Earl James Suojanen v. Minister of National Revenue, [1983] CTC 2763, 83 DTC 690

Tremblay, TCJ:—This case was heard on January 14, 1983, at the City of Montreal, Quebec.

1. The Point at Issue

The point at issue is whether the appellant, during the 1978 taxation year, maintained his own business as an industrial appraiser or was employed as an industrial appraiser.

2. The Burden of Proof

2.01 TJie burden is on the appellant to show that the respondent’s assessment is 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 the assessment or reassessment 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 the Appellant for the 1978 taxation year, the Minister of National Revenue assumed inter alia the following facts:

(a) During the 1978 taxation year, the Appellant was employed by the Factory Mutual Engineering Association as an industrial appraiser;

(b) The Appellant was paid exclusively on a salary basis;

(c) The Appellant was not required under his contract of employment to pay his own expenses;

(d) The Appellant was reimbursed by his employer for all expenses incurred in the performance of the duties of his employment;

(e) The Appellant was not required under his contract of employment to provide an office;

(f) During the same taxation year, the Appellant allegedly disposed of a heating stove and a Rolex chronometer;

(g) These objects were used primarily for the personal use or enjoyment of the Appellant;

(h) These objects did not constitute listed personal property in the meaning of section 54(e) of the Income Tax Act;

(i) The automobile, travelling and office expenses claimed by the Appellant, as well as the cost and the proceeds of disposition of the heating stove and the Rolex chronometer, are not supported by vouchers;

3. The Facts

3.01 In his 1978 return (Exhibit R-1), the appellant declared that his type of work was as an industrial appraiser working for Factor Mutual Engineering Association. He claimed $4,570 as “automobile travelling and office expenses” and $1,447 as “allowable capital loss”. These expenses are detailed as follows:

All these expenses were disallowed by the respondent. In that year, he received $18,999 from Factory Mutual Engineering Association (Exhibits R1 and R2).

3.02 The appellant is an associate of Factory Mutual Engineering Association. Factory Mutual Engineering (which is a corporation different from Factory Mutual Engineering Association) is located in Massachusetts. In a letter written from the respondent dated January 26, 1981 (Exhibit R-4) Factory Mutual Engineering gave the information that in 1978, the appellant was ordinarily required to carry on the duties of his employment away from its place of business. His territory was the province of Quebec. He had to use his own automobile. He was required to travel for about 80 days. He was reimbursed for all his travelling expenses, meals, room and automobile expenses on a mileage basis (0.16 for the first 10,000 miles and 0.11 for the next 15,000 miles and 0.07 for the balance). However, he was not required to provide his own office space.

3.03 In a letter dated March 8, 1982 (Exhibit R-5) Factory Mutual Engineering explained that he worked as a senior appraiser:

Mr Suojanen’s duties include providing high quality field appraisals of various complex industrial properties according to prescribed practices and procedures as assigned. He also provides appraisal reports which meet procedural and technical quality standards upon which the premium base for the property insurance can be established. He provides us with reliable technical advice and assistance which we use in the training, motivating, and development of other members within our Appraisal Dept staff. Mr Suojanen, as a Senior Appraiser, also contributes to our collection, preparation, and generation of technical data important to the overall functioning of our Appraisal Department.

Mr Suojanen is required to work 36 /4 hours per week. His work is checked by Mr William Abbott, Supervising Appraiser who is located here in Norwood, Massachusetts, USA. Mr Suojanen does not work with any tools, and he is an employee of Factory Mutual Engineering Association.

3.04 The appellant explained that he appraised hydro and thermal generating plants, pulp and paper companies and mines:

In appraisal work in the field like I do, I worked, last year I worked sixty-nine (69) days for F M and approximately thirty (30) days otherwise and this has been going down as the years go on. This year I worked seventy-five (75) days for F M in the field and the rest of the time is what we call number four (4) time meaning you think about the values, you know, because I go out and I look, like I appraise mines, hydro electric companies and pulp and paper companies and so forth and I also do various small jobs like tobacco companies and so forth and when you go out there there is no price list for this equipment. You have to go out, work up the values yourself which means take notes, you take photographs, you take measurements and get all the information you can from the engineering staff; then determine what it will cost to install, say, a new pulp and paper mill or so forth and this is my position. This is what I do.

