Date: 19981123
Docket: 97-2588-IT-I
BETWEEN:
FRANCES J. EVANS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Porter, D.J.T.C.C.
[1] The Appellant received notices of reassessment dated March 14, 1996 relating to the taxation years 1992 and 1993, with respect to travel expenses she had claimed against her employment income, as a school psychologist with the Calgary Board of Education ("C.B.E.").
[2] The Appellant filed the appropriate Notice of Objection with the Minister of National Revenue (the "Minister") on June 7, 1996. On June 11, 1997 a Notification of Confirmation of the reassessment by the Minister was sent to her. She has now appealed that reassessment to this Court.
[3] The appeal was heard under the informal procedure at Calgary, Alberta on September 23, 1998.
[4] The issue revolves around her claim to deduct from her income, motor vehicle travel expenses which she had incurred in the respective amounts of $3,697.26 in 1992, and $5,569.12 in 1993. She claimed that pursuant to paragraph 8(1)(h.1) of the Income Tax Act (the "Act") these expenses had been incurred for travel in the course of her employment and that she was required under her contract of employment to incur these in the performance of her duties. In short, she was required as a term of her employment, to travel between various schools in the school district for which she was reimbursed. However, she received no reimbursement with respect to travel between her residence and the first and last schools that she visited in a day. It is with respect to this latter travel that she has made her claim.
[5] The Minister confirmed the reassessment on the following basis:
"you received an allowance of $274.09 and $465.24 in 1992 and 1993 respectively for motor vehicle expenses you incurred to travel for work. Under subparagraph 6(1)(b)(vii.1), this amount was not included in income. Accordingly, you cannot claim a deduction of $3,869.26 and $5,714.12 for 1992 and 1993 respectively from income under paragraph 8(1)(h.1). Also, subsection 8(2) does not allow a deduction for this amount in calculating your income from an office or employment."
The Facts
[6] In his Reply to the Notice of Appeal, counsel for the Minister set out the following:
"2. He admits:
(a) that the Appellant is employed with the Calgary Board of Education (the "Employer") as a psychologist;
(b) that the Appellant is required to use a motor vehicle in the performance of her duties;
(c) that pursuant to her duties, the Appellant is required to visit some 20 to 30 schools on an irregular, itinerant and rotational basis;
(d) that the Appellant receives no reimbursement for trips between the Appellant's residence and her place of employment with the Employer; and
(e) that in calculating her claim for motor vehicle expenses for 1992 and 1993, the Appellant has deducted the allowance received from the Employer
as stated in the Notice of Appeal.
3. In computing income for the 1992 and 1993 taxation years, the Appellant claimed as employment expenses, inter alia, motor vehicle travel expenses in the amount of $3,697.26 for 1992 and $5,569.12 for 1993, calculated as follows:
1992
ITEM AMOUNT
Fuel and Oil $ 988.21
Maintenance and Repairs 718.43
Insurance 1,431.00
License and Registration 58.00
Capital Cost Allowance 3,129.11
Subtotal $ 6,324.75
Less: Personal Use
(8,000 Km/21,500 Km x $6,324.75)= 2,353.40
Subtotal $ 3,971.35
Less: Non Taxable Allowance $ 274.09
Allowable Motor Vehicle Expenses $ 3,697.26
1993
ITEM AMOUNT
Fuel and Oil $ 874.00
Maintenance and Repairs 1,942.79
Insurance 1,815.00
License and Registration 106.00
Capital Cost Allowance 5,319.48
Subtotal $10,057.27
Less: Personal Use
(10,600 Km/26,500 Km x $19,057.27)=4,022.91
Subtotal $ 6,034.36
Less: Non Taxable Allowance $ 465.24
Allowable Motor Vehicle Expenses $ 5,569.12
4. The original notices of assessment in respect of the 1992 and 1993 taxation years were dated and mailed to the Appellant on April 28, 1993 for 1992 and May 9, 1994 for 1993.
