William H White v. Minister of National Revenue, [1972] CTC 2033, 72 DTC 1036

W O Davis:—The appellant is a medical practitioner residing at the city of Penticton, BC, where for a number of years he has practised medicine as a member of The R B White Clinic. This clinic is a partnership association consisting of the appellant and his fellow doctors H P Barr, D K Foerster, J J Gibson, T N F Todd, W A Wickett and D E Yates, each of whom, with the exception of J J Gibson, was reassessed by the Minister of National Revenue in respect of the same subject matter as the appellant White for the taxation year 1965.

The appeal was heard at Penticton during the first week of May 1970 before me as a member of the Tax Appeal Board, and appeals by Drs Hugh P Barr, Darryl K Foerster, Thomas N F Todd, William A Wickett and Douglas E Yates were called for hearing at the same time as the instant matter, at which time it was agreed among the parties that the evidence and argument in the instant appeal should apply also in the appeals of the said five other members of the association in so far as relevant.

Dr White and Dr Yates are both surgeons who carry on an extensive general practice of medicine in addition to performing surgery. Dr Barr is a general practitioner with an extensive practice in the treatment of osteopathic and arthritic conditions. Dr Wickett is a general practitioner who on occasion serves as an anaesthetist if and when required to do so. Dr Foerster is a specialist in internal medicine as well as carrying on a general medical practice, and Dr Todd is a qualified anaesthesiologist whose services are available to all medical practitioners in Penticton and the surrounding area.

Under the provisions of an agreement of association in partnership, in which The R B White Clinic is referred to as “the association” and the seven partners as “the members”, each member is required to provide, at his own cost, a car of his own to be used for professional purposes and in respect of which no expense allowances will be made to the owner by the association. Instead, the association undertakes to pay ail of the operating expenses in respect of gas, oil servicing, repairs, tires, licences, insurance, etc, in respect of such cars used exclusively to provide professional services to patients of the Clinic. The association also undertook to pay other purely professional expenses, including the cost of a telephone at the residence of each member.

During the taxation year 1965 with which we are concerned, each doctor provided himself with a car for professional purposes as required by the agreement of association and, in addition, owned another car for private, personal use. On occasion the personal car might be used for professional purposes if the “professional” car was, for one reason or another, inoperative but no allowances were ever made by the association for such substituted use and no invoices or vouchers were ever tendered to the association by the members for payment in respect of operating expenses for any cars other than those on record as the “professional” cars of the participating doctors.

Pursuant to the terms of their agreement of association, the appellant and his associates have, for income tax purposes, claimed capital cost allowance on the entire undepreciated capital cost of their respective “professional” cars and no capital cost allowance or operating expenses whatsoever in respect of their personal cars. Nor have they claimed in their personal income tax returns any of the operating expenses of their “professional” cars, as these were assumed and paid by the association, although, naturally, their respective shares of the profits of the Clinic have been reduced proportionately by the amount of the total car expenses paid on their behalf by the association.

Under the terms of the agreement, ali receipts and emoluments from the professional practice of each member become the property of the association, and the association assumes ail the expenses of a member’s practice. The 1965 taxation year of the Clinic ended February 28 and the appellant’s share of the net income of the association for that fiscal year was 17.2%, while the remaining members each received approximately 13.8%.

In his return of income for the calendar year 1965, the appellant White sought to deduct $991.50 as capital cost allowance in respect of his “professional” car. In assessing the appellant on December 29, 1967 the Minister of National Revenue added to Dr White’s declared income the amount of $60.60 paid by the Clinic in respect of the full cost of a private telephone in the appellant’s residence and also a further amount of $591.59 made up of $366.86 (or 37%) of the capital cost allowance claimed by him on his “professional” car and $224.73 (or 37%) of the $607.39 paid on his behalf by the Clinic in respect of gas, oil, insurance and repairs for that car, the grounds for this action being that that proportion of the said expenses and of the capital cost allowance represented personal or living expenses of the appellant White and must therefore be taxed as part of his income for the year. This apportionment and disallowance of part of the car expenses and capital cost allowance claimed in respect of the appellant’s “professional” car was based on a formula established by the Minister’s assessors whereby only 63% of the moneys so expended were deemed to be related to income earned by the appellant from his professional practice, the other 37% allegedly representing the proportion of personal and private use made by the appellant of his “professional” car, a matter concerning which more will be said tater.

It is the contention of the Minister that automobile expenses to the extent of $224.73 and telephone expenses of $60.60 claimed as deductions in computing income from the partnership of which the appellant was a member were in respect of personal or living expenses within the meaning of paragraph (h) of subsection (1) of section 12 of the Income Tax Act and hence part of the appellant’s share of the income from the partnership; and, further, that for the purposes of paragraph (a) of subsection (1) of section 11 of the Income Tax Act and section 1100 of the Income Tax Regulations, the capital cost of the appellant’s automobile has been similarly apportioned in accordance with the provisions of paragraph (e) of subsection (6) of section 20 of the said Act.

The relevant enactments referred to by the Minister read as follows:

12. (1) In computing income, no deduction shall be made in respect of

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

11. (1) Notwithstanding paragraphs (a), (b) and (h) of subsection (1) of section 12, the following amounts may be deducted in computing the income of a taxpayer for a taxation year:

(a) such part of the capital cost to the taxpayer of property, or such amount in respect of the capital cost to the taxpayer of property, if any, as is allowed by regulation;

(It should be noted that the words which appear in italics in section paragraph 11(1 )(a) above are not italicized in the original text.)

