Citation: 2010TCC307
Date: 20100604
Docket: 2009-1008(IT)I
BETWEEN:
SHAWN A. ARBEAU,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Webb, J.
[1]
The main issue in this
appeal is whether the Appellant was carrying on one business or two different
businesses. This issue arises in relation to the claim by the Appellant for
business-use-of-home expenses in 2004 and 2005. For several years prior to 2004
the Appellant had claimed that he was entitled to carry forward business-use-of-home
expenses in excess of his net income from his electronics repair business. The
Appellant had accumulated a carry forward amount of business-use-of-home
expenses of $33,941. The Appellant claimed this carry forward amount over two
years - $21,062.68 in 2004 and $12,878.32 in 2005. It is the position of the
Appellant that he was only carrying on one business and therefore the carry
forward amount can be claimed against his income in these years. It is the
position of the Respondent that the Appellant was carrying on a different
business in 2004 and 2005 and therefore the carry forward amounts cannot be
claimed by the Appellant in these years. The Respondent has also reduced the
amounts that the Appellant may carry forward.
[2]
Subsection 18(12) of
the Income Tax Act (the “Act”) provides as follows:
(12) Notwithstanding any other provision of this Act, in computing
an individual's income from a business for a taxation year,
(a) no amount shall be deducted in respect of an otherwise
deductible amount for any part (in this subsection referred to as the “work
space”) of a self-contained domestic establishment in which the individual
resides, except to the extent that the work space is either
(i) the individual's principal place of business, or
(ii) used exclusively for the purpose of earning income from
business and used on a regular and continuous basis for meeting clients,
customers or patients of the individual in respect of the business;
(b) where the conditions set out in subparagraph (a)(i) or (ii) are
met, the amount for the work space that is deductible in computing the
individual's income for the year from the business shall not exceed the
individual's income for the year from the business, computed without
reference to the amount and sections 34.1 and 34.2; and
(c) any amount not deductible by reason only of paragraph (b) in
computing the individual's income from the business for the immediately
preceding taxation year shall be deemed to be an amount otherwise deductible
that, subject to paragraphs (a) and (b), may be deducted for the year for the
work space in respect of the business.
(emphasis added)
[3]
The amount that may be
deducted in computing a person’s income for a year in relation to the business
use of his or her home is limited to the amount of income from the business
that is being carried on in the home. The references in the section are to the
business not to a business. In order for the Appellant to be able
to use the amounts carried forward from prior years, the income that he is
generating (and in relation to which he is trying to claim the carry forward
amounts) must be income from the same business for which the Appellant was
using his home in prior years.
[4]
In 1994 the Appellant
started an electronics repair business. He would repair televisions (including
plasma and LCD TVs), arcade games, DVD players, audio equipment, radios,
satellite TV receivers, refrigerators, stoves, washing machines, dryers,
dishwashers and other appliances. He would repair a wide variety of electronic
equipment and appliances.
[5]
In 2004 the Appellant
commenced work subcontracting as a public safety inspector for BC Hydro. The
Appellant’s role as a public safety inspector was to inspect power poles and
transmission lines for problems. The main emphasis was on the power pole and
pole structure. He did not climb the power pole so all of his tests and
observations were conducted or made from the ground. He would perform various
tests and take pictures. Some of the tests were performed below ground level so
he would need tools to cut through concrete if the power pole was in an urban
area and surrounded by concrete. If he found a problem, the problem would be
reported to BC Hydro who would fix the problem.
[6]
It is the Appellant’s
position that he was only carrying on one business and that his activities that
he was carrying on as a public safety inspector was part of his electronics
repair business. While there do not appear to be any cases that have dealt with
this issue for the purposes of subsection 18(12) of the Income Tax Act,
there are cases that have dealt with the issue of whether a person was carrying
on one business or more than one business for the purposes of determining whether
a person should maintain separate classes for capital cost allowance purposes
for depreciable property that otherwise would be in the same class of property.
