|
Citation: 2004TCC793
|
|
Date:20041207
|
|
Docket:2004-925(IT)I
|
|
BETWEEN:
|
|
G. WILLIAM KEITH,
|
|
Appellant,
|
|
and
|
|
|
|
HER MAJESTY THE QUEEN,
|
|
Respondent.
|
REASONS FOR JUDGMENT
Miller J.
[1] Mr. Keith appeals by way of the
informal procedure the 1999, 2000 and 2001 assessments, whereby
the Minister of National Revenue brought standby charges of
$14,348 for each of those years into Mr. Keith's income.
Mr. Keith maintains he is entitled to a reduced standby
charge as the company vehicle was used substantially all of the
time for business purposes.
[2] Throughout 1999, 2000 and 2001,
Mr. Keith was President and 50% owner of Conventional Holdings
Ltd. (Conventional Holdings): Mrs. Keith was the remaining 50%
shareholder. Conventional Holdings owned Seafood Express (PEI)
Ltd. (Seafood Express), a transport business, which during the
relevant period operated approximately 40 trucks, trailers and
refrigerator units, with over 40 available drivers. Seafood
Express supplied Prince Edward Island products (e.g. lobster,
potatoes) throughout the eastern United States, central Canada
and as far away as Nevada and California. The trucks would bring
produce back to Prince Edward Island. My impression is that
Seafood Express was a successful, thriving business in large
measure due to Mr. Keith's personal efforts in marketing
and maintaining personal contacts with both suppliers and
customers.
[3] Seafood Express operated from
premises at 20 Upton Road in Charlottetown. Mr. Keith
maintained an operating office at those premises from which he
managed the Seafood Express business. His services in that regard
were provided to Seafood Express through the auspices of a
management agreement between Conventional Holdings and Seafood
Express. Mr. Keith, at all material times, was an employee of
Conventional Holdings.
[3] Conventional Holdings, as well as
owning the operating company and providing management services to
it, also was involved in the real estate business, owned a
disinfection building and contracted with Ultramar to rent
property to manage a diesel fuel centre. In 2001 it also had an
interest in a newly developing golf resort in Prince Edward
Island. Mr. Keith sat on the board of the golf project.
[4] Mr. Keith maintained a home office
for Conventional Holdings, from which he retained control of both
Conventional Holdings and Seafood Express finances. Mrs. Keith
served as bookkeeper for both companies. The financial books,
ledgers, accounts receivable, accounts payable, depreciation
schedules and other records were all dealt with from the home
office. It was evident that Mr. Keith had a real concern about
maintaining the privacy of his private companies' records.
Also at the home office, Mr. Keith maintained a (GPS) computer
system, so that he could constantly be aware of where all Seafood
Express's trucks were at any given time. He could also remain
in constant contact with his drivers through the GPS. He referred
to this as the bloodline to what was happening in his business.
He remained available in off hours at home to deal with any and
all emergencies that might arise with the trucks whether in
Canada or the United States. As Mr. Keith put it, the business
was 24/7.
[5] Mr. Keith described his daily
routine of leaving home early, going to pick up the mail and then
heading to the operating office. He there dealt with the mail and
the other managerial concerns of the transport business until
11:00 or 11:30 in the morning. He would return to his home
address and have lunch and work at the home office until 2:30
p.m. or 3:00 p.m., but he would then return to the operating
office to check on the employees and do other necessary chores.
He would normally be the last one to leave the office before
returning home for the day.
[6] Mr. Keith also did a considerable
amount of travelling off the island in servicing his customers
and dealing with his suppliers. He travelled 12 to 16 times a
year for trips of one, two or three days. Approximately half of
these trips appear to have been to Moncton, New Brunswick with
several to Halifax, Nova Scotia over the three-year period. Also,
two of his major customers had locations in Prince Edward Island,
for example in Souris, a 60 or 70 kilometre drive from
Conventional Holdings' office.
[7] Mr. Keith relied primarily on what
he referred to as his business vehicle to carry out the business
travel. His business vehicle was a black 1998 Mercedes Benz
convertible owned by Conventional Holdings, though initially
leased. Mr. Keith was the only person to drive this vehicle.
The Keith family (wife and two teenagers, though only one was old
enough to drive during the relevant period) had a Honda Acura, a
full-size Mercedes Benz sedan and a Harley Davidson bike for
personal use. Mr. Keith was the sole driver of the bike; he would
put 17,000 kilometres in a summer on the bike.
[8] Based on service records, Mr.
Keith estimated the business vehicle travelled 13,382 kilometres
in 1999, approximately 15,000 in 2000 and 16,700 in 2001. Mr.
Keith believed the business vehicle was used 95% to 98% for
business trips only. He acknowledged there may have been an
occasional personal errand or personal use when his wife
accompanied him on a business trip that might also have involved
some recreation. Only one trip was specifically acknowledged in
that regard, a trip to Nova Scotia in June 1999 for which only
800 kilometres of the 1,600 kilometre trip was claimed as
business. Given Mrs. Keith's involvement in the business, Mr.
