A-I185-84
Her Majesty the Queen (Appellant)
v.
Justin A. Cork (Respondent)
INDEXED AS: CANADA v. CORK (C.A.)
Court of Appeal, Heald, Marceau and Stone
JJ.A.—Toronto, May 8; Ottawa, May 16, 1990.
Income tax — Income calculation — Deductions — Wheth
er rent, insurance and automobile expenses deductible under s.
18(1)(a),(h) of Act, by self-employed mechanical design
draftsman using room in home as office and travelling to and
from different work sites — Whether office or work sites locus
in quo of exercise of trade — Whether travel from home to
work sites and return travel qua home or qua place of work
Trial Judge not erring in finding respondent using home as
basis of business operations — Evidence establishing need for
office — Travelling expenses incurred while away from home
carrying on business — Travel from house and back was qua
work and not qua home — Trial Judge not erring in finding
rent and insurance expenses deductible.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Income Tax Act, R.S.C. 1952, c. 148, s. 12(1)(a),(h).
Income Tax Act, S.C. 1970-71-72, c. 63, s. 18(1)(a),(h).
Income Tax Act, 1952, 15 & 16 Geo. 6, c. 10 (U.K.), s.
137(a).
CASES JUDICIALLY CONSIDERED
APPLIED:
Horton v Young (Inspector of Taxes), [1971] 3 All ER
412 (C.A.).
DISTINGUISHED:
Cumming, Ronald K. v. Minister of National Revenue,
[1968] 1 Ex.C.R. 425; (1967), C.T.C. 462; (1967), 67
DTC 5312.
REFERRED TO:
The Queen v. Cork (J), [1984] CTC 479; (1984), 84
DTC 6515 (F.C.T.D.); Newsom v. Robertson (Inspector
of Taxes), [1952] 2 All E.R. 728 (C.A.); Lessard v.
Paquin et al., [1975] 1 S.C.R. 665; (1974), 56 D.L.R.
(3d) 726; 10 N.R. 620; The Queen v Gurd's Products Co
Ltd, [1985] 2 CTC 85; (1985), 85 DTC 5314; 60 N.R.
184 (F.C.A.).
COUNSEL:
R. E. Taylor and M. Judith Sheppard for
appellant.
Brian R. Carr and Neal H. Armstrong for
respondent.
SOLICITORS:
Deputy Attorney General of Canada for
appellant.
Davies, Ward & Beck, Toronto, for respond
ent.
The following are the reasons for judgment
rendered in English by
STONE J.A.: This is an appeal from the judg
ment of Muldoon J. [[1984] CTC 479 (F.C.T.D.)]
rendered September 21, 1984, whereby the appel
lant's appeal from the decision of the Tax Review
Board with respect to reassessments of income tax
for the taxation years 1974, 1975 and 1976, was
dismissed with costs. In computing his income
from his earnings as a self-employed mechanical
design draftsman for those years Mr. Cork deduct
ed automobile expenses (including a proportionate
share of capital costs allowance), rent and insur
ance premiums. It is the deductibility of these
amounts that is at issue in the present appeal.
Work engagements
Mr. Cork resided in the City of Toronto in the
years in question, and worked at a number of sites
for various periods of time both inside and outside
of the Metropolitan area. Most of his engagements
were arranged through placement agencies whose
services the respondent retained. The duration of
each engagement varied from 30 to 157 days.
Three engagements for 1, 30 and 47 days, were
arranged directly by Mr. Cork.
Engagements effected through a placement
agency were arranged in the following manner.
The agency required of Mr. Cork information
about his qualifications and availability. After sol-
iciting clients, the agency notified Mr. Cork if and
when work suitable to his qualifications was avail
able. Mr. Cork was referred to the client for
approval, after which a contract was made be
tween him and the agency for an hourly fee to be
paid by the agency. In turn, the agency contracted
with the client for an hourly fee including a mark
up for providing the drafting services.
Mr. Cork's practice was to take with him to a
work site a bag, a brief case and items such as
special pencils, squares, rubbers and instruments
for drawing circles and straight lines for working
on a drafting table. Other equipment and ma
terials were provided at the site. The work was
done on an hourly basis including overtime. Mr.