5. In reassessing the Appellant for the 1992 and 1993 taxation years, the Minister of National Revenue (the "Minister"), inter alia, disallowed the claim for motor vehicle travel expenses for each year.
6. In so reassessing the Appellant, the Minister made the following assumptions of fact:
(a) the facts admitted supra;
(b) at all material times, the Appellant was employed by the Employer in the position of a psychologist;
(c) the Appellant travelled no more than 978 kilometres in 1992 and 1,661 kilometres in 1993 in respect of the performance of her duties of office or employment with the Employer;
(d) the Appellant was in receipt of a reasonable allowance in the amount of $0.28 per kilometre for each year from her Employer in respect of the use of a motor vehicle for travelling in the performance of the Appellant's duties of office or employment;
(e) the allowance stated in paragraph 6(d) supra that was received in each year by the Appellant was not included in computing the Appellant's income for the 1992 and 1993 taxation years by reason of paragraph 6(1)(b) of the Income Tax Act (the "Act");
(f) the Appellant was not required under her contract of employment with the Employer to pay any motor vehicle travel expenses;
(g) the Appellant's claim for motor vehicle travel expenses includes those expenses incurred for travelling between the Appellant's residence and her place of employment with the Employer and, in respect of this, the kilometres claimed by the Appellant as those incurred for employment purposes that are in excess of the kilometres for which the Appellant received an allowance were in respect of such travel between the Appellant's residence and her place of employment;
(h) travel between the Appellant's residence and her place of employment with the Employer is personal in nature.
9. He submits that the Appellant is not entitled to claim a deduction for motor vehicle travel expenses in respect of the 1992 and 1993 taxation years as:
(a) the Appellant was not required under the contract of employment to pay any motor vehicle travel expenses; and
(b) the Appellant was in receipt of an allowance for motor vehicle travel expenses that was, by reason of paragraph 6(1)(b) of the Act, not included in computing the income of the Appellant for each year
within the meaning of paragraph 8(1)(h.1) of the Act and is, therefore, prohibited by subsection 8(2) of the Act from deducting the expenses claimed from employment income.
10. He further submits that travel between the Appellant's residence and her place of employment with the Employer is personal and, therefore, the Appellant is not entitled to a deduction in respect such travel in accordance with paragraph 8(1)(h.1) and subsection 8(2) of the Act."
[7] The Appellant agrees with most of the above but disagrees specifically with items 5(c), (f), (g) and (h).
[8] The Appellant gave evidence about her situation. She was a school psychologist during the years in question, engaged by the Calgary Board of Education for a salary, on a full-time basis. Her duties comprised of providing psychological assessments, testing and counselling for students at the various schools throughout the school district. She was part of a team of eight.
[9] Although she had space available to her at a central administrative office at Parkdale to do her administrative work, on the whole she spent very little time there, as the facility was small and crowded and she had to share the space with other personnel. It was not conducive to her work nor was it near the schools at which she generally attended and thus there was no need for her to attend there on any regular basis.
[10] Her daily duties in essence required her to travel from her residence in the north west of Calgary directly to her first appointment at a school somewhere in the school district. She did her work there and then moved on throughout the day to other schools, returning at the end of the day directly from the last school to her home. She often had to be at a school before regular school hours and wait after those hours to conduct interviews with parents and teachers.
[11] The policy of the C.B.E. was to reimburse her for travel between the first school at which she attended in the day and the various other schools to which she went in the district up to the last school of the day. There is no dispute that this was a reasonable allowance for that part of the travel, and was not taxable pursuant to paragraph 6(1)(b) of the Act. However, she received no reimbursement for travel between her home and the first school of the day nor between the last school of the day and her home. It made no difference whether these first and last schools were closer or further away from her residence than the administrative office. They could have been next door to her home or on the other side of the city.
