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Citation: 2003TCC642
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Date: 20031007
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Docket: 2001-2649(IT)I
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BETWEEN:
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MARIO BRUNET,
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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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[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR ORDER
(delivered orally from the Bench on 3 July 2002 at Montréal, Quebec,
and amended for greater clarity)
Archambault, J.
[1] Mr. Mario Brunet is contesting assessments made by the Minister of National Revenue (Minister) for the 1997, 1998 and 1999 taxation years under the Income Tax Act (Act). The evidence revealed that Mr. Brunet had not served a notice of objection for the 1997 and 1998 taxation years within the time periods prescribed by the Act. Therefore, he could not file an appeal with respect to those two years.
[2] For 1999, however, it is not disputed that the notice of appeal was filed in accordance with the provisions of the Act. In computing Mr. Brunet's income for that year, the Minister disallowed a deduction in the amount of $1,771 for his automobile expenses. This amount represents part of his operational expenses, which amounted to $2,906, for the use of his vehicle for work purposes.
[3] The evidence also revealed that Mr. Brunet's employer, Canadian National Railway Company, paid him approximately 15 cents per kilometre for the use of his car in 1999, in accordance with the terms set out in the collective agreement between it and its employees. The total allowance amounted to $1,135.90 and according to the facts assumed by the Minister and set out in subparagraph 9(d) of the Reply to the Notice of Appeal, was considered a non-taxable allowance.
[4] In his work as joiner, Mr. Brunet was required to travel throughout Quebec to ensure maintenance of the railway operated by his employer. According to his conditions of employment, Mr. Brunet was required to have a motor vehicle for travel and to assume expenses related thereto. Furthermore, he was usually required to fulfill his employment duties away from his employer's place of business.
Analysis
[5] The only question under review here is essentially that relating to the reasonableness of the fifteen-cent allowance paid by his employer. If it were reasonable, Mr. Brunet was not required to include it in his income[1] and he could not deduct it from his automobile expenses.[2] However, if it were not reasonable, he would have to include it in his income but he could deduct his expenses when calculating his employment income.
[6] The Respondent's attorney took the position that thefifteen-cent allowance for every kilometre was reasonable because it had been negotiated by the union representing Mr. Brunet's interests. However, in paragraph 43 of Interpretation Bulletin IT-522R, the Minister describes how the reasonableness of an allowance should be determined:
Although the reasonableness of an allowance is normally decided based on the facts of the particular case, the Department will, as a general rule, accept as reasonable an allowance based on 31 cents ... for the first 5,000 kilometres and 25 cents ... for the remaining kilometres.
[7] These figures are taken from section 7306 of the Income Tax Regulations (Regulations), which applies in a completely different context, but which is clearly used by the Minister as representing a reasonable base for comparison or indication of reasonableness for the cost per kilometre for vehicle use. According to my verifications, section 7306 in the 1999 Regulations provided for a higher amount, namely 35 cents for the first 5,000 kilometres and 29 cents for every kilometre thereafter.
[8] The criterion set out in paragraph 43 of Interpretation Bulletin IT-522R as used by the Minister appears, in my view, to be perfectly appropriate to determine the reasonableness of an allowance and, considering that Mr. Brunet was receiving a much lower amount than that set out in the Regulations, I rule that the allowance paid to him was not a reasonable allowance. Consequently, under paragraph 6(1)(b) of the Act, this allowance should have been included in his employment income and Mr. Brunet could deduct motor vehicle travel expenses under paragraph 8(1)(h.1) of the Act.
[9] For all of these reasons, Mr. Brunet's appeal is allowed and the assessment for the 1999 taxation year is referred back to the Minister for reconsideration and reassessment given that Mr. Brunet was entitled to deduct his motor vehicle travel expenses from his income for that year.[3] The appeals for 1997 and 1998 are vacated as they have not been validly filed before the Court.
Signed at Ottawa, Canada, this 7th day of October 2003.
Archambault, J.
Translation certified true
on this 30th day of January 2004.
Maria Fernandes, Translator
[1] 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
(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
...
(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,
[Emphasis added.]
[2] 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 8(1)(f);
[Emphasis added.]
[3] It goes without saying that, if the $1,135.90 allowance was not added to Mr. Brunet's income, it would have to be, and based on that decision, Mr. Brunet would actually only be entitled to a net sum of $635.05 ($1,771 - $1,135.95).
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