[1] This is an application for judicial review of a judgment of the Tax Court, under the informal procedure, relating to the 1996, 1997 and 1998 taxation years of the applicant Shawn Servais. The issue is whether the Tax Court Judge was correct to find Mr. Servais liable for income tax, under subsection 15(1) of the Income Tax Act, R.S.C. 1985, c. 1 (5^th suppl), on the value of the benefit he derived from his personal use of a pickup truck belonging to and used in the business of Servais Sheet Metal Ltd., a corporation of which Mr. Servais was a shareholder. Servais v. Canada, [2002] G.S.T.C. 59, [2002] 4 C.T.C. 2117.

[2] During the years under appeal, Servais Sheet Metal Ltd. carried on a heating and air conditioning business. Its shares were held as to 40% by Mr. Servais and as to 60% by his father. Mr. Servais was also an employee of the company. In his work he used a 1993 Ford Ranger pickup truck owned by the company. The truck had two seats in the front and two fold-out seats behind, which were used for storing computer boards and small equipment. The truck was equipped with a roof rack for a ladder, which remained on the truck at all times. The company paid all expenses relating to the truck. No logs were kept of its use.

[3] Paragraph 5 of the reasons for judgment of the Tax Court Judge summarizes the evidence relating to the work of Mr. Servais with the company, and his personal use of the Ford Ranger:

[5] The evidence regarding his hours of work for the Company was somewhat confusing. He maintained that he would make ten emergency service calls a night, every night, while he was employed with the Company. Phyllis testified that a service call would take one hour. She also indicated that she kept records of such calls though none were produced. Phyllis indicated that Shawn only worked 168 hours in 1996. Records produced at trial showed that Shawn worked twenty-six 40-hour weeks in 1997 (July to December), with some other irregular hourly work from March to June. The 1998 records, which were sketchy, suggested full-time work from January to May, then again in August, but otherwise sporadic.

[4] Mr. Servais was assessed a shareholder benefit for 1996, 1997 and 1998 on the basis that his personal use of the truck amounted to 75% of its total use. The Tax Court Judge concluded that Mr. Servais's personal use was only 45%, but in all other respects he found the assessments to be correct.

[5] Mr. Servais does not argue that the Tax Court Judge erred in assessing the degree of his personal use of the truck, or the quantum of the benefit. The position of Mr. Servais is that the Tax Court Judge erred in two respects when he found that subsection 15(1) applied to the benefit represented by his personal use of the truck. He argues, first, that Mr. Servais' use of the truck was tied to his status as employee, not his status as shareholder, and second, that no taxable benefit can arise under subsection 15(1) of theIncome Tax Act in relation to the use of a motor vehicle that is excluded from the definition of "automobile" in subsection 248(1) of the Income Tax Act. I will deal with the second argument first.

[6] The analysis must begin with subsection 15(1) of the Income Tax Act, which reads as follows:

15. (1) Where at any time in a taxation year a benefit is conferred on a shareholder, or on a person in contemplation of the person becoming a shareholder, by a corporation [...] the amount or value thereof shall [...] be included in computing the income of the shareholder for the year. [...]

15. (1) La valeur de l'avantage qu'une société confère, à un moment donné d'une année d'imposition, à un actionnaire ou à une personne en passe de le devenir est incluse dans le calcul du revenu de l'actionnaire pour l'année [...] si cet avantage est conféré autrement que: [...]

[7] Subsection 15(5) provides the basis for determining the amount of the taxable benefit to a shareholder where the benefit takes the form of the use of an automobile. It reads as follows:

15. (5) For the purposes of subsection 15(1), the value of the benefit to be included in computing a shareholder's income for a taxation year with respect to an automobile made available to the shareholder, or a person related to the shareholder, by a corporation shall (except where an amount is determined under subparagraph 6(1)(e)(i) in respect of the automobile in computing the shareholder's income for the year) be computed on the assumption that subsections 6(1), 6(1.1), 6(2) and 6(7) apply, with such modifications as the circumstances require, and as though the references therein to "the employer of the taxpayer", "the taxpayer's employer" and "the employer" were read as "the corporation".

15. (5) Pour l'application du paragraphe (1), la valeur de l'avantage à inclure dans le calcul du revenu d'un actionnaire pour une année d'imposition, à l'égard d'une automobile mise à sa disposition, ou à celle d'une personne qui lui est liée, par une société est, sauf si un montant est déterminé en application du sous-alinéa 6(1)e)(i) à l'égard de l'automobile dans le calcul du revenu de l'actionnaire pour l'année, calculée à supposer que les paragraphes 6(1), (1.1), (2) et (7) s'appliquent, avec les adaptations nécessaires, et comme si la mention, à ces paragraphes, de "l'employeur" ou de "son employeur", selon le cas, valait mention de "la société".

