REASONS FOR JUDGMENT
Owen J.
I. Introduction
[1] Mr. Volodymyr Bykov (the “Appellant”
) appeals reassessments of his 2015, 2016, 2017 and 2018 taxation years (collectively, the “Reassessments”
). The Reassessments reduced or denied certain expenses that the Appellant claimed in respect of his employment during his 2015, 2016, 2017 and 2018 taxation years (collectively, the “Taxation Years”
).
[2] The Appellant filed a separate notice of appeal for each of the four Taxation Years. With the consent of the parties, the four appeals were heard together on common evidence.
[3] The legal issues raised by these appeals result from the distinctions in the Income Tax Act (Canada) (the “ITA”
) between income from a source that is an office or employment and income from a source that is a business. Subsection 8(2) expressly limits the amounts that may be deducted by a taxpayer in respect of an office or employment to the amounts that are permitted by section 8.
[4] The parties agreed that the Appellant was employed by four separate employers in 2015 and three separate employers in 2016, 2017 and 2018 (individually, an “Employer”
and, collectively, the “Employers”
). I confirmed with counsel for the Appellant that the Appellant was not taking the position that during the Taxation Years the Appellant was an independent contractor rather than an employee.
II. The Facts
[5] The Appellant testified on his own behalf. I found the Appellant to be a credible witness.
[6] The Respondent did not call any witnesses.
[7] The Respondent set out in the four Replies to the four Notices of Appeal filed by the Appellant the assumptions of fact made by the Minister of National Revenue (the “Minister”
) when reassessing each of the Taxation Years. Rather than repeating all of the assumptions of fact here, I have reproduced them in Appendices A
to D
of these reasons for judgment.
[8] I must accept the Minister’s assumptions of fact as true unless the Appellant meets his evidentiary burden to demolish the Minister’s assumptions.
[9] The Appellant testified that he is a visiting registered nurse who provides nursing services to individuals in their own home, or in a retirement or nursing home. The majority of the Appellant’s patients are in palliative care.
[10] During the Taxation Years, the Appellant provided nursing services six days one week and four days the next week on a rotating basis. Each week included two or three seven-hour night shifts during which the Appellant was on standby for patients that required urgent care during the night.
[11] Each evening prior to a workday, the Employers would provide the Appellant with a schedule of the individuals that he was to visit the following day (I will refer to these individuals as “patients”
). The Appellant estimated that he visited between 10 and 30 patients during a day shift and that he worked on average of 40 to 45 hours per week plus the two to three seven-hour night shifts.
[12] A visit to a patient could involve any of a number of nursing services provided by the Appellant depending on the needs of the patient. A visit could also involve consultation with one or more members of the patient’s family.
[13] The Employers paid the Appellant a fixed amount for each patient visit regardless of the nursing services provided by the Appellant. For example, the terms of employment with S.R.T. Med-Staff in Exhibit A-4 state under the heading “Wages, Benefits and Vacation”
:
As a nurse working in the community you are paid by the client visit at a rate of $36.00 per visit, less any applicable statutory and other deductions.
[14] The Appellant lived in Bradford, Ontario and travelled from there to visit the patients. The Employers did not provide the Appellant with a place to work and required the Appellant to have a car, a cell phone and a home office with a fax machine and office supplies.
[15] The Appellant testified that he maintained an office in his home that occupied most of the basement (the “home office”
). The Appellant used the home office to hold telephone consultations with other medical professionals (e.g., doctors) regarding patients, to store medical supplies provided by the Employers, and to store the medical records of patients under the Appellant’s care.
[16] The Appellant stated that the patients’ medical records were confidential and that he was required to store the records securely in an area of his home office with restricted access.
[17] The Appellant submitted copies of the T2200 forms issued by the Employers for each of the Taxation Years (collectively, the “T2200s”
). The T2200 forms issued by Spectrum show home office use of 15 percent for all of the Taxation Years and the T2200 forms issued by S.R.T. Med-Staff show home office use of 30 percent for all of the Taxation Years. The T2200 forms issued by ParaMed show home office use of “50%”
for 2015, “<40%”
for 2016, “40%”
for 2017 and “less than 50%”
for 2018.
[18] Section 5 of the T2200s indicate that ParaMed and Spectrum gave the Appellant a motor vehicle allowance, which the Appellant testified was less than the per kilometer amount accepted by the Canada Revenue Agency (the “CRA”
) as a reasonable automobile allowance. The Appellant stated that he deducted the difference as an employment expense.
[19] Section 5 of the T2200 forms issued to the Appellant by Spectrum for the Taxation Years states that the Appellant’s motor vehicle allowance was calculated on a per visit basis rather than a per kilometer basis. The allowances for 2015, 2016, 2017 and 2018 were $8,008.80, $7715.35, $7,501 and $5,995.95, respectively. The T2200 forms indicate that these amounts were not included on the Appellant’s T4s for the Taxation Years.
[20] Section 5 of the T2200 forms issued by ParaMed for the Taxation Years states that the motor vehicle allowance was 0.38 cents per kilometer. The allowances for 2015, 2016, 2017 and 2018 were $502.51, $1,097.22, $651.01, and $369.67, respectively. Section 5 of the T2200 form for 2018 also identifies $5.30 as a fixed motor vehicle allowance that was included on the Appellant’s T4 for that year.
[21] On the T2200s, each Employer answered “no”
to the question “Did you require this employee to be away for at least 12 consecutive hours from the municipality and metropolitan area (if there is one) of your business where the employee normally reported to work?”
and “yes”
to the question “Did you normally require this employee to travel to locations that were not your place of business or between different locations of your places of business, during the course of performing his or her employment duties?”
.
[22] The Appellant testified that because his wife’s name was on the insurance policy the CRA allowed only one-half of the cost of his motor vehicle insurance even though his wife did not have a driver’s licence. The Appellant did not submit evidence in support of the quantum of the motor vehicle insurance premium.
[23] The Appellant testified that he maintained records of his employment activities and expenses including a time log showing the time spent performing his employment duties and a mileage log showing his motor vehicle use for employment. The Appellant testified that he provided the records to the CRA by registered mail.
[24] The Appellant did not provide the Court with a copy of any records or logs, and also did not provide the Court with documentary evidence regarding the sending of records to the CRA by registered mail. The Appellant testified that he received letters from the CRA stating that the CRA did not receive the records.
[25] The Appellant provided the Court with a copy of a T777 Comparative Summary of Employment Expenses that covered the Taxation Years. The T777 form, in conjunction with the Appellant’s testimony regarding the form, is evidence of the employment related expenses claimed by the Appellant for the Taxation Years, but it is not evidence in support of the quantum of those expenses.
[26] In cross-examination, the Appellant agreed with counsel for the Respondent that his employment by the Employers did not require or involve the selling of property or the negotiating of contracts for the Employers.
A. Position of the Parties
(1) The Appellant
[27] The Appellant submits that he was a commissioned employee because he was paid on a per patient visit basis and that he is entitled to deduct the expenses that he claimed for the Taxation Years.
[28] With respect to the use of the home office, the percentages on the T2200s issued by the Employers add up to more than 50 percent and therefore the condition in paragraph 8(13)(a) is satisfied.
(2) The Respondent
[29] The Respondent submits that the Appellant was a salaried employee and denies the Appellant’s entitlement to a deduction of expenses greater than the expenses allowed by the Reassessments.
[30] The Appellant was not employed in connection with the selling of property or the negotiation of contracts and therefore the deductions permitted by paragraph 8(1)(f) do not apply to the Appellant.
[31] Contrary to the position of the Appellant, the use of a home office must be determined for each office or employment and the percentage of use for each of the three separate employments in issue in these appeals cannot be aggregated.
[32] All but one of the T2200s indicates home office use by the Appellant of less than 50 percent and the remaining form indicates home office use of exactly 50 percent in 2015. This use does not satisfy the condition in subparagraph 8(13)(a)(i).
[33] The Appellant received a non-taxable automobile allowance from ParaMed and Spectrum and the additional motor vehicle related amounts claimed by the Appellant were not deductible under section 8.
III. Analysis
[34] Generally speaking, an individual that carries on a business is entitled to deduct any reasonable expense that is not on account of capital and that is incurred for the purpose of gaining or producing income from the business. In contrast, under subsection 8(2), an employee may deduct only those expenses that are permitted by section 8.
[35] The provisions of the ITA that are relevant to these appeals are paragraphs 6(1)(b), 8(1)(f), (i), (h), (h.1) and (j) and subsections 8(2) and (13). I have reproduced these provisions in Appendix E
to these reasons for judgment and will refer to them as required for clarity.
[36] The Appellant submits that paragraph 8(1)(f) applies to the expenses he incurred in respect of his employment by the Employers. The introductory words of paragraph 8(1)(f) state the following condition that must be met for the paragraph to apply to the Appellant:
where the taxpayer was employed in the year in connection with the selling of property or negotiating of contracts for the taxpayer’s employer, and …
[37] The Appellant is a registered nurse who provides nursing services to patients and who is compensated for those services on a per patient visit basis. The Appellant acknowledged that he did not sell property or negotiate contracts for the Employers.
[38] Based on the opening words of subparagraph 8(1)(f) read in their entire context and in their grammatical and ordinary sense, the Appellant does not qualify for the deductions permitted by that paragraph because during the Taxation Years the Appellant did not sell property or negotiate contracts for the Employers.
[39] The technical notes issued in May 1991 that accompanied a proposed amendment of paragraph 8(1)(f) state, in part:
Paragraph 8(1)(f) permits a commissioned salesperson to deduct amounts expended for the purpose of earning income from employment, where the salesperson was not in receipt of a non-taxable travel allowance and was required by the contract of employment to pay his or her expenses and carry on the duties of employment away from the employer’s place of business.
[Emphasis added.]
[40] The purpose of paragraph 8(1)(f) is to allow a salesperson to deduct expenses related to the activities of selling and negotiating contracts provided certain additional conditions are satisfied such as payment by commission. The fact that the Appellant was paid by the Employers on a per visit basis does not bring the Appellant within the scope of paragraph 8(1)(f). The Appellant’s nursing duties are simply not the kind of employment duties contemplated by paragraph 8(1)(f).
[41] Subparagraphs 8(1)(i)(ii) and (iii) allow a deduction for office rent and supplies consumed in the performance of an employment, respectively. The Appellant did not suggest that he paid office rent, and the supplies consumed by the Appellant in the performance of his nursing duties were provided by the Employers. Therefore, the only supplies that would fall under subparagraph 8(1)(i)(iii) are miscellaneous office supplies. The Appellant did not provide evidence of the quantum of expenditures on miscellaneous office supplies.
[42] Even if an expenditure was proven and satisfied the requirements of paragraph 8(1)(f) or (i), the amount may not be deductible because of subsection 8(13). This is because subsection 8(13) provides that no amount is deductible under paragraph 8(1)(f) or (i) unless specified conditions are met. Paragraph 8(13)(a) states:
Notwithstanding paragraphs (1)(f) and (i),
(a) no amount is deductible in computing an individual’s income for a taxation year from an office or employment in respect of any part (in this subsection referred to as the “work space”) of a self-contained domestic establishment in which the individual resides, except to the extent that the work space is either
(i) the place where the individual principally performs the duties of the office or employment, or
(ii) used exclusively during the period in respect of which the amount relates for the purpose of earning income from the office or employment and used on a regular and continuous basis for meeting customers or other persons in the ordinary course of performing the duties of the office or employment;
[Emphasis added.]
[43] With respect to the Appellant’s employment by each of the Employers, the condition in subparagraph 8(13)(a)(i) requires that he principally perform the duties of his employment at his home office.
[44] The word “principally”
is an adverb that is defined in the Oxford English Dictionary (online) to mean “For the most or greater part; in most cases; in the main; mostly.”
The word connotes an action that is greater than 50 percent of all relevant actions. This is the meaning adopted in the tax case law.
[45] The nature of the Appellant’s employment activities—caring for patients in their home, or in a nursing or retirement home—strongly suggests that the greater part of the Appellant’s employment activities do not take place at his home office. Rather, the Appellant’s use of his home office is ancillary to and in support of the performance of his nursing duties at other locations.
