Winnipeg's Don Wilkinson had had enough. He'd gone through all the channels with the Canada Customs & Revenue Agency (CCRA, formerly, Revenue Canada) looking for a straight answer on the issue of meal deductions, but to no avail. He felt, correctly, that 50% of C$33.00 per day wasn't reasonable for a driver who spent a great deal of time south of the border. Nor could he find any specific reference to that figure in the Income Tax Act. When he prepared his 1997 tax return, he decided to claim $40.00 a day instead. His claim was denied, so Wilkinson went to court.
In Winnipeg, on August 18, 2000, in courtroom #3 of the Tax Court of Canada, The Honourable, Judge Alexander A. Sarchuk, granted Wilkinson the right to claim more than the widely accepted $33.00 per day allowed by the Employment and Expense guide.
"I just do not see $33.00 per day as being nearly what I would call reasonable in the circumstances," Judge Sarchuk said when rendering his decision. "I am going to allow the appeal."
Wilkinson had appealed on the grounds that $33.00 (only 50% of which is actually claimed by the driver) was unreasonably low compared to the C$48.00 (or the Canadian equivalent to US$48.00) per-day allowance that federal civil servants are entitled to. The case hinged on the issue of 'reasonableness'.
Quoting from the act, Judge Sarchuk said, "A section of the Act provides, as I read it, that the amount shall be deemed to be 50% of the lesser of the amount actually paid or an amount that would be reasonable in the circumstances."
In defending his claim for $40.00, the price of meals plus the premium paid for U.S. exchange, Wilkinson was asked by the judge where he got the figure of $33.00 as a basis for submitting meal expenses. According to the transcript, Wilkinson was unable to clearly state how he came to that conclusion, except to say that it was a widely accepted amount. The Crown's representative, Lyle Bouvier, pointed out that the information could be found in the Employment and Expense Guide.
It's listed in Information Circular 73-21R7, dated March 8, 1991, "Calculating Allowable Expenses: Simplified Method - $11.00 per meal, flat rate for 1990 and subsequent taxation years."
The simplified method allows a driver to claim $11.00 per meal, without retaining receipts. It does not prohibit the driver from claiming a greater amount if he decides to retain his receipts.
The judge then pointed out that the guide in question is just that: a guide. The figure of $33.00 doesn't appear anywhere in the Income Tax Act. Therefore, it isn't a figure that must be regarded as a limit when claiming meal expenses while traveling. In fact, the judge called the figure quoted in the guide "nonsense", suggesting that if one were to travel to Toronto or Vancouver, where meals are expensive, one could produce higher but still appropriate receipts or claim a 'reasonable' amount for the cost of the meal, depending on where it was purchased.
Here's a telling excerpt from the trial transcript of an exchange between Judge Sarchuk and Bouvier, the CCRA lawyer:
His Honour:Now, will you tell me why it is reasonable for the civil servants to be paid $48.00 a day for meals and for somebody who has to go down to the States and buy his meals in Canadian currency down there, $33.00 is reasonable, Mr. Bouvier?
Mr. Bouvier:I cannot. I cannot come before this Court and say that one is reasonable and the other is not. All I can say is the Minister's position, in this case, is employment expenses are published in the employment and expense guide and the amount determined, in that year, by the Minister, to be reasonable, was $11.00 per meal or $33.00 a day maximum. I cannot......
His Honour:And do you not disagree that I have the right to disagree with that?
Mr. Bouvier:No, I am not going to disagree with your right to disagree, of course.
His Honour:Quite frankly, it just boggles the mind that $33.00 would be considered to be sufficient when somebody has to go down and pay, as was very aptly pointed out, you are paying a premium and it seems to me that that should be taken into account. Thirty-three dollars a day, I mean down in the United States. I do not think the Minister could eat on that.
Mr. Bouvier:No. And I can't say much. All I can state is the employment expense guide is published, for some reason they picked $33.00 for that taxation year and that's what truck drivers across the country have been claiming, the $33.00 a day.
His Honour:They may start claiming more after this.
During the proceedings, Wilkinson had also attempted to claim a similar amount for several previous tax years, but the judge refused. Wilkinson was told he would have to launch a separate appeal for each of the tax years in question.
He has filed another appeal under the Fairness Package Provisions to recover the shortfalls from previous years. It too came back from CCRA, disallowed and signed by the new chief of appeals. It seems that CCRA will require Wilkinson to resubmit all past claims with all the appropriate documentation before it gives the claim any consideration. It looks like Wilkinson will be heading back to Tax Court again some time in the near future.
"They're obviously just stalling us on this," says Wilkinson's wife, Pam. "I call it harassment. It really makes me sick, the lengths they'll make us go, when they grant their own employees a tax-free allowance when they travel."
Chris Bennett, executive vice-president of Transport Financial Services in Waterloo, Ont., says this sets a pretty clear precedent. "The figure of $33.00 is meaningless when compared to what's 'reasonable', and under the circumstances, I can't see why drivers shouldn't claim considerably more.
"If $11.00 per meal is reasonable in Canada, then it's certainly reasonable in the U.S. as well. But the Court also seems to think that factoring in the U.S. exchange is a reasonable course of action under the circumstances," Bennett says. "With the exchange rate, $33.00 is closer to $50.00. Fifty percent of that is still $25.00, which is considerably better than $16.50."
The information circular, 73-21R7, hasn't been updated since March, 1991, rendering it somewhat out of date. If $11.00 was reasonable in 1991, what's reasonable today? But still, the argument of 'reasonableness' can be applied. Depending on "your appetite for risk," as Bennett puts it, you may want to file your meal expenses at a more reasonable amount this year.
Consult your accountant for more information, and feel free to quote this case as precedent, though be warned that its precedent value may be a little weak in some eyes - and the $33 and $40 numbers are also arbitrary. As far as we can tell, your best approach is to keep receipts and remember that auditors play hardball. They'll use the existing guidelines and you'll take your chances in tax court if you decide to use a higher number.
The Wilkinson case number is 1999-4687 (IT) I. But strangely, it's very difficult to find in the CCRA's court records. You may also search using the judge's name (Sarchuk) or using the appellant's name, Don J. Wilkinson. Or call Chris Bennett at Transport Financial Services: 888/228-0365, ext. 242.