Eva Emily Carter v. Her Majesty the Queen (Informal Procedure), [1994] 1 CTC 2330, 95 DTC 303

Mogan, J.T.C.C. (orally):—The appellant is an elementary school teacher employed by the York Region Board of Education just north of the City of Toronto. She was a classroom teacher from 1970 to 1988. In June 1988, upon her application, she was permitted to change the assignment of her teaching time from a classroom in the Yorkhill School to a primary school consultant. The new appointment was for a five-year term commencing in September 1988. As a consultant, her basic place of employment was the Jefferson School (used as an administrative building) although most days she was out working in other schools. The York Region Board paid to the appellant an amount each month as reimbursement for automobile expenses incurred in the performance of her consulting duties, and the amount was computed according to a rate per kilometre. The amount was not included in her income because it was regarded as a reimbursement.

In computing her income for 1988, 1989 and 1990, the appellant deducted certain amounts claimed as expenses of operating her automobile in connection with her employment at the York Region Board. She also deducted certain amounts as losses resulting from a consulting business which she claimed to have operated in 1988, 1989 and 1990. Upon assessment, the Minister of National Revenue disallowed the deduction of the automobile expenses and the losses. The issues in this appeal are whether the amounts claimed as automobile expenses and business losses are deductible. The appellant has elected the informal procedure.

When the appellant changed her employment duties from classroom teacher to primary school consultant in 1988, she was told that she would need an automobile to travel to the different schools in the York region and that she should submit an expense report at the end of each month showing the number of kilometres travelled in connection with her work. She kept a log of the distance travelled each day and subtracted therefrom the round-trip distance from her home to the Jefferson School which was designated by the York Region Board as her consultant's office. On many days, she would not attend at the Jefferson School because she found it crowded (it serviced about 60 consultants); she did not have much room there; and she would be out assisting at other schools in the Region. She did have to attend at the Jefferson School to pick up messages and learn which schools needed her help.

On some days, the distance actually travelled visiting schools close to the appellant’s home was less than the round-trip distance from her home to the Jefferson School and, for those days, she would claim no travel expenses. When she became a consultant, it appears that someone at the York Region Board told her (correctly or incorrectly) that she would be able to deduct in computing income part of the cost of owning and operating her automobile. For whatever reason, she genuinely believed that she was entitled to certain deductions. When filing her income tax returns for 1988, 1989 and 1990, she deducted automobile expenses in the amounts set out in the table below. Within that same table, there is also set out the reimbursements which she received from her employer with respect to the use of her car when travelling to different schools in connection with her consulting duties.

When deducting the above auto expenses, the appellant did not claim to fall within a particular section of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") but, as an employee, her relief (if any) must be under section 8. In my view, the provision which could apply to her is paragraph 8(1 )(h.1 ) which states:

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 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 employment, except where the taxpayer

(iii) received an allowance for motor vehicle expenses that was, by reason of paragraph 6(1)(b), not included in computing the taxpayer’s income for the year, Or. . . .

Subparagraph 8(1 )(h.1 )(iii) requires me to consider subparagraph 6(1 )(b)(vii.1 ) which states:

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 him in the year as an allowance for personal or living expenses or as an allowance for any other purpose, except

(vii.1) allowances, (not in excess of reasonable amounts) for the use of a motor vehicle received by an employee (other than an employee employed in connection with the selling of property or negotiating of contracts for his employer) from his employer for travelling in the performance of the duties of his office or employment. . . .

Subparagraph 6(1 )(b)(vii.1 ) raises the question whether the appellant received from her employer reasonable allowances “for the use of a motor vehicle". There was entered as Exhibit R-4 a number of documents from the York Region Board of Education including a statement of Board Policy No. 145 dated July 11, 1983. I will set it out in its entirety.

POLICY No. 145

MILEAGE ALLOWANCE TO STAFF, TRUSTEES AND NON-TRUSTEE MEMBERS OF STATUTORY COMMITTEES

The Board will reimburse staff, trustees, and non-trustee members appointed to Statutory Committees of the Board, for mileage travelled between schools and on Board or committee business.

The rate shall be the existing rate established by the Province of Ontario for Provincial Government Employees in Southern Ontario.

Another document in Exhibit R-4 was a statement of Board Procedures No. P162 which stated in part:

ROUTINE EXPENSES FOR STAFF AND METHOD OF CLAIMING PAYMENT 1. Travel costs claimed shall include the actual kilometres travelled in the individual's personal vehicle while on Board business. The following method of calculating costs shall apply:

(a) Claim total kilometres from home to work location including any stop-off points on the way and deduct the kilometres from home to normal work location.

(b) If the normal home-to-work distance is the same or greater, make no claim.

(c) In situations where the staff member is away from the normal work location for the full day, claim only the kilometres in excess of the return distance from home to work location.

Having regard to Policy No. 145, I note the words: "The Board will reimburse .. .", and the reference to the word "rate" as established by the Province of Ontario. From Policy No. 145, I conclude that the intention of the York Region Board was to reimburse each employee for mileage travelled using a mileage rate established by the Province of Ontario on the assumption that it would oe reasonable and consistent with the rate at which employees of other public organizations were reimbursed. Therefore, I find that the appellant did receive from her employer in the years under appeal reasonable allowances "for the use of a motor vehicle” within the meaning of subparagraph 6(1 )(b)(vii. 1 ); and that such allowances were not included in computing her income by reason of paragraph 6(1 )(b). These findings bring me back to the provisions of subparagraph 8(1 )(h.1 )(iii) which permits the deduction of amounts expended for motor vehicle expenses "incurred for travelling in the course of employment, except where the taxpayer received an allowance . . . that was, by reason of paragraph 6(1 )(b)" not included in income.

In plain language, the appellant received from her employer a reasonable allowance to reimburse her for the use of her automobile in connection with her employment duties. She was not required to include that allowance in the computation of her income by reason of paragraph 6(1 )(b). Therefore, she was not permitted to deduct under paragraph 8(1)(h.1) any amounts expended for automobile expenses incurred for travelling in the course of employment. The theory of the legislation (paragraph 8(1)(h.1) and paragraph 6(1 )(b)) appears to be that an employee who receives a reasonable allowance from the employer as reimbursement for the use of an automobile in connection with employment duties, and who is not required to include that allowance in income, may not deduct any automobile expenses when computing income.

When presenting her appeal, the appellant acted as if she did not understand Procedure No. P162 quoted above. I cannot accept that proposition because the appellant is an intelligent woman and a professionally trained teacher. In October 1993, she wrote to the Superintendent of Business (Mr. Webber) for the York Region Board and his reply of October 25, 1993 was entered as Exhibit A-4. He stated in part:

In an attempt to clarify your position with the Board I will answer the questions that you have asked as follows:

1. I cannot say whether or not we believe our travel reimbursement rates cover the total cost of each employee's car operation because that depends on the quality and cost of the car being used, whereas our reimbursement rates are based on an average cost automobile.

2. The Board’s reimbursement policy does require that employees subtract the

daily return travel distance from home to the employee's home office base.

3. The Board does recognize that consultants often travel to a school first, and not their office, and does require that no travel allowance be paid until the total kilometres travelled exceeds that of their daily home to office travel distance.

Mr. Webber's letter is a rephrasing of Policy No. 162 and 1 do not see any inconsistency between his letter and Policy No. 162. For this reason, I am puzzled by the appellant's position that she does not understand the reimbursement policy of the York Region Board. To me it is quite clear.

The appellant as an employee must satisfy the conditions in paragraph 8(1 )(h.1 ) of the Act if she is to be permitted to deduct automobile expenses when computing income. She cannot satisfy the condition in subparagraph 8(1 )(h.1 )(iii) because she did in fact receive from the York Region Board a motor vehicle reimbursement allowance which was, by reason of paragraph 6(1)(b), not included in computing her income. I find that her claim to deduct automobile expenses is without merit and her appeal on the first issue is dismissed.

I turn now to the second issue concerning whether the appellant may deduct in computing income certain losses which she claims to have suffered in the operation of a business in the taxation years 1988, 1989 and 1990.

When the appellant commenced her new employment duties as a consultant within the York Region Board in the fall of 1988, she expended considerable efforts to become an expert in certain areas connected with elementary school education. She gave workshops on professional development days both within the York Region Board and to certain other Boards. In evidence, she produced letters from a number of the persons who attended her workshops which were very complimentary with respect to the quality of her presentation. She was encouraged to believe that she had a real talent for these areas of expertise in primary schooling. She purchased a computer so that her presentations on overhead projectors would be more effective. There is no doubt that she worked hard in developing presentations which would be stimulating and interesting for those persons in attendance. Exhibit A-30 is a series of nine presentations which the appellant prepared herself and delivered at various educational meetings.

Out of all this activity, she concluded that she was operating or could operate a business as a professional consultant in the area of primary school education. When filing her income tax returns for 1988, 1989 and 1990, she attached to each return a document which had the appearance of an income statement from a business showing certain revenues and expenses. The expenses (excluding automobile expenses) were significant as indicated in the following table:

The appellant was so desperate to show some revenue from her consulting business that, in each income statement, she showed as revenue a portion of the salary paid to her by the York Region Board of Education (her full-time employer). For the years 1988, 1989 and 1990, the appellant showed as revenue from the York Region Board the following items:

*Her 1990 income statement actually showed the above total to be $10,600 indicating that mathematics may not be her forte.

It is interesting to note that the appellant herself described the above totals for 1989 and 1990 as "Increase over basic pay" acknowledging that these amounts were part of her employment income from the York Region Board and reported at line 101 of her income tax return. In my opinion, no portion of the amounts paid to the appellant by the York Region Board can reasonably be regarded as revenue from any business she was attempting to commence. Those amounts were either her full-time salary or wages paid for summer projects or a premium for extra qualification.

The appellant also reported the following amounts received from York University "as adjunct professor and guest lecturer":

The appellant was cross-examined in connection with her earnings from York University. Basically, she was a part-time lecturer employed by York University. She became known to certain persons in the education division at York who would contact her from time to time with specific assignments. This led to a course which she taught there in the academic year 1991/92 and again in the academic year of 1992/93 for which she was paid about $10,000 on the basis of one lecture a week for the academic year from September to April. The appellant’s relationship with York University in each year under appeal was really that of a part-time employee. It was casual employment and not full-time because throughout each year she was a full-time employee of the York Region Board of Education. It was, nonetheless, employment: being hired to perform specific duties. I find that any amounts paid to the appellant by York University in the years under appeal were wages for casual employment and were not revenues from any business she was attempting to commence.

The only other item of revenue reported by the appellant in the years under appeal was a fee of $52 for tutoring a student from Laurentian University. This small fee could possibly be characterized as revenue from a business if the appellant were engaged in a business but it would certainly not justify the aggregate (non automobile) expenses of $35,662 claimed for all three years. As stated above, the appellant was desperate to find revenue which might justify the high expenses she was attempting to deduct. In my view, she was over-reaching when she reported as revenue from her purported business all of the salary and wages received from York University and a portion of her salary and wages received from the York Region Board.

The appellant claims that she started a business in the fall of 1988 but, throughout 1988, 1989 and 1990, she earned only employment income. Her alleged business did not have any revenue or any customers or clients but it did accumulate significant expenses. Most of the amounts which she is attempting to deduct as business expenses are only personal costs incurred to increase her qualifications as a teacher, a workshop leader and a part-time lecturer.

The appellant expended considerable personal energy and incurred certain personal costs in connection with her avocation as a teacher. She followed a professional self-improvement policy: taking courses, attending conferences, giving workshops, making presentations to groups of other teachers, teaching courses at York University, and acting as a consultant within her own York Region Board. All that activity, however, did not cause her to be the owner and operator of a business or other commercial enterprise. She remained an employed teacher throughout the relevant period. The appellant's self-improvement policy did in fact help to earn more income but that additional income was from employment and not from business. At the time of hearing this appeal in November 1993, the appellant had returned to her original employment as a classroom teacher in a primary school operated by the York Region Board. I find that the appellant was not engaged in any business at all in the years 1988, 1989 and 1990.

Alternatively, if I were obliged to conclude on the evidence that the appellant was engaged in some kind of business during the years under appeal, I would apply the tests in Moldowan v. The Queen, [1977] 1 S.C.R. 480, [1977] C.T.C. 310, 77 D.T.C. 5213 at pages 485-86 (C.T.C. 313-14, D.T.C. 5215) and find that there was no reasonable expectation of profit from the business within the relevant period. The expenses in the three years were $8,161, $12,780 and $14,721 respectively contrasted with no revenue at all. The appeal on the second issue concerning alleged business losses is dismissed.

In a "Reference Summary” submitted to the Court in support of the appellant’s argument, the following request is stated:

6. Due to E. Carter’s conduct and Revenue Canada's conduct, along with a substantial passage of time, in the event the Tax Court of Canada rules against E. Carter on any of the issues, the taxpayer asks that the Court waive any interest which has accrued.

Having decided to dismiss the appeals for 1988, 1989 and 1990, I have no jurisdiction to waive any interest which may have been assessed with respect to unpaid taxes. Nor am I inclined to recommend the waiver of any interest under the so-called "fairness package". I have no evidence of any equities running in the appellant’s favour. Her decision to purchase a new car in August 1988 at a cost of $22,475 was a personal decision just as much as her request to transfer from being a classroom teacher to being a roving consultant. I note that capital cost allowance represents more than one-third of the automobile expenses claimed in each year. If she expected (mistakenly as it turns Out) to write off for income tax purposes a portion of the cost of that car and a portion of its operating expenses, that is not the fault of Revenue Canada. Also, she claimed non automobile expenses which in my view were excessive having regard to the fact that she had no clients, no customers and no business revenue in the years under appeal. And lastly, her decision to show a portion of her income from the York Region Board as business revenue was perhaps deceptive or at least misleading. The appeals herein are dismissed.

Appeals dismissed.