[46] This general observation is confirmed by the T2200s, which indicate home office use in respect of employment by Spectrum of 15 percent for all of the Taxation Years, home office use in respect of employment by S.R.T. Med-Staff of 30 percent for all of the Taxation Years, and home office use in respect of employment by ParaMed of “50%”
for 2015, “<40%”
for 2016, “40%”
for 2017 and “less than 50%”
for 2018.
[47] Contrary to the position asserted by the Appellant, the “principally”
requirement in subparagraph 8(13)(a)(i) applies separately to each employment and, therefore, the percentages shown on the T2200s cannot simply be added together. I note that even if the employments were addressed on an aggregate basis, based on the T2200s the total home office activity would always be 50 percent or less of all relevant activity because at no time does the percentage of home office activity for an Employer exceed 50 percent of total activity.
[48] Subparagraph 8(13)(a)(ii) has two conditions. First, the home office must be used by the Appellant exclusively for the purpose of earning income from employment. Secondly, the home office must be used by the Appellant on a regular and continuous basis for meeting customers or other persons in the ordinary course of performing the Appellant’s employment duties. The Appellant did not suggest that he satisfied the second condition and there is no evidence to indicate that the second condition was satisfied. Telephone conferences participated in by the Appellant from the home office do not qualify as using the home office to meet customers or other persons.
[49] Based on the foregoing, even if the Appellant was entitled to a deduction for home office expenses under paragraph 8(1)(f) or (i), the deduction would be denied because the Appellant does not satisfy the requirements of either subparagraph 8(13)(a)(i) or 8(13)(a)(ii).
[50] The remaining provisions in issue are paragraphs 8(1)(h), (h.1) and (j). Paragraph 8(1)(h) addresses travel expenses other than motor vehicle expenses, paragraph 8(1)(h.1) addresses motor vehicle expenses, and paragraph 8(1)(j) addresses the cost of acquiring a motor vehicle (i.e., interest and capital cost allowance).
[51] Subparagraphs 8(1)(h)(i) and (ii) and subparagraphs 8(1)(h.1)(i) and (ii) state the following requirements for paragraphs 8(1)(h) and (h.1), respectively, to apply:
where the taxpayer, in the year,
(i) was ordinarily required to carry on the duties of the office or employment away from the employer’s place of business or in different places, and
(ii) was required under the contract of employment to pay the [8(1)(h): travel expenses] [8(1)(h.1): motor vehicle expenses] incurred by the taxpayer in the performance of the duties of the office or employment, …
[52] The Appellant clearly met these conditions. Under the terms of his employment by each of the Employers the Appellant was ordinarily required to travel throughout the GTA to see patients, to have a motor vehicle and to incur travel and motor vehicle expenses. While it is possible that the Appellant occasionally met patients at an Employer’s place of business (e.g., a retirement home or nursing home operated by the Employer), the Appellant was also required to meet patients in their homes in the ordinary course of his employment duties.
[53] Under subparagraph 8(1)(h)(iii), paragraph 8(1)(h) does not apply to travel expenses if the Appellant received an allowance for the travel expenses that was not included in his income because of subparagraph 6(1)(b)(v), (vi) or (vii). The evidence indicates that the Appellant did not receive an allowance for travel expenses from any of the Employers. Consequently, the Appellant’s reasonable travel expenses incurred by him in the performance of the duties of his employment by each of the Employers were deductible. I will address the quantum of such expenses at the conclusion of these reasons for judgment.
[54] Under subparagraph 8(1)(h.1)(iii), paragraph 8(1)(h.1) does not apply to motor vehicle expenses incurred by the Appellant if the Appellant received an allowance for the motor vehicle expenses that was not included in income because of paragraph 6(1)(b).
[55] Subject to a parenthetical exception that does not apply to the Appellant, subparagraph 6(1)(b)(vii.1) excludes from the income of an employee “reasonable”
allowances received by an employee from the employer for travelling in the performance of the duties of the employment.
[56] In Nicoll v. R., 2023 TCC 116, the Tax Court judge reproduced subparagraphs 6(1)(b)(vii) and (vii.1) and then observed:
11 The above wording has been in effect since 1994 and applies to the 1990 taxation year and later. The retroactive amendment in 1994 specifically deleted the previous wording of “allowances (not in excess of reasonable amounts)” from both subparagraphs 6(1)(b)(vii) and (vii.1) and replaced it with “reasonable allowances”.
