Citation: 2006TCC108
Date: 20060406
Docket: 2004-541(IT)G
BETWEEN:
TRANSPORT BAIE-COMEAU INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Tardif J.
[1] This is an appeal concerning the 1999 and 2000
taxation years. The issue is whether or not the expenses of $103,632.63 claimed
in 1999 and $121,395.14 claimed in 2000 as lodging allowances are amounts paid
for lodging.
[2] The assessments under appeal were made following
an administrative change, and one important aspect of that change was the way
in which certain truck drivers, specifically drivers responsible for medium and
long-distance transports, were remunerated.
[3] Initially, until 1999, the Appellant's drivers
were paid an hourly rate. Expenses for meals and overnight stays were
reimbursed upon submission of bills. Most of the reimbursements were for meals.
[4] In 1999, after transport regulation was tightened
to impose better controls for greater highway safety, the Appellant, in
collaboration with employee representatives, initiated various measures to
present the best possible record to the authorities in this area and reduce the
prohibitive management costs associated with the reimbursement of truck
drivers' expenses.
[5] Thus, in addition to certain corrective measures
involving the mechanics of trucks, and in particular their brakes and speed,
the Appellant, following consultations and negotiations with its drivers,
dropped the hourly remuneration formula and opted for remuneration based on the
number of kilometres driven.
[6] At the same time, the drivers agreed that the
Appellant would no longer reimburse meal and lodging costs. Instead of the old
system, the Appellant began to pay a lodging allowance of $0.04 per kilometre
for drivers who did long‑distance trips and $0.03 per kilometre for those
who did medium-distance trips.
[7] When the new payment method came into effect, the
drivers, apart from their remuneration based on kilometres driven, received
only this $0.04 per kilometre lodging allowance, and the Appellant ceased to
reimburse expenses incurred by the drivers for meals, hotel rooms, showers and
so forth.
[8] The Respondent argues that this is an inadequate
and perhaps even deceptive description, the only purpose of which was to avoid
the allowance being described as a meal allowance, which receives less
favourable tax treatment.
[9] For its part, the Appellant claims to have
implemented this new method essentially to simplify management and reduce the
excessive audit and control costs of the old method, under which drivers were
reimbursed upon submission of vouchers.
[10] The Appellant also explained that it consulted the
drivers and came to this conclusion with their consent in order to provide them
with better working conditions by enabling them to lie down and obtain the
benefits of restorative sleep, which is essential to highway safety.
[11] The evidence consisted of the testimony of several
drivers, namely Yvan Bouchard, Nelson Ouellet and Jocelyn Barrière for the
Appellant, and two of the Appellant's ex-drivers, Yvan Aubert and
Sylvain Couturier, for the Respondent. Everyone was or had been a
long-distance driver, and had generally driven trucks equipped with a sleeper
berth.
[12] They all acknowledged that prior to 1999, the cost
of their meals was reimbursed upon submission of vouchers. With the exception
of one driver, the witnesses said that they used a cooler to transport their
food: restaurant meals were the exception to the rule, which was to eat the
food they brought in their cooler.
[13] All three drivers who testified at the Appellant's
request said that their truck, which was equipped with a sleeper berth, offered
little or no comfort because the space was very limited, so they essentially
used it for very short periods to tide them over.
[14] As for Messrs. Aubert and Couturier, they said
that the drivers essentially slept in the sleeper berths, and that nights in
hotels or motels were the exception and would occur in the event of a
breakdown, for example. However, one of them stated that he would sleep in
a hotel or motel in Québec when his girlfriend was living there.
[15] The Respondent, for her part, summoned
Daniel Riverain, the person responsible for auditing the Appellant's file,
to testify. During the audit, he noticed that the Appellant reimbursed the meal
expenses of drivers on long and medium‑distance trips before the various
changes described above.
[16] Meal expenses were reimbursed upon submission of
vouchers. According to Mr. Riverain, hotel or motel costs were also
reimbursed on submission of vouchers.
[17] Having noticed
that reimbursements for hotel stays were infrequent, he determined that the
allowance paid to drivers as a lodging allowance was actually a meal allowance
that was being disguised as a lodging allowance in order to benefit from more
favourable tax treatment. The assessment that gave rise to this appeal is based on his
interpretation.
[18] The Appellant, for its part, submitted that it was
mainly a lodging allowance used by drivers for lodging, and that the drivers
had exclusive control over how it was spent.
[19] The drivers who used to work for the Appellant and
testified for the Respondent said that they used the allowance paid by the
Appellant in the performance of their work. One driver said that he sometimes
used the allowance for showers, the price of which varied from nil to $10
depending on the location.
[20] The following questions arise:
·
What is a lodging
allowance?
·
To which expenses does
a lodging allowance apply?
·
Must the amount of the
lodging allowance be reasonable?
·
Is it essential that
the allowance be spent for a precise purpose? May the recipient of a lodging
allowance dispose of it as he sees fit?
·
Are there criteria for
allocating a lodging allowance?
[21] I should state from the outset that I do not find
the amount of the allowance, $0.03 and $0.04 per kilometre, excessive. In fact,
it is completely reasonable.
[22] The following concrete example is an excellent
illustration of this:
A truck driver who drives at 100 km/h for 12 hours is
entitled to a $48 allowance for driving 1200 km. If the distance travelled is
800 km, which might be justified by a variety of unforeseen events, he is
entitled to $32.
Since drivers were entitled to no other reimbursement
for their expenses, the $48 allowance was the only allowance paid in connection
with their work as drivers.
[23] My initial reflex was to check the meaning of
"lodging allowance". In other words, does a lodging allowance only
cover the cost of a hotel or motel room?
[24] Unfortunately, the term "lodging
allowance" is not clearly defined in the Act or in the case law. We must
therefore consult various dictionaries for a first indication of the meaning of
a lodging allowance.
[25] Since the issue is whether the allowance can be
used for meals, lodging or both, we must ask whether an initial distinction
must be drawn between a lodging allowance and a meal allowance.
[26] The online edition of the Office québécois de la
langue française's Grand dictionnaire terminologique states that an "allocation
de repas" is equivalent to an "allowance for board" and that
an "allocation d’hébergement", synonymous with "allocation
de logement", is translated as "allowance for room".
[27] The Petit Robert defines the term "hébergement"
as the act of lodging. Words and Phrases – Legal Maxims, states that the words
"board" and "lodging" mean "food" and
"shelter" respectively.
[28] In light of the works consulted, the word
"lodging" means and concerns the fact of being lodged or obtaining
lodging, thereby excluding the question of meals altogether.
[29] As for the word "allowance", the case
law, notably Gagnon v The Queen, [1986] 1 S.C.R. 264, lists its
defining characteristics:
·
The amount must be
limited and determined in advance.
·
The amount must be paid
to enable the recipient to provide for a certain type of expense.
·
The amount must be at
the complete disposition of the recipient who is not required to account for it
to anyone.
[30] Apart from these different characteristics based
on which the meaning or scope of a lodging allowance can be defined, I believe
it is important to recall that there are several types of allowance. In other
words, the existing vocabulary provides us with a very precise description that
leaves no room for ambiguity as to its content, and this can be achieved using
the common meanings of words. Thus, it is reckless, or at any rate very
audacious, to claim that an allowance encompasses several expenses, since there
is, in principle, one allowance for each type of expense that can arise in the
performance of work.
[31] To illustrate this, I refer to certain judgments
that identify different types of allowance. For example, there is a meal
allowance, a fuel allowance and a lodging allowance. Other cases have identified a
travel allowance, a room allowance and a meal (board) allowance.
[32] A similar analysis is found in Caron v. The
Queen, No. 96-3687(IT)I, November 27, 1997, [1998] 3 C.T.C.
2720 (T.C.C.). There, an employee received a travel allowance but got no
allowance for meals or lodging. He therefore claimed a deduction for meals and
lodging.
[33] Drawing a
distinction between travel, meal and lodging expenses, the judge stated, at
paragraph 27: "Accommodation expenses are not defined as such in the Act
except through the definition of "travelling expenses" in paragraph
8(1)(h), which excludes motor vehicle expenses."
[34] After disallowing meal expenses, Tremblay
J. accepted lodging expenses, citing, at paragraph 31, Johns-Manville Inc.
v. Her Majesty the Queen, [1985] 2 S.C.R. 46, where Estey J.
stated as follows:
On the
other hand, if the interpretation of a taxation statute is unclear, and one
reasonable interpretation leads to a deduction to the credit of a taxpayer and
the other leaves the taxpayer with no relief from clearly bona fide
expenditures in the course of his business activities, the general rules of interpretation
of taxing statutes would direct the tribunal to the former interpretation.
[35] In light of all this guidance, it appears that the
lodging allowance is very specific and does not include meals or other
expenses.
[36] Lastly, in a
1998 memo from the Canada Customs and Revenue Agency (CCRA), memo No. 9802137, published in the May 1998 issue of
Tax Window Files, the Agency stated:
As you have noted, we have previously
indicated that the reasonableness of an allowance is a question of fact. It
must be related to the amount of actual expense an individual is likely to
incur in respect of the expenses for which the allowance is provided rather
than being based on other factors such as levels of salary.
In our view, if in fact all other conditions
of paragraph 6(6)(a)(i) are met, the allowance which is based on an
estimate of the costs of such board and lodging in the surrounding area would
be considered reasonable and therefore non-taxable regardless of the amount
actually spent by the employee.
[37] In this regard, everyone said that they did not
take advantage of or derive a benefit from this allowance. Daniel Riverain
noticed that hotel or motel expenses had been reimbursed. Having noticed that
such outlays were less frequent than meal expenses, he totally ignored the
lodging component and concluded that it was essentially a meal allowance,
adding that the Appellant tended to take shortcuts as far as tax was concerned.
