Gary Dubois v. Minister of National Revenue, [1980] CTC 2479, 80 DTC 1411

John B Goetz:—This is an appeal from an income tax reassessment dated November 1, 1977 of the appellant’s income tax liability for the taxation year 1975. In that year the Minister reassessed the appellant’s income tax liability by disallowing the amount of $1,440 claimed as a terminal loss on the destruction of an automobile.

The appellant was a commission salesman for Merritt Business Machines. In his employment he required the use of an automobile which, prior to the 1975 taxation year, had been provided by his employer, and the employer paid all the operating expenses of the automobile. However, in 1975 he purchased his own vehicle and only used it for about three months when it was involved in an automobile collision resulting in its complete destruction. In his 1975 tax return, the appellant sought to deduct, as a terminal loss, the amount of money involved in the total destruction of his automobile. It should be pointed out that during the period while he owned his own car the employer still paid all his operating expenses. He carried a charge account at a garage and his employer paid any expenses as a result of statement of accounts being submitted to his employer; receipts of these funds on account of expenses, of course, were not included in the taxpayer’s income tax return.

To substantiate his claim, the appellant sought to bring himself within the provisions of paragraph 8(1)(j) of the Income Tax Act, SC 1970-71-72, c 63, as amended, which reads as follows:

(1) 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:

(j) where a deduction may be made under paragraph (f) or (h) in computing the taxpayer’s income from an office or employment for a taxation year,

(i) any interest paid by him in the year on borrowed money used for the purpose of acquiring an automobile used in the performance of the duties of his office or employment, but

(ii) such part, if any, of the capital cost to him of an automobile used in the performance of the duties of his office or employment as is allowed by regulation; (Italics mine).

The above section involves Regulation 1100(6) which reads as follows:

(6) Under paragraph (a) of subsection (1) of section 11 (sec 20(1)(a)) of the Act, where a deduction may be made under subsection (6) or (9) of section 11 (sec 8(1 )(f) or (h) of the Act in computing a taxpayer’s income from an office or employment for a taxation year, there is hereby allowed to a taxpayer in computing his income for the year such amount as he may claim in respect of an automobile not exceeding the amount that would be allowed under subsection (1) if the automobile had been acquired for the purpose of gaining or producing income from a business.

Regulation 1100(6) involves paragraphs 20(1)(a) and 8(1)(f) and (h) of the Act which reads as follows:

20.(1) Notwithstanding paragraphs 18(1)(a), (b) and (h), in computing a taxpayer’s income for a taxation year from a business or property, 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:

(a) such part of the capital cost to the taxpayer of property, or such amount in respect of the capital cost to the taxpayer of property, if any, as is allowed by regulation;

8.(1) 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) Where the taxpayer was employed in the year in connection with the selling of property or negotiating of contracts for his employer, and

(i) under the contract of employment was required to pay his own expenses,

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

amounts expended by him in the year for the purpose of earning the income from the employment (not exceeding the commissions or other similar amounts fixed as aforesaid received by him 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), or

(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 him;

(h) where the taxpayer, in the year,

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

(ii) under the contract of employment was required to pay the travelling expenses incurred by him in the performance of the duties of his office or employment, and

(iii) was not in receipt of an allowance for travelling expenses that was, by virtue of subparagraph 6(1)(b)(v), (vi) or (vii), not included in computing his income and did not claim any deduction for the year under paragraph (e), (f) or (9),

amounts expended by him in the year for travelling in the course of his employment.

Clearly, under paragraph 8(1)(f), the appellant, under his contract of employment, was not required to pay his own expenses as stipulated under subparagraph (i) of paragraph 8(1)(f) and further he was in receipt of an allowance for travelling expenses which disqualifies him under subparagraph (iv) of that section. Likewise, he obviously does not qualify under paragraph 8(1)(h). Although the appellant’s employer, on July 30, 1979, wrote a letter To Whom It May Concern, in my view this letter does not assist the appellant in his claim for a terminal loss. Said letter reads as follows:

MERRITT BUSINESS MACHINES Complete Line of Office Equipment PO Box 71 Sydney, Nova Scotia B1P 6G9

July 30, 1979

To Whom It May Concern:

This is to varify (sic) that Gary Dubois, during the 1974 1975 time period, was employeed (sic) as a commission salesman and was required to use his vehicle as a condition of his employment. During that time period he was paid commission and also reimbursed for the expenses incurred in operating such vehicle (1978 Oldsmobile Model 442).

The above statement is certified correct.

Yours truly,

Merrith Business Machines

(Signature)

George A Moore

GAM/dh President

The appellant, to qualify for a deduction under paragraph 8(1)(j), must first qualify under paragraphs 8(1)(f) and (h), which he does not. Again the appellant does not qualify under Regulation 1100(6) cited above in that the automobile required by him had not been purchased for the purpose of gaining or producing income from a business. The appellant was not in a business but was merely an employee of a company selling office supplies. He was an employee and not a businessman and was therefore not entitled to claim for a terminal loss. See James Sommerville v MNR, 41 Tax ABC 45; 66 DTC 328; Charles J Corrigan v MNR, [1978] CTC 2310; 78 DTC 1256; Albert Quesnel v MNR, [1977] CTC 2143; 77 DTC 92, and Leslie W Ainsworth v MNR, [1968] Tax ABC 782; 68 DTC 596.

For the above reasons, the appeal is dismissed.

Appeal dismissed.