Cork kept a record of his hours on time sheets
provided by the agency and these were signed by
an engineer of the client. These records enabled
him to prepare an invoice at the end of each work
week showing the number of hours worked during
the week and the agreed upon rate of pay. The
invoice was dispatched to the agency for payment.
Use of taxpayer's home
During the taxation years in question, Mr. Cork
used one of the bedrooms in his residence as an
office. It contained a desk and chair, a lamp, a
typewriter, a filing cabinet and a drafting board.
This room was used by him for preparing the
invoices, updating his resume, typing letters to
prospective employers and making calculations
and preparing sketches in connection with the then
current engagement. It was also used by him for
filling out income tax forms as well as for keeping
track of expenses and for paying hydro and medi
cal bills. The drafting board in this room was used
by him, for the most part, in designing a speed
boat on his own time during evenings and on
Saturdays.
Expenses claimed
In computing his income as a self-employed
mechanical design draftsman for the taxation
years in question, Mr. Cork claimed the following
amounts as deductions:
1974 1975 1976
Accounting, Legal $ 130.00 $ 100.00 $ 125.00
Automobile* 1,078.97 970.13 2,092.24
Business Tax, Fees, Licence 25.00 "nil" "nil"
Fire & Liability Insurance* 33.00 33.00 33.00
Interest, Bank Charges 2.00 6.00 "nil"
Postage, Stationery 87.50 122.15 75.79
Rent:* (2/6 of total rent paid) 1,169.22 1,180.00 1,274.40
Telephone (business portion) 99.12 141.85 200.13
Subscriptions 26.00 "nil" "nil"
Capital Cost Allowance "nil" 400.00 1,341.15
Travelling Expenses
(other than automobile) "nil" "nil" 1,114.03
$2,650.81 $2,953.13 $6,255.74
*items under appeal
The bulk of automobile expenses claimed was for
driving to and from work sites.
Statutory provisions
Whether the expenses in dispute are deductible
in computing Mr. Cork's income for the taxation
years in question depends upon the true construc
tion of paragraphs 18(1)(a) and (h) of the Income
Tax Act, R.S.C. 1952, c. 148 as amended by S.C.
1970-71-72, c. 63, (the "Act"). Those paragraphs
read:
18. (1) In computing the income of a taxpayer from a
business or property no deduction shall be made in respect of
(a) an outlay or expense except to the extent that it was
made or incurred by the taxpayer for the purpose of gaining
or producing income from the business or property;
• • •
(h) personal or living expenses of the taxpayer except travel
ling expenses (including the entire amount expended for
meals and lodging) incurred by the taxpayer while away
from home in the course of carrying on his business;
The trial judgment
The learned Trial Judge concluded that the
expenses were deductible and, in doing so, made
the following findings of fact:'
At p. 481.
The evidence satisfactorily establishes the defendant's need
for an office or base of business operations. Most frequently he
obtained engagements to perform his drafting services through
placement agencies. But not being clairvoyant about further
prospects of obtaining work he wrote directly to prospective
employers, typing the letters in his office. There he up-dated his
resume of work experience from time to time: thrice in 1974,
four times in 1975, and thrice again in 1976. In 1974-75 he
made many telephone calls to placement agencies. (He did not
place a telephone extension line from his living room into his
office, simply to avoid the expense of so doing.) In his office the
defendant kept a desk and chair, a typewriter, a lamp, a filing
cabinet, his invoice forms and letterheads, as well as a small
drafting board. He kept his drafting instruments there. Also,
since time was of the essence in his work, he used his office to
perform calculations and to prepare sketches for the next day's
work. The defendant's office was, as Denning, M.R. put it in
Horton v Young, [1971] 3 All ER 412, the "locus in quo" from
which the defendant's trade radiated to the various sites as his
work demanded.
