Cheung v. R., [1998] 3 CTC 2729

Hamlyn T.C.J.:

These appeals are in respect of the Appellant’s 1992 and 1993 taxation years.

As a result of an audit conducted on Milcan Enterprises Limited’s (the “Corporation”) books and records, the Minister of National Revenue (the “Minister”) reassessed the Appellant for the 1992 and 1993 taxation years. Concurrent Notices of Reassessment were mailed May 17, 1996 to include in income automobile benefits received from the Corporation as follows:

1992 1993

Standby charges $19,231 $19,231

Plus GST 1,258 1,258

Operating cost — 266

Total Benefits $20,489 $20,755

Issue

The issue is whether the Appellant was properly assessed to include the benefits in her income for the 1992 and 1993 taxation years.

Appellant’s Position

The following portion of the Appellant’s Notice of Appeal was adopted as part of the evidence:

1) The taxpayer is a shareholder of Milcan Enterprises Limited (‘Corporation’).

2) The Corporation is in the business of investing in commercial real estate and leasing of real property to earn rental income. The corporation was interested in properties around Toronto and as far as Kitchener and Windsor.

3) On October 23, 1986, the company decided to purchase a company automobile for the purposes of investigating potential acquisition opportunities as well as for the management of properties. The taxpayer lent the Corporation a sum of $70,000. (A copy of the corporation’s bank deposit slip and the taxpayer’s personal cheque were kept on file.)

4) Two days later, the Corporation purchased an automobile for $74,938. (A copy of the receipt for the purchase of the automobile and the bank statement of the Corporation will substantiate the payment by the corporation for the purchase). The purchase of the Corporation automobile does not and will not benefit the taxpayer as she personally owned two other vehicles at the time.

5) The taxpayer did not receive any interest payments from the Corporation and has, to-date, not received repayment of the loan.

6) In 1990, Revenue Canada audited the Corporation for its 1986, 1987 and 1988 taxation years. Revenue Canada argued that the company automobile was not necessary for its business and disallowed the related capital cost allowance, in spite of the fact that the principals of the Corporation had visited and analysed more than fifty properties outside Toronto during this period of time. They had also made offers on more than twenty properties. The reason that the Corpora- tion did not acquire any properties at the time was mainly because the commercial rental market did not support the price demanded by the vendors.

As a result of the Revenue Canada audit, the principals decided not to use the company automobile.

7) Since 1989, the taxpayer has moved to Hong Kong on a permanent basis. Due to the depressed real estate market in Toronto, the taxpayer was unable to sell her only house in Toronto. At the same time, the Corporation did not have a proper garage or a safe place to store the automobile. Consequently, the company automobile was parked in the garage of the taxpayer’s house for security reasons.

8) The keys to the automobile were kept inside the house and the house is accessible by other shareholders of the Corporation.

Significant Evidence

The Appellant did not appear at the proceeding. The evidence was given by the Appellant’s agent, her son.

The Appellant, since 1989, has resided in Hong Kong but has filled out her income tax return for 1992 and 1993 as a resident of Ontario. The son estimated the Appellant has visited Ontario for two weeks per year since 1989.

For 1992 and 1993, the automobile was kept at the Appellant’s residence in Toronto and was available for the Appellant for her use at any time. The keys for the automobile were kept at the Appellant’s home in Toronto. The expenses incurred in respect of the automobile (other than gasoline) were paid by the Corporation.

There was little, if any, business use made of the automobile in 1992 and 1993. No log book was kept recording the use of the vehicle.

The Appellant’s two sons, for the years in question, drove the automobile from time to time to “keep it in order”.

When the Appellant was in Toronto she used the vehicle.

On the insurance documents, albeit for the subsequent year, she was listed as the principal driver.

The Corporation did not place any restrictions on the use of the vehicle by the Appellant.

The Appellant’s Argument

The Appellant’s argument, as stated in her Notice of Appeal, is: 1) The Corporation’s automobile was parked at the taxpayer’s house purely as a matter of security and convenience for the Corporation. The Corporation’s head office is located in downtown Toronto and does not have a parking facility of its own. Any other alternative of a safe parking spot for the Corporation’s automobile would cause the Corporation unnecessary cashflow.

2) ... The keys to the automobile were kept inside the taxpayer’s house, which can be accessed by other shareholders of the Corporation.... [C]ontrol of the automobile has, at all times, stayed with the corporation.

Based on the above facts, there should be no taxable benefit to the taxpayer pursuant to subsection 6(1) and paragraph 6(1 )(e) of the ITA for the 1992 and 1993 taxation years.

3) Even if there was a taxable benefit to the taxpayer, ..., the amount of such benefit must be reduced by the value of the financing provided by the taxpayer to the Corporation in respect of the purchase of the automobile.... [T]he taxpayer funded the purchase of the automobile by way of an interest-free loan to the corporation, the amount, if any, of the benefit received by the taxpayer should be reduced by the six to seven years of interest (at prescribed rates) that she otherwise could have earned on the funds advanced to the Corporation. The interest forgone by the taxpayer more than offsets the taxable benefit calculated by Revenue Canada in 1992.

The Minister’s Position

The Minister’s position is that during the 1992 and 1993 taxation years, the Corporation paid all operating expenses incurred by the Appellant in respect of the use of the Corporation’s vehicle and that the Appellant, in her capacity as a shareholder of the Corporation, received and enjoyed a benefit in respect of her personal use of the Corporation’s vehicle within the meaning of subsection 15(5) of the Income Tax Act (the "Act") and, therefore, the Appellant was properly assessed to include in her income for those years the benefits pursuant to subsection 15(1) of the Act.

Analysis

From the Act, subsection 15(5), for the purpose of subsection 15(1), states the value of the benefit conferred on a shareholder to be included in a shareholder’s income when an automobile is made available to the shareholder by the corporation is computed with reference to subsections 6(1), 6(2) and 6(2.2).’ [1]

It has been judicially established that the degree of use is immaterial because it is the benefit conferred that is the operative act. There is no authority to provide the benefit according to use.

In this case, the Corporation made available the use of the 1986 Mercedes Benz automobile to the Appellant. The Appellant had access to the vehicle without restrictions anytime she chose to use it. The automobile was stored at the Appellant’s Toronto residence and was not used for business purposes. Other than gas, the Corporation paid for the operating expenses with respect to the automobile.

Conclusion

I conclude the Corporation conferred a benefit on the Appellant in respect of the personal portion of the automobile standby charges and operating cost.

In relation to the Appellant’s claim that the net figure of the assessment should be reduced by an amount equal to the interest that should normally have been paid by the Corporation if the loan had not been interest free, I conclude subparagraph 6(1 )(e)(ii) provides a complete code for what is allowable to be reduced in the calculation of a standby charge. In this case, the Appellant, for the years in question, paid nothing to the Corporation for the use of the automobile. The section provides for no other reduction, therefore, the Appellant was properly assessed.

Decision

The appeals are dismissed.

Appeal dismissed.