Gerard Coffey v. Minister of National Revenue, [1980] CTC 2545, 80 DTC 1478

D E Taylor:—This is an appeal heard in the City of Toronto, Ontario, on April 16, 1980, against income tax assessments for the years 1974 and 1975 in which the Minister of National Revenue disallowed certain deductions claimed by the appellant against his employment income as a commission salesman. In assessing, the respondent relied, inter alia, upon subsections 8(1) and (2) of the Income Tax Act, SC 1970-71-72, c 63, as amended.

History

During the relevant years, the appellant was employed as a commission car salesman with Gorries Golden Mile Motors Limited, Toronto (Gorries). In computing his income for the 1974 taxation year, the appellant sought to deduct the amount of $3,626.65 as expenses incurred for the purpose of gaining or producing income, calculated as follows:

Automobile Expenses

Insurance	$ 124.00
Gas and Oil	1,156.00
Repairs	316.40
Car Payments	995.00
Washes, Polishes	355.00
Parking	110.00
Total— Automobile	$2,655.40
Less—25% Personal Use	663.75
Net Automobile	$1,991.05
Telephone	120.00
Postal and Stationery	215.00
Promotion, etc	355.00
Delivery Expenses	550.00
Expenses due to Sales	395.00
	$3,625.65

In computing his income for the 1975 taxation year, the appellant sought to deduct the amount of $4,884 as expenses incurred for the purpose of gaining or producing income, calculated as follows:

Automobile Expenses

Insurance	$ 224.00
Repairs	456.00
Gas	1,465.00
Washes, Polishes	428.00
Parking	142.00
Error in Calculation	995.00
Total—Automobile	$3,710.60
Less—25% Personal Use	927.60
Net Automobile	$2,783.00
Telephone	146.00
Mailing and Stationery	386.00
Delivery Expenses	635.00
Promotions, Floral Gifts	479.00
Expenses due to Sales	455.00
	$4,884.00

The respondent allowed for the 1974 taxation year, a deduction in the amount of $994 and in the computation of his income for the 1975 taxation year, a deduction in the amount of $1,054, as the cost of supplies consumed directly in the performance of the appellant’s duties of employment in those years.

Contentions

For the appellant:

—The full amounts of $3,626.65 for the 1974 taxation year and $4,884 for the 1975 taxation year are properly deductible for expenses in computing his income for the said years.

The respondent contended that:

—the appellant was not ordinarily required by the terms of his employment to carry on his duties away from the employer’s place of business;

—the appellant was provided with a new car still under warranty, which car was used 3 or 4 times per day for demonstration purposes and driven on a standard route about 2 miles long;

—the appellant was required by the terms of his employment to maintain adequate supplies of gas and oil for the aforesaid use of his car;

—the appellant was required by the terms of his employment to pay $8 per month only towards the cost of insuring the car supplied to him by his employer;

—the appellant did not incur automobile repair expenses directly in the performance of the duties of his employment, nor was he required by his contract of employment to incur such expenses;

—the appellant was not required by the terms of his employment to incur expenses for washing the aforesaid automobile in excess of $125 per year;

—the appellant was not required by the terms of his employment to incur parking expenses, and did not incur parking expenses directly in the performance of the duties of his employment;

—the appellant was not required by the terms of his employment to maintain an office at his home or residence;

—the appellant was not required to incur telephone expenses by the terms of his employment;

—the appellant has not submitted vouchers or otherwise substantiated his claim for expenses incurred in the performance of the duties of his employment, and the Minister therefore assumes that they were not incurred.

Evidence

The appellant gave oral evidence in support of his claim, and submitted some documentation upon which it was based. Essentially, he was allowed a car by Gorries which he used in sales demonstrations. He was charged about $50 per month (see 1974 list of expenses—car payments $595) for the “rental” of the car which was then available to him at all times, subject to the conditions noted earlier. He did not provide any vouchers or evidentiary records with regard to the amounts involved, although he indicated that some of this information had earlier been provided to Revenue Canada. He did not contend that all the amounts could be supported by vouchers in any event, and agreed that to a large degree they were estimated by him. A document (Exhibit A-2) upon which the Minister had relied substantially in the assessment was a questionnaire relating to the appellant’s employment which was completed by Gorries at the request of the Minister. This information stated in part:

5. (a) Was the employee ordinarily required to carry on duties of employment away from your place of business? Yes No

8. (a) Was employee required to pay own expenses pursuant to the contract of employment? Yes No

(b) If “yes”, to what extent?

