Her Majesty the Queen v. Leroy R Creamer, [1976] CTC 676, 76 DTC 6422

Dubé, J:—This is an appeal from a Tax Review Board decision allowing defendant’s appeal from an income tax assessment for his 1972 taxation year. In computing his income, defendant claimed as a deduction the sum of $495 as disbursements for meals.

The Minister of National Revenue assumed that the principal business of Imperial Oil Limited, in 1972, the employer of the defendant, was not passenger, goods, or passenger and goods transport, under paragraph 8(1)(g) of the Act,* [1] and disallowed the expenses. The paragraph reads:

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:

(g) where the taxpayer was an employee of a person whose principal business was passenger, goods, or passenger and goods transport and the duties of the employment required him, regularly,

(i) to travel, away from the municipality where the employer’s establishment to which he reported for work was located and away from the metropolitan area, if there is one, where it was located, on vehicles

used by the employer to transport the goods or passengers, and

(ii) while so away from such municipality and metropolitan area, to make disbursements for meals and lodging,

amounts so disbursed by him in the year to the extent that he has not been reimbursed and is not entitled to be reimbursed in respect thereof;

It is common ground that the defendant satisfies all the other requirements of the exemption; the sole issue is whether or not the taxpayer was an employee of a person whose principal business was transport. Defendant alleges that he was not really an employee of Imperial Oil Limited, but an employee of the transportation department of Imperial Oil Limited, or in the alternative, that transport was a principal business of Imperial Oil Limited.

The taxpayer is, and was at all times material, a truck driver employed at delivering petroleum products in southern New Brunswick from a terminal located at Saint John. He received his instructions from the terminal dispatcher of the transportation department of Imperial Oil Limited and from a schedule posted on the bulletin board in the dispatcher’s office. He drove approximately 250 miles a day. His noon meals were had on the road at his expense; unless he was out more than twelve hours, when his noon meals were reimbursed from petty cash at the terminal.

Two letters from Imperial Oil Limited to the Department of Justice provide useful information as to the internal structure of the company. The first, dated May 25, 1976, answers specific questions; questions and answers 2 and 3 read as follows:

Question 2: How many departments are there is the organization known as Imperial Oil Limited?

It is not possible to answer this question with a precise number of departments. The Company is divided into two main segments:

(a) Operating.

(b) Administrative and Services.

Within each of these segments are further breakdowns by department and division. See reply to question 3.

Question 3: What are these departments, how many employees in each, assets used by each—are any of these incorporated?

Number of Regular Employees Dec 31/72

Production and Exploration	1,484
Logistics and Marketing	931
Transportation	1,569
Esso Chemicals and Other	375
Administration and Services	2,832
	7,191

A short paragraph from the second letter dated June 14, 1976 is meaningful:

Leroy R Creamer is not employed by a subsidiary company. He is employed by Imperial Oil Limited as a truck driver in the distribution division of Atlantic region.

On a form provided by National Revenue and titled “Claim For Board and Lodging Expenses”, defendant lists his occupation as “route salesman” and the name of his employer as “Imperial Oil Limited”. His T4 slip shows “Imperial Oil Limited” as the employer. His Statement of Investment Income attached to his 1971 income tax return refers to “T3 Imperial Oil Savings Plan” and “T4 PS Imperial Oil Savings Plan”. His regular pay cheques from which all the deductions are made (including Canada Pension Plan and income tax) are issued from Imperial Oil Limited, Toronto, Ontario.

There is no document showing that the defendant was employed by the “Transportation Department” of Imperial Oil Limited. There was evidence that he was working within that division of the company, employed as he was in the transport and delivery of petroleum products. His immediate supervisors were also working within that division of the company structure.

There is no evidence that the transportation department is a separate legal entity. “Employment” is defined in subsection 248(1) of the Act as “the position of an individual in the service of some other person”, and “person” includes “any body, corporate and politic”.

The Supreme Court of Canada held in 1960 in MNR v Imperial Oil Limited, [1960] SCR 735; [1960] CTC 275; 60 DTC 1219, that it was wrong for the Exchequer Court to treat the producing department of imperial Oil Limited as a separate entity. Judson, J said this at pages 748-9 [288, 1224]:

In my opinion, this was error. It may have been convenient for the company for its own corporate purposes to treat the producing department as a separate entity and to include this “unrealized profit” as part of the “profits” of the producing department. In fact, the producing department was not a separate entity for tax purposes and, therefore, the company was not entitled to treat the producing department in this way. If it makes any difference, and I do not think that it does, all the accountancy witnesses based their opinion in resisting the claim for deduction on the assumption that the producing department could be treated as a separate entity. No such assumption could be made in law. No company makes an actual profit merely by producing oil. There is no profit until the oil is sold.

I have no hesitation in finding that the defendant was in 1971 an employee of Imperial Oil Limited. There now remains to decide whether or not the “principal business” of Imperial Oil Limited was “passenger, goods, or passenger and goods transport” as required by paragraph 8(1)(g) of the Act.

