Paul Biermann v. Minister of National Revenue, [1989] 2 CTC 2107, 89 DTC 405

Lamarre Proulx, T.C.J.:—This is an appeal from a reassessment of income tax for the 1982 taxation year of the appellant. It concerns the amount of a reasonable standby charge under paragraph 6(1)(e) and subsection 6(2) of the Income Tax Act.

In reassessing the appellant for his 1982 taxation year the respondent made the following assumptions:

(a) The appellant was an employee and shareholder of Inspira Systems Ltd. (hereinafter referred to as the Company).

(b) The Company owned an automobile which it made available to the appellant for his personal use for the whole of the taxation year in issue.

(c) The said automobile, the cost of which to the company was $49,790, was driven by the appellant during his 1982 taxation year, a distance of not less than 12,000 kilometers for purposes other than the performance of his employment duties.

(d) $11,949 is a reasonable standby charge for the automobile for the aggregate number of days in the appellant's 1982 taxation year during which it was made so available.

(e) The appellant made no reimbursement to the Company in respect of the said standby charge.

Counsel for the appellant stated that the appellant in the year 1982 had a car made available to him by his employer for business purposes, that he used it for personal purposes for less than 1,000 kilometres per month, that the personal use was in fact minimal and accounted for no more than ten per cent of the total use of the car.

The evidence showed that the appellant is the controlling shareholder and the chief executive officer of the company Inspira Systems Ltd. The company designs and manufactures precision steel parts. During the year under appeal, the principal customer was the CNR. The taxpayer, a mechanical engineer, did the design and the engineering, looked after sales, marketing, and supervised and sometimes participated in the production at the shop.

Aside from CNR the appellant may have had 20 to 30 other customers, However, the important client was CN, and the bulk of the Company's revenue was generated from CN transactions. For this client, the taxpayer did not spare his time nor his expertise. He would redesign faulty pieces of equipment, produce new ones, and take time to explain the working and the fitting of these pieces. Generally speaking, included in the cost of the parts was consulting work on maintenance of railroad equipment. He routinely left the office at night with pieces of equipment that were needed the following day at the CN “Acheson” repair station. In the morning, he would deliver them to the station, speak at length with the repairmen or foremen and, in this way, generate further business. The taxpayer's residence was further west than the Acheson Station and that station was west of the Company's plant. That geographical situation made the afore-described routine convenient to the taxpayer. The delivery of pieces and the meetings with the repairmen were an essential part of his work. The amount of sales for that year with CN was about $1,000,000.

There was a telephone in the appellant's car. His office as well as his home telephone numbers were posted at the CN repair station which meant that the appellant was on duty any time of the day. On occasion, he would have to make on site visits at locations at various distances from the Company's plant.

The car provided to the appellant was a two-door Mercedes Benz. He never or seldom used it for personal needs. In those years his children were young. For the family he had a four-door Toyota Sedan station wagon and a large van. He may have used the Mercedes to bring clients to restaurants for entertainment purposes. It was used mostly for business purposes, with prestige and road safety being important factors.

The evidence adduced on behalf of the respondent seemed to indicate that during the year 1982, the number of kilometres driven by the appellant would have been 40,000.

Counsel for the respondent raises the point that travelling between home and the office has always been considered personal expense. This is generally true. However, in the case at bar, when the taxpayer went home he carried with him pieces of equipment that he had to deliver the next day to the CNR repair station. Had the taxpayer resided east of his plant he could not have had a valid business purpose in going home. But under the circumstances of this case, he could. I find it difficult to determine that these trips are of a personal rather than of a business nature, where they meet both characteristics. I find support in this regard in the case of Yorke v. M.N.R., [1989] 1 C.T.C. 2040; 89 D.T.C. 12.

Counsel for the appellant referred me to the following cases:

Harman v. The Queen, 80 D.T.C. 6052;

Bouchard v. The Queen, [1983] C.T.C. 173; 83 D.T.C. 5193;

Nowegijick v. The Queen. [1983] 1 S.C.R. 29; [1983] C.T.C. 20; 83 D.T.C. 5041.

Though the legislation has changed since these cases, counsel for the appellant invoked them for the purpose of illustrating the finding of a nominal use.

The Bouchard case is of interest: the circumstances not being that different from those of the case at bar.

I cite Mr. Justice Cattanach at page 174 (D.T.C. 5194):

.. . When the business premises are closed the telephone is switched over to the plaintiffs home telephone where he, the president of the company, receives the telephone calls from customers and immediately undertakes to give them satisfaction.

and at page 193 (D.T.C. 5210):

. . . I also accept, as stated by counsel for the defendant, that the use of the Rolls Royce by the plaintiff was designed to enhance his prestige but it does not follow from that fact that the use made of the automobile was personal use and not business use.

The Nowegijick case was cited for that part of the judgment, at page 24 (D.T.C. 5044), dealing with the value to be given to interpretation bulletins. Interpretation Bulletin IT-63R2 dated May 22, 1984 states the following at paragraph 6:

6. In addition to what would obviously be considered personal use of an automobile supplied by an employer (e.g., vacation trips, personal shopping trips, etc), the Department considers personal use to include travel between the em- ployee's place of work and home even though the employee may have to return to work after regular duty hours. An exception to this view occurs, however, where the employer requires or allows the employee to proceed directly from home to a point of call other than the employer's place of business to which the employee reports regularly (e.g., effecting repairs on customer's premises), or to return home from such a point. These particular trips are not considered to be of a personal nature. Employers and employees should maintain records on use of the automobile so that total kilometres driven in the calendar year may be apportioned between business use kilometres and personal use kilometres of the employee.

Counsel for the respondent made reference to the following cases:

John H. Kearns v. M.N.R., [1985] 2 C.T.C. 2050; 85 D.T.C. 428;

Shekel v. M.N.R., [1972] C.T.C. 210; 72 D.T.C. 6178 (F.C.T.D.); [[1973] C.T.C. 202; 73 D.T.C. 5178 (F.C.A.); [1974] C.T.C. 416; 74 D.T.C. 6268 (S.C.C.)].

The latter case was mentioned to me as to the weight to be given to an interpretation bulletin.

In the case at bar my decision is not determined by the administrative policy but rather by the fact that the travelling home could not be distinguished from the business travelling and by my finding that the appellant did not use the car for personal use for more than ten per cent of the total use of the car, which, in 1982, was 40,000 kilometres.

The appeal is allowed with costs and the matter is referred back to the Minister for reconsideration and reassessment on the basis indicated in the preceding paragraph.

Appeal allowed.