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Citation:2003TCC310
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Date: 20030507
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Docket:2002-2370(IT)I
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BETWEEN:
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ANITA MIKHAIL,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Lamarre, J.T.C.C.
[1] These are appeals against
assessments made by the Minister of National Revenue
("Minister") whereby employment expenses claimed by the
appellant for her 1996 and 1997 taxation years were
disallowed.
[2] In computing her income, the
appellant claimed total employment expense amounts of $11,295.17
for 1996 and $10,641.46 for 1997. The Minister only accepted
deductible employment expenses of $3,675 for 1996 and $5,571 for
1997. A summary of the employment expenses claimed and of those
accepted by the Minister appears in amended Exhibit A
attached to the Reply to the Notice of Appeal ("Reply")
and is reproduced hereunder:
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1996 Employment Expenses
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Notice of
Assessment
10-Apr-97
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Notice of
Reassessment
25-Apr-01
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Allowable motor vehicle
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$
6,602.86
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$
1,358.00
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Parking
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26.90
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-
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Supplies
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504.41
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-
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Cellular telephone
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3,648.00
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2,317.00
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Seminar
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513.00
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_______-_______
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Total employment expenses -1996
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$
11,295.17
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$
3,675.00
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1997 Employment Expenses
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Notice of
Assessment
21-Sep-98
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Notice of
Reassessment
25-Apr-01
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Allowable motor vehicle
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$
4,989.33
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$
4,322.00
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Food, beverage, entertainment (50%)
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25.66
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-
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Parking
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80.00
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Supplies
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36.47
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Cellular telephone
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_____5,510.00
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_______1,249.00
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Total employment expenses - 1997
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$
10,641.46
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$
5,571.00
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[3] The facts upon which the Minister
relied in reassessing the appellant are set out below:
(b) during 1996 and 1997 the Appellant was employed by Work
Wear Corporation of Canada Ltd., a subsidiary of
G & K Services Inc., (the 'Employer')
as a Sales Representative and as a Sales Manager;
(c) the Appellant submitted three versions of form T2200,
Declaration of Conditions of Employment, for each of 1996 and
1997;
(d) the final amended versions for 1996 and 1997, dated
January 24, 2000, were signed by Susan Sutherland, the
Accounting Manager, and were based on a review of company
policies and conditions of employment by the audit firm of
Arthur Andersen & Co.;
(e) in 1996 the Appellant was involved in textile leasing and
direct sales of work clothing, for which she earned commission
income of $2,819.15, as indicated on her 1996 T4 Supplementary
slip;
(f) in 1997 the Appellant did not earn commission income;
Cellular
telephone
(g) in 1996 and 1997 the Appellant received a monthly
allowance of $100.00 to compensate her for cellular telephone use
related to her employment;
(h) the Appellant did incur cellular telephone expenses
related to her employment in excess of the monthly allowance of
$100.00. [The excess amount accepted by the Minister is $2,317 in
1996 and $1,249 in 1997, as amended by the respondent at the
hearing.]
(i) the allowances referred to [in] subparagraph 15(g) herein
were not included in the Appellant's income and were not
shown on her T4 slips for 1996 and 1997;
Motor vehicle
(j) for the purposes of her employment the Appellant drove a
leased Audi A4 motor vehicle;
(k) in 1996 and 1997 the Appellant was reimbursed $1,201.75
and $2,288.42 for motor vehicle expenses related to her
employment, at the rate of $0.31 per kilometre for the first
400 kilometres driven in the month and $0.18 per kilometre
for each additional kilometre driven in the month;
(l) the reimbursement, referred to in subparagraph 15(k)
herein, related to 4,283 of a total of 16,074 kilometres driven
in 1996 and 9,709 of a total of 13,470 kilometres driven in
1997;
(m) in the course of her duties the Appellant was not required
to drive more than 4,283 kilometres and 9,709 kilometres in the
1996 and 1997 taxation years;
Other expenses -
supplies, parking and seminars
(n) in 1996 and 1997 the Appellant was not required to pay for
other expenses, including supplies, parking and seminars, for
which she did not receive an allowance or reimbursement; and
(o) in 1996 and 1997 the Appellant, under her contract of
employment, was not required to pay for supplies used directly in
her work.
[4] With respect to the motor vehicle
expenses, the Minister accepted a deduction of $1,358 for 1996
and $4,322 for 1997 on the basis of the number of kilometres
driven submitted by the appellant to her employer for
reimbursement. The amount reimbursed by the employer was based on
a rate of 31 ¢ /km for the first 400 km and 18 ¢ /km for
each kilometre over 400 km. The appellant presented claims to her
employer for 4,283 km for 1996 and 9,709 km for 1997 at the above
rates. She was therefore reimbursed an amount of $1,201.75 in
1996 and $2,288.42 in 1997 (Exhibit R-2). The Minister agreed
that the allowance given by the appellant's employer only
covered 50 per cent, at the most, of her actual expenses. He
accordingly allowed an extra amount as deductible automobile
expenses for the number of kilometres that was submitted to and
accepted by the employer.
