A-599-81
The Queen (Appellant)
v.
Henry Cival (Respondent)
Court of Appeal, Heald, Ryan JJ. and Kerr D.J.—
Ottawa, December 7, 1982 and March 29, 1983.
Income tax — Income calculation — Deductions — Appeal
from Trial Division judgment allowing civil servant's claim for
travelling expenses in respect of costs of using own car in
performance of duties — Flat mileage rate agreement not
covering all costs — Deductibility of shortfall under s. 8(1)(h)
of Act depending on whether employment contract requiring
employee to pay own expenses — Unilateral contract not
creating contractual obligation to use car and pay expenses —
No such requirement in collective agreement, Regulations or
legislation — Appeal allowed — Income Tax Act, S.C. 1970-
71-72, c. 63, ss. 5, 6(1)(b), 8(1)(h),(j).
In 1977, at the request of his employer, the respondent, a
civil servant, used his own car to carry on the duties of his
employment. Under an arrangement with his Department, he
was reimbursed at a fixed mileage rate designed to offset the
cost of owning and operating a car. However, that mileage rate
did not entirely cover his expenses. The respondent claimed
travelling expenses in respect of the shortfall. The Minister
disallowed that deduction, the Tax Review Board upheld the
Minister's assessment and the Trial Division allowed the appeal
from the Board's decision. This is an appeal from the Trial
Division judgment.
Held, the appeal should be allowed. The question is whether
the respondent is entitled to this deduction under paragraph
8(1)(h) of the Income Tax Act. The answer depends on wheth
er he was required by his contract of employment to pay the
expenses incurred by him in using his automobile. Neither the
collective agreement nor the applicable Regulations or statu
tory provisions required him to use his own car or to pay the
expenses involved. As for the arrangement between the
respondent and his employer, it was at most a unilateral
contract and it created no contractual obligation on the
respondent to use his own car or to pay the expenses incurred in
its use. While the question of whether the mileage reimburse
ment would be an "allowance" is not in issue, it is pointed out
that the answer might well be found in Ransom v. The Minister
of National Revenue, [1968] 1 Ex.C.R. 293.
CASES JUDICIALLY CONSIDERED
REFERRED TO:
Re Nova Scotia Civil Service Commission and Nova
Scotia Government Employees Association (1980), 24
L.A.C. (2d) 319; Ransom v. The Minister of National
Revenue, [1968] 1 Ex.C.R. 293.
COUNSEL:
W. Lefebvre for appellant.
D. G. Hill and J. Weinstein for respondent.
SOLICITORS:
Deputy Attorney General of Canada for
appellant.
Aikins, MacAulay & Thorvaldson, Win-
nipeg, for respondent.
The following are the reasons for judgment
rendered in English by
RYAN J.: This is an appeal from a judgment of
the Trial Division allowing the respondent's appeal
from a decision of the Tax Review Board.' The
decision of the Board had dismissed Mr. Cival's
appeal to it from an assessment for 1977, which
had disallowed his claim for travelling expenses, a
claim made under paragraph 8(1)(h) of the
Income Tax Act [S.C. 1970-71-72, c. 63].
Mr. Cival is an employee of the Queen in right
of Canada. During the 1977 taxation year, he was
working in the Payroll Audit Section of the
Department of National Revenue in Winnipeg.
Mr. Cival used his own automobile in carrying out
the duties of his employment under what, he said,
was an arrangement with his Department, an
arrangement in accordance with which the Depart
ment reimbursed him at a mileage rate. It is not
questioned that he used his automobile at the
request of his Department. During 1977, Mr.
Cival's expenses for the use of his automobile in
his work exceeded the mileage he received by
$512.03. He claimed this sum as a deduction from
his income. The Minister disallowed it.
The question in this appeal is whether Mr. Cival
was entitled to this deduction under paragraph
8(1)(h). The answer depends on whether he was
required by his contract of employment to pay the
expenses incurred by him in using the automobile.
1 The judgment of the Trial Division is reported in the
Federal Court Reports, Cival v. The Queen, [1982] 2 F.C. 210.
