Her Majesty the Queen v. Justin Cork, [1984] CTC 479, 84 DTC 6515

Muldoon, J:—This is an appeal from a decision of the Tax Review Board delivered on May 20, 1981. The parties filed a statement of agreed facts, which, with a few corrections mentioned by counsel now incorporated in it, and some abridgement, is recited below.

1. The Defendant resided, at all material times, at 60 Glengrove Avenue in the Municipality of Metropolitan Toronto.

2. The Defendant, at all material times, carried on the business of a self-employed mechanical design draftsman.

3. [Here is recited a list of sites where the defendant worked in 1974, 1975 and 1976, the duration of each engagement and the placement agencies, where applicable, through which he obtained work. In 1974, there were three engagements, one in Mal- ton and two in Scarborough, the first two obtained through placement agencies, and the last engagement, the second one in Scarborough, obtained without an agent. In 1975 there were five engagements, one in Buttonville, one in Toronto, and two in Scarborough, all obtained through placement agencies, and a one-day engagement at the General Wolfe Vocational School obtained without an agent. In 1976 there were three engagements, one each in Stoney Creek, Toronto and Thorold, respectively all obtained through placement agencies. The first two were each of several months’ duration, the last from November 19 to December 25, 1976.]

4. The Defendant, in the above taxation years, used one of the bedrooms in his house as an office and he did not have an office at any other place.

5. The Defendant, in computing his income from self-employment as a mechanical design draftsman for the 1974, 1975 and 1976 taxation years, deducted from the following amounts, all of which amounts were in fact expended:

	TAXATION YEAR
	1974	1975	1976
Accounting, Legal	130.00	100.00	125.00
Automobile	1,078.97	970.13	2,092.24
Business Tax, Fees, Licence	25.00	—	—
Fire & Liability Insurance	33.00	33.00	33.00
Interest, Bank charges	2.00	6.00	—
Postage, Stationery	87.50	122.15	75.79
Rent: (% of total rent paid)	1,169.22	1,180.00	1,274.40
Telephone (Business portion)	99.12	141.85	200.13
Subscriptions	26.00	—	—
Capital Cost Allowance	—	400.00	1,341.15
Travelling Expenses (other than automobile)	—	—	1,114.03
	2,650.81	2,953.13	6,255.74

The Minister of National Revenue, in reassessments of tax to the Defendant for the 1974, 1975 and 1976 taxation years, permitted deductions of $150.00, $150.00 and $443.00 respectively.

6. Of the use the Appellant made of his automobile in respect of which amounts were deducted as noted in Paragraph 4 above (including capital cost allowance of $215.35 and'$1,193.43 in the 1975 and 1976 taxation years respectively), the bulk (not less than eighty per cent) was in driving to and from the location of his work as set out in Paragraph 3 herein. [Other 20% in seeking out contracts = 100% of alleged business portion.]

7. In respect of the amounts set out in Paragraph 4 [sic — should be 5] above, the parties hereto join issue on the deductibility of eighty per cent of the automobile expenses including a proportionate share of the capital cost allowance claimed (ie that percentage wholly related to driving to and from the workplace) and all of the expenses in respect of rent including fire and liability insurance. The Minister of National Revenue does not put in dispute the deductibility of all other of the above-noted expenses.

The defendant testified at the trial of this appeal. His testimony was credible and not less so for being subjected to competent cross-examination by the plaintiffs counsel.

The evidence satisfactorily establishes the defendant’s need for an office or base of business operations. Most frequently he obtained engagements to perform his drafting services through placement agencies. But not being clairvoyant about further prospects of obtaining work he wrote directly to prospective employers, typing the letters in his office. There he up-dated his resumé of work experience from time to time: thrice in 1974, four times in 1975, and thrice again in 1976. In 1974-75 he made many telephone calls to placement agencies. (He did not place a telephone extension line from his living room into his office, simply to avoid the expense of so doing.) In his office the defendant kept a desk and chair, a typewriter, a lamp, a filing cabinet, his invoice forms and letterheads, as well as a small drafting board. He kept his drafting instruments there. Also, since time was of the essence in his work, he used his office to perform calculations and to prepare sketches for the next day’s work. The defendant’s office was, as Denning, M R put it in Horton v Young, [1971] 3 All ER 412, the “locus in quo” from which the defendant’s trade radiated to the various sites as his work demanded.

That the defendant declined to assume the risk of incurring additional business expenses by establishing a discreet office quite apart from his residence, but rather minimized his business expenses by locating his office in his residential premises, is entirely a matter of his own business judgment which is perfectly reasonable. He had one base of business operations but many sites of professional engagement.

The defendant’s situation is therefore different from that of a taxpayer who proceeds daily from his established residence to his established place of employment, and returns after work to his residence. Such a taxpayer may choose to reside near to, or far from, his place of work; and if that taxpayer chooses to reside far from his work place, then, the full cost of transportation must be borne by the taxpayer with no allowable deduction. That is clear. (See: Henry v MNR, [1972] CTC 33; 72 DTC 6005 (SCC); Sargent v Barnes, [1978] 2 All ER 737.) However, the defendant’s circumstances here are quite like those of, say, a consulting geologist who is required to travel to sites of potential mineral exploration in order to perform geological services. There is no difficulty in appreciating that the geologist’s expenses for travel throughout Canada to remote sites are properly deductible. The defendant’s travels were simply not so extensive, but they were just as necessary for his performance of his services from which he earned his income. (See: Cumming v MNR, [1968] 1 Ex CR 425; Horton v Young, (supra).)

Upon the evidence it is clear that the defendant’s circumstances are within the exceptions accorded to taxpayers by Parliament in the provisions of subsection 18(1) of the Income Tax Act. It runs, in part, thus:

18. (1) In computing the income of a taxpayer from business or property no deduction shall be made in respect of

(a) an outlay or expense except to the extent that it was made or incurred by the taxpayer for the purpose of gaining or producing income from the business or property;

(b) personal or living expenses of the taxpayer except travelling expenses (including the entire amount expended for leals and lodging) incurred by the taxpayer while away from home in the course of carrying on his business;

The defendant needed the transportation provided by his automobile; and the expense incurred thereby was for the purpose of gaining or producing income from his business: it was travelling expense incurred by him while away from home (also the site of his office in this case) in the course of carrying on his business at various different places where he was engaged to perform his professional services.

The learned member of the Tax Review Board (as it then was), whose decision is here under appeal, aptly distinguished the defendant’s case from that of Libera v MNR, [1981] CTC 2298; 81 DTC 276, also a decision of the Board. Referring to this defendant as the appellant before him, the learned member noted in his decision:

. . . In the instant case, the appellant is in a much more favourable position, in my opinion. First, the Minister allowed a “blanket” $150.00 business expense allowance in each of the years in question and since no explanation of the nature of the $150.00 was provided, the appellant may conclude with some reason that all or part of that $150.00 related to “rent”. Second, counsel for the Minister in argument has virtually conceded that some consideration for “rent” should be permitted — but only a lesser portion of the residence. As I see it, therefore, the appellant has established his need for and use of a “base of operations” — no matter how limited that base might be. It is not an unusual situation for a sole proprietor to have such a “base of operations” in his own residence, particularly at the commencement of a business venture. (See Keith R Jensen v Minister of National Revenue, 77 DTC 107, [1977] CTC 2121.) That is entirely different than a claim by a taxpayer for a “second” or “alternate” office (usually also in his own home, and to some degree for his own use and convenience).

That reasoning is still applicable here, as is the following:

. . . Having earlier determined that the appellant as a businessman was entitled to a “base of operations”, I must allow the amount claimed entirely. One aspect of its “reasonableness” might be to ask whether or not the appellant could have rented even minimum office and storage space for an average of about $100.00 per month. I would doubt that he could have done so. The same reasoning should hold true with regard to the automobile expenses. When Mr Cork left his “office” (as I have determined it was), he went to a client’s place of business “just like a lawyer or anyone else”. The appellant did reduce the claim on his tax return by a percentage of the total automobile expenses and automobile depreciation, which is at least some indication that he respected the principle of “reasonableness”. Again, I do not regard it as the Board’s responsibility in the circumstances of this appeal to determine with precision whether or not the balance claimed was all disbursed in the devoted pursuit of profit. That again should be an assessing matter. Substantial evidence had been provided to show that the appellant worked at the locations indicated, and that he disbursed the amounts claimed in travelling to those locations in order to earn the business income which is subject to tax. As for the other sundry items claimed by the taxpayer, in my view they are either reasonable as stated and supported at the hearing, or they should be considered as forming part of the basis for the $150.00 blanket allowance noted above.

It is my conclusion that the expenses claimed for the various years in connection with the drafting business are reasonable in the specific circumstances of these appeals and will be allowed.

For all of the above reasons, including those of the Tax Review Board in regard to the defendant’s drafting business and the use of the defendant’s automobile therein, the plaintiffs action is dismissed with costs.