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Citation: 2004TCC195
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Date: 20040304
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Docket: 2002-4623(GST)I
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BETWEEN:
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SERVICE B. OUELLET (1997) INC.,
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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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[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Louise Lamarre Proulx J.
[1] This is an appeal from an
assessment, notice of which bears number 213487, made by the
Minister of National Revenue ("the Minister") under the Excise
Tax Act ("the Act") for the period from January 1, 1998, to
February 28, 2001.
[2] The issue is whether the appellant
conferred a benefit on its principal shareholder in respect of
the use of an automobile within the meaning of subsections 15(1)
and 15(5), paragraph 6(1)(e), and subsection 6(2) of
the Income Tax Act. Subsection 173(1) of the Act
prescribes the imposition of tax on this benefit.
[3] The facts on which the Minister
relied in making the assessment are set out in paragraph 32
of the Reply to the Notice of Appeal ("the Reply") as
follows:
[TRANSLATION]
a) The facts
admitted above
b) The
appellant is a registrant for GST purposes.
c) In its
capacity as a registrant, the appellant is also an agent of the
Minister with the obligation to collect and remit the applicable
GST with respect to the taxable supplies it makes.
d) The
appellant operates a business that consists of a service station
with a mechanical shop.
e) During the
period at issue, the appellant made some vehicles belonging to
it, namely a Volvo model 850 that was later replaced by a Volvo
model S70, available to its president and principal shareholder,
Mr. Bertin Ouellet.
f) As
will be shown at the hearing, these two vehicles were not used by
Mr. Bertin Ouellet or any persons related to him in
connection with the appellant's commercial activities.
g) For tax
purposes, the successive personal use of these two vehicles by
Mr. Bertin Ouellet or any persons related to him was determined
and assessed at 14%.
h) The
appellant was duly assessed for the GST payable on the value of
the taxable benefit resulting from the appellant making these
vehicles available to Mr. Bertin Ouellet or any persons related
to him.
i) The
appellant was not able to show that the Volvo brand vehicles it
had owned during the period at issue had been used in connection
with its commercial activities and in what proportion.
j) The
appellant did not maintain a logbook establishing what purposes
the vehicles had been used for.
k) Also,
according to the appellant's arguments, the vehicles belonging to
Mr. Bertin Ouellet that had been used for Mr. Bertin
Ouellet's personal travel had actually been used by his wife and
daughters.
l)
During the period at issue, Mr. Bertin Ouellet had owned a 1984
Mercury Lynx (from 1996/05/28 to 1999/11/05 - probable date of
the discarding by the police), a 1986 Toyota Corolla (purchased
on 1999/12/01), a Pontiac Sunbird (from 1999/11/05 to
1999/11/18), and a 1997 Honda Civic (from 1998/11/04 to
2001/10/01).
m) These vehicles
are considered subcompact vehicles.
n) In 1999 and
2000, Mr. Bertin Ouellet owned only two vehicles in working
condition, which were at the disposal of four drivers.
o) As will be
shown at the hearing, Mr. Bertin Ouellet's wife did not
own any vehicles and worked outside the home during the period at
issue.
p) In
addition, the Honda Civic 1997 was insured for the Montreal area,
where one of the Ouellet couple's two daughters is studying.
q) Considering
that the Honda Civic 1997 was used in Montreal and Mr. Bertin
Ouellet's wife used the other vehicle for the purposes of her
work and that that vehicle could also be used by the Ouellets'
other daughter, Mr. Bertin Ouellet no longer had any vehicles at
his disposal except the vehicle the appellant made available to
him.
r)
Moreover, it is completely implausible in this case that Mr.
Bertin Ouellet used the luxury vehicles the appellant had made
available to him sparingly, choosing instead to travel in a small
subcompact car.
[4] The facts set out in
paragraphs 3 to 12 of the Notice of Appeal are as
follows:
[TRANSLATION]
3. Mr. Bertin
Ouellet is the appellant's employee, shareholder, and sole
director.
4. The
appellant operates a service station that offers mechanical
services.
5. Bertin
Ouellet has a residence approximately 8 kilometres from the
Service B. Ouellet (1997) inc. place of business.
6. Bertin
Ouellet's residence includes a garage that is used in particular
as a storage space for tires belonging to the appellant's
clients.
7. In the
1998, 1999, and 2000 taxation years, the appellant owned some
automobiles that were used as service vehicles or courtesy
vehicles for clients.
8. In the
1998, 1999, and 2000 taxation years, the appellant had all of the
permits needed to sell automobiles.
9. In the
1998, 1999, and 2000 taxation years, Bertin Ouellet
personally owned some automobiles.
10. In the 1998, 1999, and
2000 taxation years, Bertin Ouellet's personal vehicles were
usually used by him to go to work at the appellant's place of
business in addition to being used as service vehicles and
courtesy vehicles for the appellant's clients.
