Citation: 2006TCC269
Date: 20060508
Docket: 2005-3386(IT)I
BETWEEN:
RONALD EMMONS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Beaubier, J.
[1] This appeal pursuant to the Informal Procedure was heard at Saskatoon, Saskatchewan on April 27, 2006. The Appellant was the only witness.
[2] The particulars in appeal are set out in paragraphs 10 to 16 of the Reply to the Notice of Appeal. They read:
10. In response to the Notice of Objection, on July 14, 2005, the Minister reassessed to allow additional expenses of $46.00 in 2002 and $12.00 in 2003. A summary of the amounts claimed, allowed and disallowed is shown on the attached schedule A. The following amounts, among other things, were not allowed:
(a) parking expense of $1,605.00 in 2002 and $1,605.00 in 2003 was not allowed as the parking was at the Appellant's place of employment and was not incurred for travelling in the course of office or employment;
(b) the cost of a computer, printers and a router were not allowed as supplies expense as these items were capital expenditures;
(c) an amount incurred in the 2001 year was not allowed;
(d) amounts not incurred for the purpose of earning employment income were not allowed; and
(e) amounts not shown to have been incurred were not allowed.
11. In so reassessing the tax of the Appellant on July 14, 2005, the Minister relied on the following assumptions of fact:
(a) during the 2002 and 2003 years, the Appellant was employed by BMO Nesbitt Burns as a commission salesman;
(b) in the 2002 and 2003 years the Appellant claimed employment expenses of $10,112.48 and $13,479.50 as shown under the column "Claimed" in the attached Schedule A;
(c) parking expense of $1,605.00 in 2002 and $1,605.00 in 2003 was the cost of parking at the Appellant's employer's place of business;
(d) parking expense of $1,605.00 in 2002 and $1,605.00 in 2003 was not incurred for travelling in the course of the Appellant's employment;
(e) in respect of supplies expense claimed in the 2002 year:
(i) $41.30 was incurred in the 2001 year;
(ii) $207.83 was not incurred for the purpose of earning income from employment;
(iii) $55.00 was not incurred, and if incurred, was not incurred for the purpose of earning income from employment; and
(iv) $276.83 was for the purchase of a printer;
(f) in respect of supplies expense claimed in the 2003 year:
(i) $196.94 was not incurred for the purpose of earning income from employment;
(iii) $8.44 was not incurred, and if incurred, was not incurred for the purpose of earning income from employment;
(iv) $186.43 was for the purchase of a printer;
(v) $336.74 was for the purchase of a router; and
(vi) $2,337.97 was for the purchase of a computer;
(g) the printers, router and computer purchased were capital expenditures.
B. ISSUES TO BE DECIDED
12. The issue to be decided is whether the Appellant is entitled to employment expenses in excess of the amounts allowed by the Minister.
C. STATUTORY PROVISIONS, GROUNDS RELIED ON AND RELIEF SOUGHT
13. The Respondent relied on sections 3,8 and 67.1 and subsection 248(1) of the Act as amended for the 2002 and 2003 taxation years.
14. The Respondent submits that the Minister properly disallowed parking expense of $1,605.00 in both the 2002 and 2003 years as these amounts were not incurred for travelling in the course of the Appellant's employment. The parking expenses have been properly disallowed in accordance with paragraph 8(1)(h.1) and subsection 8(2) of the Act.
15. He further submits that the Minister properly disallowed supplies expenses in excess of $880.31 in 2002 and in excess of $754.65 in 2003 as:
(a) the amounts of $55.00 in 2002 and $8.44 in 2003 were not incurred;
(b) the amounts of $207.83 in 2002 and $196.94 in 2003 were not incurred to earn income from employment;
(c) the amount of $41.30 was not incurred by the Appellant in the 2002 or 2003 taxation years;
(d) the amount of $276.83 in 2002 and $2,861.14 in 2003 were capital expenditures; and these amounts have been properly disallowed pursuant to paragraph 8(1)(f) and subsection 8(2) of the Act.
16. The Respondent submits that the Minister properly disallowed the cost of a computer, printers and router as these amounts were capital expenditures. He further submits that subsection 8(1)(j) of the Act limits CCA available to an employee to CCA on motor vehicles and aircraft. There is no provision in section 8 of the Act that allows an employee to claim CCA on computers and related equipment.
[3] Assumptions 11 (a), (b), (c), (e)(i), (ii) and (iii) and (f)(i) and (ii) were not refuted by the evidence. Mr. Emmons' testimony concentrated on the parking and the printer, router and computer concerning which he disputed the assessment.
[4] Respecting the parking fees of $1,605 in 2002 and 2003, Mr. Emmons' testimony is that he uses his car daily to go from his employer's office parking area in Saskatoonto attend upon clients and to go to his satellite business office about 150 kilometres away in Prince Albert, Saskatchewan. These attendances are not scheduled and occur when necessary or when clients request them. He is believed. Therefore the parking fees are required as a necessary part of his duties to earn his employment income. They are deductible and this portion of his appeal is allowed.
[5] The assessment respecting the printer, router and computer (assumptions 11 (f)(iv), (v) and (vi)) is based on the premise that these are capital items. Upon the Court's inquiry, Mr. Emmons stated that their useful life is about three years whereupon they are without value and cannot even be given away when they are replaced with new up-to-date equipment. Technology advances, the manufacturers purposely make them short-lived, or the equipment jams up and their working lives conclude. In these circumstances, are they capital?
[6] Under subparagraph 8(1)(f)(v) deductions for capital outlays by employees are explicitly denied:
8. (1) Deductions allowed
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) Sales expenses
where the taxpayer was employed in the year in connection with the selling of property or negotiating of contracts for the taxpayer's employer, and
... to the extent that those amounts were not
(v) outlays, losses or replacements of capital or payments on account of capital, except as described in paragraph (j)
[7] Computer equipment prior to March 22, 2004 was included in Class 10 with a maximum permissible capital cost deduction of 30% per year, implying an amortization period 3.3 years. Since March 22, 2004, computer equipment has been included in a new class, Class 45 with a maximum 45% annual deduction for capital cost, allowing a reduced amortization period of 2.2 years. Parliament's capital cost treatment of computer equipment is suggestive of the short product life cycle mentioned in Mr. Emmons testimony. It is clear that Parliament intended that computers shall be viewed as capital in nature and has allowed businesses (but not employees) to make a reasonable deduction for capital cost.
[8] The Supreme Court of Canada dealt with the deductibility of capital cost for commissioned employees under paragraph 8(1)(f) in Gifford v. MNR, 2004 DTC 6120. Justice Major after discussing the explicit exclusion of capital cost for commissioned employees noted at paragraphs 17-18:
[17] That employees are treated differently than taxpayers earning income from business or property under the Act is not novel nor readily seen as fair. ....
[18] If the (payment(s) are)... "on account of capital", the appellant, as an employee, will not be able to make any deductions from his income for these expenses. Conversely, if the appellant was earning income from a business and not from employment, he would likely be able to deduct both these payments in calculating his profit for the year. This seemingly inequitable result for the appellant is the result of the structure of the Act but cannot alter the characterization of these payments.
This passage suggests that it would be improper to characterize Mr. Emmons' computer equipment as a current expenditure, if it would otherwise be classified as a capital expenditure for the purpose of earning income. In view of this, this portion of the appeal is denied.
[9] This matter is referred to the Minister of National Revenue for reconsideration and reassessment to allow this appeal to the extent described in paragraph [4] hereof.
[10] The Appellant is granted the sum of $100 on account of any disbursements he may have incurred in prosecuting this appeal, by way of costs.
Signed at Saskatoon, Saskatchewan, this 8th day of May 2006.
"D.W. Beaubier"
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