Citation: 2013 TCC 188
Date: 20130617
Docket: 2012-1383(IT)I
BETWEEN:
Patrick Auclair,
Appellant,
and
HER MAJESTY THE QUEEN
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Masse D.J.
[1]
In this case, the
appellant is appealing from a notice of reassessment issued October 18, 2011,
in which the Minister of National Revenue (the Minister) disallowed the $9,000
claimed as tuition fees by the appellant in his calculation of non-refundable credits
for the 2010 taxation year. On or around December 6, 2011, the appellant served
a Notice of Objection on the Minister against the reassessment. On February 8,
2012, the Minister confirmed the reassessment, resulting in the present appeal.
[2]
At paragraph 22 of
his amended notice of appeal, the appellant claimed tax credits under sections
118.5 and 118.6 of the Income Tax Act, RSC 1985, c. 1 (5th suppl.)
(the Act) because he had taken training through which he acquired specific
knowledge during his employment. At the hearing, the appellant indicated that
he was abandoning this ground for appeal. The appeal is therefore only on the
deduction of employment expenses under subparagraph 8(1)(i)(iii) of the
Act.
Factual background
[3]
In 2010, the appellant was
employed by Pascan Aviation Inc. (hereinafter Pascan) in St. Hubert, Quebec, as
a copilot for a BAE JetStream 32 aircraft. In August 2010, he was promoted,
becoming a pilot. This promotion required him, as part of his job, to take
complete BAE JetStream 32 qualification training. The practical portion of the
appellant's training was held in August 2010 at the Flight Safety International
training centre in St. Louis, Missouri in the United States. This was the only
place in North America that offered training in a flight simulator for this
type of aircraft. Pascan had a contract with Flight Safety International for
the training and Pascan paid all the costs. Evidently, the appellant was not
required to pay anything.
[4]
The cost of the
training was $12,000 and included theory courses, the plane ticket to get to
St. Louis, simulator costs at Flight Safety, and costs related to the BAE JetStream
32 type rating. The cost of this training was not included in the appellant's
income.
[5]
Following this
training, in a written agreement, Pascan required the appellant to agree to
remain employed by Pascan for at least 24 months following the completion of
this training. Otherwise, he would have to repay Pascan $500 for each of the 24
months he did not complete (see Exhibit A-1, Tab 3). The third paragraph of
this agreement, dated August 26, 2010, states:
[translation]
...I
agree to repay PASCAN AVIATION INC., as compensation for the time it will take PASCAN
AVIATION INC. to replace me, the amount of $500.00 per month remaining
in the 24-month period. This amount takes into consideration damages
liquidated in advance, and said amount is payable on demand at the termination
of employment.
[6]
It goes without saying
that if the appellant had continued working for Pascan for at least the 24
months following the training, the training would not have cost him anything.
[7]
The appellant left his
job at Pascan in March 2011 to go work for another airline carrier. Given his early
departure, the appellant was required to repay Pascan (the amount of) $9,000 in
damages, in accordance with the terms of the agreement signed August 26, 2010.
[8]
In his tax return for
the taxation year, the appellant claimed $9,000 as a non-refundable tax credit
for tuition for the reimbursement to Pascan. On October 18, 2011, the Minister
issued a reassessment that disallowed the credit claimed by the appellant. On
or around December 6, 2011, the appellant served a notice of objection on the
Minister against the reassessment. On February 8, 2012, the Minister confirmed
the reassessment, resulting in the present appeal.
Appellant’s argument
[9]
The appellant claims
that he can rightfully claim a deduction pursuant to subparagraph 8(1)(i)(iii)
of the Act with respect to the $9,000 expense incurred to repay the training
costs. The appellant argues that the training he took is equivalent to “supplies
that were consumed directly in the performance of the duties of the office or
employment and that the officer or employee was required by the contract of
employment to supply and pay for…to the extent that the taxpayer has not been
reimbursed, and is not entitled to be reimbursed in respect thereof”.
[10]
The appellant had to
pay costs for the training he received in August 2010 to become a BAE JetStream
32 pilot. Moreover, the appellant claims that the evidence shows that he would
be required to update his skills every 12 months in order to maintain his
certification as a BAE JetStream 32 pilot. Once the training is completed, and
he receives his certification, the training (“supply”) is “consumed”. The
appellant states that he was required to incur costs and these costs were
mandatory for his employment. Therefore, these costs are expenses incurred in
the course of his employment. They are recurrent expenses for training (“supply”)
that, once used, is “consumed directly in the performance of the duties of the
office or employment”.