Paragraph 8(1)(h) of the Act reads:
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,
(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),
(/) or (g),
amounts expended by him in the year for travelling in the
course of his employment;
I will also quote paragraph 8(1)(j):
8. (1) ...
(j) where a deduction may be made under paragraph (f)
or (h) in computing the taxpayer's income from an office or
employment for a taxation year,
(i) any interest paid by him in the year on borrowed money
used for the purpose of acquiring an automobile in the
performance of the duties of his office or employment, and
(ii) such part, if any, of the capital cost to him of an
automobile used in the performance of the duties of his
office or employment as is allowed by regulation;
The appellant does not dispute that Mr. Cival
met the requirements stipulated in subparagraphs
8(1)(h)(i) and 8(1)(h)(iii). The Crown's case was
that he did not satisfy the requirement of subpara-
graph 8(1)(h)(ii).
Mr. Cival claimed that he had incurred these
expenses in respect of the use of his car in per
forming his duties during the 1977 taxation year:
Insurance $ 235.50
Gas, oil and repairs 561.47
Capital Cost Allowance (Class 10) 985.95
$1,782.92
He received $1,270.89 by way of mileage from his
employer.
In respect of the actual making of the arrange
ment under which Mr. Cival used his car, it may
be helpful to quote from the evidence which Mr.
Cival gave before the Tax Review Board. The
transcript of the evidence taken by the Board was
placed before the Trial Judge by agreement. The
transcript reads:
Q. I show you another document, in blank, but entitled
Headquarters Area, April 1/79 to March 31/80. Would
you tell us what that document is?
A. Each year we are required to file for authorization to
travel within the City of Winnipeg, for the Metropolitan
area of Winnipeg, and having filed this document we are
allowed to travel and claim expenses against that travel
for within the Winnipeg Headquarters area which is the
perimeters of Winnipeg.
Q. You are saying that each year you are required to sign
that at the beginning of the financial year for your
employer?
A. Yes.
Q. And what's the purpose of it again?
A. It authorizes us to use our car.
Q. That is your understanding?
A. That is my understanding, yes.
Q. Do they—meaning your employer—come around and
present you with this document?
A. Yes.
Q. What is then done with that document. Do you know?
A. It is kept on file by the employer.
Q. Is it signed in blank? I mean, we have a description on
the top, Headquarters Area, April 1/79—to March 31,
1980. Is there anything else on the document that you
sign?
A. Yes, the signature of the other auditors. Everybody signs
and it is attached to this.
Q. I see. This document is attached to a list of names who
must—not must, but who are requested to sign?
A. Yes.
Q. And this is attached to that list?
A. Yes.
Q. You don't have that list?
A. No.
MR. IRVING: I wonder if that may be introduced as an
Exhibit, Mr. Chairman.
THE CHAIRMAN: The same was in existence in 1977?
A. Yes.
I would note that the Treasury Board Travel
Directive (revised edition April 1977) provides in
clauses 1.17 and 1.18:
1.17 Written pre-authorization for travel shall be prepared,
where practicable, for each journey on government business
and such authorization shall be maintained on the traveller's
file. For this purpose it is suggested that the Government of
Canada CGSB Standard Form 72B, Travel Authority and
Advance, see Appendix "C", should be used. Where travel is
continuous in nature, such authorization will be provided annu
ally at the beginning of each fiscal year.
1.18 The pre-authorization form shall be signed by the person
authorizing the journey and by the traveller acknowledging
acceptance of the terms of travel. The form should reflect the
following information:
—the mileage/kilometre rate authorized where a private vehicle
is to be used
A Mr. D. R. MacDonald, a Staff Relations
Officer with the Department of National Revenue,
also testified in the proceedings before the Tax
Review Board. He was called by the Crown. The
transcript records this exchange:
Q. To your knowledge are employees such as Mr. Cival,
reimbursed for their travelling expenses by the Govern
ment?
A. Yes, they are.
Q. And can they obtain an advance on their travelling
expenses?
A. Yes, they can.
Q. Now, could I ask you what is the policy of your Depart
ment in respect of the use of personal cars?
A. The policy of the Department is to authorize the use of a
personal car when this is the most economical and practi
cal means of travelling.
