T-1971-86
Her Majesty the Queen (Plaintiff)
v.
J. U. Merten (Defendant)
INDEXED AS: CANADA V. MERTEN (T.D.)
Trial Division, Strayer J.—Calgary, September
24; Ottawa, October 9, 1990.
Income tax — Income calculation — Deductions — Appeal
from Tax Court decision allowing deduction of automobile
expenses for travel between temporary construction sites and
home — Taxpayer, construction company project manager,
reporting to and leaving from employer's "permanent office",
except when first or final duty of day at construction site when
commuted directly from or to home — Whether such travel
"in the course of his employment" under s. 8(1)(h) — Tax
Court considered T.D. decision in The Queen v. Chrapko
(G.R.) binding — Appeal dismissed — Court of Appeal vary
ing T.D. decision in Chrapko, restricting taxpayer to deducting
expenses for travelling from home to work where place of work
other than place at which "usually works" — Rationale in
Luks, Herman v. Minister of National Revenue, precluding
deductions for travelling to and from work unless travel
involved performance of service, no longer applicable — Infer
ence as to "usual" place of work from language of agreed
statement of facts.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Income Tax Act, S.C. 1970-71-72, c. 63, ss. 8(1)(h),
178(2) (as am. by S.C. 1980-81-82-83, c. 158, s. 58,
item 2; 1984, c. 45, s. 75).
CASES JUDICIALLY CONSIDERED
NOT FOLLOWED:
Luks, Herman v. Minister of National Revenue, [1959]
Ex.C.R. 45; (1958), 58 DTC 1194.
APPLIED:
Chrapko (G.R.) v. The Queen, [1988] 2 C.T.C. 342;
(1988), 88 DTC 6487 (F.C.A.); varg The Queen v.
Chrapko (G.R.), [1984] CTC 594; (1984), 84 DTC 6544
(F.C.T.D.).
CONSIDERED:
Healy v. R., [ 1979] 2 F.C. 49; [ 1979] CTC 44; (1979),
79 DTC 5060; 25 N.R. 429 (C.A.).
REFERRED TO:
Klue, J T v. MNR, [1976] CTC 2401; (1976), 76 DTC
1303 (T.R.B.); Dale (J B) v. MNR, [1977] CTC 2208
(T.R.B.).
COUNSEL:
Carman R. McNary and David I. Besler for
plaintiff.
R. Kipp Craig for defendant.
SOLICITORS:
Deputy Attorney General of Canada for
plaintiff.
Atkinson, McMahon, Calgary, for defendant.
The following are the reasons for judgment
rendered in English by
STRAYER J.:
Relief Requested
This is an appeal by the Minister of National
Revenue against a decision of the Tax Court of
Canada dated May 6, 1986, in which the Tax
Court allowed an appeal of the defendant from a
reassessment of his taxation liability. The effect of
this decision was to allow the defendant to deduct
travel expenses in the amount of $2,172.67 from
his income from employment.
Facts
The parties agreed to the following statement of
facts:
I. From 1977 to the spring of 1988 including 1981 the taxation
year in question J.U. Merten ("Merten") was employed as a
project manager by Western Electrical Constructors Limited
("Western").
2. Western's permanent office was located at all material times
at 330 - 11th Avenue S.W., Calgary. At this office Western's
Corporate Management, including Merten, carried on the day
to day overall management of Western.
3. During the 1981 taxation year Western was a contractor
and maintained worksites for the construction of two projects in
the City of Calgary; the Delta Hotel located at 209 - 4 Avenue,
S.E., and Heritage Square located at 8500 Macleod Trail
South.
4. Merten was required to be present at the permanent office
on a regular basis as he was involved in the management of
Western including bidding and costing jobs, dealing with sup
pliers, project owners, and engineers, and general administra
tion. He was also required to attend Western's various tempo
rary construction sites described above. His duties at the
projects included site meetings, site inspections, trade relations
as it affects the routing of major and minor components of a
project, employee relations and overall supervision and coordi
nation of Western's construction efforts.
