Frank S Ozvegy v. Minister of National Revenue, [1978] CTC 3043, [1978] DTC 1772

Guy Tremblay:—This case was heard in Halifax, Nova Scotia, on June 12, 1978.

1. The Point at Issue

The point at issue is whether the respondent is justified in disallowing the deduction of $1,919.69 as an expense incurred by the appellant, a medical doctor in radiology, during the 1975 taxation year. The appellant maintains that the cost of renting an apartment and the added burden of proving meals two days a week ought to be considered personal or living expenses.

2. Burden of Proof

The burden is on the appellant to show that the respondent’s assessment is incorrect. This burden of proof results not from any provision of the Income Tax Act, but from several judicial decisions, including the judgment delivered by the Supreme Court of Canada in R W S Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

3. The Facts

3.1 During the taxation year 1975 the appellant was a resident of Yarmouth, Nova Scotia.

3.2 The appellant came to western Nova Scotia in 1961. At that time all hospitals in western Nova Scotia were being serviced from Halifax. In 1961 the appellant moved to Yarmouth, Nova Scotia. Since that time he has supplied services to hospitals in Yarmouth, Shelburne, Annapolis and Digby.

3.3 In Nova Scotia, radiological services are paid for by the Nova Scotia Hospital Insurance Commission. Remuneration is based on T & R Factors. The R Factor is the professional component of the fee. To provide a secure base, since 1961 and the following years, the appellant was paid a salary by Yarmouth General Hospital. However, his annual income is the total receipts for R Factors if they exceed the agreed salary, which accounts for the unusual salary in 1975 of $57,041.70. All other locations pay on a fee-for-service basis based on R Factors.

3.4 The appellant also rendered services as a radiologist to the Roseway Hospital in Shelburne, Nova Scotia, for which services he received remuneration upon a fee-for-service basis.

3.5 Roseway Hospital had, in their X-Ray Department, two X-Ray machines, three qualified technicians and one secretary. The Department was open daily and provided a service to a very large geographical area. In cases of emergency, accident, injury, internal bleeding and other similar situations the films were sent by bus or taxi to Yarmouth for interpretation. On receipt they were read by the appellant and the result was immediately transmitted to Roseway Hospital by telephone. Subsequently the report was typed and the written report and film were returned to Roseway Hospital. During his visits to Roseway, the appellant saw cases requiring a physician’s services. Due to the limitation of equipment some patients had to be referred to Yarmouth for service, eg tomograms.

3.6 In his 1975 income tax return the appellant declared, from the source of fee-for-service basis, an income of $14,113.32 (90% from Roseway Hospital and 10% from Yarmouth Hospital). Against that revenue he claimed $6,754.43 in expenses. Of those expenses, some were refused by the respondent:

3.7 Following the notice of reassessment dated August 30, 1977, disallowing those expenses the appellant filed a notice of objection. The expenses concerning the car and the accountant were accepted, but the disallowance of the deduction of $1,919.69 was maintained according to a new notice of reassessment dated January 28, 1978. An appeal was lodged on April 13, 1978. In the present appeal, the quantum is not in dispute.

3.8 Concerning the travel expenses the appellant explained that he had to go to Shelburne two and one half days every week. In lieu of living in a motel, he rented an apartment in Shelburne for the reasons stated hereafter.

3.9 In August of 1974 the appellant had a heart attack. This had two consequences relevant to the present case: (1) he had to follow a diet, and (2) he needed a chauffeur for long distance travel by auto. 3.10 The distance from Yarmouth to Shelburne is 158 miles. The road is difficult to navigate, especially during the winter months. -It runs parallel to the ocean for many miles. As he had to drive to Shelburne twice a week, the appellant was fortunate in having his wife provide chauffeur services.

3.11 As the appellant had to follow a special diet and it was not possible to have that service in a motel or hotel, his wife, knowing what he needed, prepared everything when he was in Yarmouth, and she was the designated person to provide this similar service in Shelburne.

3.12 For these reasons the appellant decided to rent an apartment in Shelburne in the area of Roseway Hospital. He had to buy some furniture for the apartment.

3.13 The appellant proved it was less expensive to rent an apartment, including food and furniture, and live there than to rent a room in a hotel two days a week and have meals in restaurants.

4. Law—Jurisprudence—Comments

4.1 Law

Paragraphs (a) and (h) of subsection 1 of section 18 of the Income Tax Act, SC 1970-71-72, c 63, as amended, are the main sections involved and read as follows:

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

(a) General limitation—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;

(h) Personal or living expenses—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.

4.2 Jurisprudence

The parties cited the following jurisprudence: Hyman Waserman v MNR, [1969] Tax ABC 599; 69 DTC 432; James Sim v MNR, [1966] CTC 383; 66 DTC 5276; Reginald Hibbert Boardman v MNR, [1977] CTC 2293; 77 DTC 200; Keith R Jenson v MNR, [1977] CTC 2121; 77 DTC 107; Robert M Randall v MNR, [1967] CTC 236; 67 DTC 5151; Sidney K Moorhead v MNR, 25 Tax ABC 428; 61 DTC 47; Thomas J Mullaney v MNR, [1968] Tax ABC 444; 68 DTC 376.

4.3 Comments

According to the evidence, all the trips made to Shelburne by the appellant were made because of the work he had to do at the Roseway Hospital (see paragraphs 3.8 to 3.13 of the Facts). For that work, he was remunerated upon a fee-for-service basis (see paragraph 3.4 of the Facts).

During those visits to Shelburne, if the appellant had lived in a hotel, all the expenses (room and meals) would have been deductible in the same manner as automobile expenses. Those expenses in fact are made for the purpose of gaining income.

Does the renting of that apartment and buying of food for the reasons given in evidence (see paragraphs 3.9 to 3.11 of the Facts) in lieu of living and eating in a hotel change the nature of the expense? Does it change the fact that basically the expense is incurred for the purpose of gaining income?

In the opinion of the Board the answer is “no”, and as the Board also is of the opinion that the amount of expenses claimed ($1,919.69) is not higher than the amount which should have been made if the appellant had lived in a hotel (on the contrary it is less expensive— see paragraph 3.13 of the Facts) the Board allows the appeal.

5. Conclusion

The appeal is allowed and the matter is referred back to the respondent for reassessment in accordance with the above Reasons for Judgment.

Appeal allowed.