Date:19980114

Docket: 94-3219-IT-G

BETWEEN:

DAVID W. JEX,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Sarchuk, J.T.C.C.

[1] This is an appeal by David W. Jex (the Appellant) from a reassessment of tax with respect to his 1992 taxation year. The sole issue is whether the Appellant received a benefit in respect of, in the course of, or by virtue of his employment with Revenue Canada in the amount of $1,289 in the 1992 taxation year.

[2] The Appellant testified on his own behalf. In addition, by agreement of all parties, the evidence of Wayne Humber, Assistant Director of Verification and Enforcement, Revenue Canada, given in the appeal of Steve Faubert (95-130(IT)G) is to apply to the present appeal, mutatis mutandis.

[3] The Appellant commenced employment with Revenue Canada as a collection officer (PM2) in 1985. Prior to that, he had obtained a Bachelor of Arts degree at Sir Wilfrid Laurier University and had been employed for a period of time as a commercial loans officer with F.B.D.B. In August 1987, he submitted a developmental request for a transfer to the Audit Division. The rationale for the transfer was the pursuit of a career with Revenue Canada and the belief that a transfer into the audit stream even on a lateral, i.e. no pay increase basis, was the most desirable career choice for future advancement. The Appellant was aware that the screening qualifications in the Audit Division included an accounting designation (or being in active pursuit of courses toward such a designation). The Appellant had previously been enrolled in a program leading to a designation Registered Industrial Accountant[1], but had allowed his enrollment to lapse. In his request, he indicated that “I am presently completing the fourth level of the CMA program and plan to continue towards this designation”. In fact, he had applied for reinstatement and was officially accepted back into the program in June 1988.

[4] On March 14, 1989, the Appellant was transferred to the Audit Division as a field examiner (PM2 level). Then in January 1992, he completed the course work component of the CMA program and in June, received his CMA designation. In the interim, he had successfully applied for a position at the AU1 level and shortly thereafter in 1993, was promoted to the AU2 Business Files Auditor Level.

[5] The Appellant was aware that it was Revenue Canada’s policy to reimburse tuition fees expended by Audit Division employees upon the successful completion of a particular course and to make a financial contribution towards the cost of certain computer hardware required for such courses.

[6] In all instances, the promotions involved salary increases. In fact, his salary increased by some $10,000 in the six years as he progressed from the PM2 level to the AU2 level. He did not dispute that the courses he took towards his CGA gave him the right to compete for these positions and assisted him in obtaining them.

[7] Evidence was adduced on behalf of the Appellant from Wayne Humber (Humber), Assistant Director of Verification and Enforcement Revenue Canada. Humber took up his position at the London, Ontario office in August 1991. In that position, he had the overall responsibility for managing the Verification and Enforcement Division which is in essence, the audit division. As such, he was the delegated manager for staffing which included responsibility for hiring staff both internally and externally. In 1992, an external search for staff was carried out. According to Humber, this was the last external competition and from that point onward as a general rule, Verification and Enforcement has looked to other divisions such as collections, client assistance, and appeals as feeder groups for its staff.

[8] More specifically, there were two major classifications in the audit area, PM and AU.[2] Employee movement into these classifications or promotions within them occurred through an internal competition process. A Board would be convened and it conducted the competitions based upon the merit principle.[3] Humber testified that in considering applicants, the staffing committee’s expectation was that certain basic academic qualifications were met.[4] In addition to the academic requirements, the committee reviewed a candidate’s personal suitability, past performance and references. As well, if employees were actively involved in taking courses, whether University or professional accounting courses, to advance themselves and to further improve their academic standing, the committee looked favourably on such initiative. Educational improvement was desirable since it created a career path for the employee and concurrently, enabled Revenue Canada to meet its staffing requirements internally. According to Humber, the thrust of Revenue Canada’s policy was to encourage employees to take courses outside working hours to enhance their academic qualifications and their career opportunities both within and outside of Revenue Canada if they so desired. The policy also encouraged managers and supervisors to discuss employees’ training needs and career development expectations to mutually come up with a training program on an individual employee basis. In order to effectively do so, Revenue Canada encouraged upgrading skills by being prepared to consider long-term leave, both with and without pay for this purpose, and was prepared to reimburse all of the tuition costs directly relevant to courses and provided days off in order to prepare for and write professional accounting course exams.[5]

[9] It is the Appellant’s position that the educational course in issue was undertaken primarily for the benefit of his employer rather than himself. This flows from the fact that the tuition payments by Revenue Canada were reimbursements of amounts expended by the Appellant as a result of Revenue Canada’s policy which in effect mandated the taking of the required courses. Accordingly, the reimbursement was not in the nature of a benefit received by him in the course of or by virtue of his office or employment. Counsel for the Appellant argues that a number of decisions establish that reimbursements such as these are exceptions to the provisions of paragraph 6(1)(a) of the Income Tax Act.[6] Counsel further contends that the decision of the Supreme Court in The Queen v. Savage[7] is distinguishable in that the amount paid to the Appellant therein was not a reimbursement.

