T-666-86
Denis Verrier (Plaintiff)
v.
The Queen (Defendant)
INDEXED AS: VERRIER V. CANADA
Trial Division, Strayer J.—Winnipeg, September
6, 7 and 8; Ottawa, September 26, 1988.
Income tax — Income calculation — Deductions — Car
salesman deducting as expenses to earn income amounts spent
on fuel for demonstrator and courtesy cars, parking charges
incurred while conducting business, advertising and entertain
ment expenses, and finders' fees — Meaning of "ordinarily
required" in Income Tax Act, s. 8(1)(f) — "Ordinarily" mean
ing normal activities — Time spent away from employer's
place of business not determinative, but may be relevant in
ascertaining whether duties so trivial as not to detract from
employer's place of business as essential focus of employer's
work — "Required" meaning specifically understood by both
parties to be necessary for proper performance of contract —
If activity merely means chosen by employee to achieve end,
activity not "required" — No written contract covering activi
ties required to be performed outside dealership, but both
parties understanding specific functions part of plaintiffs job
— Activities not significant enough to bring plaintiff within s.
8(1 JW — Activities means employed at plaintiffs discretion to
sell more cars — Not "ordinarily required" to perform such
activities.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Income Tax Act, S.C. 1970-71-72, c. 63, s. 8(1)(/),
(h),(2).
CASES JUDICIALLY CONSIDERED
APPLIED:
Healy v. R., [1979] 2 F.C. 49; 79 DTC 5060 (C.A.);
Shangraw, G. C. v. Minister of National Revenue (1976),
76 DTC 1309 (T.R.B.); Hoedel, G. v. The Queen (1986),
86 DTC 6535 (F.C.A.); The Queen v. Patterson (1982),
82 DTC 6326 (F.C.T.D.); Moore, P. I. v. The Queen
(1987), 87 DTC 5217 (F.C.T.D.); Betz, W. T. v. The
Queen (1987), 87 DTC 5223 (F.C.T.D.).
COUNSEL:
C. M. Fien and C. E. Gorlick for plaintiff.
Wilfrid Lefebvre, Q.C. and Sandra E. Phil-
lips for defendant.
SOLICITORS:
Simkin, Gallagher, Winnipeg, for plaintiff.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
STRAYER J.:
Introduction
This is an appeal from a decision of the Tax
Court of Canada [[1986] 1 C.T.C. 2018; 86 DTC
1027] with respect to assessments of the plaintiff's
income for 1979 and 1980. He claimed that the
amounts of $6,629.01 expended by him in 1979,
and $8,236.75 expended by him in 1980 were
expended for the purpose of earning commission
income and that he is therefore entitled to deduct
them from his income for those years respectively.
It was agreed at trial that with respect to the year
1980 there is included in the amount in dispute an
item of $845.47 representing bank charges which
should be referred back to the Minister for further
review.
In the years in question the plaintiff was an
automobile salesman employed by Birchwood
Motors, an automobile dealer in Winnipeg. He
was remunerated by commissions computed by
reference to the volume of sales of automobiles
made by him. The expenses which he claims to be
entitled to deduct from his income include gas and
oil for his demonstrator automobile (provided free
of charge to him by his employer) and for the two
"courtesy" cars owned and provided by him to his
customers for their use when their cars were being
serviced. The expenses claimed also include park
ing charges incurred while conducting business,
advertising carried out by the plaintiff on his own
to seek customers for himself, entertainment
expenses (coffee and meals) incurred for the ben
efit of customers or prospective customers, and
commissions or finders' fees paid by him to per
sons referring customers to him where the referral
resulted in a sale.
Issues
The relevant portion of the Income Tax Act
[S.C. 1970-71-72, c. 63] is paragraph 8(1)(f)
which provides as follows:
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:
(J) where the taxpayer was employed in the year in connec
tion 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)(6)(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
(y) 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(l)(/), not be deductible in computing the taxpayer's
income for the year if the employment were a business
carried on by him;
It is agreed that the only matters in dispute in the
case involve the interpretation and application of
subparagraphs (i) and (ii) and the requirement
that the amounts claimed must have been expend
ed "for the purpose of earning the income from the
employment". If the plaintiff can establish that he
meets these requirements, it is agreed that he
would be entitled to the deductions claimed. It is
common ground that if such requirements are met,
the expenses deductible under paragraph 8(1)(f)
are not limited to those which are attributable to
the fact that the plaintiff was ordinarily required
to carry on the duties of his employment away
from his employer's place of business. In other
words, once he can show that he meets the require
ments of subparagraph 8(1)(f)(ii) and that he was
required to pay his own expenses in accordance
with subparagraph 8(1)(f)(i) then any expenses
howsoever incurred for the purpose of earning
income from his employment are deductible. The
illogicality of this provision will be discussed later.
