Date: 20010419
Docket: 2000-2407-IT-I
BETWEEN:
KARUNARATNE HIPPOLA,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Hamlyn, J.T.C.C.
[1] This is an appeal from an assessment of tax for the 1998 taxation year.
[2] By Notice of Assessment dated June 24, 1999, the Minister of National Revenue initially assessed the Appellant for the 1998 taxation year.
[3] By Notice of Reassessment dated October 19, 1999, the Minister reassessed the Appellant for the 1998 taxation year and disallowed the moving expenses.
[4] At all material times, the Appellant owned and maintained a residence located at 123 Saphir Avenue, Navan, Ontario. During the 1996 taxation year, the Appellant commenced employment with Dalsa Inc. in Waterloo, Ontario. While so employed, he resided in rental accommodation in Waterloo; his wife, son and daughter, however, continued to reside in Navan . In late 1998, the Appellant returned to the Ottawa area and started working for the Mitel Corporation.
[5] The Minister assumed that the Appellant had not changed residences or acquired a new residence within the meaning of subsection 62(3) of the Income Tax Act.[1]
[6] The Appellant states that he moved to Waterloo in 1996 for employment purposes. Since his wife, son and daughter could not relocate with him, he continued to maintain the residence in Navan even though he was not living there, although he did try to sell the Navan residence between September 8, 1996 and June 30, 1997. Considering the increased expenses incurred as a consequence of maintaining these two residences and considering the desires of his family, the Appellant planned in 1998 to start a consulting business in his field of work in the Ottawa area. He stated that he moved back to the Ottawa area for the purpose of starting this business. However, while in the process of setting up the business in the Ottawa area, he was approached by Mitel Corporation and hired by Mitel after he moved back to Navan.
STATUTORY FRAMEWORK FOR MOVING EXPENSES
[7] Subsection 62(1) provides the deduction for moving expenses.
[8] Subsection 248(1) defines "eligible relocation":
"eligible relocation" means a relocation of a taxpayer where
(a) the relocation occurs to enable the taxpayer
(i) to carry on a business or to be employed at a location in Canada ...
[9] Subsection 62(3) provides a list of expenses considered as moving expenses.
[10] As a side note – the Respondent took issue with the Appellant's citation and reproduction of subsection 62(1) moving expenses and related sections on the basis that the sections cited were only effective for the 1999 taxation year and thereafter. However the amendments in 1999 to section 62 are applicable after 1997 and the amendments to subsection 248(1) in 1999 are applicable to all taxation years.
ANALYSIS
Whether the Appellant is entitled to deduct moving expenses in his 1998 taxation year.
[11] According to the Minister, the Appellant did not change residences or acquire a new residence within the meaning of subsection 62(3) of the Act when he moved back to Navan in 1998. In other words, the Minister maintains that the Appellant still resided in Navan while working in Waterloo. The first issue is to determine what constitutes a residence for the purposes of section 62.
[12] Former section 62 referred to the taxpayer's old residence as the place where the taxpayer ordinarily resided, the meaning of which was examined in Rennie v. M.N.R.,90 DTC 1050 (T.C.C.).
[13] In the Rennie case, the Appellant had moved from Montreal to Edmonton for the purposes of his employment. When he left his home in Montreal, he was uncertain regarding his length of employment in Edmonton, so he only took with him a minimum of household effects and moved to a rented apartment. He turned his Montreal home over to a relative, while it was understood that the Appellant could return and occupy his home at any time it suited him. While the Appellant and his wife were in Edmonton, they maintained ties with Montreal and when they visited Montreal, they stayed at the Appellant's home. About two years later, the Appellant obtained employment in Victoria and thus moved from Edmonton to Victoria. When the Appellant and his wife decided to make Victoria their permanent home, they sold the Montreal home and claimed moving expenses with respect to the move from Montreal to Victoria.
[14] Christie A.C.J.T.C. found that the Appellant did not ordinarily reside in Montreal before he moved to Victoria. Relying on the Supreme Court's decision in Thomson v. M.N.R., 2 DTC 812 (S.C.C.), Judge Christie determined the Appellant's residence as the place where, in the settled routine of his life, he regularly, normally or customarily lived. He thus found that the Appellant ordinarily resided in Edmonton at that time.
[15] Based on the above reasoning, I conclude the Appellant, in the present appeal for 1998, ordinarily resided in Waterloo before he moved back to Navan in the latter part of 1998. In the present case, the Appellant's family stayed in the residence in Navan while he was living in Waterloo. However, in the settled routine of the Appellant's life he nevertheless regularly, normally or customarily lived in Waterloo during that period.
[16] With this finding it is then necessary to determine whether the other conditions of subsection 62(1) of the Act are met. Pursuant to paragraph 62(1)(c), an amount may be deducted for expenses incurred in respect of an eligible relocation to the extent that it does not exceed the taxpayer's income for the year from his employment at the new work location or from carrying on a business at the new work location, as the case may be. In this appeal, the Appellant contends that he moved back to the Ottawa area for the purposes of starting to carry on a business. In fact he did not gain any income from the purported business since the Mitel Corporation offered him permanent employment, which he accepted instead of starting his business. Moreover, since the intention of working towards setting up his business, he has not gained any income from the business, nor indeed as the business got off the ground. Therefore, the Appellant is not entitled to the deduction of any amount since his income for the year from his business was nil.
[17] My conclusion would be different if the evidence showed that Mitel hired the Appellant before he actually moved to Navan. If so, the Appellant could then submit that he moved back to Navan for the purposes of employment and accordingly could deduct his moving expenses to the extent that they did not exceed his income from this employment. However, it is only after the Appellant had moved back to Navan that Mitel approached him and offered him employment. The Appellant did not move to Navan to enable him to be employed by Mitel. Such a conclusion is consistent with the reasons of Tremblay T.C.J. in Pelchat v. M.N.R., 84 DTC 1865 (T.C.C.), in which he stated, at page 1867, that "when a taxpayer in fact moves, he must have already found employment in the new location in order to benefit from the deduction provided for by s. 62". On this basis the appeal is dismissed.
CONCLUSION
[18] With this conclusion it is not necessary to determine whether the amounts claimed were reasonable in the circumstances. Nor is the Appellant's alternative claim for purported Waterloo employment expenses viable because Waterloo was the place he ordinarily resided before he moved back to Navan in 1998. Moreover, the Appellant has not shown any basis for such a claim under the Income Tax Act.
DECISION
[19] The appeal is dismissed.
Signed at Ottawa, Canada, this 19th day of April 2001.
"D. Hamlyn"
J.T.C.C.