Date: 20000524
Docket: 98-1101-IT-I
BETWEEN:
JEAN-PAUL BOUCHER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
P.R. Dussault, J.T.C.C.
[1] I
will now render my decision. Mr. Crépin has referred
me to the decision in Landry v. The Queen,
94 DTC 6499, with which I am quite familiar, and has made
certain comparisons with your situation. I believe the situation
is somewhat different in your case. First, you are not the same
age as Charlemagne Landry was when he tried to return to the
practice of law. It seems that in your case it was not a question
of returning to legal practice; you were instead changing
direction in the way you practised: you went from being an
employee with Legal Aid to establishing a private practice.
Furthermore you mentioned health problems, personal problems,
occupational exhaustion, burn-out; I do not know what other terms
to use. Indeed it is not up to me to make a diagnosis and I am
willing to accept your word in this regard.
[2]
You tried to resume private practice, and I will not say without
success since the documents which you adduced do in fact show
that a great deal of work was done on certain cases; I believe
that what was missing in your case was not a reasonable
expectation of profit in the financial sense of the term; rather,
what happened was that, as a result of your accounting methods,
you made no profit for tax purposes. It seems to me this is the
crux of the matter, and I will tell you right away,
Mr. Boucher, that if you continue in that manner you will
have income tax problems for the rest of your life.
[3]
There are ways of doing things; there are rules. A professional
who renders services is required to report his income on the
basis of services billed or on the basis that they should have
been billed if there had not been an undue delay in billing. If
it were possible to redo the entire audit of your file, it might
perhaps be realized that your income for those years should be
much higher than what is shown in your returns or than what you
added somewhat later.
[4]
At all events, that income was not reported for 1993 or 1994. The
Department's assessment is not based on this aspect, although
one can see that it clearly underlies the Department's
decision to disallow the losses. All this to say that, when
someone is in a profession, such as the legal profession, he
obviously tries to get on by using the assets he has, including
the fact of having been admitted to the Bar and of continuing to
have the right to practise.
[5] I
do not think, moreover, that anyone makes an RRSP withdrawal with
a light heart since that money is invested for the future, to
provide for some sort of future retirement or pension. So you
undoubtedly did it because you were in rather difficult
circumstances and I do not make any connection here between that
and your failure to report certain income which undoubtedly
should have been reported.
[6]
As I say, if everything were audited again and if it were done
very thoroughly, I think we would arrive at income that would be,
I would not say significantly higher, but at least higher than
what was reported. That being said, I do not believe, for those
reasons, that the situation in Landry is really akin to
your own.
[7]
The second point raised in this case is the question of the home
office. Mr. Crépin told me straight away this morning
that he would not argue this point, that, based on what you
explained to us, that was the principal place where you
practised, your principal place of business. At the outset, then,
that condition is met.
[8]
Referring now to subsection 18(12) of the Income Tax
Act, it essentially states, and I quote:
Notwithstanding any other provision of this Act, in computing
an individual's income from a business for a taxation year
. . .
[9]
And, as you know very well, Mr. Boucher, business includes a
profession:
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
. . .
—and that, in my opinion, is the case in this
instance—
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 . . .
It is one or the other. I may conclude that it is your
principal place of business. So, in paragraph (b), it
continues:
where the conditions are set out in
subparagraph (a)(i)
—that is our condition—
or (ii) are met, the amount for the work space that is
deductible in computing the individual's income from the
business for a taxation year shall not exceed the
individual's income from the business for the year, computed
without reference to the amount . . . .
[10] This
means that we take the income you reported, less the expenses you
reported. In your case, of course, we arrive at a loss. It is
therefore impossible to deduct any additional amount relating to
the home office. And that is true for both years.
[11] You
agreed, you told me a moment ago that, for 1993, the
amount—which is moreover as reported or as claimed as a
deduction—is $4,921.59. For 1994, you agreed that the
amount involved is $6,558. Consequently, these amounts may not be
deducted for 1993 and 1994 so as to increase the loss in those
years. That is my decision.
[12] By way of
explanation, I add paragraph (c) of subsection 18(12),
which reads as follows:
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
—that is to say for a subsequent year—
for the work space in respect of the business.
[12] This
means a carry-over to subsequent years. And as the same
restrictions still apply, the benefit of the carry-over can
obviously only be had to the extent that the income for those
subsequent years exceeds the other expenses. The appeals are
therefore allowed and the assessments for 1993 and 1994 are
referred back to the Minister of National Revenue for
reconsideration and reassessment on the basis that the appellant
may subtract from his professional income the deductions claimed,
excluding, however, those relating to the home office, that
is, the amounts of $4,921.59 for 1993 and $6,558 for 1994. The
losses for those two years are thus reduced by those same
amounts.
Signed at Ottawa, Canada, this 24th day of May 2000.
"P.R. Dussault"
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 23rd day of April
2001.
Erich Klein, Revisor
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