Q. Now to your knowledge and your experience, can the use
of a personal car—if I may say so—be forced upon an
employee?
A. No.
Q. Can the employer oblige an employee to use his personal
car?
A. No, it can't.
Q. If the employee refuses, at the employer's request to use
his car, can the employer, under the Collective Agree
ment, use disciplinary measures?
A. No, they can't.
Q. Am I correct in saying that the employee has the right to
refuse to use his car?
A. Yes. He has that right.
A little further on, the transcript reads:
Q. And you would agree therefore that in this instance with
Mr. Cival that someone has asked Mr. Cival to use his
vehicle? Do you agree with that?
A. Yes.
Q. That is why he was paid those rates under Paragraph
(a)?
A. That's right.
The Trial Judge, of course, considered the
nature and effect of Mr. Cival's arrangement with
the Department. He says at pages 212 and 213:
No formal contract was entered into with respect to his
travelling expenses on Departmental business, but the Treasury
Board of the Federal Government issues a travel directive
which makes detailed provisions relating to compensation for
expenses of this kind. This document is not a statute but it does
set out governmental policy, which the officials of government
will carry out. The revised edition of this directive, dated April,
1977, was effective for most of that year. Part 3 of the directive
deals with transportation procedures and private vehicle rates.
Paragraph 3.03 sets out the mileage rates. The portion relevant
to the facts of this case reads as follows:
3.03 The mileage rates payable for authorized official use of
private cars within and outside the headquarters area are:
(a) when the employer requests, and the employee agrees to
the use of the car:
All provinces
except Nfld.,
N.W.T. and
Yukon
cents per mile
(i) for each of 1st 4,000 miles per
fiscal year 19.5
(ii) for each mile from 4,001 to
8,000 miles per fiscal year 17.5
(iii) for each mile in excess 8,000
miles per fiscal year 16.5
(b) when an employee requests permission
to use a car, and the employer agrees 9.0
Paragraph 3.061 provides:
3.061 The rates, prescribed above ... are paid on the basis of
a two-rate system as follows:
(a) when the employer requests the employee to use a private
vehicle and the employee agrees, the rates paid are designed
to offset the cost of "ownership" and the cost of "operating"
a private vehicle, i.e.:
(i) "Ownership Costs", consisting of depreciation, provin
cial tax, finance charges, insurance and license fees, and
(ii) "Operating Costs", consisting of gasoline, oil, lubrica
tion, tires, maintenance and repairs.
(b) when the employee requests permission to use a private
vehicle and the employer agrees, the rates paid cover only the
"operating costs".
The Trial Judge continues [at page 213]:
The plaintiff clearly comes under paragraph 3.03(a). He was
paid mileage at the rate prescribed in this paragraph. It is also
clear that he comes under paragraph 3.061(a), which para
graph indicates that the rates payable under paragraph 3.03(a)
are designed to offset both "ownership costs" and "operating
costs", and that ownership costs include depreciation. I under
stand paragraph 3.061(a) as meaning that the rates payable
under paragraph 3.03(a) are designed to offset all ownership
and operating costs as described in paragraph 3.061(a), or
more accurately, all such costs as the government is willing to
pay.
The Trial Judge also says at page 219:
Counsel for the plaintiff submits that, since the government
is not bound to pay more than the amount payable under its
policy, the plaintiff is required to pay the shortfall off $512.03.
As I view the situation the plaintiff most certainly must pay the
shortfall. Nothing in the terms of the arrangement for the use
of the car on government business provides that he shall do so,
but one off the terms is that what he will be paid is limited to
the authorized mileage allowance. That authorized amount
being insufficient to pay all the car expenses intended to be
provided for, it is clear that the shortfall results from the
insufficiency of the mileage rate, in the circumstances of this
case, to encompass all the expenses. Consequently I think it
may be held properly that, since the shortfall off $512.03 which
the plaintiff must pay is occasioned by the insufficiency off the
payment provision of the arrangement, the plaintiff, under the
contract, is required, in the broad sense of that word, to pay the
shortfall. The fact that he is not required to pay all the car
expenses should not prejudice his position with respect to the
portion he is required to pay. Thus, in my opinion the plaintiff
has shown that condition (ii) has been complied with.
