Alain H. Ain v. Minister of National Revenue, [1986] 2 CTC 2024, 86 DTC 1495

Brulé, T.C.J.:—[ORALLY]: This is an appeal against reassessments of income tax for the 1981, 1982 and 1983 taxation years in which the Minister of National Revenue disallowed automobile expenses as deductions from income, being $2,565.29 in 1981, $1,299.42 in 1982 and $3,712.64 in 1983.

The appellant was employed as a full-time Assistant Crown Attorney in and for the United Counties of Stormont, Dundas and Glengarry and as a part of his duties was required to travel to the courts in these areas from his principal office in Cornwall.

Evidence was offered that at the time the appellant was employed, the application form he completed showed he possessed a driver's licence and had the use of a car. Further, it was indicated that the appellant probably would not have been recommended for hire if he did not have the use of a car. Once having been hired there was no evidence that he could be dis- missed if he ceased to have a car but there was an implication that this might happen.

In the use of his car the appellant was subject to the provisions of the Ontario Manual of Administration which inter alia, allows for the reimbursement of reasonable expenses for employees using personal vehicles, including certain fixed rates based on kilometres driven. The Manual of Administration for the Ministry of the Attorney General is virtually identical as to the use of personal vehicles and the compensation rates for kilometres driven. Paragraph 12 of the Conditions of Employment of the Ministry of the Attorney General reads in part:

If you are required to travel in the course of your duties you are permitted to claim travelling or mileage allowances in accordance with the rules on travelling expenses as established by the Management Board.

This was done each year by the appellant who recorded his distance travelled and then from this a T2200 form was prepared by the Ministry as a basis of verifying these distances and the amount paid as an allowance for the travel. The form did not indicate that the appellant must pay expenses over the allowance.

The question then arises, "When the Appellant had expenses over and above the compensation granted by the Province and had to personally bear these costs, could he deduct these from other income for taxation purposes?"

In order to deduct these expenses the appellant must bring himself within the provisions of paragraph 8(1 )(h) of the Income Tax Act. Subparagraphs (i) and (iii) of paragraph 8(1 )(h) present no problems for the appellant but subparagraph (ii) does. It reads as follows:

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) where the taxpayer, in the year,

(iii) under the contract of employment was required to pay the travelling expenses incurred by him in the performance of the duties of his office or employment, and . . .

The appellant argued that the use of his car was essential to his work and that the terms of his employment bring him within the provisions of the Income Tax Act. He said that his case was distinguishable from the appellants in the cases of Henry Cival v. The Queen, [1983] C.T.C. 153; 83 D.T.C. 5168 and Linda Denson v. M.N.R., [1985] 2 C.T.C. 2249; 85 D.T.C. 585.

Further he pointed out that his position was similar to that of the appellant in Aron Rozen v. The Queen, [1986] 1 C.T.C. 50; 85 D.T.C. 5611 who was allowed a deduction for income tax purposes of expenses under para- graph 8(1)(h).

Counsel for the Minister stressed the fact that the Government of Ontario had set conditions of employment in its various statutes and manuals pertaining to the appellant and that nowhere in these is there a condition that the employee must pay any expenses for using his car over and above those allowed by the Manuals of Administration.

In the absence of such a requirement by the appellant to pay these expenses, the Minister's counsel maintained such were not deductible from other income. As support for this he referred to the Cival and Denson cases (supra) and distinguished the Rozen case (supra) which, it was pointed out, is under appeal. In the Rozen case the court found there was an implied term in Rozen's employment that he pay his own expenses whereas in the present case there is no such condition and there is a provision for reimbursement.

Reference was also made to the case of Nicholas J. Slawson v. M.N.R., [1985] 1 C.T.C. 2075; 85 D.T.C. 63 which involved a commissioned salesman claiming expenses incurred in connection with his employment against other income. Sarchuk, T.C.J., said at 2077 (D.T.C. 64):

While the appellant may have been expected to do many of the things which led to his incurring these expenses, I cannot find on the evidence before me that he was required by his contract of employment to do so. It was suggested that failure to perform these functions and to bear the costs incidental thereto could have led to termination of his employment by either of the employers. The evidence, in my view, falls short of establishing this assertion. I cannot equate the expectations of the employer, as described by both the appellant and by Mr. Morgan to a contractual requirement imposed upon the appellant, breach of which would have given a cause of action to the employer against him.

This is the test the Minister's counsel said is all-important and was also set out in the Cival case by the Federal Court of Appeal and more particularly by Mr. Justice Ryan at page 158 (D.T.C. 5171) of that decision.

I would like to turn to the law as applied to these particular facts. First of all let me point out that taxing statutes must be strictly interpreted and as this applies to deduction sections I make reference to Yarmouth Industrial Leasing Limited v. The Queen, [1985] 2 C.T.C. 67; 85 D.T.C. 5401 where Mr. Justice Walsh said at 73-74 (D.T.C. 5405):

. . . it is constantly held that a deduction section must be strictly construed against the taxpayer, (see for example in this connection the case of Lumbers v. M.N.R., [1943] EX. C.R. 202; [1943] C.T.C. 281).

To qualify, the appellant would have to bring himself within the provisions of subparagraph 8(1 )(h)(ii). He believed that he and his employer were ad idem as to his expenses. I believe there was agreement that he should use his car but this is quite different from being required to pay the expenses involved. The appellant signed a Condition of Employment Agreement, referred to before, but this only makes mention of reimbursement of expenses as established by the Management Board.

Reference was also made to the fact that "equity must prevail" but it should be pointed out that equitable principles do not have a place in taxing statutes. While the quantum of the expenses claimed by the appellant was not in dispute, a brief analysis of these reveals that in the 1981 and 1982 years the amounts paid to him were more than sufficient to pay all the operating expenses of his automobile. It was the claim for capital cost allowance and the interest cost on a purchase loan which caused the excess expense over the government allowance. In 1983 the operating and maintenance costs far exceeded the allowance. It is to be noted that as a condition precedent to claiming capital cost allowance and interest on borrowed money used to acquire an automobile that the person involved be entitled to deduct expenses under paragraphs 8(1 )(f) or (h) of the Income Tax Act, in this case paragraph 8(1)(h).

The important point is not that the appellant was required to use his car but that there was no verifiable obligation that he was required to pay his expenses over and above the government allowance. This is a necessary condition to satisfy the provisions of subparagraph 8(1)(h)(ii) and, because it has not been shown to be present in this case, the appeal fails and is hereby dismissed.

Appeal dismissed.