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Citation: 2004TCC514
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Date: 20041202
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Dockets: 2000-3741(IT)G
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2000-3742(IT)G
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BETWEEN:
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OLIVIER GENDRON,
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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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[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Bédard J.
[1] During the 1995 and 1996 taxation
years, Olivier Gendron worked as a physician exclusively at
his primary residence in Berthierville. By way of his
Notifications of Confirmation of June 2, 2000, the
Minister of National Revenue (the "Minister") disallowed the
following:
(i) interest and banking fees
expenses of $5,994 and $3,917, respectively, for the 1995 and
1996 taxation years, on the ground that the interest and banking
fees were personal expenses and had not been incurred for the
purpose of earning income from a business or property;
(ii) $2,377 and $3,294 in
expenses related to conferences and workshops for the 1995 and
1996 taxation years, respectively, on the ground that these
expenses had not been incurred for the purpose of earning income
from a business or property and that they were unreasonable;
(iii) $37,236 and $14,585 in
home office expenses for the 1995 and 1996 taxation years,
respectively. The issue mainly concerned the percentage of the
area of the Appellant's residence used for business purposes and
the expenses related to the maintenance of the exterior finish of
the Appellant's residence, as well as landscape maintenance;
Mr. Gendron is appealing the Minister's decision.
[2] To make and confirm the
reassessment in question for the 1995 taxation year, the Minister
relied in particular on the following facts set out at
paragraph 19 of the Reply to the Notice of Appeal:
[Translation]
(a) the Appellant
works as a physician;
(b) the
$45,607 in expenses claimed by the Appellant for the 1995
taxation year and disallowed by the Minister for the reasons
given below are broken down as follows:
|
Expenses disallowed for 1995
|
|
|
|
|
|
Home office expenses
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$37,236
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|
Conferences and workshops
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$2,377
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|
Interest and banking fees
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$5,994
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|
|
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|
Total of expenses disallowed
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$45,607
|
(c) during the year
at issue, the Appellant held consultations in his office, which
was at the same street address as his residence, that is,
810 Montcalm Street in Berthierville, Quebec;
(d) during the year
at issue, the Appellant allegedly rented living quarters to a
casual employee at the same street address as the one above;
(e) the Appellant's
residence is laid out as follows: basement and garage, first
floor and second floor, with a total of approximately
3,200 square feet;
(f) for the
1995 taxation year, the Appellant declared $79,452 mostly
for maintenance work and repairs to his residence. He deducted
about 50% of this amount as business expenses, claiming that he
had a right to a total deduction of $39,216 from his total
income;
(g) the area used
for the Appellant's professional practice was about
300 square feet, that is, 13.6% of the area excluding the
basement and garage, or 9.4% of the total area, if the basement
and garage are included;
(h) the space that
the Appellant claimed to be renting to a casual employee was in
fact the housekeeper's living quarters with an approximate size
of 25 square feet by 30 square feet, for a total of
750 square feet;
(i) the
Appellant claimed that he was paid $1,200 in rent in 1995,
representing $100/month;
(j) no proof
of payment for the rent was provided in the investigation;
(k) given the above
information, the Minister considered that all the expenses
relating to maintaining and repairing this area for the
housekeeper did not constitute expenses incurred for the purpose
of earning income;
(l) in
addition to the expenses disallowed at paragraph (j) of this
document, the Minister disallowed approximately $15,000 in
expenses for the landscaping of the residence, given that these
expenses were not incurred for the purpose of earning income;
(m) many expenses
consisted of fees for the renovation of the kitchen, which the
Minister considered to all be personal expenses;
(n) of the
$79,452 in related expenses, which were mostly for repairs
and maintenance work at the residence, the Minister deducted the
amount of $66,253 finding that these expenses were strictly
personal and not incurred for the purpose of earning income;
(o) consequently, a
balance of $13,199 was considered and the Minister
considered that 15% of the expenses were reasonable, given that
the area reserved for the Appellant's practice was between 9.4%
and 13.6%, depending on whether the basement and garage were
taken into account when computing the area of the residence;
(p) the Minister
therefore found the amount of $1,980 to be an expense
incurred for the purpose of earning income and allowed this
amount as a deduction;
(q) because the
Appellant declared a total deduction of $39,216 in office
