Denis Verrier v. Minister of National Revenue, [1986] 1 CTC 2018, 86 DTC 1027

Sarchuk, T.C.J.:—The appellant is a commission salesman employed by Birchwood Motors (Birchwood), an automobile dealer in the City of Winnipeg. In filing his returns of income the appellant sought to claim as a deduction amounts expended by him for the purpose of earning the commission income. In reassessing the appellant for the 1979 and 1980 taxation years the respondent disallowed the deduction of all of the expenses so claimed on the basis that the appellant had not brought himself within the provisions of paragraph 8(1)(f) and that as a result the deductions of the amounts claimed were prohibited by the provisions of subsection 8(2) of the Income Tax Act.

The issue before the Court is the proper interpretation to be given to the provisions of paragraph 8(1)(f) of the Income Tax Act. This section reads as follows:

Section 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) Salesman’s expenses. — where the taxpayer was employed in the year in connection with the selling of property or negotiating of contracts for his employer, and

(i) under the contract of employment was required to pay his own expenses,

(ii) was ordinarily required to carry on the duties of his employment away from his 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 travelling expenses in respect of the taxation year that was, by virtue of subparagraph 6(1)(b)(v), not included in computing his income,

amounts expended by him in the year for the purpose of earning the income from the employment (not exceeding the commissions or other similar amounts fixed as aforesaid received by him in the year) to the extent that such amounts were not

(v) outlays, losses or replacements of capital or payments on account of capital, except as described in paragraph (j), or

(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 him.

The appellant’s primary position is that he was ordinarily required to carry on the duties of his employment away from his employer's place of business and that under the contract of employment he was required to pay his own expenses within the meaning of paragraph 8(1 )(f) of the Income Tax Act. It is not disputed that the appellant Verrier was a commissioned salesman and that he was not in receipt of an allowance for travelling expenses. Accordingly, there is no issue with respect to subparagraphs (iii) and (iv) of paragraph 8(1)(f).

In the alternative, counsel for the appellant submitted that since certain expenses incurred by Verrier could be categorized as travelling expenses those specific amounts were deductible pursuant to the provisions of paragraph 8(1 )(h) as well. The appellant concedes that the expenses which can be deducted under this section are limited strictly to amounts expended by him for travelling in the course of his employment.

I propose to deal with this submission first. In Heather Barnard v. M.N.R., [1985] 1 C.T.C. 2178; 85 D.T.C. 210, Christie, A.C.J.T.C. considered paragraph 8(1 )(h) of the Act as it related to salesmen and stated at 2185 (D.T.C. 215):

. . . If an appellant is a commission salesman, paragraph 8(1)(h) has no application. It relates to a person other than a commission salesman who is seeking to deduct “amounts expended by him in the year for travelling during the course of his employment’’. It has been suggested that the reference to subparagraph 6(1)(b)(v) in subparagraph 8(1)(h)(iii) makes paragraph 8(1)(h) applicable to commission salesmen. While subparagraph 6(1)(b)(v) speaks of an employee employed in connection with the selling of property or negotiating of contracts for his employer, there can be many taxpayers so employed who are on fixed salaries without com- missions. While in the opening words of paragraph 6(1)(f) reference is made to a taxpayer employed in connection with the selling of property or negotiating of contracts for his employer these words relate to commission salesmen because they are conjunctively tied in with the words "was remunerated in whole or part by commissions or other similar amounts fixed by reference to the volume of the sale made or the contracts negotiated?" One might ponder about the precise purpose of including in paragraph 8(1)(h) reference to subparagraph 6(1)(b)(v) and the second group of words in parenthesis in subparagraph 6(1)(b)(vii), but this, in my opinion, does not detract from what I consider to be the proper conclusion to be drawn from the legislation which is that paragraphs 8(1)(f) and 8(1)(h) are mutually exclusive.

I am not aware of any cases expressing a different view. In the absence of strong reasons to the contrary this Court is bound to follow the same approach. Canada Steamship Lines Limited v. M.N.R., [1966] C.T.C. 255; 66 D.T.C. 5205; R. v. Northern Electric Co., [1955] 3 D.L.R. 449 at 466. I therefore hold that paragraph 8(1 )(h) is not applicable to the case at bar.

With respect to the main issue counsel for the appellant submitted that the word “ordinarily” as used in paragraph 8(1 )(f) means that the taxpayer need only establish that he is normally, as opposed to rarely or exceptionally, required to carry on his duties away from his employer's place of business. As authority Mr. Weinstein cited The Queen v. Healy, [1978] C.T.C. 355; 78 D.T.C. 6239 (F.C.T.D.); [1979] C.T.C. 44; 79 D.T.C. 5060 (F.C.A.) and The Queen v. Mervin J. Patterson, [1982] C.T.C. 371; 82 D.T.C. 6326.

