The Queen v. Lavers, 78 D.T.C 6230, [1978] CTC 341 (FCTD)

Dubinsky, DJ:—This is an appeal from a decision of the Tax Review Board delivered at Halifax, Nova Scotia on July 8, 1976 and from the order of judgment based thereon dated July 27, 1976 whereby it allowed the appeal of the defendant herein, Eric L Lavers, from the assessment for the taxation year of 1974 made by the Minister of National Revenue pursuant to the provisions of the Income Tax Act, RSC 1952, C 148, as amended by SC 1970-71-72, c 63.

The decision of the Tax Review Board is not very long and it will be helpful if I set it forth below. It reads as follows:

The appeal of Mr Eric L Lavers was heard July 5, 1976 at the City of Halifax, Province of Nova Scotia, and was with respect to travelling expenses for his 1974 taxation year.

The appellant is employed with the Provincial Tax Commission of Nova Scotia. He is Chief Supervisor of the Interpretation and Rulings Section of the Health Services, and as such he provides to taxpayers and vendors interpretative decisions and meets with representatives of industries and organizations through the province, which requires extensive travelling.

In 1974 the appellant received $783 as an allowance for travel representing a fixed allowance of $87 per month for nine months and did not claim any amount expended by him in that year for travelling in the course of his employment.

In reassessing the appellant, the Minister included this amount in the appellant’s income under subparagraph 6(1)(b)(vii) of the Income Tax Act which states that:

“(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, except,

(vii) allowances (not in excess of reasonable amounts) for travelling expenses received by an employee (other than an employee employed in connection with the selling of property or negotiating of contracts for his employer) from his employer if they were computed by reference to time actually spent by the employee travelling away from

(A) the municipality where the employer’s establishment at which the employee ordinarily worked or to which he ordinarily made his reports was located, and

(B) the metropolitan area, if there is one, where that establishment was located,

in the performance of the duties of his office or employment.”

The appellant testified that, during the year under appeal, he had travelled with his car an average of 8,000 to 10,000 miles away from his employer’s establishment in the performance of his duties.

The Board had no reason to disbelieve this testimony, especially when an arbitration board has already decided that an amount of $87 per month was reasonable in the circumstances.

The Board believes that the allowance of $87 per month was reasonable and was computed by reference to time actually spent by the appellant travelling away from his employer’s establishment in the performance of the duties of his office or employment.

Consequently, the appeal is allowed.

It would be helpful if at this point I determined what is the true nature of the proceeding herein and which I have referred to above as an appeal from the decision of the Tax Review Board and subsequent order based thereon. To begin with, I want to go back momentarily to the predecessor of the present Act, the Income War Tax Act, RSC 1927, c 97. In the case of R W S Johnston v MNR, [1948] SCR 486; [1948] CTC 195; 3 DTC 1182, the Supreme Court of Canada held that where an appeal under that Act had been set down for trial before the Exchequer Court of Canada, notwithstanding the language of subsection 63(2) of that Act, the same was an appeal from taxation. Although pleadings were directed, the burden of proof did not shift and the taxpayer had to establish the existence of facts or law showing an error in relation to the taxation imposed upon him. Rand, J, speaking for the majority of the Court, said the following at pages 489-90 [202-3]:

Notwithstanding that it is spoken of in section 63(2) as an action ready for trial or hearing, the proceeding is an appeal from the taxation; and since the taxation is on the basis of certain facts and certain provisions of law either those facts or the application of the law is challenged. Every such fact found or assumed by the assessor or the Minister must then be accepted as it was dealt with by these persons unless questioned by the appellant. If the taxpayer here intended to contest the fact that . . . he should have raised that issue in his pleading, and the burden would have rested on him as on any appellant to show that the conclusion below was not warranted. For that purpose he might bring evidence before the Court notwithstanding that it had not been placed before the assessor or the Minister, but the onus was his to demolish the basic fact on which the taxation rested.* [1]

I am consequently unable to accede to the view that the proceeding takes on a basic change where pleadings are directed. The allegations necessary to the appeal depend upon the construction of the statute and its application to the facts and the pleadings are to facilitate the determination of the issues. It must, of course, be assumed that the Crown, as is its duty, has fully disclosed to the taxpayer the precise findings of fact and rulings of law which have given rise to the controversy. But unless the Crown is to be placed in the position of a plaintiff or appellant, I cannot see how pleadings shift the burden from what it would be without them. Since the taxpayer in this case must establish something, it seems to me that that something is the existence of facts or law showing an error in relation to the taxation imposed on him.

In Goldman v MN Fl, [1951] Ex CR 275; [1951] CTC 241; 51 DTC 519, which arose under the Income War Tax Act, RSC 1927, c 97 and the Income Tax Act, SC 1948, c 52, it was held, in the words of the [Ex CR] headnote:

that the appeal to this Court from a decision of the Income Tax Appeal Board, whether by the taxpayer or by the Minister, is a trial de novo of the issues involved, that the parties are not restricted to issues either of fact or of law that were before the Board but are free to raise whatever issues they wish even if different from those raised before the Board and that it is the duty of the Court to hear and determine such issues without regard to the proceedings before the Board and without being affected by any findings made by it.

The Court (Thorson, P) also held that where the taxpayer is the appellant, the onus is on him to establish that the assessment to which he objected is incorrect either in fact or in law. Moreover, where the taxpayer is the appellant he should be called on to open the proceedings.

However, at page 282 [248, 523], Thorson, P went on to make a statement which he corrected in a subsequent case (see below). Here he said:

On the other hand, where the Minister is the appellant from the decision of the Income Tax Appeal Board it cannot be said that the appeal to this Court is an appeal from the assessment. There is this further difference, namely, that while the issue in the appeal is the correctness of the assessment, it is for the Minister to establish its correctness in fact and in law. The Board has power . . . to vacate or vary the assessment or refer it back to the Minister for reconsideration and re-assessment. It is to be assumed that the Minister’s appeal is from a decision by which the Board has exercised one of these powers. Consequently, the assessment has been found erroneous by a court of record and the Minister does not come to this Court with any presumption of its validity in his favour. Indeed, the reverse is true. Thus, subject to the same comments on the use of the term onus as those made previously, the onus is on the Minister to establish the correctness of the assessment. Likewise, it is the Minister who should be called upon to begin.

In MNR v Simpson’s Limited, [1953] Ex CR 93: [1953] CTC 203; 53 DTC 1127, Thorson, P took pains to correct his statement made in the Goldman case (supra). At pages 96-7 [206-7, 1129] he had the following to say relative to the earlier statement:

The basic error lies in failure to appreciate the effect of the fact that the hearing of an appeal from a decision of the Income Tax Appeal Board to this Court is a trial de novo of the issues of fact and law that are involved. There cannot, I think, be any doubt that this is so where the appeal is by the taxpayer. It must equally be so when the Minister is the appellant. In either event the hearing in this Court must proceed without regard to the case made before the Board or the Board’s decision. Consequently, where the Minister appeals from the decision of the Board allowing an appeal from the assessment the fact that the Board found the assessment to be erroneous must be disregarded. To do otherwise would be tantamount to giving effect to the Board’s decision which would be inconsistent with the view that the hearing of the appeal from it is a trial de novo. Consequently, it was incorrect to say that because the Board found the assessment erroneous the Minister does not come to this Court with any presumption of its validity in his favour and that the onus is on him to establish its correctness. On the contrary, the true position is that on an appeal to this Court from a decision of the Income Tax Appeal Board, whether the taxpayer or the Minister is the appellant, the assessment under consideration carries with it a presumption of its validity until the taxpayer establishes that it is incorrect either in fact or in law. Thus, the onus of proving that it is incorrect is on the taxpayer, notwithstanding the fact that the Income Tax Appeal Board may have allowed an appeal from it. It follows, under the circumstances, that while the Minister, being the appellant, may be called upon io begin he may rest on the assessment so far as the facts are concerned without adducing any evidence. The onus of proving the assessment to be erroneous in fact is on the taxpayer.

I adopt the statement of Thorson, P in the Simpson’s case (supra), and accordingly advised the parties that the onus herein would be on the taxpayer to establish the correctness of the Tax Review Board’s [decision] herein. I did call on counsel for the plaintiff to begin. He introduced as evidence the assessment made herein by the Minister relative to the defendant’s income tax return for the 1974 taxation year. Counsel also referred to the agreed statement of facts signed by the parties.

