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Citation: 2005TCC244
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Date: 20050407
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Docket: 2004-2594(IT)I
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BETWEEN:
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GEORGE GILL,
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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
McArthur J.
[1] These appeals are from assessments
by the Minister of National Revenue increasing the automobile
benefits received by the Appellant from $3,855.50 to $8,521.32 in
the 2000 taxation year and from $4,065.80 to $8,641.32 in the
2001 taxation year. There are two amounts to be determined: (i)
the operating benefits from employment under paragraph
6(1)(k) of the Income Tax Act; and (ii) the
standby charges pursuant to paragraph 6(1)(e) and
subsection 6(2) of the Act.
[2] The Appellant resided in Kirkland,
Quebec during the relevant period and was employed by Offray
Ribbon Canada Inc. ("Offray") in Valleyfield, Quebec. Offray
provided him a Ford Expedition SUV[1] for business and personal use. Under
a lease with Ford-Lincoln Merc. 1985, Offray paid $1,000 per
month for the SUV and the Appellant reimbursed Offray the amount
of $106.49 monthly for his personal use. He drove the SUV to and
from work three days per week, about 76 kilometres return, and
kept it at home on weekends. He kept no logbook of his personal
and business use.
[3] With respect to the operating
benefits, paragraph 6(1)(k) of the Act reads 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:
...
(k)
where
(i) an amount
is determined under subparagraph 6(1)(e)(i) in respect of
an automobile in computing the taxpayer's income for the
year,
(ii) amounts related
to the operation (otherwise than in connection with or in the
course of the taxpayer's office or employment) of the
automobile for the period or periods in the year during which the
automobile was made available to the taxpayer or a person related
to the taxpayer are paid or payable by the taxpayer's
employer or a person related to the taxpayer's employer (each
of whom is in this paragraph referred to as the
"payor"), and
(iii) the total of the
amounts so paid or payable is not paid in the year or within 45
days after the end of the year to the payor by the taxpayer or by
the person related to the taxpayer,
the amount in respect of the operation of the automobile
determined by the formula
A - B
where
A is
(iv) where the automobile
is used primarily in the performance of the duties of the
taxpayer's office or employment during the period or periods
referred to in subparagraph (ii) and the taxpayer notifies the
employer in writing before the end of the year of the
taxpayer's intention to have this subparagraph apply, 1/2 of
the amount determined under subparagraph 6(1)(e)(i) in
respect of the automobile in computing the taxpayer's income
for the year, and
(v) in any other
case, the amount equal to the product obtained when the amount
prescribed for the year is multiplied by the total number of
kilometres that the automobile is driven (otherwise than in
connection with or in the course of the taxpayer's office or
employment) during the period or periods referred to in
subparagraph 6(1)(k)(ii), and
B is the
total of all amounts in respect of the operation of the
automobile in the year paid in the year or within 45 days after
the end of the year to the payor by the taxpayer or by the person
related to the taxpayer; ...
[4] The Act provides that an
employee is taxable on the value of any personal net operating
costs paid by an employer for his or her benefit. Gas, oil,
maintenance, and insurance costs must be allocated to determine
the personal component. The Minister's calculation of the
personal use by the Appellant is based on 12,000 kilometres per
year. Applying the prescribed rate in the Regulations to
the Act, the Minister based his calculation of benefits
received by the Appellant on a rate of $0.15 per kilometre in the
2000 taxation year or the sum of $1,800, and $0.16 per kilometre
in the 2001 taxation year or the sum of $1,920. The Appellant did
not seriously contest these amounts of operating benefits and
appears to accept that he drove the SUV, for personal purposes,
12,000 kilometres per year. I find that the Minister correctly
calculated and assessed the paragraph 6(1)(k) operating
benefits.
[5] The more difficult question is
that concerning "standby charges". The applicable legislation is
complex and reads in part 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:
...
