Guy Verreault v. Minister of National Revenue, [1980] CTC 2015, 80 DTC 1021

Guy Tremblay [TRANSLATION]:—This case was heard at Québec City, Québec on April 17 and October 15, 1979.

1. Point at Issue

The question is whether the appellant (a general foreman for a reinforced steel laying contractor) is entitled not to be taxed on the amount (0.25¢ a mile) received from his employer between 1973 and 1976 inclusive, as compensation for the use of his automobile in travelling from one site to another, carrying men and materials.

2. Burden of Proof

The burden is on the appellant to show that the respondent’s assessment is incorrect. This burden of proof derives not from one particular section of the Income Tax Act, but from a number of judicial decisions, including the judgment delivered by the Supreme Court of Canada in R l/V S Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

3. Facts

3.01 In 1973 the appellant, who until then had been operating his own business as a “concrete reinforcer” (laying reinforced steel), was hired by Paul and Marcel Boucher Inc (a reinforced steel laying firm) as general foreman.

3.02 His duties consisted primarily of Supervision and of solving with the site foreman problems which arose in the course of work on various sites.

3.03 These duties caused the appellant to move around from one site to another, either simply to see to the progress of work or to carry men or materials.

3.04 From 1973 to 1975 the company had no vehicles. It began acquiring them in 1976 and 1977. Consequently, men and materials had to be carried by employees’ vehicles, including that of the appellant.

3.05 In addition to the written contract (Exhibit 1-1) which contains the following clauses:

— Work outside of Quebec City: the salary remains the same and the expense allowance will be determined with the employers,

— It is agreed that expense or allowance cheques will not be included in forms T4 and TP4,

a verbal agreement was made setting use of the appellant’s vehicle for company purposes at $0.25 a mile. According to the appellant, the payment of $0.25 a mile was justified because men in working clothes dirtied the car, and the same applied to the materials, which were very heavy to be carried in a car.

3.06 During the period 1973 to 1976 the appellant did a certain number of miles and claimed and received the following amounts, according to a document probably prepared by the appellant’s accountant and filed as Ex- hibit I-2.

3.07 In assessing the years 1973 to 1976, the respondent added the foregoing amounts. However, he allowed the following deductions: $500 for 1973 and $1,000 for each of the years 1974, 1975 and 1976.

3.08 During 1974, the evidence showed (Exhibit A-1) that the company had 30 different sites, 16 of which were in the area of metropolitan Quebec City. Of the 14 other sites located outside the metropolitan area, there were 7 on which the appellant was not responsible for supervision and 7 more which he had to visit regularly (Gentilly, Mont Ste-Anne, Autoroute de Beauce, and so on).

3.09 For his part, the appellant clearly showed that the mileage done, for which he claimed expenses, in no way covered the mileage done to get from his residence to the job and back again.

3.10 With respect to 1973 and 1974, the evidence for the appellant was the filing of pay cheque stubs (Exhibit A-3) in those years and receipts, on

which was written in ink (probably by him): Expense and an amount. The appellant stated that this was the sum received for transportation to various Sites. The parties were agreed that the total amount received was $2,716.75 in 1973 and $3,658.25 in 1974.

3.11 On the cheque stubs relating to 1975, filed as Exhibit A-4, it can be clearly seen that with each payment a sum was paid to the appellant as the “Non-taxable total”. According to the evidence these amounts in fact totaled $5,108.43, and not $6,370.50, after being recounted twice. The Board accordingly accepts this amount as being that received by the appellant. After the hearing was reopened, the appellant was able to show that the difference of $1,200 was explained, first, by the sale in 1974 of a welding machine to his employer Paul and Marcel Boucher Inc for $800. In addition, he earned $400 from the rental of machinery in 1974, the whole as appeared from an income statement attached to his 1974 tax return. The whole amount was paid in January 1975.

