Lome Nelson v. Minister of National Revenue, [1981] CTC 2181, [1981] DTC 190

The Chairman:—The appeal of Mr Lome Nelson is from a tax reassessment in respect of the 1976 taxation year by which the Minister of National Revenue disallowed an amount of $4,088.37 claimed by the appellant as deductible travelling expenses within the meaning of paragraph 8(1 )(h) of the Income Tax Act, SC 1970-71-72, c 63, as amended.

The appellant’s statement of facts reads as follows:

1. The appellant was hired as part of the managerial staff of his employer which had a place of business at Markham, Ontario.

2. Under the terms of his employment, he was required to pay travelling expenses incurred by him in the course of his employment.

3. The taxpayer was not in receipt of an allowance for these expenses.

The respondent’s assumptions of fact read as follows:

(a) During his 1976 taxation year, the appellant was employed as a contracting manager by Konvey Construction Limited;

(b) during his 1976 taxation year, the appellant reported to work at the Ontario Police College in Aylmer, Ontario;

(c) the appellant was not ordinarily required to carry on the duties of his employment away from his employer’s place of business;

(d) the amounts claimed by the appellant for travelling, motel and meal expenses, if actually expended, were personal or living expenditures of the appellant and not expenses of an employee who is ordinarily required to carry on the duties of his employment away from his employer’s place of business or in different places.

Issue:

There is no disagreement between the parties as to the amount of the expenses claimed and there is no dispute as to subparagraphs (il) and (iii) of paragraph 8(1 )(h) of the Act. The sole issue therefore is whether the appellant “was ordinarily required to carry on the duties of his employment away from his employer’s place of business or in different places.”

Summary of Facts:

The appellant, an architect and a lawyer since 1959, had over the years been employed with firms engaged in the management of large construction contracts and had acquired experience in contract management, particularly in the field of scheduling and the critical path method etc.

Early in February of 1976, the president of Konvey Construction Company Limited (hereinafter referred to as Konvey), Mr D D Howley informed the appellant by phone that Konvey had a construction management contract with the Ministry of Government Services of Ontario (hereinafter referred to as MGS) for the construction of the Ontario Police College in Aylmer, Ontario, at a fixed management fee.

The company was experiencing difficulty with the project which was a little more than half finished and considerably behind schedule. The previous contract manager, Mr Anderson, having resigned, arrangments were made for the appellant to meet with Mr M J Watt, the project manager at the Aylmer construction site with a view to his employment in Konvey.

The appellant alleges that during his meeting with Mr Watt, the responsibilities and the duties that would be given were very interesting. On February 23, 1976, the appellant accepted the position offered, that of contract manager for a salary of $22,000 which employment was terminated on November 30, 1976. The appellant’s employment agreement was confirmed by a letter from Mr Watt on March 16, 1976 and produced as Exhibit A-1.

I propose here to refer to the pertinent section of the Act and the case law cited at the hearing before dealing with the submissions.

Paragraph 8(1 )(h) of the Act reads as follows:

Travelling expenses.—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;

Case Law:

In referring to the case law cited at the hearing, it should be recalled that the sole question raised in this appeal was the interpretation to be given to subparagraph 8(1 )(h)(i) of the Act.

The cases cited were:

1. Thomas Healy v Her Majesty the Queen, [1979] CTC 44; 79 DTC 5060;

2. Richard A Ronchka v MNR, [1979] CTC 3071; 79 DTC 854;

3. Leonard A Krieger v MNR, [1979] CTC 2283; 79 DTC 269;

3. William Futoransky v MNR, [1974] CTC 2068; 74 DTC 1060.

As in the cases cited the difficulties in interpreting subparagraph 8(1 )(h)(i) in this appeal centers on what is meant by:

(a) the employer’s place of business.

(b) the duties of the taxpayer’s employment.

(c) ordinarily required to carry out the duties of employment away from the employer’s place of business.

In the Healy case, the Minister of National Revenue had allowed travelling expenses claimed by the appellant under paragraph 8(1 )(h) of the Act, but had disallowed meal expenses claimed by the appellant under subsection 8(4) of the Act. The Federal Court of Appeal, in reversing the decision of the Federal Court Trial Division, allowed the appellant to deduct the meal expenses. The reasons for the Court’s decision as summarized in the head notes are:

(1) the employer’s head office was at all material times in Toronto;

(2) the head office assigned employment schedules disciplined and paid the employers;

(3) the taxpayer worked approximately 2, of 1973 for his employer in Toronto;

(4) while working in Fort Erie, the taxpayer was entitled to deduct his accommodation and travelling expenses, the municipality in which he usually or ordinarily reported for work was Clearly the municipality of Metropolitan Toronto.

Although the facts and indeed the issue in the Healy case are, in my view, essentially different from those of the instant appeal, the remarks of Mr Justice Urie are, in my opinion, both important and pertinent to the instant issue.

