Tax Court of Canada Judgments

Date: 19980831

Docket: 97-10-IT-G

BETWEEN:

PETER J. DUNLAP,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Sarchuk, J.T.C.C.

[1] These are appeals by Peter J. Dunlap (the Appellant) with respect to assessments of tax for the 1992 and 1993 taxation years. By agreement of both parties, a partial agreed statement of facts was filed. It reads as follows:

1. In each of the 1992 and 1993 taxation years Peter J. Dunlap (the “Appellant”) was an employee of Modern Mechanical Inc. (the “employer”).

2. In each of the 1992 and 1993 taxation years the Employer provided a Christmas party for its employees. Each employee was entitled to bring a guest to the party. The 1992 Christmas party reception was held at the Ottawa Congress Centre. The 1993 Christmas party reception was held at the Westin Hotel.

3. In each of the 1992 and 1993 taxation years the Appellant attended the Christmas party provided by the Employer with a guest.

4. In each of the 1992 and 1993 taxation years the Christmas party consisted of a dinner, open bar, and accommodations at the Westin Hotel. The Appellant and his guest ate the dinner, drank the liquor, other beverages and enjoyed the amenities associated with the Christmas parties. He and his guest also stayed at the Westin Hotel. All such expenses associated with the said dinner, liquor, other beverages and amenities associated with the said party and the hotel room were paid for by the Employer, at no cost to the Appellant.

5. In each of the 1992 and 1993 taxation years the Employer deducted from its income the total costs of the Christmas parties. It deducted $23,632.33 in 1992 and $22,522.53 in 1993 in respect of the Christmas parties.

6. The Employer did not assess a taxable benefit to the Appellant, for the 1992 and 1993 taxation years, with respect to his, and his guest's eating of the food, drinking of the liquor, beverages and the enjoyment of other amenities, and their overnight stay at the Westin Hotel.

7. By Notices of Reassessment for each of the 1992 and 1993 taxation years the Minister of National Revenue increased the taxable income of the Appellant by, respectively, $302.00 and $278.00 pursuant to paragraph 6(1)(a) of the Income Tax Act. The Minister assessed these amounts as a taxable benefit by virtue of the Appellant's and his guest's attendance at the Christmas parties and the said eating of the food, drinking of the liquor, other beverages and the enjoyment of other amenities, previously referred to herein, and the overnight stay at the Westin Hotel.

8. The amounts assessed as taxable benefits were calculated on the following basis:

9. In each of the 1992 and 1993 taxation years the Ottawa Congress Centre and the Westin Hotel determined a preset charge for the actual meal itself and for liquor, beverages and other amenities associated with the said Christmas parties. The Minister verified each of the said charges, per item, and the actual cost of the hotel room, as per invoices from the Ottawa Congress Centre and the Westin Hotel, and contained at Tabs 7 & 8 of the Respondent's Book of Documents, and Schedule I and II herein.

Taxable Benefit Assessed for Dinner

10. In each of the 1992 and 1993 taxation years the Minister assessed the Appellant the actual cost of the dinner (meal), and associated charges, as charged per person, by the Ottawa Congress Centre and the Westin Hotel, for him and his guest, along with the associated gratuities (as per Schedule I and Schedule II attached hereto).

Taxable Benefit Assessed for Liquor, Beverages and Associated Amenities

11. In each of the 1992 and 1993 taxation years, with respect to liquor, beverages and other amenities, the Minister calculated the total costs of the bar charges, and other amenities and gratuities, and divided the said costs by the total number of meals (guests) served, and arrived at an average cost per attendee (including the Appellant and his guest). In each of the 1992 and 1993 taxation years the Appellant was assessed the said average cost in respect of himself and his guest.

Taxable Benefit Assessed for Hotel

12. In each of the 1992 and 1993 taxation years, the Appellant was assessed for the cost of his hotel room for himself and his guest.

13. The total cost (taxable benefit) assessed to the Appellant for the 1992 taxation year was $195.17 with respect to the reception, and $106.96 with respect to the Hotel Room Charge (accommodation) at the Westin Hotel (see Schedule I).

14. The total cost (taxable benefit) assessed to the Appellant for the 1993 taxation year was $181.94, with respect to the reception, and $95.81 with respect to the hotel room charge (accommodation) at the Westin Hotel (see Schedule II).

