Citation: 2013 TCC 70
Date: 20130228
Docket: 2012-981(IT)I
BETWEEN:
SCOTT BRANDT,
appellant,
and
HER MAJESTY THE QUEEN,
respondent.
REASONS FOR JUDGMENT
Hogan J.
Overview
[1]
The appellant, Scott
Brandt, is appealing a reassessment issued in respect of his 2009 taxation year.
The appellant claimed $13,853 as employment expenses for that taxation year,
including motor vehicle expenses, office supplies, meals and entertainment,
parking, etc. The reassessment allowed a deduction in respect of only $1,455 of
those expenses. The Minister agreed on November 27, 2012 to allow the
appellant’s remaining claimed telecommunications expenses of $1,800. As a
result, the appellant’s telecommunications expenses are no longer an issue in
this appeal.
Factual Background
[2]
At all relevant times, the
appellant was a full-time employee of IBM Canada (“IBM”). The appellant acted as
a sales representative for IBM in the financial services sector. He testified
that his only client, while he was employed by IBM in 2009, was the Bank of
Nova Scotia. He provided consulting services at two Bank of Nova Scotia offices
in downtown Toronto. The appellant also attended at his employer’s offices at 3600 Steeles Avenue and 79 Wellington Avenue. All of these locations were within the
Greater Toronto Area (“GTA”).
[3]
IBM reimbursed the
appellant for $32,929.72 of expenses incurred in the course of his employment,
including, inter alia, mileage, meals and parking. Other expenses
included in the $32,929.72 total reimbursement figure, but not mentioned on the
appellant’s T2200 form, included golf tournaments and monthly cell phone
expenses. The appellant claimed expenses that were over and above the amount of
IBM’s reimbursement.
[4]
In reassessing the
appellant, the Minister assumed that the appellant’s contract of employment
with IBM required him to use a portion of his home for work, and that his
contract ordinarily required him to work away from IBM’s offices in the 2009
taxation year. However, the Minister also assumed that the appellant’s Georgetown home was not his principal place of employment. According to the respondent,
the Bank of Nova Scotia offices were the appellant’s regular places of
employment.
[5]
The appellant deducted the
amount of $9,011.81 as motor vehicle expenses incurred for the purposes of
earning employment income. The amount paid by IBM as a travel allowance was subtracted
in the calculation of the aforementioned amount.
[6]
In the number of
kilometres claimed for employment purposes (41,561 km) the appellant
included the kilometres driven to and from his Georgetown home. The appellant
was not compensated by IBM for those kilometres. Instead, IBM’s motor vehicle expense
reimbursement was based on an allowance of 26 km per day, representing the
round trip from IBM’s 3600 Steeles office to the Bank of Nova Scotia’s 2201 Eglinton Avenue East office, regardless of the distance the appellant actually travelled
on any given day.
[7]
The appellant’s
testimony is that he was not provided with designated office space in his
employer’s work location. This required him to maintain an office at home. IBM employed
a “hotelling” system for “mobile employees”, such as the appellant. The “hotelling”
system provides workstations at the IBM offices. To work there, the appellant was
required to reserve in advance a cubicle where he could log in to access all
his electronic files, take care of emails and work on proposals, if need be.
He could also book conference rooms for client meetings, although, in general,
the appellant met his clients at their offices.
[8]
The appellant did not
claim home office expenses on his tax return since he did not have a space in
his home that was used exclusively for work. His office was in his living room.
[9]
The work performed at
the appellant’s home office consisted of reviewing emails, conducting
conference calls (both weekly and on an ad hoc basis) and doing research
and online training.
[10]
Jeff Gilchrist, an IBM
executive and management consultant who testified as a witness for the
respondent, had a managerial relationship with the appellant while the latter
was working at IBM. Mr. Gilchrist signed the appellant’s T2200 form for 2009.
That form indicated that the appellant was required to use a portion of his
home for work.
