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Citation: 2005TCC97
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Date: 20050203
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Docket: 2004-2312(IT)I
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BETWEEN:
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SLAWOMIR PODLESNY,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Bowman, A.C.J.
[1] These appeals are from assessments
of income tax for the appellant's 2000 and 2001 taxation years.
In those years the appellant was employed by the
St. Thomas-Elgin General Hospital as a
physiotherapist. He travelled each day from London to the
hospital where he worked during the day. There is no issue with
respect to the cost of travelling to that place of employment. It
is not deductible.
[2] What is in issue is the extent to
which he is entitled to deduct the cost of two automobiles used
in his employment with two other employers, Comcare (Canada)
Limited and Para-Med Health Services. Both of those
companies provided in-house care to patients. The appellant's
specialty as a physiotherapist is with persons suffering from
chronic obstructive pulmonary disease.
[3] In each of the two years under
appeal he visited 1100 - 1200 patients. His
normal practice was to visit his patients in the morning before
he went to work at the hospital or after work in the evening.
Somewhat less than one half of his fairly substantial income came
from his home care employment.
[4] In each of the two years he owned
three automobiles. In 2000 he owned a Volkswagen Passat, a Honda
Accord and a GMC Sierra. His evidence - it was not
contradicted - is that he used the GMC and the Honda throughout
2000 for the purpose of visiting his patients and the Volkswagen
for personal use. The GMC had been bought in November 1999 and he
began using it to visit patients on January 2, 2000.
The same pattern was followed in 2001. He bought a Subaru
Forester in November of 2000 and started using it on
January 2, 2001 to visit patients. Throughout 2001 he used
the GMC and the Subaru to visit patients and the Honda for
personal use.
[5] He kept a meticulous record of his
trips to visit patients, setting out the names of the patients,
their addresses and the number of kilometres travelled as well as
the automobile he used.
[6] At the opening of trial counsel
moved to amend the reply to the notice of appeal to refer to
section 67 and paragraph 13(7)(b) of the
Income Tax Act. I permitted the amendment with respect to
paragraph 13(7)(b) because it was acknowledged that
that provision was the basis of that portion of the assessments
whereby the Minister assumed that the GMC and the Subaru were
deemed to have been acquired in 2000 and 2001, respectively. I
did not however allow the amendment with respect to
section 67 because I was not aware that the disallowance of
some of the capital cost allowance ("CCA") was specifically based
upon the view that it was unreasonable for him to use two cars
exclusively for visiting patients and I thought it was rather
late in the day to confront a litigant who was not represented by
counsel with a new and significant argument. However, it became
obvious from the evidence of the appeals assessor,
Mr. Okonski, and his cross-examination that
reasonableness was the basis upon which the appellant was not
allowed 97% CCA on both cars. Indeed a letter to the appellant
from the Canada Customs and Revenue Agency dated
September 8, 2003 specifically refers to the concept of
reasonableness as a basis for allowing CCA of 50% on each
vehicle. Therefore the point was fully argued by Mr. Podlesny's
representative and counsel for the respondent.
[7] The records that Mr. Podlesny
kept established that in each of the two years, 97% of the total
mileage on each of the two cars (the GMC and the Honda in 2000
and the GMC and Subaru in 2001) was used for visiting patients.
Indeed, the CCRA appears to have been satisfied on this point
because some of the assumptions pleaded in the reply were:
11. In reassessing tax for the 2000 and 2001
taxation years, the Minister assumed the following facts:
. . . . .
(d) at all material times, the
Appellant owned three vehicles, and used two of those vehicles
for business purposes;
(e) in the 2000 taxation year, the
Appellant owned a VW Passat, a GMC Sierra and a 1998 Honda
Accord, and used the GMC Sierra and the Honda Accord for business
purposes;
(f) in the 2001 taxation
year, the Appellant owned a Honda Accord, a GMC Sierra and a
Subaru Forester, and used the GMC Sierra and the Subaru Forester
for business purposes;
(g) in the 2000 and 2001 taxation
years, the business use of the Appellant's vehicles was 97%;
[8] In light of these admissions I
have some difficulty in seeing how I can make an adverse finding
against the appellant on some of the points that are in issue.
