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Citation: 2003TCC564
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Date: 20030812
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Docket: 2002-3136(IT)I
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BETWEEN:
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OMAR H. GRINBLATS,
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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
Bowie J.
[1] Mr. Grinblats brings these appeals
from reassessments under the Income Tax Act (the
Act) for the taxation years 1998, 1999 and 2000. The
reassessments were made following his objections filed in
response to earlier reassessments which had added amounts to his
income as shareholder benefits in connection with his personal
use of a truck owned by Bartley Developments Ltd. (Bartley). The
amounts added to his income by the initial reassessments, and by
the subsequent reassessments, are:
1998
1999
2000
Initial reassessment
Standby
charge
$7,595
$7,595
$7,595
Operating
charge
$1,045
$
975
$ 975
Total
$8,640
$8,570
$8,570
Following objection
Standby
charge
$7,595
$7,595
$7,595
Operating
charge
$
480
$
448
$ 448
Total
$8,075
$8,043
$8,043
[2] There are a number of facts that
are not in dispute. The vehicle in question is a 1992 Ford F250
extended cab pickup truck. Bartley purchased it new in 1991. The
Appellant is the only shareholder and the only employee of
Bartley. He has a full-time job at Korpack Cement Products Co.
Ltd. in Trail, B.C. He also operates the business of Bartley,
which owns and rents three Bobcat excavating machines. He uses
the truck to transport these to and from the premises of the
customers, most of who rent them on a short-term basis. He also
uses it to visit the premises of his customers while the Bobcats
are there in order to refuel them, check the equipment, and make
any necessary repairs. Mr. Grinblats accepts that he made
some personal use of the truck during each of the years in
question, but he says that it was minimal, and certainly much
less than the amounts for which he was assessed. The only issue
before me is the amount of that personal use.
[3] Paragraphs 6(1)(e) and
(k) of the Act provide for the inclusion of standby
charges and operating expenses of a vehicle made available by an
employer to an employee for personal use as an employment
benefit. Subsection 15(5) makes these provisions applicable when
a corporation makes a vehicle available for personal use by a
shareholder. Subsection 6(2) contains complex provisions for
computing the standby charge, but for present purposes it is
sufficient to say that the standby charge is greatly reduced if
three conditions are satisfied:
(i) the taxpayer was required by
the employer to use the automobile for the employer's
business;
(ii) all or substantially all of
the distance travelled by the vehicle was in connection with or
in the course of the taxpayer's office or employment; and
(iii) the personal use did not exceed
12,000 kilometres (kms) for the year.
It is not disputed that the first and third of these
requirements are met in this case. The Appellant says that the
second one is met as well; the Respondent says that it is not. I
should add that both parties proceeded before me on the
assumption that the truck falls within the definition of an
"automobile" found in subsection 248(1) of the Act, and I
shall therefore decide the matter on that basis.
[4] It is unfortunate that Mr.
Grinblats did not keep a log recording his personal use of the
truck in the years under appeal, as that would have negated the
need for this litigation. That is not necessarily fatal to his
position, however, although it does make it more difficult for
him to discharge the burden of displacing the Minister's
assumptions as to the use of the vehicle, as the Federal Court of
Appeal has pointed out more than once.[1] In this case, the taxpayer and the
Minister have both made estimates of the proportion of the use of
the vehicle that was for the business of Bartley, and that which
was personal use by the Appellant. My appreciation of the
evidence leads me to believe that the Appellant's evidence, and
his estimate, are the more reliable.
[5] Julia Jennex is the Minister's
auditor who raised the initial reassessments. She was given a
very short time in which to do an audit of Bartley, and she
looked primarily for shareholder benefits and in particular, use
by Mr. Grinblats of the company's vehicle. Having established
through an interview with the Appellant that he had made some
personal use of the truck, and that he kept no log of that
personal use, she set about estimating it. She started with an
assumption, based on conversations with car sales people, that an
average person drives about 15,000 kms per year. She added
to this 10,000 kms for business use. She also seems to have
decided that the use of the vehicle would be greater in more
recent years. This led her to estimate that the total use of the
truck in the years under appeal amounted to about 21,000 kms in
1998, 23,000 kms in 1999 and 25,000 kms in 2000. To
make an estimate of the personal use by the Appellant, she looked
at his bank statements for a six-month period and assumed that
all the debit card purchases recorded there had been made by the
Appellant. She measured the mileage from the Appellant's house to
the various businesses where these purchases had been made. On
that basis she formed a conclusion as to the distance that he had
driven to make the purchases. She then made a similar estimate
based on the joint bank account of Mr. Grinblats and his wife,
and divided that in two, based on the assumption that they each
made equal numbers of those debit card purchases. She
extrapolated these to cover the entire three-year period under
review, and then multiplied it by four, on the assumption that
this would account for purchases made by credit card and cash. To
this she added an amount for trips that she assumed he had made
from his house to building supply stores in connection with
renovations that he had made to his house in 1999. This was based
on information extracted from the shareholder loan account of
Bartley, which he used to purchase supplies for the renovation
work. She also included in the estimate of annual personal
mileage 1,500 kms for traveling to work and back, arbitrary
amounts for visits to doctors, dentists, friends and family, and
2,000 kms for vacation travel. She presented these estimates
to the Appellant, after which she made some arbitrary downward
adjustments in reaction to his response to them. She halved the
estimate for vacation travel; she reduced the factor for personal
shopping by cash and credit card from four to two, and she made
some allowance for the fact that the family had an Oldsmobile van
and a car which were both available for use by the Appellant. Her
estimates after making these adjustments were reduced to 11,692
kms for business use and 6,964 kms for personal use, a total
of 18,656 kms for each of the three years.
