Her Majesty the Queen v. Jack !. Salter, [1985] 2 CTC 338, 85 DTC 5525

Muldoon, J:—Because of the marked similarity of the facts in this case with those of The Queen v William H Eggert,T-46-83, the two cases were tried together at Toronto, on September 25, 1985.

The issue involved is whether an invariable allowance of $70 per month, amounting to $840 per year, paid to each taxpayer by the same employer, the County of Wellington in Ontario, ought to have been included in the computation of income for the 1977 and 1978 taxation years.

The conclusion of the Court is that of the allowance of $840 paid for each of the 1977 and 1978 taxation years, $823.20 ought indeed to have been included in the computation of the taxpayer’s income.

Counsel on each side have most commendably and helpfully prepared an agreed statement of facts in each case. In each case the statement of facts is identical with that of the other case, except for paragraphs 6 and 7 which set out the individual actual mileage payments received by the respective taxpayers. At the urging of the Court, paragraph 3 of the respective statements of facts was amended by agreement of each of the parties’ counsel, in order to obviate a latent ambiguity. The amendment is indicated in the text.

The simplest and most accurate finding of facts is to recite directly the agreed statement provided to the Court in the jointly prepared trial book. In the case at bar it runs thus:

AGREED STATEMENT OF FACTS

The parties, for the purpose of the trial of this action, agree to the following facts:

1. The Defendant, in the 1977 and 1978 taxation years, was employed by the County of Wellington as Assistant to the County Engineer.

2. The Defendant's duties for the County of Wellington required him to travel to various construction sites on county roads within the County of Wellington.

3. It was a condition of the Defendant’s employment with the County that he was required to provide an automobile to be available for use on a daily basis to travel to the various construction sites.

4. The Defendant spent the majority of his working days travelling outside of his office. The number of days spent travelling varied by season. In the lowest month he would be travelling 50% of the working days, while in the summer months he would be travelling close to 100% of the working days.

5. During the 1977 and 1978 taxation years, the Defendant received two types of payments from the County of Wellington with respect to the use of his automobile in his employment. One type of payment was computed and payable to the Defendant at the rate of 18 cents per mile travelled by the Defendant in the course of his employment (“the mileage payments”). The other type of payment was computed and paid to the Defendant at the rate of 70 dollars per month (“the monthly payment”). The Defendant received both types of payments throughout 1977 and 1978.

6. During the 1977 taxation year, the Defendant received the amount of $840.00 in monthly payments. The Defendant also received the amount of $2,337.48 in mileage payments for 12,986 miles travelled in the course of his employment.

7. During the 1978 taxation year, the Defendant received the amount of $840.00 in monthly payments. The Defendant also received the amount of $2,524.14 in mileage payments for 14,023 miles travelled in the course of employment.

8. In order to receive the mileage payments, the Defendant kept a daily diary of the mileage travelled in the course of his employment which was transferred to a monthly expense account sheet and submitted to the County Engineer for verification.

9. The Defendant received the monthly payment of $70.00 dollars per month regardless of the number of miles driven in any month and regardless of the time actually spent by the Defendant travelling away from the City of Guelph. The Defendant was not required to account to the County of Wellington as to how the $70.00 monthly payment was spent.

10. The monthly payment was not computed by reference to time actually spent by the Defendant travelling away from the City of Guelph, where the employer’s establishment at which the Defendant ordinarily made his reports was located.

11. During the 1977 and 1978 taxation years some other employees of the County of Wellington, who did not travel very much in the course of their employment, received payments for travelling at the rate of 23 cents per mile, but did not receive the monthly payment.

12. The Defendant, in filing his returns of income for the 1977 and 1978 taxation years, did not include either the mileage payments or the monthly payments in the computation of his income.

13. The Minister of National Revenue reassessed the taxes payable by the Defendant for the 1977 and 1978 taxation years including the monthly payments (but not the mileage payments) in the computation of income.

14. The Defendant appealed the reassessments of tax to the Tax Review Board, which allowed the appeal.

The statutory provisions upon which the parties' respective counsel concentrated virtually exclusively are subparagraphs 6(1)(b)(v) and (vii) of the Income Tax Act. Those provisions run as follows:

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

(v) reasonable allowances for travelling expenses received by an employee from his employer in respect of a period when he was employed in connection with the selling of property or negotiating of contracts for his employer.

(vii) allowances (not in excess of reasonable amounts) for travelling expenses 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 if they were computed by reference to time actually spent by the employee travelling away from

(A) the municipality where the employer’s establishment at which the employee ordinarily worked or to which he ordinarily made his reports was located, and

(B) the metropolitan area, if there is one, where that establishment was located,

in the performance of the duties of his office or employment.

On behalf of both this taxpayer and the other, their counsel argued that the payment of $840 per annum was a pre-eminently reasonable allowance. That may be so. There is no evidence, in the jointly filed transcript from the Tax Review Board, to suggest that it was an unreasonable allowance. There is no evidence, equally, to establish that the allowance was reasonable although, in regard to the annual expense of operating a motor vehicle competent for the taxpayer’s demonstrated requirements, a reasonable inference might well be drawn in the taxpayer’s favour. But contrary to counsel's submission, a finding that the payment was a reasonable allowance, does not conclude the matter. Even a reasonable allowance, so found must comply with the added conditions expressed in the cited subparagraphs (v) and (vii) of paragraph 6(1)(b) of the Income Tax Act.

According to the evidence revealed by the transcript in this case, jointly filed by the parties, land acquisition was part of this taxpayer’s duties. He mentioned this in passing in examination-in-chief. (Transcript: p 6) Almost as if to accord the taxpayer an opening to introduce better evidence, if such there were, counsel for the Minister cross-examined deliberately, if not incautiously, at the Board's hearing. But the taxpayer doggedly, and most credibly, would not claim more than two per cent of his time to have been spent in land acquisitions. (Transcript: p 16) That evidence is specific and credible: it is cogent. It sufficiently establishes that, to that extent, he was employed in connection with negotiating of contracts for the County of Wellington. Therefore whatever else may be in issue, it is certain that two per cent of the yearly allowances of $840 did not need to be included in the taxpayer's income for the 1977 and 1978 taxation years, in accordance with subparagraph 6(1)(b)(v). For this taxpayer the yearly allowance in issue is $823.20, not $840.

Whether the proportion of working time so dedicated was two per cent, or unspecified, counsel for the taxpayers presented another resourceful argument. He concentrated on the expression,“. . . received by an employee from his employer in respect of a period when he was employed in connection with . . .” in subparagraph 6(1)(b)(v) of the Act. Counsel contended that “period” does not necessarily have to be one discrete time period, it can import the whole taxation year, in a sense as yeast permeates dough, so long as any such selling or negotiating of contracts occurred at any time during the taxation year. The subparagraph might possibly bear such an interpretation if it provided, “. . . in respect of a taxation year during which he was employed for some period in connection with .. The subparagraph does not so provide. The subparagraph, in expressing “a period” means “any period” or “a discrete period” and they may be totalled for the year, but they cannot subsume the year unless the selling and negotiating referred to occupied the taxpayer all day, every day.

The taxpayer's counsel's next argument was, in effect, to except the reference to time actually spent by the employee out of subparagraph 6(1 )(b)(vii). In order to achieve that Parliament would have had to extend the placing of the second terminal parenthesis thus:

(vii) allowances (not in excess of reasonable amounts) for travelling expenses received by an employee (other than an employee employed in connection with the selling of property or negotiating of contracts for his employer [remove parenthesis here] from his employer if they were computed by reference to time actually spent) [re-position here] by the employee travelling away from . . .

That is not how Parliament legislated that subparagraph. The reference to time spent (or one could say, distance travelled as a function of time spent) is not excepted, but rather is an integral qualification of “allowances . . . for travelling expenses received . ..”. Of course the admitted facts (paragraph 10) disclose that “the Defendant received the monthly payment of $70 per month regardless of the number of miles driven in any month and regardless of the time actually spent by the Defendant travelling away from the City of Guelph”. Accordingly, the yearly allowances received by the taxpayer are not those contemplated by subparagraph 6(1)(b)(vii) of the Income Tax Act.

In the parties’ joint book of authorities, 16 reported cases are cited. The fact situation, with applicable statute law, closest to the case at bar is The Queen v Lavers, [1978] CTC 341; 78 DTC 6230, a decision of Mr Justice Dubinsky of this Court. The salient factual difference is that in that case the taxpayer enjoyed and exercised his option to receive mileage plus an invariable allowance, rather than more generous mileage alone. Here the taxpayer had no option. The result is the same despite the factual difference. Employers should realize that they do their employees no favour, in terms of taxable income, by paying an invariable, fixed allowance rather than a reasonable amount, per kilometre travelled, or per hour engaged in travelling duties.

The foregoing are the reasons for which $823.20 of the annual allowances ought to have been included in the taxpayer's income for the 1977 and 1978 taxation years. It cannot be pretended that this legal conclusion is quintes- sentially equitable. However it is trite law that taxing statutes are to be strictly applied and that equity does not come into such application. However, subsection 178(2) of the Act provides:

178. (2) Where, on an appeal by the Minister, other than by way of crossappeal, from a decision of the Tax Court of Canada, the amount of

(a) tax, refund or amount payable under subsection 196(2) (in the case of an assessment of the tax or determination of the refund or the amount payable, as the case may be) that is in controversy does not exceed $10,000, or

(b) loss (in the case of a determination of the loss) that is in controversy does not exceed $20,000,

the Federal Court, in delivering judgment disposing of the appeal, shall order the Minister to pay all reasonable and proper costs of the taxpayer in connection herewith.

As the plaintiff admits, that provision fits the circumstances of this case. Since the taxpayer here shared the services of one counsel with the tax- payer in the companion case, he shall be paid by the Minister one-half only of the costs allowable for counsel's time and appearance at the trial, but full costs for all preceding matters.

Appeal allowed in part.