Barbara Prewer v. Minister of National Revenue, [1989] 1 CTC 2337, 89 DTC 171

Sherwood, T.C.J.:—This is an appeal from a confirmed reassessment whereby the respondent disallowed a deduction of $1,617.32 claimed as an expense for a "home office” by the appellant in her 1986 taxation year.

The appellant was employed by Inis International In-Store Sales Inc. (Inis) for 16 years to 1987. For most of that time her duties were those of administrative assistant. In 1986, Inis was experiencing difficulties and its few employees worked in a small office carrying extreme work loads. The appellant, in an effort to help Inis, agreed to add some sales activities to her heavy administrative duties. It was further agreed that she would do her sales work during normal business hours when Inis's clients’ offices were open and would do most of her administrative and accounting work at home outside office hours in order to get it done on time. The appellant then converted the use of one bedroom of her residence to that of an office. The bedroom was one of three on the top level of four levels of a split-level townhouse which she owned with her husband. On the advice of her accountant she deducted A of the cost of maintaining the townhouse, not including mortgage interest, if any, or capital cost allowance. Her employer signed a tax form T2200 stating that she was required to maintain an office in her home and the form was included with her 1986 income tax return.

The appellant submits that she is entitled to the disallowed deduction and relies on the decision of Taylor, T.C.J. in Drobot v. M.N.R., [1987] 2 C.T.C. 2098; 87 D.T.C. 371.

The respondent's position is that the deduction was properly disallowed. He relies on the following facts and assumptions:

1. The appellant was not required by her contract of employment to maintain an office in her home.

2. Her employer provided office space to her within a reasonable distance of her home.

3. She owned the premises where she maintained an office and therefore did not incur “office rent".

4. Alternatively, she was entitled to deduct only a reasonable portion of the expenses of maintaning the premises.

The appellant must bring herself within the provisions of paragraph 8(1)(i) of the Income Tax Act (the Act) to be entitled to the deduction she claims. The Act permits no deductions from income except those it expressly provides.

I am satisfied that the appellant became required to maintain an office in her home at her own expense. She had no written contract of employment but such a requirement was implicit in her acceptance of sales responsibilities on top of her administrative duties in 1986. This finding disposes of the first of the facts relied on by the respondent. The second fact is irrelevant in light of the Court's finding on the first fact. In any event, there were compelling reasons for not using the Inis office. It was in an industrial area which was dark, semi-deserted and crime prone at night. It is also doubtful that the appellant, who is also a wife and homemaker, could have continued her employment if required to return to the Inis office for regular night and holiday work.

The appellant's response to the respondent's third fact is the case of Drobot v. M.N.R., supra. The facts in this appeal are quite similar to those in Drobot wherein an appellant who was required to maintain a home office deducted 20 per cent of the expenses of his residence as an employment expense. The respondent did not (as he has done unsuccessfully in this appeal) dispute the requirement for a home office. He used subparagraph 8(1)(i)(iii) of the Act to disallow taxes, insurance and interest expenses claimed by Drobot while allowing 20 per cent of electricity, gas and repair expenses as being supplies consumed directly by the appellant in the performance of his duties.

Taylor, T.C.J. rejected the contention that the expenses claimed were properly treatable as supplies. He found that the expenses claimed by Drobot, if deductible any place, would appear to fit into subparagraph 8(1)(i)(ii) as "rent". Addressing that issue, he reviewed some jurisprudence and concluded that he should interpret the subsection as “simply meaning that the contract of employment must require that the employee maintain an office and himself be responsible for any costs associated therewith, or, as in this case, any additional costs arising out of the provision of this space for purposes of gaining his income.” Applying that conclusion, he allowed the appeal.

In the instant appeal the appellant could probably have issued cheques payable to her husband or to him and herself and characterized them as "rent" but that seems unnecessary. Why should the costlier expedient of renting a room from a neighbour qualify for a deduction but the cheaper and more convenient one of using part of her own home not qualify for deduction? I conclude that reasonable expenses of using space in one's own home to meet a requirement for office space away from an employer's establishment are deductible under subparagraph 8(1)(i)(ii).

This brings us to the final issue. Was the deduction claimed by the appellant a reasonable cost of her home office? The bedroom was one of three on the fourth level of a split-level townhouse. It is very difficult to accurately ascertain the expense of using part of a residence for business purposes. The appellant has claimed '/3 of the total expenses of her residence. The residence includes common elements such as the dining room, kitchen, living room and family room. There is no evidence that any of the common elements were used as her office. Furthermore there is no justification for attributing any appreciable portion of the heat or hydro expenses to her home office. The office was only /12 of the space she had to heat. Major hydro users are such items as cooking stove, washer, dryer, water heater, etc., none of which have any significant relationship to her bedroom office. On the evidence presented not more than ten per cent of the residence expenses can be fairly attributed to the "home office” and I adopt that percentage.

The appeal is allowed in part and the matter is referred back to the respondent for reconsideration and reassessment on the basis that the appellant is entitled to a "home office” employment expense deduction of $485.10 in her 1986 taxation year.

In view of the very limited success of the appellant in this appeal, I make no order as to costs.

Appeal allowed in part.