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19 hours ago
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On top of the clothing allowance, the taxpayer was reimbursed by Holts for bona fide employment-related expenses, including monthly cell phone costs, taxi costs, and meals and accommodation if travelling for work, for example, to seasonal product knowledge events.
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The Canada Revenue Agency denied the taxpayer’s clothing expenses, saying they were not deductible as they were personal expenditures. When the taxpayer was audited, she tried to get signed Form T2200 “Declaration of Conditions of Employment” from Holts for each of the taxation years under review. The company refused to provide these forms because, in its view, she was not required to incur expenses as a condition of employment. She was told that company policy was against issuing T2200 forms to employees and further, if they were to issue her T2200s, they would not confirm any obligation to incur employment expenses.
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The issue before the court was whether the taxpayer was required, as a condition of her employment, to incur the expenses. The courts have found in prior cases that this requirement may be an express or implied condition of employment.
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While the judge found the taxpayer to be “credible and forthright,” adding that when asked a question to which she didn’t know the answer, she admitted it, and “did not attempt to obfuscate or engage in prolix meandering,” nonetheless, the evidence submitted at trial simply did not support any requirement by Holts for her to buy clothes, at her own expense, as a condition of her employment.
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The judge even considered whether incurring employment expenses was an “implicit criterion of employment.” This can be the case where an employee might receive a negative performance evaluation, or any disciplinary action, for failing to take certain steps and incur related expenses. In the present case, there was no evidence concerning the taxpayer’s clothing that would support an implicit requirement argument based on any adverse steps that Holts may have taken or threatened.
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The judge noted that while “it may have been smart for (the taxpayer) to choose to incur expenses on her own account, over and above her allowance, to help her earn more commissions … making a smart economic choice and being contractually obligated (even implicitly) are different.”
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Since there was no express nor implied term of employment that required the taxpayer to incur the additional clothing expenses, the judge found them to be non-deductible.
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As for her home office expenses, the Tax Act limits the deduction of home office expenses unless the home office is the place where the taxpayer principally performs their duties, or the space is used exclusively for work and on a regular and continuous basis for meeting customers or other persons related to work.
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The taxpayer testified that she worked unpaid hours at home to keep up with client matters, making calls and dealing with reports. For example, on one occasion, she answered a call in the middle of the night about delivering a belt before a client’s 7 a.m. flight. There was, however, no contractual requirement that the taxpayer work after regular working hours, and any overtime worked was subject to pre-approval.
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The judge concluded that since the taxpayer did not principally perform her duties from home, nor did she use the space regularly for meeting customers or others in the ordinary course of her work, her home office expenses were not deductible.
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Jamie Golombek, FCPA, FCA, CFP, CLU, TEP is the Managing Director, Tax & Estate Planning with CIBC Private Wealth in Toronto.
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English (US)