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Docket: 2002-1702(IT)I |
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BETWEEN: |
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JIM W. LARSON, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
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Appeals heard on April 9, 2003, at Cranbrook, British Columbia
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By: The Honourable Justice E.A. Bowie |
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Appearances: |
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Counsel for the Appellant: |
Kenneth R. Hauser |
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Counsel for the Respondent: |
Victor Caux |
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JUDGMENT
The appeals from assessments of tax made under the Income Tax Act for the 1997, 1998 and 1999 taxation years are allowed and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the amounts paid to the Appellant by S.I.I.L. Maintenance Inc. as living out allowances are exempt from taxation by reason of subsection 6(6) of the Act.
The Appellant is entitled to costs.
Signed at Ottawa, Canada, this 12th day of August, 2003.
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"E.A. Bowie" |
Bowie J.
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Citation: 2003TCC560 |
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Date: 20030812 |
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Docket: 2002-1702(IT)I |
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BETWEEN: |
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JIM W. LARSON, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
REASONS FOR JUDGMENT
Bowie J.
[1] These appeals are brought from reassessments under the Income Tax Act (the Act) for the 1997, 1998 and 1999 taxation years. The only issue is whether certain amounts that were paid to the Appellant by his employer are taxable as benefits from his employment under paragraph 6(1)(a) of the Act, or if they are exempt from taxation by reason of subsection 6(6). The relevant parts of those two provisions of the Act 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 the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment, except any benefit
...
6(6) Notwithstanding subsection (1), in computing the income of a taxpayer for a taxation year from an office or employment, there shall not be included any amount received or enjoyed by the taxpayer in respect of, in the course or by virtue of the office or employment that is the value of, or an allowance (not in excess of a reasonable amount) in respect of expenses the taxpayer has incurred for,
(a) the taxpayer's board and lodging for a period at
(i) a special work site, being a location at which the duties performed by the taxpayer were of a temporary nature, if the taxpayer maintained at another location a self-contained domestic establishment as the taxpayer's principal place of residence
(A) that was, throughout the period, available for the taxpayer's occupancy and not rented by the taxpayer to any other person, and
(B) to which, by reason of distance, the taxpayer could not reasonably be expected to have returned daily from the special work site, or
(ii) a location at which, by virtue of its remoteness from any established community, the taxpayer could not reasonably be expected to establish and maintain a self-contained domestic establishment,
if the period during which the taxpayer was required by the taxpayer's duties to be away from the taxpayer's principal place of residence, or to be at the special work site or location, was not less than 36 hours; or
(b) transportation between
(i) the principal place of residence and the special work site referred to in subparagraph (a)(i), or
(ii) the location referred to in subparagraph (a)(ii) and a location in Canada or a location in the country in which the taxpayer is employed,
in respect of a period described in paragraph (a) during which the taxpayer received board and lodging, or a reasonable allowance in respect of board and lodging, from the taxpayer's employer.
Counsel for the Appellant identified eight separate conditions that must be satisfied to bring a taxpayer within subsection 6(6). However, the Reply filed by the Respondent puts only two of those in issue. It is pleaded that the Appellant's duties at the special work site were not of a temporary nature, and that the Appellant's residence at the temporary work site was his principal residence, rather than his other residence that is about five hours drive away. It is clear from the evidence that all the other requirements of the subsection are met in this case.
[2] Jim Larson has been an ironworker since 1971 and is widely experienced in the trade. In 1989, he started to work for a company called Southern Interior Installations Ltd. in which his wife, Gayle Larson, had a 50 per cent ownership interest. That company carried out contracts at various industrial sites in the southern interior of British Columbia, including the coal mines owned by Fording Coal Ltd. (Fording) in Elk Valley, which is in the extreme southeastern part of the province. There was considerable competition for the available work, and Mr. Larson and the other employees often found that they were laid off because the company did not have contracts to keep them busy.
[3] Ms. Larson decided to remedy this, and in 1994 she incorporated S.I.I.L. Maintenance Inc. (SIILM), with the intention that it would bid specifically on the Fording contracts and not attempt to compete for the other work in other locations. She was the only shareholder, and she also managed all of the company's affairs. She prepared the bids and did all the financial and business management of the company. The Appellant did the estimating, checked on safety issues, acted as the field representative for the company, and was engaged in setting up and executing the work along with the other tradespersons, all work for which he was well suited by his prior experience. SIILM was very successful, and by 1997 it had 120 employees. Virtually all the work was at the three mine sites of Fording in Elk Valley, and it involved maintenance of existing equipment, installation of new equipment, work associated with the periodic shutdown and reopening of mines, and a variety of other similar jobs. All the work that SIILM did for Fording during the period between 1997 and 1999 was as the successful bidder on contracts for specific jobs, with the exception of a small amount of work that was done on the basis of an hourly rate that was negotiated at the beginning of each year. The contracts were generally for work that would be completed in anything from a few days to a few weeks; almost all the contracts were completed in less than three months. The longest took about eight months. The work that was done on an hourly rate without a competitive bidding process was even smaller jobs. SIILM was successful in making competitive bids, and it was well known by Fording to be a reliable firm, with the result that it got a lot of Fording's business. It did not get all of it, however, and there was never a guarantee of any work beyond that covered by the current signed contracts. As a result, therefore, although SIILM was able to keep a substantial number of employees busy working on contracts with Fording over a period beginning in 1994 and continuing beyond the end of 1999, there was never any assurance of the continuation of work for them at the Fording mine sites beyond a few months into the future.
[4] SIILM is a closed shop. Employment there, including that of the Appellant, is governed by a collective agreement between the company and Local 97 of the International Association of Bridge, Structural and Ornamental Ironworkers. That agreement made provision for employees to be laid off if there was insufficient work, and that did in fact happen from time to time. The number of employees on the SIILM payroll was reduced from 120 to about 75 in 1998, and to about 30 in 1999. The collective agreement also contained a clause requiring the employer to pay a living-out allowance to employees who did not reside in the vicinity at which they were working. SIIML paid this allowance to the great majority of its employees, including Jim Larson. The amounts that were paid to him, and so are the subject of these appeals, are $21,860 in 1997, $21,420 in 1998 and $20,040 in 1999. The Respondent does not suggest that SIIML should not have paid these amounts to Mr. Larson, but only that he did not qualify to receive them free of taxation because he could not bring himself within subsection 6(6) of the Act.
[5] Mr. Larson was born in Trail, B.C. and raised in Fruitvale, a small town nearby. He continued to live there, even though his work for all his previous employers had required him to travel extensively throughout the province, often staying at temporary job sites for months or even years. Most of his close family live in Fruitvale, or near there; he has only some cousins living near Sparwood. He and Gayle own a 1,600 square foot split level home in Fruitvale, with attractive landscaping and a swimming pool in the basement. They acquired the home in 1976, and since then have added to it, and made extensive renovations and improvements. One of their daughters and her family live next door. They have many friends and relatives in the area, with whom they enjoy spending time at hobbies and activities such as fishing, woodworking, gardening. They enjoy the outdoor life in an attractive rural setting near Kootenay Lake, the Arrow Lakes and the Columbia River. From Fruitvale to Sparwood is about a five-hour drive; it is four and one-half hours to the closest of the Fording jobsites.
[6] Clearly, it was not feasible for the Appellant to drive daily from Fruitvale to the Fording mines and back. The Respondent does not dispute that. When the Appellant started working for SIILM, he stayed during the week in rented rooms or motels in and around Sparwood B.C., as he had on previous occasions when he worked in the area at other jobs. None of these arrangements were very convenient or comfortable for him, or for Gayle, who also had to spend a certain amount of time in the area, even though she ran the company principally from the family home in Fruitvale. In 1996, the company purchased a building in Sparwood with three equipment bays and an office. Gayle continued to do a certain amount of the office work at Fruitvale, but from then on she spent more time in Sparwood than she had previously. In June 1997, the Appellant and his wife bought a small condominium apartment in Sparwood, in order to have a somewhat more comfortable place to live in when they were there. It was in an unattractive building, which offered few amenities. They paid $40,000 for it, and considered it to be simply an alternative to the motels and rented trailers that they had been living in during the week up to that point. They have few relatives or friends in or around the Sparwood area. Such friends as they have are the people that they work with. They own a trailer that is parked about one and one-half hours drive from there, and sometimes on weekends when he does not return to Fruitvale, the Appellant goes fishing there. It was abundantly clear from the evidence that the Appellant and his wife much prefer to spend their time at Fruitvale than at Sparwood. They go there for as many weekends as they can throughout the year, and enjoy celebrating holidays and family events with their friends and relatives. It is difficult for the Appellant to spend many weekends there because he has to work at least five days each week at the mine sites where the contract work is. However, he does spend as many weekends as he can there each year. Gayle is able to spend more time in Fruitvale than the Appellant does, because she can do some of her work there, and so is able to stay there for extended weekends.
[7] The Appellant and his wife have fully maintained their associations with the Fruitvale community. Not only do they continue to have family and friends there with whom they spend time, but they have always maintained their bank accounts and their mailing address there. Their house has never been rented, and they continue to keep the telephone and utilities available and paid up. Their driver's licences show their Fruitvale address.
[8] I have no doubt that the Appellant's duties working for SIILM in Elk Valley during the years under appeal were of a temporary nature. He was dependant on a continuing series of contracts, each of which had to be bid for competitively, for the continuation of his employment. If the company failed to get contracts, then the work would simply dry up and the Appellant would be laid off. His situation was no different than that considered by Tremblay J.T.C. in Dubé v. The Queen.[1] In that case the Appellant worked for an employer who obtained a series of one-year contracts for the work to be done. In the present case, the contracts are for much shorter periods, and it appears to me that the Appellant's livelihood is less secure, or at least no more secure than that which Judge Temblay found to be of a temporary nature in Dubé.
[9] I am also of the view that the Appellant's principal residence is at Fruitvale and not at Sparwood. Both the house at Fruitvale and the apartment at Sparwood are residences of the Appellant and his wife. The Appellant does not dispute that he spent more nights at the apartment than at the house in each of the years under appeal. However, the determination which residence is the principal one is not simply a matter of counting nights spent there. If that were the intention of Parliament it would have been very easy to say so. The question is one that must be answered qualitatively rather than quantitatively. This is inescapable in a world where working people must devote more days to labour than to leisure.
[10] The ordinary meaning of the word "principal" is:
1. first in rank or importance; chief 2. main, leading.[2]
The purpose of subsection 6(6) is to ensure that taxpayers who must work temporarily at such a distance from their homes that commuting is impossible should not be taxed on living allowances while they continue to incur unabated the normal expenses associated with a home to which they will return when the temporary work is done. No doubt it is unusual for a worker to solve the temporary accommodation problem by purchasing rather than renting, but nothing in the language of subsection 6(6) precludes it from applying to such a situation. The Minister put her case before the Court on the basis that Sparwood is the Appellant's principal residence, but she did not take that position until he stopped renting and bought an apartment there. The question to which she should have addressed her mind is not whether he owned or rented in Sparwood, but of the two homes that he owned, which was a substitute for the rented rooms and motels that he had been living in at the work site. The answer to that is obvious. The issue may also be approached by considering in which of these owned premises the taxpayer would live if he were not employed at the special work site. Most frequently, the answer to this question will be the home that he lived in before starting the temporary work; however that is a determination that must be made on the particular facts of each case. In this case, I have no hesitation in concluding that if Mr. Larson were not working at Sparwood he would not live in the apartment there. If, for example, he were to retire, then he would certainly live permanently in his house in Fruitvale. Whether he would retain the apartment at Sparwood as an investment is, of course, irrelevant; the only relevant inquiry is as to where he would choose to live, and that is certainly Fruitvale. That is his principal residence.
[11] The appeals are allowed and the assessments are referred back to the Minister for reconsideration and reassessment on the basis that the amounts paid to the Appellant by SIILM as living out allowances are exempt from taxation by reason of subsection 6(6) of the Act. The Appellant is entitled to his costs.
Signed at Ottawa, Canada, this 12th day of August, 2003.
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"E.A. Bowie" |
Bowie J.
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CITATION: |
2003TCC560 |
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COURT FILE NO.: |
2003-1702(IT)I |
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STYLE OF CAUSE: |
Jim W. Larson and Her Majesty the Queen |
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PLACE OF HEARING: |
Cranbrook, British Columbia |
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DATE OF HEARING: |
April 9, 2003 |
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REASONS FOR JUDGMENT BY: |
The Honourable Justice E.A. Bowie |
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DATE OF JUDGMENT: |
August 12, 2003 |
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APPEARANCES: |
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Counsel for the Appellant: |
Kenneth R. Hauser |
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Counsel for the Respondent: |
Victor Caux |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
Kenneth R. Hauser |
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Firm: |
Kenneth R. Hauser Law Corporation Tax Lawyer |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |