Paul Allen v. Minister of National Revenue, [1979] CTC 3076, 79 DTC 847

John B Goetz:—The appeal of Paul Allen came on before me for hearing at the City of Halifax, Nova Scotia, on July 27, 1979, and is against reassessments made by the Minister on April 29, 1977, with respect to the appellant’s income tax liability for his 1974 and 1975 taxation years. The reassessments disallowed expenses in the sum of $1095.89 for the 1974 taxation year and $94.14 for the 1975 taxation year.

In reassessing the appellant, the respondent relied, inter alia, upon section 9, paragraphs 18(1)(a) and (h), and section 67 of the Income Tax Act, SC 1970-71-72, c 63, as amended.

The appellant has been a sea captain for 17 years and was captain of the M V Charlotte & Rickey, a fishing vessel owned by P A Trawler Limited. He worked out of Lunenburg whereas the fish factory of C CW McLeod Fisheries Limited was located at Port Mouton, approximately 50 to 60 miles from Lunenburg where, after each fishing trip, the captain docked his boat. His fishing operations involved at least 16 trips a year, each trip lasting twelve days or more, when his boat would be out to sea going to scallop beds, which were familiar to the sea captain. The fishing season lasted from April to September of each year and he would be ashore during that period for approximately five days between each sea trip. Seatime was about 240 days. When on shore he would spend 8 to 10 hours a day in his office, contacting at least 25 people.

Captain Allen used a room in his house as an office, which room is approximately 10’ x 10’. All that was in this room was his desk, his filing cabinets and two chairs. While on shore he would have to check for repairs for the boat and its gear; this was a regular duty on his part, and maintenance cost ran approximately $100,000 to $150,000 per year. He had to approve invoices coming in, order ice and fuel and fishing gear and he was responsible for shipment bills paid by P A Trawler Limited.

The appellant filed a sketch of his home which indicated that there were five rooms with a recreation room in the basement. Access to his office was through the back door and down a hallway.

There would be a turnover in his crew, from three to four after each trip, and this necessitated interviewing people in his office. Lunenburg apparently has a population of only 3,000 and there was no sign or anything to indicate where the office was in the appellant’s home.

The appellant cited the following cases in support of his position:

Dr Lawther Logan v MNR, [1967] Tax ABC 276; 67 DTC 189;

Georges Emard Courville v MNR, 35 Tax ABC 291; 68 DTC 167;

Rolf Kenton v MNR, [1969] Tax ABC 981; 69 DTC 681;

No 281 v MNR, 12 Tax ABC 41; 55 DTC 5.

Counsel for the respondent cited the following cases:

John Law/or v MNR, [1970] Tax ABC 369; 70 DTC 1248;

George Willoughby Turner v MNR, [1969] Tax ABC 180; 69 DTC 168;

Barney B Hagar v MNR, [1969] Tax ABC 1180; 69 DTC 781;

Hugh Russell Locke v MNR, 38 Tax ABC 38; 65 DTC 223;

George Hill v MNR, 34 Tax ABC 169; 64 DTC 1;

Alfred Charles Heakes v MNR, 32 Tax ABC 433; 63 DTC 667.

The appellant lumped together operating expenses for his truck and Car. He needed the truck to make deliveries to his boat at the dock and his car to go to Port Mouton to see the people at C W McLeod Fisheries Limited. He was a member of the Off Shore Scallop Advisory Committee as well as The Fisherman’s Mutual League Organization which necessitated some trips to Halifax. Obviously the truck was used exclusively for business. Expenses relating thereto should be fully allowed and I would consider 20% use of his private passenger vehicle as being a reasonable amount to be allowed to him as an expense in his business.

Dealing first with the claim for office expense, the appellant indicated that for the taxation year 1974, he deducted 25% for his office space which involved hydro, electrical, water, taxes, etc, but in 1975 he deducted only 10% for the use of his office in his home. The appellant testified, and I believe him, that the office space was only used by him and not by other members of his family. In his filing cabinet he maintained records of inspection, records of settlement, records of income for every trip, records of location of scallop catches and records of injury claims. I feel that the appellant comes clearly within the provisions of paragraph 18(1 )(a) of the Income Tax Act which reads as follows:

18.(1) In computing the income of a taxpayer from a 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;

I consider that having regard to the fact that the appellant lived 50 miles from Port Mouton, that he had to have a place in which he could do all the things referred to earlier.

In the instant appeal I do not feel that the cases of Locke (supra) or Heakes (supra) have any application having regard to the fact that Captain Allen was well-known in a very small community and people would know where to reach him if they wished to hire on as hands on board his boat. Conversely, the appellant might know who would be available to replace certain of his crew members who left his employment. Under the circumstances, the lack of a placard or sign on the exterior of his house becomes redundant and it is for that reason that I distinguish this case from the Locke and Heakes cases (supra).

I consider it most reasonable that Captain Allen maintains such an office in his home as opposed to his having to go to Port Mouton in that his boat was stationed at Lunenburg where he did all the necessary work in between fishing trips. It was economical and convenient for him to have an office in his home. I therefore order that the assessments with respect to the 1974 and 1975 taxation years be referred back to the Minister for reassessment to reflect the 10% use of his home as an office space.

As there was no evidence of any breakdown as between the cost of operating the truck and his personal vehicle, I would direct that the appellant would be allowed full expenses for the use of his truck and 20% for the use of his personal private vehicle.

There was evidence as to the appellant having a party in 1974 and certain figures were given by him but not supprted by vouchers. The expense for such entertainment of his crew, in the amount of $447 in his 1974 taxation year, appears to be reasonable and he states that this was to promote goodwill and to instill loyalty in his crew members and to reduce turnover crews between fishing trips. Other guests at the party were his suppliers and maintenance people. The $447 as an entertainment expense is reasonable and I therefore allow it as a deductible business expense. I might add I was impressed with the evidence of the appellant which was clear, concise and candid.

The appeal is allowed and the matter referred back to the respondent for reconsideration and reassessment on the basis that the appellant is entitled to deduct the following expenses: 10% for the use of an office in his home; full expenses for the use of his trucks; 20% for the use of his personal private vehicle and $447 as a business expense in the year 1974.

Appeal allowed.