MacInnis v. The Queen

MacInnis v. The Queen Court (s) Database Tax Court of Canada Judgments Date 2003-02-28 Neutral citation 2003 TCC 94 File numbers 2002-113(IT)I Judges and Taxing Officers Gordon Teskey Subjects Income Tax Act Decision Content Docket: 2002-113(IT)I BETWEEN: JOHN MACINNIS, Appellant, and HER MAJESTY THE QUEEN, Respondent. ____________________________________________________________________ Appeal heard on February 19, 2003 at Belleville, Ontario Before: The Honourable Judge Gordon Teskey Appearances For the Appellant: The Appellant himself Counsel for the Respondent: Tony Chambers ____________________________________________________________________ JUDGMENT The appeal from the assessment made under the Income Tax Act for the 1999 taxation year is allowed, with costs, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment, in accordance with the attached Reasons for Judgment. Signed at Ottawa, Canada, this 28th day of February 2003. "Gordon Teskey" J.T.C.C. Citation: 2003TCC94 Date: 20030228 Docket: 2002-113(IT)I BETWEEN: JOHN MACINNIS, Appellant, and HER MAJESTY THE QUEEN, Respondent. REASONS FOR JUDGMENT Teskey J. [1] The Appellant, in his Notice of Appeal wherein he appealed his assessment of income tax for 1999, elected the informal procedure. [2] The issue herein is whether the cost of moving from Trenton, Ontario back to Sydney, Nova Scotia, which was paid by the Canadian Military, is a taxable benefit under the provisions of the Income Tax Act (the "Act"). [3] The facts are not in dispute and can be summarized as follows: (i) the Appellant lived in Sydney, Nova Scotia when he joined the military; (ii) during his military career, the military, at its sole discretion, could and did move the Appellant from place to place. If the Appellant did not follow orders, he could have ended up in jail; (iii) the Appellant was stationed in Trenton, Ontario at the time of his retirement; (iv) although the policy of the military is to pay all expenses to move a retiree to the location of his own choice, anywhere in Canada; herein, the Appellant wanted to move back to Sydney, Nova Scotia at his leisure; (v) the military calculated what the total cost would be to move the Appellant back to Sydney, Nova Scotia and the Appellant agreed to take a lump sum payment of 80 percent of the calculated amount, being $12,394; (vi) the Appellant received a cheque for $12,394 and has paid in legitimate expenses more than that amount; (vii) if the Appellant had moved immediately to Sydney, the military would have paid all the expenses and that would have ended the matter as far as the military was concerned; (viii) herein, the military issued a T4 for the $12,394 as income from employment, which they would not have done if it had paid all the actual expenses. (ix) what the Appellant has done herein has saved the military money. [4] The general inclusion provision under paragraph 6(1)(a) of the Act is relevant to this appeal because employer-paid moving expenses are not specifically enumerated elsewhere in the Act. The relevant portions of section 6 state: 6(1) Amounts to be included as income from office or employment - 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) value of benefits - the value of board, lodging and other benefits of any kind whatever received or enjoyed by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment, except any benefit ... The Test [5] The Supreme Court of Canada in Savage v. The Queen, [1983] 2 S.C.R. 428, 83 DTC 5409, considered two aspects of paragraph 6(1)(a) in isolation, such as to create a two-part test. This test can be phrased as follows: 1. There must be a benefit. 2. The benefit must be received in respect of employment. [6] It is clear that the payment was received in respect of employment so the issue before this Court is whether there exists a benefit. Analysis [7] Although the military will pay all the expenses for a retiree to move anywhere in Canada, herein the Appellant just wanted to move back to Sydney, Nova Scotia from where he had come from. If the amount is taxable, he cannot afford to move to Sydney and yet he has already sold his home in Trenton and purchased a building lot in Sydney. [8] The Supreme Court of Canada in Savage states that the term "benefits of any kind whatever" is clearly quite broad. Nevertheless, a benefit can be discerned by examining its impact on the employee's economic position. The Federal Court of Appeal in Phillips v. The Queen, 94 DTC 6177, explains that a conferment of economic advantage is taxable, whereas a reimbursement of a loss is not. [9] A policy reason for the economic position analysis is enunciated in Ransom v. M.N.R., [1968] 1 Ex. C.R. 293, at 310: When his employer reimburses him for any such loss, it cannot be regarded as remuneration, for if that were all he received under his employment arrangement, he would not have received any amount for his services. Economically, all that he would have received would be the amount that he was out of pocket by reason of the employment. [10] Another policy reason was articulated by the Federal Court of Appeal in Phillips, supra at page 6183, quoting Judge Brulé in Greisinger v. M.N.R., 86 DTC 1802, at page 1805: ...there must be harmony and balance between the employee that is transferred to