Murray Hewitt v. Her Majesty the Queen, [1996] 1 CTC 2675 (Informal Procedure)

Rowe D.J.T.C.C.: — The appellant appeals from assessments of income tax for his 1990 and 1991 taxation years. The Minister of National Revenue (the “Minister”) assessed the appellant in the amounts of $7,972 in 1990 and $8,331 in 1991, in respect of automobile operating expenses benefit, standby charge, including the amount of the goods and services tax (GST), relating to a motor vehicle made available to him by his employer, and included those amounts in computing his income, pursuant to the provisions of paragraphs 6(1 )(e) and 6(l)(e.l), subsections 6(2) and 6(2.2) and/or subsection 15(1) of the Income Tax Act (the “Act”). The Reply to Notice of Appeal, in error, stated the benefit from the GST component was included in the appellant’s income for the 1990 taxation year instead of the 1991 year.

Counsel for the respondent advised that the position of the Minister was that the amount assessed as benefit re: automobile operation, in the sum of $2,657 for both 1990 and 1991 taxation years, should be deleted. The sole remaining issue was whether the Minister was correct in including into income amounts calculated as a benefit flowing from a standby charge in the sum of $5,315 for 1990 and $5,315 in 1991, together with $359 attributable to the GST levy.

The appellant testified he resides in Quesnel, British Columbia, and is an electrician. He is the sole shareholder of Cariboo Industrial Electric Ltd. (“Cariboo”). He was employed by Cariboo during the years under appeal. Cariboo owned a 1990 Mazda Miata, which was purchased in November, 1989. The automobile was driven until October 31, 1990, at which time it had approximately 8,000 kilometres on the odometer. The appellant stated that 75 per cent of the total distance driven was for purposes of his employment with Cariboo. That percentage included a 1,000 kilometre return trip between Quesnel and Vancouver and another 4,000 kilometres incurred in travelling between Quesnel and Cranbrook, British Columbia to complete a contract for electrical installation. He did not maintain a log to record the purpose of the balance of the kilometres driven. After October 31, 1990, Cariboo had a contract in Quesnel which occupied the appellant for more than one year and he used a pick-up truck owned by Cariboo for purposes of carrying out his work. The Mazda Miata was stored in the appellant’s garage at his home and was insured only for fire and theft. It did not have license plates or registration in 1991 which would have permitted the vehicle to have been operated lawfully on public highways. In June, 1992 the Miata was again insured and licensed for street use.

The appellant’s position is that he should not be assessed a standby charge in respect of a motor vehicle that was not used by him and could not have been lawfully driven by him, owing to the lack of proper insurance and registration.

Counsel for the respondent submitted that the appellant, as sole shareholder of Cariboo, the corporation, had full control over potential use of the vehicle and it was stored in the garage at his personal residence.

The Minister’s position is consistent with the content of paragraph 14 of Interpretation Bulletin IT-63R4, which reads as follows:

The above guidelines may generally be applied to a shareholder of a corporation. Subsection 15(5) provides that, for the purpose of subsection 15(1), the value of the benefit to be included in a shareholder’s income when an automobile is made available to such a person (or to a person related to that person) by a corporation, whether or not resident or carrying on business in Canada, is computed on the assumption that subsections 6(1), 6(2) and 6(2.2) apply with such modifications as are required in the circumstances, and as though the references therein to “employer” were read as references to “corporation”. Unless the supply of the property or service is a zero rated or exempt supply, subsection 15(1.4) provides that 7 per cent of the amount of the benefit determined for the purposes of subsection 15(1), net of any tax prescribed for the purposes of section 154 of the Excise Tax Act, is added to the benefit before any reduction is made for any payments made by the shareholder to the corporation. For 1991, payments the shareholder made to the corporation that reduced the benefit for the purposes of subsection 15(1) also reduced the amount on which the 7 per cent was calculated.

