William H Payne, Appellani, v. Minister of National Revenue, [1976] CTC 2302, 76 DTC 1233

The Assistant Chairman:—As I understand this appeal there is between the parties no substantial dispute except for those points I will shortly mention and, for that reason, I see no purpose in mentioning a lot of points covered by evidence.

The issue is whether or not the appellant was a self-employed person with respect to certain expenses in each of the years 1972 and 1973 but, if he was not a self-employed person in either or both of these years, then, was he entitled in both or either of those two years to deduct from his salary (employee income) some or all of the said expenses. !f he were a self-employed person it is accepted the expenses were deductible. I shall consider the appeal on the basis firstly as to whether or not the appellant is in business. If that decision is not in favour of the appellant then I must decide what, if any, amount he may deduct from his employment income.

As to the first issue, the appellant was, in 1971, an employee of the newspaper known as the Toronto Telegram. Some years previously, while a student at Syracuse University, he, with two friends, had operated a university radio. From that time, if not prior thereto, he was interested in radio broadcasting and music. He had purchased and owned about 3,000 or 4,000 records by about January 1, 1972, the majority of which reflected “Black Music”. As I understood. the evidence of the appellant, when he used the term “Black Music” he was referring to music not only by the “well-known Black Musicians” but music of the Blues, Jazz, etc by. Black Musicians. After the appellant left: Syracuse University he was not actually involved in radio until sometime in 1972, by which time he had left the employment of the Toronto Telegram. It is clear, at least till the end of 1971, he had no financial relationship with a radio station. After his employment stopped with the Toronto Telegram he received, for some time in 1972, a monthly severance pay. The appellant obtained other employment with the Foster Advertising Ltd Starting in early 1972, which he held until about March 1973. In March 1973 he and CHIN, a Toronto radio station whose legal name according to the T4 is “Radio 1540 Limited”, entered into a relationship which becomes important to this appeal.

lf I recal correctly, in 1971 while still with the Toronto Telegram, the appellant prepared a tape (presumably as to his ability, concepts and ideas) and sent it to CHIN, or the owners of CHIN. Following his loss of employment with the Toronto Telegram somehow or other he was in touch with CHOO, a radio station in Ajax, Ontario, a municipality somewhat east of Toronto where the appellant was then living. In 1972 he was given initially a weekend program of 45 minutes with that station which, over the year, grew to about three hours. The appellant left CHOO early in 1973. He was clear and unequivocal that he received no remuneration, pay, income or money from CHOO for his services at any time. It is thus noted there was no radio “business”, “income” or “salary” in 1972.

Early in 1973 the appellant was interviewed by officers of CHIN (it is recalled he sent a tape some one year earlier). He told them what he would do, what he had and what he felt their “Black Music” needed. He was engaged. They stated he was to be paid X dollars per week. If I understand the evidence, the appellant had around 3,000 records in 1971, later around 4,000 in 1972 and 5,000 to 7,000 in 1973, most of which were directed to “Black Music”. His Suggestions were accepted; however he was to do the “news” for five minutes on each hour. He was advised he was to be on radio from 12:30 am to 5:30 am. The appellant is still doing the same job. While he agreed they could hire or fire him, they had not to date done SO, nor had they really told him to date what to do or not to do. He also Stated if he wished he could quit. The appellant stressed that while he was ‘“on air” about 25 hours a week, he spent that much if not more time than that working to prepare those “25 hours”. He had to telephone interviews, personal recorded interviews and worked on his records to arrange a program. He stated in effect that while his whole program had never been recorded, some of it virtually always had been and he had never been told it (the whole program) could not be. It should be mentioned, while with CHOO virtually all his programs were taped at home on his own equipment, his CHIN programs were substantially “live”.

I see no need to quote the “self-employed” sections of the Income Tax Act. With respect to the “radio expenses”, was the appellant a self-employed person or an employee in 1972 and 1973? In 1972 the appellant was clearly not in business in so far as the radio business was concerned. He was not an employee as no one employed him. Consequently his claim for expenses for 1972 is dismissed regardless of the heading under which he puts his claim.

What was his status in 1973? Who had control of the appellant? Whose tools were used? Who took the risk of loss and whose business was his activity part of?

