Principal Issues: [TaxInterpretations translation] Can the taxpayer deduct in computing her self-employment income her travel expenses between her home and an office where she meets 80% of her clients?
Position: Question of fact, but probably not.
Reasons: Paragraph 24 of Interpretation Bulletin IT-521.
XXXXXXXXXX 2011-039333 Lucie Allaire, advocate CGA, D. Fisc. June 9, 2011
Dear Sir,
Subject: Principal place of business
This is in response to your e-mails dated January 14, 17, and 19, 2011 in which you asked for our opinion as to whether your client's home office can be considered her principal place of business.
Unless otherwise indicated, all statutory references herein are to the provisions of the Income Tax Act (the "Act").
More specifically, your client, who is a member of the XXXXXXXXXX profession, is a part-time self-employed worker. She travels between her home office located in the XXXXXXXXXX area of the City of XXXXXXXXXX and an office located in the XXXXXXXXXX area of the same municipality, where she conducts most of her consultations with her clients. The XXXXXXXXXX office does not give her access to a photocopier, fax machine or printer. In spite of this, your client rents the office for XXXXXXXXXX days a week, or according to the needs of her consultations.
You indicated that she performs in her home office the following tasks: making and confirming appointments with clients, writing consultation notes, keeping client records, paying bills and carrying out accounting.
You submitted that she rents the XXXXXXXXXX office to get closer to her clients and to preserve confidentiality. Finally, you add that she meets nearly 80% of her clients at the XXXXXXXXXX office and the rest of her clientele at her home office.
Your Questions
You wish to know if your client's home office is her principal place of business. In the event that it is, you wish to know if she is entitled, in computing her professional income, to the deduction of travel expenses between her home and the XXXXXXXXXX office.
Our Comments
It appears to us that the situation described in your letter and hereinafter summarized could constitute an actual situation involving taxpayers. As stated in Information Circular 70-6R5, it is not the practice of the Directorate to issue a written opinion regarding proposed transactions that relate to specific taxpayers otherwise than through advance income tax rulings. If your situation involved specific taxpayers and one or more transactions, you should submit all relevant facts and documents to the appropriate Tax Services Office for their opinion. However, we can offer the following general comments which may be helpful to you.
Regarding the determination of the principal place of business of your client, we are of the view that it is not necessary for a taxpayer to own a workspace or that the latter be personally assigned to the taxpayer in order that it can be considered a place of business.
Considering that your client meets 80% of her clients on a continuous basis in her XXXXXXXXXX office, we are of the view that, in the absence of additional elements, and in spite of the limited facts in the file, that the XXXXXXXXXX office is the principal place of business for your client.
With respect to your client's travel expenses between home and the XXXXXXXXXX office, paragraph 18(1)(a) denies the deduction of 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. In addition, paragraph 18(1)(h) explicitly precludes the deduction of personal or living expenses of the taxpayer, other than travel expenses incurred by the taxpayer while away from home in the course of carrying on the taxpayer’s business.
The question of whether a taxpayer's travel expenses are personal expenses or expenses incurred by the taxpayer while away from home in the course of carrying on the taxpayer’s business to earn income is a question of fact that can only be resolved after consideration of all relevant facts in a particular situation.
As noted in paragraph 24 of Interpretation Bulletin IT-521R, Motor Vehicle Expenses Claimed by Self-Employed Individuals, the use of a motor vehicle for personal purposes generally includes travel between a taxpayer's home and the taxpayer’s place of business, unless it can be shown that the taxpayer’s principal place of business is the taxpayer’s home.
Consequently, in the situation you are describing, we are of the view that travel between your client's home and the XXXXXXXXXX office is personal in nature and the related expenses are not deductible under paragraph 18(1)(h).
We hope that these comments are of assistance.
Best regards,
François Bordeleau, Advocate
Manager
Business and Partnerships Section
Income Tax Rulings Directorate