The Tax Man Cometh
by Jim Park
With the few days left in 2001, it might be wise to have a good look at how you plan to address your meal expense claims for the past year. You can always rely on the old standby TL2 form, claiming 50% of the $33.00-per-day meal deduction that the Canada Customs and Revenue Agency (CCRA), formerly Revenue Canada, thinks is reasonable -the way we've always done it. Or, you can do what Don Wilkinson did, and claim whatever you think is reasonable.
In case you missed the March 2001 issue of highwaySTAR Magazine where we reported on Wilkinson's victory in tax court, the option to claim more than $33.00 per day does exist - and always has - but nobody ever thought to use it. Wilkinson went to court in August 2000 and got the second highest tax judge in the country to agree with him. He felt, correctly, that 50% of $33.00 per day isn't a reasonable meal allowance for a truck driver, especially one who spends a great deal of time south of the border. He couldn't find any specific reference to the figure $33.00 in the Income Tax Act, so when he prepared his 1997 tax return, he decided to claim $40.00 per day instead.
"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."
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."
Since March, we've received hundreds of inquiries about the story and Wilkinson's victory. It was a ground-breaking decision in that it raised the issue of what actually is reasonable. The provision to use an amount deemed "reasonable in the circumstances" doesn't beg any particular definition, it just speaks to using a "reasonable" - or maybe "sensible" - figure.
Wilkinson's decision to use what he considered a reasonable amount was challenged by CCRA, but he won. Several other claimants have since scored significant victories in the appeals of their reassessment hearings as well. We documented two in the September, 2001 issue of highwaySTAR Magazine.
In taking this course of action, taxpayers need to be aware that there are risks, minimal though they are. You may be audited, but what the heck, if you've been honest all along, what have you got to lose? CCRA has already had several challenges, a la Wilkinson, and they've lost.
Part of what's involved here is challenging the difference between an Information Circular and actual legislation. When Wilkinson challenged the $33.00-per-day provision, he asked CCRA's counsel where in the Income Tax Act was the reference to $33.00 being the accepted amount available to transport employees to claim as a meal deduction. It's not there. Judge Sarchuk couldn't find it, nor could CCRA counsel.
The information circular, form 73-21R7, can be found in the Income and Expense guide, but as the judge pointed out, it's just a guide. The figure of $33.00 doesn't appear anywhere in the Income Tax Act, and therefore shouldn't be considered as a limit when claiming meal expenses.
You're going to run into bookkeepers and tax preparers who aren't inclined to believe what you're reading here, and won't be too willing to challenge the age-old norm of $33.00. Ask yourself who the tax preparer is working for, CCRA or you?
But don't take our word on this; we have a downloadable copy (in PDF format) of the transcript of the Wilkinson case, or we can send you a printed copy of the transcript for $10.00, to cover copying, postage and handling. Just send your cheque to this address: HighwaySTAR, 130 Belfield Rd., Etobicoke, Ont., M9W 1G1. We'll get them in the mail right away.
In the meantime, sharpen up your pencils and get ready to save yourself a pile of money on your meal deduction claims this year. We're starting a letter-writing campaign to explain the difference between the cost of doing business and the cost of living to the crowd on parliament hill.
In the pursuit of an acceptable definition of what is reasonable, you might want to use the same Treasury Board of Canada guidelines that government employees use when they travel. We found them on the government's internal information server, Publiservice, under human resources publications, appendix C - Meals and allowances (effective October 1, 2022). You can find them on-line here.
Treasury Board Meal Allowance Guidlines
The additional $11.50 per day for incidental expenses covers just about anything they can't get a receipt for, such as tips, pay phone useage or parking meters. These figures represent a tax-free allowance called a per-diem. They aren't forced to claim this against their taxable income the way truck drivers are. Regardless, if Treasury Board thinks that $61.50 is "reasonable" for government employees, then maybe CCRA needs to be convinced that the same figure is reasonable for truckers. And, while traveling south of the border, government employees are allowed the same $61.50; but in American dollars.