Citation: 2012 TCC 337
Date: 20120926
Docket: 2011-300(IT)G
BETWEEN:
RONALD SYDNEY PHILLIPS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Bocock J.
[1]
This appeal relates to
business expense deductions for the 2005 and 2006 taxation years. The Appellant
claimed business expenses under three headings which were partially or entirely
disallowed on reassessment by the Minister in relation to:
a)
meal and entertainment
expenses;
b)
an expense for the face
amounts of dishonoured cheques totalling approximately $1,660.00 (the “NSF
Cheques”); and
c)
return travel and
related expenses primarily between Regina and Winnipeg.
[2]
During the 2005 and
2006 taxation years the Appellant resided in Regina, gained employment income
there as an associate university professor, but maintained a consulting
business involved in hosting, organizing and promoting aboriginal education
conferences (the “Business”). In addition, an office for the Business was
purportedly maintained in Winnipeg. The Business had been operated since the
1990s, while employment in Regina commenced in 2003.
I. Meal and
Entertainment Expenses
[3]
With respect to the
meal and entertainment expenses, the Minister disallowed such expenses on those
occasions when only the Appellant and one Dr. McCallum were present (the
“McCallum Expenses”). Dr. McCallum and the Appellant were spouses. Dr. McCallum
was also involved frequently in the Business as a presenter, mediator and
advisor. She was paid consulting fees of $36,000.00 and $15,000.00 in 2005 and
2006, respectively.
[4]
The Appellant sought to
deduct $5,334.00 and $4,745.00, being 50 percent of the actual gross expenses
on account of the McCallum Expenses, in the taxation years 2005 and 2006,
respectively. The McCallum Expenses included restaurant, specialty food shop
and wine purchases. The Appellant acknowledged there was a personal use element
beyond the statutory 50 percent expense inclusion rule because the Appellant and
Dr. McCallum were spouses and in his words they “liked wine.”
[5]
The Minister allowed
the McCallum Expenses to the extent of 50 percent and 25 percent of those
claimed in 2005 and 2006, respectively, on the following basis:
a)
the personal nature of
the expenditures;
b)
the disportionality of
the relationship between the quantum of the meal and entertaining expenses allocable
to Dr. McCallum in each year when compared proportionally to the consulting
fees paid to her in each year; and
c)
the disportionality of
the meal and entertaining expenses incurred in respect of Dr. McCallum, the
Appellant’s wife, when compared to other clients and consultants of the
Business.
[6]
The Appellant offered
no evidence to rebut or demolish the Minister’s assumptions or assertions that
the amounts allowed, which included full deductibility of all non-McCallum Expenses,
were a less reasonable assessment in the circumstances than those claimed by
the Appellant. Factually, the Court finds that the Minister’s allowance
for meal and entertainment deductions was quite reasonable in the
circumstances.
II. NSF Cheques
[7]
In respect of the NSF Cheques,
no evidence by way of calculations was offered by the Appellant to illustrate
that the Minister had failed to properly assess the income from the Business
correctly in this regard. In any event, procedurally, the Minister had not
reassessed the Appellant with respect to income in either year and has confirmed
income as filed by the taxpayer. Moreover, no probative evidence was tendered
to indicate any error had been made. The single bank account statements showing
the NSF cheques are assigned no probative value against the confirmation of income
by the Minister as filed and unamended by the Appellant.
III. Travel
Expenses
[8]
The final point, namely
the deductibility of certain travel expenses against business income, is more
problematic given the uniqueness of this matter.
[9]
Factually, this Court
finds that the Appellant had no choice regarding his decision to live in Regina. If he wanted that position of employment (admittedly that was a choice), he needed
to reside in Regina from Monday to Friday most weeks. It was also more
commercially efficacious for the Appellant to maintain his business office in Winnipeg. Two conferences each year were held there, the critical business contacts were
located there and the business had been established and developed there for
many years. These are all business and commercial reasons and not personal.
These competing requirements for employment in one locale and a business
operation in another present an interesting business dilemma and legal issue in
light of the applicable authorities.
[10]
The cases offered by
the Respondent uniformly deal with the situations where a personal choice
[emphasis added] regarding residency resulted in an extended distance relating
to travel for employment or business.
[11]
The leading case of Symes
v. Canada, [1993] 4 S.C.R. 695, identifies that the question to be asked is
whether the Appellant incurred the travel expenses for the purposes of gaining
or producing income.
[12]
Generally, travel costs
incurred from a personal residence to an income earning site are merely
personal living expenses required for a taxpayer to attend a job site and begin
earning an income.
[13]
In the case of Andreone
v. Her Majesty The Queen, 2005 TCC 240, Justice Sheridan of this Court
considered the leading case of Symes and found that if the need exists
in the absence of the business need, deductibility of the expense is not
permitted. In the present case, the Appellant acknowledged that in the absence
of the Business he would have nonetheless travelled from Regina to Winnipeg albeit on a less frequent basis. He offered his present frequency of travel as an
example. That testimony as to frequency was credible.
[14]
Similarly, in Daniels
v. Canada (Attorney General), 2004 FCA 125, the Federal Court of Appeal stated
at paragraph 7:
[7] It is well established that travel expenses incurred by a
taxpayer in travelling to and from his home to his place of work are considered
personal expenses. They are not travelling costs encountered in the course of
the taxpayer’s duties. Rather, they enable him to perform them (see Ricketts v.
