T-738-80
The Queen (Plaintiff)
v.
Telesphore Demers (Defendant)
Trial Division, Marceau J.—Ottawa, September
1 1 and 25, 1980.
Income tax — Income calculation — Appeal from Tax
Review Board's decision that part of defendant's remuneration
in 1975 was not from his employment and was not taxable —
Defendant was employed abroad — Annual remuneration was
made up of salary, dependence allowance and cost of living
adjustment — Defendant submits that last item was not
income or an allowance but a reimbursement of expenses
incurred because of higher cost of living abroad — Income
Tax Act, R.S.C. 1952, c. 148, as amended, ss. 5(1), 6(1),(3),(6)
and (7).
This is an appeal from a decision of the Tax Review Board
which held that part of defendant's remuneration was not
remuneration from his employment and therefore did not have
to be included in his income in 1975. During that year,
defendant worked for the OAS in Haiti. He lived there while
his wife remained in Ottawa. His annual remuneration was
made up of the three items set out in the position notice,
namely (a) the salary per annum, (b) the dependence allowance
and (c) the cost of living adjustment. Defendant submits that
this last item in the amount of $4,280.92 was not received by
him as income from an office or employment, or as an allow
ance for personal and living expenses, but was paid to him as a
reimbursement of expenses incurred because of the high cost of
living in Haiti. Alternatively, if this was an allowance, it would
be subject to the exemptions of sections 6(6) and 6(7) of the
Income Tax Act.
Held, the appeal is allowed. The provisions concerning the
items that must be included in computing remuneration do not
make it possible to maintain that the "adjustment" constituted
a reimbursement of expenses. All employees of the OAS at the
same level are entitled to the same basic salary, "adjusted" on
the basis of the cost of living in the country in which each of
them works. It is the salary itself which is adjusted. Defend
ant's alternative submission must also be rejected. First, the
sum was never paid or received as an "allowance". Secondly,
the fact that a person occupying a position for which his
presence is normally and continuously required in a certain
place maintains or establishes his residence in another place
does not allow him to rely on the exemption in section 6(6) of
the Income Tax Act.
Ransom v. Minister of National Revenue 67 DTC 5235,
distinguished. R. v. Forestell 79 DTC 5289, distinguished.
INCOME tax appeal.
COUNSEL:
W. Lefebvre and P. Plourde for plaintiff.
J. C. Couture, Q.C. for defendant.
SOLICITORS:
Deputy Attorney General of Canada for
plaintiff.
Ogilvy, Renault, Montreal, for defendant.
The following is the English version of the
reasons for judgment rendered by
MARCEAU J.: Toward the end of 1974, shortly
after he had retired as a federal government
employee, the defendant applied for and obtained
employment with the Organization of American
States (OAS). The employment was intended to be
for a one-year term in Port-au-Prince, Haiti. The
defendant in fact held it from January 18 to
December 31, 1975. He lived alone in Haiti during
this period, while his wife remained in Ottawa in
the apartment in which he had been residing and is
still residing at present. While he was working for
the OAS the defendant received a total of
$22,954.25 from his employer. The Minister of
National Revenue considered this sum to be tax
able in its entirety under the Income Tax Act,
R.S.C. 1952, c. 148, as amended, and issued an
assessment accordingly. The defendant disputed
the assessment and finally convinced the Tax
Review Board that $4,280.92 of the $22,954.25 he
had received should not be considered remunera
tion from his employment and therefore did not
have to be included in his income for 1975. It is
this decision of the Tax Review Board which is the
subject of the present action.
With respect to the facts and evidence, the
defendant relied on a single document, the notice
prepared by the OAS advertising the position to be
filled, the notice on the basis of which he was
hired. This notice divided the remuneration pay
able to the incumbent of the position advertised
into three items, namely: (a) "salary per annum",
ranging from a set minimum to a set maximum;
(b) "dependence allowance p.a.", a sum estab
lished on the basis of three possible categories:
spouse, child or dependant, and (c) "post adjust-
ment p.a.", an amount between the minimum and
maximum indicated, "variable according to cost of
living and to dependency status". The defendant
did not sign a contract with the OAS, he was paid
every month by cheque and he received only one
cheque covering one-twelfth of the total net annual
amount of the "remuneration" to which he was
entitled. He maintained, however—and this was
not disputed by the Minister—that this annual
remuneration which he received was in fact made
up of the three items set out in the notice, namely:
$18,291.30 for salary, $382.03 for the allowance
for dependants and $4,280.92 for the cost of living
adjustment. With respect to the law, the defend
ant's first and chief submission was that this
adjustment of $4,280.92 was not received by him
as income from an office or employment within the
meaning of section 5(1) or 6(1) of the Act, or as
an allowance for personal or living expenses within
the meaning of section 6(1)(b), but was paid to
him as a reimbursement of expenses incurred as a
result of his departure from Canada. This amount
was therefore not taxable. He then submitted in
the alternative that if this was an allowance it
would have been exempt from tax under the provi
sions of sections 6(6) and 6(7) of the Act.
This argument put forward by the defendant,
although favourably received by the Tax Review
Board and ably defended before me by his counsel,
seems to me to be quite simply untenable.
