Jenkins v. The Queen

Jenkins v. The Queen Court (s) Database Tax Court of Canada Judgments Date 2005-03-03 Neutral citation 2005 TCC 167 File numbers 2004-3404(IT)I Judges and Taxing Officers Campbell J. Miller Subjects Income Tax Act Decision Content Docket:2004-3404(IT)I 2004-3405(IT)I BETWEEN: ROBERT H.P. JENKINS and LORENA B. JENKINS, Appellants, and HER MAJESTY THE QUEEN, Respondent. ____________________________________________________________________ Appeals heard on February 21, 2005, at Halifax, Nova Scotia, by The Honourable Justice Campbell J. Miller Appearances: Counsel for the Appellant: Joseph M.J. Cooper, Q.C. Counsel for the Respondent: Edward Sawa ____________________________________________________________________ JUDGMENT Upon reading Minutes of Settlement addressing thirteen of fourteen expense items; And upon hearing the remaining issue in these appeals; The appeals from assessments made under the Income Tax Act for the 2000 and 2001 taxation years are allowed and referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that each of the Appellants are allowed the following additional deductions: a) Motor Vehicle Expense (2000 & 2001): To allow additional business expenses for the 2000 taxation year in the amount of $3,123 and additional business expenses for the 2001 taxation year in the amount of $3,804; b) Interest Expense (2000 & 2001): To allow additional business expenses for the 2000 taxation year in the amount of $1,669 and additional business expenses for the 2001 taxation year in the amount of $5,123; c) Allowance on Eligible Capital Expenditure (2000 & 2001): To allow additional business expenses for the 2000 taxation year in the amount of $1,714 and additional business expenses for the 2001 taxation year in the amount of $1,583; d) Supplies & Material Expense (2000): To allow additional business expenses for the 2000 taxation year in the amount of $488; e) Power & Property Taxes (2000): To allow additional business expenses for the 2000 taxation year in the amount of $393; f) Miscellaneous Expense (2000): To allow additional business expenses for the 2000 taxation year in the amount of $4,785; g) Repairs Expense (2000) and Gear Expense (2000): To allow additional business expenses for the 2000 taxation year in the amount of $155; h) Legal and Accounting Expense (2001): To allow additional business expenses for the 2001 taxation year in the amount of $2,289; i) Building Utilities & Miscellaneous Expense (2001): To allow additional business expenses for the 2001 taxation year in the amount of $1,294; j) Food Expense (2001): To allow additional business expenses for the 2001 taxation year in the amount of $764; k) Capital Cost Allowance (2001): To allow additional business expenses for the 2001 taxation year in the amount of $12; l) Repairs Expense (2001) and Gear Expense (2001): To allow additional business expenses for the 2001 taxation year in the amount of $786; and m) Boat Fuel Expense (2001): To allow additional business expenses for the 2001 taxation year in the amount of $1,001; and n) Business Use of Home Expenses (2000 & 2001): To allow additional business expenses for the 2000 taxation year of $1,891 and for the 2001 taxation year of $1,183.50. Signed at Ottawa, Canada, this 3rd day of March, 2005. "CampbellJ. Miller" Miller J. Citation: 2005TCC167 Date: 20050303 Docket:2004-3404(IT)I 2004-3405(IT)I BETWEEN: ROBERT H.P. JENKINS, and LORENA B. JENKINS Appellant, and HER MAJESTY THE QUEEN, Respondent. REASONS FOR JUDGMENT Miller J. [1] Robert and Lorena Jenkins have appealed by way of Informal Procedure the assessments from the Minister of National Revenue (the Minister) of their 2000 and 2001 taxation years. These appeals related to the deductibility of 14 different heads of expenses of the Jenkins' fishing partnership. On the day of trial, the Jenkins' lawyer and the Respondent's lawyer settled all but one of these matters. They proceeded to trial solely on the issue of whether the Jenkins' were entitled to any deduction for workspace expenses in the home. The Minister argued that the Jenkins did not meet the requirements of subsection 18(12) of the Income Tax Act (the Act) that the workspace was 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 customers in respect of the business. [2] This is an intriguing issue for those engaged in a seasonal business such as fishing, which by its nature requires spending considerable time at sea. What must the fisher do to qualify "home expenses" legitimately incurred in the business as deductible? What is a fisher's principal place of business? Is it only his or her boat? Surprisingly, this issue has not previously been addressed in the jurisprudence. [3] In 2000 and 2001, the Jenkins', carrying on as a partnership, fished lobster and tuna; lobster in May and June, and tuna from July to October. The lobster fishing was carried out on two boats which