Citation: 2007TCC383
Date: 20070718
Docket: 2006-2893(IT)I
BETWEEN:
PHILLIP L. LANDRY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Webb J.
[1]
The
Appellant was acting as the Superintendent of Schools for the Southwest
Regional School Board in Nova Scotia (the “School Board”) in 2002 and 2003. As part of his
duties as the Superintendent, he was required to travel extensively throughout
the territory governed by the School Board and to meetings outside the area. In
filing his 2002 and 2003 tax returns the Appellant claimed the following
amounts that are in dispute:
|
Expenses Claimed
|
2002
|
2003
|
|
Motor vehicle expenses
|
$7,739.90
|
$9,732.40
|
|
Work-space-in-the-home expenses
|
$1,200.32
|
$ 748.84
|
Motor Vehicle Expenses
[2]
The
Appellant used two different vehicles in carrying out his employment duties in
2002 and 2003. The Appellant would submit expense claim forms in relation to
his travel related to his work to the School Board and would receive payment
based on the number of kilometres that he had driven on employment-related
activities. In 2002 he received a total amount of $12,901.87 as payment for the
travel claims and in 2003 the amount that he received was $12,864.20.
[3]
The
Appellant did not include either of these two amounts that he had received in
his income for 2002 or 2003. The Appellant did, however, deduct in 2002 the amount
of $7,739.90 for insurance, capital cost allowance and interest in relation to
the motor vehicles and in 2003 the amount of $9,732.40 for maintenance and
repair, insurance, licence and registration, capital cost allowance and
interest in relation to the motor vehicles.
[4]
Since
the Appellant was not employed in connection with the selling of property or
negotiating contracts for his employer, the applicable provisions of the Income
Tax Act (“Act”) are paragraphs 6(1)(b)(vii.1), 8(1)(h.1), and
8(1)(j) and subsection 8(2), which provide as follows:
6(1) 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) all amounts
received by the taxpayer in the year as an allowance for personal or living
expenses or as an allowance for any other purpose, except
...
(vii.1) reasonable
allowances for the use of a motor vehicle received by an employee ... from the
employer for travelling in the performance of the duties of the office or
employment,
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 the 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 including computing the taxpayer’s income for the year,
(j) where a
deduction may be made under paragraph (f), (h) or (h.1) in computing the
taxpayer's income from an office or employment for a taxation year,
(i) any interest
paid by the taxpayer in the year on borrowed money used for the purpose of
acquiring, or on an amount payable for the acquisition of, property that is
(A) a motor vehicle that
is used, or
(B) an aircraft that is
required for use
in the performance of the duties of the
taxpayer's office or employment, and
(ii) such part, if any, of the capital
cost to the taxpayer of
(A) a motor vehicle that
is used, or
(B) an aircraft that is
required for use
in the performance of the duties of the
office or employment as is allowed by regulation;
(emphasis added)
8.(2) Except as permitted by this
section, no deductions shall be made in computing a taxpayer's income for a
taxation year from an office or employment.
[5]
Because
paragraph 8(1)(h.1) provides that the employee is entitled to claim motor
vehicle expenses “except where the taxpayer … 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”, there is no claim
allowed at all for motor vehicle expenses if the employee has received a
reasonable allowance that was not included in his income. Since, pursuant to
paragraph 8(1)(j) interest expense and capital cost allowance can only be
claimed if the taxpayer is entitled to a deduction under paragraph 8(1)(f),
(h), or (h.1), the receipt of a reasonable allowance that is not included in
income not only precludes the claiming of any motor vehicle expenses under
paragraph 8(1)(h.1) but also precludes any claim for interest expense and
capital cost allowance.
[6]
As a
result of these provisions, there are two different alternatives that may be
applicable to an employee who is required to travel in the course of carrying
out his or her duties, namely, either:
(a) the employee has
received a reasonable allowance from his or her employer to compensate him or
her for the motor vehicle expenses that such employee has incurred; or
(b) the employee has not
received a reasonable allowance from his or her employer to compensate him or
her for the motor vehicle expenses that such employee has incurred.
[7]
If
the employee has received a reasonable allowance, then:
(a) the amount of the
reimbursement is not included in the income of the employee; and
(b) the employee is
not entitled to any deduction under the Act in relation to any motor
vehicle expenses that the employee has incurred, including any interest expense
and capital cost allowance.
[8]
If
the employee has not received a reasonable allowance, then:
(a) the amount so
received is included in the income of the employee; and
(b) the employee is
entitled to deduct the motor vehicle expenses that relate to the travel
incurred for the purpose of carrying out his or her duties, including any applicable
interest expense and capital cost allowance.
