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.”
The Appellant maintains that he received no
taxable benefit as a result of Southwest paying the accommodation expenses
because the rental of the premises was primarily for the benefit of Southwest
and not for his personal benefit. The Appellant had his own residence in
Amherst, Nova Scotia but was required to stay during
the week in Yarmouth where Southwest operated a car
dealership. Yarmouth is about a six or seven hour drive from Amherst.
The evidence showed that the Appellant and a
second individual, John Ryerson incorporated Southwest in late 2002 to operate
a Honda dealership in Yarmouth where a dealership had become
available. The Appellant, either personally or through his consulting firm,
Gordon Cameron and Associates, Inc., provided most if not all the funding
required to set up the business.
The Appellant initially owned a majority of
Southwest shares and acquired the remaining shares from Ryerson in early 2004.
The Appellant was, at all times, a Director and the President of Southwest.
The Appellant said that he and Mr.
Ryerson intended that Mr. Ryerson would run the day-to-day dealership operation
in Yarmouth and that the Appellant would work
every other week for the company. The Appellant said he intended to provide
services to Southwest through his consulting firm and that Southwest would be
invoiced for his services and would pay his expenses and accommodation in Yarmouth. No written contract was drawn up and no
amounts were paid by Southwest to Gordon Cameron and Associates.
The Appellant said that his fees were to be paid
out of Southwest’s profits but, since Southwest didn’t make money, no fees were
paid.
In the Appellant’s tax returns for
the years before me, the Appellant reported a standby charge to him from
Southwest for an automobile provided to him by that company. The Appellant said
that he received T4A forms from Southwest in respect of the automobile benefit
which would indicate the benefits were considered to be received in the course
of or by virtue of an office or employment with Southwest.
From 2002 on, the Appellant spent
a great deal of time in Yarmouth. From the Spring of 2003 to the
end of that year, he also worked at a subdealership set up by Southwest in
Digby.
The Appellant took over Ryerson’s position at
Southwest in September, 2003 because he was unhappy with the latter’s
performance. From the evidence before me, it appears that the Appellant spent
all weekdays and one Saturday per month in Yarmouth and Digby (or traveling to and from those
places) working on Southwest business.
The Appellant rented an apartment in Yarmouth at some point in the Fall of 2002, when the
dealership was being set up. The Appellant said that the apartment was simply
a place to sleep that was close to the dealership and cost less than it would
have cost him to stay in a hotel while in Yarmouth.
The apartment was approximately 800 square feet,
had two bedrooms, a kitchen, bathroom and a living room and was about a five
minute drive to the dealership. The lease for the apartment was in the
Appellant’s name but Southwest paid the rent and utilities and for a cleaner,
as needed.
The Appellant said that it was not possible for
him to move his family residence to Yarmouth.
He was born and raised in Amherst, and he and his wife had raised
their family there as well. His wife cared for her elderly mother who lived in
the area and she also had her own business in Amherst which she had carried on for many years.
The Appellant also testified that five Southwest
workers had stayed temporarily at the apartment in Yarmouth for varying periods of time between 2002 and
2005. Two of these were contractors who were involved in the set up of
Southwest in 2002 and the rest were employees who subsequently moved to Yarmouth.
According to the Appellant, one of these employees
was Mr. Ed Raine, the General Manager for Southwest. This evidence
contradicted what the auditor from Canada Revenue Agency was told by Mr. Raine,
himself, who said that Southwest did not make the apartment available to anyone
but the Appellant.
Appellant’s Position
At the hearing, the Appellant took issue only with
the Minister’s determination that the Appellant was the primary beneficiary of
the rental of the Yarmouth apartment rather than Southwest.
He contends that the rental was primarily connected with Southwest’s business,
and any benefit that accrued to the Appellant personally was only incidental to
the primary benefit to Southwest which was to make the Appellant and his
business expertise available to Southwest.
He also likened these expenses to travel expenses
incurred in carrying on a business and referred to the case of Lowe v The
Queen, 1996 FCJ 319. In that case, the Appellant and his spouse went on a
trip to New Orleans paid for by the taxpayer’s employer. Brokers who sold
the employer’s life insurance products were awarded expense paid trips to New Orleans by the company that employed the
taxpayer, and the taxpayer and his wife were required to accompany the brokers and
ensure that they had a good time.
The Minister’s assessment of the taxable benefit
to the taxpayer in that case was struck down on the basis that the Appellant’s
and his spouse’s attendance in New
Orleans was required
by the employer’s business and that they were primarily engaged there in
business activities on behalf of the employer.
The Appellant said that in this case the
Appellant’s presence in Yarmouth was required by Southwest and
that while there he was primarily engaged in Southwest business.
The Appellant also relied upon the
decision
of the Tax Review
Board in Paul’s Hauling Limited and Paul
E. Albrechtsen v.
The Minister of National Revenue, 1979
DTC 167. In that case, the corporate Appellant had provided a
furnished apartment in Winnipeg to the individual Appellant, Mr. Albrechtsen,
its President and Chief Executive Officer who resided in Calgary. Mr. Albrechtsen was assessed a taxable
benefit in respect of the use of the apartment. The Board held that the
maintenance of the apartment by the corporate Appellant did not provide an
economic benefit to Mr. Albrechtsen.
The Court said:
"In short, in 1975 Mr.
Albrechtsen resided in Calgary. His presence was required in Winnipeg from time to time in connection with the
business of Hauling. That business had grown over the years and Mr.
Albrechtsen’s private office at Oak Point Road
had become less and less suitable for use for substantial parts of his work.
It was in response to that situation that Hauling rented and furnished the
apartment at 200
Tuxedo Boulevard in Winnipeg. The apartment was appropriate for use (a) for
overnight accommodation of Mr. Albrechtsen when he was in Winnipeg, (b) for overnight accommodation of business
associates of Mr. Albrechtsen, Mr. Penton for example, and (c) for purposes of
office work requiring a tranquil atmosphere.
The apartment was, in fact, used
for all such purposes.”
The Appellant submits that many of the same
factors are present in this case and I should therefore follow that decision.
Respondent’s Position
The Respondent contends that the Appellant, and
not Southwest, was the primary beneficiary of the arrangement whereby Southwest
paid his accommodation costs in Yarmouth.
Alternatively the Respondent suggests that the benefit was a shareholder
benefit, taxable under Section 15(1) of the Act.
The Respondent said that the benefit met the
conditions set out by the Federal Court of Appeal in McGoldrick v The Queen,
2004 FCA 189 for taxable benefits under paragraph 6(1)(a). The Court said:
"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 R. v. Savage (1983), 83 D.T.C. 5409 . . .[W]here something is
provided to an employee primarily for the benefit of the employer, it will not
be a taxable benefit if any personal enjoyment is merely incidental to the
business purpose.”
The Respondent contends that the economic benefit
to the Appellant in this case was that he was not required to pay for
accommodation in Yarmouth.
The Respondent says that the case of Paul’s Hauling
Limited et al is distinguishable on its facts from the case at bar.
Firstly, the individual taxpayer in that case only stayed at the Winnipeg apartment from time to time, whereas the
Appellant, here, was at the Yarmouth apartment on a regular full-time
basis. Secondly, the apartment was also rented and used as an office.
Finally, it was also used to put up other business associates.
The Respondent also asks that I do not accept the
Appellant’s evidence that the Yarmouth apartment was used by Southwest
Motors to house other workers.
The Respondent also relies on the
case of Cockerill v The Queen, 1965 Tax Appeal Board cases, in which the
assessment of a taxable benefit to the taxpayer was upheld by the Board in
respect of accommodation provided to him by his employer. The taxpayer was a
U.S. citizen and had a permanent home in Ohio. He was also the President of a corporation
in Hull, Quebec. The Board said:
The Appellant had to live away
from his Ohio home in order to serve the
distant company that employed him and had to have other accommodation
somewhere. Ottawa was the place selected. The
evidence disclosed that he away from Ottawa
only 101 days in 1958, 84 days in 1959, 84 days in 1960 and 97 days in 1961.
Hence he was in the vicinity of that municipality much more often than in Ohio
and virtually had two residences while he chose to be employed at Hull. He was obliged to live close to what was
his main place of employment and the payment of his rent by the Company was a saving
to him pro tanto in personal or living expenses and clearly a benefit.
It is not customary for a corporation to pay a substantial part of an officer’s
living expenses and when this happens, the officer concerned necessarily
benefits accordingly.
Lastly, counsel said that a taxable benefit can
arise under paragraph 6(1)(a) even where the benefit is provided for a business
purpose and the cost of the benefit is deductible to the payor. The question is
whether the benefit to the recipient can be said to be merely incidental to the
business benefit to the payor.
Analysis
In my view the evidence does not support the
Appellant’s position that he did not receive a taxable benefit within the ambit
of paragraph 6(1)(a) in the circumstances of this case. Southwest paid
the Appellant’s accommodation expenses while he was performing duties for the
corporation at its ordinary place of business on a full-time basis for an
indeterminate period of time.
These expenses cannot be likened to ordinary
travel expenses such as those in Lowe because they were not incurred
while the Appellant was travelling away from Southwest’s place of business in Yarmouth. The travel in this case was necessitated
by the choice made by the Appellant to maintain his residence in Amherst and his choice to work full-time in Yarmouth.
In order to make himself available to work for
Southwest the Appellant was required either to travel back and forth from his
residence in Amherst or to set up another residence in Yarmouth. He chose to do the latter. In Symes v
The Queen, Justice Iacobucci writing for the majority made the following
observation at paragraph 79:
". . .Traditionally expenses
that simply make the taxpayer available to the business are not considered
business expenses since the taxpayer is expected to be available to the
business as a quid pro quo for business income received. . .”
In my view, these comments are equally applicable to a situation
involving an office or employment.
The costs of the Appellant’s accommodation in Yarmouth was the result of a personal choice made by
the Appellant and not as a result of a business requirement of Southwest. The
benefit to the Appellant cannot be said therefore to have been primarily
provided for the benefit of Southwest.
It is clear that, but for the Appellant’s personal
connections in Amherst, he would have moved permanently
to Yarmouth. It is entirely understandable
that the Appellant chose to maintain those connections and his residence in Amherst, but that choice, again, was a personal
one.
The choice to maintain the Appellant’s residence
would have led to an increase in the Appellant’s living costs had Southwest not
paid for his accommodation in Yarmouth, and therefore by freeing the Appellant
from those payments, Southwest can be said to have conferred a benefit of
economic value upon him.
I agree with the Respondent that the decision in Paul’s
Hauling Limited et al can be distinguished from this case on its
facts. I do not accept the evidence of the Appellant relating to the use of
the apartment by other Southwest workers. As already stated, the evidence
directly contradicts the statements of the General Manager of Southwest to the
CRA auditor during the audit. The auditor’s evidence on this point was
unchallenged by the Appellant and none of the other workers were called to
testify.
No reason was given for not calling the workers to
testify and I am entitled to draw an inference that their evidence would not
have been favourable to the Appellant on this point.
I also do not believe that the Appellant’s initial
intention to spend only half his time in Yarmouth has a bearing on the outcome of his appeal.
It appears that this intention changed in early 2003 at least with the opening
of the subdealership in Digby. I infer from all of the evidence that he
devoted all his energies to Southwest business and was in Yarmouth every week in the years in issue on a full-time
basis.
Even though the decision in Paul’s Hauling
Limited et al is distinguishable on its facts, I would also say that, to
the extent that it stands for the proposition that the ongoing payment of the
living expenses of an officer and employee of a corporation while he or she is
working at the corporation’s only place of business, is not a taxable benefit its
authority is questionable. In that case, the taxpayer’s need for accommodation
in Winnipeg was determined by his choice of having his residence in Calgary, not by any business requirement of his
employer. Once again that choice was personal and any payment made by the
corporation that resulted from that choice ought to be seen as primarily
benefiting the taxpayer and not the corporation.
For all these reasons I find that the
accommodation payments in this case were a benefit received by the Appellant
that fall within paragraph 6(1)(a) of the Act and were properly included
in his income. It is not necessary therefore to deal with the Respondent’s
alternative subsection 15(1) argument. Therefore the Appeal is dismissed.
(MATTER CONCLUDES)
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