The Vehicle: Personal vs. Professional Use
In a recent decision¹, the Quebec Court clarified what constitutes personal use of a vehicle, as well as the principle of presumed validity applied to tax assessments.
Summary of Facts
Marc-André Lagacé, president and shareholder of a construction company, is in dispute with Revenu Québec (hereinafter: “RQ”) regarding the use of his company vehicle. He uses this vehicle to commute to his workplace, the company offices, and various construction sites. The RQ classifies these trips, particularly those between his home and the sites, as personal use, justifying an increase in his tax assessment. Mr. Lagacé contests this interpretation, arguing that these trips are intrinsically linked to his professional duties and necessary for the performance of his work.
Decision of the Quebec Court
To understand the court’s decision, it is necessary to recall, as the court did, the basic principles outlined in the Taxation Act (hereinafter: “TA”). First, it should be noted that, under section 63.1 of said Act, the distance traveled between an employee’s residence and their workplace constitutes personal mileage². Furthermore, “[s]ection 41.0.1 TA[…] creates a presumption that a company vehicle made available to an employee or a related person is presumed to be used for personal purposes for 20,004 km annually.” (Our translation)
Finally, it should be noted that tax assessments benefit from a presumption of validity, as provided by section 1014 of the Taxation Act³. This presumption can, however, be overturned by the taxpayer by presenting prima facie evidence—that is, evidence sufficient to establish a fact until proven otherwise.
Considering this, the Court’s conclusion is as sfollows:
[49] On the notion of workplace, the Court finds it useful to draw a parallel with the interpretation of sections 63 and 63.1 TA which, in the context of an individual’s vehicle expenses for travel in the performance of their duties, use the expressions “away from the employer’s place of business” and “different places”.
[50] On this subject, commenting on the Royer case, the Tax Court of Canada, in the O’Neil[…] case […], states that:
[17] The terms “away from the employer’s place of business or in different places,” found in paragraph 8(1)(h.1), were interpreted in the Royer c. Canada case. When an employee must perform their employment duties at several places of business, these places are expressly covered by the terms “different places”. When the employee usually works at one of these different places and works at the other places at the employer’s discretion, travel expenses to the usual place of work will be considered a personal expense. The parties agree that Mr. O’Neil was usually required to perform his employment duties in several sectors of the city. Counsel for the respondent did not contest this obvious fact.
[51] On the same subject, in a decision regarding an application for leave to appeal, Judge François Doyon[…] recalls the principles of tax law relating to deductible expenses as follows:
[7] Indeed, it is not unreasonable to conclude, in light of the evidence, that the travel expenses from Sherbrooke to Montreal were not incurred by the applicant for travel in the performance of his duties, as required by the Act. The Tax Court of Canada emphasizes, in O’Neil c. La Reine, 2000 DTC 2409, that “there is a huge difference between expenses that must be incurred to go to a place in order to perform one’s duties, and expenses incurred in the performance of one’s duties […]”.
[8] The rule is also well summarized by the Federal Court of Appeal in Healy v. The Queen, 1979 CanLII 4129 (FCA), [1979] CTC 44. Healy’s employer modified his employee’s usual assignments by asking him to perform his duties at another, more distant location for one-third of the year 1973. The Court, authorizing the deduction of expenses related to this new assignment, writes that the purpose of the legislative provision “is to enable employees who are required by their employment to work from time to time away from the places at which they usually work to deduct their out-of-pocket expenses in so doing”. […]
[9] This is not the case here. As the applicant’s employment contract mentioned that he was usually required to work in two places, it was not unreasonable to conclude, like the Quebec Court judge, that he was travelling “to perform and execute his work and not in the performance of his duties” and that the deduction should not be accepted.
[52] In light of the foregoing, an employee can therefore perform and execute their work at different locations, some or all of which could be, for that employee, their usual place of work.
[…]
[60] Now, a construction site can be a place of business, and if there are several places of business where an employee must perform their duties, these places of business take on the meaning of different places […]. Furthermore, it is recognized that an employee can have various workplaces […].
[…]
[63] In the opinion of the Court, for the 2018 tax year, Mr. Lagacé was usually required to perform and execute his duties as a site manager in different locations, namely at the office on Boulevard Dagenais Ouest, in Laval, as well as at the various MA2D construction sites.
[64] Thus, all trips to or from the various locations where Mr. Lagacé executes and performs his project manager duties to his residence in Rosemère are trips of a personal nature. (Our translation)
Key Takeaways
In conclusion, to avoid unpleasant surprises, companies must implement clear policies regarding the use of company vehicles and rigorously document their employees’ travel. In case of doubt, it is preferable to consult a legal counsel specializing in taxation to ensure compliance and avoid costly litigation.
Written with the collaboration of Antoine Villain, law student.
¹ Lagacé c. Agence du revenu du Québec, 2024 QCCQ 698.
² Taxation Act, RLRQ c I-3, s. 63.1.
³ Id., s. 1014.