25 May 1989 Income Tax Severed Letter 7-3813 - [Paragraphs 8(1)(f) and (h)]

REVENU CANADA TAXATION MEMORANDUM

DATE MAY 25 1989

TO Examination Division                  FROM Small Business and
          W.E. Moore                                                   General Division
           Director                                                          J.D. Jones
                                                                                  957-2104
          C. Hussey

SUBJECT:    Proposed Directive                                     
        Paragraphs 8(1)(f) and (h) of the     Your File: HAV 4533-4-6
        Income Tax Act (the "Act")

Your File: HAV 4533-4-6

We have reviewed the draft Directive dealing with the above noted subject and would offer the following comments:

1) Page 11 - Salary Paid to an Assistant or Substitute

As the Department appealed the judgement of the Tax Court of Canada in Cruikshank (85 DTC 633) and the case was settled by the taxpayer consenting to judgement allowing the Department's appeal, we are not in agreement with your comments regarding this matter. It is our view that "substitute " as that word is used in subparagraph 8 (l)(i)(ii) of the Act means an individual taking the place of the taxpayer and that "salary" is as defined in the Oxford dictionary, "a fixed payment made by an employer at regular intervals to a person doing other than manual or mechanical work".

In view of the above and as a result of Appeals Branch Decisions numbers 86-2 and 86-2R dated January 28, 1986 and October 20, 1987, respectively (copies attached), it is our view that the cost of leasing computers and cellular telephones cannot constitute payment of a salary to a substitute and is, therefore, not deductible under subparagraph 8(1)(i)(ii) of the Act.

Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch