Date: 20010611
Docket: A-756-99
Neutral citation: 2001 FCA 198
CORAM: DESJARDINS J.A.
LÉTOURNEAU J.A.
NOËL J.A.
BETWEEN:
VILLE DE BEAUPORT
Applicant
- AND -
MINISTER OF NATIONAL REVENUE
Respondent
Hearing held at Québec, Quebec, on Thursday, May 13, 2001
Decision rendered at Ottawa, Ontario, on Monday, June 11, 2001
REASONS FOR JUDGMENT BY: NOËL J.A.
CONCURRED IN BY: DESJARDINS J.A.
LÉTOURNEAU J.A.
Date: 20010611
Docket: A-756-99
Neutral citation: 2001 FCA 198
CORAM: DESJARDINS J.A.
LÉTOURNEAU J.A.
NOËL J.A.
BETWEEN:
VILLE DE BEAUPORT
Applicant
- AND -
MINISTER OF NATIONAL REVENUE
Respondent
REASONS FOR JUDGMENT
NOËL J.A.
[1] This is an application for judicial review of a decision by Judge Dussault of the Tax Court of Canada that upheld the Minister of National Revenue's decision to deduct employers' premiums pursuant to the Unemployment Insurance Regulations (Collection of Premiums), C.R.C., 1978, (the Regulation) with respect to travel allowances the applicant had paid its employees.
[2] The applicant claimed that the travel allowances it paid during the disputed period did not have to be included in its employees' income in accordance with the Income Tax Act (the Act) and that therefore those allowances were not considered as remuneration under the Regulation.
[3] At that time, paragraph 3(1)(d) of the Regulation read as follows:
|
3. (1) For the purposes of this Part, a person's earnings from insurable employment means any remuneration, whether wholly or partly pecuniary, received or enjoyed by him, paid to him by his employer in respect of insurable employment except . . . (d) any amount excluded as income pursuant to paragraph 6(1)(a) or (b) or subsection 6(6) or (16) of the Income Tax Act. |
3(1) Aux fins de la présente partie, la rémunération d'une personne provenant d'un emploi assurable correspond à toute rétribution, entièrement ou partiellement en espèces, qu'elle reçoit ou dont elle bénéficie et qui lui est versée par son employeur relativement à cet emploi, à l'exception: [. . .] d) de tout montant qui est exclu du revenu en vertu des alinéas 6(1)a) ou b) ou des paragraphes 6(6) ou (16) de la Loi sur l'impôt sur le revenu. |
[4] Paragraph 6(1)(b), which is the only provision of the Act in dispute, states the following relevant principles:
|
6. (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) all amounts received by the taxpayer 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, ... |
6(1) Sont à inclure dans le calcul du revenu d'un contribuable tiré, pour une année d'imposition, d'une charge ou d'un emploi, ceux des éléments suivants qui sont applicables: b) les sommes qu'il a reçues au cours de l'année à titre d'allocations pour frais personnels ou de subsistance ou à titre d'allocations à toute autre fin, sauf: [...] (vii.1) Les allocations raisonnables pour l'usage d'un véhicule à moteur qu'un employé - dont l'emploi n'est pas lié à la vente de biens ou à la négotiation de contrats pour son employeur - a reçues de son employeur pour voyager dans l'accomplissement des fonctions de sa charge ou de son emploi [...] |
|
and for the purposes of subparagraphs 6(1)(b)(v), 6(1)(b)(vi) and 6(1)(b)(vii.1), an allowance received in a taxation year by a taxpayer for the use of a motor vehicle in connection with or in the course of the taxpayer's office or employment shall be deemed not to be a reasonable allowance (x) where the measurement of the use of the vehicle for the purpose of the allowance is not based solely on the number of kilometres for which the vehicle is used in connection with or in the course of the office or employment, or |
pour l'application des sous-alinéas (v), (vi) et (vii.1), une allocation reçue au cours de l'année par le contribuable pour l'usage d'un véhicule à moteur dans l'accomplissement des fonctions de sa charge ou de son emploi est réputée ne pas être raisonnable dans les cas suivants: (x) l'usage du véhicule n'est pas, pour la fixation de l'allocation, uniquement évalué en fonction du nombre de kilomètres parcourus par celui-ci dans l'accomplissement des fonctions de la charge ou de l'emploi, |
[5] The evidence established that the applicant had introduced a "motor vehicle allowance policy" based on figures contained in a specialized publication prepared by the Quebec Automobile Club (CAA-Quebec). To calculate an amount per kilometre, the applicant together with the union tried to determine average operating costs that took into account fixed and variable costs for the use of a vehicle. It then applied that amount to a value representing the approximate annual kilometres driven that was extrapolated from the total kilometres actually driven by its employees during a three-month reference period.
[6] The applicant stated that the travel allowances determined in this manner were reasonable and merely compensated its employees for expenses they had incurred for the use of their vehicles during the course of their employment duties. Those allowances are not considered as income pursuant to subparagraph 6(1)(b)(vii.1) of the Act and therefore do not fall under paragraph 3(1)(d) of the Regulation.
[7] The Tax Court Judge disposed of the case by relying exclusively on subparagraph 6(1)(b)(x). After analyzing the evidence, he determined that the travel allowances paid by the applicant had not been calculated solely on the basis of the number of kilometres driven, as required by that subparagraph, and were therefore deemed not to be reasonable. Given that presumption, those allowances had to be included in the employees' income and the applicant was thus required to pay employers' unemployment insurance premiums in accordance with the Regulation.
[8] The applicant's first argument was that Judge Dussault's conclusion that the allowances were deemed not to be reasonable pursuant to subparagraph 6(1)(b)(x) of the Act was ultra petita since the only issue that had to be addressed was whether the allowances paid were reasonable in accordance with subparagraph 6(1)(b)(vii.1). More specifically, the applicant submitted at paragraph 8 of its memorandum the following:
[TRANSLATION] Since the issue of the method used to calculate the travel allowances and more specifically whether the allowances were established on the basis of the number of kilometres driven by the employees was not addressed in the parties' proceedings, the applicant submits to this Court that the Tax Court of Canada was at fault for having dismissed its appeal on the grounds that the allowances paid by the applicant did not meet the requirements of subparagraph 6(1)(b)(x) of the Income Tax Act.
[9] That argument has no merit. Paragraph 3(1)(d) of the Regulation, which the Minister invoked in his reply to the Notice of Appeal, refers to paragraph 6(1)(b) of the Act and includes subparagraph 6(1)(b)(x) among others. That subparagraph provides that for the purposes of subparagraph 6(1)(b)(vii.1), an allowance is deemed not to be reasonable if it is not based solely on the number of kilometres for which the vehicle is used.
[10] Therefore, the conclusion of the judge below was not ultra petita. In fact, he was required to consider the presumption under subparagraph 6(1)(b)(x) to determine whether the allowances were reasonable in accordance with subparagraph 6(1)(b)(vii.1).
[11] Furthermore, the applicant repeated the argument it successfully raised before the Quebec Court of Appeal in a parallel case arising from the Taxation Act, R.S.Q., c. I-3 (Sous-ministre du Revenu du Québec v. Ville de Beauport, unreported decision dated December 18, 2000
(2000-09-002160-981)). The applicant more specifically claimed that Judge Dussault's interpretation of subparagraph 6(1)(b)(x) was incompatible with the concept of an allowance and had the effect of transforming into the concept of a reimbursement for expenses incurred.
[12] The applicant referred in particular to the following comments of the judge below concerning subparagraph 6(1)(b)(x):
. . . the condition as stated appears to be very clear: what counts is the number of kilometres for which the vehicle is used in the performance of duties. This means kilometres actually travelled. Approximations or estimates have no place here. One must be rigorously accurate and keep appropriate records.
The applicant noted that an allowance usually represents a predetermined amount (Gagnon v. The Queen, [1986] 1 S.C.R., pp. 272-273; Attorney General of Canada v. MacDonald, 94 D.T.C. 6262 (F.C.A.)), and therefore subparagraph 6(1)(b)(x) cannot be interpreted as requiring that the allowance be determined on the basis of the number of kilometres actually driven.
[13] Based on that logic, subparagraph 6(1)(b)(x) simply specifies that the only factor to be considered when determining an allowance is the distance in kilometres for which the vehicle is used. In this case, the calculation was based solely on the number of kilometres travelled and even though the allowances were paid on the basis of kilometres travelled during a prior period, that is sufficient to rebut the presumption created under subparagraph 6(1)(b)(x).
[14] With respect, the applicant overlooked the fact that it is the nature of the amounts paid and not the moment when those amounts are calculated that distinguishes an allowance from a reimbursement for expenses. As this Court reiterated in MacDonald (supra), an allowance is composed of three elements (p. 6264):
Nonetheless, following Ransom, Pascoe and Gagnon, the general principle defining an "allowance" for purposes of paragraph 6(1)(b) is composed of three elements. First, an allowance is an arbitrary amount in that it is a predetermined sum set without specific reference to any actual expense or cost. As I noted above, however, the amount of the allowance may be set through a process of projected or average expenses or costs. Second, paragraph 6(1)(b) encompasses allowances for personal or living expenses, or for any other purpose, so that an allowance will usually be for a specific purpose. Third, an allowance is in the discretion of the recipient in that the recipient need not account for the expenditure of the funds towards an actual expense or cost.
