Donald B Tozer v. Minister of National Revenue, [1982] CTC 2835, 82 DTC 1815

D E Taylor:—This is an appeal heard in Fredericton, New Brunswick on July 13, 1982, against income tax assessments for the years 1978 and 1979 in which the Minister of National Revenue disallowed deductions against commission income in the amounts of $2,030 and $1,535 respectively. The point in dispute was explained in the notice of appeal thusly:

I feel that I come within the deductions permitted by subsections 8(1 )(f) and 8(1 )(h) subject to the provision that I must pay justifiable expenses over and above the expenses allowable under company policy.

The respondent’s position on that point read:

The Appellant was not required to pay his own expenses and was reimbursed for all travel and entertainment expenses considered necessary by his employer;

The expenses claimed by the Appellant as a deduction from his employment income were over and above the expenses reimbursed by his employer.

The respondent relied, inter alia, upon sections 2, 3, 6, 8, paragraph 8(1 )(f), (h) and (i), subsections 8(2), 8(4) and section 248 of the Income Tax Act, SC 1970-71-72, c 63, as amended.

It should also be noted that the point was raised by the Minister that the appellant did not produce receipts or vouchers to substantiate the expenses claimed. The taxpayer conceded this point, but noted that the very nature of the expenses claimed made it difficult, if not impossible, to obtain receipts on a regular basis. Mr Tozer had detailed the disallowed amounts in his tax returns as follows:

At the hearing, the appellant noted that he was withdrawing his claim for the amounts shown above to the extent of the $810 and $75 in 1978 and the $80 in 1979. This did not materially alter the point in dispute, as seen by counsel for the Minister. It was also noted by the Board that amounts claimed by the appellant of $399.50 for 1978 and $464 for 1979 as “office rent”, which represented an apportionment of 1/6 of the “heat, light, water, maintenance and repairs” incurred on his home had been allowed by the Minister, on the information provided by the employer that Mr Tozer was required under his contract of employment to maintain an office. This item was not in dispute.

Counsel for the Minister properly noted that the complete absence of receipts, documentation or other satisfactory records regarding the excess expenses claimed could, in itself, be sufficient to dismiss the appeal, and referenced the case of Litvinchuk v MNR, [1979] CTC 3141; 79 DTC 899, at 3143 and 901 respectively:

It is fundamental to the taxing system as I understand it that since employees earning commission income are permitted to deduct certain expenses under the Act, that are not permitted to other employees (a fact that is frequently brought forcibly to the attention of the Board by appellants in this latter group of employees), the responsibility reciprocally assumed by the “commission” group of employees /s to maintain records and documentation in support of such expenses and to provide them when challenged to do so by the Minister. In this matter, the appellant Litvinchuk has failed and it is he, not the Minister, who must bear both the initial and the ultimate responsibility for the inadmissibility of his claim.

Reference was also made to certain comments in Gerald Coffey v MNR, [1980] CTC 2545; 80 DTC 1478.

While I might not totally disagree with the view of counsel for the Minister, he did not press the lack of receipts point too strongly, and I would point out that in Litvinchuk (supra), the appellant had no substantiating documentation for any of the expenses claimed and received no reimbursement, whereas in this instant appeal, the appellant, Tozer, did maintain certain records and submit receipts and expense accounts regularly to his employer for reimbursement. The distinction which could be made between the two is that Tozer’s claim might be better founded than that of Litvinchuk since Tozer had made a serious and organized attempt at documentary support, whereas Litvinchuk had made none. The flexibility in accepting testimony as supporting evidence for such missing documentation as noted in Melvin P Deutsch v The Queen, [1979] CTC 217; 79 DTC 5145, might well be of value to Tozer. That is, in the event that the sole matter at issue before the Board was the lack of usual documentation for the amounts claimed, the Board might be entitled to take his sworn testimony into serious consideration. However that is not the main stumbling block to acceptance of the claim as that impediment is put forward by the Minister. The main issue is that the Claims of the appellant (whether or not supported by documentation or testimony) were in excess of the amounts which he claimed as expenses from his employer, and for which he was regularly reimbursed. It is clear from the evidence and testimony in the appeal that such claiming for expenses and appropriate reimbursement was part and parcel of the terms under which the appellant performed his duties — in other words, “the contract of em- ployment”. The reason given by the appellant for not claiming the disputed expenses against his employer was because he attempted to maintain his expense accounts claims against the employer at a reasonable level when compared with his sales contract production — simply that the company might have considered the claims excessive and unreasonable in the circumstances. In his view, the disputed expenses were just as legitimate as those amounts which he had claimed. He did not volunteer any opinion on whether the company would have reimbursed him for these excess amounts if claimed.

