Middlestead v. R., [1999] 3 CTC 2335

O’Connor T . C.J.:

This appeal was heard at Calgary, Alberta on February 18, 1999 pursuant to the Informal Procedure of this Court.

Issue:

The issue is whether a relocation allowance paid by the Appellant’s employer, The Bank of Nova Scotia, in 1990 in relation to his transfer from Brandon, Manitoba to Calgary, Alberta is to be included in his income for that year pursuant to paragraphs 6(1)(a) and 6(1)(b) of the Income Tax Act (“Act”).

Facts:

The facts are well set forth in the Reply to the Notice of Appeal as follows:

1. With respect to the allegations of fact stated in the Notice of Appeal, he admits only:

(a) that, at his employer’s request, the Appellant was transferred from Brandon, Manitoba to Calgary, Alberta in mid 1990;

(b) that the Appellant was given a relocation allowance in the amount of $5,962.00 and that tax in the amount of $2,980.90 was withheld at source;

4. In computing income for the 1990 taxation year, the Appellant reported income from office or employment in respect of his employment with The Bank of Nova Scotia (the “Employer”) in the amount of $59,809.05.

8. In so reassessing the Appellant, the Minister made the following assumptions of fact:

(b) as a result of the transfer from Brandon, Manitoba to Calgary, Alberta, the Appellant received a relocation allowance from his Employer in the amount of $5,962.00;

(c) the income from office or employment reported by the Appellant in the amount of $59,809.05 included the relocation allowance in the amount of $5,962.00;

(d) the relocation allowance was non-accountable;

(e) the relocation allowance was not in respect of a home relocation loan or an amount paid to offset mortgage interest differential:

(f) the relocation allowance was not calculated with respect to an actual loss or a specified expenditure of the Appellant;

(h) the Employer fully reimbursed the Appellant in respect of all moving expenses incurred by the Appellant;

Submissions

The Appellant submitted that he in fact obtained no benefit from the payment because his increased costs in acquiring a home and mortgage in Calgary amounted in the first year to a total of $7,733 related primarily ($7,100) to the increased mortgage interest he had to pay on the new home in Calgary. He indicates that because of the increased interest rate he was in fact worse off after one year alone (i.e. the allowance of $5,962 was not even sufficient to meet the costs of $7,733). The Appellant adds further that considering the five year term of the Calgary mortgage the total loss would be more in the neighbourhood of $33,000. In calculating the $7,100 the Appellant, as seen in Exhibit A-1, added $50,000 to the amount of the mortgage in Brandon ($44,000) to arrive at a figure of $94,000. The $50,000 he explained was the difference in land costs for comparable lots in Calgary over Brandon. He correctly did not further add the amount of the increase in the mortgage arising from the fact he bought a more expensive house.

The Appellant referred to various cases, in particular, Côté v. Minister of National Revenue (1990), 91 D.T.C. 261 (Eng.) (T.C.C.) where Lamarre Proulx, J. of this Court stated as follows at page 263 and following:

Counsel for the respondent referred me to the Supreme Court of Canada’s decision in Gagnon v. The Queen [86 DTC 6179], [1986] 1 SCR 264, in which, at page 272, Beetz J. defines the term “allowance” as follows:

According to the definition in Pascoe, for a sum of money to be regarded as an allowance it must meet three conditions: (1) the amount must be limited and predetermined; (2) the amount must be paid to enable the recipient to discharge a certain type of expense;

(3) the amount must be at the complete disposition of the recipient, who is not required to account for it to anyone.

However, in the circumstances of the present appeal, I am of the opinion that, in order to complete this study of the meaning to be given to the word “allowance” in the context of section 6(1)(b) of the Act, I must give careful consideration to Richard D. McNeil! v. The Queen, [86 DTC 6477], [1987] 1 FC 119. I quote Rouleau J’s remarks at page 128 of that decision:

Counsel for the plaintiff disputed the allegation that the amount paid to the plaintiff was an “allowance” within the meaning of the Act. He conceded that there was no obligation placed upon the recipients of the so-called “allowance” to actually purchase another home in order to qualify, but he had in fact purchased a residence and he maintained that the amount in question could not be considered an allowance as the taxpayer had, as anticipated, increased mortgage costs.

