Date: 20000322
Docket: 1999-1108-IT-I
BETWEEN:
DENIS ST-LAURENT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Lamarre, J.T.C.C.
[1] These are appeals under the informal procedure from assessments made by the Minister of National Revenue ("Minister") under the Income Tax Act ("Act") for the 1994 and 1995 taxation years. In computing his income for each of those years, the appellant claimed rental expenses and employment expenses. By the assessments, the Minister disallowed a very small portion of the rental expenses and a large portion of the employment expenses. At the hearing, the appellant stated that he was not objecting to the disallowance of rental expenses in the reassessments. The appellant disputed the assessments solely as they concerned the employment expenses, in respect of which he had claimed amounts of $8,268.16 in 1994 and $15,051.14 in 1995. These claimed amounts cover only motor vehicle expenses and, on the statement of employment expenses which the appellant appended to his returns of income (Exhibit I-1), are itemized as follows:
[TRANSLATION]
CALCULATION OF MOTOR VEHICLE EXPENSES
|
1994 |
1995 |
|
|
Kilometers travelled in taxation year to earn employment income |
21,638.00 |
24,832.00 |
|
Total kilometers travelled in taxation year |
29,544.00 |
32,681.00 |
|
Motor vehicle expenses paid: Fuel |
2,667.34 |
3,577.55 |
|
Maintenance and repairs |
1,773.31 |
2,876.66 |
|
Insurance premiums |
496.65 |
1,200.00 |
|
Licence and registration fees |
240.00 |
235.00 |
|
Capital cost allowance |
5,526.00 |
9,036.90 |
|
Interest expense |
285.83 |
2,878.03 |
|
Total |
11,289.13 |
19,804.14 |
|
Employment-related portion of expenses |
8,268.16 |
15,051.14 |
[2] In assessing the appellant, the Minister disallowed amounts of $6,402.98 and $10,194.24 in respect of employment expenses for 1994 and 1995 respectively. In making these assessments, the Minister relied on the following facts stated in paragraph 6 of the Reply to the Notice of Appeal:
[TRANSLATION]
Employment expenses
(c) during the years in issue, the appellant was employed by Dessol Paysagiste Limitée (Dessol), of which he is also the president; (admitted)
(d) Dessol carries on a landscaping business and its head office is in Hull; (admitted)
(e) the appellant's employment with Dessol was seasonal;
(f) the appellant received employment insurance benefits during the off-season, that is, from October to April; (admitted)
(g) the appellant lives at Blue Sea Lake approximately 100 kilometers from Dessol's place of business; (admitted)
(h) according to the T2200 Declaration of Conditions of Employment form for the 1994 and 1995 taxation years, the appellant was required to work away from Dessol's place of business and to pay his own expenses for his motor vehicle; (admitted)
(i) the appellant did not keep an appropriate record of his travels and the distances travelled; (admitted)
(j) the distances which the appellant travelled between his Blue Sea Lake residence and Dessol's place of business gave rise to personal expenses of the appellant;
(k) the appellant claimed employment expenses corresponding to 55 percent and 106 percent of his employment income for the 1994 and 1995 taxation years respectively; (admitted)
(l) the appellant claimed automobile operating expenses for the months when he was receiving unemployment insurance benefits; (admitted)
(m) the Minister estimates that during the 1994 and 1995 taxation years, the appellant was employed by Dessol half of the year;
(n) the Minister further estimates that 50 percent of the appellant's use of his vehicle was for personal purposes during his periods of employment with Dessol;
(o) the employment expenses claimed by the appellant and disallowed by the Minister are not reasonable in view of Dessol's sales figures and the fact that he was working for Dessol only approximately six months a year;
(p) It is not reasonable for the motor vehicle expenses claimed by the appellant and disallowed by the Minister to be considered as relating solely to his employment with Dessol.
[3] I heard the testimony of the appellant and his mother Huguette St-Laurent. The appellant received employment income from his employer, Dessol Paysagiste Limitée ("the employer"), during the summer (six months) in 1994 and 1995. He explained that this business belonged to his parents and that he was paid $15 an hour. He reported employment income totalling $15,036 in 1994 and $14,109 in 1995.
