CRA loses battle with development foreman over drive-to-work bills

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As a normal rule, the Canada Income Company considers the price of driving backwards and forwards between dwelling and work as a private expense. However what if your house of employment is each your house and numerous work websites of your employer? This subject got here up most lately in a tax case involving a taxpayer’s declare for car bills. Earlier than delving into the details of the case, let’s evaluation the final rule surrounding the deductibility of car bills by staff.

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The overall rule

Should you’re an worker who makes use of your automobile for work, you might be able to deduct a few of your car bills in your tax return, assuming you meet sure situations. First, it’s essential to usually be required to work away out of your employer’s workplace or somewhere else. Second, below your contract of employment, you have to be required to pay your individual car bills and this have to be licensed by your employer on a signed copy of the CRA’s Kind T2200, Declaration of Circumstances of Employment. Lastly, to say car bills, it’s essential to not be the recipient of a “non-taxable” allowance for motorcar bills.

The case

The latest case concerned a taxpayer who was employed as a development foreman. On his 2017 private tax return, he claimed an employment expense deduction for motorcar bills totalling $9,853, representing 90 per cent of the entire bills of $10,948 that he incurred utilizing his private car, a Ford F350 truck, throughout that 12 months.

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The CRA initially allowed a deduction for motorcar bills totaling solely $7,175, disallowing the remaining $2,678 of the entire car bills, which, in keeping with the Company, represented bills that the taxpayer incurred whereas travelling from his dwelling to his employer’s numerous development websites (and vice versa), on the idea that they had been “private bills and subsequently weren’t deductible.”

At trial, the taxpayer decreased his declare to 85 per cent of his complete car bills, and the CRA conceded an extra $489 of bills, leaving a disputed complete of $1,642. The only real subject within the case, subsequently, was whether or not these remaining motorcar bills which had been incurred by the taxpayer whereas travelling from his dwelling to numerous worksites of his employer (and vice versa) had been correctly deductible below the Revenue Tax Act.

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The taxpayer’s employer is concerned within the development enterprise and builds homes and townhouses. As a foreman with the corporate, the taxpayer was chargeable for a crew of 17 individuals. Throughout 2017, the corporate carried on roughly 50 initiatives at quite a few development websites. In accordance with the taxpayer’s testimony, instrument upkeep was an necessary a part of his employment duties as foreman as a result of his crew wanted to have the right instruments and gear to finish work every morning. Certainly, a part of the taxpayer’s employment duties was to guarantee that staff had been in place every workday morning at a chosen development website and able to work with correctly functioning instruments, gear and supplies.

The corporate required the taxpayer to convey its instruments, gear and supplies dwelling with him every evening to safe them in his storage (positioned at his dwelling), to restore any damaged instruments and gear and to ship instruments, gear and supplies to its worksites the following morning for work. The taxpayer used a chosen spot in his storage to retailer and restore his employer’s instruments, gear and supplies.

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On a typical workday morning, the taxpayer would go to his storage, load his employer’s instruments, gear and supplies into his truck and decide which worksites he and his crew had been required to work at that day. He would then drive to the assigned worksite and be certain that his crew was arrange and arranged for work. Sometimes, in the course of the day, he can be required to move a few of his crew and instruments and gear to a different worksite.

On the finish of every workday, the corporate required the taxpayer to load up all of its instruments, gear and supplies from the worksite into his truck and take them dwelling to his storage. He would unload the instruments, gear and supplies within the designated spot in his storage, clear the instruments and gear, and restore them as wanted. As a result of instruments had been typically damaged throughout a workday, he needed to often restore instruments in his storage at evening.

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The taxpayer additionally testified that there was a “huge threat” that instruments, gear and supplies can be stolen from worksites and that taking the instruments, gear and supplies again to his storage for secured nightly storage was an answer for his employer to keep away from such theft.

The choose reviewed the final rule which is that the bills of travelling from an worker’s dwelling to his or her place of business (and vice versa) are private bills and never deductible as a result of they don’t seem to be incurred in the middle of the worker’s duties. Over time, nonetheless, there have been a variety of circumstances which have acknowledged exceptions to the final rule, reminiscent of when a taxpayer’s dwelling was discovered to be a necessary workplace, as mandated by their employer.

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On this case, the taxpayer argued that the motorcar bills he incurred whereas travelling from his dwelling to his employer’s numerous worksites (and vice versa) must be correctly tax deductible as a result of his employer required him to convey employer-owned instruments, gear and supplies dwelling with him every evening for upkeep and safekeeping, and to move these instruments, gear and supplies to numerous worksites the following day. Due to this fact, logically, the travelling to and from his dwelling must be thought of “associated to his employment” and never private in nature.

The CRA, not surprisingly, disagreed. The Company seen these journeys because the taxpayer “merely driving to work, like some other worker,” and subsequently thought of them “private (journeys) and never incurred in the middle of (his) employment duties.”

Luckily for the taxpayer, the choose concluded that, on a steadiness of possibilities, the taxpayer was ordinarily required to hold on his employment duties somewhere else, particularly in his storage, positioned at his home, and at his employer’s numerous worksites, the place he supervised his crew and constructed houses. Thus, the extra $1,642 in motorcar bills had been correctly deductible.

Jamie.Golombek@cibc.com

Jamie Golombek, CPA, CA, CFP, CLU, TEP is the managing director, Tax & Property Planning with CIBC Non-public Wealth in Toronto.