Furthermore, Mr. Weinstein submitted that the word “required” in subparagraph 8(1)(f)(ii) means “that to satisfactorily perform the duties of their employment the salesmen had to carry on the duties away from the employer's place of business in part”. He vigorously rejected the respondent's submission that subparagraph 8(1)(f)(ii) referred to a mandatory requirement by the employer. It appears to be the appellant’s position that any activity so long as it was directly or indirectly related to the satisfactory performance of the duties of his employment and which was carried on in part away from the employer's place of business was sufficient to qualify that salesman under this section. This position, it was argued, is consistent with the respondent's policy as expressed in paragraph 23(b) of Interpretation Bulletin 272R. As well, anticipating the respondent's argument that the actual amount of time spent away from the employer's place of business was a relevant factor, Mr. Weinstein submitted that it would be more appropriate to consider the actual duties performed away from the employer's place of business than to simply consider the actual time spent in the performance of those duties. In this respect he urged the Court to consider the decisions of this Court in Jeromel v. M.N.R., [1984] C.T.C. 2217; 84 D.T.C. 1197; Shangraw v. M.N.R., [1976] C.T.C. 2415; 76 D.T.C. 1309 and Valani v. M.N.R., [1980] C.T.C. 2218; 80 D.T.C. 1206.

The respondent agrees that the primary test this taxpayer must meet to qualify under subparagraph 8(1)(f)(ii) is whether or not he was ordinarily required to carry on the duties of employment away from his employer's place of business. Counsel for the respondent submitted that the words “ordinarily required .. .” as they are found in subparagraph 8(1 )(f)(ii) of the Act refer to a mandatory requirement which the Court must find existed under the employment contract between the dealer and its salesmen.

The language of the Act does not entirely support this submission. As counsel for the appellant noted, the words used in subparagraphs 8(1)(f)(i) and 8(1)(f)(ii) are different. Subparagraph (i) provides that the requirement to pay his own expenses is to be a term of the employment contract. On the other hand the word “required” in subparagraph (ii) is modified only by the word "ordinarily". These two subsections read in their grammatical and ordinary sense could lead to the conclusion that the requirement to carry on the duties away from an employer's place of business need not be a specific term of the employment contract.

However, that begs the issue. The word "required" as defined in the Shorter Oxford English Dictionary implies a demand on the part of one person and the performance of some action by the recipient of the demand. In my view there is merit in the argument advanced by counsel for the respondent that a distinction must be made between the carrying on of duties away from an employer's place of business pursuant to a requirement of the employer and the provision by a salesman of optional services to the customers he is responsible for, which services are provided by the employee/salesman on a discretionary or voluntary basis.

As counsel for the respondent noted certain activities are ‘‘ordinarily required" by Birchwood. These are: attendance at the employer's place of business at certain regular hours during which time Verrier was required to make every effort to sell cars to the customers. Incidental to this primary duty is the obvious need to leave the business premises to effect the demonstration of cars, to have "extras" installed and to effect occasional deliveries of the vehicles sold. It should be noted that the carrying out of these duties did not, in the normal course, require the expenditure of any amounts of money by the appellant, and any expenses so incurred would in any event be the responsibility of Birchwood.

No serious argument can be advanced that failure to comply with the employer's instructions in this context could, in due course, be considered a breach of the employment contract.

What other activities were carried on by Verrier away from the employer's place of business? On occasion he picked up a customer's car for servicing; he left the premises to follow up a referral and/or to bring a prospective purchaser to the showroom; he took customers out for coffee and lunch; and he went outside of the employer's place of business to purchase items such as floor mats etc. which he used as inducements to assist him in closing a sale. In addition Verrier, not being entirely satisfied with the availability of courtesy cars provided by Birchwood, acquired two older vehicles which he made available to certain customers as and when required.

No convincing evidence was adduced that Verrier was required by his employer to carry out any of these activities. In my view, the provision of these services and in fact their nature, extent and quality was entirely within Verrier's discretion. In reaching this conclusion I am not unmindful of the evidence of the appellant and of Mr. G.D. Gillis, (Gillis), the present Birchwood sales manager.

