Tax Court of Canada Judgments

Date: 19990526

Docket: 96-4008-IT-G

BETWEEN:

LIONEL A. MITCHELL,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for judgment

Sarchuk, J.T.C.C.

[1] These are the appeals of Dr. Lionel A. Mitchell (the Appellant) from assessments of tax with respect to the 1991 and 1992 taxation years whereby the Minister of National Revenue (the Minister) disallowed the deduction of expenses claimed in the amounts of $15,551.68 for 1991 and $11,116.00 for 1992.

[2] During the years in issue, the Appellant was a professor with tenure and a full-time faculty member in the School of Business Administration at Acadia University, Wolfville, Nova Scotia. His area of expertise is marketing with the focus being the relationship between marketing and economic development. For a number of years, he has been conducting research, writing, speaking and publishing on various aspects of the subject.

[3] In the fall of 1988, the Appellant submitted an application to the University Sabbatical Leave Committee for a sabbatical leave and outlined therein a proposed research project to be conducted by him during that period. The leave was approved but at the University’s request, the Appellant postponed the sabbatical period to July 1, 1990 to June 30, 1991.

[4] The Appellant testified that he considered his research projects to be an integral part of his obligations both as a faculty member and under his contract of employment. Accordingly, he was required to do research on a scale and at a level appropriate to his professional status. He said that although he chose the subject to be researched, it had to be approved by the University's Sabbatical Leave Committee and that when approved, the pursuit of his research program during the sabbatical leave was part of his duties under the Collective Agreement (the Agreement).

[5] In 1991 during the sabbatical year, the Appellant commenced his research program which included travel to several Caribbean Islands as well as to the United States, Quebec and Ontario. During this period, he received from the University an amount equal to 80% of his normal salary and in addition, in 1991 received funding from the University towards research expenses in the amount of $7,936. In computing his income for the 1991 taxation year, the Appellant claimed the amount of $15,551.68 as a research expenditure deduction.[1]

[6] Upon his return from the sabbatical, the Appellant resumed his teaching duties and continued to pursue his project. In 1992, he travelled to the West Indies, the United States and to other parts of Canada to further his research which enabled him to complete and publish two articles on the subject. He further said that his research in 1992 was merely a continuation of the project on which he had worked during his sabbatical leave. According to the Appellant, his travel in 1992 was not unusual but was necessary to fulfil his obligations under the Agreement with respect to scholarship and research.

[7] In the calculation of his income for the 1992 taxation year, he included inter alia, his regular salary as well as a grant of $4,000 from the University and claimed the amount of $11,116 as "other deductions". This amount reflected what he described as research expenses incurred in this taxation year.

[8] The issues as pleaded by both parties are:

(a) whether the Appellant was entitled, during his sabbatical leave in 1991, to deduct his net research expenses pursuant to subparagraph 56(1)(o)(i) of the Income Tax Act (the Act).

(b) whether for 1992 the Appellant was entitled to deduct his research expenses pursuant to paragraph 8(1)(h) of the Act.

In the alternative, Counsel for the Appellant argued that:

(c) in the event subparagraph 56(1)(o)(i) of the Act did not apply in taxation year 1991, the Appellant was nonetheless entitled to deduct his research expenses pursuant to paragraph 8(1)(h) of the Act, and

(d) in carrying out his research program in both years, the Appellant was an independent contractor carrying on the business of research and writing and in that capacity, was entitled to deduct any net expenses relating to that business.

Deductibility of Research Expenses pursuant to subparagraph 56(1)(o)(i) of the Act.

[9] Section 56(1)(o) provides:

56(1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,

...

