The Queen v. Cival, 83 DTC 5168, [1983] CTC 153 (FCA)

Ryan, J:—This is an appeal from a judgment of the Trial Division allowing the respondent’s appeal from a decision of the Tax Review Board.* [1] The decision of the Board had dismissed Mr. Cival’s appeal to it from an assessment for 1977, which had disallowed his claim for travelling expenses, a claim made under paragraph 8(1 )(h) of the Income Tax Act.

Mr Cival is an employee of the Queen in right of Canada. During the 1977 taxation year, he was working in the Payroll Audit Section of the Department of National Revenue in Winnipeg. Mr Cival used his own automobile in carrying out the duties of his employment under what, he said, was an arrangement with his Department, an arrangement in accordance with which the Department reimbursed him at a mileage rate. It is not questioned that he used his automobile at the request of his Department. During 1977, Mr Cival’s expenses for the use of his automobile in his work exceeded the mileage he received by $512.03. He claimed this sum as a deduction from his income. The Minister disallowed it.

The question in this appeal is whether Mr Cival was entitled to this deduction under paragraph 8(1 )(h). The answer depends on whether he was required by his contract of employment to pay the expenses incurred by him in using the automobile.

Paragraph 8(1 )(h) of the Act reads:

8 (1) 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) 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;

I will also quote paragraph 8(1 )(j):

(j) where a deduction may be made under paragraph (f) or (h) in computing

the taxpayer’s income from an office or employment for a taxation year,

(i) any interest paid by him in the year on borrowed money used for the purpose of acquiring an automobile in the performance of the duties of his office or employment, and

(ii) such part, if any, of the capital cost to him of an automobile used in the performance of the duties of his office or employment as is allowed by regulation;

The appellant does not dispute that Mr Cival met the requirements stipulated in subparagraphs 8(1 )(h)(i) and 8(1 )(h)(iii). The Crown’s case was that he did not satisfy the requirement of subparagraph 8(1 )(h)(ii).

Mr Cival claimed that he had incurred these expenses in respect of the use of his car in performing his duties during the 1977 taxation year:

He received $1,270.89 by way of mileage from his employer.

In respect of the actual making of the arrangement under which Mr Cival used his car, it may be helpful to quote from the evidence which Mr Cival gave before the Tax Review Board. The transcript of the evidence taken by the Board was placed before the Trial judge by agreement. The transcript reads:

Q. I show you another document, in blank, but entitled Headquarters Area, April 1/79 to March 31/80. Would you tell us what that document is?

A. Each year we are required to file for authorization to travel within the City of Winnipeg, for the Metropolitan area of Winnipeg, and having filed this document we are allowed to travel and claim expenses against that travel for within the Winnipeg Headquarters area which is the perimeters of Winnipeg.

Q. You are saying that each year you are required to sign that at the beginning of the financial year for your employer?

A. Yes.

Q. And what’s the purpose of it again?

A. It authorizes us to use our Car.

Q. That is your understanding?

A. That is my understanding, yes.

Q. Do they — meaning your employer — come around and present you with this document?

A. Yes.

Q. What is then done with that document. Do you know?

A. It is kept on file by the employer.

Q. It is signed in blank? I mean, we have a description on the top, Headquarters Area, April 1/79 — to March 31, 1980. Is there anything else on the document that you sign?

A. Yes, the signature of the other auditors. Everybody signs and it is attached to this.

Q. I see. This document is attached to a list of names who must — not must, but who are requested to sign?

A. Yes.

Q. And this is attached to that list?

A. Yes.

Q. You don’t have that list?

A. No.

MR IRVING: I wonder if that may be introduced as an Exhibit, Mr Chairman.

THE CHAIRMAN: The same was in existence in 1977?

A. Yes.

I would note that the Treasury Board Travel Directive (revised edition April 1977) provides in clauses 1.17 and 1.18:

1.17 Written pre-authorization for travel shall be prepared, where practicable, for each journey on government business and such authorization shall be maintained on the traveller’s file. For this purpose it is suggested that the Government of Canada CGSB Standard Form 72B, Travel Authority and Advance, see Appendix “C”, should be used. Where travel is continuous in nature, such authorization will be provided annually at the beginning of each fiscal year.

