The Queen v. Cork, 90 DTC 6358, [1990] 2 CTC 116 (FCA)

Stone, J.A.: —This is an appeal from the judgment of Muldoon, J. rendered September 21, 1984, whereby the appellant's appeal from the decision of the Tax Review Board with respect to reassessments of income tax for the taxation years 1974,1975 and 1976, was dismissed with costs. In computing his income from his earnings as a self-employed mechanical design draftsman for those years Mr. Cork deducted automobile expenses (including a proportionate share of capital cost allowance), rent and insurance premiums. It is the deductibility of these amounts that is at issue in the present appeal.

Work engagements

Mr. Cork resided in the City of Toronto in the years in question, and worked at a number of sites for various periods of time both inside and outside of the Metropolitan area. Most of his engagements were arranged through placement agencies whose services the respondent retained. The duration of each engagement varied from 30 to 157 days. Three engagements for 1, 30 and 47 days, were arranged directly by Mr. Cork.

Engagements effected through a placement agency were arranged in the following manner. The agency required of Mr. Cork information about his qualifications and availability. After soliciting clients, the agency notified Mr. Cork if and when work suitable to his qualifications was available. Mr. Cork was referred to the client for approval, after which a contract was made between him and the agency for an hourly fee to be paid by the agency. In turn, the agency contracted with the client for an hourly fee including a mark-up for providing the drafting services.

Mr. Cork's practice was to take with him to a work site a bag, a brief case and items such as special pencils, squares, rubbers and instruments for drawing circles and straight lines for working on a drafting table. Other equipment and materials were provided at the site. The work was done on an hourly basis including overtime. Mr. Cork kept a record of his hours on time sheets provided by the agency and these were signed by an engineer of the client. These records enabled him to prepare an invoice at the end of each work week showing the number of hours worked during the week and the agreed upon rate of pay. The invoice was dispatched to the agency for payment.

Use of taxpayer's home

During the taxation years in question, Mr. Cork used one of the bedrooms in his residence as an office. It contained a desk and chair, a lamp, a typewriter, a filing cabinet and a drafting board. This room was used by him for preparing the invoices, updating his résumé, typing letters to prospective employers and making calculations and preparing sketches in connection with the then current engagement. It was also used by him for filling out income tax forms as well as for keeping track of expenses and for paying hydro and medical bills. The drafting board in this room was used by him, for the most part, in designing a speed boat on his own time during evenings and on Saturdays.

Expenses claimed

In computing his income as a self-employed mechanical design draftsman for the taxation years in question, Mr. Cork claimed the following amounts as deductions:

The bulk of automobile expenses claimed was for driving to and from work sites.

Statutory provisions

Whether the expenses in dispute are deductible in computing Mr. Cork's income for the taxation years in question depends upon the true construction of paragraphs 18(1)(a) and (h) of the Income Tax Act, R.S.C. 1952, c. 148 as amended by S.C. 1970-71-72, c. 63, as amended (the "Act"). Those paragraphs read:

18.(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, except travelling expenses (including the entire amount expended for meals and lodging) incurred by the taxpayer while away from home in the course of carrying on his business;

The trial judgment

The learned trial judge concluded that the expenses were deductible and, in doing so, made the following findings of fact, at page 481 (D.T.C. 6516-17) [1] :

The evidence satisfactorily establishes the defendant's need for an office or base of business operations. Most frequently he obtained engagements to perform his drafting services through placement agencies. But not being clairvoyant about further prospects of obtaining work he wrote directly to prospective employers, typing the letters in his office. There he up-dated his résumé of work experience from time to time: thrice in 1974, four times in 1975, and thrice again in 1976. In 1974-75 he made many telephone calls to placement agencies. (He did not place a telephone extension line from his living room into his office, simply to avoid the expense of so doing.) In his office the defendant kept a desk and chair, a typewriter, a lamp, a filing cabinet, his invoice forms and letterheads, as well as a small drafting board. He kept his drafting instruments there. Also, since time was of the essence in his work, he used his office to perform calculations and to prepare sketches for the next day's work. The defendant's office was, as Denning, M.R. put it in Horton v. Young, [1971] 3 All E.R. 412, the "locus in quo" from which the defendant's trade radiated to the various sites as his work demanded.

Paragraph 18(1)(h) expenses

I shall deal, first, with the deductibility of the travelling expenses. Counsel for the appellant submits that these should not be allowed because they do not fit within any of the categories of expenses that have been recognized to be deductible, namely, (a) where the travel itself is a service for which the taxpayer's customers are required to pay, as would be in the case of a home appliance repairman; (b) where the taxpayer does his income earning work at his home and goes out from that place to pick up the work; (c) where the taxpayer works away from his home but does a substantial amount of administrative work at home and that work is an integral part of the income earning process in nature and quantity (Cumming v. M.N.R., [1967] C.T.C. 462; 67 D.T.C. 5312 (Ex. Ct) was cited for the proposition); (d) where the taxpayer works mainly away from his home but has to return to the home so that he may discover where he is going to be working the next day (Horton v. Young (Inspector of Taxes), [1971] 3 All E.R. 412 (C.A.) was cited for the proposition).

Counsel for the appellant submits as a general proposition that a taxpayer's trade or profession is exercised at the place where it is actually carried out and that, in the present case, Mr. Cork did not exercise his trade or profession as a draftsman in the room of his home but, rather, only did so when he arrived at the premises of the placement agency's client. He relies on Newsom v. Robertson (Inspector of Taxes), [1952] 2 All E.R. 728 (C.A.), and argues that travel from home to work and return is not travel ”. . . while away from home in the course of carrying on . . . business” in the sense of paragraph 18(1)(h). Counsel says also that it is necessary in each case to examine the true nature and purpose of the travel engaged in by a taxpayer by answering the question: Was the travel from home to a place of work travel from the home qua home or qua place of work and similarly, was the travel home again from the place of work at the end of the day travel to the home qua home or qua place of work? The answer in the present case, it is argued, is that the travel from the home and back was qua home and not qua place of work.

Counsel for the respondent asserts that the case is governed by Cumming and Horton. I find, however, that the circumstances in Cumming were materially different. They are summarized in the headnote:

The appellant physician engaged exclusively in the practice of his speciality which was anaesthesia. All his professional services were rendered in one particular civic hospital and all the administrative work in connection with his practice was conducted in his home. He received no money from the hospital, his income consisting of payments made directly to him by his patients. For the years 1962 and 1963 he claimed deductions of $1,454 and $1,002 respectively. These amounts consisted of operating expenses and capital cost allowance in respect of the automobile and they represented 90 per cent of the total costs of maintaining and operating it. When the Minister disallowed the whole of the amount claimed for capital cost allowance and all but $100 of the amount claimed for operating expenses, this appeal was taken to the Exchequer Court.

HELD:

The appeal was allowed in part on both counts. It was admitted in the course of argument that the appellant conducted part of his practice at his home, that the nature of the business was such that the bookkeeping and financial activities had to be carried on at a location different from that where the patients were treated and that there were no office facilities available to him at the hospital where he might have carried out this part of his business. Since the base of the appellant's practice was his home, the cost of travelling to and from the hospital to render service was incurred for the purpose of gaining income from his practice. All such expenses, therefore, fell within the exception to section 12(1)(a) and were properly deductible and none of them could be classed as personal or living expenses within the prohibition of section 12(1)(h) as the Minister contended. . . . [2]

It seems to me that the facts in Horton were very much more like those of the case at bar. The taxpayer was a “labour only" subcontracting bricklayer who was employed by a building contractor. He lived at his home at 2 Penshurst Close, Eastbourne where he kept the tools and books of his trade. Before each contract was entered into, the building contractor met the taxpayer at the latter's house where the two agreed upon the site to be worked and the rate to be paid. The taxpayer was the leader of a small team of bricklayers. He picked up the others in his car and took them to the work sites and back. The question for the Court of Appeal was whether the taxpayer was entitled to deduct his travelling expenses under paragraph 137(a) of the Income Tax Act, 1952 (U.K.) which provided that no sum could be deducted in respect of "any disbursements or expenses, not being money wholly and exclusively laid out or expended for the purposes of the trade, profession or vocation . . .”. This language seems, if anything, to be somewhat more stringent than that of paragraph 18(1)(h).

Each of the judges who heard the appeal gave reasons for concluding that the expenses were properly deducted. At pages 414-15, Lord Denning M.R. said:

I prefer to go by the decisions in actual cases. Take Newsom v. Robertson (Inspector of Taxes) [4] . Mr Newsom was a barrister who lived at Whipsnade. He travelled each day to his work in his chambers in Lincoln's Inn. It was held that Mr Newsom could not deduct the expenses of travelling from Whipsnade to his chambers in London.

The reason was because Mr. Newsom's base of operations was his chambers at Old Square in London.The present case is very different. Mr Horton's base of operations was Eastbourne. He claims his travelling expenses to and from that base. I think he is entitled to deduct them. Counsel for the Crown in his reply put the position very neatly. He said: “If the locus in quo of the trade was Eastbourne and his trade really radiated from Eastbourne as a centre, I admit that the travelling expenses would be deductible”. But counsel went on to urge that the locus in quo of the taxpayer's trade was not Eastbourne or a house in Eastbourne, but it was a shiftingbase from one building site to another; and on that account the only expenses that could be deducted were the travelling between sites. I do not think that is the right view. On the finding of the commissioners, there is only one reasonable inference to draw from the primary facts. It is that Mr Horton's house at Eastbourne was the locus in quo of the trade, from which it radiated as a centre. He went from it to the surrounding sites according as his work demanded.

During the argument we discussed the case of a circuiteer, ie the barrister who has his home near London, but spends most of his time on the circuit. He hardly ever appears at his chambers in London. He probably telephones every day, but rarely puts in an appearance. The locus in quo of his trade or profession—from which it radiates —is his home. I am glad to know that his travelling expenses to and from his home to the circuit are allowed by the Revenue. It is said to be done as a matter of concession. But I think it is more. He is entitled under the statute to deduct the expenses; because they are wholly and exclusively incurred for the purposes of his profession.