[5] To calculate that extra deductible
amount, the Minister accepted that the total motor vehicle
expenses for the year amounted to $9,755 in 1996 and $10,369 in
1997. The Minister established the business use of the vehicle at
26 per cent in 1996 and 64 per cent in 1997, based on
the number of kilometres submitted by the appellant to her
employer as having been driven for the purpose of earning income.
The appellant challenges this point. The Minister accepted the
fact that roughly 26 per cent of the total expenses of $9,755, or
$2,559, was incurred to earn income in 1996, and that
approximately 64 per cent of the total expenses of $10,369, or
$6,610, was incurred to earn income in 1997. The appellant
received a reimbursement of $1,201 in 1996 and $2,288 in 1997
from her employer. The Minister therefore agreed to allow the
difference as deductible employment expenses, that is, $1,358 for
1996 and $4,322 for 1997.
[6] The appellant is only challenging
the percentage of business use. According to her, the car was
used 80 per cent of the time in 1996 and 70 per cent of the
time in 1997 for her work. She filed a logbook and a Daytimer for
the year 1996 only (Exhibit A-2). She has calculated that she
drove 12,460 km in 1996 and 10,690 km in 1997 in the performance
of her work (Exhibits A-2 and A-1, Tab 1, page 3, paragraph
5). She claims that the "allowable business-use
portion should be based on the recorded business kilometers"
and not on the number of kilometres submitted to her employer for
the purpose of computing a partial reimbursement.
[7] The two Declarations of Conditions
of Employment filed in evidence specify that the employee's
contract required her to pay her own expenses. They also indicate
that the employee was not required to pay other expenses for
which she did not receive any allowance (Exhibit R-2, question 9,
and Exhibit A-1, Tab 3, question 6). The appellant received an
allowance for the car expenses. Furthermore, the Declaration
filed as Exhibit R-2 specifies that the allowance received by the
appellant from her employer was not included in her income.
[8] The appellant covered Eastern
Ontario and Western Quebec in performing the duties of her work.
In Exhibit A-3, she explains that, as a sales manager, she
managed three sales representatives. In that capacity, she was
responsible for keeping expenses within the departmental budget
set by the employer. Mileage expenses submitted by the
representatives were applied against the budget first. If any
monies were left in the budget, she would claim that amount only.
In other words, the appellant asserts that her reimbursement was
limited to the number of kilometres that the budget allowed of
and was not calculated according to the kilometres actually
driven, as recorded in the car log.
[9] The deduction of motor vehicle
expenses by an employee is permitted if the conditions found in
paragraph 8(1)(h.1) of the Income Tax Act
("Act") are met. That paragraph reads as
follows:
SECTION 8: Deductions allowed.
(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:
48(1)(h.1)3
(h.1) Motor vehicle travel expenses - 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).
[10] An allowance for motor vehicle expenses
will not be included in income in the circumstances set out in
subparagraphs 6(1)(b)(v) and 6(1)(b)(vii.1), which
read as follows:
SECTION 6: Amounts to be included as income from
office or employment.
(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:
46(1)(b)3
(b) Personal or living expenses - 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
. . .
(v) reasonable allowances for travel expenses received by an
employee from the employee's employer in respect of a period
when the employee was employed in connection with the selling of
property or negotiating of contracts for the employee's
employer,
. . .
(vii.1) reasonable allowances for the use of a motor vehicle
received by an employee (other than an employee employed in
connection with the selling of property or the negotiating of
contracts for the employer) from the employer for travelling in
the performance of the duties of the office or employment.
[11] Here, the Minister accepted the fact
that the per-kilometre allowance given to the appellant for the
number of kilometres driven by her - as submitted to her employer
- in the performance of her duties was woefully inadequate. The
Minister accordingly accepted the deduction of the balance of the
actual expenses incurred by the appellant in driving that number
of kilometres. (See Report on Objection, Exhibit R-1, second
page, and The Queen v. Mina et al., 88 DTC 6245
(F.C.T.D.).) However, the respondent is of the view that the
appellant was not required by her contract of employment to drive
more than 4,283 km in 1996 and 9,709 km in 1997, which
correspond to the number of kilometres submitted to her employer
as having been driven in the performance of her duties.
[12] The appellant claims that to adequately
perform her work she had to use her car to drive more than the
number of kilometres submitted to her employer. She explained
that she did not submit a claim for the totality of the
kilometres driven to earn income because her employer's
budget did not allow of more. The appellant presented a logbook
and a Daytimer for 1996 showing that she had driven more for her
employment than was indicated in the claim she submitted to her
employer. In my view, there is no reason to disbelieve the
appellant in that regard.
[13] Furthermore, there is a letter (not
dated) from the employer stating that the appellant may have
incurred during her employment period expenses exceeding the
amount of the company's allowances or reimbursements
(Exhibit A-1, Tab 8). The Declarations of Conditions
of Employment state that the appellant was normally required to
pay her own expenses. It is accepted by the Minister that the
appellant did not receive a reasonable allowance for the car
expenses she incurred to earn her employment income. In this
context, it seems to me that the allowance received by the
appellant in accordance with the employer's budget was not
reasonable either in respect of the rate of reimbursement (as
conceded by the Minister) or in respect of the number of
kilometres for which the appellant received the allowance.
