Date: 20100415
Docket: A-36-09
Citation: 2010 FCA 98
CORAM: SHARLOW
J.A.
DAWSON J.A.
LAYDEN-STEVENSON
J.A.
BETWEEN:
RICHARD G. SCHROTER
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
DAWSON J.A.
[1]
This
is an appeal from a judgment of the Tax Court of Canada under the informal
procedure (2008 TCC 681). The issue raised on the appeal is whether the Tax
Court judge erred in finding a parking pass, given at no cost to the appellant
by his employer, constituted a taxable benefit or, in the alternative, whether
the judge erred in quantifying such benefit.
Relevant Facts
[2]
The
appellant is employed by Telus at its office in downtown Edmonton. He first received a
free parking pass from his employer when he was promoted to the position of
Director of Income Taxation within Telus. Before receiving the pass, the appellant
routinely took the bus to work. After receiving the pass the appellant
routinely drove his own vehicle to work, reducing his daily commute time by one
hour a day.
[3]
During
the audit that led to the assessment of the appellant, Telus advised the Canada
Revenue Agency that “[g]enerally, parking was provided to employees in [pay]
bands 5 and above, and to a limited number of employees below band 5 who had a
particular need for it.” The position of Director of Income Taxation is in pay
band 5.
Statutory Provision
[4]
The
relevant statutory provision is paragraph 6(1)(a) of the Income Tax
Act, R.C.S. 1985, c. 1 (5th Suppl.) (Act). The paragraph
is 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 received or enjoyed by the taxpayer in the year in respect of, in
the course of, or by virtue of an office or employment, […]
|
6. (1)
Sont à inclure dans le calcul du revenu d’un contribuable tiré, pour une
année d’imposition, d’une charge ou d’un emploi, ceux des éléments suivants
qui sont applicables :
a) la valeur de la pension, du logement et
autres avantages quelconques qu’il a reçus ou dont il a joui au cours de
l’année au titre, dans l’occupation ou en vertu d’une charge ou d’un emploi, […]
|
The Decision of the Tax Court Judge
[5]
The
judge observed that many Telus employees had received assessments for parking
passes and had filed objections. A test case, Adler v. The Queen, 2007
TCC 272, 2007 DTC 783, had previously been decided and no appeal was taken from
that decision.
[6]
In Adler,
the Tax Court reviewed the jurisprudence of the Supreme Court of Canada and
this Court which had considered paragraph 6(1)(a) of the Act,
particularly in the context of employer paid parking. The Tax Court then
concluded that paragraph 6(1)(a) required consideration of a number of
factors, the key factor in the circumstances then before the Court being who
primarily benefited from the complimentary parking arrangement. This, in turn,
required an assessment of the totality of the evidence in order to assess
whether, in each taxpayer’s circumstances, their “enjoyment of the parking
privileges afforded by the free pass supplied by Telus was ancillary to the
benefit derived by [the] employer.”
[7]
In
the present case, the Tax Court judge concluded that it was important the Tax
Court be consistent in its approach to employer paid parking. The Adler
decision was intended to provide guidance for other Telus employee cases. As
the judge viewed the conclusion in Adler to be a reasonable conclusion
on a difficult issue, she decided to adopt the approach taken by the Tax Court
in Adler.
[8]
Turning
specifically to the appellant, the judge observed that the thrust of his
submissions was that he was given the pass to facilitate the overtime required
in his new position. The appellant testified that his manager had told him as
much. The judge expressed the view that if the pass was provided on that
basis, this would be sufficient to find a business purpose such that the
benefit of the parking pass accrued primarily to Telus. However, the Tax Court
judge concluded that the appellant’s evidence was not sufficient to support
this position. The appellant had failed to call his manager as a witness. The
Tax Court judge found that for the appellant to prove Telus’ purpose in
providing the pass, it was “crucial” for the appellant to have called his manager
to testify.
[9]
The
judge went on to consider whether, regardless of Telus’ intent, the appellant’s
use of his car constituted a business purpose. The appellant had testified
that by using his own car, as opposed to public transit, he saved approximately
1 hour a day in travel time. This hour was spent at work. The judge accepted
this evidence. The judge found, however, that the appellant’s “decision to
drive to work was essentially a matter of personal choice.” This was
consistent with the approach in Adler.
[10]
The
Tax Court judge found the appellant’s situation to be analogous to one of the
appellants in Adler. That executive had argued that his pass allowed
him to work longer hours and to carry out the onerous duties of his position to
the benefit of the company. The judge in Adler, however, found that
such use of a parking space was inextricably linked to personal choices rather
than pursuant to any express or implied requirement of his employer. While
Telus received an ancillary benefit, the main, primary benefit was received by
the taxpayer.
[11]
By
parallel reasoning, the judge found that the parking pass was a taxable benefit
to the appellant.
