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Fredericton Daily Gleaner ~ Capital Appreciation ~ Tax Court ~ July 3, 2006 - 10 Jul 2006 by TaxHelp

Even if your name isn’t David.
Roger Haineault – “Capital Appreciation” – July 3, 2006.

What a country! While you might think that I’m appreciating our Canada Day weekend, it goes beyond that. I watched a shining example of our system play out in a federal building a couple of weeks ago. You see, the Tax Court of Canada scheduled a number of hearings in Fredericton and Saint John, and we had a client involved with a case.

But before I tell you about it, you might be interested in the process. More than 23 million of us file a personal tax return each year. Our regime is based on self-assessment – basically we are on our honour to report the income we earn. And for most people, the return they file is assessed without changes. Occasionally however, we disagree with the way the Canada Revenue Agency (CRA) sees our position. It’s their job to insure that taxpayers are taking the correct deductions and credits according to the rules. Sometimes the CRA takes away an expense claimed and when that happens, you have rights. You can casually approach them to see if there are pertinent facts that were omitted. If that doesn’t work, you can then file a formal notice of objection. This allows you an opportunity to have someone who specializes in appeals to see if there was an error made in applying the law or at least the procedures in force at the time. But if you still have not been allowed your claim, and you believe that you are correct, you may then take the case to tax court.

The Tax Court of Canada has two main procedures – General and Informal. While the General is very formal where lawyers represent the appellant, the Informal Procedure allows for the taxpayer to represent himself. The cost is $100 to file, and while the regular justices hear the case, they are gentle and guiding. It basically allows a taxpayer an opportunity to tell their story. However, the issue that will be decided is whether the matter at hand is legal. Fairness is not relevant, no matter how worthy the situation is. Finally, a ruling made at the Informal level is not precedent setting.

Eligible moving expenses are deductible against income earned in a new location when you move 40 kilometres or more. They are also deductible against scholarships, bursaries and the like when you move to attend a post-secondary educational institution. However, if someone is on regular Employment Insurance and moves, then they are not deductible. Our client moved from Moncton to Edmundston to attend NBCC. While there he received training allowance paid by both the federal and provincial government. This income was taxable. He claimed his moving expenses and they were disallowed, as the allowances were reported on a T4E Employment Insurance and Other Benefits slip. We took it through the appeals process, were denied the deduction and encouraged him to take it to trial.

While the law might not be fair, it should be consistent. It was our position that taxable income should be eligible for legitimate deductions. While the slip might have had employment insurance marked on it, we believed that as a training allowance, it was also a bursary. So we prepared the client on what his salient argument should be. The income was taxable. He had moved more than 40 kilometres to pursue post-secondary education. The government was aware that he was at school full time by virtue of their paying the allowance. Regular EI is not payable to anyone not available for work, and full time studies would make a student unavailable. Otherwise, the schools would be full of students collecting EI.

Also in our favour was a previous informal ruling where an appellant lost. In that case the taxpayer argued that the training allowance should not be taxable. The court ruled that it was taxable income because it was a bursary. We then found a federal document confirming that the federal-provincial labour force training agreements were to be paid out of the employment insurance account.

In his opening comments, the judge pointed out that he was not there to arbitrate fairness. That could have been a foreshadow of things to come. However, by our client connecting the dots and pointing out that a previous ruling had confirmed the income as a bursary, and that these payments were made from the EI account, we were able to convince the judge that the moving expenses should be deductible against the training allowance.

It was great to see justice, the law and fairness all meet together in that courtroom. While this wasn’t a struggle on the same scale as David versus Goliath, it was heartwarming to see that an ordinary citizen could make an inexpensive case against the Crown and win what we believed to be an equitable outcome.

Roger Haineault is with Help 4 Taxes. He can be reached by email at roger@help4taxes.ca or by calling 1-888-450-1212. His column appears Monday.