Hay v. The Queen, docket 2000-5135-IT-I (Informal Procedure)

Date: 20011002

Docket: 2000-5135-IT-I

BETWEEN:

CAROLYN HAY,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasonsfor Judgment

Hamlyn, J.T.C.C.

[1]            These are appeals from assessments made under the Income Tax Act (the "Act") for the 1997 and 1998 taxation years.

[2]            The Minister of National Revenue (the "Minister") initially assessed the Appellant for the 1997 and 1998 taxation years by Notices dated July 7, 1998 and June 29, 1999 respectively.

[3]            In computing income for the 1997 and 1998 taxation years, the Appellant deducted $10,445.53 and $8,422.56, respectively, on account of employment expenses.

[4]            The Minister reassessed the Appellant for the 1997 and 1998 taxation years by Notices dated December 29, 1999 and disallowed the employment expenses of $10,445.53 and $8,422.56 in each of those years respectively.

FACTS

[5]            The Appellant, based in Vancouver, worked for Holt Renfrew & Co. in several managerial capacities and eventually became the Vice-President and General Manager of the Western Region. She stated her work mandate was to run her region as if it were her own business in the best interests of the employer. She stated she was responsible for the care and control of the "bottom line". She said she was paid by way of salary and bonus. The salary was adjusted yearly in accordance with her part of the corporate performance and her bonus was paid on a formula performance measure. The bonus was calculated pursuant to a bonus incentive plan. The bonus incentive plan was based on achievement in sales, control of direct expenses, control of inventory shrinkage and control of workrooms.

[6]            When she incurred expenses she submitted same to the employer and the employer reimbursed her.

[7]            She said, however, she did not submit all expenses and sought to deduct those non-remunerated expenses as employment expenses in her annual tax return. However, she did confirm if they had been submitted, she would have been reimbursed.

[8]            The Appellant sought to deduct those non-remunerated expenses as she asserts she was remunerated by sales and therefore is entitled to the benefit of employment deductions under sales expenses pursuant to paragraph 8(1)(f) of the Act.

[9]            The annual T-2200 forms as required by subsection 8(10) of the Act filed by the Appellant over several taxation years contained purported conditions of employment. The T-2200 for the 1997 taxation year, signed on March 20, 1997 by Eugene Duynestee-S., Vice-President and C.F.O. of the employer, indicated the following information:

-                The employee's contract did require her to pay her own expenses;

-                The employee was required to work away from the employer's place of business;

-                The employee did not receive an allowance;

-                The employee received repayment for expenses upon proof of payment;

-                The employee was required to pay "promotion, etc. clients/staff sales incent." for which she did not receive an allowance or repayment;

-                The employee was remunerated wholly or partly by commissions or similar amounts according to the volume of sales made or "contracts negotiated. The type of goods sold or contracts negotiated high end retail goods and services";

-                The employee was required to be away for at least 12 hours from the municipality and metropolitan area of the employer's business where the Appellant normally reported for work;

-                The employee was required to rent an office or use a portion of her home, and pay for supplies that she used directly in her work. However, the employee was repaid by the employer for these expenses.

[10]          The T-2200 filed for the 1998 taxation year was not signed by the employer, however the following information was contained therein:

-                The employee's contract did require her to pay her own expenses;

-                The employee was required to work away from the employer's place of business;

-                The employee did not receive an allowance;

-                The employee received repayment for expenses upon proof of payment;

-                The employee was required to pay promotion, etc. clients/staff sales incent.;

-                The employee was remunerated wholly or partly by commission or similar amounts according to the volume of sales made or "contracts negotiated high end retail goods and services";

-                The employee was required to be away for at least 12 hours from the municipality and metropolitan area of the employer's business where the Appellant normally reported for work;

-                The employee was required to rent an office or use a portion of her home and to pay for supplies that she used directly in her work. However, the employer would not repay this employee for any of these expenses.

[11]          Other T-2200 forms for the same Appellant for the same assessed taxation years obtained from the same employer were filed in this proceeding by the Respondent as exhibit R-4. The T-2200 for the 1997 taxation year, signed on October 14, 1999 by S.W. Fraser, C.F.O. of the employer, indicated the following information:

-                The employee's contract did not require her to pay her own expenses;

-                The employee was required to work away from the employer's place of business;

-                The employee received an allowance upon proof of payment. A note indicates that the Appellant was eligible for such allowance but may not have used it;

-                The employee received repayment of the expenses she paid to earn her employment income upon proof of payment;

-                The employee was not required to pay other expenses for which she did not receive an allowance or repayment;

-                The employee was not remunerated wholly or partly by commissions or similar amounts according to the volume of sales made or contracts negotiated;

-                The employee was required to be away for at least 12 hours from the municipality and metropolitan area of the employer's business where the Appellant normally reported for work;

-                The employee was not required under her contract of employment to rent an office or use a portion of her home and to pay for a substitute or assistant or to pay for supplies that she used directly in her work.