12 In explanation of the amendment, the May 30, 1991 Department of Finance Technical Notes say:
These paragraphs are amended, applicable to the 1990 and subsequent taxation years, to provide that reasonable allowances in respect of travelling expenses and motor vehicle expenses will be excluded in computing the income of an individual from an office or employment. Thus allowances that are not reasonable, rather than only those in excess of a reasonable allowance, may be included in income. In these circumstances, the taxpayer may be entitled to a deduction with respect to travelling expenses under paragraph 8(1)(f) or (h).
[Footnotes omitted.]
[57] The question of whether an allowance is reasonable or is not reasonable is a question of fact. The word “reasonable”
in the sense employed in subparagraph 6(1)(b)(vii.1) connotes that an amount must be within limits of what it would be rationale or sensible to expect in the circumstances.
[58] In Mohammad v. Canada, [1998] 1 F.C. 165 (FC-AD), the Court observed:
[28] When evaluating the reasonableness of an expense, one is measuring its reasonableness in terms of its magnitude or quantum. Although such a determination may involve an element of subjective appreciation on the part of the trier of fact, there should always be a search for an objective component. …
[59] Neither the Respondent nor the Appellant argued that the motor vehicle allowances provided to the Appellant by ParaMed and Spectrum were not reasonable and in the absence of evidence demonstrating manifest unreasonableness I see no reason to address that question of fact.
[60] In addition to the factual question of reasonableness, subparagraph 6(1)(b)(x) deems an allowance not to be reasonable where the measurement of the use of the motor vehicle used to calculate the allowance is not based solely on the number of kilometers driven for the relevant employment, and subparagraph 6(1)(b)(xi) deems an allowance not to be reasonable where the taxpayer receives both an allowance in respect of the use of a motor vehicle and is reimbursed in whole or in part for expenses in respect of that use.
[61] With the exception of the fixed allowance of $5.30 in 2018, the motor vehicle allowance provided by ParaMed for each of the Taxation Years was not included in the Appellant’s income because of subparagraph 6(1)(b)(vii.1). Accordingly, the Appellant was not entitled to a deduction of motor vehicle expenses incurred in respect of his employment by ParaMed for any of the Taxation Years.
[62] The fact that the CRA may have considered a greater per kilometer allowance than that provided by ParaMed reasonable does not entitle the Appellant to deduct the difference under paragraph 8(1)(h.1) when the allowance was not included in income because of subparagraph 6(1)(b)(vii.1) and there is no evidence that the allowance was not reasonable.
[63] According to the T2200 forms issued to the Appellant by Spectrum, the motor vehicle allowance provided to the Appellant by Spectrum was not based solely on the number of kilometers driven by the Appellant in connection with his employment by Spectrum. Consequently, the motor vehicle allowance was not excluded from the Appellant’s income by subparagraph 6(1)(b)(vii.1) because it was deemed not to be reasonable by subparagraph 6(1)(b)(x).
[64] However, section 5 of the T2200 forms issued by Spectrum to the Appellant for the Taxation Years indicates that Spectrum did not include the motor vehicle allowance on the T4s it issued to the Appellant for the Taxation Years. Also, the Appellant did not report this allowance as income, the CRA did not challenge the Appellant’s filing position and based on the Respondent’s submissions, the Respondent appears to have assumed that the allowance was not taxable.
[65] Paragraph 8(1)(h.1) states that a taxpayer that meets the conditions recited in subparagraphs 8(1)(h.1)(i) and (ii) is entitled to deduct motor vehicle expenses incurred for travelling in the course of employment:
… except where the taxpayer
(iii) received an allowance for motor vehicle expenses that was, because of paragraph 6(1)(b), not included in computing the taxpayer’s income for the year …
[Emphasis added.]
[66] In this case, the motor vehicle allowance provided by Spectrum to the Appellant for each of the Taxation Years was not included in computing his income because Spectrum failed to include the allowance on the T4s issued to the Appellant for the Taxation Years and the Appellant did not otherwise report the amount as income.
