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Citation: 2003TCC64
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Date: 20030225
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Docket: 2002-3461(IT)I
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BETWEEN:
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BRIAN DEVEAU,
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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.T.C.C.
[1] Brian Deveau is
appealing an assessment for both his 1998 and 1999 taxation
years. In reassessing the appellant for 1998, the Minister of
National Revenue (the "Minister") reallocated the
Appellant's employment income to business income and allowed
$3,644.32 of the $12,688.59 expenses claimed. In the 1999
reassessment, the Appellant's employment income was
reallocated to business income and $2,675.32 of the $23,475.32
business expenses claimed was allowed. The amounts of the
disallowed expenses are not in issue. The issue is whether the
Appellant is entitled to claim these expenses as legitimate
business expenses rather than as personal expenses.
[2] In the 1998
taxation year, the Appellant claimed $7,327.27 for automobile
expenses, $217.00 for travel expenses and $1,500 for
accommodations. In the 1999 taxation year, the Appellant claimed
$10,988.27 for automobile expenses and $9,811.73 for travel
expenses. Is the Appellant entitled to claim these expenses? The
Minister relied on the following assumptions of fact, which were
admitted or denied by the Appellant as indicated:
(b) at all relevant times the Appellant
had a contract (the "Contract") with Gosine Sulley
& Associates to provide computer services to NBTel in Saint
John, New Brunswick; (denied)
(c) at all relevant times the Appellant
was carrying on a business of providing computer services;
(admitted)
(d) at all relevant times the
Appellant's home was in Moncton, New Brunswick;
(admitted)
(e) the Contract specified that an
office was to be made available to the Appellant at NBTel's
premises in Saint John; (admitted)
(f) the Contract specified that
all supplies and services, including secretarial services,
required to perform the services under the Contract would be
supplied to the Appellant by NBTel; (admitted)
(g) the Contract did not require the
Appellant to maintain an office in his home in Moncton;
(denied)
(h) the Appellant maintained an office
in his home in Moncton; (admitted)
(i) the Appellant was required
under the terms of the Contract to provide the services at
NBTel's premises on all business days for 7 1/2 hours per
day; (denied)
(j) the Contract required the
Appellant to be responsible for all living and travel expenses
associated with the performance of the Contract in the city of
Saint John, but any reasonable travel expenses incurred in
connection with the performance of the Appellant's services
outside the Saint John area would be reimbursed by NBTel;
(admitted)
(k) the expenses disallowed were all in
relation to the expenses the Appellant incurred in travelling
back and forth from his home in Moncton to NBTel's office in
Saint John, as well as his living accommodations while in
Saint John; (denied)
(l) the expenses noted in
subparagraph 11(k) above were personal expenses of the Appellant;
(denied)
[3] The Appellant
began working as an employee in the computer industry in 1996. In
1998, he was approached by a group of consulting firms to do
contract work, and he eventually accepted their proposal and left
his employment. Before doing so, he inquired of an accountant and
C.C.R.A. officials what were the tax consequences of going into
business on his own. He was given a small business guide and told
that the expenses of running a motor vehicle to earn business
income were deductible (Exhibit A-1).
[4] At his home in
Moncton, New Brunswick, he converted a bedroom into an office and
operated from there. His first contract in 1998 was for NBTel.
The contract was with Gosine Sulley & Associates, which acted
as an intermediary. The contract (Tab 4 Exhibit R-1) stipulated
that the Appellant's services were to be provided at the
client's premises on all business days for 7 1/2 hours per
day. The client's premises are located in Saint John, New
Brunswick. Although the contract was not amended, the Appellant
testified that he was not required to be there on a daily basis
and that he sometimes spent a "full week" working for
the client out of his home. That assertion was corroborated by a
letter dated September 9, 2001, from Shelley Bartlett
of Xwave Solutions Inc., (Exhibit A-2) an affiliate of
NBTel. The Appellant further added that his services were
required on an "as needed basis" so the 7 1/2 hours
stipulated in the contract was only a control mechanism for NBTel
in order not to go over budget. However, time had to be approved
by NBTel. That letter (A-2) confirms that the Appellant was
responsible for any transportation and accommodation expenses he
may have incurred since NBTel or Xwave Solutions Inc. would only
cover expenses if he needed to go on location outside Saint John,
New Brunswick.
