Tax Deductibility of a Real Estate Training Course #133
CATEGORY: Legally Speaking
TAGS: Canada Revenue Agency Income Tax Act Independent Contractor Tax Exemption Taxes
By Gerry Neely
A real estate salesperson in Ontario paid $525 in 1985 to attend a four-day course "List More - Sell More," which she found to be useful in increasing her commission income. Her deduction of this amount on her tax return was disallowed and she appealed. Her grounds of appeal were that the disallowance was unfair and inequitable. In addition, everyone she worked with or talked to, who had some knowledge of the subject, including the local office of Revenue Canada, thought that it was a proper deduction.
M.N.R. advanced two principal arguments in opposition to the taxpayer's appeal. The first was that while this amount would likely have been deductible if she was in business, she was not entitled to the deduction because she was an employee. The second was based upon the lack of a provision in the Income Tax Act to allow an employee to deduct training expenses (other than tuition fees) in calculating income from employment.
The judge rejected the first argument because he had a different opinion of the taxpayer's status. He described her, for the purposes of the Income Tax Act, as a special kind of employee - a hybrid between a straight salaried employee and an independent contractor.
The judge went on to say that the right of a commissioned salesperson to deduct expenses from income is found in Section 8 (1) (f) of the Income Tax Act. Once a commissioned salesperson qualifies for the right to deduct expenses, M.N.R. should not put restrictions on deductions except for the unusual restrictions which limit a salesperson's right to take capital cost allowance only upon an automobile or an aircraft. Following this summation, the judge rejected the first argument.
In response to the second argument, the judge asked "How do you distinguish between the courses which result in incurring non-deductible training expenses and those courses for which a deduction can be claimed."
The judge acknowledged that the Minister of National Revenue does have a difficulty in allowing or disallowing a deduction such as the one claimed here. He agreed that "there is probably a wide range of courses, seminars, weekends, etc., to which the term training expenses could be applied." If courses of this kind provide some career or long term benefit, the expense incurred may be a capital expense rather than a current deductible expense.
He resolved the question he posed by referring to the following excerpt from Revenue Canada's own guidelines to taxpayers contained in Interpretation Bulletin 357R:
...Thus, the expenses in connection with any course which gives a credit towards a degree, diploma, professional qualification or similar certificate may not be deducted. On the other hand reasonable expenses in connection with a course which, for example, enables a professional to learn the latest methods of carrying on his profession are allowable.
His decision was that the second sentence in this excerpt applied to the real estate salesperson and that the sum of $525 would be a deductible expense for a business. Based upon his interpretation of her status, it was therefore deductible by the commissioned salesperson, as a current expense. The facts supporting his decision were the salesperson's registration, enrollment, attendance and completion of a course which was recommended and designed to upgrade her skills as a real estate salesperson.
When the salesperson completed her return she filed a statement of her expenses covered by receipts. The claim for deduction of the $525 was not included in this statement. Instead, it was reported on a separate line (213) which indicated that the deduction was "claimable by student only." The judge was satisfied that the salesperson considered herself to be a student but felt that it would have been equally as proper to have included this item in the regular statement of her expenses.
|1.||Neville v. The Minister of National Revenue,88 D.T.C. 1546 (hearing held August 11, 1988).|
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