[4] The appellant also received income from employment insurance during the winter, which totalled $8,388 in 1994 and $13,460 in 1995. However, the appellant pointed out that he performed snow removal contracts for his employer during the winter. He said he was paid $30 an hour and that he reported his income for employment insurance purposes. Although the appellant filed in evidence invoices showing that the employer had signed snow removal contracts with various customers, no payroll record or other document was filed to show that the appellant had been remunerated by his employer during that period. Furthermore, the evidence does not enable me to verify whether the appellant actually reported his snow removal income, if any, to the Canada Employment Centre during the period when he was receiving his employment insurance cheques.
[5] The appellant testified that he owned a sports car for all his personal travels and generally used his truck for all employment-related trips. He said that his use of his truck for personal purposes in the summer represented five to ten percent of its total use. He said that in calculating the kilometrage travelled for the purposes of his employment he had also taken into account the time spent doing estimates for various customers, for which he was not paid by the employer.
[6] He also explained that, during his periods of work, he lived at his mother's home in the city of Hull, where the employer's head office was located, and went to Blue Sea Lake only once a week. Huguette St-Laurent corroborated this.
[7] The appellant moreover admitted that he had not kept a log during the years in issue. It was not until the audit, when he was told that it was important to keep such a log, that he attempted to reconstitute in approximate fashion his kilometrage for the years in issue. According to these reconstituted logs, the appellant had travelled in the Hull, Aylmer and Gatineau areas and had used his truck for employment purposes 55 percent of the time in 1994 and 60 percent of the time in 1995. He explained that he had also done excavation work outside the city, which required him to make trips to transport materials.
[8] The appellant added that he now keeps his log regularly and that during the last year he had used his truck for work 75 percent of the time. He also noted, however, that the employer's income had increased sharply over the past few years.
[9] The appellant stated at the hearing that he would be prepared to consider that he had used his truck for his employment only 50 percent of the time during the years in issue.
[10] The appellant further admitted that he had claimed too much capital cost allowance. According to an explanatory letter dated April 18, 1997 (Exhibit I-5) sent to the appellant by Revenue Canada, an amount of $4,110 was allowed for capital cost allowance for 1994 and an amount of $6,987 for 1995 (rather than the $5,526 and $9,036 initially claimed by the appellant for those years respectively), 25 percent of which amounts was allowed as an expense for each of those years.
[11] In addition, counsel for the respondent filed in evidence two declarations of conditions of employment (T2200 forms, filed as Exhibit I-4) signed by Huguette St-Laurent for 1994. These two declarations, stating the number of kilometers travelled by the appellant during all of 1994 using his own motor vehicle, were signed on March 17, 1994. One of the declarations shows a period of employment from April 21 to December 31, 1994, whereas the second indicates a period of employment running from January 1 to December 31, 1994.
[12] The appellant stated that the first declaration was incorrect. The second declaration and that sent for 1996 were received by Revenue Canada on April 6, 1998.
Analysis
[13] The deduction allowed for motor vehicle travel expenses incurred by an employee is provided for in paragraphs 8(1)(h.1) and 8(1)(j) of the Act, which read as follows:
SECTION 8: 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:
8(1)(h.1)
(h.1) Motor vehicle travel expenses– 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 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 the office or 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, or
(iv) claims a deduction for the year under paragraph (f);
8(1)(j)
(j) Motor vehicle and aircraft costs – where a deduction may be made under paragraph (f), (h) or (h.1) in computing the taxpayer's income from an office or employment for a taxation year,
(i) any interest paid by the taxpayer in the year on borrowed money used for the purpose of acquiring, or on an amount payable for the acquisition of, property that is
(A) a motor vehicle that is used, or
(B) an aircraft that is required for use in the performance of the duties of the taxpayer's office or employment, and
(ii) such part, if any, of the capital cost to the taxpayer of
(A) a motor vehicle that is used, or
(B) an aircraft that is required for use in the performance of the duties of the office or employment as is allowed by regulation.