The relevant portions of section 1100 of the Income Tax Regulations issued pursuant to paragraph 11(1)(a) above and paragraph 20(6)(e) of the Income Tax Act read as follows:

1100. (1) Under paragraph (a) of subsection (1) of section 11 of the Act, there is hereby allowed to a taxpayer, in computing his income from a business or property, as the case may be, deductions for each taxation year equal to

(a) such amounts as he may claim in respect of property of each of the

following classes in Schedule B not exceeding in respect of property

(x) of class 10, 30%,

of the amount remaining, if any, after deducting the amounts .. . from the undepreciated capital cost to him as of the end of the taxation year . . . of property of the class;

20. (6) For the purpose of this section and regulations made under paragraph (a) of subsection (1) of section 11, the following rules apply:

(e) where property has, since it was acquired by a taxpayer, been regularly used in part for the purpose of gaining or producing income therefrom or for the purpose of gaining or producing income from a business and in part for some other purpose, the taxpayer shall be deemed to have acquired, for the purpose of gaining or producing income, the proportion of the property that the use regularly made of the property for gaining or producing income is of the whole use regularly made of the property at a capital cost to him equal to the same proportion of the capital cost to him of the whole property . . .

In working out the various assessments of the income of the participating doctors practising at The R B White Clinic, the Minister of National Revenue started with the number of gallons of gasoline used by each appellant in his professional car and paid for by the association and, from that, after arbitrarily establishing a “miles per gallon” ratio for the particular type, year and make of car driven by each doctor as a “professional” car, calculated the number of miles that, in the opinion of the assessor, it was reasonable to assume had been travelled by each doctor in the year in his particular car. As a further basis for verifying their calculations, the Minister’s officials examined the case records of the various members of the Clinic to note the number of visits recorded, and then multiplied that total by an estimated mileage to and from each patient visited. By this method, a mileage of 9,660 miles was imputed to the appellant White in connection with his surgical and medical practice, the rate of gasoline consumption attributed to his particular car being 15 miles to the gallon.

This calculation rests on a purely hypothetical basis, and fails to take into account the fact that many of the short, interim visits made by the doctors to their patients were, for various reasons, not entered on the records due to the fact that in many cases this was not necessary where the doctors had set an all-inclusive fee for the treatment of a particular ailment or illness, which fee was not based on the precise number of visits made to the patient by the doctor. In such cases no record was maintained of the actual number of visits made.

Dr White, who graduated in medicine in 1936, has practised medicine since 1938 in the City of Penticton, BC. He carries on a very heavy general practice, including an extensive amount of surgery, in which he is a specialist. Dr White said that, in the year under review, his time was fairly evenly divided between surgery and general practice. Whereas the basic core of his practice was located in Penticton and its immediate environs, he also covered the surrounding area of Summerland, Naramata, Keremeos, Princeton and, on occasion, even as far south as Oliver. Therefore, although his basic practice was located within a radius of some 8 miles from his home, he was frequently called upon to cover by car an area with a radius of up to 70 miles from his home or from the Clinic. The appellant said that, while he did make house calls in some of the nearer communities, he was so busy at the Penticton Hospital and at the Clinic that he did not have too much time left now for routine house calls, although he performed surgery in the hospitals at the centres already mentioned, some of which, as can be seen, were fairly remote from Penticton.

During the year 1965 he attended a medical convention in Vancouver, a seminar in Spokane, Washington, and a meeting of the BC Cancer Institute, of which he is a director.

In his evidence, Dr White said that, in keeping with the terms of agreement between The R B White Clinic and its members, each member doctor had in fact provided his own automobile for use in his practice and, based on vouchers presented for payment by each doctor, the Clinic had paid all the operating expenses evidenced by these vouchers. Dr White testified that he owned his own car, which was used scrupulously for professional calls in connection with his medical and surgical practice. He also owned a second car which was used by his wife and family. The charges for gas, repairs and maintenance were meticulously kept separate for each car, to the point where he had his “professional” car serviced at one garage and the family car at another, each owned and operated by persons completely independent of the owner and operator of the other. The charges for the professional car were billed in the name of The R B White Clinic and invoices were sent directly to the Clinic for payment. As a further check, they were approved and initialled by the owner of the car serviced before being passed for payment by the Clinic. The charges for all family cars were made in the name of the owner or the owner’s wife, and were mailed to his home address to be paid by him personally. Dr White said that, to the best of his knowledge, the practice followed by him personally was also followed by each of his associates in the Clinic, the operating costs varying from doctor to doctor for a variety of reasons.

Dr White also testified that during the year in question herein he did not play golf, did not ski, and in fact was too busy to devote any time whatsoever to physical recreational pursuits. When on a rare occasion he and his wife did go out together socially, they usually took both cars, the appellant driving the professional car in which he kept his medical bag (so as to be always prepared for emergency calls), while his wife drove the second car in order to be sure of transportation home at the end of the evening.

In applying the mileage formula devised by them, the Minister’s officials have assumed that each doctor worked a total of 300 days a year. This hypothetical basis was completely repudiated by Dr White and his associates, and I must say that I am not prepared to accept it as an accurate measure of the activities of these several doctors at this busy clinic. It is by no means unreasonable to visualize these doctors as working well beyond 300 days a year and also as working both day and night when the circumstances demanded it. It was also in evidence that they took turns being on call 24 hours a day for each of the seven days of the week and, during their tours of “stand-by” duty, the expression “They also serve who only stand and wait” could very well be applied to them. Each doctor, in addition to having a telephone in his home where he could take calls and, in cases of emergency, give immediate instructions, or where his family could take calls which they could relay to him with as little delay as possible, also maintained a telephone answering service where calls might be received and relayed to the doctor if there was no one at home to take them.

A normal day for Dr White, according to his testimony, might call for him to be at the hospital by 7:45 a.m. for his first appointment and for him to remain there until 1:30 p.m., at which time he would proceed to his office at the Clinic for appointments extending possibly until 5:30 — provided he was not recalled to the hospital during the afternoon, a circumstance which would delay the completion of his normal working day. After his last appointment at the Clinic, before going home Dr White frequently made brief visits to his patients in the hospital to converse with them personally regarding their treatment and accommodation at the hospital or to reassure any of those upon whom he might be operating the following day. These visits all tended to build up the car mileage on Dr White’s “professional” car although many such visits would not appear on record at the Clinic due to the fact that many of these patients would be charged an “all- inclusive” surgical fee. As Dr White explained the situation:

I charge this patient from the time I see him beforehand till six weeks afterwards, and I am not entitled to charge more, but I will go up and see this man — I’ll see him tonight because I’m going to operate on him tomorrow. This doesn’t show as a visit to the hospital. I will see him tomorrow morning — I’ll see him twice again tomorrow — and this will not show as a hospital visit.

Dr White also referred to the large number of out-patients he is called upon to treat at the hospital during the summertime when Penticton becomes a mecca for tourists, who have no doctor of their own to summon to the emergency department of the hospital. He said that in a twenty-four hour period in the summer he might be called anywhere from fifteen to twenty times to the hospital and see three or four patients each time. At best the office records might show only a single trip to the hospital on behalf of any of the regular patients of the Clinic, the others being a matter between Dr White and the hospital.

Put succinctly, the appellant was not disposed to challenge too critically the 9,660 miles imputed to him by the Minister, but he contended that whatever cost was involved in travelling those 9,660 miles should be allowable in full as a deduction in computing his partnership income. If perchance there was a minimal personal use to be imputed to his “professional” car — which Dr White did not admit but firmly denied — then that minimal use, he argued, had been more than offset by the use of his personal or family car for business purposes when his “professional” car was inoperative. This was the crux of Dr White’s appeal.

As for the appeals of the other doctors, the actual mileages imputed to them were subject to challenge on the ground that they had been computed on an unsound basis, and it was argued that, regardless of the actual mileage covered by their professional cars, the total costs of operation should have been allowed as a deduction from their professional income in any event.

The second item of which the appellant White has complained concerns the addition to his income of an amount of $60.60 paid by the Clinic in respect of his home telephone. In assessing the appellant’s income, the Minister has added it to his declared income as a benefit by virtue of his connection with the Clinic, as a home telephone has been deemed to be a personal or living expense of each doctor even though paid for by the Clinic. This charge of $5.05 per month or $60.60 for the year was said to represent the charge for an ordinary residential telephone rather than the full amount for a business phone, which would appear to be what the Clinic actually paid for at each residence, although the evidence in this respect was not as clear as it might have been. This telephone served both the doctor and the members of his family at all times, although when it was used by the doctor it was used, generally speaking, in connection with his professional practice.

Over and above the installation of his house telephone, each of the associates at the Clinic also employed a telephone answering service, which was kept informed at all times of the whereabouts of any of the doctors when they were neither at home nor at the Clinic, and it would seem that the Clinic paid for this service.

Upon cross-examination, Dr White was asked if he had ever kept a mileage record for his “professional” car, and he replied that he never had, for the reason that, up until December 29, 1967, when the assessment now complained of was issued, his car operating charges had always been accepted and allowed in full by the respondent. It is, of course, recognized that the Minister is always free to reach a different conclusion on identical circumstances in separate taxation years if he feels justified in doing so.

The appellant White also admitted on cross-examination that during the taxation year in question he had driven in his “professional” car to his summer cottage at Christina Lake, a distance of 34 miles, had returned to Penticton on one occasion during his vacation to attend to an emergency call, and had then gone back to his cottage until the end of his vacation, when he had returned home again in his business car. However, during his stay at his summer cottage, he had driven the family car whenever he had gone anywhere else by automobile.

William Ashton Wickett, an associate of Dr White’s at The R B White Clinic and a general practitioner and anaesthetist, testified that, having heard Dr White’s evidence, he was prepared to corroborate it in so far as it applied also to his own practice. He said that, as his own practice was mostly medical, unlike Dr White he (Wickett) made a great many house calls during 1965 in the area surrounding Penticton and Naramata. Like Dr White, he too had his own “professional” car, a Chevrolet, which he had purchased in March of 1964. In addition he owned a second car which was used by his wife and children. As was the case with Dr White, when Dr Wickett’s “professional” car was laid up for repairs or was for any reason inoperative, he used the family car, for which use no charge was ever made to the Clinic.

On the basis formulated by the Minister’s officials and referred to earlier herein, the distance travelled by Dr Wickett for business purposes during 1965 was imputed to have been 14,871 miles. A servicing invoice from the dealer from whom he had purchased his “professional” car, which invoice was dated March 9, 1964, records a mileage of 808 miles at the date of sale and a further invoice dated March 24, 1964 shows a mileage of 1,024 miles. In other words, during the intervening 2-week period the appellant had driven 216 miles. A third invoice, of February 19, 1965, shows a mileage of 11,187 miles for the same car, while one of February 25, 1965 records a reading of 11,620 miles of driving up to that date.

The fiscal year-end of The R B White Clinic has already been stated to be February 28 each year. For the year ended February 28, 1965 the Minister has imputed 14,871 miles of driving to Dr Wickett, which would seem to demonstrate the fallacy of this method, as the repair invoice of February 25, which was issued just three days before the end of the fiscal year, accounted for a registered mileage of only 11,620 miles for this same car, which had been purchased as a new car at the beginning of March 1964. It seems obvious that if Dr Wickett had driven only 10,812 miles since he bought this car, it is very unlikely that he would have driven 4,000 miles in the last three days of the Clinic’s fiscal period!

On being recalled to the stand later for further direct examination, Dr Wickett stated that his practice of anaesthesia made it imperative that he attend at the hospital in Penticton every evening to make himself known to, and to examine if necessary, any patients who were to undergo surgery the following day at which he would be called upon to officiate as anaesthetist. The same situation prevailed in connection with the hospital at Summerland, where his services were also in regular demand. This, of course, was in addition to his attendances at one or other of the hospitals each morning in connection with scheduled surgery, attendances which, during the summer months, were said to reach five or six per day. Dr Wickett said he also made an average of two house calls a day in connection with his general practice between his morning and evening visits to the hospitals. Other professional activities which required the use of his “professional” car during the year were his attendances at two seminars on anaesthesia in Vancouver: he could not recall having attended any medical conventions during that fiscal year.

Dr Wickett testified that, as was the case with Dr White, he too had channelled the expenses of his second or family car through a different service garage from that used by him for his “professional” car, the latter being serviced by Grove Motors, whose accounts are forwarded to the Clinic for verification and payment rather than to Dr Wickett’s residence. Dr Wickett was quite positive in stating that his “professional” car was used during the 1965 taxation year exclusively for business. The family car was at the disposal of his wife and two of his children who were old enough to drive. The witness added that on many occasions he had used the family car in connection with his practice when his “professional” car was not available, but had never submitted any claim to the Clinic for any such use of the family car.

Dr Wickett said his fee for administering anaesthesia is a fixed fee in relation to the fee charged by the surgeon for the operation. For this reason no precise record is kept of the number of miles of travelling or the number of individual visits involved in providing those services. Similarly, when called out of town on consultation, no mileage was charged to the out-of-town doctor, the charge being restricted to a consultation fee.

The evidence given by Dr Wickett with respect to the payment by the Clinic of the monthly charge for his home telephone was the same as that given by Dr White.

Dr Wickett said that he believed that in the summer of the year in question, as in other years, he had spent ten days of his vacation on Vancouver Island and had travelled in his “professional” car — no doubt because it was the larger of his two cars and therefore more comfortable for a long trip. The car expenses for this trip, however, had been paid for by him out of his own pocket and no charge in connection therewith was either assumed or paid by the Clinic on his behalf.

Darryl Kemp Foerster, who also practises medicine as an associate of Dr White and was a member of The R B White Clinic during the taxation year 1965, was next heard as a witness. Dr Foerster described his practice as partly general practice and partly the practice of internal medicine. He testified that, having been present during Dr White’s testimony, he was prepared to corroborate all he had said in so far as it referred to Dr White’s practice and also as to the manner in which he carried on his own practice. Dr Foerster in that year owned two vehicles: the one which he referred to as his “professional” car and a station wagon which was used exclusively as a family car. He used two credit cards for the purchase of gasoline and oil and such commodities: one for the family station wagon, the bills for which were sent to him at his residence, while the other was used for his “professional” car and charges against this card were billed to and paid by the Clinic.

In the assessment of Dr Foerster’s income for the 1965 taxation year, the Minister has imputed a total mileage of 18,460 miles as the distance covered by that appellant in his “professional” car during the 1965 fiscal period of the Clinic. Dr Foerster stated firmly that his annual mileage had never exceeded 10,000 miles, the yearly total always being somewhere between 9,000 and 10,000. He added that the family car was so equipped mechanically that on many occasions when the weather was bad during the winter, he found it preferable to use it rather than his own professional car for making medical calls, but he had never charged any such mileage to the Clinic in view of the agreement that only the expenses of a member’s “professional” car would be assumed by the association. Consequently, any operating expenses of the station wagon had always been treated by him as personal family expenses.

Dr Foerster asserted that his “professional” car was used exclusively in his medical practice with the exception of one trip he had made in it to southern California, all the expenses of which were charged on the family car credit card in order that the bills would not be sent to the Clinic for payment. Although he was an ardent golfer, the station wagon, being the larger of the two cars, was always the one used for any golfing trips.

The mileage of 18,460 imputed to Dr Foerster’s “professional” car was based on total gas and oil payments made in connection therewith by the Clinic and totalling $470.70. The formula employed in assessing Dr Foerster allocated to his professional practice a mileage of 5,100 plus 678 miles in respect of a trip he had made to Seattle, Washington, to attend a meeting of the Washington State Heart Association, of which he is a member. By using the fraction of 5,778 over 18,460, the respondent’s officers concluded that only 31% of the mileage imputed to his “professional” car was in fact related to Dr Foerster’s professional practice, thus leaving 69% to be dealt with as personal or living expenses, and the assessment was computed on that basis. Dr Foerster said he regarded the imputed total mileage of 18,460 to be so wide of the mark as to defy any explanation on his part as to the reasonableness of the percentage finally imputed to the performance of his professional duties.

Wilfred Laurier Peaker, a chartered accountant by profession who has served as administrator and financial adviser to the members of The R B White Clinic since 1958, testified with regard to the mileage computation imputed to Dr Foerster for the year 1965. He asserted that, as a result of an examination of all the vouchers for oil and gas relating to Dr Foerster’s business car credit card, and totalling $407.70, he found that expenses of $203.71 were for gasoline and, on the basis of 50 cents per gallon, this amount represented the cost of approximately 406 gallons of gas. The Minister had fixed the gasoline consumption of Dr Foerster’s “professional” car at 20 miles to the gallon for assessment purposes and, on this basis, the gasoline purchased by him on his business credit card would have provided a total mileage of only 8,120 miles.