Paragraphs 8(1 )(f) and 8(1 )(h) of the Act have been reviewed many times. However, specific determination of the issue posed to the Board in this matter may not have been addressed. As I see it, the disallowance by the Minister of the expenses claimed in this appeal exhibits two facets of the basic question. First, when a salesman-employee is reimbursed by his employer under the contract of employment for expenses required to be incurred during that employment, is that salesman-employee “required to pay his own expenses”, or is he only engaged in the act of temporarily advancing his own funds to pay the expenses, properly those of the employer and accepted as such by the employer? Second, if indeed the expenses noted immediately above should be classified as “his own expenses”, are they limited for deductibility purposes under paragraph 8(1 )(f) to “nil” (as the assessments in this appeal would apply) because any excess over the reimbursement should be regarded as outside the terms of the “contract of employment”?

It would appear to me that the wording of paragraph 8(1 )(f) of the Act “under the contract of employment was required to pay his own expenses” cannot be construed to cover a situation like the one before the Board. In order that the excess expenses claimed could be so covered and thereby deductible to the salesman-employee, the incurring of those excess expenses would have to be required by the employer within the contract of employment. Simply put, the employee on appeal would be required to demonstrate for the Board that the employer had made it a condition of his employment that expenses he incurred in excess of those expenses for which the employer accepted responsibility for reimbursement were his personal responsibility. By so demanding, the employer would be stating implicitly that such expenses were to be at the risk and cost of the employee and not of the employer, even though some benefit might accrue to the employer.

While I can visualize a set of circumstances in which an employer might require that certain “excess” expenses be incurred on its behalf but refuse to reimburse the employee for them, that is not the position that I understand to be the situation portrayed by this appellant. As I understand it, the appellant in this matter in a conscientious and diligent manner and, as an experienced and respected sales representative in his field, firmly believed that the total of the amounts expended (reimbursed and non-reimbursed) had a direct relationship to his potential for sales contracts and thereby commission income. He decided to act accordingly, increasing thereby his expenses to a level more than that for which he demanded reimbursement.

Unfortunately for him, that is clearly and only his decision and not one imposed by the company in his employment. I am sure that the company was delighted that Mr Tozer saw fit to promote the interests of the company (as he saw it) and did not claim reimbursement. Unfortunately for him, the Minister has not provided for reimbursement or even relief under the income tax system either.

My view of the problem for this appellant is that while he may have incurred the expenses claimed, and indeed they may have been a factor in earning commission income, he cannot put himself within the bounds of paragraph 8(1 )(f) of the Act and, accordingly, the apparent availability of the deductions is simply not there to aid him.

Therefore, for purposes of this appeal, with reference to the two facets of the question noted above, the expenses claimed were not incurred under the “contract of employment” and are not deductible under paragraph 8(1 )(f) or 8(1)(h) of the Act. The matter of whether or not the expenses incurred by Mr Tozer for which he was reimbursed by the company were “his own expenses” or expenses of the employer for which he was simply advancing his own funds, does not need to be answered in this appeal.

While the point at issue was quite different, the comments made by Justice Thurlow in Luks (No 2) v MNR, [1958] CTC 345; 58 DTC 1194, at 350 and 1197 respectively, have some relevance to the decision in this matter:

In the present case, travelling between the appellant’s home and the several places where he was employed was not part of the duties of his employment, nor was it any part of the duties of his employment to take his tools from the place of employment to his home each day, nor to carry them each day from his home to the place of employment. This may well have been the practical thing for him to do in the circumstances, but the fact that it was a practical thing to do does not make it part of the duties of his employment. Both travelling from his home to the place of employment and carrying his tools from his home to the place of employment were things done before entering upon such duties, and both travelling home and carrying his tools home at the close of the day were things done after the duties of the employment for the day had been performed. The journeys were not made for the employer’s benefit, nor were they made on the employer’s behalf or at his direction, nor had the employer any control over the appellant when he was making them. The utmost that can be said of them is that they were made in consequence of the appellant’s employment. That is not sufficient for the present purpose. (italics mine)

Decision

The appeal is dismissed.

Appeal dismissed.