Jack Salter v. Minister of National Revenue, [1982] CTC 2689, 82 DTC 1702

Guy Tremblay:—This case was heard on April 29, 1982, in the City of London, Ontario.

1. The Point at Issue

The point at issue is whether the appellant, an employee of the County of Wellington, is correct in not including in the computation of his income for the taxation years 1977 and 1978 the allowance of $70 per month received from his employer for travelling expenses.

2. The Burden of Proof

The burden is on the appellant to show that the respondent’s assessments are incorrect. This burden of proof results particularly from several judicial decisions, including the judgment delivered by the Supreme court of Canada in Johnson v MNR, [1948] CTC 195; 3 DTC 1182.

3. The Facts

The facts are not really in dispute.

3.01 The appellant since 1968 has been an employee of the County of Wellington, Ontario.

3.02 During the taxation years 1977 and 1978, he was an assistant to the county engineer. In his testimony, the appellant described his functions as follows:

My job consists of, I am classified as pre-construction and construction and my job consists of preparing for construction and then supervising construction on county roads in the county. Pre-construction consists of arranging for surveys, arranging surveys, land purchases and construction itself, of course, is travelling out daily to all construction sites and supervising the construction. Our construction was carried on by our own forces with hired equipment and, therefore, they need a considerable amount of supervision. (SN pages 5 and 6)

3.03 To carry out his work the appellant had to use his vehicle every working day, 12 months a year:

That vehicle has a county radio put in it by the county that we are on call all the time, we have to have that radio turned on when we are in the vehicle so that if we are called upon to do something we have to do it right away. (SN p 8)

3.04 It is admitted by both parties that during the years involved, the appellant received from his employer an allowance of $70 per month ($840 per year) for the use of his automobile. This allowance is a decision of the County Council. It was made without any negotiations with the employees. Moreover, the appellant also received a mileage allowance of 18 cents per mile during the years involved.

3.05 In filling his income tax return for the taxation years 1977 and 1978, the appellant did not include in the computation of his income the two allowances.

In reassessing the appellant for the said years, the respondent included the $840 allowance for each year.

3.06 The appellant drove 12,986 miles in 1977 and 14,023 miles in 1978. He received accordingly (— X 0.18¢) $2,337.48 in 1977 and $2,524.14 in 1978. The appellant explained that he kept a daily diary of his mileage and that the figures were checked and approved by the engineer before the payment (Exhibits A-1 and A-2).

3.07 Concerning the allowance of $840, the appellant did not have to account in any way for having spent it. It was proven, however, that some employees, who did not travel very much, did not receive $70 per month, but 0.23 cents per mile.

4. Law — Law Cases — Analysis

4.01 Law

The main sections of the Income Tax Act invoked by both counsel in the prsent case are paragraph 6(1 )(a), subparagraphs 6(1 )(b)(i) and (vii), and subsection 6(3). They read as follows:

6. (1) Amounts to be included as income from office or employment. 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:

(a) Value of benefits. — the value of board, lodging and other benefits of any kind whatever (except the benefit he derives from his employer’s contributions to or under a registered pension fund or plan, group sickness or accident insurance plan, private health services plan, supplementary unemployment benefit plan, deferred profit sharing plan or group term life insurance policy) received or enjoyed by him in the year in respect of, in the course of, or by virtue of an office or employment;

(b) Personal or living expenses. — 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

(i) travelling or personal or living expense allowances

(A) expressly fixed in an Act of the Parliament of Canada, or

(B) paid under the authority of the Treasury Board to a person who was appointed or whose services were engaged pursuant to the Inquiries Act, in respect of the discharge of his duties relating to such appointment or engagement,

(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 employee 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,

(3) Payments by employer to employee. An amount received by one person from another

(a) during a period while the payee was an officer of, or in the employment of, the payer, or

(b) on account or in lieu of payment of, or in satisfaction of, an obligation arising out of an agreement made by the payer with the payee immediately after a period that the payee was an officer of, or in the employment of, the payer,

shall be deemed, for the purposes of section 5, to be remuneration for the payee’s services rendered as an officer or during the period of employment, unless it is established that, irrespective of when the aggreement, if any,under which the amount was received was made or the form or legal effect thereof, it cannot reasonably be regarded as having been received

(c) as consideration or partial consideration for accepting the office or entering into the contract of employment,

(d) as remuneration or partial remuneration for services as an officer or under the contract of employment, or

(e) in consideration or partial consideration for a covenant with reference to what the officer or employee is, or is not, to do before or after the termination of the employment.