15. The Appellant does not dispute the Minister's method of calculation with respect to the amount assessed for the food and related gratuities. The Appellant does not take issue with the Minister's calculation of the hotel costs. The Appellant does not agree with the Minister's method of calculation with respect to the bar charges and gratuities on these charges.

The Issue

16. The primary issue in this hearing is whether the amounts stated in paragraph 7 are taxable benefits that should be included in the income of the Appellant pursuant to paragraph 6(1)(a) of the Income Tax Act.

17. In addition to the facts stated herein, the parties reserve the right to present additional facts to this Honourable Court, that are not contrary to the facts stated herein, and each reserve the right to call whatever additional evidence necessary to prove these facts.[1]

Additional evidence was adduced from the Appellant and from John McAninch, the chief executive officer of the employer.

Appellant’s position

[2] The Appellant contends that in the present circumstances, he received no economic benefit from attending the Christmas parties provided by the employer for its employees since no economic gain had accrued to him by virtue thereof. Since the net worth of the Appellant was not increased as a result of the expenditure made by the employer, he did not receive a taxable benefit for the purposes of paragraph 6(1)(a) of the Income Tax Act (the Act). This conclusion, Counsel argues, is in conformity with the legislative intent underlying the relevant provision. In support of this proposition, counsel made reference to and relied upon the decisions in The Queen v. Savage, Canada v. Hoefele and Pezzelato v. The Queen.[2]

[3] The Appellant also takes the position that reference to Revenue Canada’s interpretation bulletins with respect to employee fringe benefits leads to the conclusion that the benefits referred to in paragraph 6(1)(a) of the Act did not contemplate or intend to include amounts paid by an employer for a staff Christmas party.[3]

[4] The Appellant also contends that the inclusion of the expense for his hotel room as a taxable benefit is inconsistent with good public policy since the employer had a duty to ensure that its employees, including the Appellant, did not risk driving home from the parties while under the influence of alcohol. It is argued that the inclusion of such expenses in the employee’s income would negate the effect of the policy considerations found in IT-470R which provides that Revenue Canada shall not include in the income of a taxpayer any benefit with respect to the cost of services such as tobacco, drug or alcohol counselling, stress management counselling, etc. Thus, it is equally good public policy to treat the hotel room expenses in the same manner.

Conclusion

[5] The relevant statutory provision is paragraph 6(1)(a) of the Act, which reads:

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 the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment, except any benefit

...

This paragraph sets out the following requirements before an amount can be included as income from employment. First, the amount must be a “benefit of any kind” to the employee. Second, it must be “received or enjoyed by the taxpayer” and third, it must be received or enjoyed “in respect of, in the course of, or by virtue of an employment”. Only the first requirement is in issue in this appeal.

[6] It is appropriate to revisit what was said by Dickson J. (as he then was) in The Queen v. Savage[4] with respect to the meaning of the phrase “benefits of any kind whatever” in paragraph 6(1)(a) of the Act:

... Our Act contains the stipulation, not found in the English statutes referred to, “benefits of any kind whatever .... in respect of, in the course of, or by virtue of an office or employment”. The meaning of “benefit of whatever kind” is clearly quite broad; in the present case the cash payment of $300 easily falls within the category of “benefit”. Further, our Act speaks of a benefit “in respect of” an office or employment. In Nowegijick v. The Queen, [1983] 1 S.C.R. 29 this Court said at p. 39 that:

The words “in respect of” are, in my opinion, words of the widest possible scope. They import such meanings as “in relation to”, “with reference to” or “in connection with”. The phrase “in respect of” is probably the widest of any expression intended to convey some connection between two related subject matters.

Dickson J. also cited with approval the comments made by Evans J.A. regarding benefits received or enjoyed in respect of, in the course of, or by virtue of an office or employment. These comments were, in their entirety:[5]

I am of the opinion that there is no difference between money and monies’ worth in calculating income. They are both benefits and fall within the language of sections 3 and 5 of the Act, being benefits received or enjoyed by the Respondent in respect of, in the course of, or by virtue of his office or employment. I do not believe the language to be restricted to benefits that are related to the office or employment in the sense that they represent a form of remuneration for services rendered. 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 section 3.

(Emphasis added)

[7] In support of the Appellant’s position, Counsel placed particular emphasis on the following statements made by Linden J.A. in Canada v. Hoefele[6]with respect to the Supreme Court decision in Savage v. The Queen:

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. ...

...