[12] In addition to the above, the Appellant gave evidence that throughout the school year the trunk of her car was full of large briefcases and boxes which contained papers and evaluations and assessment forms relating to her professional duties. She produced photographs showing that the trunk of her car was full with these things and had no room for any personal items. She said in evidence that they remained there permanently throughout the school year as they were too heavy to lift in and out on a daily basis. She simply restocked any supplies as they diminished. The secondary aspect of her claim therefore related to the necessity of having a car to cart these documents and papers around on a daily basis as part of her employment, including to and from her residence.
[13] Credibility was not an issue and I have no hesitation in accepting the evidence of the Appellant as to how she went about her duties. It is the implication of what she did that is the issue. Counsel for the Minister conceded that the reasonableness of the amounts claimed is not in issue.
[14] I have no difficulty in finding that the Appellant was required to carry out her duties away from the employer’s place of business or in different places. The first question is whether the expenses which she incurred daily, driving between her residence and the first school of the day and returning from the last school to her residence were expenses, which she was required under the terms of her contract of employment to incur, in the performance of the duties of her employment or whether they were personal in nature. The second question is whether, if they were part of her employment duties, she was barred from claiming them under paragraph 8(1)(h.1) of the Act by virtue of the exception in subparagraph (iii) as a result of having received a non taxable allowance, under paragraph 6(1)(b) of the Act, from her employer with respect to the inter school travel.
[15] The Minister, whilst conceding that the Appellant was required to use her motor vehicle in the performance of her duties, that these duties required her to visit some twenty to thirty schools on an irregular itinerant and rotational basis and that she was only reimbursed by her employer for inter school travel, specifically denied that any of the travel between the first and last schools of the day and her residence, were expenses that she was required to pay under her contract of employment. He maintained that these expenses were personal in nature and thus not deductible from her employment income.
[16] Lastly, I make mention of the fact that I received in evidence a letter from Don Andrews, Director of School, Student and Parent Services at the C.B.E. Although dated February 24, 1997, the evidence was that it applied equally to the years in question. The letter confirmed the duties and responsibilities of the school psychologists generally. It concluded with the following words:
"...The volume and weight of records and testing materials necessitates the use of a motor vehicle.
In summary, school psychologists working on behalf of the Calgary Board of Education must have access to a personal motor vehicle to undertake and complete their assignments in accordance with their job description."
I have no reason not to accept this evidence and I do accept it.
The Law
[17] The pertinent parts of subsection 8(1) of the Act read as follows:
"Deductions allowed.
(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.1) Motor vehicle travel expenses. – where the taxpayer, in the year,
(i) was ordinarily required to carry on the duties of employment away from the employer's place of business or in different places, and
(ii) was required under the contract of employment to pay motor vehicle expenses incurred in the performance of the duties of the office or employment,
amounts expended by the taxpayer in the year in respect of 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, by reason of paragraph 6(1)(b), not included in computing the taxpayer's income for the year, or
..."
[18] The relevant parts of subsection 6(1) read as follows:
"6. Amounts to be included as income from office or employment.
(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
...
(vii.1) reasonable allowances for the use of a motor vehicle received by an employee (other than an employee employed in connection with the selling of property or the negotiating of contracts for the employer) from the employer for travelling in the performance of the duties of the office or employment,
..."
[19] The Minister made mention of paragraph 18(1) in the Reply to the Notice of Appeal. However, in view of counsel’s concession that reasonableness was not an issue, I need not consider this further; similarly with section 7306 of the Regulations.
[20] I have specifically considered the following cases on subject:
Rozen v. The Queen, 1986 1 C.T.C. 50, 85 DTC 5611
Hoedel v. The Queen, 1986 2 C.T.C. 419, 86 DTC 6535
The Queen v. Mina and Jacobi, 1988 1 C.T.C. 380
[21] The Minister has taken the position that the allowance paid to the Appellant by her employer, for inter school travel and claimed by her as non taxable pursuant to subparagraph 6(1)(b)(vii.1) of the Act, acts per se, as a bar to her claiming any further motor vehicle expenses under paragraph 8(1)(h.1) in relation to that employment. With respect, in my view, the Act does not go that far.
