Gaétan Lavigueur v. Minister of National Revenue, [1991] 1 CTC 2567, [1991] DTC 448

Dussault, T.C.J. [Translation]:—This is an appeal from the new assessments established by the respondent, the Minister of National Revenue, for the appellant's 1984 and 1985 taxation years.

The issue is whether the respondent was correct to include in the appellant's income for the years in question an amount as reasonable standby charges for an automobile as provided in paragraph 6(1)(e) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the"Act").

Summary of the Facts

The appellant and his brother Gaetan are each 50 per cent shareholders in the Bijouterie Lavigueur (1976) Inc. They are also both employees of the company.

For the years in question, the company leased and made available to the appellant an Audi automobile. The lease costs borne by the company were $5,493.60 for 1984 and $5,579.60 for 1985.

The respondent added to the appellant's income an amount equal to 2/3 of the lease costs, less the amounts already added to his income by the appellant himself, $1,248 for 1984 and also $1,248 for 1985. The additional amounts added by the respondent are therefore $2,414 and $2,472 for 1984 and 1985 respectively.

It appears that the appellant used the automobile primarily for the purpose of travelling from his place of residence, located in Ste.-Julie, to one or more of the branches that the company then had in shopping centres on the south shore, in Montreal proper and on the north shore, as well as to various suppliers’ locations. The appellant's daily visits to the various places of business varied depending on the supplies needed at each location, repairs to be made at customers’ requests, customers' requirements for personal meetings with the firms' managers and, generally, the proper management of the various branches.

The appellant's travels were co-ordinated with those of his brother, who did substantially the same work, in order to avoid duplication and unnecessary visits to one branch or another. The company's head office, or at least the place from which the company's business was co-ordinated, was located in Pointe aux Trembles behind the premises of the branch at that location.

During a typical day, the appellant invariably found it necessary to work at that location at one point or another, while it was rare, according to his testimony, for him to go directly there in the morning. Logic demanded, given traffic problems and the difficulty of crossing the bridges at peak hours, that he visit the south shore branches before going to Montreal Island.

Because the first and last branches visited were not always the same, the appellant went home once the day was over, using the automobile made available to him by the company. The appellant argued that it would have been completely illogical, inefficient and dangerous to leave the car in the shopping centre parking lot at the last branch visited when he would have to start his circuit the next day at a different branch.

Thus the appellant admitted having had the automobile available to him in the evening and on weekends, but stated that he used it for personal purposes only exceptionally. He further stated that he had another automobile for that purpose, which, while it was much older and more modest, fully sufficed for the limited needs of going out in the evening or on weekends. The appellant, however, was not very specific in terms of the total kilometres travelled for business purposes; he stated that the total might be 40,000 to 60,000 kilometres per year, but that he had kept no record of this.

Counsel for the appellant therefore argued that the company automobile was not made available to the appellant for personal purposes, and that the appellant had never used it for such purposes, so that the respondent was not justified in including any amount whatsoever in the appellant's income for the 1984 and 1985 taxation years. Counsel for the respondent disputed the appellant's arguments, and argued that there was personal use, that the taxpayer or his representatives had never provided the information that had been requested on several occasions, and that the respondent was therefore correct to include in the appellant's income the amount provided in paragraph 6(1)(a) and subsection 6(2) of the Act. The income tax return signed by the appellant indicated that the amount of $1,248 was included in his income for the 1984 and 1985 taxation years. According to the appellant's testimony, this was a simple error by the accounting firm which prepared the return. Moreover, according to the testimony of Yvon Derome, a Revenue Canada appeals officer, the appellant stated to him, inter alia, that he went directly from his residence to the head office in Pointe aux Trembles twice a week, which constitutes personal use of the automobile. On re-examination, the appellant told the Court that this was not the case, and that if this did happen it was only exceptionally, perhaps once or twice in two months.

Analysis

Paragraph 6(1)(e) of the Act requires that an amount be included in the income of an employee for the right to use an automobile:

. . .. where his employer. . . made an automobile available to him . . . in the year

We would note that this paragraph was amended, to apply starting in 1982 (S.C. 1980-81-82-83, c. 140, subsection 1(2)), by removing the words "whether for his exclusive personal use or otherwise" after the passage quoted. This amendment was made to neutralize the effect of the decision of the Federal Court of Appeal in The Queen v. Harman, [1980] 1 F.C. 811; [1980] C.T.C. 83; 80 D.T.C. 6052. Paragraph 6(1)(e) therefore applies, starting in 1982, whether the automobile was made available to the employee for personal use or not. Subsection 6(2) of the Act establishes the method of computing the amount to be included and provides, in the case of a leased automobile, that this is two- thirds of the lease costs. The arithmetic formula provided in this subsection for the years in question is based on the hypothesis that the employee uses the automobile made available to him, on average, for 1,000 kilometres per month or, if you will, 12,000 kilometres per year, "(otherwise than in the performance of the duties of the taxpayer's office or employment)". This hypothesis becomes the assumption in paragraph 6(2)(d) of the Act, which reads:

. . . and for the purposes of this subsection it shall be assumed, unless the taxpayer establishes otherwise in prescribed form, that the aggregate number of kilometres referred to in subparagraph (c)(i) is not less than the product obtained under subparagraph (c)(ii).

Clearly, this means that it is presumed that the taxpayer uses the automobile on average for 1,000 kilometres per month or 12,000 kilometres per year for personal purposes, or, as it states, (otherwise than in the performance of the duties of the taxpayer's office or employment)”, unless he “ establishes otherwise in prescribed form”. The prescribed form is form TD5.

In order to control the benefit arising from the use for personal purposes of an automobile owned or leased by an employer, Parliament believed it advisable to establish a presumption that personal use amounts to 1,000 kilometres per month or 12,000 kilometres per year, as soon as an employer makes an automobile available to an employee. This presumption may be rebutted by the employee, and the Act imposes an obligation on him to do so in a specific manner, “in the prescribed form", when there is less use for personal purposes. In that case, the application of the arithmetic formula in subsection 6(2) operates to reduce the amount to be included in the employee's income proportionately. If an employee does not comply with the obligation thus imposed by the Act, how can he later argue that the Department of National Revenue was wrong to include in his income the amount set out in subsection 6(2) of the Act, which results from the application of the presumption established therein?

In the case at bar, the evidence shows that the appellant did not comply with the obligation imposed on him by the Act in respect of the 1984 and 1985 taxation years if he did not wish to be taxed on the amount resulting from the computation provided in subsection 6(2) of the Act, or if he wished to be taxed on a lesser amount.

While I can understand that, given the particular circumstances of his case, the appellant might have been able to state that he did not use the automobile leased by the employer, the company Bijouterie Lavigueur (1976) Inc., for his own personal purposes, he did not do so in the clear and explicit manner provided by the Act. (On this point, see Financial Collection Agencies (Quebec) Ltd., [1990] 1 C.T.C. 2178; 90 D.T.C. 1040 at 2187 (D.T.C. 1047 et seq.).)

Accordingly, I find that the respondent was correct to add to the income reported by the appellant the additional amount of $2,414 for the 1984 taxation year and the additional amount of $2,472 for the 1985 taxation year.

The appeal is therefore dismissed.

Appeal dismissed.