Marcel Lavigne v. Her Majesty the Queen, [1995] 1 CTC 2040

Archambault J.T.C.C.:—These are appeals pursuant to the general procedure from assessments of the Minister of National Revenue (the ’’Minister") for the 1988 and 1989 taxation years. The appellant represented himself. The Minister disallowed the deduction of certain expenses incurred by the appellant in computing his employment income.

Facts acts

The appellant was employed by Mack Ste-Foy Inc., a heavy-duty truck dealer, during the 1988 and 1989 taxation years. He was a sales representative and his area consisted of the North Shore and Lower St. Lawrence. His main customers were forest contractors. By way of employment earnings, the appellant received a basic salary and sales commissions. Under his written contract of employment, he had to pay all the expenses he might incur in the performance of his duties, except expenses which were authorized in advance by the company’s vice-president for sales, and was not entitled to reimbursement by his employer. The appellant received an allowance of 25¢ per kilometre for his automobile expenses. For the 1988 taxation year, he received the sum of $5,410 for the 21,640 kilometres travelled in the performance of his duties. For the 1989 taxation year, the appellant obtained an allowance of $6,419.75 for 25,679 kilometres travelled. The taxpayer was entitled to a refund of certain travelling expenses, namely certain meal and hotel expenses. His employer paid him the sums of $3,172.27 for the 1988 taxation year and $4,516.61 for 1989. These allowances and refunds were not included in his income. Mr. Raymond Bolduc, a director of the employer during the relevant years, confirmed in his testimony that the employer refunded expenses for accommodation from Monday to Thursday. If the appellant had to stay away during the other days of the week, even if it were to meet with clients, he was entitled to no refund of accommodation expenses. The appellant filed no evidence that he incurred accommodation expenses from Friday to Sunday. The appellant claimed the following expenses in computing his income for the 1988 taxation year:

[Not reproduced. I

In computing the taxpayer’s income, the Minister allowed 65 per cent of the accommodation and entertainment expenses and 100 per cent of the office supplies and telephone expenses. He disallowed all the expenses in respect of costs to use his automobile. In his testimony, the appellant was highly evasive in his answers to the questions that he clarify the expenses which he incurred in the way of accommodation and entertainment expenses. The meal expenses appear to have been included in both his accommodation expenses and his entertainment expenses. He filed no vouchers in support of the expenses which he had claimed. He provided no explanation concerning the calculation of his automobile expenses. It was not known what personal use the appellant had made of his automobile. His 1988 income tax return contained form T2200 which, according to the information written in the appellant’s handwriting, indicates that he travelled 51,940 kilometres during the year, 39,640 of which were for his employment. However, he apparently claimed only 21,640 kilometres from his employer. He provided no explanation as to why he had not claimed everything from his employer. As to the form T2200 for 1989, no information was provided as to the kilometres travelled during the entire year. There was only the number of kilometres travelled for employment purposes. He was satisfied to claim that all his expenses were expenses incurred in order to earn his employment income and that they were reasonable since they constituted only a small percentage of expenses relative to the large income which he had earned. His employment income was $89,787.91 for the 1988 taxation year and $48,550.76 for 1989.

The appellant was anxious to provide several details concerning his dismissal in February 1990 after 27 years of loyal service rendered to his employer. He also spoke of the consequences which his dismissal had had on his family (the taxpayer had separated from his wife) as well as of the success of his court challenge of the dismissal. It is unfortunate that he was not as talkative about the expenses incurred in the performance of his duties.

In his conclusions, the appellant sought 100 per cent deductibility of all expenses claimed in his income tax returns for the 1988 and 1989 taxation years and to have the penalty which the Minister had allegedly assessed set aside.

On this latter point, I must observe that the appellant’s claims were without foundation since the Minister assessed no penalty.

Analysis

Since the appellant’s employment was in connection with the selling of property or negotiating of contracts for his employer, paragraph 8(1 )(f) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the ’’Act”) permits him, under certain conditions, to deduct expenses incurred in order to earn his employment income. That paragraph 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:

(f) 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) to the extent that such amounts were not

(v) outlays, losses or replacements of capital or payments on account of capital, except as described in paragraph (j), or

(vi) outlays or expenses that would, by virtue of paragraph 18(1 )(1), not be deductible in computing the taxpayer’s income for the year if the employment were a business carried on by him…

Subparagraph 6(l)(b)(v) reads as follows:

6.(1) 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) 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,

(ix) ...

for the purposes of subparagraphs (v), (vi) and (vii.l), an allowance received in the year by the taxpayer for use of a motor vehicle in connection with or in the course of his office or employment shall be deemed to be in excess of a reasonable amount

(x) where the measurement of the use of the vehicle for the purpose of the allowance is not based solely on the number of kilometres for which the motor vehicle is used in connection with or in the course of his office or employment, or

(xi) where the taxpayer both receives an allowance in respect of the use of the motor vehicle in connection with or in the course of his office or employment and is reimbursed in whole or in part for expenses in. respect of the same use....