... As was stated above, four of the five Tax Court Judges who considered these five cases decided that the mortgage interest subsidy is not a taxable benefit. The primary reason for this, they indicated, was that the mortgage interest subsidy scheme established in these cases did not increase the mortgagors’ equity in their homes. No economic gain accrued to any of the taxpayers as a result of the subsidy. Their net worth was not increased. Thus, a fundamental requirement of paragraph 6(1)(a) was unfulfilled. Where no economic gain is present, a receipt is not to be taxed. ...

(The emphasis added is that of Appellant’s counsel).

Relying on these comments and those of Bowman T.C.C.J. in Pezzelato v. The Queen,[7] to similar effect, Counsel argued that the Appellant in this case was not economically ahead of the position in which he would have been had the employment related expense, that is, the subject of the assessment, not occurred. That being the case the amounts in issue should not have been included in his income as a taxable benefit pursuant to paragraph 6(1)(a) of the Act.

[8] With respect, I am unable to accept that conclusion as appropriate given the facts before me. Paragraph 6(1)(a) of the Act is designed to bring the benefits of any kind whatsoever from employment into tax, that is to say, what has been spent to provide those benefits.[8] The obvious intention of the section is to include in the taxable income of a taxpayer those economic advantages arising from his employment which render his office of greater value to him. That was the case here.

[9] In The Queen v. Blanchard,[9]the Court observed that “the scope contemplated by the phrase ‘benefits of any kind whatever’ is plain and unambiguous: all types of benefits imaginable are to be included”. The Court then went on to say:

Paragraph 6(1)(a) leaves little room for exceptions, but a few have surfaced in the jurisprudence. First, reimbursements paid by an employer to an employee for expenses incurred by that employee are not taxable. They are not benefits. They do not put anything in the taxpayer's pocket, but merely save the pocket of the taxpayer. In other words, they are merely payments in an overall zero-sum transaction. Speaking to the facts underlying the case, Cullen, J. in Splane v. The Queen stated:

The plaintiff moved at the request of his employer, incurred certain expenses in the move, and suffered a loss. The reimbursement of these expenses cannot be considered as conferring a benefit within the terms of the Act. The plaintiff was simply restored to the economic situation he was in before he undertook to assist his employer by relocating to the Edmonton office.

Reimbursements for costs actually incurred are, therefore, not caught by paragraph 6(1)(a).[10]

Second, a benefit that is wholly “extraneous” or “collateral” to one's employment, that is, one that is received in one’s “personal capacity” only, may fall outside paragraph 6(1)(a). This exception is very narrow and is available only where there is no connection or link to the employment relationship.[11]

[10] The benefit in the present case does not fall within the scope of either of these exceptions. More particularly, it cannot be said of the benefit that it “saved the pocket of the taxpayer” or reflected a mere reimbursement of expenses incurred by the Appellant as a result of his employment. Nor can the benefit be said to have been “extraneous or collateral” to his employment. The provision of the parties was a conscious decision by the employer to reward its employees and was responsive to the need of both parties to foster good employer/employee relationships. The fact that it was unilaterally conferred by the employer does not detract from its essential character, that of a benefit and a significant one, that was enjoyed by the Appellant. A benefit is a benefit even when unilaterally conferred.[12]

[11] As was observed by Linden J.A. in Canada v. Hoefele,[13]that:

Our system does not tax every dollar received by a taxpayer. Receipts must be characterized as income or a “benefit” before that occurs. True, all money paid to an employee is a “benefit” in the sense that the employee is better off than if the money were not received. But, whether such a payment is legally a “benefit” according to paragraph 6(1)(a) is an entirely different question, one that depends on the specific facts of each individual case.

     (Emphasis added)

I accept that the term “advantage or benefit” can be interpreted in a manner which does not include the recipient of a cup of coffee and that to constitute a benefit worthy of measurement, it needs to be a “material economic advantage”. The benefit in this case cannot be equated with a cup of coffee or the occasional free lunch or dinner. It was an additional way in which this employer chose to recognize and remunerate his employees for their loyal services. It was not a trivial advantage which failed to satisfy the provisions of paragraph 6(1)(a) of the Act.