[11]
Therefore, the
appellant claims that he can rightfully claim expenses he incurred for training
to become a BAE JetStream 32 pilot, pursuant to subparagraph 8(1)(i)(iii)
of the Act and the Court must allow his appeal.
Respondent’s argument
[12]
The respondent claims
that the training the appellant took cannot be considered a “supply”. A “supply"
within the meaning of the Act is generally a material item that can be
consumed. It is impossible to consume training. Once acquired, training is
always there to be used, but it can never be consumed. Subparagraph 8(1)(i)(iii) of the Act cannot
apply and there is no other provision of the Act that allows for a deduction of
training costs except sections 118.5 and 118.6 and unfortunately, these
two sections do not apply in this case.
[13]
The respondent claims
that in this case, it was not training fees but rather a payment made pursuant
to a contractual obligation between an employer and its employee. This
contractual obligation was unrelated to the execution of the appellant's
employment duties but rather was regarding the termination of employment. It
was the application of a penalty clause in a contract. Payment was not made in
the course of his duties; it was made when he ceased working for Pascan.
Therefore, the expenses were completely outside the scope of his duties. The
respondent claims that the payment obligation results from the contract of
termination that was signed on August 26, 2010. The expenses are not a direct
result of carrying out his employment duties, and therefore subparagraph 8(1)(i)(iii) does not apply.
[14]
The respondent
therefore asks that the appeal be dismissed.
Legislative provisions
[15]
The relevant provisions
of the Act are:
8. (1) Deductions
allowed — In computing a
taxpayer’s income for a taxation year from an office or employment, there may
be deducted such of the following amounts as are wholly applicable to that
source or such part of the following amounts as may reasonably be regarded as
applicable thereto
...
i)
amounts paid by the taxpayer in the year as
...
(iii) the cost of supplies that were
consumed directly in the performance of the duties of the office or employment
and that the officer or employee was required by the contract of employment to
supply and pay for,
...
to
the extent that the taxpayer has not been reimbursed, and is not entitled to be
reimbursed in respect thereof
...
8. (2)
General limitation — Except
as permitted by this section, no deductions shall be made in computing a
taxpayer’s income for a taxation year from an office or employment.
Analysis
[16]
The appellant states
that the term "supply" cannot be limited to material goods. The
meaning of the term "supply" can vary a great deal depending on the
context in which it is used. Training the appellant took may qualify as a
supply because is it consistent with the provision of a service to the
appellant. Training was directly consumed in the accomplishment of his
employment duties because it was completely assimilated by the appellant. The
appellant claims that the training he took was an essential condition for
obtaining the position of pilot with his employer, and the payment of $9,000,
which he repaid in accordance with the written agreement dated August 26, 2010,
was a direct result of this obligation.
[17]
The appellant claims
that his training was taken progressively to its completion, meaning that for
the duration of the training, it was consumed in the accomplishment of his
duties. From the evidence submitted to record, the appellant was required to
take updates every 12 months or the certification allowing him to pilot a BAE
JetStream 32 would expire, and he would have to take the full training again.
Therefore, the appellant feels that the training was consumed progressively
over the 12 months during which the certification was valid and is completely
consumed once the certification expires.
[18]
Therefore, according to
the appellant, all the conditions required under subparagraph 8(1)(i)(iii)
of the Act were met. He paid for a supply that he consumed directly in the
performance of his employment duties during the taxation year.
General principle
[19]
The issue in this case
is the interpretation of the Act, more specifically, determining what meanings
are to be given to the terms "supply" and "consumed". The
general principles of interpreting legislation are stated by the Supreme Court
of Canada in Canada Trustco Mortgage Company v. Canada, 2005 SCC 54,
[2005] 2 S.C.R. 601. McLachlin C.J. established that:
[10] It has been long established as a matter of statutory interpretation
that “the words of an Act are to be read in their entire context and in their
grammatical and ordinary sense harmoniously with the scheme of the Act, the
object of the Act, and the intention of Parliament”... The interpretation of a statutory provision must be made according
to a textual, contextual and purposive analysis to find a meaning that is
harmonious with the Act as a whole. When the words of a provision are
precise and unequivocal, the ordinary meaning of the words play a dominant role
in the interpretive process. On the other hand, where the words can
support more than one reasonable meaning, the ordinary meaning of the words
plays a lesser role. The relative effects of ordinary meaning, context and
purpose on the interpretive process may vary, but in all cases the court must
seek to read the provisions of an Act as a harmonious whole.
