Gerald C Shangraw v. Minister of National Revenue, [1976] CTC 2415, 76 DTC 1309

The Chairman:—This is an appeal of Gerald C Shangraw from an income tax assessment in respect of the 1973 taxation year.

The issue in this appeal is whether certain amounts claimed by the appellant as expenses incurred to earn income were properly disallowed by the respondent.

The appellant, a commission salesman in the floor covering department of The T Eaton Co Limited store in the City of Oshawa, claimed, in this 1973 tax return, deductions of $150 for clothing; $217.75 for stationery, cards, stamps, etc; $63.45 for telephone and $887.89 for car expenses, ail of which were disallowed by the respondent on the ground that the appellant did not meet the requirements of paragraph 8(1)(h) of the Income Tax Act, SC 1970-71-72, c 63, as amended, in that the appellant was not ordinarily required to carry on the duties of his employment away from his employer’s place of business and was not required, under his employment contract, to pay travelling expenses incurred by him in the performance of his duties.

The appellant, who represented himself at the hearing and who evidently was not familiar with the provisions of the Income Tax Act, agreed to withdraw all his claims except those for automobile expenses. In the circumstances, the Board suggested that the claim of $150 for clothing, admitted by the appellant to have been a personal expenditure, be withdrawn, but that the deductibility of the other expenses be considered by the Board in dealing with the merits of the case.

In his testimony the appellant, in describing the nature of his work, stated that he was one of two regular commission salesmen in the floor covering department of The T Eaton Co Limited store who engaged in the sale of carpets, hard floor coverings, mats, etc. Both salesmen were remunerated exclusively by way of commission on their sales. The store hours were form 9:30 am to 6:00 pm on week-days except on Thursdays and Fridays when the working hours were from 9:30 am to 9:00 pm. On weekends, students were also employed on a salary basis to help out in the carpet department.

Although no evidence of a written contract of employment was produced, it would appear from the appellant’s testimony that Mr Fair, the Sales Manager at The T Eaton Co Limited store in Oshawa, required only that at least one of the two salesmen be on the floor at ali times during working hours, and that the necessary time schedule be worked out by the two commission salesmen without any interference on the part of the Sales Manager. The appellant read to the Board an advertisement in an Oshawa newspaper, placed by The T Eaton Co Limited of that city, advertising its carpets and also the in- home customer services which the company was prepared to render to its customers. In order to provide these in-home services the appellant explained that it was necessary for the salesmen to go to the customers’ homes to measure the exact sizes of rooms for wall-to- wall carpeting, to check out the measurements shown on blueprints with the actual construction, to bring samples of rugs to the customers’ homes so as to match walls and furniture, to verify the condition and composition of floors on which hard floor covering was to be laid, to decide which way the carpet should run, to order the selected carpets or hard floor coverings and to have the customer sign a “pay-out completion form” before the carpet or hard floor covering was laid down. Moreover, the appellant explained, and it was not contradicted, that The T Eaton Co Limited in Oshawa did not have employees to lay down the flooring, and therefore the appellant, as salesman, had to retain an independent contractor and arrange with him the details of when, how and where to install the carpeting.

The appellant admitted that sales were also made at the store, but he claimed that, on an average, he was away from the store in customers’ homes performing his duties as a rug salesman approximately two to three hours a day. The authorized territory of the two salesmen for the sale and home service of floor coverings was roughly within a radius of 75 miles of Oshawa.

The appellant filed, as Exhibit A-1, an unsigned letter, dated August 29, 1974, purportedly from one D R Barrett, Personnel Manager, who claimed, on reviewing the appellant’s sales for 1971/72, that “an average of 75% of his [the appellant’s] business conducted, required the use of his own automobile for which no reimbursement was made by the company”. Exhibit A-2 is a letter dated May 1975 from J W Wilson, Area Employee Relations Manager of The T Eaton Co Limited in Toronto, who claims that 30% of the appellant’s time is spent in the homes of customers as a carpet salesman and that no mileage allowance is paid to the appellant for the use of his car. Exhibit A-3, a letter signed by both Mr A Fair, Sales Manager, and Mr D J King, Personnel Manager of The T Eaton Co Limited store in Oshawa and dated October 26, 1976, states that, as part of the appellant’s normal job responsibilities, he is required to be away from the store using his personal automobile for business purposes and that he is not reimbursed by the company for this additional personal expense.

Counsel for the respondent, in attempting to prove that the appellant was not required to carry on the duties of his employment away from the employer’s place of business, filed as Exhibit R-1 a questionnaire from the Department of National Revenue to the Personnel Manager of The T Eaton Co Limited store in Oshawa. In answer to question #1, “Was he ordinarily required to carry on the duties of his employment away from your place of business or in different places?” the answer was "No”. However, in that answer, a reference is made to Part 9 of the questionnaire dealing with further information, and there we read: “Mr Shangraw, as a commission salesman in our floor covering department, was required at times to use his car at his own expense to give in-home customer service; this would account for approximately 45-50% of his earnings.”

Exhibit R-2 is a letter from the Employment Office of The T Eaton Co Limited in Toronto, signed by Miss P Shields, Reference Clerk, in which she states: “As far as we are concerned Mr Shangraw is not required to use his car for Company business. However, we understand he is allowed to claim depreciation re travel to and from work.”

Mr Mohamed, the auditor from the Department of National Revenue Taxation Division who reviewed the appellant’s objection to the 1973 assessment, conducted the review by letter and by telephone, and concluded from his investigation that the appellant did not meet the requirements of paragraphs 8(1)(f) and 8(1)(h) of the Income Tax Act, SC 1970-71-72, c 63, as amended.

Notwithstanding Exhibit R-2, the letter from the Reference Clerk in Toronto, the preponderance of the evidence is that the appellant did in fact render in-home customer services in connection with his employment as a rug salesman for The T Eaton Co Limited in Oshawa, and was not paid any allowance to cover such expenditures. It is also clear that the appellant’s income was solely from commissions based exclusively on his sales; that the company advertised the availability of in-home customer services in its floor covering department; and that, the appellant had refused to carry out such advertised services, ne would no doubt have been dismissed.

Counsel for the appellant refers to the apparent contradictions in the evidence as to the time spent away from the employer’s place of business. In some instances, the evidence is given in percentages of the appellant’s earnings, and, in others, in a percentage of his time away from the floor covering department of The T Eaton Co Limited Oshawa store. The percentages range from 30% to 75%, and some contradiction can indeed be said to exist.

However, in the circumstances of this appeal, it appears to me that the amount of time spent by the appellant on in-home customer service away from his employer’s place of business may be of some value in roughly gauging whether the expenses claimed by the appellant are reasonable but, in my view, is of relatively little help in deciding whether the taxpayer conforms to the requirements of subparagraph

(i) of the said paragraph 8(1)(h), which reads:

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:

(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 position of counsel for the respondent, as l understand his argument, was that the appellant was not, according to the dictionary definition of the italicized words, “ordinarily required to carry on the duties of his employment away from his employer’s place of business” and therefore did not conform to the requirements of subparagraph 8(1)(h)(i) of the Income Tax Act, SC 1970-71-72, c 63, as amended, because he spent very little time, if any, away from his employer’s place of business.

Subparagraph 8(1 )(h)(i) of the said Act can, of course, be interpreted as being essentially related to time, but the question as I see it is whether that is the only valid interpretation to be placed on the words “ordinarily required”. In my opinion, interpreting those words as being related to the actual duties and responsibilities of the appellant’s employment rather than to the time factor is also a legal and valid interpretation.

I am satisfied that, although the appellant was an employee of The T Eaton Co Limited in Oshawa, his income from that source was ex- clusively on a commission basis from the sale of floor coverings and that the appellant was ordinarily required, as part of the duties and obligations of his employment and the earning of his income, to render in-home services to clients, as advertised by his employer in the press, as and when required by the clients to do so. In my opinion, the appellant qualifies as an exception to the general limitation of subsection 8(2) of the Income Tax Act, SC 1970-71-72, c 63, as amended, and conforms to the requirements of subparagraph 8(1)(h)(i) thereof.

Counsel for the respondent also contended that the appellant did not conform to subparagraph 8(1)(h)(ii) of the Act because he was not required to pay travelling expenses incurred by him in the performance of his duties.

The evidence was that the appellant was not paid any travelling allowances in the 1973 taxation year. Counsel for the respondent, however, argued that in 1970 the appellant had refused an 11¢ a mile automobile allowance offered by The T Eaton Co Limited and therefore could not now be said to be required to pay his own travelling expenses. I do not believe that the appellant, who in 1973, by verbal agreement, was required by his employer to render in-home client services, who was also required by the employer to have a car, and who in fact paid the resulting automobile expenses, can be said not to conform to the requirements of subparagraph (ii) of paragraph 8(1)(h) in 1973 simply because he refused an 11¢ a mile travelling allowance offered in 1970.

In my opinion the only contract of employment which existed between the appellant and The T Eaton Co Limited in 1973 was an oral agreement which, from the evidence adduced (and which was in no way contradicted), required the appellant to pay his travelling expenses. The appellant therefore conforms to subparagraph (ii) as well as to subparagraph (iii) of paragraph 8(1)(h) of the said Income Tax Act.

The appellant, on the basis of the evidence adduced, also conforms to the requirements of paragraph 8(1)(f) of the Act because he was employed in connection with the selling of property or the negotiating of contracts for his employer and was ordinarily required to carry on the duties of his employment away from his employer’s place of business, he was remunerated in whole by commissions on his sales, and he was required, under an oral agreement, to pay his own expenses.

It is unfortunate that, in Support of these expenses, the evidence given by the appellant, on whom the burden of proof lies, was at best very sketchy. The appellant’s claim for an expense of $150 for clothing has, as already mentioned, been withdrawn by the appellant and dismissed. The telephone expenses of $63.45, an arbitrary percentage of the appellant’s yearly telephone bill, and the amount of $217.75 allegedly expended for stamps and stationery, are also dismissed because no evidence was adduced to support, explain or justify such expenditures in relation to his sales of floor coverings.

The remaining deduction claimed by the appellant is that for car expenses (including capital cost allowance, insurance, licence, repairs and tires), in the amount of $887.89, being 3 of his total car expenses of $1,183.86.

Here again the appellant failed to specify the mileage travelled by him on the employer’s business. However, no expenditures for gasoline were claimed by the appellant. Invoices and receipts for the purchase of tires in 1973 were alleged by the appellant to have been given to the Department of National Revenue when the appellant filed his income tax returns. Mr Mohamed, the auditor, had stated in his testimony that little attention had been paid to the actual figures set forth in the appellant’s claim once the appellant was deemed not to fall within the requirement of paragraphs 8(1 )(h) and 8(1)(f) of the Income Tax Act, SC 1970-71-72, c 63, as amended and, at the time of the hearing counsel for the respondent did not know whether or not the Department of National Revenue still had these receipts in its possession.

Because in the opinion of the Board the appellant does conform to the requirements of paragraphs 8(1 )(h) and 8(1 )(f) of the Income Tax Act, he should be allowed to deduct certain automobile expenses even though the detailed evidence in that regard is somewhat incomplete. The Board, in the circumstances, considers the allowance of 50% of the automobile expenses of $1,183.86 incurred by the appellant to be reasonable and fair to both parties.

For these reasons, the appeal is allowed in part and the matter referred back to the Minister for reconsideration and reassessment, so that he may take into account that an amount of $591.93 has been hereby allowed as a deduction for automobile expenses.

In all other respects the appeal is dismissed.

Appeal allowed in part.