Citation: 2009 TCC 321
Date: 20090629
Docket: 2008-2731(IT)I
BETWEEN:
FRANK FITZGERALD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Angers J.
[1] These appeals are with
respect to the appellant's 2005 and 2006 taxation years. For those taxation years,
the appellant claimed employment expenses in the amounts of $14,302 and $9,555
respectively and employee goods and services tax (GST) rebates of $1,021 and
$1,197 respectively. By notice of reassessment, the Minister of National
Revenue (Minister) disallowed all the employment expenses claimed and reduced
the corresponding employee GST rebate to nil for each of the 2005 and 2006
taxation years. The breakdown of the employment expenses claimed for each year
is as follows:
Please see table on the next page.
|
Frank Fitzgerald
2005 Revised Employment Expenses &
Employee GST Rebate
|
|
|
Claimed
|
Allowed
by Audit
|
|
Accounting and legal
|
100.00
|
0.00
|
|
Advertising and promotion
|
438.97
|
0.00
|
|
Motor vehicle expenses
|
10,569.89
|
0.00
|
|
Supplies
|
166.50
|
0.00
|
|
Parking
|
76.25
|
0.00
|
|
Telephone and Cell Phone
|
715.91
|
0.00
|
|
Workspace in Home
|
1,142.85
|
0.00
|
|
Meals and entertainment
|
1,091.75
|
0.00
|
|
Total expenses
Employee GST Rebate
|
14,302.12
1,021.84
|
0.00
0.00
|
|
Frank Fitzgerald
2006 Revised Employment Expenses &
Employee GST Rebate
|
|
|
Claimed
|
Allowed
by Audit
|
|
Accounting and legal
|
100.00
|
0.00
|
|
Motor vehicle expenses
|
6,379.12
|
0.00
|
|
Meals and entertainment
|
1,281.00
|
0.00
|
|
Supplies
|
1,795.00
|
0.00
|
|
Employee GST Rebate
|
9,555.12
1,197.37
|
0.00
0.00
|
[2] The Minister disallowed
all of the expenses claimed on the basis that they were not incurred for the
purpose of earning employment income in the taxation years at issue, that the
appellant did not work away from his employer's place of business nor was he required
to do so, that the employer provided the appellant with a motor vehicle and
reimbursed him for any gasoline expenses incurred for business purposes, that
the use of a cell phone or a workspace at home were not required by the
appellant's employer nor were the expenses with respect thereto incurred for
the purpose of earning employment income, and finally, that the appellant was
never required by his employer to be away from the employer's place of business
for a period of twelve hours or more as required under paragraph 8(1)(f)
and subsection 8(1) and subsection 8(4) of the Income Tax Act (the
"Act"). In addition, the records did not indicate the name of
any clients or business associates to whom the claimed expenses related.
[3] During the 2005 and
2006 taxation years, the appellant was employed as a commissioned automobile
salesperson by Taylor Ford Sales Ltd. in Moncton, New Brunswick. There is no written
employment contract per se between the appellant and Taylor Ford, but the
entitlement of each of Taylor Ford's ten commissioned salespersons to the use
of a demonstrator vehicle is set out in a letter dated February 2008 (Exhibit
A-1) and signed by Mr. Paul LeBlanc, who is the chief financial officer at
Taylor Ford. The letter spells out the conditions regarding the demonstrators as
follows:
A commissioned salesperson employed with Taylor Ford Lincoln is
entitled to a company demonstrator as part of their employment. As
representing Taylor Ford Lincoln, their demonstrator is required to be on
display at all times on and off the job. The demonstrator may be required at
times to be used to perform duties on the job. The salesperson is responsible
for the expense of keeping their demonstrator clean. The salesperson is
responsible for fuel for all non business (personal) driving. The salesperson
is also responsible for the cost of repairs over $200 as a result of repairing
scratches and dents. They are responsible for the deductible if there is an
accident that is deemed to be their fault or happened during personal driving.
The employee will incur a taxable benefit for the use of the
demonstrator which is reported on T4 slips and does reimburse Taylor Ford for a
portion of the taxable benefit.