1.18 The pre-authorization form shall be signed by the person authorizing the journey and by the traveller acknowledging acceptance of the terms of travel. The form should reflect the following information:

— the mileage/kilometre rate authorized where a private vehicle is to be used

A Mr D R MacDonald, a Staff Relations Officer with the Department of National Revenue, also testified in the proceedings before the Tax Review Board. He was called by the Crown. The transcript records this exchange:

Q. To your knowledge are employees such as Mr Cival, reimbursed for their travelling expenses by the Government?

A. Yes, they are.

Q. And can they obtain an advance on their travelling expenses?

A. Yes, they can.

Q. Now, could I ask you what is the policy of your Department in respect of the use of personal cars?

A. The policy of the Department is to authorize the use of a personal car when this is the most economical and practical means of travelling.

Q. Now to your knowledge and your experience, can the use of a personal car — if I may say so — be forced upon an employee?

A. No.

Q. Can the employer oblige an employee to use his personal car?

A. No, it can't.

Q. If the employee refuses, at the employer’s request to use his car, can the employer, under the Collective Agreement, use disciplinary measures?

A. No, they can't.

Q. Am I correct in saying that the employee has the right to refuse to use his car?

A. Yes. He has that right.

A little further on, the transcript reads:

Q. And you would agree therefore that in this instance with Mr Cival that someone has asked Mr Cival to use his vehicle? Do you agree with that?

A. Yes.

Q. That is why he was paid those rates under Paragraph (a)?

A. That’s right.

The trial judge, of course, considered the nature and effect of Mr Cival's arrangement with the Department. He says at 212 and 213:

No formal contract was entered into with respect to his travelling expenses on Departmental business, but the Treasury Board of the Federal Government issues a travel directive which makes detailed provisions relating to compensation for expenses of this kind. This document is not a statute but it does set out governmental policy, which the officials of government will carry out. The revised edition of this directive, dated April, 1977, was effective for most of that year. Part 3 of the directive deals with transportation procedures and private vehicle rates. Paragraph 3.03 sets out the mileage rates. The portion relevant to the facts of this case reads as follows:

3.03 The mileage rates payable for authorized official use of private cars within and outside the headquarters area are:

(a) when the employer requests, and the employee agrees to the use of the Car:

All provinces

except Nfld,

NWT, and Yukon

cents per mile

(i) for each of the

1st 4,000 miles

per fiscal year	19.5
(ii) for each mile from
4,001 to 8,000 miles
per fiscal year	17.5
(iii) for each mile in
excess of 8,000 miles
per fiscal year	16.5
(b) when an employee requests
permission to use a Car,
and the employer agrees	9.0
Paragraph 3.061 provides:

3.061 The rates, prescribed above . . . are paid on the basis of a two-rate system as follows:

(a) when the employer requests the employee to use a private vehicle and the employee agrees, the rates paid are designed to offset the cost of “ownership” and the cost of “operating” a private vehicle, ie:

(i) “Ownership Costs”, consisting of depreciation, provincial tax, finance charges, insurance and licence fees, and

(ii) “Operating Costs”, consisting of gasoline, oil, lubrication, tires, maintenance and repairs.

(b) when the employee requests permission to use a private vehicle and the

employer agrees, the rates paid cover only the “operating costs”.

The trial judge continues:

The plaintiff clearly comes under paragraph 3.03(a). He was paid mileage at the rate prescribed in this paragraph. It is also clear that he comes under paragraph 3.061(a), which paragraph indicates that the rates payable under paragraph 3.03(a) are designed to offset both “ownership costs” and “operating costs”, and that ownership costs include depreciation. I understand paragraph 3.061(a) as meaning that the rates payable under paragraph 3.03(a) are designed to offset all ownership and operating costs as described in paragraph 3.061(a), or more accurately, all such costs as the government is willing to pay.

