Docket: A-56-15
Citation:
2016 FCA 76
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CORAM:
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GAUTHIER J.A.
RENNIE J.A.
GLEASON J.A.
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BETWEEN:
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RANDY URQUHART
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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
RENNIE J.A.
[1]
This is an appeal from the decision of the Tax
Court of Canada delivered January 15, 2015 (Judgment issued January 21, 2015). In
that decision, the Tax Court dismissed the appellant’s appeal from the decision
of the Minister of National Revenue disallowing certain expenses incurred by
the appellant as deductions from employment income. For the reasons that
follow, the appeal should be allowed in part.
[2]
By way of background, the appellant was employed
by Towne Sales and Service Ltd. (Towne), a Ford dealership in Miramichi, New Brunswick. There was no written contract of employment.
[3]
There were two elements to the appellant’s
employment. He received a fixed salary for his work as a sales manager and a commission
for his sales as a car salesman. In respect of this aspect of his employment,
the appellant incurred various expenses to support his sales. These included:
mobile phone charges; postage for sending cards to clients; promotion costs for
support of local sports teams; gifts to mechanics to ensure prompt service on
behalf of the appellant’s clients at the dealership; vehicle transfer costs to
bring new cars to Miramichi for delivery to customers to obtain the higher
commission the dealership agreed to pay the appellant if the cars were present
in Miramichi; cost of installing accessories on certain cars he sold; providing
mechanical assistance in the case of the breakdown of a recently sold vehicle;
and providing a vehicle when the purchaser’s vehicle was in for service.
[4]
Section 8 (1) (f) of the Income Tax Act, R.S.C.
1985, c. 1 (5th Supp.) stipulates that before expenses can be deducted from
employment income the taxpayer must be required, under the contract of
employment, to pay the expenses.
[5]
The decision of the judge as to whether the
expenses were “required under the employment contract”
calls for an interpretation of a contract, a question of mixed fact and law: Sattva
Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633. As
such, the decision of the judge with respect to the terms of a contract will
only be reversed on appeal if it can be established that the judge made a
palpable and overriding error, or erred in respect of an extricable question of
law: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235.
[6]
The judge erred in two respects. In construing
the contract, he relied on the personal perspective of the employer as to what
was “required under the contract” without
consideration of whether, regarding the contract objectively, it was an
implicit or implied term that the employee would be required to incur certain
costs in order to earn the commissions contemplated by the contract; see Sattva
at para 49.
[7]
Secondly, the judge erred in failing to address
the possibility that some of the expenses might be “required
under the contract” and others might not. He did not identify and segregate
those expenses that were related to development and marketing of the
appellant’s sales (which he was not required to incur under the contract) and
those expenses which, when the employment contract was viewed objectively, were
directly needed for the appellant to fulfill his responsibilities and obtain
his entitlements under the contract (to sell cars and earn commissions) and
were expressly agreed with the dealership (charge back). To be specific, the
latter included:
i.
the freight and transportation costs to bring
cars to the dealership, and
ii.
the cost of purchasing accessories to be
included on delivery of a vehicle, or shortly thereafter and which the
appellant and the dealership had agreed to share. These would not include the
costs of accessories that the dealership was not prepared to finance at all nor
would it include gifts to the mechanics to install the accessories.
[8]
Indeed, the appellant’s evidence (including the
invoices and pink slips for charges back) demonstrate a mutual understanding
that these expenses were required. Without them, the appellant could not earn
the higher percentage commission that the dealership had agreed to pay him if a
vehicle was present in Miramichi, or could not deliver the merchandise that the
dealership had agreed to deliver to a client. As such, these expenses should be
distinguished from prudent or innovative expenditures merely aimed at helping
produce income by building positive client relations.
[9]
Given the amounts in dispute and the legal costs
incurred, this is an appropriate case to exercise the authority under s. 52(c)(ii)
of the Federal Courts Act, R.S.C. 1985, c. F-7. I would allow the appeal
in part, with each party bearing its own costs and direct the Minister to vary
the assessment so as to allow the deductions for costs incurred by the taxpayer
for the transportation of vehicles back to the dealership for delivery to
customers, and for the expenses incurred to purchase accessories or
enhancements to vehicles where the dealership was also covering part of the
costs and the expense was charged back.
[10]
With respect to the costs of the appellant’s
motion made in writing to add certain documents, it is clear that part of those
documents were indeed useful and were referred to during the hearing. However
given that the appeal is only allowed in part, each party should bear their own
costs.
"Donald J. Rennie"
“I agree
Johanne
Gauthier J.A.”
“I agree
Mary J.L.
Gleason J.A.”
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