[12]          The T-2200 for the 1998 taxation year, signed on October 14, 1999 by S.W. Fraser, C.F.O. of the employer, indicated the following information:

-                The employee's contract did not require her to pay her own expenses;

-                The employee was required to work away from the employer's place of business;

-                The employee received an allowance upon proof of payment. A note indicates that the Appellant was eligible for such allowance but may not have used it;

-                The employee received repayment of the expenses she paid to earn her employment income upon proof of payment;

-                The employee was not required to pay other expenses for which she did not receive an allowance or repayment;

-                The employee was not remunerated wholly or partly by commissions or similar amounts according to the volume of sales made or contracts negotiated;

-                The employee was required to be away for at least 12 hours from the municipality and metropolitan area of the employer's business where the Appellant normally reported for work;

-                The employee was not required under her contract of employment to rent an office or use a portion of her home and to pay for a substitute or assistant or to pay for supplies that she used directly in her work.

[13]          It is clear the T-2200 forms for the same taxation years are in conflict with one another.

LEGISLATION

[14]          The relevant provisions of the Act are as follows:

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

(i)             under the contract of employment was required to pay the taxpayer's own expenses,

(ii)            was ordinarily required to carry on the duties of the employment away from the 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 travel expenses in respect of the taxation year that was, by virtue of subparagraph 6(1)(b)(v), not included in computing the taxpayer's income,

amounts expended by the taxpayer in the year for the purpose of earning the income from the employment (not exceeding the commissions or other similar amounts referred to in subparagraph (iii) and received by the taxpayer 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),

(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 the taxpayer, or

(vii)          amounts the payment of which reduced the amount that would otherwise be included in computing the taxpayer's income for the year because of paragraph 6(1)(e);

[...]

(h) travel expenses — where the taxpayer, in the year,

(i)             was ordinarily required to carry on the duties of the office or employment away from the employer's place of business or in different places, and

(ii)            was required under the contract of employment to pay the travel expenses incurred by the taxpayer in the performance of the duties of the office or employment,

amounts expended by the taxpayer in the year (other than motor vehicle expenses) for travelling in the course of the office or employment, except where the taxpayer

(iii)           received an allowance for travel expenses that was, because of subparagraph 6(1)(b)(v), (vi) or (vii), not included in computing the taxpayer's income for the year, or

(iv)           claims a deduction for the year under paragraph (e), (f) or (g);

(h.1) motor vehicle travel expenses — where the taxpayer, in the year,

(i)             was ordinarily required to carry on the duties of the office or employment away from the employer's place of business or in different places, and

(ii)            was required under the contract of employment to pay motor vehicle expenses incurred in the performance of the duties of the office or employment,

amounts expended by the taxpayer in the year in respect of motor vehicle expenses incurred for travelling in the course of the office or employment, except where the taxpayer

(iii)           received an allowance for motor vehicle expenses that was, because of paragraph 6(1)(b), not included in computing the taxpayer's income for the year, or

(iv)           claims a deduction for the year under paragraph (f);

(i) dues and other expenses of performing duties — amounts paid by the taxpayer in the year as

(i)             annual professional membership dues the payment of which was necessary to maintain a professional status recognized by statute,

(ii)            office rent, or salary to an assistant or substitute, the payment of which by the officer or employee was required by the contract of employment,

(iii)           the cost of supplies that were consumed directly in the performance of the duties of the office or employment and that the officer or employee was required by the contract of employment to supply and pay for,

(iv)           annual dues to maintain membership in a trade union as defined

(A)           by section 3 of the Canada Labour Code, or

(B)            in any provincial statute providing for the investigation, conciliation or settlement of industrial disputes,

or to maintain membership in an association of public servants the primary object of which is to promote the improvement of the members' conditions of employment or work,

(v)            annual dues that were, pursuant to the provisions of a collective agreement, retained by the taxpayer's employer from the taxpayer's remuneration and paid to a trade union or association designated in subparagraph (iv) of which the taxpayer was not a member,

(vi)           dues to a parity or advisory committee or similar body, the payment of which was required under the laws of a province in respect of the employment for the year, and

(vii)          dues to a professions board, the payment of which was required under the laws of a province,

to the extent that the taxpayer has not been reimbursed, and is not entitled to be reimbursed in respect thereof;

[...]