The issues that need to be dealt with are the following:
(a) Was there a change of use in 2000 in
respect of the GMC and in 2001 in respect of the Subaru giving
rise to deemed acquisition of these vehicles in 2000 and 2001
respectively?
(b) Is the appellant entitled to use two cars to
visit his patients so that his expenses and CCA for both cars can
be claimed to the extent of 97%?
[9] On assessing, the Minister allowed
the full amount claimed for fuel for both vehicles used in those
years as employment expenses. In 2000 he allowed $3,291 for the
GMC and Honda and $3,220 for the GMC and Subaru. Similarly, he
allowed the full amount claimed for maintenance on the
automobiles as employment expenses. This amount was $883 for 2000
on the GMC and Honda and $4,468 for the GMC and Subaru. Also, he
allowed the full amount claimed for car washes - $99 in 2000 for
the GMC and Honda and $220 for 2001 on the GMC and Subaru.
[10] However, at this point the taxpayer's
and the CCRA's paths diverge. The CCRA allowed $1,134 on the
Honda in 2000 for insurance, $75 on the Honda for a licence and
$1,531 for interest on the Honda. He allowed no part of the
amounts claimed in 2000 on the GMC for insurance, licence and
interest ($771, $75 and $505 respectively). Similarly, for 2001
he allowed $1,488, $75 and $1,156 on the Subaru for insurance,
licence and interest but none of the amounts claimed on the GMC
for these items ($1,245, $75 and $364).
[11] While he denied the amounts completely
in respect of the GMC, he allowed less than 50% of the total CCA
claimed on both cars. The amounts claimed in 2000 were $9,315 and
$5,321 on the GMC and Honda respectively for a total of $14,636
and in 2001, $6,520 and $10,350 on the GMC and Subaru
respectively for a total of $16,870. The amounts allowed for CCA
by the Minister for 2000 were $4,658 and $5,321 for the GMC and
Honda respectively for a total of $4,990 and for 2001, $7,918 and
$5,175 for the GMC and Subaru, respectively for a total of
$6,547.
[12] The difference between the amount
claimed for CCA and the amount allowed is not simply a 50%
reduction of the amount claimed. It is a little more complex than
that. First of all, the Minister assumed a deemed acquisition of
the GMC in 2000 and the Subaru in 2001, the year after each of
these cars was acquired. The theory was that under
paragraph 13(7)(b) they had been acquired for
personal use in 1999 and 2000 respectively and had started to be
used in 2000 and 2001 for the purpose of earning income. Second,
on the basis of the deemed acquisition in 2000 and 2001
respectively, he applied the half year rule in
subsection 1100(2) of the Income Tax Regulations
which permits a taxpayer to deduct in the year of acquisition
only 50% of the CCA which the taxpayer would otherwise be
entitled to claim. Third, the Minister applied the limitation on
the cost that may be used for automobiles costing over $20,000.
The limitation under section 7307 of the Regulations
was $26,000 in 1999, $27,000 in 2000 and $30,000 in 2001.
[13] To summarize then: the Minister accepts
that the "business" (strictly speaking, employment) use of the
two automobiles was 97%. He allowed all of the gas, maintenance
and car washes claimed for both automobiles, but only insurance,
license and interest on one of the two and a portion of the CCA
claimed on both. The uncontradicted evidence is that the
appellant in fact used the two automobiles almost exclusively
(97%) for the purpose of visiting his home care patients and did
not use them for personal purposes (including driving to work at
the St. Thomas-Elgin General Hospital). Indeed he
testified that he would drive his "business" car home from
visiting patients and leave it there and take his personal car to
work. This strikes me as a little surprising but I have no basis
upon which I can reject the evidence.
[14] The appellant's agent argued that the
Minister's assessing actions were inconsistent in the sense that
he allowed some expenses on both vehicles and some on only one.
At first blush it may be that is how it appears. Nonetheless,
inconsistencies in assessing are seldom a very good reason for
varying an assessment. The question is whether the assessment is
right or wrong, not whether some of its constituent elements are
inconsistent.
[15] There is also the question of
reasonableness which was not pleaded but which appears to have
been an important consideration in the making of the assessments.
It is obvious to me that Mr. Podlesny was rather aggressive
in claiming the cost of two cars in computing his employment
income. It is equally obvious that he liked cars. That, however,
is his choice. It is not for me or the Minister to
second-guess his business judgement and say that he cannot
use two cars for business purposes even though he might have been
able to make do with only one, and a cheaper one at that. His
work is important and at times urgent. His decision to have two
well maintained automobiles is not so patently absurd that I
would be justified in setting it aside as irrational or
capricious. (See, for example, Gabco Ltd. v. M.N.R.,
[1968] DTC 5210). To do so would require me to substitute my
business judgement for that of the taxpayer and that is not
something that I am entitled or prepared to do. Moreover, I would
be to some extent usurping the role of Parliament. If Parliament
wants to say that you can only use one car in your business it
knows how to say so, just as it has put a limit on how much CCA
you can claim on a luxury car. I do not think that one can, under
the guise of "reasonableness" substitute the court's judgement
for that of the taxpayer. This is to some degree what
Tremblay J. did in Beauchemin v. M.N.R., 77 DTC 26,
where a doctor claimed the business use of two cars. At
page 4, Tremblay J. said:
4.1 Two automobiles in 1972
One of the principal arguments
of the respondent is that, if they are to be allowed, the
expenses must be reasonable, in accordance with section 12(2) of
the Income Tax Act, R.S.C. 1952, c. 148, as amended, and
section 67 of the Income Tax Act, S.C. 1970-71-72,
c. 63, as amended.
The respondent contends that it
was unreasonable to claim depreciation and expenses for two
automobiles in the same year, particularly as one of the vehicles
was a Porsche and the other a Blazer jeep.
Counsel for the respondent
cited a number of precedents: G. H. Chambers (Northiam
Farms) Ltd. v. Watmough (H.M. Inspector of Taxes),
36 T.C. 711; Niessen v. Minister of National Revenue,
60 DTC 489, (1960) Tax A.B.C. 62; No. 485 v.
Minister of National Revenue, 58 DTC 69, (1958) Tax A.B.C. 358;
Zakoor v. Minister of National Revenue, 64 DTC 392,
(1964) Tax A.B.C. 338; W. J. Kent and Co. Ltd. v.
Minister of National Revenue, 72 DTC 1018, (1971) Tax A.B.C.
1158.
These cases held that expenses
claimed or vehicles considered as luxuries (Bentley, Cadillac,
Rolls-Royce) were unreasonable expenses. The taxpayers had not
shown that in fact their business required the use of a vehicle
considered to be a luxury.
According to the evidence
submitted in the case at bar, the Board is of the opinion, first,
that the use of a special vehicle appropriate for winter driving,
namely, the Blazer jeep, was justified. The urgent and frequent
need of his medical services particularly when a storm was
raging, justified this expenditure.
The evidence has shown that
another automobile was also needed for the rest of the year. The
Board does not consider, however, that an automobile as costly as
a Porsche was required. The appellant's argument to the effect
that the purchase of an automobile with a certain prestige could
only promote an increase in the size of his practice does not
convince the Board, just as such arguments did not earlier
satisfy the courts. The Board accordingly allows, in respect of a
second automobile, half the cost of the Porsche, namely $5,627.
The purchase of an automobile at that price in 1972 would have
been reasonable for the professional needs in question.
