Hudema W. v. Canada, [1994] 2 CTC 42

Strayer, J.:—

Relief requested

This is an appeal from a decision from the Tax Court of Canada of November 2, 1988, in which that Court confirmed the Minister’s reassessment of the plaintiff's income tax for 1978, 1979, 1982, 1983 and 1984 taxation years.

Facts

The plaintiff is and was at the time in question a sales representative of the Canadian Broadcasting Corporation selling television advertising in Regina and the surrounding viewer area. This area includes the urban centres of Regina and Moose Jaw, the remainder being predominantly rural with widely scattered small towns. The defendant agrees that there is no public transportation system in the plaintiff's sales area available for his use.

The plaintiff is an employee of the CBC receiving a salary as well as a commission calculated as a percentage of sales. At the time in question he belonged to a collective bargaining unit which had an agreement with the CBC. That agreement provided in part:

51.1 It is expressly agreed that the use of an employee's car in executing the business of the corporation is not compulsory, and he/she may at his/her discretion decline to use it. . . .

51.4 Sales representatives authorized to use their cars on corporation business will be compensated in accordance with the provisions of articles 51.4.1. . . .

The agreement did lay down certain conditions (essentially related to road worthiness) for the kind of cars to be provided by those authorized to use their cars. Those entitled to compensation under article 51.4.1 were paid, as was the plaintiff, a weekly car allowance (which during at least part of the relevant time was fixed at $44.00) and were reimbursed for actual gas, oil, lubrication and parking expenses.

In each of the years in question the plaintiff either in his original or revised returns included the weekly car allowance as part of his income and deducted his actual car expenses from his employment income. In the years 1982, 1983, 1984 he also deducted other expenses such as entertainment and promotion, car telephone, and capital cost allowance as well as supplies in respect of a computer which he purchased and used at home in connection with his work. The pleadings, as did the judgment in the Tax Court, appear to regard the automobile expenses incurred in all of the five years in question, as well as the other expenses incurred in 1982, 1983, 1984, all to depend on the same statutory criteria as to their deductibility.

The relevant provisions of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") would appear to be the following:

8(1) Deductions allowed.—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. . . .

(f) salesman's expenses.— where the taxpayer was employed in the year in connection with the selling of property or negotiating of contracts for his employer, and

(i) under the contract of employment was required to pay his own expenses,

(ii) was ordinarily required to carry on the duties of his employment away from his employer's place of business,

(iii) was remunerated in whole or part by commissions or other similar amounts fixed by reference to the volume of the sales made or the contracts negotiated,

and

(iv) was not in receipt of an allowance for travelling expenses in respect of the taxation year that was, by virtue of subparagraph 6(1)(b)(v), not included in computing his income,

amounts expended by him in the year for the purpose of earning the income from the employment (not exceeding the commissions or other similar amounts fixed as aforesaid received by him in the year). . . .

(h) travelling expenses.— 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 (vii), 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;

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:

(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

(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. . . .

It is the position of the taxpayer that he is entitled under paragraph 8(1 )(h) with respect to taxation years 1978 and 1979, and/or under paragraph 8(1 )(f) in respect of all of the years in question, to deduct all of his car expenses attributable to work and all of his other expenses incurred in the making of commission sales. In taking this position the plaintiff contends that the car allowance he received from the CBC was not of the kind referred to in subparagraph 8(1 )(f)(iv) or subparagraph 8(1 )(h)(iii) in that he had included such allowance in computing his income and the allowance was not one within the contemplation of subparagraph 6(1 )(b)(v) because it was not a “reasonable” allowance, being much less than his actual “travelling expenses". The defendant disputes this and further says that he was not required to pay his travel or other expenses.

The Tax Court judge dismissed his appeal to that Court on the basis that his car allowance was of the kind referred to in subparagraph 8(1 )(f)(iv) or subparagraph 8(1)(h)(iii) because he had not included it in income. This precluded him from being able to deduct, in the case of paragraph 8(1 )(f), "amounts expended by him in the year for the purpose of earning [commission] income or in the case of paragraph 8(1 )(n), “amounts expended by him in the year for travelling in the course of his employment".