[15] I note for our purposes that an allowance is computed independently of the actual expense which it seeks to compensate and even though recipients must establish that they have done the thing or accomplished the act which entitles them to receive an allowance, they need not account for it. On the other hand, a reimbursement for an expense is based on the actual expense incurred and requires proof of the expenditure.
[16] Therein lies the difference between those two types of payment. The nature of an amount which bears the constitutive elements of an allowance is not altered by the mere fact that it is computed in part by reference to a known factor. In adopting subparagraph 6(1)(b)(x), the legislator had in mind that when calculating the allowance for the use of a vehicle, the amount paid per kilometre must be based on estimates but not the "number of kilometres for which the vehicle is used." The provision therefore provides that in order for an allowance to be reasonable, this latter element must be based on actual kilometres travelled rather than an approximation. That requirement does not alter in any way the nature of the amount paid.
[17] In this instance, the scheme introduced by the applicant does not take into account the number of kilometres actually travelled by the employees during the period for which the allowances are paid but is based on an estimate determined by reference to the previous period. That is precisely the type of calculation that was excluded when subparagraph 6(1)(b)(x) was adopted and the Tax Court Judge's reading of that provision was in conformity with the statutory language and not incompatible in any way with the concept of an allowance.
[18] In my view, Judge Dussault was therefore justified in finding that the presumption under subparagraph 6(1)(b)(x) was applicable in this case and that the allowances paid by the applicant were consequently deemed not to be reasonable.
[19] Those remarks are sufficient to resolve this appeal, but I would add that based on the evidence before the judge below, serious doubts lingered as to whether the allowances paid by the applicant were in fact reasonable.
[20] The applicant defended the reasonable nature of its allowances by reminding this Court that its policy resulted from negotiations that were conducted at arm's length with the union representing its employees. The applicant made an analogy with the concept of "fair market value" as applied in paragraph 69(1) of the Act and submitted that the reasonable nature of the allowances paid could not be questioned.
[21] I readily believe that the applicant would not have accepted to pay more for its allowances than what was needed to reach its collective agreement and, as such, the allowances as a whole were reasonable in both the applicant's and the union's view. However, that is not the focus of subparagraph 6(1)(b)(vii.1). What needs to be determined in this case is whether the allowances paid to each employee in accordance with the applicant's policy were reasonable.
[22] That policy was based on a study by the CAA-Quebec that used a total distance of 20 000 kilometres annually as its reference point. The study specifies that the figures provided represent an average and it encourages the reader to make its own calculations. According to the study, the estimated costs for a mid-size car are 41.5 ¢ per kilometre and 37.7 ¢ per kilometre for a compact car, the two types of cars at issue in this case.
[23] The policy applies to employees whose duties require them to travel over 1 600 kilometres annually and includes categories consisting of 12 classes of kilometres. An annual allowance is set for each of those classes. Under the scheme, employees who drive the minimum amount of kilometres within a specific class receive the same allowance as those travelling the maximum amount in the same class.
|
Categories |
Annual Kilometres |
Annual Allowance (1995) |
Equivalent ¢ /km |
|
1 |
from 1 600 to 2 140 |
$1 438.94 |
89.93 ¢ to 67.24 ¢ |
|
2 |
from 2 141 to 2 680 |
$1 926.27 |
89.97 ¢ to 71.87 ¢ |
|
3 |
from 2 681 to 3 220 |
$2 474.50 |
92.29 ¢ to 74.86 ¢ |
|
4 |
from 3 221 to 4 800 |
$3 216.30 |
99.85 ¢ to 67.01 ¢ |
|
5 |
from 4 801 to 6 400 |
$3 717.16 |
77.42 ¢ to 58.08 ¢ |
|
6 |
from 6 401 to 8 000 |
$4 224.78 |
66.00 ¢ to 52.81 ¢ |
|
7 |
from 8 001 to 9 600 |
$4 732.41 |
59.15 ¢ to 49.30 ¢ |
|
8 |
from 9 601 to 11 200 |
$5 240.03 |
54.58 ¢ to 46.79 ¢ |
|
9 |
from 11 201 to 12 800 |
$5 750.36 |
51.34 ¢ to 44.92 ¢ |
|
10 |
from 12 801 to 14 400 |
$6 253.91 |
48.85 ¢ to 43.43 ¢ |
|
11 |
from 14 401 to 16 000 |
$6 761.55 |
46.95 ¢ to 42.26 ¢ |
|
12 |
from 16 001 and more |
$7 269.17 |
45.43 ¢ /km and less |
Respondent's memorandum, paragraph 13.
[24] It should be noted that in 1995, the allowance employees could receive under the scheme was 36.35 ¢ /km for those travelling 20 000 kilometres annually and up to 99.85 ¢ /km for those travelling 3 221 kilometres annually.
