Tania Linsenmeier v. Her Majesty the Queen, [1996] 3 CTC 2770 (Informal Procedure)

O’Connor J.T.C.C.: — This appeal was heard on August 8, 1996 at Ottawa, Ontario pursuant to the Informal Procedure of this Court.

Testimony was given by the Appellant and certain lists of expenses and alleged receipts were filed as exhibits.

Issue

The issues are whether the Appellant in 1993, in carrying out her work as a nanny, was to be considered as an employee or alternatively as carrying on a business and, in the latter case what expenses were deductible in that year.

Facts acts

The Reply to the Notice of Appeal states:

3. By Notice of Assessment dated May 12, 1994, the Minister of National Revenue (the “Minister”) initially assessed the Appellant’s income tax return as filed for the 1993 taxation year.

4. In computing her income for the 1993 taxation year, the Appellant reported gross and net business income of $15,577.00, and claimed $10,223.00 as other employment expenses.

5. By Notice of Reassessment dated March 23, 1995, the Minister reassessed the Appellant’s income tax return for the 1993 taxation year and disallowed $9,414.00 of the Appellant’s other employment expenses referred to in the preceding paragraph, as per attached Schedule A.

6. On May 5, 1995, the Appellant served on the Minister a Notice of Objection for the 1993 taxation year.

7. In disposing of the Appellant’s Notice of Objection, the Minister further reassessed the Appellant’s 1993 income on november 14, 1995, reclassifying the amount of $15,577.00 from business income to employment income and disallowing all the employment expenses claimed, thereby increasing her income.

8. In so reassessing the Appellant, the Minister made the following assumptions of fact:

(a) the facts hereinbefore stated and admitted;

(b) during the 1993 taxation year, the Appellant worked for Mr. Tom

Sheppard (the “Employer”) as a nanny in the City of Stittsville, Ontario;

(c) the work consisted of taking care of the Employer’s child, Caroline Sheppard;

(d) the terms of the duties performed by the Appellant for the Employer

during the 1993 taxation year were supported by a written contract;

(e) during the 1993 taxation year, the Appellant performed her duties principally at the Employer’s residence (the “Place of Work”), under the control and supervision of the Employer;

(f) during the 1993 taxation year, the Appellant’s hours and type of duties were decided by the Employer;

(g) during the 1993 taxation year, the Appellant received remuneration from the Employer calculated on an hourly basis;

(h) overtime was paid at time and a half by the Employer for that same period;

(i) during the 1993 taxation year, the Appellant used the premises and equipment provided by the Employer to perform her duties;

(j) while performing duties for the Employer, the Appellant did not perform work for any other employers;

(k) for the 1993 taxation year, the signed contract stipulated that the Appellant was entitled to be paid by the Employer for the following days of absence: 10 days of vacation, 9 statutory holidays, and 5 days of sick leave;

(1) for the 1993 taxation year, the Employer paid to the Appellant remuneration totalling $15,577.00;

(m) the said amount of $15,577.00 received by the Appellant was income from employment;

(n) during the 1993 taxation year, the Employer’s residence was located approximately 1.5 km from the Appellant’s residence;

(o) according to her contract, the Appellant was not ordinarily required either to perform her duties away from the Place of Work or in different places, or to pay travel expenses or motor vehicle expenses incurred by the Appellant in the performance of her duties of the office or employment;

(p) during the 1993 taxation year, the Appellant did not incur any expenses in respect of meals consumed by her in the circumstance which required her to be away, for a period of not less than twelve hours, from the municipality of the Place of Work and away from the metropolitan area;

(q) the work space in the Appellant’s home was not the place where she principally performed her duties for the Employer during the 1993 taxation year, nor was it used exclusively for the purpose of earning income from the Employer and meeting on a regular basis customers or other persons in the ordinary course of performing the said duties;

(r) the Appellant failed to substantiate expenses in the amounts of $100.60, 1,247.13, 526.27, 862.81, 55.00 and 266.32 claimed as gas and oil, repairs and maintenance, entertainment, clothing for work, bank charges and education expenses respectively, of which she claimed approximately 86.4 per cent as the deductible portion;

The Appellant admitted these facts were true subject to the following exceptions. As to paragraph 8(e) there was only a limited amount of control and supervision. As to paragraph 8(f) the hours and type of duties were discussed by Caroline’s parents and the Appellant. As to paragraphs 8(i) and (o) the Appellant stated that her ownership of a car was a requirement of her work and she used it extensively. Lastly, the Appellant disagrees with paragraph 8(m).

The Appellant testified that notwithstanding the terms of her written contracts, which considered alone, might lead to the conclusion that she was an employee, she in fact was truly a nanny as opposed to a babysitter and was carrying on a business. She testified that she only got the work on condition that she had a safe car. From January to May she used a fairly old car. On May 7, 1993 she purchased a better car for $5,200. She used the car every working day in the carrying on of her business. She was much more than a babysitter who sat in front of a T.V. set. She looked after Caroline in every respect. She assisted in educating Caroline. She worked from approximately 8:30 a.m. until Caroline’s parents returned from work. This was five days a week. She took Caroline out practically everyday. Trips included taking Caroline to mothers’ group meetings, libraries, museums, the Appellant’s cottage, theme parks, normal parks, friends’ homes, shopping and, on occasion, her home.

Based upon the testimony of the Appellant as to the duties performed, which testimony I find credible, I have concluded that the Appellant was carrying on a business and was not simply an employee. A key element in a contract of employment is control and supervision and, as with any good nanny to a child whose parents work, there was little control and supervision. Her car might easily be considered as a tool used by her in performing her duties and she owned that tool.

I turn now to the expenses that were properly deductible.

As to the car mileage it was estimated that the Appellant travelled approximately 22,000 kilometres in 1993. On her return she claimed only 13.6 per cent of this represented personal travel whereas at the hearing she indicated that this was probably more in the range of 20 per cent. Counsel for the Respondent found it difficult to accept that the cars were used 80 per cent of the time for business purposes and submitted that the Appellant should have kept a log. However the Appellant indicated she needed the car for the business, that there were numerous trips involved and that her personal travel needs for shopping, et cetera were generally met by the use of her boyfriend’s truck. I accept this testimony of the Appellant and fix the amount of personal travel at 20 per cent.

The expenses claimed and the amounts allowed by the Minister are shown on schedule A to the Reply to the Notice of Appeal which is here reproduced.

After hearing all of the evidence I concur with the Minister’s allowance of $3,043.16 as the total of automobile expenses, excluding capital cost allowance (“CCA”). However this should only be reduced by 20 per cent representing personal travel, i.e. $608.72. Consequently the amount of automobile expenses excluding CCA should be $2,434.44 rather than the $608.63 allowed by the Minister.

With respect to CCA the Minister allowed a figure of $780. The calculation is shown on Schedule A and in my opinion it is correct. This should be reduced by 20 per cent or $156. Consequently the CCA deductible should be $780 less $156, i.e. $624.

Of the entertainment expenses claimed in an amount of $571.42 the Minister has allowed only an amount of $45.15. The Appellant furnished numerous receipts seeking to justify the amount claimed. A lot of these receipts relate to crafts, quilts and other items which the Appellant claims were used by Caroline. It is impossible from an examination of these receipts to discern what they are for and to what extent they relate to the business. I find however, in the circumstances that it would be reasonable to allow 50 per cent of the $571.42 claimed namely $285.71 as a deductible expense for entertainment.

With respect to the remaining items claimed namely work space in home, $780, clothing for work $862.81, bank charges $55.00 and education $266.32 I concur with the Minister’s disallowance of these amounts. The work space in home represented the total yearly rental the Appellant paid for space in her parents’ home but that space was not used in the carrying on of the business. With respect to clothing for work, numerous receipts were submitted and the Appellant testified that she needed the clothes for work. Playing and working with Caroline often resulted in soiled clothing. Notwithstanding that testimony I do not find it reasonable to allow any amount for clothing for work. The bank charges were not proven. The education amount apparently represents fees paid for a course in anatomy and physiology. In my opinion this cannot be considered as an expenditure made for the purposes of earning income from the business.

Consequently the appeal is allowed to the extent set forth above.

Appeal allowed.