Marcoux (D.) v. M.N.R., [1991] 1 CTC 2643, [1991] DTC 485

Garon, T.C.j.:—The appeals of the four appellants were heard on common evidence. Three of the appellants were represented by counsel, and the fourth, Pierre Daneau, acted for himself.

In the case of the appellant Raymond Brisson, his appeal deals with the 1983 taxation year only. Pursuant to an assessment dated June 19, 1987, the Department of National Revenue added, as unreported income, the sum of $10,455.36, which he had received from his employer, the Société Saint- Germain Transport Ltée, and allowed travelling expenses in the amount of $4,147.08. That assessment also imposed penalty under subsection 163(2) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") in respect of the unreported income, in the amount of $432.13.

With respect to the appellant Denis Coderre, he appealed assessments for the 1980 and 1981 taxation years, dated August 4, 1987. By these assessments, the Minister of National Revenue added, as unreported income, the sum of $9,174.44 for the 1980 taxation year and the sum of $2,584.84 for the 1981 taxation year. For the 1980 taxation year, the Minister deducted, in computing the appellant's income, the sum of $4,704.88 as travelling expenses. No amount was deducted for travelling expenses for 1981. Penalties in the amount of $316.45 and $105.76 were imposed for the same two years, under subsection 163(2) of the Income Tax Act.

With respect to the appellant Pierre Daneau, his appeal deals with the 1980, 1981, 1982 and 1983 taxation years. By assessments dated June 25, 1987, the Minister of National Revenue added, as unreported income, the amounts hereinafter set out in respect of the years indicated, and deducted the following amounts for travelling expenses for those same years:

The respondent imposed penalties on the appellant Pierre Daneau under subsection 163(2) of the Act, cited above, for the four taxation years in question, in the following amounts for the years indicated:

Finally, the appellant Daniel Marcoux appealed the assessments dated July 6, 1987 for the 1981, 1982 and 1983 taxation years. In those assessments, the respondent added the following amounts for the years in question as unreported income, and deducted the amounts shown in the following table for travelling expenses:

The following penalties were imposed under subsection 163(2) of the Income Tax Act in respect of the appellant Daniel Marcoux for the taxation years indicated below:

During the taxation years in issue for each of the appellants, the appellants were employed as truck drivers by the Société Saint-Germain Transport Ltée, the" company".

The company operated a goods transport business, and it is also not disputed that the appellants’ duties during the years in question required them to travel long distances On a regular basis. Specifically, in performing their work, they had to go regularly to the United States and to various places in Canada, particularly in the western provinces.

The appellants’ employer's establishment during the relevant years was located in Saint-Germain de Grantham, a municipality located near Drum- mondville in Quebec. This was the place where the appellants reported for work to drive the company's trucks, which were used to transport goods.

I should explain the manner in which the appellants were paid during the years in question. First, each of the appellants received total remuneration computed on the basis of mileage. The mileage rate varied during the period in question in respect of the various appellants. At certain times it was $0.13, then $0.15 and finally $0.17. Out of this total remuneration, part was paid in the form of a cheque after the employer had made the appropriate source deductions. T-4s were issued by the employer in respect of that part of the remuneration only. This portion of the remuneration was entered into the company's payroll. The rest of the remuneration was paid to the appellants directly in cash. It was understood that each driver was to cover the travelling expenses relating to his work. It is the cash amounts received by each appellant in the years in question which were added to the income of each of them by the above-mentioned assessments.

Moreover, but only exceptionally, the appellants were reimbursed in part for additional travelling expenses which occurred in unforeseen circumstances. For example, mention was made of the case of a truck driver who had to wait several days in the course of a trip as a result of a decision by the company to take delivery of other merchandise. There is also the situation in which a truck was out of service or had to be put out of service as a result of mechanical difficulties.

