Date: 19980423
Dockets: 97-1046-IT-I; 97-769-IT-I; 97-1047-IT-I;
97-1048-IT-I
BETWEEN:
JEAN-CLAUDE OUZILLEAU, ROLAND SÉNÉCHAL, FERNAND
DELISLE, ARTHUR ROUSSEAU,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Lamarre Proulx, J.T.C.C.
[1] These appeals were heard on common evidence under the
informal procedure. They concern the application of paragraph
8(1)(f) and subparagraph 8(1)(i)(iii) of the
Income Tax Act (“the Act”) for the 1994
taxation year.
[2] The issue is whether the appellants, in computing their
employment income, can deduct the cost of purchasing the
computers they acquired under their contracts of employment.
[3] In reassessing the appellants, the Minister of National
Revenue (“the Minister”) relied on the facts set out
in paragraph 4 of each Reply to the Notice of Appeal (“the
Reply”). Since the Replies are all the same, only one
paragraph 4 need be reproduced. It reads as follows:
[TRANSLATION]
(a) during the year in question, the appellant was a
commission salesperson for Société du Vallon
Chrysler Plymouth Ltd. (hereinafter “the
employer”);
(b) during the 1994 taxation year, the appellant purchased a
computer (hereinafter “the computer”) for
$1,918.30;
(c) the appellant was required to purchase the computer for
the purposes of his employment;
(d) the appellant did not receive any allowance or
reimbursement from his employer for the computer;
(e) the computer is an outlay of capital;
(f) the Minister therefore refused to allow the appellant to
deduct the $1,968 in employment expenses he claimed in his tax
return for the 1994 taxation year;
(g) in addition, under paragraph 8(1)(f) of the
Income Tax Act (hereinafter “the Act”),
no capital cost allowance may be claimed.
[4] Jean-Claude Ouzilleau acted as the agent for the other
appellants. He alone testified. The other appellants agreed that
his testimony represented their positions. He admitted
subparagraphs 4(a) to (d) of the Reply and denied
subparagraph 4(e).
[5] Mr. Ouzilleau explained that the employer and employees
had agreed that the employees would each purchase a computer at
their own expense and that the employer would provide software
and maintenance. The agreement was filed as Exhibit A-1.
The employees used the computers at their work stations on the
employer’s premises. At the time of the hearing, the
appellants were still using them. One of the appellants also told
the Court that the Minister had not refused to allow two of their
colleagues who had purchased computers in 1993 to deduct the cost
of those computers. On this last point, I must immediately state
that the tax treatment of another taxpayer is of no legal
significance.
Argument
[6] Mr. Ouzilleau referred to the 1994 Tax Guide in arguing
that certain expenses can be deducted from employment income. He
also referred to René Huot’s Canadian Income
Tax Desktop Reference in arguing that computers may be
subject to a high depreciation rate.
[7] Counsel for the respondent referred to paragraphs
8(1)(f), (i) and (j) of the Act. She
argued that the computers were used in the workplace, that the
cost of purchasing them was an outlay of capital the deduction of
which was precluded by paragraph 8(1)(f) of the
Act, that the exception set out in paragraph
8(1)(j) was not applicable and that the appellants had not
purchased supplies that are consumed as they are used within the
meaning of subparagraph 8(1)(i)(iii) of the
Act.
Analysis
[8] Paragraphs 8(1)(f), (i) and (j) and
subsection 8(2) of the Act read as follows:
(1) 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:
. . .
(f) 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 the
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 that was, by virtue of subparagraph
6(1)(b)(v), not included in computing the taxpayer’s
income,
amounts expended by the taxpayer in the year for the purpose
of earning the income from the employment (not exceeding the
commissions or other similar amounts referred to in subparagraph
(iii) and received by the taxpayer in the year) to the extent
that those amounts were not
(v) outlays, losses or replacements of capital or payments on
account of capital, except as described in paragraph
(j),
(vi) outlays or expenses that would, by virtue of
paragraph 18(1)(l), not be deductible in computing
the taxpayer’s income for the year if the employment were a
business carried on by the taxpayer, or
(vii) amounts the payment of which reduced the amount that
would otherwise be included in computing the taxpayer’s
income for the year because of paragraph 6(1)(e);
. . .
8(1)(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(1)(j) where a deduction may be made under paragraph
(f), (h) or (h.1) in computing the
taxpayer’s income from an office or employment for a
taxation year,
(i) any interest paid by the taxpayer in the year on borrowed
money used for the purpose of acquiring, or on an amount payable
for the acquisition of, property that is
(A) a motor vehicle that is used, or
(B) an aircraft that is required for use
in the performance of the duties of the taxpayer’s
office or employment, and
(ii) such part, if any, of the capital cost to the taxpayer
of
(A) a motor vehicle that is used, or
(B) an aircraft that is required for use
in the performance of the duties of the office or employment
as is allowed by regulation;
8(2) 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.
[9] The appellants are employees, and the computers were
purchased in the course of their employment for the purpose of
earning income from employment. Subsection 8(2) of the Act
expressly states that no deductions other than those permitted by
section 8 of the Act may be made in computing income from
employment. The deductions to which Mr. Ouzilleau referred are
deductions for capital cost allowances. At the start of his case,
Mr. Ouzilleau denied subparagraph 4(e) of the Reply, which states
that the purchase of the computers was an outlay of capital. Yet
he is asking to deduct that outlay through the capital cost
allowance, which is contradictory. The deductions that may be
made for capital cost allowance are set out in paragraph
20(1)(a) of the Act and are taken into account in
computing income from a business or property.
[10] When it comes to income from employment, the discussion
must be confined to section 8 of the Act. The only
provisions in that section that may be applicable to this case
are indeed those referred to by counsel for the respondent and
mentioned in paragraph 7 of these Reasons for Judgment.
[11] As regards the expenses of sales employees under
paragraph 8(1)(f) of the Act, that paragraph
applies only if, inter alia, the employee was ordinarily
required to carry on the duties of the employment away from the
employer’s place of business. Since that factor was not
brought up in the Reply, the absence of evidence on that point
will not affect my decision. That requirement does, however,
explain the nature of the expenses allowed under the paragraph.
Thus, subparagraph 8(1)(f)(v) of the Act provides
that an outlay may not be deducted if it is on account of
capital, unless it relates to a motor vehicle or aircraft.
Accordingly, capital cost allowance for a computer may not be
deducted under paragraph 8(1)(f) of the Act. It is
excluded by subparagraph 8(1)(f)(v) and is not covered by
the exceptions set out in paragraph 8(1)(j).
[12] I will now consider subparagraph 8(1)(i)(iii) of
the Act, which provides for the deduction of the cost of
supplies that were consumed directly in the performance of the
duties of the employment. In Luks [No. 2] v. M.N.R.,
58 DTC 1194, Thurlow J. of the Exchequer Court looked at the
meaning to be given to these words. At pages 1198-99, he said
that equipment differs from supplies and that even if it is
assumed that equipment can be considered supplies under this
statutory provision, it must be proved that the equipment wore
out from use during the year. This has not been proved. On the
contrary, the employees are still using the computers in
question. They were therefore not consumed in 1994.
[13] The appeals are accordingly dismissed.
Signed at Ottawa, Canada, this 23rd day of April 1998.
“Louise Lamarre Proulx”
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 14th day of December
1998.
Kathryn Barnard, Revisor
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