5. When Merten's first duty of employment on any given
morning was at one of Western's temporary construction sites
he would drive directly to that site from his home located at
983 Edgemont Road N.W., Calgary rather than first reporting
in at the permanent office.
6. When Merten's final duties of employment on any given day
was at one of Western's temporary construction sites he would
drive directly home rather than reporting back at the perma
nent office.
7. At all other times Merten reported to work at the permanent
office and left from the permanent office.
8. Merten was required by the terms of his employment con
tract to utilize his own vehicle while travelling within the course
of his employment and to pay the expenses thereof.
9. Merten has incurred automobile expenses in travelling be
tween the permanent office listed in paragraph 2 and the
temporary construction sites listed in paragraph 3 and other
related expenses in the amount of $4,617.43 which amount the
Minister of National Revenue has allowed as a deduction from
Merten's income.
10. Merten has incurred automobile expenses related to travel
between the temporary construction sites listed in paragraph 3
and his home at 983 Edgemont Road N.W., Calgary, in the
amount of $2,172.67, all of which the Minister of National
Revenue has disallowed as a deduction from Merten's income.
11. Merten received a travel allowance of $4,800.00 from
Western which amount was included in his income for purposes
of his 1981 tax return.
12. The amounts as claimed by the taxpayer are not unneces
sary or excessive if they otherwise qualify under section 8(1)(h)
of the Income Tax Act (Canada).
Issues
The provision of the Income Tax Act [S.C.
1970-71-72, c. 63] in question is paragraph
8(1)(h). Subsection 8(1) generally sets out the
deductions permitted from a taxpayer's income
from an office or employment and permits such
deduction of, inter alia,
8.(1)...
(h) where the taxpayer, in the year,
(i) was ordinarily required to carry on the duties of his
employment away from his employer's place of business or in
different places,
(ii) under the contract of employment was required to pay
the travelling expenses incurred by him in the performance of
the duties of his office or employment, and
(iii) was not in receipt of an allowance for travelling
expenses that was, by virtue of subparagraph 6(1)(b)(v),(vi)
or (vii), not included in computing his income and did not
claim any deduction for the year under paragraph (e) ,W or
(g),
amounts expended by him in the year for travelling in the
course of his employment;
It is not disputed here that the defendant in this
case met the requirements of subparagraphs
8(1)(h)(ii) and (iii). At times counsel for the
plaintiff appeared to be questioning that the
defendant met the requirements of subparagraph
8(1)(h)(i) although he indicated early in the pro
ceedings that the real issue was whether the
expenses incurred by the defendant in travelling
between his home and the two temporary construc
tion sites could be regarded as "travelling in the
course of his employment" as required by the
closing words of paragraph (h). This definition of
the issue was also confirmed in the written argu
ment of the plaintiff and I shall therefore confine
myself to it.
Conclusions
The Tax Court of Canada, in allowing the
defendant's appeal, indicated that in its view while
at one time the defendant would on the basis of the
decision in Luks, Herman v. Minister of National
Revenue,' have been precluded from deducting the
amounts for travel from his home to any places of
work, including travel to the permanent office and
to the construction sites, since the decision of
Jerome A.C.J. in The Queen v. Chrapko (G.R.) 2
there was binding authority that he was entitled to
deduct these expenses. The rationale for this view
was that by the Luks case it had been held that a
person could not be deemed to be "travelling in the
course of his employment" as required by the
closing words of paragraph 8(l)(h) unless the
I [1959] Ex.C.R. 45.
2 [1984] CTC 594 (F.C.T.D.).
travel actually involved the performance of some
service as compared to simply getting oneself to
the place of work. However, the words "in the
course of his employment" were held in the
Chrapko decision in the Federal Court Trial Divi
sion not to preclude a deduction in such circum
stances. The Tax Court considered itself bound by
the later decision in Chrapko.
Since the decision of the Tax Court, however,
the Federal Court of Appeal has rendered a deci
sion on appeal in the Chrapko case. 3 The two
parties in the present appeal characterize some
what differently that decision of the Court of
Appeal. In the view of the defendant the Court of
Appeal implicitly adopted the reasoning of the
Trial Judge but modified it in application. In the
view of the plaintiff the Court of Appeal "over-
turned" the trial decision.