In the present case, the appellant also adduced evidence that he had incurred related costs higher than the amount received from his employer. Counsel for the respondent, however, referred me to Rouleau J.’s remarks at page 135:

But more importantly, the payment of the allowance with which I am concerned was primarily motivated by considerations extraneous to employment, namely public and labour relations considerations.

Thus she is saying that, unlike the situation in McNeil], the amounts received by the appellant in the present case were received pursuant to a directive governing the conditions of employment of senior managers.

1 do not believe that the reason given by Rouleau, J. in the excerpt quoted above was the determining argument in McNeil], for two reasons:

a) another allowance paid under the same agreement was considered an employment benefit within the meaning of section 16(1)(a) of the Act because of “the absence of any proof put forward by the plaintiff to show that he actually suffered other losses due to his relocation equal to the [amount] he received [...]”; and

b) Because the judge said the following regarding the meaning to be given to the word “allowance”;

Counsel for the Crown further suggested that the payment received by the taxpayer was one for which he was unaccountable and that the taxpayer was under no obligation to purchase a home in the Ottawa area. It was this argument which appears to have persuaded the Tax Court and led it to the following conclusion [...]:

It was his choice to acquire a home and he received money without even having to prove a loss. The formula was set up and the formula was followed. Had the appellant seen fit to rent an apartment or live with relatives or friends, he still would have received the same amount of money.

In my opinion, that reason is neither here nor there. Firstly, the decision of the Tax Court is not based on the facts of the case which are that the plaintiff tax- payer did purchase a home. Secondly, the taxpayer was forced to accept the transfer in order to retain his employment. Under those circumstances, I would think it was not only his choice but his right to purchase a home in the Ottawa area and attempt to put himself in the same position he was in prior to being moved from his home in Montreal. From the evidence adduced, it is manifestly clear that the plaintiff “put nothing in his pocket but merely saved the pocket’’.

In light of the decision rendered in McNeill, I am of the opinion that the amount received by the appellant for expenses related to his move should not be considered as an allowance within the meaning of section 6( !)(/?) because the appellant actually incurred expenses related to his move for the amounts received.

Respondent’s Submissions:

Counsel for the Respondent submitted that the $5,962 was properly included into income in that either it was an allowance as contemplated in paragraph 6(1)(b) of the Act or a taxable benefit contemplated in paragraph 6(1 )(a) of the Act. Counsel canvassed the usual cases in this area.

Analysis and Decision:

The paragraphs in question read 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... (none of the exceptions apply)

(b) all amounts received by him in the year as an allowance for personal or living expenses or as an allowance for any other purpose, except (none of the exceptions apply)...

A further review of some of the decided cases in this area will be helpful. In Hoefele v. R. (1995), 95 D.T.C. 5602 (Fed. C.A.), the Federal Court of Appeal dealt with paragraph 6( 1 )(«) of the Act and held that to be taxable as a benefit a receipt must confer an economic benefit, i.e. must increase the net worth of the recipient and held that interest equalization payments which had been established by Petro-Canada for transfer of certain employees from Calgary to Toronto were not taxable.

