The Queen v. Harman, 80 DTC 6052, [1980] CTC 83 (FCA)

Kerr, DJ:—By a reassessment of the respondent’s income tax for the 1972 taxation year the Minister of National Revenue applied paragraph 6(1)(e) and subsection 6(2) of the Income Tax Act, SC 1970-71-72, c 63, as amended, to add a “standby charge” in the sum of $486 to the respondent’s income, in respect of an automobile provided to him by his employer. On an appeal by the taxpayer the Tax Review Board held that paragraph 6(1)(a) may also apply, but that the automobile was only ordinarily available to the taxpayer for personal use on Saturdays and Sundays, annual leave and statutory holidays, for he was required to use it and did use it for business purposes during other days of the week, and the Board accordingly reduced the standby charge to $162.20* [1]

The Crown appealed from the Board’s decision to the Trial Division and by a judgment rendered on December 13, 1978, the learned trial judge dismissed that appeal and maintained the taxpayer’s counterclaim that the calculation should have been made under paragraph 6(1 )(a) of the Act. The present appeal is from the judgment.

The issue for determination is whether paragraph 6(1)(e) should be applied in computing the taxpayer’s income or whether the benefit of the automobile should be calculated pursuant to paragraph 6(1 )(a).

Paragraphs 6(1)(a) and (e) and subsection 6(2) are as follows:

6.(1) There shall be included in computing the income of a taxpayer for a taxation year as income from an office or employment such of the following amounts as are applicable:

(a) the value of board, lodging and other benefits of any kind whatever (except the benefit he derives from his employer’s contributions to or under a registered pension fund or plan, group sickness or accident insurance plan, private health services plan, supplementary unemployment benefit plan, deferred profit sharing plan or group term life insurance policy) received or enjoyed by him in the year in respect of, in the course of, or by virtue of an office or employment;

(e) where his employer made an automobile available to him in the year for his personal use (whether for his exclusive personal use or otherwise), the amount, if any, by which an amount that would be a reasonable standby charge for the automobile for the aggregate number of days in the year during which it was made so available (whether or not it was used by the taxpayer) exceeds the aggregate of

(i) the amount paid by him in the year to his employer for the use of the automobile, and,

(ii) any amount included in computing his income for the year by virtue of paragraph (a) in respect of the use by him of the automobile in the year; and

(2) For the purposes of paragraph (1)(e) ‘‘an amount that would be a reasonable standby charge for the automobile’’ for the aggregate number of days in a taxation year during which it was made available by an employer shall be deemed not to be less than,

(a) where the employer owned the automobile at any time in the year, an amount in respect of its capital cost to the employer equal to the percentage thereof obtained when 1% is multiplied by the quotient obtained when such of the aggregate number of days hereinbefore referred to as . . . where days during which the employer owned the automobile is divided by 30 (except that if the quotient so obtained is not a full number it shall be taken to be the nearest full number, then to the full number next below it), and

(b) where the employer leased the automobile from a lessor at any time in the year, an amount equal to A of the cost incurred by the employer for the purpose of leasing the automobile for the aggregate number of days hereinbefore referred to.

The facts are not in dispute; they are detailed in the reasons of the trial judge. I think that, rather than attempting to summarize them, it will be more informative for me to set forth at this point the following recital from the trial judge’s reasons:

The facts are not in dispute. Defendant, a very frank and clear witness stated that he was employed as a travelling sales representative by Brooke Bond Foods Limited (hereinafter called the employer) since 1957 living in Peterborough, Ontario, and having a sales area extending from there to Bancroft and Lake St Peter in the North, east to Perth, south to the outskirts of Kingston, and from there to Bowmanville and northeast to Lindsay and Haliburton, an area of 10,000 square miles. In order to cover the territory he would be away from home two or three nights a week. While normally he worked a nine hour day five days a week, he might be working longer than this on days when he was returning home from a business trip to an area perhaps two hours from Peterborough. He would also on occasion when one of his customers, for example a restaurant, ran out of coffee on a Saturday or Sunday make a special delivery to that customer on one of those days. The employer, a subsidiary of an English company was in the grocery business, selling such items as Black Diamond cheese, Red Rose tea and an extensive line of spices. His customers would be independent grocers, variety stores, restaurants and hotels. Initially a small warehouse was maintained in Peterborough with supplies which would be renewed from Toronto about once a week. He would be furnished with a delivery truck which he would keep stocked from the warehouse and make his sales directly from it. In recent years he primarily took orders from his customers which would then be shipped directly to them from his employer. Eventually the employer instead of providing its salesmen with delivery trucks provided station wagons for this purpose.

However, the station wagon would normally be loaded with a large assortment of display items, including posters and bins. Cardboard display bins for Black Diamond cheese, for example, would be flat and opened up for assembly but metal racks for the cheese and for Red Rose iced tea mix were not collapsible. In addition large spice racks were provided for retail stores which when assembled consisted of a series of shelves and were about four feet wide by six feet high. They came in six sections that had to be assembled in the store. Samples of new lines would also be in the car to show to customers and he always carried a supply of coffee as restaurants frequently ran short of it. Accordingly the rear seat of the station wagon was always closed down to the floor and the rear of it was normally filled with merchandise of this sort. On the passenger side of the front seat he usually kept his briefcases, order forms and other documents and did his paper work in the car except for his weekly report on Friday which he would do in his home.

In practise the vehicle was of little use to him as a personal car as it would take at least a half hour to unload it, assisted by some of his children if he wished to use it for family use when at home. Actually in 1972, the year with which the assessment is concerned, out of a total mileage of 27,780 miles driven only 1,230 miles were for personal use. He would simply leave the car fully loaded in the driveway overnight. He did not actually require it for personal use in any event as his wife also had a Station wagon.

He was required to keep careful records, however, showing the mileage covered each week and the expenditure of gas, oil and washing of the car and any other incidental expenses, and distinguishing personal mileage from business mileage. The employer allowed its salesmen who had had an accident free record the preceding year, such as Defendant, 1,000 free miles of personal use in the following year; with this exception a charge of 5¢ a mile was made for personal use. Actually in 1972 Defendant paid the company $15 for 300 miles of personal use which indicates that he paid slightly more than was necessary, but this is a trivial matter and not an issue. The company authorized its salesmen to purchase the cars from local dealers so that they could readily be serviced locally, but set out detailed specifications as to what make of car should be purchased, what options should be on the car, and so forth. After finding out which local dealer would give the best price, this was then invoiced by the dealer to the company and paid by it. The company also paid for all insurance and other expenses of the car.

There were no restrictions prohibiting the personal use of the car, and provided the company was advised permission could be obtained for a salesman’s wife or adult member of his family to drive it. It could also be taken across the border if desired provided the company was notified in advance. There was very little limitation or control therefore by the employer on the personal use of the car by the employee, but in practice it would so constantly be used for business purposes and most of the time filled with merchandise that it would be inconvenient to use it for personal purposes even if it were available for such use outside of the hours in which it was being used for business purposes. In the case of Defendant there were only eight weeks during the year 1972 in which any personal use was made of the car and the chart shows that during the weeks which he believes were his holiday weeks no use was made of it whatsoever, so apparently if the family went on a trip during this period it was the wife’s car which was used.

Defendant’s evidence was corroborated in all material respect by William McDiar- mid the Finance Director of the employer. He testified that the company had 145 salesmen about 35 of whom would have rural territories and that in all cases whether the salesman had a city or rural territory a car is provided by the company on the same basis as for Defendant. This has been company policy since the 1940s. The free 1000 miles of personal use is to encourage safe driving by employees and as a reward for an accident free record the previous year. Since 5¢ a mile is charged for personal use in any event this is equivalent only to a bonus of $50. He stated that the polilcy is somewhat different when senior executives of the company such as he himself are provided with vehicles for personal use, since this is then considered to be part of their compensation and shown on their T4 slip in the amount approved by the Income Tax Department. He would pay for his own gas when his car was used for personal purposes. He stated that at one time in accordance with the policy of the parent company in England the logo of the company appeared on the side of the vans provided for salesmen, but that some years ago this policy was abandoned as they felt that the advertising value was not great in any event and that the salesmen would appear to be a more professional group if they were driving ordinary station wagons which served the purpose just as well without any identification to indicate that the wagon belonged to the company.

