A Key to Winning in Tax Court :CRA SOTW

Keep track of your expenses
Published Tuesday November 17th, 2009

Roger Haineault

There was an interesting judgment released earlier this month in the Tax Court of Canada that may have broader applications for those who seek employment beyond their neighbourhoods.

In "Freake vs. The Queen" (November 3) the taxpayer was denied a significant employment expense claim for board and lodging while he travelled to conduct his work.

Lloyd Freake is a journeyman lineman who was reassessed on his 2006 income tax return. Mr. Freake normally lives in Twillingate, Newfoundland, and that home is described as his principal residence. During 2006, he worked for the full year in the United States -- five months in Virginia and seven months in California. His only employer was a firm identified as PAR Electrical Contractors, Inc. whose head office was in Kansas City, Missouri (with field offices around the country).

Mr. Freake specializes in advanced steel tower construction and enjoyed the work in the States. He claimed the costs related to travelling from Newfoundland to the job site, and motel accommodation and meals, as well as the area travel costs. The Canada Revenue Agency took the position that, since he pursued the employment voluntarily, he could not deduct the expenses, as he had effectively moved to the job site. They also wanted to include any allowance paid as income.

This taxpayer was well prepared when he hit court. He had a documented file of expenses, credit card receipts and other evidence.

Justice F.J. Pizzitelli ruled that Mr. Freake did indeed incur travel costs. The fact that there was a site trailer was fundamentally a non-starter as the place of employment. The trailer moved regularly as the transmission towers were advanced within the contracted area. The taxpayer changed motels to keep up with the worksite. He did not report to the head office or any of the regional offices.

In the end, the logic of Mr. Freake won the day. He was able to demonstrate by using a paystub showing rate of pay and total hours worked, that he earned $163,121. He was also able to show that he declared the reimbursement for living expenses of $200 a week. He had proof of all his expenses, and these were not disputed by the CRA as they took the position that they were irrelevant to begin with.

Once again, this demonstrates that having strong evidence is the key to winning at the Tax Court. Mr. Freake was able to quantifiably document his position, leaving the justice to rule on the application of law. By understanding the issues, the taxpayer was able to clearly state his case and then prove the legitimacy of the claim. Finally for good measure, he pointed out that there were expenses that were not claimed, as he recognized them as being personal in nature, like when he went home to visit his family at Christmas.

* Roger Haineault is with Tax Help/Help 4 Taxes. He can be reached by e-mail at roger@help4taxes.ca or by calling 855-HELP (4357). His column appears Tuesdays.

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