If the commissioners were right, it would lead to some absurd results. Suppose that Mr Horton had a job on a site 200 yards away from his home, and another one at Reigate, 45 miles away. All he would have to do would be to go for five minutes to the site near home and then he would get his travelling expenses to and from Reigate. I can well see that he could so arrange his affairs that every morning he would have to call at a site near home. Instead of going to that absurdity, it is better to hold that his expenses to and from his home are all deductible.

Lord Justice Salmon began his reasons for judgment in this way, at page 415:

I agree. If one thing is clear, it is that a man who carries on the trade of a bricklaying sub-contractor cannot do so without entering into sub-contracts. The case shows that the taxpayer negotiated and entered into all his sub-contracts at 2 Penshurst Close, Eastbourne. The main contractor, who, as far as we know, was the only one to give the taxpayer sub-contractor work, was a Mr. Page who lived at Eastbourne. He went to 2 Penshurst Close to negotiate and agree the subcontracts. Another thing that is plain is that the taxpayer could not carry on business without the tools of his trade. The place where he kept those tools was 2 Penshurst Close. Equally it was necessary for him to keep books—rather rudimentary books, but books of his trade; and he kept them at 2 Penshurst Close; such office work as his business entailed was also done at 2 Penshurst Close. The actual sites where he laid bricks were in a radius of about 50 miles from Eastbourne. In my view the only proper inference here is that the base from which the taxpayer carried on his business was 2 Penshurst Close. The fact that it also happens to be his home does not disqualify it from becoming his business base.

And, finally, Lord Justice Stamp had this to say, at page 416:

This taxpayer carried on business as a sub-contractor. He did the work at the several places at which the contractor engaged him to do it. But I do not accept the submission that the place or places at which a sub-contractor does work which he contracts to do is or are his place or places of business. As a sub-contractor the taxpayer here, who had no place which you could call his place of business except his home, entered into engagements to perform sub-contracts, and he did so at his home where he kept his tools and some things for the purpose of his trade. In the normal case of a sub-contractor his expenditure in travelling from the place where he carries on his business as a sub-contractor to the several places at which he performs the contracts into which he enters would clearly be expenses falling outside s 137. I can see no difference where the centre of his activities is in fact his home which is the only place at which as a sub-contractor he is to be found; and if one finds a man carrying on his activities at his home, entering into contracts at his home and performing the contracts away from his home, it appears to me that the centre of his activities is to be regarded as his home and not at the several places at which he does his work. It is true that his particular business was a very small business involving exiguous office equipment and no doubt only a very few tools, but this cannot in my judgment affect the matter. Once one accepts the position that he was, as the commissioners find, carrying on business of a sub-contracting bricklayer, and accepting the basis of the case that he was carrying on such a business, it can in my judgment make no difference that it was what I might call a little business.

As can be seen, Horton involved much more than the taxpayer returning to his home at the end of the work day to learn where he would be working the next day, as the appellant contends. It is true that he entered into contracts at his home, but that was also the place where he kept the tools and books of his trade and from which he travelled to the work sites arranged pursuant to the contracts. The travelling expenses were found to be deductible even in the face of legislation requiring that they be "wholly and exclusively" laid out for trade purposes.

In the present case, the learned trial judge found on the evidence that Mr. Cork used his home as a base of operations for his drafting business. There is, I think, much to be said for the correctness of that view. Mr. Cork had evidently set himself up at his home for the conduct of his business activities. I need not enumerate the findings of the trial judge on the point. They show that 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. In my view, all of the findings have a basis in the evidence and ought not, therefore, to be disturbed. Though this Court may draw its own inferences from proven facts established on the testimony of a witness about whom no question of credibility arises (Lessard v. Paquin et al., [1975] 1 S.C.R. 665; 10 N.R. 620; 56 D.L.R.

(3d) 726; The Queen v. Gurd's Products Company Ltd., [1985] 2 C.T.C. 85; 85 D.T.C. 5314 (F.C.A.)), I am not persuaded that this is a case in which we should do so. I agree with the inference drawn by the learned trial judge that the home was the base of Mr. Cork's business operations.

I am unable to agree with the appellant's submission that Mr. Cork's travel from home to work and back again was qua home rather than qua work. The trial judge drew the correct inference from the facts proven that the office in the home was used by Mr. Cork as a base of his business operations. It follows, of course, that the travel from the house and back again was qua work and not qua home. The answer to the question posed in argument by counsel for the appellant will, of course, depend upon the circumstances. I have no doubt that the travel by Mr. Cork was from and to his home qua place of work in the circumstances of this case. The travelling expenses were incurred by him while away from home in the course of carrying on his business.

Paragraph 18(1) (a) expenses

During the course of argument by counsel for the respondent, the Court indicated that the issue of the deductibility of the rent and insurance expenses need not be addressed, the Court being in agreement with the learned trial judge that, for the reasons he gave, these expenses were deductible pursuant to paragraph 18(1)(a) of the Act.

In the result, I would dismiss the appeal with costs.

Appeal dismissed.