North Waterloo Publishing Limited v. R., [1997] 1 CTC 2557, 96 DTC 3304 (Informal Procedure)

O’Connor J.T.C.C.: — These appeals were heard on common evidence at London, Ontario on September 30, 1996.

Testimony on behalf of both Appellants was given by J. Robert Verdun (“Mr. Verdun”) who was represented by his agent, Ray Taylor. Testimony for the Respondent was given by James John Lowes, an auditor with Revenue Canada.

Issues

The issues are:

1. Whether the Minister of National Revenue (“Minister”) was correct in disallowing certain expenses claimed by North Waterloo Publishing Limited (the “Corporation”) in its taxation years ended February 2, 1989, February 2, 1990 and February 2, 1991; and

2. Whether in Mr. Verdun’s taxation years 1988, 1989 and 1990 the Minister correctly included in his income certain benefits allegedly conferred on him by the Corporation either in his capacity as a shareholder or an employee of the Corporation.

Facts acts

Mr. Verdun was an employee and shareholder of the Corporation at all relevant times.

With respect to the Corporation the amounts in issue are shown in Schedules A, B and C of the Reply to the Notice of Appeal of the Corporation. These Schedules provide as follows:

“SCHEDULE A

NORTH WATERLOO PUBLISHING LIMITED

SUMMARY OF BUSINESS EXPENSES

1989 TAXATION YEAR

Claimed by Allowed by Disallowed by Appellant Revenue Canada Revenue Canada Furniture, Fixtures &

Leasehold Improvements $1,160.00 $1,160.00 (1) Mileage Allowances (R. Verdun) 9,933.00 $5,283.00 4,650.00 (2) Meal Allowances (R. Verdun) 1,440.00 1,440.00 Restaurant Review Meals 4,345.00 3,476.00 869.00 (3) Overseas Travel Expenses 25,926.00 24,681.00 1,245.00 (4)

Total $42,804 00 $33,440.00 $9,364.00

The contents of this table are not yet imported to Tax Interpretations.

Notes: (1)	capitalized
(2)	travelling between the [Corporation’s] office and
	R. Verdun’s residence:
	15,500 kilometres @ $0.30/km $4,650.00
(3)	20% per section 67.1 of the Income Tax Act
(4)	undocumented”
		“SCHEDULE B
	NORTH WATERLOO PUBLISHING LIMITED
	SUMMARY OF BUSINESS EXPENSES
		1990 TAXATION YEAR
		Claimed by	Allowed by	Disallowed by
			Revenue Canada	Revenu	a
		Appellant
Furniture, Fixtures &
Leasehold Improvements		$ 773 00		$773.00 (1)
Mileage Allowances (R. Verdun)		6,590.00	2,813.00	3,777 00 (2)
Meal Allowances (R. Verdun)		1,440.00		1,440.00
Restaurant Review Meals		2,117.00	1,694.00	423.00 (3)
Overseas Travel Expenses		30,817.00	25,792.00	5,025.00 (4)
Total		$41,737.00		$11.438.00
			$30,299.00

Notes: (1)	capitalized
(2)	travelling between the [Corporation’s] office and
	R. Verdun’s residence:
	13,042 kilometres @ $0.25/km	$3,261.00
	2,458 kilometres @ $0.21/km	$	516.00
(3)	20% per section 67.1 of the Income Tax Act
(4)	undocumented”
	“SCHEDULE C
	NORTH WATERLOO PUBLISHING LIMITED
	SUMMARY OF BUSINESS EXPENSES
	1991 TAXATION YEAR

As to Mr. Verdun, the benefits allegedly conferred on him are as fol- The mileage allowance benefits to Mr. Verdun were calculated at 15,500 kilometres in each year, multiplied by $.30 in 1988, $.26 in 1989 and $.31 in 1990, thus producing the figures of $4,650.00, $4,030.00 and $4,805.00. The meal allowances were calculated on the basis of $7.00 per meal for approximately 16 meals in each month. The travel expenses, travel and lodging and meals and tours of Mr. Verdun paid for by the Corporation, related to certain trips and tours of Mr. Verdun and his spouse to China, Kenya, India and Nepal detailed as follows:

1989

From the foregoing, it is apparent that, with respect to the Corporation there are at issue five different categories of expenses, namely, (1) furniture, fixtures and leasehold improvements; (2) mileage allowances; (3) meal allowances; (4) restaurant review meals; and (5) overseas travel expenses; and with respect to Mr. Verdun, there are three categories of expenses, namely (1) mileage allowances; (2) meal allowances; and (3) overseas travel expenses. The discrepancies between the amounts of overseas travel expenses of the Corporation and the amounts of travel expense benefit to Mr. Verdun were not explained but probably result from the fact the Corporation’s year end was February 2 and Mr. Verdun’s year end was December 31.

During the years in question Mr. Verdun was editor and his wife, Carol, was publisher of certain newspapers in Woolwich and Wellesley townships in the Province of Ontario, namely the “Elmira Independent”, the “Independent National Edition” and adding in August, 1990 the “Elora Sentinel”.

As to the furniture issue, little, if any, evidence was led by Mr. Verdun. In any event, the assumptions contained in the Reply to the Notice of Appeal of the Corporation and Schedule D thereof were not rebutted and consequently are presumed true.

As to the mileage allowance, Mr. Verdun explained that the business had two locations, one being an office and certain business assets in the home of Mr. Verdun and his wife in Wellesley and the other being the production/printing outlet in Elmira, approximately 20 miles away from the home in Wellesley. It was necessary for Mr. Verdun, as editor, to work at both locations and, although he did not keep a log of his expenses, he submits that they are reasonable in the circumstances, considering he had to travel to and from the Elmira outlet at least four afternoons/evenings a week.