The Trial Judge clearly was of opinion that the
arrangement respecting the use of Mr. Cival's car
constituted a contract between Mr. Cival and his
employer and that the contract was an employ
ment contract. Under this contract, Mr. Cival, in
his Lordship's view, was required by implication to
pay the expenses incurred by him in using his car,
at least to the extent they exceeded his mileage
reimbursement. I do not, with respect, agree that
Mr. Cival was contractually bound under the
arrangement to pay these expenses.
The terms of Mr. Cival's employment were con
tained in a collective agreement between Treasury
Board and the Public Service Alliance which was
in force during the 1977 taxation year. Mr. Cival
was a member of the bargaining unit covered by
the agreement. His terms of employment may also
have included provisions of the Public Service
Terms and Conditions of Employment Regula
tions [SOR/67-118], at least to the extent they
were not inconsistent with the provisions of the
collective agreement, and any statutory provisions
concerning public employment applicable to him.
It was not suggested that any term of employment
contained in the collective agreement, in the Regu
lations or in any statutory provision required him
to use his own car in performing his duties or to
pay the expenses incurred in its use. To bring
himself within subparagraph 8(1)(h)(ii), Mr.
Cival would, therefore, have to establish that the
arrangement about using his car was an employ
ment contract under which he was required to pay
the expenses incurred by him in using the car 2 .
I am prepared to assume for purposes of this
appeal that Mr. Cival could enter into an individu
al contract with his employer, covering an aspect
of his employment, despite his being covered by
the collective agreement, so long at least as the
contract was not inconsistent with the terms of the
agreement.' In my view, the arrangement between
Mr. Cival and his employer, if a contract at all,
was at most what is sometimes called a unilateral
contract. 4 It was an arrangement under which his
employer undertook to reimburse him on a mileage
basis for expenses he incurred in using his car in
the performance of his duties. I do not interpret
the arrangement as involving a promise by Mr.
Cival to use his car in performing his duties and to
pay the expenses out of his own pocket in return
for an undertaking by his employer to reimburse
him. To put it another way: as I see the arrange
ment, Mr. Cival was not contractually bound to
use his car in doing his job and to pay the expenses
involved: if at any time during 1977 he had refused
to use his car for this purpose, he would not have
been suable by his employer for breach of con
tract. It follows that, to adopt the words used in
subparagraph 8(1)(h)(ii), he was not required
under his contract of employment to pay the
expenses incurred by him in using his car in the
performance of the duties of his employment. This
is enough to dispose of the appeal.
2 The term "the contract of employment" in subparagraph
8(1)(h)(ii) can be read in the plural: Interpretation Act [R.S.C.
1970, c. I-23], subsection 26(7).
3 See Re Nova Scotia Civil Service Commission and Nova
Scotia Government Employees Association (1980), 24 L.A.C.
(2d) 319.
4 See S. M. Waddams, The Law of Contracts, c. 4, "Unilat-
eral Contracts".
I would add, however, that counsel for Mr.
Cival submitted that the mileage paid to Mr. Cival
in respect of his use of his car would fall within his
income by virtue of section 5 and paragraph
6(1)(b) of the Income Tax Act as being an "allow-
ance". This would obviously have a serious adverse
effect on Mr. Cival if he could not deduct the
expenses he actually incurred in qualifying for the
allowance. The issue of whether the mileage reim
bursement would be an "allowance" is not, of
course, before us. It does seem to me, however,
that the reasons for judgment of Mr. Justice Noël
in Ransom v. The Minister of National Revenues
might well be an answer to the submission that the
mileage reimbursement would be an "allowance".
I would allow the appeal to this Court. I would
also set aside the judgment of the Trial Division
and affirm the decision of the Tax Review Board
confirming the Minister's reassessment in respect
of the respondent's 1977 taxation year.
Counsel for the appellant stated that he would
not seek costs if successful. I would, therefore,
make no award as to costs here or below.
HEALD J.: I concur.
KERR D.J.: I concur.
5 [1968] 1 Ex.C.R. 293.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.