the Jenkins' owned, the "Lady Lorena" and the "Amber J." For the tuna fishing the Jenkins leased a faster boat the "Bear In Mind", which also had the added feature of a toilet. [4] During lobster season the boats worked out of Annondale in Prince Edward Island, a 12-kilometre drive from the Jenkins' home. The Jenkins kept a 14 by 20 foot wooden structure at the Annondale wharf. It had a cement floor, no electricity, no plumbing, no office space, just a one-room storage space. [5] The Jenkins' home had an attached garage and a basement. In the basement there was a 24 by 26 foot workshop, as well as a ten-foot square office. In the garage, the Jenkins did all their gear and trap repairs as well as built new traps. They maintained approximately 600 traps. They kept rods and reels, ropes and buoys in their garage. They conducted repairs on parts from their boats. The business's filing cabinets were also kept in the garage and when possible, the truck used in the business was also parked in the garage. [6] In the basement office the Jenkins had a fax, telephone and several cabinets. This was where payroll was handled and all records kept. They employed three to four employees. Mr. Jenkins testified that the office was used for all calls in connection with the fishing business. He would occasionally, though not often, meet with two or three others in the office, though meetings with potential customers or other members of the Harbour Authority involved greater numbers, so such meetings might be in the workspace area of the basement, or, weather permitting, outside. Mr. Jenkins would often do the trap building in the basement workshop, as there was better heat. He had an outside door built into the basement to accommodate moving traps in and out. He testified there was no personal use of the office, basement workshop or garage. [7] During the two-month lobster season, Mr. and Mrs. Jenkins were home daily. Their daily outings to sea were solely to harvest lobsters. The ordering of bait and pricing took place primarily from home, though Mr. Jenkins did acknowledge that part of the time he could get bait at the wharf. He also engaged in some bait fishing just prior to the start of lobster season. [8] During the tuna season, Mr. Jenkins was rarely home at it was necessary, as he put it, to chase the fish. In 2000 and 2001 most of the tuna fishing season was spent off the Cape Breton shore. Mr. Jenkins testified that no other business took place on board other than the actual harvesting of the fish. Phoning, recordkeeping, trap building and storage all took place at the home. He estimated that of his business time not at sea, 80% was at the home and 20% attending various meetings involving the fishing business. [9] Mr. Jenkins received unemployment benefits in the off-season, though there is no evidence as to actually what period of time that covered. He and Mrs. Jenkins claimed business use of home expenses of $3,782 in 2000 and $2,367 in 2001. The Minister denied any deductions under this heading. Analysis [10] Subsection 18(12) reads, in part, as follows: 18(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; [11] The parties agreed that if the Jenkins qualified under subsection 18(12), the Partnership be entitled to the full amounts claimed of $3,782 and $2,367. The sole issue therefore is whether the workspace in the home is either the Jenkins' "principal place of business" or used exclusively to earn business income and used on a regular and continuous basis to meet customers. I will address the second branch first. [12] The first question is whether the workspace in the home (office, garage and workshop) was used exclusively to earn business income. I believe it was. Mr. Jenkins described the activity that took place in the office - recordkeeping, payroll, business calls, etc. as all relating to the business. There was no personal use. Similarly, with the basement workshop and the garage, the storage, repairs and construction which occurred all related to the fishing business. There was no evidence of any personal activity. The Jenkins have readily established the exclusive purpose of this space was to earn business income. [13] However, to qualify under this second branch requires that the space be used on a regular and continuous basis for meeting customers. This creates a problem for the Jenkins. One or two meetings a year with potential customers does not constitute a regular and continuous basis of meeting customers. I acknowledge that the very nature of the Jenkins' fishing business is such that there is no regular and continuous meeting of customers. They had one lobster customer. Tuna was sold dockside to buyers just as much as by meetings held in the Jenkins' home. This requirement is simply not directed at the type of business engaged in by the Jenkins. They cannot and do not meet this requirement and therefore do not qualify