Principal Issues: [TaxInterpretations translation] Are travel expenses incurred by a marine pilot between the pilot’s home and a port of embarkation deductible in computing the pilot’s income from a business?
Position: In light of the facts that have been communicated to us, no.
Reasons: The Canada Revenue Agency is of the view that paragraph 18(1)(h) prohibits the deduction of motor vehicle expenses incurred by a taxpayer for travel between the taxpayer's home and place of business unless it can be shown that the taxpayer's home is the taxpayer's principal place of business.
XXXXXXXXXX 2007-027194
Lucie Allaire, Advocate, CGA,
D. Fisc.
July 11, 2008
Dear Madam,
Subject: Travel expenses of a marine pilot
This is in response to your letter of March 13, 2008 asking whether travel expenses incurred by a marine pilot between the marine pilot’s home and a boarding station are deductible in computing the pilot’s income.
More specifically, you are invoking a situation where marine pilots are partners in a partnership that carries on a marine pilotage business. The offices of this partnership are used only by administrative staff. The pilots receive their assignments by telephone at their homes, from where they carry out some of the preparatory work for the navigational activities. This preparatory work includes the preparation of their passage plan, the updating of navigational notices, sounding reports and nautical charts, as well as the verification of tides and water levels in relation to the ships' draught. We understand that these pilots provide their services on a variety of vessels.
Unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the "Act").
Our Comments
The situation described in your letter is an actual situation involving taxpayers. As stated in paragraph 22 of Information Circular 70-6R5 of May 17, 2002, it is our practice not to issue written opinions regarding proposed transactions otherwise than by way of advance rulings. Furthermore, when it comes to determining whether a completed transaction has received appropriate tax treatment, that determination is made first by our Tax Services Offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments that we hope may be helpful to you. These comments may, however, under certain circumstances, not apply to your particular situation.
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 a business or property. In addition, paragraph 18(1)(h) explicitly precludes the deduction of personal or living expenses of a taxpayer, other than travel expenses incurred by the taxpayer while away from home in the course of carrying on the taxpayer’s business.
As indicated in paragraph 24 of Interpretation Bulletin IT-521R, Motor Vehicle Expenses Claimed by Self-Employed Individuals, the Canada Revenue Agency ("CRA") is of the opinion that paragraph 18(1)(h) prohibits the deduction of motor vehicle expenses incurred by a taxpayer for travel between the taxpayer's home and place of business unless it can be established that the taxpayer's home is the taxpayer's principal place of business. If a taxpayer has an office or other fixed place of business located elsewhere, it is generally the CRA's view that the taxpayer's home cannot be considered the taxpayer’s place of business.
In addition, in paragraph 2 of Interpretation Bulletin IT-514R, Work Space in Home Expenses, a room in a contractor's home is considered to be the contractor's principal place of business if it is used for the management of the contractor's business, such as receiving work orders, bookkeeping, purchasing and preparing payrolls, while the contractor's other business activities, such as the performance of the contracts, take place at the customers’ premises.
Similarly, the jurisprudence defines a taxpayer's principal place of business as the place where secretarial activities are carried out, where financial statements and income tax returns are prepared, where communication with clients, suppliers, accountants, lawyers or government authorities takes place, and finally, where the company's mail is sent. It should be noted that the place where an individual's work is performed is not necessarily related to determining the location of the principal place of business. Thus, the fact that part of the preparatory work by pilots prior to the performance of their pilotage activities is carried out at their home (and therefore that another part of that work is not) is not in itself determinative.
In light of the foregoing, we cannot conclude that a pilot's home is the pilot’s principal place of business and, consequently, the expenses incurred by the pilot between the pilot’s home and the port of embarkation are personal expenses that are not deductible.
These comments are not advance income tax rulings and, as stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, are not binding on us.
Best regards,
François Bordeleau, Advocate
Manager
Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate.