William H Gauvin v. Minister of National Revenue, [1979] CTC 2812, 79 DTC 696

Delmer E Taylor:—This is an appeal heard in the City of Montreal, Quebec, on April 12, 1979, against income tax assessments for the years 1973 and 1974 in which the Minister of National Revenue disallowed amounts of $1,233.19 and $1,030.18 respectively, claimed by the appellant as automobile expenses. The respondent relied, inter alia, on section 3, paragraph 8(1 )(h), subsection 8(2) and paragraph 6(1)(b) of the Income Tax Act, SC 1970-71-72, chapter 63, as amended.

Facts

During the relevant years, Mr Gauvin was employed by Noranda Mines Limited as Director of Research and Development at Pointe Claire, Quebec (adjacent to the City of Montreal proper). He used his automobile as a means of transportation in connection with his employment, particularly to attend meetings and conferences in the Montreal area about three or four times per week, and in other localities about once or twice per month.

Contentions

The notice of appeal relates the appellant’s position as follows:

1. It is my conviction that Section 33(c) of IT-272 specifically applies to my Situation. This section reads as follows:

‘When an employee considers that the milage allowance he receives is unreasonably low, he may include it in income and claim his automobile expenses and capital cost allowance under paragraph 8(1)(h) and (j) provided he qualifies under these paragraphs.’

2. My claim for automobile expenses for the year 1976 was accepted by REVENUE CANADA and a credit issued on December 13, 1977. The situation in 1973 and 1974 was identical to that prevailing in 1976, for which year my claim was allowed.

For the respondent, the following assertions were made:

—The appellant was not ordinarily required to carry on the duties of his employment away from his employer’s place of business or in different places;

— Under the contract of employment, the appellant was not required to pay for the expenses incurred in the performance of the duties of his employment;

—The appellant was reimbursed for all expenses incurred in performance of the duties of his employment;

— During the relevant years, the appellant was in receipt of a travel allowance of 12¢ per mile in 1973 and from 15¢ to 18$ in 1974 to cover his automobile expenses:

—Upon submission of vouchers the appellant was reimbursed all expenses other than those mentioned in the precedent subparagraph incurred in the performance of his duties;

—The automobile expense which the appellant claims to deduct in computing his income for the relevant years are not reasonable and constitute personal and living expenses of the appellant.

Evidence and Argument

Essentially the taxpayer restated his position, relying upon interpretation Bulletin No IT-272 noted above. The respondent presented legal cases touching on the various aspects of the sections of the Act under which the assessments were made, to support the following argument:

The question for determination is whether the mileage allowance received by the appellant is an ‘allowance” within the meaning of subparagraph 8(1 )(h)(iii). The respondent respectfully submits that the said mileage allowance does not constitute such an allowance since it was not computed by reference to time actually spent by the employee travelling away from his employer’s place of business, but rather by reference to the milage covered while travelling in the pursuit of his employment.

Under his contract of employment, the appellant was entitled to receive a milage allowance to cover all his car expenses including gas, oil, repairs, insurance, depreciation.* [1] Accordingly, under subparagraph 8(1 )(h)(ii), it could not be said that under his contract of employment the appellant was required to pay the car expenses incurred by him in the performance of the duties of his employment,! [2] and therefore, the appellant is entitled to no deduction under that section or under any other provision of the Act.! [3]

Secondly, the respondent wishes to submit that the milage allowance received by the appellant from Noranda Mines constitutes a reasonable compensation of the appellant’s expenses.* [4] The mere fact that the appellant has incurred expenses over the allowance received is not sufficient per se to establish that these additional expenses are reasonable. The evidence showed that the mileage allowance had been established by Noranda Mines on the basis of statistics provided by the Montreal Board of Trade. Such mileage allowance was intended to cover all the appellant’s car expenses including gas, oil, repairs, insurance, depreciation. Furthermore, it would be difficult to assume that a company enjoying the status achieved by Noranda Mines would not be prepared to pay all reasonable expenses of their employees. Therefore, one must but conclude that the additional expenses claimed by the appellant are not reasonable in the circumstances and therefore, not deductible from his income for the relevant years.

