Huffman v. The Queen, 89 DTC 5006, [1989] 1 CTC 32 (FCTD), aff'd 90 DTC 6405 (FCA)

The Associate Chief Justice: —In this action brought pursuant to subsection 172(2) of the Income Tax Act, S.C. 1970-71-72, c. 63, as amended, the plaintiff appeals the reassessment for the 1979 taxation year including in his income a $500 employer reimbursement pursuant to paragraph 6(1)(a) or (b) of the Income Tax Act. The matter came on for hearing in Toronto, Ontario, on May 25, 1988.

The plaintiff is a police officer employed by the Niagara Regional Police Force. During the year in question, he worked as a plainclothes detective in the Identification Unit of the Criminal Investigations Branch, No. 3 Division in Welland, Ontario. His duties involved general criminal investigatory work at crime scenes and inspecting for physical evidence. As a plainclothes detective, the plaintiff was required to provide and wear ordinary clothing consisting of a conservative style suit, blazer or sports jacket with coordinating shirt, tie and trousers. During the 1979 taxation year, the terms of the plaintiff's employment were governed by a Collective Agreement between the Niagara Regional Board of Commissioners of Police (the employer) and the Niagara Regional Police Association on behalf of members of the Niagara Regional Police Force. Pursuant to the terms of the Collective Agreement, the plaintiff was entitled to be reimbursed by his employer in an amount not to exceed $500 for the purchase of clothing to be worn on duty of the type prescribed by the employer, upon presentation of itemized receipts. During the period in question, the plaintiff submitted clothing receipts to his employer in the amount of $420.43 relating to clothing purchased in fulfilment of his plainclothes duties and received a reimbursement of $500.

In his return for 1979, the plaintiff claimed the $500 as reimbursement but the Minister disallowed the deduction. The plaintiff filed a notice of objection claiming that the $500 was not income since no taxable benefit had been received by the taxpayer, but in due course the Minister included the $500 pursuant to the relevant portions of paragraph 6(1)(b) of the Income Tax Act. Subsections 6(1)(a) and 6(1)(b) of the Income Tax Act provide that amounts received as benefits from an office or employment must be in- eluded in the income of a taxpayer unless there is an applicable exception. The relevant portions of the section read as follows:

Sec. 6 Amounts to be included as income from office or employment.

(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) Value of benefits.— the value of board, lodging and other benefits of any kind whatever (except the benefit he derives from his employer's contributions to or under a registered pension fund or plan, group sickness or accident insurance plan, private health services plan, supplementary unemployment benefit plan, deferred profit sharing plan or group term life insurance policy) received or enjoyed by him in the year in respect of, in the course of, or by virtue of an office or employment;

(b) Personal or living expenses, —all amounts received by him in the year as an allowance for personal or living expenses or as an allowance for any other purpose. . .

Counsel for the plaintiff submits that the $500 reimbursement does not constitute a taxable benefit under paragraph 6(1)(a) of the Income Tax Act since no economic benefit of any significant value was conferred on the plaintiff. It is argued that in view of the requirement to wear a certain type of clothing, the nature of the duties carried out by the plaintiff, the unique character of police work, the Collective Agreement and the dichotomy between the uniformed and non-uniformed police officers, it cannot be considered as an economic benefit. It is further submitted that the amount of $500 does not constitute a taxable allowance under paragraph 6(1)(b) because it is not a limited predetermined sum of money paid in advance to allow the recipient to discharge a certain type of expense for which he does not have to account.

The defendant maintains that the plaintiff received the amount of $500 from his employer as a result of the submission of the invoices of $420.43 and thus enjoyed a benefit in the amount of $500 by virtue of his office or employment within the meaning of paragraph 6(1)(a) of the Act. As the plaintiff would have had to buy clothes in any case, it is argued that his net worth has been increased by the receipt of $500. Further, it is submitted that the plaintiff is not incurring an expense for the employer by buying the clothes, but is receiving money for a personal or living expense which is taxable. In the alternative, it is the position of the Minister that the unaccounted for amount of $79.57 constitutes an allowance under paragraph 6(1)(b) of the Act.

