Donald Samson v. Minister of National Revenue, [1981] CTC 2707

John B Goetz:—This is an appeal by the appellant from his assessments for his income tax liability for the years 1977 and 1978, whereby the Minister has disallowed deductions on automobile expenses in the amount of $1,517 and $813 in 1977 and 1978 respectively. In assessing the appellant, the respondent relied, inter alia, on subparagraph 6(1 )(b)(vii), paragraph 8(1 )(h) and section 67 of the Income Tax Act, SC 1970-71-72, c 63, as amended.

Facts

The appellant was an articling student in a chartered accountant firm in the area of Port Hawkesbury, Nova Scotia. In the years 1977 and 1978 he was in receipt of a travelling allowance of 22¢ per mile which he did not have to include as income for tax purposes, but which he did. The appellant received the amounts of $988 and $901.82 as travelling allowances in 1977 and 1978 taxation years respectively.

The appellant filed with his returns statements of automotive income and expenses disclosing the mileage allowance on top of which he listed all of the expenses for operating the vehicle giving him a net loss of $1,516.54 in the 1977 taxation year and $812.95 in the 1978 taxation year. He says that he argued with his employers that his mileage allowance was inadequate but they refused to pay him any more than 22¢ per mile and told him to “take it or leave it”. He argued with his employers who knew that his expenses exceeded that which was covered by the mileage allowance and he stated that he could not argue further with them for he wanted to remain in their employment in order to become a chartered accountant.

In 1976 he purchased a Chevelle automobile for the sum of $5,500 cash.

The issue then is whether the allowance of 22¢ per mile for business use of his automobile was reasonable under the circumstances. In the assessments for the 1977 and 1978 taxation years the Minister simply stated:

As you were in receipt of a reasonable (non-taxable) allowance of 22¢ per mile you are not entitled to make an auto expense claim on your 1977 T1, therefore, both the allowance and auto claim have been deleted from your 1977 T1 return.

Findings

The appellant had vouchers for all of his expenses which he submitted to the Minister of National Revenue for inspection. In 1977 the total miles put on his vehicle was 9,298 and the total business miles was 5,739. He calculated the percentage as follows:

Business percentage

5 739

^- = 61.7%, therefore personal portion is 38.3%

9,298

In 1978 the total miles put on his vehicle was 11,595 and the total business miles was 5,545. He calculated the percentage as follows:

Business percentage

5,545

J -x = 47.8%, therefore personal portion is 52.2%

11,595

The relevant sections involved are subparagraphs 6(1)(b)(v) and (vil), paragraph 8(1 )(h), subsection 8(2) and section 67 of the Income Tax Act, which read 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 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 forhisemployer,

(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,

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,

(i) was ordinarily required to carry on the duties of his employment away from his employer’s place of business or in different places,

(ii) 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

(iii) was not in receipt of an allowance for travelling expenses that was, by virtue of subparagraph 6(1)(b)(v, (vi) or (vil), not included in computing his income and did not claim any deduction for the year under paragraph (e),

(f) or (g),

amounts expended by him in the year for travelling in the course of his employment;

8. (2) Except as permitted by this section, no deductions shall be made in computing a taxpayer’s income for a taxation year from an office or employment.

67. In computing income, no deduction shall be made in respect of an outlay or expense in respect of which any amount is otherwise deductible under this Act, except to the extent that the outlay or expense was reasonable in the circumstances.

The respondent cited the following cases:

Gauvin v MNP, [1979, [1977] CTC 2812; 79 DTC 696;

Wylde v MNP, [1979] CTC 3041; 79 DTC 829;

Her Majesty the Queen v Lavers, [1978] CTC 341; 78 DTC 6230;

Verreault v MNP, [1980] CTC 2015; 80 DTC 1021:

Her Majesty the Queen v Forestell, [1979], CTC 370; 79 DTC 5289.

The appellant cited Faubert v MNP, [1979] CTC 2723; 79 DTC 641, in support of his position. This case raises the issue as to whether an allowance Is reasonable or unreasonable. The appellant argued that the 22¢ per mile allowance was unreasonably low, having regard to what he claimed as actual expenses in excess of the mileage allowance. See Gauvin v MNP, [1979] CTC 2812, 79 DTC 696, at 2817 and 699 respectively:

While it might be “low” in the view of the appellant, to be “unreasonably low” would require, as I see it, a mileage allowance set below the standard or reasonable amount for the functions it was intended to reimburse, not merely lower than the total operation costs incurred.

In this case, although the appellant argued with his employer that the mileage allowance was too low, he nevertheless accepted and received amounts of $988 and $901.82 as travelling allowances in the 1977 and 1978 taxation years respectively.

I concur with my learned colleague, Delmer E Taylor, CA, when he says in his judgment in Price v MNR, [1980] CTC 2386, 80 DTC 1311, at 2319 and 1315 respectively:

The acceptance by an employee of a specified mileage allowance for the use of a personal automobile in travelling on the employer’s business exhibits certain elements of agreement between the two parties that the travelling expenses can be contained within that limit. As I see it, it is a difficult task for an employee to subsequently bring in the Minister of National Revenue to share as a third party in that arrangement. Accordingly, in view of the references made earlier to the tenuous relationship between section 8(1) of the Act and Interpretation Bulletin IT-272, the Board is careful to point out that even the fact a mileage allowance was “unreasonably low” would not necessarily result in the taxpayer having a claim for the difference against his employment income.

Hence, since the appellant was in receipt of an allowance for travelling expenses pursuant to the provisions of subparagraph 6(1 )(b)(vii), he is not entitled to deduct automobile expenses pursuant to paragraph 8(1 )(h) of the Income Tax Act.

I therefore dismiss the appeal.

Appeal dismissed.