Employee Taxpayer Unable to Claim Commuting Expenses

written on behalf of Feigenbaum Law

In a recent blog post, we reviewed the case of a United States taxpayer who was unsuccessful in his claims relating to various work-related expenses, including those related to his commute to and from work. The Court denied these claims due to the taxpayer’s poor record-keeping. 

Today’s blog post will analyze a similar situation pertaining to a Canadian taxpayer in order to compare and contrast how the courts in both countries treat these expenses.

Taxpayer claims substantial commuting expenses

The case of Michaluk v. The King dealt with various reassessments completed by the Minister of National Revenue (the “Minister”) in 2016 on claims submitted in the 2014 and 2015 tax year by the taxpayer and appellant, Michaluk. The appellant claimed various employment expenses totalling $17,604.50 in 2014 and claimed $20,407.60 in 2015. 

During the years in question, the appellant worked for Bombardier Transportation as a commuter train operator. He was required to work out of different train stations throughout Ontario, despite his residence being in Picton, Ontario. However, his home station was Union Station, located in Toronto and is approximately 200 kilometres away from his home.

The appellant stated that his employment expense claims were primarily related to lodging expenses, amounting to $11,082 in 2014 and $14,695 in 2015. He also claimed over $5,000 in food and beverage during each year. 

When the minister reassessed the appellant’s tax returns, all of the expenses related to travel were denied. 

What kind of travel was necessary for the taxpayer’s job?

The Tax Court of Canada reviewed the “conditions of employment” section in the appellant’s employment contract. The conditions stated that he was required to travel to locations outside of his regular place of business, which was Union Station. He was also required to be away for at least twelve consecutive hours from the place where he routinely reported for work. The employer’s policies also stated that it does not reimburse employment expenses incurred by employees. 

The appellant explained to the Court that a typical work week required him to leave Picton on Sunday afternoon and drive to Oshawa, returning home on Friday evening. The commute between Picton and Oshawa is roughly 160 kilometres one way and would normally take the employee two hours. The appellant told the Court that he usually started work in Oshawa instead of his “home terminal” in Toronto. 

The lodging expenses incurred by the appellant included stays at a motel in Oshawa, which was close to the home terminal. He also told the Court that he rented an apartment in Pickering for seven months during the years in question. While staying in Pickering, he would continue to work in Oshawa, approximately 20 minutes away. 

How are transportation expenses dealt with under the Income Tax Act?

The Court referred to the Income Tax Act, which addressed transportation expenses for individuals who regularly have to work away from their home municipality. The Income Tax Act states explicitly that:

“Transport employee’s expenses

(g) where the taxpayer was an employee of a person whose principal business was passenger, goods, or passenger and goods transport and the duties of the employment required the taxpayer, regularly,

(i) to travel, away from the municipality where the employer’s establishment to which the taxpayer reported for work was located and away from the metropolitan area, if there is one, where it was located, on vehicles used by the employer to transport the goods or passengers, and

(ii) while so away from that municipality and metropolitan area, to make disbursements for meals and lodging, amounts so disbursed by the taxpayer in the year to the extent that the taxpayer has not been reimbursed and is not entitled to be reimbursed in respect thereof;

General limitation

(2) Except as permitted by this section, no deductions shall be made in computing a taxpayer’s income for a taxation year from an office or employment.”

Court affirms that taxpayer must meet five conditions in order for transportation expenses to be accepted

The Court referred to the 2012 decision of Elwood v. The Queen in which Justice Campbell stated that the following conditions must be met in order for a taxpayer to qualify for the travel expenses under the Income Tax Act:

1. The employer’s principal business must be transporting passengers, goods or a combination of passengers and goods. 
2. The taxpayer is required by his or her duties of employment to regularly travel away from the municipality where the employer’s establishment, to which the taxpayer reported to work, was located.
3. The taxpayer must be travelling on vehicles used by the employer to transport those goods or passengers.
4. The taxpayer is required by his or her duties of employment to regularly travel away from the metropolitan area, if there is one, where the employer’s establishment, to which the taxpayer reported to work, was located. 
5. Finally, the taxpayer is required by his or her duties of employment to make disbursements for meals and lodging while so away from that municipality and metropolitan area.

The Court affirmed that in order for transportation expenses to be allowed, the above five conditions must be met, and further, the employer must not have reimbursed the employee for such expenses. 

In the case at hand, the appellant taxpayer was unable to establish that his employment duties required him to travel away from his municipality. Further, the Court considered Oshawa, which is in Durham Region, to be within the Greater Toronto Area. As such, the appellant’s appeal was denied. 

The Tax Lawyers at Feigenbaum Consulting Help Clients Properly Track Expenses and Submit Expense Claims

If you have work-related or business-related tax questions pertaining to employment in the USA or Canada, contact the trusted and experienced tax lawyers at Feigenbaum Law. We help clients develop a tailored tax planning solution for their personal filings or corporate tax compliance needs. Our team draws upon their wealth of experience to provide honest advice and ensure that clients comply with appropriate tax laws while maximizing available tax strategies. Our firm offers various tax and legal services to clients located in the United States and Canada. Contact us online or call us at (416) 777-8433 (toll-free at (877) 275-4792) to learn how we can help you this upcoming tax season.