Date: 19990708
Docket: T-104-91
Ottawa, Ontario, July 8, 1999
Before: Pinard J.
In re the Income Tax Act
Between:
HER MAJESTY THE QUEEN,
Plaintiff,
- and -
ANDRÉ COTÉ,
Defendant.
JUDGMENT
The plaintiff"s appeal is allowed. The decision of the Tax Court of Canada on September 19, 1990 is quashed and the reassessment of October 9, 1987 made in respect of the defendant for the 1986 taxation year is restored.
| YVON PINARD JUDGE |
Certified true translation
Bernard Olivier, LL. B.
Date: 19990708
Docket: T-104-91
In re the Income Tax Act
Between:
HER MAJESTY THE QUEEN,
Plaintiff,
- and -
ANDRÉ COTÉ,
Defendant.
REASONS FOR JUDGMENT
PINARD J.
[1] This is an appeal de novo from a decision by the Tax Court of Canada on December 19, 1990 allowing the defendant's appeal from the reassessment made by the Minister of National Revenue for his 1986 taxation year. The Tax Court of Canada found inter alia that an amount of $3,461 received by the defendant should not have been included in calculating his income pursuant to s. 6(1)(b) of the Income Tax Act ("the Act").1
[2] Section 6(1)(b) in question provides the following:
| 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 : . . . . . (b) all amounts received by the taxpayer in the year as an allowance for personal or living expenses or as an allowance for any other purpose . . . |
6. (1) Sont à inclure dans le calcul du revenu d'un contribuable tiré, pour une année d'imposition, d'une charge ou d'un emploi, ceux des éléments suivants qui sont applicables : . . . . . b) les sommes qu'il a reçues au cours de l'année à titre d'allocations pour frais personnels ou de subsistance ou à titre d'allocations à toute autre fin . . . |
[3] At trial the parties expressly admitted the following facts:
| " the defendant is a senior manager at the Government of Quebec's Ministère du Loisir, de la Chasse et de la Pêche; |
| " the defendant was moved from Québec to Montréal by the department in 1986; |
| " in 1986 the defendant moved from Cap Rouge near Québec, his former place of residence, to St-Bruno near Montréal, his new place of residence; |
| " s. 144 of the Directive regarding all the working conditions of senior managers of the Government of Québec, which covers the defendant, provides the following: |
| [TRANSLATION] |
| 144. A senior manager who is transferred is entitled as compensation for expenses relating to his transfer to an allowance equivalent to four weeks' salary unless complete facilities are placed at his disposal at his new place of work. |
| " pursuant to that section the defendant's employer in 1986 paid him the sum of $3,461 corresponding to four weeks' salary as compensation for expenses relating to the move from Cap Rouge to St-Bruno; |
| " the defendant further submitted documentation for expenses totalling $4,008.35 to decorate the St-Bruno house (curtains, wallpaper, sanding and finishing floor, painting and various incidentals); |
| " in addition to the foregoing amount of $3,461, the defendant was reimbursed by his employer for expenses covered by ss. 135 and 141 of the Directive regarding all the conditions of work of senior managers of the Government of Québec, which read as follows: |
| [TRANSLATION] |
| 135. In the search for a new residence at the new workplace the employer shall reimburse the transportation and accommodation costs of a senior manager and his spouse for the period of paid leave granted for that purpose. |
| 141. On submission of documentation the employer shall reimburse costs incurred for transporting the furniture and personal effects of a senior manager, including packing, unpacking and the cost of the insurance premium or towing a mobile home provided he submits at least two detailed estimates in advance of the anticipated cost. |
[4] It further appeared from the defendant's testimony that:
| " his assignment to Montréal was compulsory in nature and not voluntary; |
| " although he submitted documentation for expenses totalling $4,008.35, the total expenses relating to his move amounted to $6,389.81, substantially exceeding the amount paid to him under s. 144 of the Directive regarding his working conditions; |
| " additionally, he was not required to submit any documentation whatever for these expenses relating to his move from Cap Rouge to St-Bruno. |
[5] The only issue is whether the amount of $3,461 received by the defendant from his employer as compensation for expenses relating to his move is an allowance that should be included in calculating the defendant's income within the meaning of s. 6(1)(b) of the Act.
[6] In Ransom v. M.N.R. (1967), 67 D.T.C. 5235, the Exchequer Court of Canada gave the following ruling as to the meaning to be given to an allowance as opposed to a reimbursement in connection with a provision of the Income Tax Act, at 5243 and 5244:
| . . . Furthermore, and this is really the answer to the respondent's case, a 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 section 5(1)(b) as an allowance implies an amount paid in respect of some possible expense without any obligation to account. |
. . . . .
| 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. . . . |
[7] Subsequently, in The Queen v. Pascoe, [1976] 1 F.C. 372, the Federal Court of Appeal defined an "allowance" as follows, at 374:
| An allowance is, in our view, a limited predetermined sum of money paid to enable the recipient to provide for certain kinds of expense; its amount is determined in advance and, once paid, it is at the complete disposition of the recipient who is not required to account for it. A payment in satisfaction of an obligation to indemnify or reimburse someone or to defray his or her actual expenses is not an allowance; it is not a sum allowed to the recipient to be applied in his or her discretion to certain kinds of expense. |
[8] In Gagnon v. The Queen, [1986] 1 S.C.R. 264, at 272 and 273, the Supreme Court of Canada explained as follows the definition given to the word "allowance" in Pascoe, supra:
| 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. |
| The first two conditions may be understood by inference from s. 60(b) of the Income Tax Act. The amount must be limited and predetermined in accordance with the judgement, order or written agreement setting it. It must be paid to enable the recipient to discharge a certain kind of expense, namely an expense incurred for the maintenance of the recipient. |
| But what is the reason for the Pascoe judgment imposing the third condition, which clearly cannot be inferred from s. 60(b)? |
. . . . .
