Posted on August 17th, 2023 in General Business

Photo of cyclists in a race on a road. An audience is standing off to the side.

In a January 23, 2023, French Court of Quebec case, a commissioned salesperson deducted nearly $600,000 over 2015 and 2016, in sponsorship expenses of a professional cycling team in Canada. The individual was an investment advisor and reported commission income of $1,493,910 and $1,263,360 and taxable capital gains of $2,276,374 and $99,767 in the respective years.

The taxpayer argued that the sponsorship promoted his services as an investment advisor. As the main sponsor of the cycling team, the taxpayer explained that he benefited from enhanced visibility, as follows:

  • the taxpayer’s name was in large letters on the front of the cyclists’ jerseys, on both sides of the cyclists’ shorts and on the team’s cycling shoes;
  • the investment institution’s name and logo were on both the front and back of the cyclists’ jerseys; and
  • the team’s website (www.silberprocycling.com) incorporated the taxpayer’s name (Silber) into the website domain.

The Court noted that neither the taxpayer nor any of his family members benefited from the cycling team’s equipment, advice, or products. The Minister argued that the sponsorship expenses were unrelated to the taxpayer’s employment as a commissioned salesperson and that the expenses were unreasonable.

Taxpayer wins

The Court found a sufficient link between the advertising from the sponsorship and the taxpayer’s investment advisory services, from which he generated his commission income. In addition, the Court opined that the taxpayer’s sponsorship expenses constituted a much lower portion of his total income (e.g. 5% for 2015) than in other cases. For example, in a 2010 case, the Court found that employment expenses constituting 65% of the taxpayer’s income were reasonable. The deduction was allowed.

Editors’ comment

The scope of deductible commission employment expenses is much broader than for non-commission employment expenses. Expenses incurred to earn commission income are deductible provided that they are not specifically prohibited (for example, personal expenses or payments that reduced a taxable employment benefit) and provided that the other standard conditions for deduction are met. In contrast, only expenses specifically listed as deductible in the Income Tax Act can be deducted against non-commission employment income.

ACTION ITEM: The rules surrounding deducting expenses against employment earnings are complicated. Care should be afforded before incurring expenses intended to be deducted against employment income.

Article originally published in: Tax Tips & Traps 2023 Second Quarter – Issue 142.

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