Citation: 2007TCC284
Date: 20070724
Docket: 2006-1120(IT)I
BETWEEN:
JULIEN BLACKBURN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Jorré J.
Issues
[1] The Appellant, Mr.
Blackburn, was employed by Équipement Fédéral, Division de Gestion KCL West
Inc. He was paid on commission.
[2] In filing his
income tax returns for the 2002 and 2003 taxation years, the Appellant claimed
certain employment expenses:
|
Expenses claimed
|
2002
|
2003
|
|
Lodging
|
$5,400
|
$4,340
|
|
Camera
|
$377
|
|
|
Insurance
|
|
$252
|
|
Telephone, Internet
|
$2,246
|
$2,652
|
|
TOTAL
|
$8,023
|
$7,244
|
See Exhibits I-2 and I-3.
[3] In issuing a
reassessment on January 24, 2005, the Minister of
National Revenue (the “Minister) disallowed the deduction of those expenses.
[4] At the beginning of
the hearing, counsel for the Appellant informed the Court that his client did
not challenge the expenses claimed for the camera, insurance and Internet.
[5] There are therefore
two issues, namely:
(1) Whether
the Appellant could deduct the amounts indicated as lodging expenses.
(2) Whether
he could deduct caller charges.
As to the first issue, the
Appellant’s main position was that they were deductible office expenses.
Alternately, the Appellant argued that they were deductible travel expenses
pursuant to paragraph 8(1)(h) of the Income Tax Act (“the Act”).
[6] The first issue to
be solved is the nature of the $5,400 and $4,340, respectively, deducted
at the “Lodging” line of the Statement of
Employment Expenses filed with the 2002 and 2003 employment reports. Are they
lodging expenses or office expenses? If they are lodging expenses, are they expenses
of a personal nature or deductible travel expenses?
Facts – motel unit/dwelling
Quantum
[7] Although the amount
claimed in 2002 was $5,400, at the hearing the Appellant only claimed
$4,800 in 2002 ($3,600 in rent plus $1,200 in “superintendent and
cleaning fees”—see Exhibit A-4). This quantum was not challenged.
[8] The amount claimed
in 2003 was $4,340. At the hearing, the Appellant filed a list of work expenses
for 2003 (Exhibit A-5). The quantum of the amounts related to the dwelling on
that list was not challenged. The list contains the following expenses:
|
Rent
|
$3,315.00
|
|
Vidéotron
|
$716.51
|
|
Hydro Sherbrooke
|
$307.98
|
|
TOTAL
|
$4,329.49
|
The total amount more or less
reflects the $4,340 claimed in his income tax return.
[9] There is no
evidence as to the nature or purpose of the payments made to Vidéotron. I must therefore conclude that the
dwelling expenses are only $3,622.98, that is rent plus the payments made to
Hydro Sherbrooke.
[10] In short, the quantum of
expenses in 2002 and 2003 was $4,800 and $3,622.98, respectively.
Use of the motel unit/ dwelling
[11] The Appellant was a
sales representative for the company “Équipement Fédéral” during the
two years in issue. Équipement Fédéral was a heavy equipment dealership for
Komatsu and Timberjack.
[12] During the two years in
question, the Appellant’s sales territory was the Eastern Townships of Quebec.
When the Appellant accepted this position, he lived in Saint-Georges de Beauce.
Owing to his experience, his bosses asked him to assist them by taking this job
on a temporary basis, just until the employer hired someone from Sherbrooke.
The Appellant expected to fill this position for five or six months.
[13] The drive from
Saint-Georges de Beauce to Sherbrooke is about an hour and a half, more than
three hours per round trip.
[14] The Appellant’s
entire social and family life was in
Saint-Georges de Beauce. The Appellant’s spouse remained
in Saint-Georges de Beauce and the Appellant lived in
Saint-Georges when the hearing of this case was heard.
[15] The expenses claimed on
the “Lodging” line of the Statement of
Employment Expenses were for renting a motel room at La Réserve in Sherbrooke
in 2002 and for renting a dwelling in Sherbrooke on
Jacques-Cartier Street in 2003.
[16] In 2002, the
Appellant had an agreement with the owner of the motel that he would always
have the same room. He would arrive on Monday morning and leave the Friday.
[17] In 2003, according
to Exhibits A-5 and A-3, the Appellant paid $310 per month in rent from January
to June, $155 in July and $260 from August to December. In testifying, the
Appellant did not explain these variations, but the receipts (Exhibit A-3) from
January to July indicate in the second line, after the Appellant name’s, “21.”
The receipts from August to December indicate “27.”
On the receipt for the month of August it is stated [translation] “. . . for
August’s rent, half of the month.” It would appear that the Appellant changed
units after the month of August and that he only rented a unit for eleven and a
half months.
[18] The Appellant
testified that he used the unit at the La Réserve motel in 2002 and the dwelling
on Jacques-Cartier Street in 2003 as his office. He stated that his employer
required him to have an office, that 98% of the use of the unit at the La Réserve motel and the
dwelling on Jacques-Cartier Street was for work purposes and that among other
things they were the places where he regularly met with customers.
[19] The Appellant filed
(Exhibit A-1) Form T2200 for 2002 and 2003. Part B was prepared and signed by
the employer. In Part B, Question 9a) on both forms asks
“Did you require this employee under a contract of employment to:
- rent an office away from your place of business or use a portion of his or
her home?”
In Exhibit A-1, the answer
indicated on the forms for 2002 and 2003 is “yes.”
[20] However, the
original form for 2002 (Exhibit I-2) clearly indicates that the answer is
“no.” During the cross-examination, the Appellant admitted that he changed the
answer from “no” to “yes” on the 2002 form he filed (Exhibit A-1).
[21] The expenses in
question appear at the “Lodging” line of
the Statements of Employment Expenses
filed with the income tax returns (Exhibits I-2 and I-3), and not at
the “Other expenses” line where it is possible to specify that the expenses are
for office rent.
[22] The Appellant
admitted that he might sleep in Sherbrooke two to three times a week depending
on the weather conditions and travel time.
[23] In his testimony, he
said that he regularly worked from 6:30 or 7 a.m. to 9:30 or 10 p.m. This means
that the times he slept in Saint-Georges de Beauce, he left Saint-Georges at 5
or 5:30 in the morning and that he got back into Saint-Georges at 11
or 11:30 at night, only to leave Saint-Georges again six hours later.
[24] According to the
testimony of Ms. Couturier, the Canada Revenue Agency auditor, at the
draft assessment stage, the Appellant said that he worked 40 hours per week.
[25] The price of the
equipment sold by the Appellant ranged from $100,000 to over a million
dollars.
[26] The Appellant
testified that he would go visit customers and that he would meet not only with
individuals who decided on the purchases, but also with workers on the sites,
as the users have an influence on those who decide on purchases. Those visits
could also be made at 7 in the morning by bringing doughnuts to the work site,
throughout the day or by going to supper with the foreman.
[27] The Appellant drove
about 69,000 km on business in 2002 (Exhibit I-1) and about 66,000 km in
2003 (Exhibit I-4). The employer reimbursed his vehicle expenses at the rate of
26¢ per kilometre.
[28] With so many
kilometres, it is obvious that the Appellant spent many hours travelling and
meeting with his customers at their workplace.
[29] During the
cross-examination, the Appellant was unable to specify how frequently or
regularly he met with customers at the unit of the La Réserve motel or at the
dwelling on Jacques-Cartier Street.
[30] The Appellant did not
produce an agenda or other similar document that could have provided details on
who he met with, when and where.
[31] Ms. Couturier testified
that at the beginning of the audit, the Appellant never mentioned that he met
with customers at the unit of the La Réserve motel or at the dwelling on
Jacques-Cartier Street. She testified that the Appellant said that he met with
customers at the motel or at the dwelling only after the draft assessment was
issued. After the draft was issued, he said that he spent 20 hours a week
on the road and 20 hours meeting with customers at his place.
[32] Insofar as the
Appellant worked very long hours as he described, he had no other choice but to
very often sleep in Sherbrooke during the week. If, however, he worked 40 hours
per week as he told the auditor at one stage of the “audit,” it is obvious that
by driving more than 65,000 km per year, he worked by travelling to meet with
his customers.
[33] In assessing the
overall evidence, including the factors described earlier, I conclude that the
motel unit and the apartment on Jacques-Cartier Street were used for lodging in
Sherbrooke, and not as an office. Although I do not exclude that they were used
ancillary to the accomplishment of the Appellant’s work, most of his work was
performed elsewhere.
Analysis of the first issue
[34] Subsection 8(2) of
the Act provides that
“Except
as permitted by this section, no deductions shall be made in computing a
taxpayer's income . . . from an . . . employment.”
Subsection 8(1) of the
Act provides that
“In
computing a taxpayer's income . . . from an . . . 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.”
[35] Considering that the
motel unit and the apartment were not an office, the Appellant cannot avail
himself of subparagraph 8(1)(i)(ii) of the Act to claim all of the
amounts of $4,800 and $3,622.98 in 2002 and 2003, respectively.
[36] Does the ancillary
use of the motel unit or apartment allow for a partial deduction of the amounts
claimed? Factually, the evidence does not make it possible to determine that a
portion of the expenses could be reasonably considered office expenses rather
than lodging expenses.,
Appellant’s alternate argument
[37] The Appellant’s
alternate position was that the expenses were deductible as travel expenses
within the meaning of paragraph 8(1)(h).
[38] The Appellant ordinarily worked away from the employer’s
place of business or in different places. He was required under the contract of employment
to pay the travel expenses he incurred in the performance of his employment
duties
(Exhibit
I-1, first issue).
[39] The issue that
remains is “Whether they are travel expenses or personal expenses.”