I do it rather well too. I’ve done Iron Ore Company of Canada. I’ve done Qubec Iron and Titanium. I have done Montreal Locomotive. I have done Canadian General Electric. I used to do aircraft companies, appraise them. The last I did was Bell Helicopter in New York.

Basically, I do hydro and thermal generating plants, pulp and paper companies and mines.

I appraised Asbestos Corporation for General Dynamics. I have appraised I think every mine in Quebec or practically every mine and it always seems to end up with me. I don’t know why, I never had any complaints about this work. (SN p 14, 15 and 16)

3.05 The appellant, however, testified that:

(a) he had his own office;

(b) he worked not only in the Province of Quebec, but also in Ontario and in Newfoundland;

(c) he had a verbal contract with Factory Mutual, which started in 1967;

(d) he was paid on a salary basis of every two weeks, even though he was not on a specific project the week of the pay:

(e) for his work and for his expenses he was controlled and doublechecked by Mr W Abbott:

(f) he used his wife’s automobile:

(g) the chronometer, for which he claimed a loss, was his wife’s watch;

(h) concerning the stove for which he claimed a loss, it was in his home in Baie d’Urfe.

3.06 In his 1978 tax return, the appellant declared as other income “cash and cheques $670”.

3.07 Concerning the office he had it in his home, it was not listed in the telephone book and the appellant paid no business taxes. There was no exterior sign saying that he was in business.

3.08 The appellant testified that during the former years the office expenses were always allowed. When Factory Mutual wanted to establish an appraisal office in Montreal in 1971, they transferred the appellant, paid the moving expenses and loaned him $2,000 so that he could buy a more expensive house with office space (SN p 9-10). This is the only office Factory Mutual Engineering Association had in Montreal for its appraisal department. For this office, Factory Mutual increased the appellant’s salary by $1,000 a year. However, this did not cover all the expenses. This office contained three rooms. It occupied the entire ground floor of his three-storey home which had 12 rooms. On the ground floor, there was a drafting room and bathroom. “I couldn’t work without an office” (SN p 23); “I spent most of my time in there” (SN p 21).

3.09 Until 1981, the appellant used his wife’s car. After that the company provided him with a car from Hertz. In 1978, he had an accident with his wife’s car in Saguenay in which he was injured. It cost him $467 (Exhibit A-3). Moreover, he had to go back to Saguenay to complete the work. He had to take a Quebecair flight which cost him $50.75 (Exhibit A-3). He was not reimbursed.

3.10 Concerning the car expenses, the company paid only on a mileage basis. It did not cover the repairs, the towing charges, insurance, etc.

3.11 The appellant indeed had to pay for all the expenses, plus the car payment and interest (loan payment $193 per month).

3.12 Concerning the stove, a Franklin 26”, it was bought in November 1977 and was part of the office. He paid it $199.80. However, it did not work: “All it did was smoke up the office”. He sold it for $75.

3.13 Concerning the Rolex chronometer watch it was worth $3,771 when it was stolen from the office (Exhibit A-6).

3.14 Factory Mutual Engineering did:

. . . everything from designing nuclear plants to testing equipment to see that it is, you know, usable like Underwriters Laboratories and so forth to making building design, inventing and patenting things and providing engineering and consulting services and providing the whole, from electronics to rolling equipment to station- ary engines to nuclear generating plants, the whole works, anything, I can think of some appraisals. (SN p 42)

3.15 Concerning the $670, this was received from A J Farrell & Company despite the fact that this company was dissolved in 1976. He had to complete the work. He was paid by somebody formerly involved in the company.

3.16 The appellant said he had a business phone at home. The employer required somebody to answer at the office. His wife was there and she then communicated with him by a CB Radio system.

