T-1859-85
The Queen (Plaintiff)
v.
Nick Thompson (Defendant)
INDEXED AS: THOMPSON V. M.N.R. (T.D.)
Trial Division, McNair J.—Vancouver, April 19;
Ottawa, September 8, 1989.
Income tax — Income calculation — Deductions — Sales
representative paid salary plus commission — Required by
employer to maintain office in home — Deducting portion of
mortgage payments, taxes and insurance as home office
expenses — No deduction under s. 8(1)(f) as receiving travel
expense allowance not included in computing income under s.
6(1)(b)(v) — Not deductible under s. 8(1)(i) — Plain meaning
of "office rent" in context of scheme of Act not encompassing
amounts claimed — Portion of utilities, deductible under s.
8(1)(i)(iii) as office supplies.
Construction of statutes — Taxpayer, an employee, deduct
ing mortgage payments on home as "office rent" under Income
Tax Act, s. 8(1)(i) — Within exception to strict rule of
statutory interpretation of taxing statute as taxpayer seeking
to rely on specific deduction — Plain meaning rule of statu
tory interpretation applied — Amounts claimed not "rent".
This was an appeal from the Tax Court decision rejecting a
deduction for maintaining an office in the taxpayer's residence.
The taxpayer, a sales representative, earned a salary plus
commission on sales exceeding a certain quota. He was also
paid a travelling expense allowance which was not included in
income under subparagraph 6(1)(b)(v). He was required by his
employer to maintain an office in his home, for which he
deducted a portion of his mortgage payments, insurance and
taxes as office rent under subparagraph 8(1)(i)(ii). The Minis
ter disallowed the total deduction claimed in 1980 as constitut
ing personal or living expenses. At that time the defendant did
not maintain a separate area in his home as an office. The
Minister allowed a small deduction in 1981 for a prorated
portion of home heating and hydro costs.
Held, the appeal should be allowed, subject to varying the
1980 reassessment by allowing an amount for home office
expenses.
The earlier cases cited as dealing with deductions of home
office expenses involved deductions as business expenses under
the applicable statutory provisions and did not decide whether
such expenses could be deducted by an employee. Although, the
Tax Court allowed the deduction of such expenses by
employees in Drobot, D.A. v. M.N.R., it has recently rejected
that decision: Phillips v. M.N.R.. Estey J. in Stubart Invest
ments Ltd. v. The Queen held that the strict rule of statutory
interpretation, whereby ambiguities in the charging provisions
of a taxing statute were to be resolved in favour of the
taxpayer, did not apply where a taxpayer sought to rely on a
specific deduction. In such situations, the strict rule required
that the taxpayer's claim fall clearly within the exempting
provisions. Applying the plain meaning of "rent" in the context
of the Act, and notwithstanding the illogical unfairness of the
section in permitting such deductions in the case of business or
professional persons, it cannot be expanded to incorporate a
portion of mortgage interest, insurance and property taxes. As
stated by the Tax Court in Felton v. M.N.R., "office rent"
connotes payment for use of office property arising out of a
landlord and tenant relationship. The amounts claimed for
home office expenses were not deductible as "office rent" under
subparagraph 8(l)(i)(ii).
The defendant failed to bring himself within the deduction
provisions of paragraph 8(1)(J). The receipt of an allowance for
travelling expenses that was not required to be included in
computing his income by virtue of subparagraph 6(1)(b)(v) was
contrary to the condition imposed by subparagraph 8(1)(J)(iv).
The plaintiff conceded, in line with departmental policy
guidelines, that a portion of the amounts claimed for utilities
should be allowed as home office expenses under subparagraph
8(1)(i)(iii) for both years. That concession should not be denied
by an overly rigorous adherence to the plain meaning rule of
statutory interpretation.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Income Tax Act, S.C. 1970-71-72, c. 63, ss. 6(1)(b)(v),
8 (l)(J),(i),(ii),(iii), 18( 1 )(a),(h), 172(1).
CASES JUDICIALLY CONSIDERED
REVERSED:
Thompson, N. v. M.N.R. (1985), 85 DTC 362 (T.C.C.).
OVERRULED:
Drobot, D.A. v. M.N.R. (1987), 87 DTC 371 (T.C.C.);
Prewer, B. v. M.N.R. (1988), 89 DTC 171 (T.C.C.).