By virtue of subsection 15(1.3), where the cost of a property or service is required for the purpose of determining the benefit under subsection 15(1), the cost is determined without reference to any GST incurred on the acquisition of the property or service.

Where a shareholder is also an employee and an automobile is made available to the shareholder (or to a person related to the shareholder) in the capacity of an employee, the benefit is included in income under section 6 as income from employment, rather than under section 15 as a benefit conferred on a shareholder.

In IT-63R4, paragraph 15, the subsection 6(2) formula - involving letters and numbers and fractions or percentages thereof - used to calculate the amount of the benefit, is set out. From its complexity, it may serve an extra purpose, perhaps to illustrate the exact proportion of constituents needed to produce rocket fuel. Then, the last sentence of paragraph 15 states:

An automobile is available to the employee if it is used by the employee all day or for any part of the day or even if the automobile sits unused in the employee’s garage or on the employee’s driveway or parking spot.

The current wording of subsection 15(1) does not require any “appropriation” of property to the shareholder. Instead, since 1988, it refers to the situation where “a benefit has been conferred on a shareholder”. The question of benefit or advantage or no benefit or advantage is a question of fact to be dealt with in light of the success or otherwise of the appellant having been able to discharge the assumed facts upon which the assessment rests. (See Kennedy v. Minister of National Revenue, [1973] C.T.C. 437, 73 D.T.C. 5359 (F.C.A.) at page 439 (D.T.C. 5361).)

Section 6 of the Act provides that certain amounts be included in computing the income of a taxpayer for a taxation year as income from an office or employment. One of the amounts to be included is a standby charge for an automobile. The relevant portion of the applicable provision, paragraph 6(1 )(e), is :

Standby charge for automobile. — where his employer or a person related to his employer made an automobile available to him…

There is no doubt that the appellant, as the sole shareholder of the corporation, Cariboo - also his employer - could have obtained proper insurance and registration for the Mazda vehicle any time he chose. However, between the end of October 1990 and the beginning of June, 1992 he, as the operating mind of Cariboo, decided the vehicle would not be required in the course of his employment. From the perspective of the appellant as an employee, it is difficult to understand what benefit was derived by him from the mere existence of the Miata, without proper insurance or license, sitting in his garage. I fail to see how the Minister is at any disadvantage in these situations as the same day a vehicle becomes insured and licensed for street use, then the basis of the standby charge would be valid and would continue to apply each day thereafter, even if the vehicle were never to be driven by the taxpayer. Otherwise, a damaged vehicle owned by a corporation, previously driven by an employee/shareholder, could be the subject of a standby charge assessment on the premise that the controlling shareholder could have, at his option, chosen to repair the car and render it usable. A vehicle, without lawful insurance or license, is not, in my view, “available” to someone for whom the automobile benefit provisions of the Act apply, any more than the proceeds of a corporation’s bank account are “available” to the controlling shareholder, whether or not any funds are ever taken. The whole point of the legislation is that a benefit must be conferred on the taxpayer. Once it is found that a benefit has been conferred, then actual use or enjoyment by the taxpayer, in an active sense, is generally not required.

The Minister’s assumption that the appellant did not reimburse Cariboo for the personal use of the Mazda was not challenged. During the 1990 taxation year, the appellant estimated that he used the Mazda less than 25 per cent of the time for personal use but it was available to him and he could have used it more until October 31, 1990, at which time the insurance — for street use — and the license expired. Accordingly, the standby charge for that period is appropriate.

The appeal is allowed, with costs, and the assessments are referred back to the Minister for reconsideration and reassessment on the following basis:

1. 1990 taxation year - the benefit with respect to automobile operation in the sum of $2,657 be deleted and the standby charge be calculated, on the basis of the facts found in these reasons, for the period January 1 to October 31, 1990.

2. 1991 taxation year — the amounts previously included relating to standby charge, GST, and benefit with respect to automobile operation be deleted.

Appeal allowed.