28 October 1998 CTF Roundtable, 9823200 - ALLAN WAYNE SCOTT - ADVERSE DECISION - FCA

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Impact of Allan Wayne Scott - 98 DTC 6530 (F.C.A.).

Position: Restricted to "foot and transit couriers."

Reasons: Explicit instructions contained in the judgment..

On October 28, 1998, at the Canadian Tax Foundation's annual conference in Toronto, a panel made up of representatives from public practice, Revenue Canada and the Department of Finance discussed the impact of certain recent income tax cases Based on notes taken at the session, the following was reported in respect of the case of Allan Wayne Scott, 98 DTC 6530 (F.C.A.):

The Scott case provided a little more levity in the discussion than a tax case normally does. This case involved a deduction by a "foot and transit" courier of the cost of extra food and water as a business expense. Mr. Shultis commented that this case presented unique circumstances and that the judgment provides a very narrow exception to the rule that personal expenses are not deductible. The only class of taxpayer who would be entitled to such a deduction is a "foot and transit" courier, because he or she uses food and drink as a replacement for automobile fuel. The deduction would not apply to other taxpayers such as construction workers, even though there may be an argument that they also consume extra food because of their physical work.

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REVENUE CANADA ROUNDTABLE
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OCTOBER 1998

CASE: Alan Wayne Scott v. The Queen
Federal Court of Appeal
July 23, 1998

Issue:

The issue is whether a self-employed foot and transit courier can deduct the cost of extra food and beverages required by the physical demands of his business. Generally, expenses incurred for food and beverages in these circumstances have been considered personal in nature and thus not deductible.

Court Findings:

The Federal Court of Appeal found that the taxpayer required extra food and beverages as “fuel” to enable him to carry out his business. In the words of the judgment: “Only where there is a corresponding business deduction allowed for fuel in the form of gasoline for the same type of business will a deduction for the extra food and water a human needs to consume as its fuel be allowed.” The case has been referred back to the Tax Court for them to determine the amount of “extra” food and beverages that will be allowed as a deduction to Mr. Scott.

Law:

Paragraph 18(1)(h) of the Income Tax Act provides a general prohibition against the deduction of personal and living expenses. Personal or living expenses are those which meet the personal needs of the taxpayer, such as, food, shelter and clothing.

Facts:

Mr. Scott is an independent courier who, in carrying out his duties, travelled approximately 150 km on foot and by public transportation every day, carrying a backpack weighing between 20 and 50 pounds. Mr. Scott sought to deduct $11 to $13 per day for extra food and beverages as business expenses.

Taxpayer’s position:

In Mr. Scott’s opinion, the extra food and beverages are “fuel” to power his human machine similar to the gas consumed by couriers using automobiles.

Department’s position:

The Department has decided not to appeal this decision to the Supreme Court based on the particular facts of the case. We believe that the scope of this decision is very narrow and in no way affects the general prohibition against personal or living expenses of a taxpayer in paragraph 18(1)(h) of the Act. Personal or living expenses will still be considered to be those which meet the personal needs of the taxpayer, such as, food, shelter and clothing. Such expenses are generally characterized by the involvement of personal choice or preference.

Impact:

Only where a taxpayer’s business involves non-motorized locomotion will a business deduction be allowed for “food and beverages” as an alternative fuel source. Thus, only taxpayers such as couriers and rickshaw drivers will be entitled to deduct a portion of their “extra” food and beverages as a “fuel” expense.

This decision does not encompass a change in the test for the deduction of expenses in a business context. Personal or living expenses of a taxpayer, other than travel expenses incurred by the taxpayer while away from home in the course of carrying on the taxpayer’s business, will continue to be non-deductible in computing the taxpayer’s income from business or property, in accordance with paragraph 18(1)(h) of the Act. For example, the cost of an “extra” meal or the cost of a more expensive suit is regarded as a non-deductible expense, as the need is essentially personal in nature.

Any claim by a taxpayer for food and beverages as a fuel expense will be denied unless the taxpayer’s business involves non-motorized transportation. Thus, for example, self-employed building contractors will not be entitled to deduct personal consumption of extra food and beverages as a fuel expense. Further, the deduction for extra food and beverages only applies to self-employed situations. There is no deduction available to employees, regardless of the fact that their duties might involve non-motorized transportation.

James Gibbons
File #982320
September 22, 1998