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The following comes from:
Jamie Golombek, CA, CPA, CFP, TEP
Vice-President, Taxation & Estate Planning
AIM Trimark Investments
It was passed on to me by George Hatton CA, A Cartier Partners
Representative who works out of our West Vancouver Office.
david ingram
In a decision delivered orally from the Bench in Toronto, on June
26, 2003, the Tax Court of Canada ruled that fees paid by a
financial advisor, who was a commissioned employee, for "The
Strategic Coach" program were not deductible under the Income Tax
Act.
The case (Dean French v. the Queen [Docket: 2003-58(IT)I])
involved a commissioned financial advisor who was employed with
London Life during the 2000 tax year. In his tax return, he
claimed various expenses relating to the earning of employment
commissions, most of which were allowed. Judge Hershfield,
however, disallowed an expense in the amount of $3,900, which was
the fee the financial advisor paid to enroll in "The Strategic
Coach" program for the 2000 tax year. According to their website,
"The Strategic Coach" is a program that helps "entrepreneurs
transform their lives and their businesses to achieve greater
simplicity, focus, balance, confidence, enjoyment, and income."
The law
Under the Act, if an employee is employed as a commissioned
salesperson and under their contract of employment was:
a.. required to pay their own expenses;
b.. required to carry on duties away from the employer's place
of business;
c.. paid in whole or in part by commission income, and
d.. did not receive a reimbursement for the expense,
then amounts paid by the employee for the purpose of earning
income from employment are tax deductible, as long as they do not
represent an outlay on account of capital. Judge Hershfield
concluded that the fees paid to attend "The Strategic Coach" were
more in the nature of a capital expenditure as opposed to a
current expenditure and therefore not deductible.
The analysis
The Judge proceeded to explain that in order to determine whether
a particular payment is tax deductible, one must first determine
whether the amount was a current expense or a capital
expenditure. The analogy provided by the Judge was whether the
amount was paid to "nurture the growth of the tree" (in which
case it would be a capital expenditure) or "to nurture the
proliferation of fruit from that tree" (in which case it would be
considered a current expense.) While the Judge conceded that many
expenditures do both (i.e. further the growth of the tree as well
as nurture the proliferation of fruit from the tree), the key in
determining deductibility under the Act is which of these two is
the predominant aspect.
Judge Hershfield concluded that, in his view, the program was a
general course, which can lead to building a better business, but
over the long term. While he acknowledged that commission income
may grow as a result of participation in the program and, in
fact, may grow in the "current season", that was not the main
nature of the expense. In his words, this expense was primarily
"tree fodder" which provided an enduring and long-term benefit.
It was not a current expense paid to learn job-specific ideas. As
a result, the Judge found that the fees for this program were not
deductible by the advisor.
Cautionary note
This case should serve as a warning to all advisors who enroll in
what may be viewed as long-term, development program, that the
costs paid to attend such a program may not be tax deductible to
the extent that they are enhancing advisors' long-term
profitability of their business as opposed to relating to an
income earning purpose of the current year. The good news,
however, is that the case was heard under the informal procedure
rules of the Tax Court of Canada and therefore it is not legally
precendential. That being said, other Judges will certainly look
to this decision for guidance should the issue come up again in
the future.
Be sure to consult your tax advisor to ensure that any
professional development that you pay for is properly deductible.
If not, this may increase the true cost to you of the program and
you will need to reevaluate whether the additional cost is worth
the benefit.
david ingram - [email protected]
108-100 Park Royal South
West Vancouver, BC, CANADA, V7T 1A2
(604) 913-9133 - (604) 913-9123 www.centa.com
Cell is (604) 657-8451 (10 AM to 10 PM seven days a week)
US / CANADA / MEXICO
Working Visa and Income Tax Specialists
Be ALERT, the world needs more "lerts"
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