Ernest Bouchard v. Minister of National Revenue, [1981] CTC 2834, 81 DTC 762

The Chairman:—The appeal of Ernest Bouchard is from an assessement with respect to the 1976 and 1977 taxation years.

There are two separate issues arising from the Minister’s assessment:

1. The Minister included in the appellant’s income for the 1976 taxation year an amount of $40,230 as being the profit realized from proceeds of disposition of a property which was sold for less than its fair market value in a non-arm’s length transaction and deemed to be the true capital gain to the appellant within the meaning of subparagraph 69(1 )(b)(i) of the Income Tax Act.

2. Pursuant to paragraph 6(1 )(e) of the Act, the Minister added to the appellant’s income for 1976 an amount of $1,193 and for the 1977 taxation year, an amount of $7,158 as a standby charge of 1% per month of the capital cost of an automobile ($59,650.56) and made available by the employer for the appellant’s personal use.

The facts with respect to the capital gain issue are that in 1963 the appellant’s son, Claude Bouchard, and his wife Pauline were interested in purchasing a property at 84 Range Road in the City of Ottawa. The couple sought to have the appellant endorse a loan for the purchase of the property.

In his evidence the appellant stated that, as a matter of policy, he did not endorse loans but agreed with his wife to purchase the property for $23,000, with the understanding that the appellant and his wife would sell the property to his son and daughter-in-law at the same purchase price when the couple could afford to finance the purchase.

The property was purchased in 1963 and was duly registered in the name of the appellant and his wife. The property was rented by the appellant to his son and daughter-in-law and the appellant collected rent, deducted capital cost allowances and charged operational expenses until sometime in 1977 (Exhibit R-1).

It is alleged that an agreement of purchase and sale of the property was signed by the appellant and his wife, the vendors and by Claude and Pauline Bouchard, the purchasers, on April 1, 1970 (Exhibit A-1).

Counsel for the respondent questioned the date of signing of the said agreement of purchase and sale and called as witness Mr Keith Siddons, an RCMP Officer in the Document Examination Section of the Crime Detection Branch of the RCMP’s laboratory system. Mr Siddons’ qualifications as an expert were not contested by the appellant’s counsel. Mr Siddons stated that he had been asked by the Department of National Revenue to determine whether the document Exhibit A-1 had been prepared later than April 1, 1970. Mr Siddons pointed out that, on the upper left hand corner of the purchase and sale agreement (Exhibit A-1), there is written “amended Nov 1970”. Mr Siddons enquired of Dye & Durham Co Limited which had printed the form and was advised that the form used (Exhibit A-1) was not printed until November 16, 1970 and could not therefore have been signed on April 1, 1970 (Exhibit R-2).

Counsel for the respondent also referred to the postal code K1N 7B7 of the law firm which had drafted the agreement, whose address appears on the back of the agreement (Exhibit A-1).

The respondent called Mr Alec Lefebvre, a postal employee and Manager of Coding and Mechanization in the Postal Code Computerizing Section. Mr Lefebvre had been asked by National Revenue to examine when that postal code was assigned. In testifying that the postal code system came into effect in 1971, Mr Lefebvre stated that the code was assigned in September of 1970 but was made known to the employees only in February of 1971 and released to the public in April of 1971. Mr Lefebvre was categorical in stating that the said postal code could not have been publicly known in April of 1970.

Mr Henri St-Jacques, a lawyer from the firm of St-Jacques & St-Jacques who drafted the purchase and sale agreement, on being shown Exhibit A-1, could not recall when he received instructions to draft the agreement or when the document was signed. The witness also stated that it was not unusual to back date documents.

The transfer of the property, pursuant to the agreement of purchase and sale dated April 1, 1970 (Exhibit A-1) was closed and sworn to on December 1, 1976 and the deed registered on April 12, 1977 (Exhibit A-2). An affidavit signed by the appellant and his wife, and Claude and Pauline Bouchard was sworn before Françoise Castagne, a former employee of the firm of St- Jacques and St-Jacques on March 20, 1980. In the affidavit it is stated that Claude and Pauline Bouchard occupied the subject property and paid rent on the property until December 1977, and at that time the appellant and his wife agreed to transfer the property to Claude and Pauline Bouchard (Exhibit R-1). Miss Castagne was not available for questioning.

In none of the documents filed as exhibits is there any mention that the appellant acquired the property in trust for his son and daughter-in-law. The first mention of a trust is in the appellant’s notice of appeal. It is the appellant’s position, as I understand it, that once it is accepted, there was an agreement between the appellant and his son; there is no need for the documents at all. The testimony must stand and the appellant’s word that he acquired the subject property in 1963 in trust for his son must be accepted.

It may well be that the documents filed do not contribute anything in the determination of whether or not the appellant purchased the subject in trust for his son and daughter-in-law. However, the evidence before the Board relative to the dates the agreements are alleged to have been signed seriously affects the credibility of the appellant on whose word the Board is being asked to find that he had originally purchased the subject in trust for his son.

Mrs Pauline Bouchard, considered as an impartial witness (because she was then estranged from her husband, the appellant’s son), confirmed that an agreement existed in 1963 whereby the appellant would purchase the property and sell it to his son at the cost price when the couple could afford it.

I can accept that an agreement existed and I do not question that the appellant, rather than endorsing a loan, preferred to purchase the property himself and sell it to his son at the price he had paid for it. I can well appreciate that before Mr and Mrs Claude Bouchard spent money on repairing the subject property which they rented from the appellant, they wanted to acquire possession of it and did in fact purchase it at the original purchase price.

There is no doubt that the appellant was desirous of helping his son but these facts in themselves however do not necessarily establish that the appellant in 1963 had purchased the property “in trust” for his son.

It seems to me that in determining whether a trust existed for purposes of this appeal, the intention of the appellant to create a trust must be clearly established. Had it been the intention of the appellant, a successful businessman, to create a trust for his son in the purchase of the property, that intention would have appeared somewhere in the documentation long before its first mention in the appellant’s notice of appeal. I am not prepared to accept that the appellant’s undertaking to sell the property at the original cost price to his son can now be considered in retrospect as having been the appellant’s intention to create a trust for his son at the time he acquired the property in 1963.

A property that is in trust would, in my view, have to be held for the benefit of the person for whom the trust was created and not for the benefit of the trustee. The evidence is that, from the date of purchase to the date of sale, the appellant and his wife were alone the registered owners of the property. In my opinion, the appellant and his wife acted as sole owners and not as trustees in keeping rental income from the property, in claiming capital cost allowance and deducting operational expenses. Whatever may have been the motive for the agreement by which the appellant undertook to sell the property to his son at cost price, it was not at the time of the purchase intended to be nor, in my opinion, was it in fact or in law a trust agreement. I can see no reason to consider the transaction as other than a purchase and sale contract by which the appellant sold the property to his son at a previously agreed price. Subparagraph 69(1 )(b)(i) of the Act is applicable and the appellant in this respect was properly assessed by the Minister of National Revenue.

Turning now to the second issue, counsel for the appellant submitted that the vehicle in question, a Rolls Royce whose capital cost was estimated to be $59,650.56, was made available to the appellant for business purposes. The appellant contends that he was wrongly assessed under paragraph 6(1 )(e) of the Act since the vehicle was not made available for his personal use and that a standby charge of 1% per month of the capital cost of the automobile is, under the circumstances, excessive. The appellant asks the Board to allow the appeal on this issue and refer the matter back to the Minister for reassessment under paragraph 6(1 )(a) of the Act.

The respondent’s submissions are that the vehicle was made available to the appellant for personal use; that he was properly assessed under paragraph 6(1 )(e) of the Act and a standby charge of 1% per month was properly included in the appellant’s income for 1976 and 1977 respectively. Although the appellant was not assessed on this basis, the respondent’s alternative position is that the amounts of $1,193 and $7,158 were received by the appellant as benefits in the course of or by virtue of an office or employment and taxable under paragraph 6(1 )(a) of the Act.

The facts of this appeal are significantly different from and indeed are the reverse of the facts in the case of Herbert J Harman v MNR, [1978] CTC 2144; 78 DTC 1138, cited by both counsel. The Board’s decision in Harman (supra) and further decisions on appeal to the Trial and Appeal Division of the Federal Court, [1979] CTC 12; 79 DTC 5037, and [1980] CTC 83; 80 DTC 6052, respectively, have confirmed the interpretation to be given to the wording of paragraph 6(1 )(e) of the Act.

(e) Standby charge for automobile.—where his employer made an automobile available to him in the year for his personal use (whether for his exclusive personal use or otherwise), the amount, if any, by which an amount that would be a reasonable standby charge for the automobile for the aggregate number of days in the year during which it was made so available (whether or not it was used by the taxpayer) exceeds the aggregate of

(i) the amount paid by him in the year to his employer for the use of the automobile, and

(ii) any amount included in computing his income for the year by virtue of paragraph (a) in respect of the use by him of the automobile in the year;

The courts have established that the words “whether for exclusive personal use or otherwise" (underlining mine) do not include business use. The application of paragraph 6(1 )(e) of the Act is restricted to an employee whose employer has made an automobile available to him primarily for his personal use. The section does not include shareholders of a company who, under the same circumstances, are covered under subsection 15(5) of the Act.