expenses, the Minister disallowed $37,236 in expenses. The
Minister's position is explained in the following table:
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1995 Taxation Year
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Total expenses computed
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$79,452
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- personal expenses
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$66,253
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balance
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$13,199
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X 15% of expenses
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$1,980
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|
|
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Expenses deducted by Appellant
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$39,216
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- revised expenses
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$1,980
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Amount of expenses disallowed
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$37,236
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(r) the Appellant
claimed the amount of $8,198 as deductions for expenses
incurred for attending conferences or workshops pertaining to his
profession;
(s) after analyzing
these expenses, the Minister allowed $5,821, that is, 71% of the
expenses claimed, finding that a portion, that is, 29%,
constituted personal expenses;
(t) in this
analysis, the Minister disallowed the expenses exceeding the
number of days he attended courses, but allowed a day of travel
expenses for the workshops in Montréal and for
two days of training in Quebec City and Hull;
(u) in this regard,
the proportion of expenses allowed by the Minister is
reasonable;
(v) consequently,
the Minister disallowed the amount of $2,377 as deductions
because they constituted personal expenses that had not been
incurred for the purpose of earning income;
(w) the Appellant claimed
a deduction of $5,994 in interest and banking fees related to the
use of a credit line;
(x) the Appellant
used only one bank account and the analysis of the information
from this account showed that the credit line was for personal
use;
(y) in this regard,
the Minister disallowed the deduction of $5,994 in interest
fees, given that this amount had not been incurred for the
purpose of earning income; and
(z) the Respondent
argued that this appeal is unfounded in fact and in law.
[3] To make and confirm the
reassessment at issue for the 1996 taxation year, the Minister
relied in particular on the following facts set out at
paragraph 19 of the Reply to the Notice of Appeal:
(a) the Appellant
works as a physician;
(b) the $21,796 in
expenses claimed by the Appellant for the 1996 taxation year and
disallowed by the Minister for the reasons given below are broken
down as follows:
|
Expenses disallowed for the 1996 taxation
year
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Home office expenses
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$14,585
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Conferences and workshops
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$3,294
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Interest and banking fees
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$3,917
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Total of expenses disallowed
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$21,796
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(c) during the year
at issue, the Appellant held consultations in his office, which
was at the same street address as his residence, that is,
810 Montcalm Street in Berthierville, Quebec;
(d) during the year
at issue, the Appellant allegedly rented living quarters to a
casual employee at the same street address as the one above;
(e) the Appellant's
residence is laid out as follows: basement and garage, first
floor and second floor, with a total of approximately
3,200 square feet;
f) for
the 1996 taxation year, the Appellant declared
$34,345 mostly for maintenance work and repairs to his
residence. He deducted about 50% of this amount as business
expenses, claiming that he had a right to a total deduction of
$16,663 from his total income;
(g) the area used
for the Appellant's professional practice was about
300 square feet, that is, 13.6% of the area excluding the
basement and garage, or 9.4% of the total area, if the basement
and garage are included;
(h) the space that
the Appellant claimed to be renting to a casual employee was in
fact the housekeeper's living quarters with an approximate size
of 25 square feet by 30 square feet, for a total of
750 square feet;
(i) the
Appellant claimed that he was paid $1,020 in rent in 1996,
representing $85/month;
(j) no proof
of payment for the rent was provided in the investigation;
(k) given the above
information, the Minister considered that all the expenses
relating to maintaining and repairing this area for the
housekeeper did not constitute expenses incurred for the purpose
of earning income;
(l) in
addition to the expenses disallowed at paragraph (j) of this
document, the Minister disallowed approximately $15,000 in
expenses for the landscaping of the residence, given that these
expenses were not incurred for the purpose of earning income;
(m) many expenses
consisted of fees for work done at the residence without being
related to the space reserved for the Appellant's practice, which
