Principal Issues: [TaxInterpretations translation]
Can a securities dealer comply with subparagraph 8(1)(f)(ii) of the Act?
Position:
Yes, they can.
Reasons:
Question of fact. If the employer and employee have a written or implied agreement whereby the employee is required to work away from the employer's place of business, the salesperson's expenses could be deductible.
October 13, 2000
Laval Tax Services Office Headquarters Audit office Nancy Deslandes Ms. Suzette Brodeur (613) 957-8961
2000-004247
Employment expenses for a securities salesperson
This is in response to your letter of August 15, 2000, in which you requested our opinion on the above subject.
You noted that securities salespeople deduct numerous expenses from their commission income. In the documentation you sent to us, we noted the following facts:
These salespeople are usually employees of brokerage firms. Generally speaking, they are remunerated on a commission basis, the percentage of which varies according to their sales, depending on the situation. They must pay all expenses incurred in the course of their employment. Those expenses may vary from one salesperson to another, but generally include the following: travel expenses, entertainment expenses, subscriptions to various magazines, membership of social clubs, gifts and telephone costs.
Those expenses are not reimbursed by their employers. They submit that those expenses are essential to establishing a successful salesperson in order not only to retain but also to increase their customer base. They also added that, in addition to their regular working hours, they had to devote a large part of their evenings and weekends to recruiting new customers. The employer does not keep track of those hours, and it is not possible to determine in percentage terms how much time the salespeople spend at their regular place of work versus outside their office.
I- Your Question
You wish to know whether a securities salesperson, who is also an employee, can meet the conditions of subparagraph 8(1)(f)(ii) of the Income Tax Act (the “Act”).
II- Our Comments
Subparagraph 8(1)(f)(ii) of the Act reads as follows:
Sales expenses
(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) …
(ii) was ordinarily required to carry on the duties of the employment away from the employer’s place of business,
The “ordinarily required” requirement in subparagraph 8(1)(f)(ii) will generally be satisfied by a written contract of employment that expressly provides that the employee is ordinarily required to perform duties away from the employer's place of business. Where the employment contract does not expressly provide for that condition, the Agency's position is that subparagraph 8(1)(f)(i) is satisfied where it is implicitly understood that the employee is required to perform certain duties away from the employer's place of business, and failure to comply with the implied requirement would likely result in unsatisfactory performance, or where the employee and employer agree that satisfactory performance can only be achieved by performing certain duties away from the employer's place of business.
Whether or not there is an implied agreement between an employer and employee is a question of fact that can only be determined after an examination of all the relevant facts.
The Verrier case (92 DTC 6202) is an example of this type of situation. The employer testified as follows with respect to the terms of employment and expectations when hiring a new employee:
“...initially, we'd clarify with the individual that we had hours of on duty work with the dealership with the expectation thought that certainly they being six hour shifts, that we were well aware that no salesperson could make a living working six hours a day and expect to do the job. The indication on our part at that stage would be to make sure that the salesperson would in fact cultivate their, you know, their own clientele, go out on their own, talk to friends, relations, acquaintances, continue on with their day's work when they were notion shift.”
Following this testimony, Justice P.M. Mahoney made the following comments:
“It would seem to me that if failure to sell enough cars would have resulted in the Appellant's discharge and if both employer and salesman recognize that enough cars can only be sold if the salesman conducts some of his work away from the showroom, then the salesman is ordinarily required to carry on the duties of his employment away from his employer's place of business.”
Thus, in this case, the judge concluded that the expenses incurred by the employee were deductible since the taxpayer had been able to show that negative consequences could result from not paying those amounts.
On the other hand, in Martin Jalbert v. The Minister of National Revenue (86 DTC 1765), Couture J. ruled as follows in the case of this taxpayer who was a commission salesman for a general shop specializing in the sale of furniture and electrical appliances.
“In view of the evidence produced at the hearing of this appeal and the absence or any formal obligation on the appellant under his contract of employment that he carry on the duties of his employment away from his employer’s place of business, I must dismiss the appeal, since the expenses claimed by the appellant in respect of 1980 and 1981 were not incurred strictly in accordance with the provisions of subparagraph 8(1)(f)(ii) of the Act.”
In that particular case, the taxpayer had an employment contract which stated in writing that, to the extent that the employee wished to increase his sales and consequently, in his interest and that of the company, he was to continue his efforts at the shop or at any other location. The judge did not interpret this clause as an obligation to work outside the company's location since the facts did not support the taxpayer's allegations.
In conclusion, only the facts of each particular case will determine whether or not a securities salesperson will be able to deduct sales expenses under paragraph 8(1)(f). A taxpayer who wishes to avail himself of this paragraph must demonstrate that he satisfied all the conditions set out therein, including those found in subparagraphs 8(1)(f) (i) and (ii). In addition, subsection 8(10) requires that a prescribed form signed by the taxpayer’s employer is filed with the taxpayer’s return of income for the year in which the employee claims vendor expenses under paragraph 8(1)(f).
We hope you find these comments useful.
Best regards,
Ghislain Martineau
Acting Manager
Individuals and Corporate Section
Business and Publications Division
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