REASONS
FOR JUDGMENT
V.A. Miller J.
[1]
This appeal is with respect to the Appellant’s
2003, 2004, 2005 and 2006 taxation years in which the Minister of National
Revenue (the “Minister”) disallowed certain expenses which she had claimed as
employment expenses and medical expenses. The Appellant also requested that she
be allowed to deduct the expenses she incurred to restore a farm building.
[2]
During the relevant period, the Appellant lived
in Camrose, Alberta and was employed as a distance professor by the University
of Maryland University College (the “University”) which is located in Adelphi, Maryland. She was both a professor and an administrator in the University’s
virtual Masters of Business Administration (“MBA”) Program. According to the
Appellant’s testimony, this was the first global MBA Program and the terms of
her employment required not only that she teach but also that she grow the
program.
[3]
In performing her duties, the Appellant used
teleconferencing, the internet, and emerging technologies with her students and
faculty members. She was ordinarily required to carry out her duties away from the
University and in different places.
Employment Expenses
[4]
The Appellant’s contract of employment required
that she attend conferences and that she travel to the University at least 3
times a year. She was reimbursed for her travel expenses to and from the
University and for conferences.
[5]
She was required to incur expenses for:
(i)
Computers, printer and computer software;
(ii)
Professional development courses and course
related material over and above that provided by the University;
(iii)
Legal and professional insurance;
(iv)
Professional memberships;
(v)
Automobile;
(vi)
Workspace in the home;
(vii)
Direct costs related to research regarding other
online programs;
(viii)
Shipping and postage fees;
(ix)
Supplies such as paper, printer cartridges,
pens, telephone, educational cable and internet access; and,
(x)
Additional travel.
[6]
During the relevant period, the amount of
employment expenses claimed, allowed and disallowed were as follows:
|
|
Claimed
|
Allowed
|
Disallowed
|
|
2003
|
$31,555.01
|
$16,510.54
|
$15,044.47
|
|
2004
|
39,737.72
|
17,009.25
|
22,728.47
|
|
2005
|
25,984.85
|
12,308.45
|
13,676.40
|
|
2006
|
21,277.53
|
13,779.95
|
7,497.58
|
[7]
The details of the employment expenses which
were disallowed were as follows:
|
|
2003
|
2004
|
2005
|
2006
|
|
Food &
Beverage
|
$336.58
|
$2,433.92
|
$234.28
|
$1,204.03
|
|
Business
Taxes
|
-25.24
|
1,031.13
|
|
|
|
Office rent
|
-900.00
|
5,916.96
|
629.49
|
4,165.36
|
|
Interest
|
4,306.39
|
4,309.15
|
4,784.77
|
|
|
Computer
CCA
|
849.51
|
1,444.16
|
1,010.92
|
|
|
Other travel
Expenses
|
7,755.15
|
5,453.60
|
3,454.46
|
-1,204.02
|
|
Advertising &
promotion
|
|
|
|
-965.29
|
|
Work space in
Home
|
2,722.08
|
2,139.55
|
3,562.48
|
4,297.50
|
|
|
|
|
|
|
[8]
The Appellant brought no evidence to show that
she should be allowed any expenses beyond those which had already been allowed
by the Minister.
[9]
She stated that she was required to attend conferences
as part of her duties but only a portion of the expenses she incurred were
reimbursed by the University. However, the Appellant was not able to give any
specifics of the conferences she attended, the expenses incurred or the amounts
reimbursed for conferences. Her evidence was vague and unsupported by any
documentary evidence.
[10]
There was no testimony or documentary evidence
presented with respect to the expenses for “Food & Beverage” or “Business
Taxes”. The Respondent submitted documents to show that the Appellant had been
reimbursed by the University for her travel in the amount of $8,106.36,
$3,910.55, $6,192.39 and $4,084.55 in 2003, 2004, 2005 and 2006 respectively.
There was no evidence whether these reimbursements pertained to travel for conferences
or travel to and from the University or both.
[11]
In 2003, 2004 and 2005, the Appellant’s spouse
lived and worked in the city of Sharjah in the United Arab Emirates. She
travelled to be with her spouse and claimed these travel expenses against her
employment income. All of the disallowed Other Travel Expenses were the
Appellant’s costs to travel to Sharjah.
[12]
The Appellant stated that in order to finance
her travel to Sharjah, she had to use her credit card and borrow money from the
bank. The Interest amount she claimed during this period was the interest on
her credit card and the bank loan. The Minister correctly disallowed both the
Other Travel Expenses and Interest expenses as employment expenses. They were
the Appellant’s personal expenses.
