Geoffrey v. R., [1997] 3 C.T.C. 2045

Watson D.J.T.C.:

1 This appeal was heard under the Informal Procedure in London, Ontario, on May 5, 1997.

2 In computing income for the 1993 taxation year, the Appellant deducted the amount of $2,816.94 as other employment expenses. In reassessing the Appellant for this taxation year, the Minister of National Revenue (the “Minister”) reduced the deduction of the expenses in the year to $1,157.97.

3 In so reassessing the Appellant, the Minister made the following assumptions of facts:

(a) the Appellant was, at all material times, employed by Kime, Mills, Dunlop, Chartered Accountants (the “Employer”);

(b) the Appellant was ordinarily required to carry on the duties of employment at or away from the Employer's place of business or in different places;

(c) during 1993, the Appellant received an allowance, for the use of a motor vehicle from the Employer for travelling in the performance of the duties of the employment, in the amount of $.25 per kilometre travelled (the “Allowance”);

(d) the Allowance was not included by the Employer in the Appellant's 1993 T4 Supplementary Statement of Remuneration Paid;

(e) expenses in excess of the amounts allowed by the Minister in the 1993 taxation year were not incurred for the purpose of earning income from employment, but were personal or living expenses of the Appellant.

4 At the hearing the Appellant admitted the allegations contained in paragraphs (a), (b) and (d) and denied the allegations contained in paragraphs (c) and (e).

5 In 1993, the Appellant worked full time as an accounting student for the Employer, except for the period from June to September, when he devoted most of his time to studying for his C.A. exams and worked only part time for the Employer. During the summer months, he travelled four times from home to Toronto and once to Montreal to take professional development courses he needed to obtain the C.A. designation. He succeeded in obtaining his C.A. in December 1993.

6 The Appellant lived in Tillsonburg, Ontario, 60 kilometres from the Employer's place of business at 450 Talbot Street, London, Ontario. In 1993, he made 57 trips for the Employer, performing accounting and auditing services of its clients. The Employer's policy was to pay an allowance to only one employee when it sent more than one to a client's place of work, because it would pass on the travel costs to the client. When the Appellant was the senior person he received the allowance of $0.25 per kilometre from the Employer's office on Talbot Street to the client's office on the first 240 kilometres and $0.10 per kilometre on the balance, even though he invariably left from home; the actual distance from home to the client's office was not recorded. When he was not the senior member of the team, he would have incurred no travel expenses had he arranged to be picked up by the senior person at the Employer's office in time to leave for the client's office; the senior member would receive the allowance which amount was then billed to the client. On 16 of these trips, the Appellant received $640 for 2,560 kilometres; on the other 41 trips, he chose to travel directly from home to the client's office because it made no sense to him to drive the 120 kilometres return to Talbot Street to be picked up. These are the amounts he has claimed as other employment expenses.

7 In 1993, the Appellant calculated the amount of expenses by prorating the number of trips from home to the clients using a percentage of the total expenses for his automobile; he did not keep a separate log book or the details of the actual cost for the trips for which he did not receive the allowance from the Employer. Using the automobile repair bills, the total number of kilometres travelled in 1993 was 34,000 kilometres and he then calculated that 15,390 kilometres were travelled on the Employer's behalf and for which he received no allowance or reimbursement. He preferred to go directly from home to the client's office because, in his judgment, it would have been unreasonable to drive to Talbot Street to be picked up; he also estimated that the total number of kilometres travelled for his professional development courses in Toronto and Montreal was 3,080 kilometres, 1,400 kilometres for the Montreal trip and 1,680 kilometres for the four trips to Toronto. The Appellant was also of the opinion that the $0.25 per kilometre was unreasonable in the circumstances. In his 1993 income tax return, he prorated the total automobile expenses at 35% for business use.

8 In cross-examination, the Appellant stated that he started working for the Employer on August 13, 1990 while he was an accounting student at the University of Waterloo, becoming a full-time employee on January 1, 1991. He received his degree from the University of Waterloo in April 1991 and the C.A. designation in December 1993. He recalled that the Employer's allowance policy was the same in 1991, 1992 and 1993.

9 In September 1993, the Appellant purchased a new automobile at a cost of $29,959; he claimed as an expense on the prorated basis for the insurance, fuel, maintenance and repairs, interest and capital cost allowance. The total amount of the expenses claimed was $28,816.94.

