Tax Court judge erred by failing to consider whether it was implicit that taxpayer was required to incur certain costs in order to earn commissions

Federal appeal | Taxation

Income tax

Tax Court judge erred by failing to consider whether it was implicit that taxpayer was required to incur certain costs in order to earn commissions

Taxpayer employee of car dealership incurred various expenses to support sales, including costs relating to contact with clients and promotional expenses, as well as costs of transferring new cars to dealership to obtain higher commission and of installing certain accessories on certain cars sold. Taxpayer claimed expenses as deductions from employment income. Minister assessed taxpayer, disallowing such deductions on basis that expenses were not “required under employment contract” as set out in s. 8(1)(f) of Income Tax Act (Can.). Taxpayer’s appeal was dismissed. Taxpayer appealed. Appeal allowed in part. Tax Court judge erred in relying on employer’s personal perspective, without considering whether, regarding contract objectively, it was implicit that taxpayer would be required to incur certain costs in order to earn commissions contemplated by contract. Tax Court judge also erred in failing to address possibility that some expenses might be required under contract and others might not. Tax Court judge did not identify and segregate those expenses related to development and marketing of taxpayer’s sales, which he was not required to incur under contract, and those which, when contract was viewed objectively, were directly needed for taxpayer to sell cars and earn commissions and were expressly agreed with dealership. Taxpayer’s evidence showed mutual understanding that expenses for transporting cars to dealership and purchasing accessories to be included on delivery of vehicle were required. Without such expenses, taxpayer could not earn higher percentage commission that dealership agreed to pay him if vehicle was present in community or could not deliver merchandise that dealership had agreed to deliver to client. Assessment should be varied to allow deductions for costs incurred on transportation of vehicles to deliver and to purchase accessories or enhancement where dealership was also covering part of costs and expense was charged back.
Urquhart v. R. (Mar. 4, 2016, F.C.A., Johanne Gauthier J.A., Donald J. Rennie J.A., and Mary J.L. Gleason J.A., A-56-15) 263 A.C.W.S. (3d) 1082.

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