. multi-national practice of “grossing up” salaries of executives transferred to Canada: see J.D. Bradley, “Measuring Employee Benefits”, Report of Proceedings of the Forty- Third Tax Conference (Canadian Tax Foundation, 1991) 8:56, at page 8:59; and R.B. Thomas and T.E. McDonnell, supra, at pages 941-942. What of the employee who moves to a province with higher marginal rates of taxation? Why should he or she not be able to claim a tax-free benefit as well, assuming the employer is willing to provide such compensation? In my opinion, it is evident that the decision below creates a window of opportunity for those intent on structuring tax-free compensation packages for employees required to relocate to urban centres where costs of living are appreciably higher.

When the above concerns are contemplated in light of the clear wording of paragraph 6(1 )(a) of the Act, the reasoning in Savage and Parliamentary intent, it seems plain that the $10,000 payment is a taxable benefit unless the respondent can satisfy this Court that it did not confer an economic advantage upon him. This marks the respondent’s final effort to gain a $10,000 tax-free benefit and his real complaint.

Lastly, Robertson J.A. concluded as follows on the question of economic benefit, at page 705:

Once the subjective value argument is dismissed, it is quite evident that the $10,000 payment enabled the respondent to acquire a more valuable asset. CNR did more than save his pocket — it put money into it. Of course, the respondent will doubtless suffer short-term hardships which inevitably accompany job relocation. However, grasping for a tax-free benefit is neither an appropriate nor meaningful way of acknowledging the true costs of employment relocation.

In Blanchard, supra, the issue had to do with the tax treatment of an amount paid by an employer to an employee to buy back the latter’s rights under an employee housing agreement. That sum was held by the Federal Court of Appeal to be a taxable allowance within the meaning of paragraph 6(1 )(a) of the Act.

Certain comments by Linden J.A. are of particular interest: [10]

Section 6 of the Income Tax Act was designed to supplement and broaden the notion of taxable employment income as set out in section 5, which provides that all forms of remuneration are to be included as employment income. The notion of “remuneration”, however, encompasses only those payments flowing from an employer to an employee for services rendered or work performed. It does not encompass other gains or advantages not directly classifiable as remuneration but arising, nonetheless, out of the taxpayer’s employment. To capture these items, various inclusion provisions were added. Two of those provisions concern us directly here, paragraphs 6(1 )(a) and subsection 6(3).

Paragraph 6(1 )(a) is an all-embracing provision. It provides that all “benefits of any kind whatever” are to be included as employment income if they were received “in respect of, in the course of, or by virtue of an office or employment.” The section casts a wide net, incorporating two broadly worded phrases. The first is “benefits of any kind whatever”. The scope contemplated by this phrase is plain and unambiguous: all types of benefits imaginable are to be included.

Further on, he continues as follows:

Paragraph 6(1 )(a) leaves little room for exceptions, but a few have surfaced in the jurisprudence. First, reimbursements paid by an employer to an employee for expenses incurred by that employee are not taxable. They are not benefits. They do not put anything in the taxpayer’s pocket, but merely save the pocket of the taxpayer. In other words, they are merely payments in an overall zero-sum transaction.

Second, a benefit that is wholly “extraneous” or “collateral” to one’s employment, that is, one that is received in one’s “personal capacity” only, may fall outside paragraph 6(1 )(a). This exception is very narrow and is available only where there is no connection or link to the employment relationship (footnotes omitted).

Linden J.A. concluded as follows on the application of paragraph 6(1)(a) of the Act: [11]

In addition, this payment constituted a benefit received by the taxpayer. The payment was clearly a “material acquisition.” It represented the “money’s worth” of certain contractual rights which benefitted the respondent personally in an economic manner. It does not matter that the employer may also have benefitted from the housing policy by attracting employees to its project. There was economic benefit to the employee in receiving in advance money which he may or may not have had to pay out at some time in the future. He was not merely being reimbursed for costs incurred. He did not have to account for the amount received. Here, the benefit initially took the form of a valuable contractual right, intended to induce employees to relocate to a remote region of the province, and, in fact, it induced Blanchard to do so. It may have incidentally benefitted the spouses and families of the employees as well, but this does not make it anything other than a benefit to the taxpayer. This contractual right was evaluated and paid in money under ETAP. Hence, this payment was a benefit received by the taxpayer and is taxable under paragraph 6(1 )(a).