Verrier has been employed as a salesman by Birchwood for approximately 15 years. The imprecise nature of the evidence makes it difficult to establish the exact terms of Verrier's oral contract. No doubt he agreed to sell cars for Birchwood on a commission basis, which commission was no doubt spelled out quite precisely. The contract was for an indefinite term and therefore terminable upon reasonable notice by either party. What were the other terms? Beyond confirming the absence of a written contract Gillis was unable to define the terms upon which Verrier had been engaged as a salesman nor could he tell the Court whether or not those terms and conditions had been changed over the years. Gillis did say that Verrier like all other salesmen was required to be at the Birchwood premises from 9:00 a.m. until the “close-off” during which time he was to be available to answer calls and otherwise attend to customers. It is also a fact that because of his excellent sales record and his responsibility for fleet sales Verrier did not have to take a normal and regular floor duty shift.

During Gillis’ tenure as sales manager all prospective employees were advised, in the course of an initial interview, that they were expected “to promote and look after their customers”. Gillis expected his salesmen “to go out and make calls on a prospect basis, to service customers to whom vehicles had been sold, to go out and pick-up vehicles for servicing and to try and create new business both at and away from the dealership”.

What was “expected” of a salesman must be considered in the light of advice given by Gillis to prospective salesmen with respect to expenses. All salesmen were provided with a demonstrator vehicle, the cost of operation of which, with the exception of gasoline for personal use, was the responsibility of Birchwood. Beyond that they were told that any and all other or “outside expenses” incurred by them were their personal responsibility. These “outside expenses” which inter alia included lunches, coffee, any and all forms of entertainment expense, promotional items and the cost incidental to the provision of personalized service to customers. Each prospective salesman was told that no claim for reimbursement for these expenses would be entertained by Birchwood. Nothing in Gillis’ evidence suggested that such expenditures (or the activities that led them) were required.

Verrier was an exceptional salesman. He was attentive to his customers and as a result in 1980 he was able to sell a total of 472 vehicles, of which 269 were sold to individual customers and 200 were fleet and wholesale sales. In 1979 the figures had been virtually the same. I note at this point that the bulk of the discretionary services provided by Verrier were to individual customers.

It was evident that Birchwood exercised no control over the type or amount of expenses incurred by Verrier (or any of its salesmen). There were no guidelines as to what inducements or promotions were acceptable nor as to the type of personal attention or service which was to be provided by the salesmen to Birchwood customers. The nature of this service was entirely within the salesman’s discretion and any cost incurred as a result thereof was strictly his responsibility.

To qualify under paragraph 8(1)(f) the activities which the appellant alleges formed part of his duties of employment must be established to have been, in some manner, mandated by the employer and that performance of these activities by the employee was obligatory. In my view it is not the nature of the employment as perceived by the employee that determines whether activities such as those voluntarily carried on by Verrier away from the Birchwood business premises are duties of his employment which he was required to carry on within the meaning of subparagraph 8(1 )(f)(ii).

In Valani (supra), the Court found that the requirement to maintain an office in the taxpayer's home was an implied term of the employment contract and that accordingly the appellant therein satisfied the requirements of subparagraph 8(1 )(f)(i) of the Act. On the evidence before me I am not able to find, as counsel put it, that Verrier “had to carry on his duties away from the employer's place of business” and that this was an implied term of Verrier’s contract. The argument that a failure to carry out these activities would inevitably lead to reduced sales which would as inevitably lead to dismissal from the employment has no factual basis and is too remote.

As a result I have come to the conclusion that Verrier was not “required” to carry on the duties of his employment away from Birchwood's place of business within the meaning of subparagraph 8(1)(f)(ii) of the Act.

Furthermore, whether one considers Verrier's activities away from his employer's place of business in a qualitative sense or from the perspective of the actual time spent the only conclusion which can be reached is that the test of “ordinarily” as that term has been interpreted in H.M.Q. v. Thomas Healy, [1978] C.T.C. 355; 78 D.T.C. 6239; [1979] C.T.C. 44; 79 D.T.C. 5060 has not been satisfied. All cars which are available for sale are “‘in stock” at Birchwood's show room or compound. Without exception almost all sales are “closed” at the dealership and all approvals for extras etc., are obtained from the sales manager at the employer's place of business. The centre of Verrier's work routine at all times was at the business premises of his employer and what other activities may have occurred away from the premises were an incidental function of his employment which was the selling of vehicles at the employer's place of business. In this regard I can see no distinction between the few matters which were required of him by his employer and the voluntary activities which he undertook on his own.

In view of the foregoing conclusions it is not necessary for the Court to consider whether Verrier, under the contract of employment, was required to pay his own expenses within the meaning of subparagraph 8(1)(f)(i) of the Act.

The appeal is dismissed.

Appeal dismissed.