[67] Because based on the evidence subparagraph 6(1)(x) clearly did apply to the allowance provided by Spectrum, paragraph 6(1)(b) did not apply to exclude the allowance from the Appellant’s income. Consequently, the limitation in subparagraph 8(1)(h.1)(iii) did not apply to the motor vehicle expenses incurred by the Appellant in respect of his employment by Spectrum.
[68] Although this is a peculiar result, it is nevertheless clearly the result mandated by the words of subparagraph 8(1)(h.1)(iii) when read in their entire context and in their grammatical and ordinary sense.
[69] The result is not inconsistent with the purpose of the exclusion in subparagraph 8(1)(h.1)(iii), which is to disallow a deduction for a motor vehicle expense if the taxpayer has received an allowance that is not included in the income of the taxpayer because of paragraph 6(1)(b). This purpose is not thwarted if the allowance is not included in income for some other reason.
[70] In order to be entitled to a deduction under paragraph 8(1)(j), the Appellant must be entitled to a deduction under paragraph 8(1)(f), (h) or (h.1). I have found that the Appellant was entitled to deduct the travel expenses that he incurred in respect of his employment by each of the Employers. I have also found that the Appellant was entitled to deduct the motor vehicle expenses that he incurred in respect of his employment by S.R.T. Med-Staff and Spectrum. Consequently, the Appellant is entitled to deduct the amounts identified in paragraph 8(1)(j) for the motor vehicle used by the Appellant in the performance of his employment duties for the Employers.
[71] The foregoing analysis of the law does not address the quantum of the expenses allowed to the Appellant under paragraphs 8(1)(h), (h.1) or (j). The quantum of the expenses that may be deducted by the Appellant is impacted not only by the actual amount of the expenses incurred by the Appellant but also by issues such as whether any of the Appellant’s travel was between his home and a place of work. Evidence such as receipts, travel logs and motor vehicle logs would allow the Court to address such issues.
[72] Unfortunately, apart from the Appellant’s testimony that he maintained records and logs that he provided to the CRA, and that he incurred the expenses indicated on the T777 comparative summary entered as Exhibit A-17, the Appellant provided no evidence supporting the quantum of the expenses incurred by him that qualify for deduction under paragraph 8(1)(h), (h.1) or (j). I raised this issue with counsel for the Appellant during argument and counsel conceded that there was no evidence on the record regarding the quantum of the expenditures incurred by the Appellant.
[73] The Appellant’s evidence regarding the type of records he maintained and the quantum of expenses that he claimed is not the sort of evidence that challenges the Minister’s assumptions of fact regarding the quantum of the employment expenses he incurred during each of the Taxation Years. Consequently, I have no choice but to accept the Minister’s assumptions as to the quantum of those expenses. As recently stated by the Federal Court of Appeal in Dirani:
[5] In denying the appellant’s claims, the Minister relied on the following assumptions: the company’s assets exceeded its liabilities upon its dissolution, the appellant did not make an investment in the company, and the company did not owe any uncollectible debt to the appellant.
[6] The Tax Court determined that the appellant had failed to demolish these assumptions. The Tax Court judge carefully reviewed the evidence before it (Oral Reasons at pages 3-5), and found that the appellant had not submitted any evidence upon which it could conclude that he had either advanced money to the company or incurred any bad debt (Oral Reasons at pages 10-11).
…
[12] The expiry of the time periods prescribed in subsection 230(4) of the Act and section 5800 of the Regulations do not shield or immunize taxpayers from the evidentiary burdens they face in Tax Court proceedings. To hold otherwise would undermine the integrity of our self-assessing tax system. Maintaining books and records is an ongoing obligation in a self-assessing system and the appellant’s failure to do so also made it impossible for him to meet the evidentiary burden on him to demolish the Minister’s assumptions.
[74] The failure of the Appellant to present evidence challenging the assumptions of fact made by the Minister regarding the quantum of the Appellant’s travel and motor vehicle expenses leads inexorably to the conclusion that the Appellant has failed to satisfy the burden of proof placed on the Appellant to establish to a balance of probabilities the facts that show the Reassessments to be wrong.
[75] For the foregoing reasons, the appeals by the Appellant of the Reassessments are dismissed without costs.
Signed at Ottawa, Canada, this 14th day of March 2024.
“J.R. Owen”
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