Murray H Jenkins v. Minister of National Revenue, [1977] CTC 2158, 77 DTC 130

Delmer E Taylor:—This is an appeal by Murray H Jenkins from an income tax reassessment for the year 1973 dated August 5, 1975. The matter at issue is a claim by the appellant for deductions from his income earned as a commission salesman. Both the appellant and the respondent rely on paragraphs 8(1 )(f) and 6(1 )(e) of the Income Tax Act, SC 1970-71-72, c 63, as amended.

Facts

The appellant is a commission salesman of heavy automotive vehicles, and during the year in question was employed by two different firms, Thomas Built Buses Sales Ltd, Woodstock, Ontario, for about the first three months, and Western GMC Truck Centre Ltd of Edmonton, Alberta, for about the last nine months. The Minister of National Revenue increased the total income of the appellant as reported in his tax return by an amount of $597.66, with the following explanation: “Add: Expenses disallowed employment earnings (Personal portion)—$597.66’’ and “Your 1973 Income Tax Return has been revised in accordance with our letter of May 27, 1975”. Neither employer provided him with an office nor paid any of the expenses he incurred in his efforts to sell motor vehicles. Western GMC Truck Centre Ltd (hereinafter referred to as “Western”) did provide a new demonstrator truck which was available to him at all times whether he was actually on business or not.

Contentions

The appellant’s position was that the truck expenses claimed for 1973 were for business use only, and that he owned and used a 1973 Grand Torino automobile for his personal requirements.

The respondent asserted that:

(a) the appellant had the personal use and benefit of the truck and used same for driving to and from his place of employment;

(b) the appellant, for the 8 months that he was employed by Western GMC Truck Centre Ltd in the taxation year 1973, paid to his employer the sum of $20 per month for the use of the truck;

(c) the appellant’s employer included as a standby charge in the appellant’s income for the 1973 taxation year, the sum of $360;

(d) the appellant has claimed that the amounts referred to in paragraphs (b) and (c) herein should be deemed to be expenses which the appellant has incurred during the 1973 taxation year;

(e) the expenses in the amount of $597.66 claimed as deductions from income in the appellant’s 1973 taxation year were not incurred by the appellant for the purpose of earning income from his employment.

Evidence

Additional information was provided to the Board at the hearing by the appellant himself, who identified and introduced as evidence certain documents, one of which the Board finds significant (Exhibit A-5)—the letter dated May 27, 1975, from Revenue Canada, Taxation to which reference was made on the T7W-C form attached to the Notice of Reassessment. The appellant explained that the $520 for rentals mentioned in the said letter of May 27, 1975, represented:

(a) $160 paid at the rate of $20 per month for eight months to Western for licence and insurance for the demonstrator truck: and

(b) $360 for the use of a portion of his house as an office, calculated at $30 per month for 12 months.

He reiterated his position that the automobile expenses claimed in the amount of $675.32 for gas, insurance and repairs, were direct business costs for operating the demonstrator truck only, and he also reiterated that he was not provided with either an assigned telephone or office space by his employer, and for that reason a major portion of his work was conducted either in or through the "office space’’ in his home.

Mr Cirella, an Appeals Officer with the Department of National Revenue, gave evidence regarding the reassessment and introduced a document (Exhibit R-1) dated November 13, 1975, which he had prepared as a working paper in support of the correctness of the reassessment made against the taxpayer. This witness put forward the view that, after the reassessment of March 25, 1975, the Minister would have been able to issue a further reassessment on taxable income of $24.61 determined by the calculations shown on Exhibit R-1.

Exhibits A-5 and R-1 are reproduced below:

Please disregard our proposal of March 25, 1975, for adjustments to your above client’s 1972 and 1973 Income Tax Returns.

A further review of expenses claimed has been made and, in view of the amount and nature of Taxable Benefits reported in 1972 and expenses claimed, no changes to 1972 are proposed at this time.

It Would appear though that no personal use allocation was made in 1973. We therefore propose to adjust 1973 as follows:

Gas, Insurance, Repairs Claimed	$ 675.32
Rentals Claimed	520.00
	$1,195.32
Allow one-half Business use	597.66
Adjustment 1973	$ 597.66

Reassessment will be deferred for fifteen (15) days to allow you an opportunity to make any representations you feel necessary.

Yours truly

(signed J Dorash)

Office Audit

Telephone: 425-7047

JD/mc

cc: Mr Murray H Jenkins

1032 McDermid Drive

SHERWOOD PARK, Alberta

9820 - 107th Street

Edmonton, Alta T5K 1 E8

Exhibit R-1

		Murray H Jenkins				W/P 1
1. Expenses summarized
2. Recap of summarized expenses
3. Proposed settlement
				Office
Advertising			Gas, Oil	(Sup-	Breakdown of Taxable
& Promotion		Rentals	& Repairs	plies)		Benefit
21.00 11.90 20.00			8.70	3.20
					Health Care		30.00
59.95 28.30 20.00			6.60	4.25
					Prizes		50.00
11.45? 6.95 20.00			7.35	4.00
					Misc.		1.71
22.40 31.40 20.00			9.75 12.50*
					Standby Charges 360.00
30.40 35.35		20.00(Tape) 642.92		9.60*			44171
							441.71
14.10 10.10 20.00			4.40 22.67
14.30 17.50 20.00
			679.72	56.22
					Rentals determined as
52.20 16.05 20.00
						follows
28.75 11.80? 16000			“Pers 22.10
		160.00
7.30	14.90			34 12	Rentals		160.00
				34.12
12.75 16.65					Standby charges 360.00
8.30 12.80							520.00
502.60
Schedule of Expenses			Claimed		Proven	Non-allowable
Advertising & promotion			520.30		502.60	17.70
Rentals			520.00		—	520.00
Office			34.12		34.12		—
Travel			10.00		10.00		—
Accounting			20.00		20.00		—
Car expenses			696.32		679.72	16.60
Personal use 10%			nil		(67.97)	67.97
			1800.74		1178.47	622.27
Expenses disallowed previously						597.66
Additional non-allowable expenses						24.61
Solution

Based on above, the taxpayer should be disallowed some additional expenses. However in order to resolve this at the District Office level, an unconditional withdrawal would be acceptable.

Subsection 6(1 )(e) was explained to Mrs Brusseau and even though she made appear that she understood, she insisted that the rental of 520.00 should not have been disallowed.

She was then asked to advise Mr Jenkins of our decision and to let me know as soon as possible.

A drafted “Uncondition Withdrawal’’ was left with her.

Nov 13/75

(signed R Cirella) Appendix A

Argument

The agent for the appellant contended that the taxpayer was entitled to all the deductions claimed, since these were permissible under the relevant sections of the Income Tax Act and sufficient evidence had been provided to the Board to allow the appeal in the amount of $597.66. Counsel for the respondent claimed that, as demonstrated by Exhibit R-1, the taxpayer had probably benefited by the amount of the tax payable on the $24.61 which might have been further disallowed by the Minister, and that, by virtue of this calculation dated November 13, 1975, there no longer remained any issue regarding the automobile expenses, the amount of $679.72 having been allowed to the appellant. Counsel for the respondent contended that the matter at issue was really the $520 which, in the opinion of the Minister, consisted of the $160 paid to Western, plus $360, part of a taxable allowance shown on the taxpayer’s T4-1973 earnings slip from Western and reported as income. The $360 was particularly significant, since it was the appellant’s contention that it represented an office rental allowance for a portion of his house; but, according to counsel for the respondent, this explanation had never been raised by the appellant or his agent with the Department of National Revenue previous to this hearing before the Tax Review Board.

Findings

It appears to the Board that there is little, if any, difference of opinion between the parties with regard to the facts and the amounts involved. There is, however, substantial variation between the treatment of these facts and amounts by the appellant and their treatment by the respondent in the manner in which they have been presented to the Board and the interpretation placed upon them. The appellant holds in a determined manner to his position that the amount of $597.66, detailed in the letter of May 27, 1975, was disallowed in error, and requests that he be permitted the deductions originally claimed. The respondent contends that the recalculation made by using the different “formula” shown by Exhibit R-1, more than supports the reassessment disallowing the amount of $597.66, even though the details of the amounts regarded as “proven”, and therefore allowable, on Exhibit R-1 differ from the list of the original deductions which were determined and submitted by the taxpayer and shown as “claimed” in the same exhibit.

Exhibit R-1 is not an assessment or reassessment notice as defined in the Income Tax Act. Although helpful to the Board in the sense that it sheds considerable light on the basis of the dispute between the parties, the calculations related in the said exhibit cannot be used by this Board in substitution for the reassessment notice. There are no varying or alternative formulae or methods of calculation of income tax with respect to deductibility of expenses. It is perhaps trite to say that in order to be deductible expenses must be covered by appropriate provisions of the Income Tax Act, but in this case it may be useful to say so since, if so covered, they must be allowed to the taxpayer and cannot be denied simply by a process of recalculation. The appellant is correct in requiring that this hearing of the Board deal with the details supplied to him with the reassessment of March 25, 1975, and he is equally correct in holding to the position that his responsibility is to provide the Board with evidence that supports the deductibility of the total amount of $1,195.32, one half of which ($597.66) has been disallowed by the Minister.

The Board is satisfied with the sworn testimony of the appellant to the effect that the automobile expenses claimed ($675.32) were for the use of the demonstrator truck and had no relationship to his personal transportation requirements. Although the Board places no weight either for or against the appellant on the information contained in Exhibit R-1, it does appear, however, that an amount of $679.72 was designated as "proven” car expenses by the respondent. With respect to the $520 in rentals claimed, the Board finds that there is good reason that the eight payments of $20 per month, totalling $160, should be allowed to the appellant. Since the truck was used entirely for business as the Board has already determined, the appellant should be allowed to deduct the cost of the licence and insurance charge for which he was obviously reimbursing Western at the rate of $20 a month. The alternative would have been for Western to require that the appellant pay for the licence and insurance costs directly, in which case there would have been no question regarding their deductibility. The matter of the balance of $360 claimed for rent poses a question. Can the Board reach the conclusion that the amount of this deduction bore any relationship to the $360 standby charge that apparently forms part of the broken-down "taxable benefit” of $441.71 (shown in Exhibit R-1) merely because the amounts are the same? The verbal evidence given to the Board by both parties supports the opinion that there was such a separate and different standby amount charged by Western at the rate of $40 per month for nine months and reported as income by the appellant. The description given in the explanatory letter of May 27, 1975, from Revenue Canada dealing with the disallowance of $520 refers to “Rentals claimed”. If indeed the respondent considered at that time that $360 of this represented a reversal of the standby charge, there was no indication of it. The appellant was aware that this was Western’s company policy and that he was required to pay tax on the standby charge amounting to $360. There is no evidence, in the opinion of the Board, that the appellant was attempting to negate that taxation by offsetting the amount in this manner. The Board accepts the contention that the $360 deduction represented a genuine office rental charge for space in his own home and had no relation to the standby charge that had been included in his income. Furthermore, the explanations given by the appellant indicate that a rental charge of $30 per month was reasonable.

Decision

The Board concludes that the appellant has supported his case against the disallowance of expenses totalling $597.66 as detailed in the Notice of Reassessment dated March 25, 1975, and attachments thereto. Therefore the appeal is allowed and referred back to the respondent for reconsideration and reassessment accordingly.

Appeal allowed.