another city and the employee that is not. Indeed, the first may suffer losses as the second is in a stable position. A company, in order to render those transfers more economically favourable, will compensate its employee. Consequently, an economical balance has been created and for this reason, this reimbursement should not be taxed. [11] The Respondent's position is that the $12,394 is a taxable benefit and referred the Court to two Federal Court decisions, namely: Phillips (supra) and Canada v. Hoefele, [1996] 1 F.C. 322 (Q.L.). [12] In the Phillips decision, the Court was dealing with a $10,000 payment paid by Phillips's employer, the CNR, to offset the higher housing prices in Winnipeg where they moved Phillips to from Moncton. [13] The Court held that the $10,000 was taxable as it conferred an economic advantage to Phillips. [14] In the Hoefele decision, the Federal Court, in a split decision, held that mortgage and interest subsidy paid by the employer, Petro Canada, to employees moved to Toronto, was not a benefit under paragraph 6(1)(a) of the Act. [15] Linden J.A. said in paragraph 7 thereof: The classic statement of what comprises a taxable benefit derives from the Supreme Court of Canada case, R. v. Savage. In that case Mr. Justice Dickson, as he then was, [quoting from R. v. Poynton, [1972] 3 O.R. 727, at p. 738] explained in clear and simple terms the principle which distinguishes taxable from non-taxable receipts: 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 s. 3. According to the Supreme Court of Canada, then, to be taxable as a "benefit", a receipt must confer an economic benefit. In other words, a receipt must increase the recipient's net worth to be taxable. Conversely, a receipt which does not increase net worth is not a benefit and is not taxable. Compensation for an expense is not taxable, therefore, because the recipient's net worth is not increased thereby. and again in paragraph 8 and 11, he said: Our jurisprudence has long accepted the focus on net gain as the basis for determining whether a receipt is a "benefit" and whether it is therefore taxable. In the 1967 decision of the Exchequer Court of Canada, Ransom, Cyril John v. Minister of National Revenue, Noël J. applied the net gain concept to circumstances not too dissimilar from the present. An employee was transferred by the employer company to a different city and was reimbursed by that company for losses incurred on the sale of a house. In deciding that these reimbursements were not income, Noël J. stated: In a case such as here, where the employee is subject to being moved from one place to another, any amount by which he is out of pocket by reason of such a move is in exactly the same category as ordinary travelling expenses. His financial position is adversely affected by reason of that particular facet of his employment relationship. When his employer reimburses him for any such loss, it cannot be regarded as remuneration, for if that were all that he received under his employment arrangement, he would not have received any amount for his services. Economically, all that he would have received would be the amount that he was out of pocket by reason of the employment This is merely another way of describing the net gain idea that a receipt is not taxable if it does not improve the economic situation of the taxpayer; if it only reimburses for an amount for which an employee would otherwise be "out of pocket", it is not a "benefit". He treats relocation costs in the same way as ordinary traveling expenses. Reimbursement for out of pocket expenses incurred as a result of a move, explains Noël J., cannot be considered a benefit because it adds nothing of value to the recipient's economic situation. He states: 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 McNaughton in Tenant v. Smith [1892] A.C. 150, puts nothing in the pocket but merely saves the pocket) is neither remuneration as such or a benefit "of any kind whatsoever". ... 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. [16] A hypothetical situation may help illustrate the matter. Assume two brothers sign up for the military in Sydney, Nova Scotia. After signing up, one brother, after numerous positions, ends up in Trenton, Ontario while the other, after numerous positions, ends up in Sydney. After 25 years the military pays the moving costs of the brother in Trenton to move back to Sydney. That payment would have to be non-taxable in order to maintain economic harmony and balance between the two brothers. [17] Herein, the military was simply moving the Appellant back to where he came from when he joined the military and he has received no economic gain, advantage or benefit. [18] The appeal is allowed with costs. Signed at Ottawa, Canada, this 28th day of February 2003. "Gordon Teskey" J.T.C.C. CITATION: 2003TCC94 COURT FILE NO.: 2002-113(IT)I STYLE OF CAUSE: John MacInnis and Her Majesty the Queen PLACE OF HEARING: Belleville, Ontario DATE OF HEARING: February 19, 2003 REASONS FOR JUDGMENT BY: The Hon. Judge Gordon Teskey DATE OF JUDGMENT: February 28, 2003 APPEARANCES: For the Appellant: The Appellant himself Counsel for the Respondent: Tony Chambers COUNSEL OF RECORD: For the Appellant: Name: Firm: For the Respondent: Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada