P. K. Tang (613) 957-2103
JUN 12 1986
Dear Sirs:
This is in reply to your letter of April 1, 1986, wherein you request our views on the following hypothetical situation:
1. Mr. X is employed by, and deals at arm's length, with A Co.
2. Mr. X currently works and resides in City A, which is approximately 1,000 kilometres outside of City B, the location of A Co's head office.
3. A Co has offered Mr. X a managerial position at its head office. Mr. X wishes to retain title to his current residence. If he accepts the promotion he would seek equivalent rental accommodation in City B.
4. Based on an appraisal of the fair market value of his current residence, it is estimated that Mr. X would incur incremental accommodation expenses of approximately $500 per month as a consequence of accepting the promotion and moving to City B. (The incremental expense being the amount by which the cost to Mr. X of equivalent rental accommodation in City B exceeds the gross rental income which could be derived from the rental at his current residence.)
5. A Co will reimburse Mr. X for these incremental accommodation expenses up to a maximum of $500 per month.
It is your view that as a direct result of his transfer to City B, Mr. X will have to pay an amount over and above the income that could be earned from the rental of his current residence and that it is questionable that there is any value or benefit to Mr. X as a consequence of a reimbursement by A Co by reason of employment. Referring to the case of Ransom vs M.N.R 67 DTC 5235, you stated that a reimbursement is not an allowance and, hence, the amount would not be included in Mr. X's income pursuant to paragraph 6(1)(b) of the Act. Further, you also suggested that the guidelines described in paragraphs 6, 8 and 9 of IT- 470 would not apply in your hypothetical situation since the reimbursement by A Co does not represent a benefit to Mr. X nor does it represent board or lodging as it is only a repayment of expenses incurred by reason of employment.
Our Comments
It is our view that the situation described can be distinguished from that of the Ransom case. It is more in line with the situation found in The Queen vs Demers 80 DTC 6326. In that case, the taxpayer's appeal was first allowed by the Tax Review Board on the basis of the Ransom case. That decision was however reversed by the Funeral Court, Trial Division. The Court found that the amount received by the taxpayer to compensate him for the higher expenses incurred while working in Haiti was an adjustment of the taxpayer's base salary. It was part of his income from office or employment. It can also be compared with the case of Gagnon vs The Queen 86 DTC 6179. There, the Supreme Court of Canada found that the amounts paid by a taxpayer to his former wife constituted an "allowance" notwithstanding that the payment was contingent upon the former wife using the money for restricted purposes. The Supreme Court held that the duty which she had to apply these amounts to particular purposes did not affect the benefit she derived from them. It seems that similar line of argument can also be found in the cases of Cockerill 65 DTC 525, Lepine 78 DTC 1637 and Landeryou
64 DTC 281.
In view of the above, we are of the view that the incremental amount received by Mr. X from his employer must be included in computing his income under section 6 of the Act.
Yours truly,
Original Signed by D.B MORPHY
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch