[OFFICIAL ENGLISH TRANSLATION]
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Date : 20030108
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Docket: 2001-2193(IT)I
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BETWEEN:
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JEAN-PIERRE BLACKBURN,
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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
Lamarre Proulx, J.T.C.C.
[1] These
are appeals under the informal procedure concerning the 1998 and 1999
taxation years.
[2] The
point for determination is whether the appellant used, for personal purposes,
the vehicle of a corporation of which he was the sole shareholder in a proportion
of 15 percent
of the total use of the car or whether all or substantially all of the distance
travelled by the automobile was travelled in connection with or in the course
of the taxpayer's office or employment.
[3] The
facts on which the Minister of National Revenue (the "Minister")
relied in making his reassessments are stated in paragraph 6 of the Reply
to the Notice of Appeal (the "Reply") as follows:
[TRANSLATION]
(a) during
the taxation years in issue, the appellant had a Chevrolet Blazer (hereinafter,
the "vehicle") at his disposal for his personal use;
(b) the vehicle was leased by Blackburn
Communication Inc. (hereinafter, the "corporation");
(c) the corporation prepares business
plans for businesses;
(d) during the taxation years in issue,
the appellant was an employee of the corporation;
(e) during the audit conducted by the
Minister's auditor, the Minister determined with the appellant that
the percentage of personal use of the corporation's vehicle during the
taxation years in issue was 25 percent, in view of the fact that:
(i) the appellant used the vehicle to
make a return trip from his residence to his office once a day;
(ii) the appellant admitted to the
Minister's auditor that the round trip alone amounted to 10 percent of the
vehicle's use;
(iii) the appellant often went home at
noon;
(iv) the appellant often used the vehicle
to go to work at the office on weekends;
(v) the appellant used the vehicle for a
number of other personal trips;
(vi) the appellant's spouse owned a Chevrolet
Cavalier;
(vii) the appellant's son, who was
20 years old at the time, used the vehicle of the appellant's spouse;
(f) in addition, the appellant kept no
record of his travels using the vehicle;
(g) the Minister determined that the
amount of the benefit arising from the personal use of the corporation's
vehicle for each of the appellant's 1998 and 1999 taxation years was $5,421
(see details in schedules);
(h) at the objection stage, the Minister
agreed to a personal use figure of 15 percent with respect to the
automobile operating expense benefit, and this represents a reduction of $205
for each of the taxation years in issue (see details in schedules); and
(i) consequently, the Minister added an
additional amount of $5,216 for each of the appellant's 1998 and 1999 taxation
years in respect of a benefit arising from the personal use of the
corporation's vehicle.
[4] The appellant
admitted subparagraphs 6(a) to (c), 6(e)(vi) and (vii) and 6(f) of the
Reply.
[5] The appellant
is the sole shareholder of the corporation. He stated that the corporation had
two areas of activity: business development and public relations. The
corporation's office is located outside the appellant's residence. The
appellant did not consider himself an employee of the corporation. The
corporation did not pay him a salary; it occasionally paid him dividends.
[6] The appellant
admitted that, when the auditor came to see him, he had accepted the
25 percent figure for his personal use of the corporation's car. At the
objection stage, the figure was reduced to 15 percent. The appellant
claims, however, that his personal use did not exceed 10 percent. He had
not realized that a difference between 25 percent or 15 percent and
10 percent could result in such a difference in the computation of income.
He would have examined the personal use he had made of his car more carefully.
[7] As
to subparagraph 6(e)(i), the appellant explained that, very
often in the morning, he did not leave his residence to go to the office but
went directly to business meetings.
[8] The
distance between
his residence and the office is approximately two kilometers. He admitted
subparagraphs 6(e)(iii) and (iv). As to subparagraph 6(e)(v), the
appellant did not find the words "for a number" appropriate.
[9] The
appellant's children are now 21 and 23 years old. They were insured for
their mother's car. The appellant explained that his wife is a nurse and has
her own vehicle. It was that vehicle that was used for house-related matters.
[10] With
respect to social outings, the appellant explained that he and
his wife did most of their entertaining at home. He said his sport was hunting,
and he did that on the Cyriac River approximately 40 kilometers away,
about a half-hour drive from the house. On those occasions, the appellant used
the corporation's car, but the hunting outings were not frequent (twice a
year). Otherwise, the appellant said that he liked to go on long motorcycle
rides on weekends. In 1998 and 1999, the appellant owned a Harley Davidson motorcycle,
which he disposed of in the fall of 1999.
[11] Nancy Tremblay,
an auditor, testified for the respondent party.
[12] She
stated that the total kilometrage of the car in question was
14,000 kilometers a year. She explained that the round trips from the
office to the residence in the morning and evening constituted 10 percent
of the kilometrage. That did not include the round trips for lunches eaten at
the house or the round trips to the office on weekends. In addition, two 80‑kilometer
fishing trips must be added.
[13] The
auditor also observed that the appellant had provided no record of his travels.
[14] The appellant
argued that his personal use of the car was very limited, that the
15 percent figure was not much higher than 10 percent, and yet, in
the first case, a benefit of $4,910.22 was added to his income whereas, in the
second case, a benefit of approximately $500 would have been added. The
schedules to the Reply show that the calculation of a reasonable standby charge
did not change even though the personal use figure was reduced by
25 percent or 15 percent. The charges that were reduced were those in
respect of the operation of the car described in paragraph 6(1)(k)
of the Act.
[15] Counsel
for the respondent referred to subsection 6(2) of the Income
Tax Act (the "Act"). She explained that the calculation of
a reasonable standby charge provided for in subsection 6(2) of the Act
does not take into account the personal use percentage of total kilometrage
except where the employer requires the taxpayer to use the automobile in
connection with or in the course of a taxpayer's office or employment and if
all or substantially all of the distance travelled by the automobile is in
connection with or in the course of the office or employment. The second
condition applies here.
[16] She
contends that the Minister correctly interpreted the Act when he
considered that all or substantially all of the distance travelled for business
purposes meant at least 90 percent of the total number of kilometers and
that the percentage for personal use meant at most 10 percent. She
referred on this point to the decision by the Federal Court of Canada in Canada v.
Adams (C.A.), [1998] 3 F.C. 365, particularly
paragraph 15:
The so-called
"minimal personal use" exception is contained within the definition
of "A" set out in subsection 6(2). Essentially, the exception
enables an employee to obtain a reduction in the amount of the standby charge,
otherwise applicable, if the following conditions precedent are satisfied. First,
the employer must require the employee to use the automobile in the performance
of his or her duties of employment. Second, "all or substantially
all" of the distance travelled by the automobile during the time it was
made available to the employee must be in connection with or in the course of
his or her employment. In this regard, the Minister has adopted the policy that
at least 90% of the automobile's use must be for employment purposes: see IT‑63R4.
Third, personal use of the automobile must be less than 12000 km per year.
Thus, employees who use an employer's automobile exclusively for business
purposes are not required to include in income a standby charge. This is so
because "A" will equal zero. Employees who make personal use of their
employer's automobile are entitled to a reduction in the standby charge,
provided that such use is minimal; that is to say all three conditions
precedent are met. The reduction comes about because the "A/B"
quotient is no longer deemed to be "1". Rather it is a fraction
thereof, which fraction varies depending on the number of personal use
kilometres travelled. For purposes of deciding this appeal, it is important to
note that the reduction is calculated on the basis of actual kilometres
travelled in regard to both personal and business usage. It is actual
usage which is of significance not whether an employee had unrestricted or
exclusive use of an employer's automobile. It is also important to note that
actual usage only becomes relevant within the context of the minimal personal
use exception articulated in subsection 6(2).
Analysis
[17] The
relevant part of subsection 6(2) of the Act reads as follows:
6(2) Reasonable standby charge — 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 × [2% × (C × D) + 2 × (E – F)]
B 3
where
A is the lesser of
(a) 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 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;
. . .
[18] Section 6
of the Act applies to the computation of the income that a taxpayer
earns from an office or employment. In the instant case, if the appellant was
not an employee of the corporation, he undoubtedly held an office.
Section 6 therefore applies. I have pointed this out, even though it is
not the main issue, because the appellant stated during the hearing that he was
not an employee. In any case, under subsection 15(5) of the Act, a
shareholder is treated the same way with respect to the benefit derived from
the use of an automobile.
[19] The
passage from the decision in Adams cited above in paragraph 16 of
these reasons clearly explains that actual personal use is important only in
the case of minimal use. Whether personal use is 25, 15 or 40 percent,
that is of no significance with respect to the calculation of the reasonable
standby charge for an automobile made available to a taxpayer by his employer.
This provision taxes the availability of an automobile, not its personal use, unless
that use is virtually non-existent. However, it should be noted that that
decision does not address the calculation of the minimal use figure of
10 percent. It merely outlines the terms and conditions of application.
[20] In
connection to that percentage, reference must be made to a decision by our
Court in McDonald v.
Canada,
[1998] T.C.J. No. 621 (Q.L.), rendered by Judge Rip, in which he
appears to have accepted that an 85-percent figure may be sufficient to
represent all or substantially all of the distance travelled by the automobile
in connection with or in the course of the office or employment.
[21] However,
according to the facts stated in that case, the automobile was identified as a
vehicle of the Municipality of Metropolitan Toronto. The taxpayer had not used
it for personal errands because he wanted to avoid the adverse publicity that
might have resulted if someone had seen him use the automobile for personal
purposes. He had therefore used it to travel from his residence to the various
places of work and to his office at City Hall. It was on the basis of that kilometrage
between those places of work, his office and his residence that the Minister
had determined his use at 15 percent of the total use of the automobile.
At his employer's request, the taxpayer kept a travel log. The judge concluded
therefrom that personal travel had not exceeded 10 percent, but he added
that, if he had erred in reaching that figure, he had to consider the meaning
of the words "all or substantially all". He concluded that, in the
circumstances of that case, a 15-percent personal use figure would not result
in disallowing the application of the minimal use exception.
[22] As
to the personal use percentage in the instant case, I find that the evidence
clearly showed that it is in fact at least 15 percent. Does
that 15 percent figure make it possible to say, as in Judge Rip's decision
in McDonald, supra, that all or substantially all of the distance
travelled was in connection with or in the course of the appellant's office or
employment? I do not believe so.
[23] In
McDonald, supra, the taxpayer
had to keep a record of his travels, which were subject to audit by his
employer. The employer was not a corporation of which he was the sole
shareholder. It was a municipality. It is doubtful, for example, that he could
have used the vehicle put at his disposal by the municipality for fishing trips
or other personal errands. He surely did not have the same freedom with respect
to the use of the automobile as did the appellant.
[24] In
my view, the personal use proportion of 10 percent or less
in the appellant's circumstances corresponds to what is required by one of the
two conditions set out in subsection 6(2) of the Act, that all
or substantially all of the distance travelled by the automobile . . .
is in connection with or in the course of the office or employment of
the taxpayer.
[25] I therefore conclude that the
Minister's interpretation in that respect is consistent with the Act.
The appeals are accordingly dismissed.
Signed at Ottawa, Canada, this 8th day of
January 2003.
J.T.C.C.
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