[4] Mr. LeBlanc also
testified at the hearing. He confirmed the conditions stated in his letter. He
added that all gasoline expenses incurred by salespersons, including the
appellant, are reimbursed. The salesperson need only make a request and satisfy
the comptroller at Taylor Ford Lincoln that these expenses were in fact
incurred for Taylor Ford. In other words, Taylor Ford, through reimbursement,
pays for the gasoline if it was used for business purposes. Personal use
expenses are the salesperson's responsibility. All expenses for travel outside
the Moncton area for business
purposes or training are also reimbursed by Taylor Ford. For half-day trips,
meal expenses are not reimbursed.
[5] For 2005, Taylor
Ford calculated a taxable benefit of $6,859.09 in respect of the personal use
of the demonstrator, and for 2006, a similar benefit of $6,579.15, both of
which 2006 which the appellant reported as income for those years.
[6] Mr. LeBlanc was
also questioned on the other requirements of the appellant's employment for the
taxation years in issue, and particularly on the content of the T2200 forms
that were filed by the appellant with his tax returns for the years under
appeal. Mr. LeBlanc acknowledged that some of his answers to the questions
contained in the T2200s were different for the two taxation years and stated that
his evidence in court was more accurate than some of the answers found in the
T2200s. In fact, having consulted an accountant, he has changed some of the
answers given on the 2006 T2200. As an example, for the question whether it was
required that the employee work away from the place of business or in different
places, he answered no for 2005 and yes for 2006 but limited the area to Moncton. For the question whether
the employee was required to be away for at least 12 hours, he answered yes
for 2005 and no for 2006.
[7] When asked why he responded
yes to the first question, which asks whether the employee is required to pay
his or her own expenses, Mr. LeBlanc explained that he did so on the basis that
some salespersons do incur expenses for such things as key chains and some
advertising, but said that they do this on their own: it is not a requirement by
the employer, as the employer pays advertising and all other expenses related
to the employment. He admitted that he answered yes to help the salesperson.
[8] Mr. LeBlanc
confirmed that the employee may have had to pay on a fifty-fifty basis some
promotional expenses like shirts and key chains, but that it is not a
requirement of a salesperson's employment that the salesperson purchase
anything. Mr. LeBlanc testified lastly that the conditions of employment did
not require Taylor Ford's salespersons to have home offices or cell phones, and
that basically everything the salespersons need to perform their work is
provided and paid for by the employer.
[9] The appellant was
required to be at the dealership for a period of at least 45 hours per week and
was in fact on site 98% of that time. The appellant was not required to work
outside those hours. As for the demonstrator vehicles provided to salespersons,
they are not to be lent to customers who are having their car repaired, as
Taylor Ford has a shuttle service. If, however, the demonstrator were to be
lent, the salesperson could get reimbursed for the expenses relating thereto.
Taylor Ford has no policy for salespersons regarding meals and does not require
its salespersons to provide meals or other services to clients, and none of
them would lose their job if they did not provide such things.
[10] The appellant has
been described as an above-average salesperson and he attributes his success to
the fact that he takes good care of his clients. To that end, he does
advertising and, on occasion, will take clients out for a meal or pay for
repairs needed after a sale. He testified that about 80% of his sales are a result
of his prospecting for clients and from referrals and loyal clients, and about
15% are from outside the Moncton area.
[11] He did acknowledged
that his employer reimburses him for gasoline expenses if these are
business-related, but said that the reimbursement is $5 a time, which he finds
insufficient and so does not claim it very often. He also acknowledged that the
meal expenses he claimed were approximately one third personal and two thirds
for his clients and that the breakdown for the motor vehicle expenses was
approximately the same, and not the 88% business use on which he based his
claim in his tax return.
[12] The appellant
testified that many of the expenses he claimed were for meals and for repairs done
beyond the 30-day guarantee period for used vehicles. He said he also spent
money on key chains, hats and other promotional items, again acknowledging that
it is not required by his employer that he incur such expenses.