(e)
where the taxpayer's employer ... made an automobile
available to the taxpayer, ... in the year, the amount, if
any, by which
(i) an amount
that is a reasonable standby charge for the automobile for the
total number of days in the year during which it was made so
available
exceeds
(ii) the total of
all amounts, each of which is an amount (other than an expense
related to the operation of the automobile) paid in the year to
the employer ... the taxpayer ... for the use of the
automobile;
6(2) For the purposes of
paragraph (1)(e), a reasonable standby charge for an
automobile for the total number of days (in this subsection
referred to as the "total available days") in a taxation year
during which the automobile is made available to a taxpayer or to
a person related to the taxpayer by the employer of the taxpayer
or by a person related to the employer (both of whom are in this
subsection referred to as the "employer") shall be deemed to be
the amount determined by the formula
where
A
is the lesser of
(a) the
total number of kilometers that the automobile is driven
(otherwise than in connection with or in the course of the
taxpayer's office or employment) during the total available days,
and
(b) the
value determined for B for the year under this subsection in
respect of the standby charge for the automobile during the total
available days,
except that the amount determined under paragraph (a)
shall be deemed to be equal to the amount determined under
paragraph (b) unless
(c) the
taxpayer is required by the employer to use the automobile in
connection with or in the course of the office or employment,
and
(d) all or
substantially all of the distance travelled by the automobile in
the total available days is in connection with or in the course
of the office or employment;
B is the
product obtained when 1,000 is multiplied by the quotient
obtained by dividing the total available days by 30, and, if the
quotient so obtained is not a whole number and exceeds one, by
rounding it to the nearest whole number or, where that quotient
is equidistant from two consecutive whole numbers, by rounding it
to the lower of those two numbers;
...
E is the
total of all amounts that may reasonably be regarded as having
been payable by the employer to a lessor for the purpose of
leasing the automobile during such of the total available days as
are days when the automobile is leased to the employer; and
F is the
part of the amount determined for E that may reasonably be
regarded as having been payable to the lessor in respect of all
or part of the cost to the lessor of insuring against
(a) the loss
of, or damage to, the automobile, or
(b) liability
resulting from the use or operation of the automobile.
[6] The Appellant was unaware that he
should have kept a logbook and stated that the SUV was available
to him only when his employer had no other use for it. He added
that he was required to take it home because his employer did not
want it left on the business premises and he had another vehicle
in his home driveway. The Appellant submits that the phrase
"reasonable standby charge" in paragraph 6(1)(e) of the
Act should be interpreted literally and not ignored
upon application of the formula in subsection 6(2).
[7] Standby charges are triggered if
the automobile is made available for the employee's personal use,
whether it is used and whether its use is unrestricted or
restricted. The "reasonable" part of the "reasonable standby
charge" is a slight misnomer, as the charge is set by a rigid
formula found in subsection 6(2). In the case of a lease, it is
two-thirds of the monthly lease cost of the automobile
attributable to the total days in a year in which the vehicle was
made available. The Appellant's argument about the
interpretation of "reasonable standby charge" is set to rest by
Robertson J. in Adams v. Canada, [1998] F.C.J. 427
(F.C.A.), where he stated:
12 To the extent
that paragraph 6(1)(e) refers to the imposition of a
"reasonable standby charge" the legislation is simply
misleading. The formula outlined in subsection 6(2) dictates the
exact amount to be included in income. There is no room for the
exercise of a discretion in determining what is reasonable.
Moreover, the standby charge is calculated on the basis of two
assumptions. The first assumption is that the employee made
personal use of the automobile during the year. The second
assumption is that personal usage amounts to 1000 km for every
month the automobile is made available to the employee (12000 km
per year). These two assumptions are imbedded in the formula set
out in subsection 6(2).
[8] The standby charge can be reduced,
and this is known as the "reduced standby charge." In certain
circumstances, this reduced standby charge, which is based on the
number of kilometres that the vehicle is driven in connection
with the employment as required by the employer, may apply. It
will only apply when specific conditions are satisfied relating
to the nature of the distance travelled by the automobile as
outlined in paragraphs (a), (c), and (d) of
the definition of element 'A' in subsection 6(2). As the
Appellant did not keep a log book detailing the kilometres that
met this requirement, this reduction does not apply. In addition,
I do not accept that kilometres driven to and from work are
"in connection with employment". This would be
stretching the interpretation.
[9] The SUV was made available to the
Appellant on three weekdays and two weekend days for a total of
five days per week. The Respondent submits that when the reduced
standby charge does not apply (as it does not here), the
reasonable standby charge is always deemed to be two-thirds of
the lease cost of the vehicle and that the number of days the
vehicle was made available is not relevant.
[10] I disagree with those submissions.
Apart from the reduced standby charge, the definition of element
'E' in the formula found in paragraph 6(2) requires that 'E',
an amount representing the gross lease cost for the vehicle,
takes into account the number of days that the vehicle was
actually made available to the Appellant. It is contrary to
common sense that the full lease cost be included in the
calculation of the reasonable standby charge regardless of the
number of days that the vehicle was actually made available to
the taxpayer. Instead, I believe that the "reasonable standby
charge" should be calculated as two-thirds of the net lease
cost[2] of the
vehicle factored by a fraction representing the total amount of
the days out of the year where the vehicle was actually made
available to the taxpayer.
[11] This supports a plain-meaning
interpretation of the legislation. Paragraph 6(1)(e)
of the Act states in part that "there shall be included in
computing income ... a reasonable standby charge for the
automobile for the total number of days in the year during
which it was made so available" exceeds "the total of all
amounts ... paid in the year to the employer ... by the
taxpayer ... for the use of the automobile."[3] Furthermore, element 'E' of the
formula in subsection 6(2) (which is ultimately reduced by
one-third) is not restricted to the lease cost of the vehicle. It
states:
E is the
total of all amounts that may reasonably be regarded as having
been payable by the employer to a lessor for the purpose of
leasing the automobile during such of the total available
days[4] as
are days when the automobile is leased to the employer.
[Emphasis added.]
This definition does not state that 'E' is simply equal to the
lease cost. Rather, 'E' is equal to a portion of that lease cost
that can be reasonably regarded as payable for leasing the
automobile for the days that it made the vehicle available to the
taxpayer. Otherwise, what purpose would the underlined words
serve?
[12] Section 6 revolves around including in
a taxpayer's income the benefits received from his or her
employer during a taxation year. If a taxpayer had a vehicle made
available to him for 360 of 365 days, one would expect that the
inclusion in his income would be substantially higher than a
different taxpayer who had a similar vehicle made available to
him for 100 of 365 days. If the goal of the legislation is to
include in a taxpayer's income the value of the vehicle being
made available, it should take into account the number of days
that the vehicle was so made available.
[13] The Respondent's view of the reasonable
standby charge further breaks down when one considers multiple
employees. In this case, the Appellant suggests that other people
drove the vehicle as well. If a vehicle is leased by an employer
and given to Employee A for the first half of the year and
Employee B for the second half of the year, under the
Respondent's view of the reasonable standby charge they would
both be required to include two-thirds of the lease cost as
income on each of their respective returns.
[14] In the present situation, it is
difficult to tell how many days the vehicle was made available to
the Appellant. The Appellant claims that he had it for three out
of five workdays for 45 weeks in the year, and that other
employees used the vehicle as well. He admits, as the Respondent
submitted, that he also had the vehicle on the weekend, yet for
the most part it stayed in his driveway because he had another
vehicle. While there is some uncertainty, I conclude that the
vehicle was available to him five of the seven days a week. I
also accept the Appellant's evidence that the vehicle was
made available to him in this pattern (i.e., three days a week
plus weekends) for 45 weeks per year.
[15] Therefore, I believe that the
reasonable standby charge should be calculated as two-thirds of
the lease cost of the vehicle factored by the fraction of the
year that the vehicle was made available to the Appellant. In
this case, the vehicle was made available to the Appellant for
225 of 365 days each year.
[16] For these reasons, the appeals are
allowed and the matter is referred back to the Minister for
reconsideration and reassessment on the basis that for each year,
the reasonable standby charge should be calculated[5] as follows:
As stated in paragraph 4, the Minister's assessment with
respect to the operating benefits is correct.
Signed at Ottawa, Canada, this 7th day of April, 2005.
McArthur J.
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