Conclusions
The learned Judge of the Tax Court of Canada
dismissed the plaintiff's appeal on the ground that
the plaintiff had not established that he was
"ordinarily required" to carry on his duties away
from the Birchwood dealership, his employer's
place of business. Having concluded that, it was
not necessary for him to consider whether the
plaintiff met the other requirements indicated
above. I am unable to discern any significant
difference in the evidence presented at the new
trial before me, and I am in respectful agreement
with the learned Trial Judge both on his findings
of fact and his principal conclusions of law.
It is difficult to give a purposive interpretation
of the words "ordinarily required" within the con
text of paragraph 8(1)(f) because the expenses
deductible under that paragraph bear no necessary
relationship to the fact that a taxpayer is
"ordinarily required to carry on the duties of his
employment away from his employer's place of
business". Once he establishes that he is so
required, he can then deduct any expenses
incurred for the purpose of earning income from
the employment. The logic of this provision is far
from apparent. For example, there are no doubt
many commission salesmen (e.g. of clothing or
furniture) who are never obliged to leave their
employer's place of business for work purposes but
who may well incur promotional expenses such as
sending greeting cards to, or buying coffee for,
customers or prospective customers. They are
unable to claim under this paragraph. Similarly,
salaried persons cannot claim under it, even
though in many employment situations it is
thought advantageous for those in supervisory
roles to entertain members of their staff, at their
own expense. Paragraph 8(1)(f) creates a special
advantage for commission salesmen who are ordi-
narily required to carry on their duties away from
their employer's place of business: in effect this is
an exception to the general rule of subsection 8(2)
that no deductions are to be made in computing a
taxpayer's income from employment. As such, I
believe a taxpayer must show that he clearly comes
within the exception.
Considering first the meaning of "ordinarily",
the jurisprudence indicates that this term describes
activities which are normal, or of regular occur
rence; in other words, activities which are not rare
or abnormal or minimal. The Federal Court of
Appeal in interpreting the word "ordinarily" in
subsection 8(4) has said that it means "in most
cases" or as a general rule.' While the trend in the
jurisprudence appears to be away from a purely
quantitative test of time spent away from the
employer's place of business as determinative, it
must still be of some relevance in ascertaining
whether such duties to be performed away are so
trivial or insignificant as not to detract from the
employer's place of business as the essential focus
of the employer's work.
With respect to the meaning of "required" the
defendant contends in essence that this means that
there must be a fairly specific contractual obliga
tion on the part of the employee to carry on
activities away from the place of business of his
employer. The plaintiff on the other hand contends
that if such activity is as a practical matter impor
tant in the satisfactory performance of the
employee's duty (as in this case) to sell as many
cars as possible, then that activity is "required". It
is common ground that such an activity can be
"required" by an implied term of the contract and
it need not be expressly specified in the contract of
employment whether written or oral.
In my view for an activity to be "required" for
the purposes of this paragraph it must be one
which is specifically understood by both the
employer and the employee to be necessary for the
proper performance of the contract. If the contract
is essentially for the achievement of certain ends
and the activity in question is one of the means
1 Healy v. R., [1979] 2 F.C. 49, at p. 55; 79 DTC 5060
(C.A.), at p. 5063.
merely chosen by the employee to achieve that end
then that activity is not "required" within the
meaning of subparagraph 8(1)(f)(ii). Some of the
leading cases relied on by the plaintiff in which an
activity was held to be "required" appear to me to
involve specific obligations to perform the activi
ties in question. For example in the Shangraw
case [Shangraw, G. C. v. Minister of National
Revenue] 2 the taxpayer was a commission sales
man in the floor covering department of T. Eaton
Co. Limited. He frequently provided in-home ser
vices to customers which could only be provided at
their home, including measuring the exact size of
rooms for carpeting, bringing samples to match
existing wall and furniture coverings, etc. These
services were advertised by the employer and he
clearly could not carry out his job without per
forming them. In the Hoedel case [Hoedel G. v.