the Minister considered to all be personal expenses;
(n) of the
$34,345 in related expenses, which were mostly for repairs
and maintenance work at the residence, the Minister deducted the
amount of $20,489, finding that these expenses were strictly
personal and not incurred for the purpose of earning income;
(o) consequently, a
balance of $13,856 was considered and the Minister
considered that 15% of the expenses were reasonable, given that
the area reserved for the Appellant's practice was between 9.4%
and 13.6%, depending on whether the basement and garage were
taken into account when computing the area of the residence;
p) the
Minister therefore found the amount of $2,078 to be an
expense incurred for the purpose of earning income and allowed
this amount as a deduction;
(q) because the
Appellant declared a total deduction of $16,663 in office
expenses, the Minister disallowed $14,585 in expenses. The
Minister's position is explained in the following table:
|
1996 Taxation Year
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Total expenses computed
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$34,345
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- personal expenses
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$20,489
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balance
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$13,856
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x 15% of expenses
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$2,078
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Expenses deducted by the Appellant
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$16,663
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- revised expenses
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$2,078
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Amount of expenses disallowed
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$14,585
|
(r) the Appellant
claimed the amount of $11,357 as deductions for expenses
incurred for attending conferences or workshops pertaining to his
profession;
(s) after analyzing
these expenses, the Minister allowed $8,063, that is, 71% of the
expenses claimed, finding that a portion, that is, 29%,
constituted personal expenses;
(t) in this
analysis, the Minister disallowed the expenses exceeding the
number of days he attended courses, but allowed a day of travel
expenses for the workshops in Montréal and for
two days of training in Quebec City and Hull;
u) in this
regard, the proportion of expenses allowed by the Minister is
reasonable;
(v) consequently,
the Minister disallowed the amount of $3,294 as deductions
because they constituted personal expenses that had not been
incurred for the purpose of earning income;
(w) the Appellant claimed
a deduction of $3,917 in interest and banking fees related to the
use of a credit line;
(x) the Appellant
used only one bank account and the analysis of the information
from this account showed that the credit line was for personal
use;
y) in this
regard, the Minister disallowed the deduction of $3,917 in
interest fees, given that this amount had not been incurred for
the purpose of earning income; and;
(z) the Respondent
argued that this appeal is unfounded in fact and in law.
Analysis
Interest and banking fees
[4] The Appellant requested a
deduction of $5,994 and $3,294 as interest and banking
fees for the 1995 and 1996 taxation years, respectively, relating
to the use of a credit line. The Respondent argued that the
Appellant had only one bank account and that the analysis of the
records showed that the credit line was for personal use. The
Respondent therefore disallowed the deduction of these fees for
the Appellant in the computation of his income for the taxation
years in question by claiming that they constituted personal
expenses and had not been incurred for the purpose of earning
income or property pursuant to paragraph 20(1)(c) of
the Income Tax Act (the "Act").
[5] The Appellant had the burden of
proving, based on the balance of probabilities, that the Minister
wrong about this point. The Appellant simply did not discharge
his obligation in that he failed to provide any evidence
regarding the percentage of these expenses that were incurred for
business purposes.
[6] On these grounds, I find that in
the computation of his income, the Appellant could not deduct the
amounts of $5,994 and $3,294 as interest and banking
fees for the 1995 and 1996 taxation years, respectively.
Training expenses
[7] This issue involved the
deductibility of hotel and meal expenses incurred by the
Appellant on days when he had no training at conferences or
workshops in Montréal, and in which he participated during
the 1995 and 1996 taxation years in the computation of the
Appellant's income from his professional practice. The issue
focused more specifically on expenses incurred by the Appellant
on the day prior to (the arrival date) and following (the
departure date) the days that the conferences and workshops were
held. The Minister allowed the deduction of the expenses incurred
by the Appellant on the arrival dates, but did not, however,
accept such a deduction for the departure dates, alleging that
these expenses were unreasonable, given the short distance
between Montréal and Berthierville, where the Appellant
resided. In fact, the Appellant testified that the time required
to travel this distance was between one hour and one hour and
thirty minutes.
[8] Counsel for the Appellant claimed
that these expenses were reasonable, given the Appellant's
advanced age and the distance he had to travel to get home.
Moreover, he argued that the Minister did not respect his own
administrative policy[1] to the effect that he allowed in the computation of
income the deduction of these expenses incurred not only on the
arrival dates but also on the departure dates.
[9] In my view, these expenses were
unreasonable and they were personal expenses. In fact, the time
required to travel the short distance between Berthierville and
Montréal, and the fact that the Appellant appeared to be
in sound health, in spite of his advanced age, did not at all
justify the deduction of hotel and meal expenses incurred by the
Appellant on the departure dates. As to the administrative
policy, to which I am not bound in any event, it only repeats,
above all else, the principle that the reasonableness of these
expenses must be assessed in light of many factors, such as the
length of the conferences and workshops and where they took
place.
[10] As to the various expenses incurred by
the Appellant pertaining to these conferences and workshops and
deducted by him in the computation of his income for the 1995 and
1996 taxation years, I find that they were not expenses incurred
for the purpose of earning business income or property, and that,
rather, they were personal expenses. In fact, the Appellant did
not provide receipts or explanations regarding the nature of
these expenses.
[11] For these reasons, I find that in the
calculation of the Appellant's income from professional practice,
the Minister was justified in disallowing the deduction of part
of his training expenses (meal and hotel expenses for the
departure dates for the conferences and workshops in
Montréal and miscellaneous expenses) that he incurred,
namely, the amount of $2,377 for the 1995 taxation year and
the amount of $3,294 for the 1996 taxation year.
Office expenses
Preliminary remarks
[12] The office expenses for which the
Appellant claimed a deduction for the 1995 and 1996 taxation
years and which were disallowed by the Minister totalled (based
on the Reply to the Notice of Appeal) $37,236 and $14,585,
respectively. The disallowed office expenses are broken down in
Exhibit I-2.
[13] At the hearing, counsel for the
Appellant admitted that certain office expenses deducted by the
Appellant were personal expenses. Therefore, the following
expenses are no longer deducted by the Appellant in the
computation of his income for the 1995 and 1996 taxation
years:
|
Taxation Year
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Description
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Amount
|
|
|
|
|
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1995
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Atelier Forest
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$102.56
|
|
1995
|
Yves Desrosiers
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$400.00
|
|
1995
|
Louis Tellier Designer
|
$937.17
|
|
1995
|
Lafrenière Meubles
|
$300.00
|
|
1995
|
Cuisine Connaisseur
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$7,630.00
|
|
1995
|
Dello Sbarba
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$425.00
|
|
1995
|
Lafrenière & Fils
|
$200.00
|
|
|
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$9,994.73
|
|
|
|
|
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1996
|
Yves Desrosiers
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$100.00
|
|
1996
|
Louise Tellier
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$227.91
|
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1996
|
Louise Tellier
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$666.64
|
|
1996
|
H. Brissette
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$80.00
|
|
1996
|
Pépinière Malo
|
$88.38
|
|
1996
|
Gaetan Bonin
|
$108.25
|
|
|
|
$1,271.18
|
[14] At the hearing, the Respondent's
counsel agreed that the following expenses were incurred by the
Appellant for the purpose of earning income from his professional
practice for the 1995 and 1996 taxation years:
|
Taxation Year
|
Description
|
Amount
|
|
|
|
|
|
1995
|
Domo Signal
|
$1,117.13
(35.158% x $3,178.20)
|
|
1995
|
Dello Sbarba
|
$284.89
|
|
1995
|
Serge Massicotte
|
$33.39
(35.15% x $95.00)
|
|
|
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1996
|
Yves Desrosiers
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$75.00
|
[15] It should be pointed out that the
following expenses found in Exhibit I-2 are not at
issue because they were settled at the time of the audit:
|
Taxation Year
|
Description
|
Amount
|
|
|
|
|
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1995
|
Richard Damphousse
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$879.55
|
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1995
|
Gérard Brunelle
|
$32.31
|
|
1995
|
Excavation Moreau
|
$318.61
|
|
1995
|
Not analyzed
|
$2,574.58
|
|
1996
|
Gérard Brunelle
|
$84.47
|
|
1996
|
Domo Signal
|
$205.12
|
|
1996
|
Gignac
|
$569.77
|
|
1996
|
Dello Sbarba
|
$723.61
|
|
1996
|
Divers
|
$251.50
|
|
1996
|
Not analyzed
|
$1,750.06
|
|
1996
|
Guillaume Dubois
|
$726.90
|
[16] After the hearing, the Respondent
acknowledged that under the circumstances, the following expenses
were not subject to the application of subsection 18(12) of
the Act, and that they were deductible in proportion to the
Appellant's use of his residence for business purposes:
|
Taxation Year
|
Description
|
Amount
|
|
|
|
|
|
1995
|
Eco Décor - Paysagement
|
$12,833.36
|
|
1995
|
Gilles Mayer - Briqueteur
|
$25,630.00
|
|
1995
|
Jean Desroches
|
$3,199.51
|
|
1995
|
Yves Desrosiers
|
$62.50
|
|
1995
|
Gérard Brunelle
|
$1,117.37
|
|
1995
|
André Sarrazin
|
$1,120.00
|
|
1995
|
Serge Massicotte
|
$95.00
|
|
1995
|
Pression net
|
$200.00
|
|
1995
|
Jimmy Page
|
$110.00
|
|
1995
|
Charles Lacoursière
|
$2,623.20
|
|
1995
|
Visa
|
$325.00
|
|
1995
|
Gaétan Bonin
|
$131.50
|
|
1995
|
Location Caron
|
$1,078.87
|
|
1995
|
Patrick Morin
|
$2,567.29
|
|
1995
|
Ville de Berthier
|
$182.33
|
|
1996
|
Eco Décor - Paysagement
|
$15,546.87
|
|
1996
|
Jean Desroches
|
$1,555.50
|
|
1996
|
André Sarrazin
|
$890.00
|
|
1996
|
R. Damphousse
|
$1,150.00
|
[17] After the hearing, the Appellant
acknowledged that the following expenses were personal:
|
Taxation Year
|
Description
|
Amount
|
|
|
|
|
|
1995
|
Charles Lacoursière[2]
|
$123.20
|
|
1995
|
Charles Lacoursière[3]
|
$569.14
|
|
1995
|
Charles Lacoursière[4]
|
$49.95
|
|
1995
|
Visa[5]
|
$370.74
|
[18] Therefore, I will only review the
following office expenses:
|
Taxation Year
|
Description
|
Amount
|
|
|
|
|
|
1995
|
Various materials[6]
|
$595.69
|
[19] Consequently, the issue regarding the
office expenses only involved the percentage of the area of the
Appellant's residence used for business purposes and the expenses
mentioned in the previous paragraph.
Percentage of the area of the residence used for business
purposes
[20] First, it should be made clear that
counsel for the Respondent acknowledged in his written
representations dated August 10, 2004, that for the periods in
question, the Appellant used 30%
(769 ft.2/2506 ft.2) of the area
of his residence for business purposes. The Appellant argued that
this percentage was rather 50%. This difference can be
explained based on the Respondent's position that the dinette
(120 ft.2), kitchen (104 ft.2)
and dining room (289 ft.2) were not used by the
Appellant for business purposes during the periods in
question.
[21] The Appellant's testimony showed:
(i) that he used the dining room to
verify, complete and consult his medical files, that several
files were always there and that this room was rarely for
personal use;
(ii) that the kitchen
(104 ft.2) and dinette (120 ft.2)
were used as an office by the Appellant's secretary, who in this
case was his spouse. Patients checked in and made appointments
there. The secretary greeted representatives from pharmaceutical
companies and performed the required administrative tasks in
these rooms.
[22] In my view, the expenses related to the
use of the dining room were personal and thus
non-deductible in the computation of the Appellant's income
from the practice of his profession. In fact, I believe that the
Appellant would have been able to use his consultation office
(192 ft.2) that was on the main floor or even his
office (106 ft.2) upstairs to consult and verify
his medical files. The Respondent acknowledged that these rooms
were being used by the Appellant for his medical practice. It is
not a matter of putting files in all of the rooms of the
residence so that they will be considered rooms being used for
business purposes.
[23] However, the Appellant did convince me
that the dinette and kitchen were used for business purposes. It
appears unlikely that these rooms were used exclusively for
business. In my opinion, it would be more reasonable, under the
circumstances, to say that the rooms had been partly used for
business purposes, that is 50%.
[24] I find that 35.15%
(881 ft.2/2,506 ft.2) of the area
of the Appellant's residence was used for business purposes.
Various materials (1995): $595.69
[25] The Appellant's testimony in this
regard, when questioned by his counsel, should be cited:[7]
[Translation]
Q.
Now under the heading, "various materials," you claimed $595.69
and that is in my colleague's memorandum, at
pages 8240-156 to 167, I believe. What did you list
under "various materials?"
R.
All the small receipts, for the electricity, light bulbs. There
was perhaps fertilizer for the lawn, sand for the winter, to put
on the ice.
Q. O.K. and so, all
those expenses total $595.69?
R. Yes.
Q. So, the $595.69 is basically the total of
all the small receipts that accumulated over 1995, right?
[26] It should be pointed out that the
Appellant submitted 27 small receipts
(Exhibit I-1, tab 1, pages 8240-156 to
167). Most of the receipts did not indicate exactly what was
purchased. I noted that most of the purchases were made at
Le Rénovateur Charles Lacoursière. The
receipts issued by this supplier clearly indicated which
department the goods were purchased from, but did not at all
indicate what they were exactly.
[27] The Appellant, I must point out again,
had the burden of establishing, based on the balance of
probabilities, that the Minister was wrong about this point. In
my opinion, the Appellant did not discharge the burden by
providing a vague and inaccurate testimony and by providing
receipts without any further explanations. My role certainly is
not to guess exactly what goods were purchased by the Appellant
based on the receipts (coded).
[28] On these grounds, I find that in the
computation of his income from the practice of his profession,
the Appellant could deduct the following expenses:
|
Taxation Year
|
Description
|
Amount of expense
|
Amount deductible[8]
|
|
1995
|
Domo Signal
|
$3,178.20
|
$1,117.13
|
|
1995
|
Dello Sbarba
|
$284.89
|
$284.89
|
|
1995
|
Serge Massicotte
|
$95.00
|
$33.39
|
|
1995
|
Eco Décor-Paysagement
|
$12,833.36
|
$4,510.92
|
|
1995
|
Gilles Mayer Briqueteur
|
$25,630.00
|
$9,000.94
|
|
1995
|
Jean Desroches
|
$3,199.51
|
$1,124.62
|
|
1995
|
Yves Desrosiers
|
$62.50
|
$21.96
|
|
1995
|
Gérard Brunelle
|
$1,117.37
|
$392.76
|
|
1995
|
André Sarrazin
|
$1,120.00
|
$393.68
|
|
1995
|
Pression Net
|
$200.00
|
$70.30
|
|
1995
|
Jimmy Page
|
$110.00
|
$38.66
|
|
1995
|
Charles Lacoursière
|
$2,623.20
|
$922.05
|
|
1995
|
Visa
|
$325.00
|
$114.23
|
|
1995
|
Gaétan Bonin
|
$131.50
|
$46.22
|
|
1995
|
Location Caron
|
$1,078.87
|
$379.22
|
|
1995
|
Patrick Morin
|
$2,567.29
|
$902.40
|
|
1995
|
Ville de Berthier
|
$182.33
|
$64.08
|
|
1996
|
Eco Décor-Paysagement
|
$15,546.87
|
$5,464.72
|
|
1996
|
Jean Desroches
|
$1,555.50
|
$546.75
|
|
1996
|
André Sarrazin
|
$890.00
|
$312.83
|
|
1996
|
R. Damphousse
|
$1,150.00
|
$404.22
|
|
1996
|
Yves Desrosiers
|
$75.00
|
$75.00
|
Signed at Ottawa, Ontario, this 2nd day of December 2004.
Bédard J.
Translation certified true
on this 9th day of February 2005.
Julie Oliveira, Translator
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