Taxpayer wins day in Court over use of home deductions for employees

Tax Payer wins day in Court over use of home deductions for employees.

Friday’s court day was over all quite successful and we had some very significant results.

Prior to starting court, we were able to have all the clearly documented expenses accepted. The only things we did not get were poorly documented expenses.

Going into court we were faced with a judge who is the who, of who is who, of judges. “Chief Justice Bowman!” You don’t want to ruffle his feathers. Judge Bowman is a very wise, and incredibly sharp witted, not to mention incredibly knowledgeable about tax law.

When a Chief Justice is presiding, you can be sure that whatever he rules on will be looked at by the tax lawyers across the land.

Chief Justice – The Honourable Donald George Hugh Bowman

THE HONOURABLE DONALD GEORGE HUGH BOWMAN, B.A., LL.B. was born on July 14, 1933, in Guelph, Ontario. He is the son of Charles Howard Bowman and Grace Louise Dawson. He studied at Guelph Collegiate, Victoria University, the Ontario College of Education and at the Faculty of Law at the University of Toronto. He was a teacher at the Märkisches Gymnasium, Iserlohn, Nordrhein/Westfalen, Federal Republic of Germany and at the Fergus District High School and Delta Secondary School in Hamilton. Associate Chief Justice Bowman was called to the Bar of Ontario in 1962. He joined the Federal Department of Justice, Tax Litigation Section in 1962 and was appointed Director in 1968. He co-founded the law firm of Stikeman, Elliott, Robarts & Bowman in 1971 and was a partner until his appointment to the Tax Court of Canada. He was appointed Queen’s Counsel in 1974 and has been a member of the New York Bar since 1982. He was appointed Judge of the Tax Court of Canada in 1991 and Associate Chief Judge in February 2000. He was appointed Associate Chief Justice in July 2003 and Chief Justice in February 2005.

In this court case we were dealing with the issue of commission and salary employees deducting home expenses.

In this case we focused on the commissioned Sales Rep who worked as an employee for a chemicals manufacturer. The question of the day was;  “Was the client entitled to take business use of home expenses as a commissioned sales rep.”  If he did not pass the stringent criteria as outlined in the law, then not only could our client not take the deductions, then neither could the other sales reps from his company. But even more significantly, neither could any other commissioned sales representative in Canada take home expenses. Simply because the way the law has been interpreted no outside sales rep could possibly qualify for the deductions. Sales representatives by the nature of their job, spend most of their time away from their homes.

CRA has been able to successfully disallow all these expenses in their audits across the land. It became very clear in our negotiations with the tax litigator that they were not going to back off on this point and believed they could get the court to agree with them based on how the law is written.

CRA’s lawyer was a very knowledgeable litigator with considerable experience in law. So CRA was well positioned to win on this contentious issue. I am of the opinion that CRA would have made it clear to him that he was to win, and that he was picked because this was not an issue that they would want to lose.

Having the judge rule in our favour was to the surprise of the CRA lawyer.

We won because we had some very good preparation work by the team. And we had a very credible witness. Our witness was a past customer of the client by the name of Michel Chevalier. Oh… and we also won because we were “creative.”

The first thing we had to do was to remove any shadow of doubt as to whether or not our client was required to use his home for doing business.

We were able to establish required use by;

  1. We had a T2200 form signed by the client’s employer. The judge wanted to know why an unsigned copy was presented to him instead of a signed copy. I explained that what he had was the copy of the form that was part of the tax return. We submitted the original to the satisfaction of the judge.
  2. We presented a letter signed by a manager of the client’s employer, stating it was mandatory to use his home as a place of business. The lawyer for CRA objected based on the letter being “hearsay.” The judge overruled the objection based on the procedures around hearsay have become broader over recent years; he asked to see the letter and then simply asked the client if he believed the letter to be real. The judge stated that while the letter was not strong evidence, he entered it as evidence.
  3. We presented his employment contract.
  4. We provided a detailed sketch of the entire premises; the lawyer argued that the sketch did not have any actual measurements on it. The judge did not seem to think it was that important based on the clarity of the need to use a lot of the space for business. Judge did allow for the garage and basement to be considered business use.
  5. We had a picture of his work area… Having his dog in the picture did create some chuckles and human interest.
  6. We had pictures of the equipment that needed a place to assemble.
  7. We had a perfect witness who reeked of credibility and said all the right things. (Thanks Michel).

Points 1 to 7 removed any doubt that the home was required for the client to perform his contracted duties.

  1. From there on we had to argue the intent of the law.
  2. And; w had to argue the interpretation of the law.

We had to deal with the fact that the law was clear. The premises must be used primarily for business, meeting clients and be used for business 100% of the time, in order to be deductible as an employment expense.

I argued that 100% could not conclusively be used if that were a real measurement there would be no business premises anywhere, as all business space is used occasionally for personal purposes, such as calls from your family, etc. If that was a hard and fast rule, all business premises would revert to personal.

I argued that “Primary Purpose could be “What is the primary use of the space when it is being used, rather than what is the space primarily be used for 24 hours a day. No use at all in the non business use time, does not mean it is personal use by default.

I argued that the time the space is not used for any purpose, does not make it default to personal use, it defaults to “no use at all.” So therefore if the only time you use the space is for business, then even if you use the space for only an hour a day it is still used 100% of the time for business.

Upon making the argument to the judge… he stopped me… took off his glasses, waved them in the air in circles, and declared a recess while he went to get a desk copy of the income tax act. He returned and studied the act for what probably was a few minutes but felt like an eternity. He then declared with great wisdom and presence. “In fact; there ARE two ways to interpret the clauses and as such we had to look at the situation from the different interpretation.

There was much argument from the CRA lawyer, however the judge was not buying it, for what I believe is the fact that the way the clause has been interpreted in the past, does not always make sense in the present.

The judge ruled in our favour and declared the home expenses for our client as deductable employment expenses.

What this means is our clients employers other reps can now write of their home use expenses.

But most of all, sales representatives from across the country can use this court case as precedence and being that it was Chief Justice Bowman, who so ruled, it carries huge weight.

This interpretation of the law will also apply to non sales representatives as well because the same sections of the act apply.

We have just cause as a team to say; we the WNBC Team stand together if the cause of ensuring fair treatment for our clients and that we will fight all the way, to see that they get their just tax returns.

We now have to move forward with our education for small business. To ensure that more and more citizens only pay the amount of taxes they are legally obligated to pay.

The tax man can unjustly tax some the people all of the time, all the people some of the time, but he cannot unjustly tax all the people all the time. This claim becomes especially true with us on the side of the tax payer.

Have a fantastic day!


Posted by jay on
Do you know, that if you are applying for ei benefits that you have paid into, the U.I.C., another of their lettered agencies can phone your employer to ask if you are entitled to benefits despite the fact that he has “signed the papers”. If you have a conflict with him he can challenge your right to benefits! Is this not a total takeover? With the past employer being an unwitting stooge to their game. In turn the past employee will come against the employer with whatever they have. Sounds to me much like what they have done with the marital relationship. These people are absolutely evil and must be challenged. Course, they own the courts too.
You bring up a sore point with Canadians. The government agencies operate above the law, because we the citizens allow it. Until the population wakes up and unites to bring back the kinder gentler Canada, our political scene will remain that we elect dictators every election.
If you are truly passionate about what you say… why not organize the zillions of Canadians who fee the same as you feel?
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