Home Office Offers Business Travel Bonus
Arthur Drache, May 31, 2006
Over recent years, there has been a great trend towards individuals working out of their homes. One reason of course is that the advent of computers, the internet and high speed access has allowed somebody in a home office to have virtually as much access to information and to have relationship with colleagues and clients as they might have in an office away from home. But some recent tax cases show that there can be a tax bonus involved in some of these cases as well.
The most recent case involved the refusal of the Minister of National Revenue to allow Dr. Alexandre Toutov to deduct certain travel expenses between his home where he maintained an office and in which his work was principally done and his employers’ office which he visited from time to time to meet clients and in which he had no office.
Now the general rule when computing automobile expenses is that the cost of travelling from one’s home to one’s place of work is not a deductible expense. This has been settled law for many years. But as Chief Justice Donald Bowman said in this case, general rule is not inflexible and it admits of exceptions in some circumstances. In this case, Toutov held a doctorate in mathematics from Queen’s University in Kingston. Upon his graduation, he was offered employment by Oracle Telecomputing Inc. (“Oracle”). In his letter of employment, we find the following paragraph. “We understand the financial hardship you will experience, because of the loss of your wife’s income, if you transfer to Ottawa. Consequently, you can work out of your home in Kingston but will be required on occasion to visit customers in Ottawa, Carleton and other locations, as new contracts dictate. However, because of the flexibility we are giving you in working at home, we expect you to cover Travel and Living costs on those occasions you travel to Ottawa/Carleton Place.”
The court found that Toutov’s real base of operations was the office in his home, where he had equipment (including, at times, six computers). He travels to Carleton Place where he meets clients but he has no office there. Frequently he passes through Carleton Placeon his way to Ottawa. Bowman found that “It is I think a fair conclusion on the evidence that his office in Kingston is an extension of Oracle’s place of business and Mr. Toutov’s principal place of business.” Bowman then reviewed a number of earlier cases which generally supported the view that travel between a home office and other locales can, in the right circumstances be considered business travel for deduction purposes. “The first is Campbell et al. v. The Queen, 2003 DTC 420, in which Justice Margeson held that the cost of travelling between the appellant’s home offices and school board buildings was not a taxable benefit under paragraph 6(1)(b) of the Income Tax Act. The Honourable Justice Margeson said at paragraphs 13 to 18: The evidence established beyond any doubt that when they left their offices in their homes and went to some other place to conduct business they were going from one place of business to another place of business and they did so when they were returning to their home offices. The Court does not consider it significant that after they came home they might have gone to bed or turned on the TV or had a sandwich or raided the refrigerator, whatever the case may be. That does not militate against a finding that they were involved in business related activities on the way home. When they went from their home office to the School Board in Port Hastings, they were engaged in carrying out their duties of a School Board member and they were doing the same thing when they were on their way home. They come squarely within the provisions of subparagraph 6(1)(b)(vii.1) of the Act.” Bowman explicitly accepted Judge Margesson’s reasons in that case.
In the event, he decided, Toutov’s claims would be upheld. As with some many tax cases, success depends to a great extent on the facts. But it does become clear that given the correct factual situation, all travel from an office at home to deal with clients and customers can be classified as business travel if the taxpayer has no other permanent office whereas travel from home to an office in another location will not qualify.
Physicians have been aware of these rules for years. This is one reason why so many, when they leave home in the morning, head directly to a hospital before going to their offices. And when they leave their offices, they often stop by the hospital again.
This simple travel procedure makes a lot of travel which might otherwise be treated as “personal” for tax purposes into business travel.
It is the type of planning that many people may be able to utilize if they put their minds to the issue.