The defendant testified briefly and from his evidence and from the agreed statement of facts, the factual situation in this case would appear to be as follows. The defendant is a certified chartered accountant and, as noted in the Tax Review Board’s decision, he is employed by the Provincial Tax Commission of the Province of Nova scotia as Chief Supervisor of the Interpretation and Rulings Section of the Health Services Tax Division. Briefly stated again, his work is to explain to taxpayers and their accountants what is or is not subject to tax and the decision is dependent upon the use of which the article in question is put. Generally speaking, he provides. to. tax- payers interpretations of the Health Services Tax Act and regulations. His responsibility extends to all of Nova Scotia and he is required to do extensive travelling in order to comply with the many requests from taxpayers, their lawyers and accountants. He can only plan within a two day notice period but he endeavours to meet as many requests as possible in any given area at the same time. He has to provide his own vehicle as a condition of his employment.

lt is common ground that under the provisions of the Civil Service Joint Council Act, RSNS 1967, c 35, by Order in Council dated July 17, 1973, a Civil Service Arbitration Board was appointed. Its members were William Grant, QC, chairman, and J Bernard Boudreau, LL B and Mr J K Bell as members. By a subsequent Order in Council, T J K Gillis, QC, was substituted for Mr Grant. Mr Grant is now Mr Justice Grant of the Supreme Court of Nova Scotia. The purpose of the Board’s appointment was the “determination of the rate of car mileage allowance” for provincial government employees covered by the Civil Service Joint Council Act.

In the course of its Report, the Board said in part as follows:

As an integral part of its submission, the Association (the Employees Association) argued that certain members of the Association, as a condition of employment, were required to own a motor vehicle. Since the condition of employment was established by the employer, the Association argues that the employees should be reimbursed for the costs necessarily incurred in the ownership of such a vehicle.

For this purpose the fixed costs were reduced to a monthly basis of $128.16 which, for the purpose of its proposal, the Association reduced to $125.00 per month. In addition, the Association proposes that such employees be paid a further 9 cents per mile for all miles driven in connection with employment.

The position of the Association in this matter was strengthened by the fact that two classes of Government Employees are already in receipt of a car allowance of this nature. Division engineers of the Department of Highways are paid a monthly car allowance in lieu of mileage. These employees are not members of the Association. However, all Public Health Nursing Staff, who are members of the Association, have the option of accepting either the normal mileage allowance or a monthly car allowance plus mileage.

At this point, I must say that I accept, in principle, the proposal to grant to certain employees the option of accepting a monthly car allowance plus mileage in lieu of the regular mileage allowance. However, I cannot accept the argument that the employee is entitled to, compensation for all of his fixed charges. The vehicle remains the property of the employee and is within his “care and control’’.

As submitted by the Association, the designation of the class of employees eligible to receive such an option can be made only by the employer. However, I also agree that the designation should be based on the question as to whether or not ownership of a motor vehicle is a condition of employment.

In its decision handed down on January 20, 1974 the Board said in part:

The Nova Scotia Civil Service Commission shall designate not later than April 1, 1974, those classes of employment wherein ownership of a motor vehicle is deemed to be a condition of employment. Employees in such classes shall have the option of accepting the mileage allowance as outlined herein, or in lieu thereof, may accept. a monthly car allowance of $80.00 plus a mileage allowance of nine cents per mile for all miles driven in connection with employment.

It is also common ground herein that pursuant to the Report and decision of the aforesaid Civil Service Arbitration Board, the Civil Service Commission issued for its employees a document entitled “Revised Guidelines for the Application of the Arbitration Award on Car Mileage”. It read in part as follows:

In deciding whether a personal car should be authorized for use on Government business, the first consideration should be that mileage allowance is not to be authorized if travel can be made more economically by other means of transportation without substantial impairment of the efficiency of service.

1. In recommending that an employee be designated as requiring as a condition of employment to own a motor vehicle and thereby having the privilege of opting for a monthly allowance plus mileage, the following criteria should be considered.

(a) If number of miles less than 2,000 the option will normally not be granted.

(b) If number of miles 10,000 or more option normally applies on recommendation of the Deputy Minister.

(c) In making recommendations for designation, the Deputy Minister should consider the nature of the function performed, the requirements for transportation which may be met by use of personal vehicle, rental vehicle, public transportation, etc.

Designation of employees required to travel less than 10,000 miles and more than 2,000 miles should be based mainly on the criteria that the use of a privately owned motor vehicle is the most efficient manner of providing transportation in fulfilling the job function as it relates to the provision of services to the public.

I interrupt the recital of the “Guidelines” to say that I find as a fact that for.the taxation year 1974 the defendant, Eric L Lavers, was designated by his employer as requiring, as a condition of his employment, to own a motor vehicle and to have it available for use on a daily basis. Because he was so designated, he was entitled to the option referred to in the Board’s decision and accordingly for the year in question, the defendant chose to be compensated by the aforesaid monthly allowance plus his mileage at the reduced mileage rate. During the time material herein, namely, from April 1, 1974 to December 31, 1974, his monthly fixed allowance came to $87 per month. He therefore received for the taxation year 1974 a total of $783 under the heading of fixed allowance.

