REASONS
FOR JUDGMENT
Miller J.
[1]
Mr. Blott appeals by way of the informal
procedure reassessments by the Minister of National Revenue (the “Minister”) of his 2012 and 2013 taxation years, in
which the Minister denied an employment expense deduction claimed by Mr. Blott.
The expense was for $12,000 which, Mr. Blott maintains, was paid each year as
salary to his wife.
[2]
In the years in question, Mr. Blott was a market
dealer with Walton Capital Management Inc. (“WCM”),
the securities arm of Walton International Corp. In an Account Manager
Employment Agreement dated January 3, 2012 between Mr. Blott and WCM, his
duties were described as follows:
1)
Build the employee’s client base and establish
the employee’s own deals for company products;
2)
Grow the employee’s own business client base
both inside and outside of the company;
3)
Provide support to the employee’s existing
client base;
4)
Provide support to referring entities that are
acceptable to the company, and who work with the company outside of the
company’s offices;
5)
Provide support to other registered dealers
selling company products;
6)
Comply with all rules and regulations governing
any Securities Act of registrant conduct;
7)
Adhere to all operative policies and procedures
in the compliance manual;
8)
Attend all professional development days; and
9)
Such other duties and responsibilities of an
account manager that the company may advise from time to time.
[3]
Mr. Blott went into considerable detail as to
the level of work required to fulfill these duties. He was clearly hardworking
and successful, earning $436,000 in 2012 and $526,420 in 2013. His work was
throughout western Canada, though the majority of his work took place in
Calgary.
[4]
WCM provided support to Mr. Blott in the form of
an assistant, shared with others, as well as a training department. WCM did
provide Mr. Blott with a T2200 in which it answered “no”
to the question of whether the contract of employment required Mr. Blott to pay
for an assistant.
[5]
For a few years prior to the years in issue, Mr.
Blott’s spouse, Suzanne Thériault, assisted him with his work. For 2011
and 2012, Mr. Blott determined it was appropriate that she be rewarded for
these services. Ms. Thériault did not testify, but Mr. Blott provided a
list of the duties she performed:
-
Managing and auditing the receipts and expenses
of the business;
-
Reconciling the expenses against the business AMEX
charge card;
-
Paying the business AMEX charge card bill;
-
Expense receipt reconciliation;
-
Trailer fee auditing and reporting;
-
Sorting, filing, auditing and entering business
receipts;
-
Income tax preparation;
-
Preparing gift boxes for promotional purposes;
-
Preparing and mailing celebration cards;
-
Preparing gift bags for promotional purposes;
-
Delivering promotional items;
-
Hosting clients in our home;
-
Seeking new client prospects at school
-
Seeking new client prospects through our sports
club and other events;
-
Networking.
[6]
Mr. Blott emphasized more than once that Ms.
Thériault’s performance of these services was essential in allowing him to
devote his efforts to building a customer base and earning his commission and
bonuses. He stated that he was not interested in the handling of administrative
and expense related matters. He gave one example of Ms. Thériault bringing him
a customer who proved to be a significant investor.
[7]
Mr. Blott did not provide any documentation
evidencing Ms. Thériault’s auditing receipts and expenses, reconciling those
expenses against the AMEX card, doing receipt reconciliations, trailer fee
audits or sorting receipts. He testified that the $12,000 or $1,000 a month was
arbitrary stating he felt it was more than reasonable in comparison to the
level of commissions he earned and the value he placed on her contributions. He
did not actually pay Ms. Thériault by cheque or any sort of transfer of funds
as they had a joint account and he did not see any practical sense in doing so.
He indicated that Ms. Thériault reported the $12,000 as income on her return,
though he did not provide any T4.
[8]
In filing his tax returns for 2012 and 2013,
specifically the statement of employment expenses, the $12,000 was not separately
identified but was put under the heading of “office
equipment”.
[9]
Respondent’s counsel defined the issue as
twofold: first, was the $12,000 expense actually incurred as salary for an
assistant and, if so, does it meet the legislative requirements in section 8 of
the Income Tax Act (the “Act”)?
There are two possible paragraphs that may be applicable: paragraphs 8(1)(f)
and 8(1)(i) which read as follows:
(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 8(1)(f)(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 8(1)(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)
an amount paid by the taxpayer in the year, or
on behalf of the taxpayer in the year if the amount paid on behalf of the
taxpayer is required to be included in the taxpayer’s income for the year, as
…
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,
...
to the extent that the taxpayer has not been reimbursed, and is not
entitled to be reimbursed in respect thereof;
[10]
It is also important to provide subsection 8(10)
of the Act:
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.
[11]
Turning to the first issue, I note that both
provisions require an amount be expended or paid, under paragraph 8(1)(f)
of the Act for the purpose of earning income and under subparagraph 8(1)(i)(ii)
of the Act for salary for an assistant. So, was $12,000 paid or expended
by Mr. Blott? There are no cheques to Ms. Thériault. Mr. Blott’s income
went into the joint account and Ms. Thériault could simply access it. Is there
any amount paid to Ms. Thériault in such circumstances? I conclude there
is not. Granted, Ms. Thériault, as a joint holder of the account, could
withdraw whatever she wanted, well in excess of $12,000 a year for that matter.
Indeed, either she or Mr. Blott could withdraw everything from the account. In
these circumstances, I do not see how anything has been paid or expended to
Ms. Thériault. She has received nothing more than what she already had. Mr.
