[OFFICIAL ENGLISH TRANSLATION]
Date: 20020122
Docket: 2000-4969(IT)I
BETWEEN:
SUZANNE TRUDEAU,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Angers, J.T.C.C.
[1] The appellant is appealing from
notices of assessment for her 1995, 1996 and 1997 taxation years.
The respondent disallowed business losses of $16,904, $17,829 and
$2,151 claimed by her for each of those years respectively. The
parties are agreed on those amounts. The appellant accepts the
respondent's position regarding the period comprising the
last five months of 1996 and all of 1997. She admits that she
occupied and resided in a self-contained domestic
establishment during that period and that the income earned from
her business was subject to subsection 18(12) of the
Income Tax Act (Act). It must therefore be
determined whether the preceding period, namely 1995 and the year
1996 up to July 31, is subject to the same restrictions under
that subsection.
[2] The date of July 31, 1996, becomes
important because it is the date when the appellant retired from
McGill University and moved permanently to
Ste-Adèle.
[3] In anticipation of her retirement,
the appellant sold her home in Boucherville, Quebec, in February
1995 and purchased a four-bedroom Canadian-style
house in Ste-Adèle, Quebec, on March 8 of that
year. A few weeks later, she moved the contents of her
Boucherville house into a warehouse/garage in
Ste-Adèle. She kept her bedroom set, desk, computer,
fax machine and clothes. These items were all moved to the home
of her cousin Marguerite Lemieux in Montréal, where
the appellant took up residence and was to stay until her
retirement.
[4] The appellant later made some
alterations to the Ste-Adèle property to turn it
into a bed and breakfast. She obtained operating permits from the
town of Ste-Adèle on June 10, 1995, and received her
first guests on June 24, 1995.
[5] Since she was still working 33.75
hours a week for McGill University, she could not be in
Ste-Adèle regularly. She therefore hired her nephew,
Jean-François Bellemare, who had returned from an
eight-year stay out West and who was unemployed. He and the
appellant's sister operated the bed and breakfast until
October 1995. The appellant went there on weekends and spent her
five-week summer vacation there in 1995.
[6] The appellant stayed with her
cousin until her cousin died on August 10, 1995. She
had entered into no agreement with her cousin, except that she
paid half of the food costs. After her cousin's death, the
appellant went to stay with friends, Léo Drolet and
his wife, who also lived in Montréal. Mr. Drolet
testified that he and his wife freed up a room to accommodate the
appellant, who moved her bed, television, desk, computer and
clothes there. She stayed with the Drolets until her retirement.
Mr. Drolet confirmed that the appellant went to
Ste-Adèle during her holidays and on weekends. If
there were no guests, she stayed at home. No lease or any other
agreement was signed by the appellant and the Drolets. Mr. Drolet
said that he and his wife merely took in a friend who was in a
tight spot and awaiting her retirement.
[7] On October 15, 1995, the
appellant's nephew found a job and left the bed and
breakfast. She said that, from that time on, she operated the bed
and breakfast from Montréal by telephone and through voice
mail in Ste-Adèle. She also said that she operated
it only on the weekends when there were rentals.
[8] She had four rentals in October
1995, one in November and 14 in December. She had a total of 14
rentals from January to April 1996, 20 in May and June and,
finally, 47 in July.
[9] The appellant also testified that
her mail went to her office at McGill University, as it was
not kept in Ste-Adèle. On cross-examination,
she admitted that her summer and Christmas holidays from 1995
until July 1996 were spent in Ste-Adèle. She also
said that, when her nephew was there, she shared his room and
slept on the floor on a foam mattress. She said that, after he
left, it was like going to the cottage on the weekend and that,
more often than not, she did not leave Montréal until
Saturday morning. Finally, she said that her intention was to go
and live in Ste-Adèle when McGill granted her early
retirement in July 1996.
[10] For the purposes of the case, the
parties have agreed that 35.48 percent of the space in the bed
and breakfast was used for personal purposes.
[11] Is the Minister justified in applying
subsection 18(12) of the Act to the appellant's
business expenses for 1995 and up to July 31 of the following
year? Was the bed and breakfast in question a
self-contained domestic establishment during that
period?
[12] Section 248(1) of the Act
defines "self-contained domestic establishment"
as follows:
"self-contained domestic establishment" means a
dwelling-house, apartment or other similar place of
residence in which place a person as a general rule sleeps and
eats.
[13] There is no doubt that the
Ste-Adèle property satisfies the first part of the
definition. However, it must be asked whether the appellant as a
general rule slept and ate there during the period at issue.
[14] Subsection 18(12) of the Act
reads as follows:
(12) Work space in home - 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.
[15] This subsection adds the words "in
which the individual resides" to the term
"self-contained domestic establishment". As a
result, it must be asked whether the appellant resided at the
Ste-Adèle property during the period at issue. The
Act does not define the word "residence".
[16] The respondent's argument is that
the appellant was in Ste-Adèle regularly. She was
there during her holidays and on weekends. Her 1995 tax return
and her driver's licence show her address as the
Ste-Adèle address. She had possessions in
Ste-Adèle, and 35 percent of the space in the house
was used for personal purposes. The idea of a bed and breakfast
is to take people into one's residence.
[17] The tests set out in Thomson v.
Canada (Minister of National Revenue - M.N.R.), [1946] S.C.R.
209 (QL), were cited as the tests for determining an
individual's place of residence. The principal tests are the
frequency with which the individual goes to the place, the
routine of the individual's life in relation to the place,
and the way in which the place is occupied.
[18] The appellant said that the
Ste-Adèle property was not her residence because she
did not live there all the time. She argued that she used it as a
cottage during the period in question and that she resided there
on a full-time basis only as of July 31, 1996. She
prepared her 1995 tax return in April 1996, a few months before
she moved, and she put her Ste-Adèle address on it
because of her imminent retirement and because she knew she was
going there. She said that her principal place of business during
the period in question was McGill University.
[19] In Thomson, supra, Kerwin
J. dealt with the question of residence as follows:
There is no definition in the Act of "resident" or
"ordinarily resident" but they should receive the
meaning ascribed to them by common usage. When one is considering
a Revenue Act, it is true to state, I think, as it is put in the
Standard Dictionary, that the words "reside" and
"residence" are somewhat stately and not to be used
indiscriminately for "live", "house" or
"home". The Shorter Oxford English Dictionary gives the
meaning of "reside" as being "To dwell permanently
or for a considerable time, to have one's settled or usual
abode, to live, in or at a particular place".
[20] In the case at bar, it seems obvious to
me that the appellant could not leave Montréal before her
retirement. She had to complete the required service with her
employer, McGill University, in order to be eligible for early
retirement. Although she took the necessary steps to go and live
in Ste-Adèle, she could not escape from her
obligations in Montréal before July 31, 1996. This
explains why she was unable to live, sleep or eat in
Ste-Adèle on a regular basis. She was obliged to
entrust the operation of the bed and breakfast to her nephew
until October. She then ran it herself but did so from a
distance, from Montréal. She did not go to
Ste-Adèle unless she had to. She did not have to
travel there frequently during the winter months.
[21] Applying the tests laid down in
Thomson to the facts of this case, the routine of the
appellant's life was concentrated mainly in Montréal.
She occupied her property in Ste-Adèle only very
sporadically. The use of the possessions she kept in
Montréal, namely her bed, computer, desk and clothes,
allows one to conclude that productivity was important in her
work and her daily routine of life. The other material things she
needed were provided to her by her cousin and her friends, and I
do not think that the terms negotiated with them are a relevant
factor.
[22] For these reasons, I cannot conclude
that the Ste-Adèle property was a
self-contained domestic establishment as that term is
defined in the Act. While the appellant intended to
operate a bed and breakfast (which normally involves the owner
taking guests into his or her home) there, it was impossible for
her to do so before she retired. She had to entrust that task to
her nephew, who acted as the manager rather than as the owner.
Aside from the part in which her nephew lived, the
Ste-Adèle property was used exclusively for the
operation of the bed and breakfast, and the appellant's
sporadic occupation of the property was completely incidental to
that activity. I therefore cannot conclude that the appellant as
a general rule slept and ate in the Ste-Adèle
property during the period in question.
[23] Based on the evidence as a whole, nor
can I conclude that she resided in Ste-Adèle before
July 31, 1996, according to the tests enunciated in
Thomson, supra.
[24] The appeals are therefore allowed for
the 1995 taxation year and for 1996 up to July 31. The
assessments are referred back to the Minister of National Revenue
for reconsideration and reassessment in accordance with these
Reasons.
Signed at Ottawa, Canada, this 22nd day of January 2002.
J.T.C.C.
Translation certified true
on this 25th day of April 2003.
Erich Klein, Revisor
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