Griesbach v. Canada (M.N.R.), 91 DTC 142, [1990] 2 CTC 2593 (TCC)

Christie, A.CJ.T.C.: —In his return of income for 1985 the appellant deducted $8,057.25 for "Travel & expense & part-time ass't" under the heading “Calculation of Total Income". By assessment made on July 29, 1986, the respondent disallowed the claimed deduction entirely and substituted the employment expense deduction of $500 provided for under paragraph 8(1)(a) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c.63) (the "Act"). This was followed by a reassessment made on August 26, 1987, allowing a deduction for expenses of $714 under paragraphs 8(1)(h) and (j) of the Act. The appellant objected to this reassessment and it was followed by a further reassessment made on March 3, 1988, increasing the allowable expenses by $1,596.55 for a total of $2,310.55. This is the breakdown:

The appellant contends that in computing his income for the year under review he is entitled to deduct an additional $3,785.22 incurred for hotel accommodations and the entertainment of clients as salesman's expenses under paragraph 8(1)(f) of the Act. It provides:

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.

At trial he informed the court that he was no longer claiming a deduction in respect of a part-time assistant. While it is difficult to appreciate, in the face of this concession and on the basis of other evidence, how his additional claim still amounts to $3,785.22 I am, nevertheless, prepared to accept this figure for the purposes of these reasons.

In 1985 the appellant was one of a number of persons employed by Rideau Marine (Kingston) Ltd. of Kingston. His particular duties were those of assistant manager and salesman. His responsibilities as assistant manager were to manage the staff and the service aspect, i.e. providing dockage, fuel, etc., of the business in the absence of the general manager, Mr. Clayton Simonett, who was away a good deal of the time. His duties as salesman related to the sale of boats that ranged from 18 to 41 feet in length. Generally prices for these boats ranged from $25,000 to $125,000 although in 1985 a yacht was sold for $325,000.

In his return of income for 1985 he recorded that his employment income before deductions was $62,644.30 and this conforms with the T-4-1985 slip issued by Rideau Marine (Kingston) Ltd. At trial evidence was adduced that the $62,644.30 consisted of two components: $15,000 by way of salary and the balance of $47,644.30 was remuneration based on 20 per cent of the pre-tax gross profit of his employer in 1985.

Counsel for the respondent argues that remuneration arrived at under that formula is not “commissions or other similar amounts fixed by reference to the volume of the sales made or the contracts negotiated" within the meaning to be attributed to these words in subparagraph 8(1)(f)(iii) of the Act. I agree. In arriving at this conclusion I focus on these words in paragraph 8(1)(f) that allow the deduction of salesman's expenses:

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

(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. . .

To my mind the result is that in order for expenses to be deductible under that paragraph the remuneration pertaining thereto must be fixed by reference to the volume of the sales made or the contracts negotiated by the taxpayer claiming those deductions. Twenty per cent of the pre-tax gross profits of an employer with a number of employees is not synonymous with remuneration so fixed.

In order for a taxpayer, in computing his income for a taxation year, to be entitled under paragraph 8(1)(f) of the Act to deduct amounts expended by him in that year for the purpose of earning income from employment he must come within the ambit of each of subparagraphs 8(1)(f)(i), (ii), (iii) and (iv). It follows from my determination that the appellant is not within subparagraph 8(1)(f)(iii) that this appeal cannot succeed.

No. 149 v. M.N.R. (1954), 10 Tax A.B.C. 147; 54 D.T.C. 142; No. 150 v. M.N.R. (1954), 10 Tax A.B.C. 149; 54 D.T.C. 143 and Claus v. M.N.R. (1966), 40 Tax A.B.C. 395; 66 D.T.C. 248, are three decisions of the Tax Appeal Board that rejected the notion that a person whose remuneration is a combination of fixed salary and a percentage of the net or gross profits of his employer is entitled to make deductions under the predecessor to what is now paragraph 8(1)(f) of the Act.

In No. 149, supra, the appellant, a vice-president of a textile manufacturing corporation in Quebec, received a fixed salary of $15,000 per annum plus /2 per cent of the corporation's net profits. He sought to deduct expenses totalling $4,065.82 in computing his income for 1951 and in so doing relied, inter alia, on subsection 11(6) [1] of the Act. In dismissing the appeal Board member R.S.W. Fordham, Q.C., said at page 148 (D.T.C. 142):

The undisputed evidence is that appellant was a salaried officer of the employing corporation and not paid on a commission basis as well. In these circumstances I must find that no deduction for expenses incurred is allowable under subsection (6). That subsection refers to “commissions or other similar amounts fixed by reference to the volume of the sales made or the contracts negotiated” and this wording cannot, in my view, be construed as embracing something so different as a share of an employing corporation's profits. The word “commissions” is not as wide in its generally-accepted meaning as that.

In No. 150, supra, the appellant was employed as the general manager and sales manager of a manufacturing company. He received a fixed salary plus a bonus that was the equivalent of five per cent of the company's gross profit for the year. He also sought to deduct certain expenses relying on subsection 11(6) of the Income Tax Act. In dismissing the appeal Mr. Fordham said at page 149 (D.T.C. 143):

The identical argument was advanced in support of this appeal that was heard in the appeal mentioned (No. 149) in the first paragraph hereof. For the same reasons as those given in that instance I have reached the opinion that this appeal should also be dismissed.

In Claus, supra, the year under review was 1963. During the first three months of that year the appellant worked for a transportation company. For the remainder of that year he worked for a different transportation company. His remuneration from both was by way of fixed salary from both plus a percentage of the net profits of the companies. Again the appellant sought to deduct certain expenses under subsection 11(6) of the Income Tax Act. In dismissing the appeal Board member Roland St-Onge (now St-Onge, T.C.J.) said at page 399 (D.T.C. 250):

As for section 11(6), the appellant's work contract does not stipulate that the employee is obliged to pay for his own expenses. Moreover, an appellant, in order to take advantage of that section, was to be remunerated, in whole or in part, by commissions based on the volume of sales realized or contracts negotiated. In the present case the appellant was remunerated by a fixed salary and a percentage based on the net profits of the company.

The appeal is dismissed.

Appeal dismissed.