(10) Certificate of employer — An amount otherwise deductible for a taxation year under paragraph (1)(c), (f), (h) or (h.1) or subparagraph (1)(i)(ii) or (iii) by a taxpayer shall not be deducted unless a prescribed form, signed by the taxpayer's employer certifying that the conditions set out in the applicable provision were met in the year in respect of the taxpayer, is filed with the taxpayer's return of income for the year.

ANALYSIS

ENTITLEMENT

[15]          In computing a taxpayer's income for a taxation year from an office or employment, there may be deducted sales expenses where the taxpayer was employed in the year in connection with the selling of property or negotiating of contracts, and, when under the contract of employment, the taxpayer was required to pay the taxpayer's own expenses and, inter alia, was remunerated in whole or in part by commissions or other similar amounts fixed by reference to the volume of the sales made on the contracts negotiated.

[16]          This Appellant received a salary that was subject to an annual review adjustment based on performance, and she also received (in the next fiscal year) an incentive bonus based on a formula that included sales performance, control of direct expenses, control of inventory shrinkage and control of workrooms.

[17]          The Appellant bases her claim on paragraphs 8(1)(f), (h), (h.1) and (i) which permit the deduction of expenses incurred by employees in conjunction with their employment and for which they are not entitled to reimbursement from their employers.

[18]          An employee seeking to claim a deduction under paragraph 8(1)(f) must meet each of the following tests:

(1)            The taxpayer must be employed in the year in connection with the selling of property or negotiating of contracts for the taxpayer's employer.

From the evidence, I have concluded that the Appellant's role was that of vice-president and manager. Her management, administrative, motivational and financial skills were, I conclude, the basis of her engagement and employment. She was not a person, as such, employed in connection with the selling of property or the negotiating of contracts.

(2)            The Expenses Must Be Borne by Employee (subparagraph (i)): If an employee is entitled to reimbursement from an employer, the employee clearly cannot expect to deduct the expenses for income tax purposes.

The Appellant states that she had unlimited discretion to incur expenses for her employment. However, she did confirm, and both versions of the T-2200 form for the 1997 taxation year are to the same effect, that she was entitled to be reimbursed for her expenses upon proof of payment. The Appellant said, however, that she did not submit all of her proof of payment and, thus, sought to deduct those non-reimbursed expenses in her annual tax return. I conclude, since the Appellant was entitled to reimbursement from her employer, she cannot be said to have been required to pay her own expenses.

(3)            The Employee Must Be Ordinarily Required to Travel (subparagraph (ii)): The employee must be "ordinarily required to carry on the duties of the employment away from the employer's place of business". The parties agree that the Appellant was required to work away from the employer's place of business. She had to travel across British Columbia, Alberta, Manitoba and Ontario.

(4)            The Remuneration is Dependent on Volume of Sales (subparagraph (iii)): The Appellant's bonuses were not related to a specific sales formula. Simply put, the bonus was a formula calculation based on performance in many work areas of responsibility. There is an insufficient degree or nexus given her several work duties and responsibilities to conclude her remuneration was in whole or in part by commission or other similar amounts fixed by reference to sales volume in connection with selling of property or negotiating of contracts for her employer.

(5)            No Tax-Free Allowance Received (subparagraph (iv)): The evidence provided in the two sets of forms is contradictory. The form provided by the Appellant indicates that she was not in receipt of any allowance. The T-2200 signed by S.W. Fraser indicates that the Appellant was eligible for a travelling allowance calculated on a per-kilometre rate, however it notes that Ms. Hay may not have used it.

[19]          Based on this analysis, it is concluded the Appellant is precluded from deducting the expenses claimed under paragraph 8(1)(f).

[20]          The Appellant equally claims a deduction under paragraph 8(1)(h) (travel expenses) of the Act. In order to benefit under this provision, the taxpayer must first satisfy the requirements set out in subparagraphs (i) and (ii). With respect to the requirement in subparagraph (i), the parties agree that the Appellant was required to work away from the employer's place of business. However, the Appellant does not meet the condition of subparagraph (ii), because she was not contractually bound to pay for her travelling expenses and, moreover, she was entitled to reimbursement from her employer. Therefore, the Appellant is ineligible for the deduction provided under paragraph 8(1)(h) of the Act. The Appellant's claim under paragraphs 8(1)(h.1) (motor vehicle expenses) and (i) (dues and other expenses of performing duties) fails for the same reason.

