Date: 20001103
Docket: 2000-1922-IT-I
BETWEEN:
KEVIN FURLOTTE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Bell, J.T.C.C.
ISSUE:
[1] Is the Appellant, in computing income, entitled to deduct "work space in home" expenses of:
$5,158.37 for his 1995 taxation year;
$5,491 for his 1996 taxation year; and
$6,114.76 for his 1997 taxation year
pursuant to subsection 18(12) of the Income Tax Act ("Act").
FACTS:
[2] The Appellant operated an income tax consulting business, an automobile recycling business and a travel representative business in each of 1995 and 1997 and also operated those three businesses plus a recreational products business in 1996, all in and from his home.
[3] He testified that he claimed all expenses for those years in a general deduction. He then said that Revenue Canada extracted home office related expenses in the amounts aforesaid in excess of net income and disallowed same.
APPELLANT'S SUBMISSIONS:
[4] Appellant's counsel submitted that the opening words of subsection 18(12), namely:
Notwithstanding any other provision of this Act, ...
mean that, for the purposes of interpreting that provision, regard can be had to no other section of the Act, particularly to sections 3 and 9. He then submitted that "income" as used in paragraph 18(12)(b) did not, accordingly, mean net income but, rather, gross income.
[5] Subsection 18(12) reads:
(12) Notwithstanding any other provision of this Act, in computing an individual's income from a business for a taxation year,
(a) no amount shall be deducted in respect of an otherwise deductible amount for any part (in this subsection referred to as the "work space") of a self-contained domestic establishment in which the individual resides, except to the extent that the work space is either
(i) the individual's principal place of business,
or
(ii) used exclusively for the purpose of earning income from business and used on a regular and continuous basis for meeting clients, customers or patients of the individual in respect of the business;
(b) where the conditions set out in subparagraph (a)(i) or (ii) are met, the amount for the work space that is deductible in computing the individual's income for the year from the business shall not exceed the individual's income for the year from the business, computed without reference to the amount and sections 34.1 and 34.2; and
(c) any amount not deductible by reason only of paragraph (b) in computing the individual's income from the business for the immediately preceding taxation year shall be deemed to be an amount otherwise deductible that, subject to paragraphs (a) and (b), may be deducted for the year for the work space in respect of the business.
[6] Counsel referred to Pawlikowski v. R., [1998] 2 C.T.C. 2945 where this Court found that non-home related expenses "are separately deductible". It then determined that the home related expenses could be deducted from a figure described as "Revenue".[1]
[7] With respect, I do not agree that the Appellant should succeed on that basis. In my view the words "Notwithstanding any other provision of this Act" found in subsection 18(12) simply place a limit on the amount of expense that would, without that limitation, be deductible from all income.
[8] The meaning of the above quoted words cannot logically be construed to mean that basic income computing principles can be ignored. In the context in which those words are used, a preferable interpretation would be that notwithstanding the general deductibility of an amount, that amount will be limited.
[9] Section 18 is both permissive and restrictive. Subsection 18(1) provides that in computing income "no deduction shall be made in respect of" specified items. Section 18(2), imposing a limit on certain interest and property tax, uses the words "notwithstanding paragraph 20(1)(c)"[2] and provides that certain interest amounts and property taxes will not be deductible. This is the sense in which the "notwithstanding" portion of subsection 18(12) should be viewed. Paragraph 20(1)(c) is a section permitting interest deduction. It was, therefore, easy to except its application to specific circumstances. There are a number of statutory provisions respecting computation of income. The legislators may have wanted to ensure that all such provisions were neutralized for the purpose of computing the deductibility of home related office expenses and, without enumerating them, used the aforesaid general and broad language appearing in subsection 18(12).
[10] Accordingly, the appeal will be dismissed.
Signed at Ottawa, Canada this 3rd day of November, 2000.
"R.D. Bell"
J.T.C.C.