Blott referred me to the case of Aprile v HMTQ in which an employment expense
deduction was allowed on the basis that “payment”
could be made in kind (snowmobiles and motorcycles). This is not the situation
before me. It was not suggested anything was paid in kind; indeed, nothing was
paid at all. All that happened was that Mr. Blott, at year end, in filing
his return, claimed $12,000 as a salary expense in his earning of employment
income. It is not lost on me that the “payment”
was buried under “office equipement” in the
reporting of his income. While I do not blame Mr. Blott for that, as the
return was prepared by his accountant, it raises the spectre of some concern
regarding this alleged expense.
[12]
In the case of Burlando v HMTQ2, the appellant also explained
he and his wife had only one account and he did not see any sense of paying his
wife by cheque which he would deposit in the joint account. V. Miller J.
concluded:
16. In conclusion,
it is my view that the Appellant has not satisfied the onus on him of showing
that the reassessment was incorrect. He has not shown that Bonita actually
worked for him or that he paid her any wages. In a situation such as existed in
this appeal, where there is an alleged working relationship between non-arm’s
length parties, there should have been some documentation or independent
evidence to support that working relationship. …
[13]
To establish a working employer/employee
relationship in a non-arm’s length situation, it is important that there be
some evidence of a salary being paid, some evidence that the recipient of a
wage has in fact received a benefit beyond what might arise in the ordinary
course of a husband and wife sharing a joint account. Further, Mr. Blott
provided no T4 for his wife. On balance, I conclude no salary was paid, as
contemplated by the Act, to Ms. Thériault.
[14]
Further, even if I found an amount was paid, it
must have been paid for salary or for the purpose of producing income. The
former requires a finding of an employer/employee relationship. Again, Mr.
Blott has not satisfied me on this score. Ms. Thériault did not testify to
elaborate on any of the duties Mr. Blott described. There were no set hours,
but she worked, according to Mr. Blott, on an as needed basis. He could provide
no evidence of her efforts other than the general observation he would not have
earned so much without her help. This is simply too vague to support a working
employment relationship. No, I conclude no amount was paid as salary for an
assistant.
[15]
Have the further requirements of paragraph 8(1)(f),
subparagraph 8(1)(i)(ii) and subsection 8(10) of the Act been
met? The key requirement is Mr. Blott must show he was required by
contract of employment to pay these expenses. As pointed out in the case of Tulman
v HMTQ:
29. There
is a distinction in being permitted to do something and being required to do
something as noted by Bowie J. in Morgan v Canada, 2007 TCC 475, …
30. Absent
an express requirement in a written contract, if it is tacitly understood by
the employer and employee that such payment was to be made and necessary to
fulfill the duties, that would suffice.
[16]
This view is confirmed in Massicolli v HMTQ:
66. The
case law stands for the proposition that the requirement to hire and pay the
salary of an assistant within the meaning of subparagraph 8(1)(i)(ii) of the
ITA can be implicit, and the essentiality of the expense is sufficient to
conclude that there is an implicit requirement to hire and remunerate an
assistant.
67. In
Schnurr, cited by counsel for the appellant, this Court established that it is
not necessary for the obligation to hire an assistant and pay his or her salary
to be explicit. The obligation can be implied from the employer-employee
relationship.
68. This
“implicit requirement” principle was followed in Sauvé v. The Queen, Vickers v.
The Queen and Morgan v. The Queen.
69. However,
it is important to note that it is not sufficient that the employment contract
authorizes the taxpayer to hire an assistant and pay his or her salary. The
contract must require it. In Morgan, supra, Justice Bowie stressed the meaning
of the term “required” in subparagraph 8(1)i)(ii):
Both the English verb “to require”
and the verb “obliger” that appears in the French version of the Act are
necessarily imperative.
70. In
Morgan, Justice Bowie was unable to find that there was an implicit obligation,
since the appellant testified that his employment contract allowed but did not
require him to hire and pay an assistant.
71. In the
instant case, the appellant expressly testified that NBF did not require him to
hire and pay an assistant; this choice was left to his discretion. The decision
in Morgan is clear in this regard: the verb “require” within the meaning of
subparagraph 8(1)(i)(ii) is imperative.
[17]
Was it implicit in Mr. Blott’s employment
agreement with WMC that he was “required” to
incur the expenditures of a salaried assistant? I find nothing in Mr. Blott’s
testimony that supports any such implicit requirement. Yes, he worked extremely
hard, putting in long hours and he reaped the benefits of that. He was provided
with some support from the employer. He no longer works with WMC and nobody
testified from his former employer. His course of action to have his wife
assist was entirely self-driven, and not as a result of any implicit
requirement in his agreement with WMC.
[18]
I combine this view with the fact that the T2200
was checked in the negative regarding the requirement to hire an assistant and
find the requirement of section 8(10) of the Act has simply not been
met.
[19]
Mr. Blott was a straightforward witness. He has
paid significant amounts in taxes to the government. The amount he sought to
deduct was minimal in comparison to his earnings. It is not difficult to appreciate
his concern with the government’s denial and now my dismissal of his Appeals.
He did not act unreasonably, but he just did not provide sufficient evidence
either of an implicit or explicit employment requirement to hire an assistant, of
a positively completed T2200, of a real payment of salary or of evidence of
work done for that salary. Failing all that, I must dismiss his Appeals.
Signed at Ottawa,
Canada, this 2nd day of January 2018.
“Campbell J. Miller”
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