Citation: 2009 TCC 568
Date: 20091103
Docket: 2008-1366(IT)I
BETWEEN:
LLOYD FREAKE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Pizzitelli, J.
The Issues
[1]
The issue to be decided
in this appeal is whether the Appellant is entitled to deduct employment
expenses under subsection 8(1) of the Income Tax Act (the “Act”)
totalling $24,303 in relation to board and lodging and other travel expenses.
If he is, then it must be determined whether he excluded any allowances received
on account of these items from income. If he is not allowed to deduct the above
expenses, then I must determine whether the Appellant can exclude any amounts
from income under subsection 6(6) of the Act in respect of the
2006 taxation year, to the extent any were included in income. There is
also a minor issue dealing with the quantum of union dues that are deductible.
The Background
[2]
During the 2006
taxation year, the taxpayer, a journeyman lineman and a resident of Twillingate,
Newfoundland and Labrador in Canada, worked in the United States for the entire
year, five months in the State of Virginia where he earned $38,334.59 U.S.
and seven months in the State of California where he earned $124,786.79 U.S.
Based on the average exchange rate in effect in 2006, his earnings in U.S.
funds are equivalent to $184,994 CDN. The taxpayer deducted a total of $24,303
for employment expenses and $5,890 for union dues, of which only $545 was
permitted for employment expenses and $4,408 for union dues.
[3]
The Appellant is a
member of the International Brotherhood of Electrical Workers Union with
expertise and skill in the technical planning and hanging and repair of hydro electric
lines over long distances. He has worked in Canada and extensively in the
United States over the past 14 or so years and testified that he chose to
respond to requests to work in the United States because of the advance nature
of steel tower use there and his feeling such expertise would prepare him for
such future work in Canada as well as the need to work in that field. The
running of hydro electric lines over long distances and different topographies
is undertaken by large specialized companies and obviously in different project
locales where contracts are tendered and obtained. The nature of the work is
you go where it is. The Appellant had a detailed memory of the places he worked
at and stayed during his tenure both during the several years before the 2006
year in question and during that year which was readily evident on cross‑examination
by the Respondent. On a project-by-project basis, the Appellant either received
a call from the contractor inviting him to take the position or heard about it
from friends and colleagues in the same line of work and applied for the
position.
[4]
The Appellant would
leave his home in Newfoundland and Labrador and either fly or drive, at his
expense, to the project office of the contractor, which was usually in the
proximity of the project and which could have been a permanent office of the contractor
or a temporary project office, depending on the locale. After completing
the necessary paperwork, including driving to the nearest Union Local Office
to transfer his ticket to that jurisdiction in order to work there, the
Appellant would find accommodations, usually in a small motel or lodge in the
area where the work was to be performed. He would report to the site trailer
which acted as a temporary site office for the site supervisor during
completion of the project. As progress was made in running the overhead lines
over distances, the site trailer would be moved along the line.
[5]
It was the Appellant’s
responsibility to report to the site trailer everyday, wherever it was at the
time, and from there he would be transported by company vehicle to the specific
place of work along the line for the day. If he had his own truck, as was the
case in Virginia and California, he would drive his own vehicle to the site
trailer. As the site trailer moved, he testified he would often change
motels to a nearer site to shorten the route of transportation to and from the
trailer.
[6]
Between projects, he
would fly back home as he also did at Christmastime to the residence he
maintained in Twillingate, Newfoundland and Labrador to join his wife and family
at his own expense. He was responsible for arranging and paying for
transportation to and from his home in Newfoundland and Labrador and for his board and lodging while at the work site.
[7]
The only employer in
the United States the Appellant worked for in 2006 was PAR Electrical
Contractors, Inc. who had head offices in Kansas City, Missouri and maintained
several branch offices throughout the United States and temporary offices for
projects outside those areas in a town near the work area which involved long
distances through which the hydro wires had to be run. As mentioned,
temporary trailers would be stationed near the actual work areas and moved
along the lines as the project progressed.
[8]
In the taxpayer’s tax
return for 2006, a Statement of Employment Expenses schedule identifies the
expenses that were subsequently disallowed by Canada Revenue Agency (“CRA”),
including $7,756.66 for Food and Beverages and $16,001.87 for Lodging. I have
already made reference to the disallowance of $1,482 as part of the union dues
claimed. Included in the gross income of $184,994 in that return was an amount
the Appellant claims was an allowance on account of board and lodging, which is
in dispute and will be dealt with later.
The Positions of the Parties
[9]
The Appellant’s
position is that these deductions represent the value of board and lodging and
transportation directly incurred by the Appellant taxpayer in the course of his
employment for which he was required to carry out his duties away from the employer’s
place of business, which his Agent described as a special work site, all of
which are reasonable and hence are deductible. In the alternative, if they are
found not to be deductible, the Appellant states that he received allowances
for living expenses from his employer which he included in income and hence
they should then be excluded from income under subsection 6(6) of the Act.
[10]
The position of the
Respondent on the issue of deductibility is that the Appellant was not required
to be away from the employer’s place of business because the employer’s place
of business was the trailer he reported to daily. Since the Appellant had
voluntarily agreed to work in those locales, he effectively moved to those
locations and hence the expenses incurred were personal living expenses. These
positions were made in argument or led into evidence by the witness for the Respondent
who, in explaining why he did not review or follow-up on evidence regarding
receipts sent to CRA for board and lodging and transportation from Newfoundland
and Labrador to and from the project locale, found them to be irrelevant since
he was proceeding on the basis the expenses were personal in nature. No other
evidence was led by the Respondent on the deductibility of these expenses. The
Respondent pleaded no facts assumed by it relating to paragraph 8(1)(h)
of the Act regarding the deductibility of the expenses in the context of
travel expenses within that section other than they were not incurred. As
mentioned, the Respondent simply assumed those deductions were personal living
expenses and focused its argument towards the second relief sought by the
Appellant, that is, that if the expenses were not deductible, then the taxpayer
in effect did not receive or claim any allowances in income within the meaning
of subsection 6(6) of the Act and accordingly could not again exclude
these amounts from income. This is clear from the relief sought by the
Respondent in paragraph 13 of the Amended Reply which reads:
13. He submits the Appellant did not receive or enjoy any
amounts that were included in his 2006 income, in respect
of his employment in the United States that was the value of, or an allowance
in respect of expenses the Appellant incurred for his board and lodging while
living and working in the United States during the 2006 taxation year.
Therefore the Appellant is not entitled to exclude any amounts from the
$184,994 of income he reported pursuant to subsection 6(6) of the Act.
[11]
The only relevant facts
in dispute can be found in paragraphs 2, 3, 4 and subparagraph 10(i) of the Amended
Reply.
[...]
2. He denies the Appellant’s work required
him to be away from his principal residence for at least 36 hours.
3. He denies the Appellant performed his
employment duties at a special work site.
4.
He denies $24,038.88 represented the value
of board and lodging.
[…]
10. […]
OTHER MATERIAL FACTS
The Minister now wishes to rely on the following:
(i) the Appellant did not receive any
allowances that were included in his income from his
employer in respect of any expenses that the Appellant incurred during the 2006
taxation year; and
[…]
Analysis
[12]
In examining the first
issue, being whether the expenses above described are deductible, the relevant
section is paragraph 8(1)(h) of the Act which reads 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 office or
employment away from the employer’s place of business or in different places,
and
(ii) was required
under the contract of employment to pay the travel expenses incurred by the
taxpayer in the performance of the duties of the office or employment,
amounts expended by the
taxpayer in the year (other than motor vehicle expenses) for travelling in the
course of the office or employment, except where the taxpayer
(iii) received
an allowance for travel expenses that was, because of subparagraph 6(1)(b)(v),
(vi) or (vii), not included in computing the taxpayer’s income for the year, or
(iv) claims a
deduction for the year under paragraph (e), (f) or (g);
[…]
[13]
None of the exceptions are
applicable on the facts here, including the exception in subparagraph 6(1)(b)(vii),
since the nature of expenses claimed were not in relation to travelling away from
the site to which the Appellant normally reported, but in travelling to and
from the work location from Newfoundland and Labrador and maintaining board and
lodging at the site.
[14]
In regard to this first
legal issue, I do not agree with the Respondent’s position. In my view, the
Appellant has met the conditions for deductibility in paragraph 8(1)(h)
and the evidence clearly establishes that he was required to carry out the
duties of his employment away from the employer’s place of business which is
the first condition to be met.
