Cornelius Visser v. Minister of National Revenue, [1980] CTC 2638, 80 DTC 1543

M J Bonner:—The appellant appeals from assessments of income tax for the 1975 and 1976 taxation years. During those years the appellant was employed as a union representative by the British Columbia Council of the Retail Wholesale & Department Store Union. In addition to salary the employer paid the appellant $1,456 in 1975 and $1,484 in 1976. On assessment the amounts were regarded as allowances within the meaning of paragraph 6(1)(b) of the Income Tax Act and included in the computation of the appellant’s income. The respondent allowed a deduction for each year of $80 as ‘‘travelling expenses”.

In the notice of appeal the appellant pleaded that “the expense allowance is not taxable under subparagraphs 6(1 )(b)(vii) and 6(1)(b)(v) of the Income Tax Act”. The position of the respondent was that each of the amounts in question “... was an allowance within the meaning of paragraph 6(1)(b) and were not an exception within the meaning of subparagraph 6(1)(b)(v) or clause (vii)(a)”.

The appellant’s duties were described at the hearing by the appellant and by David Thompson, an officer supervisor of the Union. The appellant was engaged in the negotiation and policing of collective agreements. Policing involved, I assume, representing the interests of the Union or its members in connection with such matters as grievances. The appellant was expected, as well, to take advantage of opportunities to organize workers. Finally, his work encompassed endeavours in the public relations field.

A maximum of two hours of the appellant’s normal working day was spent in his office. The remainder of such day was spent in a variety of other places, for example, those places in which collective agreements might be negotiated or in which the resolution of grievances was attempted. The use of a car was required for the efficient conduct of the appellant’s work. Car operating costs and parking charges, whether for parking lot fees, meters, or overtime violations, were incurred. The appellant’s employer provided him with a car and paid credit card charges relating to its use. Parking, however, was among the work related costs intended to be covered by the allowance. The appellant’s work required him to entertain persons such as members of local unions with whom he came in contact in the course of carrying out his duties. Although entertainment of the type required involved primarily purchases of coffee, or possibly beer, for those with whom the appellant was meeting, and thus unit costs were generally small, the groups of persons entertained were usually large enough that costs under this heading tended to mount. Such costs were intended to be defrayed by the allowance in question.

The appellant’s work was carried out both in Vancouver, where he resided and where his office was located, and elsewhere within the Province of British Columbia. The appellant’s employer indemnified him for costs of out-of-town travel. Expenditures for room, meals, travel on common Carriers and airport parking were all reimbursed by the employer on production of receipts. When the appellant used his car for out-of-town travel purposes the operating costs were, of course, covered by the car and credit card arrangement previously mentioned.

The quantum of the allowance was first fixed in the 1950’s. Despite inflation it remained unchanged up to and throughout 1976. It was said to be calculated at $4 per day, and further that it was paid in respect of each day of the year, whether the appellant worked or was on holidays.

Both parties approached this case as one in which the amounts paid to the appellant were allowances.* [1] They directed argument to the question whether the exceptions in subparagraphs 6(1)(b)(v) and (vii) were applicable. The appellant submitted, as well, that if . . subparagraph 6(1)(b)(v) does not apply, then a reasonable expense should be allowed in the amount of $50 to $100 a week as being reasonable expenses with relation to the value of the contracts involvedf [2] and the number of meetings necessary to negotiate these contracts” and he relied on paragraph 8(1)(h).

There was no evidence as to the aggregate costs incurred by the appellant or of any division of costs intended to be covered by the allowance as between parking and entertainment. The appellant explained that he felt that it would be embarrassing to ask for vouchers in order to substantiate amounts spent for entertainment. Both from the tenor of the appellant’s evidence as a whole and from an answer given by the appellant on cross- examination it seems clear that entertainment costs exceeded parking costs, though no precise figures for expenditures were given and no attempt to maintain records was made. It was clear too that the aggregate of costs incurred for purposes intended to be covered by the allowance exceeded by far the amount paid as an allowance.

Subparagraph 6(1)(b)(v) exempts from the allowances required to be included in income “reasonable allowances for travelling expenses”. Although parking expenses appear to fall within the subparagraph (and counsel for the Minister did not suggest otherwise) entertainment expenses do not. In the absence of evidence as to what part of the allowance is designed to cover travelling expense and what costs were incurred under the head of expense, it is impossible to say to what extent, if at all, the allowance falls within the quoted words and thus the appeal cannot succeed by virtue of this exempting provision.

The allowances in question were not, in any way, computed with reference to time spent travelling and thus they cannot be found to qualify under subparagraph 6(1 )(b)(vii).

No relief can be extended to the appellant under paragraph 8(1 )(h). He has failed to show that the amounts expended by him in 1975 and 1976 for parking exceeded the $80 allowed on assessment for each year. It is evident, therefore, that the appeals must be dismissed.

The agent for the appellant relied on an “unidentified Toronto case from 1978’’ in which the respondent was said to have allowed the deduction of a non-accountable allowance. What the respondent has done on other occasions and in relation to other taxpayers has no bearing on the outcome of these appeals. The actions of the respondent in dealing with objections made by other taxpayers do not, as the appellant’s agent suggested, operate as precedents to be followed by this Board in reaching decisions on appeals before it. The law, as enacted by Parliament and interpreted by the Courts, is what is to be applied.

It seems manifestly unfair that income subject to tax should include an amount paid by an employer to an employee with a view to reimbursing that employee for expenditures which the parties reasonably recognize are properly the employer’s costs.

The costs incurred here were, I think, such that they should be regarded as the employer’s costs. The entertainment here was obviously intended to maintain an atmosphere of goodwill between local unions and the district council. Parking costs clearly flowed from the nature of the appellant’s work which required him to attend at a succession of different places in the course of carrying on his normal day’s work.

It is therefore with great reluctance that I dismiss these appeals. I must observe, however, that the situation in which the appellant finds himself is not uncommon. For example, it is not unlike that of the taxpayer in MNR v Wilbrod Bherer, [1967] CTC 272; 67 DTC 5186. In a case such as this appellants often suggest that the Courts should find an “equitable” solution. The assumption which underlies such a suggestion is that this Board can reach the desired end by failing to give effect to plainly applicable provisions of the Income Tax Act. At the risk of reiterating what is obvious, I will point out that the Courts have no choice but to reach a conclusion based on the application of the Income Tax Act to the facts disclosed in evidence. Where what is sought is, in reality, the exercise of a discretion to relieve against the strict application of the Act, the proper course of action is to apply for a remission pursuant to the Financial Administration Act, as was suggested by the Court in the Bherer case.

Finally, I note that the best course of action is to avoid problems in the first place. When employer-employee relationships are being fixed every effort should be made to keep the potential pitfalls of paragraph 6(1)(b) in view, to avoid reimbursing employees by means of allowances for costs which are properly those of the employer and to arrange instead, reimbursement by means of straightforward indemnities against expenses incurred. I cannot refrain from expressing some surprise that such arrangements were not made between the Union and its employees in this case. The employer was, after all a union whose functions included the negotiation of collective agreements for its members. Whatever may be the state of knowledge of the ordinary layman regarding the provisions of the Income Tax Act, one would normally expect a union to be well informed, particularly in areas affecting the taxation of employees. In any event, the assessments have not been shown to be wrong and the appeals must be dismissed.

Appeals dismissed.