APPLIED:
Phillips v. M.N.R., No. 88-1005 (IT), Rowe J., judgment
dated 1/11/88, T.C.C., not reported; Felton, R. v. M.N.R.
(1989), 89 DTC 233 (T.C.C.); Stubart Investments Ltd.
v. The Queen, [ 1984] 1 S.C.R. 536; 84 DTC 6305.
DISTINGUISHED:
English V. M.N.R. (1956), 56 DTC 267 (T.A.B.); Locke
v. M.N.R. (1965), 65 DTC 223 (T.A.B.); Brooks, P. v.
The Queen (1978), 78 DTC 6505 (F.C.T.D.); Merchant,
E.F.A. v. M.N.R. (1982), 82 DTC 1764 (T.R.B.); Roy,
C. v. M.N.R. (1985), 85 DTC 261 (T.C.C.).
REFERRED TO:
Heakes v. M.N.R. (1963), 63 DTC 667 (T.A.B.).
COUNSEL:
Brent Paris for plaintiff.
APPEARANCE:
Nick Thompson on his own behalf.
SOLICITORS:
Deputy Attorney General of Canada for
plaintiff.
DEFENDANT ON H IS OWN BEHALF:
Nick Thompson, Prince George, British
Columbia.
The following are the reasons for judgment
rendered in English by:
MCN AIR J.: This is an appeal by the plaintiff,
pursuant to subsection 172(1) of the Income Tax
Act [S.C. 1970-71-72, c. 63], from a decision of
the Tax Court of Canada allowing in part the
defendant's appeal from reassessments of his
income for the 1980 and 1981 taxation years.
The defendant taxpayer is a sales representative
for a tobacco company, RJR-MacDonald Inc., and
earns a basic salary plus commissions on sales
exceeding a certain quota. The defendant resides
in Prince George, British Columbia, from where
he services a large sales area. His employer's
nearest regional office is located in Richmond,
British Columbia, a distance of some 480 miles
from Prince George. In his 1980 return of income
the defendant reported total earnings of
$21,874.10, including commissions of $1,365.64.
His 1981 return showed an amount of $24,776.60
for total earnings, but without any specific alloca
tion for commissions. The defendant believes he
may have earned commissions of about $300 in
that year. He was also paid by his employer during
each of the taxation years in question a travelling
expense allowance of $500, which was not included
in income. The Tax Court of Canada found as a
fact that there was commission income of
$1,365.64 for 1980 and $300 for 1981, based on
the apparent agreement of the Minister. Plaintiff's
counsel maintains that there was no such agree
ment with respect to the commission income figure
of $300 for 1981, pointing out that the T4 slips
provided by the taxpayer's employer showed no
commission income in either of the taxation years.
In any event, he contends that there was no com
mission income earned by the defendant in 1981.
The taxpayer claimed for the 1980 and 1981
taxation years the following expenses for maintain
ing an office in his residence:
1980 1981
Rent $3,600.00 Rent $2,136.00
Utilities 91.80 Heat 240.00
Hydro 113.77 Hydro 180.00
Gas 137.47 Phone 28.80
Phone 88.20 Taxes 287.20
Insurance 86.00 Insurance 80.00
Improvements 192.00
TOTAL $2,952.00
Office
Construction 3,084.36
TOTAL $7,393.60
The amounts claimed by the taxpayer as rent
were arrived at by taking the base equivalent of
the monthly amortized mortgage payment as
representing primarily interest and multiplying the
same by twelve. The defendant owned two houses
during the years 1980 and 1981, having sold one
and built another. His wife was co-owner of these
homes. A corner of the kitchen and dining room
area of the first house was utilized as a working
office, which contained a desk and the household
phone and some files. One of the three bedrooms
was used exclusively as a storage area for cigarette
cartons. The defendant entertained customers at
home from time to time. He felt that he could
legitimately claim fifty percent of the approximate
1,100 square foot living area of his home as office
space. The second home built in 1981 had a por
tion of the basement renovated for office and
storage area comprising approximately 150 square
feet as against 1,130 square feet for the total living
area. In this case, twenty-five percent was said to
have been claimed for office expenses. However,
the actual arithmetical results obtained by the
defendant in his statement of expenses for that
year represented forty percent.
The Minister disallowed the total deduction of
$7,393.60 for 1980 as personal or living expenses
and similarly disallowed all but $139 of the 1981
deduction of $2,952. The portion allowed was the
prorated amount for hydro and heating expenses
according to the square footage of office area in
proportion to the total square footage of the house.
In reassessing the defendant for the 1980 and
1981 taxation years, the Minister of National
Revenue relied, inter alia, upon paragraph 8(1)(f),
and subparagraphs 8(1)(i)(ii) and 8(1)(i)(iii) of
the Income Tax Act, S.C. 1970-71-72, c. 63.
Plaintiff's counsel conceded at the commence
ment of trial that the defendant was required
under his contract of employment to maintain an
office in his home. The converse allegation had
been pleaded initially. Essentially, the plaintiff's
position comes down to this: during his 1980 taxa
tion year the defendant did not maintain a sepa
rate area in his home for the purpose of earning
income with the result that the total amount
claimed as a deduction by the defendant for the
home office in 1980 and the amount so claimed in
1981 to the extent it exceeded $139 were personal
or living expenses to the defendant and were cor
rectly disallowed by the Minister of National
Revenue. Plaintiff's counsel also submits that the
defendant is not entitled to any deduction for
office rent expenses because he was at all material
times the owner of his own home and as such did
not incur any rent expense. The further submission
is made that in his 1980 and 1981 taxation years
the defendant was not entitled to any deduction
under paragraph 8(1)(f) of the Act because he
received a travelling expense allowance in those
years which was not included in computing his
income by virtue of subparagraph 6(1)(6)(v) of
the Act.
The defendant stresses the fact that he was
required by his employer to maintain an office in
his home and that he followed the guidelines of
Revenue Canada in submitting his claims for
home office expenses in the taxation years 1980
and 1981. He points to the inconsistency flowing
from the allowance of the prorated costs of heat
and hydro for office expenses in 1981 and the
disallowance of any expenses in 1980. He presses
the point that home office expenses are recogniz
able under the Act if one is required by his
employment to maintain an office at home. He
also submits that equating rent with a mortgage
payment is not improper in the circumstances,
pointing out that if he had leased separate office
space it would probably have cost more than using
a part of his home. In summary, he puts his case
this way:
It would seem rather ludicrous to me that because there's
cigarettes piled in one room, I have files and clipboards and
binders and that sort of thing stacked up in the kitchen against
the wall, that not only are the rooms used for a dual purpose
but the main purpose would be not only to provide a home but
also to provide a place from which I can operate my business up
in the north country.
Paragraph 8(1)(f), and subparagraphs
8(1)(i)(ii) and 8(1)(i)(iii) of the Income Tax Act
read as follows:
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:
(/) where the taxpayer was employed in the year in connec
tion with the selling of property or negotiating of contracts
for his employer, and
(i) under the contract of employment was required to pay
his own expenses,
(ii) was ordinarily required to carry on the duties of his
employment away from his employer's place of business,
(iii) was remunerated in whole or part by commissions or
other similar amounts fixed by reference to the volume of
the sales made or the contracts negotiated, and
(iv) was not in receipt of an allowance for travelling
expenses in respect of the taxation year that was, by virtue
of subparagraph 6(1)(b)(v), not included in computing his
income,
amounts expended by him in the year for the purpose of
earning the income from the employment (not exceeding the
commissions or other similar amounts fixed as aforesaid
received by him in the year) to the extent that such amounts
were not
(y) outlays, losses or replacements of capital or payments
on account of capital, except as described in paragraph (j),
or
(vi) outlays or expenses that would, by virtue of paragraph
l8(1)(!), not be deductible in computing the taxpayer's
income for the year if the employment were a business
carried on by him;
(i) amounts paid by the taxpayer in the year as
(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,
(iii) the cost of supplies that were consumed directly in
the performance of the duties of his office or employment
and that the officer or employee was required by the
contract of employment to supply and pay for,
to the extent that he has not been reimbursed, and is not
entitled to be reimbursed in respect thereof;
There are a number of cases dealing with the
deductibility of home office expenses under the
foregoing and other provisions of the Income Tax
Act and it might be useful to review those con
sidered to be most on point in relation to the facts
and issues raised by the present case. Deductions
claimed for home office expenses as a business
expense under former paragraph 12(1)(a) [now
paragraph 18(1)(a)] were disallowed as personal
or living expenses under former paragraph
12(1)(h) [now paragraph 18(1)(h)] in English v.
