DIRECT SALES HIGHLIGHTS GREY EXPENSE AREAS

By Frances McGuckin

Another late self-employed tax return highlighted a couple of interesting "grey" areas in our taxation laws. Many women are involved in direct sales of clothing as a self-employed business. These companies require that the operator purchase not just sample stock, but to highlight the new fashions, it is suggested that accessories are purchased to accentuate the fashion lines.

This makes perfect sense to me-a show home sells better filled with the appropriate furniture just as a store displays clothing with the appropriate accessories. These businesses operate by women having in-home clothing parties, and accessorizing the clothing is an important and integral part of making sales. We all appreciate the difference that scarves, jewelry and shoes make to an outfit.

On talking to the controller of a large company and then talking to our friendly tax department, the results of the discussions is that there are grey areas that are not exactly defined through our tax laws. This is one of them. To claim these accessories as a tax deduction-and the operators have to purchase these items if they are doing their job properly-the final onus is upon the operators to prove to the tax department how much they are used for business.

The direct sales bulletin states that "some clothing may be tax deductible". Very wishy-washy guidelines that can't be further defined. According to the representative at the tax department, if an audit should happen, the operator has to prove that these accessories are used only for business. How does one prove that they did or didn't slip on that gorgeous pair of earrings to go out for a non-business dinner?

The safest way, as suggested by the company controller in Ontario, is to take a percentage off the deduction for "personal use". They have told their operators to keep claims "fair and reasonable"-so that voids the claim for the diamond necklace. It was suggested that a 50 percent personal usage amount be deducted off the total for the year. The tax department will live with a personal deduction amount, but don't forget, you still have to prove this percentage of use.

The other grey area that arose was conventions. You can only deduct the expenses pertaining to two conventions a year, but how do you define between conventions and conferences? Or workshops, seminars and meetings, particularly if they are out-of-town? Do you call a convention a conference or a workshop-or a fashion show? The Canadian tax department had no real answer except that "you can only claim expenses for two conventions a year".