It remains for me to consider the decision by the Federal Court of Appeal in Hoefele et al., supra. [12] In that case, five employees were required to relocate from Calgary to Toronto in the wake of a broad reorganization by the employer. To encourage the employees concerned to agree to relocate in the Toronto area and to compensate those employees for the higher housing costs in the area of their new place of work, the employer first consulted a national real estate company to determine the market price differential between similar houses in Calgary and Toronto, which at the time of relocation was set at 1.55. Thus, it was shown that a house worth $100,000 in Calgary would be worth $155,000 in Toronto. Under the relocation program established by it, the employer agreed to pay the employees concerned the interest and part of the mortgage loan taken out by them to purchase a house in Toronto. That part of the loan was limited to the price differential determined by the real estate company that had been consulted. Furthermore, the employer’s help in paying interest on part of the principal borrowed by the employee gradually diminished in proportion to the reduction in outstanding loan principal.

Linden J.A. held that the interest payment assistance provided to the employees concerned was not a taxable benefit for the purposes of paragraph 6(1 )(a) or section 80.4 of the Act. The following passages from Linden J.A.’s judgment, in which MacGuigan J.A. concurred, clearly show the important elements of his analysis:

Therefore, the question to be decided in each of these instances is whether the taxpayer is restored or enriched. Though any number of terms may be used to express this effect - for example, reimbursement, restitution, indemnification, compensation, make whole, save the pocket — the underlying principle remains the same. If, on the whole of a transaction, an employee’s economic position is not improved, that is, if the transaction is a zero-sum situation when viewed in its entirety, a receipt is not a benefit and, therefore, is not taxable under paragraph 6(1 )(a). It does not make any difference whether the expense is incurred to cover costs of doing the job, of travel associated with work or of a move to a new work location, as long as the employer is not paying for the ordinary, every day expenses of the employee. [13]

Lastly, he concluded as follows with respect to the application of paragraph 6(1 )(a):

Having dwelled upon the deceptively simple principles set out in Ransom and Savage, I must now wade into the murky waters of employee relocation benefits to determine whether the payments made under the interest subsidy scheme in these cases are taxable. As was stated above, four of the five Tax Court Judges who considered these five cases decided that the mortgage interest subsidy is not a taxable benefit. The primary reason for this, they indicated, was that the mortgage interest subsidy scheme established in these cases did not increase the mortgagors’ equity in their homes. No economic gain accrued to any of the taxpayers as a result of the subsidy. Their net worth was not increased. Thus, a fundamental requirement of paragraph 6(1 )(a) was unfulfilled. Where no economic gain is present, a receipt is not to be taxed. Sobier J.T.C.C. put it succinctly in the Hoefele reasons:

The appellant’s equity in the new house remained the same. The house in Toronto may be a significantly more valuable asset but the Appellant’s ownership in the asset did not increase. In Calgary, the Appellant’s equity in his home was $98,600.00. In Toronto, the Appellant’s equity position was still $98,600.00. A person’s economic position is not advanced by maintaining the same ownership in a more valuable asset. The Appellant assumed all responsibility for payments on account of increased principal. In fact, his monthly mortgage payments were greater in Toronto than Calgary. If employment ceased or the employee was relocated back to Calgary, the assistance ceased. The assistance received by the Appellant was not a colourable attempt to increase the Appellant’s remuneration; it is merely a reimbursement for an expense incurred by virtue of employment.

I am in full agreement with this conclusion, for it is entirely consistent with the jurisprudence of the Supreme Court of Canada and of this Court. It is also mainly a finding of fact, something this Court cannot alter except in the rarest of circumstances. [14]

I believe it to be helpful to refer to Robertson J.A.’s dissenting view in that case. He asked the question in the following terms:

The proper question is whether the payments have the effect of enhancing the taxpayers’ overall financial worth: that is to say, whether the payments confer an “economic benefit” on the taxpayers. [15]

He then made the following comments:

While the taxpayers sought to distinguish Phillips on myriad grounds, one did gain acceptance. In a few cases, it was argued successfully that while the taxpayers’ homes in Toronto may have been significantly more valuable assets than the ones in Calgary, the “equity” in each remained the same and, therefore, there could be no increase in the taxpayers’ individual net worth. In my respectful view, this reasoning fails to acknowledge the continuing effect of the interest subsidies paid by Petro-Canada. Although the taxpayers may not have been better off financially the day immediately following the relocation, as soon as Petro-Canada paid the first monthly subsidy payment to Confederation Life, the taxpayers’ financial positions were improved by that amount, and this is true irrespective of whether their standards of living remained unchanged. A brief. explanation should suffice.