The basic rule set out in the new Income Tax
Act for determining a taxpayer's taxable income is
contained, as we know, in section 5, subsection (1),
which reads as follows:
5. (1) Subject to this Part, a taxpayer's income for a taxa
tion year from an office or employment is the salary, wages and
other remuneration, including gratuities, received by him in the
year.
This rule is complemented by the series of provi
sions in section 6 setting out the amounts to be
included in income, subsection (3) of which reads
as follows:
6....
(3) An amount received by one person from another
(a) during a period while the payee was an officer of, or in
the employment of, the payer, or
(b) on account or in lieu of payment of, or in satisfaction of,
an obligation arising out of an agreement made by the payer
with the payee immediately prior to, during or immediately
after a period that the payee was an officer of, or in the
employment of, the payer,
shall be deemed, for the purposes of section 5, to be remunera
tion for the payee's services rendered as an officer or during the
period of employment, unless it is established that, irrespective
of when the agreement, if any, under which the amount was
received was made or the form or legal effect thereof, it cannot
reasonably be regarded as having been received
(c) as consideration or partial consideration for accepting the
office or entering into the contract of employment,
(d) as remuneration or partial remuneration for services as
an officer or under the contract of employment, or
(e) in consideration or partial consideration for a covenant
with reference to what the officer or employee is, or is not, to
do before or after the termination of the employment.
I do not see how this $4,280.92 adjustment includ
ed in the remuneration payable to the defendant in
compensation for his services could not be covered
by these provisions. The interpretation which the
defendant suggested should be given to the con
tents of the job notice in support of his position
seems to me to be without foundation in fact. The
provisions concerning the items that must be
included in computing "remuneration" simply do
not make it possible to maintain that the "adjust-
ment" constituted a reimbursement of expenses
incurred as a result of the fact that the cost of
living was higher in Haiti than in Canada. There is
nothing to indicate that such a specific comparison
was considered by the employer. It seems to me,
on the contrary, that the provisions exist to meet
the needs of the OAS, which, since it has
employees at the same level in different countries,
must maintain a similar remuneration base for all
of them but must also take into account the varia
tions that may exist in the cost of living in the
different countries. All employees in the same
category are entitled to the same basic salary,
"adjusted" on the basis of the cost of living in the
country in which each of them works. In my view
it is the salary itself which is adjusted. The legal
consequences of this are clear; if this is an adjust
ment of salary, the provisions relied on by the
defendant do not come into play.
Counsel for the defendant, like the Tax Review
Board, would like the decision of Noël J. in
Ransom v. M.N.R. 67 DTC 5235 to serve as a
precedent in his favour, but I do not see how this
can be so. That case involved a sum paid by the
employer in reimbursement of the loss the
employee had suffered as a result of his transfer to
another city; this was thus truly a reimbursement
of a specific loss, the payment of specific compen
sation to cover injury resulting from an exceptional
event that occurred in the course of employment.
There are no such circumstances in the present
case.
In my view this $4,280.92 which the defendant
received was part of the remuneration attached to
the position he occupied. The argument that this is
an amount paid in reimbursement of expenses
incurred as a result of his departure from Canada
seems to me impossible to maintain, and the idea
that this is an "allowance" to which subsection (6)
of section 6 of the Act could apply does not seem
to me to be based on any evidence.' First, the sum
was never paid or received as an "allowance", and
secondly, there is nothing in the record to indicate
the existence of any of the items referred to in
section 6(6). The defendant stated that he had
kept his residence in Ottawa, where his wife lived.
The mere fact, however, that a person occupying a
' Paragraph (a) of subsection (6) of section 6, the provision
relied on, reads as follows:
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
(a) the value of, or an allowance (not in excess of a
reasonable amount) in respect of expenses incurred by him
for, board and lodging received by him
(i) in respect of, in the course of or by virtue of his office
or employment at a special work site from which, by
reason of distance from the place where he maintained a
self-contained domestic establishment (in this subsection
referred to as his "ordinary place of residence") in
which he resided and actually supported a spouse or a
person dependent upon him for support and connected
with him by blood relationship, marriage or adoption, he
could not reasonably be expected to return daily to his
ordinary place of residence, and
(ii) in respect of a period while he was required by his
duties to be away, for a period of not less than 36 hours,
from his ordinary place of residence ..
position for which his presence is normally and
continuously required in a certain place maintains
or establishes his residence in another place does
not allow him, in my view, to rely on the exemp
tions in section 6(6). Grant D.J. in The Queen v.
Forestell 79 DTC 5289, which was also relied on
by counsel for the defendant in support of his
alternative submission, certainly does not maintain
anything of the kind.
It is therefore impossible for me to accept the
defendant's position and I must reject it. I am of
the opinion that the Minister was correct in con
sidering that the $4,280.92 received by the defend
ant as a "post adjustment" constituted part of his
salary and remuneration as an employee of the
OAS and that, as such, this sum was taxable. The
action is therefore allowed, the decision of the Tax
Review Board is set aside and the assessment of
the defendant for the 1975 taxation year is
reinstated.
With respect to costs, it is clear that the provi
sions of section 178(2) of the Act providing for
payment by the Minister of "all reasonable and
proper costs of the taxpayer" in connection with
the appeal are applicable, and it is hereby ordered
accordingly.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.