4.02 Law Cases

1. Henry Cival v HMQ, [1981] CTC 392; 81 DTC 5311;

2. Anthony Cekota v MNR, 36 Tax ABC 279; 64 DTC 654;

3. Micheal J Zukiwski v MNR, [1977] CTC 2370; 77 DTC 261;

4. Roger Guay v MNR, [1970] Tax ABC 1201; 70 DTC 1781;

5. HMQ v Morton Pascoe, [1975] CTC 656; 75 DTC 5024;

6. HMQ v Eric L Lavers, [1978] CTC 341; 78 DTC 6230;

7. Merle A W Smith v MNR, [1980] CTC 2001; 80 DTC 1003;

8. René Gervais v MNR, [1981] CTC 2496; 81 DTC 414.

4.03 Analysis

4.03.1 The respondent did not include in the income the amounts of $2,337.48 (1977) and $2,524.14 (1978), however, he included the amounts of $840 for each of the two years involved.

The preponderance of the evidence, however, is to the effect that the amount of $840 is of the same nature as the former amounts. Some employees receive 0.23 cents per mile and others receive 0.18 cents per mile plus $70 per month. The only difference is that the latter criterion applies only to the employees who, as the appellant, travel more. The respondent admits that the two payments are of the same nature. In the reply to notice of appeal indeed the respondent says that the $840 was paid “for travelling expenses”. In fact, in both cases the employer only reimbursed the employee for the actual expenses incurred by the appellant. The Board does not see why there would be different treatment. The amount of 0.18 cents per mile was not enough to cover all the expenses. That is why the employer added the fixed $70 per month. What would have been the total amount received by the taxpayer if he had been paid at the rate of 0.23 cents per mile? At this latter rate indeed, the appellant would have received in 1977 $2,986.78 (12,986 X 0.23) rather than $3,177.48 ($2,337.48 plus $840.00). In 1978, he would have received $3,225.29 (14,023 X 0.23) rather than $3,364.14 ($2,524.14 plus $840.00) (see para 3.06).

It is obvious to the Board that the difference can be applied for depreciation or even for meals. Travelling expenses are not limited to car expenses. A person who is 10 to 20 miles from home at noon does not come back home to have lunch. It is normal for the employer to include this in the travelling epxenses of an employee who, in the course of his employment, must regularly be out of town 5 days a week. One can say, there is no evidence about the meal expenses, but it is an assumption of the Board. The Board only assumes that a person has the right to have lunch at noon and taht in the greatest preponderance of the cases, an employee in establishing the criterion for the travelling expenses of his employees, does not pay more than the actual expenses or more than the average actual expenses. It is sometimes possible to have an exception to that rule: for instance, when the employer is a company and the employee is the president of the company. However, this remains an exception.

4.03.2 In many cases, the respondent did not include such amounts paid by an employer. The Board does not include the $840 in the appellant’s income for the same reason the respondent did not include the $2,337.48 (1977) and $2,524.14 (1978) and for the same reasons the respondent did not include in the:

(a) Henry Cival case (supra), the amount of $1,270.89 received by the taxpayer from his employer in reimbursement for his travelling expenses;

(b) Anthony Cekota case (supra), the per diem of $6;

(c) Roger Guay case (supra), the amount of $998.44 received for reimbursement for his travelling expenses;

(d) Eric L Lavers case (supra), the amount of $574.37 received in reimbursement for his travelling expenses; and

(e) in the case of all the investigators of the Government for their travelling expenses.

4.03.3 What is taxed pursuant to the Income Tax Act, is the income, (section 3 of the Income Tax Act). Is the reimbursement by an employer for actual expenses incurred by an employee in the course of his employment an income? In my humble opinion, obviously it is not.

In the present case, it is clear, as underlined above, that not only the 0.18 cents, but also the $70 per month are reimbursement for expenses made by the employee.

The parties referred to subparagraph 6(1 )(b)(vii) quoted above. It makes provision for allowances. However, allowances do not include reimbursement for expenses pursuant to the definition of Mr Justice Pratte in the Morton Pascoe case (Supra):

An allowance is, in our view, a limited predetermined sum of money paid to enable the recipient to provide for certain kinds of expense; its amount is determined in advance and, once paid, it is at the complete disposition of the recipient who is not required to account for it. A payment in satisfaction of an obligation to indemnify or reimburse someone or to defray his or her actual expenses is not an allowance; it is not a sum allowed to the recipient to be applied in his or her discretion to certain kinds of expense.

Since the reimbursement for an actual expense is not an allowance, subparagraph 6(1 )(b)(vii) does not apply in the present case. Moreover, when the reimbursement for the actual expense is made by an employer for expenses incurred in the course of employment they can not be considered as personal or living expenses.

Such reimbursement could not be considered as income.

9. Conclusion

The appeal is allowed and the matter is referred back to the respondent for reassessment in accordance with the above reasons for judgment.

Appeal allowed.