Geoffroy Tiberghien v. Minister of National Revenue, [1979] CTC 2874, 79 DTC 429

Delmer E Taylor [TRANSLATION]:—This appeal was brought from income tax assessments for the 1970, 1971 and 1972 taxation years. The question is whether, first, the appellant was an independent worker or a salaried employee during the respective years.

Claims

The appellant’s relevant statements in his notice of appeal are the following:

In my opinion the whole matter of the disputing of the expenses claimed by the Department’s investigators results, first, from the high percentage of expenses as compared with gross income (my contention being that this was justified in the circumstances), and second, from confusion as to the status of taxpayer which I held during the period in question. In particular, as to the latter point, there was a basic misunderstanding regarding interpretation of the various business contracts which I held, a misunderstanding which I intend to resolve. I have always been an independent worker, not a salaried employee.

The respondent stated the following:

—during the period from January 1, 1970 to about June 15 of the same year, the appellant was an employee of Sun Life of Canada Limited (hereinafter referred to as “Sun Life’’) as a life underwriter;

—according to the terms of his contract of employment for Sun Life, the appellant was not required to have an office in his home; moreover, the appellant was entitled to be reimbursed for certain selling expenses;

—from June 15, 1970 to July 28, 1972 the appellant was employed in the same capacity by Gérard Parizeau Ltée (hereinafter referred to as “Parizeau”);

—according to the terms of the agreements entered into by the appellant and Parizeau, the appellant was entitled to be reimbursed for his travel expenses and for certain selling expenses; further, the taxpayer was not required to maintain an office at his residence;

—on July 28,1972 the appellant left Parizeau and returned to work for Sun Life (on the terms mentioned above);

— In fiscal year 1970, the appellant claimed as transportation expenses (automobile, taxi, air travel and so on), promotion (dinners, hotels, receptions, gifts and so on), advertising and office expenses (postal costs, stationery and so on), telephone expenses (business telephone calls at home, long distance calls, use of public telephones), office financing expenses, general expenses (accounting, legal costs, secretarial costs, interest and bank charges, office supply, books and magazines, and so on), commissions and bad debts, the total sum of $18,020.32 (44% of total reported income);

—during his 1971 taxation year, the appellant deducted for the same accounts the total sum of $20,991.58 (45% of total reported income);

—during the 1972 taxation year, the appellant deducted the same items, totalling $17,002.05 (62% of total reported income);

—the respondent allowed the taxpayer the following total expense amounts without supporting documents:

1970	$10,383.20
1971	$12,182.99
1972	$ 7,101.05

—subsequently, in a later assessment for the 1971 taxation year, the respondent disallowed a further amount of $4,975.85 for expenses, and added to the taxpayer’s income for this period the sums of $2,492.81, representing commissions received from Assurance-vie Desjardins (see document T4-A) and a taxable automobile expense alowance of $1,400 which the appellant had omitted to include in his income;

—the respondent submits that the appellant has not proved any of the expenses claimed, and the amounts already allowed are reasonable in the circumstances;

—the respondent submits that in the circumstances the expenses already allowed to the taxpayer are the only reasonably allowable expenses;

—the expense disallowed by the respondent were personal and living expenses of the taxpayer.

Evidence

During the hearing, which lasted an entire day, the appellant submitted no adequate supporting documentation to back up his case, but argued at length on his fundamental point, namely that whether as a representative of Sun Life, of Parizeau, or working in any other capacity, he was an independent contractor, working on his own account, and accordingly his expenses were all deductible. As regards those allowed by the Minister, based on a “percentage”, he protested vigorously that the amounts deductible were inadequate.

In order to facilitate proceeding with the case, counsel for the respondent gave necessary information concerning the basis on which the assessments were made, and during the examination of the appellant and of Mr Jean-Paul Lessard, an employee of Revenue Canada, provided separately the following ten supporting documents relating to this appeal:

Exhibit 1-1: copy of an “apartment lease” between Edna Construction Ltee and ITS Canada Ltée (Geoffroy Tiberghien), dated August 25, 1972;

Exhibit 1-2: jointly—contract to lease and purchase and contract of sale, dated September 1, 1972 and September 11, 1972 respectively;

Exhibit 1-3: table of expenses claimed, allowed and disallowed for the 1970, 1971 and 1972 taxation years (filed without prejudice);

Exhibit 1-4: “Statement of income and expenditure” and “Statement of travel expenses” for the 1972 taxation year;

Exhibit 1-5: jointly—notice of re-assessment for the years at issue (taken from documents supplied by the department);

Exhibit 1-6: jointly—copies of six letters sent to Mr Tiberghien by the Department of National Revenue—Taxation;

Exhibit 1-7: copy of a letter from Sun Life of Canada to Michel Parizeau, with attached analysis, dated May 28, 1970;

Exhibit 1-8: copy of T4A-1971 issued to Mr Tiberghien by Assurance-vie Desjardins;

Exhibit 1-8: copy of a letter from the “Royal Bank of Canada’’ to Mr Tiberghien dated April 21, 1971;

Exhibit 1-10: copy of a letter from the “Royal Bank of Canada’’ to Mr Tiberghien dated February 15, 1972.