For purposes of paragraph 6(1 )(e) and subsection 15(5) of the Act, it is immaterial that the automobile be used by the taxpayer for other purposes, providing that the primary purposes for which the automobile was made available to him is clearly seen to be for his personal use.

The evidence in the Harman case clearly showed that the station wagon was made available to the taxpayer, a salesman, primarily for business purposes. That the taxpayer could also use the automobile for personal use does not bring him under paragraph 6(1 )(e) of the Act because the purpose of the company in making the automobile available to Harman and other salesmen was primarily for business use which is not the purport or intent of paragraph 6(1 )(e) of the Act because the purpose of the company in making the automobile available to Harman and other salesmen was primarily for business use which is not the purport or intent of paragraph 6(1 )(e) of the Act.

The courts also decided that, whatever financial benefits Harman may have derived from this personal use of the station wagon, he would properly be assessed under paragraph 6(1 )(a) of the Act.

In the instant appeal the appellant is president and principal shareholder of the company which made the automobile available to the appellant.

It is not clear from the evidence whether the car was made available to the appellant in his capacity as president and officer and, as such, as employee of the company in which case paragraph 6(1 )(e) of the Act would apply or whether it was made available to him as principal shareholder of the company where subsection 15(5) of the Act would apply.

Other than possible tax consequences for the company, the taxing provisions of subsection 15(5) of the Act where an automobile is made available for the personal use of a shareholder is identical with that of paragraph 6(1 )(e), and the standby charge in both instances is the same as set out in subsection 6(2). The circumstances, however, under which the automobile is made available to a taxpayer in subsection 15(5) of the Act are significantly different from those under paragraph 6(1 )(e). The appellant, as the principal shareholder of the company, is not an ordinary employee as was Harman and whether or not the automobile was made available to the appellant for his personal use, within the meaning of paragraph 6(1 )(e) or subsection 15(5) of the Act is purely a question of fact as it was in the determination of the issue in the Harman case.

In paragraph 3 of his Notice of Appeal, the appellant states:

The standby charge of 1% per month is excessive because the vehicle is required 24 hours per day to meet service calls and is not available to me at all times.

Facts

The appellant testified that he had ordered the company to purchase the Rolls Royce for business use; that it was made available to him for that purpose and used 95% of the time for business.

The appellant’s company is engaged in the sale of “bearings” and operates through several stores or outlets situated in various cities in the Province of Quebec and, I believe, in the Province of Ontario. The company has 98 employees, 22 of whom are salesmen on the road. The company is solely engaged in sales and does no repairs of machinery of any kind.

Early in his evidence, the appellant stated that he visited some of his stores once or twice a week with the Rolls Royce. Under cross-examination however, and not without some animation, the appellant claimed that he had to work seven days a week and was often called in the middle of the night by a customer whose machinery had broken down and needed a bearing. It is the appellant’s evidence that he would then deliver the bearing with the Rolls Royce. Contrary to the Harman case, the appellant kept no log or records of the use of the automobile and gave no indication other than the above as to the nature of the business he alleges to have carried out where the Rolls Royce was required 24 hours a day.

I simply cannot believe that the appellant, a successful businessman with 22 salesmen and some 71 employees, would personally and regularly deliver bearings to his customers in a Rolls Royce. It is not logical, reasonable or within the bounds of common sense to suggest that the Rolls Royce was acquired by the company and made available to the appellant, its president and a principal shareholder, for that purpose and I place no credence on the evidence given by the appellant.

The appellant failed to satisfy the onus that was on him of establishing that the assumptions on which the Minister based his reassessment were wrong and the appellant failed to establish that the automobile was made available to him for business purposes.

I hold therefore that the automobile was made available to the appellant for personal use and that a standby charge of 1% per month of the capital cost of the car was properly included in the appellant’s income for 1976 and 1977, pursuant to paragraph 6(1 )(e) and subsection 15(5) of the Act.

I also find, as to the first issue, that the appellant did not acquire the subject property “in trust” for his son in 1963; that he sold the property in a non-arm’s length transaction for less than its fair market value; that he was properly assessed under subparagraph 69(1 )(b)(i) of the Act and that he realized a taxable capital gain of $22,270 from the disposition of the said property.

The appeal is dismissed.

Appeal dismissed.