[6] From the foregoing, it is apparent
that Ms. Jennex based her estimate of the Appellant's personal
use of the truck on a great many arbitrary assumptions. These
include: Mr. Grinblats travelled on personal errands only by
using the Bartley truck; he used the truck to do much of the
family shopping and errands, and when he did so, he always made a
separate trip for each purchase and each errand; he drove the
truck to work and back three days per week; he worked at the
Korpack building on Wellington Avenue, which is five kms from his
home; and he used the truck for family vacations each summer,
driving it 1,000 kms.
[7] The appeals officer, whose
assessments are the ones under appeal, decreased the operating
charges assessed as shown in paragraph 1 above. The record before
me is silent as to the reasoning behind these changes, however,
the second set of reassessments must have been founded to a large
extent on the assumptions that Ms. Jennex had made. The
Minister's assessors are, of course, entitled to rely on
arbitrary assumptions when they assess, and often they must do
so. In this case, Ms. Jennex had little alternative, in the
absence of a log-recording business and personal use. The
assumptions are only that, however, and as I have said, the
Appellant is entitled to refute them.
[8] Before turning to the Appellant's
evidence, it is appropriate to comment upon the Reply filed by
the Deputy Attorney General of Canada. The Deputy Attorney
General has an obligation in any income tax appeal to set out
both fully and accurately the assumptions of fact upon which the
Minister's assessment is based. This is trite law, arising out of
the special status that those assumptions have been given by the
courts since early in the last century,[2] and out of the Rules[3] promulgated
by the Rules Committee pursuant to section 20 of the Tax Court
of Canada Act.[4] I can do no better than to quote what
was recently said on this subject by Bowman A.C.J. in
Shaughnessy v The Queen:[5]
12 Paragraphs (f), (g), (h) and
(i) contain the usual boiler plate which is a familiar but
essentially purposeless part of most REOP appeals. One pushes the
appropriate button in the computer and it spews out paragraphs
(f) to (i).
13 Paragraphs (m), (n) and (o)
contain more of the same sort of verbiage. Paragraph (m) is of
course the mandatory ritual incantation of the mantra REOP.
Paragraphs (n) and (o) are simply tossed in for good measure.
They have no basis in the evidence and were not argued. They are
so far-fetched that they could not possibly have been the basis
of the assessments. I presume that pushing a button on the
computer to produce paragraphs (n) and (o) requires approximately
the same amount of reflection and deliberation as were required
to produce paragraphs (f) to (i). The simple fact is that these
identical paragraphs appear in replies in virtually every REOP
case that comes before this court. It is unacceptable that this
type of unthinking regurgitation of stereotypical verbal formulae
should appear in all replies in REOP cases. The pleading of
assumptions involves a serious obligation on the part of the
Crown to set out honestly and fully the actual assumptions upon
which the Minister acted in making the assessment, whether they
support the assessment or not. Pleading that the Minister assumed
facts that he could not have assumed is not a fulfilment of that
obligation. The court and the appellant should be entitled to
rely upon the accuracy and completeness of the assumptions
pleaded. Sadly, this is becoming increasingly difficult. The
entire system developed in our courts relating to assumptions and
onus of proof is in jeopardy if the respondent does not set out
the actual assumptions on which the assessment is based with
complete candour, fairness and honesty.
In this case, the only assumptions that are pleaded in
relation to the one disputed issue are found in subparagraphs 10
g) and h) of the Reply:
10. In so reassessing the
Appellant, the Minister relied on the following assumptions of
fact:
...
g) the Truck
was not used by the Appellant during the 1998, 1999 and 2000
taxation years substantially all of the time for travel on
business for Bartley;
h) the
Appellant drove the Truck for personal use 3200 kilometers in
each of the 1998, 1999 and 2000 taxation years; and ...
By no stretch of the imagination could these two assertions,
the first of which involves a conclusion of law rather than a
statement of fact, satisfy the requirement that the Deputy
Attorney General plead fully, fairly and accurately the
Minister's factual assumptions that underlie the assessments.