Pleadings

Written pleadings were requested so that both parties could summarize their positions. In the interests of the appellant, I reproduce here a part of his pleading:

For the taxpayer the activities in the years 1970, 1971 and 1972 are part of the development of his career and following these years led to a change of career. For this, there has to be a reason.

Despite two earlier tax revisions (between 1960 and 1969), the federal income tax department recognized that the taxpayer had the status of an independent worker, despite the fact that his earlier returns were similar in all respects to those in question.

The taxpayer has retained the same status since 1972, the only difference being that instead of being a commercial representative for various financial institutions, he has become a management consultant, still on his own account, receiving fees for his work.

The reason for the changes in the businesses with which the taxpayer dealt between 1970 and 1972 is essentially the search for a better return for his efforts. The fact that he could no longer obtain a good return is essentially the reason not only for his giving up his association with Gérard Parizeau Ltée in 1972, but also for ceasing in 1973, and entirely in 1974, all activity as a commission representative for financial institutions.

The truth of the situation, especially the indebtedness then and now of the taxpayer, as a result of the 1971 and 1972 operating years, should have enabled the income tax department to assess the true situation of the taxpayer before making the re-assessments.

A detailed and complete refutation of the circumstances in which the appellant found himself was prepared by counsel for the respondent, and although special attention should be given to certain extracts on account of their importance, it may be summarized by the following paragraphs:

The respondent admits that during the years in question the appellant was employed to perform duties associated with the sale of property or the negotiation of contracts for his employer.

However, the respondent denies that while he was employed for Gérard Parizeau Ltée (from June 15, 1970 to January 1, 1972), the appellant was responsible under his contract for his own expenses. Under clause III(2) of the schedule titled Pay System Analysis, the employer undertook to reimburse all expenses, for travel and otherwise, in so far as these were required in the normal course of sale promotion. In 1970 to 1971, the appellant received $1,688.83 and $4,671 respectively from his employer in reimbursement of expenses.

There is a well-established line of authority on this point. When an employee is reimbursed under his contract of employment for the expenses which he incurs in order to earn his commission income, the latter is not entitled to deduct any fur- ther expenses whatever the reason that they are not reimbursed, such as the fact that the employer feels it should not reimburse this or that expense because the employee has not proven that it was incurred in connection with sales, or that the employee decided not to claim a reimbursement from his employer.

With regard to the 1970 taxation years, in light of the evidence it is imposible to link various expenses claimed with the various employers. In the circumstances, the respondent maintains that it is equitable to distribute them in proportion to the commissions earned from his employment with each of his employers, namely one-third from his employment with Gerard Parizeau Ltee and two-thirds from his employment with Sun Life. Thus in computing his income for the 1970 taxation year the appellant cannot deduct the expenses claimed up to the amount of $3,678.21, because in his employment with Gérard Parizeau Ltée he was entitled to be reimbursed for all expenses incurred in connection with sales. For the same reasons, the respondent maintains that all the expenses claimed for the 1971 taxation year must be disallowed.

The appellant did not prove with the aid of adequate supporting documents that he did in fact incur the expenses claimed in order to earn his commission income for each of the years in question. In his writted observations, the appellant alleged that “the majority of the expenses are provable”. After several requests in this regard, several meetings with officers of the Department, several hours of hearing, the fact remains that the appellant did not prove that he in fact spent the amounts which he claimed in order to earn his commission income. At the hearing, the appellant presented no new evidence. The respondent allowed most of the sums claimed and supported by documentation to be deducted. The appellant presented no evidence to rebut the refusal of the Department to allow the expenses claimed. Moreover, several invoices in support of the claim referred to purchases made by ITS Canada, a management company operating its own business. There is no need for any lengthy argument to establish that such expenses are not deductible in calculating the appellant’s income, but rather are deductible from the income of the said company.

The burden is on the appellant to prove by means of adequate supporting documentation that he in fact incurred the expenses claimed, and that they were incurred in order to earn his commission income.

Conclusion

Although there may have been certain periods of time during the taxation years in question when the appellant’s activités were such that he could meet some of the conditions associated with the status of an “independent contractor”, the evidence is nevertheless clear that, for taxation purposes, the appellant was regarded as an employee. However, weighing the merits of the appellant’s case, the Minister concluded that he was entitled to certain consideration, in light of the nature of his employment, which was that of “a commission salesman”. In my opinion, the appellant provided no evidence to support amounts or percentages beyond those which were allowed in examining the assessments.

Decision

The appeal is dismissed.

Appeal dismissed.