11. In the 1998, 1999, and
2000 taxation years, Bertin Ouellet stored the appellant's
automobiles at his residence on the weekends, primarily to
protect them from vandalism.
12. During an audit, the
auditor from the Ministère du Revenu du
Québec established that Bertin Ouellet had used the
appellant's automobiles for personal purposes and estimated
Bertin Ouellet's personal mileage to be 2,432 kilometres and
the total annual mileage on the appellant's automobiles used by
Bertin Ouellet for personal purposes to be
17,665 kilometres, as appears in the document entitled
APPENDIX, which will be filed in support hereof.
[5] In paragraphs 16 and
following of the Notice of Appeal, it was mentioned that, for
each year from 1998 to 2000, a benefit amount for making a Volvo
car available was added to Mr. Bertin Ouellet's income
under the Income Tax Act. Strangely, nothing was mentioned
about this at the hearing. If these income tax assessments had
been appealed, it would have been preferable to hear those
appeals before this appeal since subsection 173(1) of the Act
prescribes the imposition of tax on that type of benefit.
[6] In fact, what was challenged in
this case was that there was more than minimal personal use
within the meaning of subsection 6(2) of the Income Tax
Act. According to the Minister, all or substantially all of
the distance driven by the Volvo car was not for business
purposes.
[7] The appellant was represented at
the hearing by its principal shareholder and president, Mr.
Bertin Ouellet. He admitted paragraphs 32(a), (c), (d), (k),
(n), (o), and (p) of the Reply.
[8] Mr. Ouellet maintained that the
Volvo car was used for the company's business purposes. It was
allegedly used as a courtesy car and had been lent to clients of
the service station when their vehicles were being repaired.
[9] He took the vehicle home on
weekends as a security measure. He could also use it to transport
tires to his home or even to respond to the calls of clients
whose vehicles had broken down.
[10] The service station is located nine
kilometres from his residence, and the business's office is in
his home, as is the computer to do the payroll. The service
station contains an office for recording transactions with
clients.
[11] Both sides acknowledged that the car's
annual mileage was 17,665 kilometres. According to the
auditor, the annual personal mileage was 2,432 kilometres.
According to Mr. Ouellet, the personal mileage was a maximum of
667 kilometres annually. He maintained that he definitely
could not have used more than 6% of the total for his own
personal use.
[12] According to Mr. Ouellet, he had used a
Honda Civic or another personal car of the same category to
travel in.
[13] In cross-examination, he admitted that
the Pierre-Laporte Bridge is 400 kilometres from Matane, the
place where the appellant had purchased its car, and he and his
wife have relatives in the Trois-Pistoles region, which is
approximately 260 kilometres away. They are both from that
region.
[14] Mr. Ouellet takes one week of vacation
in August to visit his family. He has also gone to see his
relatives at Christmastime. According to Mr. Ouellet, he had
taken the Honda Civic because the Volvo stayed at the garage in
case a client needed to use it.
[15] The vehicles Mr. Ouellet and his family
allegedly used for their own personal purposes are described in a
document (Exhibit A-2) that was written at the objection stage by
their counsel at that time:
[TRANSLATION]
All throughout the audit period, Mr. Ouellet always personally
owned at least one automobile, even three at the same time.
During that period, he was the owner of a 1998 Honda Civic, a
1996 Honda Civic, a Ford Escort, a 1985 Pontiac Sunbird, and a
1988 Toyota Corolla. All of those vehicles were very clean and in
excellent working condition.
[16] For some reason, the appellant admitted
with difficulty that those cars are subcompact cars. Note that
the two Volvo cars had been purchased new.
[17] Mr. Ouellet claimed that the
appellant maintained a logbook for the Volvo car. At the hearing,
he submitted a notebook that was supposed to represent the
vehicle loans made to clients. The notebook indicated the loan of
various cars for whole or half days. There was no mention of
mileage. Note that the notebook was not shown to the auditor.
[18] He admitted that his wife had had back
problems in 1999.
[19] Ms.
Gaétane Bérubé, Mr.
Bertin Ouellet's wife, testified for the appellant. She said
that they often took the personal vehicle, for example the Honda
Civic, to the Lower St. Lawrence. She maintained that she
used the Honda Civic. She is a teacher, and her school is
approximately one kilometre from the service station. Mr. Ouellet
took the Toyota, and she took the Honda Civic.
[20] Ms. Bérubé said that
the business did not sell used Volvo cars other than cars that
were the appellant's property. Most of the used cars that are
sold are subcompact cars that are on average approximately ten
years old. The appellant sells approximately 25 to
30 vehicles per year. The notebook shown by Mr. Ouellet was
for loans of vehicles that were to be sold.
