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Citation: 2004TCC223
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Date: 20040318
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Docket: 2003-2968(IT)I
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BETWEEN:
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MARC L. HANDY,
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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
Sarchuk J.
[1] The appeals of Marc L. Handy are
from assessments of tax with respect to his 2000 and 2001
taxation years. The issue in each year is the deductibility of
certain employment expenses incurred by the Appellant.
[2] At all relevant times, the
Appellant was employed by BMO Nesbitt Burns Inc. as a stock
broker and was remunerated as such by way of commissions
according to the volume of sales or contracts negotiated. Nesbitt
Burns as the employer imposed certain terms, the most relevant of
which for the purposes of these appeals were:
(a) that his employee's
contract required him to pay his own expenses;
(b) that he did not receive an
allowance nor did he receive any repayment of the expenses
incurred to earn his employment income;
(c) required him to pay other expenses
such as promotion and entertainment; and
(d) required him to pay for an
assistant and for supplies that the assistant used directly in
her work.[1]
[3] Pursuant to that agreement,
Nesbitt Burns retained an employee to act as the Appellant's
assistant in the taxation years in issue. The employment
contract[2]
expressly sets out her position as an executive assistant to the
Appellant and with specific reference to her salary states:
... This salary and all benefits will be deducted from
your Investment Advisor's (Marc Handy) total monthly
production, and is not the responsibility of the Company.
Pursuant to this arrangement, the Appellant was charged with
his assistant's salary and benefits which were deducted from
his commission income. Furthermore, if the commission income
earned was insufficient to cover her salary (as it was on several
occasions) the Appellant was required to remit the shortfall to
Nesbitt Burns.[3]
By way of example, as of August 1, 2000 the Appellant's
earned commission amounted to $20,042.50 while the accumulated
total of the assistant's salary, as well payment for supplies
provided by the employer such as Genisys, an internal computer
program, couriers and stationery amounted to $22,740.48.[4] In this instance, the
resulting shortfall was $2,697.98 and was paid to Nesbitt Burns
by the Appellant on August 8, 2000.[5]
[4] For the 2000 and 2001 taxation
years, Nesbitt Burns issued T4A slips to the Appellant for net
employment income in the amounts of $4,379.83 and $7,488.88.[6] These amounts were
reported by the Appellant as commission income in his returns. In
computing income for those years, the Appellant deducted the
amounts of $30,631.21 and $14,606.98, respectively, as other
employment expenses.[7] The Minister of National Revenue (the Minister)
assessed to disallow the deduction of these expenses to the
extent of $20,093 and $3,063, respectively. As a result of the
foregoing, the Minister determined that the Appellant was
entitled to deduct from his income for the two taxation years,
the following amounts:
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2000
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2001
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expenses not exceeding commission income
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$4,379.83
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$7,488.88
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capital cost allowance
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4,400.00
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3,448.00
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supplies
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1,803.38
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607.10
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$10,538.21
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$11,543.98
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Respondent's position
[5] The employment expenses were
disallowed by the Minister on the basis that they were not
outlays or expenses incurred for the purpose of earning income
from employment in accordance with paragraph 8(1)(f) and,
more specifically, were amounts which exceeded the commissions
earned by the Appellant in those years.
Appellant's Position
[6] The Appellant's representative
stated that the main issue in this appeal is the amount of
commission income earned by the Appellant for purposes of the
restriction under paragraph 8(1)(f) of the Act. He
argued that:
A taxpayer who was remunerated in whole or in part by
commissions is entitled to claim the cost of an assistant under
paragraph 8(1)(i) and other expenses under paragraph
8(1)(f). A claim under 8(1)(f) is quite clearly
restricted to commission income, but no such rule is contained in
or applies to 8(1)(i).
Subparagraph 8(1)(i)(ii) permits the deduction for the
cost of an assistant. The taxpayer is paying the cost of an
assistant and this amount is deducted from his commission income.
The 8(1)(f) deduction is restricted to commission income,
and the taxpayer contends that, for this purpose, his
commission income in 2000 and 2001 should be grossed up by the
amount of the assistant's salary. Failure to do so
means that the salary is part of total expenses which are
restricted to commission income, contrary to paragraph
8(1)(i). It makes no difference, for purposes of applying
paragraph 8(1)(f), whether the salary is deducted from his
commissions or if he writes a cheque for the amount. The
substance and the result are the same. Commission income is the
amount earned by the taxpayer regardless of how it is reported on
the T4 form.
[7] The Appellant also objected to the
Minister's reduction of his claim for supplies from $6,084.01
to $1,803.38 in the 2000 taxation year. Of the disallowed
portion, the amount of $4,260.26 is in issue and reflects the
cost of acquisition by the Appellant of a number of various stock
selection services and other similar subscriptions. His position
is that these services and other material were used to select
investments for clients from which the Appellant earned his
commission income. Particular reference was made to the material
described as Wall Street Strategies which, the Appellant said,
was necessary since the Nesbitt Burns research was weak in the
area of US securities.
Conclusion
[8] With respect to the
Appellant's submissions regarding section 8 of the
Act, the relevant provisions read:
8(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);
(i)
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;
[9] I am unable to accept the
submission that the Appellant is entitled to "gross-up"
his income in both taxation years by the amount of the
assistant's salary in order to allocate it between paragraphs
8(1)(f) and 8(1)(i). In my view, the deduction he
is entitled to arises solely out of paragraph 8(1)(f). The
language of that paragraph clearly indicates that sales personnel
being remunerated by commissions or other similar amounts fixed
by reference to the volume of the sales made are entitled to what
amounts to additional deductions akin to some of those available
against business income such as travel, meals, assistant's
salaries, entertainment and promotion. Furthermore, it is clear
that Parliament deliberately limited the amount of such
deductions to the total amount of commissions earned. I have not
been persuaded that any other approach is warranted. Accordingly,
the Minister's assessment with respect to this issue is
upheld.
[10] I turn next to the subscription
expenses. The Respondent's position was that these expenses
were properly denied on the basis that they were capital in
nature and not made for the purpose of earning or producing
income from property. I do not agree with this assessment. It is
not disputed that a taxpayer cannot deduct such expenses if they
were incurred in relation to the taxpayer's personal
acquisition of stocks and bonds and were not being used for the
purposes of buying and selling investments for others. In this
particular case, however, the acquisition of these publications,
and in particular the Wall Street Strategies subscription, was
solely for the purpose of assisting him in the appropriate
management of his clients' portfolios and was not intended to
be used to assemble a personal portfolio of investments in
shares. Since the Appellant's income was earned from the
reviewing, buying, selling and holding of various investments for
his clients, these subscriptions were necessary. I am satisfied
that in these circumstances the cost of the subscriptions can
only be considered as a current expense since managing the
clients' portfolios was directly related to his income
earning-activity.
[11] The appeal from the assessment made
under the Act for the 2000 taxation year is allowed and
the Appellant is entitled to deduct the amount of $4,260.26 in
subscription costs. The appeal from the assessment made under the
Act for the 2001 taxation year is dismissed.
Signed at Ottawa, Canada, this 18th day of March, 2004.
Sarchuk J.
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