Harold W Downs v. Minister of National Revenue, [1983] CTC 2581, 83 DTC 509

Tremblay, TCJ:—This case was heard in London, Ontario, on May 30, 1983.

1. The Point at Issue

The point at issue is whether the appellant, an elected municipal officer for the Town of Tecumseh, is correct in deducting the amounts of $250 and $500 in the computation of his income for the 1978 and 1979 taxation years respectively pursuant to paragraph 8(1)(a) of the Income Tax Act, SC 1970- 71-72, c 63, as amended, as employment expense deductions. The respondent’s contention is that the amount of $250 must be reduced by $77.79 because the appellant received such an amount in 1978 from the Town of Tecumseh as an expense allowance, and the amount of $500 claimed in 1979 must be disallowed because an amount of $1,200 was received by the appellant in the said year and was not included in his income.

2. The Burden of Proof

2.01 The burden is on the appellant to show that the respondent’s assessments are incorrect. This burden of proof results particularly from several judicial decisions, including the judgment delivered by the Supreme Court of Canada in Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

2.02 In the same judgment, the Court decided that the assumed facts on which the respondent based his assessments or reassessments are also deemed to be correct. In the present case the assumed facts are described in the reply to notice of appeal as follows:

5. In assessing tax as aforesaid, the Respondent relied upon the following findings or assumptions of fact:

(a) The Appellant was an elected municipal officer for the town of Tecumseh during the period under appeal;

(b) the Appellant received in the 1978 taxation year an expense allowance of $77.79 from the town of Tecumseh by virtue of his position as a municipal officer, and this amount was not included in the Appellant’s income;

(c) the Appellant received in the 1979 taxation year an expense allowance of 1,200.00 from the town of Tecumseh by virtue of his position as a municipal officer, and this amount was not included in the Appellant’s income.

3. The Facts

3.01 The facts are not in dispute. The appellant, who was elected in November of 1978 and took office on December 1, 1978, indeed admitted the assumptions of fact quoted above.

3.02 In his 1978 and 1979 taxation years he sought to deduct the following amounts from income as employment expense deductions:

pursuant to the provisions of paragraph 8(1 )(a) of the Income Tax Act.

4. Law — Cases at Law — Analysis

4.01 Law

The provisions of the Income Tax Act involved in this case are paragraph 8(1 )(a) and subsections 8(3) and 81(3). They read 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:

(a) a single amount in respect of all offices and employments of the taxpayer, equal to the lesser of $500 and 3% of the aggregate of

(i) his incomes for the year from all offices and employments (other than the office of a corporation director) before making any deduction under this section, and

(ii) all amounts included in computing his income for the year by virtue of paragraphs 56(1)(m) and (o);

8 (3) In computing a taxpayer’s income for a taxation year, no amount is deductible under paragraph (1)(a)

(a) if any amount has been deducted under paragraph (1)(f) in computing his income for the year,

(b) if the taxpayer was, at any time in the year, a member of the Senate or House of Commons of Canada, or

(c) in the case of a taxpayer to whom subsection 81 (2) or (3) applies, except to the extent that the amount otherwise deductible under paragraph (1)(a) in computing his income for the year exceeds the amounts that, but for subsection 81 (2) or (3), as the case may be, would be included in computing that income.

81 (3) Where

(a) an elected officer of an incorporated municipality,

(b) an officer of a municipal utilities board commission or corporation or any other similar body, the incumbent of whose office as such an officer is elected by popular vote, or

(c) a member of a public or separate school board or similar body governing a school district,

has ben paid by the municipal corporation or the body of which he was such an officer or member (in this subsection referred to as his ‘employer’) an amount as an allowance in a taxation year for expenses incident to the discharge of his duties as such an officer or member, the allowance shall not be included in computing his income for the year unless it exceeds /2 of the amount that was paid to him in the year by his employer as salary or other remuneration as such an officer or member, in which event there shall be included in computing his income for the year only the amount by which the allowance exceeds /2 of the amount so paid to him by way of salary or remuneration.

4.02. Cases at Law

The parties referred to the following cases:

1. Burton P Campbell v MNR, [1975] CTC 2319; 75 DTC 244;

2. Robert D P Blake v MNR, [1977] CTC 2516; 77 DTC 364.

4.03. Analysis

4.03.1 The appellant’s submissions are well summarized in his notice of appeal as follows:

1. Section 8(3) where it refers to elected officials, is certainly referring to a position of full time reponsibility. It is our contention that at no time was the limitation re employment expense deduction intended to affect remuneration not included in this section. Our contention is that an elected municipal official receiving income from that position which includes an expense allowance solely related to expenses incurred in the performance of municipal duties is not and should not be eligible for the deduction. Conversely an individual who receives remuneration from an office or employment is properly eligible for the deduction under 8(1 )(a). Logically the income of one is not related to the income of the other nor the expense allowance of one is not related to the deduction for expenses of the other. Therefore when one individual performs two completely separate functions the one certainly cannot effect the reporting of the other for purposes of taxation. For example, an individual serving as a part time elected member of a municipal council should not receive the expense deduction on income received from that position but it is certainly illogical to take away the deduction from other income which is totally unrelated to the municipal office. If the deduction would legally be available on that income, if the individual was not an elected official, then there can be no justice in eliminating his/her eligibility merely on the basis of public service.

2. No section of the act which relates to the employee expense deduction speaks specifically of elected municipal officials but only of Members of the House of Commons and Members of the Senate. This we contend was intentional and meant to give relief in the specific instance as recorded above.

3. The wording of Section 8(3) refers to the earnings of an elected municipal official and those earnings are exactly that; the remuneration received from the municipality for the performance of duties. Other income of that individual are the earnings from an office or employment and not related to that referred to in section 8(3). Therefore again we stress that the limitation on earnings of an elected municipal official should have no bearing on other earnings even though there may be only one taxpayer serving in more than one capacity.

4. An individual who runs a part time business is eligible to claim related expenses against income from that source. If the individual holds down other employment eligible under 8(1)(a) then the right to claim the deduction still exists. A similar situation exists for the part time elected municipal official and we contend that the elected office not being related to other employment then there should not be any reduction in the deduction as it effects the other employment.

4.03.2 The Court shares the respondent’s opinion that the deduction provided for in paragraph 8(1 )(a) applies only once for all offices or employments that a taxpayer may have during a taxation year. Paragraph 8(1 )(a), quoted above, reads . . a single amount in respect of all offices or employments of the taxpayer . .

In the case of Robert D P Blake (supra) Mr Taylor, of the then Tax Review Board, did not share the position of the taxpayer who “wore four hats” (teacher, politician, farmer and student) during the year involved and who claimed four deductions pursuant to paragraph 8(1)(a).

4.03.3 Despite the appellant’s opinion that it is “illogical to take away the deduction from other income which is totally unrelated to the municipal office”, that is the decision of the legislator. There is only a single deduction provided for in paragraph 8(1 )(a).

In the case of “a member of the Senate or House of Commons of Canada” (paragraph 8(3)(b)) no amount is deductible under paragraph 8(1)(a). However, in the case of “an elected officer of an incorporated municipality” (subsection 81 (3) ), which is the case of the appellant, the legislator has provided relief despite the fact that he also receives tax free expense allowances (this relief is provided in subsection 8(3)). The reason for this relief is probably based on the fact that the allowance of an alderman is not as substantial as that received by a member of the Senate or House of Commons of Canada.

4.03.4 The Court is bound by the Income Tax Act in giving its decision. Strict interpretation must be given to the said Act. Pursuant to the provisions involved and the evidence adduced the Court must maintain the reassessments.

5. Conclusion

The appeal is dismissed in accordance with the above reasons for judgment.

Appeal dismissed.