Estate Claude Gingras v. Minister of National Revenue, [1978] CTC 2065, 78 DTC 1079

Guy Tremblay (TRANSLATION):—The case at bar was heard at Quebec City on May 6, 1977. The evidence was heard concurrently with that of Mr Pierre Vizien (76-1061).* Both men had the same employment with the same employer and claimed similar expenses.

The question is whether expenses of $490.61, $1,454.25 and $2,201.52 may be deducted in computing the appellant’s net income for 1972, 1973 and 1974 respectively. Mr Claude Gingras worked as an assistant salesman for Labatt’s Breweries Limited during the years concerned.

1. Burden of Proof

The burden is on the appellant to show that the respondent’s assessments are incorrect. This burden of proof results not from any provision of the Income Tax Act, but from several court decisions, including the judgment of the Supreme Court of Canada rendered in RW W S Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

2. Facts

2.1. Mr Claude Gingras, who died in 1975, had worked for Labatt’s Breweries Ltd since 1970.

2.2. He began work as a driver and then became an assistant salesman. The evidence did not show exactly when he became an assistant salesman, but since it did indicate that, in the case of a witness with the same duties, it took 6 months to become an assistant salesman, the Board assumes that he was an assistant salesman in 1972, 1973 and 1974.

2.3. The evidence showed that three persons worked on a truck delivering beer: a driver, an assistant salesman and a salesman.

2.4. In addition to their salaries, all three persons received commissions on the sales in their territory. The commission on each case of beer sold was as follows: 2 A cents for the salesman, 1 A cents for the assistant salesman, and /2 cent for the driver.

2.5. These three persons’ main duties consisted in supplying beer to retail merchants, taking back empty cases, putting up signs, setting up displays, writing out bills, collecting amounts due and maintaining good relations with customers for publicity purposes. Although each of these three men had his own duties, each could perform the others’ duties if necessary because of the absence of One person, or because of friendly or other relations between one of the parties and a particular dealer. The driver therefore at times performed the duties of salesman.

2.6. Maintaining good relations did not, however, consist in inviting a retail dealer to lunch or to have a drink. A higher organization within the company dealt with this type of promotion.

2.7. However, the three men, especially Mr Gingras, did often have to buy tickets on draws of local organizations or tickets for stags, receptions, silver wedding anniversaries and so on for purposes of maintaining good relations.

According to Mr Vizien, this type of purchase might have to be made 20 times a year and could cost from $2 to $5 each time. The appellant claimed $44 in 1972, $150 in 1973 and $360 in 1974 for this purpose.

2.8. The evidence clearly established that Mr Gingras could not have lunch at home and therefore had to eat out. A company rule in fact prohibits the three men responsible for a truck from using it outside the territory it supplies except to go to the company’s office. This rule against going outside the territory applies equally to meals and any other reason.

2.9. The appellant claimed $396.36 in 1972, $1,072.75 in 1973, and $854.62 (including $120 in tips left, according to the evidence, for these meals) in 1974 for meal expenses.

2.10. Three people clearly established that work began at about 7 am and ended at about 5:30 pm, except in rare cases such as storms, breakdowns and so on.

2.11. The company supplied Mr Gingras with a uniform (pants, jacket, shirt and tie) and $30 to purchase shoes. According to the evidence, a man needs about three pairs of shoes a year, and a good pair of work shoes costs between $25 and $30. In addition, it cost approximately $7.50 every two weeks in 1974 to have the shirts and uniform cleaned.

2.12. The appellant claimed $35 in 1972, $193 in 1973, and $260 in 1974 for cleaning expenses. According to the evidence, these amounts included amounts for shoes.

2.13. The appellant also claimed $42.25 in 1972, $38.50 in 1973, and $264.11 in 1974 for broken bottles. In 1974, the appellant also claimed $164.17 for out-of-pocket expenses, $108.62 for stationery and $30 for accounting.

2.14. Mr Georges Rhéaume, accountant in charge of Labatt Limited’s department of finance and administration, stated that in 1974 em- ployees did not pay for broken bottles, and that in 1972 and 1973, the company very rarely claimed payment for broken bottles.

2.15. The same witness stated that the stationery used by Mr Gingras was supplied by the company.

As for out-of-pocket payments, it did happen that salesmen made mistakes when collecting payments or lost money in some way when handling it. When this happened, they were responsible for these losses, not the company, but the salesmen would be responsible, not the assistant salesmen. Mr Gingras was an assistant salesman.

2.16. Mr Jules Belanger, the appellant’s accountant, admitted that in 1974, because of the death of Mr Claude Gingras when the income tax return was being prepared, he had not seen any vouchers for the expenses claimed. They had therefore been averaged out. In 1972 and 1973 vouchers had existed, but the appellant was unable to produce these at the hearing.

2.17. By means of a notice of assessment dated October 10, 1975 for the taxation years 1972 and 1973 and another dated December 19, 1975 for the taxation year 1974, the respondent refused to allow the expenses enumerated above. On January 8, 1976 Estate Claude Gingras filed an objection. On May 5, 1976 the respondent indicated that the above assessments were being upheld. On August 2, 1976 the appellant appealed to the Board.

3. Act and Comments

Paragraph 8(1 )(f), subsections 8(2) and 8(4) and section 67 of the new Act are the main sections involved in this case:

8. (1) . . .

(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;

(2) General limitation.—Except as permitted by this section, no deductions Shall be made in computing a taxpayer’s income for a taxation year from an office or employment.

(4) Meals.—An amount expended in respect of a meal consumed by an officer or employee shall not be included in computing the amount of a deduction under paragraph (1)(f) or (h) unless the meal was consumed during a period while he was required by his duties to be away, for a period of not less than twelve hours, from the municipality where the employer’s establishment to which he ordinarily reported for work was located and away from the metropolitan area, if there is one, where it was located.

67. General limitation re expenses.—In computing income, no deduction shall be made in respect of an outlay or expense in respect of which any amount is otherwise deductible under this Act, except to the extent that the outlay or expense was reasonable in the circumstances.

The Board must first ask itself whether Mr Claude Gingras, in his work as an assistant salesman, filled a position related to the selling of property and under the conditions stated in paragraph 8(1)(f). According to the evidence submitted, the assistant salesman is part of the group of three men, who do more than simply deliver merchandise. The commissions paid, depending on the number of cases sold, clearly prove that Labatt Limited regards them as persons participating in selling and not simply as delivery-men. Their behaviour and their good relations with customers are very important for purposes of increasing sales. In fact, these three persons are the ones that the retail merchants see the most often as representatives of the company. They are the concrete image of the company, and their human contact and good work are often the deciding factors in influencing retail dealers to purchase from the company.

Since Mr Gingras was considered a salesman within the meaning of paragraph 8(1 )(f), he was not entitled to benefit from the provisions of paragraph 8(1)(a), because of paragraph -8(3)(a). He could not, therefore, claim the deduction of up to $150. Was he, however, entitled to all the expenses otherwise claimed? The Board is forced to answer no. Even though expenses for the purpose of earning the income from his employment can be allowed in principle, these expenses must be reasonable, and must in general be supported by vouchers. Further, certain expenses are purely personal ones.

Expenses for stationery ($108.62), out-of-pocket expenses ($164.17) and broken bottles ($264.11 in 1974, $38.50 in 1973, and $42.25 in 1972) cannot be allowed. Not only were no vouchers produced to support these claims but, according to the evidence, these expenditures were never even made. Further, the evidence did not prove that $30 was spent for accounting.

Meal expenses cannot be allowed because the condition in subsection 8(4) was not met, that is, the employee was not absent, “for a period of not less than twelve hours, from the municipality where the employer’s establishment . . . was located”. The regular work day was between 7:30 am and 5:50 pm (10 /2 hours), and very often within the limits of the municipality where the employer’s establishment was located. The expenses of $120 in tips mostly with meals, according to the evidence, must also be considered as part of the meal and therefore disallowed.

Should the expenses for cleaning uniforms be considered personal expenses?

The Board believes that, considering that Mr Gingras was in sales, the image he set was representative of his employer and was important with regard to the buyers, and these expenses should be considered necessary for the purpose of earning his income on this basis alone. According to Mrs Gingras, the pants had to be cleaned at least once a week. This amounted to approximately $7.50 every two weeks, and therefore approximately $195 a year. Since no vouchers were submitted, however, the Board would no doubt be justified in disallowing all the cleaning expenses, but considering the evidence and its belief that the expenditures were in fact made, to a large extent, and considering the small amounts in question, the Board allows one-half the expenses claimed to a maximum of one-half of $195, that is, $97.50. Therefore, $17.50 for 1972, $96.50 for 1973, and $97.50 for 1974 are allowed.

Should the cost of shoes be considered a personal expense, as the respondent argues? The uniforms are provided by the company. They are special uniforms that can and must be worn only for work for the company. Had Mr Gingras, a salesman under paragraph 8(1)(f), had to purchase them himself, he would have been entitled to deduct their cost, just as an actor, who, except in rare cases, uses his costume solely on stage, and thus for purposes of his calling, may also claim his costumes in his expenses.

Can the same thing be said of shoes? The Board does not doubt that the work performed by Mr Gingras required a special, sturdy shoe, the cost of which is fairly high; but the shoes could be worn at other times. They are not made in such a manner as to prevent the owner from wearing them at other times because he might be ridiculed or stand out because of them. On the other hand, after a salesman has worn a pair of shoes for 101/2 or 11 hours a day, he is not likely to wear the shoes at other times. The Board does not believe that it need take into account the few times that the person might wear the shoes. The principle de minimis non curat praetor, or ‘‘the judge is not concerned with trifles”, applies here. The cost of the shoes paid by Mr Gingras appears to be approximately $55 a year. Since no supporting documents were submitted, however, the Board allows only half, that is, $27.50, subject to the following comment.

Although the Board has held that this expense concerning the cost of shoes is deductible, this decision changes very little in practice for the appellant. The cost of the shoes in fact was never mentioned as a separate item, and according to the evidence, was included in the amounts claimed for cleaning uniforms. Since no supporting documents were submitted, only half the expenses claimed, to a maximum of $97.50—that is, half of $195, the average of the expenses claimed—was allowed.

In view of the amounts claimed for cleaning, that is, $35 in 1972, $193 in 1973, and $260 in 1974, and in view of the above-mentioned decision, because of the lack of supporting documents, nothing can be allowed for shoes in 1972 or 1973, and only $27.50 can be allowed in 1974.

The proof of entertainment costs was limited to the purchase of tickets or cards—approximately 20 per year at $2 to $5 each— evaluated by the Board as approximately $75 a year. Nevertheless, since it is in practice impossible to retain proof of these expenses, the Board allows them in whole, that is $44 for 1972, $75 for 1973, and $75 for 1974.

4. Conclusion

The appeal of the appellant is allowed in part and the whole is referred back to the respondent for reassessment in accordance with the reasons for judgment.

Appeal allowed in part.