The Queen v. Merten, 90 DTC 6600, [1990] 2 CTC 444 (FCTD)

Strayer, ].: —

Relief Requested

This is an appeal by the Minister of National Revenue against a decision of the Tax Court of Canada dated May 6, 1986, in which the Tax Court allowed an appeal of the defendant from a reassessment of his taxation liability. The effect of this decision was to allow the defendant to deduct travel expenses in the amount of $2,172.67 from his income from employment.

Facts

The parties agreed to the following statement of facts.

1. From 1977 to the spring of 1988 including 1981 the taxation year in question J.U. Merten ("Merten") was employed as a project manager by Western Electrical Constructors Ltd. ("Western").

2. Western's permanent office was located at all material times at 330—11th Avenue S.W., Calgary. At this office Western's Corporate Management, including Merten, carried on the day to day overall management of Western.

3. During the 1981 taxation year Western was a contractor and maintained worksites for the construction of two projects in the City of Calgary; the Delta Hotel located at 209—4 Avenue S.E., and Heritage Square located at 8500 Macleod Trail South.

4. Merten was required to be present at the permanent office on a regular basis as he was involved in the management of Western including bidding and costing jobs, dealing with suppliers, project owners, and engineers, and general administration. He was also required to attend Western's various temporary construction sites described above. His duties at the projects included site meetings, site inspections, trade relations as it affects the routing of major and minor components of a project, employee relations and overall supervision and co-ordination of Western's construction efforts.

5. When Merten's first duty of employment on any given morning was at one of Western's temporary construction sites he would drive directly to that site from his home located at 983 Edgemont Road N.W., Calgary rather than first reporting in at the permanent office.

6. When Merten's final duties of employment on any given day [were] at one of Western's temporary construction sites he would drive directly home rather than reporting back at the permanent office.

7. At all other times Merten reported to work at the permanent office and left from the permanent office.

8. Merten was required by the terms of his employment contract to utilize his own vehicle while travelling within the course of his employment and to pay the expenses thereof.

9. Merten has incurred automobile expenses in travelling between the permanent office listed in paragraph 2 and the temporary construction sites listed in paragraph 3 and other related expenses in the amount of $4,617.43 which amount the Minister of National Revenue has allowed as a deduction from Merten's income.

10. Merten has incurred automobile expenses related to travel between the temporary construction sites listed in paragraph 3 and his home at 983 Edgemont Road N.W., Calgary, in the amount of $2,172.67, all of which the Minister of National Revenue has disallowed as a deduction from Merten's income.

11. Merten received a travel allowance of $4,800 from Western which amount was included in his income for purposes of his 1981 tax return.

12. The amounts as claimed by the taxpayer are not unnecessary or excessive if they otherwise qualify under section 8(1)(h) of the Income Tax Act (Canada).

Issues

The provision of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") in question is paragraph 8(1)(h). Subsection 8(1) generally sets out the deductions permitted from a taxpayer's income from an office or employment and permits such deduction of, inter alia,

8.(1)(h) 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), (vii) or (vii.1), not included in computing his income and did not claim any deduction for the year under paragraph (e), (f) or (8),

amounts expended by him in the year for travelling in the course of his employment;

It is not disputed here that the defendant in this case met the requirements of subparagraphs 8(1)(h)(ii) and (iii). At times counsel for the plaintiff appeared to be questioning that the defendant met the requirements of subparagraph 8(1)(h)(i) although he indicated early in the proceedings that the real issue was whether the expenses incurred by the defendant in travelling between his home and the two temporary construction sites could be regarded as "travelling in the course of his employment" as required by the closing words of paragraph (h). This definition of the issue was also confirmed in the written argument of the plaintiff and I shall therefore confine myself to it.

Conclusions

The Tax Court of Canada, in allowing the defendant's appeal, indicated that in its view while at one time the defendant would on the basis of the decision in Herman Luks [No. 2] v. M.N.R., [1958] C.T.C. 345; 58 D.T.C. 1194, have been precluded from deducting the amounts for travel from his home to any places of work, including travel to the permanent office and to the construction sites, since the decision of Jerome, A.C.J. in The Queen v. Chrapko, [1984] C.T.C. 594; 84 D.T.C. 6544 there was binding authority that he was entitled to deduct these expenses. The rationale for this view was that by the Luks case it had been held that a person could not be deemed to be "travelling in the course of his employment" as required by the closing words of paragraph 8(h) unless the travel actually involved the performance of some service as compared to simply getting oneself to the place of work. However, the words "in the course of his employment" were held in the Chrapko decision in the Federal Court-Trial Division not to preclude a deduction in such circumstances. The Tax Court considered itself bound by the later decision in Chrapko.