The only issue in this case is: does the $500 constitute a benefit to the plaintiff arising out of his employment, or is it simply reimbursement for expenses which he was required to incur in the course of employment? The Supreme Court of Canada decision in The Queen v. Savage, [1983] C.T.C. 393; 83 D.T.C. 5409, outlines a general test for "benefit" under paragraph 6(1)(a). Though that case was decided on the basis of section 56 of the Income Tax Act, in the course of the decision the Court had to determine if a benefit had been conferred on the taxpayer. It was held that a benefit does not necessarily arise as a form of remuneration for services rendered, and therefore the $300 that was received from the employer by the taxpayer as a prize for successfully completing life insurance courses relating to her employment was a benefit received in respect of her employment. The Court also specifically adopted the opinion of Mr. Justice Evans in R. v. Poynton, [1972] 3 O.R. 727 (Ont. C.A.) at 738; [1972] C.T.C. 411 at 420 regarding the scope of paragraph 6(1)(a):

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 s. 3 [now s. 6(1)(a)].

It is therefore necessary to consider whether the facts here show that there was a material acquisition conferring an economic benefit on the taxpayer. A number of cases interpreting the meaning of “economic benefit" were presented by counsel. Though Ransom v. M.N.R., [1967] C.T.C. 346; 67 D.T.C. 5235 (Ex. Ct.) was decided prior to Savage, I found the discussion of the content of "benefit" to be very helpful. There, the appellant was transferred by his employer from Sarnia to Montreal. Upon the sale of his house in Sarnia, the appellant received less than he had paid for it. According to company policy, the employer reimbursed the appellant for the amount he had lost on the sale of his house. The Minister of National Revenue included the amount received in the appellant's taxable income contending that the amount constituted salary, wages or other remuneration under paragraph 5(1)(a) (now subsection 5(1)), or that the sum was paid as an allowance for personal expenses under paragraph 5(1)(b) (now paragraph 6(1)(b)). The appeal by the taxpayer was allowed and it was held that the payment received by the appellant did not form part of his income. At page 358 (D.T.C. 5242), Mr. Justice Noel states:

The cause of the payment is not the services rendered, although such services are the occasion of the payment, but the fact that because of the manner in which the services must be rendered or will be rendered, he will incur or have to incur a loss which other employees paying taxes do not have to suffer.

He commented further at page 359 (D.T.C. 5243):

. . . If a certain class of taxpayers in this country are required, in order to earn their emoluments of office or of employment, to incur certain expenses, reimbursement of these expenses should not be considered as conferring benefits under section 5(1)(a) of the Act. Furthermore, and this is really the answer to the respondent's case, a reimbursement of an expense actually incurred in the course of employment or of a loss actually incurred in the course of the employment is not an “allowance” within the meaning of the word in section 5(1)(b) as an allowance implies an amount paid in respect of some possible expense without any obligation to account.

As a member of the Identification Unit of the Criminal Investigations Branch the plaintiff worked in the field about 90 per cent of the time. He has investigated industrial accidents, drownings, fires, cave-ins, and bodies found in fields and ditches. His duties include examining for fingerprints, footprints, bloodstains and other physical evidence that may be present, and clothing often became soiled, torn or contaminated with odours, requiring frequent cleaning. It was necessary to wear a larger, looser fitting jacket to accommodate the equipment he was required to carry, which included a notebook, a badge and identification folder, a billy club, a pager, a walkie talkie, handcuffs and a revolver in a shoulder or waist holster. The equipment caused extra wear on the plaintiff's clothing. The inner linings of jackets were torn by the holster, and the waistband in the trousers became loose after the holster had been taken on an off several times. Also, the jacket pocket and lining were torn by the constant in and out of the notebook. When working in the field plainclothes officers kept their jackets on so as not to expose their revolver and the centre back seam of the jacket often split over time.

From testimony by several witnesses and from an examination of the Collective Agreement, it is clear that the plaintiff, and all other plainclothes officers, were required as a term of their employment, to wear ordinary clothing in carrying out their duties. It was considered desirable for these officers to be in plainclothes as they more easily blended in with their surroundings and could carry out their investigative duties more efficiently. The decision of whether officers were in uniform or plainclothes was made by their superior officers, and if an officer refused to wear plainclothes he was transferred back to uniform duty. Though there were no written requirements regarding the clothing worn by plainclothes officers, it generally had to be of a conservative type of good condition consisting of a suit or a coordinating blazer or sports jacket, trousers, shirt and tie. The police force considers that personal appearance and grooming are a very important aspect of an officer’s job, and of earning the trust and respect of the public, so superior officers were responsible for ensuring that the proper type of clothing was worn.