[22] It is clear that if a taxpayer travels 1,000 kilometres in the course of his or her employment and receives an allowance of say 25 cents per kilometre, which by reason of section 6(1)(b) is not included in income, he or she cannot then claim that allowance to be insufficient in respect of the same travel and that he or she should be entitled to claim, as a deduction, further expenses in relation to that travel, unless it falls into the ‘woefully inadequate’ category referred to in the Mina case (above). The exception in paragraph 8(1)(h.1)(iii) is clearly a bar to this.
[23] However, the argument advanced by the Minister that such an allowance acts as a bar to a claim for expenses relating to different travel not covered by that allowance, could lead to absurd results, which clearly would not be within the contemplation of the legislation and is not supported by the case law on the issue. Say for example, the taxpayer was required as part of his or her employment to drive his own vehicle some 40,000 kilometres in a year and for whatever reason was only reimbursed by the employer for 100 of those 40,000 kilometres. Could it be said, that allowance should act as a bar to claiming as an expense against the employment income, the cost of travelling the remaining 39,900 kilometres. That would be an absurd result, which should be avoided. The allowance might be perfectly reasonable as it relates to the travel for which it was paid but it should have no bearing upon the travel for which it was not paid.
[24] The same principle was dealt with in the Rozen case (above), that if a taxpayer is required to use his vehicle for employment purposes, both within a city and outside the city, but is only reimbursed for travel outside the city by way of a non taxable allowance under subparagraph 6(1)(b)(vii.1), that taxpayer is still entitled to claim his or her expenses against employment income, for the travel within the city, as long as it meets all the other relevant criteria.
[25] In my view, the section makes complete and adequate sense if given the interpretation that if a taxpayer receives an allowance for motor vehicle expenses which, by reason of paragraph 6(1)(b), is not included in his or her taxable income, he or she can claim no further amounts in respect of motor vehicle expenses expended with respect to that same travel (unless "woefully inadequate" as per the Mina case above), even if the actual expenses exceeded the allowance for that travel. However, if he or she incurs expenses for travel, other than that covered by the allowance, done in the performance of duties under the contract of employment, express or implied, then the existence of that allowance is not a bar to a claim to set off those other expenses against employment income pursuant to subparagraphs 8(1)(h.1)(i) and (ii). In short, the exception under subparagraph 8(1)(h.1)(iii) relates only to the expenses of travel for which the allowance was paid and is not a bar to a claim for expenses relating to travel for which it was not paid.
[26] I am fortified in this approach by the words of Strayer J. in the Rozen case (above) where at page 52 he says:
" The fact that there was some reimbursement based on a mileage rate fixed by the employer, with respect to out-of-town use does not prevent the taxpayer’s automobile expenses from being within subparagraph 8(1)(h.1)(ii): see Faubert v. M.N.R., [1979] C.T.C. 2723: 79 D.T.C. 641 (T.R.B.); Cival v. The Queen, [1981] C.T.C. 392 at 399; 81 D.T.C. 5311 at 5316-17 (F.C.T.D.) (reversed on other grounds by the Federal Court of Appeal [1983] C.T.C. 153; 83 D.T.C. 5168)...."
A little later in the same judgment he said:
"I believe also that subparagraph 8(1)(h)(ii) can be interpreted somewhat more broadly. Even if the plaintiff were not specifically required to use his car, he was required to pay his travelling expenses incurred by him in the performance of his duties and this would also bring him within the subparagraph. The evidence was clear that to do his job the plaintiff had to go to the offices of a variety of clients. No provision was made for reimbursement for transportation for getting to those offices except with respect to those outside of Vancouver where at least car mileage was allowed. If an employee is obliged to travel to do his work and his employer is not prepared to pay the exact and total cost of transportation, then he must come within the requirements of subparagraph 8(1)(h)(ii). This question was not under consideration before the Federal Court of Appeal in Cival. On this basis, it is not really very important whether the plaintiff here was obliged to use his car or not; he was obliged to get himself and his papers to the firm's clients and there was no arrangement, at least in the circumstances relevant to this case, whereby the employer undertook to pay the total transportation costs."
