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Taxation Lawyers : Cases & Commentary
Case Commentary 1


*all references to Income Tax Act (‘ITA’) unless otherwise stated


Where taxpayer has used its residence in its business activities, an entitlement would normally exist to deduct expenditures related to that use in computing income under section 9. Subsection 18(12) however imposes a prohibition on any such deduction unless one of the tests set out in subparagraph 18(12)(a)(i) or (ii) is met [*and sufficient income per paragraph 18(12)(b) exists].




18(12) Work space in home — 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


[*per subsection 248(1) – ‘self-contained domestic establishment’ means dwelling-house, apartment, or similar place of residence in which place ‘a person’ as a general rule sleeps and eats]


TEST I – ‘ Principal Place of Business’


Per Justice Miller in Jenkins v. R., 2005 DTC 384:

In determining what is the taxpayer’s ‘principal place of business’ – it was not:

  • The place of principal business OR
  • The principal place of the business.

For example the ‘principal place of business’ of;

  • a farmer - would not be on a combine,
  • a fisherman - would not be on the fishing boat,
  • an oil company - would not be on the oilfields.

‘Principal place of business’ means where the business element of the business takes place.
(i.e. telephoning customers and suppliers, filling in invoices, doing payroll, maintaining books and records, preparing tax returns, etc.)

->AND NOT where the oil is drilled, the crop is cut, or fish is fished.


TEST II -“Used on a Regular and Continuous Basis for Meeting Clients/ Customers/ Patients”


Per Justice Lamarre Proulx in Vanka v. R., [2001] 4 C.T.C. 2832:

In determining whether the taxpayer used his work space for meeting patients of his medical practice:

  • ‘Meeting’ in the context of “meeting patients” did not require the physical presence of the patients in the work space;

  • The taxpayer met his patients by making himself available to answer his patients’ queries by phone and doing things like [this was paragraph 7 of Reasons]:

    (1) calling in new prescriptions

    (2) monitoring the progress of the patient’s condition

    (3) reporting on laboratory results

    (4) discussing patients’ cases with families

    (5) listening to patients’ problems and advising patients; and

    (6) correspondence with other specialists pertaining to problem cases

Receiving an average of seven phone calls an evening from patients (taxpayer also saw one patient per week) was considered a ‘regular and continuous’ use of a work space for meeting patients.

The finding in Vanka has been followed in:

(1) Ryan v. HMQ, 2006 DTC 2738

  • Sufficient that taxpayer made three to five calls per evening and also made calls on Saturdays.
(2) Hemond v. R., 2003 CarswellNat 5470
  • Patients and staff at nursing home called him ‘often and regularly’ at his home office for consultation, advice or to discuss cases, for prescriptions, and diagnoses.

The finding in Vanka has mentioned in:

(3) Molckovsky v. R., 2004 CarswellNat 18
  • The taxpayer’s work space was not considered to be used on a regular and continuous basis to meet patients where the taxpayer only received approximately one patient and seven telephone calls per week.

Deep Thoughts

In Vanka, Justice Lamarre Proulx stated:

Although the words used in the provision [subparagraph 18(12)(a)(ii)] are “meeting patients”, I am not convinced that these words require the physical presence of the patients in the home work space. It is my view that the physician met his patients by making himself available to answer his patients’ queries by phone and doing all that is described at paragraph 7 of these Reasons [emphasis mine].

DT1. In Vanka, Ryan, Hemond, and Molckovsky, the Court looked at what actually occurred in terms of contact with patients – i.e. average number of calls made/ received. Simply being ‘available’ might not be enough – as it is a passive action (i.e. all or none of your clients could call because you are ‘available’). Taxpayers looking to meet Test II should ensure that they are proactive, and make calling clients a regular regime for time spent in the work space.

DT2. Further, although not addressed by the Courts, possibly contacting potential clients, customers, or patients would qualify in the consideration of whether the taxpayer has met the requirement of Test II.

DT3. If a phone conversation qualifies as a ‘meeting’ for the purposes of Test II, would similar mediums of communication qualify – i.e. emails, text messages, instant messaging (‘IM’), or online communications like MSN Messaging with or without webcam.

Closing Notes:

  1. Both Tests I and II are questions of fact to be based on the taxpayer’s available evidence.

  2. Both Tests I and II are threshold tests that require the taxpayer’s use of the work space to be considered in the context of the taxpayer’s overall business activities.

    i.e. Test I – did the taxpayer conduct the greater proportion of the business element of the business in the work space;

    Test II – did the taxpayer conduct a significant proportion of his client, customer, or patient contact from the work space.

  3. Evidence to consider gathering under either test could consist of time or billing logs, i.e. PCLaw, TimeMatters, Quicklaw, Taxnetpro, OHIP billing records, etc.

  4. Evidence to consider gathering under Test II could consist of records of client/customer/patient contact, i.e. cell phone/Blackberry/ etc. detailed billing records, Vonage call usage printouts, archival records of email, text, IM, MSN Messenger or other such communications.

  5. Courts have avoided the prohibition of subsection 18(12) by finding that the taxpayer’s work space was not a part of the taxpayer’s self-contained domestic establishment – see Rudiak v. HMQ, [2002] 3 C.T.C. 2454, and Vallee-Moczulski, [2003] 3 C.T.C. 2262

  6. Tests I & II also occur in respect of work space related expenditures under:

      (a) subsection 8(13) for office or employment sources of income; and

      (b) paragraph 170(1)(a.1) of Excise Tax Act for determining ITC’s from goods and services expended on the work space.

  7. Typical deductible work space expenses include a proportion of the mortgage interest or rent, property taxes, utilities, insurance, repairs/ maintenance, and capital cost allowance* (*note potential effect on principal residence capital gains exemption on work space).

  8. All of the above decisions were judgments in the informal proceeding of the TCC. Remember that pursuant to section 18.28 of the Tax Court of Canada Act – “A judgment on an appeal referred to in section 18 [i.e. informal appeal] shall not be treated as a precedent for any other case.” This means that TCC Justices are not bound to follow decisions from informal appeals; however, judicial comity would at least require them to consider it.