With respect to the meal allowance, Mr. Verdun pointed out that these were very reasonable in the circumstances, amounting to only $7.00 per meal for evening meals consumed when he was away from his home working at Elmira four hours in the afternoon and approximately three hours in the evening four days a week.. Mr. Verdun considered it unreasonable to travel from Elmira to Wellesley at suppertime to have his meal at home and then have to return in the evening to Elmira.

With respect to the restaurant review meals, where the Minister has disallowed 20% to the Corporation pursuant to section 67.1 of the Income Tax Act (“Act”), Mr. Verdun, pointed out that the meals at restaurants were necessary to enable the preparation of a column by his wife entitled “Cook’s Tour” and that section 67.1 of the Act should not have been applied.

With respect to the overseas travel expenses, which comprised the largest expenses involved, Mr. Verdun went to great lengths to demonstrate

(a) that the newspapers that were published contained considerable articles related to agricultural and environmental issues on a world-wide basis; (b) that this extensive coverage greatly increased the subscriptions to and advertisements in the newspapers; (c) that the trips furnished Mr. Verdun and his wife with insights which greatly aided them in preparing columns on various world-wide issues and their impact and application in Canada. Exhibits A-3, A-4, A-5 and A-6 comprise numerous excerpts of editions of the newspapers in question which Mr. Verdun asserts supports his position in this regard; (d) that the trips in question were not “joy rides” or vacations, but were substantially, if not wholly, for purposes of improving the newspapers and generating additional income from additional subscriptions and advertising; and (e) that the quality of the newspapers was high as witnessed by various awards, including the esteemed Michener Award in 1991. The only travel expenses disallowed to the Corporation were for amounts undocumented. Mr. Verdun explained that in many areas of the third world “cash is king” and receipts were not obtainable.

Analysis and Decision

I accept the credibility of Mr. Verdun and the frankness with which he dealt with Revenue Canada in regard to the various expenses as evidenced by the testimony of Mr. Lowes.

I will now revisit and determine each category of expense.

With respect to the Corporation:

(1) Furniture, fixtures and leasehold improvements:

In each of the taxation years, 1989, 1990 and 1991, the Minister disallowed the full amount claimed as an expense, considered the expenditures as on account of capital and allowed capital cost allowance. In my opinion, the Minister’s treatment was correct for all three years. The amounts may have been minor but the assets acquired were capital assets.

(2) Mileage allowances:

I accept the explanations of Mr. Verdun as to the need for and reasonableness for the travel. He travelled back and forth between two places of business, not simply to and from his residence to his place of business. Consequently, I allow the full amounts claimed by the Corporation in each of the 1989, 1990 and 1991 taxation years.

(3) Meal allowances:

I accept the explanations given by Mr. Verdun as to the rationale behind the meal allowances and the reasonableness of the amounts and consequently find that the Minister must allow the deductions claimed by the Corporation

(4) Restaurant review meals:

I find that the disallowance by the Minister to the Corporation of 20% of the claimed amounts in each of the three years in question conformed with section 67.1 of the Act. None of the exceptions contemplated in the Act apply in the present case. The Minister’s assessment was therefore correct.

(4) Overseas travel expenses

These, to a very substantial extent, have been allowed as expenses of the Corporation. Only undocumented expenses were disallowed. I accept the explanations of Mr. Verdun as to the reason for the undocumented expenses. Consequently, with respect to the Corporation, I allow the full amounts claimed by the Corporation in each of the three years.

With respect to the appeal of Mr. Verdun

For the reasons expressed above, I am of the opinion that with the sole exception of the meal allowances, none of the benefits included in his income by the Minister should have been included. The mileage expenses were incurred for business purposes, not personal or living expenses and were reasonable. The amounts in question simply were reimbursements by the Corporation to Mr. Verdun, not benefits.

The travel expenses reimbursed were likewise business expenses and, as mentioned, except for undocumented items were allowed to the Corporation. As noted in paragraph 14 of Interpretation Bulletin IT- 432R, a shareholder benefit is not permitted as a deduction by the Corporation. Here the amounts have been allowed as a deduction by the Corporation. It follows they cannot be considered a shareholder benefit under subsection 15(1) of the Act. Moreover, the amounts constituted reimbursements by the Corporation to Mr. Verdun for proper business expenses and are not an employee benefit under paragraph 6(1 )(a) of the Act.

As to the meal allowances of $1,440 each year, paragraph 6(1 )(a) of the Act includes in income from an office or employment the value of board, lodging and other benefits of any kind. Prima facie then, meals paid for by the Corporation are to be included. The meals in question were not related to overtime because the seven hours in Elmira were the regular hours of Mr. Verdun. Moreover he did not account for the meals but simply received a fixed allowance. For these reasons I find the meal allowances were properly included in Mr. Verdun’s case.

Consequently, the appeals of Mr. Verdun and of the Corporation are allowed to the extent set forth above and the matters are referred back to the Minister for reconsideration and reassessment in accordance with the foregoing conclusions.

Mr. Verdun, at the end of the hearing, made an impassioned plea with respect to an award of costs in his favour. He explained the considerable length of time which he had to expend in preparation for these appeals as well as in attempting to present his case at the assessment level. His agent presumably also had to be paid for the time he devoted. The total time of the actual hearing was, according to the Court minutes, four hours and thirty-seven minutes. In all of the circumstances, I believe an award of costs to Mr. Verdun is appropriate, especially considering my conclusion that the appeals are to be substantially allowed. Consequently, an amount of $1,000.00 is awarded to Mr. Verdun as costs.

Appeal allowed.