[27] The Rozen case was cited with approval by Jerome A.C.J. in the Mina case (above), when he said at page 385:
"...I endorse Mr Justice Strayer’s remarks in Rozen that where an employee is obliged to travel to do his work, if his employer is not prepared to pay the exact and total costs of transportation, then he must come within the requirements of subparagraph 8(1)(h)(ii). It remains to be seen whether the reasonable costs in this situation were covered by the mileage allowance. If not, they are properly deductible under paragraph 8(1)(h)."
[28] Whilst it is clear that in the normal case a taxpayer may not deduct as an expense against his or her employment income, the costs incurred for travel between home and employer’s place of business, albeit that he or she might take work home on a more than infrequent basis, as this is generally considered to be a personal expense, the question that arises in this case is whether the travel between the residence and the first and last schools at which she attended were expenses she could claim under paragraph 8(1)(h.1). In order to do so, the Appellant must show:
a) that she was ordinarily required to carry on her duties of employment away from the employer’s place of business or in different places
b) that she was required to pay motor vehicle expenses under her contract of employment and
c) that they were incurred in the performance of the duties of the employment.
[29] It is clear from the Rozen and Mina cases (above), that it may be an actual or implied term of the contract. If it is an expectation of the employer that the employee will use personal transportation or if it is clear that the employee could not do the job properly without the use of his or her car, then it is an implied term of the contract.
[30] Whether or not the travel in question was done in the performance of the duties of the employment seems to me to be a question of fact.
[31] In considering that question of fact, it seems relevant to consider the decision of the Federal Court of Appeal in Hoedel (above). This case was also considered favourably by Jerome A.C.J. in the Mina case (above), when he summarized it as follows:
"...the taxpayer was a member of the Canine Division of the Regina City Police Department. He was required by his employment to take his dog with him when off-duty and he attempted to deduct the costs of transporting the dog to and from his home. He was paid an allowance by the Department for expenses connected with looking after the dog, but this did not cover his transportation costs. The Court allowed the deduction, although they found that non-compliance with the condition of keeping the dog with him at all times would not necessarily lead to disciplinary action. The fact that it would result in an unfavourable work performance evaluation was enough to make it a duty of his employment, so expenses of transporting the dog were found to be covered by paragraph 8(1)(h)."
I believe that this is an important case when I come to consider the effect, if any, that the transportation by the Appellant of the voluminous papers and materials in the trunk of her car, on a permanent basis, had on the situation.
Conclusion
[32] First, I am not of the view that a reasonable allowance paid by an employer to an employee for travel in the course of his or her employment is an automatic bar to a claim by that employee to deduct from employment income, automobile expenses incurred in the course of the employment, required under the contract of employment in actual or implied terms, if those expenses relate to travel other than that covered by the allowance. If nothing else, the Court might hold that the allowance was not reasonable with respect to the latter travel. However, I do not think it is necessary to take that tack, as it seems to me to be clear from the language of the Act that an allowance (if reasonable) is only a bar to any further claim with respect to the same travel for which it is paid. If Parliament had intended otherwise it could have said so quite clearly. In my view, with the words it used, it did not do so. Even this bar is subject to the ‘woefully inadequate’ doctrine expressed in Mina (above). The position of the Minister where he argues otherwise is incorrect in law. The fact that the Appellant received an allowance from the C.B.E. for inter school travel is not, per se, a bar to her claim for expenses incurred for other travel, provided it meets all the other relevant criteria.
[33] Secondly, it is clear that the Appellant was ordinarily required to carry on her duties of employment away from the employer’s place of business, which I would hold to be the administrative office at Parkdale, or in different places.
