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Citation: 2003TCC298
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Date: 20030506
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Docket: 2002-4442(IT)I
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BETWEEN:
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MICHAEL FURMAN,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
(Delivered orally from the Bench at
Edmonton, Alberta, on April 9, 2003)
Miller J.
[1] Mr. Michael Furman appeals by way
of the informal procedure the assessment of his 1998 taxation
year by the Minister of National Revenue (the Minister). The
Minister disallowed certain employee expenses claimed by
Mr. Furman, being meals and entertainment, travel costs and
cell phone expenses.
[2] Mr. Furman is a lawyer. He
practiced as an associate of the Edmonton law firm of Hladun
& Company from 1987 to 2001. He was, in 1998, an employee of
that firm. He was paid by way of a base salary of $5,000 per
month, plus a percentage of receipted billings for legal services
over and above an average of $10,500 a month. An amount of
approximately $10,000 was shown as commission income on Mr.
Furman's 1998 T4.
[3] It was required by Hladun &
Company that Mr. Furman generate his own work, which he did,
though there were no specific requirements addressed to any
particular person or place. Mr. Furman emphasized the need to
network, and explained it was for that reason he went on the
Executive of a touch football league. He estimated that
two-thirds of his day was spent providing legal services, in
effect during a normal working day, and one-third of his time was
spent promoting. His practice consisted mainly of litigation,
both criminal and civil, with a small amount, perhaps 10 per
cent, relating to commercial work. His clients were clients of
the firm.
[4] Regarding some of his promotion
efforts, Mr. Furman claimed a travel expense of approximately
$3,800 on a trip to an expensive conference in Hawaii. This was
at the request of a physician from whom he was attempting to get
work. While he was too late to register, he did spend time with
the physicians and believed this solidified his relationship with
the physicians. He acknowledged this would have been far too
expensive to attend other than on a business basis. His wife
accompanied him on that trip. Mr. Furman had several trips as
well attending touch football tournaments in Kelowna, Regina and
Saskatoon, with travel costs of approximately $2,400. These too
he saw as networking, with many of the 400 members, as well as
performing board related duties. According to Mr. Furman, the
board work was solely to obtain potential clients.
[5] Mr. Furman worked in the
surrounding area of Edmonton, attending court in Sherwood Park,
St. Albert, Vegreville, Camrose and the like. Mileage for such
travel was allowed by the Minister. It is only the promotional
travel costs that have been disallowed.
[6] With respect to Mr. Furman's
meals and entertainment expenses of $12,414, one-half of which he
claimed pursuant to section 67.1 of the Act, he indicated
this all related to local promotional wining and dining. Mr.
Furman filed a T2200 form and then an Amended T2200 with Canada
Customs and Revenue Agency for 1998. The form was prepared by Mr.
Furman and signed by Mr. Hladun. The following are some of the
questions and answers from those forms.[1]
1. Did this
employee's contract require the employee to pay his or her
own expenses?
The first form said "No", the second said
"Yes".
2. Did you
normally require this employee to work away from your place of
business or in different places?
Both said "Yes".
5 . Did this
employee receive a payment of the expenses he or she paid to earn
employment income?
The first said "No", the second said
"Yes".
6. Did you
require this employee to pay other expenses for which the
employee did not receive any allowance or repayment?
The first said "No", it was scratched out and
checked "Yes", and the second said "Yes".
7.a) Did you pay this employee
wholly or partly by commissions or similar amounts according to
the volume of sales made or contracts negotiated?
Both said "Yes".
b) If yes,
indicate the type of goods sold or contracts
negotiated."
And it was indicated "Legal services".
The starting point in a review of employment expenses is
subsection 8(2) of the Act, which reads as follows:
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.
[7] It is clear that Mr. Furman's
expenses must fall within a subsection of section 8 to be
deductible. The sections proposed by Mr. Furman that render his
expenses eligible for deduction are paragraphs 8(1)(f),
(h) and (h.1). Taking them in turn, first paragraph
8(1)(f), which reads as follows:
8(1)(f) sales expenses - where the taxpayer was
employed in the year in connection with the selling of property
or negotiating of contracts for the taxpayer's employer,
and
(i) under the
contract of employment was required to pay the taxpayer's own
expenses;
(ii) was ordinarily
required to carry on the duties of employment away from the
employer's place of business;
(iii) was remunerated in
whole or part by commissions or other similar amounts fixed by
reference to the volume of the sales made or the contracts
negotiated, and
(iv) was not in receipt of
an allowance for travel expenses in respect of the taxation
year...
amounts expended by the taxpayer in the year for the purpose
of earning the income from the employment (not exceeding the
commissions...)
It is not necessary for me to read the balance.
[8] Clearly, there are a number of
conditions Mr. Furman must meet to qualify under this subsection.
The first is that he was employed in the selling of property or
negotiating of contracts. Mr. Furman's argument is that
obtaining a client is integral to his practice of law, and that
constitutes a negotiation of contracts. With respect, I reject
this argument. Every business requires getting the work. To
extend that to mean that someone whose revenue is based on the
provision of legal services is employed in connection with the
negotiation of contracts, distorts the clear meaning of those
words. As a lawyer, was Mr. Furman in sales? I do not
believe so. I have not been convinced that because Mr. Furman is
required to generate clients for the firm that his employment is
"in connection with the negotiation of contracts". It
is in connection with the provision of legal services. That is
what he did, that is what he got paid for.
[9] Mr. Furman presented the
intriguing argument that what if he was employed solely as a
rainmaker, providing no legal services and was paid solely on the
basis of the volume of clients he obtained? Would he be
precluded from paragraph 8(1)(f) deductions by then
providing legal services? That might well come down to a matter
of degree. It would also require, obviously, an analysis of the
other conditions embedded in paragraph 8(1)(f). But I can
imagine a lawyer being hired solely to serve as a rainmaker, in
effect to get clients signed up for the firm. That is not
what is before me, however.
[10] Mr. Furman was hired as a lawyer to
provide legal services. As part of that job he, like so many
others in the legal profession, had to help in building up the
firm's clientele. But the wining and dining is not what I
consider the negotiation of contracts. It is promotion. Mr.
Furman was not hammering out details of the terms of engagement
while, to use the common legal vernacular, schmoozing. These
activities were not negotiation of contracts. That is not to deny
they were not part of the job. There was an expectation,
certainly. The expectation that lawyers of a firm promote
potential clients is not, however, sufficient to cast a new hue
on paragraph 8(1)(f) that has been accepted for so many
years as pertaining only to those employed in sales. Mr. Furman
was not employed in the sale of property, nor in the negotiation
of contracts. I conclude his employment is not the type of
employment contemplated by paragraph 8(1)(f) and no
deductions are available under that section.
[11] Having reached that conclusion, it is
unnecessary for me to address the other arguments
Respondent's counsel raised concerning the application of
paragraph 8(1)(f), other than to say they would be
formidable hurdles for Mr. Furman to overcome. Turning to
paragraph 8(1)(h), it reads as follows:
8(1)(h)...travel expenses - where the taxpayer, in
the year,
(i) was
ordinarily required to carry on the duties of the office or
employment away from the employer's place of business or in
different places, and
(ii) was required
under the contract of employment to pay the travel expenses
incurred by the taxpayer in the performance of the duties of the
office or employment,
amounts expended by the taxpayer in the year ... for
traveling in the course of the office or employment...
To be clear, this provision would only apply, if at all, to
those travel expenses claimed by Mr. Furman, not to the meals and
entertainment expenses, nor the cell phone expenses.
[12] Again, there are a number of
conditions. The first is that he ordinarily be required to carry
on duties away from the employer's place of business. The
Minister has accepted that Mr. Furman met this requirement by
allowing $200 of travel costs on Mr. Furman's trip to
Vancouver en route to Hawaii. Those expenses were allowed,
recognizing that Mr. Furman's duty of providing legal
services required that he work away from the office. But the
travel expenses Mr. Furman seeks to claim do not derive from
his duties of providing legal services, but, according to Mr.
Furman, from his duty to obtain clients.
[13] The Respondent contends this section
simply does not apply to travel costs in drumming up business.
Her argument, in part, rests on the proposition that Mr.
Furman's promotion efforts were not a requirement of his
employment, but were voluntary. I do not see it that way. Mr.
Furman did indeed receive a base salary, but to increase his
income he had to generate work. It was clear the employer was not
about to hand Mr. Furman a full plate of legal work. In fact, the
employer was not going to hand Mr. Furman any work. Mr. Furman
had to go and find it. The rather unsavory term of "eat what
you kill" has developed in the legal industry to describe
numerous variations on this arrangement. If Mr. Furman
brought in no clients, not only would his income never exceed his
base salary, it is unlikely he would have had that base salary
for very long. I would not describe getting work under such
circumstances as voluntary.
[14] Relating this back to the requirements
of paragraph 8(1)(h), I am satisfied Mr. Furman was
ordinarily required to carry on duties of the provision of legal
services away from the firm's place of business. I am also
satisfied he was required to obtain clients. But where Mr.
Furman's argument comes up short is that there was no
requirement that he travel away from Edmonton to get those
clients. He was not required to go to Hawaii, he was not required
to go on his touch football trips. There was no requirement to
establish an Alberta-wide or Canada-wide client base. The
requirement was simply to keep your plate as full as
possible.
[15] The completion of form 2200 does not
assist Mr. Furman, as a requirement to work away from the place
of business is not specifically addressed to the promotional side
of Mr. Furman's responsibilities. And without further
evidence from Mr. Furman's employer, I am not prepared to
imply that is how it was intended.
[16] One final comment on the application of
paragraph 8(1)(h). For the amounts to be deducted, they
must ultimately be expended "in the course of the
employment". There is always a fine line between a
lawyer's activities being performed for promotional purposes
and consequently within the course of employment and for
pleasurable, civic minded, charitable or any number of other
purposes. One might altruistically hope that lawyers enter
volunteer, charitable, sports or other activities because they
are sincerely interested in contributing to the betterment of
such organizations, be it as a volunteer, director, coach,
teacher, whatever. To suggest such activities are "in the
course of the individual's employment as a lawyer" is
frankly not how I would like the public to perceive a
lawyer's involvement.
[17] I do not accept Mr. Furman's touch
football trips as representing traveling in the course of
employment. Similarly, I struggle with finding that a lavish
jaunt to Hawaii as primarily being considered travel in the
course of employment. I have no doubt Mr. Furman reaped some
business benefit from such travel. There was some promotion going
on. But not only was such extravagant promotion not a requirement
by an employer, it was not in my view expended in the course of
employment.
[18] For these reasons, I dismiss the
appeal.
Signed at Ottawa, Canada, this 6th day of May, 2003.
J.T.C.C.
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