[15]
Clearly, the Appellant
was a resident of Newfoundland and Labrador, Canada
and his residency in Canada is an assumption of the Minister in paragraph 10(b)
of its Amended Reply. I accept the evidence of the Appellant that his principal
residence was in Twillingate, Newfoundland where his family ordinarily resided and
from which he left and returned to in relation to the projects in the United States.
[16]
The Respondent’s
argument that when the Appellant voluntarily chose to go to a new location
meant he was in fact maintaining another residence there makes no sense in the
circumstances. The Respondent relied on the case of Douglas v. The Queen,
90 D.T.C. 6597, where the taxpayer travelled to a different city at the request
of his employer to open a new office and then later accepted a permanent
position at that office at which time the Court found he was no longer required
to carry out his duties away from the employer’s place of business. Those facts
do not apply to the case at hand where there is no evidence the position of the
Appellant ever became permanent at any place of business of the employer. The
evidence is clearly that the Appellant was required to undertake his duties,
presumably only as long as the project remained uncompleted, if he even chose
to stay that long, at a field location which moved as the project moved along
towards completion of the hydro line installations, and then returned home. There
was no permanent position to accept and none was offered.
[17]
In addition, the
Respondent also relied on Munroe v. The Queen, [1992] T.C.J. No.
281 (QL), where the
taxpayer travelled to Toronto from Halifax to work on a single construction
site where a complete site office was found to be the employer’s place of
business and hence the taxpayer was found not to be required to be away from
the employer’s place of business. That case is also distinguishable from the
case at hand where the work performed here was not at a fixed site, but in a
larger geographical area through which the work progressed and in which a
movable temporary trailer, described as the supervisor’s office, was moved
progressively through the large work area as work progressed. I do not accept
that a movable trailer, which served the purposes of a daily staging area
rather than a site office in the context of the Munroe case, was the employer’s
place of business. In addition, the evidence was that the employer maintained
its head office in Kansas City, Missouri and satellite offices at various locations
throughout the United States, none of which were the location of the
projects where the work was actually performed, and to which, in the case of
the California project at least, the Appellant was required to report to
do the paperwork only before going on to the site trailer at the temporary
field location, further evidencing he was away from the employer’s place of
business.
[18]
Secondly, the evidence
is clear and not disputed that the Appellant was responsible for finding and
paying all of his own board and lodging expenses as a condition of his
employment.
[19]
Finally, in Champaigne
v. The Queen, 2006 TCC 74 and Dionne v. The Queen, 2006
FCA 79, in similar factual situations, both this Court and the Federal Court of
Appeal have found that the taxpayer is entitled to the deductions pursuant to
paragraphs 8(1)(h) and (h.1), the latter paragraph in connection
to motor vehicle expenses, and I am bound by the Appellate Court’s decision on
this matter. I might add, however, that unlike the above cases, the nature of
the field location here is even less permanent than the site offices in those
cases, being always literally on the move, and hence, falls even more easily
within the scope of those paragraphs.
[20]
Having found that the
Appellant is entitled to claim reasonable travel expenses within the meaning of
subsection 8(1) above, I must determine whether the Appellant included any
amounts received from its employer the value of which was for board and lodging,
in income; as a taxpayer cannot, as the Respondent pointed out, have the benefit
of both the deduction and not include any amounts it may have received on
account of those expenses as reimbursement or allowance in income as required
under general paragraph 6(1)(b) of the Act.
[21]
The main assumption to
be rebutted by the Appellant is that pleaded in subparagraph 10(i) of the
Amended Reply, that the Appellant did not receive any allowance that was
included in his income. If the Appellant is able to satisfy on a balance of
probabilities that it did include any amount in income, then it would
successfully rebut this presumption and it would be for the Minister to prove
otherwise.
[22]
The Respondent relied
on a letter requested from the employer by Ford Hayden, a Rulings officer
with CRA, who took over from the Rulings officer who actually made the ruling
on this matter and who was not available to testify. Mr. Hayden became involved
with the file only after the appeal had been filed. Mr. Hayden testified
he contacted the employer to make inquiries on the subject matter of the
allowance and obtained a letter dated September 22, 2009, stating “… in
2006, Mr. Freake was paid $163,121.38 in regular wages. ... Mr. Freake received
a total of $10,171.32 in reimbursements. This includes a weekly per diem to
cover living expenses while working in Wyoming. Payments were $510.00 per week
for seventeen (17) weeks and $340.00 for a partial week. …”
[23]
The obvious problem
with the evidence is that during the period in question both sides agreed he
was in Virginia and California and not in Wyoming so, apart from constituting
evidence the employer did otherwise pay weekly per diems or allowances to cover
living expenses, this evidence is of little use. Mr. Hayden acknowledged as
much on cross-examination and confirmed he made no other inquiries to question
the discrepancy.