Subsection 1101(1) of the Income Tax Regulations provides that:
1101. (1) Where more than one property of a taxpayer is described
in the same class in Schedule II and where
(a) one of the properties was acquired for the purpose of gaining or
producing income from a business, and
(b) one of the properties was acquired for the purpose of gaining or
producing income from another business or from the property,
a separate class is hereby prescribed for the properties that
(c) were acquired for the purpose of gaining or producing income
from each business, and
(d) would otherwise be included in the class.
[7]
Therefore it is
necessary for the purposes of this subsection of the Income Tax Regulations
to determine whether a particular person is carrying on one business or two or
more separate businesses. In Du Pont Canada Inc. v. The Queen, 2001
FCA 114, 2001 D.T.C. 5269, [2001] 2 C.T.C. 315, the Federal Court of Appeal
dealt with the issue of whether Du Pont Canada Inc. was carrying on one
business or two separate businesses. Justice Sharlow, on behalf of the Federal
Court of Appeal, stated that:
11 There are no reported cases that
involve facts exactly like the facts of this case, or the precise question that
arises in this case. However, there are cases that are generally instructive on
the question of how to identify a separate business. The most commonly cited
case is Scales (Inspector of Taxes) v. George Thompson & Co.
(1927), 13 T.C. 83, 138 L.T. 331 (Eng. K.B.), which involved a company that
operated a fleet of ships and also carried on an underwriting business. The
issue was whether it was carrying on one business or two. Rowlatt J. held that
there were two businesses. He said, at page 89:
I cannot conceive two businesses that could be more easily separated
than these two. They both have something to do with ships. That is all that can
be said about it. One does not depend upon the other; they are not interlaced;
they do not dovetail into each other, except that the people who are in them
know about ships; but the actual conduct of the business shows no dovetailing
of the one into the other at all. They might stop the underwriting; it does not
affect the ships. They might stop the ships and it does not affect the
underwriting.
[...]
[...] I think the real question is, was there any inter-connection,
any interlacing, any interdependence, any unity at all embracing those two
businesses [...].
The last quoted statement has become the generally accepted test for
determining when a taxpayer has a separate business.
12 Howden Boiler & Armaments Co.
v. Stewart (1924), 9 T.C. 205, [1925] S.C. 110 (Scotland Ct. Sess.)
involves a corporation that operated two factories, one to construct boilers
and the other to construct shells for the French Government during the war.
There were separate premises, separate workers, separate technical and clerical
staff, separate books and trading accounts. However, the two plants were
operated under common management and there was a single set of financial
statements. Financing and management expenses were charged against the company
generally without apportionment. The corporation was held to be carrying on a
single business.
13 In Canada the leading case is Frankel
Corp. v. Minister of National Revenue, [1959] S.C.R. 713, [1959]
C.T.C. 244, 59 D.T.C. 1161 (S.C.C.). Frankel dealt in scrap metals, smelted and
refined non-ferrous metals, carried on wrecking and salvage operations, and
fabricated and erected structural steel. In 1952 it sold its non-ferrous metal
refining operation, including inventory, to another company. The portion of the
sale price allocated to the inventory was higher than Frankel's cost of the
inventory. Under the income tax legislation then in effect, Frankel would have
no tax liability as a result of the sale if it was the sale of a separate
business, because in that case the entire transaction would be on capital
account. If the transaction was not a sale of a separate business, Frankel would
be taxable on the profit on the sale of the inventory.
14 There were a number of factors that
established the separation of the non-ferrous metal refining operation from the
other activities of Frankel. There was a separate source for material and supplies.
There was a separate group of employees. There were separate machines kept in a
separate part of Frankel's premises. There were separate customers. There was a
separate trade mark and a separate trade name. There was separate supervision.
There were also some connections. Minor quantities of scrap metal were acquired
from the salvage operations. There was some combined accounting with the
ferrous and non-ferrous operation. There was a single board of directors, a
single union contract for all employees, and single pension and insurance
plans. The ultimate preparation of profit and loss accounts reflected the
results for the whole company. The sale transaction itself included, not only
the transfer of the inventory, but also the transfer of the equipment, the
right to use the premises for a fixed term, the transfer of unfilled customers
orders, the transfer of the employees, and the transfer of the trade name,
trade mark and goodwill. In addition, the transaction effectively put Frankel
out of the non-ferrous metal refining business. Taking all of these factors
into account, the Court held for Frankel on the basis that the non-ferrous
metal refining operation was the sale of a separate business, and thus a
capital transaction.