These are the tests set down in many cases before this Board, the Federal Court (whether as a member of that Court or as an Umpire under the Unemployment Insurance Act), the Pensions Appeals Board under the Canada Pension Plan, and the Supreme Court. In 1973 the appellant was clearly controlled by CHIN; it had the right to control, whether or not the company exercised it is unimportant; the tools used were those of CHIN except for the records of the appellant and his interviews, which he “volunteered”; of course his “remuneration” was assured while he was trying to get “listeners” or customers of the station CHIN. The appellant was clearly an employee of CHIN in 1973. Was the appellant such an employee so that within the meaning of section 8 he was entitled to some “expense”?

The subparagraphs which might allow the appellant to deduct some expenses are 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 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;

(i) amounts paid by the taxpayer in the year as

(ii) office rent, or salary to an assistant or substitute, the payment of which by the officer or employee was required by the contract of employment,

(iii) the cost of supplies that were consumed directly in the performance of the duties of his office or employment and that the officer or employee was required by the contract of employment to supply and pay Tor,

to the extent that he had not been reimbursed, and is not entitled to be reimbursed thereof;

As stated, from a “radio business” point of view the appellant was not entitled to deduct any expenses from his income in that respect as he was not in the “radio business” in 1972 and 1973.

The only issue left is whether or not, pursuant to the subparagraphs abovementioned, his income from “employment” could be reduced by some of those expenses. Reference was made to paragraphs 8(1 )(f), 8(1)(h) and subparagraphs 8(1)(i)(ii) and 8(1)(i)(iii) but no other. The appellant was not reimbursed for any expense he had made nor was there any suggestion he was entitled thereto.

As I recall the evidence, there was a suggestion that paragraph 8(1 )(f) could apply. He was employed to be on the air for a certain number of hours per week, not to negotiate contracts for his employer. He was not “required” to pay his expenses, at the best he volunteered. His place of work was his employer’s except to the extent he again volunteered to be away. Paragraph 8(1 )(h) is similar to paragraph 8(1)(f) as, under no circumstances could I find he was “ordinarily required” to carry on his duties away from his employer’s place of business.

What is left; did he pay office rent which would satisfy subparagraph 8(1)(i)(ii) and, within the meaning of subparagraph 8(1)(i)(iii), were costs of supplies consumed in the performance of his duties? His rent in 1973 was the same as in 1972 or 1971 or any year in so far as any evidence I saw was concerned. As a result no new premises were rented in 1973 and I am of the view no allowance can be made within subparagraph 8(1)(i)(ii).

It has been suggested supplies were consumed as that phrase is used in subparagraph 8(1)(i)(iii). Those supplies were records. How were they consumed? The appellant suggested they were consumed in that after playing them for a “while” (for a month or so) they were no longer popular so that you would play them frequently, hence they were consumed in their value in so far as the air value sense was concerned. It was agreed the records physically were still useful in that later, be it a year, two or three, they could still be used, that is played, but the use at that time was from a contrast or nostalgia point of view.

The word “consumed” was considered in two prior cases: Luks v MNR, [1958] CTC 345; 58 DTC 1194, a decision of Mr Justice Thurlow as he then was, and Carson v MNR (1966), 41 Tax ABC 249; 66 DTC 424, a decision of Mr Snyder. In the former case Thurlow, J stated [p 352 [1198]]:

“Supplies” is a term the connotation of which may vary rather widely, according to the context in which it is used. In Section 11(10)(c) [of the former Act] it is used in a context which is concerned with things which are consumed in the performance of the duties of employment . . . The line which separates what is Included in it from what is not included. may be difficult to define precisely but, in general, I think its natural meaning in this context is limited to materials that are used up in the performance of the duties of the employment. It obviously includes such items as gasoline for a blow torch but, in my opinion, it does not include the blow torch itself. The latter, as well as tools In general, falls within the category of equipment. .oe

In the latter case the Board held that pencils, papers, etc bought by a teacher are supplies consumed, but not books. In my opinion the records of the appellant were not consumed as that term is used in subparagraph 8(1)(i)(iii) of the Income Tax Act.

The result is the appeal of the appellant is dismissed.

Appeal dismissed.