The trial judge also says at 219:

Counsel for the plaintiff submits that, since the government is not bound to pay more than the amount payable under its policy, the plaintiff is required to pay the shortfall of $512.03. As I view the situation the plaintiff most certainly must pay the shortfall. Nothing in the terms of the arrangement for the use of the car on government business provides that he shall do so, but one of the terms is that what he will be paid is limited to the authorized mileage allowance. That authorized amount being insufficient to pay all the car expenses intended to be provided for, it is clear that the shortfall results from the insufficiency of the mileage rate, in the circumstances of this case, to encompass all the expenses. Consequently I think it may be held properly that, since the shortfall of $512.03 which the plaintiff must pay is occasioned by the insufficiency of the payment provision of the arrangement, the plaintiff, under the contract, is required, in the broad sense of that word, to pay the shortfall. The fact that he is not required to pay all the car expenses should not prejudice his position with respect to the portion he is required to pay. Thus, in my opinion the plaintiff has shown that condition (ii) has been complied with.

The trial judge clearly was of opinion that the arrangement respecting the use of Mr Cival’s car constituted a contract between Mr Cival and his employer and that the contract was an employment contract. Under this contract, Mr Cival, in his Lordship’s view, was required by implication to pay the expenses incurred by him in using his car, at least to the extent they exceed his mileage reimbursement. I do not, with respect, agree that Mr Cival was contractually bound under the arrangement to pay these expenses.

The terms of Mr Cival’s employment were contained in a collective agreement between Treasury Board and the Public Service Alliance which was in force during the 1977 taxation year. Mr Cival was a member of the bargaining unit covered by the agreement. His terms of employment may also have included provisions of the Public Service Terms and Conditions of Employment Regulations, at least to the extent they were not inconsistent with the provisions of the collective agreement, and any statutory provisions concerning public employment applicable to him. It was not suggested that any term of employment contained in the collective agreement, in the Regulations or in any statutory provision required him to use his own car in performing his duties or to pay the expenses incurred in its use. To bring himself within subparagraph 8(1)(h)(ii), Mr Cival would, therefore, have to establish that the arrangement about using his car was an employment contract under which he was required to pay the expenses incurred by him in using the car.* [2]

I am prepared to assume for purposes of this appeal that Mr Cival could enter into an individual contract with his employer, covering an aspect of his employment, despite his being covered by the collective agreement, so long at least as the contract was not inconsistent with the terms of the agreement.! [3] In my view, the arrangement between Mr Cival and his employer, if a contract at all, was at most what is sometimes called a unilateral contract.! [4] It was an arrangement under which his employer undertook to reimburse him on a mileage basis for expenses he incurred in using his car in the performance of his duties. I do not interpret the arrangement as involving a promise by Mr Cival to use his car in performing his duties and to pay the expenses out of his own pocket in return for an undertaking by his employer to reimburse him. To put it another way: as I see the arrangement, Mr Cival was not contractually bound to use his car in doing his job and to pay the expenses involved: if at any time during 1977 he had refused to use his car for this purpose, he would not have been suable by his employer for breach of contract. It follows that, to adopt the words used in subparagraph 8(1)(h)(ii), he was not required under his contract of employment to pay the expenses incurred by him in using his car in the performance of the duties of his employment. This is enough to dispose of the appeal.

I would add, however, that counsel for Mr Cival submitted that the mileage paid to Mr Cival in respect of his use of his car would fall within his income by virtue of section 5 and paragraph 6(1 )(b) of the Income Tax Act as being an “allowance”. This would obviously have a serious adverse effect on Mr Cival if he could not deduct the expenses he actually incurred in qualifying for the allowance. The issue of whether the mileage reimbursement would be an “allowance” is not, of course, before us. It does seem to me, however, that the reasons for judgment of Mr Justice Noel in Ransom v MNR, [1968] 1 Ex CR 293; [1967] CTC 346; 67 DTC 5235 might well bean answertothesubmission thatthe mileage reimbursement would be an “allowance”.

I would allow the appeal to this Court. I would also set aside the judgment of the Trial Division and affirm the decision of the Tax Review Board confirming the Minister’s reassessment in respect of the respondent’s 1977 taxation year.

Counsel for the appellant stated that he would not seek costs if successful. I would, therefore, make no award as to costs here or below.