The first three conditions of paragraph 8(1 )(f) pose no problem. The appellant’s written contract of employment provided that he had to pay his own expenses, even if some of the expenses which he incurred might be reimbursed. He spent virtually all his time on the road and received commissions. However, the fourth condition described at subparagraph 8(l)(f)(iv) raises more than one problem. The appellant received an allowance of 25¢ per kilometre from his employer. He thus received the sum of $5,410 for the 21,640 kilometres travelled in 1988 and $6,419.75 for the 25,679 kilometres travelled in 1989. Did these sums constitute an allowance within the meaning of subparagraph 6(l)(b)(v)? A reading of subparagraph 6(l)(b)(x) shows that Parliament clearly considered a sum paid on the basis of the number of kilometres travelled as an allowance. Indeed, every allowance which is not evaluated solely on the basis of the number of kilometres travelled in the performance of the duties of the employment is considered as "in excess of a reasonable amount" for the purposes of subparagraph 6(l)(b)(v). [1] It therefore appears clear that an allowance determined on the basis of a number of kilometres travelled constitutes an allowance for the purposes of the Act. This interpretation is furthermore consistent with the remarks stated in an obiter dictum by the Federal Court of Appeal in The Queen v. Cival, [1983] C.T.C. 153, 83 D.T.C. 5168. Ryan J. stated the following at page 159 (D.T.C. 5171-72) of the judgment:

I would add, however, that counsel for Mr. Cival submitted that the mileage paid to Mr. Cival in respect of his use of his car would fall within his income by virtue of section 5 and paragraph 6(1 )(b) of the Income Tax Act as being an "allowance". This would obviously have a serious adverse effect on Mr. Cival if he could not deduct the expenses he actually incurred in qualifying for the allowance. The issue of whether the mileage reimbursement would be an "allowance" is not, of course, before us. It does seem to me, however, that the reasons for judgment of Mr. Justice Noël in Ransom v. M.N.R., [1967] C.T.C. 346, 67 D.T.C. 5235 might well be an answer to the submission that the mileage reimbursement would be an "allowance".

The appellant therefore received an allowance. If it was reasonable, he was not required to include it in his income. However, he was apparently not entitled to deduct his expenses under paragraph 8(1)(f). If his allowance was not reasonable, namely because it was too low, he would have included his allowance in his income pursuant to paragraph 6(1 )(b), but he would have been entitled to deduct his expenses under paragraph 8(1 )(f).

It therefore remains for me to determine whether the allowance received by the appellant was reasonable in the circumstances. The appellant did not provide adequate evidence on this point. Nor did the respondent address this issue in her reply to the notice of appeal. The appellant and his employer appear to have considered the allowance as reasonable since the allowances received in 1988 and 1989 were not included in the appellant’s T4 or in his income pursuant to subparagraph 6(l)(b)(v) of the Act. Nor did the Minister add those allowances to the appellant’s income. He therefore appears not to have disputed the tax treatment adopted by the appellant of those allowances. The appellant and the respondent did not cast doubt, during the hearing, on the reasonableness of the allowance received by the appellant. If the facts are analyzed as a whole, it seems to me possible to conclude that the allowance was indeed reasonable. The reasonableness of an allowance must be assessed taking all the relevant circumstances into account. Each case stands on its own merits. In the instant case, the taxpayer was entitled to an allowance to compensate him for the use of his automobile. However, the appellant had to incur other expenses, namely meal and hotel expenses when he visited the North Shore and Lower St. Lawrence. These expenses also constituted travelling expenses. [2] In the absence of an allowance for these travelling expenses, the allowance for the use of an automobile would not have constituted a reasonable travelling expense allowance. However, his employer reimbursed him for those expenses. Mr. Bolduc indicated that only the expenses incurred from Monday to Thursday were reimbursed. It could be thought that certain travelling expenses could have been incurred on Friday and were therefore not reimbursed by the employer. However, the appellant filed no evidence that he incurred expenses from Friday to Saturday [sic]. It may therefore be presumed that the appellant’s employer reimbursed him for all his other travelling expenses. Based on the evidence heard, it may therefore be concluded in these circumstances that the allowance was reasonable. It was therefore rightly not included in the appellant’s income. Since this allowance was not included in his income pursuant to subparagraph 6(1 )(b)(v), the appellant did not meet the fourth condition set by paragraph 8(1 )(f) and he was therefore not entitled to any expense pursuant to that provision. However, since it is the appellant who is in appeal from the Minister’s assessment, I cannot alter the expenses already allowed by the Minister.

Since the evidence on the reasonableness of the allowance was undermined, I would like to add the following comments. Even if it had to be concluded that the appellant had received an allowance for travelling expenses which he was not required to include in his income pursuant to subparagraph 6(1)(b)(v) because the allowance was not reasonable, I would nevertheless have concluded to the dismissal of his appeal. The evidence which he adduced was inadequate to show that he was entitled to deduct the expenses disallowed by the Minister. He had to convince the Court that those expenses had been incurred and that they related entirely to his employment income. Based on the evidence brought by the appellant, it is not known whether those expenses were incurred: he filed no voucher in support of those expenses. Nor is it known whether they related to his employment. For expenses to be deductible, it is not enough to claim that their percentage is reasonable relative to gross revenue. No adequate evidence was filed as to the use of his automobile for employment purposes or for personal purposes. I am not in a position to determine whether all the expenses pertaining to the automobile concerned its use for the purposes of his employment. The evasive answers provided by the appellant were distinctly inadequate to support his entitlement to claim 35 per cent of his accommodation and entertainment expenses as well as his automobile expenses which the Minister had disallowed him.

For these reasons, the appellant’s appeals are disallowed and the Minister’s assessments for 1988 and 1989 are affirmed, the whole with costs.

Appeals disallowed.