A-1040-88
Denis Verrier (Appellant)
v.
Her Majesty the Queen (Respondent)
INDEXED As: VERRIER v. CANADA (C.A.)
Court of Appeal, Mahoney, Hugessen and Mac-
Guigan JJ.A.—Winnipeg, February 20; Ottawa,
March 2, 1990.
Income tax — Income calculation — Deductions — Appeal
from trial judgment disallowing expenses under Income Tax
Act, s. 8(1)(f) — Commissioned automobile salesman deduct
ing expenses for gas and oil for demonstrator and courtesy
cars, parking charges incurred while conducting business, ad
vertising and entertaining expenses and finders' fees — In
addition to required shifts in showroom, time spent making
contact with prospective customers — Trial Judge holding
time away from dealership appellant's choice as responsible
for method employed to make sales — Appeal allowed —
Deductible expenses not required to relate to necessity for
appellant's absence from showroom — S. 8(1)(h) dealing with
travelling expenses — S. 8(4) indicating s. 8(1)(f) and (h)
dealing with different allowable deductions — Interaction of s.
8(4) and 8(l )( . 1) meaning employee may be "ordinarily
required" to carry on duties of employment away from
employer's establishment to which "ordinarily reported" for
work — As failure to sell enough cars grounds for discharge,
and both employer and salesman recognizing necessity for
conducting some work away from showroom, salesman ordi
narily required to carry on duties of employment away from
employer's place of business.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Federal Court Act, R.S.C., 1985, c. F-7, s. 52(b)(î).
Income Tax Act, S.C. 1970-71-72, c. 63, ss. 8(1)(/),
(h),(4), 177(b)(iv).
CASES JUDICIALLY CONSIDERED
APPLIED:
Hoedel (G.) v. The Queen, [ 1986] 2 C.T.C. 419; (1986),
86 DTC 6535; 72 N.R. 399 (F.C.A.).
REVERSED:
Verrier v. Canada, [1989] 2 F.C. 71; [1988] 2 C.T.C.
274; (1988), 88 DTC 6478; 23 F.T.R. 217 (T.D.).
COUNSEL:
C. M. Fien and C. E. Gorelick for appellant.
Wilfrid Lefebvre, Q.C. and Sandra E. Phil-
lips for respondent.
SOLICITORS:
Simkin, Gallagher, Winnipeg, for appellant.
Deputy Attorney General of Canada for
respondent.
The following are the reasons for judgment
rendered in English by
MAHONEY J.A.: This is an appeal from a
reported decision of the Trial Division, [1989] 2
F.C. 71, which upheld the assessment of the appel
lant's 1979 and 1980 income tax returns on the
basis that he was not entitled to claim certain
expenses pursuant to paragraph 8(1)(f) of the
Income Tax Act [S.C. 1970-71-72, c. 63], which
provides:
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 soun—, 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 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(l)(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 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)(/), not be deductible in computing the taxpayer's
income for the year if the employment were a business
carried on by him.
There is no dispute that the appellant met the
requirements of subparagraphs (iii) and (iv) nor
that the amounts claimed did not fall within sub-
paragraphs (v) and (vi). What is disputed is
whether his contract of employment required him
to pay his own expenses, as provided by subpara-
graph (i), whether he was ordinarily required to
carry on his duties away from his employer's place
of business, as provided by subparagraph (ii), and
whether the amounts claimed were expended for
the purpose of earning his commission income.
That the amounts were actually expended by him
in the year claimed is not disputed.
All of the evidence was directed to 1980. It is
agreed that the facts as to 1979 are not materially
different. The appellant was a highly successful
automobile salesman employed by a Winnipeg
dealership. In 1980, sales of 269 vehicles at retail,
25 at wholesale and 175 fleet vehicles generated
commissions of $65,977.32. He claimed $7,391.28
disputed expenses which the learned Trial Judge
described [at pages 72-73] as including:
... 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 parking 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 benefit of customers or prospective
customers, and commissions or finders' fees paid by him to
persons referring customers to him where the referral resulted
in a sale.
In the view of the matter taken by the learned
Trial Judge, it was not necessary for him to deal
expressly with whether the expenses claimed were
amounts expended for the purpose of earning
income or whether, under his contract of employ
ment, the appellant was required to pay his own
expenses. The undisputed evidence points only to
affirmative answers to those questions.
There was no written contract of employment
and, hence, no express condition readily at hand to
demonstrate whether the appellant "was ordinarily
required to carry on the duties of his employment
away from his employer's place of business." The
learned Trial Judge held that he was not. Some of
the appellant's absences from the dealership, such
as taking customers on test drives, taking sold
vehicles elsewhere to get custom equipment
installed and delivering their vehicles to purchas
ers, were characterized as "errands" which did not
amount to "duties ... away from his employer's
place of business". As to the rest, he held [at page
78]:
However most of the activities relied on by the plaintiff
involve means employed by him at his discretion to find cus
tomers, 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 activi
ties 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 customers cars already purchased to
take them in for servicing and leaving with the customer a
"courtesy car" owned by the plaintiff, entertaining customers
with coffee or meals, etc. It is clear from the evidence that none
of these activities of the plaintiff were specifically required by
his employer. What the employer was interested 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.
