Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: An individual, who is an employee and is presumably entitled to deduct expenses under paragraph 8(1)(f) of the Income Tax Act, has asked whether he is entitled to deduct (i) a damages payment and (ii) interest on borrowed money used to make the damages payment.
Position: General comments were provided.
Reasons: The information was limited.
XXXXXXXXXX 2001-009241
M. Eisner, CA
December 7, 2001
Dear XXXXXXXXXX:
Re: Employment Expenses
Your letter of March 21, 2001, which concerns the above-noted subject, has been referred to us for reply.
You have indicated that you are an employee who is a real estate salesperson. In XXXXXXXXXX, you sold a property, which resulted in a lawsuit being filed against you in XXXXXXXXXX for misrepresentation. In an out-of-court settlement during XXXXXXXXXX, you paid $XXXXXXXXXX, which represented the deductible amount in respect of your errors and omissions insurance policy. In addition, you indicate that you also paid the amount of $XXXXXXXXXX (the "Loaned Amount") in XXXXXXXXXX, which you borrowed from your bank.
You have asked us whether you are entitled to deduct (i) the amount of $XXXXXXXXXX ; (ii) the Loaned Amount; and (iii) the interest you paid in respect of the Loaned Amount.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R4. However, we are prepared to provide the following comments, which are general in nature. Please note that for the purposes of this reply, we have assumed that you were entitled to claim deductions as an employee earning sales commissions. Also note that we have not been provided with any information relating to the Loaned Amount and, therefore, cannot comment on its deductibility.
Paragraph 8(1)(f) of the Income Tax Act (the "Act") applies to employees (salespersons) who earn commission income and are engaged in the selling of property or the negotiating of contacts. Chapter 2 of the enclosed guide entitled "Employment Expenses" provides information on the requirements for claiming a deduction under that provision.
One of the requirements for an amount to be deductible under paragraph 8(1)(f) of the Act, is that the amount must have been expended for the purpose of earning employment income. Another requirement is that the amount cannot be on account of capital such as, for instance, an expenditure made in order to protect the taxpayer's right to earn real estate commissions (i.e., where the taxpayer's license was in jeopardy of being revoked). The determination of whether amounts paid on account of damages meet the requirements for deduction, therefore, requires a review of all relevant facts, including the insurance policy, any statement of claims and the settlement agreement. Should you require further assistance in this regard, you may submit all the relevant documentation to your local Tax Services Office for review.
As regards interest, please note that subsection 8(2) of the Act provides that no deduction may be made in computing an individual's income from an office or employment, except as permitted under section 8 of the Act. Pursuant to paragraph 8(1)(j) of the Act, interest is deductible in computing employment income only if it relates to the acquisition of a motor vehicle used, or aircraft required for use, in the performance of the duties of employment.
We trust that our comments are of assistance to you.
Yours truly,
Milled Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
- 2 -
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2001
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2001