All the appellants included in their income what was sometimes called the base salary, indicated by a T-4. In addition, the appellants claimed deductions for certain expenses relating to their travel for purposes of their work, on the ground, at least according to certain appellants, that their expenses during the years in question exceeded the cash amounts received.

Analysis

In the light of these facts, we should first say that the appellants did not rely on subparagraph 6(1)(b)(vii) of the Income Tax Act. Counsel for the three appellants, in my view correctly, stated in response to a question by the Court that he was not relying on this provision. The amounts received in cash, if we assume that they were composed of allowances within the meaning of that provision, were not computed by reference to time actually spent by the employees travelling away from the area where their employer's establishment was located, but rather by reference to the distance travelled or, in other words, on a mileage basis.

Thus at the hearing of these appeals the appellants did not dispute that the amounts received in cash should be included in computing their income from employment. The question in issue before this Court dealt solely with the amount of the deductions to which the appellants were entitled as travelling expenses under paragraph 8(1)(g) of the Income Tax Act. This paragraph reads as follows:

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.

The Minister of National Revenue acknowledged that the appellants had incurred travelling expenses in the context of their employment. In fact, in the years in question ne allowed deductions for travelling expenses equal to 20 per cent of each appellant's total remuneration for those years.

The appellants argued in the notice of appeal, following an amendment permitted by the Court at the beginning of the hearing, that the expenses allowed for the drivers should be increased to 25 per cent or more, specifically on, but not restricted to, the ground that these were long trips.

Counsel for the Minister of National Revenue contended that the Court should not increase the deductions already allowed by the assessments under appeal in anyway. In support of this submission, he stated, specifically, that no supporting documents were provided by the appellants in respect of their expenses for meals and lodging. The best evidence rule, he suggested, must be applied to this case in respect of evidence of these expenses. He submitted that the Minister of National Revenue would be put in an untenable position if a Court were to accept, on some basis or another, testimonial evidence alone. It would then be quite easy for a taxpayer to dispute assessments where the issue was deductions for expenses.

We should therefore examine the evidence. In the documentary evidence, the most important exhibit is undeniably Exhibit 1-4. This exhibit contains the information on the amounts paid to each appellant, on a weekly basis, including the amounts paid by cheque to each appellant and the amounts received in cash. The travel sheets provide information on the destinations, mileage travelled on each trip, and, in all probability, the departure dates. The specific departure times and even the return dates are not, it is true, indicated on this table. The number of weeks during which each of the appellants was travelling is known, but it is not noted in this written evidence whether this was a five- day, six-day or even seven-day week. The testimonial evidence supplemented this written evidence.

With respect to meal expenses, no supporting documents were submitted, as I said earlier. I do not believe that the Income Tax Act requires that supporting documents be provided in respect of each expense item, particularly in cases where taxpayers spend most, if not practically all their time travelling on behalf of their employer. In the absence of a legislative provision requiring a receipt as a condition for deduction of an expense, we must rely on the general rules of evidence. I do not believe that the best evidence rule necessarily applies, in view of subsection 14(2) of the Tax Court of Canada Act. Nonetheless, the evidence must be strong enough for the Court to be firmly convinced.

With respect to this evidentiary question, counsel for the respondent drew the Court's attention to several decisions of the courts, notably in P. Litvinchuk v. M.N.R., [1979] C.T.C. 3141; 79 D.T.C. 899, W.K. Murray v. M.N.R., [1950] C.T.C. 7; 50 D.T.C. 723, and Muller's Meats Ltd. v. M.N.R., [1969] Tax A.B.C. 171; 69 D.T.C. 172.

In the Litvinchuk case, supra, it seems that there was no documentation tending to establish the disbursements made by the taxpayer. Given the total absence of evidence, the Tax Review Board decided, in that case, to distinguish it from Melvin P. Deutsch v. The Queen, [1979] C.T.C. 217; 79 D.T.C. 5145, in which the Federal Court had found that the basic information provided by the taxpayer was acceptable to some extent.