15 In Utah Co. of the Americas
v. Minister of National Revenue (1959), [1960] Ex. C.R. 128, [1959]
C.T.C. 496, 59 D.T.C. 1275 (Can. Ex. Ct.), the issue was whether the taxpayer
was carrying on a single business or two businesses, mining and construction.
Each activity was conducted independently under separate management, but under
the overall supervision of a single board of directors. Separate accounts were
kept. There was no functional connection between the two activities - no
interconnection, no interdependence, and no interlacing. They employed
different processes, produced different products and services, had different
customers, locations, union contracts and staff. Head office costs were
allocated between the two divisions. Sometimes equipment from one division was
used by another. The Court held that the taxpayer was carrying on two separate
businesses.
16 In H.A. Roberts Ltd. v. Minister
of National Revenue, [1969] S.C.R. 719, [1969] C.T.C. 369, 69 D.T.C. 5249
(S.C.C.), the issue was whether the taxpayer's activity of administering
mortgages under an agency contract comprised a business that was separate from
its real estate business. The employees carrying on the two activities worked
in different premises under separate management. The mortgage operation had its
own accounting system. Employees of the mortgage operation were prohibited from
sharing customer information with those in the real estate operation. The only
common element was that there was a single board of directors. The mortgage
business was held to be a separate business.
17 River Estates Sdn Bhd v. Director
General of Inland Revenue, [1984] S.T.C. 60 (Malaysia P.C.) was an appeal
from the Federal Court of Malaysia. The taxpayer argued that its plantation and
timber operations on five estates comprised a single business. The Special
Commissioners, apparently a tribunal that acted as the court of first instance,
held that timber clearing operations directed toward clearing land for
agricultural purposes comprised a separate business from timber operations on
land that the taxpayer did not own and on which no agricultural operations were
contemplated. The Privy Council upheld the decision on the basis that it was a
reasonable conclusion on the evidence.
[8]
In Du Pont Canada Inc., the
Federal Court of Appeal concluded that
the company was carrying on one business. In reaching this conclusion Justice
Sharlow stated as follows:
49 The
Tax Court Judge concluded that Du Pont's explosives manufacturing operation was
a separate business. She summarized her conclusion as follows (at paragraphs [sic]
35 and 36):
[34] The
principles enunciated by the Supreme Court of Canada in Frankel and H.A.
Roberts Ltd. are not different from those enunciated by the British courts
in Scales and my analysis of them is the following: there will be one business
when there is interlacing and interdependence to such a degree that there may
be found only one income producing unit; there will be a separate business when
the circumstances are such that the whole process by which profit is earned is
quite distinct from the others despite the fact that the business is not the
subject of a separate incorporation. I find this interpretation to have the
advantage of being in agreement with the concept of business as it is understood
in the Act.
[35] It is my
view that the evidence has shown clearly that the explosives division was
managed as one income producing unit: the manufacturing, the supervision and
direction, the marketing, the sales of the products, the staff and the accounting,
although certain rules applies generally to all divisions and certain services
were provided centrally. Therefore it was a separate business of the Appellant.
50 I
agree with the formulation of the legal test adopted by the Tax Court Judge. It
is my respectful view, however, that the Tax Court Judge did not correctly
apply the legal test. It appears to me that she was led into error by a
misapprehension of the evidence relating to the particular combination of
centralized and divisional decision making that Du Pont adopted and has
practised over the years, and the substantial functional connections between Du
Pont's explosives manufacturing operation and its other business activities.
That misapprehension is demonstrated by her characterization of those aspects
of Du Pont's business as nothing more than “rules applicable generally to all
divisions”, and as “certain services provided centrally”.
51 A
corporation like Du Pont that manufactures many products in different plants
faces innumerable choices in how it will organize its affairs. It could, for
example, establish each plant as a separate, stand alone business with
independent decision making authority in all aspects of the business. That was
the choice made, for example, in Scales and in H.A. Roberts. Or
it could organize itself as a single business with various divisions having no
autonomy or independence at all, in which case none of the divisions would be a
separate business. Any number of intermediate positions are possible, with divisions
having autonomy in some aspects of the divisional operations but not others.
52 Du
Pont has chosen an intermediate position. That being the case, the question
that must be addressed is whether, having regard to the manner in which Du Pont
organized its affairs, the aspects of its operations that are characteristic of
a single integrated business are more substantial than the aspects that are
characteristic of separate businesses.
53 The
most important indicators of integration in this case are the centralized
financing and credit management, centralized purchasing, and common research
facilities. The other side of that coin is the lack of autonomy given to the
Nipissing explosives plant with respect to those important business functions.
These facts distinguish this case from Frankel, Utah Co. and H.A.
Roberts, in which separate businesses were found.
54 It
is also important that the Du Pont brand name and trade marks were consistently
used for all of Du Pont's products, but that they ceased to be an attribute of
the explosives manufactured at the Nipissing plant after the sale. By contrast,
a separate business was found in Frankel, where the trade name and trade
mark were transferred with the plant.
55 Another
fact that distinguishes this case from Frankel, Utah Co. and H.A.
Roberts is the degree of product integration demonstrated by the practice
of cross-selling. The explosives manufacturing operation in particular had
customers in common with other Du Pont plants and sold those customers Du Pont
products that were not produced at the Nipissing plant. That is a natural and
expected result of Du Pont's fundamental corporate strategy as described above.
56 There
are some factors that divided the explosives manufacturing operation from the
rest of Du Pont's business. For example, the Nipissing plant was physically
separate from the other activities of Du Pont, which necessarily separated most
of the plant employees as well, except those who provided services for the
explosives manufacturing operation from Mississauga and Kingston. However, I am
unable to conclude on the facts of this case that there are sufficient
indicators of separation to overcome the many substantial indicators that Du
Pont operates a single integrated business.
57 The
Crown relies on the fact that “goodwill” was one of the assets sold, and argues
that the assets sold must have comprised a free standing business, because if
that were not so, there would be no goodwill to transfer. That contradicts the
acknowledgement of the purchaser that it was not acquiring all of the assets
required to carry on an explosives manufacturing business. In my view, the
Crown is attempting to attribute far too much weight to a boilerplate clause
that, in the circumstances, is sufficiently explained by the transfer of such
intangibles as contracts, customer lists and confidential information.
58 For
these reasons, I conclude that Du Pont's explosives manufacturing operation was
not a separate business….
[9]
In order to find that the Appellant
in this case was carrying on one business and not two businesses, it is necessary
to determine the interlacing and interdependence of the two activities. Justice
Sharlow of the Federal Court of Appeal in Du Pont Canada Inc. agreed
with the following formulation of the legal test (although she disagreed with
how it was applied):
…there will be
one business when there is interlacing and interdependence to such a degree
that there may be found only one income producing unit; there will be a
separate business when the circumstances are such that the whole process by
which profit is earned is quite distinct from the others despite the fact that
the business is not the subject of a separate incorporation.
[10]
In Du Pont Canada Inc., the
company had “centralized financing and credit management, centralized
purchasing, and common research facilities”. In this case, other than some work
that was subcontracted out in 2005 (in the amount of $2,200), all of the work that
was performed for the Appellant’s business (or businesses) in 2004 and 2005 was
performed by the Appellant himself. Since the Appellant was the only person who
had any authority in relation to his business (or businesses), all of the
administrative functions were centralized, as they would be for any sole
proprietorship.
[11]
It seems to me that the factors
that would be relevant in determining whether a large corporation with many
employees is carrying on one business or two (or more) businesses will not be the
same factors that would be relevant in determining whether a sole proprietor
with only one “employee” is carrying on a single business or more than one
business.
[12]
In Blanchard (c.o.b. Four
Pillar Financial) v. The Queen, [2001] T.C.J. 484, [2001] G.S.T.C.
94, Justice Bowie dealt with a sole proprietorship and the issue of whether the
sole proprietor was carrying on one business or more than one business. Justice
Bowie stated as follows:
18 I
conclude that in 1996 and 1997 Four Pillar Financial was a sole proprietorship
owned by Andrew Blanchard. From the evidence of Mr. Blanchard and Ms. Pimm as
to the operations, I find that the earning of commissions, both direct and
override, by Mr. Blanchard, and the earning of fees for income tax preparation
were completely interconnected and interdependent activities. Although Mr.
Blanchard stated in his evidence that the income tax preparation would have
been developed into a profitable business had it not been for the income tax
audit of his affairs, the fact is that it was created to provide leads for the
advisors, and to keep them in Mr. Blanchard's branch. The same staff worked on
both the FCG business and the income tax preparation. The same premises and
equipment were used. There were no separate accounts, and no effort has
apparently ever been made to allocate expenses between the two types of income.
I conclude that there was only one business, and that Mr. Blanchard was the
proprietor of it: see Scales v. George Thompson and Company Limited,1
Frankel Corporation v. M.N.R.,2 and H. A. Roberts
Ltd. v.Canada.3
(The footnote
references were inserted by Justice Bowie)
[13]
In Blanchard the activities were interconnected
as one activity would provide leads for the other. There was only one income
producing unit.
[14]
In this case the Appellant’s situation
is similar to the situation described by Rowlatt, J. in Scales (Inspector of
Taxes) v. George Thomson & Co., which is one of the cases that
was referred to by Justice Sharlow in Du Pont Canada Inc. Both
activities of the Appellant have something to do with electricity. But beyond
that, they do not depend on each other, they are not interlaced and they do not
dovetail into each other. The only interconnection between the two activities is
the Appellant who performed the services required for both activities. However
if this were sufficient to find that there was only one business, then every
sole proprietor would only be carrying on a single business regardless of the
diversity of activities. It seems to me that this is not the intended result. It
would not be uncommon for business-use-of-home expenses to be claimed by sole
proprietors (since the expenses are for the use of a home). Since the expenses
are limited to the expenses of the business, it must have been intended that
sole proprietors would not be considered to be carrying on a single business
simply because the same person is carrying on various diverse activities but
the test would be whether the activities are so interlaced and interdependent
that the sole proprietor only has one income producing activity.
[15]
In this case separate training was
required for each activity. For the electronic and appliance repair activity
the Appellant received training at the community college. He took a two-year
course and completed it in one and one-half years. For his subcontract work as
a public safety inspector a licence was required and he received specialized training
from BC Hydro in relation to this. He also received ongoing training. It seems
to me that the training required to detect problems with power poles would be
quite different from the training required to repair plasma TVs or some other
electronic device or appliance.
[16]
For the electronics and appliance repair
business the customers would be any person who had an electronic device or
appliance that required repair. There would therefore be many different
customers. For the work as a public safety inspector, there was only one
customer. This was the company that had the contract with BC Hydro to do the
work. There would be no cross selling of services from the customer(s) of one
activity to the customer(s) of the other.
[17]
The Appellant only maintained a
single set of accounting records. However it is not entirely clear whether he
had any revenue from the electronics repair activity in 2004 or 2005. The Appellant
did not recall if he had any revenue from this activity in 2004 or 2005. The Appellant
indicated that he did not repair any TVs in 2004 or 2005. He also stated that
people would drop off items from to time for him to repair, although it would
take him longer to do this since he working full time as a public safety
inspector. Therefore it would appear that there were some electronic devices or
appliances that he did repair in 2004 and 2005, but there was no indication of
the amount that he received for doing this. His total sales for 2001 to 2003
(when the only business was the electronics and appliance repair business) were
as follows:
|
Year
|
Sales
|
|
2001
|
$298
|
|
2002
|
$381
|
|
2003
|
$285
|
[18]
It seems to me that if there was
any revenue from the electronics repair activity in 2004 or 2005, that it would
have been minimal.
[19]
It seems to me that the
subcontract work carried on by the Appellant as a public safety inspector was
not the same business as the electronics repair business that he had been
carrying on in previous years. The training required for each activity was
different. The customers were different and there was no cross-selling from the
customers of one business to the other. The locations were different. In
general the electronics repair business was carried on in his home (although he
would on occasion visit a customer’s premises to do repair work). The
inspection of the power poles had to be done wherever the power poles were
located, which was all over British
Columbia. The Appellant would be away
from home for several days at a time while inspecting poles in different
places. The Appellant would travel to isolated areas and he would take a travel
trailer to sleep in when he was traveling to these places.
