Frank J Allan v. Minister of National Revenue, [1978] CTC 2303, [1978] DTC 1253

A W Prociuk:—The appellant, Frank J Allan, appeals from the respondent’s reassessment of his income for the taxation years 1972 and 1973 wherein expenses in the sums of $6,491.82 for 1972 and $8,999.94 for 1973 were disallowed on the ground that they had not been shown to have been incurred by the appellant for the purposes of earning the income from the employment within the meaning of paragraphs 8(1 )(f) and (h) of the Income Tax Act which read as follows:

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) 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;

(h) where the taxpayer, in the year,

(i) was ordinarily required to carry on the duties of his employment

away from his employer’s place of business or in different places,

(ii) under the contract of employment was required to pay the travelling expenses incurred by him in the performance of the duties of his office or employment, and

(iii) was not in receipt of an allowance for travelling expenses that was by virtue of subparagraph 6(1)(b)(v), (vi) or (vii), not included in computing his income and did not claim any deduction for the year under paragraph (e), (f) or (g),

amounts expended by him in the year for travelling in the course of his employment;

The appellant was employed as a salesman by Merrill Lynch Royal Securities Ltd at Toronto, since 1959. In 1971 he was transferred to the company’s Vancouver office as office manager in charge of sales. In April or May of 1972 he returned to Toronto and was assigned to manage the company’s office in Hamilton. His duties in the main were to supervise the office work, hire salesmen, assist in sales, service accounts and to endeavour to garner new clients when an occasion presented itself. He was paid a salary plus commission based on his sales. The company reimbursed him his reasonable and proper expenses incurred in the course of his activities on behalf of the company but it was necessary for this purpose to complete and present to the company president a properly completed travel and entertainment report together with vouchers covering any expenditure over $25. A blank facsimile of such a report was filed as Exhibit R-8.

The appellant stated that he did on occasion submit his expense accounts and was always reimbursed in full. When questioned why he did not submit all his accounts to his company, he stated that it was his “value judgment”. H efelt he did not want to increase his expense account with the company to any great extent and therefore decided to claim the remainder of same personally as an expense when filing his income tax returns. As far as car expenses were concerned, he did not submit any claim to his company for reimbursement but claimed the entire amount when filing his returns. It was suggested by another witness that salesmen in this firm follow this practice because they usually end up receiving a far better treatment from the income tax department than from their own firm.

Thus in 1972 the appellant claimed a total of $10,863.66 as expenses which he reduced to $10,000 as his sales commission was only in that amount. In 1973 he claimed $13,644.95. Listed below is a breakdown of the above expenses together. with what was disallowed as prepared by the respondent’s officers subsequent to interviews with the appellant and upon checking the appellant’s records:

The evidence of the appellant in respect of his claims was far from Satisfactory. On cross-examination he was evasive if not equivocal. I was constrained to remind him that it was his appeal and that the onus was on him to prove what he alleged. In 1972 he claimed to have spent $4,950 on home entertainment of his clients and $3,300 in 1973. He was unable to substantiate any portion of these expenses. In club expenses he purported to claim such items as purchase of golf balls, golf shoes, golf clothing, wagers, umbrellas, a golf club, etc (Exhibit R-2) on the premise that he needed to be properly attired to impress his prospective clients. His travel expenses included trips to Florida with his wife for holidays and business as he claimed that he had clients who either wintered there or retired to live there permanently. It came out that Merrill Lynch Royal Securities has an office in Florida to service its clients there.

Counsel for the respondent subpoenaed Mr George B Dunn whose position with Merrill Lynch in Toronto is that of corporate counsel. He also is director of administration and in this capacity reviews expense accounts of the company salesmen. The ground rules covering expenses have been the same since 1972. He stated that generally speaking all expenses would be reimbursed if properly vouchered. As far as home entertainment expense was concerned it would be reimbursed if cleared in advance and it appeared that it was a legitimate client expense.

Taking into account all the evidence including Exhibits R-1 to R-8, I am of the opinion that the respondent, in the circumstances of this case, in allowing in each year what he did by. way of deductible expenses, was fair and liberal. The disallowed portions are personal or living expenses and may not be charged to revenue account by the appellant.

The appeal is dismissed.

Appeal dismissed.