[25] In reality, however, none of the employees involved travelled 20 000 kilometres in the course of their employment duties. Most of them travelled between 3 000 to 5 000 kilometres annually, which means that the allowances paid were distinctly higher than the amounts set in the CAA-Quebec's study on which the applicant's figures were based.
[26] Furthermore, under section 7306 of the Income Tax Regulations, a company could deduct a maximum of 31 ¢ /km for the first 5 000 kilometres for allowances paid to employees who use their vehicles during the period at issue. Although the limits prescribed under that section are not applicable to subparagraph 6(1)(b)(vii.1) of the Act, they constitute nevertheless a useful reference point to determine what the legislator considers to be a reasonable allowance (O'Connel v. The Queen, 98 D.T.C. 2155, at page 2158 (T.C.C.)). At the very least, the Regulations suggest that an amount higher than 31 ¢ /km would exceed the reasonable amount an employer could deduct in consideration for an allowance.
[27] In comparing the amounts paid per kilometre to the employees involved with those prescribed by the CAA and the Income Tax Regulations, employees who travelled less than 5 000 kilometres in the course of their employment, which represents the majority of them, received a much higher allowance. In fact, they were paid an average of 78.95 ¢ /km while, as previously mentioned, the amount prescribed under the Income Tax Regulations is 31 ¢ /km and the amount established by the CAA's study varies between 37.7 ¢ /km and 41.5 ¢ /km respectively. At first glance, the amount paid in this case seems excessive.
[28] Moreover, the applicant's policy includes specific features indicating that neither the applicant nor the union considered the requirements under subparagraph 6(1)(b)(vii.1) during their negotiations that lead to the policy's adoption. For example, article 2.13 of the policy states that employees are allowed up to one month of sick leave without losing their rights to the allowance.
[29] According to the table reproduced at paragraph 23, employees who travel 3 220 kilometres annually are entitled to receive 74.86 ¢ /km, while those travelling one additional kilometre receive 99.85 ¢ /km. Variations of this kind are found in the first four categories which comprise the majority of the employees.
[30] Those variations highlight the questionable logic behind the applicant's policy when the matter is considered from an income tax point of view. It is easy to see how the establishment of categories must result in some employees being advantaged and others being penalized. However, according to the categories established by the applicant, the amounts per kilometre are increased by 25% within a range of 1 081 kilometres depending on whether the employee travels a total of 2 141 kilometres rather than 2 140 kilometres; 2 681 kilometres rather than 2 680 kilometres; or 3 221 kilometres rather than 3 220 kilometres. Variations of this kind within such a restricted range are clearly unjustified. Those amounts, varied as they are, cannot all constitute "reasonable" allowances within the meaning of subparagraph 6(1)(b)(vii.1).
[31] Therefore, not only does the scheme established by the applicant fail to meet the requirements of subparagraph 6(1)(b)(x) as the Tax Court Judge had determined, but it also fails to meet the requirement of subparagraph 6(1)(b)(vii.1) by virtue of which only "reasonable" allowances can be excluded from an employee's income.
[32] For these reasons, I would dismiss the application for judicial review with costs.
Marc Noël
J.A.
I concur with these reasons.
Alice Desjardins J.A.
I concur with these reasons.
Gilles Létourneau J.A.
Certified true translation
S. Debbané, LL.B.
Date: 20010611
Docket: A-756-99
Ottawa, Ontario, Monday, June 11, 2001
CORAM: DESJARDINS J.A.
LÉTOURNEAU J.A.
NOËL J.A.
BETWEEN:
VILLE DE BEAUPORT
Applicant
- AND -
MINISTER OF NATIONAL REVENUE
Respondent
JUDGMENT
The application for judicial review is dismissed with costs.
Alice Desjardins
J.A.
Certified true translation
S. Debbané, LL.B.
FEDERAL COURT OF CANADA
APPEAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
COURT FILE NO.: A-756-99
STYLE OF CAUSE: VILLE DE BEAUPORT
Applicant
v.
MINISTER OF NATIONAL REVENUE
Respondent
PLACE OF HEARING: Québec, Quebec
DATE OF HEARING: May 31, 2001
REASONS FOR JUDGMENT BY: Noël J.A.
CONCURRED IN BY: Desjardins J.A.
Létourneau J.A.
DATED: June 11, 2001
APPEARANCES:
Bernard Roy FOR THE APPLICANT
André Lareau
Marie-Andrée Legault FOR THE RESPONDENT
SOLICITORS OF RECORD:
Joli-Coeur, Lacasse, Lemieux, Simard, St-Pierre
Sillery, Quebec FOR THE APPLICANT
Morris A. Rosenberg
Deputy Attorney General of Canada FOR THE RESPONDENT