Felton v. MNR, 89 DTC 233, [1989] 1 CTC 2329 (TCC)

Rip, T.C.J.:—The issue in appellant Richard Felton's appeal from an income tax assessment for 1985 is whether Mr. Felton be permitted to deduct, in computing his income from employment, amounts paid as office rent in accordance with subparagraph 8(1 )(i)(ii) of the Income Tax Act ("Act"). Subparagraph 8(1)(i)(ii) reads as follows:

In computing a taxpayer’s income for a taxation year from an office or employment, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto:

(i) amounts paid by the taxpayer in the year as

(ii) office rent, or salary to an assistant or substitute, the payment of which by the officer or employee was required by the contract of employment.

At the conclusion of the evidence it was clear—and counsel for the respondent, the Minister of National Revenue, acknowledged—that Mr. Felton was required by his contract of employment to maintain an office in his home and that he did maintain an office in his home which was used exclusively for his employment. Mr. Felton owned his home.

In his income tax return for 1985 Mr. Felton claimed expenses as office rent one-sixth of his home expenses, including mortgage interest, property taxes and insurance on his home and the cost of utilities and maintenance for his home; the amount of his expenses claimed is not in issue. The respondent reassessed the appellant on the basis none of these costs was deductible in computing income pursuant to subparagraph 8(1)(i)(ii) or(iii). [1]

Mr. Felton's agent relied on a decision of this Court in Dale Andrew Drobot v. M.N.R., [1987] 2 C.T.C. 2098; 87 D.T.C. 371 for the proposition that the expenses in issue at bar fall within the meaning of the term “office rent" as used in subparagraph 8(1)(i)(ii). (The agent, relying on Drobot, did not argue that any of the expenses were deductible under subparagraph 8(1)(i)(ii).) Although the Drobot case appears to stand for that proposition, I am of the view “office rent" can only arise from a landlord and tenant relationship. The words “office rent" in subparagraph 8(1)(i)(ii) contemplate a payment for use of office property by an employee to the owner of the office property; the employee is the tenant, the owner is the landlord. In English law rent is either rent service or a rent charge. Halsbury, 4th edition, vol. 39 at no. 1205, describes rent service, the type of rent subparagraph 8(1)(i)(ii) is concerned with, as "a payment made by a tenant to the landlord as a recompense for the use of the land, and the receipt of it constitutes the landlord’s chief beneficial right from ownership of the revision. "At vol. 27, no. 211, Halsbury adds that "the modern conception of rent is a payment which a tenant is bound by contract to make to his landlord for the use of the property let”.

The words “office rent" in the French version of the Act are "loyer de bureau". The Civil Code of Quebec does not define "rent" or "loyer". However the Civil Code refers to rent as the consideration by a lessee to a lessor given for the loan of a thing. Article 1600 reads as follows:

The lease of things is a contract by which the lessor binds himself towards the lessee to grant him the enjoyment of a thing during a certain time, for a consideration, the rent.

Le louage de choses est un contract par lequel le locateur s'engage envers le locataire à lui procurer la jouissance d'une chose pendant un certain temps, moyennant une contre-partie, le loyer.

The dictionaries define "rent" as follows:

The return or payment made by a tenant to the owner or landlord, at certain specified or customary times, for the use of lands or houses.

The Oxford English Dictionary

. . . a return made by a tenant or occupant of land or corporeal hereditaments to the owner for the possession and use thereof: a fixed periodical profit in money, provisions, chattels, or services issuing out of lands and tenements in payment for use; esp: a pecuniary sum agreed upon between a tenant and his landlord and paid at fixed intervals by the tenant to the landlord for the use of land or its appendages. . . . compensation for use and occupation of real estate not arising out of a lease in writing. . . . a usu. fixed periodical return made by a tenant or occupant of property to the owner for the possession and use thereof; esp: an agreed sum paid at fixed intervals by a tenant to his landlord for the use of land or its appendages.

Webster's Ninth New Collegiate Dictionary

. . . à payment made periodically by a tenant to an owner or landlord in return for the use of land, a building, an apartment, an office, or other property.

The Random House Dictionary of the English Language

. . . à payment, especially when made regularly, for the right to occupy or use another's land, buildings, goods, etc.

Gage Canadian Dictionary

Consideration paid for use or occupation of property. In a broader sense, it is the compensation or fee paid, usually periodically, for the use of any property, land, buildings, equipment, etc.

Black's Law Dictionary, 5th ed.

See also the reasons for judgment of the Federal Court of Canada in RK. Buonincontri v. The Queen, [1985] 1 C.T.C. 370; 85 D.T.C. 5277 at page 5279.

"Loyer" is defined as follows:

Prix du louage de choses . . . Prix de la location d'un local d'habitation . . .

Petit Robert 1

Prix convenu pour l'usage d'une chose louee.

Dictionaire Quillet de la langue française.

The words "rent" and "loyer" in subparagraph 8(1)(i)(ii) contemplate a payment by a lessee or tenant to a lessor or landlord who owns the office property in return for the exclusive possession of the office, the property leased by the latter to the former.

