Edward Libera v. Minister of National Revenue, [1981] CTC 2298, 81 DTC 276

M J Bonner:—The appellant appeals from assessments of income tax for the 1975 and 1976 taxation years. In the computation of income he claimed the following amounts as deductions and was disallowed the amounts hereafter indicated.

1975 1975

		Amount	Amount
ITEM	Claimed		Disallowed
Accounting	$	10.00	$
Advertising		55.13
Automobile	2,029.78		1,824.48
Business Tax, Licences, Fees		10.00
Office Expenses, Postage		44.79	44.79
Home Office		460.59	400.59
SUBTOTAL	$2,610.29		$2,269.86
Less: Personal Use — Auto		811.91	811.91
TOTAL	$1,798.38		$1,457.95

		Amount	Amount
ITEM	Claimed		Disallowed
Accounting, Legal, Collection	$	50.00
Advertising		545.75	$ 495.75
Automobile	3,052.31		2,833.06
Business Tax, Fees, Licences		10.00
Fire & Liability Insurance		10.02	10.02
Interest, Exchange, Bank Charges		655.89	655.89
Maintenance & Repairs		313.73	269.72
Office Expenses		15.99
Property Taxes		87.10	87.10
Telephone, Light, Heat		131.18	131.18
SUBTOTAL	$4,871.97		$4,482.72
Less: Personal Use — Auto	1,220.92		1,220.92
TOTAL	$3,651.05		$3,261.80

The appellant was a draftsman. He was employed in this capacity until April of 1975 when he was laid off. It was common ground that thereafter his work as a draftsman was done on a self-emloyed basis. It was also common ground that the appellant expended the amounts in question in these appeals. The Minister assessed on the basis that the expenses disallowed were not incurred for the purpose of gaining or producing income and on the further basis that the outlays were unreasonable, except to the extent allowed.

The paragraph 18(1 )(a) test looks to the purpose or objective in view when the expenditure is incurred. Deductibility does not turn on the presence or absence of revenue or profit earned as a result of the expenditure.

The limitation imposed by section 67 of the Income Tax Act was considered in Gabco Limited v MNR, [1968] CTC 313; 68 DTC 5210 at 323 [5216] where Cattanach, J stated:

It is not a question of the Minister or this Court substituting its judgment for what is a reasonable amount to pay, but rather a case of the Minister or the Court coming to the conclusion that no reasonable businessman would have contracted to pay such an amount having only the business consideration of the appellant in mind.

The appellant’s evidence was that as a result of his experience and observations made while working as an employed draftsman he concluded that there was a market for his services on a relatively short-term basis, that is to say, for drafting services rendered to different clients in a number of shortterm engagements. He proceeded to set up an office in a den in his apartment and to equip it with a drafting table and with pigeon hole shelving for plans. He also installed an extension telephone set in the den.

After the lay-off the appellant obtained work for a period of about two months with a person or firm named Walter Dow. He did so through the services of a placement agency. When that work ended the appellant, again through the agency, obtained work at Ontario Hydro. That engagement lasted for the remainder of 1975 and throughout 1976.

The engagements were liable to termination at any time. The appellant said that in an effort to obtain further engagements he contacted a number of businesses likely to need drafting services. Also, in an attempt to keep or extend the Hydro job he entertained a number of Hydro employees and he distributed football and theatre tickets to them. Nothing in the evidence supports a conclusion that the advertising expenses disallowed in 1976 were not incurred to produce work or further work or that in the circumstances, having regard to the applicable test, they were unreasonable. Save for a $15 item in respect of tickets to the Art Gallery, which the appellant’s counsel conceded was not deductible, the appeal for 1976 will succeed in respect of advertising expenses.

The component elements of the office expenses and home office items for 1975 and the last five items listed for 1976 were not fully described in evidence. It appears that the $460.59 item in 1975 is one-sixth of the rent for the appellant’s six room apartment. The last five 1976 items represent an apportionment of the costs of the home to which the appellant moved in 1976. There was no evidence as to how that apportionment was made. In 1976 the so-called “office” was located in part of the basement. There was no suggestion in evidence that the 1976 maintenance and repairs item related in any way to work done on the basement office or for the benefit of that office.

The appellant’s counsel submitted that the appellant had to have an office if he was going to attract a significant number of clients. That submission is not, as I see it, well founded in evidence. It would seem that all of the work done by the appellant in both 1975 and 1976 and, generally speaking, a large part of the work done by freelance draftsmen is performed at the client’s premises using facilities supplied by the client. It seems evident to me that if work materialized requiring the appellant to do drafting at some place other than the client’s premises it would be relatively easy to promptly secure the necessary space and facilities to execute that work. I am not at all convinced that the appellant foresaw a sufficiently substantial market for jobs requiring him to provide office facilities that it could be said that he provided the “office” space having regard to business considerations alone.

Appeal allowed in part.