Similarly, Chairman Flanigan of the Tax Review Board, in
Raz v. M.N.R., 74 DTC 1136, said at paragraphs 9 and
10:
The evidence is clear that he
acquired the Oldsmobile in 1968 to replace the Princess. From
then on there is no evidence whatsoever that the Princess was
ever used as a result of the failure of the Oldsmobile to be
available to him for any purpose. It then became a matter of
choice to him which motor vehicle he used.
In my view, this situation does
not entitle a sole taxpayer operating a business to use more than
one motor vehicle in the earning of income. In my judgment, the
appellant is entitled to depreciation in the manner computed by
the Minister; that is, by adding the Oldsmobile to the class in
1968 and deleting the Princess from that time on as not being
used for business purposes.
[16] A determination of reasonableness does
not justify arbitrariness. In 2831422 Canada Inc. et al v. The
Queen, 2002 DTC 3930, the following observations were
made:
[8] ... What is reasonable in any circumstance is a matter of
fact, judgment, and common sense. In Words and Phrases Legally
Defined there are eight pages of two columns dealing with the
words reasonable or reasonably, yet no court of which I am aware
has ever had the temerity to try to formulate a comprehensive
definition of the word, nor do I. Any attempts to assign a
meaning to it usually end up using the word itself. It is said to
imply the application of objective criteria but it is a word of
such fluidity and elasticity that a judge must resist the
temptation to let some element of subjectivity creep into his or
her determination. What may seem reasonable to one judge may not
to another. Attempts to define the "reasonable person" usually
end up deferring to some hypothetical passenger on the Clapham
omnibus. One can ask "What would an impartial observer possessing
a somewhat (but not excessively) above average intelligence,
knowing all the relevant facts, having no preconceived notions,
biases or hidden agendas consider to be reasonable?" In short,
one draws the line between reasonable and unreasonable where
one's good sense tells one to draw it.
[17] Even if the question of reasonableness
had been pleaded I would not be prepared to uphold the Minister's
action in allowing certain expenses on only one automobile or
allowing CCA on both automobiles but limiting it to what is
essentially the total amount that might be claimed on one. This
sort of rough and ready approach may have a certain superficial
attractiveness but it is simply not in accordance with a measured
application of the rule of reasonableness. It is arbitrary. Once
it is accepted that the "business" use of two automobiles is 97%,
the Minister cannot simply reduce the amount allowed to a figure
that he finds more palatable.
[18] I propose to dispose of these appeals
as follows:
(1) I find that there was a change of use of the Subaru in
2001 from personal to business use and a deemed acquisition in
that year. Therefore, the half year rule applies as well as the
prescribed limit on the cost applicable to an acquisition in
2001. I make this finding on the basis of Mr. Podlesny's
admission in a letter dated January 27, 2003
(Exhibit R-7) in which he states that the Subaru
became his personal car for the remainder of 2000.
(2) The evidence does not support the same conclusion
for the GMC. I find that it was acquired in 1999 for the purpose
of earning income and that there was no change of use in 2000.
Therefore, this car was acquired at its actual cost in 1999 and
the one-half year rule applies to 1999 even though no CCA
was claimed in that year, and it does not apply to 2000. This
conclusion would normally mean that the prescribed deemed capital
cost under paragraph 13(7)(b) would be the figure
applicable to 1999. However, since the Minister has used the 2000
figure of $27,000, I cannot refer the matter back to achieve a
less favourable result than the Minister accorded to the
taxpayer.
(3) The appellant is entitled to claim CCA on the GMC
and the Honda in 2000 and on the GMC and the Subaru in 2001 to
the extent permitted by the Income Tax Act and
Regulations without any reduction on the basis that he is
entitled to CCA only on the equivalent of one car.
(4) The appellant is entitled to deduct his insurance,
licence and interest costs on the GMC in 2000 and 2001.
[19] The appellant is entitled to his costs,
if any, in accordance with the tariff.
Signed at Ottawa, Canada, this 3rd day of February
2005.
Bowman, A.C.J.
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