In commenting on the testimony of Dr White, to which he had listened attentively, Dr Foerster said that, in his opinion, Dr White carried a much heavier load than he (Foerster) did, the distinction being that, as a surgeon, he had to make many more visits to the hospitals than did an internist. Beyond this, Dr Foerster said he conducted his practice and his travelling in connection therewith in much the same manner as Drs White and Wickett, and argued that the full outlay by the Clinic in connection with business cars, and his own in particular, should be permitted as a deduction from any share of the partnership profits after taking into consideration all the circumstances which he had described.

Mr Peaker suggested that charges of $175 for tires that were included among the items paid for by the Clinic in respect of Dr Foerster’s “professional” car had perhaps inadvertently been included by the respondent’s officials among the gasoline charges when they were arriving at their computation of the mileage presumably covered by Dr Foerster during the year. However, even an error such as this would not have resulted in the extremely high mileage of 18,460 arrived at by the respondent’s officers.

In his testimony, Mr Peaker said that, during his association with the Clinic, he had consistently prepared the income tax returns of all the members of the Clinic, and that there had been no change in the basis of their claims for automobile expenses during the entire period that the conditions described above had prevailed. Prior to 1961, certain individual doctors had had only one car, and it had been necessary to make an allocation of car operating expenses as between personal! and business use of the doctors only car.

The accountant said that the Clinic and the hospital records did not, in general, record the precise movements of the doctors in the course of their professional practices, and were not designed to do so, being in fact intended only to serve as a basis for calculating charges to be billed to individual patients, to medical plans, or to social assistance agencies. Mr Peaker explained in detail the system used by the Clinic for recording services and visits, and confirmed the earlier evidence that not all house calls were recorded and that, in respect of hospital patients who had undergone surgery, provision was made for noting the all-inclusive fee feature, as a result of which the frequency of check-up visits to any particular hospital patient was not recorded, as it had no bearing on the fixed fee to be charged.

Mr Peaker put it concisely when he remarked that, while the Clinic has good and adequate records for arriving at charges for services rendered, they are not “good and adequate” for the purpose of determining with any degree of accuracy the day-to-day movements of an individual doctor by car. Nor do the Clinic’s records take note of non- chargeable house calls or of any hospital visits made more frequently than once a day. To put it another way, the Clinic cards record all the chargeable services rendered by the individual doctors but they do not record the distances travelled by a doctor or the number of visits he felt called upon to make in order to perform those services to his and the patient’s satisfaction.

Dr Douglas Everett Yates, a surgeon associated with the Clinic and living in Penticton, also gave evidence. He said that in the year under review he was carrying on a general practice in addition to surgery, having been a general practitioner since 1951 and having started to practise in Penticton in 1959. His practice, he said, was much the same as that of Dr White, being a combination of surgery and general practice, and he too was called upon from time to time to travel out- side the city of Penticton in the course of his practice. Dr Yates said he was on the consulting staff of the hospitals at Oliver and Summerland, BC. In that capacity he was frequently called to these hospitals for consultation in problem cases and emergencies, such calls occurring perhaps once a month. In addition, during the 1965 fiscal period, Dr Yates was not only a member of the Hospital Planning Staff and of the Hospital Board of the Penticton Hospital, but was also president of the Medical Staff and attended meetings of these bodies possibly once a week.

Being a member of the BC Medical Association, Dr Yates said he was required to make two trips to Vancouver during the year, the two trips involving in all approximately 1,000 miles of travel. This witness said that, in addition, he attended medical meetings at both Prince George and Kamloops, BC in the capacity of delegate of the Penticton Medical Association as well as being a member of the Provincial Medical Education Committee.

In his testimony, Dr Yates stated that, during the 1965 taxation period under consideration herein, he was extremely busy with his practice and made many house calls, for the most part within the city of Penticton. The only travelling he had done outside of this area, with the exception of the various medical association meetings just referred to, would have been in connection with consultation work at the hospitals at Oliver and Summerland as a result of telephone calls to his office or residence from a local resident doctor at one or other of these two centres.

Dr Yates outlined his daily routine of activities, which, in the main, was much the same as that outlined in detail by Dr White. He said he would be prepared to agree that he worked at his practice for between 320 and 330 days a year, after making allowance for his vacation “and a few Sundays off”.

Concerning the matter of transportation, Dr Yates said that, in keeping with the agreement of association between the members of the Clinic, he had what he referred to as his own “professional” car which he used exclusively in the day-to-day practice of his profession and the operation charges of which were handled through and paid for by the Clinic. In addition he had a family car for the use of his family and for going to the beach, and stated that whenever he went on weekend jaunts or vacations with his family the family car was always used because it was the bigger of the two. Naturally, when his professional car was undergoing servicing or repairs, he had used the family car in his practice, but no claims had ever been submitted to the Clinic in connection with any such use that might have been made of the second car. Two different garages were patronized for the servicing and maintenance of each of the two cars, the bills for the “professional” car being sent to the Clinic and the accounts covering the family car being addressed to Dr Yates at his home.

Dr Yates stated unequivocally that in his 1965 income tax return he made no claim for capital cost allowance in respect of his family car and claimed no part of the cost of its operation even though a small proportion of its use had been for professional purposes. However, he did contend that he should therefore be permitted to deduct capital cost allowance on the basis of 100% for his “professional” car since it had been used 100% to earn professional income and urged that no part of the amount paid on his behalf by the Clinic in respect of the operation and maintenance of the said “professional” car should be charged back to income as a personal or living expense. Dr Yates does not have a summer cottage and did not golf or ski during the year in question.

For the fiscal period of the Clinic ending in 1965, the Minister, basing his estimate on the gasoline consumption of Dr Yates’s “professional” car for the twelve months in question, estimated that the car had been driven a total of 11,300 miles, a figure which Dr Yates said he considered to be fairly reasonable. Of this imputed mileage of 11,300 miles, based on the formula already referred to, the Minister imputed 6,356 miles to distances travelled for business or professional purposes, which was calculated to represent 56% of the total mileage travelled, leaving 44% to be regarded as having been travelled for pleasure or for personal convenience and therefore to be regarded as a personal or living expense. Of the gas, oil and repair payments made by the Clinic on Dr Yates’s behalf and totalling $562.18, 44%, or $247.36, was therefore added back to Dr Yates’s taxable income and 44% of the $489.53 claimed by him as capital cost allowance on his “professional” car (or $215.39) was disallowed as a deduction and also added to income to be taxed.

Although Dr Yates did not object to the total mileage of 11,300 attributed to him, he objected to the apportionment of only 6,356 miles to driving for business purposes and arrived at by attributing 5,100 miles to answering day-to-day medical and hospital calls plus 966 miles to and from Prince George and 290 miles to and from Kamloops, but not including the additional 2,000 miles he had travelled on his two trips to Vancouver. Dr Yates declared this apportionment to be wholly inadequate in the circumstances, as any personal use he might have made of his “professional’ car was minimal, at the most, and the total mileage to be attributed should have been much greater than the figure adopted by the Minister’s officials as the basis of the assessment. In fact he saw no reason why the entire mileage registered on his “professional” car, or at least the entire operational cost of that car for the year, should not be deemed to have been travelled or expended for purely professional purposes. The formula used by the respondent took account of 14 house calls made in the month of March, which was taken as a typical month and projected for a twelve-month period. This, the doctor said, was completely unreasonable as, like every doctor, he makes numerous calls which are considered necessary but for which no office record is kept if it is not necessary to do so in order to arrive at the fee to be charged.

As in the case of Dr White and his other colleagues, Dr Yates has a single line telephone in his home with two instruments for which the telephone company charges a business rate. This phone is used by the doctor in connection with his practice and also by his family in general. It is also serviced by the answering service subscribed to by all the members of the Clinic to relay calls to them when they are neither at home nor at the Clinic.

Dr Hugh Price Barr was also heard as a witness. He testified that he was a member of The R B White Clinic and had practised medicine in the city of Penticton as a general practitioner since 1943, although he had also performed tonsillectomy operations to a somewhat limited degree. His time was taken up in house calls, attending patients in hospital, and interviewing patients in his office at the Clinic. During the year 1965 he made no out-of-town calls.

As in the case of the other members of the Clinic, he owned two motorcars, one being used exclusively in connection with his professional practice and the other being restricted to general family use. During the year 1965, Dr Barr said, he also owned a third car, a Landrover, a four-wheel-drive vehicle which he used in conjunction with his orchard and in connection with his professional practice when winter weather made driving difficult for a standard car. When his “professional” car was laid up for servicing or repair, Dr Barr used his Landrover. For such use no charge was ever made to the Clinic for operating the Landrover.

Dr Barr said he did not play golf, ski or curl. Nor did he have a Summer home. For a change of pace, he operated an orchard which was planted on part of the grounds of his home, which was situated just beyond the city limits on what is known as the “East Bench”. From his home to the Clinic was a distance of one and a half miles, which is also the distance from the Clinic to the hospital.

Dr Barr said that during the year 1965 he attended two medical conventions or seminars in Vancouver and, in addition, attended a medical meeting at Kamloops. Except for these trips, Dr Barr did not take any vacation trips during the year. A total mileage of 9,820 for the year 1965 was imputed to this witness by the Minister in the manner already outlined.

This witness said he had listened to the testimony of Drs White, Wickett, Yates and Foerster, as well as that of Mr Peaker, and he was in complete agreement therewith in so far as the mode of conducting his practice of medicine was concerned and the procedure followed at the Clinic in recording and regulating it, the only difference between 1965 and the present being that now he no longer performs any surgery, although he does have patients in the hospital.

The evidence of this witness with respect to the telephone charges was identical to that of the earlier witnesses except that, as he resides just beyond the city limits, the yearly charge for a residential telephone was $64.80.

In the case of Dr Barr, the total outlay by the Clinic in respect of his “professional” car for the fiscal period ended February 28, 1965 was $767.04. Of this amount, the Minister regarded 35% thereof, or $268.46, as a personal or living expense which was added back to the appellant’s taxable income. The Minister also added the full charge of $64.80 for home telephone service to Dr Barr’s declared income on the basis that it too was a personal or living expense whose payment by the Clinic constituted a taxable benefit to Dr Barr. The proportion of 35% having been allocated by the Minister’s officials to the use made by the appellant of his “professional” car for personal driving, the same 35% proportion of the capital cost allowance of $861.33 claimed thereon was disallowed as a deduction and also added back to the income to be taxed, these percentages of 35% personal or living expense and 65% business expense having been arrived at in the manner already described when speaking of the assessments of his fellow doctors. Dr Barr contends very strongly that, on the basis of the evidence adduced herein, which, it was agreed, would apply to all six appeals, he should be permitted to deduct in full the expenses paid by the Clinic for the maintenance and operation of his “professional” car, that the deduction for capital cost allowance thereon should be granted in full on the basis of 100% use of the said car for professional purposes, and that none of the cost of the residential telephone paid for by the Clinic should be taxed in his hands as a benefit in payment of a personal or living expense, as it was essential to the maintenance of proper communication with his patients and his fellow medical practitioners.

Dr Todd did not appear when his appeal was called for hearing as he has left British Columbia and taken up residence in California. However, Dr White, who was called as a witness on behalf of the absentee, stated that during the 1965 fiscal period of the Clinic the said Dr Thomas N F Todd had been an associate of his and a member of the association known as The R B White Clinic. The appellant White stated that Dr Todd had been a specialist in anaesthesiology and, during the fiscal year in question, had, to the best of Dr White’s knowledge, spent the bulk of his time administering anaesthetics to surgical patients. To that end it had been necessary for him to interview patients in hospital some time during the day prior to that on which they were to undergo surgery, as well as to attend at the hospital during the operations, which were usually scheduled for the morning hours, to administer the required anaesthetic and to monitor the patient’s heartbeats and respiration while under anaesthesia. Over and above such required attendances, Dr Todd was compelled to hold himself available over a 24-hour daily period, whenever his turn came up for such duty, in readiness for any emergency procedures which might require his specialized services.

In addition to being a practising anaesthesiologist, Dr Todd made general medical examinations of applicants for insurance policies, a duty for which he was retained by certain insurance companies. Over and above these demands on his time, Dr Todd was also called upon to attend to any emergency postoperative problems that arose in his general field of activity. He administered anaesthetics not only at the hospital in Penticton but also at the hospitals at Summerland and Oliver, his services as a specialist in anaesthesia being available to other surgeons in Penticton and environs besides those who were his associates at the Clinic. Dr White said it was his impression that Dr Todd made no house calls.

It was in evidence that Dr Todd had two cars, one of which he used in connection with his professional practice and the other being restricted to use as the family car.

Charles Kingsley Boyd, an assessor in the Penticton District Taxation Office for 3 /2 years as of the date of the hearing, said in evidence that he had prepared the assessments dated December 29, 1967 now under appeal by the appellant White and five of his associates, and said that, in so preparing them, he had examined the books of record of The R B White Clinic to confirm payments allegedly made to individual doctors in respect of their business cars. After taking note of the type of car driven by each doctor as a “professional” car and of the payments claimed for gasoline for each such car, Mr Boyd then spoke to various local car dealers as to the reasonable gas mileage to be expected from each car. The estimated yearly mileage travelled by each car was then arrived at on the basis of the total number of gallons of gasoline consumed in the year, based on an average cost for the period in question of 51 cents per gallon.

Having determined the distance between the Clinic and the Penticton Hospital, he then estimated the average daily mileage which would have to be covered by each doctor between the Clinic and the hospital and also the mileage for all house calls recorded in the books of the Clinic for the month of March 1964. For comparison purposes, further examinations were made of the records for June and November by an associate assessment officer, and estimated averages were incorporated into the Schedule of Calculations prepared for assessment purposes and filed as Exhibit R-3. The assessors took the view that the initial distances travelled by each doctor each day from his home to the Clinic or hospital, whichever was visited first, and the last distance travelled between his last business appointment of the day and his home, plus any trips home for meals, etc, did not constitute driving done for business purposes but represented personal driving to and from their homes to their place of business, in much the same way as such driving is the non-deductible personal expense of a salaried employee or executive of a commercial enterprise. Calculation of the yearly business driving mileage of each doctor was based on two hospital to clinic return trips daily for each doctor and two house calls averaging 5 /2 miles to go and return, for a total of 11 miles a day for house calls. These calculations were then extended on the basis of having been repeated approximately 25 times a month for a total of 300 days per year, although the mileage attributed to each doctor varied somewhat after certain upward or downward revisions had been made according to their comparative workloads.

The appeals of Dr Barr and Dr Todd also concerned items with regard to farm losses claimed by them in connection with their respective orchard operations and disallowed by the Minister as personal or living expense. Dr Barr reported having suffered losses from 1959 to 1965, claiming a loss of $3,178 for 1965 of which $885.43 was dis- allowed on the ground that it represented a number of items of expenditure for personal or living expenses for the upkeep and maintenance of his private residence rather than for earning income from the orchard operations. Dr Todd, who had only owned his orchard for some three years, had reported a loss in all years, claiming for 1965 a loss of $2,939.67, including 50% of the cost of operation and capital cost allowance on one of his cars and 25% of the repairs and depreciation on the residence occupied by him on his orchard property. The Minister disallowed $2,416.40 of the total loss claimed, on the ground that it was expended to maintain the appellant’s property rather than to earn income from the orchard and therefore represented a personal or living expense which was not permissible as a deduction.

Mr Boyd said the proposed assessment of the orchard income of Drs Barr and Todd was discussed with Mr Peaker before being issued, and the latter at that time made no objection to the proposed disallowance of farm losses, after having been informed that it was the intention of the revenue officials to disallow 100% of any amounts claimed for car expenses, insurance on houses, electricity, interest on purchased property, and repairs and capital cost allowances on the home residences, as well as 75% of the taxes paid on the properties. In Dr Todd’s case it was finally decided to allow 25% of the interest on the purchased property. However, after Dr Todd filed a notice of objection to this assessment on March 28, 1968 he received a notification from the Minister in which the entire amount of $2,939.67 claimed by him as a loss on his orchard operation was disallowed as a personal or living expense.

In the case of Dr Barr, his entire claim in respect of electricity ($142.06) was disallowed as not being required for the operation of the orchard, as was interest on the purchase of the property, of which Dr Barr had claimed 25% as a business expense, and repairs and capital cost allowance on the residence itself, of which he had also claimed 25%, although wages of $1,524 were allowed as a business expense plus other items including custom work in the amount of $1,151.42 and capital cost allowance on various pieces of equipment such as his Landrover, a tractor, a trailer, a shed and a number of sprinklers, the said capital cost allowance totalling in all $868.52. Dr Barr had earned income of $2,928.37 from his orchard, largely from the sale of fruit to various cooperatives in the district. In contrast, any income earned by Dr Todd from the sale of fruit in 1965 was practically non-existent, due to intensive frost damage to his crop.

The amounts permitted to Dr Barr as deductions were so allowed on the assumption that Dr Barr was engaged in farming, while disallowances were made on the ground that, even though farming, he was not farming with a reasonable expectation of profit, and therefore any expenses wholly attributable to the maintenance of his residence on the property were to be treated as personal or living expenses.

The question of the extent to which automobile or travelling expenses may be deducted from income by a medical doctor has engaged the attention of the courts in both Canada and Great Britain for some time now. For many years, decisions as to the deductibility of such expenses depended upon the application of the principle established in such well-known cases as Ricketts v Colquhoun, [1926] AC 1; Mahaffy v MNR, [1946] SCR 450; [1946] CTC 145; and Herman Luks v MNR, [1959] Ex CR 45; [1958] CTC 345, which were reviewed and considered in the case of Dr Ronald K Cumming v MNR, [1968] 1 Ex CR 425; [1967] CTC 462. In each of those cases, particular statutory provisions relating to the computation of income from an office or employment were under consideration. As it was held in the Cumming case that the appellant was a practising physician specializing in anaesthesiology, the three cases cited above were held to have no application, and indeed none of them was relied on as governing.

In the present matter, it was agreed that the practice of each member of The R B White Clinic was a “business” within the meaning of that expression as defined in paragraph (e) of subsection (1) of section 139 of the Income Tax Act, viz:

139. (1) In this Act

(e) “business” includes a profession, calling, trade or undertaking of any kind whatsoever and includes an adventure or concern in the nature of trade but does not include an office or employment.

Therefore, by analogy, the cases dealing with automobile expenses of persons holding an office or employment have no more application to the circumstances of the members of the Penticton Clinic than they had to the practice of Dr R K Cumming.

The English case of Pook v Owen, [1967] 2 All ER 579, was considered to have arisen under the same statutory provisions as Ricketts v Colquhoun (supra), and was therefore considered to be inapplicable in the Cumming case (supra) and I therefore find it equally inapplicable herein. The Pook case eventually reached the House of Lords in March of 1969 ([1969] 2 WLR 775 (HL); 45 TC 571), where it was established that the respondent Owen’s duties commenced at the moment he was first contacted by hospital authorities, and that thereafter his travelling expenses to and from the hospital or to and from an emergency were (within the meaning of the British Act) “wholly, exclusively and necessarily incurred or expended” for the purposes of his profession.

In our own courts, the question of automobile expenses was once more taken under consideration in the case of MNR v E Ross Henry, [1969] 2 Ex CR 459; [1969] CTC 600, where Sheppard, DJ, in dealing with this appeal taken to the Exchequer Court of Canada by the Minister from a decision of the Tax Appeal Board ([1969] Tax ABC 208), distinguished the decision of the House of Lords in Owen v Pook (supra) on the ground that Dr Owen had been held to have had two bases of Operation, namely, the hospital and also his home. Lord Guest ([1969] 2 WLR 775 at 782; 45 TC 571 at 590) found that there were two places where Dr Owen’s duties might be said to be performed, namely, at the hospital and at the telephone in his consulting room, and held that the travelling expenses claimed were, in his view, necessarily incurred in the performance of Owen’s duties as a doctor. Lord Wilberforce, at pp 787 and 595, respectively, reached the same conclusion.

A more recent case touching on the same problem is that of Samuel Mirsky v MNR, [1970] Tax ABC 396, heard early in the year 1970 by R S W Fordham, Esquire, QC, Acting Chairman of the Tax Appeal Board. This situation was slightly different factually from the jurisprudence just referred to. Dr Mirsky, a prominent and busy medical practitioner in the city of Ottawa, had appealed against the disallowance of a substantial proportion of his claim for automobile expenses incurred in respect of his medical practice. In that case, as in the instant matter, the taxpayer owned two cars, one of which was said to be used exclusively in connection with his medical practice, while the other was a family car used by other members of the family for personal needs.

In a careful consideration of the facts adduced in the Mirsky case (supra), Mr Fordham reached the conclusion that 90% of the car expenses in question and of the capital cost allowance claimed in respect of the business automobile should be treated as deductible from Dr Mirsky’s taxable income for the year in question. In so doing, Mr Fordham referred particularly to the observations of Lord Guest in the Owen v Pook case before the House of Lords with respect to the locations at which Dr Owen’s professional duties originated, and referred to that judgment as illustrating the present thinking of the courts with regard to travelling expenses of professional persons.

After a full consideration of all the evidence heard in respect of the operations of The R B White Clinic, I have concluded that Dr White and his associates exercised every possible control and supervision over the operation of their professional cars and were scrupulous beyond question in seeing to it that the use of their professional cars was limited to the requirements and duties of their respective practices. In fact, the evidence has satisfied me that Dr White and his associates were much too busy with their medical, and in some cases surgical, practices to have found much time for any degree of social activity.

Bearing in mind the reasoning of my Tax Appeal Board colleague R S W Fordham, Esquire, QC, in the Mirsky case, I have decided that no more than 10% of the operating expenses and of the capital cost allowances claimed by this appellant and his associates should be attributed to personal driving and treated as a personal or living expense. This apportionment is in keeping with that fixed in No 478 v MNR, 18 Tax ABC 222. The other 90% of the respective operating expenses and capital cost allowances in issue herein should be treated as deductible business expenses in computing the taxable income of the respective taxpayers from their profession for the year in question.

As to the amount paid by the Clinic to cover the cost of a private telephone in each of the doctors’ residences, this being the amount that has been added to the income of each doctor as a benefit of his membership in the association, I feel that, all things considered, the

appellant and his associates should be taxed on only one-half of this expense which, in the case of the appellant White, had been assessed at $60.60 for the year.

In the circumstances, the appeal is allowed in part to the extent indicated, and the matter is referred back to the Minister for reassessment accordingly.

Appeal allowed in part.