The payments by Mr. Felton to a money lender of interest on money borrowed, to a utility supplier for the utility, to maintenance personnel for maintenance, to an insurer for insurance and to a municipality in respect of taxes are not payments of rent by a lessee to a lessor. None of these payments by Mr. Felton was for the use or occupancy or possession of property owned by another person.

I have considered the case of Hatherton v. Commissioner for Inland Revenue, [1936] 1 All E.R. 603 that is authority for the proposition that the word "rent" in a taxing statute is not necessarily confined to rent as known at common law. In that case the rent under a mining lease included an obligation to deliver a certain quantity of coal to the lessor or other such persons as they appoint and to their agents and to such person or persons as such agents may appoint. The value of the supply of such coal was excluded from the assessment of rent for the purposes of mineral rights duty under the United Kingdom Finance Act of 1910. Lawrence, J. of the King's Bench Division held that the value of such supply of coal was wrongly excluded. In his view the words of the provision which impose a duty on all rights to work minerals not only under leases the consideration of which may be said to be rent, but include the imposition of duty on rights to work minerals arising under other forms of tenure. “It appears to me,” he said, "that the words 'rental value’ or 'rent' as used in the statute are not to be confined to rent as known at common law, but as part of the consideration for the right to mine these minerals.” (Page 612)

The decision in Hatherton, supra, does not assist the appellant. I have endeavoured to determine whether the words ”. . . amounts paid in the year as . . . office rent. . . the payment of which . . .” are sufficiently broad as to include the costs incurred by Mr. Felton. Statutory language must be given its ordinary meaning. Rent may include, for example, not only the base rent agreed to and paid by a tenant to a landlord for the use of premises but also amounts the tenant is obliged under the lease to pay for improvements by the landlord to the premises or his share of expenses with respect to the premises. However, I am unable to extend the concept of the word "rent" to include payments where no rent, as the word is ordinarily used, exists. Rent was part of the consideration for the right to mine minerals in Hatherton. In the case at bar no consideration was paid, as rent or otherwise.

I have also given thought to whether the word "as" in the first line of paragraph 8(1)(i) and the words "à titre de" in the French version of that provision connote the inclusion of the equivalent of or in the nature of office rent. However, the words "as" and "à titre de" are used throughout the Act to specify what is included in an income receipt or eligible for a deduction without any connotation something else is included or eligible: see, for example, the following:

Several provisions of the Act, for example paragraph 12(1)(c), have words such as "on account of” in addition to "as" to include a receipt of a similar payment to income which may not have been included if the word "as" was used by itself. Where Parliament wants to extend the class of things introduced by the word “as”, it uses additional words.

I appreciate my view of the meaning of the word “rent” in subparagraph 8(1)(i)(ii) differs from that of a brother Judge in Drobot, supra. In R. v. Northern Electric Co. Ltd., [1955] 3 D.L.R. 449 at page 466, McRuer C.J.H.C. said:

Having regard to all the rights of appeal that now exist in Ontario, I think Hogg J. stated the right common law principle to be applied in his judgement i in R. ex rel. McWilliam v. Morris, [1942] O.W.N. 447 where he said: "The doctrine of stare decisis is one long recognized as a principle of our law. Sir Frederick Pollock says, in his First Book of Jurisprudence, 6th ed. p. 321: "The decisions of an ordinary superior court are binding on all courts of inferior rank within the same jurisdiction, and, though not absolutely binding on courts of co-ordinate authority nor on that court itself, will be followed in the absence of strong reason to the contrary".

I think that "strong reason to the contrary" does not mean a strong argumentative reason appealing to the particular Judge, but something that may indicate that the prior decision was given without consideration of a statute or some authority that ought to have been followed. I do not think "strong reason to the contrary" is to be construed according to the flexibility of the mind of the particular Judge.

Nowhere in the reasons for judgment in Drobot, supra, is it indicated that the learned trial judge was asked to consider, nor did he consider, the meaning of the word "rent" in the phrase “office rent" in the context of a landlord and tenant relationship. There is good reason therefore not to apply the reasoning in Drobot.

When a lessor leases a property to a lessee for a rent, components of the rent usually include all those items claimed by Mr. Felton as a deduction. In fact, Mr. Felton was only deducting those expenses he actually incurred as a result of having the office in his home and the aggregate of those expenses may be less than or equal to any rent he may have paid to a lessor for an office in other premises. Unfortunately for Mr. Felton, however, Parliament legislated only those expenses specifically set out in section 8 as deductions from employment income, and office rent—not office expenses in general — is one of these expenses. Some office expenses may be deductible under subparagraph 8(1)(i)(iii). In many situations section 8 may be unfair, in particular since taxpayers earning income from a business, in computing their income, may deduct expenses, such as home office expenses, which employees are precluded from deducting in computing their income. In my view the Act does not permit Mr. Felton to deduct expenses incurred in his home as office rent because under this contract of employment he is required to have an office and be responsible for the costs associated with the office; such expenses were not payments of rent.

The appeal is dismissed.

Appeal dismissed.