In conclusion, the respondent wishes to submit that the appellant failed to establish that the assessment under appeal was wrong. Having failed to establish, inter alia, that:

(1) Under his contract of employment the appellant was required to pay the car expenses incurred on the performance of his duties;

(2) The additional expenses claimed by him were in the circumstances reasonable . . .

Findings

For assistance, the Board quotes certain sections of the Income Tax Act and of Interpretation Bulletin IT-272 which it considers relevant to this appeal:

Section 6(1 )(b)(vii):

(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) Personal or living expenses.—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

(viii) allowance (not in excess of reasonable amounts) for travelling expense received by an employee (other than an employee employed in connection with the selling of property or negotiating of contracts for his employer) from his employer if they were computed by reference to time actually spent by the employee travelling away from

(A) the municipality where the employer’s establishment at which the employee ordinarily worked or to which he ordinarily made his reports was located, and

(B) the metropolitan area, if there is one, where the establishment was located,

in the performance of the duties of his office or employment,

Section 8(1 )(h):

(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) 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 (9),

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

Interpretation Bulletin IT-272

Allowances for Travelling Expenses

24. In this bulletin, the word ‘allowance’ means any periodic or other payment that an employee receives from his employer, in addition to his salary or wages, without having to account for its use. An allowance is subject to tax unless it falls within the exceptions listed in subparagraphs 6(1)(b)(i) to (ix) or unless it is excluded from income under subsection 6(6) (see paragraph 38 below).

25. If the Department considers that an allowance claimed to be non-taxable under subparagraph 6(1 )(b)(v), (vi) or (vii) is unreasonably high, the employee is required to provide vouchers or other acceptable evidence to show that the allowance is not in excess of a reasonable amount. Where he is so required but is unable to do this, the excess over the amount determined to be reasonable is included in his income.

Other Employees

31. Where an employee receives an allowance for travelling expenses which meets the requirements of subparagraph 6(1 )(b)(vii), the wording of that subparagraph is such that it prohibits him from voluntarily including the allowance in income for the purpose of qualifying for a deduction of expenses under paragraph 8(1)(h). This is because, unlike subparagraphs 6(1)(b)(v) and (vi) which refer to ‘reasonable’ allowances, subparagraph 6(1 )(b)(vii) refers to allowances ‘not in excess of reasonable amount’. Too low an allowance is not ‘in excess’ of a reasonable amount.

32. To qualify for exclusion from income under subparagraph 6(1 )(b)(vii), an allowance must be calculated on a per diem or other basis having reference to time actually spent in travelling by the employee.

33. Where an employee receives an allowance based on mileage for the use of his car in the employer’s business, the following comments apply:

(a) If the allowance is reasonable, the Department considers this a reimbursement for the use of the car. Therefore, the amount of the allowance is excluded from income and no automobile expenses or capital cost allowance may be claimed under paragraphs 8(1)(h) or (j).

(b) Where a milage allowance is in excess of a reasonable amount or where it covers the employee’s personal expenses such as driving back and forth to work, such excess or such amount received for personal expenses is included in income. It may be necessary for the Department to examine the vouchers and other supporting documents to establish the excess or the personal expense portion.

(c) Where an employee considers that the mileage allowance he receives is unreasonably low, he may include it in income and claim his automobile expenses and capital cost allowance under paragraphs 8(1)(h) and (j) provided he qualifies under these paragraphs. An employee claiming automobile expenses in excess of the mileage allowance received should attach a detailed list of automobile expenses to his income tax return and must be prepared to substantiate his claim fully with vouchers, daily logbook or similar record of total miles driven and miles driven in his employer’s business, and any other pertinent documents.

34. An allowance calculated with reference to the length of time spent away from the location of the employer’s establishment to which the employee makes his reports is not necessarily an allowance for travelling; it may be instead a liv- ing or “hardship” allowance which should be included in computing the employee’s income.

