14 July 2003 Internal T.I. 2003-0022747 - INTERNET FEES - EMPLOYMENT EXPENSES

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: Whether internet fees are deductible under par. 8(1)(f).

Position: Question of fact but generally yes.

Reasons: Where it can be established that internet fees were paid by an employee for the purpose of earning income from commission sales employment, and such fees were not contemplated by either subpar. 8(1)(f)(v) to (vii), the amount paid may be deducted if all the other requirements of par. 8(1)(f) are met.

		July 14, 2003

	Compliance Programs Branch	HEADQUARTERS
	Office Audit Program	P. Massicotte, CA, M.Fisc.
(613) 590-1116
	Attention: William Gonzalez

		2003-002274

Internet Fees for Employees Earning Commission Income

This is in response to your email of June 9, 2003, requesting our comments in connection with the deduction under paragraph 8(1)(f) of the Income Tax Act (the "Act") of internet fees of a taxpayer employed in connection with the selling of property or negotiating of contracts for the taxpayer's employer.

Specifically, you enquire whether the comments made in our document #9816945 would apply to an employee claiming a deduction under paragraph 8(1)(f) of the Act.

Our Comments

As you know, an employee may only deduct those reasonable outlays and expenses related to employment income which are specifically permitted under section 8 in determining income from employment.

Subject to inter alia subsection 8(10) of the Act, where a taxpayer is employed in connection with the selling of property or the negotiation of contracts for his or her employer, paragraph 8(1)(f) of the Act allows the taxpayer to claim a deduction for amounts expended in the year for the purpose of earning the income from such employment (not exceeding the commissions or other similar amounts fixed by reference to the volume of the sales made or the contracts negotiated and received by the taxpayer in the year), provided all the requirements in subparagraphs 8(1)(f)(i) to (iv) are met.

Notwithstanding the above, as described in subparagraph 8(1)(f)(v), no deduction will be allowed to such an employee for outlays, losses or replacements of capital or payments on account of capital, except capital cost allowance and interest deductions allowed pursuant to paragraph 8(1)(j) of the Act. In addition, no deduction will be allowed in respect of amounts expended for the use of recreational facilities or club dues, as described in subparagraph 8(1)(f)(vi), or in respect of amounts expended that reduce the amount of a standby charge that would otherwise be required to be included in income because of paragraph 6(1)(e) of the Act, as described in subparagraph 8(1)(f)(vii).

In the case of internet fees, it is our view that, while some other provision of the Act may restrict the deduction (e.g. section 67), if it can be established that the fees are paid by an employee in a taxation year for the purpose of earning income from a commission sales employment, and all the requirements of subparagraphs 8(1)(f)(i) to (iv) are met, as described in 35(a) to (d) of IT-522R, paragraph 8(1)(f) would not specifically deny their deduction unless the amount represents a payment on account of capital (such as the cost of acquiring communications equipment - modem, etc.). More specifically, it is our opinion that the comments in document #9816945 do not apply to employees earning commission income and claiming the deduction for internet fees under paragraph 8(1)(f) of the Act. They were meant to apply only to employees claiming a deduction under other provisions in section 8 of the Act, and in particular subparagraph 8(1)(i)(iii) of the Act.

We trust the above comments are of assistance to you.

Milled Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate

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