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Golf Hater wins Canada Revenue Agency Court Battle : CRA SOTW

TAX LAW: RECEIVED VALUE V. CONFERRED VALUE

Executive who hates golf wins battle over 'benefit' of course
membership
PAUL WALDIE

June 18, 2008

TORONTO -- When Henry Rachfalowski joined Canada Life Financial Corp.
in 1998 as a senior executive, the firm offered to pay for a golf club
membership as part of his employment package. But there was just one
problem: He hated golf.

Mr. Rachfalowski asked whether the company could give him cash instead
or pay for a membership at a curling club. His bosses refused, saying
he would look like a maverick or rebel and wouldn't fit in if he
didn't join a golf club.

Mr. Rachfalowski reluctantly agreed and joined the Barrie Country
Club, near his home in Midhurst, Ont. Canada Life covered the $5,000
initiation fee and the roughly $2,000 annual membership. He went to
the club's dining room a few times with clients and even played a
couple rounds, before giving up because he was so bad.

In 2005, the Canada Revenue Agency reassessed Mr. Rachfalowski's taxes
for 2002 and included the $2,049 annual fee in his income. The CRA
said it was a taxable benefit.

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Mr. Rachfalowski balked. "A golf membership for someone who hates golf
and does not golf is not a benefit," he argued. "The value of
something that is received can be much different than the value
conferred."

The CRA wouldn't budge. The membership fee was a "perk, a symbol, and
a demonstration that rank has its privileges in the corporate
structure; it provided you with an economic benefit," the agency told
him. "The courts have established that a benefit is a benefit even
when unilaterally conferred. Therefore, the fact that you did not like
golfing should not be determinative."

Mr. Rachfalowski took his case to the Tax Court of Canada. During a
hearing in April before Mr. Justice Donald Bowman, Mr. Rachfalowski
argued that Canada Life benefited from the membership, not him.

"Moreover, declining the membership would have put [Mr. Rachfalowski]
at odds with his boss and his peers, all of who had accepted the
benefit," he explained, according to court filings.

Lawyers for the CRA said the membership was for Mr. Rachfalowski, not
the company, and it didn't matter whether he disliked golf, the mere
availability of the benefit was enough for it to be taxed.

The hearing also examined the definitions of "enjoy," "benefit" and
"receive."

In the end, Judge Bowman sided with Mr. Rachfalowski and ordered the
CRA to exclude the membership fee from his 2002 income.

In his ruling, released this week, Judge Bowman reviewed several
employee benefit cases and said they all came down to one question:
"Just what did the employee get out of the alleged benefit that ought
to increase his or her income?"

Not much in Mr. Rachfalowski's case, the judge found.

From Mr. Rachfalowski's "point of view, the membership was clearly not
an advantage to him. He did not even want it," the judge said in his
ruling. "It is a fair inference that the employer wanted its senior
executives to belong to a golf club. It enhanced the company's image
and prestige and provided a place for its executives to entertain
clients of the company. I do not think the employer's insistence that
he join a golf club (or at all events, the very strong pressure the
employer put on him to do so) is particularly attributable to
paternalistic altruism. Objectively, I think the membership in the
golf club was primarily for the benefit of the employer."

Mr. Rachfalowski left Canada Life in 2003 after it was taken over by
Great-West Lifeco Inc.

When asked to comment on the case and his view of golf, Mr.
Rachfalowski laughed and replied: "I would prefer not to enhance the
notoriety of this at all."

A spokeswoman for the CRA declined to comment on the case but said the
decision will not be appealed.


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