In the Murray case, supra, the taxpayer's testimony stating that he had been away from his office, but not necessarily outside the city, four days per week was not considered to be sufficiently probative. Moreover, the judge expressed doubts as to the credibility of the witness.

Finally, in the Muller's Meats case, supra, the context of the facts surrounding the deduction of the expenses was quite different from the case at bar. In particular, the comments of the member, Mr. Davis, toward the end of his judgment should be noted; in short, he gave a clear indication that he could have accepted sufficiently substantial evidence in the absence of receipts relating to those expenses.

In the present case, we have relatively precise documentation concerning the trips taken by the appellants, and we have the testimony of three of them dealing with meal expenses.

In the present case, I would willingly have accepted the evidence of meal expenses during a sufficiently long period in a given region, in order to find that disbursements for equivalent amounts had to be made in the same region during the other weeks of the year when the employee had to travel on behalf of his employer. However, no evidence of this sort was provided.

Moreover, three appellants stated under oath that they estimated that their expenses, on a daily basis, might amount to as much as $30. In the circumstances, I am prepared to accept that it is probable that, during a long period of time in a given year, meal expenses were not less than $22, but might on occasion have been higher than that amount. Given the nature of the evidence, I accept this minimum amount of $22 for each of the days when the appellants were travelling.

With respect to lodging expenses, it was established that the trucks in question were furnished with bunks which the appellants could and in fact did use. Some of the appellants stated that they might on occasion stay at motels during their trips, at a rate of about once or perhaps even twice a week. I have no difficulty in understanding that some of the appellants may have used this form of lodging on occasion during their trips. With respect to these disbursements for lodging which occurred much more rarely, it does not appear unreasonable to me to require stronger evidence, normally by means of receipts or other supporting documents. Their employer required such evidence for its own purposes.

I see a very clear distinction from an evidentiary point of view between expenses for meals and for lodging. For meals, the only significant factor of uncertainty relates to the precise amount of such expenses, because it is clear that the appellants had to eat each day during their trips. For lodging expenses, there are two unknowns; the first deals with the frequency of these occasions—which should not have exceeded certain reasonable limits—and the other deals with the amounts expended on each such occasion. In my view, the evidence in respect of these lodging expenses is too fluid for me to be able to accept it. I therefore allow no deduction in respect of disbursements for lodging.

The following table shows the number of working days in the year indicated when each of the appellants was on a trip, the deductions allowed by this judgment for meal expenses for each appellant in the year indicated, and the corresponding deductions as established by the respondent's assessments.

With respect to the assessment of penalties imposed on the appellants, I must note, first, that it is clear that the appellants were entitled to deduct certain amounts from their remuneration as travelling expenses. It is easily conceivable that in the appellants’ minds these deductions could include all expenses occasioned by the fact that they were travelling, such as highway tolls, truck washing expenses not paid by the employer, speeding tickets, showering expenses, and so on.

Moreover, the amounts received in cash were not so high as to be disproportionate, in relation to the reasonable expenses incurred by the appellants in respect of their travel, that it would have been unreasonable for them to believe that these amounts were simply an allowance for travelling expenses. In fact, the amounts received by the appellants in the years in question were between $2,500 and $10,000, with an average of about $6,000 or $7,000. In addition, the total of all the expenses occasioned by the trips in a given year, for a truck driver working full time during the year, could easily reach $7,000 to $8,000. For example, an employee who worked 300 days per year, or an average of six days per week, as was the case for some of the appellants, could easily incur expenses amounting to $30 per day, which would give a total of $9,000 per year.

There is every reason to believe that the appellants did not know in the years in question that the Income Tax Act permitted them to deduct only expenses relating to meals and lodging, and that the deduction of any other expenses was prohibited. It is also easy to imagine that the appellants were unaware that the amounts received had to be included in their income, and that a deduction could then be claimed in computing their income from employment.

Having regard to all the circumstances, I am of the opinion that the respondent has not succeeded in showing that the appellants failed, with full knowledge or in circumstances which justified imputing a serious wrongdoing, to include the amounts received in cash. It must not be forgotten that the system of remuneration in question had been established by their employer, the Société Saint-Germain Transport Ltée, and that the truck drivers could not change anything about it.

The present situation is quite different from the situation that was considered by the then Chairman of the Tax Review Board, who was to become the first Chief Judge of this Court, in Giovanni Marinelli v. M.N.R., [1982] C.T.C. 2400; 82 D.T.C. 1378. In that case, the issue was a penalty imposed for failure to include in income remuneration received for overtime work.

The decision, also by Judge Cardin, in Jose Nieto v. M.N.R., [1985] 1 C.T.C. 2404; 85 D.T.C. 365, dealt with a situation in which the taxpayer failed to include a significant source of income. Here the income concerned the same source of income in relation to which deductions were authorized.

The facts in the cases at bar are also quite different from those considered in Roland Morin v. M.N.R., [1988] 2 C.T.C. 2334; 88 D.T.C. 1596.

Before concluding my observations on the appeals of the assessments in question here, I would like to make a few comments on the appeals of the appellant Pierre Daneau.

During the first day of the resumption of the hearing of these appeals, the appellant Pierre Daneau, who was not represented by counsel, as I noted earlier, indicated that he wished to withdraw the part of his appeals dealing with the " income tax” element of each of the four assessments but that he wanted to pursue his appeals with respect to the assessment of penalties. No written judgment was given in response to this decision by the appellant. The next day, this same appellant informed the Court that he had changed his mind and still wanted to pursue his appeals on the “income tax” portion of these assessments. I permitted him to go back on his decision and to continue to contest the income tax assessments for the four years in question.

In my view, this was not a judicial admission dealing with facts relevant to the case, contrary to what was argued by one of counsel for the respondent, but rather a decision on the part of the appellant relating to the advisability or otherwise of pursuing a part of a case. I therefore believe that I have authority to dispose of the appeals of the assessments of the appellant Pierre Daneau, not only as to the“ penalty” portion but also as to the income tax" portion.

It remains for me to dispose of the argument put forward by the appellants involving sections 8 and 24 of the Canadian Charter of Rights and Freedoms. Counsel for the appellants Marcoux, Coderre and Brisson contended that the assessments under appeal are based on information obtained in the course of an unreasonable, irregular, unlawful and null search, as it is described in paragraph 11 of the appendix attached to the notice of appeal of the appellants in question for each of the years in issue.

The seizure carried out by the Minister of National Revenue on December 19, 1985 was particularly attacked on the ground, specifically, that the documents which were the subject of the seizure by the Minister of National Revenue had earlier that day been returned to the Société Saint-Germain Transport Ltée following a seizure carried out by the Royal Canadian Mounted Police for an alleged offence under the Criminal Code, defrauding the Employment and Immigration Commission of certain moneys.

That seizure was quashed by the Quebec Court of Appeal on the ground that the justice of the peace did not have jurisdiction in the matter. While there is no doubt that the seizure carried out by the Minister of National Revenue was not the result of a coincidence, nonetheless it does not appear that any evidence tending to establish the nullity of the seizure carried out by the Minister of Revenue was presented. In fact, an official of the Minister of National Revenue stated under oath that the seizure by the Minister was effected pursuant to informations laid neither by the Royal Canadian Mounted Police nor by employees of the Employment and Immigration Commission.

I therefore do not have to consider whether this Court has jurisdiction in the matter to grant the appellants the remedy to which they would be entitled in the event that the seizure by the Minister of National Revenue had been unlawful. I therefore reject the argument advanced by the appellants.

For these reasons, the appeals are allowed in part and the assessments are referred to the Minister of National Revenue for reconsideration and reassessment on the basis that I indicated earlier.

Appeals allowed in part.