[13]
The computer equipment purchased by the
Appellant was a capital expenditure and its cost is not deductible because the
Appellant was an employee: Emmons v R, 2006 TCC 269.
Work Space in
the Home
[14]
The Appellant agreed that her home measured 1850
square feet in 2003 and 2540 square feet in 2004, 2005 and 2006 and that her
office measured 600 square feet in 2003 and 800 square feet in 2004, 2005 and
2006. There was no dispute that the Appellant was required by her contract of
employment to incur expenses for an office in her home and she was not
reimbursed for these expenses. The dispute was whether the Appellant could
include a portion of the cost of insurance, property taxes and mortgage
interest for her home in the calculation of this expense.
[15]
The relevant portions of subparagraph 8(1)(i)(ii)
and subsection 8(2) of the Income Tax Act (the “Act”) provide:
8 (1) Deductions
allowed -- In computing a taxpayer's income for a taxation year from an office
or employment, there may be deducted such of the following amounts as are
wholly applicable to that source or such part of the following amounts as may
reasonably be regarded as applicable thereto:
…
(i)
dues and other expenses of performing duties -- an amount paid by the taxpayer
in the year, or on behalf of the taxpayer in the year if the amount paid on
behalf of the taxpayer is required to be included in the taxpayer's income for
the year, as
…
(ii)
office rent, or salary to an assistant or substitute, the payment of which by
the officer or employee was required by the contract of employment,
(2) General
limitation -- Except as permitted by this section, no deductions shall be made
in computing a taxpayer's income for a taxation year from an office or
employment.
[16]
This Court has confirmed that a deduction for
office rent for an employee cannot include the cost of insurance, property
taxes and mortgage interest for the employee’s home. See Horbay v R,
[2003] 2 CTC 2248 (TCC) and Lester v R, [2011] GSTC 153 (TCC) where the
following quote was relied on to interpret subparagraph 8(1)(i)(ii) of
the Act:
The Court accepts
the interpretation adopted by McNair, J. of the Federal Court in Thompson v.
Minister of National Revenue (1989), 89 D.T.C. 5439 (Fed. T.D.) in which
the appeal was on an identical basis. McNair, J. referred to the judgment of
Rip, T.C.J. in Felton v. Minister of National Revenue (1989), 89 D.T.C.
233 (T.C.C.) and stated at pages 5443 and 5444:
The strict ratio of the case is
contained in the following passage from the judgment of Rip T.C.J. at pp.
234-35:
The words
“rent” and “loyer” in subparagraph 8(1)(i)(ii) contemplate a payment by
a lessee or tenant to a lessor or landlord who owns the office property in
return for the exclusive possession of the office, the property leased by the
latter to the former.
The payments by Mr. Felton to a
money-lender of interest on money borrowed, to a utility supplier for the
utility, to maintenance personnel for maintenance, to an insurer for insurance
and to a municipality in respect of taxes are not payments of rent by a lessee
to a lessor. None of these payments by Mr. Felton was for the use or occupancy
or possession of property owned by another person.
Obviously, the judges of the Tax Court
in both Philips and Felton applied the plain meaning rule of
statutory interpretation in determining that the home office expenses of an
employee were not deductible as office rent under s. 8(1)(i)(ii),
notwithstanding the illogical unfairness of the section in permitting the
selfsame deduction in the case of business or professional persons.
This modern rule for the interpretation
of taxing statutes was admirably expounded by Estey J. in Stubart Invetments
Ltd. v. The Queen, [1984] 1 S.C.R. 536, 84 DTC 6305. The learned judge
recalled the strict rule of statutory interpretation invoked for many years,
whereby any ambiguities in the charging provisions of a tax statute were to be
resolved in favour of the taxpayer. He pointed out that the converse was true
where a taxpayer sought to rely on a specific exemption or deduction provided in
the statute. In that case, the strict rule required that the taxpayer's claim
fall clearly within the exempting provisions, and any doubt in that regard had
to be resolved in favour of the Crown. Indeed, he perceived the introduction of
exemptions and allowances as marking “the beginning of the end of the reign of
the strict rule”. The learned judge stated the following conclusion in the
S.C.R. report of the case at p. 578 (see DTC at p. 6323):
Professor
Willis, in his article, supra, accurately forecast the demise of the
strict interpretation rule for the construction of taxing status. Gradually,
the role of the tax statute in the community changed, as we have seen, and the
application of strict construction to it receded. Courts today apply to this
statute the plain meaning rule, but in a substantive sense so that if a
taxpayer is within the spirit of the charge, he may be held liable. See
Whiteman and Wheatcroft, supra, at p. 37.
While not
directing his observations exclusively to taxing statutes, the learned author
of Construction of Statutes (2nd ed. 1983), at p. 87, E.A. Dreidger, put
the modern rule succinctly:
Today there
is only one principle or approach, namely, the words of an Act are to be read
in their entire context and in their grammatical and ordinary sense
harmoniously with the scheme of the Act, the object of the Act, and the
intention of Parliament.
The question remains: Are the amounts
claimed for home office expenses in the 1980 and 1981 taxation years deductible
as “office rent” under s. 8(1)(i)(ii) of the Income Tax Act? In
my view, the plain meaning of the words of the statutory provision read in
context with the scheme of the Act as a whole precludes any possibility of an
affirmative answer to the question. This was the approach adopted by the judges
of the Tax Court of Canada in Phillips and Felton, with which I
fully concur. In the result, I find that the Minister was correct in his
reassessments of the defendant's income for the 1980 and 1981 taxation years,
save only for the amounts claimed for utilities, heating and hydro in 1980.
[17]
In accordance with Horbay and Lester,
the Minister correctly allowed the Appellant to deduct a portion of the
utilities expenses for her home and disallowed her deduction of insurance,
property taxes and mortgage interest expenses.
Medical Expenses
[18]
In 2004, 2005 and 2006, the Appellant claimed a
medical expense tax credit for expenses in respect of her mother who was her
dependant. Although the Minister allowed only some of the amounts claimed as
medical expenses, the Appellant is no longer disputing the disallowed amounts
with respect to her mother.
[19]
The Appellant also claimed a medical expense tax
credit in respect of herself and her spouse. The amount of medical expenses
claimed were $19,871.32, $10,629.57, $9,205.87 and $11,819.84 in 2003, 2004,
2005 and 2006 respectively and the amounts of $19,355.19, $7,944.98, $7,846.37
and $11,438.52 for 2003, 2004, 2005 and 2006 were disallowed by the Minister.
[20]
As stated earlier, the Appellant did not submit
any documents to support her appeal. However, the Respondent tendered copies of
some of the documents which the Appellant had previously given to the Minister.
These documents showed that the Appellant had claimed as medical expenses the
cost of a Chi Machine with accessories, a Viasonic LCD computer Monitor, an
ergonometric pillow, Thermophore Heat Pack, biofeedback therapy, homeopathy
remedies, supplements, Ayurveda treatments, Reiki treatments, Advil Cold &
Sinus, facial, body massages, hand massages, neck massages, fitness classes and
premiums paid to Alberta Health Care Insurance Plan.
[21]
The Appellant stated that in 2003 she sustained
a head injury on Northwest Airlines when a heavy suitcase fell on her head. The
blow to her head caused her to have severe headaches, muscular pain and
endocrine dysfunction. She stated that she didn’t need medication; she needed
alternative health care which alleviated her pain and enabled her to become
well again within one and one half years. She continued to use fitness and alternative
remedies to prevent disease and to promote her physical and mental health.
This, she stated, was in accord with the Canada Health Act and the
policy for Canadian health care.
[22]
According to section 3 of the Canada Health
Act, the primary objective of the Canadian health care policy is to
protect, promote and restore the physical and mental well-being of residents of
Canada and to facilitate reasonable access to health services without
financial or other barriers. However, a taxpayer can only deduct the expenses
she incurred to promote and restore her physical and mental health if it is
permitted by the Act. Unfortunately for the Appellant, the Act
does not mirror the policy of the Canada Health Act.
[23]
For ease of reference, I have grouped some of
the claimed medical expenses. I will refer to the Chi Machine with accessories,
Viasonic LCD computer Monitor, ergonometric pillow and Thermophore Heat Pack as
“Devices”; the biofeedback therapy, Ayurveda treatments and Reiki treatments as
“Therapies”; and, the supplements, Advil Cold & Sinus, and homeopathic
remedies as “Substances”. The facials, body massages, hand massages and neck
massages will be referred to as “Massages”. The fitness classes and premiums
paid to Alberta Health Care Insurance Plan will be addressed individually.
[24]
The definition of “medical expense” in
subsection 118.2(2) of the Act lists the specific types of costs which
are eligible for the medical expense tax credit. This list is exhaustive and
only the cost of those items listed will qualify as a medical expense: Roberts
v The Queen, 2012 TCC 319. This was clearly stated by the Federal Court of
Appeal in Ali v Canada, 2008 FCA 190 at paragraph 17:
With respect to the
legislative scheme at issue in this case, the definition of “medical expense”
in subsection 118.2(2) of the ITA contains an enumeration of the specific types
of costs that are eligible for the METC. This indicates a legislative purpose
of limiting the availability of the METC to a specific list of items.
Devices and Fitness Classes
[25]
The cost of a device or equipment used by a
patient is a medical expense if the device meets the conditions in paragraph
118.2(2)(m) of the Act. It reads:
(2)
Medical expenses -- For the purposes of
subsection (1), a medical expense of an individual is an amount paid
(m)
[prescribed in regulations] -- for any device or equipment for use by the
patient that
(i) is of a prescribed kind,
(ii)
is prescribed by a medical practitioner,
(iii)
is not described in any other paragraph of this subsection, and
(iv)
meets such conditions as may be prescribed as to its use or the reason for its
acquisition,
to the extent that
the amount so paid does not exceed the amount, if any, prescribed in respect of
the device or equipment;
[26]
Section 5700 of the Income Tax Regulations
(Regulations) provides that for the purposes of paragraph 118.2(2)(m)
of the Act, a device or equipment is prescribed if it is described
within one of the numerous paragraphs of that section. None of the Devices
purchased by the Appellant are listed in section 5700.
[27]
Likewise, fitness classes are not listed in
subsection 118.2(2). It is my view that this means that the cost of the Devices
and the cost of the fitness classes are not considered to be medical expenses
for the purposes of the Act.
Therapies
[28]
According to paragraph 118.2(2)(l.9), the
cost of therapy can be a medical expense. That paragraph provides, in part:
(2) Medical expenses
-- For the purposes of subsection (1), a medical expense of an individual is an
amount paid
(l.9)
[therapy] -- as remuneration for therapy provided to the patient because of the
patient's severe and prolonged impairment, if
(i)
because of the patient's impairment, an amount may be deducted under section
118.3 in computing a taxpayer's tax payable under this Part for the taxation
year in which the remuneration is paid,
(ii)
the therapy is prescribed by, and administered under the general supervision
of,
(A)
a medical doctor or a psychologist, in the case of mental impairment, and
(B)
a medical doctor or an occupational therapist, in the case of a physical
impairment,
[29]
According to the facts presented in this appeal,
the Appellant did not have a severe and prolonged impairment in accordance with
section 118.3 of the Act and the Therapies were not administered under
the general supervision of a medical doctor or an occupational therapist.
Clearly, the cost of the Therapies provided to the Appellant does not qualify
as a medical expense.
Substances
[30]
A medical expense for substances is allowed in
paragraph 118.2(2)(n) which reads:
(2) Medical expenses
-- For the purposes of subsection (1), a medical expense of an individual is an
amount paid
(n)
[drugs] -- for
(i)
drugs, medicaments or other preparations or substances (other than those
described in paragraph (k))
(A)
that are manufactured, sold or represented for use in the diagnosis, treatment
or prevention of a disease, disorder or abnormal physical state, or its
symptoms, or in restoring, correcting or modifying an organic function,
(B)
that can lawfully be acquired for use by the patient only if prescribed by a
medical practitioner or dentist, and
(C)
the purchase of which is recorded by a pharmacist, or
(ii)
drugs, medicaments or other preparations or substances that are prescribed by
regulation;
[31]
It is clear from the Federal Court of Appeal
decisions in Ali v R, 2008 FCA 190, Tall v R, 2009 FCA 342 and Ray
v R, 2010 FCA 17 that for the purposes of subparagraph 118.2(2)(n)(i),
the cost of substances is a medical expense only if the purchase is “recorded
by a pharmacist”. None of the Substances in question meet that requirement.
[32]
Subparagraph 118.2(2)(n)(ii) of the Act
does not apply to this appeal. It is only effective for expenses incurred after
February 26, 2008.
Massages
[33]
The cost of the Massages is a medical expense
only if the massage therapists were medical practitioners as required by
paragraph 118.2(2)(a) of the Act. It provides:
(2) Medical expenses
-- For the purposes of subsection (1), a medical expense of an individual is an
amount paid
(a)
[medical and dental services] -- to a medical practitioner, dentist or nurse or
a public or licensed private hospital in respect of medical or dental services
provided to a person (in this subsection referred to as the “patient”) who is
the individual, the individual's spouse or common-law partner or a dependant of
the individual (within the meaning assigned by subsection 118(6) in the
taxation year in which the expense was incurred;
[34]
For the purposes of paragraph 118.2(2)(a),
a massage therapist is a medical practitioner only if she/he is authorized to
practise as such according to the laws of the jurisdiction where the services
were rendered. See subsection 118.4(2) of the Act.
[35]
Some of the receipts for massages did not
contain an address. According to those which did, the Appellant received
massages in Dubai, Sharjah and Alberta. There was no evidence that a massage
therapist in Dubai and Sharjah is a medical practitioner.
[36]
In Pagnotta v The Queen, [2001] 4 CTC
2613 (TCC), Campbell Miller, J, found that a massage therapist in Alberta did not qualify as a medical practitioner for the purposes of paragraph 118.2(2)(a)
of the Act. In his analysis he referred to both the Medical
Professions Act and the Health Disciplines Act of Alberta. I note
that the Medical Professions Act was repealed and replaced by the Health
Professions Act, RSA 2000, c H-7, but that did not occur until December 15,
2009. All of the Health Disciplines Act, except the Schedule, was also
replaced by the Health Professions Act and that occurred on December 31,
2001.
[37]
According to the Medical Professions Act,
a medical practitioner is a person registered in the Alberta Medical Register.
Section 21 of that statute provides that only persons who hold a certificate of
registration from the Medical Council of Canada and has met the education and
training requirements set out in the by-laws qualify to be registered in the
Alberta Medical Register.
[38]
There was no evidence concerning any of the
individual massage therapists or whether they were registered or qualified to
be registered in the Alberta Medical Register. I have concluded that they were
not registered and that they did not qualify to be registered in the Alberta
Medical Registry.
[39]
Counsel for the Respondent referred to the Health
Professions Act. However, that statute does not use the term “medical
practitioner”. It refers to “professional service”, “regulated member” and
“regulated profession”. Those terms are defined in section 1(1) as follows:
(ff) “professional
service” means a service that comes within the practice of a regulated
profession;
(ll) “regulated
member” means a person who is registered as a member under section 33(1)(a);
(mm) “regulated
profession” means a profession that is regulated by this Act;
[40]
Paragraph 33(1)(a) of the Health
Professions Act reads:
33(1) A council
(a)
must establish, in accordance with the regulations, a regulated members
register for one or more categories of members who provide professional
services of the regulated profession, and …
[41]
In Alberta there are 30 different health
professions that are regulated by 28 colleges in accordance with the Health
Professions Act. Massage therapy is not a profession regulated by the Health
Professions Act. Nor is massage therapy designated as a health discipline
under the Schedule which remains in force with respect to the former Health
Disciplines Act.
[42]
I have concluded that the massage therapists
were not medical practitioners in accordance with paragraph 118.2(2)(a)
and the cost of massages was not a medical expense.
Premiums for
Health Insurance
[43]
The cost of health plan premiums is a medical
expense if the premiums are paid for a private health services plan. Paragraph
118.2(2)(q) provides:
For the purposes of
subsection (1), a medical expense of an individual is an amount paid
(q)
[health plan premiums] -- as a premium, contribution or other consideration
under a private health services plan in respect of one or more of the
individual, the individual's spouse or …
[44]
In this appeal, the premiums are not medical
expenses as they were paid in respect of the Alberta Health Care Insurance Plan
which is a public health insurance plan.
Restoration of Farm Building
[45]
Counsel for the Respondent stated that the
Appellant did not claim an expense in her tax returns for the restoration of a
farm building. The Appellant says that she did. The Notice of Appeal does not
mention the restoration but the Reply to Notice of Appeal does. However, it
does not give a cost for the restoration. The assumptions in the Reply are:
10(w) The Appellant
did not operate a farming business during the 2003, 2004, 2005 and 2006
taxation years; and
10(x) Amounts
incurred by the Appellant for restoring farm buildings were not incurred to
earn income from business or property.
[46]
The Appellant agreed that she did not operate a
farming business in any of the relevant years.
[47]
It was her evidence that there was a farm
building which her parents had built many years ago. The building was on the
verge of falling down and she was able to get permission to move it. She paid
to have it attached to her home and to have it restored. Her spouse used the
first floor of the barn for his office and the upstairs part of the barn became
part of the Appellant’s office.
[48]
The Appellant was not able to tell me how much
the restoration cost except that it was “$3,000 a month
for x number of months to the main labourer” .
[49]
Regardless of the cost, the amount spent to
restore the farm building is a personal expense and it is not deductible.
Late Filing Penalty
[50]
The Appellant stated that she hired DiGirolamo
& Company Tax Lawyers to prepare her income tax returns. She gave them all
the necessary documentation so that her 2006 return could be filed on time.
However, her 2006 return was filed late.
[51]
It is my view that this is an issue between the
Appellant and her tax preparers and not one that I can resolve.
[52]
For all of the reasons stated above, the appeal
is dismissed.
Signed at Ottawa, Canada, this 6th day of November 2014.
“V.A. Miller”
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