In addition there was his mileage at the reduced mileage rate of 9.8¢ per mile. I am satisfied also and find as a fact that during the same period of time, the defendant actually travelled 5,861 miles in the course of his employment and he was compensated for the same by his employer at the rate of 9.8¢ per mile or a total of $574.37. His total compensation for the use of his car during that 9-month period was $1,357.37.

While not material to the decision herein, it might be pointed out that had the defendant opted for the straight mileage rate, he would have been entitled for the same period of time and the same number of miles to a rate of 17.4¢ per mile for a total of $1,019.81. However, in fairness to the defendant, it must be noted that in order to have his car available every day, which I find was the case, he must needs have brought the car some distance each day to and from his office and for which distance he would receive no reimbursement. Nor would he be paid for parking charges, meter charges and the occasional parking infraction. The allowance of $87 per month, on the other hand, was clearly designed to take care of fixed costs of the vehicle based upon the daily use thereof.

Now I return to the “Guidelines” which the Civil Service Commission had laid down for its employees including this defendant. Clause 7 is significant and reads as follows:

The Department of Finance has advised the Civil Service Commission that due to the fact that the option: for monthly allowance plus mileage will be available to low mileage drivers and the additional fact that the monthly allowance is payable during vacation or leave periods up to a month, it is the opinion of the Department of National Revenue that the monthly allowance of $80.00 would be considered a taxable benefit.

In the determination of taxable income, employees opting for the monthly allowance plus mileage will be required to take into income all amounts received by the employee for the use of the motor vehicle including the 9¢ per mile allowance. Against this amount, the employee can claim actual expenses incurred through the business use of the car.

It is administratively infeasible to report the $80.00 per month as a taxable benefit for some employees and not for others so it shall be reported as taxable to all.

Information will be provided to employees who elect the option of monthly allowance plus mileage in order that they may be aware of the reporting requirements.

The $80.00 per month allowance will be reported on employee T4 slips.

The defendant stoutly protested against what is contained in clause 7 and made his reasons known to the Department of National Revenue in a couple of letters. He repeated his views to the Tax Review Board and his counsel before me did likewise. Essentially, his contention is that inasmuch as both methods or options are designed to reimburse an employee for the use of his car for business purposes, to treat one method—the one chosen by him—as creating a taxable income but not so the other is unfair and discriminatory.

Some support was given to the defendant’s contention by a letter written an March 12, 1974 from the Director of Taxation to Mr Percy Fleet, the Director of Pension and Payroll Services of the Department of Finance for the Province of Nova Scotia and which letter, cumdu- bitante, I ruled as admissable in the case herein. The letter contained, inter alia, the following paragraphs:

If the employees referred to in your enquiry are required to travel daily, a monthly allowance would be equivalent to a per diem allowance, and would fall within the proviison of 6(1)(b)(vii) (of the Income Tax Act) assuming the other conditions are met. If they are only required to travel periodically, it appears the allowance would not fall within the meaning and therefore should be reported as income.

If the allowance received by the employee is not excluded from income by 6(1)(b)(vii) then the employee is generally permitted by Section 8(1)(h) to claim actual travel expenses. To do so he must meet the other conditions of that Section (see photocopy enclosed), and bring into income all amounts received by him for the use of his car, including the per diem allowance. Against this the employee can claim actual expenses incurred through the business use of his car.

This brings me to the provisions of section 6 of the Act which are relevant in this case and to those of section 8 mentioned in the letter of the Director of Taxation and also referred to by counsel for the plaintiff. They are as follows:

Inclusions

6. (1) Amounts to be included as income from office or employment.— 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:

(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, except

(vii) allowances (not in excess of reasonable amounts) for travelling expenses received by an employee (other than an employee employed in connection with the selling of property or negotiating of contracts for his employer) from his employer if they were computed by reference to time actually spent by the employee travelling away from

(A) the municipality where the employer’s establishment at which the employee ordinarily worked or to which he ordinarily made his reports was located, and

(B) the metropolitan area, if there is one, where that establishment was located,

in the performance of the duties of his office or employment,

8. (1) Deductions allowed.—In computing a taxpayer’s income. for a taxation year from an office or employment, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto:

(h) Travelling expenses.—where the taxpayer, in the year,

(i) was ordinarily required to carry on the duties of his employment

away from his employer’s place of business or in different places,

(ii) under the contract of employment was required to pay the travelling expenses incurred by him in the performance of the duties of his office or employment, and

(iii) was not in receipt of an allowance for travelling expenses that was, by virtue of subparagraph 6(1)(b)(v), (vi) or (vii), not included in computing his income and did not claim any deduction for the year under paragraph (e), (f) or (g),

amounts expended by him in the year for travelling in the course of his employment;

Whether or not the defendant could have come under the provisions of paragraph 8(1)(h) and, if so, whether or not he could have bettered his position is not before me. The fact is that he chose one option of reimbursement of car expenses that was given to him by his employer and that course has been held by the Minister to have conferred a taxable benefit on him. One may sympathize with a person who sincerely feels that he has been discriminated against. It must be remembered, however, that the defendant, presumably having read and understood the “Guidelines” must have known where his choice of reimbursement would lead him in so far as the Income Tax Department was concerned.

In the course of his strong submission, Flinn, QC urged that the defendant fell “squarely within the provisions of subparagraph 6(1 )(b) (vii)”. He said: “It can hardly be disputed that the allowance is reasonable, having been fixed by the Civil Service Arbitration Board.” I agree with Mr Flinn. I further agree with him when he said: “That the allowance was for travelling expenses is not in dispute.” However, apart from the last eight words “and further because he actually travelled the miles”, I do not, with deference, agree with him when he said:

That the allowance was computed by reference to time actually spent by the defendant in travelling away from the metropolitan area of Halifax in the performance of his duties, is obvious because he was required to own the car and have it available on a daily basis and further because he actually travelled the miles.

My reason for disagreeing follows.

In W A Sheaffer Pen Company of Canada Limited v MNR, [1953] Ex CR 251; [1953] CTC 345; 53 DTC 1223, Thorson, P had this to say at page 255 [348-9, 1225]:

The manner in which an exempting provision in a taxing statute should be construed has been dealt with in a number of cases. In Lumbers v Minister of National Revenue, [1943] Ex CR 202; [1943] CTC 281, which was affirmed by the Supreme Court of Canada, [1944] SCR 167; [1944] CTC 67, I held that it is a well established rule that the exemption provisions of a taxing Act must be construed strictly and cited the statement to that effect of Sir W J Ritchie CJ, of the Supreme Court of Canada in Wylie v City of Montreal (1885), 12 SCR 384 at 386, where he said:

“I am quite willing to admit that the intention to exempt must be expressed in clear unambiguous language; that taxation is the rule and exemption the exception, and therefore to be strictly construed;”

Maxwell on Interpretation of Statutes (12th ed, 1969) states at page 43:

The so-called “golden rule” is really a modification of the literal rule. It was stated in this way by Parke, B (Becke v Smith (1836), 2 M & W 191 at p 195):

“It is a very useful rule, in the construction of a statute, to adhere to the ordinary meaning of the words used, and to the grammatical construction, unless that is at variance with the intention of the legislature, to be collected from the statute itself.”

With the above authoritative statements in mind, I again look at subparagraph 6(1)(b)(vii) of the Income Tax Act which sets out one of the exemptions or exceptions to what should be included as income from office or employment. It reads thus:

(vii) allowances (not in excess of reasonable amounts) for travelling expenses received by an employee . . . from his employer if they were computed by reference to time actually spent by the employee travelling away from

(A) the municipality . . .

in the performance of the duties of his office or employment,

Earlier I set forth the salient part of the very good Report and decision handed down by the Civil Service Arbitration Board. I also quoted certain portions of the “Guidelines” which were given to the employees by the Civil Service Commission pursuant to the findings of the Arbitration Board: If the language of subparagraph 6(1)(b)(vii) were ambiguous or unclear, I would be justified in seeking aid to interpret its meaning and in that event I would likely have turned to the Board’s findings and the Commission’s guidelines. But such is not the case, in my view.

The wording of the subsection is crystal clear. It is incumbent upon me to read the language of this provision literally and strictly. In doing so and applying it to the facts herein, I am satisfied that the allowance for travelling submitted by this taxpayer does not fall within the wording of the aforesaid subsection. As may be gathered from what I have said earlier, I am by no means unmindful of what may have led to the fixing of a monthly allowance of $80 or $87 to certain employees of the provincial government. However, the incontrovertible fact remains that nowhere in this defendant’s income tax return is there any computation of an allowance arrived at by reference to time actually spent by him in travelling away from his office in connection with his employer’s work. The Minister was strictly correct in rejecting Mr Lavers’ Claim that the allowance should not have been treated as part of his income for. the 1974 taxation year.

Accordingly, the appeal from the decision and order of the Tax Review Board is allowed.