CRA denies taxpayer's costs of getting to work, but judge says taxman got it wrong

National Post


If you’re an employee who incurs certain expenses for the purpose of employment that are not reimbursed by your company, you may be entitled to deduct those expenses for tax purposes. But the rules get a bit complicated when it comes to non-reimbursed travel, specifically, the cost of getting to work.

In some situations, the courts have found that travel from an employee’s home to various work sites is considered to be “in the performance of a service for an employer,” and so unreimbursed travel expenses incurred by the employee to travel between their home to various work sites is tax deductible.

In other scenarios, however, the courts have come to a different conclusion, finding that travel from an employee’s home to a work site is “inherently personal” unless it can be shown that some duties are being performed by the employee during these travels, such as transporting supplies for an employer.

A recent case, decided in October 2022, walks us through a comprehensive legal analysis of when non-reimbursed employment travel — specifically, the cost of getting to work — may be tax deductible.

The case involved a northern Ontario employee who deducted employment expenses related to lodging, meals and entertainment, and motor vehicle expenses for the 2017 and 2019 tax years. In 2017, he claimed employment expenses of $23,599; in 2019, his expenses were $10,791.

The taxpayer is an industrial engineer who works for the Canadian division of a multinational. The company’s Canadian office and headquarters is in Ontario, which is where the taxpayer’s regular place of employment was.

In 2017, the duties of the taxpayer’s employment changed after he was asked by his employer to assist a sister company in the United States. To do this, he took on the role of senior director of manufacturing for the U.S. company, which he did from August 2017 until April 2019.

The taxpayer was required to spend two to three weeks each month at this company’s office in Massachusetts, which was an eight-hour drive from his home. He also continued to work for the Canadian division at his regular place of employment in Ontario when he was not working at the U.S. company,

In July 2017, prior to taking on this new role, the taxpayer signed an addendum to his employment contract that stated he was responsible for costs related to food, beverage, entertainment and travel to the U.S. work location. In return, he would be given an additional $100,000 in salary.

The taxpayer had to obtain a temporary work visa to work in the U.S. and the taxpayer testified in court that his assistance with the U.S. operations was always intended to be temporary. As a result, the taxpayer incurred significant lodging, food and other travel expenses. Neither the Canadian division nor the U.S. company reimbursed him for any of these expenses.

The Canada Revenue Agency disallowed his travel-related employment expenses, saying the taxpayer had two regular places of work during those 19 months: the Ontario location and the Massachusetts location. As a result, the CRA argued, the taxpayer was not entitled to claim his lodging, food, beverage and automobile expenses related to travelling to the U.S. location, because allowing him to deduct these expenses “would amount to allowing the (taxpayer) to deduct personal expenses.”

The judge turned to the Income Tax Act and the rule governing employment-related travel. Under the act, an employee can claim a deduction if, among other requirements, the employee is “ordinarily required” to work away from the “employer’s place of business or in different places.” The definitions of employer, ordinarily, required and “employer’s place of business or in different places” are critical to the determination.

Who is the employer? In this case, the judge found it was clear the employer was the Canadian company, which always paid the taxpayer’s salary. The taxpayer’s employment contract was with the Canadian company, not the U.S. company.

What does ordinarily mean? Prior case law has found that ordinarily is a synonym for normally, as a matter of regular occurrence, commonly and usually. Since the taxpayer was ordinarily required to carry on his duties, as set out in the addendum to his employment contract at the Massachusetts location, this was clearly away from the taxpayer’s place of employment, being the Ontario location.

What does required mean? The taxpayer’s contract clearly required him to perform specific employment duties for the U.S. company, and his contract was clear that he was responsible for his own travel to Massachusetts to perform these employment duties.

What does “employer’s place of business” mean? The judge found that despite the 19 months the taxpayer spent travelling back and forth to the U.S. location, the taxpayer’s place of business was clearly at the company’s Canadian headquarters in Ontario. As a result, his travel to Massachusetts was properly considered to be travel “away from his employer’s place of business.”

Finally, were the travel expenses incurred in the course of office or employment? The judge concluded the taxpayer was providing a service to his employer in his eight-hour drive to the Massachusetts location, therefore he was travelling in the course of his employment. After all, it was specifically stated in his amended employment contract that he was required to travel to the U.S., so the taxpayer “was fulfilling an employment obligation.”

The judge allowed the taxpayer’s appeals, finding he was required from August 2017 to April 2019 to carry on his duties of employment away from his usual place of business in Canada, and, therefore, met the Income Tax Act criteria to deduct his travel-related employment expenses in 2017 and 2019.