[14] Subsection 8(10) of the Act provides that the employer must complete a prescribed form (T2200) in order for the employee to be entitled to this deduction. That subsection reads as follows:
8(10)
(10) Certificate of employer. An amount otherwise deductible for a taxation year under paragraph (1)(f), (h) or (h.1) or subparagraph (1)(i)(ii) or (iii) by a taxpayer shall not be deducted unless a prescribed form signed by the taxpayer's employer certifying that the conditions set out in that provision were met in the year in respect of the taxpayer is filed with the taxpayer's return of income for the year under this Part.
[15] In the instant case, the appellant did not show on a balance of probabilities that he had received remuneration from his employer during the winter period. It was established, however, that he had received employment insurance benefits during that period. I therefore conclude that the appellant was not employed by Dessol Paysagiste Limitée during the period when he received employment insurance, namely a six-month period in each of the years in issue. The expenses he incurred in respect of his motor vehicle during that period therefore may not be deducted from his employment income.
[16] Furthermore, I cannot adequately determine from the documents filed in evidence the number of kilometers the appellant travelled in his truck for employment purposes.
[17] First of all, the T2200 forms show that the appellant used the motor vehicle for the purposes of his employment approximately 75 percent of the time.
[18] For 1994, the form was completed twice and shows different periods of employment. The two forms were signed on the employer's behalf by Huguette St-Laurent in March 1994, when there was still nine months left in the year. It is hard to conceive that the information they contain, including the kilometrage stated, is accurate in the circumstances.
[19] Second, the forms signed for 1994 and 1995 were sent to Revenue Canada on April 6, 1998, whereas, under subsection 8(10) of the Act, they should have been filed at the same time as the appellant's returns of income.
[20] Third, the appellant amended the calculation of the number of kilometers travelled for his employment, submitting logs in which he attempted to reconstitute that kilometrage as a result of the Revenue Canada audit. In these reconstituted logs, he estimated his use of his motor vehicle for employment purposes at approximately 60 percent.
[21] Lastly, at the hearing, the appellant stated that he was prepared to consider that he had used his truck for his employment only 50 percent of the time.
[22] The Minister allowed the appellant motor vehicle expenses of $1,865 in 1994 and $4,857 in 1995. According to Exhibit I-5, the Minister recalculated the total capital cost allowance at $4,110 for 1994 and $6,987 for 1995. In that same exhibit, the amount of employment expenses allowed was 25 percent of total expenses for the year (on the basis that the truck was used only six months of the year, and then only 50 percent of the time, for the purposes of the appellant's employment). If the corrected capital cost allowance calculation is taken into account, the amount of expenses allowed represents a proportion of 19 percent of total expenses for 1994 ($1,865 out of total expenses of $9,873) and of 27 percent for 1995 ($4,857 out of total expenses of $17,755) that was allocated to the appellant's use of his motor vehicle for the purposes of his employment.
[23] In view of the evidence, I find that with respect to 1995 the Minister was fair in his approach, in view of the unreasonable and unjustified amounts originally claimed by the appellant as compared to his income and periods of employment. As to 1994, however, I note that the Minister allowed only 19 percent of total expenses, whereas the appellant's employment income was appreciably greater than in 1995. For the sake of consistency with the position adopted by the Minister in Exhibit I-5 and in the Reply to the Notice of Appeal (paragraphs 6(m) and (n)), I would therefore allow the appellant at least 25 percent of total expenses incurred for the use of his truck for employment purposes. In the circumstances, I would allow $2,468 (25 percent of $9,873) as expenses incurred by the appellant for the purposes of his employment in 1994.
[24] I find that the appellant did not show on a balance of probabilities that the expenses over and above those now allowed him (namely 25 percent of total expenses) can be justified as employment expenses. As the appellant kept no accurate log during the years in question, he must suffer the consequences of his own negligence. Having regard to the evidence, I cannot intervene any further to vary the Minister's decision.
[25] Accordingly, the appeal from the assessment for the 1994 taxation year is allowed without costs and the assessment is referred back to the Minister for reconsideration and reassessment on the basis that the appellant is entitled to deduct from his income employment expenses of up to $2,468 in respect of the use of his motor vehicle. The appeal from the assessment for the 1995 taxation year is dismissed and the assessment is confirmed.
Signed at Ottawa, Canada, this 22nd day of March 2000.
"Lucie Lamarre"
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 28th day of February 2001.
Erich Klein, Revisor