M.N.R. (1956), 56 DTC 267 (T.A.B.); Locke v.
M.N.R. (1965), 65 DTC 223 (T.A.B.); Heakes v.
M.N.R. (1963), 63 DTC 667 (T.A.B.); and
Brooks, P. v. The Queen (1978), 78 DTC 6505
(F.C.T.D.). In the English case the Board
Member, Mr. Fordham, Q.C., stated at page 268:
Appellant ... acknowledged that he had not paid rent for the
study to anyone. A private individual cannot be the owner of
realty and his own tenant thereof at the same time; he cannot
pay rent to himself. There was no payment or expense relating
to the use of the study that would not have been made or
incurred by the appellant in any event and regardless of
whether or not a study was available. [Emphasis added.]
In Locke v. M.N.R., supra, the Board followed the
Heakes case in disallowing a lawyer's claim for
home office expenses on the ground that he had
failed to bring himself within the exception con
tained in paragraph 12(1)(a) by reason that it had
not been shown that the office was definitely sepa
rate from the living quarters of the house and was
an area in which an appreciable amount of busi
ness was transacted. In Brooks, P. v. The Queen,
supra, Grant D.J. considered the applicability of
former paragraph 12(1)(d) [now paragraph
18(1)(d)] and held [at page 6506] that the taxpay
er could not bring his case within its wording "as
he was the owner of the property and not the
lessee".
However, things change with the passage of
time and recent case law developments in the Tax
Court of Canada represent something of a diver
gence from the rigidity of the earlier decisions
relating to home office expenses. In Merchant,
E.F.A. v. M.N.R. (1982), 82 DTC 1764 (T.R.B.),
a lawyer specializing in litigation was allowed the
expenses of a home office used extensively for
meeting clients, doing dictation and answering
phone calls for the purposes of his practice. The
Tax Review Board member, Mr. M.J. Bonner,
avoided the impact of the Brooks and Locke cases
by propounding the following test at page 1765:
The question whether the purpose test of paragraph 18(1)(a) of
the Act is met or not is essentially one of fact and the cases
relied upon by the Respondent have little bearing, having
regard to what was established in evidence here.
In Roy, C. v. M.N.R. (1985), 85 DTC 261, the
Tax Court of Canada applied the same test in
allowing the home office expenses of an investment
dealer, whose income was derived exclusively from
commissions, at one-half the rent of his apartment
premises. The purpose of the office was to gain or
produce income from the taxpayer's business and
the evidence satisfactorily established that it was
used primarily as a business office and only occa
sionally for personal use.
These were all cases involving claims for the
deduction of home office expenses as business
expenses under the applicable provisions of the Act
and the problem of the deductibility of such
expenses by employees was yet to be encountered.
It came prominently to light in the case of Drobot,
D.A. v. M.N.R. (1987), 87 DTC 371 (T.C.C.).
Here, the taxpayer, who was required as a term of
his employment to maintain an office in his home,
claimed twenty percent of the expenses thereof,
including electricity, gas, interest (presumably
mortgage), insurance, property taxes and repairs
and maintenance. The Minister disallowed the
amounts claimed for interest, insurance and taxes,
but allowed the others as supplies under subpara-
graph 8(1)(i)(iii). The deductions were claimed by
the taxpayer as office rent. The Court regarded as
illogical the allowance of electricity, gas, repairs
and maintenance as supplies that were consumed
under subparagraph 8(1)(i)(iii) and the disallow-
ance of the other attendant costs of interest, insur
ance and taxes, and allowed the deduction of all
the home office expenses as office rent. Taylor
T.C.J. proffered the following rationale at
page 373:
I would suggest that the interpretation of subparagraph
18(I)(i)(ii) as it applies to this case, "office rent ... the
payment of which ... was required by the contract of employ
ment" might well be looked at from the viewpoint of the
employer. I am prepared to interpret that clause as simply
meaning that the contract of employment must require that the
employee maintains an office, and himself, be responsible for
any costs associated therewith, or as in this case any additional
costs arising out of the provision of this space for purposes of
gaining his income. The deduction Mr. Drobot seeks should
qualify as office rent for purposes of subparagraph 18(l)(i)(ii)
of the Act.