[8] Mr. Grinblats and his wife,
Samantha Grinblats, both testified. I was impressed by the candid
and forthright way in which they gave their evidence. Their
evidence differs substantially from that of Ms. Jennex in a
number of critical elements; where it does, I prefer that of Mr.
and Mrs. Grinblats. I do not mean to suggest that Ms. Jennex was
a dishonest witness. No doubt she told what she believed to be
the truth as she understood it. However, she obviously had been
required to rush this audit, as I have said, and I believe that
she drew some conclusions from her conversations with the
Appellant that simply were not warranted. I think there was a
communication problem between her and the Appellant, stemming in
part from the use of language, and in part from a tendency on her
part not to listen with sufficient care to what others say to
her. Ms. Jennex testified that Mr. Grinblats told her that he and
his family went on vacation in the Bartley truck. Mr. and Mrs.
Grinblats were both emphatic in their evidence that they used the
Oldsmobile Silhouette van for their vacation trips. Ms. Jennex
said that Mr. Grinblats told her that the Oldsmobile van used
diesel fuel and the truck used gasoline; in fact the opposite was
true. Ms. Jennex said that Mr. Grinblats told her that he did
half of the family shopping and errands; the Appellant and his
wife both testified unequivocally that he did virtually no
household shopping or errands. Not only were Mr. and Mrs.
Grinblats consistent in their evidence, but where they disagreed
with Ms. Jennex, their version of the events and the
conversations were more inherently probable. For example, it
would be unlikely that they would go on a family vacation with
two young children in a diesel truck with a 100-gallon diesel
fuel tank and a large tool box in the bed when they had a new
Oldsmobile van in the driveway.
[9] An example of the unwarranted
assumptions which Ms. Jennex made concerns the mileage that she
attributed to Mr. Grinblats driving the truck to work. She
assumed that he worked at the Korpack building that she had seen
on Wellington Avenue when driving into Trail, and so she measured
the distance from there to his house, and decided that he drove
the truck 10 kilometres to work and back three days per week and
50 weeks per year. In fact, Mr. Grinblats worked at the Korpack
batching plant, a completely different location that was less
than 2.5 kilometres from his house, and he testified that he
drove the truck to work only occasionally, for example if he had
to use it after work in connection with the business. More
frequently he drove his wife's van, or sometimes her Chevelle, to
work. While many of these discrepancies, taken individually, are
relatively minor, when they are taken in the aggregate, they
amount to significant error. More fundamentally, they demonstrate
that Ms. Jennex was all too willing to make unwarranted
assumptions that the facts simply did not justify.
[10] The Appellant has successfully
demolished the assumptions on which the assessments are founded.
He also presented persuasive evidence to establish the actual
total use and business use of the truck during the three years
under appeal. It takes two forms. The total distance that the
truck travelled in those three years can be deduced quite
accurately from certain records that are found at tab 14 of
Exhibit A-1. These consist of copies of pages from a
notebook in which the Appellant recorded the dates and odometer
readings when he and his father-in-law performed certain
maintenance on the truck, a bill from a garage dated
November 13, 1997, and the bill of sale dated January 20,
2001 when the truck was traded in. As the reassessments cover the
period between January 1, 1998 and December 31, 2000, these last
two documents show the use of the truck for a period that is only
37 days longer. The dates and odometer readings from these
documents are:
March 8,
1997
102,166 kms
July 24,
1997
106,905 kms
October 26,
1997
110,355 kms
November 13,
1997
111,420 kms
January 20,
2001
146,758 kms
This data shows that the use of the truck was relatively
steady throughout the period. It also shows that for the three
years in question, the total distance travelled by the truck was
(146,758 - 111,420) ÷ 38.25 × 36 = 33,259 kms,
or 11,086 kms per year.
[11] The other piece of evidence is a
spreadsheet which Mr. Grinblats prepared not long before the
hearing from a diary that he kept of the various visits that he
made to customers and other places in connection with the Bobcat
business. The spreadsheet was not made contemporaneously, and it
did not record distances travelled. Nevertheless, I am satisfied
that it is reliable. It was prepared from records that were kept
contemporaneously with the events, and Mr. Grinblats described in
his evidence how he established the distance for each trip.
Ms. Francis cross-examined him vigorously on the document,
but his evidence was not shaken. Moreover, Ms. Jennex said, both
during her audit and in her evidence before me, that she accepted
the Appellant's computation of the business use of the vehicle as
being accurate. For this reason, I shall not go into further
detail as to the methodology involved. The spreadsheet shows that
the business use of the truck in the period from July 24, 1997 to
January 20, 2001 amounted to 38,177.9 kms. The total use in the
same period was 146,758 - 106,905 = 39,853 kms. Business
use therefore made up 38,177.9 ÷ 39,853 x 100 = 95.8% of
the total use. It is reasonable to infer from this data that the
use of the vehicle for both business and personal use was the
same in each of the three years in issue.
[12] The appeals will be allowed and the
assessments will be referred back to the Minister for
reconsideration and reassessment on the basis that in each of the
taxation years 1998, 1999 and 2000 the Appellant used the truck
for a total of 11,086 kms, of which 10,620 kms was for business
and 466 kms was personal use, and that in each year, all the
conditions referred to in subparagraph 6(2) of the Act
were satisfied. The Appellant is entitled to his costs.
Signed at Ottawa, Canada, this 12th day of August, 2003.
Bowie J.
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