[8] The references in subsection 15(5) to subsections 6(1), 6(1.1), 6(2) and 6(7) ensure that the same formula is used to quantify taxable automobile benefits for employees and shareholders. A benefit calculated under the statutory formula referred to in subsection 15(5) is called a "standby charge". The reference in subsection 15(5) to subparagraph 6(1)(e)(i) is intended to ensure that a person who is assessed a standby charge as an employee cannot be taxed as a shareholder in relation to the same automobile.

[9] To understand the argument that subsection 15(1) does not apply to the use of a motor vehicle other than an automobile, it is necessary to consider the statutory definition of "automobile" in subsection 248(1) of the Income Tax Act, which reads as follows:

In this Act [...]

Les définitions qui suivent s'appliquent à la présente loi. [...]

"automobile" means

« automobile »

(a) a motor vehicle that is designed or adapted primarily to carry individuals on highways and streets and that has a seating capacity for not more than the driver and 8 passengers,

but does not include

Véhicule à moteur principalement conçu ou aménagé pour transporter des particuliers sur les routes et dans les rues et comptant au maximum neuf places assises, y compris celle du conducteur, à l'exclusion des véhicules suivants:

(b) an ambulance,

a) les ambulances;

(c) a motor vehicle acquired primarily for use as a taxi, a bus used in a business of transporting passengers or a hearse used in the course of a business of arranging or managing funerals,

b) les véhicules à moteur acquis principalement pour servir de taxi, les autobus utilisés dans une entreprise consistant à transporter des passagers et les fourgons funéraires utilisés dans une entreprise consistant à organiser des funérailles;

(d) except for the purposes of section 6, a motor vehicle acquired to be sold, rented or leased in the course of carrying on a business of selling, renting or leasing motor vehicles or a motor vehicle used for the purpose of transporting passengers in the course of carrying on a business of arranging or managing funerals, and

c) sauf pour l'application de l'article 6, les véhicules à moteur acquis pour être vendus ou loués dans le cadre de l'exploitation d'une entreprise de vente ou de location de véhicules à moteur et les véhicules à moteur utilisés pour le transport de passagers dans le cadre de l'exploitation d'une entreprise consistant à organiser des funérailles;

(e) a motor vehicle of a type commonly called a van or pick-up truck or a similar vehicle

d) les véhicules à moteur de type pick-up ou fourgonnette ou d'un type analogue:

(i) that has a seating capacity for not more than the driver and 2 passengers and that, in the taxation year in which it is acquired, is used primarily for the transportation of goods or equipment in the course of gaining or producing income, or

(i) comptant au maximum trois places assises, y compris celle du conducteur, et qui, au cours de l'année d'imposition où ils sont acquis, servent principalement au transport de marchandises ou de matériel en vue de gagner un revenu,

(ii) the use of which, in the taxation year in which it is acquired, is all or substantially all for the transportation of goods, equipment or passengers in the course of gaining or producing income;

(ii) dont la totalité, ou presque, de l'utilisation au cours de l'année d'imposition où ils sont acquis est pour le transport de marchandises, de matériel ou de passagers en vue de gagner un revenu.

[10] The Tax Court Judge concluded that, because of the limited space behind the driver in the Ford Ranger, and because it was used primarily for business, the Ford Ranger fell under the exception in (e) in this definition, and thus was not an "automobile" within the statutory definition. That conclusion has not been disputed.

[11] As indicated above, subsection 15(5) of the Income Tax Act requires the benefit derived by a shareholder from the use of a corporate-owned automobile to be assessed as a "standby charge". However, there is no provision in section 15 that specifies how to quantify the benefit derived from the use of a corporate owned motor vehicle that is not an automobile, as that word is defined in the Income Tax Act. Indeed, there is no such quantifying provision relating to the use of any other kind of corporate property.

[12] The absence of a quantifying provision is the foundation of Mr. Servais' argument. Essentially, Mr. Servais is arguing that, because Paliament defined "automobile" to exclude certain motor vehicles, like the Ford Ranger in this case, and then enacted a specific rule for quantifying the taxable benefit related to the use of an "automobile", Parliament must have intended not to tax any benefit derived from a motor vehicle that does not meet the statutory definition of an "automobile". In other words, he is arguing that the scope of subsection 15(1) has been narrowed by subsection 15(5).