Paragraph 18(1)(h) expenses
I shall deal, first, with the deductibility of the
travelling expenses. Counsel for the appellant sub
mits that these should not be allowed because they
do not fit within any of the categories of expenses
that have been recognized to be deductible,
namely, (a) where the travel itself is a service for
which the taxpayer's customers are required to
pay, as would be in the case of a home appliance
repairman; (b) where the taxpayer does his income
earning work at this home and goes out from that
place to pick up the work; (c) where the taxpayer
works away from his home but does a substantial
amount of administrative work at home and that
work is an integral part of the income earning
process in nature and quantity (Cumming, Ronald
K. v. Minister of National Revenue, [1968] 1 Ex.
C.R. 425; (1967), 67 DTC 5312, was cited for the
proposition); (d) where the taxpayer works mainly
away from his home but has to return to the home
so that he may discover where he is going to be
working the next day (Horton v Young (Inspector
of Taxes), [1971] 3 All ER 412 (C.A.) was cited
for the proposition).
Counsel for the appellant submits as a general
proposition that a taxpayer's trade or profession is
exercised at the place where it is actually carried
out and that, in the present case, Mr. Cork did not
exercise his trade or profession as a draftsman in
the room of his home but, rather, only did so when
he arrived at the premises of the placement agen-
cy's client. He relies on Newsom v. Robertson
(Inspector of Taxes), [1952] 2 All E.R. 728
(C.A.), and argues that travel from home to work
and return is not travel "while away from home in
the course of carrying on .. . business" in the sense
of paragraph 18(1)(h). Counsel says also that it is
necessary in each case to examine the true nature
and purpose of the travel engaged in by a taxpayer
by answering the question: Was the travel from
home to a place of work travel from the home qua
home or qua place of work and similarly, was the
travel home again from the place of work at the
end of the day travel to the home qua home or qua
place of work? The answer in the present case, it is
argued, is that the travel from the home and back
was qua home and not qua place of work.
Counsel for the respondent asserts that the case
is governed by Cumming and Horton. I find, how
ever, that the circumstances in Cumming were
materially different. They are summarized in the
headnote [of DTC at page 5312]:
The appellant physician engaged exclusively in the practice
of his specialty which was anaesthesia. All his professional
services were rendered in one particular civic hospital and all
the administrative work in connection with his practice was
conducted in his home. He received no money from the hospi
tal, his income consisting of payments made directly to him by
his patients. For the years 1962 and 1963 he claimed deduc
tions of $1,454 and $1,002 respectively. These amounts consist
ed of operating expenses and capital cost allowance in respect
of the automobile and they represented 90 per cent of the total
costs of maintaining and operating it. When the Minister
disallowed the whole of the amount claimed for capital cost
allowance and all but $100 of the amount claimed for capital
cost allowance and all but $100 of the amount claimed for
operating expenses, this appeal was taken to the Exchequer
Court.
Held: The appeal was allowed in part on both counts. It was
admitted in the course of argument that the appellant conduct
ed part of his practice at his home, that the nature of the
business was such that the bookkeeping and financial activities
had to be carried on at a location different from that where the
patients were treated and that there were no office facilities
available to him at the hospital where he might have carried
out this part of his business. Since the base of the appellant's
practice was his home, the cost of travelling to and from the
hospital to render service was incurred for the purpose of
gaining income from his practice. All such expenses, therefore,
fell within the exception to section 12(1)(a) and were properly
deductible and none of them could be classed as personal or
living expenses within the prohibition of section 12(1)(h) as the
Minister contended. 2
It seems to me that the facts in Horton were
very much more like those of the case at bar. The
taxpayer was a "labour only" sub-contracting
bricklayer who was employed by a building con
tractor. He lived at his home at 2 Penshurst Close,
Eastbourne where he kept the tools and books of
his trade. Before each contract was entered into,
the building contractor met the taxpayer at the
latter's house where the two agreed upon the site
to be worked and the rate to be paid. The taxpayer
was the leader of a small team of bricklayers. He
picked up the others in his car and took them to
the work sites and back. The question for the
Court of Appeal was whether the taxpayer was
entitled to deduct his travelling expenses under
paragraph 137(a) of the Income Tax Act, 1952
[15 & 16 Geo. 6, c. 10] (U.K.) which provided
that no sum could be deducted in respect of "any
disbursements or expenses, not being money
wholly and exclusively laid out or expended for the
purposes of the trade, profession or vocation". This
language seems, if anything, to be somewhat more
stringent than that of paragraph 18(1)(h).