[9]
In
this case the Appellant and his accountant chose a method that is not
sanctioned by the Act. The Appellant did not include in his income the
amount that he received from the School Board as a reimbursement for the motor
vehicle expenses he incurred and yet still chose to deduct in computing his
income certain motor vehicle expenses that he had incurred.
[10]
In
this particular case by not including in his income the amounts received as a
reimbursement for the motor vehicle expenses that he had incurred, the
Appellant must have been taking the position that this amount was a reasonable
allowance for the use of his motor vehicle. As a result, no motor vehicle
expenses would be deductible under paragraph 8(1)(h.1) and, as a result of the
provisions of paragraph 8(1)(j), no amount would be deductible for interest or
capital cost allowance. Therefore by not including the amount in his income the
Appellant was precluded from claiming any motor vehicle expenses.
[11]
The
accountant for the Appellant testified that he acknowledged that the Appellant
was receiving an allowance for his motor vehicle expenses but was taking the
position that this amount compensated him for gas and wear and tear. However,
the accountant also testified that he never did any calculations of the amount
that the Appellant actually expended on gas and therefore had no knowledge of
the amount by which the amount received by the Appellant exceeded his actual
gas costs.
[12]
The
appeals officer for the Canada Revenue Agency (“CRA”) did prepare, from
information submitted by the Appellant, a chart showing the total expenses
incurred for the two vehicles in question and did prepare an estimate of the
employment portion of the use of each vehicle. The Appellant took exception to
the amounts as shown by the Respondent, however, the Appellant did not have any
specific documents or information to support the position of the Appellant
concerning the number of kilometres that the vehicles had been driven in each
year and the Respondent’s information was based on odometer readings from the
repair invoices. Therefore, I accept the Respondent’s evidence in relation to
this matter. As well, the Appellant did concede that it was possible that the
vehicles were driven the total number of kilometres as suggested by the
Respondent if the use of the vehicles by the other family members was taken
into account. Since the expenditures relate to simply the vehicles, regardless
of who was using them, the total number of kilometres driven should also be
based on the number of kilometres the vehicles were driven, regardless of who
was driving the vehicle. I find that the total number of kilometres driven by
the two vehicles in each of 2002 and 2003 was approximately 72,000 kilometres.
[13]
In
preparing the list of expenditures, however, the Respondent did not include gas
receipts for gas purchased by other family members. Since the total
expenditures for the two vehicles should be based on all of the expenditures
incurred in relation to the vehicles, it should not matter who was purchasing
the gas. As a result, all of the gas expenditures should have been included in
this calculation. There was, however, another issue. The appeals officer for
the CRA noted that among the receipts that were submitted by the Appellant
there were several receipts for repairs and gasoline for several vehicles and,
in particular, for three vehicles that were not identified as vehicles that
were used by the Appellant in carrying out his duties as an employee. Therefore,
it is not clear how much of the gasoline was actually purchased for the use of
the two vehicles and since the Appellant did not produce any summary of the
actual amounts spent on gasoline, the Appellant was unable to satisfy the onus
on him to establish the facts related to the amounts spent on fuel.
[14]
In
any event, using the amounts as determined by the appeals officer for the CRA,
and including all amounts as identified by the appeals officer as amounts spent
on fuel, the following is a summary of the total amounts spent on the two
vehicles that were used to carry out the Appellant’s duties:
|
Item
|
2002
|
2003
|
|
Fuel
|
$ 8,757.08
|
$ 7,701.33
|
|
Maintenance and Repair
|
$ 1,638.68
|
$ 2,813.50
|
|
Insurance
|
$ 1,028.00
|
$ 1,805.00
|
|
Licence and Registration
|
$ 134.00
|
$ 134.00
|
|
Capital Cost Allowance
|
$ 6,756.30
|
$ 6,497.61
|
|
Interest
|
$ 808.82
|
$ 758.08
|
|
Total
|
$19,122.88
|
$19,709.52
|
[15]
The
number of kilometres driven in the course of employment was taken from the
records related to the amounts received for reimbursement and therefore I
accept the numbers as stated by the appeals officer for the CRA. The number of
kilometres driven for employment purposes in 2002 was 50,786 and for
2003, 46,540. As a result the percentage of use of the vehicles for
employment purposes for 2002 was 50,786 / 72,000 or 71% and for 2003, 46,540 /
72,000 or 65%.
[16]
The
total expenditures for 2002 that would have been for employment purposes would
be 71% of $19,122.88 or $13,577.24 and for 2003, 65% of $19,709.52 or
$12,811.19.
