Séguin v. R., [1998] 1 CTC 2453

Somers D.J.T.C. :

This appeal was heard at Ottawa, Ontario, on September 20, 1996, under the informal procedure.

The point for determination: is whether the interest charges on the mortgage on the appellant’s old residence are deductible moving expenses in computing his income for the 1991 and 1992 taxation years, in accordance with subsections 62(1) and 62(3) of the Income Tax Act (the “Act”).

In his Notice of Appeal, the appellant alleges that he accepted employment in the Outaouais region in early 1990. As he was living in Montréal, he had to move to Hull. His residence in Montréal was thus immediately put up for sale. Given the real estate market in the Montréal area at the time and the rising interest rates, he was unable to sell his residence until March 1992. The appellant purchased a residence in Hull on July 1, 1990. His Montréal residence was not leased and remained empty until the time of the sale. He therefore owned two residences for a 22- month period.

The Minister of National Revenue (the “Minister”) concluded in his Notice of Assessment for the 1991 and 1992 taxation years that the interest charges on the mortgage on the Montréal residence were not moving expenses deductible by the appellant in computing his income in accordance with subsections 62(1) and 62(3) of the Act.

In making the appellant’s assessment, the Minister relied on the following assumptions of fact, which the appellant admitted or denied at the hearing of the instant appeal:

[TRANSLATION]

(a) the facts previously admitted;

(b) the appellant owned a residence in Montreal at the time he began his new employment in Ottawa on February 9, 1990; (admitted)

(c) as a result of the acquisition of his new residence in Hull on or around July 1, 1990, the appellant owned two residences until his Montréal residence was sold on or around March 1, 1992; (admitted)

(d) the appellant incurred and paid the following amounts in respect of interest charges on the mortgage on his Montréal residence in 1991 and 1992. (admitted)

199]	1992
$9,321	$2,320

(e) the amounts paid by the appellant in 1991 and 1992 in respect of interest charges on the mortgage on his Montréal residence are not moving expenses incurred for the purpose of moving from his old residence to come and occupy his new residence; (denied)

(f) the amounts paid by the appellant in 1991 and 1992 in respect of interest charges on the mortgage on his Montréal residence are not deductible in computing his income for the said taxation years. (denied)

The statutory provisions applicable to the instant case are subsections 62(1) and 62(3) and section 67 of the Act:

62: Moving expenses.

(1) Where a taxpayer has, at any time, commenced

(a) to carry on a business or to be employed at a location in Canada (in this subsection referred to as his “new work location”), or

(b) to be a student in full-time attendance at an educational institution (in this subsection referred to as his “new work location’’) that is a university, college or other educational institution providing courses at a postsecondary school level,

and by reason thereof has moved from the residence in Canada at which, before the move, he ordinarily resided (in this section referred to as his “old residence”) to a residence in Canada at which, after the move, he ordinarily resided (in this section referred to as his “new residence”), so that the distance between his old residence and his new work location is not less than 40 kilometres greater than the distance between his new residence and his new work location, in computing his income for the taxation year in which he moved from his old residence to his new residence or for the immediately following taxation year, there may be deducted amounts paid by him as or on account of moving expenses incurred in the course of moving from his old residence to his new residence, to the extent that

(c) they were not paid on his behalf by his employer,

(d) they were not deductible by virtue of this action in computing the taxpayer’s income for the preceding taxation year,

(e) they would not, but for this section, be deductible in computing the taxpayer’s income,

(f) the aggregate of such amounts does not exceed

(i) in any case described in paragraph (a), the taxpayer’s income for the year from his employment at his new work location or from carrying on the new business at his new work location, as the case may be, or

(ii) in any case described in paragraph (b), the aggregate of amounts required to be included in computing his income for the year by virtue of paragraphs 56(1)(n) and (o), and

(g) any reimbursement or allowance received by him in respect of such expenses is included in computing his income.

62(3) “Moving expenses" defined. In subsection (1), “moving expenses” includes any expense incurred as or on account of

(a) travelling costs (including a reasonable amount expended for meals and lodging), in the course of moving the taxpayer and members of his household from his old residence to his new residence,

(b) the cost to him of transporting or storing household effects in the course of moving from his old residence to his new residence,

(c) the cost to him of meals and lodging near the old residence or the new residence for the taxpayer and members of his household for a period not exceeding 15 days,

(d) the cost to him of cancelling the lease, if any, by virtue of which he was the lessee of his old residence,

(e) the selling costs in respect of the sale of his old residence, and

(f) where his old residence is being or has been sold by the taxpayer or his spouse as a result of the move, the cost to him of legal services in respect of the purchase of his new residence and of any taxes imposed on the transfer or registration of title to his new residence,

but, for greater certainty, does not include costs (other than costs referred to in paragraph (f)) incurred by the taxpayer in respect of the acquisition of his new residence.

67: General limitation re expenses.

In computing income, no deduction shall be made in respect of an outlay or expense in respect of which any amount is otherwise deductible under this Act, except to the extent that the outlay or expense was reasonable in the circumstances.

The appellant claims that the definition of “moving expenses” in subsection 62(3) of the Act provides an enumeration of eligible expenses that does not constitute an exhaustive enumeration. In support of his appeal, he cited McLay v. Minister of National Revenue (1992), 92 D.T.C. 2260 (T.C.C.) , in which Judge Mogan of this Court held inter alia that the interest charges on the mortgage on the old residence, for the entire period when the taxpayer owned two residences, were moving expenses.

The evidence revealed that the appellant, a chartered accountant, purchased his residence in Montréal in 1987, assuming a $70,000 mortgage. He moved in February 1990 because of his new employment in Hull and purchased his second residence on July 1 of the same year.

His old residence in Montréal was put up for sale on December 29, 1989, through a real estate agent. The appellant fixed the offer to sell the house at $120,000 and the house was sold for $82,000 in March 1992 as a result of the efforts of four real estate agents. He had received the first offer to purchase in late 1991, but the transaction was not completed as a result of financing problems on the purchaser’s end. In fact, the appellant received only two offers to purchase during the aforementioned period.

One must refer to the definitions of the terms in the Act in determining whether moving expenses included the interest charges of $9,321 for 1991 and $2,320 for 1992 on the mortgage on his old residence.

Subsection 62(1) of the Act reads in part as follows with respect to deductions:

...there may be deducted amounts paid by him as or on account of moving expenses incurred in the course of moving from his old residence to his new residence,...

The French version reads as follows:

il peut déduire ... les sommes qu'il a payées à titre ou au titre des frais de déménagement engagés pour déménager de son ancienne résidence pour venir occuper sa nouvelle résidence, ...

In Québec (Communauté urbaine) c. Notre-Dame de Bonsecours (Corp.) (1994), 95 D.T.C. 5017 (Eng.) (S.C.C.), a decision rendered on September 30, 1994, the Supreme Court of Canada established the rules of application that apply to tax legislation. Those principles of interpretation appear at page 5023:

-The interpretation of tax legislation should follow the ordinary rules of interpretation;

-A legislative provision should be given a strict or liberal interpretation depending on the purpose underlying it, and that purpose must be identified in light of the context of the statute, its objective and the legislative intent: this is the teleological approach;

-The teleological approach will favour the taxpayer or the tax department depending solely on the legislative provision in question, and not on the existence of predetermined presumptions;

-Substance should be given precedence over form to the extent that this is consistent with the wording and objective of the statute;

-Only a reasonable doubt, not resolved by the ordinary rules of interpretation, will be settled by recourse to the residual presumption in favour of the taxpayer.

Section 12 of the Interpretation Act, c. 1-21, reads as follows: “Every enactment is deemed remedial, and shall be given such fair, large and liberal construction and interpretation as best ensures the attainment of its objects.”

The question should be considered whether the definition in subsection 62(3) of the Act is exhaustive. The appellant contends that it is not. The

English version of the preamble of this definition reads: “In subsection (1), “moving expenses” includes any expense incurred as or on account of ...” The French version reads: “Dans le paragraphe (1), “frais de déménagement” comprend toutes dépenses engagées à titre ou au titre...”.

In The Interpretation of Legislation in Canada, 1st edition, Pierre-André Côté writes as follows on the importance of the distinction between exhaustive and non-exhaustive definitions, at page 42:

The distinction between exhaustive and non-exhaustive definitions is an important one. When a word is not exhaustively defined, its usual meaning is conserved. The non-exhaustive definition merely clarifies or extends the ordinary meaning.

Le Nouveau Petit Robert defines the word “compris” [“included” - Tr.] as follows: “contained in something or means included: e.g., Net price, service included. Everything included, all taxes included.” It must therefore be concluded that the use of the word “comprend” [“includes” - Tr.] in a definition means that that definition is not exhaustive, whereas the dictionary definition of “signifie” [“means” - Tr.] is: “to have a sense, to be the sign of (cf. to mean)”.

According to the Webster’s dictionary, “includes” means: “comprise, embrace, a thing as part of a whole”. However, “means” means: “intends to convey a specific sense or indicate an object-signify-impact”.

It may therefore be concluded that the use of the word “includes” indicates a non-exhaustive definition and that the use of the word “means” represents an exhaustive definition.

The Federal Court of Appeal, per Collier J.A., confirmed in Storrow v. R. (1979), 78 D.T.C. 6551 (Fed. T.D.) , that the definition at issue was not exhaustive:

I agree with certain initial propositions put forward by counsel for the plaintiff:

(a) Where a definition section uses the words “includes”, as it does in ss. 62(3), then the expression said to be defined includes not only those things declared to be included, but such other things ...as the word signifies according to its natural import”.