[20]
While some tools would be common
to both, these would be basic tools. The precision tools required to repair a
plasma TV would not be same tools required to drill a hole in a power pole to
test the integrity of the pole.
[21]
Each activity was carried on
independently of the other. There was not one income producing unit but two.
The process by which income was earned by each activity was distinct and not
interdependent. As a result any amounts that may be carried forward in relation
to the business-use-of-home expenses from any year prior to 2004, cannot be
deducted in determining the Appellant’s income from his subcontracting business
as a public safety inspector. Since the Appellant has not established that he
had any revenue at all from his electronics repair business in 2004 or 2005, no
amount that may be carried forward in relation to the business-use-of-home
expenses from any year prior to 2004, will be deductible in computing the
Appellant’s income for 2004 or 2005. As a result it is not necessary to
determine the exact carry forward amount.
[22]
The Respondent did allow a
deduction for the business use of the home based on the assumption that the
Appellant used 120 square feet of his home in his public safety inspector
business and 40 square feet of an outdoor shed. It appears that the only
activity that the Appellant carried on in his house in relation to this
business was some administrative work for which he would need a desk and a
computer. As a result the Appellant has not demolished the assumption that only
120 square feet of his home was used for this business and therefore no
adjustment will be made to the percentage of the home that was used for this
business. Also the Appellant has not established that he used more than 40
square feet of his outdoor shed. There is also the question of whether all of
the expenses related to the household should apply equally to the shed area. The
shed had an electric heater and therefore the cost of heating the shed would be
part of the cost of electricity and not part of the heating costs. Also it is
not clear whether the 40 square feet in the shed should be treated the same as
40 square feet in the house in determining the amount of mortgage interest that
may be claimed. The Minister cannot appeal his own assessment and therefore no reduction
in the amount allowed for business-use-of-home expenses can be made. As a
result no adjustment will be made to the 40 square feet of the shed that was
allowed and treated on the same basis as if it was 40 square feet of the house.
The total area of the shed (160 square feet) was added to the total square
footage of the house (2,200) in determining that 6.8% of the combined total
area ((120 + 40) / (2,200 + 160)) was used in carrying on his business. As a
result no adjustment will be made to the percentage use of the shed or the
percentage use of the house.
[23]
Some adjustments were also made to
the amounts incurred for heat, electricity, insurance and mortgage interest.
However the Appellant was unable to explain why the amounts claimed (except for
the amount for heat in 2005) were more than the Respondent stated was incurred.
Therefore no adjustment will be made to these amounts.
[24]
There was also some discussion by
the Appellant related to the cost of a telephone and cable. The Appellant
claimed that the cable connection was required to test TVs after they had been
repaired. However it is not entirely clear whether these amounts were allowed
as a deduction. It appears from the Reply that the Appellant was only
reassessed to reduce his claim for business-use-of-home expenses. This would
mean that the other expenses claimed by the Appellant were allowed.
[25]
In 2004 the Appellant’s claim for
expenses as stated in his Statement of Business Activities (that were claimed
separate and apart from the amount claimed for the business-use-of-home
expenses) included the following:
|
Item
|
Amount Claimed
|
|
Telephone
and utilities
|
$645
|
[26]
In the Calculation of
business-use-of-home expenses for 2004, the Appellant included:
|
Item
|
Amount Claimed
|
|
Heat
|
$826
|
|
Electricity
|
$890
|
|
Utilities
|
$520
|
[27]
Of the amount claimed for
Utilities of $520 as part of the business-use-of-home expenses for 2004, the
Respondent allowed $45. It is not clear what the Appellant included in
telephone and utilities that were claimed as an expense (and not part of the business-use-of-home
expenses). The Appellant stated that the amount for utilities that was included
with the business-use-of-home expenses was for the
water bill. The Appellant submitted copies of the water bills for 2004 which
appear to indicate that no amounts for 2004 were paid until 2005. As a result
it appears that the total amount incurred for charges for water for 2004 was
$480. Since the Appellant would be required to report his income on an accrual
basis, the amount incurred for 2004 would be $480 even though the bill was not
paid until 2005. I accept the Appellant’s testimony and find that the
business-use-of-home expenses for 2004 should reflect an additional claim for
utilities of $480 - $45 = $435. The percentage of this amount that will be
allowed is 6.8% (the percentage of the home that is used for the public safety inspector
business) and therefore the Appellant is entitled to an additional deduction of
$30 in computing his income for 2004.
[28]
Since it is not clear whether the
Appellant included the cost of cable in “telephone and utilities” that were
claimed as an expense in 2004 (separate and apart from the claim for utilities
as part of the business-use-of-home expenses for 2004) and since it appears
that an amount was allowed for telephone expense for 2004, no adjustment will
be made for telephone and cable for 2004.
[29]
The Appellant submitted copies of
telephone bills and internet charges for 2005. However in the Appellant’s claim
for expenses as stated in his Statement of Business Activities for 2005 (that
were claimed separate and apart from the amount claimed for the
business-use-of-home expenses) he included the following:
|
Item
|
Amount Claimed
|
|
Telephone
and utilities
|
$1,873
|
[30]
In the Calculation of
business-use-of-home expenses for 2005, the Appellant included:
|
Item
|
Amount Claimed
|
|
Heat
|
$851
|
|
Electricity
|
$579
|
|
Utilities
|
$1,388
|
|
Cable
|
$448
|
|
Utilities
|
$689
|
[31]
Of the two amounts for utilities
and the one for cable, the Respondent allowed $493 for one claim for utilities.
It is not at all clear why there were two separate claims for utilities in 2005
as part of the business-use-of-home expenses. In 2005 the Appellant was working
full time as a public safety inspector. His revenue from this business
increased from approximately $34,850 in 2004 to approximately $90,250 in 2005.
This reflects the statements of the Appellant that his work as a public safety
inspector occupied most of his time and would mean that he had little, if any,
time for his electronics repair business. It is not at all clear why the cable
was required for his public safety inspector business in 2005 (since it was
included as part of the business-use-of-home expenses it would have to relate
to this business as the Appellant could not confirm that he had any income from
the electronics repair business in 2005) or whether it was already included in
“telephone and utilities” of $1,873 that was claimed as a deduction separate
and apart from the business-use-of-home expenses and which, it appears was
allowed as a deduction. It appears, therefore, that an amount was allowed as a
deduction for telephone expense for 2005. As a result no adjustment will be
made for 2005 in relation to the Appellant’s claim for amounts for telephone or
cable.
[32]
The Appellant also claimed that he
stored, on his property when he was home, his trailer that he needed for his
subcontract work when he was away from home. However it is not clear what
portion, if any, of the expenses related to the house would apply to this.
Clearly no part of the heating costs would relate to this storage of the
trailer. There was no allocation of the mortgage interest cost between the land
and the building. To the extent that the mortgage was incurred to acquire the
building, the interest on this part of the mortgage would not relate to the storage
of the trailer. It is also not clear how often the trailer was stored on the
property. As a result no adjustment will be made in relation to the storage of
the trailer.
[33]
Although it appears that the
Appellant was using a larger portion of his house for his electronics repair
business, since the Appellant was unable to recall if he had any income from
this business in 2004 or 2005, no additional amount will be allowed as a
deduction in computing the Appellant’s income for 2004 or 2005 for
business-use-of-home expenses.
[34]
As a result the Appellant’s appeal
in relation to the reassessment of his 2004 taxation year is allowed, without
costs, and the matter is referred back to the Minister of National Revenue for
reconsideration and reassessment on the basis that the Appellant is entitled to
an additional deduction of $30 for business-use-of-home expenses in computing
his income for 2004.
[35]
The Appellant’s appeal in relation
to the reassessment of his 2005 taxation year is dismissed, without costs.
Signed at Halifax, Nova Scotia, this 4th day of June, 2010.
“Wyman W. Webb”
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