In Prewer, B. v. M.N.R. (1988), 89 DTC 171
(T.C.C.), the taxpayer sought to deduct as home
office expense under subparagraph 8(1)(i)(ii) one-
third of the cost of maintaining a townhouse which
she owned with her husband, not including mort
gage interest or capital cost allowance. She con
verted one of three bedrooms to an office for doing
administrative and accounting work after hours in
order to enable her to carry on sales duties for her
employer during the day. Her employer signed a
tax form T2200 stating that she was required to
maintain an office in her home. One of the Minis
ter's grounds for disallowing the deduction was
that the taxpayer owned the premises where she
maintained an office and therefore did not incur
"office rent". The Court upheld the appeal to the
extent of allowing ten percent of the residence
expenses for heat and hydro as "home office" rent.
Sherwood D.J.T.C. applied the principle of
Drobot, D.A. v. M.N.R. in rejecting the Minister's
contention regarding office rent. The basis of the
decision is contained in the following passage from
his judgment, at page 172:
In the instant appeal the Appellant could probably have
issued cheques payable to her husband or to him and herself
and characterized them as "rent" but that seems unnecessary.
Why should the costlier expedient of renting a room from a
neighbour qualify for a deduction but the cheaper and more
convenient one of using part of her own home not qualify for
deduction? I conclude that reasonable expenses of using space
in one's own home to meet a requirement for office space away
from an employer's establishment are deductible under sub-
paragraph 8(l)(i)(ii).
The case under appeal, cited as Thompson, N. v.
M.N.R. (1985), 85 DTC 362 (T.C.C.), seems to
have been decided primarily on the point of the
Minister's concession in allowing the deduction of
office rent of $139 for the prorated heating and
hydro costs in 1981, while rejecting the other
deduction sought for office rent. In the result,
Taylor T.C.J. allowed the deduction of the costs
claimed for rent and telephone in the sums of
$3,688.20 for 1980 and $2,164.80 for 1981.
The converse result was achieved in two recent
cases in the Tax Court of Canada, namely, Phil-
lips v. M.N.R. [No. 88-1005(IT), Rowe J., judg
ment dated 1 / 1 1/88, T.C.C., not reported] and
Felton, R. v. M.N.R. (1989), 89 DTC 233
(T.C.C.). In Phillips, the Court rejected the
Drobot decision and held that the taxpayer was
disentitled to deduct a portion of his mortgage
interest, insurance and property taxes as they
related to the maintenance of an office in his
personal residence on the ground that the plain
meaning of the word "rent" could not be expanded
to incorporate such an allocation of costs, even
though done in accordance with recognized
accounting principles.
In Felton, R. v. M.N.R., supra, the issue was
whether the appellant taxpayer could properly
deduct as office rent under subparagraph
8(1)(i)(ii) one-sixth of his home expenses, includ
ing mortgage interest, property taxes, insurance
and the cost of utilities and maintenance for his
home. The amounts claimed were not in issue. The
appellant was required by his contract of employ
ment to maintain an office in his home, which was
used exclusively for purposes of his employment.
The respondent reassessed the appellant on the
basis that none of these costs was deductible in
computing income pursuant to subparagraphs
8(1)(i)(ii) or (iii). It was not argued on the appeal
that some expenses for maintenance of owned
premises, such as fuel, electricity, cleaning ma
terials and minor repairs, might have been deduct
ible as the cost of supplies under subparagraph
8(1)(i)(iii) of the Act. Consequently, the issue was
confined solely to the meaning of the term "office
rent" as used in subparagraph 8(1)(i)(ii). The
taxpayer's appeal was dismissed on the ground
that the words "office rent" in subparagraph
8(1)(i)(ii) connoted only a payment for use of
office property arising out of a landlord and tenant
relationship, according to the ordinary dictionary
and common law meaning of the word "rent". The
Court was of the view that some expenses might
have been deductible under subparagraph
8(1)(i)(iii), but that had not been argued.