3.12 With regard to 1976, the pay cheque stubs (Exhibit A-5), the amounts shown in the item “Gross non-taxable total”, vary from one pay cheque to another (for example, $82.25, $99.75, $93.75, and so on), until the middle of April. Thereafter, because of administrative problems relating to the filing of TP4s and mileage documents to be compiled, it was agreed to give a fixed amount and make a subsequent adjustment. The amount then appearing on the cheques until the end of September 1976 is $63 (sometimes $73). From the end of September onwards, the sum of $35 appears regularly until the end of 1976, except for a few times when no payment was made. The parties admitted that the total amount received in 1976 was $2,798.50.

4. Act—Case Law—Comments

4.1 Act

The principal sections involved in the case at bar are paragraph 8(1)(h) and subparagraph 6(1 )(b)(vii), which is referred to in paragraph 8(1 )(h) These two provisions are 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,

(i) was ordinarily required to carry on the duties of the 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 (vii), not included in computing his income and did not claim any deduction for the year under paragraph (e), (f) or 9),

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

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,

(vi) reasonable allowances received by a minister or clergyman in charge of or ministering to a diocese, parish or congregation for expenses for transportation incident to the discharge of the duties of his office or employment,

(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 empoyee 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.

4.2 Case Law

The case law cited by the respondent is the following:

1. Michael J Zukiwski v MNR, [1977] CTC 2371; 77 DTC 261;

2. Edward W Moran v MNR, [1969] Tax ABC 1108; 69 DTC 772;

3. J M Livingston v MNR, [1970] Tax ABC 373; 70 DTC 1252;

4. M D Pawliuk v MNR, [1971] CTC 785; 71 DTC 559;

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

6. D B Lahey v MNR, [1967] Tax ABC 262; 67 DTC 222.

The appellant submitted Interpretation Bulletin IT-91 -R.

4.3 Comments

4.3.1 When the Board considers, first, the requirements of subparagraph 6(1)(b)(vii) granting the allowance only to travel outside the metropolitan area, then considers the restrictive interpretation which must be given to this section, and finally takes into account the facts set forth in paragraph 3.08, it finds it hard to allow more than 35% of the allowance received. Thus, of the 21 different sites which the appellant was responsible for Supervising, only 7 were located outside of the Quebec City metropolitan area. These figures were applicable only to 1974. The respondent admitted this evidence for the other years.

4.3.2 So far as the other 65% of the allowance is concerned, therefore, it should at this stage remain in the appellant’s income. However, should paragraph 8(1)(h) be applied and this amount, equivalent to 65% of the allowance, be claimed as expenses.

All the conditions contained in paragraph 8(1)(h) cited above must be met for the deduction to be allowed.

According to the evidence presented, the condition laid down in paragraph 8(1 )(h), to the effect that the taxpayer under a contract of employment must be required to pay his own expenses, has not been met: the appellant in fact received $0.25 a mile for his travelling expenses. In addition, under subparagraph 8(1)(h)(iii) the appellant should not have received a travelling allowance under subparagraph 6(1 )(b)(vii), and he did receive one.

As the appellant does not meet all the conditions of paragraph 8(1 )(h), he cannot claim the expense, and the Board must therefore arrive at a conclusion that is not equitable, namely to maintain the taxation of 65% of the expenses in the appellant’s income.

Thus, with regard to travelling expenses, an employee who incurs such costs on behalf of his employer within “the metropolitan area where that establishment was located’’, and who is reimbursed by his employer for this expense in the form of an allowance, must be taxed on this reimbursement unless the employee’s work is connected with the selling of property or negotiation of contracts (subparagraph 6(1)(b)(v)) or the employee is a minister (subparagraph 6(1 )(b)(vi)).

Parliament makes the laws, and the courts interpret them. The Income Tax Act must be interpreted strictly. There is no room for equity. The courts can only interpret in light of the wording before them. In the opinion of the Board, the Act should be changed; but that is the function of members of the House of Commons, and not of the courts.

4.3.3 Finally, with regard to the amount of $1,200 received by the employer in 1975, which was originally considered an amount paid for mileage, the Board allows the evidence submitted by the appellant, namely $800 received for the sale of machinery and $400 included in 1974 income as income from the rental of machinery, but received in January 1975 (3.11 of the facts). The Board concludes that this amount should be deducted from the appellant’s income, as the latter has discharged the burden of proof in this regard.

5. Conclusion

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

Appeal allowed in part.