Because of the monthly interest subsidies, the taxpayers do not have to shoulder the full cost of acquiring a more valuable asset. The full cost includes not only the principal amount of the mortgage loan, but also accruing interest. But for the subsidies, each of the taxpayers would have been required to use after-tax dollars in order to retire the interest component of the mortgage loan. With the subsidies, the taxpayers are in a position to spend those after-tax dollars as they wish. It is in this sense that the taxpayers’ net worth increases. To reiterate what I said above, the fallacy in the taxpayers’ argument can be traced to the mistaken belief that they are entitled to comparable housing in the Toronto area. The subsidies in question may well have the effect of restoring the taxpayers to the same standards of living they enjoyed prior to moving to the Toronto area. However, in doing so, the subsidies improve the taxpayers’ financial positions.

To suggest that the subsidies go toward only the increased interest component of the mortgage and not the principal, and therefore the payments made by the taxpayers’ employer do not have the effect of increasing the taxpayers’ net worth, is simply to mask the reality of the situation. In Phillips, I alluded to the fact that a valid distinction could not be drawn between a lump sum payment which is used to reduce the principal amount of the loan and a payment which is applied directly against accruing interest. The reason being that if you reduce the principal amount of a loan, by means of a lump sum payment, you necessarily reduce the amount of interest that can accrue in the future. In other words, the form in which the payment is made should not detract from the legal reality that the taxpayers have received financial assistance to defray what is, in fact, a personal living expense. [16]

After considering the principal judicial decisions concerning, more particularly in recent years, the question of benefits under paragraph 6(1 )(a) of the Act, I must now determine whether the factual situation in the instant case falls within or outside the “fiscal scope” of paragraph 6(1 )(a).

Outside that “scope” we find, first, the decision by Noël J. in Ransom, in which the Court held that the reimbursement of a loss incurred by an employee on the sale of his house as a result of his employer’s decision to transfer him to another work location was not a benefit within the meaning of paragraph 6(1 )(a) of the Act. The loss resulted directly from a decision by the employer, which had assigned the employee to a new work location in another region of the country.

In Splane, the purpose of the employer’s reimbursement of the employee was to compensate for the additional amounts paid in interest as a result of the difference between the higher interest rate that applied to the financing of the purchase of a home at his. new work location and the lower financing rate on the house at his former work location. The employee was required to incur that additional expense as a direct consequence of the employer’s decision as to the place where the employee had to perform his duties. The taxpayer was thus losing a better interest rate.

Huffman concerned the reimbursement of an expense relating to special clothing that the employee had to wear in order to perform the duties of his position.

The decision in McNeill concerned another employee transfer case. The purpose of the reimbursement was to compensate the employee for higher housing costs at his new work location.

Lastly, in Hoefele, the reimbursement applied to the interest payable on the part of a mortgage loan that corresponded to the difference in price between houses in the community at the new work location and houses in the former work location. The dissenting judge in that case held that this was a taxable benefit by reason of the fact that the payment in question had helped the employee purchase a house of greater value.

I now come to the decisions of the courts that have held that the benefits conferred on an employee fell within the “fiscal scope” of paragraph 6(1 )(a) of the Act.

First of all, the decision in Savage concerned a case in which an employee had received a payment in recognition of the fact that she had passed examinations following courses that she had taken of her own volition in order to improve her qualifications while in the service of that employer.

In Phillips, the $10,000 payment made by an employer to an employee to compensate him for the higher cost of housing in the community of his new work location was found to be a taxable benefit, given that that payment represented a temporary increase in the employee’s salary and in his net worth. The Federal Court of Appeal also emphasized in this last case that the rule stated in Ransom should not be applied more broadly because it would have the consequence of rendering non-taxable an entire range of expenses that could be incurred by employees required to work in a province where the cost of living is higher.

The payment in respect of the buy-back of an employee’s rights in Blanchard was not considered as a mere reimbursement of expenses, but as a benefit resulting from an early buy-back of an employee’s rights relating to his house. It is not certain that the taxpayer would have benefitted at a later date from the rights granted under the employer’s policy on housing in a remote area.

In Detchon, Judge Rip of this Court readily found that the free tuition granted by an employer to two employees in respect of their children constituted a taxable benefit within the meaning of paragraph 6(1 )(a) of the Act.

Having regard to the foregoing remarks, there is no doubt that the situation before us is quite unlike that in Savage, in which the payment in question made by the employer — which the Supreme Court of Canada ordered be included in income — was intended in a way to reward an employee who had passed exams and, consequently, acquired knowledge that could improve her work performance in the service of that same employer. The facts in the instant case are also quite different from those in Huffman, in which the expense reimbursed pertained to the purchase of clothing that could be used by the employee only as part of his work. The employee thus derived no personal benefit. Nor is the instant case very similar to Detchon, in which the employer provided instruction free of charge to the children of the two employees in question, given that there was, strictly speaking, no obligation on the part of those employees to enrol their children in the employer’s school and that those children would not have been put at a disadvantage from an educational point of view if they had attended another school than that of the employer in question.

All the other decisions considered, apart from those mentioned in the previous paragraph and Blanchard, concerned payments made by employers in situations in which, as a result of an employer’s decision to transfer an employee to a new place of work, the taxpayer had either incurred a loss on the sale of his house, as in Ransom, or additional expenses, as in Splane, McNeill, Phillips and Hoefele, in purchasing a new house in the new work location.

As we have seen, the courts have held that, in certain cases, the payments constituted taxable benefits within the meaning of paragraph 6(1 )(a), whereas, in other situations, as in Hoefele, they found that those payments were not benefits within the meaning of paragraph 6(1 )(a) and were therefore not taxable.

The line drawn in these cases is not entirely clear. Thus, the decision in McNeill - if, of course, the Court’s remarks on the application of paragraph 6(1 )(a) of the Income Tax Act are part of the ratio decidendi of its judgment, which is debatable — appears to run counter to the Federal Court of Appeal decision in Phillips, and the latter decision appears difficult to reconcile with the judgment by the same Court in Hoefele.

I must apply these ill-defined trends found in the case law to the facts of the instant case.

First of all, the tuition fees of an employee’s dependent children are indisputably expenses of a personal nature. In paying those expenses, parents are discharging a personal obligation which, in principle, is incumbent upon them in their capacity as parents. The reimbursement of those expenses by an employer at first glance constitutes a benefit within the meaning of paragraph 6(1 )(a) of the Income Tax Act. However, there is something particular about this expense in this case. These fees were paid by the appellant as a result of the condition regarding the rotational nature of his position. That condition was inherent in the appellant’s employment with the Government of Canada. His children’s attendance at the Lycée Claudel was the only realistic option if the appellant decided that his children were to continue their education in a French education system when outside Canada.

If we consider, for example, the case of an employee of the department concerned of the Government of Canada who was not a rotational employee and who decided to enrol his children in the Lycée Claudel — scenario no. 1 — the reimbursement of the tuition fees to such an employee, either by the Government of Canada or any other employer, would indisputably constitute a taxable benefit for that employee within the meaning of paragraph 6(1 )(a) of the Act. Furthermore, the appellant in the instant case, who was reimbursed by his employer, the Government of Canada, for his tuition fees, benefitted in that respect as a result of such reimbursement as compared to the non-rotational employee cited above.

This analysis would not be complete if I failed to compare the appellant’s situation with that — scenario no. 2 — of an non-rotational employee who enrols his dependent children in a public education system in Canada, as he can do without having to pay tuition fees and without causing his children any inconvenience. The appellant would thus be placed at a disadvantage - if, of course, the reimbursement of these fees by his employer constituted a taxable benefit — compared to this employee, who would not be able to enrol his children in a French-language public school and would have to take the necessary steps for his children to be educated at the Lycée Claudel if the employee wanted to avoid the aforementioned difficulties with respect to his children’s education.

