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Citation: 2004TCC617
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Date: 20040909
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Docket: 2003-3618(IT)I
2003-3649(IT)I
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BETWEEN:
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ROGER CHAPMAN,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Woods J.
[1] These are appeals under the Income Tax Act heard sequentially
pursuant to the Informal Procedure – an appeal for the 1999 taxation year
concerning the deductibility of motor vehicle expenses incurred in travelling
between home and work and an appeal for the 2000 taxation year concerning the
calculation of a late filing penalty.
Motor vehicle expenses
[2] Roger Chapman, a resident of Calgary, Alberta, is a consultant who provides estimating services for engineering projects. During the 1999
taxation year, he was engaged on two projects, one lasting nine months and the
other three months.
[3] The three month project was contracted
though a placement agency called TRS Staffing Solutions (Canada) Inc. Under this contract, Mr. Chapman was assigned
to provide services to Fluor Constructors Canada Ltd. in Joffre, Alberta. During the
contract period, January 4 to
April 1, 1999, Mr. Chapman commuted from Calgary on a weekly basis and during
the week stayed at a hotel in Red
Deer, near Joffre. In
computing income for the 1999 taxation year, Mr. Chapman deducted motor vehicle
expenses incurred in travelling to and from work as follows:
(a) every Sunday from
his home in Calgary to Red Deer – a total of 140 kilometres;
(b) every Monday through
Wednesday from Red Deer to Joffre and back to Red Deer – a total of 60 kilometres each day; and
(c) every Thursday from
Red Deer to Joffre and from Joffre back to his home in Calgary
– a total of 200 kilometres.
[4] The nine month project was contracted through a placement agency called The Design Group Staffing
Services Inc. Under this contract, Mr. Chapman was assigned to provide services
to Delta Hudson Engineering Ltd. in Acadia, south Calgary.
This contract lasted from April 9, 1999 to December 24, 1999. Mr. Chapman
travelled to work by car from his home in northeast Calgary
and claimed a deduction for the motor vehicle expenses incurred. The distance
travelled was approximately 50 kilometres for each round trip.
[5] The total mileage for the year to and from
these work assignments was 15,710 kilometers. Mr. Chapman testified that one of
his cars was used exclusively for business travel and he claimed a deduction
for the entire cost of operating the motor vehicle during the year, $9,310.03.
[6] For purposes of the
reassessment, the Minister of National
Revenue took the position that Mr. Chapman was an employee of the placement
agencies and disallowed the motor vehicle expenses on the ground that the
provisions of paragraph 8(1)(h.1) were not satisfied. This position was
changed in the pleadings. In the Reply, the Crown conceded that Mr. Chapman was
self-employed and shifted focus from section 8 to section 18 of the Act.
[7] The question is whether the motor vehicle
expenses incurred by Mr. Chapman in travelling to and from work assignments in
Joffre and Acadia are deductible in computing income from a
business. The Crown did not really take issue with Mr. Chapman’s submission
that one of his cars was used exclusively for business purposes and accordingly
I have not considered whether there should be a proration between business and
personal use.
[8] The Crown argues that the motor vehicle
expenses should be disallowed by virtue of paragraphs 18(1)(a) and (h)
on the ground that they were not incurred for the purpose of earning income and
were personal expenses. These provisions read:
(1) In computing the income of a
taxpayer from a business or property no deduction shall be made in respect of
(a) an outlay or expense except to
the extent that it was made or incurred by the taxpayer for the purpose of
gaining or producing income from the business or property;
…
(h) personal or living expenses of
the taxpayer, other than travel expenses incurred by the taxpayer while away
from home in the course of carrying on the taxpayer's business;
[9] The Crown did not provide any case law
support that dealt with these particular statutory provisions and instead
referred to the following cases dealing with employment income: R. v. Diemert, [1976] C.T.C. 301 (F.C.T.D.); Hogg v. R., [2001]
1 C.T.C. 2356 (T.C.C.); and Jenner v. R., [2004] 1 C.T.C. 2111
(T.C.C.).
[10] Although I was not referred to any jurisprudence that
establishes that expenses incurred by a self-employed person in travelling to
and from work are personal and
not incurred for the purpose of earning income, this seems to be a reasonable
inference from principles
well-established in an employment context: Daniels v. The Queen, 2004
D.T.C. 6276 (F.C.A.).
[11] The facts in this appeal are different from
the circumstances discussed in these employment cases, however, and I cannot
agree that the same principle should apply. The conclusion that expenses incurred in travelling to and
from work are personal is presumably based on the theory that where a person
lives is a personal choice and therefore the cost of getting to work is to a
large degree affected by personal considerations. The same theory does not
apply to temporary work assignments where a person cannot reasonably be
expected to move to be close to the temporary assignment. On a common sense view, expenses in
travelling to temporary work assignments are not personal and are incurred for
the purpose of earning income. The work assignments performed by Mr. Chapman
were limited in duration, lasting three and nine months. In these circumstances,
the expenses were not personal but were made in order to fulfill contractual
commitments with the placement agencies.
[12] This approach is consistent with the
approach by the Supreme Court of Canada in Randall v. M.N.R., [1967]
C.T.C. 236. In Randall, the taxpayer managed racetracks, mostly in the Vancouver area. He undertook an engagement to manage a
racetrack in Portland, Oregon and sought to deduct the cost of
travelling between Oregon and his home in Vancouver. The Crown argued that the expenses of travelling from the taxpayer's
home in Vancouver to Portland were personal because they were incurred in travelling to work. The
majority decision gave short shrift to the Crown's argument and adopted a
common sense approach – Mr. Randall's travel expenses should be deductible
because they were necessary to fulfill contractual obligations. The facts in Randall are different
from the facts in this case but in my view the common sense approach by the
Supreme Court of Canada should equally apply to temporary work assignments
where a person has to travel to different work locations to fulfill contractual
obligations.
[13] This conclusion is sufficient to dispose of
this appeal but I would note another line of cases that may provide further
support for the deductibility of the expenses incurred by Mr. Chapman. The
basis for this alternative argument is that Mr. Chapman’s home should be
considered his “base of operations.” Neither party raised this argument,
perhaps because Mr. Chapman had acknowledged that he did not work on the Fluor
or Delta contracts at home. Although there was no evidence as to how and where
Mr. Chapman’s consulting business was generally conducted, it is likely that
Mr. Chapman’s home should be considered the focal point of his consulting business.
[14] The relevant principles are discussed in
the cases of Cumming v. M.N.R., [1967] C.T.C. 462 (Ex.Ct.) and Canada
v. Cork, [1990] 2 C.T.C. 116 (F.C.A.).
[15] The facts in Cork are quite similar to the facts in this appeal.
Through placement agencies, Mr. Cork was engaged on short term contracts as a
draftsman. At all three levels of appeal, Mr. Cork's travel expenses, as well
as home office expenses, were held to be deductible on the basis that the home
was a base of operations. In the Federal Court of Appeal, Stone J.A. considers
whether Mr. Cork's home could be considered a "base of operations"
and concludes that it could:
… Mr. Cork's business pursuits were
conducted from his home. Whether he arranged work directly or through a
placement agency he did so from his home where he could be found. He used his
home as a base or focal point for that purpose as well as for the performance
of his work in the field.
[16] The Court of Appeal in Cork quoted
extensively from the English decision of Horton v. Young (Inspector of
Taxes), [1971] 3 All E.R. 412 (C.A.). The principle
that emerges from Horton, I believe, is that the home is a base of
operations if a person has no other place of business of his own and performs
services at various places of business of his customers.
[17] Although there is an insufficient
evidentiary basis in this appeal to make a finding as to Mr. Chapman’s base of
operations, I would have thought that Mr. Chapman’s home likely was the base of
operations for his consulting business and that expenses incurred in travelling
to and from the clients’ work locations should be deductible as ordinary
business expenses.
[18] Before concluding on this issue, I would
note that counsel for the Crown strenuously objected to the introduction of new facts by Mr.
Chapman in written submissions
received after the hearing. I agree with counsel that all facts should have
been presented at the hearing when counsel had an opportunity to cross-examine.
Accordingly, I have not taken the new facts into account in this decision.
Late filing penalty
[19] In a reassessment for the 2000 taxation
year, the Minister imposed a late filing penalty in the amount of $8,979.77.
At the hearing, Mr. Chapman acknowledged that he filed the 2000 tax return late
and had no basis to dispute the imposition of a penalty. However, he stated
that the amount of the penalty was excessive because it did not take into
account a payment that had
been made by cheque. It
appears that the Minister, in reassessing, took the position that the cheque
was not received in time to
affect the calculation of the penalty. After the hearing, the Crown reviewed the matter and agreed to give
Mr. Chapman the benefit of the doubt with respect to the timing of the payment. Accordingly it was agreed that the penalty should be
reduced to $3,379.75.
[20] In response to this concession, Mr. Chapman
submitted a new argument that, if accepted, would further reduce the penalty.
It was argued that the Crown’s calculation of tax owing did not take into
account a carryover of minimum tax that was applied to the 1999 taxation year.
Mr. Chapman's submission,
however, failed to show how a
carryover applied to the 1999 taxation year would impact the calculation of the
late filing penalty for the 2000 taxation year. Accordingly, Mr. Chapman's
further submission on the calculation of the penalty is rejected.
Conclusion
[21] For the above reasons, I would conclude that the motor vehicle
expenses claimed by Mr. Chapman for the 1999 taxation year are deductible in
computing income and the late filing penalty assessed for the 2000 taxation
year should be reduced to $3,379.75.
Signed at Toronto, Ontario this 9th day of September, 2004.
J.M.
Woods J.
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