...
[12] The provisions of the Income Tax Act must be interpreted in
order to achieve consistency, predictability and fairness so that taxpayers may
manage their affairs intelligently...
[20]
In 65302 British
Columbia Ltd. v. Canada, [1999] 3 S.C.R. 804, para. 51, Iacobucci J. cites P.
W. Hogg and J. E. Magee, Principles of Canadian Income Tax Law (2nd ed.
1997), pp. 475-476:
[i]t
would introduce intolerable uncertainty into the Income Tax Act if clear
language in a detailed provision of the Act were to be qualified by unexpressed
exceptions derived from a court’s view of the object and purpose of the
provision.
[21]
Therefore the meaning
of the terms "supply" and "consumed" must be determined in
light of this general principle.
"Supply"
[22]
The Act does not
provide a definition of the word "supply". However, the meaning of
the word can be determined through other federal statutes. According to section 123
of the Excise Tax Act (the ETA), R.S.C. (1985), c. E‑15, which is
also a federal tax statute, a "supply" includes "the
provision of property or a service in any manner, including sale, transfer,
barter, exchange, licence, rental, lease, gift or disposition."
Therefore, "supplies" consist of property, namely objects or things,
and the provision of a service. Training is certainly not property but training
could be considered a provision of a service, at least within the meaning of
the ETA.
[23]
What is the ordinary
meaning of the word "supply"? The appellant claims that the term
"supply" found under subsection 8(1)(i)(iii) of the Act
is a term whose meaning can vary a great deal, depending on the context in
which it is used. In Luks [No. 2] v. M.N.R., (1959) 58 DTC 1194, the
Exchequer Court of Canada considered this issue in the context of paragraph 11(10)(c) of the
former Income Tax Act. Thurlow J. declared the following at
pages 1198-1199:
'Supplies' is a term the connotation of which
may vary rather widely, according to the context in which it is used. In s.
11(10)(c) it is used in a context which is concerned with things which
are consumed in the performance of the duties of employment. Many
things may be consumed in the sense that they may be worn out or used up in the
performance of duties of employment. The employer's plant or machinery may be
worn out. The employee's clothing may be worn out. His tools may be worn out.
And materials that go into me work, by whomsoever they may be provided, may be
used up. 'Supplies' is a word of narrower meaning than 'things' and in
this context does not embrace all things that may be consumed in performing the
duties of employment, either in the sense of being worn out or used up. The
line which separates what is included in it from what is not included may be
difficult to define precisely but, in general, I think its natural meaning in
this context is limited to materials that are used up in the performance of the
duties of the employment. It obviously includes such items as gasoline for a
blow torch but, in my opinion, it does not include the blow torch itself.
The latter, as well as tools in general, falls within the category of
equipment.
[Emphasis added.]
[24]
Therefore, according to
Thurlow J., a supply has the meaning of materials, namely objects or things
that can be completely used in the performance of employment duties. However,
this does not include tools or equipment. The meaning of "supply" is
therefore very restricted.
[25]
Mr. Lemay, for the
appellant, provided us with examples of what a supply is. In Fardeau v. The
Queen, [2002] 3 CTC 2169, Bowman A.C.J. of the Tax Court of Canada, as he
then was, felt that it was time to question the opinion of Thurlow J. in Luks.
Bowman A.C.J. stated, at paragraph 12:
[12] There is no unanimity in this court on
the question whether such things as shirts, socks and other similar items are
supplies. We are not talking about tools here. We are talking about shirts and
socks that wear out. With respect I think it is time to reconsider the approach
of Thurlow, J. in Luks. While it might be right for tools it may be
unrealistically narrow for shirts, socks and boots in the context of modern
employment practices. Such things as clothing are certainly supplies.
[26]
However, we must note
that shirts, socks and boots are objects and not abstract things such as
training.
[27]
Home telephone and
cellular telephone charges can be considered "supplies": see McCann
v. The Queen, [2002] 3 CTC 2422 (TCC). In Glen v. The Queen,
2003 TCC 807, 2003 CarswellNat 5421, McArthur J. found that the cost of
computer software used by a part-time university professor are supply costs
within the meaning of subparagraph 8(1)(i)(iii). Hydro and fuel costs
can be deducted as home-office expenses pursuant to subparagraph 8(1)(i)(iii)
of the Act: see Lester v. The Queen, 2001 TCC 543 (CanLII); Thompson v.
Canada (M.N.R.) (T.D.), [1980] T.C.J. No. 808, [1989] 3 F.C. 492 (FCC).
[28]
This very brief
overview of the case law shows us that the term "supply" within the
meaning of subparagraph 8(1)(i)(iii) of the Act has a very limited
meaning and is limited to things or material used directly in the performance
of employment duties. Interpretation Bulletin No. IT35R2, dated August 26, 1994,
published by the Canada Revenue Agency, gives more examples:
Supplies
9. The word
"supplies" as used in subparagraph 8(1)(i)(iii) is limited to
materials that are used up directly in the performance of the duties of the
employment. In addition to certain expenses related to a work space in a home,
as explained in 5 above, supplies will usually include such items as
(a) the cost of gasoline and oil used in the operation of power saws
owned by employees in woods operations;
(b) dynamite used by miners;
(c) bandages and medicines used by salaried doctors;
(d) telegrams, long-distance telephone calls and cellular telephone
airtime that reasonably relate to the earning of employment income; and
(e) various stationery items (other than books) used by teachers, such
as pens, pencils, paper clips and charts.
...
10. Supplies,
as used in subparagraph 8(1)(i)(iii), will not include:
(a) the monthly basic service charge for a telephone line;
(b) amounts paid to connect or licence a cellular telephone;
(c) special clothing customarily worn or required to be worn by
employees in the performance of their duties; and
(d) any types of tools which generally fall into the category of
equipment.
[29]
It is clear that
administrative policies and interpretations are not determinative, but are entitled
to weight and can be an important factor in case of doubt about the meaning of
legislation: see R. v. Nowegijick, [1983] 1 S.C.R. 29, per Dickson J.,
at paragraph 25.
[30]
In this case, I am not
convinced that the training the appellant took can be considered a
"supply" within the meaning of subparagraph 8(1)(i)(iii) of
the Act. Training is not a thing or a material object that can be used directly
in the performance of his employment duties. Although training could be
considered a service provision, the type of service considered by the Act is a
public service, such as natural gas and electricity. It is true that in Glen
v. The Queen, supra, McArthur J. found that the cost of computer
software used by a part-time university professor was included under the cost
of supplies within the meaning of subparagraph 8(1)(i)(iii), but Glen
is definitely (clearly) a distinct case. Software is certainly useful for a
short time and must be updated frequently. Although software on a CD-Rom may be
abstract material, it is still material. The material of software on a CD-Rom
is not comparable to training that is retained as part of our overall knowledge
and skills.
[31]
In conclusion, I
dismiss the appellant's claim that the training he took was a
"supply" within the meaning of subparagraph 8(1)(i)(iii) of
the Act.
"Consumed"
[32]
What does the term
"consumed" mean under subparagraph 8(1)(i)(iii) of the
Act? Once again, the Act does not provide a definition of the term
"consumed".
[33]
In Fardeau v. The
Queen, supra, Bowman A.C.J. of the Tax Court of Canada shares his insight,
teaching us the following with regard to the meaning of the term
"consumed" as found at subparagraph 8(1)(i)(iii) of the
Act, at paragraph 15:
[15] Consumed
is a word of some elasticity. The Oxford English Dictionary ("OED")
has three quarters of a page of definitions of consume. It is true that some of
the definitions carry a connotation of destruction (as by fire) devouring (as
by eating) or spending (as in the case of money). I do not however think there
is any justification for requiring that there be instant annihilation.
Consumption can be gradual. Perhaps one cannot consume a hammer but it does no
violence to language to say that one consumes items of clothing by wearing them
out. Indeed, one of the definitions of consume in the OED is:
d. To wear out
by use.
...
[16] What of the monthly cost of the
pager and cell phone? Certainly those services are "supplies". Just
as obviously, they are consumed.
[34]
In Le Petit Robert
Dictionnaire alphabétique et analogique de la langue française, the word
"consommer" [consume] is defined as follows: [translation] "Bring a thing
to its completion. Consume a work" and "Bring (a thing)
to destruction by using its substance; use it in a way that renders it unusable".