[34] Thirdly, I am of the view that, if not a specific term of her contract of employment with the school board, it was certainly an implied term that the Appellant was required to pay automobile expenses incurred in the performance of her duties of employment. It is clear to me from the evidence of the Appellant, supported as it was by the letter from the official at the school board, that she was expected to have a car available to get herself from school to school, along with all the materials she needed to do her professional work. She was not expected to go to her administrative office each day. To have done so would have been a complete waste of time and effort. Moreover, it would have impeded her work, meeting with people before and after regular school hours.
[35] To the extent that the Appellant had to travel to or from schools which were further away than the administrative office at Parkdale, it would seem manifestly unfair that she should not be able to claim expenses for the additional distance either from the school board as a non taxable allowance under paragraph 6(1)(b)(vii.1) or as a claim against her employment income under paragraph 8)(1)(h.1). These were clearly expenses incurred in the performance of her duties and simply because she did not attend at the administrative office first should not mean that she is not entitled to claim them.
[36] If the Appellant had simply to get herself between her residence and the various schools where she started and finished her days, it would seem to me that her travel expenses would properly be limited to the cost of such travel less the amount that she would have expended to travel on a daily basis to and from the administrative centre. In the normal course of events, her cost of travel between her residence and the administrative centre would be considered personal in nature. It is only the excess that she should be able to claim. Thus, if for example in a day she travelled 20 kilometres to the first school, 30 kilometres throughout the day up to the last school and 15 kilometres from the last school to home, and if the distance between her residence and the administrative centre was say 10 kilometres, she would in this scenario be entitled to claim the total of the 20 kilometres and the 15 kilometres, namely 35 kilometres (the total between the first and last schools and her residence) minus the 20 kilometres that she would normally have travelled going to work if she had gone first to the administrative centre. Thus, she would be able to claim the expenses for 15 kilometres for that day against her employment income and of course she would be reimbursed by the employer for the 30 kilometers that she travelled between the various schools.
[37] However, it seems to me that there is a further wrinkle in this particular case as it relates to the requirement to transport the voluminous amount of paper and materials around to her various work places requiring the exclusive use of the trunk of her car on a permanent basis throughout the school year. In my opinion, she had no alternative as part of her duties but to transport these back and forth between her residence and the first and last schools she visited on a daily basis. I have no hesitation in finding that it was an implied term of the contract not only that she had to have a car available to transport herself around, but also that she had to have all these materials on hand in order to carry out her duties. There was no other practical way in which she could do this but to take them back and forth to her residence. The situation seems to me to be no different in principle from that in the Hoedel case (above), involving the police officer who had to transport his police dog back and forth to his residence. As in that case, the Appellant was required to keep the materials in question with her at all times and to have them available at each of her appointments, including the first of the day. The evidence was clear that she could transport them in no other way, nor could she physically load and unload them on a daily basis.
[38] I find therefore that the cost of transportation by automobile of the materials back and forth at the start and close of each day, was a necessary expense incurred in the performance of her duties. This was an ongoing requirement and expense. Thus in my opinion she should not be required to reduce the amount of her claim for expenses by the equivalent amount of the cost of transportation to and from the administrative centre as would have been the case without this additional responsibility.
[39] For these reasons, I find that the travel expenses incurred by the Appellant between her residence and the first and last schools that she visited on a daily basis were not personal as claimed by the Minister. She was required under the terms of her contract of employment to pay motor vehicle expenses for this travel, which were incurred in the performance of the duties of her employment and they were expended by her for travelling in the course of her employment. They did not fall into the exception specified in paragraph 8(1)(h.1)(iii) of the Act. They were in my view, expenses which, she was entitled to claim against her employment income pursuant to paragraph 8(1)(h.1) of the Act.
[40] In the result, the appeal is allowed and the reassessment is vacated.
Signed at Calgary, Alberta, this 23rd day of November 1998.
"M.H. Porter"
D.J.T.C.C.