Mr Healy was employed by the Ontario Jockey Club and his work assignment required that he perform duties both in Toronto, where the employer’s head office was located, and in Fort Erie where the employer, during certain periods of the year, operated another race track. Among other very valid reasons relative to subsection 8(4) of the Act, it is my opinion that the Fort Erie race track was not the employer’s “establishment” to which Mr Healy ordinarily reported for work and it was because he was, by his employment contract, also required to carry out the duties of his employment at Fort Erie away from the Metropolitan area, where he usually reported for work, that the Federal Court of Appeal allowed the deduction of the meal expenses during the period Mr Healy worked at Fort Erie race track.

In attempting to clarify the meaning of “the employer’s place of business” for purposes of this appeal, I heartily welcome the statement made by Mr Justice Urie and the Healy case where the learned Justice states at 48 and 5064 respectively:

The objective of paragraph 8(1 )(h) is to enable employees who are required by their employment to work from time to time away from the places at which they usually work, to deduct their out-of-pocket expenses in so doing. Subsection 8(4) is designed to prevent abuses in the application of paragraph 8(1 )(h) but not to prevent the legitimate deduction of expenses properly incurred while working at different places. As I see it, the rather restrictive interpretation adopted by the Trial Judge would unfairly detract from the overall objective of the sections.

I also believe that in order to obtain the correct meaning of “the employer’s place of business”, subparagraph 8(1 )(h)(i) of the Act should, as suggested by the learned Justice, be read together with subsection 8(4) of the Act. It appears to be logical and well within the provisions of subsection 3(1) of the Interpretation Act, RSC 1970, c 1-23, to consider that the “employer’s place of business” as used in subparagraph 8(1)(h)(i) of the Act, does not necessarily refer to the employer’s head office or any one of its administrative offices but refer specifically to that establishment of the employer for which the taxpayer was hired, to which he was assigned and at which he ordinarily reports for work. In other words, the “employer’s place of business” should in my opinion be interpreted in relation to the taxpayer.

In the appeal of Richard H Ronchka (supra), I agree with the decision rendered by my learned colleague, Mr Delmer E Taylor, CA, and the reasoning which led him to his conclusions. I do not however share his concern as to the extent to which Mr Justice Urie’s comments cited above should be applicable. I see no reason why any restrictions should be placed on the learned Justice’s words when he is, as I see it, simply defining “the employer’s place of business” as the place where the employee usually works for his employer. In the Healy and Ronchka cases, as in the instant appeal, the determination of the “employer’s place of business” must be made before any other elements of subparagraph 8(1 )(h)(i) of the Act can be considered.

In both the Healy and the Ronchka appeals, the “employer’s place of business relative to the appellant was clearly established and was not in issue; there the question was whether the taxpayer was ordinarily required to carry on the duties of his employment away from the employer’s business or in different places. The issue in the instant appeal is precisely which of the employer’s establishments is the “employer’s place of business” referred to in subparagraph 8(1 )(h)(i) of the Act.

The validity of considering the “employer’s place of business” in relation to the employee’s attendance in interpreting subparagraph (8)(h)(i) of the Act, can best be illustrated by the facts and the submissions made at the hearing.

The appellant alleges that he was hired as a senior management officer for the company’s head office in Toronto. Other than the Ontario police college project in Aylmer, Ontario, which took approximately four years to complete, it is the appellant’s evidence that Konvey had at least two other

places of business: one in Markham, Ontario, and one in the Toronto Dominion Centre in Toronto, both of which the appellant alleges to have attended on occasion in the course of his duties with the company.

The appellant in examination-in-chief explained that under the construction management contract with MGS for the Aylmer project: the project manager; the contract manager, the superintendant and the accountant, all of whom were required to be at the project site on a full time basis had to be acceptable to MGS. Their salaries were negotiated between Konvey and though paid by the Konvey head office in Toronto, the company was reimbursed by MGS which had an on site auditor at the project.

It is also the appellant’s submission that the letter to him from Konvey dated March 16, 1976, does not correctly reflect the importance of the managerial position in the company which the appellant felt was being offered to him. It is contended that the letter was written by Konvey principally to satisfy MGS’s requirements as to the qualifications and experience of the appellant as contract manager of the Aylmer project, and did not mention the appellant’s other responsibilities as a senior management officer of the company which allegedly had been discussed with Mr Watt during their first meeting.

The appellant further contends that the urgency of the Aylmer project and the amount of time he attended at Aylmer in the period of time he was employed by Konvey also seriously distorts the overall role he would have had to play in the company’s general operations over a longer period of time and after the Aylmer project had been completed. The evidence is that the police college was completed two years after the appellant’s employment with Konvey was terminated.

The point of the appellant’s evidence of course is to establish that the appellant’s employment contract with Konvey was not restricted to the Aylmer project, but was really a senior managerial position at the company’s head office in Toronto and that therefore the company’s place of business for the appellant was Toronto.

From this, the appellant concludes that, owing to his managerial position with the company while working on a full time basis in Aylmer, he was ordinarily required to carry on his duties of employment away from his “employer’s place of business” in Toronto or in different places and therefore meets the requirements of subparagraph 8(1 )(h)(i) of the Act.