[21]          With these conclusions it is not necessary to deal with subsection 8(10), however much of the evidence focused on this subsection. Therefore, I will review the findings.

T-2200 Forms

[22]          The Appellant filed a T-2200 for the 1997 taxation year. She did not file a

signed T-2200 for the 1998 taxation year.

[23]          The 1997 T-2200 filed by the Appellant was signed on behalf of the employer by Eugene Duynestee-S., C.F.O. of the corporation. It was, however, dated March 20, 1997. The Appellant attributed this early date to a typing error.

[24]          As reviewed in the course of the C.C.R.A. auditor's investigation with respect to the 1997 and 1998 taxation years, the employer sent to the auditor a T-2200 for the 1997 taxation year and a T-2200 for the 1998 taxation year, both signed by a different C.F.O. of the corporation.

[25]          Both T-2200 forms sent to the C.C.R.A. by the employer are in conflict with the signed (1997) and unsigned (1998) T-2200 forms filed by the taxpayer.

[26]          The explanation by the Appellant as to the differing versions was that the view of the employer changed with respect to her engagement and that the person who signed the second T-2200 was after the fact of her engagement. The Appellant also stated, with respect to her engagement with the company, that the terms and conditions throughout from 1994 to 1998 were unchanged.

[27]          The Appellant argued that the Minister had accepted the T-2200 forms for 1994, 1995 and 1996 and that her method of claiming employment expenses had not changed. Therefore the Minister should allow her claim for 1997 and 1998 with reference to the 1994, 1995 and 1996 T-2200 forms and supported by a signed T-2200 for 1997 and an unsigned T-2200 for 1998.

[28]          As a matter of law, it is clear that each assessment and each tax year stands on its own, including the filing of the separate individual and prescribed T-2200 forms for each taxation year. This form, pursuant to subsection 8(10), ("Declaration of Conditions of Employment") must be signed by the employer to certify that the conditions set out in the relevant provision have been met in the year in question.

[29]          With respect to the 1997 taxation year, the Appellant filed a T-2200, signed on March 20, 1997 by Eugene Duynestee-S., a former C.F.O. of the corporation. In the course of the C.C.R.A.'s investigation, an auditor was provided with a different T-2200 form, signed on October 14, 1999 by S.W. Fraser, the current C.F.O. of the employer. The form sent to the C.C.R.A. is in conflict with the one filed by the taxpayer. Contrary to the T-2200 filed by the taxpayer, the form filed by the Respondent states that the Appellant was not required to pay her own expenses and that she was entitled to an allowance. Additionally, that form indicates that the taxpayer was not required to rent an office away from her place of business, to use a portion of her home, to pay for supplies or to pay for any other expenses. The issue that arises is which, if either one of the two forms, should be preferred.

[30]          The Appellant's agent relied on the decisions in Baillargeon v. M.N.R., [1991] 2 C.T.C. 2525, Madsen v. The Queen, [2001] 2 C.T.C. 2576 and Verrier v. The Queen, [1990] 1 C.T.C. 313 for the proposition that even if it is not explicitly stated in the contract of employment that one must pay one's own expenses, this can be considered as implicit, given the terms and conditions of the job. The Appellant suggests that, based on these authorities, the Court may ignore the T-2200 forms filed and rely entirely on the evidence adduced at trial.

[31]          In the decision in St-Laurent v. The Queen, 1999-1108(IT)I, the T-2200 form was completed twice for the 1994 taxation year and showed contradictory information. The two forms were signed in March 1994, when there was still nine months left in the year and, therefore, Judge Lamarre found that "[i]t is hard to conceive that the information they contain [...] is accurate ...". The Judge declined to rely on these forms and instead based her decision on the evidence adduced at trial.

[32]          In another decision by the same judge, Crawford v. The Queen, 98-651(IT)I, the information contained in the T-2200 forms contradicted the testimonies presented at trial. In view of these contradictions, Lamarre T.C.J. stated:

. . . I do not think that the declarations filed with the Appellant's tax returns are reliable. In the circumstances, I do not intend to give any weight to those declarations. Having made these comments, I will now analyse each of the expenses claimed and determine whether the Appellant is allowed to deduct them from his employment income.

[33]          In this appeal, the T-2200 form sent by S.W. Fraser to the C.C.R.A. is in conflict with the T-2200 filed by the taxpayer. Additionally, the Appellant's T-2200 form was signed on March 20, 1997, which, according to the St-Laurent decision, makes it less reliable. I conclude for the 1997 year the declaration of conditions of employment have not been adequately or satisfactorily proven to the Court.

[34]          For the 1998 taxation year the Appellant failed to file a signed T-2200 form. The Appellant's agent referred to Nadeau v. The Queen, 90 DTC 1263 in support of the contention that a failure to meet the requirements of subsection 8(10) should not preclude the taxpayer from claiming the expenses at issue. In Nadeau, Lamarre Proulx T.C.J. held that, although the taxpayer had no written contract of employment and despite the fact that he had not filed a T-2200, under a verbal contract and according to T-2200 forms signed in earlier taxation years, he was entitled to deduct expenses from commission income under paragraph 8(1)(f) of the Act.

[35]          The decision in Nadeau contradicts the prevailing jurisprudence on the issue of the importance of the requirements in subsection 8(10). This jurisprudence was expressed in a rather forceful way by Judge Lamarre Proulx in the case of Talbot v. M.N.R., 92 DTC 1994:

Whatever the case may be, [the T-2200 form] was not filed. Since it is an essential condition for the deductions provided in paragraph 8(1)(h) of the Act, I therefore conclude that the taxpayer is not entitled to the deductions claimed.

[emphasis added]

[36]          The same position was adopted in other decisions such as Baxter v. The Queen, [1996] 3 C.T.C. 2311, Blair-Lawton v. The Queen, 2000-3657(IT)I, Rafuse v. The Queen, [1994] 2 C.T.C. 2094, aff'd by A-653-93 (F.C.A.) and Deacon v. The Queen, 95 DTC 793.

[37]          Additionally, the decision in Nadeau is limited to its facts. In that case, the Judge found that:

As regards the signature on the T-2200 form by his employer, the Appellant tried in vain to have it signed [...] The Department of National Revenue, which made the same request to the employer, also was given no reply.

[38]          Accordingly, by not providing a signed copy of the form for the 1998 taxation year, the Appellant failed to carry out the statutory requirement in subsection 8(10). As indicated, the Appellant's employer sent the C.C.R.A. auditor a T-2200 for the 1998 taxation year, signed on October 14, 1999 by S.W. Fraser, the C.F.O. of the corporation. This certificate shows that the Appellant was not entitled to the deductions she claims in these appeal.

[39]          The overall confusion over the T-2200 forms leaves the Court clearly in doubt as to what were the terms and conditions of her employment.

[40]          The onus is on the Appellant, given the conflicting T-2200 forms, to call evidence from the employer to clarify the conditions of employment and explain the inconsistencies. This the Appellant did not do.

CONCLUSION

[41]          Given this evidentiary state of confusion as to the conditions of employment for the taxation years in question, as well as the primary finding that there was no entitlement to deduct the employment expenses within section 8 of the Act, I conclude the Appellant is not entitled to deduct employment expenses as claimed.

DECISION

[42]          The appeals are dismissed.

Signed at Ottawa, Canada, this 2nd day of October 2001.

"D. Hamlyn"

J.T.C.C.

COURT FILE NO.:                                                 2000-5135(IT)I

STYLE OF CAUSE:                                               Carolyn Hay and

                                                                                                Her Majesty the Queen

PLACE OF HEARING:                                         Vancouver, British Columbia

DATE OF HEARING:                                           September 20, 2001

REASONS FOR JUDGMENT BY:      The Honourable Judge D. Hamlyn

DATE OF JUDGMENT:                                       October 2, 2001

APPEARANCES:

Agent for the Appellant:                     Michael Hansen

Counsel for the Respondent:              Susan Wong

COUNSEL OF RECORD:

For the Appellant:                

Name:                               

Firm:                 

For the Respondent:                             Morris Rosenberg

                                                                                Deputy Attorney General of Canada

                                                                                                Ottawa, Canada

2000-5135(IT)I

BETWEEN:

CAROLYN HAY,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeals heard on September 20, 2001 at Vancouver, British Columbia, by

the Honourable Judge D. Hamlyn

Appearances

Agent for the Appellant:             Michael Hansen

Counsel for the Respondent:      Susan Wong

JUDGMENT

          The appeals from the assessments made under the Income Tax Act for the 1997 and 1998 taxation years are dismissed.

Signed at Ottawa, Canada, this 2nd day of October 2001.

"D. Hamlyn"

J.T.C.C.