under subparagraph 18(12)(a)(iii). [14] I turn now to the requirement that the workspace is the Jenkins' "principal place of business". Again, this is a difficult concept to apply to a partnership engaged in the seasonal business of fishing. The Act does not define the expression "principal place of business". [15] Key to what is meant by "principal place of business" is to understand what is meant by "business" in this context. I heard two different explanations in that regard from the parties. The Respondent contends that the business is, as defined in the Act, meant to include profession, calling, trade, manufacture or undertaking of any kind whatever. The Respondent goes further and suggests that business, as used in the context of a principal place of business, must therefore mean the core aspect of the business, being in this case the harvesting of fish; therefore, only the boats can be the principal place of business. This approach leaves to some odd conclusions. For example, the principal place of Imperial Oil would be the oilfield and not its downtown Calgary head office; the principal place of business of a farmer might be the combine and not the farmhouse. I could go on. [16] The other flaw in this approach is that it leads to the possibility of numerous places of business, with a dilemma of how to determine which is the principal place of business. So, if Mr. and Mrs. Jenkins had half a dozen boats, all out at sea throughout the season, are they all "places of business"? Is one of them the "principal place of business"? Is that dependent on the number of fish caught? This quickly deteriorates into an awkward analysis. [17] The Respondent, I suggest, is reading the term "principal place of business" as either "place of principal business" or perhaps "principal place of the business". The Respondent's position would be more defensible if either of those expressions were used - but they are not. The expression is "principal place of business". The Respondent's approach leads to confusion and uncertainty. [18] The Appellant viewed business, in the context of "principal place of business" not in the same light; in effect, asking where does the business side of the business take place? This brings to mind an expression often heard amongst lawyers: "I love the actual practice of law, but hate all the business stuff I have to deal with". I suggest that in asking the man on the Clapham omnibus what is meant by "principal place of business", the answer is likely to be: "where all that business stuff takes place"; not where the oil is drilled or crop is cut, or fish are fished, but where those necessary elements of telephoning customers and suppliers, filling in invoices, doing payroll, maintaining books and records, contacting authorities for licences, preparing tax returns, chasing down receivables, handling complaints, creating business plans, preparing financial statements, talking to accountants and lawyers, etc. That is, I would suggest, what most would understand as the business element of business. The actual harvesting of fish is the core of a fishing business, but it is not the place where the business side of fishing occurs. The fisher catches the fish from a boat - that is all. It is not a place of business let alone the principal place of business. [19] The evidence was that telephoning, recordkeeping, meeting customers, payroll, invoicing, etc. took place from the workspace in the home. In most cases there was no where else these activities took place. In some cases, for example meeting customers, this may have occurred wharfside, but that was a communal place of business, not any one particular fisher's place of business. The Jenkins' principal place of business was the workspace in their home. It was from that place and that place only that the Jenkins handled the business side of their fishing business. That is what is meant by a principal place of business. This matter is referred back to the Minister for reassessment on the basis that the Jenkins' home was indeed their principal place of business, and they are each entitled to 50% of the deductions of $3,782 in 2000 and $2,367 in 2001, being $1,891 and $1,183.50 respectively. Signed at Ottawa, Canada, this 3rd day of March, 2005. "CampbellJ. Miller" Miller J. CITATION: 2005TCC167 COURT FILE NO.: 2004-3404(IT)I and 2004-3405(IT)I STYLE OF CAUSE: Robert H.P. Jenkins and Lorena B. Jenkins and Her Majesty the Queen PLACE OF HEARING: Halifax, Nova Scotia DATE OF HEARING: February 21, 2005 REASONS FOR JUDGMENT BY: The Honourable Justice Campbell J. Miller DATE OF JUDGMENT: March 3, 2005 APPEARANCES: Counsel for the Appellant: Joseph M.J. Cooper, Q.C. Counsel for the Respondent: Edward Sawa COUNSEL OF RECORD: For the Appellant: Name: Joseph M.J. Cooper, Q.C. Firm: Joseph M.J. Cooper, Q.C. For the Respondent: John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Canada