REASONS
FOR JUDGMENT
Graham J.
[1]
In 2010, 2011 and 2012, Hirut Meberatu was
employed as a personal support worker. When she filed her tax returns for those
years, Ms. Meberatu deducted various expenses from her employment income. The
Minister of National Revenue denied the deduction of some of those expenses. Ms.
Meberatu appealed the denial of a number of expenses but, at trial, chose to
limit her appeal to expenses relating to the operation of a motor vehicle and
the use of a cell phone.
[2]
The sole issue in this appeal is whether those
denied expenses should be allowed or not.
Motor Vehicle Expenses
[3]
I will deal first with Ms. Meberatu’s claim for
motor vehicle expenses. Ms. Meberatu deducted $6,069.95, $5,986.59 and $6,041.07
in motor vehicle expenses in her 2010, 2011 and 2012 tax years respectively.
[4]
Ms. Meberatu worked for a company called Prohome
Health Services in 2010 and 2011. Prohome was purchased by We Care Health
Services LP in 2012 and Ms. Meberatu continued working for We Care. In 2012,
Ms. Meberatu also worked for an employer named S.R.T. Med-Staff.
[5]
I accept that Ms. Meberatu was required to use
her personal car when working for her employers. She testified that her
employment required her to visit clients at their homes. She explained that she
would leave her home each morning, drive directly to a client’s home, and then
move on from there to visit additional clients before finally returning to her
own home at the end of the day. She testified that she only drove to her
employers’ places of business about once a month.
[6]
Ms. Meberatu explained that Prohome / We Care
paid her a motor vehicle allowance of $0.20 / km and that S.R.T. Med-Staff did
not pay her a motor vehicle allowance.
[7]
I will deal with Ms. Meberatu’s motor vehicle
expenses in respect of each employer separately.
Prohome / We Care
[8]
Paragraph 8(1)(h.1) of the Income Tax
Act specifically prevents an employee from deducting motor vehicle expenses
if the employee has received an allowance in respect of those expenses and that
allowance has not been included in the employee’s income.
[9]
The Minister made an assumption of fact that Ms.
Meberatu did not include the allowance in her income. I find that Ms. Meberatu
has failed to demolish that assumption. Ms. Meberatu testified that the motor
vehicle allowance that she received from Prohome / We Care was included in her
income. For the reasons set out in more detail below, I did not find Ms. Meberatu
to be a reliable witness. I am not prepared to rely on her oral testimony on
this point without further support. Ms. Meberatu did not provide copies of her
T4s from Prohome / We Care nor did she call anyone from Prohome / We Care to
testify on her behalf. Accordingly, I find that the allowance was not included
in Ms. Meberatu’s income.
[10]
Subparagraph 6(1)(b)(vii.1) requires an
employee to include a motor vehicle allowance that is not reasonable in income.
Ms. Meberatu’s agent argued that the allowance that Ms. Meberatu received was
not a reasonable allowance. He therefore reasoned that, if I found that the allowance
had not already been included in Ms. Meberatu’s income, I should find that,
because it was unreasonable, it should have been included in her income under
subparagraph 6(1)(b)(vii.1) and thus that paragraph 8(1)(h.1)
should not prevent Ms. Meberatu from deducting her motor vehicle expenses to
the extent that they exceeded the allowance.
[11]
Ms. Meberatu’s agent argued that the allowance
Ms. Meberatu received was not reasonable because it was considerably lower than
the rates that the Minister accepts as reasonable. He referred to regulation
7306 of the Income Tax Regulations as evidence that the Minister
considered $0.53 / km for the first 5,000 km and $0.47 / km thereafter to be a
reasonable rate in 2012. While I accept that the allowance paid to Ms. Meberatu
was lower than what the Minister would consider to be a reasonable allowance,
in the circumstances, there is no evidence upon which I could conclude that the
allowance paid to Ms. Meberatu was unreasonable.
[12]
A document prepared by Prohome / We Care was
entered into evidence. It indicates that Ms. Meberatu was reimbursed for
driving 5,655 km, 6,446 km and 4,891 km for employment purposes in 2010, 2011
and 2012 respectively. By contrast, when she filed her tax returns for those
years, Ms. Meberatu claimed to have driven 22,950 km, 22,950 km and 22,500 km for
employment purposes. Her only explanation for these very large discrepancies is
that she drove a less direct route from each client’s home to the next client’s
home than the route used by her employer to calculate her mileage. This
explanation is highly improbable. I do not accept it. I find it extremely
unlikely that Ms. Meberatu drove an average of four times the distance that
Prohome / We Care calculated was necessary. I find that the figures used by
Prohome / We Care are more reliable and conclude that those figures are the
number of kilometers that Ms. Meberatu drove when working for Prohome / We Care.