[10] Counsel for the Appellant also argued that the fact Revenue Canada prohibited outside work by employees as accountants, auditors, bookkeepers, collectors, tax advisors, real estate appraisers or in any other capacity said to constitute a conflict of interest, was a relevant factor which supported the Appellant’s position.

[11] The relevant provision of the Act relating to the taxability of employee benefits is paragraph 6(1)(a). The applicable parts 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, ...

Two basic conditions must be met for an amount to be taxable under paragraph 6(1)(a). Firstly, the amount must be received or enjoyed in the taxpayer’s capacity as an employee and secondly, the amount must result in a benefit to the employee. In the present appeal, it cannot seriously be disputed that the Appellant received the amounts of $2,002 and $1,900 in 1992 and 1993 and that he received these amounts in respect of, in the course of, or by virtue of his employment. Nonetheless, it is the Appellant’s position that these were reimbursements for costs actually incurred which are not caught by paragraph 6(1)(a) of the Act.

[12] In my view, the decision of the Supreme Court in The Queen v. Savage[8] is applicable. In that case, Savage was employed by Excelsior Life Insurance Company and received the amount of $300 for successful completion of the life office management association series of examinations. Dickson J. (as he then was) observed that:

As Crown counsel submits, the sum of $300 received by Mrs. Savage from her employer was a benefit and was received or enjoyed by her in respect of, in the course of or by virtue of her employment within the meaning of s. 6(1)(a)of the Income Tax Act; it was paid by her employer in accordance with company policy upon the successful completion of courses “designed to provide a broad understanding of modern life insurance and life insurance company operations” and “to encourage self-upgrading of staff members”; the interest of the employer “was that the courses would make her a more valuable employee”; Mrs. Savage took the courses to “improve [her] knowledge and efficiency in the company business and for better opportunity for promotion”. Distinguishing this case from Phaneuf, there was no element of gift, personal bounty or of consideration extraneous to Mrs. Savage’s employment.

I would hold that the payments received by Mrs. Savage were in respect of employment. That, of itself, makes them income from a source under s. 3 of the Act.

I conclude on this point that, unless s. 56(1)(n) of the Income Tax Act relieves, Mrs. Savage is subject to income tax in respect of the $300 which she received from her employer.

[13] The position of this Appellant is not at all similar to that in which the Appellants, Hoefele, Guay andRansom, found themselves in. Although Revenue Canada’s policy reflected its desire for employees to progress within the organization and to improve their accounting, auditing and related skills, the educational upgrading in issue was encouraged but not mandated. The decision to enter the relevant program and to do what was necessary to complete it was entirely that of the Appellant. He was never directed by Revenue Canada to enroll nor was there any suggestion that failure to obtain the necessary accreditation would have led to a loss of employment. Furthermore, the Appellant, for his part, conceded that he had career aspirations and that failure to have the necessary educational qualifications would have impacted on possible advancement since the education so obtained enabled him to compete successfully at the AU level.

[14] The evidence does not support the suggestion that this Appellant was in some fashion legally obliged or was faced with job loss consequences if he failed to upgrade his skills. He was aware that specific qualifications existed for a position to which he aspired. The decision to seek educational upgrading for that purpose was purely personal in nature. Whether in government or in the private sector, the fact that an employer encourages the upgrading of skills cannot be equated with a requirement to do so. The courses taken were primarily for the Appellant’s benefit and in my view, the amount paid by his employer constitutes a taxable benefit in his hands under paragraph 6(1)(a) of the Act. The appeal is dismissed.

[15] One set of costs shall apply to this appeal and the appeals of Steve Faubert (95-130(IT)G).

Signed at Ottawa, Canada, this 14th day of January, 1998.

"A.A. Sarchuk"

J.T.C.C.

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