BETWEEN:
MELYNDA LAYTON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
(Delivered orally from the bench on
November 6, 2014, in Ottawa, Ontario.)
V.A. Miller J.
[1]
The issue in this appeal is whether the
Appellant is entitled to deduct expenses of $6,630.03 and $9,987.66 for a home
office in her 2007 and 2008 taxation years respectively.
Preliminary motion
[2]
At the beginning of the hearing, the Respondent
brought a motion to strike paragraphs 15(b), 15(d) and portions of paragraphs
14 and 16 in the Notice of Appeal. In those paragraphs, the Appellant sought
relief from an assessment under the Excise Tax Act (“ETA”).
[3]
The Appellant’s income tax liability for her
2007 and 2008 taxation years was reassessed by notices dated November 29, 2012.
This is her appeal of that reassessment which has been brought pursuant to
section 169 of the Income Tax Act (“ITA”). Any decision that I
make in this appeal can only be with respect to the reassessment issued under
the ITA. In accordance with section 171 of the ITA, I can dismiss
the appeal or I can allow the appeal and vacate the reassessment or vary the
reassessment or refer the reassessment back to the Minister of National Revenue
(the “Minister”) for reconsideration and reassessment. In other words, my
decision in this appeal can only relate to the reassessment under the ITA.
[4]
The Appellant was reassessed by notice dated
October 30, 2012 under the ETA. In order to challenge that reassessment,
the Appellant should have brought an appeal under section 306 of that Act,
which she has not.
[5]
In order to appeal reassessments from two
separate Acts, the Appellant must file a notice of appeal pursuant to
each of those Acts.
[6]
I do not have jurisdiction under section 171 of
the ITA to grant a remedy for an issue with respect to the ETA.
As a result, the Respondent’s motion is granted and the following parts of the
Notice of Appeal are struck:
1.
Paragraph 14 - …and File Number GB 112511841020
dated October 22, 2012 made under the Goods and Services Tax/Harmonized
Sales Tax Act and include the period to which the assessment(s) relate(s).
2.
All of paragraphs 15(b) and (d).
3.
Paragraph 16 - …and section 306 of the Excise
Tax Act.
Appellant’s Position
[7]
It was the Appellant’s position that she had a
home office in 2007 and 2008. During the hearing she conceded that she should
not have claimed the cable and home telephone bills as an expense for her home
office. The Appellant’s testimony was as follows.
[8]
She has been an employment lawyer since 1996.
The Appellant started to practice law in Toronto and, in 2000, she and her
spouse returned to Ottawa. She stated that she decided to open her own practice
in 2006 so that she could control her hours of work. It was her hope that she
would have more time to spend with her two children. She set up an office in
her home in Stittsville. It was her evidence that in September, October and
November 2006, she practiced fairly exclusively out of her home.
[9]
In 2006, one of the Appellant’s friends, with
four other lawyers, rented an office space at 1400 Clyde Avenue. The Appellant
wanted to share this office space but it was not large enough for her to have
her own office. She shared an office with her friend until the fall of 2006
when the group was able to obtain an addition to the leased space. In the fall
of 2006, she had her own office at Clyde Avenue.
[10]
It was the Appellant’s evidence that she had a
home office in 2007 and 2008. It was not her principal office but it measured
20% of her home and consisted of an office on the main floor of her home which
measured 15x16 and most of the area of her basement. There were no measurements
on her sketch for the space in the basement but the sketch of the home which
the Appellant produced showed that she claimed at least three quarters of the
basement area as an office. She estimated that the area of the basement
measured between 500 and 600 square feet. She described her basement office as
being finished space with hardwood floors. She wrote on her sketch that the
area of her house was 2200 square feet but she testified that the area was
closer to 2700 square feet.
[11]
The Appellant stated that her home office was
outfitted so that she could access her files, emails and telephone calls from Clyde Avenue and vice versa. She saw clients at her home office – in both the upstairs
office and the basement office. She emailed and telephoned her clients from her
home office and accepted their calls and emails at her home. She had a separate
business telephone line in her home office. In the basement office, she had a
large table, a home computer and a telephone. She also stored 200 files in her
basement office.
[12]
It was her evidence that she frequently worked
from home. She described the frequency as two or three times a week.
Respondent’s Position
[13]
The Respondent called no witnesses. The key
assumptions of fact pled in the Reply were:
a)
X
b) at all material times, the appellant maintained an office and rented
office space located at the civic address of 1400 Clyde Avenue, Suite 208, Ottawa, Ontario (“the Business Address”);
c)
at all material times, the appellant’s law
practice address was listed at the Business Address;
d) at all material times, the appellant’s personal residence was
located at the civic address of 4 Cinnabar Way;
e)
at all material times, the appellant did not
maintain an office in her home;
f)
at all material times, the appellant did not
regularly and consistently meet clients or customers in her home;
Analysis
[14]
The burden of proof in tax cases is that on the
balance of probabilities. A taxpayer has the initial onus to “demolish” the
assumptions of fact relied on by the Minister. She will have met that onus when
she makes a prima facie case: Hickman Motors Ltd v R, [1977] 2
SCR 336. The Appellant need not necessarily produce documents to establish that
prima facie case but it would assist her position: House v R,
2011 FCA 234. The Appellant must give cogent evidence which will allow me to
find that she has presented a prima facie case. The onus will then shift
to the Respondent to present evidence to prove the assumptions.
[15]
One of the key assumptions made by the Minister
in denying the expenses for a home office was that the Appellant did not meet
clients in her home. The Appellant testified that she met clients in her home
office. She was asked if she had a document to support her testimony. In
particular, she was asked if she had brought her appointment calendar for 2007
and 2008. It was her testimony that she did not bring her annual calendars
because she used the software PCLaw for her calendar and it “self-erased” every
six months. She stated that she also used Outlook and it “self-erased”. When it
was suggested to her that Outlook did not “self-erase”, the Appellant responded
that she either did not have Outlook or that there had been server problems and
the result was that records do not exist.
[16]
It is my view that the Appellant’s evidence
defies common sense and is implausible. I do not believe that any professional,
especially a lawyer, would use a computer program to maintain her records which
self-erased after six months.
[17]
The Appellant gave no details with respect to
seeing any clients at her home. Her evidence consisted of the general statement
that she saw clients in her home. Without more, it is clear that the Appellant
has not presented a prima facie case and has not “demolished” the
Minister’s assumption that she “did not regularly and
consistently meet clients or customers in her home”.
[18]
It is also my view that the Appellant’s
testimony was inconsistent with the statements in her Notice of Appeal and the
documents she tendered as exhibits. At the hearing she stated that her basement
was finished and she used it as her office. She described office equipment
which she said she had in the basement as well as 200 files which she said were
stored in her office. The first time that the Appellant stated she had an
office in her basement was at the hearing. In her Notice of Appeal, the
Appellant wrote that she “used the unfinished part of
the basement exclusively to store closed client files”. She made a
similar statement in her letters to the Canada Revenue Agency (“CRA”). On
September 3, 2011, she wrote with respect to her home office:
In 2007 and 2008
I had a home office at 4 Cinnabar Way within which I had a business telephone,
a computer, photocopier and general office equipment. I virtually accessed my
office at 1400 Clyde Avenue through the internet. The office was used
exclusively for business where I regularly and continuously met clients. I also
used the unfinished part of the basement to store files.
In letters from
the Appellant to the CRA on September 24, 2012 and October 4, 2012,
she repeated that she “used the unfinished part of the basement to store
files”. There was never a mention prior to the hearing that the Appellant used
the finished portion of her basement as an office.
[19]
It is my view that the Appellant adapted her
testimony so that the total area of her alleged home office would approximate
20% of the area of her home. This is the percentage she claimed on her income
tax returns.
[20]
The Appellant’s testimony in Court also
contained inconsistencies. At one point in her testimony she stated that she
had her own office at Clyde Avenue in 2006; later she stated that she first
obtained her own office at Clyde Avenue in the fall of 2007; and then still
later, she stated that office 8 at Clyde Avenue was exclusively hers starting
in the fall of 2006.
[21]
I have no doubt that the Appellant may have had
an office in her home. However, because of the problem with her implausible
statements, her conflicting statements and her inconsistent statements, she has
not satisfied me that there was a work space in her home which was used
exclusively for the purpose of earning income from business and used on a
regular and continuous basis for meeting clients in respect of her business.
[22]
The Appellant is required to present the best
evidence available. At a minimum, as a lawyer, she could have provided a clear,
consistent timeline of events to assist this Court in making a determination.
Instead, her evidence was vague, imprecise and inconsistent.
[23]
The appeal is dismissed with costs to the
Respondent.
Signed at Ottawa, Canada, this 23rd day of July, 2015.
“V.A. Miller”
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