Reimbursements and Accountable Advances

35. In this bulletin

(a) “reimbursement” means a payment by an employer to his employee to repay him for amounts he has spent on his employer’s business, and

(b) “accountable advance” means an amount given by an employer to his employee for expenses to be incurred by the employee on the employer’s business and to be accounted for by the production of vouchers and the return of any amount not so spent.

36. Usually a reimbursement or an accountable advance for travelling expenses is not income in the hands of the employee receiving it unless it represents payment of the employee’s personal expenses. For example, a reimbursement or accountable advance for expenses incurred in travelling between his home and the employer’s place of business at which he ordinarily reports for work is included in income.

First, the Board notes that it does not agree with the point raised by counsel for the respondent—that the mileage allowance is not an “allowance” within the meaning of subparagraph 8(1)(h)(iii). There is no qualification such as the one noted by counsel in that section—there is

such a qualification in subparagraph 6(1 )(b)(vii). The mileage allowance (if an allowance at all) is therefore not an allowance which may be excluded from income—it must be included in income, and (again if an allowance) meets the qualification of subparagraph 8(1 )(h)(iii). As to the question of whether it is or is not an allowance—the definition given in Interpretation Bulletin IT-272 at paragraph 24 quoted above leaves me with considerable doubt that a post facto reimbursement at a rate per mile travelled, such as the amount involved in this appeal, would fall within those parameters. This would be particularly true if one extended the Bulletin definition to encompass the elements contained in the Pascoe* [5] decision (see hereunder) for the same word. Nevertheless, this aspect of the matter was not raised by counsel and I make no effort to determine it.

There are at least two other aspects of this appeal (one of which was touched upon by counsel) that could present serious obstacles for the appellant:

—whether the term “ordinarily” in subparagraph 8(1 )(h)(i) has been met;

—whether the fact that he was reimbursed by Noranda (no matter how inadequately, in his option) negates the condition in subparagraph 8(1 )(h)(ii) that he “was required to pay..

However, in my view, the crux of this issue rests in the argument of counsel that the claim made by the appellant is not reasonable.

The Minister’s argument that the amount claimed is unreasonable would appear to mean that either Noranda did not fully reimburse the appellant on a realistic business basis for the automobile expenses he incurred on behalf of the company; or that the appellant owned and operated personally a more expensive (less economical) automobile than that contemplated in the mileage charge provided by Noranda, considered by that company to be sufficient for providing adequate transportation for Noranda’s purposes. While the mileage rates paid by Noranda (12¢ in 1973 and 15¢ to 18¢ in 1974) may not have been overly generous, they are certainly not unreasonable according to information provided to the Board regarding the standards for those years. Therefore, I can only reach the conclusion that the excess charges claimed by this appellant arose from his choice of a personal automobile and its operation. No matter how sensible his arguments may appear on the surface (that he required such an automobile because of the nature of the travel), and the business visitors he accommodated; and that it was used two-thirds of the time for Noranda), that choice and the results that flow from it must remain personal. It was clearly not at the direction of Noranda that he drove an automobile which would entail operating costs above those determined by the company to be reasonable. The circumstances under which the implementation of paragraph 33 (particularly part (c)) of the Interpretation Bulletin would find statutory support are less than clear to me, but I am of the view that the circumstances of this case could not apply. The specific condition in paragraph 33(c) is that the employee considers the allowance “unreasonably low’’. While it might be “low” in the view of the appellant, to be “unreasonably low” would require, as I see it, a mileage allowance set below the standard or reasonable amount for the functions it was intended to reimburse, not merely lower than the total operating costs incurred. There is no evidence in this case to support a conclusion that this was the situation.

Conclusion

The appellant has not shown that the circumstances of this case permit him to deduct the travelling expenses claimed under paragraph 8(1 )(h) of the Income Tax Act since the claim he has made may not reasonably be regarded as applicable to earning his income as an employee of Noranda.

Decision

The appeal is dismissed.

Appeal dismissed.