(o) the amount, if any, by which any grant received by the taxpayer in the year to enable him to carry on research or any similar work exceeds the aggregate of expenses incurred by him in the year for the purpose of carrying on the work, other than

(i) personal or living expenses of the taxpayer except travelling expenses (including the entire amount expended for meals and lodging) incurred by him while away from home in the course of carrying on the work,

(ii) expenses in respect of which he has been reimbursed, or

(iii) expenses that are otherwise deductible in computing his income for the year;

[10] With respect to the 1991 taxation year, the Appellant contends that because sabbatical leave is only granted by the University once the applicant’s research program and expenses have been approved, any payment in lieu of salary during the leave is in essence a research grant within the meaning of paragraph 56(1)(o) of the Act, whether or not the University designates it as such. Consequently, he was entitled to exclude from his income the amount that he received from the University during the sabbatical period in lieu of salary, up to the amount of his research expenses. Since the Appellant included in his income for 1991 the amount that he received in that year while on leave, he should have been allowed deductions for research expenditures not in excess of that amount, which is what he claimed.

[11] Counsel for the Appellant also submitted that specific language in the Act overrides more general language that might otherwise apply in the same circumstances.[2] By virtue of subsection 4(4) of the Act, as it applied during the years in questions, the same receipt is not to be included in income twice. While the compensation received by the Appellant from the University during his sabbatical (80% of his usual salary) would appear to be included in his income from employment under the broad but general language of paragraph 6(1)(a) of the Act, it also fits within the more specific provisions of paragraph 56(1)(o) relating to research grants. Counsel contends that to treat the payments to the Appellant as salary would unfairly detract from the overall objective of the section.[3] Consequently, the latter provision should apply, allowing for the deduction of the Appellant's related expenses, as he has claimed.

[12] I am unable to accept the Appellant's position and in particular, I am unable to conclude that the amounts paid to the Appellant by the University in 1991 were a payment by way of a grant for the purpose of doing research on a specific project.[4] The decision of Cardin J. in Taylor v. M.N.R.[5]cited by Counsel for the Appellant provides little assistance. Taylor, an associate professor of physical education at the University of Alberta, was entitled to, applied for, and was granted sabbatical leave for 1973-1974. During his sabbatical, he received 80% of his salary from the University of Alberta. At about the same time, he applied to the Canada Council for a grant to do research in his field of work which was approved. In his reasons, the Chairman of the Board observed that although the basis upon which the funds had been granted by Canada Council was not clear, the preponderance of the evidence led him to accept the Appellant's position that the funds constituted a research grant within the meaning of paragraph 56(1)(o) of the Act and rejected the Respondent's position that the funds amounted to a scholarship or bursary within the meaning of paragraph 56(1)(n) of the Act.

[13] In Taylor, it was both necessary and appropriate for the Board to consider the purpose and nature of the payments since no other relationship existed between the Canada Council and the payee, other than that of grantor and grantee. This of course is readily contrasted with the employer/employee relationship between the University of Acadia and the Appellant, which relationship was governed by the Agreement. It is not disputed that the Appellant was an employee within the meaning of the Agreement. It is also not disputed that the academic year is the 1st of July to the 30th of June of the following year. Article 21 of the Agreement provides for the remuneration of employees and sets out, inter alia, the salary grid for each of the taxation years in issue. Article 24.10 provides for a sabbatical leave which "is intended to provide an opportunity for employees to pursue scholarly interests related to their disciplines at other Universities or appropriate places" and also states: "sabbatical leave is the earned right of any employee who is granted leave by the Sabbatical Leave Committee". Article 24.11 provides that the salary for leave shall be according to the following scale: 12 month leaves ... six or more years of eligible service ... sabbatical salary 80%.

[14] I might add that the parties to this Agreement put their minds to the issue that expenses might be incurred by an employee in the course of conducting research at any time during his employment. For example, Article 25.00 – Fringe Benefits makes reference to a number of matters including the provision of "research monies" and funding for "professional development" and allocates the sum of $60,000 for the support of research in each academic year to be distributed amongst the various faculties. Requests for funds pursuant to this Article are made on an Application for Regular Research Grant form.