[13]
Ms. Meberatu’s tax returns indicate that her
vehicle was driven 25,500 km, 25,500 km and 25,000 km in total in 2010, 2011
and 2012 respectively. Ms. Meberatu’s tax returns set out the total
operating expenses for the vehicle for each year. As described in more detail
below, I am not convinced that the vehicle expenses reported by Ms. Meberatu were
accurate. However, if I were to assume that those expenses were accurate and
that the total mileage that she reported on her return for the vehicle for each
year was correct, Ms. Meberatu would have incurred expenses of approximately
$0.26 for each kilometer that her vehicle was driven each year. Her employer reimbursed her
$0.20 / kilometer. In the circumstances, given that I am unsure what Ms.
Meberatu’s actual expenses were, I find that an allowance that covers
approximately 76% of what Ms. Meberatu claims were her actual expenses is
not an unreasonable allowance.
[14]
Even if I had found that the motor vehicle
allowance that Ms. Meberatu received was unreasonable, I am not satisfied that
she incurred motor vehicle expenses for employment purposes in an amount that
exceeded the allowance she received. I reach this conclusion for a number of
reasons:
a) Ms. Meberatu based her claims on her assertion that the vehicle was
used 90% for business purposes. I do not accept this allocation for three
reasons.
i.
First, as set out above, I find the mileage
recorded by Prohome / We Care to be more reliable than the mileage stated by
Ms. Meberatu in her returns.
ii.
Second, Ms. Meberatu’s explanation of her employment
usage of her car has significantly expanded over time. In a letter to the
Minister in February 2016, she described herself as travelling to visit three
or four clients per day. In a second letter, written one month later, she
described herself as travelling to visit an average of six clients per day. Ms.
Meberatu repeated this figure in her Notice of Appeal. On direct examination,
she testified that she visited nine or ten clients per day. When these
discrepancies were put to her on cross-examination, she stated that she saw six
to ten clients per day. This wide variation in her story causes me to question
her reliability as a witness.
iii.
Finally, the vehicle that Ms. Meberatu used for
employment purposes was her family’s only car. Ms. Meberatu’s husband is a taxi
driver, so I accept that he would not have used the vehicle for work purposes.
However, there would clearly have been a need for personal use of the vehicle
by either Ms. Meberatu or her husband for household and social purposes.
Furthermore, in the years in question, Ms. Meberatu had two children who were 13
years old or less. Presumably those children would have needed rides to and
from various locations. The employment-related mileage recorded by Prohome / We
Care is much more consistent with the use of the vehicle by Ms. Meberatu during
the day and by the family at night and on weekends than is the 90% employment
use claim put forward by Ms. Meberatu in her tax return.
b) Ms. Meberatu claimed amounts in respect of car washes and repairs
and maintenance on her vehicle but did not provide any explanation of how those
amounts were calculated or any documents supporting them.
c) Ms. Meberatu claimed capital cost allowance in respect of her
vehicle but did not provide any evidence to support how that amount was
determined.
d) Ms. Meberatu did not have copies of her receipts for her gas
purchases. Instead, she entered reproductions of her bank statements into
evidence. Those bank statements showed payments to gas stations. Ms. Meberatu
also entered copies of her gas receipts for more recent tax years into evidence.
A review of those gas receipts indicates that Ms. Meberatu regularly purchases
lottery tickets at the same time that she purchases gas. Both purchases appear
on the same receipts.
On the assumption that this same pattern was present in the years in question,
it is difficult to rely on the amounts shown on Ms. Meberatu’s bank statements
as payments to gas stations as being an accurate representation of her gas
expenses.
[15]
Even if I were to find that the allowances were
unreasonable and that Ms. Meberatu incurred motor vehicle expenses in
excess of those allowances, I would still not have allowed the deduction of the
motor vehicle expenses relating to Ms. Meberatu’s employment with Prohome / We
Care in 2010 and 2011. Pursuant to subsection 8(10) of the Income Tax Act,
an employee is only entitled to deduct motor vehicle expenses if the employee
has obtained a signed T2200 form from his or her employer certifying that the
conditions necessary for claiming those expenses have been met. The form must
have been in the employee’s possession when he or she filed his or her return (Leith
v. The Queen).
Two different versions of the Prohome / We Care T2200s were entered into
evidence. There were significant differences between the versions. One version
refers to a motor vehicle allowance of $0.20 / km being paid each year. That
version was not signed until 2016, well after the returns in question were
filed. The other version neither indicates that a motor vehicle allowance was
paid nor indicates that Ms. Meberatu was required to incur motor vehicle
expenses. The copies of this alternative version for 2010 and 2011 are undated.
No one from Prohome / We Care was called to testify to explain the
discrepancies between the two versions of the T2200s or to confirm when the
undated forms were signed. I am not prepared to rely on Ms. Meberatu’s
statement that the alternative versions of the forms were signed and given to
her before she filed her 2010 and 2011 tax returns.
[16]
Based on all of the above, I am not prepared to
allow Ms. Meberatu any deductions in respect of her motor vehicle expenses for
her work with Prohome / We Care. I find that she received a reasonable
allowance and that that allowance was not included in her income.
S.R.T. Med-Staff
[17]
As indicated above, Ms. Meberatu also worked for
S.R.T. Med-Staff in 2012. A T2200 form for that employer was entered into
evidence. It was signed prior to the date when Ms. Meberatu filed her 2012 tax
return. This employer did not pay Ms. Meberatu a motor vehicle allowance. I
have no evidence to show how many kilometers Ms. Meberatu drove for this
employer but I accept that she must have done some work-related driving. Ms.
Meberatu’s employment income increased by approximately 29% from 2011 to 2012.
Based on the evidence before me, I am prepared to accept that Ms. Meberatu
drove her car an additional 1,420 km when working for this second employer (being
29% of the kilometers that I have accepted were driven by Ms. Meberatu in 2012
for Prohome / We Care). Applying what I have found to be the reasonable $0.20 /
km rate used by Prohome / We Care to that additional mileage indicates that
Ms. Meberatu would have incurred $284 in motor vehicle expenses relating
to her employment with S.R.T. Med-Staff. In the circumstances, I am prepared to
allow Ms. Meberatu a deduction for that amount. Given the uncertainty that I
have concerning the expenses that she incurred, I feel this is a fair, if not
generous, allocation.
Cell Phone Expenses
[18]
Ms. Meberatu claimed cell phone expenses of $877.22,
$903.21 and $917.54 in 2010, 2011 and 2012 respectively. I accept that Ms.
Meberatu used her cell phone to contact clients before arriving at their homes,
to notify clients if she was going to be late, and to report to her employers.
I also accept that her employers required her to have a cell phone for this
purpose and did not reimburse her for the costs of that phone. Based on the
foregoing, I conclude that Ms. Meberatu is entitled to a deduction for cell
phone expenses in each year.
[19]
That said, Ms. Meberatu did not enter any cell
phone bills into evidence. She relied on payments to cell phone companies shown
on her bank statements as proof of these expenses. Given what appears to have
been a gross exaggeration of her employment use of her vehicle on her tax
returns, I am not prepared to simply accept that the declaration of her
employment-related cell phone use that she made when filing her tax returns is
accurate. Given her variable explanations of the number of clients that she
visited each day, I do not have a reliable indication of the number of calls
that she made each day. Ms. Meberatu did not provide any evidence as to the
amount of personal use that she made of her cell phone. Given the size of her
monthly cell phone bills, I would expect that they included charges for data
usage. Ms. Meberatu did not provide any examples of how she would have used
data in the course of her employment.
[20]
In the circumstances, I have two choices. I can
either not allow Ms. Meberatu any cell phone expenses on the basis that
she has not proven that she incurred those expenses or I can acknowledge that
she must have incurred some cell phone expenses and make a conservative
estimate of those expenses. The second option seems more equitable. I will
accordingly allow Ms. Meberatu $120 per year in cell phone expenses, being $10
per month. This amount is a conservative estimate of Ms. Meberatu’s actual
costs. I am not prepared to reward her failure to produce documents and provide
a reliable breakdown of her employment-related cell phone use by using a middle
or high estimate. If Ms. Meberatu wanted her income to be determined
accurately, she should have provided a means for me to do so.
Conclusion
[21]
Based on all of the foregoing, the appeal is
allowed and the matter referred back to the Minister of National Revenue for
reassessment on the basis that Ms. Meberatu was entitled to additional
employment expenses of $120 in each of her 2010 and 2011 tax years and
additional employment expenses of $404 in her 2012 tax year.
[22]
Given the mixed success of the parties, no costs
are awarded.
Signed at Ottawa,
Canada, this 20th day of October 2017.
“David E. Graham”
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