Rip T.C.J. considered whether the word "as" in
the first line of paragraph 8(1)(i) might connote
the inclusion of "the equivalent of or in the nature
of office rent". Reading the word in context with
the scheme of the Act, he concluded that if Parlia-
ment had wanted to extend the class of things
introduced by the word "as", it would have used
additional words. The strict ratio of the case is
contained in the following passage from the judg
ment of Rip T.C.J., at pages 234-235:
The words "rent" and "loyer" in subparagraph 8(I)(i)(ii)
contemplate a payment by a lessee or tenant to a lessor or
landlord who owns the office property in return for the exclu
sive 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 mainte
nance 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
Phillips 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 subparagraph
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 Investments 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 begin
ning 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 page 578 (see
DTC, at page 6323):
Professor Willis, in his article, supra, accurately forecast the
demise of the strict interpretation rule for the construction of
taxing statutes. 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.
I turn now to the question whether the expenses
claimed for the taxation years 1980 and 1981
qualify as allowable deductions for salesman's
expenses under paragraph 8(1)(f) of the Act.
There can be no doubt that the defendant comes
within the conditions prescribed by subparagraphs
(i) and (ii) of paragraph 8(1)(f).
As to subparagraph (iii) of paragraph 8(1)(f),
the defendant earned commission income of
$1,365.64 in 1980 as part of his total salary remu
neration. The dispute concerns the matter of com
mission remuneration in 1981. The defendant
recollects that he earned commissions of about
$300 in that year. The Crown takes the position
that he earned none, based on the fact that nothing
was shown in the appropriate space or block of the
T4 slips accompanying the defendant's tax returns
for those years. A vigorous cross-examination on
the point elicited the fact that separate, component
amounts for the total commission income of
$1,365.64 earned in 1980 were reported in block
"K" of the T4 slips for that year as taxable
allowances and benefits, rather than in block "L"
designated for commissions. I am satisfied on the
defendant's evidence that the same method of
reporting commission income on the T4 slips was
followed in the 1981 taxation year. Considering
the evidence in its entirety, I find as a fact that the
defendant earned commission income of $1,446.25
in the 1981 taxation year with the result that the
condition prescribed by subparagraph (iii) has
been met. However, this is of little avail to him in
the circumstances. In my opinion, the defendant
has failed to comply with the condition prescribed
by subparagraph (iv) inasmuch as he received
from his employer a reasonable allowance for trav
elling expenses that was not required to be includ
ed in computing his income by virtue of subpara-
graph 6(1)(b)(v). That being the case, the
defendant has failed to bring himself within the
deduction provisions of paragraph 8(1)(f) of the
Income Tax Act. Under the circumstances, it is
unnecessary to decide the point pressed by the
Crown, namely, that the amount claimed for the
expense of office construction in 1980 and the
amounts claimed in both taxation years for rent as
being the equivalent of mortgage interest are disal-
lowable as payments on account of capital under
subparagraph 8(1) (f) (v) .
The question remains: are the amounts claimed
for home office expenses in the 1980 and 1981
taxation years deductible as "office rent" under
subparagraph 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.
As mentioned, the defendant questioned stren
uously the illogicality of allowing a deduction for
the prorated cost of these last-mentioned items in
1981 and refusing to allow anything for them in
1980. The departmental policy guidelines con
tained in Interpretation Bulletin IT-352R suggest
that an employee be permitted to deduct a reason
able portion of the cost of fuel, electricity, light
bulbs, cleaning materials and minor repairs as
home office expenses under subparagraph
8(1)(i)(iii) of the Act. Counsel for the plaintiff
conceded that one-third of the amounts claimed
for utilities, gas and hydro should be allowed to
the defendant for the 1980 taxation year. In view
of that, the matter is taken beyond the point of
quibbling over statutory words. Certainly, I do not
feel constrained to refuse the concession by an
overly rigorous adherence to the plain meaning
rule of statutory interpretation. In the circum
stances, I consider that the 1980 reassessment of
the defendant's income should be varied by allow
ing the amounts of $30.60, $45.82 and $37.92 for
utilities, gas and hydro respectively.
The plaintiff's appeal is therefore allowed in the
main, subject only to varying the 1980 reassess
ment in respect of the aforementioned amounts
allowed for the utilities, gas and hydro expenses of
the defendant's home office, and the matter is
referred back to the Minister for varying the reas
sessment accordingly. The plaintiff was not fully
successful on the appeal so there will be no order
as to costs.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.