Date: 20000524
Docket: 98-1101-IT-I
BETWEEN:
JEAN-PAUL BOUCHER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
P.R. Dussault, J.T.C.C.
[1] I will now render my decision. Mr. Crépin has referred me to the decision in Landry v. The Queen, 94 DTC 6499, with which I am quite familiar, and has made certain comparisons with your situation. I believe the situation is somewhat different in your case. First, you are not the same age as Charlemagne Landry was when he tried to return to the practice of law. It seems that in your case it was not a question of returning to legal practice; you were instead changing direction in the way you practised: you went from being an employee with Legal Aid to establishing a private practice. Furthermore you mentioned health problems, personal problems, occupational exhaustion, burn-out; I do not know what other terms to use. Indeed it is not up to me to make a diagnosis and I am willing to accept your word in this regard.
[2] You tried to resume private practice, and I will not say without success since the documents which you adduced do in fact show that a great deal of work was done on certain cases; I believe that what was missing in your case was not a reasonable expectation of profit in the financial sense of the term; rather, what happened was that, as a result of your accounting methods, you made no profit for tax purposes. It seems to me this is the crux of the matter, and I will tell you right away, Mr. Boucher, that if you continue in that manner you will have income tax problems for the rest of your life.
[3] There are ways of doing things; there are rules. A professional who renders services is required to report his income on the basis of services billed or on the basis that they should have been billed if there had not been an undue delay in billing. If it were possible to redo the entire audit of your file, it might perhaps be realized that your income for those years should be much higher than what is shown in your returns or than what you added somewhat later.
[4] At all events, that income was not reported for 1993 or 1994. The Department's assessment is not based on this aspect, although one can see that it clearly underlies the Department's decision to disallow the losses. All this to say that, when someone is in a profession, such as the legal profession, he obviously tries to get on by using the assets he has, including the fact of having been admitted to the Bar and of continuing to have the right to practise.
[5] I do not think, moreover, that anyone makes an RRSP withdrawal with a light heart since that money is invested for the future, to provide for some sort of future retirement or pension. So you undoubtedly did it because you were in rather difficult circumstances and I do not make any connection here between that and your failure to report certain income which undoubtedly should have been reported.
[6] As I say, if everything were audited again and if it were done very thoroughly, I think we would arrive at income that would be, I would not say significantly higher, but at least higher than what was reported. That being said, I do not believe, for those reasons, that the situation in Landry is really akin to your own.
[7] The second point raised in this case is the question of the home office. Mr. Crépin told me straight away this morning that he would not argue this point, that, based on what you explained to us, that was the principal place where you practised, your principal place of business. At the outset, then, that condition is met.
[8] Referring now to subsection 18(12) of the Income Tax Act, it essentially states, and I quote:
Notwithstanding any other provision of this Act, in computing an individual's income from a business for a taxation year . . .
[9] And, as you know very well, Mr. Boucher, business includes a profession:
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 . . .
—and that, in my opinion, is the case in this instance—
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 . . .
It is one or the other. I may conclude that it is your principal place of business. So, in paragraph (b), it continues:
where the conditions are set out in subparagraph (a)(i)
—that is our condition—
or (ii) are met, the amount for the work space that is deductible in computing the individual's income from the business for a taxation year shall not exceed the individual's income from the business for the year, computed without reference to the amount . . . .
[10] This means that we take the income you reported, less the expenses you reported. In your case, of course, we arrive at a loss. It is therefore impossible to deduct any additional amount relating to the home office. And that is true for both years.
[11] You agreed, you told me a moment ago that, for 1993, the amount—which is moreover as reported or as claimed as a deduction—is $4,921.59. For 1994, you agreed that the amount involved is $6,558. Consequently, these amounts may not be deducted for 1993 and 1994 so as to increase the loss in those years. That is my decision.
[12] By way of explanation, I add paragraph (c) of subsection 18(12), which reads as follows:
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
—that is to say for a subsequent year—
for the work space in respect of the business.
[12] This means a carry-over to subsequent years. And as the same restrictions still apply, the benefit of the carry-over can obviously only be had to the extent that the income for those subsequent years exceeds the other expenses. The appeals are therefore allowed and the assessments for 1993 and 1994 are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the appellant may subtract from his professional income the deductions claimed, excluding, however, those relating to the home office, that
is, the amounts of $4,921.59 for 1993 and $6,558 for 1994. The losses for those two years are thus reduced by those same amounts.
Signed at Ottawa, Canada, this 24th day of May 2000.
"P.R. Dussault"
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 23rd day of April 2001.
Erich Klein, Revisor