A J Frost:—This is an appeal from an income tax assessment in respect of the appellant’s 1967 taxation year. Upon notice of objection duly signed and filed, the Minister of National Revenue reconsidered the assessment and confirmed it on the ground that net commission income in the amount of $20,775.51 from Great Western Garment Co Ltd (hereinafter referred as “GWG’’) reported as income by G J Burns Sales Ltd was properly included in computing the taxpayer’s income under the appropriate provisions of the Income Tax Act, and that an amount of $2,135.26 claimed as a deduction was not expended by the taxpayer for the purposes of earning income under subsection 11(6) of the said Act.
The appellant was a manufacturer’s agent selling different lines of merchandise. On October 21, 1966 he caused to be incorporated G J Burns Sales Ltd (hereinafter referred to as “the Company”).
The Company actively carried on business in 1967 maintaining a separate office and employing nine persons including the taxpayer. According to the testimony of Mr Floyd Nattras, general sales manager of GWG, Mr Burns was advised to incorporate, as it was considered desirable from a financial viewpoint for a manufacturer’s agent operating his own business when his total gross annual sales exceeded $1,000,000, the advantage being that the appellant would employ his own staff and do his own financing. Mr Nattras testified that he himself had over 100 persons under his direct control as general sales manager and that the Company and not the appellant was acting as sales agent for GWG. He added that his company had a sales turnover of over $25,000,000 and that a large part of his company’s sales were generated through 20 large sales offices, about one-half of which were incorporated companies, and that he knew that the Company carried lines other than GWG’s products and that all arrangements with salesmen and/or their incorporated companies were informal. In this particular case, according to Mr Nattras, the verbal sales arrangement was with the Company, not with the appellant in his personal capacity.
The evidence adduced further indicated that all income flowed through the books of the Company. All cheques (mainly commission cheques) were deposited and all disbursements other than petty cash items were paid by cheque, thus giving support to the appellant’s contention that the Company and not the appellant was the sales agent.
In respect of the Stable account charged to promotional expenses in the sum of $2,135.26 and added back to the income of the appellant on the ground that it represented personal expenses, the Board agrees with the position taken by the respondent. Although there may well be some causal connection between the boarding and training of horses, riding lessons and entrance fees for riding competitions and the development of a sales promotion program to encourage the sale of western clothes, the fact that only the appellant’s daughter rode the horse and the appellant was not reimbursed for advertising outlays of this nature, convinces the Board that the said item was a personal and living expense and cannot be deducted under paragraphs 12(1)(a) and (h) of the Income Tax Act.
The appeal is allowed in part and referred back to the Minister for reassessment on the ground that the net commissions earned in the appellant’s 1967 taxation year were earned by the Company as sales agent for GWG, but the appeal is dismissed in respect of the Stable account for the reasons stated.
Appeal allowed in part.