That entire finding is said to be founded on an
error in law in that the learned Trial Judge is said
to have misunderstood the clear intention of para
graph 8(1)(j). That misunderstanding is, it is said,
manifest in his opinion that the provision is illogi
cal, which he expressed more than once. At one
point, he said [at pages 73-74]:
It is common ground that if [the requirements of subpara-
graphs (i) and (ii)] are met, the expenses deductible under
paragraph 8(1)W are not limited to those 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
requirements of [subparagraphs (i) and (ii)] 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.
At another, he said [at page 74]:
It is difficult to give a purposive interpretation of the words
"ordinarily required" within the context of subparagraph
8(1)(/) 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 estab
lishes that he is so required, he can then deduct any expenses
incurred for the purpose of earning income from the employ
ment. 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.
The learned Trial Judge seems to have felt that,
somehow, the deductible expenses contemplated
ought to relate to the necessity of the appellant's
absence from the showroom but that sort of
expense is dealt with by paragraph 8(1)(h) and
subsection 8(4) makes clear, if that be necessary,
that paragraphs 8(1)(f) and (h) deal with two
different allowable deductions.' The necessary
interaction of subsection 8(4) and paragraph
8(1)(f) leads to the conclusion that an employee
may be "ordinarily required" to carry on the
duties of his employment away from the employ
er's establishment to which he "ordinarily report
ed" for work.
8. (1) In computing a taxpayer's income ... there may be
deducted ...
(h) where the taxpayer, in the year,
(i) was ordinarily required to carry on the duties of his
employment away from him 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...
amounts expended by him in the year for travelling in the
course of his employment;
• • •
(4) An amount expended in respect of a meal consumed by
an officer or employee shall not be included in computing the
amount of a deduction under paragraph (1)(/) or (h) unless
the meal was consumed during a period while he was
required by his duties to be away, for a period of not less
than twelve hours, from the municipality where the employ
er's establishment to which he ordinarily reported for work
(Continued on next page)
The criterion chosen by Parliament to differenti
ate between commission salesmen entitled to
deduct their expenses and those not so entitled,
namely that those entitled be "ordinarily required"
to carry on their duties away from their employer's
establishment, may be arbitrary but it is clear and
the provision must be applied according to its plain
meaning, whatever one's view of its logic. The
legislative objective is apparent. A taxpayer entire
ly dependent on commissions directly related to
sales volume and not entitled to claim his expenses
from his employer is, in many respects relevant to
the scheme of the Income Tax Act, more compa
rable to a self-employed person than to a conven
tional salaried employee. Such a taxpayer benefits
from laying out the deductible expenses only
because that results in increased income. Absent a
100% tax rate, allowance of the deduction does not
fully compensate the taxpayer for the outlay; that
compensation is realized in increased sales, pre
cisely what the learned Trial Judge found to be the
interest of the appellant's employer, and concomi
tant increased commission income, the appellant's
(and, one might have thought, the fisc's) interest.
I am of the opinion that the learned Trial Judge
erred in law in his construction of paragraph
8(1)(f). It remains to consider whether that led
him to the wrong result in the present case. There
is no contradictory evidence. Most salesmen, but
not the appellant, were required by the employer
to take shifts manning the showroom: six hours a
day Monday through Thursday, four hours on
Friday and four hours on alternate Saturdays.
When hiring a new salesman, the employer's evi
dence was:
... initially we'd clarify with the individual that we had hours
of on duty work with the dealership with the expectation
though that certainly they being six hour shifts, that we were
well aware that no salesperson could make a living working six
hours a day and expect to do the job. The indication on our part
at that stage would be to make sure that the salesperson would
in fact cultivate their, you know, their own clientele, go out on
their own, talk to friends, relations, acquaintances, continue on
(Continued from previous page)
was located and away from the metropolitan area, if there is
one, where it was located.
with their day's work when they were not on shift. [Transcript,
Vol. II, p. 165,11. 13 to 24.]
As to his own understanding, the appellant was
asked and answered:
Q. ... did Mr. Gillis ever tell you how many cars you had to
sell or was [sic] to be expected to sell?
A. No. If you didn't sell enough cars, you were just dismissed
from your job.
This Court had occasion, in Hoedel (G.) v. The
Queen, [1986] 2 C.T.C. 419 (F.C.A.), to consider
the term "ordinarily required to carry on the
duties of his employment away from his employ
er's place of business" as it is used in subpara-
graph 8(1)(h)(i), and held, per Heald J.A. [at
pages 422-423], that:
... if an employee's failure to carry out a task can result in an
unfavourable assessment by his employer, it would seem to me
that such a circumstance is compelling evidence that the task in
issue is a duty of employment.
It would seem to me that if failure to sell enough
cars would have resulted in the appellant's dis
charge and if both employer and salesman recog
nize that enough cars can only be sold if the
salesman conducts some of his work away from the
showroom, then the salesman is ordinarily required
to carry on the duties of his employment away
from his employer's place of business.
It follows that, in my opinion, the learned Trial
Judge erred in concluding that the appellant was
not entitled to claim the deduction of expenses
under paragraph 8(1)(f) of the Income Tax Act in
his 1979 and 1980 returns. I would allow the
appeal with costs here and in the Trial Division
and, pursuant to subparagraph 52(b)(i) of the
Federal Court Act [R.S.C, 1985, c. F-7] and
subparagraph 177(b)(iv) of the Income Tax Act, I
would refer the appellant's returns for those years
back to the Minister for reconsideration and
reassessment.
HUGESSEN J.A.: I agree.
MACGUIGAN J.A.: I agree.
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.