[14] Adopting the words used in subparagraph
8(1)(h.1)(ii) and subparagraphs 6(1)(b)(v) and
6(1)(b)(vii.1) of the Act, I therefore conclude
that the appellant was required under her contract of employment
to pay motor vehicle expenses incurred in the performance of the
duties of her employment and for which she did not receive a
reasonable allowance. In those circumstances, she is entitled to
deduct the expenses incurred in that regard but must deduct from
the amount of those expenses the allowance received. The
appellant established that she drove a total of 16,074 km in
the year 1996, of which 12,460 were for her work
(Exhibit A-2). This means that the car was used for work
77 per cent of the time in 1996. The appellant said
that in 1997, 70 per cent of the driving she did was for her work
but she did not file any logbook or any other evidence for that
year. I will therefore accept the Minister's attribution of
64 per cent for the business use of the vehicle in 1997. The
Minister accepted that the total motor vehicle expenses for the
year amounted to $9,755 in 1996 and $10,369 in 1997. Therefore, I
am satisfied that 77 per cent of the total expenses of
$9,755, or $7,511, was incurred to earn income in 1996, and that
64 per cent of the total expenses of $10,369, or $6,610, was
incurred to earn income in 1997. The appellant received from her
employer a reimbursement of $1,201 in 1996 and $2,288 in 1997.
The difference, that is, $6,310 for 1996 and $4,322 for 1997, is
therefore deductible as employment expenses.
[15] With respect to the cellular telephone
expenses, the only issue is the reduction of the eligible
expenses by the amount of the allowance received by the appellant
($100 per month or $1,200 per year). The appellant submits that
this allowance was included in her income and therefore it should
not be applied so as to reduce the eligible expenses. The
appellant relies on the undated letter signed by Janet Tipick for
the employer, which states that "a flat allowance of $100
per month for cellular use was part of Ms. Mikhail's
income" (Exhibit A-1, Tab 8). Ms. Tipick was not called as a
witness to explain the content of her letter.
[16] It is recognized by the appellant that
Ms. Tipick is an office manager for the employer who does not
work in the accounting department. The T4 slips that were issued
in the appellant's name by the accounting department for 1996
and 1997 indicate amounts of $200.59 and $134.34 respectively as
other taxable allowances and benefits. This clearly cannot
include the $1,200 allowance for the cellular telephone.
Furthermore, there is no indication that this amount was included
in employment income in the T4 slips and it is most probable that
it was not because it is not employment income but an allowance
for an expense incurred in order to earn employment income.
[17] In view of the apparent contradiction
between Ms. Tipick's letter and the T4 slips, I find
that the evidence given by the appellant is not sufficient to
refute the allegation of fact in the Reply that this allowance
was not included in income. It is the appellant who has the
burden of showing that the allegations of fact in the Reply are
incorrect. Here the appellant has not convinced me that the
Minister was in error. I therefore conclude that the annual
$1,200 allowance was not included in the appellant's income
for 1996 and 1997 and that it was rightly applied by the Minister
to reduce the eligible cellular telephone expenses incurred.
[18] With respect to the other expenses
(supplies, parking and seminars) claimed by her, the appellant
has not convinced me that she was required to pay any such
expenses for which she did not receive an allowance or
reimbursement. Indeed, the two Declarations of Conditions of
Employment filed in evidence clearly indicate that the employee
was not required to pay expenses for which she did not receive
any allowance or reimbursement (Exhibit A-1, Tab 3, question 6,
and Exhibit R-2, questions 9-10). Therefore, the Minister
correctly disallowed the deduction of those expenses in the
computation of the appellant's income for 1996 and 1997.
[19] The last issue, which was raised on the
day of the trial, is the claim for a non-refundable tax credit
for the spousal amount pursuant to paragraph 118(1)(a) of
the Act as amended. During the audit, this credit was
claimed and the Minister never gave the appellant an answer
regarding that claim. The appellant asserts that her husband did
not have any income in the years at issue (Exhibit A-1, Tab 10).
I asked counsel for the respondent to find out why the credit was
not granted to the appellant.
[20] By letter dated April 25, 2003, counsel
for the respondent advised the Court that the Canada Customs and
Revenue Agency agreed to allow the requested T1 adjustment for
the 1996 and 1997 taxation years with respect to the spousal
amount.
[21] Consequently, the appeals will be
allowed and the assessments referred back to the Minister for
reconsideration and reassessment on the basis that the appellant
is entitled to a non-refundable tax credit for the spousal amount
pursuant to paragraph 118(1)(a) of the Act for the
1996 and 1997 taxation years. The appellant is also entitled to
additional employment expenses (car expenses) in the amount of
$4,952 for 1996. The appellant is entitled to no further
relief.
Signed at Ottawa, Canada, this 7th day of May 2003.
J.T.C.C.
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