It was not disputed on appeal that the learned Tax Court judge had not appreciated that in fact the plaintiff had included his car allowance in his income declared for each of the taxation years.

Issues

It is common ground that to be able to deduct expenses for the purpose of earning commission income under paragraph 8(1 )(f) (which could include both travel expenses and other expenses such as entertainment) or to deduct expenses for travelling in the course of his employment pursuant to paragraph 8(1 )(h) (which would probably not include entertainment expenses) the plaintiff must meet certain criteria common to both these paragraphs: that is, he must: have been required to carry out his duties away from his employer's place of business (which is not in dispute); have been required to "pay his own expenses", in the case of paragraph 8(1 )(f), or "to pay the travelling expenses incurred by him” in his work, according to paragraph 8(1 )(h), (a matter which is in dispute); and he must not have been in receipt of a "reasonable allowance for travelling expenses" (a matter which is also in dispute).

Conclusions

Turning first to the question of whether the plaintiff was obliged to pay travelling and other expenses, I have concluded that he was not by his contract of employment required to use his car and thus pay the costs of operating his car. The collective bargaining agreement specifically said that no employee was obliged to use his car but it contemplated that he could be authorized to use his car. It is not in dispute that the plaintiff was authorized to use his car for his sales work. I respectfully adopt the reasoning of the Federal Court of Appeal in The Queen v. Cival, [1983] C.T.C. 153, 83 D.T.C. 5168, where there was a rather similar set of facts. There was at best a kind of “unilateral contract" whereby if the plaintiff did use his car then he was entitled to the car allowance plus reimbursement for gas, oil, lubrication and parking. I distinguish this from my own decision in Rozen v. The Queen, [1986] 1 C.T.C. 50, 85 D.T.C. 5611 (F.C.T.D.), because in that case there was clear evidence given by an officer of the employer to the effect that there was an understanding between employer and employee that the employee would have to use his car. Further, he said the employer would probably dismiss an accountant employee if the latter was no longer able or willing to use his car in his work. In the present case there was no such evidence. As regards the plaintiff being required generally "to pay his own expenses” other than travelling expenses as contemplated by subparagraph 8(1 )(f) the evidence was not clear on this point. Considering the view that I take below that he was in receipt of an allowance contemplated in subparagraph 8(1)(f)(iv) and 8(1)(h)(iii), I need not consider this matter further.

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 ail of the expenses which he incurred. I am not satisfied, for example, that he was making a reasonable use of his vehicle. In considering this question I have in mind the observation of the Tax Review Board in Gauvin v. M.N.R., [1979] C.T.C. 2812, 79 D.T.C. 696, at page 2817 (D.T.C. 699) that for an automobile allowance to be unreasonably low it must be:

set below the standard or reasonable amount for the functions it was intended to reimburse. . . .

I note for example that in most years the plaintiff made very little personal use of the automobile which he used for business. In 1978 and 1979 personal use constituted only approximately 20 per cent and 35 per cent respectively of total use of the car, and in the later years it amounted to no more than 11 per cent, four per cent and seven per cent respectively. Thus he attributed most of the costs of operating his car to his work. He testified that at the same time he and his wife maintained a second car for personal use. He did not demonstrate that it was sensible to make such little personal use of the car he used for his work. Put another way, he did not demonstrate that it was unreasonable for his employer to expect him to use his vehicle in an efficient way, with the allowance bein expected only to pay for such incremental use of his car as his work required. There was no clear evidence, for example, as to the number of hours per week which the plaintiff had to be on the road in the selling of advertising. This might have been helpful in determining if it was reasonable that his travel allowance pay virtually all the costs, both capital and operating, of his car.

Having come to these conclusions I must dismiss the action with costs.

Appeal dismissed