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Citation: 2004TCC13
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Date: 20040112
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Docket: 2003-1810(IT)I
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BETWEEN:
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BOHDAN MOLCKOVSKY,
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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
O'Connor, J.
[1] This appeal was heard at Toronto,
Ontario on December 18, 2003. Testimony was given by the
Appellant and by his wife Irene.
[2] The issue relates to expenses
claimed by the Appellant, a family physician in the 1999 and 2000
taxation years.
[3] Paragraphs 8 and 9 of the Reply to
the Notice of Appeal read as follows:
8. In
reassessing the Appellant for the 1999 and 2000 taxation
years, by concurrent Notices of Reassessment dated May 24,
2002, the Minister decreased professional expenses claimed by the
Appellant in the amounts of $5,014 and $3,865, respectively,
inclusive of:
Taxation
years
1999
2000
a) Automobile
expenses
$4,482.
$2,559.
b) Advertising
and promotion
532. -0-
c) General
expenses
-0-
1,306.
Total expenses
disallowed
$5,014.
$3,865.
9. The
Appellant filed Notices of Objection dated June 26, 2002 against
the reassessments dated May 24, 2002 for the 1999 and 2000
taxation years and in addition the Appellant requested a claim
for work space in the home in the amount of $1,100 for both
taxation years.
[4] Also the Notice of Appeal states
with respect to interest as follows:
I feel that the arrears interest of $505.68 for the year 1999
and $165.37 for the year 2000, should be cancelled under the
Fairness Legislation.
[5] The Appellant, prior to or during
the hearing of the appeal stated that he was now only contesting
the disallowance of the claim for work space in the home of
$1,100 in each of the years 1999 and 2000 and the assessment of
interest.
[6] As to interest I explained that
this Court does not have jurisdiction to alter an amount of
interest and advised the Appellant that if he wished to press
that issue further he should apply to the Fairness Committee
himself requesting a waiver or cancellation of interest. Counsel
for the Respondent was requested to assist the Appellant in this
procedure.
[7] In connection with interest
reference is made to subsection 220(3.1) of the Income Tax
Act which gives the Minister of National Revenue a wide
discretion to wage or cancel interest. Reference is also made to
the judgment of Mogan, J. of this Court in Adamson v. Her
Majesty the Queen, 2002 DTC 1540 at paragraphs 14 and 15
where Judge Mogan stated as follows
[14] The Appellant seems to
think that this Court can compel the Minister to exercise his/her
discretion under subsection 220(3.1) in a particular way. This
Court has no jurisdiction over the Minister in the proposed
exercise of discretion under subsection 220(3.1). If the
Appellant were to request a waiver of interest or penalties under
subsection 220(3.1), and if the Minister were to refuse the
request, the Appellant could commence a proceeding in the Federal
Court to review the Minister's exercise of discretion with
respect to procedural fairness or error of law but that
proceeding would start after the Minister had actually exercised
his/her discretion under subsection 220(3.1).
[15] In his claim with respect
to subsection 220(3.1), the Appellant is premature because he has
not yet asked for relief from interest or penalties; and he is in
the wrong Court. ...
[8] With respect to the disallowance
for expenses related to office space in the home the Appellant
and his wife explained that the Appellant had his principal
physician's office at Hurontario Street in Mississauga. They
testified further that in their house which comprised two
stories, a basement, living room, dining room and three bedrooms
for a total of 3,000 square feet and included in that total was
140 square feet of office space and 160 square feet of
storage space for medical records and other storage items. This
total of space with respect to his practice was thus 300 square
feet which is equal to 10% of the total area of 3,000 square feet
in the home and consequently since the total house expenses were
$11,000 in each year 10% of that, or $1,100, was claimed in each
of the years 1999 and 2000.
[9] Other evidence was presented as to
how the office space was used to see patients and how it was
equipped with a desk, space for filing, a computer and other
normal office items and medical instruments. The computer was
connected with the computer files at the hospital where the
Appellant was an employee and where on average he treated
approximately 16 patients. The majority of his practice was
conducted at his primary office on Hurontario Street where he
would have seen approximately 35 patients a day. At the home
office he only received one patient a week generally and
approximately seven telephone calls a week. The Appellant and his
wife referred to the decision of Lamarre-Proulx T.C.J. in
Vanka v. Her Majesty the Queen (2001)
4 C.T.C. 2832. In that decision which was favourable to
the physician in that case there were certain elements of
similarity to the situation of the Appellant. However on a close
examination of the Vanka decision it is clear that the
extent of the use of the space in home was significantly more
than that of the Appellant. Thus the Vanka case is
distinguishable. Doctor Vanka received an average of seven calls
in the evening and Justice Lamarre-Proulx considered that a
regular and continuous use of office space in the house. By
contrast the Appellant received approximately one call per
day at his home office.
Analysis
[10] The relevant provision of the Income
Tax Act is section 18(12). It provides the following:
(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:
...
[11] The Court has every sympathy for the
Appellant and accepts his credibility and the credibility of his
wife Irene. However based on all of the evidence both oral and
written I conclude that the Appellant does not meet the stringent
conditions of subparagraph 18(12)(a)(ii). The space in
home is not used exclusively for the purpose of earning income
nor used on a regular and continuous basis for meeting
patients.
[12] Regrettably, therefore, the appeal is
dismissed. However I would recommend, given the Appellant's
agreement not to contest several expenses and considering the
fact that there definitely was office and warehouse space in the
home for his physician operation, although not actually meeting
the strict conditions of section 18(12), I nevertheless would
recommend that if an application is made for a waiver of interest
that the application be granted.
Signed at Ottawa, Canada, this 12th day of January 2004.
O'Connor, J.
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