“The Imperial Oil Company” was incorporated by letters patent dated September 8. 1880 “for the purposes of the purchase of Refineries, plant and machinery, the carrying on of the business of buying, leasing, letting and selling petroleum oil lands . . . and the doing of all such other things as are incidental . . . throughout the Dominion of Canada”. Supplementary letters patent lead to the present name, Imperial Oil Limited.

In its letter to the Department of Justice dated May 25, 1976, Imperial Oil Limited supplied the following answer to the first question:

Question 1: Does Imperial Oil Limited hold itself out as a corporation whose principal business falls within paragraph 66(15)(h) of the Income Tax Act?

Imperial Oil Limited considers itself a “principal-business corporation’ within the meaning of paragraph 66(15)(h) of the Income Tax Act.

Paragraph 66(15)(h) reads as follows:

66. (15) In this section,

(h) “principal-business corporation” means a corporation whose principal business is,

(I) production, refining or marketing of petroleum, petroleum products

or natural gas, or exploring or drilling for petroleum or natural gas,

(il) mining or exploring for minerals,

(iii) processing mineral ores for the purpose of recovering metals therefrom,

(iv) a combination of

(A) processing mineral ores for the purpose of recovering metals therefrom, and

(B) processing metals recovered from the ores so processed,

(v) fabricating metals,

(vi) operating a pipeline for the transmission of oil or natural gas, or

(vii) production or marketing of sodium chloride or potash, or whose business includes manufacturing products the manufacturing of which involves processing sodium chloride or potash; . . .

The 1972 annual report of the company filed as an exhibit describes the operations of the company. The opening paragraph provides a useful overview of the company’s activities:

1972 was a good year for Imperial Oil. Increased production of crude oll and natural gas, firmer product prices in some markets, and continued improvements in operating efficiency combined to bring earnings to $151 million, an increase of $15 million over the 1971 figure. The Operations Review beginning on page 10 provides a detailed report on the activities over the year. In assessing the year’s operations, several aspects merit special attention. The first of these is Imperial’s increased gross production of crude oil and natural gas liquids, which reached 96 million barrels in 1972, an increase of 23 per cent over 1971. This level of production is not just the result of the over-all increase in demand for Canadian crude; it reflects Imperial’s earlier assessment of the crude market situation and the large pre-investment the company made to expand field production facilities accordingly. Imperial continued to make substantial investments in these facilities during 1972.

The annual report covers extensively the exploration and production aspects of the operations and offers merely a 3-paragraph section on transportation.

The May 25, 1976 letter answers question 8 with the following breakdown of expenses:

Question 8: A general breakdown of operating, marketing, transportation, administrative and other expenses.

			Millions of
			Dollars
Operating			128
Marketing			255
Transportation			67
Administrative			15
Other			I
			466
Crude Oil	Products	and
Merchandise Purchases			1,734
Total Expenses (before
income taxes)			2,200

The letter also provides a general breakdown of the sources of revenue of the company during the 1972 taxation year:

What constitutes the “principal business” of a company is a question of fact (viz, MNR v Consolidated Mogul Mines Limited (now called Mogul Mines Limited), [1969] SCR 54; [1968] CTC 429; 68 DTC 5284).

Imperial Oil Limited was incorporated for the purposes of operating refineries and dealing in petroleum oil lands. In a letter to the Department it considers itself a “principal-business corporation” within the meaning of paragraph 66(15)(h) of the Act, which means a corporation whose principal business is the production, refining or marketing of petroleum products. Its 1972 annual report emphasizes the exploration and production activities of the company. Its answers to questions reveal that in 1971 only $67 million went for transportation expenses out of total expenses of $2,200 million. There is no revenue from the transportation division in the general breakdown of revenue for the year, totalling $2,350 million.

The conclusion therefore is inescapable that the principal business of Imperial Oil Limited is not the transport of persons or goods. Obviously the transport of petroleum products plays an important role in its overall operations, but an ancillary one. Imperial Oil Limited is not principally engaged in the transport business, it is in the oil business. Thus the defendant was employed by a person whose principal business was not transport.

Well might the taxpayer be aggrieved at the apparent inequity of an Act which deprives him of an exemption allowed his fellow truck drivers (whose employers’ principal business is transport) but he will not find his remedy before the courts who must interpret the law as written by the legislators.

I cannot but repeat that well entrenched, but still depressing, adage that taxation is the rule and exemption the exception. In order to benefit from the exception, the taxpayer must show, and the burden is on him, that his case falls strictly and squarely within the four corners of the exemption.

The defendant may however find some consolation in the fact that pursuant to subsection 178(2) of the Act, there shall be paid to him all of his reasonable and proper costs. If both parties cannot agree as to costs, there shall be taxation thereof.

The appeal is allowed.