In Phillips v. Minister of National Revenue (1994), 94 D.T.C. 6177 (Fed. C.A.), the Federal Court of Appeal held that the payment by CNR of $10,000 to one of its employees as the result of the move by the employee from Moncton to Winnipeg was a taxable allowance. In that case Robert- son, J. conducted a lengthy review of other cases and held that the said payment increased the taxpayer’s net worth and held as follows:

Held: The Crown’s appeal was allowed. The trial judge erred in characterizing the payment of $10,000 as a non-taxable reimbursement for expenses incurred as a consequence of employment. The sum of $10,000 did not restore the taxpayer to his previous financial state. Rather, it increased his net worth by $10,000. It, therefore, fell outside the legal parameters for tax-free benefits established in The Queen v. Savage (83 DTC 5409), Ransom v. M.N.R. (67 DTC 5235) and The Queen v. Splane (92 DTC 6021). The rule established in the Ransom case, moreover, was that a loss suffered by an employee in selling a house following a job transfer is not taxable to the extent that the payment reflects the employee’s actual loss. In this case, however, the payment made by CNR to the taxpayer was to compensate him for increased housing costs on the purchase of a replacement property, so that the rationale in the Ransom case became inapplicable to the situation. Also to be noted was the fact that the Ransom decision had become so involved in the conception of taxable benefits that it was left for the Supreme Court or Parliament to set aside its logic. Therefore, the sum of $10,000 in issue ought to have been included in the taxpayer’s income from employment for 1987. The Minister’s original assessment was restored.

In Canada (Attorney General) v. MacDonald (1994), 94 D.T.C. 6262 (Fed. C.A.) the Federal Court of Appeal held as follows:

Held: The Crown’s application was granted. Paragraph 6(1 )(b) of the Act requires taxpayers to include in their income from office or employment all amounts received in the year as an allowance for personal or living expenses or as an allowance for any other purpose. The wording of that paragraph, however, provides little in the way of assistance in determining what constitutes an “allowance”. Applying the principles laid down by the Exchequer Court in Ransom v. M.N.R. (67 DTC 5235), by the Federal Court of Appeal in The Queen v. Pascoe (75 DTC 5427) and by the Supreme Court of Canada in Gagnon v. The Queen, [1986] 1 S.C.R. 265, however, it can be seen that an “allowance” for purposes of paragraph 6(1)(b) of the Act is composed of three elements. These three elements, moreover, were present in the taxpayer’s situation: (a) he received the $700 in issue as a limited, predetermined, “round” amount which had not been calculated with respect to any actual cost or expense which he might incur; (b) the money was for a particular purpose, i.e., to subsidize his accommodation costs; and (c) he received the money and was not required to account therefor. In the result, the amount involved was a taxable allowance within the meaning of paragraph 6(1 )(b) of the Act. The decision of the Tax Court Judge was accordingly set aside and the Minister’s reassessment was restored.

In this appeal the three elements described above in MacDonald were present and since a decision of the Federal Court of Appeal is binding on me, I find that what the Appellant received was an allowance within the meaning of paragraph (6)(1 )(/>).

Admittedly the Appellant did have increased interest expenses but, contrary to the facts in Hoefele et al, the relocation allowance plan of the Bank of Nova Scotia was not designed to compensate for interest differential payments. In fact the plan, which is set forth in Exhibit A-2, states that the allowance assists in defraying relocation expenses not specifically referenced elsewhere in the Bank’s manuals and quotes some of the more common items for which this allowance was intended. The plan lists numerous items which the allowance is directed at. None of those, as mentioned, relate to interest differentials. In fact, of the various items referred to, many of them fall within the category of personal and living expenses.

In McNeil], [McNeil] v. Minister of National Revenue, [1987] 1 F.C. 119 (Fed. T.D.)] relied upon in Côté cited above, Rouleau, J. although allowing the taxpayer to exclude from income an allowance related to increased mortgage costs did not allow the exclusion of a “Social Disruption Allowance” related to matters other than increased mortgage costs.

Although not fatal to the Appellant’s case it is of note that the Employer considered the amount as a taxable amount and included it in the T4 slips of the Appellant. Moreover, the Employer did pay all of the Appellant’s moving expenses.

Having found that the amount in question is taxable as an allowance contemplated in paragraph 6( 1 )(£>) of the Act it is not necessary to discuss whether it might also be a benefit as contemplated in paragraph 6(1)(«). Consequently, for the above reasons, the appeal is dismissed.

Appeal dismissed.