3.17 Because of an accident during the year 1978, he had to restrict the quantity of work.

4. Law — Cases at Law — Analysis

4.01 Law

The main provisions of the Income Tax Act involved in this case were 3, 8(1 )(h), 9, 38, 39, 40 and 54(e) and (f). They will be quoted in the analysis, if necessary.

4.02 Cases at Law

1. Paul Hecht v MNR, [1980] CTC 2513; 80 DTC 1438;

2. Wolfgang Hauser v MNR, [1978] CTC 2728; 78 DTC 1532;

3. Donald T Tozer v MNR, [1982] CTC 2835; 82 DTC 1815;

4. Gordon J Skinner et al v MNR, [1973] CTC 2260; 73 DTC 208;

5. Romeo Hinse v MNR, [1979] CTC 2884; 79 DTC 740;

6. Jean-Paul Robin v MNR, [1981] CTC 2350; 81 DTC 340.

4.03 Analysis

4.03.1 First it is obvious from the evidence that the appellant was an employee and did not maintain his own business (Exhibits R-4 and R-5 and paras 3.02 and 3.03). Therefore if expenses are to be allowed, it is only pursuant to paragraph 8(1 )(h). This provision 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:

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

(f) or (g),

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

4.03.2 Concerning the losses of $1,447 claimed for the Rolex chronometer (owned by his wife, paras 3.05(g) and 3.13), and for the stove (para 3.12), it was obvious that they were for personal use, and therefore the capital loss must be considered as nil by virtue of subparagraph 40(2)(g)(iii). This provision reads as follows:

40. (2) Notwithstanding subsection (1),

(g) a taxpayer’s loss, if any, from the disposition of a property, to the extent that it is

(iii) a loss from the disposition of any personal-use property of the taxpayer other than listed personal property,

is nil.

Therefore the respondent’s position on this point must be maintained.

4.03.3 Concerning the office, it was obvious pursuant to the appellant’s testimony that he needed an office to complete his work. This, however, was contradicted by his employer who said he was not required to maintain an office under the terms of his contracts (Exhibit R-4). Also according to the appellant, his employer even lent him $2,000 to purchase an appropriate house to have an office, and he even increased his salary by $1,000 to this end. However, such testimony was not confirmed by his employer. It would have been the best evidence. However, even if the Court accepts this evidence, it is obvious that the increase of salary to this end is a kind of compensation to the appellant for the office in his home.

Maybe it is not the best compensation, but how can he claim $2,420 in the 1978 taxation year for business office expenses? The preponderance of evidence confirms the respondent’s position.

4.03.4 Concerning the travelling expenses, the appellant claimed $2,802 (which is 75 per cent of $3,736) (para 3.01). He was reimbursed by his employer on 8,300 miles (which is 75 per cent of 10,500 miles). In fact, he should have received 0.16¢ per mile on 8,300 miles: $1,328. He contended he only received $1,126 from his employer (para 3.01) for the automobile travelling expenses. It is probably because he only claimed for that amount. If an amount was due from the employer he had to claim it. The other travelling expenses (meals, hotel, etc) were reimbursed by the employer (para 3.02).

The preponderance of the evidence is that his employer reimbursed his expenses. The fact that he was reimbursed for the automobile expenses on a mileage basis does not mean that the appellant can claim the other expenses of his wife’s car pursuant to paragraph 8(1 )(h) quoted above. This part of the appeal cannot be allowed.

4.03.5 The appellant contended that he was not reimbursed for $467 for travelling expenses which are neither automobile expenses, nor meals, hotel, etc. It was the cost in consequence of an automobile accident which happened in the Saguenay area (cost: bus, taxis, air fare, etc). After the accident he had to go back to Saguenay to complete the work. Considering these expenses as a whole incurred because of his work and not provided to be reimbursed by the employer, the Court allows this amount.

5. Conclusion

The appeal is allowed in part and the matter referred back to the respondent for reassessment in accordance with the above reasons for judgment.

Appeal allowed in part.