Albert Quesnel v. Minister of National Revenue, [1977] CTC 2143, 77 DTC 92

Delmer E Taylor:—This is an appeal from an income tax assessment for the year 1973 in which the Minister of National Revenue disallowed as a deduction an amount of $117.67 claimed by the appellant as capital cost allowance on office equipment and a Vista Vision projector. The appellant claims this deduction because he uses the equipment in earning his income.

The respondent submits that, because the appellant’s income is from an employment and not from a business, the deduction claimed is not allowable on the ground that the amounts spent for the purchase of office equipment and the projector were outlays, losses or replacements of capital, or payments on account of capital, and therefore not permitted as deductions by the provisions of paragraph 8(1 )(f) and prohibited by subsection 8(2) of the Income Tax Act, SC 1970-71-72, c 63, as amended: and relies, inter alia, on subsection 8(2) and paragraphs 8(1)(f) and (j), 18(1)(b), and 20(1)(a), all of the said Act.

The appellant was an insurance salesman earning all of his income from commissions. His income tax return for the year 1973 shows commission income for the year of $16,647.65 from which he claimed deductions of $6,915.65, leaving a net income of $9,732. The aforementioned capital cost allowance in the amount of $117.67 was included in the above deductions. The appellant claimed he had been making similar claims for many years and that the deductions had been allowed and therefore he did not see why this amount should be eliminated in 1973.

In reviewing this matter, the Board quotes the applicable portions of the Income Tax Act:

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;

(2) 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.

There are two main sections of the Income Tax Act under which deductions from income are allowed, namely, section 8 (from which the above references are taken) dealing with income from an office or employment, and section 18 dealing with income from business or property. The deductions under section 8 are specific and restricted, while those described in section 18 appear more general. Under section 8, certain types of employment are treated individually and accorded particular deductions. One of these categories is that of Salesman. Before paragraph 8(1)(f) can be applicable, all four of the conditions precedent must be met. In the instant case, counsel for the respondent agreed that these had all been met, and conceded further that there was substantial evidence that the expenses claimed were incurred for the purpose of earning income, because this was the purpose for which the capital assets were used. However, counsel rejected the claim for capital cost allowance, since, as described by him, it fell within the exclusion of “outlays, losses or replacements of capital or payments on account of capital”, and as such was not provided for in section 8 except under paragraph 8(1)(j), which deals strictly with automobile costs, including capital cost allowance on such motor vehicles. Paragraph 8(1)(j) reads as follows:

where a deduction may be made under paragraph (f) or (h) in computing the taxpayer’s income from an office or employment for a taxation year,

(i) any interest paid by him in the year on borrowed money used for the purpose of acquiring an automobile used in the performance of the duties of his office or employment, and

(ii) such part, if any, of the capital cost to him of an automobile used in the performance of the duties of his office or employment as is allowed by regulation;

For reference purposes, the Board will review the history of the main provision which is involved in this appeal. The predecessor of paragraph 8(1 )(f) of the “New” Act was subsection 11(6) of the “Old” Act, which stated as follows:

Where a person in a taxation year was employed in connection with the selling of property or negotiating of contracts for his employer, and

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

(b) was ordinarily required to carry on the duties of his employment away from his employer's place of business,

(c) 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

(d) was not in receipt of an allowance for travelling expenses in respect of the taxation year that was, by virtue of subparagraph (v) of paragraph

(b) of section 5, not included in computing his income,

there may be deducted in computing his income for the year, notwithstanding paragraphs (a) and (h) of subsection (1) of section 12, 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.

Both acts contain the same phrase—“amounts expended by him in the year for the purpose of earning income’’. Each of the requirements (shown underlined separately above) must be met before the deduction can be allowed. However, capital cost allowances cannot meet these criteria as they are not amounts expended by him in the year. Rather, capital cost allowance is that year’s apportionment of the total cost of a capital asset acquired, but not generally in the taxation year in question. For even greater certainty, under the “Old” Act, the subsections of section 11 which had application as deductions against income from employment were specifically identified in section 5 in the phrase “minus the deductions permitted by paragraphs (i), (ib), (q) and (qa) of subsection (1) of section 11 and by subsections

(5) to (11), inclusive, of section 11 but without any other deductions whatsoever”. Subsection (11) of the said section 11 permitted a deduction for capital cost allowance, for employees qualifying under subsection (6) of section 11, for automobiles only. I have been unable to locate any jurisprudence which reflects a different viewpoint, although certain cases, notably No 534 v MNR (1958), 19 Tax ABC 388, 58 DTC 403; Cholette v MNA (1961), 27 Tax ABC 199, 61 DTC 464, and Riddell v MNR (1965), 39 Tax ABC 102, 65 DTC 560, touch on the matter of an office rental charge on space in a taxpayer’s home and capital cost allowance for equipment. In the Cholette case, the claim for office rental was allowed, and it can be presumed that the Assistant Chairman of what was then the Tax Appeal Board, who presided at the hearing of that appeal, concluded that there was no element of capital cost allowance in the expense amount charged.

The major point of the above review raised by this appeal was whether the changes made in the “New” Act altered the above situation in any way or provided any basis for the deductibility of capital cost allowance on any assets other than automobiles. In my opinion, the matter is even more explicit in the “New” Act, since the exclusion provision has been inserted directly in the applicable subsection 8(1) as subparagraph (v) of paragraph (f) thereof, rather than appearing in a general list of exceptions at the end of a section dealing with income from employment, as was the case in the "Old” Act. There is no question in my mind that capital cost allowance on any capital assets other than automobiles remains outside the deductions permitted by the provisions of paragraph 8(1)(f) of the current Income Tax Act. To this extent, a substantial distinction continues to exist between deductions available under this subsection to an individual employed as a commission salesman and deductions provided against income from business or property, under other sections of the Act.

The appeal is therefore dismissed.

Appeal dismissed.