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Docket:2004-3404(IT)I
2004-3405(IT)I
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BETWEEN:
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ROBERT H.P. JENKINS
and
LORENA B. JENKINS,
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Appellants,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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____________________________________________________________________
Appeals heard on February 21, 2005, at Halifax,
Nova Scotia, by
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The Honourable Justice Campbell J. Miller
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Appearances:
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Counsel for the Appellant:
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Joseph M.J. Cooper, Q.C.
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Counsel for the Respondent:
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Edward Sawa
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____________________________________________________________________
JUDGMENT
Upon
reading Minutes of Settlement addressing thirteen of fourteen
expense items;
And
upon hearing the remaining issue in these appeals;
The
appeals from assessments made under the Income Tax Act for
the 2000 and 2001 taxation years are allowed and referred back to
the Minister of National Revenue for reconsideration and
reassessment on the basis that each of the Appellants are allowed
the following additional deductions:
a) Motor Vehicle Expense (2000 & 2001):
To allow additional business expenses for the 2000 taxation year
in the amount of $3,123 and additional business expenses for the
2001 taxation year in the amount of $3,804;
b) Interest Expense (2000 & 2001): To allow
additional business expenses for the 2000 taxation year in the
amount of $1,669 and additional business expenses for the 2001
taxation year in the amount of $5,123;
c) Allowance on Eligible Capital Expenditure
(2000 & 2001): To allow additional business expenses for the
2000 taxation year in the amount of $1,714 and additional
business expenses for the 2001 taxation year in the amount of
$1,583;
d) Supplies & Material Expense (2000): To
allow additional business expenses for the 2000 taxation year in
the amount of $488;
e) Power & Property Taxes (2000): To
allow additional business expenses for the 2000 taxation year in
the amount of $393;
f) Miscellaneous Expense (2000): To allow
additional business expenses for the 2000 taxation year in the
amount of $4,785;
g) Repairs Expense (2000) and Gear Expense
(2000): To allow additional business expenses for the 2000
taxation year in the amount of $155;
h) Legal and Accounting Expense (2001): To
allow additional business expenses for the 2001 taxation year in
the amount of $2,289;
i) Building Utilities &
Miscellaneous Expense (2001): To allow additional business
expenses for the 2001 taxation year in the amount of $1,294;
j) Food Expense (2001): To allow additional
business expenses for the 2001 taxation year in the amount of
$764;
k) Capital Cost Allowance (2001): To allow
additional business expenses for the 2001 taxation year in the
amount of $12;
l) Repairs Expense (2001) and Gear
Expense (2001): To allow additional business expenses for the
2001 taxation year in the amount of $786; and
m) Boat Fuel Expense (2001): To allow additional
business expenses for the 2001 taxation year in the amount of
$1,001; and
n) Business Use of Home Expenses (2000 &
2001): To allow additional business expenses for the 2000
taxation year of $1,891 and for the 2001 taxation year of
$1,183.50.
Signed at Ottawa, Canada, this 3rd day of March, 2005.
Miller J.
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Citation: 2005TCC167
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Date: 20050303
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Docket:2004-3404(IT)I
2004-3405(IT)I
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BETWEEN:
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ROBERT H.P. JENKINS,
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and LORENA B. JENKINS
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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
Miller J.
[1] Robert and Lorena Jenkins have
appealed by way of Informal Procedure the assessments from the
Minister of National Revenue (the Minister) of their 2000 and
2001 taxation years. These appeals related to the deductibility
of 14 different heads of expenses of the Jenkins' fishing
partnership. On the day of trial, the Jenkins' lawyer and the
Respondent's lawyer settled all but one of these matters.
They proceeded to trial solely on the issue of whether the
Jenkins' were entitled to any deduction for workspace
expenses in the home. The Minister argued that the Jenkins did
not meet the requirements of subsection 18(12) of the Income
Tax Act (the Act) that the workspace was 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 customers in respect of the
business.
[2] This is an intriguing issue for
those engaged in a seasonal business such as fishing, which by
its nature requires spending considerable time at sea. What must
the fisher do to qualify "home expenses" legitimately
incurred in the business as deductible? What is a fisher's
principal place of business? Is it only his or her boat?
Surprisingly, this issue has not previously been addressed in the
jurisprudence.
[3] In 2000 and 2001, the
Jenkins', carrying on as a partnership, fished lobster and
tuna; lobster in May and June, and tuna from July to October. The
lobster fishing was carried out on two boats which the
Jenkins' owned, the "Lady Lorena" and the
"Amber J." For the tuna fishing the Jenkins leased a
faster boat the "Bear In Mind", which also had the
added feature of a toilet.
[4] During lobster season the boats
worked out of Annondale in Prince Edward Island, a 12-kilometre
drive from the Jenkins' home. The Jenkins kept a 14 by 20
foot wooden structure at the Annondale wharf. It had a cement
floor, no electricity, no plumbing, no office space, just a
one-room storage space.
[5] The Jenkins' home had an
attached garage and a basement. In the basement there was a 24 by
26 foot workshop, as well as a ten-foot square office. In the
garage, the Jenkins did all their gear and trap repairs as well
as built new traps. They maintained approximately 600 traps. They
kept rods and reels, ropes and buoys in their garage. They
conducted repairs on parts from their boats. The business's
filing cabinets were also kept in the garage and when possible,
the truck used in the business was also parked in the garage.
[6] In the basement office the Jenkins
had a fax, telephone and several cabinets. This was where payroll
was handled and all records kept. They employed three to four
employees. Mr. Jenkins testified that the office was used for all
calls in connection with the fishing business. He would
occasionally, though not often, meet with two or three others in
the office, though meetings with potential customers or other
members of the Harbour Authority involved greater numbers, so
such meetings might be in the workspace area of the basement, or,
weather permitting, outside. Mr. Jenkins would often do the trap
building in the basement workshop, as there was better heat. He
had an outside door built into the basement to accommodate moving
traps in and out. He testified there was no personal use of the
office, basement workshop or garage.
[7] During the two-month lobster
season, Mr. and Mrs. Jenkins were home daily. Their daily outings
to sea were solely to harvest lobsters. The ordering of bait and
pricing took place primarily from home, though Mr. Jenkins did
acknowledge that part of the time he could get bait at the wharf.
He also engaged in some bait fishing just prior to the start of
lobster season.
[8] During the tuna season, Mr.
Jenkins was rarely home at it was necessary, as he put it, to
chase the fish. In 2000 and 2001 most of the tuna fishing season
was spent off the Cape Breton shore. Mr. Jenkins testified that
no other business took place on board other than the actual
harvesting of the fish. Phoning, recordkeeping, trap building and
storage all took place at the home. He estimated that of his
business time not at sea, 80% was at the home and 20% attending
various meetings involving the fishing business.
[9] Mr. Jenkins received unemployment
benefits in the off-season, though there is no evidence as to
actually what period of time that covered. He and
Mrs. Jenkins claimed business use of home expenses of $3,782
in 2000 and $2,367 in 2001. The Minister denied any deductions
under this heading.
Analysis
[10] Subsection 18(12) reads, in part, as
follows:
18(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;
[11] The parties agreed that if the Jenkins
qualified under subsection 18(12), the Partnership be entitled to
the full amounts claimed of $3,782 and $2,367. The sole issue
therefore is whether the workspace in the home is either the
Jenkins' "principal place of business" or used
exclusively to earn business income and used on a regular and
continuous basis to meet customers. I will address the second
branch first.
[12] The first question is whether the
workspace in the home (office, garage and workshop) was used
exclusively to earn business income. I believe it was.
Mr. Jenkins described the activity that took place in the
office - recordkeeping, payroll, business calls, etc. as all
relating to the business. There was no personal use. Similarly,
with the basement workshop and the garage, the storage, repairs
and construction which occurred all related to the fishing
business. There was no evidence of any personal activity. The
Jenkins have readily established the exclusive purpose of this
space was to earn business income.
[13] However, to qualify under this second
branch requires that the space be used on a regular and
continuous basis for meeting customers. This creates a problem
for the Jenkins. One or two meetings a year with potential
customers does not constitute a regular and continuous basis of
meeting customers. I acknowledge that the very nature of the
Jenkins' fishing business is such that there is no regular
and continuous meeting of customers. They had one lobster
customer. Tuna was sold dockside to buyers just as much as by
meetings held in the Jenkins' home. This requirement is
simply not directed at the type of business engaged in by the
Jenkins. They cannot and do not meet this requirement and
therefore do not qualify under subparagraph
18(12)(a)(iii).
[14] I turn now to the requirement that the
workspace is the Jenkins' "principal place of
business". Again, this is a difficult concept to apply to a
partnership engaged in the seasonal business of fishing. The
Act does not define the expression "principal place
of business".
[15] Key to what is meant by "principal
place of business" is to understand what is meant by
"business" in this context. I heard two different
explanations in that regard from the parties. The Respondent
contends that the business is, as defined in the Act,
meant to include profession, calling, trade, manufacture or
undertaking of any kind whatever. The Respondent goes further and
suggests that business, as used in the context of a principal
place of business, must therefore mean the core aspect of the
business, being in this case the harvesting of fish; therefore,
only the boats can be the principal place of business. This
approach leaves to some odd conclusions. For example, the
principal place of Imperial Oil would be the oilfield and not its
downtown Calgary head office; the principal place of business of
a farmer might be the combine and not the farmhouse. I could go
on.
[16] The other flaw in this approach is that
it leads to the possibility of numerous places of business, with
a dilemma of how to determine which is the principal place of
business. So, if Mr. and Mrs. Jenkins had half a dozen boats, all
out at sea throughout the season, are they all "places of
business"? Is one of them the "principal place of
business"? Is that dependent on the number of fish caught?
This quickly deteriorates into an awkward analysis.
[17] The Respondent, I suggest, is reading
the term "principal place of business" as either
"place of principal business" or perhaps
"principal place of the business". The Respondent's
position would be more defensible if either of those expressions
were used - but they are not. The expression is "principal
place of business". The Respondent's approach leads to
confusion and uncertainty.
[18] The Appellant viewed business, in the
context of "principal place of business" not in the
same light; in effect, asking where does the business side of the
business take place? This brings to mind an expression often
heard amongst lawyers: "I love the actual practice of law,
but hate all the business stuff I have to deal with". I
suggest that in asking the man on the Clapham omnibus what is
meant by "principal place of business", the answer is
likely to be: "where all that business stuff takes
place"; not where the oil is drilled or crop is cut, or fish
are fished, but where those necessary elements of telephoning
customers and suppliers, filling in invoices, doing payroll,
maintaining books and records, contacting authorities for
licences, preparing tax returns, chasing down receivables,
handling complaints, creating business plans, preparing financial
statements, talking to accountants and lawyers, etc. That is, I
would suggest, what most would understand as the business element
of business. The actual harvesting of fish is the core of a
fishing business, but it is not the place where the business side
of fishing occurs. The fisher catches the fish from a boat - that
is all. It is not a place of business let alone the principal
place of business.
[19] The evidence was that telephoning,
recordkeeping, meeting customers, payroll, invoicing, etc. took
place from the workspace in the home. In most cases there was no
where else these activities took place. In some cases, for
example meeting customers, this may have occurred wharfside, but
that was a communal place of business, not any one particular
fisher's place of business. The Jenkins' principal place
of business was the workspace in their home. It was from that
place and that place only that the Jenkins handled the business
side of their fishing business. That is what is meant by a
principal place of business. This matter is referred back to the
Minister for reassessment on the basis that the Jenkins' home
was indeed their principal place of business, and they are each
entitled to 50% of the deductions of $3,782 in 2000 and $2,367 in
2001, being $1,891 and $1,183.50 respectively.
Signed at Ottawa, Canada, this 3rd day of March, 2005.
Miller J.
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