[5] The Agreement
between the Appellant and NBTel and/or Xwave Solutions Inc. could
be terminated by either party upon 30 days notice. An amendment
dated May 28, 2001, was later agreed to (Exhibit A-3) by the
parties regarding termination, which was immediate upon
non-performance and which required 15 working days prior notice
for any other reason.
[6] The Appellant
further testified that the contract did not reflect the way his
business was conducted. He had to operate from his office at home
since he could not perform his other tasks on site at the NBTel
offices in Saint John. The home office was needed to keep up to
date. He sometimes had access to NBTel's infrastructure by
using a secured I.D., an example of which was produced in
evidence (Exhibit A-5).
[7] On
cross-examination, the Appellant acknowledged that he had
modified some terms of the original contract but felt there was
no need to change the 7 1/2 hours per day clause since he
did not consider that to be a problem for the reasons cited
above. He also acknowledged that NBTel was his only client for
both taxation years but that he had other offers, which he turned
down for cost reasons. He preferred having one good client given
the industry's decline (downturn). On the issue of
travelling, the Appellant kept a log book. At first, he would
make a return trip from Moncton to Saint John on a daily basis;
then he would sometimes stay over at a friend's house for $50
a night to avoid travelling every day. In short, some weeks he
was in Saint John, others he was not, and when he was,
sometimes, he made round trips. He conceded to not being in his
Moncton office very often.
[8] Lucie Lajoie,
business auditor for the Respondent, took the position that
according to the contract, the principal place of business was in
Saint John. No new facts were revealed. She reiterated that the
reasons for disallowing the expenses were that they were personal
and not incurred for producing income. In fact, the
Respondent's position is that the Appellant was not working
from his home. He was making round trips on most days and the
contract stipulated that he had to work on site. Both the letter
(Exhibit A-2) and the amendment to the contract
(Exhibit A-3) were not retroactive such that the situation
for both taxation years was the same (Tab 4 Exhibit R-1).
[9] The
Appellant's position is that the services were rendered at
his client's place of business and that the expenses were
incurred in the pursuit of business income. His principal place
of business was Moncton and although his contract stipulated that
the work was to be performed in Saint John, in fact, he was not
always there.
[10] The Appellant's
income was originally assessed to be employment income. His audit
along with the audit of Gosine Sulley & Associates caused him
to lose his contract with NBTel. The Appellant has now returned
to his former job.
[11] The amount for these
expenses is not in issue.
[12] Although the
Appellant's business was conducted out of his home, there is
no doubt that the terms of the contract required that the work be
performed at NBTel's premises on a daily basis for the
duration of the contract. I believe that those terms were the
basis for which the Minister originally assessed the
Appellant's income to be employment rather than business
income. After reconsideration, the Minister reassessed on the
basis of business income but disallowed the travelling and
accommodation expenses since they were considered to be
personal.
[13] The facts presented at
the trial have revealed that the Appellant's work was not
always performed at NBTel's premises. Although no specific
numbers were revealed, he actually worked out of his home some
days and, at times, some weeks, he actually worked out of his
home in Moncton. The Appellant was able to access NBTel's
infrastructure through a secure I.D. and he travelled to Saint
John at NBTel's premises according to the different stages of
the project. Although that part of the evidence was not
corroborated by other witnesses, I have no reason to disbelieve
the Appellant.
[14] The Appellant was
operating a computer consulting business out of his home in
Moncton, New Brunswick, and in order to gain income from his
business, at times, as needed, his presence was required at his
client's premises. His expenses would probably have been
greater had he chosen not to make round trips on a daily basis,
but either way they were incurred for business purposes since
that is where his business required him to be.
[15] Even though the
contract could be terminated on short notice, it cannot be argued
in this case that the expenses were unreasonable in that the
Appellant could have arranged for long-term accommodations at a
cheaper rate. In any event, when not travelling on round trips,
the Appellant was staying at a friend's house for $50 a
night.
[16] I therefore find that
these expenses are reasonably applicable to his source of income:
the Appellant was working from his home in Moncton and travelled
to his client's premises on an "as needed" basis.
The travelling back and forth and the accommodations were
reasonably applicable to the business he operated out of his
home.
[17] The appeals are
therefore allowed and the matter is referred back to the Minister
for recommendation and reassessment on the basis that the
automobile, travel and accommodation expenses be allowed for both
taxation years.
Signed at Edmundston, New Brunswick, this
25th day of February 2003.
J.T.C.C.
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