[13] The appellant admitted
on cross-examination that he did claim expenses that were personal. Thus, we
find items such as eye examinations, liquor purchases, tapes, tools, clothing
and credit card withdrawals. He did not submit any receipts, but relied on a
list of items that had been prepared by the auditor in reviewing his expenses.
[14] For a taxpayer
employee to be able to claim deductions from his or her employment income, he
or she must meet the requirements of section 8 of the Act. The relevant provisions
of the Act that the appellant relies on are the following:
8(1)(f) Sales
expenses
8(1)(h) Travel
expenses
8(1)(h.1) Motor vehicle
travel expenses
8(1)(i) Dues and
other expenses of performing duties
8(4) Meals
8(10) Certificate of
employer
8(13) Work space in home
[15] These provisions are
reproduced for reference purposes at the end of my reasons for judgment.
Subsection 8(1)(f) sets out the conditions that the appellant must show
on a balance of probabilities that has met before he can receive a deduction
for sales expenses. No issue can be taken with the fact that the appellant was
employed in both taxation years in connection with the sale of motor vehicles
for Taylor Ford in Moncton and that he was remunerated in whole by commissions fixed by reference to
the volume of his sales. The first of the remaining conditions has to do with
whether the appellant's contract of employment required him to pay his own
expenses. The evidence of Mr. LeBlanc clearly showed that Taylor Ford's salespersons,
including the appellant, are reimbursed for their expenses, whether for
gasoline used in their demonstrator vehicles or in running errands, or for other
business-related activities or trips outside the Moncton area or for attending training
sessions. Where an employee is entitled to reimbursement from his or her employer,
that employee cannot expect to be able to deduct these expenses for income tax
purposes, which I find the appellant has done here.
[16] The second of the
remaining conditions is that the appellant must be ordinarily required to carry
on the duties of his employment away from the employer's place of business. The
evidence of Mr. LeBlanc was that Taylor Ford's base clientele was in the Moncton area and that the
appellant spent 98% of his time (i.e. of his 45-hour work week) at the
dealership. There was, therefore, no requirement that he ordinarily be away
from the employer's place of business, although I do recognize that not all
discussions on potential sales are conducted there and that the appellant seeks
business at all times and in all places. It is at the employer's place of
business, though, that the sales are concluded.
[17] With regard to the
last remaining condition, the evidence given by Mr. LeBlanc is very clear
in showing that salespersons are reimbursed for their travelling costs and
meals if they attend a training seminar or are asked to travel for Taylor Ford.
[18] Based on the above,
the appellant is precluded from deducting the expenses he claimed under
paragraph 8(1)(f).
[19] As for the travel
expenses claimed by the appellant that may fall under paragraph 8(1)(h),
he must satisfy the requirements set out in subparagraphs (i) and (ii). Given
my finding that the appellant was not required to carry out the duties of his
employment away from the employer's place of business, he is also precluded
from deducting any expenses he may have claimed under paragraph 8(1)(h).
[20] In addition, the
appellant was required to file a T2200 from his employer certifying that the
conditions set out in the applicable provisions were met in his case. It is
clear that the T2200s filed were erroneous and unreliable. The evidence of Paul
LeBlanc clarified the conditions of employment and the T2200s are of no
assistance to the appellant. Finally, in addition to the requirements found in
paragraphs 8(1)(f) and 8(1)(i), the appellant must satisfy the
requirement of paragraph 8(13) that the work space in home be the place where
he principally performs the duties of his employment. No evidence was advanced
that could permit me to find that such was in fact the case.
[21] The appellant's
expenses for his share of the cost of the shirts, key chains and other
promotional items appear to be the only ones the appellant's employer requires him
to pay. Unfortunately, the evidence presented does not permit me to put a
dollar figure on those expenses.
[22] The appeals are
dismissed.
