Stephen A. Fish v. Her Majesty the Queen, [1996] 3 CTC 2733 (Informal Procedure)

Bowie J.T.C.C.: — Mr. Fish was employed by Marriott Corporation of Canada Ltd. in Saskatoon, Saskatchewan. In April, 1990 his employer offered him a promotion to the position of Manager of Food Services at McMaster University in Hamilton, Ontario. He accepted this promotion, because to do so enhanced his career with the company. This necessitated moving himself and his family from Saskatoon to a location from which he could commute to Hamilton. After a thorough search of the housing market. in the vicinity, he found a house in Brantford, Ontario which, although less desirable than the home they owned in Saskatoon, met the requirements of his family. The cost of housing in southern Ontario proved to be considerably higher than in Saskatoon, and the salary increase that went with his promotion was not adequate compensation for this increased cost. His employer, to help with these increased housing costs, paid him a one-time only allowance of $8,000. The issue in this appeal is whether or not that allowance is taxable. The Respondent relies upon paragraphs 6(1 )(a) and 6(l)(b) of the Income Tax Act (the Act). The Appellant relies upon recent decided cases [1] for the proposition that the amount paid to him is not subject to tax.

Some further facts will help to put the issues in perspective. In Saskatoon, the Appellant and his family lived in a very comfortable four- bedroom house on a large lot, with a two-car garage, separate dining room and family room, and an en suite bathroom for the master bedroom. He had the benefit of a mortgage which was subsidized under the Mortgage Interest Reduction Plan of the government of Saskatchewan. This plan operated to relieve homeowners of the mortgage interest payable by them in excess of 10.75 per cent per annum on the first $50,000 of their mortgage during the period April 1, 1990 to February 28, 1991. Upon moving, the Appellant found that it was only possible for him to acquire a smaller house on a much smaller lot, and with lesser amenities. His home in Saskatoon sold for $89,990; his house in Brantford cost $121,500. To purchase the Brantford home he had to increase his mortgage indebtedness from $73,000 to $121,500, and borrow another $5,000 in addition. His mortgage interest rate rose from 12.25 per cent to 12.75 per cent per annum, and he lost the benefit of the provincial government subsidy. His monthly payments for principal and interest on the mortgage rose from $801.21 to $1,323.33.

After making his investigations of the market, and before committing himself to the purchase in Brantford, the Appellant spoke to his superiors at Marriott, explaining to them the financial difficulty in which he was placed by the move. It was as a result of these discussions that he was given the $8,000 payment by his employer. I accept his testimony that the purpose of this payment was to help him with the increased cost of housing which he suffered as a result of the move, that he felt obliged to spend the money on providing housing for his family, and that he would have had to repay the amount if he had left the company soon thereafter.

Mr. Yaskowich, appearing for the Crown, argued that the $8,000 amount is both an allowance within the meaning of that word as it is used in paragraph 6(1 )(b) of the Act, and a benefit falling to be taxed under paragraph 6(1 )(a). He took the position that the present case is indistinguishable from Canada (Attorney General) v. MacDonald [2] where a housing subsidy paid to a member of the R.C.M.P. upon relocation from Regina to Toronto was found to be taxable under paragraph 6(1 )(b) as an allowance, because it was an arbitrary amount, fixed in advance of any expenditure, without reference to any specific expense or cost to the taxpayer occasioned by his move. He also relied on Phillips v. Minister of National Revenue^. [3]

The Appellant presented a carefully prepared argument in which he asserted that this case is similar to that of Hoefele*, [4] in that he had no discretion as to how he would use the $8,000 amount, but must spend it on housing. Moreover, he argued, far from conferring a benefit on him, this payment fell short of compensating him for the additional cost to him of housing his family in his new location, even though the new house provided lesser amenities than the old one. He calculated that for the remainder of the term of his mortgage in Saskatoon, some 9 months, the cost to him of the increased rate of interest which he was required to pay when purchasing in Brantford was $216.72, and the loss of the provincial government subsidy of his mortgage interest cost him $727.20. These amounts at least, he argued, should not be taxable, on the authority of the Federal Court of Appeal’s decision in Splane [5] . He also invoked the argument that the Act should be administered in a way that encourages mobility for Canadians, rather than discouraging it.

Confused, and confusing, as this area of the law is [6] , it is reasonably clear that an amount paid to an employee to assist with the higher cost of housing in a location to which that employee has moved at the request of the employer is subject to tax, at least to the extent that it is not paid to compensate the employee for actual losses incurred as the result of the move, if the amount benefits the employee economically. Actual losses may take the form of loss of capital value upon the sale of a house, or the loss resulting from the need to replace a mortgage on the former residence with one that bears a higher rate of interest on the new residence. Whether the amount is taxed as a benefit or as an allowance is perhaps academic; in most cases the amount, if it improves the financial position of the employee, rather than simply making him whole, will be captured within the words of both paragraphs (a) and (b) of subsection 6(1).

In the present case the Appellant is able to demonstrate that he has suffered losses in respect of his mortgage interest expense. In Saskatoon, he paid 1/2 per cent per annum less on his mortgage than in Brantford, and would have continued to do so for the 9 month balance of its term. He would also have had the provincial subsidy of 1.5 per cent per annum on the first $50,000 in Saskatoon. This was lost to him by the move. These amounts are:

$73,000 x 1/2 per cent x 3/4 = $273.75

and

$50,000 x 1 1/2 per cent x 3/4 $562.50

Total = $836.25

The Appellant did not suffer any loss of capital on the sale of his home in Saskatoon; he sold it for a slightly higher price than he had paid two years before.

There is at least a suggestion in the majority judgment of Linden J.A. in Hoefele [7] \ that for such an amount to escape taxation as an allowance there must be a requirement that the employee furnish receipts to the employer. In the absence of a statutory requirement of this kind it is, in my opinion, sufficient that the taxpayer establish that the purpose of the amount was to compensate him for his loss, and that he did in fact suffer that loss. The Appellant’s evidence at trial satisfies me on both of these matters. By the time that he discussed his difficulty with his superiors, and they agreed to provide the $8,000 amount, he had obtained his mortgage loan for the Brantford purchase, so that the exact amount of his losses relating to the increased rate of interest, and to the provincial subsidy, were known to him, and they were part of that discussion. I conclude, therefore, that the amount of $836.25 is not subject to tax under either paragraph 6(1 )(a) or 6(l)(b).

The remaining $7,163.75 I find is taxable under subsection 6(1), either as a benefit under paragraph (a) or as an allowance under paragraph (b). Both provisions are wide enough to include it. What is material is that, in a legal sense, the Appellant was benefitted by the payment to that extent [8] . Certainly the Appellant in this case does not feel benefitted. Subjectively, he has suffered considerably as to both the cost and the standard of his living accommodation, even after applying the $8,000 payment to ameliorate the consequences of the move. As Robertson J.A. points out in Phillips [9] , a subjective comparison of different houses in different cities has no place in the analysis of this issue. What must govern the result is the fact that the Appellant did acquire a more valuable asset, in objective terms, when he sold his house in Saskatoon and replaced it with the one in Brantford; his equity increased by almost $8,000.

In summary, then, of the $8,000 paid to the Appellant by his employer to help him with the increased housing costs resulting from his move from Saskatoon to Brantford, $836.25 is compensation for higher interest costs relative to that part of his new mortgage which equates to the balance of his old mortgage at the time of sale, and for the loss of the provincial subsidy on the first $50,000 of his mortgage. The remaining $7,163.75 is taxable under subsection 6(1) of the Act. The appeal is allowed and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on that basis.

Appeal allowed in part.