Date: 20021223
Docket: 2002-2730-IT-I
BETWEEN:
DONNA HORBAY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Beaubier, J.T.C.C.
[1] This appeal pursuant to the Informal Procedure was heard at Vancouver, British Columbia on December 12, 2002. The Appellant was the only witness.
[2] Paragraphs 4 to 10 of the Reply to the Notice of Appeal describe the issue in appeal. They read:
4. The Minister reassessed the Appellant's 2000 taxation year and disallowed $2,414.80 on account of office in the home expense (the "Disallowed Expense") and issued a Notice dated October 29, 2001.
5. The Appellant filed a Notice of Objection dated January 11, 2002 and the Minister confirmed the reassessment of the Appellant's 2000 taxation year and issued a confirmation notice dated April 25, 2002.
6. In so reassessing the Appellant, the Minister relied on the following assumptions of fact:
a) in 2000 the Appellant was an employee of the Province of British Columbia, Attorney General British Columbia Corrections Department ("B.C. Corrections");
b) the Appellant was a probation officer with B.C. Corrections and her main duty was to interview those individuals who were guilty of a criminal offence and draft pre sentence reports for the courts;
c) the Appellant was required by her contract of employment with B.C. Corrections to either rent office space or use a portion of her home in the performance of her duties;
d) the Appellant utilized 10% of the total square footage of her home as an office;
e) the Appellant was not paid her salary from B.C. Corrections by way of commissions or similar amounts according to volume or sales or contracts negotiated; and
f) the Disallowed Expense consisted of mortgage interest.
B. ISSUES TO BE DECIDED
7. The issue is whether the Appellant is entitled to claim employment expenses comprised of the Disallowed Expense when calculating her income for the 2000 taxation year.
C. STATUTORY PROVISIONS RELIED ON
8. He relies on paragraph 8(1)(i) and subsections 8(2) and 8(10) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), as amended (the "Act").
D. GROUNDS RELIED ON AND RELIEF SOUGHT
9. He respectfully submits that the Appellant is not entitled to deduct the Disallowed Expense, being mortgage interest, due to subsection 8(2) of the Act.
10. He further submits that the Appellant is not entitled to deduct the Disallowed Expense under paragraph 8(1)(i)(ii) of the Act, as it consists of mortgage interest and not rent.
[3] The assumptions in paragraph 6 are correct.
[4] Paragraphs 8(1)(i) and (ii) and subsection 8(2) of the Income Tax Act (the "Act") read:
8(1) In computing a taxpayer's income for a taxation year from an office or employment, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto:
...
(i) amounts paid by the taxpayer in the year as
(i) annual professional membership dues the payment of which was necessary to maintain a professional status recognized by statute,
(ii) office rent, or salary to an assistant or substitute, the payment of which by the officer or employee was required by the contract of employment,
...
(2) Except as permitted by this section, no deductions shall be made in computing a taxpayer's income for a taxation year from an office or employment.
[5] In the Court's view, the question, in part, is whether the mortgage interest can be regarded as "office rent" under paragraph 8(1)(ii). The appellant argued that, from a practical point of view, it amounts to the same thing in her case.
[6] Unfortunately subsection 8(1), as restricted by subsection 8(2), does not permit the analogous treatment of interest payments for which the Appellant argues for employees. This is unfortunate in this day when working from the home has become commonplace and is often required by an employer in order to save office overhead expenses. It may be another case where the Act has not kept place with the evolution of the workplace.
[7] The Court accepts the interpretation adopted by McNair, J. of the Federal Court in The Queen v. Thompson, 89 DTC 5439 in which the appeal was on an identical basis. McNair, J. referred to the judgment of Rip, T.C.J. in Felton v. M.N.R., 89 DTC 233 (T.C.C.) and stated at pages 5443 and 5444:
The strict ratio of the case is contained in the following passage from the judgment of Rip T.C.J. at pp. 234-35:
The words "rent" and "loyer" in subparagraph 8(1)(i)(ii) contemplate a payment by a lessee or tenant to a lessor or landlord who owns the office property in return for the exclusive possession of the office, the property leased by the latter to the former.
The payments by Mr. Felton to a money-lender of interest on money borrowed, to a utility supplier for the utility, to maintenance personnel for maintenance, to an insurer for insurance and to a municipality in respect of taxes are not payments of rent by a lessee to a lessor. None of these payments by Mr. Felton was for the use or occupancy or possession of property owned by another person.
Obviously, the judges of the Tax Court in both Philips and Felton applied the plain meaning rule of statutory interpretation in determining that the home office expenses of an employee were not deductible as office rent under s. 8(1)(i)(ii), notwithstanding the illogical unfairness of the section in permitting the selfsame deduction in the case of business or professional persons.
This modern rule for the interpretation of taxing statutes was admirably expounded by Estey J. in Stubart Invetments Ltd. v. The Queen, [1984] 1 S.C.R. 536, 84 DTC 6305. The learned judge recalled the strict rule of statutory interpretation invoked for many years, whereby any ambiguities in the charging provisions of a tax statute were to be resolved in favour of the taxpayer. He pointed out that the converse was true where a taxpayer sought to rely on a specific exemption or deduction provided in the statute. In that case, the strict rule required that the taxpayer's claim fall clearly within the exempting provisions, and any doubt in that regard had to be resolved in favour of the Crown. Indeed, he perceived the introduction of exemptions and allowances as marking "the beginning of the end of the reign of the strict rule". The learned judge stated the following conclusion in the S.C.R. report of the case at p. 578 (see DTC at p. 6323):
Professor Willis, in his article, supra, accurately forecast the demise of the strict interpretation rule for the construction of taxing status. Gradually, the role of the tax statute in the community changed, as we have seen, and the application of strict construction to it receded. Courts today apply to this statute the plain meaning rule, but in a substantive sense so that if a taxpayer is within the spirit of the charge, he may be held liable. See Whiteman and Wheatcroft, supra, at p. 37.
While not directing his observations exclusively to taxing statutes, the learned author of Construction of Statutes (2nd ed. 1983), at p. 87, E.A. Dreidger, put the modern rule succinctly:
"Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament."
...
The question remains: Are the amounts claimed for home office expenses in the 1980 and 1981 taxation years deductible as "office rent" under s. 8(1)(i)(ii) of the Income Tax Act? In my view, the plain meaning of the words of the statutory provision read in context with the scheme of the Act as a whole precludes any possibility of an affirmative answer to the question. This was the approach adopted by the judges of the Tax Court of Canada in Phillips and Felton, with which I fully concur. In the result, I find that the Minister was correct in his reassessments of the defendant's income for the 1980 and 1981 taxation years, save only for the amounts claimed for utilities, heating and hydro in 1980.
[8] For this reason, the appeal is dismissed.
Signed at Saskatoon, Saskatchewan, this 23rd day of December, 2002.
|
"D. W. Beaubier" |
J.T.C.C.COURT FILE NO.: 2002-2730(IT)I
STYLE OF CAUSE: Donna Horbay v. The Queen
PLACE OF HEARING: Vancouver, British Columbia
DATE OF HEARING: December 12, 2002
REASONS FOR JUDGMENT BY: The Honourable Judge D. W. Beaubier
DATE OF JUDGMENT: December 23, 2002
APPEARANCES:
For the Appellant: The Appellant herself
Counsel for the Respondent: Amy Francis
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2002-2730(IT)I
BETWEEN:
DONNA HORBAY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on December 12, 2002 at Toronto, Ontario, by
the Honourable Judge D. W. Beaubier
Appearances
For the Appellant: The Appellant herself
Counsel for the Respondent: Amy Francis
JUDGMENT
The appeal from the reassessment made under the Income Tax Act for the 2000 taxation year is dismissed in accordance with the attached Reasons for Judgment.
Signed at Saskatoon, Saskatchewan, this 23rd day of December, 2002.
|
"D. W. Beaubier" |
J.T.C.C.