[40] In order to settle
that issue, it is pertinent to take into account the fact that the Appellant’s
social and family life was in Saint-Georges de Beauce, that his wife was in
Saint-Georges and that his family residence was still in Saint-Georges. The
Appellant travelled from Saint-Georges to Sherbrooke for work.
[41] It is also necessary
to take into account the principle that the choice to live in one city rather
than another is a personal choice and that the expenses incurred to get to work
are personal expenses and are not deductible.
[42] If an individual who
lives in one city takes a job in another city that is very far from his or her
home, he or she cannot deduct the costs incurred by the choice not to move.
That includes not only transportation, but also food and lodging. However, the Act provides for the
deduction of moving expenses.
[43] We therefore have
two important principles:
(1) Travel
expenses incurred in the performance of one’s employment duties are deductible.
(2) However,
expenses incurred by the choice of where one lives are personal expenses.
[44] At what point does
the decision to travel rather than to move become a personal choice? One cannot
reasonably conclude that the fact that one does not relocate for a business
trip of a few weeks is a personal choice. However, if someone takes a permanent
position in another far away city, there cannot be any doubt that it is a
personal choice if the person keeps his or her house and family in his or her
hometown and chooses to travel between the two cities every Monday morning and
Friday evening and to rent a small apartment in the city where he or she works.
[45] In this case, it is
very important to mention that the Appellant already worked for Équipement
Fédéral when he took the position based in Sherbrooke and that he expected to
fill that position for only five to six months.
[46] Considering the
effort involved in moving and moving again, one cannot characterize as a
personal choice the fact that someone is transferred by his or her employer to
another city on a temporary basis for a relatively short period of time.
[47] If the temporary
employment is prolonged, there is a point where the choice to move becomes
personal.
[48] In Attorney General of Canada v. Alain Tremblay, an RCMP officer was sent to
Montréal to take an English course for a period of about eight months; the
Federal Court of Appeal accepted that the Appellant deduct the lodging and meal
expenses paid to the family with whom he stayed.
[49] In the circumstances
of the instant case, particularly considering the fact that originally the
employment was to last only five to six months, it is reasonable to consider
that the lodging expenses of $4,800 in 2002 were deductible travel
expenses. However, after 2002, the choice not to move became a personal choice.
Second issue – cellular phone
charges
[50] During 2002, the
Appellant incurred cellular telephone charges of $3,288.56; Équipement Fédéral
reimbursed $1,200 and the Appellant claimed a deduction of $2,238.56
(Exhibit A-4).
[51] During 2003, the
Appellant incurred cellular telephone charges of $3,816.41; Équipement Fédéral
reimbursed $2,155.56 and the Appellant claimed the difference of $1,660.85
as a deductible expense (Exhibit A-5).
[52] Where cellular
telephone charges are incurred for business purposes, they are deductible in
accordance with paragraph 8(1)(f). The issue is therefore one of fact.
[53] Ms. Couturier, the
auditor, testified that she contacted the employer and that the employer told
her that the Appellant was entitled to receive a maximum allowance of
$280 per month for telecommunication expenses payable upon presentation of
invoices. The Respondent concluded that all the expenses that were not paid by
the employer had to be personal expenses.
[54] The Appellant
testified that the reimbursable amount varied over the years—that at first it
was $100 per month and that that amount gradually increased.
[55] The Appellant filed
his telephone bills for seven of the 24 months—he was unable to obtain the
others and used the process of elimination to determine personal calls.
According to that process, a little over 9% of the calls were personal (Exhibit
A-6).
[56] I accept the
Appellant’s testimony on that point. However, the method used by the Appellant
to review the bills was to eliminate calls made to telephone numbers that were
personal calls. For all of the calls received by the Appellant, the telephone
bills (Exhibit A-6) simply show the Appellant’s cellular telephone number. In
order to take into account the fact that a portion of the calls received are
personal, it is necessary to adjust the percentage of personal calls. I
conclude that overall 15% of all the calls were personal.
[57] Accordingly, the
deductible amount for the cellular telephone for 2003 is $1,088.39.
[58] For 2002, the
deductible amount is $1,595.28.
[59] In 2003, the
Appellant claimed $2,652 in telephone charges in his income tax return
(Exhibit I-3). That amount included $1,660.85 in cellular telephone charges not
reimbursed plus $990.68 in telephone charges incurred from the dwelling
(Exhibit A-5). No evidence was provided to establish that the telephone in the
dwelling was used for business purposes; accordingly, no portion of the
$990.68 is deductible.
Conclusion
[60] To conclude, the appeal is allowed without costs and the matter
is referred back to the Minister of National Revenue for reconsideration and
reassessment on the basis that
(1) in the 2002 taxation year,
(a) the
$4,800 paid for the unit of the La Réserve motel is deductible and
(b) $1,595.28 in
cellular telephone charges is deductible and that
(2) in the 2003
taxation year, $1,088.39 in cellular telephone charges is deductible.
Signed at Ottawa, Canada, this 24th day of July 2007.
“Gaston Jorré”
Translation certified true
on this 21st day of August 2007.
Daniela Possamai, Translator
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