Urquhart v. R. - FCA: Car salesman’s expenses allowed in part, reversing Tax Court

Urquhart v. R. - FCA:  Car salesman’s expenses allowed in part, reversing Tax Court


Urquhart v. Canada  (March 4, 2016 – 2016 FCA 76, Gauthier, Rennie (author), Gleason JJ. A.).

Précis:   Mr. Urquhart acted as a sales manager and commission salesman for a car dealership.  His evidence was that he was required to bear some expenses in connection with the commission income he earned selling cars.  The Tax Court rejected his evidence.  The Federal Court of Appeal reversed the Tax Court in part holding that certain of his expenses were deductible.  Since there was mixed success on the appeal there was no order as to costs.

Decision:   According to Mr. Urquhart he was required to bear some of the costs associated with his work as a commission salesman:

[3]               There were two elements to the appellant’s employment. He received a fixed salary for his work as a sales manager and a commission for his sales as a car salesman. In respect of this aspect of his employment, the appellant incurred various expenses to support his sales. These included: mobile phone charges; postage for sending cards to clients; promotion costs for support of local sports teams; gifts to mechanics to ensure prompt service on behalf of the appellant’s clients at the dealership; vehicle transfer costs to bring new cars to Miramichi for delivery to customers to obtain the higher commission the dealership agreed to pay the appellant if the cars were present in Miramichi; cost of installing accessories on certain cars he sold; providing mechanical assistance in the case of the breakdown of a recently sold vehicle; and providing a vehicle when the purchaser’s vehicle was in for service.

The Federal Court of Appeal held that the Tax Court erred in disallowing all of those expenses as deductions:

[6]               The judge erred in two respects. In construing the contract, he relied on the personal perspective of the employer as to what was “required under the contract” without consideration of whether, regarding the contract objectively, it was an implicit or implied term that the employee would be required to incur certain costs in order to earn the commissions contemplated by the contract; see Sattva at para 49.

[7]               Secondly, the judge erred in failing to address the possibility that some of the expenses might be “required under the contract” and others might not. He did not identify and segregate those expenses that were related to development and marketing of the appellant’s sales (which he was not required to incur under the contract) and those expenses which, when the employment contract was viewed objectively, were directly needed for the appellant to fulfill his responsibilities and obtain his entitlements under the contract (to sell cars and earn commissions) and were expressly agreed with the dealership (charge back). To be specific, the latter included:

        i.            the freight and transportation costs to bring cars to the dealership, and

      ii.            the cost of purchasing accessories to be included on delivery of a vehicle, or shortly thereafter and which the appellant and the dealership had agreed to share. These would not include the costs of accessories that the dealership was not prepared to finance at all nor would it include gifts to the mechanics to install the accessories.

These were terms of his employment not merely good business practices:

[8]               Indeed, the appellant’s evidence (including the invoices and pink slips for charges back) demonstrate a mutual understanding that these expenses were required. Without them, the appellant could not earn the higher percentage commission that the dealership had agreed to pay him if a vehicle was present in Miramichi, or could not deliver the merchandise that the dealership had agreed to deliver to a client. As such, these expenses should be distinguished from prudent or innovative expenditures merely aimed at helping produce income by building positive client relations.

Since only a portion of Mr. Urquhart’s expenses were allowed on appeal there was no order as to costs.