10 June 1988 Income Tax Severed Letter 7-2642 - [Standby Charge to XXXX]

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

JUN 10 1988 J.A. Szeszycki (613)957-2130 Standby Charge to XXXX

This is in response to your memorandum of March 9, 1988 to which was attached a further submission from Mr. XXXX

In his submission, as it relates to the proposed assessment of a standby charge on the XXXX {he has reiterated his basic argument that although a benefit been conferred on the taxpayers in question, the Income Tax Act ("Act") does not provide a statutory means by which the value of the benefit can be brought into income. Our previous memorandum on the subject, dated December 11, 1987, addressed to Mr. R.A. Armitage of Head Office, Source Deductions Division, expressed the view that since the standby charge provision as introduced and subsequently amended clearly intended that employees who have an automobile made available to them by their employer be assessed a reasonable standby charge, the Department is not precluded from assessing the benefit despite the fact that the wording of subsection 6(2) of the Act is not appropriate to value the benefit under the circumstances of this case. XXXX is of the view that the Minister does not have the authority to ignore the precise wording of a particular provision and assess on the basis of legislative intent. In support of his argument he cites the cases of Oceanspan Carriers Limited v. The Queen 85 DTC 5621 ("Oceanspan") and The Queen v. B & J Music Ltd. 83 DTC 5074.

Before responding to XXXX arguments we would first like to explore an avenue that was overlooked in preparing our previous response, one that may eliminate the necessity of relying on the intent of the standby charge provision in supporting an assessment thereunder.

XXXXXXXXIT-490 deals with the subject of barter or non-cash transactions. Paragraph 3 and 8 would appear to most appropriately cover the situation at hand. Although the fair value of the rights and preferences granted by XXXX would be difficult to determine, the value of the use of the automobiles would not. Consequently, for the purposes of paragraph 6(1)(e) of the Act and, more specifically, subsection 6(2), a lease cost can be determined as having been incurred by the employer over the term of the agreement and a standby charge can then be calculated, in the normal manner, for each of the executives to whom the employer made the subject automobiles available.

Notwithstanding the merits of the foregoing case for establishing an actual cost to the employer, we would like to direct our attention to XXXX argument against the Department's authority to reach beyond the strict wording of a taxing provision on its application to a set of circumstances not previously encountered. XXXX has cited the reference by Mr. Justice Rouleau of the Federal Court in the Oceanspan case to the words of E.A. Dreidger taken from his published Construction of Statutes, (2nd edition (1983) page 101), It should be noted that the particular citation used by XXXX forms only part of Mr. Justice Rouleau's Deliberations in the case. On page 5625 of the Oceanspan decision reference is made to Stubart Investments Limited v. the Queen 84 DTC 6305 ("Stubart"), a Supreme Court of Canada case, wherein Mr. Justice Estey quoted from the same publication as follows:

"Today there is only one principal or approach, nameley, the words of an Act are to be read on their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament".

It should also be noted that Mr. Justice Rouleau approved of that approach in deciding in favour of the Minister in that particular case.

The Stubart decision was a landmark judgement in its dealing with the issue of interpreting statutes. It became the subject of discussion at the Thirty-Sixth Tax Conference, 1984, where XXXXXXXX set out the implied guidelines that flowed as a consequence of that case. XXXX concluded that "the Supreme Court of Canada has focussed at ... on the importance of interpreting the statute in accordance with its object and spirit. The plain words of the Act may be ignored in certain extreme cases, where this is necessary to achieve the statutory intention". The taxing statute for the standby charge is paragraph 6(1)(e) of the Act which clearly provides that where the employer makes an automobile available to the employee. the employee will include in his income an. amount that is a reasonable standby charge. As explained in our previous response, in introducing the standby charge it was the clear intention of Parliament to tax such a benefit. A definition of "reasonable standby charge", in the form of subsection 6(2), was also created in recognition of the need for two distinct formulae for its calculation depending on whether the employer owned OT leased the automobiles. In our vies, it is the "object and spirit" of the income Tax Act in general and of paragraph 6(1)(e) in particular that the benefit conferred on the XXXX be taxed and that the Department is not necessarily precluded by the wording of subsection 6(2) from assessing the benefit.

XXXX

for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch c.c. R.A. Armitage H.O. Source Deductions Division