Date: 19990407
Docket: 98-1004-IT-I
BETWEEN:
KEITH F. McGUIRE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for judgment
Hamlyn, J.T.C.C.
[1] This appeal arises from a Notice of Reassessment dated April 13, 1995 in which the Minister of National Revenue (the "Minister") disallowed a portion of the moving expenses claimed by the Appellant in the 1991 taxation year pursuant to subsection 62(1) of the Income Tax Act (the "Act").
[2] The Appellant is an RCMP officer, who made a work related move. The RCMP provides an allowance of one month pay when it requires that a transfer be made. This money is provided to cover expenses related to the move.
[3] On August 26, 1991, the Appellant moved as a result of an employment transfer and received $4,475, one month's salary, from the RCMP. The Minister submits that the Appellant had complete discretion over the allowance and did not have to account for its use and that the allowance was provided to compensate the Appellant for the inconvenience of the move and that the Appellant's actual moving expenses were paid by his employer.
[4] The Minister further states that the Appellant properly included this allowance as income from office or employment for the 1991 taxation year. In addition, the Appellant claimed moving expenses in the amount of $5,072.73 and noted that the allowance was not income.
[5] The Appellant submits that the allowance was not an economic benefit to himself as it was used to defray the costs of the move. He submits that he incurred moving expenses in excess of $10,500. He states that the allowance offset part of these expenses but left $6,025 unaccounted for. The Appellant states that he has a dependent family of five and submits that due to the size of the new house, he had to undertake extensive renovations to the house in order to accommodate his family. These renovations cost in excess of $10,000. He submits that these expenses are "moving expenses" for the purpose of the subsection 62(1) deduction.
[6] The Appellant claimed the allowance as a deduction for his 1991 taxation year. The Appellant was issued a refund in the amount of $4,235.15 on July 15, 1992. On April 6, 1995, the Minister notified the Appellant that his claim for moving expenses had been reduced. This was followed by a Notice of Reassessment that included an interest charge. The Appellant submits he should not be charged interest on the amount alleged by the Minister because he acted in good faith and that the delay in making the assessment was not caused by himself and that he should not be charged interest on a debt that he did not know existed.
[7] The Appellant submits that his right to security of person, section 7 of the Canadian Charter of Rights and Freedoms (the "Charter") has been breached. He submits that the RCMP provided the allowance in order to offset economic losses which might result from his transfer. Thus, it was put in place in order to preserve the member's security of person. The Appellant submits that taxing such an allowance as income thus threatens the individual's security and therefore breaches section 7.
[8] The Appellant also submits that he was subject to cruel and unusual punishment and therefore had his section 12 Charter rights violated. He bases this supposition on the fact that he was initially told by Revenue Canada that his tax return was acceptable and was subsequently issued a refund for the moving expenses claimed. He submits that it is cruel and unusual to charge interest on the outstanding amount for the three years following the issuance of the refund and prior to informing the Appellant that an error had been detected on his 1991 income tax return. Furthermore, the Appellant states that Revenue Canada collections incorrectly enacted a statutory set-off of his wages in the amount of $550. He states that he later received an apology concerning this action against him. The Appellant outlined, for this latter problem, what he considered was outrageous dealings by Revenue Canada in relation to himself.
[9] The Appellant further submits that he has not been treated equally before the law pursuant to his section 15 Charter rights on the basis that he was not advised of the problem with his taxes until three years after they had been filed and had been charged interest for this period.
ISSUES
[10] The issues are:
- Should the relocation allowance provided by the RCMP be included in the Appellant's income for the 1991 taxation year, pursuant to paragraph 6(1)(b) of the Act?
- Is the Appellant entitled to claim moving expenses in the amount of $4,475 pursuant to subsection 62(1) of the Act?
- Was the interest calculated by the Minister correct?
- Does the Tax Court of Canada have the necessary jurisdiction to grant interest relief to the Appellant?
- Have the Appellant's Charter rights been breached by the conduct of the Minister?
ANALYSIS
RELOCATION ALLOWANCE
[11] The provision of the Act which is relevant to this issue reads 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:
...
(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
...
[12] The Appellant submits that the allowance he received from his employer should not be included in his income for the 1991 taxation year. The Minister disagrees.
[13] The Queen v. Phillips, 94 DTC 6177 (F.C.A.), concerned an employee who was required to move due to a job transfer and as a result incurred increased housing prices at his new work location. Consequently, the employer compensated him for the increased housing costs of the replacement property. Robertson J. stated that the payment created a temporary increase in wages that was not available to all employees.
[14] Robertson J. then addressed the argument that the taxpayer's new house was inferior to his old residence and that he effectively paid "more for less". He concluded that a loss for taxation purposes could not be based on the subjective opinion of the taxpayer. Rather, a loss must be determined based on established legal benchmarks. He continued at pages 6184-5:
Comparative analyses of floor space and house amenities comprise personal value judgments. To contrast a storey-and-a-half house in Moncton with a Winnipeg bungalow by reference to "ball park figures" regarding on-average housing costs is valuable to the consumer but unacceptable as a legal benchmark for determining so-called actual loss. There is an obvious reason why an employer would only partially compensate employees for higher housing costs. House selection is as dependent on personal taste and lifestyle as it is on cost. After all, location is the touchstone for determining value in real estate.
The foregoing criticisms are not intended to detract from the respondent's conviction that he received "less" for "more". What is important for him and the other CNR employees who await the outcome of this decision to recognize is that "economic benefit" cannot be assessed on the basis of subjective criteria and that the taxation of benefits cannot be made to depend on the perceptions of individual taxpayers. The Tax Court's decision in Cutmore v. M.N.R., [1986] 1 C.T.C. 2230; 86 DTC 1146 (T.C.C.), illuminates this point.
[15] The Court concluded that the taxpayer had received a taxable benefit from his employer.
[16] In summary, an allowance exists if it can be determined that the amount received was arbitrary, was paid in lieu of reimbursement, may be spent in any manner by the recipient, and that the recipient need not account for his use of the funds.
[17] To the extent that an allowance is actually used for "moving expenses" within the definition of subsection 62(3), the taxpayer can deduct such expenses thus offsetting the allowance included in his or her income by virtue of paragraph 6(1)(b). The end result being that the taxpayer is only taxed on that portion of the allowance which is not used to pay for moving expenses.
[18] In this case, the allowance received by the Appellant did not require him to account for its use and the figure was arbitrarily determined. The allowance should be included in the Appellant's taxable income pursuant to paragraph 6(1)(b). The fact that the Appellant believes that he has received "less for more" is irrelevant to this appeal, pursuant to Robertson J.'s comments in Phillips (supra).
MOVING EXPENSES
[19] The Appellant submits that he is entitled to claim moving expenses in the amount of $4,475 in the 1991 taxation year, pursuant to subsection 62(1) of the Act. The Minister submits that the Appellant's employer paid for all of the Appellant's moving expenses and that the expenses claimed by the Appellant are not "moving expenses" within the definition of subsection 62(3) of the Act. The Appellant submits that these are legitimate expenses, monies expended in house renovations were incurred in order to restore his family to the position it held prior to his transfer.
[20] "Moving expenses" are defined in subsection 62(3) of the Act to include travelling costs for the taxpayer and his family, the cost of transporting furniture, the cost of food and lodging at the old or new location for up to 15 days, costs associated with cancelling a lease on a former residence, the cost of selling the former residence and the cost of legal services related to the new residence, if the old residence is sold. It should be noted however, that this list is not exhaustive.
[21] The renovations to the new residence cannot be classified as expenditures incurred for changing one's residence. As was noted by Robertson J. in Phillips (supra), personal value judgements of the new residence are irrelevant for taxation purposes. The Appellant's conviction that the renovations were necessary for the well being of his family are merely personal preferences which do not reflect actual expenses incurred for the transfer of his family to his new job location.
INTEREST ON UNPAID REASSESSED TAX
[22] The provision of the Act which is relevant to this issue, reads as follows:
161(1) Where at any time after the day on or before which a taxpayer is required to pay the remainder of his tax payable under this Part for a taxation year,
(a) the amount of his tax payable for the year under this Part
exceeds
(b) the aggregate of all amounts each of which is an amount paid at or before that time on account of his tax payable and applied as at that time by the Minister against the taxpayer's liability for an amount payable under this Part for the year,
the person liable to pay the tax shall pay to the Receiver General interest at the prescribed rate on the excess computed for the period during which that excess is outstanding.
[23] The Appellant submits that it is unjust to charge him interest on the alleged unpaid tax for the period prior to Revenue Canada's error being brought to his attention. In Stephen v. The Queen, 96 DTC 3253, on page 6 of the full written Reasons for Judgment I found:
It should be pointed out that the interest which is levied on the amount owing is meant to place both the Minister and the taxpayer in a position closer to that in which they would be had the taxpayer paid the amount which he owed. The payment of such interest presupposes the accuracy of the reassessment issued by the Minister. During the 32 months until the issuance of the reassessment, the Appellant has had use of the unremitted money while the Crown has not had use of the money to which it was entitled. The payment of interest is meant to equalize this situation.
[24] The Appellant in the instant case had use of the tax refund for three years prior to the reassessment. The interest is not a penalty but rather a means of compensating the Minister for the use of the money for that period. If such interest was not assessed then the Appellant would unfairly benefit from the use of this money. In any event the discretion to waive interest lies with the Minister, not with the Tax Court, pursuant to subsection 220(3.1).
INTEREST AFTER REASSESSMENT
[25] The Appellant is seeking to have the Court declare that interest should not be payable due to the unfair conduct of Revenue Canada throughout the appeal process and the Appellant submits that the interest was incorrectly calculated based on payments that have been made following the Reassessment.
[26] Subsection 171(1) states that the Court may dispose of an appeal by dismissing it, vacating or varying the assessment or by referring the assessment back to the Minister for reconsideration and reassessment. The provision does not permit the Court to make declaratory statements such as that sought by the Appellant.
[27] Hence, it is outside the jurisdiction of the Court to state that the Appellant is granted relief from interest on the basis that Revenue Canada has treated him unfairly. The Court may only allow the appeal and change the assessment if it is determined that the assessment is incorrect.
[28] In Godsell v. The Queen, 96 DTC 1292 (T.C.C.), Lamarre Proulx J. stated that the Tax Court of Canada did not have jurisdiction to reduce the amount of interest payable. At page 1294 she stated that:
[T]here is no legislative provision in the Act that gives the Court the power to reduce the amount of interest payable. In addition, the payment of such interest cannot be deducted in the calculation of a taxpayer's income.
[29] Hence, the Tax Court is precluded from reducing the Appellant's interest liability if the assessment is correct.
ALLEGED CHARTER BREACHES
[30] There is no doubt this Appellant feels unfairly and unjustly dealt with by Revenue Canada throughout the assessment, reassessment objection and appeal processes.
[31] The Appellant submits that the Minister breached sections 7, 12, and 15 of the Charter.
[32] The Appellant submits that the Minister violated his section 7 Charter rights by including the allowance in his taxable income. He submits that his employer provided the allowance in order to defray economic losses which result from his employment transfer. The inclusion of this amount in his income threatens his security of person, according to the Appellant.
[33] In Taylor v. The Queen, 95 DTC 591 (T.C.C.), Sobier J. found that section 7 of the Charter does not safeguard economic rights. He cited with approval the words of McLachlin, J. of the British Columbia Court of Appeal, in Whitbread v. Walley, [1988] 5 W.W.R. 313 at pages 323-4, at page 599:
To date s. 7 has been applied mainly in cases where the physical liberty of the complainant has been infringed or is in danger of infringement. Imprisonment and detention by the state offers classic examples of situations where s. 7 clearly applies: ...
...
At the other end of the scale, it appears clearly that purely economic claims are not within the purview of s. 7 of the Charter. No one suggests, for example, that imposition of a monetary disability on a corporation would infringe s. 7 if not effected in accordance with the principle of fundamental justice.
[34] Hence, the Appellant can not claim that the inclusion of the allowance in his taxable income constitutes a breach of his section 7 rights, as section 7 does not encompass security of economic rights.
[35] The Appellant also submits that he has been subject to cruel and unusual punishment in breach of section 12 of the Charter on the basis that the reassessment did not occur until three years after he was issued a refund on this 1991 income tax return and that he was now required to pay interest on the use of these funds. The Supreme Court of Canada established that cruel and unusual punishment occurs when the punishment is so excessive as to outrage standards of decency. In other words, the effect of the punishment must be grossly disproportionate to the crime.[1] In A. Schindeler v. Canada, [1994] 1 C.T.C. 2379 (T.C.C.), the Court held that an obligation to pay income tax did not constitute cruel and unusual punishment within the meaning of section 12 of the Charter.
[36] Finally, the Appellant has argued that he has been treated unequally before the law and that his subsection 15(1) Charter rights have been violated. The basis for this supposition is that he was not advised of his tax situation until three years after he filed his 1991 income tax return and was charged interest during this period. The basis of a valid subsection 15(1) violation is a denial of equality based on personal characteristics which constitutes discrimination based on an enumerated or analogous ground.[2] The Appellant in the instant case has failed to show that he has been denied equality based on a personal characteristic. Hence, he must fail on this issue.
DECISION
[37] The appeal is dismissed.
Signed at Ottawa, Canada, this 7th day of April 1999.
"D. Hamlyn"
J.T.C.C.