The Queen]' the Federal Court of Appeal found
that "it was mandatory for the appellant to take
the dog along with him when he was off-duty", the
appellant being a policeman seeking to deduct
under paragraph 8(1)(h) travelling costs for taking
his trained police dog with him wherever he went.
The obligation to have the dog with him at all
times was specific, a means required by the con
tract to achieve the ends of "socializing" the dog.
In three fairly recent decisions of the Federal
Court, Trial Division, Winnipeg school principals
were held to be "ordinarily required" to carry on
duties of their employment away from the school
in attending meetings of principals, making home
visits, organizing community meetings, attending
committees established by the school Board, driv
ing children to camp and attending such camps,
etc. 4 Each of these cases turns on its own facts, of
course, and in each the Court was able to find a
sufficiently specific obligation on the principals to
engage in these particular activities. It should also
be noted that all of these cases involved paragraph
8(1)(h) and the specific travelling expenses for
participating in such activities, and did not involve
establishment of a status for the purpose of
deducting all expenses connected with earning
2 (1976), 76 DTC 1309 (T.R.B.).
3 (1986), 86 DTC 6535 (F.C.A.), at p. 6537.
° The Queen v. Patterson (1982), 82 DTC 6326 (F.C.T.D.);
Moore, P. 1. v. The Queen (1987), 87 DTC 5217 (F.C.T.D.);
and Betz, W. T. v. The Queen (1987), 87 DTC 5223
(F.C.T.D.).
income as is involved in the present case for the
plaintiff to bring himself within paragraph 8(1)(f).
The onus on the taxpayer as a practical matter
may well be heavier in the latter case.
Applying these principles to the present case, I
do not believe the plaintiff has established that he
was "ordinarily required to carry on the duties of
his employment away from his employer's place of
business". It is true that certain activities were
clearly required by the contract to be performed,
in a literal sense, outside of the dealership prem
ises. These included taking customers for test
drives by starting out from and returning to the
dealership; where cars were sold by the plaintiff
under a contract which required the addition of
certain items not available at the dealership,
taking the vehicle to the supplier where such items
were installed or applied to the car; and sometimes
delivering cars to purchasers. While there was no
written contractual requirement covering these
matters, it is not disputed that both the employer
and the employee understood that these specific
functions were part of the plaintiff's job. I do not
think that these activities are sufficient to bring
the plaintiff within paragraph 8(1)(f). In the first
place errands done from the dealership base can
hardly amount to "duties . away from his
employer's place of business". The most obvious
example is the test drive which, it was admitted,
would normally be conducted leaving from and
returning to the dealership with the salesman
accompanying the prospective buyer. This no
doubt happened regularly and was required by the
plaintiff's contract of employment, but it is an
activity which is based on the employer's place of
business and it is only incidental that one must
employ public streets and highways to conduct a
test drive before returning to the dealership. Simi
larly such incidental functions as taking cars for
"add-ons" or delivering them to purchasers are
really activities based on the dealership. I agree
with the plaintiff that it is irrelevant that these
particular activities did not normally involve ex
penditures by him, but I do not think that they can
be regarded as significant enough to establish that
he was ordinarily required to carry on his duties
away from the Birchwood dealership.
However most of the activities relied on by the
plaintiff involve means employed by him at his
discretion to find customers, to encourage them to
buy cars from him, and to encourage them to come
back to him for future purchases through various
follow-up services offered by him. Such activities
include making contact with "bird-dogs" (persons
encouraged by the plaintiff to refer customers to
him), the demonstration of vehicles at the home or
place of business of clients, picking up from cus
tomers cars already purchased to take them in for
servicing and leaving with the customer a "cour-
tesy car" owned by the plaintiff, entertaining cus
tomers with coffee or meals, etc. It is clear from
the evidence that none of these activities of the
plaintiff were specifically required by his employ
er. As Mr. Gary Gillis, who was General Manager
of Birchwood at the time in question, testified, "we
would expect him to service his clientele as he
deemed necessary". What the employer was inter
ested in was results, i.e. sales. The plaintiff was a
very successful salesman. No doubt the particular
means which he employed were important to that
success. But they were means chosen by him and
to the extent that they took him away from the
dealership that was his choice. I do not believe that
he has met the burden of proof which is on him to
show that these many activities performed by him
away from the dealership were "ordinarily
required" to be so performed.
The appeal will therefore be dismissed except
for a reference back to the Minister for further
review of whether the bank charges of $845.47 are
properly deductible in respect of taxation year
1980. The defendant is entitled to costs.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.