[21] Mr. Sylvain Martin, the Minister's
auditor, said that the conversations he had had with
Ms. Bérubé had confirmed that the Volvo was
still at the house on weekends. In discussions with
Ms. Bérubé, she had mentioned that
occasionally they went to visit their daughter in Montreal with
the Volvo.
[22] The auditor paid a great deal of
attention to the insurance policy that was included in
Exhibit I-2. For the period from October 29, 2000, to
October 29, 2001, three vehicles were insured: a 1998 Honda
Civic, a 1999 Volvo, and a 1999 Nissan pickup. These three
vehicles are insured for specific areas. The Honda Civic is
insured for the 1C region, the Volvo for the 2C region, and the
Nissan pickup for the 2A region.
[23] With regard to the comments in the
insurance policy, the bottom of the page states that the Honda
Civic was for a student, the main driver was Caroline Ouellet,
the daughter of the insured, and the vehicle was used in the
Montreal area.
[24] With respect to the second vehicle, the
Volvo, the driver was female, and the main use was for a female.
Region 2C corresponds to St-Augustin, according to the
auditor, who had asked the insurer.
[25] The third vehicle, the Nissan pickup,
was noted as being a service vehicle with no drivers under age 25
for the 2A region, which corresponds to the Quebec City area.
Arguments
[26] Owing to the similarity in the facts
(other than the taxpayer's initial admission of making the
vehicle available), counsel for the respondent referred to the
decision of Tardif J. in Tremblay v. Canada,
[2000] T.C.J. No. 547 (Q.L.), for which the summary
taken from 2000 DTC 2414 reads as follows:
Held: The taxpayer's appeal was dismissed. By his own
admission, the Dodge Caravan was at his disposal 95% of the time.
It was a more spacious and a safer vehicle than the vehicle he
owned, and there were no constraints on the frequency with which
he could use it. This reality alone was sufficient to result in
the conferring on him of a benefit. Such benefit, moreover, was
not negated by the fact that he may actually have used the
vehicle only rarely for personal purposes. Subsection 6(2) of the
Act contains the formula for computing the motor vehicle standby
charge. This formula explicitly provides for the amounts to be
added to the income of recipients of the benefits dealt with in
the formula. In addition, paragraph 6(1)(e) and subsection 6(2)
takes no account whatever of the fact that the recipient of the
benefit may or may not have used the vehicle. The formula also
carries a presumption that, once the personal use of the vehicle
has been permitted, 12,000 kilometres per year (or 1,000
kilometres per month) are attributable to the personal use
thereof. Such presumption, of course, is rebuttable, but the
evidence required for such rebuttal must be clear and specific.
This makes the use of a kilometre log book practically
indispensable. Such log book, however, had not been maintained by
the taxpayer in this case. The onus was on him to prove precisely
the personal content involved in the 25,000 to 30,000 kilometres
per year which the vehicle had been driven during the taxation
years in question. It was not sufficient for him merely to allege
repetitively that the personal use component was less than 10%.
On the evidence, it was more than probable that he was regularly
using the vehicle for family purposes during Q Inc.'s off
seasons. Admittedly, there is no hard and fast rule mandating the
keeping of a log book. But the decision not to maintain one
compounds the evidenciary problem faced by a taxpayer having to
prove, with precision, the personal content in the total
kilometres involved. In this case, the taxpayer simply failed to
discharge that onus. Hence, the $9,358 inclusion in his income
for each of the taxation years in issue was justified. The
Minister's assessments were affirmed accordingly.
[27] Counsel noted that, according to the testimonies of the
appellant's witnesses, the Honda Civic had been used by three
drivers: Ms. Bérubé, Mr. Ouellet, and the
student. He pointed out that there was no logbook. Then he asked
whether it was likely for someone to drive a subcompact car on
the highway from Quebec City to the Trois-Pistoles region
when they have a safe, comfortable Volvo at their disposal. The
onus is on the taxpayer to prove the mileage for business and the
minimal personal mileage, and this cannot be proven in
approximation.
[28] The taxpayer argued that there had been
minimal personal use and the business is not required to maintain
a logbook for a vehicle it owns.
Analysis and conclusion
[29] Subsection 173(1) sets out that,
where a registrant makes a supply of property to an individual or
a person related to the individual and a benefit amount in
respect of the supply is required under
paragraphs 6(1)(a), (e), (k), or
(l) or subsection 15(1) of the Act, the registrant
must collect the tax on this benefit calculated in accordance
with this provision.