[23] The relevant
subsections of the Act read 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 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)(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 (other than motor vehicle expenses) for
travelling in the course of the office or employment, except where the taxpayer
(iii) received an allowance for travel expenses that was,
because of subparagraph 6(1)(b)(v), (vi) or (vii), not included in
computing the taxpayer's income for the year, or
(iv) claims a deduction for the year under paragraph (e),
(f) or (g);
8(1)(h.1) Motor vehicle 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 motor
vehicle expenses incurred in the performance of the duties of the office or
employment,
amounts
expended by the taxpayer in the year in respect of motor vehicle expenses
incurred for travelling in the course of the office or employment, except where
the taxpayer
(iii) received an allowance for motor vehicle expenses that was,
because of paragraph 6(1)(b), not included in computing the taxpayer's
income for the year, or
(iv) claims a deduction for the year under paragraph (f);
8(1)(i) Dues and other expenses of
performing duties — amounts
paid by the taxpayer in the year as
(i) annual professional membership dues the payment of which
was necessary to maintain a professional status recognized by statute,
(ii) office rent, or salary to an assistant or substitute, the
payment of which by the officer or employee was required by the contract of
employment,
(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,
(iv) annual dues to maintain membership in a trade union as
defined
(A) by section 3 of the Canada
Labour Code, or
(B) in any provincial
statute providing for the investigation, conciliation or settlement of
industrial disputes,
or to maintain membership in an association
of public servants the primary object of which is to promote the improvement of
the members' conditions of employment or work,
(v) annual dues that
were, pursuant to the provisions of a collective agreement, retained by the
taxpayer's employer from the taxpayer's remuneration and paid to a trade union
or association designated in subparagraph (iv) of which the taxpayer was not a
member,
(vi) dues to a parity or
advisory committee or similar body, the payment of which was required under the
laws of a province in respect of the employment for the year, and
(vii) dues to a
professions board, the payment of which was required under the laws of a
province,
to the extent that the taxpayer has not been
reimbursed, and is not entitled to be reimbursed in respect thereof;
8(4) Meals — An amount expended in respect of a meal consumed by a taxpayer who
is an officer or employee shall not be included in computing the amount of a
deduction under paragraph (1)(f) or (h) unless the meal was
consumed during a period while the taxpayer was required by the taxpayer's
duties to be away, for a period of not less than twelve hours, from the
municipality where the employer's establishment to which the taxpayer
ordinarily reported for work was located and away from the metropolitan area,
if there is one, where it was located.
8(10) Certificate of employer — An amount otherwise deductible for a
taxation year under paragraph (1)(c), (f), (h) or (h.1)
or subparagraph (1)(i)(ii) or (iii) by a taxpayer shall not be deducted
unless a prescribed form, signed by the taxpayer's employer certifying that the
conditions set out in the applicable provision were met in the year in respect
of the taxpayer, is filed with the taxpayer's return of income for the year.
8(13) Work space in home — Notwithstanding paragraphs (1)(f)
and (i),
(a) no amount
is deductible in computing an individual's income for a taxation year from an
office or employment in respect of any part (in this subsection referred to as
the "work space") of a self-contained domestic establishment in which
the individual resides, except to the extent that the work space is either
(i) the place where the individual principally performs
the duties of the office or employment, or
(ii) used exclusively during the period in respect of
which the amount relates for the purpose of earning income from the office or
employment and used on a regular and continuous basis for meeting customers or
other persons in the ordinary course of performing the duties of the office or
employment;
(b) where
the conditions set out in subparagraph (a)(i) or (ii) are met, the
amount in respect of the work space that is deductible in computing the
individual's income for the year from the office or employment shall not exceed
the individual's income for the year from the office or employment, computed
without reference to any deduction in respect of the work space; and
(c) any amount in respect of a work space that was, solely
because of paragraph (b), not deductible in computing the
individual's income for the immediately preceding taxation year from the office
or employment shall be deemed to be an amount in respect of a work space that
is otherwise deductible in computing the individual's income for the year from
that office or employment and that, subject to paragraph (b), may be
deducted in computing the individual's income for the year from the office or
employment.
Signed at Edmundston, New Brunswick, this 3rd day of July 2009.
"François Angers"
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