James Forestell v. Minister of National Revenue, [1991] 2 CTC 2278, 91 DTC 998

Taylor, T.C.J.:—These are appeals heard in Belleville, Ontario, on June 4, 1991, against income tax assessments for the years 1984 and 1985 in which the Minister of National Revenue ("respondent") disallowed certain expenses as follows:

While a few of the travel expenses and a substantial portion of the meal expenses were vouchered, the basic reason for the disallowances and the assessments at issue was the respondent took the position that the travel expenses were not incurred "in the course of" carrying on business in Toronto, and the meal expenses were not incurred "for the purpose of gaining or producing income from business".

The notice of appeal read:

I earned business income in my capacity with the Royal Ontario Museum.

I rendered services for the Royal Ontario Museum at my office in my house in Campbellford, in addition to the services I performed at the Royal Ontario Museum in Toronto. Technical and administrative work was performed at both locations.

I incurred reasonable travelling expenses between both work locations. The travelling expenses included automobile expenses, lodging and meals.

Travel, lodging and meal expenses were incurred by me during the year while away from my home in the course of carrying on my business per Section 18(1)H of the Income Tax Act.

Travel, lodging and meal expenses were incurred by the taxpayer for the purpose of gaining or producing income from my business per Section 18(1)A.

Expenses claimed were reasonable under the circumstances.

A critical assumption by the respondent in the reply to notice of appeal read in part:

— during the 1984 and 1985 taxation years, the Appellant carried on the business of “Clerk of Works" at the ROM in Toronto, Ontario.

The respondent relied on paragraph 18(1)(a) and 18(1)(h) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act").

It was the contention of the appellant that he had always functioned as an independent businessman, he termed it a “consultant”, his work being that of “Clerk of the Works" on construction or renovation projects. He submitted his "Employment History" (his term) which showed that from 1978 through 1990 he had been engaged solely by the Royal Ontario Museum (“ROM”), but as he pointed out and supported by documentation, on relatively short-term specific contracts—six months to one year, some of which were subject to renewal. He had resided in Campbellford, Ontario during this period, and in between assignments used that as his home base in searching for new contracts. He insisted that, in addition to the hands-on supervisory work he performed at the ROM site, he used his office (in his residence) to review plans, make corrections, examine documents, read reports, etc., besides keeping in touch with the trade by telephone or letter. He kept his records there, paid his bills from there, and sent his invoices from there. During the period relevant to this appeal he had rented a small apartment in Toronto where he stayed when he was there, and which formed the cost (allowed by the respondent) for "Office in Home $2,600, and Office Space $2,808”, for the two years respectively. Particulars of the other items which had been allowed by the respondent—"Accounting $375 and $770", and "Office (expenses) $1,025" were not detailed to the Court. In effect, the taxpayer asserted that the site of the assignment—a construction contract at ROM—did not lend itself to all the requirements of the work he needed to do, and that no “quiet office" as such was available there. He gave no explanation for not using his Toronto apartment for this function. He travelled once or twice a week from Campbellford to Toronto and return, depending on the situation at the site, and often stayed overnight at his apartment for several days at a time. The dispute between the parties did not rest on whether Mr. Forestell was in business (as contrasted with being an employee)—the pleadings from the respondent settled that—he is regarded for purposes of this assessment as being in business. The dispute is whether he was in business in Campbellford, or in Toronto, or possibly in both places. It is not my role in this appeal to search for reasons that the respondent considered adequate to allow certain deductions—(Accounting and Office, supra). Nor does it fall to the Court, as I have already noted, to examine the status of the appellant as businessman, rather than employee, even though it is quite apparent that a good case might be made for the ''employee" designation. It is sufficient to determine whether, on the evidence available, the "base of operations” of Mr. Forestell's business was at his home.

The respondent's main point was that he conducted his business solely in Toronto, not at his home (or even if it could be called his office) in Campbellford. In addition counsel for the respondent argued that for the entire period of time under review his contract or contracts had been solely with ROM—in fact well before 1984 and well after 1985 that situation existed. Counsel for the appellant took the position that Mr. Forestell was in no different position—as a businessman—than a lawyer with an office in one place, needed in court, perhaps for a very lengthy period of time, in a completely different location which required him to travel and pay for meals. The contentions of the respondent in this appeal seem to be that Mr. Forestell was not required to perform any business related functions at the office in his home, or that just as easily he could have done so—albeit with added inconvenience perhaps - at either ROM, or at his apartment in Toronto. It is the contention of the appellant that in his opinion it was the most efficient, probably the most economical method of operation to have the focus of his business in Campbellford even though he worked the greater part of the time at ROM in Toronto. In effect, Mr. Forestell states that by using the Campbellford location as his base of operations, he maximized his income, presumably both gross income and net income. While that could be a debatable proposition, evidence was not presented by the respondent to discredit it.

Case law presented by the parties included some items directly related to expenses claimed from “employment income” and I have eliminated them from my consideration. However, the following jurisprudence appears to me to have some relevance:

Duchaine v. M.N.R. (1954), 11 Tax A.B.C. 209; 54 D.T.C. 410 (T.A.B.); Corcoran v. M.N.R. (1964), 36 Tax A.B.C. 435; 64 D.T.C. 748 (T.A.B.); Dalgleish v. M.N.R. (1964), 36 Tax A.B.C. 417; 64 D.T.C. 754 (T.A.B.); Cumming v. M.N.R., [1967] C.T.C. 462; 67 D.T.C. 5312 (E.C.C.); Randall v. M.N.R., [1967] S.C.R. 484; [1967] C.T.C. 236; 67 D.T.C. 5151 (S.C.C.); Waserman v. M.N.R., [1969] Tax A.B.C. 599; 69 432 (T.A.B.); Jensen v. M.N.R., [1977] C.T.C. 2121; 77 D.T.C. 107 (T.R.B.); Cork v. M.N.R., [1981] C.T.C. 2367; 81 D.T.C. 346 (T.R.B.); The Queen v. Cork, [1984] C.T.C. 479; 84 D.T.C. 6515 (F.C.C.); Zolis v. M.N.R., [1987] 1 C.T.C. 2199; 87 D.T.C. 183 (T.C.C.).

From Randall, supra, at page 239 (D.T.C. 5153):

The evidence was that the appellant made some 30 trips from Vancouver to Portland and back in 1958, and while at Portland lived part of the time at a hotel and part of the time in an apartment which the brothers had rented and which they occupied and used as an office when one or the other was in Portland looking after the operation there. The Portland race season in 1958 was 50 days and overlapped in part the British Columbia season.

The Minister contended that the appellant's expenses of travelling to Portland and his expenses of living there were not in the performance of any undertaking in the agreement but, on the contrary, were purely personal to him and outside the agreement. I am unable to accept that contention. It seems to me that if the appellant was going to fulfil the obligations he undertook to fulfil under the agreement in question, it was necessary for him to travel to and from Portland as the exigencies of the business there required him to do.

From Cumming, supra, at pages 473-75 (D.T.C. 5318-19):

It might well be observed of the barrister in the English case (Newson v. Robertson (1952) 33 T.C. 452) that his living at such a distance as to involve both car and train journeys to get from his home to his professional chambers was the result of a choice made for his personal, rather than his professional reasons and that this coloured the expense of travelling between these points with a personal character. Here on the contrary, I would think that the appellant's choice of a location for his home about half a mile from the hospital was dictated either wholly or at least partially by the desirability for reasons relating to his practice of his living conveniently near to the place where his services were required as opposed to personal preference for that over any other location in Ottawa or elsewhere.

However, even assuming that the reasoning of the case may be applied for resolving the present problem, I am of the opinion that it does not support the Minister’s position. The reasoning poses the question of the location of the base of the taxpayer's operation and proceeds to its conclusion after determining this point. On it the Minister’s contention was that the base of the appellant's operation was the hospital, where the appellant rendered the services for which he was paid. It was, however, admitted in the course of argument that the appellant conducted part of his practice at his home, that the nature of the business was such that the bookkeeping and financial activities had to be carried on at a location different from that where the patients were treated and that there were no office facilities available to him at the hospital where he might have carried out this part of his business.

In my opinion the base of the appellant's practice, if there was any one place that could be called its base, was his home.

It seems to me that if the appellant had not found it convenient to carry out at his home that part of the work of his practice in fact done there and had maintained an office for the purpose, whether near to or at some distance from the hospital, there could have been little doubt that such office was .the base of his practice and that both the reasonable expense of maintaining it and the expense of travelling between it and the hospital would have been expense of his business.

