[OFFICIAL ENGLISH TRANSLATION]
2000-4969(IT)I
BETWEEN:
SUZANNE TRUDEAU,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on November 9, 2001, at Montréal, Quebec,
by the Honourable Judge François Angers
Appearances
For the Appellant: The Appellant herself
Counsel for the Respondent: Claude Lamoureux
JUDGMENT
The appeals from the assessments made under the Income Tax Act for the 1995 taxation year and for the 1996 taxation year up to July 31 are allowed without costs and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment.
The appeals from the assessments made under the Income Tax Act for the taxation years included in the period from August 1, 1996, to December 31, 1997, are withdrawn by the appellant.
Signed at Ottawa, Canada, this 22nd day of January 2002.
|
"François Angers" |
J.T.C.C.
Translation certified true
on this 25th day of April 2003.
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
Date: 20020122
Docket: 2000-4969(IT)I
BETWEEN:
SUZANNE TRUDEAU,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Angers, J.T.C.C.
[1] The appellant is appealing from notices of assessment for her 1995, 1996 and 1997 taxation years. The respondent disallowed business losses of $16,904, $17,829 and $2,151 claimed by her for each of those years respectively. The parties are agreed on those amounts. The appellant accepts the respondent's position regarding the period comprising the last five months of 1996 and all of 1997. She admits that she occupied and resided in a self-contained domestic establishment during that period and that the income earned from her business was subject to subsection 18(12) of the Income Tax Act (Act). It must therefore be determined whether the preceding period, namely 1995 and the year 1996 up to July 31, is subject to the same restrictions under that subsection.
[2] The date of July 31, 1996, becomes important because it is the date when the appellant retired from McGill University and moved permanently to Ste-Adèle.
[3] In anticipation of her retirement, the appellant sold her home in Boucherville, Quebec, in February 1995 and purchased a four-bedroom Canadian-style house in Ste-Adèle, Quebec, on March 8 of that year. A few weeks later, she moved the contents of her Boucherville house into a warehouse/garage in Ste-Adèle. She kept her bedroom set, desk, computer, fax machine and clothes. These items were all moved to the home of her cousin Marguerite Lemieux in Montréal, where the appellant took up residence and was to stay until her retirement.
[4] The appellant later made some alterations to the Ste-Adèle property to turn it into a bed and breakfast. She obtained operating permits from the town of Ste-Adèle on June 10, 1995, and received her first guests on June 24, 1995.
[5] Since she was still working 33.75 hours a week for McGill University, she could not be in Ste-Adèle regularly. She therefore hired her nephew, Jean-François Bellemare, who had returned from an eight-year stay out West and who was unemployed. He and the appellant's sister operated the bed and breakfast until October 1995. The appellant went there on weekends and spent her five-week summer vacation there in 1995.
[6] The appellant stayed with her cousin until her cousin died on August 10, 1995. She had entered into no agreement with her cousin, except that she paid half of the food costs. After her cousin's death, the appellant went to stay with friends, Léo Drolet and his wife, who also lived in Montréal. Mr. Drolet testified that he and his wife freed up a room to accommodate the appellant, who moved her bed, television, desk, computer and clothes there. She stayed with the Drolets until her retirement. Mr. Drolet confirmed that the appellant went to Ste-Adèle during her holidays and on weekends. If there were no guests, she stayed at home. No lease or any other agreement was signed by the appellant and the Drolets. Mr. Drolet said that he and his wife merely took in a friend who was in a tight spot and awaiting her retirement.
[7] On October 15, 1995, the appellant's nephew found a job and left the bed and breakfast. She said that, from that time on, she operated the bed and breakfast from Montréal by telephone and through voice mail in Ste-Adèle. She also said that she operated it only on the weekends when there were rentals.
[8] She had four rentals in October 1995, one in November and 14 in December. She had a total of 14 rentals from January to April 1996, 20 in May and June and, finally, 47 in July.
[9] The appellant also testified that her mail went to her office at McGill University, as it was not kept in Ste-Adèle. On cross-examination, she admitted that her summer and Christmas holidays from 1995 until July 1996 were spent in Ste-Adèle. She also said that, when her nephew was there, she shared his room and slept on the floor on a foam mattress. She said that, after he left, it was like going to the cottage on the weekend and that, more often than not, she did not leave Montréal until Saturday morning. Finally, she said that her intention was to go and live in Ste-Adèle when McGill granted her early retirement in July 1996.
[10] For the purposes of the case, the parties have agreed that 35.48 percent of the space in the bed and breakfast was used for personal purposes.