[17]
The
total amount that the Appellant had received as a reimbursement in relation to
the use of his vehicle was $12,901.87 in 2002 and $12,864.20 in 2003. In 2003
the amount he received exceeded the total expenditures as determined above. In
2002 the amount that he received was slightly over 95% of the total amount that
was expended as noted above. However, as noted above, there is some doubt as to
whether or not all of the gas expenditures that have been included above
related to the two vehicles. Since the reimbursement amount was 95% of the
total estimated expenditures (including all of the amounts for gas), the
Appellant has failed to establish that the amount that he has received from the
province was not a reasonable amount, even including all of the amounts for the
gas receipts. As a result, the Appellant is not entitled to claim any amount in
relation to his motor vehicle expenses incurred in 2002 and 2003.
Home Office Expenses
[24] Counsel for the
Respondent indicated that there was no dispute with respect to the amounts claimed
for home office expenses. The dispute related to whether the Appellant was
entitled to claim these amounts.
[25] Paragraph 8(1)(i)
of the Act provides as follows:
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:
...
(i) amounts paid by the taxpayer
in the year as
...
(iii) the cost of
supplies that were consumed directly in the performance of the duties of the
office or employment and that the officer or employee was required by the
contract of employment to supply and pay for,
[26] Subsection 8(13) of
the Act provides a further restriction in relation to any claim related
to home office expenses. This subsection provides as follows:
Notwithstanding paragraphs (1)(f)
and (i),
(a) no
amount is deductible in computing an individual’s income for a taxation year
from an office or employment in respect of any part (in this subsection
referred to as the “work space”) of a self‑contained domestic
establishment in which the individual resides, except to the extent that the
work space is either,
(i) the place
where the individual principally performs the duties of the office or
employment, or
(ii) used
exclusively during the period in respect of which the amount relates for the
purpose of earning income from the office or employment and used on a regular
and continuous basis for meeting customers or other persons in the ordinary
course of performing the duties of the office or employment;
[27] The Appellant stated
that there was no written contract for 2002 or 2003. The Appellant did
introduce into evidence a copy of the contract entered into in 2004 and stated
that this was basically the same understanding as was in place for 2002 and
2003. The contract in 2004 provided that the School Board would provide certain
electronic productivity/office supports, namely, cellular phone, home computer
and printer, home internet connection and home fax/dedicated phone line.
[28] The duties of the
Appellant, as the Superintendent of the Schools, would start very early in the
mornings. During the school year around 4:30 ‑ 5:00 a.m.
each morning he would have to determine whether or not any schools would have
to be closed for the day. This would usually be due to weather conditions.
[29] It seems to me that
it would be unreasonable to expect that any employee who was to start their day
at 4:30 ‑ 5:00 a.m. should be required to travel from their
home to their office to make phone calls to close a school or schools especially
in situations where the roads may not be safe to travel on. Therefore it must
have been implied in the contract in 2002 and 2003 that he would have a place
in his home from which to perform these duties. In each year the Appellant had
a T2200 form completed and signed by Mr. Legere as the Chief Executive
Officer of the Tri-County District School Board indicating that the Appellant
was required to pay home office expenses. Mr. Legere testified that it was
the Appellant’s responsibility to check the weather forecast for each day and
decide whether to close any schools. This again confirmed that the Appellant
was required to work from home as this determination had to be made very early
in the morning.
[29] As there was no
evidence to the contrary, I find that the Appellant was required to maintain an
office in his home.
[30] The Appellant also
testified, and I accept his testimony, that at least once a week he met persons
at the office in his home and he testified that the area in which the office
was located in his house was used exclusively for employment purposes. This
office was not used for any other purpose. Both the Appellant and Mr. Legere
testified that the Appellant made several calls from his home in the evenings
and on weekends. In the cases of Vanka v. Her Majesty the Queen
[2001] 4 C.T.C. 2832 and Ryan v. Her Majesty the Queen [2006] 3
C.T.C. 2153, this Court has found that meetings by telephone are sufficient for
the purposes of subparagraph 18(12)(a)(ii) which is indistinguishable from
subparagraph 8(13)(a)(ii) in relation to the requirement that the work space be
used on a regular and continuous basis for meetings and therefore I find that
the requirements of subparagraph 8(13)(a)(ii) have been met by the Appellant.
[31] As a result, I find
that the Appellant has satisfied the onus on him to establish his right to
claim the amounts for home office expenses and therefore the claim for supplies
for 2002 in the amount of $1,200.32 and for 2003 in the amount of $748.84 in
relation to the work space in the home are allowed.
[32] Therefore the appeals
of the Appellant in relation to the claim for home office expenses are allowed.
[33] The appeals of the
Appellant in relation to the motor vehicle expenses are dismissed.
Signed at Halifax, Nova Scotia, this 18th day of July 2007.
"Wyman W. Webb"
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