# 2012-018 Pay and Benefits, Income-Producing Property, Real Estate and Legal Fees, Recovery of Overpayment/Debt Write-Off, Relocation

Case Summary

F&R Date: 2012–04–30

The grievor was informed that a portion of the real estate and legal fees (RE/LF) he had been reimbursed following the sale of his residence at his former place of duty had to be recovered because the residence in question was deemed to have been an "income property". The grievor had been renting a suite; however, the grievor informed the tenant in October 2007 that they were expecting a child and that they would need all the space in the house. The tenant moved out in April 2008 and the house was sold on 14 July 2008 as a result of the grievor being relocated.

In his grievance, the grievor explained that during the initial briefing with the Canadian Forces Integrated Relocation Program (CF IRP) representative, he specifically asked what was meant by "income property"; it was his understanding, based on the response provided, that it meant "property(ies) other than the principal dwelling". The grievor requested that the amount of $6,373.04 that was recovered from him be returned.

While the grievor appeared to have accepted the interpretation of the Director Compensation and Benefits Administration (DCBA) that he had sold an income property, the Board was not convinced that it was the case. The Board acknowledged that the grievor's residence was generating income at some point; however, the Board noted that the grievor's situation was slightly different from someone owning buildings commonly referred to as generating income like duplex, triplex, apartment buildings and businesses. As well, the Board reviewed section 45 of the Income Tax Act - Property with more than one use, specifically the Interpretation Bulletin IT-120R6 dated 17 July 2003 which provides that it is the general practice not to apply the deemed disposition, but rather to consider that the entire property retains its nature as a principal residence where all the following conditions are met a) the income-producing use is ancillary to the main use of the property as a residence, b) there is no structural change to the property, and c) no CCA [capital cost allowance] is claimed on the property. The Board found this guideline to be helpful and was of the view that it helped demonstrate that although a principal residence where a suite is rented can be considered to be an income property, it does not indefinitely make it as such.

The Board also noted that both Royal LePage and the DCBA were of the view that the relocation benefits should be reduced to reflect the percentage of the house the grievor was actually occupying because the house was producing income when the grievor received his posting message. The Board pointed out that section 8.1.06 of the CF IRP, the Treasury Board approved directive on relocation, indicates the assessment and determination of whether a residence is an income-producing property is performed at two specific points: when a residence is sold or when a residence is purchased. There is no indication that the date of the issuance of a posting message is the starting point for that determination.

It was the Board's opinion that the residence ceased to be an income-producing property when the tenant left after the grievor indicated he and his wife intended to make personal use of that space and that the grievor did not attempt to bypass the relevant provision of the CF IRP in order to claim the maximum benefit. The Board concluded that the grievor was entitled to the full reimbursement of his expenses associated with the selling of his residence.

The Board recommended that the Chief of the Defence Staff (CDS) uphold the grievance.

The Board recommended that the CDS direct the appropriate authority to reimburse the totality of the RE/LF associated with the sale of the grievor's residence.

CDS Decision Summary

CDS Decision Date: 2012–10–26

The CDS agreed with the Board's recommendation to uphold the grievance. Based on other policies and Income Tax Act, the CDS believed that the TB's intent was never to deny full reimbursement of RE&LF to an individual who generates income through an ancillary use of his principal residence. The grievor's residence was not an income property at the time of the sale and therefore, he is entitled to the full reimbursement of his RE&LF. The CDS also requested that DGCB review the wording of CF IRP article 8.1.06 in order to provide a clearer definition of income-producing property and a specific timeframe to be used for making a determination.