[30] The provisions of the Income Tax
Act that are applicable in this case are subsection 15(5),
paragraph 6(1)(e), and subsection 6(2), which
read as follows:
6(1) Amounts to be included as income
from office or employment - 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) Standby charge for
automobile - where the taxpayer's employer or a person
related to the employer made an automobile available to the
taxpayer, or to a person related 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 or the person
related to the employer by the taxpayer or the person related to
the taxpayer for the use of the automobile;
6(2)
Reasonable standby charge - For the purposes of paragraph
6(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 x [2% x (C x D) + 2/3 x (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 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;
C is the cost
of the automobile to the employer where the employer owns the
vehicle at any time in the year;
D is the
number obtained by dividing such of the total available days as
are days when the employer owns the automobile 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) loss of, or damage to, the automobile, or
(b) liability resulting from the use or operation of
the automobile.
[31] Were the Volvo cars made available to
Mr. Ouellet on a rotating basis during the years at issue? I
refer here to the Federal Court of Appeal's decision in
Canadav. Adams (C.A.), [1998] F.C.J. No. 477
(Q.L.). Paragraph 8 of that decision states that an automobile is
made available to a taxpayer if he or she has a right to use the
automobile. I will now cite the paragraph.
8 What
the French and English versions share in common is the use of
broad language to describe the criterion which brings paragraph
6(1)(e) into play. At the same time, the French version
appears more precise, referring to an automobile which is at the
"disposal" of an employee (à sa
disposition ) and to an employee's "right to
use" an employer's automobile (pour droit d'usage
de l'automobile ). In short, an automobile is made
available to an employee if it is at his or her disposal and
there is a concomitant right of usage. Indeed, actual usage by an
employee, for either personal or business purposes, is not
expressly required. A mere right of usage is sufficient, of which
more will be said below. Within this context, it is clear to me
that the broad and unqualified language found in both linguistic
versions of paragraph 6(1)(e) reinforces the
Minister's argument that unrestricted use of an automobile is
not a condition precedent to the application of that provision.
Further support for this understanding is found in the
legislative history of that provision.
[32] Mr. Ouellet maintained that the
business had purchased the Volvo cars to make them available for
clients of the service station, but there was no specific logbook
for these top-of-the-line cars that had been purchased new.
[33] The exclusive use of Volvo cars by the
appellant's clients definitely does not appear to be a normal
business practice prima facie. To show that it was
authentic, there should have been a log indicating the name of
the person the vehicle had been lent to, the day of the loan, and
the number of kilometres driven. In this manner, the auditor
could have taken a sampling and checked the authenticity of the
version of the appellant's principal shareholder. No record was
shown to the auditor. The logbook submitted at the hearing did
not prove anything.
[34] The notebook submitted as a log of the
use or loan of the cars could only be connected to the used
vehicle business for test drives, which is what Mr. Ouellet's
wife mentioned. The logbook did not indicate the mileage and
rarely indicated the loan of a Volvo car. I must say that the
evidence regarding this notebook is obscure, and I need to take
into account that this notebook was not submitted to the auditor
at the time of the audit.
[35] It must be remembered that the business
was selling used vehicles, most of which were subcompact cars. No
Volvos were sold. The only sale of a Volvo was allegedly the sale
of a Volvo that was the business's property.
[36] Therefore, I am of the opinion that the
evidence revealed that, all throughout the years of the period at
issue, the Volvo car was at the taxpayer's disposal because he
held a constant right to use those cars, whether that usage was
limited or not.
[37] According to
paragraph 6(1)(e) of the Income Tax Act,
reasonable standby charges for the automobile for the total
number of days in the year during which it was made so available
must be included in computing the income of the taxpayer.
[38] Subsection 6(2) of the Income
Tax Act dictates how these reasonable charges are to be
calculated. These charges are reduced considerably if the
taxpayer is able to use the exception for minimal personal use.
It involves determining whether all or substantially all of the
distance the automobile was driven was driven for the company's
business purposes.
[39] I do not find it plausible that the
appellant's principal shareholder and his wife used a Honda Civic
for long trips when they had a Volvo car at their disposal.
[40] I must also say that the evidence
introduced by the insurance policy for the vehicles is a deciding
factor. The Volvo is not insured as a service vehicle, but the
Nissan pickup is. The Volvo is used in the St-Augustin region
primarily by a female driver.
[41] The Honda Civic was insured for the
Montreal area, where Mr. Ouellet's daughter studied; therefore,
the car could not have been used primarily by three drivers, two
of whom were in Quebec City and one of whom was in Montreal.
[42] The documentary and testimonial
evidence submitted cannot convince me of minimal personal use of
the Volvo cars or even that all or substantially all of the
mileage driven by the Volvo cars was for the company's business
purposes.
[43] Therefore, the appeal is
dismissed.
Signed at Ottawa, Canada, this 4th day of March 2004.
Lamarre Proulx J.
Translation certified true
on this 20th day of December 2004.
Colette Beaulne, Translator
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