Docket: 2003-2968(IT)I

BETWEEN:

MARC L. HANDY,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

____________________________________________________________________

Appeals heard on January 14, 2004, at Toronto, Ontario,

By: The Honourable Justice A.A. Sarchuk
Appearances:
Counsel for the Appellant:	Peter S. Boultbee
Counsel for the Respondent:	A'Amer Ather

____________________________________________________________________

JUDGMENT

          The appeal from the assessment of tax made under the Income Tax Act for the 2000 taxation year is allowed and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that in computing income, the Appellant is entitled to deduct employment expenses in the amount of $4,260.26 for subscription costs.

          The appeal from the assessment of tax made under the Act for the 2001 taxation year is dismissed.

Signed at Ottawa, Canada, this 18th day of March, 2004.

"A.A. Sarchuk"

Sarchuk J.

Citation: 2004TCC223

Date: 20040318

Docket: 2003-2968(IT)I

BETWEEN:

MARC L. HANDY,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR JUDGMENT

Sarchuk J.

[1]      The appeals of Marc L. Handy are from assessments of tax with respect to his 2000 and 2001 taxation years. The issue in each year is the deductibility of certain employment expenses incurred by the Appellant.

[2]      At all relevant times, the Appellant was employed by BMO Nesbitt Burns Inc. as a stock broker and was remunerated as such by way of commissions according to the volume of sales or contracts negotiated. Nesbitt Burns as the employer imposed certain terms, the most relevant of which for the purposes of these appeals were:

(a)       that his employee's contract required him to pay his own expenses;

(b)      that he did not receive an allowance nor did he receive any repayment of the expenses incurred to earn his employment income;

(c)      required him to pay other expenses such as promotion and entertainment; and

(d)      required him to pay for an assistant and for supplies that the assistant used directly in her work.[1]

[3]      Pursuant to that agreement, Nesbitt Burns retained an employee to act as the Appellant's assistant in the taxation years in issue. The employment contract[2] expressly sets out her position as an executive assistant to the Appellant and with specific reference to her salary states:

... This salary and all benefits will be deducted from your Investment Advisor's (Marc Handy) total monthly production, and is not the responsibility of the Company.

Pursuant to this arrangement, the Appellant was charged with his assistant's salary and benefits which were deducted from his commission income. Furthermore, if the commission income earned was insufficient to cover her salary (as it was on several occasions) the Appellant was required to remit the shortfall to Nesbitt Burns.[3] By way of example, as of August 1, 2000 the Appellant's earned commission amounted to $20,042.50 while the accumulated total of the assistant's salary, as well payment for supplies provided by the employer such as Genisys, an internal computer program, couriers and stationery amounted to $22,740.48.[4] In this instance, the resulting shortfall was $2,697.98 and was paid to Nesbitt Burns by the Appellant on August 8, 2000.[5]

[4]      For the 2000 and 2001 taxation years, Nesbitt Burns issued T4A slips to the Appellant for net employment income in the amounts of $4,379.83 and $7,488.88.[6] These amounts were reported by the Appellant as commission income in his returns. In computing income for those years, the Appellant deducted the amounts of $30,631.21 and $14,606.98, respectively, as other employment expenses.[7] The Minister of National Revenue (the Minister) assessed to disallow the deduction of these expenses to the extent of $20,093 and $3,063, respectively. As a result of the foregoing, the Minister determined that the Appellant was entitled to deduct from his income for the two taxation years, the following amounts:

	2000	2001
expenses not exceeding commission income	$4,379.83	$7,488.88
capital cost allowance	4,400.00	3,448.00
supplies	1,803.38	607.10
	$10,538.21	$11,543.98

Respondent's position

[5]      The employment expenses were disallowed by the Minister on the basis that they were not outlays or expenses incurred for the purpose of earning income from employment in accordance with paragraph 8(1)(f) and, more specifically, were amounts which exceeded the commissions earned by the Appellant in those years.

Appellant's Position

[6]      The Appellant's representative stated that the main issue in this appeal is the amount of commission income earned by the Appellant for purposes of the restriction under paragraph 8(1)(f) of the Act. He argued that:

A taxpayer who was remunerated in whole or in part by commissions is entitled to claim the cost of an assistant under paragraph 8(1)(i) and other expenses under paragraph 8(1)(f). A claim under 8(1)(f) is quite clearly restricted to commission income, but no such rule is contained in or applies to 8(1)(i).

Subparagraph 8(1)(i)(ii) permits the deduction for the cost of an assistant. The taxpayer is paying the cost of an assistant and this amount is deducted from his commission income. The 8(1)(f) deduction is restricted to commission income, and the taxpayer contends that, for this purpose, his commission income in 2000 and 2001 should be grossed up by the amount of the assistant's salary. Failure to do so means that the salary is part of total expenses which are restricted to commission income, contrary to paragraph 8(1)(i). It makes no difference, for purposes of applying paragraph 8(1)(f), whether the salary is deducted from his commissions or if he writes a cheque for the amount. The substance and the result are the same. Commission income is the amount earned by the taxpayer regardless of how it is reported on the T4 form.