Each of the Judges who heard the appeal gave
reasons for concluding that the expenses were
properly deducted. At pages 414-415, Lord Den-
ning M.R. said:
1 prefer to go by the decisions in actual cases. Take Newsom v
Robertson (Inspector of Taxes) ([1952] 2 All ER 728; [1953]
Ch 7). Mr Newsom was a barrister who lived at Whipsnade.
He travelled each day to his work in his chambers in Lincoln's
Inn. It was held that Mr Newsom could not deduct the
expenses of travelling from Whipsnade to his chambers in
London. The reason was because Mr Newsom's base of opera
tions was his chambers at Old Square in London.
The present case is very different. Mr Horton's base of
operations was Eastbourne. He claims his travelling expenses to
and from that base. I think he is entitled to deduct them.
Counsel for the Crown in his reply put the position very neatly.
He said: "If the locus in quo of the trade was Eastbourne and
2 Paragraphs 12(1)(a) and (h) of R.S.C. 1952, c. 148 corre
spond with paragraphs 18(1)(a) and (h) of S.C. 1970-71-72,
c. 63.
his trade really radiated from Eastbourne as a centre, I admit
that the travelling expenses would be deductible". But counsel
went on to urge that the locus in quo of the taxpayer's trade
was not Eastbourne or a house in Eastbourne, but it was a
shifting base from one building site to another; and on that
account the only expenses that could be deducted were the
travelling between sites. I do not think that is the right view.
On the finding of the commissioners, there is only one reason
able inference to draw from the primary facts. It is that Mr
Horton's house at Eastbourne was the locus in quo of the trade,
from which it radiated as a centre. He went from it to the
surrounding sites according as his work demanded.
During the argument we discussed the case of a circuiteer, ie
the barrister who has his home near London, but spends most
of his time on the circuit. He hardly ever appears at his
chambers in London. He probably telephones every day, but
rarely puts in an appearance. The locus in quo of his trade or
profession — from which it radiates — is his home. I am glad
to know that his travelling expenses to and from his home to
the circuit are allowed by the Revenue. It is said to be done as a
matter of concession. But I think it is more. He is entitled
under the statute to deduct the expenses; because they are
wholly and exclusively incurred for the purposes of his
profession.
If the commissioners were right, it would lead to some absurd
results. Suppose that Mr Horton had a job at a site 200 yards
away from his home, and another one at Reigate, 45 miles
away. All he would have to do would be to go for five minutes
to the site near home and then he would get his travelling
expenses to and from Reigate. I can well see that he could so
arrange his affairs that every morning he would have to call at
a site near home. Instead of going to that absurdity, it is better
to hold that his expenses to and from his home are all
deductible.
Lord Justice Salmon began his reasons for judg
ment in this way, at page 415:
I agree. If one thing is clear, it is that a man who carries on the
trade of a bricklaying sub-contractor cannot do so without
entering into sub-contracts. The case shows that the taxpayer
negotiated and entered into all his sub-contracts at 2 Penshurst
Close, Eastbourne. The main contractor, who, as far as we
know, was the only one to give the taxpayer sub-contractor
work, was a Mr Page who lived at Eastbourne. He went to 2
Penshurst Close to negotiate and agree the sub-contracts.
Another thing that'is plain is that the taxpayer could not carry
on business without the tools of his trade. The place where he
kept those tools was 2 Penshurst Close. Equally it was neces
sary for him to keep books — rather rudimentary books, but
books of his trade; and he kept them at 2 Penshurst Close; such
office work as his business entailed was also done at 2 Pen-
shurst Close. The actual sites where he laid bricks were in a
radius of about 50 miles from Eastbourne. In my view the only
proper inference here is that the base from which the taxpayer
carried on his business was 2 Penshurst Close. The fact that it
also happens to be his home does not disqualify it from
becoming his business base.
