Citation: 2009 TCC 530
Date: 20091027
Docket: 2009-1097(IT)I
BETWEEN:
LINZI LI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Angers J.
[1]
This is an appeal from
an assessment of income tax for the appellant's 2006 taxation year. The
Minister of National Revenue disallowed deductions claimed by the appellant as
employment expenses. The amount disallowed totals $36,073 and is broken down as
follows:
|
|
2006
|
|
Motor vehicle –
fuel
Auto insurance
Commission for
own insurance
Computer
purchased in previous year
Promotion
calendar
Office
Gifts
Entertainment
Other expenses
|
$ 3,322
1,554
7,200
2,332
182
220
3,012
4,277
13,964
|
|
Total expenses
|
$36,073
|
[2]
The appellant's
representative informed the Court at trial that he did not dispute the
disallowed expense of $2,332 relating to a computer purchased in the previous
year, that $125 of the $220 claimed as office expenses was properly disallowed,
leaving a balance of $95, and that $2,881 of the $3,012 claimed under gifts was
properly disallowed, leaving a balance of $131. These two balances and the
promotion calendar expense are now allowed by the respondent as deductions. All
the other items are in dispute.
[3]
The appellant was
employed as a commission insurance salesperson for RBC Life Insurance Company
(RBC). It is agreed that the appellant received from her employer a salary,
wages and other remuneration, including commissions based on the volume of
sales made or contracts negotiated.
[4]
Her employment with RBC
began on July 4, 2006. Prior to that, the appellant attended training sessions
and became a licensed agent. She testified that she had spent time at RBC previous
to her being employed and had arranged appointments before the date she was
hired.
[5]
The appellant did not
provide with her tax return, a signed T2200 form from her employer, but two
were actually presented in evidence: one signed and dated April 12, 2007 that
the appellant later provided to the Canada Revenue Agency (CRA) and an unsigned
one dated March 27, 2007 provided by RBC. Ms. Patricia Zannella, who, as
director, Field Services, for RBC was the person responsible for T2200 forms at
RBC, testified that the unsigned T2200 dated March 27, 2007 is a standard form
with the answers typed in so that they cannot be changed. That form contains
the conditions of employment applicable to the appellant in 2006.
[6]
As for the signed
T2200, Ms. Zannella does not understand how the form could have been changed, although
certain answers are different on that form and are contrary to the terms of appellant's
employment. She noted that the signed form indicates that the appellant's duties
included selling investment funds, but RBC did not sell investment funds in
2006. The answers to question number 9 are also different in that the signed
T2200 indicates that the employee is required to rent an office away from the
employer's place of business and to pay for a substitute or an assistant. Ms.
Zannella's evidence is that RBC, in 2006, did not require that the appellant
rent an office away from RBC's place of business as there were offices
available for RBC's sales staff. As for assistants, RBC provided administrative
staff at its offices. There was no requirement that its sales representatives
hire telemarketers to assist them.
[7]
The other discrepancies
between the two forms are with respect to question 6: the signed one indicates
that the employee was obliged to pay expenses required to achieve production
targets; the unsigned one indicates that the employee had to pay « various »
expenses. In addition, at question 10, asking whether the contract of
employment requires the use of a portion of the employee's home for work, the answer
given on the signed copy is yes, and on the unsigned copy, no.
[8]
The determination of
these conditions of employment is particularly important because of the "other
expenses" item in the amount of $13,964 claimed by the appellant. These
"other expenses" represent a salary the appellant paid her husband to
work as a telemarketer. Her husband testified that his duties consisted of
calling potential clients and setting up appointments with the appellant, that
he worked 20 hours a week and made between 100 and 200 calls a day. He was paid
$15 an hour and worked 5 evenings a week.
[9]
The appellant provided
her husband with a T4 slip showing $15,400 as employment income for 2006. The
discrepancy in terms of employment income between the T4 and his evidence was
explained by the fact that he was given a bonus of $50 when he landed an
appointment for the appellant.
[10]
No deduction can be
made in computing a taxpayer's income for a taxation year unless it is
permitted by section 8 of the Income Tax Act (see subsection 8(2)
of the Act). In order for the appellant to deduct the cost of a salary
paid to an assistant or substitute, it must be established that the payment of
the salary was required by the contract of employment, in accordance with
subparagraph 8(1)(i)(ii) of the Act. The testimony of Ms.
Patricia Zannella was very credible and reliable. I do believe that the
appellant's conditions of employment with RBC in 2006 did not require her to
hire and pay an assistant, nor can it be said that it was an implicit condition
of her employment that she do so (see Morgan v. the Queen, 2007 TCC
475). Thus, the Minister properly disallowed this expense.
[11]
The expenses claimed
under the motor vehicle – fuel, auto insurance and entertainment items were
disallowed by the Minister on the basis that the appellant failed to provide
any documentation to support the expenses and that these expenses did not represent
purchases used in her employment activities, nor were they incurred for the
purpose of gaining or producing income from her employment as they were
personal or living expenses.
[12]
The receipts for
gasoline purchases and for automobile insurance are found at Tabs 8 and 9 of
Exhibit R-1. The total of $3,332 in the first item (motor vehicle – fuel) includes
the insurance premium of $1,554 for one car claimed as the second item shown in
the table in paragraph one above.
[13]
One difficulty with the
gasoline expenses lies in the fact that many receipts predate the appellant's period
of employment and that some of the gasoline purchases were made with credit
cards she shared with her husband. The other difficulty lies in the fact that
the name of the insured on the certificate of automobile insurance is not the
appellant's. She is identified as driver number 5 with respect to automobile
number 3. Her family has 4 automobiles with several drivers. The class
description given for the vehicle in question is "pleasure and driven to
work".
[14]
The appellant did not
keep a logbook of her kilometres driven and is unable to determine with any
certainty the actual percentage of use for business purposes other than to say that
it is close to 90%. Considering the fact that she began working for RBC in
July, the insurance premium expense must be reduced by half and the gasoline
purchases prior to July must also be excluded. This leaves a total of $2,073.91
for the motor vehicle - fuel and automobile insurance items. The evidence is
clearly insufficient to establish 90% business use. Considering all the
circumstances, I can only arbitrarily determine an amount, which I set at
$1,000.
[15]
The commission for her
own insurance, claimed as an expense, was properly disallowed by the Minister.
There are no provisions in section 8 that allow such a deduction.
[16]
The last remaining
expense claimed, namely entertainment, was not allowed by the Minister because
many receipts were for meals for one person, were undated or were issued prior
to the period of employment and others were for meals consumed on weekends. The
appellant has acknowledged that she gave all her receipts to her accountant and
left it to him to sort them out, as she did not know what she could claim. None
of the receipts in question can be linked to clients or potential clients and
the appellant has not taken the time to sort any of these receipts, nor has she
produced any in evidence. In circumstances where a claim is clearly exaggerated,
it is difficult if not impossible to allow the expense. These expenses were, therefore,
properly disallowed.
[17]
The appeal is allowed in part
and the assessment is referred back to the Minister of National Revenue for
reconsideration and reassessment in accordance with these reasons.
Signed at Ottawa, Canada, this 27th
day of October 2009.
"François Angers"
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