Keith asserted that the few times that she travelled with him she
was extremely helpful from a business perspective.
[9] Of the total kilometres travelled
by the business vehicle in 1999, 2000 and 2001, Mr. Keith
estimated 2,500 kilometres in 1999 and 2000, and 3,000 kilometres
in 2001 were for visiting island customers, 3,360 kilometres were
for travelling between the offices twice a day and the balance
was for off-island business trips. In support of the off-island
trips, Mr. Keith submitted mainly receipts or invoices for the
bridge toll and for gas. The Canada Revenue Agency (CRA) appeals
officer found such supporting documentation insufficient to
justify the off-island travel. She arbitrarily estimated two
trips per year to major customer/supplier locations. This
resulted in considerably less off-island business mileage than
estimated by Mr. Keith. On balance, I find Mr. Keith's
supporting materials, combined with his oral testimony, more
compelling than the very rough estimate by CRA, and I accept Mr.
Keith's numbers as accurately reflecting the on- and
off-island business travel. The following chart summarizes Mr.
Keith's estimate of his mileage for the business vehicle:
|
Year
|
1999
|
2000
|
2001
|
|
Total kilometres
|
13,382
|
15,000
|
16,700
|
|
Visiting island customers
|
2,500
|
2,500
|
3,000
|
|
Visiting Glasgow golf development
|
|
|
1,700
|
|
Travel between office/week day
|
2,400
|
2,400
|
2,400
|
|
Weekend
|
960
|
960
|
960
|
|
(2 trips a day)
|
|
|
|
|
Off-island business
|
7,522
|
9,140
|
8,640
|
[10] The Respondent considered the travel
between offices as personal, and also concluded the receipts
could not justify the extent of the on- and off-island business
travel, in reaching a determination that not all or substantially
all the kilometres were in connection with business. The Minister
therefore assessed the full standby charge in accordance with
section 6(2) of the Income Tax Act.
[11] I differ with Mr. Keith's mileage
estimates in a couple of respects. First, regarding the travel
between offices, I find that of the two trips per day between his
home office and operating office, only one represents business
travel. Mr. Keith, like any other employee, left his
principal residence to go to work in the morning and returned at
the end of the day. Simply because he had a home office does not
turn this daily commute into business travel. The mid-day trip,
however, to go from his operating office to the home office,
where he worked two or three hours every day, and then back to
the operating office does constitute business travel. For that
reason I am designating half of the 3,360 daily inter-office
travel as personal. Second, Mr. Keith acknowledged that up to 5%
of his travel in the business vehicle could pertain to personal
errands. I find therefore that 5% of the on-island business
travel of 2,500, 2,500 and 3,000 kilometres in 1999, 2000 and
2001 was personal; that is, 125, 125 and 150 kilometres. Finally,
Mr. Keith acknowledged that on a trip in 1999, 800 kilometres in
the business vehicle were more properly personal travel. I
conclude that of the total kilometres in 1999, 2000 and 2001
travelled by the business vehicle, 2,605, 1,805 and 1,830 were
personal kilometres. As a percentage, the business travel
represents 80.5%, 88% and 89% of total kilometres travelled.
[13] Turning now to the standby charge
legislation, the pertinent parts of subsection 6(2) of the
Income Tax Act read as follows for the relevant years:
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
A/B × [2% × (C x D) + 2/3 × (E - F)]
where
A is the
lesser of
(a) the total
kilometres 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 primarily in connection with or in
the course of the office or employment; ...
[14] The taxpayer can only claim a reduced
standby charge if he is required to use the car in connection
with his employment, and all or substantially all of the distance
travelled is in connection with his employment. Other cases, for
example, see Keefe v. R.,[1] McKay v. R.[2] and Ruhl v. R.[3] have
considered that the administrative rule of thumb that 90%
business use constitutes substantially all must be an elastic not
formulaic application. Mr. Keith's percentages are just short
of the 90% mark, but viewing his use of the business vehicle in
context of what he did for the company, that is, maintaining that
personal contact with suppliers and customers vital to the
success of his business, I am satisfied that some minimal
commuting travel does not detract from the position that the car
was used substantially all in connection with his employment.
This finding is supported by the fact that Mr. Keith was the sole
driver and that he had other vehicles available for personal use.
Indeed, during the summer he spent considerable time on his
motorcycle.
[15] In summary, Mr. Keith meets both
criteria set forth in subsection 6(2) of the Act, which
qualify him for a reduced standby charge. I therefore allow the
appeals with costs and refer the matter back to the Minister for
reconsideration and reassessment allowing a reduced standby
charge on the basis of 2,605, 1,805 and 1,830 personal kilometres
driven in 1999, 2000 and 2001 on the business vehicle.
Signed at Ottawa, Canada, this 7th day of December, 2004.
Miller J.
Email this Content