And, finally, Lord Justice Stamp had this to say,
at page 416:
This taxpayer carried on business as a sub-contractor. He did
the work at the several places at which the contractor engaged
him to do it. But I do not accept the submission that the place
or places at which a sub-contractor does work which he con
tracts to do is or are his place or places of business. As a
sub-contractor the taxpayer here, who had no place which you
could call his place of business except his home, entered into
engagements to perform sub-contracts, and he did so at his
home where he kept his tools and some things for the purpose
of his trade. In the normal case of a sub-contactor his expendi
ture in travelling from the place where he carries on his
business as a sub-contractor to the several places at which he
performs the contracts into which he enters would clearly be
expenses falling outside s 137. I can see no difference where the
centre of his activities is in fact his home which is the only
place at which as a sub-contractor he is to be found; and if one
finds a man carrying on his activities at his home, entering into
contracts at his home and performing the contracts away from
his home, it appears to me that the centre of his activities is to
be regarded as his home and not at the several places at which
he does his work. It is true that his particular business was a
very small business involving exiguous office equipment and no
doubt only a very few tools, but this cannot in my judgment
affect the matter. Once one accepts the position that he was, as
the commissioners find, carrying on business of a sub-contract
ing bricklayer, and accepting the basis of the case that he was
carrying on such a business, it can in my judgment make no
difference that it was what I might call a little business.
As can be seen, Horton involved much more
than the taxpayer returning to his home at the end
of the work day to learn where he would be
working the next day, as the appellant contends. It
is true that he entered into contracts at his home,
but that was also the place where he kept the tools
and books of his trade and from which he travelled
to the work sites arranged pursuant to the con
tracts. The travelling expenses were found to be
deductible even in the face of legislation requiring
that they be "wholly and exclusively" laid out for
trade purposes.
In the present case, the learned Trial Judge
found on the evidence that Mr. Cork used his
home as a base of operations for his drafting
business. There is, I think, much to be said for the
correctness of that view. Mr. Cork had evidently
set himself up at his home for the conduct of his
business activities. I need not enumerate the find
ings of the Trial Judge on the point. They show
that Mr. Cork's business pursuits were conducted
from his home. Whether he arranged work directly
or through a placement agency he did so from his
home where he could be found. He used his home
as a base or focal point for that purpose as well as
for the performance of his work in the field. In my
view, all of the findings have a basis in the evi
dence and ought not, therefore, to be disturbed.
Though this Court may draw its own inferences
from proven facts established on the testimony of a
witness about whom no question of credibility
arises (Lessard v. Paquin et al., [1975] 1 S.C.R.
665; The Queen v Gurd's Products Co Ltd, [1985]
2 CTC 85 (F.C.A.)), I am not persuaded that this
is a case in which we should do so. I agree with the
inference drawn by the learned Trial Judge that
the home was the base of Mr. Cork's business
operations.
I am unable to agree with the appellant's sub
mission that Mr. Cork's travel from home to work
and back again was qua home rather than qua
work. The Trial Judge drew the correct inference
from the facts proven that the office in the home
was used by Mr. Cork as a base of his business
operations. It follows, of course, that the travel
from the house and back again was qua work and
not qua home. The answer to the question posed in
argument by counsel for the appellant will, of
course, depend upon the circumstances. I have no
doubt that the travel by Mr. Cork was from and to
his home qua place of work in the circumstances
of this case. The travelling expenses were incurred
by him while away from home in the course of
carrying on his business.
Paragraph 18(1)(a) expenses
During the course of argument by counsel for
the respondent, the Court indicated that the issue
of the deductibility of the rent and insurance
expenses need not be addressed, the Court being in
agreement with the learned Trial Judge that, for
the reasons he gave, these expenses were deduct
ible pursuant to paragraph 18(1)(a) of the Act.
In the result, I would dismiss the appeal with
costs.
HEALD J.A.: I agree.
MARCEAU J.A.: I agree.
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.