[15] In light of these provisions, it is not possible to consider that the amount received by him during the term of his sabbatical constituted anything other than the bargained-for portion of his salary. There is nothing in the relevant Articles of the Agreement to suggest that either the employer or the employee considered a sabbatical salary to be a grant or fellowship or any other form of remuneration.

[16] I am also unable to accept the Appellant's submission that the receipt of these monies could be considered both as income from an office or employment under paragraph 6(1)(a) and as a research grant governed by paragraph 56(1)(o) and that accordingly, this Court should apply the principle of generalia specialibus non derogant to the provisions before the Court. There is no doubt that as was observed in Driedger on the Construction of Statutes:[6]

Where two provisions are in conflict and one of them deals specifically with the matter in question while the other is a general application, a conflict may be avoided by applying the specific provision to the exclusion of the more general one.

and that as Cattanach J. concluded in The Queen v. Patterson,[7]a decision cited by Counsel for the Appellant:

A general provision in a statute such as paragraph 8(1)(a) by its nature, is not to control or govern a special provision such as paragraph 8(1)(h) is. The special provision must be read as accepted out of the general.

Thus, since the defendant falls within the words of paragraph 8(1)(h), he must be governed thereby and he is entitled to the benefits thereunder as well.

Although two provisions can, in certain cases (as exemplified by Patterson), apply without conflict to the same facts, that is not the case here. Paragraph 56(1)(o) can only apply where the receipt by a taxpayer is clearly and unequivocally a grant. Since I have concluded that it is not a grant, there is no possibility of it being taken into income twice and potentially lead to double taxation of his income.

Deductibility of expenses pursuant to paragraph 8(1)(h) of the Act

[17] With respect to taxation year 1992,[8] the Appellant says that having regard to his specific duties with the University, his areas of interest, and the provisions of the Agreement, he was ordinarily required to carry on some of his duties away from the employer's place of business and in the different places where he conducted his research. In order to do so, aside from certain funds received from the University,[9] he was required to pay the travel expenses so incurred out of his own resources.

[18] The Appellant contends that the terms of the Agreement and the institutional practices at the University make it clear that there was an implied term of his contract of employment to undertake research or comparable scholarly activity and that failure to do so would produce unfavourable employment repercussions.[10] In his chosen field, research was called for and necessarily required travel outside of Canada for extensive periods. Counsel for the Appellant argued that it takes very little by way of implication to find that the Appellant was required by his contract of employment to travel to do research. Apart from sabbatical leaves, the obvious time to do so was in the summer recesses, as occurred in 1992 but also occurred regularly and customarily in the summers of other years. Consequently, the Appellant contends that he is entitled to deduct his net travelling expenses relating to research pursuant to paragraph 8(1)(h) of the Act. With specific reference to 1992, the Appellant contends that although a portion of his research was conducted beyond the sabbatical period, that is irrelevant to the application of paragraph 8(1)(h).

[19] The Respondent relied to a substantial extent on the decision of the Federal Court Trial Division in The Queen v. Jeromel.[11]In that case, the Court concluded that the taxpayer could not deduct the expenses as he was not employed during the sabbatical period and was therefore not required to carry out duties of employment. It was further argued by Counsel for the Respondent that in the present appeals, the Appellant's contract of employment permitted him to travel but did not require it. Consequently, he submitted that the Appellant's situation does not fall within the parameters of paragraph 8(1)(h) of the Act.

Analysis

[20] The Appellant's position is that not only was he required by the terms of employment to carry out research but that the only way it could be done in his chosen field was to travel and incur expenses. These expenses, he says, are deductible pursuant to the provisions of paragraph 8(1)(h) of the Act which provides that:

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:

...

