J a Bowman v. Minister of National Revenue, [1985] 1 CTC 2380, 85 DTC 328

Taylor, TCJ:—This is an appeal heard in Toronto, Ontario, on February 20, 1985, against income tax assessments for the years 1977, 1978 and 1979 in which the Minister of National Revenue disallowed expenses claimed by the taxpayer in filing his returns, in the amounts of $2,933.66, $3,365 and $3,557 respectively, under paragraph 8(1 )(f) of the Income Tax Act, SC 1970-71-72 c 63 as amended. A major portion of the expenses incurred by Mr Bowman as a commission salesman for Pitney Bowes of Canada Ltd was reimbursed to him by the employer, but he had expended the above amounts in excess of his reimbursements, in large measure for entertainment and promotion (although there were other types of expenses included). The rationale proposed by Mr Bowman for this action is that he had a certain budget limit for such reimbursements, and that both he and the company expected that he would exceed this budget — at his own expense. Indeed, he felt, and certain documents he presented supported his opinion, that advancement in the company was governed to some degree by a salesman’s (or a sales manager’s) ability to contain costs to the company, while reaching or exceeding target sales limits. I quote from Exhibit R-2 submitted by the respondent as a letter from the vice-president of Pitney Bowes of Canada Ltd to Mr Bowman.

A large portion of a Branch Manager’s earnings are variable, based on sales attainment, (typically 30-35 per cent of total compensation would be comprised of bonuses and incentives.) Pitney Bowes expects Managers to achieve all quota assignments and they are judged accordingly. It is, therefore, understandable that a Branch Manager would be willing to invest some of his own money for specific promotions so as to maximize his earnings.

A memorandum of agreement between the appellant and the company (Exhibit R-3) was filed with the Court, and I regard it as constituting the basic contract of employment. There was no reference therein to the payment of, reimbursement of, or responsibility for expenses incurred by the appellant.

The appellant took the view that he really had no choice but to make the expenditures at issue, in order to earn his income. Counsel for the respondent contended that Mr Bowman “—was not, under his contract of employment, required to pay his own expenses —”. Counsel referred the Court to the cases of Tozer v MNR, [1982] CTC 2835; 82 DTC 1815, The Queen v Cival, [1983] CTC 153; 83 DTC 5168 and Slawson v MNR, [1985] 1 CTC 2075; 85 DTC 63.

This matter in large measure does resemble the case of Tozer (supra). I also note that while Mr Tozer did not have a specific written contract of employment,

. . . It is clear from the evidence and testimony in the appeal that such claiming for expenses and appropriate reimbursement was part and parcel of the terms under which the appellant performed his duties — in other words, “the contract of employment”

I am satisfied that in the instant case the same would obtain — Mr Bowman’s agreement or arrangement with Pitney Bowes of Canada Ltd included the reimbursement noted above, even if only by an oral or implied extension to the contract. As I see it, while not part of the written contract of employment the accord between the parties — employer and employee — regarding reimbursement, was an integral part of that employment contract. But that accord, as per Mr Bowman, was in the form of an understanding that such expenses would not exceed the budget allocation for them — the attainment of which was a matter of pride and satisfaction to Mr Bowman, and understandably so. So, accepting that we have a written “contract of employment’’ covering percentage commission, territories, etc, and an implied “contract of employment” covering expenses to be reimbursed by the company — where do we find a “contract of employment” covering the excess expenditures at issue in this appeal and mandating their dispersal? The closest comment to that possibility is to be found in Exhibit R-2 (supra), and I repeat the last sentence thereof:

. . . It is, therefore, understandable that a Branch Manager would be willing to invest some of his own money for specific promotions so as to maximize his earnings.

I would venture to say that an attempt to interpret that sentence as “under the contract of employment was required to pay his own expenses” (subparagraph 8(l)(f)(i)), as Mr Bowman did, is a difficult task indeed. Quite the opposite, I view the sentence as the company specifically absolving itself of any possible involvement in excess expenditures which Mr Bowman might incur, even though, at the same time the company made him aware, very forceably, of its desires and objectives with regard to such activity. The phrase “with some of his own money” (emphasis mine) says it all. It was simply expected that Mr Bowman would be out of pocket by amounts in excess of the reimbursements he received to “maximize his earnings”. The company did not say “pay some of his own expenses” nor did it say “advance some of his own funds”, or a similar phrase. The message was clear and could be paraphrased as: “we expect it will cost you some of your own money, and that is your problem; at the same time we emphasize that you probably cannot reach your sales quotas without taking on such an obligation”. That is an understandable position for an employer to take, but it is not a requirement that the employee pay his own expenses. It was clear that Mr Bowman understood and accepted such a situation — as a matter of fact, he pointed out to the Court, that, even without being successful in any income tax claim, (if that resulted) he would still do things the same way. It was his view that the process of “excess expenditures” was an absolutely essential part of the good record he had obtained with the company, and he is to be commended for his forthrightness in this matter, but it does not meet the provisions of the Income Tax Act.

I have suggested recently in Goldhar v MNR, [1985] 1 CTC 2187; 85 DTC 202, that the term “his own expenses” (8(1)(f) may be different (I do not say is different) than the term “the (travelling) expenses”, (brackets mine) 8(1)(h); and that possibly only the clear statement by an employer to an employee to that effect may suffice. In the instant appeal, if there were a statement such as: “you are required to pay your own expenses that exceed the reimbursement from this company” that distinction might arise in formulating this judgment. However, it is not an issue that requires a determination in this appeal. There was no such meeting of minds between the parties to the contract of employment, which would highlight such a fine distinction.

The appeal is dismissed.

Appeal dismissed.