Colquhoun, [1926] A.C. 1, 95 L.J.K. 82; Hogg v. R., [2002] 4 F.C. 443, 2002 FCA
177, affirming [2001] 1 C.T.C. 2356; O’Neil v. R., 2000 CarswellNat 1788, 2000
D.T.C. 2409, [2001] 1 C.T.C. 2091; Luks v. Minister of National Revenue, 1958
CarswellNat 297, [1958] C.T.C. 345, [1959] Ex. C.R. 45, 58 D.T.C. 1194).
[15]
In Blackburn v. Her
Majesty The Queen, 2007 TCC 284, Justice Jorré of
this Court analyzed the case law in the context of personal choice when he
stated;
[41] It is also necessary to take into account the principle that the
choice to live in one city rather than another is a personal choice and that
the expenses incurred to get to work are personal expenses and are not
deductible.
[…]
[43] We therefore have two important principles:
(1) Travel expenses incurred in the performance of one’s
employment duties are deductible.
(2) However, expenses incurred by the choice of where one
lives are personal expenses.
[44] At what point does the decision to travel rather than to move become
a personal choice? One cannot reasonably conclude that the fact that one does
not relocate for a business trip of a few weeks is a personal choice. However,
if someone takes a permanent position in another far away city, there cannot be
any doubt that it is a personal choice if the person keeps his or her house and
family in his or her hometown and chooses to travel between the two cities
every Monday morning and Friday evening and to rent a small apartment in the
city where he or she works.
[16]
The Appellant’s choice to
relocate his residence to Regina was not necessarily a personal one and is
factually different than the situation described in Blackburn where
a personal choice not to relocate was made. The Appellant was required to
move to Regina in order to accept the job. He did relocate his personal
residence. Clearly travel to and from his Regina residence to the University
was not a deductible expense. The decision to keep his Business location in Winnipeg, while it had a personal component to it (the extent of which such a personal
component is not deductible), also made business sense and encompassed a degree
of commerciality.
[17]
On the basis of the
foregoing, given the necessity (as opposed to personal choice) of living
in Regina and the business reasons for the need to attend to business interests
in Winnipeg from time to time, the Court finds that the provisions of paragraphs
18(1)(a) and (h) of
the Income Tax Act (“Act”) are satisfied, but only to the extent of some of
the travel expenses, since a goodly portion were personal or represented
non-deductible trips to the Appellant’s Business office. However, it remains
beyond dispute that some costs would not have been expended, but for the
purpose of producing income from the Business by attending to the hosting of
Business conferences in the Winnipeg area.
[18]
In the case of Randall
v. Minister of National Revenue, [1967] S.C.R. 484, the Supreme Court of
Canada indicated that obligations to provide a service and incur related expenses
arising from the exigencies of the business were reasonable expenses and should
be deductible. In the case before this Court, the Business conferences held twice
a year in Winnipeg were required as part of the Business, occurred on an infrequent
basis and the location was not determined necessarily by the choice or at the whim
of the Appellant.
[19]
Similarly, in Chapman
v. Her Majesty The Queen, 2004 TCC 617, Justice Woods of this Court found
that certain travel expenses were deductible where travel for business to
temporary work assignments in different locations was required. At paragraph 12
of that case, Justice Woods considers the case of Randall and the issue
of travel to temporary work locations when she states:
[12] This
approach is consistent with the approach by the Supreme Court of Canada in Randall
v. M.N.R., [1967] C.T.C. 236. In Randall, the taxpayer managed
racetracks, mostly in the Vancouver area. He undertook an engagement to manage
a racetrack in Portland, Oregon and sought to deduct the cost of travelling
between Oregon and his home in Vancouver. The Crown argued that the expenses of
travelling from the taxpayer’s home in Vancouver to Portland were personal
because they were incurred in travelling to work. The majority decision gave
short shrift to the Crown’s argument and adopted a common sense approach – Mr.
Randall’s travel expenses should be deductible because they were necessary to
fulfill contractual obligations. The facts in Randall are different from the
facts in this case but in my view the common sense approach by the Supreme
Court of Canada should equally apply to temporary work assignments where a
person has to travel to different work locations to fulfill contractual obligations.
[20]
In the case before this
Court, the Appellant’s travel expenses to Winnipeg had several purposes. These
purposes were:
a)
Travel to the
Appellant’s Business office in Winnipeg.
b)
Travel to Winnipeg generally, probably for personal reasons.
c)
Travel to Winnipeg for the purposes of chairing, supervising or hosting actual conferences from
which Business income was earned.
[21]
The first purpose is
not deductible on the basis of Hogg v. Canada (C.A.), 2002 FCA
177, and Daniels which preclude such deductibility.
[22]
The expenses arising as
a result of the second purpose are not business expenses at all within the
meaning of the Act pursuant to Symes.
[23]
However the Business conferences,
when actually in session and being chaired, supervised or hosted by the Appellant
constituted temporary work assignments and as such should be a deductible from
income by the Appellant, given the unique factual circumstances. Although the
Appellant’s Business was established in Winnipeg, the conferences per se
were occasional and arose as a result of the business purposes of holding the conferences
in Winnipeg, not at the personal choice of the Appellant but for the convenience
of, and attractiveness to, the attendees.
[24]
On this basis, the matter
is referred back to the Minister for reassessment and redetermination solely on
the basis of allowing the appeal with respect to those travel and related expenses
arising from travel and other expenses incurred during the chairing,
supervising or hosting of the actual conferences staged by the Appellant’s Business
outside of Regina. While these amounts are likely not substantial when compared
to the other expenses claimed in respect of travel, they do fall within the
category of temporary work assignments necessary for the conduct of the Business
requiring travel from Regina to Winnipeg and other locations.
[25]
Since the Appellant was
not successful on any other basis, no order shall be made as to costs.
Signed at Ottawa, Canada, this 26th day
of September 2012.
“R.S. Bocock”
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