[7]      The Appellant also objected to the Minister's reduction of his claim for supplies from $6,084.01 to $1,803.38 in the 2000 taxation year. Of the disallowed portion, the amount of $4,260.26 is in issue and reflects the cost of acquisition by the Appellant of a number of various stock selection services and other similar subscriptions. His position is that these services and other material were used to select investments for clients from which the Appellant earned his commission income. Particular reference was made to the material described as Wall Street Strategies which, the Appellant said, was necessary since the Nesbitt Burns research was weak in the area of US securities.

Conclusion

[8]      With respect to the Appellant's submissions regarding section 8 of the Act, the relevant provisions read:

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 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);

(i)          amounts paid by the taxpayer in the year as

(i)          annual professional membership dues the payment of which was necessary to maintain a professional status recognized by statute,

(ii)         office rent, or salary to an assistant or substitute, the payment of which by the officer or employee was required by the contract of employment,

(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,

(iv)        annual dues to maintain membership in a trade union as defined

(A)        by section 3 of the Canada Labour Code, or

(B)        in any provincial statute providing for the investigation, conciliation or settlement of industrial disputes,

or to maintain membership in an association of public servants the primary object of which is to promote the improvement of the members' conditions of employment or work,

(v)         annual dues that were, pursuant to the provisions of a collective agreement, retained by the taxpayer's employer from the taxpayer's remuneration and paid to a trade union or association designated in subparagraph (iv) of which the taxpayer was not a member,

(vi)        dues to a parity or advisory committee or similar body, the payment of which was required under the laws of a province in respect of the employment for the year, and

(vii)       dues to a professions board, the payment of which was required under the laws of a province,

to the extent that the taxpayer has not been reimbursed, and is not entitled to be reimbursed in respect thereof;

[9]      I am unable to accept the submission that the Appellant is entitled to "gross-up" his income in both taxation years by the amount of the assistant's salary in order to allocate it between paragraphs 8(1)(f) and 8(1)(i). In my view, the deduction he is entitled to arises solely out of paragraph 8(1)(f). The language of that paragraph clearly indicates that sales personnel being remunerated by commissions or other similar amounts fixed by reference to the volume of the sales made are entitled to what amounts to additional deductions akin to some of those available against business income such as travel, meals, assistant's salaries, entertainment and promotion. Furthermore, it is clear that Parliament deliberately limited the amount of such deductions to the total amount of commissions earned. I have not been persuaded that any other approach is warranted. Accordingly, the Minister's assessment with respect to this issue is upheld.

[10]     I turn next to the subscription expenses. The Respondent's position was that these expenses were properly denied on the basis that they were capital in nature and not made for the purpose of earning or producing income from property. I do not agree with this assessment. It is not disputed that a taxpayer cannot deduct such expenses if they were incurred in relation to the taxpayer's personal acquisition of stocks and bonds and were not being used for the purposes of buying and selling investments for others. In this particular case, however, the acquisition of these publications, and in particular the Wall Street Strategies subscription, was solely for the purpose of assisting him in the appropriate management of his clients' portfolios and was not intended to be used to assemble a personal portfolio of investments in shares. Since the Appellant's income was earned from the reviewing, buying, selling and holding of various investments for his clients, these subscriptions were necessary. I am satisfied that in these circumstances the cost of the subscriptions can only be considered as a current expense since managing the clients' portfolios was directly related to his income earning-activity.

[11]     The appeal from the assessment made under the Act for the 2000 taxation year is allowed and the Appellant is entitled to deduct the amount of $4,260.26 in subscription costs. The appeal from the assessment made under the Act for the 2001 taxation year is dismissed.

Signed at Ottawa, Canada, this 18th day of March, 2004.

"A.A. Sarchuk"

Sarchuk J.

CITATION:

2004TCC223

COURT FILE NO.:

2003-2968(IT)I

STYLE OF CAUSE:

Marc L. Handy and Her Majesty the Queen

PLACE OF HEARING:

Toronto, Ontario

DATE OF HEARING:

January 14, 2004

REASONS FOR JUDGMENT BY:

The Honourable Justice A.A. Sarchuk

DATE OF JUDGMENT:

March 18, 2004

APPEARANCES:

Counsel for the Appellant:

Peter S. Boultbee

Counsel for the Respondent:

A'Amer Ather

COUNSEL OF RECORD:

For the Appellant:

Name:

Peter S. Boultbee

Firm:

Smith, Nixon & Co.

For the Respondent:

Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada

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