(b) The words “moving expenses” must be construed in their ordinary and natural sense in their context in the particular statute.

In The Construction of Statutes, 1974, E.A. Driedger writes, at page 67:

To-day there is only one principle or approach, namely, the words of an Act are to be read in their entire context in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act and the intention of Parliament. This principle is expressed repeatedly by modern judges.

As E.A. Driedger states in the volume cited above, the intention of Parliament is an important factor in the interpretation of statutes. Job mobility is a constant concern of Parliament.

In Phillips v. Minister of National Revenue (1994), 94 D.T.C. 6177 (Fed. C.A.) , Linden J.A. of the Federal Court of Appeal wrote, at page 6185:

mobility of employees to areas of Canada where opportunity beckons is something to be encouraged, not impeded. That is why the Income Tax Act makes specific provision to exempt some of the costs of relocation. Unfortunately, the legislation contains gaps so that, in cases such as this one, little guidance can be gleaned from the legislative provisions because of their generality. It is the task of the Court to fill in these gaps, in harmony with the legislation...

In another case, Hoefele v. R. (1995), 95 D.T.C. 5602 (Fed. C.A.), Linden J.A. wrote as follows, at page 5605:

It is clear that both our economy and our tax system favour the mobility of employees and others to areas where economic advantage beckons. Specific deductions in the Income Tax Act, for example, are available to employees who pay their own costs of moving. Parliament has thereby indicated that employment mobility should not be impeded, but rather encouraged. Indeed, such mobility rights have been enshrined in our Constitution as a Charter value and deserve judicial respect so as to prevent barriers being erected to erode it.

Subsections 62(1) and 62(3) of the Act must be interpreted in accor- dance with employment mobility. The stated object in these paragraphs is thus employment mobility.

Where the Act is ambiguous, it must be interpreted in the taxpayer’s favour.

In Nassau Walnut Investments Inc. v. R. (1995), 95 D.T.C. 367 (T.C.C.) , Judge McArthur of this Court referred to Bon-Secours, supra, as follows: ...the Supreme Court of Canada held that where there is a reasonable doubt, not resolved by the ordinary rules of interpretation, this doubt is to be settled by recourse to the residual presumption in favour of the taxpayer (Bon Secours, supra at p. 5023). If there is a reasonable doubt as to whether the words “reasonably be considered” can include a method other than that recognized by Revenue, this doubt should be resolved in favour of the taxpayer.

Subsection 62(3) does not specifically refer to interest charges on the mortgage on the old residence assumed during the relocation period. According to the passages cited above, the Act must also be interpreted considering the entire paragraph in question (“namely, the words of an Act are to be read in their entire context in their grammatical and ordinary sense harmoniously with the scheme of the Act’").

The majority view in the cases submitted by the respondent is that moving expenses must be interpreted as expenses incurred in order to settle in another locality; this involves physical movement.

Subsection 62(3) refers instead to the expenses incurred in order to settle in a new residence. However, paragraph 62(3)(d) permits a taxpayer to deduct the cost of cancelling the lease by virtue of which he was the lessee of his old residence. In this paragraph, Parliament wanted to allow costs incurred to cancel the lease on the old residence to be deducted. However, no mention is made of costs to maintain one’s old residence as its owner. For the aforementioned reasons, it may logically be concluded that the costs incurred to pay interest are included in this paragraph of the Act.

The Act must be interpreted as a whole in light of its purpose. Parliament wanted to encourage employment mobility by allowing taxpayers to deduct moving expenses. The cases cited above refer to the fairness that must exist between an employee who moves, and whose employer pays moving expenses, and a taxpayer who moves at his own expense. Based on that principle, Parliament wanted to allow expenses incurred by a taxpayer either as a lessee or as an owner.

Section 67 of the Act stipulates that the deduction may be made if the expense is reasonable. The Court must assess reasonability in accordance with the evidence. The appellant put his old residence up for sale through four real estate agents immediately after he moved to the Outaouais region. The selling price was considerably reduced. The fact that only two serious buyers showed any interest in purchasing the residence proves that there was a difficult economic situation during the 1991 and 1992 period.

Subsection 62(1) of the Act allows the taxpayer to deduct the amounts paid in respect of moving expenses incurred in order to move from his old residence to his new residence or for the taxation year following his move.

For the aforementioned reasons, the appeal from the assessment made under the Act for the 1991 taxation year is allowed on the basis that the appellant may deduct the interest expense of $9,321.20 incurred on the mortgage assumed on his old residence for the 1991 taxation year.

Under section 62 of the Act, the appellant was entitled to deduct the amounts paid as or on account of moving expenses for the taxation year in which he moved from his old residence to his new residence or for the following taxation year.

Since the amounts paid in 1991 have been allowed, the amounts paid in 1992 may not be allowed.

The appeal from the assessment made under the Act for the 1992 taxation year is dismissed.

Appeal allowed in part.