547931 Alberta Ltd. v. The Queen, 2003 TCC 170 (Informal Procedure)

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Appeal heard on May 31, 2002, at Edmonton, Alberta,

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JUDGMENT

          The appeal from the reassessment of goods and services tax made under the Excise Tax Act, notice of which is dated September 26, 2001 and bears number 10BT-117605303 for the period February 1, 1997 to October 31, 2000, is allowed, without costs, and the reassessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that Michel Charest's personal use of the vehicle was no more than 3,780 kilometres during each of his 1999 and 2000 taxation years for the purposes of the calculation of the standby charge and operating benefits under subsection 6(2) and paragraph 6(1)(k) of the Income Tax Act and subsection 173(1) of the Excise Tax Act.

Signed at Ottawa, Canada, this 27th day of March, 2003.

J.T.C.C.

REASONS FOR JUDGMENT

Bowie J.

[1]      The issue in this informal procedure appeal is whether a pickup truck with an extended cab is, in the circumstances of the case, an automobile for the purposes of paragraph 6(1)(e) of the Income Tax Act (the ITA). If it is, then the Appellant is required by section 173 in Part IX of the Excise Tax Act (the ETA) to remit goods and services tax (GST) on the amount of the benefit that by paragraph 6(1)(e) is to be taxed in the hands of Michel Charest. The word "automobile" is given an extended meaning by subsection 248(1) of the ITA. It is on that basis that the Appellant has been reassessed for GST for the period February 1, 1997 to October 31, 2000.

[2]      Many of the facts are not in dispute. Michel Charest and his wife are the two shareholders of the Appellant company. Mr. Charest is its general manager, and he is employed to work primarily in the head office of the company, which is located in the basement of their house in Beaumont, Alberta. The Appellant owns two gasoline stations, each of which has a convenience store attached to it and operated in conjunction with it. One of these is in Spruce Grove, Alberta and the other is in Leduc, Alberta. Leduc is about 15 minutes driving time south of Beaumont; Spruce Grove is about 40 minutes to the west. The Appellant provides Mr. Charest with a truck for his use in the course of his work for the company. He is also entitled to, and does, make personal use of it.

[3]      At the beginning of the hearing of the appeal, counsel for the parties put on the record certain facts agreed to for the purpose of this proceeding. All travel by Mr. Charest in the truck from the head office to one or other of the company's service stations is travel for the purpose of his employment by the Appellant. Mr. Charest drives the truck 3,150 kilometres per month, 10% of which is personal mileage, not connected with the business of the Appellant.[1] The truck is a GMC pickup truck with a 6-foot box and a canopy which can be locked. It has what is called an extended cab, which means that it has a rear seat as well as the seats in front for a driver and passengers, and so it can seat more than three people at one time. The Appellant purchased the truck on January 12, 1998, and its year-end is on January 31 each year.

[4]      The question at issue turns upon whether, in the taxation year in which it was acquired, the use of the truck was "... all or substantially all for the transportation of goods, equipment or passengers in the course of gaining or producing income".[2] The Appellant also advances a subsidiary argument, in the alternative, that even if the truck comes within the definition of an automobile, the amount of the taxable benefit that is the base for computation of the GST should be reduced, because Mr. Charest was required by the Appellant to use the truck in connection with his employment, and all or substantially all of the distance travelled by it was in the course of his employment.[3]

[5]      Section 173 of the ETA provides for the payment of GST on certain employee benefits which are taxed under specific provisions of the ITA, including paragraph 6(1)(e), which taxes standby charges in relation to automobiles made available by employers to their employees. Section 173 deems the employer to have collected the GST, and requires it to remit it to the Receiver General. The standby charge imposed under paragraph 6(1)(e) is applicable only if an automobile has been made available to an employee. It does not apply in the case of a truck, unless that truck falls within the extended definition of an "automobile" that is found in subsection 248(1) of the ITA.

The Appellant relies on subparagraph (e)(ii) to exclude its truck from the definition.

[6]      As curious as it may seem, the determination whether this truck is an automobile for purposes of the two statutes depends entirely upon the use to which it was put during the period of twenty days that the Appellant owned it in January 1998. This result flows from the words "in the taxation year in which it is acquired" that are found in subparagraph (e)(ii) of the definition. Both counsel took this position at the hearing, and I agree that is the necessary result of the plain words of the Act.

[7]      What is the meaning of the expression "... all or substantially all ..." ("... la totalité, ou presque, ...")? I agree with the submission of counsel for the Respondent that the expression should be read in its entirety: "... all or substantially all ..." in my view means more than "... substantially all ...". The expression "... la totalité, ou presque, ..." used in the French version of the ITA also suggests an amount only slightly less than total use. Mr. Yaskowich is correct that the Minister of National Revenue has used 90% as a rule of thumb in assessing for many years. No doubt it is necessary for his officials to have some informal guideline for purposes of consistency. It is useful for taxpayers and their advisers, too, to have some degree of predictability. The fact remains, however, that if Parliament had intended that 90%, or any other fixed percentage, should govern, then it would have expressed that in the statute, rather than using what is obviously, as Judge Bowman put it in Ruhl v. Canada,[4] an expression of some elasticity. No doubt Parliament thought some flexibility was desirable to avoid the harsh results that might flow from minor deviations from the intended use of a vehicle in unforeseen circumstances if no exceptions were permitted from the intended rule that "all" (la totalité) of the use must be for the qualifying purpose. However, in my view Parliament clearly intended that the exception in paragraph (e)(ii) that excludes an extended cab pickup truck from the definition of an automobile should be available only to vehicles acquired and used for fulltime service as carriers of goods, equipment or passengers, but subject to the exception that minimal non-qualifying use in the year of acquisition would not have the effect of negating the exception for the remainder of the life of the vehicle. I do not think that this view of the exception is necessarily inconsistent with the approach taken by Bowman J, as he then was, in Ruhl. Although Judge Bowman there found that perhaps as much as 20% of the mileage driven in the truck had been without goods or equipment in it, his rationale for finding that the vehicle was excluded from the definition rested upon the fact that the purpose for which it was acquired, and the use to which it was put, were solely to transport goods and equipment.[5] Notably, there was no use made of the truck in that case that was not an essential part of working the farm. Support for this approach is also found in the judgment of Sobier J. in Myshak v. Canada.[6]

[8]      Mr. Charest and the managers of the Appellant's two gasoline stations gave evidence. Mr. Charest's evidence was that he regularly did paperwork in the morning at the office in the basement of his house, that he spoke by telephone each morning with the managers of the stations. During those conversations, they frequently asked him to purchase and bring to their stations specific items of inventory which were needed there before the regular suppliers would deliver the next order. These could be anything from anti-freeze to potato chips, depending on the particular need at the time, and they could be for one store or both on any given day. Later in the day, when he went to visit the stations, he would visit one or more stores or suppliers to purchase the items that the managers had asked him to bring, and take them in the truck to the store when he visited it. He also testified that because the store at Leduc had very little storage space he stored inventory at the store in Spruce Grove that he would later transport to Leduc as required, using the pickup truck to do so. His evidence was that he had no set routine that governed the time at which he did his various daily tasks, including his visits to the stations. If there was an urgent need for him to obtain and deliver some items then he would do so earlier than he otherwise might. He said at one point that he transported inventory items from the Spruce Grove store to the Leduc store every day; at another point, he said that he might not visit the Spruce Grove store for two or three days. He worked six days each week, and on alternate Sundays. Mr. Charest's evidence establishes to my satisfaction that on most days he paid a visit to both stations, and that on most days he stopped on the way at one or more stores or wholesale suppliers to buy some item, or items, of inventory that were required at the stores and that the managers had asked him in their daily telephone call to bring with him. I also accept Mr. Charest's evidence that he kept a number of cases of oil in the back of the truck at all times.

[9]      The two station managers, Ms. Spinks and Mr. Lagacé, corroborated Mr. Charest's evidence as to those matters that they were in a position to know about, such as their morning telephone conversations with Mr. Charest and his visits to the stations, the fact that he purchased and brought inventory items to them at their request, and the transfers of inventory from Spruce Grove to Leduc. Their personal knowledge was limited, however, to that part of Mr. Charest's activities that directly affected them, and as to his use of the truck at the actual time when he came to their stations. They could not testify as to the other uses to which Mr. Charest put the truck, either for personal or for business purposes.

[10]     Mr. Charest admitted that he used the truck to go to meetings, and to visit other stores and gas stations for the purpose of comparing their prices with the Appellant's. He could not give specifics of these uses, other than to say that he met with his accountant three or four times per year, with a representative of the oil company monthly, and as part of a buyers group from time to time. The comparison shopping trips, he said, were usually combined with a visit to a store or a supplier to make a purchase of inventory, or on the way to one of the gas stations. Certainly, some of this use did not involve acquiring or transporting goods or equipment, but it is impossible to determine how much.

[11]     Exhibit A-1 is a collection of receipts from the records of the Appellant recording various purchases made by Mr. Charest for the company during the period from January 12 to January 31, 1998. Exhibit A-2 is a tabulation of these by date, together with similar tabulations for the remainder of 1998. They show that Mr. Charest did indeed make purchases at various stores and suppliers on sixteen[7] of the twenty days in January 1998 that the Appellant owned the truck, and with similar frequency for the remainder of that year. What they do not show, of course, is what other use Mr. Charest made of the truck, either during January 1998, or later.

[12]     The Appellant's primary position in argument, as I understood it, is that I should infer from Exhibits A-1 and A-2 that 85% of the business use of the truck by Mr. Charest in January 1998 was for the transportation of goods, because he transported goods (including the payroll) on seventeen of the twenty days that the Appellant owned the truck in that month. That would amount to 85% of 90%, or 76.5%, of the total use. While arguing that the determination of what is "all or substantially all" should not be reduced to an arithmetic exercise, Mr. Yaskowich points out that the Minister has long used 90% as an administrative guide for this purpose, and that on some occasions the Court has found as little as 85% to satisfy the requirement. This analysis, of course, is uncertain at best. It seems likely that on one or more of the days when no goods were purchased, the truck was not used at all; there was no evidence that Mr. Charest used it seven days a week, although he may have. There also was no clear evidence that Mr. Charest never used the truck for business purposes other than the transportation of goods on the days when he has a record of having purchased goods. It is clear from his evidence that he did not have any specific recollection that would allow him to testify to that. He did not choose to keep a log of his use of the truck to record personal use, business use transporting goods, and other business use. During his evidence, he was asked by his counsel to estimate the breakdown of his business use of the vehicle between transportation of goods and other uses, but the question was withdrawn without having been answered. I find no evidence as to use of the truck during January 1998 that is sufficiently certain as to permit me to say how much of that use qualifies as transportation of goods or equipment.

[13]     Counsel for the Appellant led evidence as to Mr. Charest's use of the truck generally, and invited me to conclude from it that it was used all or substantially all of the time to transport goods to the Appellant's stores, and then to infer that this must also have been the case in January 1998. However, as I have said, the evidence has no certainty about it, and I am not satisfied that I can draw such a conclusion from it. Counsel for the Respondent submitted in argument that Mr. Charest was not entirely honest in his evidence. Counsel for the Appellant argued that he was an honest and forthright witness. My view of his evidence is that he did not deliberately give testimony that he knew to be untruthful, but that much of his evidence was imprecise because he simply did not remember the details of all that he had done in earlier years, and that in those circumstances he chose to cast his evidence in what he considered to be the best light for the Appellant's purposes. This evidence is not sufficiently certain, nor do I have sufficient confidence in it, to extrapolate from it for the purpose of drawing conclusions about the twenty-day period in January 1998 that is relevant.

[14]     I should comment upon two submissions that were advanced by counsel for the Appellant. The first is that when Mr. Charest left the head office at his home, went to a store to make a purchase of inventory for the stores, and then went on to one or both of the stores and delivered the items there, as well as meeting with the managers and inspecting the stores, then the whole trip should be viewed as use for the purpose of transporting goods. The same would be true if he went to buy supplies for the stores, and at the same time drove past other gas stations or visited other stores for the purpose of checking their prices, or if he went to a meeting but made purchases on the way and later delivered them to the stores. Viewed this way, counsel for the Appellant submits that virtually all the business trips taken in the truck included transportation of goods, and therefore were made for that purpose. Even accepting this submission for the purpose of the argument, I do not find that the Appellant's evidence establishes that Mr. Charest made no more than the minimal non-qualifying use that the exception in paragraph (e)(ii) permits of. It will, I think, be a rare case in which an employee who makes significant private use of a vehicle is then able to establish that all or almost all of the total use of that vehicle is to transport goods, equipment or passengers in the course of business.

[15]     The second concerns the cases of oil which Mr. Charest said he kept in the back of the truck at all times. As I understood his evidence, space for storage was a problem, particularly at the Leduc store. It was therefore useful to have several cases of oil in the back of the truck at all times so that if one of the stores required a case or more on short notice, he could supply it from the truck. Mr. Yaskowich argued that this qualified as transportation of goods, so that the truck was always being used for that purpose, as it always had some cases of oil in it. Judge Sobier rejected a similar argument in Mychak.[8] There it was argued that as the Appellant always had a jack and other emergency equipment in the back of his vehicle, it was always used for the transportation of equipment. There, as here, the purpose was not to transport, but to store, the goods or equipment. To find this to be a use that would satisfy the statutory definition would be to ignore the obvious purpose of the provision. I find that the Appellant has not satisfied me that the facts are such as to bring this vehicle within the exclusionary words in subparagraph (e)(ii) of the definition. It is therefore an automobile for purposes of paragraph 6(1)(e) of the ITA.

[16]     I turn now to Mr. Yaskowich's alternative argument. Subsection 6(2) of the ITA provides for a reduced standby charge in respect of an automobile if two conditions are satisfied. One is that the employee is required by the employer to use the automobile in the course of the employment. This has not been disputed by the Respondent. The second requirement is that "all or substantially all" of the distance travelled in the automobile is in the course of that employment. As the GST is based upon the benefit defined and included in Mr. Charest's income by subsections 6(1) and (2) of the ITA, the relevant period for computing it is his taxation year, which is the calendar year. The assessment of the Appellant for GST covers the period February 1, 1997 to October 31, 2000. In view of the agreement as to business and personal mileage between the parties to which I have referred, the Minister's well-known administrative use of the ratio of 90-10 for purposes of subsection 6(2), and the fact that counsel for the Minister has not expressed opposition to the alternate argument in his written submissions, the Appellant should be reassessed on the basis of a standby charge for the vehicle computed on the reduced basis provided for in subsection 6(2). To that extent only the appeal is allowed. In my view, this is not a case for costs.

Signed at Ottawa, Canada, this 27th day of March, 2003.

J.T.C.C.