November 12th - 2013

Legal Beat: Driving log would add evidence to tax appeal

In this case, the appellant is a self-employed residential REALTOR® working with RE/MAX who was remunerated on a commission basis.

In this case, the appellant is a self-employed residential REALTOR® working with RE/MAX who was remunerated on a commission basis. She appealed the fact that her motor vehicle expenses -- which she estimated at 95 per cent -- were not allowed under the Income Tax Act (ITA).

An experienced broker testified about the amount of driving done by REALTORS®. He stated that most of his sales reps work eight to 10 hours a day and on weekends. These individuals are basically in the car from morning to night, he stated.  Most of them do not generally keep mileage records since it is not realistic or practical to do so, he told the court. He himself never kept a log book. He couldn’t say how many hours high-performing REALTORS® would spend in the car, testifying that he assumed it would be 80 to 95 per cent of their work time.

The appellant said she had attempted to keep a log book several times but could not keep it up. The result would have been that either she “would lose all of [her] clients” or that it would “bottleneck [her] performance”.

The judge noted that section 230 of the ITA requires taxpayers to keep records and books of account.  The revenue minister stated that this requirement enables authorities to determine the amount of tax payable, whatever it may be.  By keeping driving records, taxpayers provide some kind of objective evidence. Keeping a log book for auto expenses is not specifically required by the ITA.  However, by not doing so, the appellant faces a heavier burden in proving she used her car almost exclusively for business purposes, the judge ruled.

The issue here is a pure question of fact.  The appellant is the only one who knows exactly how much she used her car that year.  Meanwhile, the minister’s role in auditing taxpayers is to ascertain whether they have complied with the ITA. In this case, the minister casts doubt on the claim that 95 per cent of the appellant’s travel was for business purposes. The minister rightly assumed that everyone has personal needs and determined that, in the absence of any other objective evidence, 55 per cent would be a more appropriate figure for business travel.

A driving log has its usefulness. It permits taxpayers to demonstrate with greater accuracy the amount of personal and business use on a vehicle. Expenses claimed must be reasonable, pursuant to the ITA. At first blush, a claim of 95 per cent of auto expenses for business purposes does not look reasonable. When a taxpayer claims a more reasonable amount, the need for a log book to convince authorities becomes less critical, since one can easily imagine the amount of driving required in a given industry. The sales rep and the minister then suggested 75 per cent, and the judge agreed.

Dale v The Queen 2010 TCC 561

MERV’S  COMMENTS

Do you follow the business practice of keeping a log for these expenses? This effort might save you from the negative impact of a similar audit. 

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Ontario Real Estate Association

Jean-Adrien Delicano

Senior Manager, Media Relations

JeanAdrienD@orea.com

416-445-9910 ext. 246

Ontario Real Estate Association
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