Gasoline—Monthly charge for car

10. Was the employee required to maintain an office pursuant to the terms of the contract? Yes No

The appellant relied substantially upon a written clarification from Gorries, sent to the Minister of National Revenue (part of Exhibit A-3) which read:

TO WHOM IT MAY CONCERN:

Although our written employment agreement does not require salesmen to carry on business away from our place of employment, all successful salesmen will out of their own initiative follow up sales leads and canvas neighbour’s of their customers. In this endeavor they are on their own and any expenses incurred are not reimbursed by the company.

But the major item of evidence, in the opinion of counsel for the appellant, was a letter from Revenue Canada to himself (the counsel) as follows:

Gerald Sternberg

55 University Avenue

Suite 1555	T Chambers
Toronto, Ontario	Appeals Division
M5J 2H7
28 November, 1978

Dear Sir,

Re: Gerard Coffey

Notices of Objection

1974, 1975 Taxation Years

In regard to our telephone conversation of November 17, 1978 the following information is submitted for your review.

In order to determine the nature of expenses incurred by Mr Coffey in the performance of his duties as a commission salesman with Gorries Golden Mile Ltd in 1975 (sic) and 1975, the taxpayer’s employer was contacted. Information supplied by the empl included the facts that:

(1) the salesmen are not required to travel in the performance of their duties.

(2) the salesmen are provided with new cars still under warranty. These cars are used on occasion by other salesmen for demonstration purposes, and accordingly, must have adequate supplies of gas.

(3) Generally the cars are used three to four times per day for demonstration purposes and are driven on a standard route about two miles long.

(4) Salesmen do not take clients out to lunch etc as they are required to be present on the sales lot.

(5) Any stationery that may be necessary is available at the office.

(6) Promotional items purchased (pens, etc) are reimbursed up to 50% by the employer.

(7) Finally, the salesmen pay $8 per month for insurance which covers the terms of $50 deductible.

Based on this information (it) is evident that adjustments are warranted in each year as follows:

	1974	1975	1975
general promotion		100	100
bird dog fees		945	810
auto: insurance	96		96
washes—$2.50 x 50	125		125
gas and oil	1,156		1,465
	1,377		1,676
less personal	20615	26750
	23115 1,228	29250 1,532
		149	144
Total Expenses		$994	$1,054
Business = days x 8 miles x 50 weeks

Thus, adjustments for $994 in 1974 and $1,054 for 1975 appear warranted as this appears to be in keeping with taxpayer’s conditions of employment and information submitted.

Your comments are requested at your earliest convenience.

Yours truly,

(Sgd) T C

Appeals Officer

Argument

Counsel for the appellant noted that it was only reasonable to accept the testimony of the appellant that expenses of the nature claimed would be incurred by an active and successful automobile commission salesman. There was no other way in which he could conduct his business affairs with any prospect of repeat business or of maintaining his level of income. Whether or not these expenses were specifically called for by Gorries, they were certainly called for by the realities of the operation experience by the appellant. In addition, the allowance by the Minister of the amounts of $994 and $1,054 in the 1974 and 1975 taxation years should be evidence that the Minister had permitted a part of the deductions under some classification in the Act (apparently without vouchered support), and the Minister should not now be permitted to require other more substantive evidence for the balance of the deductions claimed. In counsel’s mind, there were certainly some of the disallowed amounts (eg the “car payments $595—1974”) which should be allowed in any event—they were clearly deductible since the amounts had been taken directly from the commission cheque of the appellant.

Counsel for the respondent noted that no voucher evidence of any payments had been provided to the Board; that at best the amounts in question were estimates; that the Minister had already allowed some part of the claim in each year, but that the Minister was not bound to allow the balance because of that degree of acceptance. The evidence available did not support the testimony of the appellant with regard to the number of miles driven or the expenses incurred. In any event, even if such expenses were incurred, that obligation was assumed personally by the appellant in his own interest, not at the direction of Gorries.

Findings

For the record, the Board notes that there remains a degree of uncertainty with regard to the basis of the relevant assessments in the first place—it is at least possible that there is some relationship to the “standby charge” provisions of section 6 of the Act in view of the “rental” arrangement under which the appellant used the car in his work.

The appellant has left himself at substantial risk by the non-production, perhaps non-availability of vouchers. While it is true, as noted by his counsel, that there are some provisions in the rules and regulations by which the assessment process is conducted to permit limited expenses without substantiating vouchers, I would point out that it is the exception, not the rule. Although on a slightly different point, reference should be made to R M Latta et al v MNR, [1978] CTC 3003; 78 DTC 1719, at 3009 and 1724 respectively:

I am not as ready as counsel for the respondent to concede the universal applicability of the siren song in Information Circular 76-4R quoted by the agent for the appellant:

Small amounts of unvouchered cash payments may be allowable provided it can be established that the total of such expenditures is reasonable in the circumstances and that they have been incurred for the purposes of gaining or producing income.

In addition, the position of counsel for the appellant that because the Minister granted some relief he should accede to the demand for even greater generosity cannot be supported. I frankly admit I am unable to ascertain precisely the basis upon which the Minister of National Revenue did permit the deduction of the amounts of $994 and $1,054 (although I do not disagree with the opinion expressed in Exhibit A-4 that some expenses might have been incurred). I find no basis, however, in the statement contained in the Minister’s reply to the notice of appeal relevant to these amounts allowed that they were “for supplies consumed expenses actually incurred directly in the performance of the appellant’s duties of employment in each of the 1974 and 1975 taxation years respectively”. They would not be deductible under subparagraph 8(1)(i)(iii) of the Act since the ap- pellant was not required by his contract of employment to supply and pay for them (at least all of them). Accordingly (and I would think there should be little argument about this), any relief available to this taxpayer from the Board must arise from the provisions of paragraph 8(1 )(f) of the Act which, as it is relevant to this appeal, reads:

Deductions allowed

(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,

amounts expended by him in the year for the purpose of earning the income from the employment (nor exceeding the commissions or other similar amounts fixed as aforesaid received by him in the year) . . . .

In my view, the genesis of the difficulty rests here and must be looked at in the total context to be resolved. There is a general tendency to overlook the fact that commission salesmen are merely one form of employee—they are not independent contractors or businessmen. Parliament has in its wisdom made certain deductions available to the category of employees who qualify under paragraph 8(1)(f), which deductions are not available to others. That distinction in itself has caused considerable consternation and discomfort to employees of the “disadvantaged” class (as they may sometimes characterize themselves), and this is evidenced by appeals on the subject.

Paragraph 8(1 )(f) of the Act has been reviewed in the jurisprudence, but I will note two aspects of it that appear to be its extremities, both in quantum deductible and verification for deductions claimed. First, with regard to quantum, it appears to me that the phrase inserted in parentheses “(not exceeding the commissions or other similar amounts fixed as aforesaid received by him in the year)” permits the salesman to expend the entire amount of commission income earned. It is the only place in that section such a phrase is used. Obviously that qualification was placed in the section to prohibit, in effect, charging off commission income expenses against other income. In my view, it also leaves the greatest possible latitude for the deductions claimed to the discretion and the determination of the salesman. One argument for permitting special deductions to this class of employees is the assumption that they are self-motivating, enterprising individuals upon whom unnecessary restraints should not be placed. But, the converse is also true—“amounts expended by him in the year for the purpose of earning the income from the employment”. Again, a general glance over the entire section 8 indicates to me that this is the only place such a phrase is employed therein. It is specific, it is unique, and it is the counter-balance to the special and virtually uninhibited status for deductions accorded to such salesmen-employees. In the extreme, the Minister would be within his rights to require the most detailed support for each client claimed to ensure that it was:

(1) actually spent;

(2) spent by the appellant himself;

(3) spent in the particular year at issue;

(4) related directly, with no dilution or personal element, to an identifiable and provable effort to earn income;

(5) an expenditure incurred while the salesman was away from his employer’s place of business.

I am unaware of a procedure, short of the maintenance of detailed documented records and vouchers, which would permit a salesmanemployee to fulfill such exacting conditions. It is evident that the Minister does not require total detail and precision under practical circumstances, but merely estimates, generalities or assumptions by the taxpayer (on appeal of the Minister’s assessment) with regard to the deductions claimed, are unsatisfactory and ineffective.

Summary

There is no acceptable evidence that either the expense items themselves, or the portion of the total expenses claimed which were disallowed by the Minister, are such that they could meet the requirements for making such a claim under paragraph 8(1)(f) of the Act. The Board therefore has no basis from which to judge whether or not the additional amounts were “reasonable” as asserted by the appellant.

Decision

The appeal is dismissed.

Appeal dismissed.