[13] I am unable to agree with Mr. Servais interpretation of subsection 15(1). The object of subsection 15(1) of the Income Tax Act was described as follows by Cattanach J. in Canada (Minister of National Revenue - M.N.R.) v. Pillsbury Holdings Ltd., [1965] 1 Ex. C.R. 676 (at page 682-3) (referring to its statutory predecessor, subsection 8(1) of the Income Tax Act, R.S.C. 1952, c. 148):

The normal payments and distributions by a corporation to a shareholder qua shareholder are

(a) dividends during the lifetime of the corporation,

(b) payments and distributions in respect of reductions in capital during the lifetime of the corporation, and

Provisions in the Income Tax Act, other than section 8, govern the taxability of such payments and distributions when made in the orthodox way. In the remainder of this judgment, when referring to dividends, I intend to refer to any of these payments or distributions referred to in this paragraph.

Subsection (1) of section 8 is aimed at payments, distributions, benefits and advantages flowing from a corporation to a shareholder other than those referred to in the immediately preceding paragraph. While the subsection does not say so explicitly, it is fair to infer that Parliament intended, by section 8, to sweep in payments, distributions, benefits and advantages that flow from a corporation to a shareholder by some route other than the dividend route and that might be expected to reach the shareholder by the more orthodox dividend route if the corporation and the shareholder were dealing at arm's length.

[14] Put simply, any use by a shareholder of corporate property is potentially subject to tax under subsection 15(1). The value of the benefit is determined in accordance with the principles set out in the case law (see, for example, Youngman v. Canada (1990), 109 N.R. 276, 90 D.T.C. 6322, [1990] 2 C.T.C. 10 (F.C.A.)) except to the extent that the method of valuation is stipulated in the Income Tax Act.

[15] Parliament has chosen, by enacting subsection 15(5), to specify a particular means of quantifying the taxable benefit derived by a shareholder from the use of a motor vehicle that comes within the statutory definition of "automobile". Parliament has thus displaced the jurisprudence relating to the valuation the benefit derived from the personal use of an "automobile". However, it has not otherwise qualified the basic principle in subsection 15(1) that a person must pay tax on the value of a benefit he derives qua shareholder from the personal use of corporate property.

[16] I turn now to the first argument, which is that Mr. Servais' use of the Ford Ranger was attributable to his status as an employee, not his status as a shareholder. This is essentially a challenge to a finding of fact that cannot succeed in the absence of palpable and overriding error. The record discloses no such error. On the contrary, the evidence before the Tax Court Judge supports the conclusion that Mr. Servais' personal use of the Ford Ranger was attributable to his status as a shareholder. Mr. Servais owned 40% of the shares of the company. He was not a full-time employee, and his personal use of the Ford Ranger was found to be 45% of its total use.

[17] In any case, it would appear that if the Tax Court Judge had held that Mr. Servais was permitted to use the Ford Ranger only because he was an employee, the result would simply be that the taxable benefit would have been taxed under section 6 of the Income Tax Act, rather than section 15. Although the Tax Court pleadings were not included in the record, the panel was advised that the Crown had raised section 6 in its pleadings as an alternative basis for the assessment. In my view, the analysis relating to section 15 would apply as well to section 6. Thus, an employee who derives a personal benefit, qua employee, from the use of any motor vehicle owned by his employer is subject to tax under section 6. If the motor vehicle meets the definition of "automobile", the value of the benefit must be determined as a standby charge under paragraph 6(1)(e). In any other case, the value of the benefit must be determined on the basis of the principles in the jurisprudence.

[18] For these reasons, this application for judicial review will be dismissed with costs.

(s) "K. Sharlow"

J.A.

I agree

"A.M. Linden" J.A.

I agree

"B. Malone" J.A.

FEDERAL COURT OF APPEAL

NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET: A-386-02

STYLE OF CAUSE: Shawn Servais v. The Queen

PLACE OF HEARING: Ottawa, Ontario

DATE OF HEARING: September 4, 2003

REASONS FOR JUDGMENT BY: Sharlow J.A.

CONCURRED IN BY: Linden J.A.

Malone J.A.

DATED: September 5, 2003

APPEARANCES:

Mr. Rod Vanier FOR THE APPLICANT

Mr. Ernest Wheeler

Ms. Marlyse Dumel FOR THE RESPONDENT

SOLICITORS OF RECORD:

Landry Vanier

Ottawa, Ontario FOR THE APPLICANT

Mr. Morris Rosenberg

Deputy Attorney General of Canada FOR THE RESPONDENT

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Servais v. The Queen, 2003 FCA 329

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2003 FCA 329