| It is important to specify what is meant in requiring that, to be an allowance, an amount must be "at the complete disposition of the recipient". |
| According to Pascoe, this condition means that the recipient must be able to apply this amount to certain types of expense, but at her discretion and without being required to account for it. |
| However, the condition could also mean that the recipient must be able to dispose of the amount completely, and that, provided she benefits from it, it is not relevant that she has to account for it and that she cannot apply it to certain types of expense at her complete discretion. |
| It seems to me, with respect, that the second interpretation is the correct one, in light of the earlier decisions which Pascoe appears to have misinterpreted. |
| What matters is not the way in which a taxpayer may dispose of, or be required to dispose of, the amounts he receives, but rather the fact of whether he can dispose of them or not. |
(My emphasis.)
[9] Later, in Attorney General of Canada v. Roland M. MacDonald (March 23, 1994), A-1523-92, Linden J.A. for the Federal Court of Appeal, referring to Ransom, Pascoe and Gagnon, supra, stated as follows the general rule by which "allowance" is defined under s. 6(1)(b) of the Act:
| 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. |
[10] The later judgment of the Federal Court of Appeal in J. Robert Verdun v. Her Majesty the Queen (February 6, 1998), A-293-97, again per Linden J.A., restates the same rules as follows:
| An allowance is usually a monetary payment to cover personal expenses, whereas a benefit is normally, but not exclusively, a non-monetary benefit. In this case, the amount received by the applicant was meant to cover the costs of his having meals when he worked at his Elmira office, some twenty miles away from his home in Wellesley, four evenings per week. While the applicant argued that the amounts paid were reasonable, the Income Tax Act, as it now stands, does not permit him to remain untaxed on these receipts, no matter how reasonable they may seem to him. |
| Following the principles set out by this Court in Attorney General of Canada v. MacDonald [1994] F.C.J. No. 378: (1) these amounts were an arbitrary or fixed amount that was determined in advance (even though based on an estimate of the potential cost); (2) they were paid to cover personal expenses in lieu of reimbursement; and (3) there was no obligation to account for them. As such, the payments were an allowance and taxable as income, because the applicant had the discretion, if he chose, to use the money as he saw fit without the requirement of submitting receipts. Even when these amounts are not used for any improper purpose, and even when they are reasonable estimations of the costs, our law treats them as additional remuneration, not as reimbursement of expenses, which require detailed receipts being submitted for reimbursement. |
[11] Applying the rules defined and developed over the years by the foregoing court decisions, it is clear that the sum of $3,461 paid to the defendant by his employer as compensation for expenses relating to the transfer of the former represents an allowance that must be included in calculating the defendant's income within the meaning of s. 6(1)(b) of the Act. Not only is this amount defined as an "allowance" in the specific provision governing the defendant's working conditions under which he was paid, but (1) it is a limited and predetermined amount; (2) the amount was paid to cover personal expenses in lieu of reimbursement; and (3) there was no obligation to account for it. Proof of the last three points suffices to make s. 6(1)(b) of the Act applicable against the taxpayer, regardless of whether the amount received was less than the personal expenses actually incurred and regardless of whether the taxpayer unilaterally chose to submit documentation for these expenses. In the circumstances I can only adopt the following observations of Linden J.A. in Morris v. M.E.I. (September 2, 1997), A-281-96:
| While the Court has some sympathy for the applicant and others in the same position, unfortunately the Income Tax Act and the cases decided under it require that a payment such as this be treated as an allowance under section 6(1)(b). |
[12] The plaintiff's appeal is accordingly allowed, the decision of the Tax Court of Canada on September 19, 1990 quashed and the reassessment of October 9, 1987 made in respect of the defendant for the 1986 taxation year is restored.
| YVON PINARD JUDGE |
OTTAWA, ONTARIO
July 8, 1999
Certified true translation
Bernard Olivier, LL. B.
FEDERAL COURT OF CANADA
TRIAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
| COURT No.: T-104-91 |
| STYLE OF CAUSE: HER MAJESTY THE QUEEN v. |
ANDRÉ CÔTÉ
PLACE OF HEARING: QUÉBEC, QUEBEC
DATE OF HEARING: JUNE 18, 1999
REASONS FOR ORDER BY: PINARD J.
DATED: JULY 8, 1999
APPEARANCES:
| CHANTAL JACQUIER FOR THE PLAINTIFF |
| SIMON TURMEL & MICHEL JOLIN FOR THE DEFENDANT |
SOLICITORS OF RECORD:
MORRIS ROSENBERG FOR THE DEFENDANT
DEPUTY ATTORNEY GENERAL
OF CANADA
MONTRÉAL, QUEBEC
KRONSTRÔMS, DESJARDINS FOR THE DEFENDANT
SAINTE-FOY, QUEBEC
__________________