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Citation: 2004TCC306
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Date: 20040427
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Docket: 2003-3520(IT)I
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BETWEEN:
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RONALD JOSEPH LAVIGNE,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Angers, J.
[1] This is an appeal under the
informal procedure regarding the appellant's 1999 and 2000
taxation years. By assessment dated May 9, 2002, the
Minister of National Revenue (Minister), disallowed
workspace in home expenses for the 2000 taxation year. These
expenses represent 18.2% of the appellant's home expenses and
have been carried forward from previous years. The amount claimed
is $7,487.60. The Minister also disallowed additional cash wages
claimed by the appellant for both taxation years. On that last
issue, the parties have agreed that an additional deduction of
$525.00 for wage expenses for the 1999 taxation year be allowed
and none be allowed for the 2000 taxation year. The only
outstanding issue is whether the appellant is entitled to claim
workspace in home expenses in the amount of $7,487.60 for the
2000 taxation year.
[2] From 1995 to June 2000, the
appellant operated a sole proprietorship called "Little
Chapel Enterprises" that sold Christian supplies. The
business was conducted in a separate building next to his
residence, which measured approximately
16 x 24 feet. The appellant also set up a home
office in his basement, which measured
11.5 x 18.5 feet. The entire house had a surface
of 1,440 square feet. The home office was used for administrative
and business purposes. It had enough room to sit four and was
equipped with a computer, photocopier, desks, a press engraving
table and filing cabinets. It also had a magazine rack, a place
to browse through catalogues and a CD player for listening to
choral demos. The home space area was open to the public since
the store was not big enough; the washroom facilities in the home
were also accessible. The home office also carried a complete
line of gifts and music as well as cards and books, and the
Internet was also made available to place orders. At times,
clients would pick up their orders at their residence.
[3] Clients could access the home
office from the store side or the front door. They were allowed
to use the photocopier at no charge. The engraving was done in
the home office about of 10 to 15 times per month. They also used
the home office about 10 times a year to meet with families
to make funeral arrangements and to provide materials for such
occasions. The home office was also used to meet some of the
sales representatives who required more privacy and wanted to use
the Internet. Finally, the percentage of 18.2% used by the
appellant included the common areas and the washroom
facilities.
[4] In a letter dated January 10,
2002, and addressed to the respondent, the appellant listed some
examples of the use he has made of his home space. It reads:
- Bible engraving
machine situated in basement office. Customers waited in the
office while their bibles were being engraved.
- Courier service -
the courier delivery was between 8 & 9 a.m. and since the
store didn't open until 11 a.m. all deliveries were made to
the office.
- All orders to be
returned were packaged in the office and picked up by the courier
there.
- All of the
inventory pricing was done in the office by the staff before
taking it to be displayed in the store.
- Catalogues for
Church viewing were located in the office and the Church members
came to the office to sit and view the book order catalogues.
- Music demo packs
for contata (sic) ordering could be heard on the CD player in the
office. The store only had a cassette player.
- Internet access
for product searches was only available in the office. The
customer came there to view these sites.
- Sales
representatives visited (always after hours) the office for
product review and sales. The computer and Internet access were
needed to view the sales rep's order form and to see the
product. Approximately 6 sales rep's visited our office every
3 to 6 months.
- Sales staff worked
in the office doing various book work, filing, creating gift
certificates, etc. The customers frequently came to the office
after hours to pick up gift certificates, orders and engraved
bibles.
- Office items
consisted of computer, desk and hutch, computer table, fax,
telephone, photo copier, printing press and 2 file cabinets.
Please note that the computer had also been in the basement
office until the desk and hutch was bought. Because there was
insufficient space in the office, the desk and hutch, along with
the computer, had to be moved up into the taxpayer's dining
room where it was used there.
- Fax and photo
copier services were available to the public. The customers came
to the office to have these services done.
- Customers and
staff used the restroom facilities in the home.
- Cheques or
payments were received at the office after store hours.
[5] In order to deduct workspace in
home expenses, the appellant must meet the requirements of
subsection 18(12) of the Income Tax Act (Act),
which reads as follows:
18(12) Work space in home - Notwithstanding any
other provision of this Act, in computing an individual's
income from a business for a taxation year,
(a) no amount
shall be deducted in respect of an otherwise deductible amount
for any part (in this subsection referred to as the "work space")
of a self-contained domestic establishment in which the
individual resides, except to the extent that the work space is
either
(i) the
individual's principal place of business, or
(ii) used
exclusively for the purpose of earning income from business and
used on a regular and continuous basis for meeting clients,
customers or patients of the individual in respect of the
business;
(b) where the
conditions set out in subparagraph (a)(i) or (ii) are met,
the amount for the work space that is deductible in computing the
individual's income for the year from the business shall not
exceed the individual's income for the year from the
business, computed without reference to the amount and sections
34.1 and 34.2; and
(c) any
amount not deductible by reason only of paragraph (b) in
computing the individual's income from the business for the
immediately preceding taxation year shall be deemed to be an
amount otherwise deductible that, subject to paragraphs
(a) and (b), may be deducted for the year for the
work space in respect of the business.
[6] The appellant conceded at the
hearing that his home office is not his principal place of
business. He relies on subparagraph 18(12)(a)(ii) and
submits that the requirements of that subparagraph are met on the
basis of the evidence.
[7] It seems, from the evidence, that
the home office became an extension of the main building in
operating the appellant's business. Its use was necessary
because of the limited space in the main building. The space it
occupied in the appellant's home, as per the layout produced
in evidence, was used exclusively to earn business income, with
the exception of the common areas and the washroom. The equipment
used and its availability to the business' clients made it an
ongoing and exclusive business activity for the purpose of
earning income.
[8] Due to the nature of the
appellant's business, the home office space was available to
its clients on a regular and continuous basis. It was open at the
same time as the main building and clients could access the home
office to shop, use the photocopier, search for material on the
Internet, listen to music demos and wait for their bible to be
engraved. It was also used to meet families to arrange funeral
services and to meet salespeople as was needed. It was open to
the public on a regular basis. The nature of the business
conducted in the home office was regular and continuous and
clients had access to the space at all times.
[9] On the basis of the evidence, I
therefore find that the appellant has met the requirements of
subparagraph 18(12)(a)(ii) in that the home space was
used exclusively for the purpose of earning income and was used
on a regular and continuous basis for meeting clients and
customers. I would allow only a percentage of 14.77 instead of
the percentage of 18.2 used by the appellant since the space
included the common areas and the washroom.
[9] The appeals for both taxation
years are allowed and the assessments are referred back to the
Minister for reconsideration and reassessment on that basis.
Signed at Ottawa, Canada, this 27th day of April 2004.
Angers, J.
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