Article 17.01 of the Collective Agreement in effect from January 1, 1979 until December 31,1979 provided for reimbursements for the clothing purchased by plainclothes officers:

17.01 Each member covered by this Agreement who is required to provide and wear ordinary clothing as part of his regular duties, shall be reimbursed by the Board for expenses incurred in the purchase of such clothing, upon presentation of the necessary receipts. Such reimbursement shall be in an amount not to exceed five hundred dollars ($500.00) per annum.

Receipts submitted for purchased clothing had to identify the clothing and were subject to approval before reimbursement was forthcoming. The clothing had to be of a type considered suitable by the Force to be eligible for reimbursement. The plaintiff stated that when receipts were submitted for clothing purchased for work in 1979, such clothing could not have been discarded before the end of that year as it was the officer’s responsibility to produce that clothing if required. The plaintiff also believed that he was required to spend the $500 to purchase appropriate clothing and could not use his own clothing instead.

The president of the Niagara Region Police Association added that the 1979 Collective Agreement provided for an increase in the reimbursement from $400 to $500. Because of the extra paperwork, an administrative decision was taken that officers were not required to submit receipts above $400, though they would receive a reimbursement of $500. The plaintiff submitted receipts for $420.43 and received $500. He states he had enough receipts to cover the full $500 and more, and there is no reason for me to find otherwise. Due to the $100 increase in the upper limit in 1979, a discrepancy occurred between the provision of receipts and the maximum reimbursement. As a result, the plaintiff, and others like him, might have been at a disadvantage in having made expenditures above $400 but not keeping the receipts. The plaintiff says he spent more than $500 in the taxation year and I so find. The nature of the expenditure and the discrepancy in reimbursement was a once-only occurrence which cannot have the effect of changing the nature of either one of them. I therefore find, as a fact, that the plaintiff spent more than $500 in the year in question and was reimbursed for that expenditure the maximum allowable under the contract of employment, $500.

The evidence is clear that the plaintiff was required by his employment contract, his superior officers and the exigencies of his tasks to wear a specific type of clothing. The style, size and fabric content of the clothes purchased for work by the plaintiff were chosen with employment requirements in mind and were worn only at work. Though they were purchased in an ordinary clothing store, the clothes were in fact different and distinct from clothes the plaintiff normally wore, which were generally of a finer quality, more expensive and tailored to fit more closely.

Based on the jurisprudence defining benefit in paragraph 6(1)(a) of the Income Tax Act, I am unable to conclude in these circumstances that the plaintiff received a benefit. The plaintiff was required, in order to carry out his duties as a plainclothes officer and receive a salary as such, to incur certain expenses regarding his clothing, and reimbursement of these expenses should not be considered as conferring a benefit under paragraph 6(1)(a) of the Act.

I should also underline that another member of the Niagara Regional Police Force, employed in the Criminal Investigations Branch of the Welland division as a plainclothes police staff sergeant, appealed the inclusion of the $500 reimbursement in his taxable income (Shovel/er v. M.N.R., [1984] C.T.C. 2207; 84 D.T.C. 1195). The taxation year in question there was also 1979 and the same Collective Agreement was involved. The taxpayer testified that the suits he purchased for his work were not suits he would otherwise have acquired and he would not wear them on social occasions. It was held that the taxpayer had not received any benefit in the ordinary meaning of the word as he had absolutely no use for the suits except in the performance of his duties. The taxpayer was simply being restored to the economic situation he was in before his employer ordered him to incur the expenses. I concur entirely with the determination of Rip, T.C.J. in the Shoveller decision. The decision of the Tax Court was appealed to this Court but as the taxpayer did not attend his examination for discovery, the Minister of National Revenue moved to strike out his statement of defence and this Court allowed the Minister's appeal essentially by default, on the basis that all of the facts pleaded in the statement of claim were correct.

I find, therefore, that in the taxation year in question, the plaintiff expended more than $500 for clothing required to be worn in the course of his employment and that the sum of $500 was a reimbursement of that expenditure, not a benefit in accordance with paragraph 6(1)(a).

The appeal by the taxpayer is therefore allowed and the matter is referred back to the Minister for the appropriate reassessment. The plaintiff shall be allowed his costs of this action.

Appeal allowed.