Date: 19980423
Dockets: 97-1046-IT-I; 97-769-IT-I; 97-1047-IT-I; 97-1048-IT-I
BETWEEN:
JEAN-CLAUDE OUZILLEAU, ROLAND SÉNÉCHAL, FERNAND DELISLE, ARTHUR ROUSSEAU,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Lamarre Proulx, J.T.C.C.
[1] These appeals were heard on common evidence under the informal procedure. They concern the application of paragraph 8(1)(f) and subparagraph 8(1)(i)(iii) of the Income Tax Act (“the Act”) for the 1994 taxation year.
[2] The issue is whether the appellants, in computing their employment income, can deduct the cost of purchasing the computers they acquired under their contracts of employment.
[3] In reassessing the appellants, the Minister of National Revenue (“the Minister”) relied on the facts set out in paragraph 4 of each Reply to the Notice of Appeal (“the Reply”). Since the Replies are all the same, only one paragraph 4 need be reproduced. It reads as follows:
[TRANSLATION]
(a) during the year in question, the appellant was a commission salesperson for Société du Vallon Chrysler Plymouth Ltd. (hereinafter “the employer”);
(b) during the 1994 taxation year, the appellant purchased a computer (hereinafter “the computer”) for $1,918.30;
(c) the appellant was required to purchase the computer for the purposes of his employment;
(d) the appellant did not receive any allowance or reimbursement from his employer for the computer;
(e) the computer is an outlay of capital;
(f) the Minister therefore refused to allow the appellant to deduct the $1,968 in employment expenses he claimed in his tax return for the 1994 taxation year;
(g) in addition, under paragraph 8(1)(f) of the Income Tax Act (hereinafter “the Act”), no capital cost allowance may be claimed.
[4] Jean-Claude Ouzilleau acted as the agent for the other appellants. He alone testified. The other appellants agreed that his testimony represented their positions. He admitted subparagraphs 4(a) to (d) of the Reply and denied subparagraph 4(e).
[5] Mr. Ouzilleau explained that the employer and employees had agreed that the employees would each purchase a computer at their own expense and that the employer would provide software and maintenance. The agreement was filed as Exhibit A-1. The employees used the computers at their work stations on the employer’s premises. At the time of the hearing, the appellants were still using them. One of the appellants also told the Court that the Minister had not refused to allow two of their colleagues who had purchased computers in 1993 to deduct the cost of those computers. On this last point, I must immediately state that the tax treatment of another taxpayer is of no legal significance.
Argument
[6] Mr. Ouzilleau referred to the 1994 Tax Guide in arguing that certain expenses can be deducted from employment income. He also referred to René Huot’s Canadian Income Tax Desktop Reference in arguing that computers may be subject to a high depreciation rate.
[7] Counsel for the respondent referred to paragraphs 8(1)(f), (i) and (j) of the Act. She argued that the computers were used in the workplace, that the cost of purchasing them was an outlay of capital the deduction of which was precluded by paragraph 8(1)(f) of the Act, that the exception set out in paragraph 8(1)(j) was not applicable and that the appellants had not purchased supplies that are consumed as they are used within the meaning of subparagraph 8(1)(i)(iii) of the Act.
Analysis
[8] Paragraphs 8(1)(f), (i) and (j) and subsection 8(2) of the Act read 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:
. . .
(f) where the taxpayer was employed in the year in connection with the selling of property or negotiating of contracts for the taxpayer’s employer, and
(i) under the contract of employment was required to pay the taxpayer's own expenses,
(ii) was ordinarily required to carry on the duties of the employment away from the 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 travel expenses in respect of the taxation year that was, by virtue of subparagraph 6(1)(b)(v), not included in computing the taxpayer’s income,
amounts expended by the taxpayer in the year for the purpose of earning the income from the employment (not exceeding the commissions or other similar amounts referred to in subparagraph (iii) and received by the taxpayer in the year) to the extent that those amounts were not
(v) outlays, losses or replacements of capital or payments on account of capital, except as described in paragraph (j),
(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 the taxpayer, or
(vii) amounts the payment of which reduced the amount that would otherwise be included in computing the taxpayer’s income for the year because of paragraph 6(1)(e);
. . .
8(1)(i) amounts paid by the taxpayer in the year as
. . .
(iii) the cost of supplies that were consumed directly in the performance of the duties of the office or employment and that the officer or employee was required by the contract of employment to supply and pay for,
. . .
to the extent that the taxpayer has not been reimbursed, and is not entitled to be reimbursed in respect thereof;
. . .
8(1)(j) where a deduction may be made under paragraph (f), (h) or (h.1) in computing the taxpayer’s income from an office or employment for a taxation year,
(i) any interest paid by the taxpayer in the year on borrowed money used for the purpose of acquiring, or on an amount payable for the acquisition of, property that is
(A) a motor vehicle that is used, or
(B) an aircraft that is required for use
in the performance of the duties of the taxpayer’s office or employment, and
(ii) such part, if any, of the capital cost to the taxpayer of
(A) a motor vehicle that is used, or
(B) an aircraft that is required for use
in the performance of the duties of the office or employment as is allowed by regulation;
8(2) Except as permitted by this section, no deductions shall be made in computing a taxpayer’s income for a taxation year from an office or employment.
[9] The appellants are employees, and the computers were purchased in the course of their employment for the purpose of earning income from employment. Subsection 8(2) of the Act expressly states that no deductions other than those permitted by section 8 of the Act may be made in computing income from employment. The deductions to which Mr. Ouzilleau referred are deductions for capital cost allowances. At the start of his case, Mr. Ouzilleau denied subparagraph 4(e) of the Reply, which states that the purchase of the computers was an outlay of capital. Yet he is asking to deduct that outlay through the capital cost allowance, which is contradictory. The deductions that may be made for capital cost allowance are set out in paragraph 20(1)(a) of the Act and are taken into account in computing income from a business or property.
[10] When it comes to income from employment, the discussion must be confined to section 8 of the Act. The only provisions in that section that may be applicable to this case are indeed those referred to by counsel for the respondent and mentioned in paragraph 7 of these Reasons for Judgment.
[11] As regards the expenses of sales employees under paragraph 8(1)(f) of the Act, that paragraph applies only if, inter alia, the employee was ordinarily required to carry on the duties of the employment away from the employer’s place of business. Since that factor was not brought up in the Reply, the absence of evidence on that point will not affect my decision. That requirement does, however, explain the nature of the expenses allowed under the paragraph. Thus, subparagraph 8(1)(f)(v) of the Act provides that an outlay may not be deducted if it is on account of capital, unless it relates to a motor vehicle or aircraft. Accordingly, capital cost allowance for a computer may not be deducted under paragraph 8(1)(f) of the Act. It is excluded by subparagraph 8(1)(f)(v) and is not covered by the exceptions set out in paragraph 8(1)(j).
[12] I will now consider subparagraph 8(1)(i)(iii) of the Act, which provides for the deduction of the cost of supplies that were consumed directly in the performance of the duties of the employment. In Luks [No. 2] v. M.N.R., 58 DTC 1194, Thurlow J. of the Exchequer Court looked at the meaning to be given to these words. At pages 1198-99, he said that equipment differs from supplies and that even if it is assumed that equipment can be considered supplies under this statutory provision, it must be proved that the equipment wore out from use during the year. This has not been proved. On the contrary, the employees are still using the computers in question. They were therefore not consumed in 1994.
[13] The appeals are accordingly dismissed.
Signed at Ottawa, Canada, this 23rd day of April 1998.
“Louise Lamarre Proulx”
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 14th day of December 1998.
Kathryn Barnard, Revisor