[11] Is the Minister justified in applying subsection 18(12) of the Act to the appellant's business expenses for 1995 and up to July 31 of the following year? Was the bed and breakfast in question a self-contained domestic establishment during that period?
[12] Section 248(1) of the Act defines "self-contained domestic establishment" as follows:
"self-contained domestic establishment" means a dwelling-house, apartment or other similar place of residence in which place a person as a general rule sleeps and eats.
[13] There is no doubt that the Ste-Adèle property satisfies the first part of the definition. However, it must be asked whether the appellant as a general rule slept and ate there during the period at issue.
[14] Subsection 18(12) of the Act reads as follows:
(12) Work space in home - 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.
[15] This subsection adds the words "in which the individual resides" to the term "self-contained domestic establishment". As a result, it must be asked whether the appellant resided at the Ste-Adèle property during the period at issue. The Act does not define the word "residence".
[16] The respondent's argument is that the appellant was in Ste-Adèle regularly. She was there during her holidays and on weekends. Her 1995 tax return and her driver's licence show her address as the Ste-Adèle address. She had possessions in Ste-Adèle, and 35 percent of the space in the house was used for personal purposes. The idea of a bed and breakfast is to take people into one's residence.
[17] The tests set out in Thomson v. Canada (Minister of National Revenue - M.N.R.), [1946] S.C.R. 209 (QL), were cited as the tests for determining an individual's place of residence. The principal tests are the frequency with which the individual goes to the place, the routine of the individual's life in relation to the place, and the way in which the place is occupied.
[18] The appellant said that the Ste-Adèle property was not her residence because she did not live there all the time. She argued that she used it as a cottage during the period in question and that she resided there on a full-time basis only as of July 31, 1996. She prepared her 1995 tax return in April 1996, a few months before she moved, and she put her Ste-Adèle address on it because of her imminent retirement and because she knew she was going there. She said that her principal place of business during the period in question was McGill University.
[19] In Thomson, supra, Kerwin J. dealt with the question of residence as follows:
There is no definition in the Act of "resident" or "ordinarily resident" but they should receive the meaning ascribed to them by common usage. When one is considering a Revenue Act, it is true to state, I think, as it is put in the Standard Dictionary, that the words "reside" and "residence" are somewhat stately and not to be used indiscriminately for "live", "house" or "home". The Shorter Oxford English Dictionary gives the meaning of "reside" as being "To dwell permanently or for a considerable time, to have one's settled or usual abode, to live, in or at a particular place".
[20] In the case at bar, it seems obvious to me that the appellant could not leave Montréal before her retirement. She had to complete the required service with her employer, McGill University, in order to be eligible for early retirement. Although she took the necessary steps to go and live in Ste-Adèle, she could not escape from her obligations in Montréal before July 31, 1996. This explains why she was unable to live, sleep or eat in Ste-Adèle on a regular basis. She was obliged to entrust the operation of the bed and breakfast to her nephew until October. She then ran it herself but did so from a distance, from Montréal. She did not go to Ste-Adèle unless she had to. She did not have to travel there frequently during the winter months.
[21] Applying the tests laid down in Thomson to the facts of this case, the routine of the appellant's life was concentrated mainly in Montréal. She occupied her property in Ste-Adèle only very sporadically. The use of the possessions she kept in Montréal, namely her bed, computer, desk and clothes, allows one to conclude that productivity was important in her work and her daily routine of life. The other material things she needed were provided to her by her cousin and her friends, and I do not think that the terms negotiated with them are a relevant factor.
[22] For these reasons, I cannot conclude that the Ste-Adèle property was a self-contained domestic establishment as that term is defined in the Act. While the appellant intended to operate a bed and breakfast (which normally involves the owner taking guests into his or her home) there, it was impossible for her to do so before she retired. She had to entrust that task to her nephew, who acted as the manager rather than as the owner. Aside from the part in which her nephew lived, the Ste-Adèle property was used exclusively for the operation of the bed and breakfast, and the appellant's sporadic occupation of the property was completely incidental to that activity. I therefore cannot conclude that the appellant as a general rule slept and ate in the Ste-Adèle property during the period in question.
[23] Based on the evidence as a whole, nor can I conclude that she resided in Ste-Adèle before July 31, 1996, according to the tests enunciated in Thomson, supra.
[24] The appeals are therefore allowed for the 1995 taxation year and for 1996 up to July 31. The assessments are referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with these Reasons.
Signed at Ottawa, Canada, this 22nd day of January 2002.
|
"François Angers" |
J.T.C.C.
Translation certified true
on this 25th day of April 2003.
Erich Klein, Revisor