[12]
Turning
to the value of the pass, the Tax Court judge considered the appellant’s
arguments that the cost of the pass should be assessed in comparison to the
cost of public transit and alternative choices such as parking in cheaper
lots. The appellant also argued that the cost of operating a car should be
factored in and, when all was tallied, there was no economic advantage to
having a pass. This “cost saved” approach was expressed to be based upon the
decision of this Court in McGoldrick v. The Queen, 2004 FCA 189, 2004 DTC
6407.
[13]
The
Tax Court judge expressed reservations about the cost saved approach but felt
“compelled” to follow it. In assessing the cost saving, the judge viewed
public transport or cheaper parking lots to be inappropriate comparators. The
judge found that after his promotion in 1998, the
appellant had increased responsibilities and duties and it was desirable that
he work longer hours. From his perspective, the most effective way to
accomplish this, without intruding on personal time, was to drive his car and
park in the TELUS building. The judge was not satisfied there was an alternative
that was as satisfactory to the appellant. Thus, the cost saved was the price
charged to members of the public who paid to park in the Telus garage.
The Asserted Errors
[14]
The appellant asserts that the Tax Court judge erred in the
following respects:
i.
The judge misconstrued and misapplied the relevant legal test to
determine whether a taxable benefit had been received. Specifically, the judge
failed to consider whether the appellant received an economic benefit or was
economically enriched by the receipt of the parking pass.
ii.
The judge misapplied the relevant legal test by failing to
consider the evidence about whether Telus was the primary beneficiary of the
parking arrangement. Instead, the judge relied upon factual findings made in
the Adler decision.
iii.
In the alternative, the judge erred in finding that Telus was not
the primary beneficiary of the parking arrangement.
iv.
The judge erred when determining the value of the benefit by
failing to properly determine the costs saved by the appellant.
Consideration of the Asserted Errors
[15]
Paragraph 6(1)(a) is cast in broad terms. It attempts to
capture in employment income various fringe or ancillary benefits, whether
received in monetary or other form. While the paragraph enumerates five
exceptions, none are relevant to this appeal.
[16]
In The Queen v. Savage, [1983] 2 S.C.R. 428, the
Supreme Court held the meaning of the phrase “benefits of any kind whatsoever” in
paragraph 6(1)(a) was “clearly quite broad” and the phrase “in respect
of” was intended to convey the widest possible scope. The paragraph was held
to take into income a material acquisition which conferred an economic benefit,
so long as the acquisition did not fall within one of the exceptions, and so
long as the acquisition was received in connection with employment.
[17]
In Minister of National Revenue v. Phillips, [1994] 2
F.C.R. 680 (C.A.) at page 693, this Court expressed the intent
of the provision in the following terms:
An
economic advantage received by an employee from his or her employer will be deemed
a benefit within the meaning of paragraph 6(1)(a) unless the employee
can demonstrate that the payment was not a benefit in respect of employment,
but made in his or her capacity as a person. Framed in this manner, the test is
able to embrace conveniently the categories of gifts, loans and other
contractual arrangements.
[18]
Once satisfied that something was received by an employee in his
or her capacity as an employee, two further questions arise. First, is the
receipt a non-taxable reimbursement of an expense incurred as a consequence of
employment? Second, does the receipt confer an economic advantage upon the
taxpayer?
[19]
In respect of the first question, in Phillips this Court
affirmed the correctness of Ransom v. Minister of National Revenue,
[1968] 1 Ex.C.R. 293. Ransom established that reimbursement by an employer of
a loss suffered by an employee when selling a house following a job transfer is
not taxable to the extent the payment by the employer reflects compensation for
the employee’s actual loss. The Court in Phillips clarified, at
paragraph 57, that this rule “has no application in a case concerning an
expenditure as opposed to a capital loss.”
[20]
In respect of the second question, this Court confirmed in Phillips
that to be a taxable benefit a payment must confer an economic advantage on the
employee. The Court cautioned, however, that economic benefit “cannot be
assessed on the basis of subjective criteria and that the taxation of benefits
cannot be made to depend on the perceptions of individual taxpayers.”
[21]
In Attorney General of Canada v. Hoefele, [1996] 1 F.C. 322
(C.A.) at page 332, this Court restated the requirement that to be taxable as a
benefit a receipt must confer an economic benefit on the employee. Of
relevance to this appeal is the following passage from the majority reasons,
and particularly the caveat found at the end of the passage:
Therefore,
the question to be decided in each of these instances is whether the taxpayer
is restored or enriched. […] If, on the whole of a transaction, an employee’s
economic position is not improved, that is, if the transaction is a zero-sum
situation when viewed in its entirety, a receipt is not a benefit and,
therefore, is not taxable under paragraph 6(1)(a). It does not make any
difference whether the expense is incurred to cover costs of doing the job, of
travel associated with work or of a move to a new work location, as long as
the employer is not paying for the ordinary, every day expenses of the employee.
