George Canetti v. Minister of National Revenue, [1985] 1 CTC 2426, 85 DTC 401

Cardin, TCJ:—George Canetti, a commission salesman and one of the sales managers of Control Data Canada (“The Company”), is appealing from an assessment of tax in which the Minister of National Revenue disallowed expenses in the amount of $7,848.94 claimed by the appellant as having been incurred to earn $23,149 in commission income in the 1980 taxation year.

The expenses claimed as stated in the appellant’s tax return are as follows:

With respect to the expenses claimed, the fact that the appellant’s work required him to travel in many cities in Ontario is not disputed. However, the evidence is that the corporation, for the greater part of 1980, provided an automobile for the appellant’s travels (Ex R-1). It was alleged that some expenses had been incurred by the appellant in the early part of 1980 with respect to business use of his own automobile. No evidence, however, was adduced to substantiate the amount of $1,051.81 claimed therefor, nor any indication given as to the length of time the appellant used his own automobile for business purposes. At the end of 1980, the appellant was no longer using his personal automobile for business and the CCA claimed in the amount of $191 is not deductible. There was no obligation whatever, under the appellant’s employment contract, to have an office and to do work at home. Indeed, the appellant stated that it was by choice that he worked in his home rather than in the office provided by the company. The office in his home was for his own convenience and, in the circumstances, the expenses relating thereto are not deductible.

The largest amount of expenses claimed was $5,993 for advertising and promotion. Mr Brian Cochrane, a chartered accountant and a witness subpoenaed by the respondent, was employed as manager of the Company in charge of accounting, including the payroll. His evidence was that the company policy did not require any employee to spend more than that for which he could be reimbursed. The policy limited the reimbursable expenses from $50 to $75 a month, without prior approval.

The appellant testified that he and his colleagues were unaware that, with prior authorization, reasonable expenses in excess of the $50 to $75 a month limit could be reimbursed. In cross-examination, however, the appellant declared that he had not submitted to the Company expenses exceeding the stated limit fearing the Company would consider the expenditures “unethical” and would not reimburse them.

The evidence, which was not denied, showed that the expenses claimed included such items as membership fees in a social club, the purchase of a tennis racket, cleaning bills for the appellant’s wardrobe and the purchase of hockey equipment for his personal use. The respondent’s appeal officer (Mrs Irving) was, in my view, justified in making a careful review of the appellant’s 1980 return and in requesting substantiating documents (receipts and vouchers, some of which were undated or the date altered). In so doing, it was disclosed that the appellant had not only claimed more expenses than those permitted under the $50 limit and been reimbursed by the company for them, but he claimed the same amounts as expenses in his 1980 tax return.

The nature and the quantum of expenses described by the appellant as being advertising and promotional expenses were not so established and, in my view, were strictly personal expenditures which were not incurred for the purpose of earning commission income within the meaning of the Income Tax Act.

The appellant’s principal argument is that in order to reach the target of $1,000,000 in sales set for him by the Company in a new market, promotional expenses were necessarily incurred. There can be no disagreement with that statement. However, as an employee and a commission salesman, the appellant comes under paragraph 8(l)((f) of the Income Tax Act, RSC 1952, c 148, as amended and, as such, only those amounts that are specifically permitted by the section can be deducted as expenses. The appellant was not required to pay his travelling expenses since the Company provided him with a car. It may be, as suggested by the appellant, that he used his own car for business during the first two or three months of 1980 and that he claimed automotive expenses of $1,051.81 for that purpose in his 1980 return. However, he did not explain the receipt by him of a reimbursement of $1,171.99 for an automobile in 1980 (Ex R-1). The appellant did not establish that he was required to pay his travelling expenses during any part of 1980.

Although there is correspondence on file to the effect that salesmen, in attempting to reach their sales objective, may have to incur out-of-pocket expenses, there can be no doubt that the employment contracts and the company’s policy provided that reasonable expenses would be reimbursed; that unauthorized expenses up to a limit of $75 a month would be accepted without question and that expenses exceeding that limit would be reimbursed if prior authorization were obtained. Expenses of $50 a month and over were claimed by the appellant and were reimbursed by the Company in 1980.

In my opinion the appellant, under his contract of employment, was not required to pay his own expenses within the meaning of subparagraph 8(l)(f)(i) or his travelling expenses within the meaning of subparagraph 8(l)(f)(iv) of the Income Tax Act, nor was he required by his employer to maintain an office in his residence. The expenses claimed were non-deductible personal or living expenses.

The appeal is dismissed.

Appeal dismissed.