Since the decision of the Tax Court, however, the Federal Court of Appeal has rendered a decision on appeal in the Chrapko case ([1988] 2 C.T.C. 342; 88 D.T.C. 6487). The two parties in the present appeal characterize somewhat differently that decision of the Court of Appeal. In the view of the defendant the Court of Appeal implicitly adopted the reasoning of the trial judge but modified it in application. In the view of the plaintiff the Court of Appeal "overturned" the trial decision.

Without debating how one should characterize the decision of the Court of Appeal, it is sufficient to note its practical effect. At trial the Associate Chief Justice had held that the taxpayer in Chrapko was entitled to deduct travelling expenses incurred in travelling from his home to three different racetracks at which he acted as a pari-mutuel teller for the Ontario Jockey Club. He lived in Niagara Falls. He travelled to two different racetracks in Toronto where he spent a total of some 75 per cent of his working time, and also travelled to a racetrack in Fort Erie where he spent the remainder of his working time. The Court of Appeal varied the decision of the trial judge by allowing the taxpayer to deduct only his expenses for travelling from his home to the Fort Erie track, because in the view of that Court he was entitled to deduct only travel expenses "incurred. . .in travelling to a place of work away from the places at which he usually worked" (page 344 (D.T.C. 6489)).

It is true that the rationale adopted by the Associate Chief Justice at trial in the Chrapko case would appear to give little or no significance to the words “travelling in the course of his employment" provided the other requirements of paragraph 8(1)(h) are met. On appeal the Court of Appeal has implicitly qualified those words by recognizing that a taxpayer can deduct expenses for travelling from his home to a place of work as long as that place of work is other than the place at which he "usually" works. There were similar decisions in the past by the Tax Review Board permitting deductions for travel from home to work place. (See e.g. Klue v. M.N.R., [1976] C.T.C. 2401; 76 D.T.C. 1303; Dale v. M.N.R., [1977] C.T.C. 2208; 77 D.T.C. 124.) These do appear to be somewhat inconsistent with the rationale adopted by Thurlow, J. (as he then was) in the Luks case, supra, which would preclude any deductions for travelling to and from one's work unless the travel itself was the performance of some service such as delivery. Nevertheless it is clear from the decision of the Court of Appeal in Chrapko, supra, and implicit in an earlier decision of that Court in Healy v. The Queen, [1979] C.T.C. 44; 79 D.T.C. 5060 [1] that the Luks rationale can no longer be applied so as to preclude all deductibility where the travelling itself is not the performance of a service for the employer.

Applying the rule laid down by the Court of Appeal in Chrapko, I have concluded that the defendant in this case was obliged to travel to places of work, namely the construction sites, away from the place at which he usually worked, namely the permanent office of Western Electrical Constructors Ltd. Counsel for the plaintiff suggested that I had no evidence before me to indicate which was the usual place of work of the defendant. I believe that I can infer this fact from the language of the agreed statement of facts itself: it refers to the "permanent office” of the employer at 330—11th Avenue S.W., Calgary and to the "temporary construction sites" being the Delta Hotel and Heritage Square. It is agreed that the defendant had management responsibilities at the office going well beyond his functions at the two temporary construction sites. I believe that I can infer that a "permanent office” would be a place where the defendant worked “usually” during his years of employment with Western, from 1977 to 1988 and that his involvement at two "temporary" constructions sites would be of a less regular nature. I accept the argument by counsel for the defendant that in determining what is “usual” one may have to look beyond the taxation year in question to see the long-term pattern of the defendant's work.

I therefore dismiss the appeal. It was agreed by the Minister that, consistently with subsection 178(2) of the Income Tax Act (whether or not that subsection is still in force) costs should be awarded against the Minister no matter what the outcome. In any event, the appeal having failed, costs are awarded against the Minister and in favour of the defendant.

Crown's appeal dismissed.