If I continue this analysis, it appears from the evidence that the appellant also suffers loss as compared to a rotational employee - scenario no. 3

—in the same department who can enrol his children in a public English- language public education system in Canada, since that employee’s children will not have any entry or adjustment problems when they continue their studies outside Canada in an English-language education system. The loss suffered by the appellant in this scenario would result from the fact that if he wants to prevent his children from suffering serious educational difficulties when he is outside Canada, he must necessarily enrol them in the Lycée Claudel when he resides in Ottawa and must incur expenses in that respect. This loss of course exists only if the reimbursement of those expenses for the education of the appellant’s children is taxable.

It follows from the study of these three scenarios that the reimbursement of expenses relating to the education of the appellant’s children at the Lycée Claudel provides an increase in the appellant’s net worth as compared to the class of employees contemplated in scenario no. 1, whereas, in the other two scenarios, one comes to the opposite conclusion. I mention the impact on the appellant’s net worth because it must be kept in mind that the Supreme Court of Canada in Savage, and the Federal Court of Appeal in Phillips and Hoefele in particular, ruled that an employee receives a taxable benefit under paragraph 6(1 )(a) of the Act from the moment it results in an economic benefit or an increase in the taxpayer’s net worth. Applying this test is not always easy because, as has been emphasized, every reimbursement of expenses results in a certain sense in a benefit for the person whose net worth increases compared to what it would otherwise have been without that reimbursement. The test suggested by these decisions seems to me to be more useful and understandable if one takes into account the more or less close or intimate relationship between the reimbursement of an expense incurred by an employee and the requirements of his employment.

If this matter is viewed from another angle in light of the case law cited above, one is forced to note that the expenses for which the appellant was reimbursed by his employer were not reimbursed as a result of a change of the appellant’s place of employment, but both in anticipation of the appellant’s probable assignment outside Canada and as a result of a personal decision to enrol his children in a French education system. Ultimately, I find the relationship between the appellant’s employment and the expenses for which he was reimbursed somewhat less close than the relationship between the expenses incurred by the employees in Ransom, Splane and Hoefele, supra, and their being assigned by their employers to new work locations in other regions of the country.

If Phillips is compared to the instant case, one notes that, in the first case, an advance payment was made in order to take into account the greater expenses that the taxpayer would have to incur as a direct consequence of his relocation to the area of his new place of work, whereas, in the instant case, the payment was not made by the employer until after the expenses were incurred and paid by the employee. Furthermore, from the point of view of the relationship between the expenses incurred in Phillips and in the appellant’s case and the employment of the two individuals concerned, it appears that the relationship in Phillips is closer than in the appellant’s case. This additional expense was the result of a change of place of employment in Phillips, whereas the expense in the instant case related to the education of an employee’s children in anticipation of the employee’s being assigned to a position outside Canada.

From the foregoing analysis, I am inclined to conclude that the reimbursement by the Government of Canada of the appellant’s expenses with respect to his children’s education falls within the “fiscal scope” of paragraph 6(1 )(a) of the Act. This conclusion is based on the following factors:

(a) these expenses have to do with a personal matter, i.e. the education of an employee’s children;

(b) they were incurred as a result of the appellant’s decision to enrol his children in a French-language education system, even though that decision was entirely understandable in the circumstances;

(c) they were incurred in anticipation of the appellant’s being posted outside Canada.

All things considered, the relationship between these expenses, which were reimbursed by the Government of Canada, and the appellant’s employment, although a close one, does not seem to me to be close enough to place the reimbursement of those expenses beyond the fiscal scope of paragraph 6(1 )(a) of the Act. Furthermore, the appellant has not shown that the reimbursement of the expenses here in issue did not, under certain circumstances, provide him with an economic benefit. In coming to this conclusion, I have not forgotten that, in deciding whether the expenses reimbursed in respect of the education of the appellant’s children were taxable, the appellant is placed at a certain disadvantage relative, in particular, to the class of employees referred to in scenario no. 3 mentioned above, i.e. the rotational employees whose children pursue their education in English. In my view, no remedy is possible to correct this state of affairs under the current tax legislation.

For these reasons, the appeal is dismissed.

Appeal dismissed.