[24]
The more credible
evidence on the matter was elicited from Mr. Hayden on cross-examination when
he was asked to verify the calculation of the regular wages totalling
$163,121.38, which was referred to in the said letter. These funds are of
course in U.S. funds and exactly match the amount
included in income by the Appellant in his Canadian tax return, which after
giving effect to the exchange rate totals $184,994. The agent for the Appellant
directed Mr. Hayden to the facsimile dated August 28, 2008 from PAR Electrical
Contractors, Inc.’s head office which lists the hours worked by the Appellant
for the entire 2006 year and gross wages, deductions and net pay. Pages 4 and 5
of the facsimile show the same weeks of work and gross wages but identify the
weeks as being either worked in Virginia or California. After applying the rate of pay identified per hour in the pay stub
for the final period in 2006 to the hours worked in the pay stub, which equalled
the same hours worked in the fax summary above, Mr. Hayden calculated for the Court
that the regular wages for the pay period totalled $1,710.80 and not the gross
of $1,910.80 shown on the fax summary. The difference was exactly $200, being
the same amount identified on the pay stub as the “regular other” item which is
defined on page one of the facsimile as meaning the per diem. In other
words, the weekly allowance the Appellant alleged he received while in California. In fact, the result is the same if the same calculations
are applied to each of the 28-week periods worked in California. Accordingly, I am more than satisfied based on the above evidence and
his oral testimony that the Appellant has rebutted the Minister’s assumption on
this matter and that the Appellant included any living allowance received into
income in accordance with subsection 6(1) of the Act.
[25]
The last issue to be
dealt with is the quantum of expenses. The Minister denies $24,038.88
represented the value of board and lodging. I believe the amount claimed in the
Notice of Appeal was $24,303.88 and that the Minister mistranscribed the
number. He is correct in that statement to the extent that the amount claimed
by the Appellant for board and lodging was $23,758.43 as shown in his tax
return filed for the year, the difference being the motor vehicle expense deduction
of $545.45 which is not in dispute. The claimed amount is comprised of
$16,001.87 for lodging and $7,756.56 for food and beverages.
[26]
The Appellant submitted
detailed lists of itemized travel expenses including lodging, airline travel
and phone charges totalling $15,847.37 in Canadian funds versus the $16,001.87
claimed, a small difference of $154.50, which is more than covered by an
airline item of $186.95 which seemed to be missing from the list summary. The
Appellant submitted evidence of payment of the above expenses by credit card
statements and receipts from motels, which I accept were forwarded to CRA. Mr.
Hayden, by his evidence, admits to not having reviewed these items as he
indicated they were not within the scope of the investigation for which he was
brought in on to replace the actual Rulings officer who ruled on the matter.
No actual receipts for food and beverages were submitted into evidence;
however, I accept the position of the Appellant that they were expended
and they seem more than reasonable considering the fact they represent such
items for almost an entire year. Accordingly, I accept the Appellant has
expended the full amount as claimed, notwithstanding that some of the expenses
included in the line item for lodging on the return included travel to and from
the projects which are obviously within the ambit of paragraph 8(1)(h)
of the Act.
[27]
The only other issue to
be addressed is the discrepancy in union dues claimed by the Appellant of $5,890,
of which he was denied $1,482. The amount allowed by the Minister coincides
with the union dues and deductions shown in the last pay stub of the Appellant.
The Appellant did not adduce any evidence to support the additional claim, and
accordingly, the Minister’s position on union dues is upheld.
[28]
The appeal is allowed
with costs of $500 awarded to the Appellant and the reassessment is referred
back to the Minister of National Revenue for reconsideration and reassessment
on the basis that in computing income, the Appellant is entitled to deduct
other employment expenses in the amount of $23,758.43.
Signed
at Ottawa, Canada, this 3rd day of November 2009.
“F.J. Pizzitelli”
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