10 The Appellant stated that the Employer paid the travel allowance to only one employee per trip in order to encourage car pooling since the cost was passed on to the client; however, he considered that the time to travel from home to Talbot Street was a waste of time and that it was unreasonable to be expected to car pool. When he received the allowance from the Employer, it was for the number of kilometres. He remembered receiving a letter from Revenue Canada dated June 20, 1995 setting out the following details of the reduction of the allowable expenses from $2,816.94 claimed to $1,157.97:

We have accepted the total expenses claimed however we have reduced your business mileage by the distance which is equivalent to the distance between your home and your employer's place of business as this is considered to be personal travel and not deductible. Also expenses incurred to attend courses are not deductible.

A) business mileage claimed	15390 km
	less	120 km x 57 trips	6840 km
		Toronto trips	1680 km
		Montreal	1400 km
	personal mileage	9920 km
allowable business mileage	5470 km
B) Total automobile expenses		$9878.97
business mileage	5470/30000	x 18.2%
business expenses		1797.97
	less reimbursement/allowance	640.00
	allowable automobile expenses	$1157.97

11 The total number of kilometres used by Revenue Canada was based on the information provided by the Appellant. Revenue Canada disallowed 9,920 kilometres as “personal mileage” for the 120 kilometres for the return trip from home to Talbot Street, London and for the 3,080 kilometres for the trips to Montreal and Toronto. The Appellant insisted that the trips to Montreal and Toronto were a requirement of his Employer in order to become a C.A.

12 The applicable law is found in paragraphs 6(1)(b), 8(1)(h) and 9(1)(h.1) of the Income Tax Act.

13 From the evidence at the hearing, I am satisfied that the Appellant received an allowance from his Employer when he travelled as the senior representative; the amount of $640 for the 2,560 kilometres was not a reimbursement for the actual kilometres travelled and actual cost of the Appellant since he in fact travelled from home to the clients but the allowance was based on the distance from Talbot Street, London, to the client at a rate of $0.25 per kilometre. The Appellant did not keep a log book or the details of the actual cost of each trip but he relied on the Employer policy as reflected in Form T2200 submitted with his 1993 income tax return; none of this amount received was reflected in the Appellant's T4 slip.

14 The Appellant met the first two requirements of paragraph 8(1)(h) or 8(1)(h.1), but his problem comes from the third requirement; he was in receipt of an allowance for travelling expensed for his automobile that was not included in his income because, pursuant to subparagraph 6(1)(b)(vii), it was “a reasonable allowance(s) for travelling expenses ... received by an employee ... from the employer for travelling away from...”.

15 When the Appellant was not the senior auditor, he could have driven to Talbot Street and travelled to the client's office without incurring any expenses. Since he lived in Tillsonburg, the anticipated normal distance was approximately 600 kilometres per week. It is well settled in the case law that expenses that a taxpayer incurs travelling between his home and place of work of the employer are not deductible for tax purposes. The trips to Montreal and Toronto were, in my view, primarily to enhance his professional qualifications and, indirectly only, benefit the Employer; his Employer did not pay him for the travel expenses to follow his courses because it could not charge those costs to a client. His travel to Montreal and Toronto was not to service the needs of the Employer's clients, but to complete his requirements to obtain his C.A. When he drove from home to the client's office, it was for his own convenience not because he was requested to do so by the Employer.

16 The Appellant testified in an open and honest fashion, clearly establishing that he had acted in good faith at all times, believing that he was entitled to deduct the “other expenses” claimed. He is fortunate, in my view, that the Minister merely reduced the amount of the allowable automobile expenses instead of denying the whole amount claimed. Furthermore, I am satisfied that the Appellant did, in fact and in law, receive a reasonable allowance for travelling expenses in 1993 and that he failed to establish that it was unreasonable in the circumstances.

17 In the case of Hudema v. R. (1994), 94 D.T.C. 6287 (Fed. T.D.), Strayer, J. expressed my view at page 6290 as follows:

I am of the view that the Plaintiff must be regarded as having been in receipt of a reasonable allowance for travelling expenses. The burden was on him to show that it was unreasonable, the Minister having taken the position that it was a reasonable allowance. It was not enough in my view for the Plaintiff simply to show that the allowance did not cover all of the expenses which he incurred. I am not satisfied, for example, that he was making a reasonable use of his vehicle.

18 Considering all the circumstances, including the testimony, admissions and documentary evidence, I am satisfied that the Appellant has not succeeded in his onus of establishing on a balance of probabilities that he was in fact and in law entitled to deduct the amount of $2,816.94 as “other expenses” in his 1993 income tax return. The appeal is accordingly dismissed.