Without debating how one should characterize
the decision of the Court of Appeal, it is sufficient
to note its practical effect. At trial the Associate
Chief Justice had held that the taxpayer in Chrap-
ko was entitled to deduct travelling expenses
incurred in travelling from his home to three dif
ferent racetracks at which he acted as a pari-
mutual teller for the Ontario Jockey Club. He
lived in Niagara Falls. He travelled to two differ
ent racetracks in Toronto where he spent a total of
some seventy-five percent of his working time, and
also travelled to a racetrack in Fort Erie where he
spent the remainder of his working time. The
Court of Appeal varied the decision of the Trial
Judge by allowing the taxpayer to deduct only his
expenses for travelling from his home to the Fort
Erie track, because in the view of that Court he
was entitled to deduct only travel expenses
. incurred ... in travelling to a place of work away from the
places at which he usually worked .... 4
3 Chrapko (G.R.) v. The Queen, [1988] 2 C.T.C. 342
(F.C.A.).
° Ibid., at p. 344.
It is true that the rationale adopted by the Associ
ate Chief Justice at trial in the Chrapko case
would appear to give little or no significance to the
words "travelling in the course of his employment"
provided the other requirements of paragraph
8(1)(h) are met. On appeal the Court of Appeal
has implicitly qualified those words by recognizing
that a taxpayer can deduct expenses for travelling
from his home to a place of work as long as that
place of work is other than the place at which he
"usually" works. There were similar decisions in
the past by the Tax Review Board permitting
deductions for travel from home to workplace. 5
These do appear to be somewhat inconsistent with
the rationale adopted by Thurlow J. (as he then
was) in the Luks case 6 which would preclude any
deductions for travelling to and from one's work
unless the travel itself was the performance of
some service such as delivery. Nevertheless it is
clear from the decision of the Court of Appeal in
Chrapko' and implicit in an earlier decision of
that Court in Healy v. R. 8 that the Luks rationale
can no longer be applied so as to preclude all
deductibility where the travelling itself is not the
performance of a service for the employer.
Applying the rule laid down by the Court of
Appeal in Chrapko, I have concluded that the
defendant in this case was obliged to travel to
places of work, namely the construction sites, away
from the place at which he usually worked, namely
the permanent office of Western Electrical Con
structors Limited. Counsel for the plaintiff sug
gested that I had no evidence before me to indicate
which was the usual place of work of the defend
ant. I believe that I can infer this fact from the
language of the agreed statement of facts itself: it
5 See e.g. Klue, J T v. MNR, [1976] CTC 2401 (T.R.B.);
Dale (J B) v. MNR, [1977] CTC 2208 (T.R.B.).
6 Supra, note 1.
' Supra, note 3.
9 [1979] 2 F.C. 49 (C.A.): the statement in that case at page
55 as to the objective of paragraph 8(1)(h) as being to enable
employees required to work from time to time "away from the
places at which they usually work" to deduct their travel
expenses was explicitly endorsed by the Court in Chrapko.
refers to the "permanent office" of the employer at
330 - 11th Avenue S.W., Calgary and to the
"temporary construction sites" being the Delta
Hotel and Heritage Square. It is agreed that the
defendant had management responsibilities at the
office going well beyond his functions at the two
temporary construction sites. I believe that I can
infer that a "permanent office" would be a place
where the defendant worked "usually" during his
years of employment with Western, from 1977 to
1988 and that his involvement at two "temporary"
constructions sites would be of a less regular
nature. I accept the argument by counsel for the
defendant that in determining what is "usual" one
may have to look beyond the taxation year in
question to see the long-term pattern of the
defendant's work.
I therefore dismiss the appeal. It was agreed by
the Minister that, consistently with subsection
178(2) of the Income Tax Act [as am. by S.C.
1980-81-82-83, c. 158, s. 58, item 2; 1984, c. 45, s.
75] (whether or not that subsection is still in force)
costs should be awarded against the Minister no
matter what the outcome. In any event, the appeal
having failed, costs are awarded against the Minis
ter and in favour of the defendant.
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