[12] The Appellant also argued that where a provision such as paragraph 6(1)(a) of the Act is cast in broad language, it is appropriate to make reference to interpretation bulletins issued by Revenue Canada. Counsel for the Appellant relied on comments of the Supreme Court of Canada to the effect that “the administrative interpretation ... has real weight and, in the case of doubt about the meaning of legislation, becomes an important factor”.[14] That is so, but given the decisions of the Supreme Court in The Queen v. Savage and those of the Federal Court in Canada v. Hoefele and The Queen v. Blanchard,[15] it is difficult to find doubt about the meaning of the legislation in issue. In Stevens v. M.N.R.,[16] Mogan J. observed:

Secondly, an interpretation bulletin is only a declaration of policy. If I must choose between upholding an assessment which applies the plain meaning of the Income Tax Act to a given set of facts and striking down that same assessment because it is in conflict with the plain meaning of a published interpretation bulletin, the choice is obvious. I must uphold the assessment because it is based on the law whereas an interpretation bulletin is only a statement of policy frequently based on administrative convenience or what is practical in a particular sector of the commercial community. ...

And thirdly, the Respondent is not estopped from assessing in a manner not consistent with one of his published interpretation bulletins. The principal purpose of the bulletins is to inform the public of policies which the Respondent has adopted for the administration of legislation as broad and complex as the Income Tax Act. ... When the Respondent concludes that an employee has received a significant benefit in respect of his or her employment, and the value of the benefit is relatively easy to measure, the Respondent has no choice but to apply paragraph 6(1)(a) of the Income Tax Act whatever a published interpretation bulletin may say. In my view, the principle in Harel v. Deputy Minister of Revenue for Quebec, 77 DTC 5438 at 5442 may apply only when the meaning of the legislation is in doubt. ...

(Emphasis added)

These comments apply equally to the present appeals.

Policy Argument

[13] The proposition advanced by Counsel for the Appellant is that if the cost of the Appellant’s hotel room is a “benefit” under paragraph 6(1)(a) of the Act, it should not be included in his income for tax purposes for the same policy reasons which underlie paragraph 46 of IT-470R by virtue of which employers are encouraged to create and provide counselling programs and employees are not discouraged or deterred from seeking such counselling by the inclusion of program costs in their incomes.

[14] In Neeb v. Canada,[17]Bowman J. said the following:

Public policy is not defined. It is a term of some elasticity and the determination that something is against public policy is in part subjective. As Burroughts J. said in Richardson v. Mellish, (1824) 2 Bing. 229, D.C., at p. 252:

... it is a very unruly horse, and when once you get astride it you never know where it will carry you. It may lead you from the sound law. It is never argued at all but when other points fail.

I quite agree, but it is still part of our law and should be invoked in appropriate cases, notwithstanding its vagueness and the degree of subjectivity that inheres in it.

As contrasted to Neeb, it would be totally inappropriate in the present circumstances to invoke “public policy” as the basis upon which to negate the clear and unambiguous intention expressed by the legislators in paragraph 6(1)(a). The purported concessions found in the interpretation bulletin referred to by Counsel for the Appellant are not supported by the Act and they cannot be permitted to determine the result of an appeal. Such a decision would be in direct conflict with the economic policy objectives of Parliament as expressed by this legislative provision. I must also note that I would be loathe to equate an administrative approach taken by the Minister of National Revenue (which conflicts with the clear provisions of statutory provision) to “public policy”.

Taxable benefit - bar charges and gratuities

[15] The last issue to be determined is the appropriateness and correctness of the Minister’s method of calculation with respect to the bar charges and the gratuities on these charges. The parties are agreed that in each of the 1992 and 1993 taxation years, the Minister calculated the total costs of the bar charges, and other amenities and gratuities, and divided the said costs by the total number of meals (guests) served, arriving thereby at an average cost per attendee. In each of the 1992 and 1993 taxation years, the Appellant was assessed the said average cost in respect of himself and his guest.

[16] The Appellant’s testimony was that he was unable to estimate the value of his share of the bar charges and gratuities. On that basis alone, his appeals on this issue cannot succeed. Secondly, I am satisfied that where the Minister uses an averaging mechanism reasonably appropriate to the circumstances, it should generally be acceptable unless the Appellant establishes on a balance of probabilities, that the method was either inaccurate or inappropriate vis à vis that taxpayer or establishes that another mechanism or formula is more reasonable. That has not been done in this case.

[17] The appeals are dismissed, with costs to be taxed.

Signed at Ottawa, Canada, this 31st day of August, 1998.

"A.A. Sarchuk"

J.T.C.C.

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