Citation: 2010 TCC 216
Date: 20100422
Docket: 2008-4049(IT)I
BETWEEN:
ROSARIO MARTORELLI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1] The issue in this appeal is the deductibility of motor
vehicle expenses incurred by the appellant, Mr. Rosario Martorelli, in
traveling to and from work at a construction site. The appeal relates to an
assessment made under the Income Tax Act for the 2006 taxation year.
Background facts
[2] For about 10 years, the appellant has been employed as
a construction worker by Aker Kvaerner Songer Canada Ltd. out of their Burlington, Ontario office.
[3] Throughout the employment, the appellant has worked at
various construction sites. Pursuant to the applicable collective agreement,
each construction project to which the appellant is assigned is treated as a
separate contract of employment.
[4] In 2006, the appellant worked for the entire year at a
construction site on premises formerly known as Lake Erie Works. The site is
located at Nanticoke, Ontario, which is approximately 50 kilometers from Hamilton where
the appellant resides.
[5] In other years, the appellant was employed in the year
at more than one construction site. Some of these were located outside the Hamilton area.
[6] In the relevant year, the employer paid to the
appellant: (1) an allowance for motor vehicle expenses in the amount of $8,467 for
traveling between Hamilton and the construction site, and (2) an allowance for
meals in the amount of $409.84.
[7] According
to the testimony of the appellant and the
comptroller of the employer, Mr. Mario Ongaro, the governing collective
agreement provides that the motor vehicle allowance is to be treated as
non-taxable. I accept this testimony and note that it is contrary to an
assumption made by the Minister in making the assessment.
[8] In contravention of the collective agreement, the
employer included the motor vehicle allowance in the appellant’s income for
purposes of tax reporting and source deductions. This finding is based on the
appellant’s testimony and is consistent with an assumption made by the
Minister. Mr. Ongaro was not asked to testify regarding this.
[9] The
appellant, in frustration from this apparent
breach of the collective agreement, claimed a deduction in the 2006 income tax
return for his actual motor vehicle expenses incurred in traveling between his
home and the construction site. The amount of the deduction claimed was
$14,954.11.
[10] By way of an assessment for the 2006 taxation year,
the deduction was disallowed in its entirety.
Analysis
[11] In order for the appellant to be able to deduct motor
vehicle expenses, the requirements of paragraph 8(1)(h.1)[1] and subsection 8(10) of the
Act must be satisfied.
[12] These provisions are reproduced below.
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.1) where the taxpayer, in the
year,
(i) was ordinarily required to carry on the
duties of the office or employment away from the employer's place of business
or in different places, and
(ii) was required under the contract of
employment to pay motor vehicle expenses incurred in the performance of the
duties of the office or employment,
amounts expended by the taxpayer in the year in respect of motor
vehicle expenses incurred for travelling in the course of the office or
employment, except where the taxpayer
(iii) received an allowance for motor vehicle
expenses that was, because of paragraph 6(1)(b), not included in
computing the taxpayer's income for the year, or
(iv) claims a deduction for the year under
paragraph (f);
(Emphasis added)
8(10) An amount
otherwise deductible for a taxation year under paragraph (1)(c), (f),
(h) or (h.1) or subparagraph (1)(i)(ii) or (iii) by a
taxpayer shall not be deducted unless a prescribed form, signed by the
taxpayer's employer certifying that the conditions set out in the applicable provision
were met in the year in respect of the taxpayer, is filed with the taxpayer's
return of income for the year.
[13] Counsel for the respondent submits that the
requirements of s. 8(1)(h.1) have not been satisfied because the only
place that the appellant worked in 2006 was at a construction site in Nanticoke.
[14] Two parts of s. 8(1)(h.1) are relevant to this
inquiry and these have been emphasized above. They will be considered
separately.
[15] First, clause
8(1)(h.1)(i) requires that the taxpayer ordinarily carry on duties in
the year away from the employer’s place of business or in different places.
[16] The
appellant did not work in different places in 2006. The question, then, is
whether the appellant worked away from his employer’s place of business in that
year.
