Principal Issues: [TaxInterpretations translation] Are the following expenses incurred by a manager of an agency (all of his income is from commissions) deductible in computing his employment income under paragraph 8(1)(f) of the Act?
- Accounting fees for tax conventions for the agency's salespeople and for consultation on client files.
- Conference for Advanced Life Underwriting
Position: Yes for accounting fees, no for convention.
Reasons: For the accounting fees, we are of the view that this expense represents in part training costs that were incurred to update or improve the existing skills of salespeople. The portion of the fees paid for consultations relates to the taxpayer's employment activities. Since the taxpayer, as an agency manager, is responsible for training salespeople and his income depends largely on their effectiveness, he is considered to have spent those amounts during the year to earn income from his employment.
For convention expenses, that type of expenditure is probably a non-deductible capital expenditure.
October 3, 2000
Shawinigan-Sud Tax Centre Headquarters Appeals Division Ghislaine Landry, CGA Section 505 (613) 957-8953
Attention: Ms. Martine Bérubé 2000-003999
Application of paragraph 8(1)(f) of the Act
File: XXXXXXXXXX
This is in response to your memo of July 21, 2000, in which you asked for our opinion on the above subject.
You described the situation of the above taxpayer, who is a manager of an agency for a life insurance company. The taxpayer's income comes entirely from commissions. As an agency manager, his commission income is calculated on the basis of sales made by salespeople under his direction. Under his employment contract, the taxpayer is required to pay all expenses incurred in the performance of his duties. You have also sent us a copy of form T2200 signed by the employer certifying that the conditions set out in paragraph 8(1)(f) of the Income Tax Act (the “Act”) have been met in respect of the taxpayer.
You wish to know whether the following expenses incurred by the taxpayer are deductible in computing his employment income under paragraph 8(1)(f):
- Accounting fees for tax conventions and consultation: the taxpayer hired an accounting firm to hold tax conferences at the office for the agency's salespeople. In addition, he could consult with them to obtain information and advice for client files;
- The Conference for Advanced Life Underwriting: the taxpayer indicated that he himself attended this convention, which was more like a symposium with presentations on various subjects made over a period of one or two days. In his opinion, this was training.
OUR COMMENTS
For present purposes, we consider that the taxpayer meets all the conditions for the application of paragraph 8(1)(f) set out in the preamble and in subparagraphs 8(1)(f)(i) to (iv). According to the information you have provided us with and following the telephone conversation (Bérubé/Landry) of September 27, 2000, we note that those conditions have already been examined by your office and that, consequently, comments from us in that regard are not necessary.
Paragraph 8(1)(f) generally provides that a taxpayer may deduct amounts expended in the year to earn income from employment to the extent that such amounts were not, among other things, outlays, losses or replacements of capital or payments on account of capital.
With regard to a specific expense, it is important first to determine the nature of the expense: is it for training, conventions, seminars or business meetings? Next, it must be determined whether the expense is of a current nature or whether it is a capital expenditure. As indicated in Interpretation Bulletin IT-357R2, Expenses of Training, training costs are considered to be capital in nature where the training results in a lasting benefit to the taxpayer, i.e., where a new skill or qualification is acquired. Where, on the other hand, the training is taken merely to maintain, update or upgrade an already existing skill or qualification, the related costs are not considered to be capital in nature. An expense for a convention, which can be defined as a formal meeting of members for professional or business purposes, is generally a capital expenditure. A seminar may be considered either training or a convention depending on the relevant facts. A business meeting is generally considered to be an expense of a current nature.
In the above-mentioned taxpayer's situation, we are of the view that the expense of accounting fees for tax conventions and consultations is an expense deductible by the taxpayer under paragraph 8(1)(f). In our view, this expense represents, in part, training costs incurred to update or improve the existing skills of salespeople. The portion of the fees paid for consultations relates directly to the taxpayer's employment activities. Since the taxpayer, as branch manager, is responsible for training salespeople and his income depends largely on their effectiveness, he is considered to have spent those amounts during the year to earn income from his employment.
The expense for the Conference for Advanced Life Underwriting is probably a non-deductible capital expenditure under subparagraph 8(1)(f)(v). In our view, the exhibitions and presentations held at those conventions were primarily intended to enable participants to acquire new skills, learn about new developments or simply meet people or make themselves known. Consequently, we are of the view that this expenditure is a capital expenditure since it provides a lasting benefit to the taxpayer. Please note that the provisions of subsection 20(10) do not apply in this situation since that subsection applies only in respect of income from a business or property, and not in respect of employment income.
For your information, a copy of this memorandum will be severed using the Access to Information Act and will be available in the Legislative Access Database (LAD) located on the mainframe of the Canada Customs and Revenue Agency. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, the Legislative Access Bank version can be provided. Alternatively, the client may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Ms. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
Should you require any additional information concerning this document, please do not hesitate to contact us.
Ghislain Martineau
Acting Manager
Individuals and Business Section
Business and Publications Division
Income Tax Rulings Directorate
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