(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, and

(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,

amounts expended by the taxpayer in the year (other than motor vehicle expenses) for travelling in the course of the taxpayer's employment, except where the taxpayer

(iii) received an allowance for travelling expenses that was by reason of subparagraph 6(1)(b)(v), (vi) or (vii), not included in computing the taxpayer's income for the year, or

(iv) claimed a deduction for the year under paragraph (e), (f) or (g);

[21] Counsel for the Appellant referred to a number of decisions where the special circumstances of a taxpayer's employment required that he carry out, as frequent and regular occurrences, a number of his duties in places other than his regular place of work.[12] Without exception, these cases dealt with situations where the primary or fundamental duties of employment automatically included an element of travel, i.e. a principal did not have a choice as to which meetings he will attend, a junior accountant had no choice regarding his attendance at clients' offices to perform audits, nor did psychologists required to make frequent trips from their offices to various schools to provide testing, counselling and educational services to students. In such cases, there is no element of choice on the part of the Appellants, they simply had to travel in order to satisfy their respective duties of employment or suffer the consequences. It is not difficult to understand why in Rozen, Strayer J. had no difficulty concluding that the Appellant was "indeed required to use his automobile to do his job". I am unable to equate the Appellant's position with that of the accountant whose employer expected him to use his own car for the purposes of going to work in clients' offices, failing which would probably result in dismissal.

[22] These decisions are instructive as they relate to the individual requirements of paragraph 8(1)(h) but they contribute little to the present appeals since they do not address a situation in which a taxpayer is relieved of the primary responsibilities of his employment, in this case teaching, and is given leave to pursue a scholarly interest related to his discipline (which includes research) in a manner and a place of his own choosing. In this context, reference may be made to Article 5:00 of the Agreement which provides in part as follows: "It is recognized by both parties that many of the freedoms and responsibilities ... have been developed as a result of existing practices over a period of years. ... This Article seeks to outline the general areas into which these freedoms and responsibilities fall". The academic responsibilities listed include research, scholarly or other creative activity. This "responsibility" must be considered in the context of the definition of academic freedom found in the same Article which reads in part: " ... the freedom of Employees to express and uphold opinions without incumbrance, (sic) to carry out research which they believe will enhance knowledge, and to express the results of such research in a reasonable manner without interference. The Parties shall scrupulously adhere to and protect this principle, against threats from inside and outside the University." Thus, although scholarly activity including in appropriate cases, research, is an academic responsibility of the Appellant he had an unfettered right to submit a program of his own choosing to the Sabbatical Committee and to expect that as long as it had some academic merit within his discipline, it would be approved.

[23] The facts in the present appeal are distinguishable from those found in the cases cited on behalf of the Appellant. The primary function of a professor at a University is to teach students. Sabbatical leave is intended to provide a teacher with an opportunity to be absent from his teaching post to pursue scholarly interests related to his discipline but leaves the choice as to what and where as well as the matter of costs to the person on leave.[13] Although in a general way the sabbatical program is approved by a committee, that fact is not altered since such approval does not (and cannot) mandate or direct the manner in which a particular scholarly pursuit is to be carried out.

[24] One further aspect of this matter is of concern. The Appellant testified that travel to conduct research in his chosen field was required by the terms of his employment contract and was undertaken in part to prevent professional repercussions. He also contends that this research (both while on sabbatical leave and in other years) was conducted for the purpose of obtaining and collating material to author a textbook. Specifically, he pleads that in carrying out his research program in 1991 and 1992 he was an independent contractor carrying on the business of research and writing and as such, should be entitled to deduct any expenses relating to that business. Furthermore, he said that his research over the years has led to remunerative external teaching appointments and to the receipt of royalties from books he had written.[14] The existence of such personal financial objectives cast doubt on the Appellant's assertions that the expenses incurred flowed from a requirement by the University to perform duties calling for travel.

[25] On balance, I am not satisfied that the requirements of paragraph 8(1)(h) of the Act have been met. The appeals are dismissed, with costs.

Signed at Ottawa, Canada, this 26th day of May, 1999.

"A.A. Sarchuk"

J.T.C.C.

---