Paul‑Émile Littré's Le Dictionnaire de la langue française
defines "consommer" [consume] as: [translation] "2. Legal term. Consume one's right,
used when the right one has to a thing is in force."
[35]
I have no doubt, as
stated by Mr. Lemay for the appellant, that something may be consumed
progressively, bit by bit, and it is not necessary for a thing to be destroyed
or used up immediately: see Fardeau, supra. But to be consumed, it is
necessary for the thing in question to eventually be rendered useless by being
used. It is difficult to imagine how training could be consumed. Training can
always be useful. Mr. Lemay claims that the training the appellant took is
useless after 12 months have passed because updates must be taken in order to
maintain the certification as a BAE 32 pilot. In my opinion, although it is
necessary to have updates to maintain the pilot certification, this does not
mean that the training he took was rendered useless or expired. It only
requires an update. It is the certification that expires or becomes used up,
not the training.
Directly in the performance of his
employment duties
[36]
For
the appellant to be eligible to claim employment expenses as deductions under
subparagraph 8(1)(i)(iii) of the Act, he must show that he paid
amounts during the year as fees for supplies that were consumed "directly in the performance of the duties
of the office or employment that the officer or employee was required by the
contract of employment to supply and pay for."
[37]
It is clear that during
the taxation year, the appellant was employed by Pascan and in the course of
his employment, he had to take training. However, all the costs related to this
training were paid for by Pascan and were not the appellant's responsibility. He
was not required to pay anything back to Pascan. Once the appellant left his
job, he was required to repay Pascan and this only applied if he left within 24
months of completing the training, on a pro-rated basis: $500 for each of the
24 months he did not complete.
[38]
In this case, even if I
agreed that the training costs were "supplies" and even if these
supplies were "consumed", I cannot accept that the amount paid was
for material or for the provision of a service used directly in the performance
of his employment duties. The amount paid was as damages liquidated in
advance, payable upon termination of the employment and not in the performance
of the appellant's employment duties.
[39]
The payment was not
made under a contract of employment but rather under a contract of termination
of employment. Pascan paid all the appellant's training costs. Pascan could
reasonably expect the appellant to continue working for Pascan for a period of
time so that Pascan could benefit from its investment. Pascan could rightly ask
the appellant for compensation if he were to leave his job within 24 months of
completing the training. The appellant was under no obligation to pay or repay
any amount as long as he did not leave his job.
[40]
It is clear that the
reimbursement, or the amount the appellant had to pay was not for his work, but
came after he no longer worked for Pascan. Therefore, the expenses the
appellant paid were not expenses directly required to perform his employment
duties.
Conclusion
[41]
Having considered all
the evidence and the arguments presented to me, I come to the following
conclusions:
a.
The training the
appellant took to become a BAE JetStream 32 pilot was not a "supply"
within the meaning of subparagraph 8(1)(i)(iii) of the Act.
b.
The training the appellant
took to become a BAE JetStream 32 pilot was not "consumed" within the
meaning of subparagraph 8(1)(i)(iii) of the Act.
c.
The contract of
employment did not require the appellant to provide and pay for the cost of
training; Pascan paid all the costs on condition that the appellant remain a
Pascan employee for at least 24 months following completion of the training.
The appellant was not required to incur expenses to perform his employment
duties.
d.
The payment the
appellant made was not for the cost of supplies consumed directly in the
performance of his employment duties but rather for damages, payable upon the
termination of his employment, not during the course of his employment.
e.
The appellant did not incur
fees or any direct obligations to perform his employment duties, but rather to
allow him to leave his employment ahead of the 24 month time frame.
f.
The contract dated
August 26, 2010, is not an employment contract but rather a termination
contract; this is the contract under which the appellant was required to pay
damages, not his employment contract.
[42]
I feel that
subparagraph 8(1)(i)(iii) of the Act does not apply in this case. For
these reasons, the appeal is dismissed.
[43]
I also want to note
that although the appellant did not obtain the result he was seeking, he was
very well represented by Ms. Pelletier-Bégin and Mr. Lemay. These two
young student attorneys were very well prepared and presented their case well.
I wish them much success in the future. I would also like to thank Ms.
Dompierre for her assistance to this Court.
Signed at
Montréal, Quebec, this 17th day of June 2013.
"Rommel G. Masse"
Translation
certified true
on this 31st day
of July 2013.
Elizabeth Tan,
Translator
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