[Emphasis added.]
[22]
Hoefele must be read carefully in light of
the strong dissent by Justice Robertson. However, the majority and minority
differed only on the application of the law to the facts then before the
Court. They did not disagree on the applicable legal principles.
[23]
A further factor relevant to the economic advantage analysis has
been articulated by this Court in cases such as Lowe v. Canada, [1996] 2
C.T.C. 33 (F.C.A). If an employee receives an economic advantage, but the
primary beneficiary of that receipt is the employer, no benefit arises under
paragraph 6(1)(a). At issue in Lowe was whether an expense paid
trip to New Orleans constituted benefit under paragraph 6(1)(a). At
paragraph 15 the Court wrote:
[…] It seems to me in
light of existing jurisprudence that no part of the appellant’s trip expenses
should be regarded as a personal benefit unless that part represents a material
acquisition for or something of value to him in an economic sense and that if
the part which represents a material acquisition or something of value was a
mere incident of what was primarily a business trip it should not be regarded
as a taxable benefit within paragraph 6(1)(a) of the Act.
[24]
Having reviewed the
applicable legal principles, I now turn to the asserted errors.
i. Did the Tax Court judge misconstrue or misapply
the relevant legal test by failing to consider whether the appellant received
an economic benefit or was economically enriched by receiving the parking pass?
[25]
Misconstruing or misapplying
the relevant legal test is an error of law, reviewable on the standard of
correctness.
[26]
The appellant submits that
the Tax Court judge did not consider whether he received an economic benefit or
was economically enriched by receiving the parking pass. He further submits
that the Tax Court judge erred by failing to consider the following two
arguments.
[27]
First, the appellant argued
that before receiving the parking pass the appellant commuted to work using
public transit. After receiving the pass, he used his car for the daily
commute. Comparing the cost of commuting using public transit with the cost of
using his car shows that the cost of commuting increased after receiving the
pass. Therefore, the appellant was not economically enriched or advantaged.
Reliance is placed on the decision in Hoefele.
[28]
Second, the appellant argued
that he did not receive an economic benefit or advantage in relation to other
Telus employees of similar rank who did not work at the downtown Edmonton location and who worked at locations where there was no
charge for parking.
[29]
For the following reasons, I
find the appellant failed to demonstrate that the judge erred by failing to
consider the existence of an economic benefit or enrichment.
[30]
First, the judge adopted and
followed the approach taken in Adler. In Adler, at paragraph 75,
the Court found that:
In the within appeals,
the provision of free parking by Telus to the appellants had the obvious effect
of eliminating the need for them to pay for the same privilege out of their own
pockets. In that sense, and without more, there was a benefit conferred on them
that had a fair market value ranging from $1500 to $2800 per year depending on
the location of the facility and whether the stall was assigned.
[31]
The finding that an economic
benefit was conferred was a legal conclusion that flowed from the evidence that
Telus provided parking passes to some employees free of charge while other
employees had to pay for parking. It was admitted in the present case that the
appellant also received his parking pass for free while others paid for
parking. The Tax Court judge was entitled to apply the legal finding in Adler
that, without more, provision of the parking pass in that circumstance
conferred an economic benefit.
[32]
Second, the Tax Court judge
did deal with the conferral of an economic advantage when she moved to consider
the valuation of the benefit. She rejected the appellant’s argument that the
costs he incurred eliminated the economic advantage otherwise conferred by the
parking pass.
[33]
Third, the appellant’s
reliance on Hoefele is misplaced for two reasons.
[34]
For one, as this Court
stated in Phillips, the existence of an economic benefit cannot be
assessed on the basis of subjective criteria. The logical conclusion of the
appellant’s argument is that the determination of the existence of an economic
benefit would be affected by such things as the price and fuel efficiency of
each taxpayer’s vehicle. This is contrary to Parliament’s intent that
employees receive equal tax treatment in respect of their employment incomes.
[35]
For another, as quoted
above, in Hoefele the majority cautioned that the concept of economic
improvement, or the zero-sum situation, did not apply where the employer pays
for ordinary, every day expenses of an employee. Parking of the sort at issue
in this case is such an ordinary, every day expense.
[36]
Finally, it is inappropriate
to compare the appellant with Telus employees who work elsewhere where free
parking is available to all. For there to be equal tax treatment in respect of
their employment incomes, any comparison should be drawn between the appellant
and Telus employees who worked in the appellant’s downtown office but who did
not receive free parking.
ii. Did the Tax Court judge
fail to consider the evidence about whether Telus was the primary beneficiary
of the parking arrangement?
[37]
The appellant submits the
Tax Court judge ignored the evidence before her because she felt she was bound
to follow the determination in Adler that Telus was not the primary
beneficiary of the employer provided parking.
[38]
Again, the appellant has
failed to demonstrate that the Tax Court judge so erred. A fair reading of the
judge’s reasons at paragraphs 23 through 29 shows that she considered the
relevant evidence in order to see whether the evidence was "sufficient to
distinguish the facts from any of the 14 taxpayers in Adler who were
found to have received a taxable benefit." She found the evidence to be
insufficient, primarily because the appellant failed to call his manager to
give evidence.
iii. Did the judge err in
finding that Telus was not the primary beneficiary of the parking arrangement?
[39]
The appellant argues that he
provided uncontroverted evidence quantifying the value of the additional
overtime hours worked by him, and proving that the value of those hours far
exceed the value of the parking pass. Therefore, he submits, Telus received a
substantial benefit each year from the additional overtime the appellant worked
as a result of receiving the parking pass. In the appellant's submission, in a
transaction where one party receives a substantial benefit and the other
receives a parking stall of approximately $2,000.00 value, the only reasonable
conclusion is that the primary beneficiary is the party who receives the
greater benefit.
[40]
The finding that Telus was
not the primary beneficiary of the parking arrangement is a finding that may
only be reversed if the appellant establishes that the trial judge made a
palpable and overriding error.
[41]
As set out above, the Tax
Court judge found the evidence to be insufficient to prove that Telus provided
the parking space primarily for business reasons, which I take to mean, to
obtain an economic advantage for itself. There is no palpable or overriding
error in this finding. In the course of the audit, Telus advised that,
generally, free parking was provided to employees in the appellant's pay
classification and to others who had a particular need for it. While the
appellant may have testified about his understanding of his employer’s intent
and practices, he was not a disinterested observer. It was open to the Tax
Court judge to find, as she did, that it was necessary for the appellant to
have called his manager to testify on behalf of Telus.
[42]
It follows from the finding
the appellant failed to establish that Telus was the primary beneficiary of the
use of the parking pass, that there was no need to consider the applicability
of cases such as Lowe which deal with situations where the primary
beneficiary of a benefit is the employer and the benefit to the employee is only
incidental.
iv. Did the judge error when
determining the value of the benefit?
[43]
The appellant argues that
while the Tax Court judge correctly followed the cost saved approach, said to
be articulated by this Court in McGoldrick, she erred by not properly
applying the method. The appellant submits that at trial he led evidence about
the cost of commuting to work using public transit. When he received the
parking pass, the only cost he saved was the monthly cost of the transit pass.
This cost was offset by the cost of operating his car with the result that
there was no cost savings to him.
[44]
The respondent responds that
the Tax Court judge erred by applying the cost saved approach, but that any
error was not material because the judge valued the benefit in the amount equal
to its fair market value. That is, the benefit was valued as being the amount
paid by members of the public who paid to park in the Telus garage.
[45]
The passage in McGoldrick
that gave rise to this issue is found at paragraph 9, where the Court wrote:
As a
general rule, any material acquisition in respect of employment which confers
an economic benefit on a taxpayer and does not constitute an exemption falls
within paragraph 6(1)(a) (see The Queen v. Savage, 83 DTC
5409 at 5414 (S.C.C.)). In this case, the benefit is the money saved by the
taxpayer in preparing a lunch or in making a food purchase from the casino
vending machines while at work. [Emphasis
added.]
[46]
However, contrary to the
submission of the appellant, in the underlined passage the Court was concluding
nothing other than that the employee received a benefit within paragraph 6(1)(a)
of the Act. The Court was not quantifying the value of the benefit.
Accordingly, properly applied, McGoldrick does not support the
appellant's cost saved approach.
[47]
The equal treatment of
taxpayers is facilitated by valuing their benefits at their fair market value.
On an administrative basis, the Canada Revenue Agency recognizes this and
instructs employers that where the fair market value of a parking pass cannot
be determined, no benefit should be added to an employee’s remuneration. Where
the fair market value can be determined, employers are instructed that the
value of the benefit is based on the fair market value of the parking pass,
less any payment the employee makes to use the space. See: Canada Revenue
Agency, Employers’ Guide – Taxable Benefits and Allowances 2009,
T4130(E) Rev. 09.
[48]
Given the inherent fairness
of this method of valuation, and the absence of objective evidence demonstrating
that a fair market value based valuation is somehow inappropriate on the facts
of this case, the Tax Court judge did not err by valuing the parking pass in
the amount of its fair market value.
Conclusion
[49]
For these reasons, I would
dismiss the appeal, with costs payable to the respondent.
“Eleanor R.
Dawson”
“I
agree
K. Sharlow J.A.”
“I
agree
Carolyn Layden-Stevenson J.A.”
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