[38] The evidence adduced by the Respondent is
essentially premised on the interpretation of an approach that existed with the
advent of the numerous changes. It is true that the Appellant could have called
all its long-distance drivers as witnesses and asked them what use was made of
the lodging allowance they were paid, as opposed to the amount spent or used on
meals, and this is the criticism made by the Respondent.
[39] Without
supporting documents, such as official receipts, this approach undoubtedly
cannot not have been conclusive.
[40] As for the Respondent, she could have established
the amounts of the meal and lodging expenses and the proportion that each type
of expense accounted for. Here again, the reliability of such data would have
been limited, because the company's approach completely changed.
[41] Since we know
that meal allowances were reimbursed upon submission of vouchers, it is obvious
that the drivers took advantage of it rather than eating sandwiches and frozen
meals brought with them in their coolers.
[42] In other words,
human beings tend to take advantage of that which is free. Consequently, as
soon as the cost of meals ceased to be reimbursed, the drivers obviously
resorted to coolers. This approach saved both money and time, especially since
the drivers were paid by the kilometre and not by the hour once the changes
were made.
[43] In order to dispose of this appeal, I must take
into account the facts that existed during the period covered by the
assessment. That which might have been done beforehand is not a determinative
element, especially since certain changes may have had an impact in several
areas. Here, the fact is that the method for reimbursing expenses underwent
profound changes through the implementation of an "allowance"
approach which superseded a "reimbursement upon submission of vouchers"
approach.
[44] Another inescapable fact is that the drivers
affected by the allowance were the drivers responsible for long-distance and
medium-distance transports. The evidence established that the trucks used
for these types of transport were equipped with cramped sleeper berths that
offered little or no comfort.
[45] Given the duration and distance of the trips that
had to be driven in order to be entitled to the allowance, the drivers
absolutely had to sleep away from the area in which they lived, namely the area
around Baie‑Comeau.
[46] Since the drivers were forced or obliged to sleep
away from their area, it is just as clear that they had to eat meals away from
home. Did they eat frozen meals, meals prepared from food transported in a cooler,
or restaurant meals? The only certain thing is that the drivers concerned had
to eat and sleep away from home.
[47] Did they always,
rarely or never sleep in the berths with which the trucks that they drove were
equipped? It is important to
remember that the issue concerns an allowance, which, by definition, is a
predetermined amount that is placed at the disposition of the recipient,
without the latter having to account for it.
[48] Parliament has provided that, subject to certain
terms and conditions, a business may grant its employees an allowance, the
obvious purpose of which is to simplify or facilitate the management of
expenses incurred by those employees in the performance of their duties.
[49] Where there are patent abuses, the CCRA can and
properly does question these allowances. In the instant case, I do not believe
that there have been abuses or even excesses. The fact pattern or example
discussed in the preceding pages demonstrates that the allowance was completely
reasonable.
[50] A lodging allowance certainly cannot encompass or
include the cost of meals, both by reason of its ordinary meaning and by reason
of the definitions contained in the various dictionaries. Moreover, there are
various types of allowances, and this enables interested parties to
characterize their allowance in a way that is consistent with reality.
[51] However, an
allowance is, by definition, an amount over which the recipient has discretion
in the sense that he need not account to anyone. Parliament has specifically
provided for two types of allowance that apply to two kinds of expenses,
thereby avoiding any confusion.
[52] In the case at
bar, the Appellant had the burden of proof. In the context of the numerous and
significant changes that it implemented to improve management, one of the
things that the Appellant did was to grant some of its drivers an allowance.
[53] This Court has
no reason to reject the explanations provided in relation to the allowance in
issue. Former practices that pre-date the changes are not determinative; all
business owners have the right to change the way they manage their business at
any time.
[54] It has been
established, on a balance of probabilities, that the Appellant made completely
legitimate changes. Following these changes, the drivers were no longer
entitled to be reimbursed for their meals upon submission of a bill because the
Appellant decided, with their consent, to pay them a lodging allowance that was
completely justified and justifiable given the circumstances. As a result of
this fact, the drivers entitled to the allowance were relatively free to spend
it as they wished and had no vouchers to submit. The fact that certain drivers
occasionally or even always ate at restaurants is irrelevant.
Such expenditures are not reimbursed and are made with the drivers' own
money.
[55] Whether the
money used on meals comes from the lodging allowance, their mileage pay, or
even their savings is unimportant and there is no need to inquire into the
subject. Indeed, one of the purposes of the allowance is not to have to account
to anyone.
[56] Consequently, I find that the allowance paid by
the Appellant to certain categories of its drivers met the requirements of a
lodging allowance.
[57] The appeal is therefore allowed, with costs to the
Appellant; the assessments of April 23, 2002, are set aside; and the
matter shall be referred back to the Minister of National Revenue for
reconsideration and reassessment on the basis that the allowances of $0.03 and
$0.04 per kilometre constitute amounts paid as a lodging allowance.
Signed at Ottawa, Canada, this 6th day of April 2006.
"Alain Tardif"
Translation
certified true
on this 15th
day of December 2006
Monica F. Chamberlain, Translator
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