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Docket: 2003-3520(IT)I |
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BETWEEN: |
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RONALD JOSEPH LAVIGNE, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
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Appeals heard on April 6, 2004, at Miramichi, New Brunswick
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Before: The Honourable Justice François Angers |
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Appearances: |
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For the Appellant: |
The Appellant himself |
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Agents for the Respondent: |
Suhanya Edwards (Student-at-Law) Christa MacKinnon |
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JUDGMENT
The appeals from the assessments made under the Income Tax Act for the 1999 and 2000 taxation years are allowed in accordance with the attached Reasons for Judgment. The assessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the Appellant is entitled to claim $525.00 as wage expenses for the 1999 taxation year and workspace in home expenses for the 2000 taxation year based on a percentage of 14.77 of the Appellant's home expenses.
Signed at Ottawa, Canada, this 27th day of April 2004.
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« François Angers » |
Angers, J.
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Citation: 2004TCC306 |
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Date: 20040427 |
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Docket: 2003-3520(IT)I |
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BETWEEN: |
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RONALD JOSEPH LAVIGNE, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
REASONS FOR JUDGMENT
Angers, J.
[1] This is an appeal under the informal procedure regarding the appellant's 1999 and 2000 taxation years. By assessment dated May 9, 2002, the Minister of National Revenue (Minister), disallowed workspace in home expenses for the 2000 taxation year. These expenses represent 18.2% of the appellant's home expenses and have been carried forward from previous years. The amount claimed is $7,487.60. The Minister also disallowed additional cash wages claimed by the appellant for both taxation years. On that last issue, the parties have agreed that an additional deduction of $525.00 for wage expenses for the 1999 taxation year be allowed and none be allowed for the 2000 taxation year. The only outstanding issue is whether the appellant is entitled to claim workspace in home expenses in the amount of $7,487.60 for the 2000 taxation year.
[2] From 1995 to June 2000, the appellant operated a sole proprietorship called "Little Chapel Enterprises" that sold Christian supplies. The business was conducted in a separate building next to his residence, which measured approximately 16 x 24 feet. The appellant also set up a home office in his basement, which measured 11.5 x 18.5 feet. The entire house had a surface of 1,440 square feet. The home office was used for administrative and business purposes. It had enough room to sit four and was equipped with a computer, photocopier, desks, a press engraving table and filing cabinets. It also had a magazine rack, a place to browse through catalogues and a CD player for listening to choral demos. The home space area was open to the public since the store was not big enough; the washroom facilities in the home were also accessible. The home office also carried a complete line of gifts and music as well as cards and books, and the Internet was also made available to place orders. At times, clients would pick up their orders at their residence.
[3] Clients could access the home office from the store side or the front door. They were allowed to use the photocopier at no charge. The engraving was done in the home office about of 10 to 15 times per month. They also used the home office about 10 times a year to meet with families to make funeral arrangements and to provide materials for such occasions. The home office was also used to meet some of the sales representatives who required more privacy and wanted to use the Internet. Finally, the percentage of 18.2% used by the appellant included the common areas and the washroom facilities.
[4] In a letter dated January 10, 2002, and addressed to the respondent, the appellant listed some examples of the use he has made of his home space. It reads:
- Bible engraving machine situated in basement office. Customers waited in the office while their bibles were being engraved.
- Courier service - the courier delivery was between 8 & 9 a.m. and since the store didn't open until 11 a.m. all deliveries were made to the office.
- All orders to be returned were packaged in the office and picked up by the courier there.
- All of the inventory pricing was done in the office by the staff before taking it to be displayed in the store.
- Catalogues for Church viewing were located in the office and the Church members came to the office to sit and view the book order catalogues.
- Music demo packs for contata (sic) ordering could be heard on the CD player in the office. The store only had a cassette player.
- Internet access for product searches was only available in the office. The customer came there to view these sites.
- Sales representatives visited (always after hours) the office for product review and sales. The computer and Internet access were needed to view the sales rep's order form and to see the product. Approximately 6 sales rep's visited our office every 3 to 6 months.
- Sales staff worked in the office doing various book work, filing, creating gift certificates, etc. The customers frequently came to the office after hours to pick up gift certificates, orders and engraved bibles.
- Office items consisted of computer, desk and hutch, computer table, fax, telephone, photo copier, printing press and 2 file cabinets. Please note that the computer had also been in the basement office until the desk and hutch was bought. Because there was insufficient space in the office, the desk and hutch, along with the computer, had to be moved up into the taxpayer's dining room where it was used there.
- Fax and photo copier services were available to the public. The customers came to the office to have these services done.
- Customers and staff used the restroom facilities in the home.
- Cheques or payments were received at the office after store hours.
[5] In order to deduct workspace in home expenses, the appellant must meet the requirements of subsection 18(12) of the Income Tax Act (Act), which reads as follows:
18(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.
[6] The appellant conceded at the hearing that his home office is not his principal place of business. He relies on subparagraph 18(12)(a)(ii) and submits that the requirements of that subparagraph are met on the basis of the evidence.
[7] It seems, from the evidence, that the home office became an extension of the main building in operating the appellant's business. Its use was necessary because of the limited space in the main building. The space it occupied in the appellant's home, as per the layout produced in evidence, was used exclusively to earn business income, with the exception of the common areas and the washroom. The equipment used and its availability to the business' clients made it an ongoing and exclusive business activity for the purpose of earning income.
[8] Due to the nature of the appellant's business, the home office space was available to its clients on a regular and continuous basis. It was open at the same time as the main building and clients could access the home office to shop, use the photocopier, search for material on the Internet, listen to music demos and wait for their bible to be engraved. It was also used to meet families to arrange funeral services and to meet salespeople as was needed. It was open to the public on a regular basis. The nature of the business conducted in the home office was regular and continuous and clients had access to the space at all times.
[9] On the basis of the evidence, I therefore find that the appellant has met the requirements of subparagraph 18(12)(a)(ii) in that the home space was used exclusively for the purpose of earning income and was used on a regular and continuous basis for meeting clients and customers. I would allow only a percentage of 14.77 instead of the percentage of 18.2 used by the appellant since the space included the common areas and the washroom.
[9] The appeals for both taxation years are allowed and the assessments are referred back to the Minister for reconsideration and reassessment on that basis.
Signed at Ottawa, Canada, this 27th day of April 2004.
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« François Angers » |
Angers, J.
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CITATION: |
2004TCC306 |
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COURT FILE NO.: |
2003-3520(IT)I |
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STYLE OF CAUSE: |
Ronald Joseph Lavigne and Her Majesty the Queen |
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PLACE OF HEARING: |
Miramichi, New Brunswick |
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DATE OF HEARING: |
April 6, 2004 |
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REASONS FOR JUDGMENT BY: |
The Hon. Justice François Angers |
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DATE OF JUDGMENT: |
April 27, 2004 |
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APPEARANCES: |
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For the Appellant: |
The Appellant himself |
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For the Respondent: |
Suhanya Edwards (Student-at-Law) Christa MacKinnon |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
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Firm: |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |