As a general rule, the Canada Revenue Agency considers the cost of driving back and forth between home and work as a personal expense. But what if your place of employment is both your home and various work sites of your employer? This issue came up most recently in a tax case involving a taxpayer’s claim for automobile expenses. Before delving into the facts of the case, let’s review the general rule surrounding the deductibility of automobile expenses by employees.
The general rule
If you’re an employee who uses your car for work, you may be able to deduct some of your automobile expenses on your tax return, assuming you meet certain conditions. First, you must normally be required to work away from your employer’s place of business or in different places. Second, under your contract of employment, you must be required to pay your own automobile expenses and this must be certified by your employer on a signed copy of the CRA’s Form T2200, Declaration of Conditions of Employment . Finally, to claim vehicle expenses, you must not be the recipient of a “non-taxable” allowance for motor vehicle expenses.
The case
The recent case involved a taxpayer who was employed as a construction foreman. On his 2017 personal tax return, he claimed an employment expense deduction for motor vehicle expenses totalling $9,853, representing 90 per cent of the total expenses of $10,948 that he incurred using his personal vehicle, a Ford F350 truck, during that year.
The CRA initially allowed a deduction for motor vehicle expenses totaling only $7,175, disallowing the remaining $2,678 of the total vehicle expenses, which, according to the Agency, represented expenses that the taxpayer incurred while travelling from his home to his employer’s various construction sites (and vice versa), on the basis that they were “personal expenses and therefore were not deductible.”
At trial, the taxpayer reduced his claim to 85 per cent of his total vehicle expenses, and the CRA conceded a further $489 of expenses, leaving a disputed total of $1,642. The sole issue in the case, therefore, was whether these remaining motor vehicle expenses which were incurred by the taxpayer while travelling from his home to various worksites of his employer (and vice versa) were properly deductible under the Income Tax Act .
The taxpayer’s employer is involved in the construction business and builds houses and townhouses. As a foreman with the company, the taxpayer was responsible for a crew of 17 people. During 2017, the company carried on approximately 50 projects at numerous construction sites. According to the taxpayer’s testimony, tool maintenance was an important part of his employment duties as foreman because his crew needed to have the proper tools and equipment to complete work each morning. Indeed, part of the taxpayer’s employment duties was to make sure that workers were in place each workday morning at a designated construction site and ready to work with properly functioning tools, equipment and materials.
The company required the taxpayer to bring its tools, equipment and materials home with him each night to secure them in his garage (located at his home), to repair any broken tools and equipment and to deliver tools, equipment and materials to its worksites the next morning for work. The taxpayer used a designated spot in his garage to store and repair his employer’s tools, equipment and materials.
On a typical workday morning, the taxpayer would go to his garage, load his employer’s tools, equipment and materials into his truck and determine which worksites he and his crew were required to work at that day. He would then drive to the assigned worksite and ensure that his crew was set up and organized for work. Occasionally, during the day, he would be required to transport some of his crew and tools and equipment to another worksite.
At the end of each workday, the company required the taxpayer to load up all of its tools, equipment and materials from the worksite into his truck and take them home to his garage. He would unload the tools, equipment and materials in the designated spot in his garage, clean the tools and equipment, and repair them as needed. Because tools were often broken during a workday, he had to regularly repair tools in his garage at night.
The taxpayer also testified that there was a “big risk” that tools, equipment and materials would be stolen from worksites and that taking the tools, equipment and materials back to his garage for secured nightly storage was a solution for his employer to avoid such theft.
The judge reviewed the general rule which is that the expenses of travelling from an employee’s home to his or her place of work (and vice versa) are personal expenses and not deductible because they are not incurred in the course of the employee’s duties. Over the years, however, there have been a number of cases that have recognized exceptions to the general rule, such as when a taxpayer’s home was found to be an essential place of business, as mandated by their employer.
In this case, the taxpayer argued that the motor vehicle expenses he incurred while travelling from his home to his employer’s various worksites (and vice versa) should be properly tax deductible because his employer required him to bring employer-owned tools, equipment and materials home with him each night for maintenance and safekeeping, and to transport those tools, equipment and materials to various worksites the next day. Therefore, logically, the travelling to and from his home should be considered “related to his employment” and not personal in nature.
The CRA, not surprisingly, disagreed. The Agency viewed those trips as the taxpayer “simply driving to work, like any other employee,” and therefore considered them “personal (trips) and not incurred in the course of (his) employment duties.”
Fortunately for the taxpayer, the judge concluded that, on a balance of probabilities, the taxpayer was ordinarily required to carry on his employment duties in different places, namely in his garage, located at his house, and at his employer’s various worksites, where he supervised his crew and constructed homes. Thus, the additional $1,642 in motor vehicle expenses were properly deductible.