[11]
Mr. Gilchrist testified
that new hires had the option of being “mobile employees”. If they chose to be “mobile
employees”, IBM’s policy was to compensate them for certain expenses. Mr. Gilchrist
provided the example of covering the cost of a second phone line for business
use in the “mobile employee’s” home in cases where the employee has a family
and thus requires the primary line for use for family purposes. Mr. Gilchrist
did not directly answer the question whether “mobile employees” were required
to maintain a home office but responded:
A
mobile employee is entitled to receive compensation for certain expenses based
on IBM policy. Is it required? To some extent, it is at the discretion of the
employee, to be candid.
If
you live by yourself, it doesn’t make sense to have two [telephone] lines,
necessarily. Right? Two telephone lines, so is it required? It is your option,
but you have that ability to choose.
[12]
Mr. Gilchrist stated
that part of the company’s motivation for instituting the “mobile employee”
designation was to save on office space expenses:
So
what we do is if you have an office tower that would employ 100 people, by
adopting this policy, you could actually be able to cut the space down to say
50 people and have a hoteling mechanism; and therefore, IBM can reduce its
rental footprint, and therefore, reduce its overhead costs, but it also speaks
to the flexibility it affords employees.
[13]
On cross-examination,
Mr. Gilchrist was referred to the T2200 form on which he had indicated
that the appellant was required to use a portion of his home for work. Mr. Gilchrist
said with respect there to: “I think the way we would interpret the ticking of
that box is he doesn’t have to work from his home. It is his choice as a mobile
employee.”
[14]
IBM’s automobile
expense reimbursement policy stated that travel expenses from the employee’s
home to work or to customer locations would be reimbursed after “first
deducting the normal daily commutation expense”. Furthermore, the policy explicitly states:
“Employees are responsible for getting to and from work. The cost of such
commuting by whatever means chosen. . . is also the responsibility of
the employee”.
When asked why IBM would not compensate an employee for expenses for travel
from the employee’s home to his place of work, Mr. Gilchrist stated: “It
would be viewed as a typical expense, the same as you would have to travel. If
this was your place of work every day, you would not necessarily get
compensated to travel to this facility.”
[15]
The appellant testified
that he claimed $262.79 in meal and entertainment expenses on his tax return
because he realized he had not submitted the corresponding receipts to his
employer for reimbursement. The Crown does not dispute the quantum of those meal
expenses. The appellant, for his part, admitted that he was never away from the
GTA for more than 12 hours in the course of his employment duties.
[16]
The appellant claimed
$44.60 in parking expenses on his 2009 tax return because he realized at the
end of the year that he had not submitted the corresponding receipts to his
employer for reimbursement. He was reimbursed by IBM for all his employment-related
parking expenses.
[17]
The parties have agreed
that the appellant incurred $58.30 in car rental expenses, though that was not the
amount claimed in the 2009 tax return. The appellant testified that the reason
for the car rental was to replace the vehicle he regularly used to travel to
IBM’s offices and client work sites while that vehicle was in for repairs.
[18]
On cross-examination,
the appellant was asked if he could have had car maintenance done on the
weekend to avoid the rental car expense. He testified that his mechanic in Georgetown was not open on weekends, but admitted that he could have chosen a different mechanic
to avoid the rental expense. He also testified that possible that he most
likely received his usual motor vehicle expense allowance on the days he rented
the car, since the allowance was calculated on a daily basis.
[19]
The appellant claimed
$622.45 in expenses in respect of office supplies in his 2009 tax return.
[20]
On cross-examination,
it was established that IBM would reimburse the appellant’s expenses related to
the laptop they provided.
[21]
The appellant was also
asked why he needed both a second laptop and an external hard drive to back up
his laptop provided by IBM when information from the IBM laptop could be backed
up on an IBM server. His response was:
On
case one, physical device was damaged. I could have lost data. So if I was
working on documents that I needed to retain, I would back them up to my second
laptop at home. . . .
There
was backup available at IBM, but if you lost your computer, you could not
instantaneously get a new replacement computer, nor was it a simple process to
get all of your identity put on to that new computer such that you could get at
anything that you had backed up.
So
one might consider me overly cautious, but I had a back-up computer so that if
for whatever reason — and I had seen other IBMers have their computer fail.
Sometimes, it was a day to two days before they could get access to any of
their files. I was cautious, and I just wanted to make sure if I was working on
something, I could instantaneously get access to it. Getting a replacement
computer was a nontrivial effort.
[22]
Mr. Gilchrist testified
that employees in the appellant’s position typically received an IBM laptop,
and that a software product called Tivoli provided the ability to back up
material on that laptop when it was connected to the IBM network. This was the
recommended backup method, since the backup data then remained in the IBM data
centre. Mr. Gilchrist further stated that he had “never known anybody to
require a second laptop for work purposes”. On cross-examination, Mr. Gilchrist
further explained that it would typically take two, three or four business days
to get a computer after an order was put in for a replacement. It would be
possible to restore the information from the lost or damaged computer within a
business day, once the replacement arrived. Thus, the total replacement process
could take three to five days.
Issues
[23]
The issues in this
appeal all pertain to the deductibility of the appellant’s employment expenses
and they can be stated as follows:
(a) Is the appellant
entitled to deduct motor vehicle expenses for travel from his home office in
Georgetown to work sites in the GTA under any of paragraphs 8(1)(f) (sales
expenses of an employee on commission), 8(1)(h) (travel expenses), or
8(1)(h.1) (motor vehicle travel expenses) of the Income Tax Act
(“ITA”)?
(b) Are the other expenses
claimed by the appellant and disallowed by the Minister deductible under
paragraph 8(1)(f)?
Positions of the Parties
[24]
The parties agreed that
the appellant may claim telecommunications expenses over and above the amount the
allowance provided by IBM, the amount of those expenses as claimed in the
appellant’s 2009 tax return, being $3,090.19. The appellant’s position is that
the same principle should apply to the motor vehicle expenses that are still in
dispute. According to the appellant, his contract with IBM required him to
maintain a home office. Therefore, motor vehicle expenses incurred in driving
from the home office to client and IBM offices should be deductible under paragraph
8(1)(f).
[25]
Under subparagraph 8(1)(f)(iv),
taxpayers are not entitled to deduct expenses where they are in receipt of an
allowance for travel expenses that was, by virtue of subparagraph 6(1)(b)(v),
not included in income. The appellant was in receipt of such an allowance. In
response to questioning about how the appellant dealt with subparagraph 8(1)(f)(iv),
the agent for the appellant stated that the allowance received was nominal. The
appellant relies on guides published by the CRA that provide that taxpayers are
entitled to deduct the difference between actual expenses and an allowance from
the employer that does not cover all expenses.
[26]
The appellant also
relies on paragraph 8(1)(h), which allows the deduction of travel
expenses where the taxpayer is ordinarily required to carry out duties of his
employment away from the employer’s place of business. The appellant contends
that the distance from his home office to other work sites is not relevant; he
was required to maintain a home office and therefore his travel from the home
office to client offices should be deductible regardless of distance.
[27]
The appellant’s
position is that all other expenses should be allowed as sales expenses under
paragraph 8(1)(f).
[28]
The respondent’s
position is that the motor vehicle expenses are not deductible as they were
personal in nature. The respondent contends that these expenses are not
deductible under either paragraph 8(1)(h) (travel expenses) or 8(1)(h.1)
(motor vehicle travel expenses). Both those provisions specify that the
taxpayer must be required to cover travel expenses under the contract of
employment. According to the respondent, the cost of travel between the
appellant’s home and work sites in the GTA was merely an expense for commuting
to work and was not an expense required under the contract of employment.
[29]
The respondent also
relies on the four-pronged test for motor vehicle expense deductions under paragraph
8(1)(h.1) set out in O’Neil v. The Queen. Two of
the requirements in the O’Neil test are not met: firstly, the appellant
did not incur the expenses for travel in the course of performing his
employment duties, and secondly, the appellant received a non‑taxable
allowance for his motor vehicle expenses.
[30]
The respondent further
relies on Hogg v. Canada,
which is the Federal Court of Appeal’s definitive statement on the requirement
that there must be some duty that was performed in the course of the travel
(beyond merely getting to work), in order for motor vehicle expenses to be
deductible under paragraph 8(1)(h.1). The respondent relies on McCann
v. R.
to argue that even where an implied term can be found requiring an employee to
have an office at home, and where no office is provided at the employer’s
premises, the deduction of motor vehicle expenses under paragraph 8(1)(h.1)
should still be unavailable.
[31]
With respect to the
other expenses at issue in this case, the respondent argues that they were
either personal in nature, or reimbursable by the appellant’s employer. Where
the expenses were reimbursable by IBM, the respondent submits, the appellant
cannot say that he was required to pay them under his contract of employment.
Thus, the expenses fail to meet the criteria for deductibility under subparagraph
8(1)(f)(i).
Analysis
[32]
Each of paragraphs
8(1)(f), 8(1)(h) and 8(1)(h.1) disallows expense
deductions where an employee was in receipt of an allowance that was taxable
because of one or more subparagraphs in paragraph 6(1)(b). There is case
law on paragraph 8(1)(h.1) that interprets this restriction as
disallowing deductions of expenses in excess of the allowance where the quantum
of the allowance is reasonable.
Where the quantum of the allowance is unreasonable, a deduction of the excess
expense is allowed,
and it may also be allowed where the taxpayer is only paid an allowance for
some of the kilometres travelled in the course of employment.
[33]
Paragraph 8(1)(f),
which is principally relied on by the appellant to justify the deduction of all
the expenses at issue in this appeal, uses slightly different language than paragraphs
8(1)(h) and 8(1)(h.1). It states that the expenses must be
incurred for the purpose of earning income from employment. Paragraphs 8(1)(h)
and 8(1)(h.1) employ more restrictive wording, as those provisions
require that the expenses be incurred for travel in the course of employment.
Paragraph 8(1)(f) is less restrictive than paragraphs 8(1)(h) and
(h.1), as it does not require any employment duty to be carried out in
the course of the travel itself.
[34]
Parliament would have
used the same language in each of the aforementioned provisions if it intended
that the same test be applies to justify the deduction of expenses under those
provisions.
[35]
As argued by the
Minister, there are cases on paragraphs 8(1)(h) that and 8(1)(h.1)
allow the deduction of travel and motor vehicle expenses only when the travel
itself includes the performance of an employment duty. However, the appellant
is not relying on those provisions to justify the deduction of travel expenses.
[36]
Paragraph 8(1)(f)
allows the deduction of expenses incurred by a taxpayer for the purpose of
earning income from employment where the taxpayer was engaged in sales or
contract negotiation on behalf of the employer, where the taxpayer was
ordinarily required to carry out the duties of his employment away from the
employer’s place of business, and where the taxpayer was remunerated in whole
or in part by commission. In order to deduct those expenses, the taxpayer must
have been contractually required to incur the expenses personally, without
reimbursement by the employer.
[37]
Some other factors
accepted in the case law as a basis for allowing the deduction of employment
expenses incurred in travelling from a home office have included: undisputed
testimony of the taxpayer that his or her office was the primary place of work; the
Minister’s acceptance of a deduction for home office expenses; and
travel from home to sites far away from both the taxpayer’s home and the
employer’s office.
[38]
On the basis of my
reading of the aforementioned cases and taking into account the purpose test
used in paragraph 8(1)(f) to determine the deductibility of employment
expenses incurred by a commissioned salesperson, I conclude that the appellant
will be entitled to deduct his travel expenses if the evidence shows the
following:
(a) The appellant was
required to maintain a home office by the terms of his employment. Is it
accepted in the case law that this may be implied by the circumstances of the employment.
(b) The appellant’s home
office was his primary place of employment.
(c) The travel expenses
were incurred for travel between the appellant’s primary place of employment and
his customer’s offices.
(d) The allowance received
by the appellant from IBM was insufficient to cover his actual eligible travel
expenses.
[39]
The evidence on whether
or not the appellant was required to maintain a home office is mixed. For
example, the statement in the appellant’s T2200 form that he was required to
maintain a home office was contradicted by the testimony of Mr. Gilchrist.
[40]
I found the appellant
to be more credible on this point than Mr. Gilchrist. Mr. Gilchrist
was unable to provide a coherent explanation as to why he declared that the appellant
was required to maintain a home office on the form that he signed. His
suggestion that the appellant was not strictly required to maintain a home
office left me with the impression that IBM’s strategy was to maximize its
office cost savings while minimizing the offsetting travel allowance it pays to
its “mobile employees”. I assume that if Mr. Gilchrist admitted that a
home office was required in order for the “mobile employees” to fulfil their
duties, IBM’s “mobile employees” might be prompted to question the fairness and
adequacy of IBM’s travel allowance policy as it applies to “mobile employees”.
[41]
The following facts buttress
the appellant’s claim:
(a) The appellant had no
permanent office space at IBM.
(b) The evidence shows
that the appellant spent approximately 40% of his time working from his home
office.
(c) A significant part of
the appellant’s employment duties away from his home office were performed at
client sites rather than on IBM premises. (For example, the appellant testified
that he attended at the Bank of Nova Scotia’s 2201 Eglinton Avenue East
location every business day, but that he did not attend at an IBM location
every business day.)
[42]
The following facts drawn
from the evidence point toward the opposite conclusion:
(a) The appellant’s home
office was located in his living room and he considered that this barred him
from claiming a home office expense deduction.
(b) The appellant’s
contract did not explicitly require him to maintain a home office.
[43]
Considering the
evidence as a whole, I am satisfied that the appellant has established on a
balance of probabilities the facts enumerated in paragraph 37 above that
must be proved in order for him to be able to deduct the claimed travel
expenses under paragraph 8(1)(f).
[44]
The rest of the
testimony suggests that the computer equipment expenses were not incurred for
the purpose of earning employment income as required under paragraph 8(1)(f).
The appellant testified that the purpose of the computer equipment was to back
up his primary IBM laptop. However, the expense of maintaining a backup system
was not one that the appellant was contractually required to incur. IBM already
had a backup system in place, and Mr. Gilchrist’s testimony suggests that IBM
would not have encouraged the use of a backup system other than the one
provided through connection to IBM’s servers. In addition, IBM would have paid
for or provided a replacement laptop battery had one been necessary for the
appellant’s primary laptop.
[45]
The meal expenses
claimed by the appellant are not deductible under subsection 8(4) of the ITA,
since the appellant was not away performing his work for more than 12 hours
at a time. Neither are they deductible under paragraph 8(1)(f) since the
appellant was not contractually required to pay for meals that were consumed in
the course of developing his relationships with IBM clients.
[46]
The parking and postage
expenses are not deductible since it has been held in the case law that
employees are not contractually required to incur expenses that they would have
been able to claim reimbursement for from an employer. The
appellant admitted that he merely omitted to submit the receipts relating to
the parking and postage expenses to IBM for reimbursement.
[47]
In order to deduct the
expenses claimed for car rental, computer services, and office supplies (other
than computer equipment), the appellant would have had to incur those expenses
for the purpose of earning employment income and would have had to be required
by contract to incur the expenses himself, without reimbursement by IBM.
[48]
The Minister assumed
that all of the other expenses were personal, and not incurred for the purpose
of earning employment income. I conclude that the appellant simply did not meet
his onus of justifying the deduction of those expenses.
Conclusion
[49]
The appellant’s motor
vehicle expenses are deductible under paragraph 8(1)(f) of the ITA.
The remaining expenses are not deductible. Where there may have been a clear
employment purpose for those expenses, the evidence shows that the appellant
could have sought reimbursement from his employer. Therefore, the appellant was
not obligated to incur those expenses as is required for the purpose of
deductibility.
Signed at Calgary, Alberta, this 28th day of February 2013.
“Robert J. Hogan”
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