The legal argument hinges on the interpretation to be given to Sections 6(1)(e) and 6(2)(a) and whether they are properly applied as the Minister did in this case, whether they should be applied as the decision of the Tax Review Board did on the basis that the car was only available to Defendant on weekends, annual holidays and on statutory holidays, or whether as Defendant contends Section 6(1)(e) should not have been applied at all but that the benefit, (since he concedes that there was some benefit) should have been calculated pursuant to Section 6(1)(a), as would have been done under the old Act.

Thereafter the trial judge reviewed at some length the arguments made before him by counsel in respect of the facts and the provisions of the Act, including subsection 15(5)* [2] where a corporation has made an automobile available to a shareholder, which were substantially the same as those made in this Court.

In summary, the principal arguments made in this Court were the following:

For the appellant. That paragraph 6(1)(e) is not ambiguous; the conditions precedent to its application are (1) that an automobile has been made available by an employer to his employee, and (2) the automobile can be used for the employee’s personal purposes; the key element is “availability” of an automobile; the section provides a scheme of taxation whereby the actual usage of an automobile would be disregarded in favour of a more convenient approach, namely, availability for personal use; the section does not require or infer that the personal use be incidental or essential, primary or secondary, and should not be restricted only to Situations where an automobile has been made available primarily for personal use; and the automobile here was made available to the respondent for personal use during each of the days of the 1972 taxation year, and the computation of $486 for the standby charge was proper.

For the respondent. That the automobile was made available to the respondent for business use, was required to be so used and was almost constantly so used; it was not made available for his personal use throughout the year, it was unsuitable for such use, and in fact was used for personal purposes on only a few days in the year; that paragraph 6(1 )(e) has no application at all to this automobile, as it was provided “for his personal use (whether for his exclusive personal use or otherwise)”; the words “or otherwise” qualify the word “exclusive”, and do not mean “business use”; the French text of paragraph 6(1)(e)* [3] supports the conclusion that the incidental personal use of an automobile provided mainly for business purposes does not fall within the section, and the same words used in subsection 15(5) clearly apply only to an automobile provided for personal use.

The trial judge stated his conclusion as follows:

I conclude that in the present case the car was not “an automobile available to him in the year for his personal use” in the case of the present taxpayer. The wording of the article is ambiguous and might perhaps be properly applied to an ex- cecutive whose company makes a car available to him primarily for personal use, but once it is concluded that the word “otherwise” (following the words personal use) does not mean business use, and I have so concluded, than it is difficult to avoid the conclusion that this was not an automobile made available to the taxpayer for personal use but rather an automobile made available to him for business use, with personal use being permitted. This would seem to be a logical literal interpretation of the unfortunate and clumsy wording of paragprph 6(1)(e), and since there is at the very least ambiguity and doubt in the interpretation which must be interpreted against the taxing authorities, the action must be decided against Plaintiff. Defendant’s counterclaim being maintained and Defendant’s 1972 tax assessment being referred back to the Minister for reassessment pursuant to the provisions of paragraph 6(1)(a) of the Act. The fact that is more in accord with equity is an added reason for dealing with the matter in this way, although the proceedings could not have been decided on that basis alone.

It appears to me that the issue as to what is the intention, meaning and scope of paragraph 6(1)(e), considered in its full context and according to the natural sense of its words, is fairly arguable. In my opinion, availability of an automobile is not the sole or determining consideration in this section or in the comparable subsection 15(5). The purpose for which the employer provides the automobile is a relevant consideration also. In the present case the facts establish that the employer provided an automobile necessary for and predominantly for the use of the employee in his employer’s business, and although the employee had permission to use it for personal purposes the opportunity to do so was minimal. Thus, I doubt that paragraph 6(1)(e), properly construed, applies to the automobile here under consideration and I believe that paragraph 6(1)(a) more aptly applies in the circumstances of this case.

Therefore I would dismiss the appeal and allow the taxation to be dealt with as provided in the judgment of the trial division, with costs.