From Jensen, supra, at page 2126-27 (D.T.C. 110):

The Board is satisfied that at last some business was conducted by the appellant when he was in Vancouver on weekends and during the winter, and would accept his evidence regarding the extent and importance of it, and believe that it could not be adequately conducted on the Prairies.

From Cork, supra, (T.R.B.) at page 2374 (D.T.C. 350):

In the instant case, the appellant is in a much more favourable position, in my opinion. First, the Minister has allowed a “blanket” $150 business expense allowance in each of the years in question and since no explanation of the nature of the $150 was provided, the appellant may conclude with some reason that all or part of that $150 related to "rent". Second, counsel for the Minister in argument has virtually conceded that some consideration for "rent" should be permitted - but only a lesser portion of the residence. As I see it, therefore, the appellant has established his need for and use of a “base of operations” - no matter how limited that base might be.

From Cork, supra, (F.C.C.) at page 481-82 (D.T.C. 6517):

However, the defendant's circumstances here are quite like those of, say, a consulting geologist who is required to travel to sites of potential mineral exploration in order to perform geological services. There is no difficulty in appreciating that the geologist's expenses for travel throughout Canada to remote sites are properly deductible.

(also the site of this office in this case) in the course of carrying on his business at various different places where he was engaged to perform his professional services.

I am quite satisfied that the appellant conducted some part of the functions related to his business from a location in his home, which he is entitled to call his office, or "base of operations". I am not satisfied that this was more than a very small part of the total business operation. As noted above, he could not perform any of the "hands-on" “Clerk of the Works" functions at any location other than ROM. Since the appellant has provided some support for his Campbellford “base of operations", and the respondent has not succeeded in destroying the value or utility of that location for that purpose, I do not see the reason to disallow that aspect of it - Campbellford. That being said, the real issue then is the propriety, more importantly the deductibility, of the cost of Mr. Forestell leaving his base of operations to go to the site of his "hands-on" contract for services, as it must be termed. There is no question that, to a substantial degree, using Campbellford as the base of operations was a choice made by Mr. Forestell. I can only assume it had some personal value attached to it—although there was no direct evidence on that point either way.

During the course of the hearing the appellant noted that at one point—in between assignments at ROM—he had been searching for additional work as "Clerk of Works" and, in following a lead, had gone to Bermuda. As it turned out his prospect there did not materialize, but it did raise the point in my mind of wondering what would have been the outcome had it succeeded - would Mr. Forestell have flown back and forth regularly to Bermuda, and charged travel and meals in the same way as he has done in this appeal? I can think of no basis there should be a distinction made between Campbellford to Toronto and Campbellford to Bermuda - other than the longer distance. But once agreed that a taxpayer businessman has a “base of operations" in a given location, it is very difficult to limit that taxpayer's right to operate wherever and whenever his business requires away from his “base of operations" to the actual site of operations itself.

As I see it, that might raise the point of “reasonableness” - it being reasonable that there must be some limit for which the public purse would be expected to absorb such travel and meal costs where the "base of operations" is at a location different than the site of operation, particularly for a lengthy period of time (note example above regarding Bermuda). An additional factor could be the degree of necessity, as opposed to choice, of doing whatever part of the business was to be done at the “base of operations". It might also be suggested that the "base of operations" being in the comfort and familiarity of a taxpayer's regular residence, as opposed to a standard business office location away from the residence, might have some bearing on the outcome. Looked at that way, it might well have been argued that the need for any “base of operations" at Campbellford was minimal, and that the cost of getting to and from that place, and the expense of being away from it for business reasons, should bear some proportional relationship to this very limited requirement and not be governed by convenience or preference dictated by the appellant alone. But I need not consider those factors (and perhaps others) for this appeal. Here, the point of "reasonableness" was only raised obliquely in argument with no substantive testimony or evidence upon which to examine it. The parties were informed that only a determination of “allowable” or “not allowable” would be made regarding the disputed amounts.

In my view the Court must carry the known elements in these appeals to their logical conclusion based on the precepts outlined in the jurisprudence above to recognize the evidence supports the appellant's assertion that he performed some functions necessary to his business operation at the location in Campbellford, and that therefore the disallowance of all the disputed amounts by the respondent was not warranted.

The appeals are allowed, and the entire matter referred back to the respondent for reconsideration and reassessment. The appellant is entitled to costs.

Appeals allowed.