The Queen v. Forestell, 79 DTC 5289, [1979] CTC 370 (FCTD)

Grant, DJ:—This is an appeal by the Crown from the decision of The Tax Review Board dated June 20, 1977, whereby that board allowed the appeal of such taxpayer from the Minister’s assessment of his 1972 and 1973 income tax and referred the same back to the Minister for reassessment.

The taxpayer for a number of years has lived at Campbellford with his wife and five children. Such residence is 129 miles northeast of Toronto. During the taxation year of 1972 he was employed as a clerk by the architectural firms of Moffat, Moffat, and Kinoshita and as well by Baswill Limited. His duties required him to check the quality of work and materials supplied on construction sites which were the property of clients of such architectural firms. Such work in the periods in question were temporary in nature and required him to render his services in the City of Toronto and away from his employer’s place of business. By reason thereof he could not be expected to return to his residence daily. He therefore rented a room in Toronto and had his meals in restaurants and went home over the weekend.

During 1972 he received from the Moffat firm as salary $3,285.02 and an allowance in respect of expenses incurred by him for travelling to and from his work, board and lodging in the sum of $1,529. After his work with Moffat was finished he was employed by Baswill for the balance of the year and received from them for such period of time the sum of $9,692.34. In filing his income tax return for that year he entered the total amount received by him from Moffat as income and also the total amount received from Baswill which made the total sum of $14,506.36.

He then claimed as expense the total sum paid out by him for rent in Toronto while on such work together with his meals and transportation costs amounting in all to $5,016 and deducted such amount from the total amount received for the year. In assessing such taxpayer’s income for that year the Minister excluded from his income such amount received from Moffat by way of allowance of $1,529 but disallowed as a deduction the amount claimed by the taxpayer as expense in such sum of $5,016.

During his 1973 taxation year the taxpayer received from Baswill a total sum of $13,223.03 which he entered as income but sought to exclude therefrom the amounts paid out by him for rent, meals and travelling expenses between his home and Toronto during the time he was so working for Baswill in the total sum of $5,516.50. In assessing his returns for 1973 the Minister also disallowed the sum of $5,516.50. Except for the sum of $1,529 allowed by Moffat in the year 1972 there was no indication before the Minister at the time of such assessment that the other sums claimed by the taxpayer as expenses were paid to him as an allowance to cover its expenses for board, lodging and travel expenses while at such work.

The taxpayer appealed from the Minister’s assessment of his tax for such two years and by such judgment the Tax Review Board allowed his appeal and referred the assessment back to the Minister for reassessment. The taxpayer was not represented by counsel in preparing for his appeal and appeared on his own behalf. Again the fact that such amounts so deducted by the Minister had been the subject of an allowance for such expenses was not advanced before the Board.

In the concluding paragraph of its reasons for judgment the Board stated:

In my opinion, a taxpayer who is required to live away from home while working on special work sites, as the appellant was in this case, is entitled to deduct rent, meals and transportation costs in reasonable amounts under s 6(6) of the Income Tax Act, SC 1970-71-72, c 63, as amended. The word “or” in subsection 6(6), where meaning separate from income tax allowance and can only mean the value of outlays or expenses incurred to earn income.

it occurs in the words

. . the value of, or an allowance . .

gives in my opinion a

Paragraphs 6(1)(a) and (b) of the Act reads as follows:

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:

(a) the value of board, lodging and other benefits of any kind whatever (except the benefit he derives from his employer’s contributions to or under a registered pension fund or plan, group sickness or accident insurance plan, private health services plan, supplementary unemployment benefit plan, deferred profit sharing plan or group term life insurance policy) received or enjoyed by him in the year in respect of, in the course of, or by virtue of an office of employment;

(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

The exceptions enumerated have no relation to the facts of this case. Subsection 6(6) of the Income Tax Act reads:

Notwithstanding subsection (1), in computing the income of a taxpayer for a taxation year from an office or employment, there shall not be included

(a) the value of, or an allowance (not in excess of a reasonable amount) in respect of expenses incurred by him for, board and lodging received by him

(i) in respect of, in the course of or by virtue of his office or employment at a special work site from which, by reason of distance from the place where he maintained a self-contained domestic establishment (in this subsection referred to as his “ordinary place of residence’’) in which he resided and actually supported a spouse or a person dependent upon him for support and connected with him by blood relationship, marriage or adoption, he could not reasonably be expected to return daily to his ordinary place of residence, and

(ii) in respect of a period while he was required by his duties to be away, for a

period of not less than 36 hours, from his ordinary place of residence: or

(b) the value of, or an allowance (not in excess of a reasonable amount) in respect of expenses incurred by him for, transportation between his ordinary place of residence and the special work site referred to in subparagraph (a)(i), received by him

(i) in respect of, in the course of or by virtue of his office or employment described in subparagraph (a)(i), and

(ii) in respect of a period described in subparagraph (a)(ii), during which he received board and lodging, or a reasonble allowance in respect of expenses incurred by him for board and lodging, from his employer.

I can not agree with the broad statement contained in the judgment of the Board as to the right of a taxpayer in the circumstances described to deduct his rent, meals and transportation from his earnings in the computation of his taxable income nor do I find authority therefor in such subsection 6(6). Section 6 deals with the amounts that are to be included in the taxpayer’s income. The heading above such paragraph is “Inclusions” and the marginal note opposite reads “amounts to be included as income from office or employment”. Paragraph 6(a) reads that “the value of board, lodging and other benefits of any kind whatever (except the benefit he derives from his employer’s contributions to or under a registered pension fund or plan, group sickness or accident insurance plan, private health services plan, supplementary unemployment benefit plan, deferred profit sharing plan or group term life insurance policy) received or enjoyed by him" is to be included in computing his income. It deals with the case where the employer supplies the board, lodging or other benefits or some of them. This interpretation is supported by the concluding words of subparagraph 6(b)(ii) namely “during which he received board and lodging, or a reasonable allowance in respect of expenses incurred by him for board and lodging from his employer." In the present case the taxpayer paid for his board, lodging and travelling expenses and so the total amount of his earnings must be included as income unless he can bring his case within such subsection 6(6) (supra). That subsection deals with two different situations, namely the first where the taxpayer is relieved from including in his income the value of board and lodging received by him from his employer and the other where the employer gives him an allowance in respect thereof and the taxpayer finds his own board, lodging and travel. The taxpayer does not in this case come within the first situation for reasons given but does come within the second. In this case the taxpayer qualifies in respect of the requirements of both subparagraph 6(6)(a)(i) and (ii) because the ordinary place of residence in which he supported his wife and children was so far distant from his special work site that he could not be reasonably expected to return to his home and he was required by his duties to be away for a period of not less than 36 hours.

Subparagraphs 6(6)(b)(i) and (ii) which deal with expenses incurred or an allowance for transportation between his home and special work site should be interpreted in the same manner.

The Minister appealed from the decision of the Tax Review Board. The trial came on for hearing before Mr Justice Cattanach who granted the taxpayer an adjournment to amend his pleading by alleging that the deductions sought to be made by him were in fact allowances from his employer to cover his board, lodging and travelling expenses from his home to the work sites. The fact that such an amendment was sought at such a late date causes one to review the evidence of the taxpayer carefully.

In doing so it is relevant that he had not the benefit of counsel before the Board and was not familiar with the difference between an allowance from his employer and a deduction of his living and travelling expenses while at his work in Toronto as it effected his income tax liability. However he had an allowance from Moffat in 1972 which he mistakenly included in income for that year and offsets it by including his said living and travelling expenses as deductions. The Minister quite properly deducted this amount from his income and cancelled it as a deduction. One would have expected that he would seek to have similar arrangement with Baswill.

The Crown witness, Ludlow, was the officer of Baswill who hired Forestell on this occasion. He says the taxpayer had worked for the company on projects closer to his home for a number of years and the company was anxious that he assume the Toronto work. Forestell said it would cost him an extra $100 per week to live in Toronto during the week and return home over weekends. Ludlow then said he would interview the officials of the Ontario Government who were responsible for the construction of the building in respect of which the taxpayer was to render his services. He did this and called Forestell before he commenced working and told him that in the circumstances he would be allowed such expenses over his regular Salary. Ludlow in his evidence in chief said that this extra amount was for salary and not an allowance but in cross-examination he acknowledged he did not appreciate the difference between an expense account and an allowance. I have no hesitation in accepting Forestell’s testimony. I think that any difference between his testimony and that of Ludlow was occasioned by the latter’s lack of knowledge of the words used in describing their arrangements. The extra one hundred dollars was never regarded by either of them as an expense account because he was never asked to account to his employer for the spending thereof. It was not part of his salary because the arrangements made clearly indicate it was to cover the cost of his lodging, meals and travelling while in Toronto on his work and travelling between his home and the special work site. I therefore find that the said extra sum paid to him each week was an allowance for such purpose within the meaning of paragraph 6(6)(a) of the Act and should not be included in his income.

It may be that the amount claimed slightly exceeds $100 per week that he worked and if so the amount of the allowance should be reduced accordingly as it is the allowance and not the actual expenses that is not included in the income. The incorrect method of making out the returns was due to the taxpayer’s lack of knowledge in respect thereof. It is apparent that this was also the reason why the arrangements for the allowance was not put clearly before the Board.

section 8 of the Act is not applicable in this case because it deals with deductions that may be made from actual income as distinguished from an allowance that is not included in income.

Under paragraph 8(1)(h) he could not deduct his travelling expenses because they were not incurred in the course of his employment but rather travelling to and from his home. Under paragraph 8(1 )(h) he could not deduct his meals because they were not consumed away from the municipality where the employer’s establishment to which he ordinarily reported for work was located and away from the metropolitan area where it was located. Her Majesty the Queen v Diemert, [1976] CTC 301; 76 DTC 6187, Luks (H) v MNR, [1958] CTC 345; 58 DTC 1194, T Healy v Her Majesty the Queen, [1979] CTC 44; 79 DTC 5060.

The appeal must therefore be dismissed. The amount of tax that is in controversy herein does not exceed $2,500. I am therefore obliged to virtue of subsection 178(2) to order the Minister to pay all reasonable and proper costs of the taxpayer in connection with the appeal and I do so. However I do not think it would be reasonable or proper to allow him costs in relation to the adjournment before Mr Justice Cattanach in February of 1978 as that was due entirely to the taxpayer’s need to amend his pleadings and for his convenience and I therefore direct that he should not be allowed any costs of such adjournment or amendments.