The respondent’s submission is that the “employer’s place of business” was not Konvey’s head office in Toronto but was the police college project in Aylmer and that in any event, the appellant was not by reasons of his employment ordinarily required to carry out his duties away from the employer’s place of business.

Other than the appellant’s rather vague statement that he believed he was being offered a senior managerial position at the company’s head office in Toronto, there is no evidence which supports that allegation.

The written confirmation of the appellant’s employment contract (Exhibit A-1), does not refer to either the Toronto head office or to Konvey’s establishment in Markham as the “employer’s place of business” for which the appellant was being hired and at which he would normally and regularly work. The facts, as disclosed by the appellant, which are in keeping with Konvey’s letter of confirmation, leads one inevitably to conclude that the “employer’s place of business” to which the appellant was assigned was the police college in Aylmer.

It is the appellant’s evidence that he knew, prior to accepting the position, that Konvey was considerably behind schedule on the Aylmer project and was in difficulty with MGS. He was sent by the president of Konvey to Aylmer to meet Mr Watt, the project manager on site. The appellant knew that he was to replace the previous contract manager of the Aylmer project at the same salary and that he was required to attend at the Aylmer project on a full time basis under the constant surveillance of MGS’s auditor.

Whether the appellant was over-qualified for the position of contract manager, as suggested, and whether the appellant foresaw for himself an interesting future as a senior management officer at Konvey’s head office in Toronto, the preponderance of the evidence is that the appellant was offered the position of contract manager at the Aylmer project and whether or not other more important duties and greater responsibilities were discussed with Mr Watt at their first meeting, the appellant admits having accepted and having carried out the duties of contract manager under the terms set out in the employment agreement for the full period of his employment with Konvey.

In the absence of any other evidence the “employer’s place of business” for purposes of subparagraph 8(1)(h)(i) of the Act in this appeal can only be determined in relation to the appellant’s attendance and work in a particular location. I can see no justification for concluding that because the appellant was hired by Konvey, whose head office is in Toronto, that the “employer’s place of business” for the appellant must be Toronto.

Having concluded for purposes of this appeal that Aylmer and not Toronto is the “employer’s place of business” within the meaning of subparagraph 8(1)(h)(i) of the Act, the duites of the appellant’s employment must also be considered before determining whether the appellant was “ordinarily required to carry out the duties of his employment away from the ‘employer’s place of business’ or in different places”.

Unlike the duties of the taxpayer in the Healy case who by virtue of his employment contract was ordinarily required to carry out the duties of his employment at the Fort Erie race track as well as at the Toronto race tracks, the appellant’s duties in the instant appeal by their very nature were to be carried out at the “employer’s place of business” in Aylmer. Indeed, in Konvey’s confirmation letter in which the apapellant’s duties have been set out, travelling on company business away from the “employer’s place of business” is considered as exceptional and must be cleared with the project manager located in Aylmer. The nature of the appellant’s duties do not therefore ordinarily require that he carry out his duties away from the “employer’s place of business”.

The evidence shows that the appellant in fact did not carry out the duties of his employment away from the “employer’s place of business”. As pointed out by counsel for the respondent, in an attachment to his 1976 tax return the appellant specifically claims expenses covering the entire period of his employment with Konvey which were incurred as a result of his working in Aylmer, Ontario, while living in Toronto. In computing the capital cost al- lowance on his automobile, the appellant calculated a total of 331 days in travelling to Aylmer during the week and to Toronto on weekends.

The appellant did not claim any travelling expenses to London where the appellant stated in examination-in-chief he had travelled to attend meetings with other contractors for a construction project at the University of Western Ontario, nor for trips which the appellant alleges to have made to St. Thomas relative to plans for the construction of a distillery. The review, which the appellant in his testimony stated he was asked to make of claims against Konvey by subcontractors in London, Brantford and Kitchener, was not done in either of those cities, nor in Markham, nor at Konvey’s Toronto office but at the company’s location in Aylmer.

During the strike at the police college in Aylmer in which the appellant was asked to represent the company before the Ontario Labour Board in Toronto, and which lasted two to three weeks, his briefs were prepared not from an office in Konvey’s Toronto head office but from the appellant’s own home in Toronto.

There is nothing in the evidence which links the appellant’s employment to Konvey head office in Toronto or to the company’s establishment with Markham where the appellant on occasion picked-up plans on his way to or from his work in Aylmer. The nature of the appellant’s employment ordinarily required him to perform his duties at and not away from his “employer’s place of business”. The evidence is that the appellant did perform the duties of his employment at the Ontario Police College in Aylmer. The “employer’s place of business” or in different places for purposes of subparagraph 8(1 )(h)(i) of the Act in this appeal, can only be determined in relation to “the place of business” which was assigned to the appellant by the employer and where the appellant usually and regularly worked.

On the basis of the evidence, I must conclude that for the appellant the “employer’s place of business” was the Ontario Police College in Aylmer and not Toronto, and that the appellant was not ordinarily required to carry on the duties of his employment away from the “employer’s place of business” or in different places with the meaning of subparagraph 8( 1 ) (h)(i) of the Act.

For these reasons the appeal is dismissed.

Appeal dismissed.