[17] The
question that this raises is whether the Nanticoke construction site was a place of
business of Aker, the employer.
[18] The applicable principle is that a construction site is
a contractor’s place of business for purposes of s. 8(1)(h.1)(i) if the
site is in the nature of a permanent establishment of the employer: Dionne
v. The Queen, 2006 FCA 79, [2006] 2 CTC 292; Champaigne v. The Queen,
[2006] TCC 74, [2006] 2 CTC 2403; Potter v. The Queen, 2008 TCC 228,
[2008] 5 CTC 2303.
[19] This issue was not clearly raised in the reply and it
was not mentioned at the hearing.
[20] Since no assumptions were made by the Minister in relation to
this issue, the respondent has the onus of proof.
[21] No evidence was led as to whether this test was
satisfied, such as whether the employer had a field office at the construction
site. I am not prepared in these circumstances to conclude that the Nanticoke site
was a place of business of the employer. The onus has not been satisfied.
[22] The requirement in s. 8(1)(h.1)(i) is
accordingly satisfied for purposes of this appeal.
[23] The second part of s. 8(1)(h.1) that must be
satisfied is that the expenses are incurred in the course of employment.
[24] The general principle to be applied was described by
Bowman C.J. in Toutov v. The Queen, 2006 TCC 187, 2006 DTC 2928:
[2] The
general rule of course is that the cost of travelling from one’s home to one’s
place of work is not a deductible expense. This has been settled law for many
years. The leading authority in support of this proposition is the House of
Lords decision in Ricketts v. Colquhoun, [1926] A.C. 1, which was
followed by the Federal Court of Appeal in Hogg v. R., [2002] 3 C.T.C.
177.
[3] The
general rule is not inflexible and it admits of exceptions in some
circumstances. […]
[25] An exception from the general rule is appropriate in
this case, in my view. The appellant worked at temporary construction sites,
often away from the municipality in which he lived and that in which his
employer was based. From a common sense point of view, and in the context of s.
8(1)(h.1), traveling to and from these construction sites is not a
personal activity but is part of the duties of employment.
[26] The circumstances are similar to those which I
recently discussed in Veinot v. The Queen, 2010 TCC 112.
[27] In reaching this conclusion, I have taken into account
the very recent decision of Colavecchia v. The Queen, 2010 TCC 194. In that
decision, Margeson J. comments that prior judicial decisions
concerning travel expenses are not always easy to reconcile.
[28] Neither party made detailed arguments before me on
this issue, and I do not think that it would be desirable to attempt an in
depth analysis of prior cases in this informal procedure case.
[29] In light
of these conclusions, the appellant is entitled to deduct actual motor vehicle
expenses incurred. The requirements of s. 8(1)(h.1) are satisfied.
[30] The next question is whether the amount claimed by the
appellant is a reasonable estimate of expenses incurred.
[31] According to the income tax return, the deduction was
based on 37,300 kilometers traveled in the course of employment.
[32] Very little evidence was provided to support this
figure, which differs substantially from the kilometers that were recognized by
the employer for purpose of calculating the motor vehicle allowance.
[33] In 2006, the appellant was paid $8,467 as a motor
vehicle allowance which was computed at the rate of 41 cents per kilometer.
This represents approximately 21,000 kilometers.
[34] There may be good reasons to support the kilometers
claimed by the appellant (37,300) but the evidence presented by the appellant
on this point was not sufficient to satisfy the burden of proof.
[35] In the
circumstances of this case, a reasonable
approach is to conclude that the allowance paid by the employer is a reasonable
estimate of expenses incurred. This amount is $8,467.
[36] Finally, I would comment briefly about the requirement
in s. 8(10). The reply does not clearly put this requirement in issue, and
accordingly it is not necessary that I consider it.
[37] In light of these conclusions, the appeal will be
allowed and the assessment will be referred back to the Minister for reconsideration
and reassessment on the basis that the appellant is entitled to a deduction for
motor vehicle expenses in the amount of $8,467.
[38] Each
party shall bear their own costs.
Signed at Toronto, Ontario this
22nd day of April 2010.
“J. M. Woods”
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