Date:
20121101
Docket: A-341-10
Citation: 2012 FCA 276
CORAM: BLAIS
C.J.
SHARLOW J.A.
MAINVILLE
J.A.
BETWEEN:
EARL
BABICH
Appellant
and
HER
MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
OF THE COURT
(Delivered
from the Bench at Vancouver, British Columbia, on November 1, 2012)
SHARLOW J.A.
[1]
Mr.
Earl Babich is appealing the judgment of Justice Valerie Miller of the Tax
Court of Canada in an appeal under the informal procedure of that Court. Her
judgment dismissed Mr. Babich’s appeal of a reassessment under the Income
Tax Act, R.S.C. 1985, c. 1 (5th Supp,) for 2003, and quashed an
appeal of a reassessment for 2004 for want of jurisdiction on the basis that it
was a nil assessment (2010 TCC 352). The reassessments had included $6,804 in
the income of Mr. Babich for 2003, and the same amount in his income for 2004,
on the basis that those amounts represented the value of benefits conferred on
Mr. Babich as the sole shareholder of Able Enterprises Ltd.
[2]
The
benefits consisted of the use of a vehicle owned by Able Enterprises Ltd. The
amount of the benefit for each year was determined under the computation
provisions of section 6 of the Income Tax Act, on the basis of certain
factual assumptions relating to the cost of the vehicle, the number of
kilometres driven and the allocation of the use of the vehicle between personal
and business use. Those assumptions were based on determinations made by an
auditor after a review.
[3]
The
Minister initially assumed that it was Mr. Babich himself who used the vehicle
in question, presumably because that is what the auditor was led to believe by
Mr. Babich. However, it became apparent at the Tax Court hearing that the
vehicle was used only by Mr. Babich’s parents, with Mr. Babich’s permission,
and that they used it for personal use and for the purposes of the business of
Able Enterprises Ltd. The Crown took the position in the Tax Court that
subsection 15(1) applied whether the vehicle was used by Mr. Babich or his
parents, and that by virtue of subsection 15(5), the quantum of the benefit was
to be determined under the relevant computation provisions of section 6 of the Income
Tax Act. The judge agreed with the Crown. She concluded that the benefit
was properly taxed in the hands of Mr. Babich, and that the amount of the
benefit had been correctly determined. Mr. Babich’s appeal for 2003 was
dismissed accordingly.
[4]
Mr.
Babich has raised numerous grounds of appeal, some procedural and some
substantive. It is convenient to consider the procedural issues first.
[5]
Mr.
Babich submits that it was procedurally unfair to require his income tax appeal
to be heard together with an appeal of Able Enterprises Ltd. relating to goods
and services tax assessed under section 173 of the Excise Tax Act in
respect of the taxable benefit. We do not accept this argument. It is obvious
that the appeals dealt with the same facts and involved the same evidence. We
are not persuaded that any unfairness or prejudice resulted from the fact that
Mr. Babich was required, in his words, to “wear two hats” by appearing in his
own right and as a representative of Able Enterprises Ltd.
[6]
The
second procedural issue raised by Mr. Babich relates to two motions heard by
the judge at the opening of the proceedings in the Tax Court. The Crown had
moved to amend the pleadings to include a reference to subsection 15(1), and
also to quash the appeal for 2004 because the assessment for that year was a
nil assessment. The judge granted both motions. In this Court Mr. Babich argues
that the motions should not have been granted because he had not been served
with the notices of motion. However, it is apparent from the transcript that
Mr. Babich spoke to both motions.
[7]
We
note also that Mr. Babich consented to the amendment to the pleadings, which
was obviously a mere housekeeping matter. The material that had been provided
to Mr. Babich after the objection indicated that the benefit was being assessed
as a shareholder benefit, which is the subject of subsection 15(1) of the Income
Tax Act, not section 6.
[8]
Mr.
Babich should also have been aware well in advance of the hearing that the
validity of the 2004 assessment was in issue, because the Crown said as much in
the reply filed in the Tax Court.
[9]
As
to the merits of the judge’s decision to quash the 2004 appeal, Mr. Babich
argues that the 2004 reassessment was not a nil assessment because it resulted
in a loss of a $368 refundable GST credit. However, he presented no evidence in
the Tax Court to show any change to a GST tax credit claimed by him for 2004.
The notice of reassessment for 2004, which was the subject of the appeal,
states that no federal taxes were payable by Mr. Babich for that year. The
judge made no error in concluding that Mr. Babich was attempting to appeal a
nil assessment, and to quash the 2004 appeal for that reason.
[10]
Finally,
Mr. Babich asserts that he was put under undue pressure at the hearing, leading
him to make what he now believes were unwise decisions with respect to the
conduct of his case. Having considered Mr. Babich’s arguments on this point,
and having reviewed the transcript, we do not accept that the conduct of the
trial was unfair in any respect, or that anything said or done by the judge
improperly led Mr. Babich into any error that caused him prejudice.
[11]
The
main substantive argument raised by Mr. Babich is that the benefit in issue
should have been taxed in the hands of his parents pursuant to section 6 of the
Income Tax Act, rather than in his hands under subsection 15(1). The Tax
Court judge concluded, for reasons that are well and fully stated, that the
benefit was appropriately taxed in the hands of Mr. Babich. Having considered
the judge’s reasons on this point, and the evidence, we are satisfied from the
judge’s reasons that her conclusion is correct in law and is consistent with
the evidence presented to her.
[12]
We
appreciate that Mr. Babich believes that his evidence effectively demolished
the Minister’s assumptions, but the judge concluded otherwise. In our view,
based on the totality of the evidence, it was open to the judge to conclude as
she did.
[13]
Mr.
Babich also challenges the quantum of the benefit as determined by the Minister
and accepted by the judge. Essentially, he disputes the proportion of business
and personal use, and the acquisition cost of the vehicle. The judge accepted
the Minister’s allocation of 25% personal and 75% business use, and accepted
the Minister’s determination of the acquisition cost. Those are findings of
fact that must stand absent a palpable and overriding error. Our review of the
record discloses no such error.
[14]
Mr.
Babich argues that the amount of the taxable benefit should be reduced to nil
because it could or should have been offset by a shareholder loan. The judge
considered that question and rejected it, primarily on the basis that there was
no evidence of a shareholder loan. While there was some mention of a
shareholder loan in one of the audit papers, it was open to the judge to find
that evidence to be insufficient to support an argument for the ex post
facto set-off sought by Mr. Babich. Specifically, there is nothing in the
record from which the judge could reasonably have concluded that there was any
intention on the part of Mr. Babich, in 2003, to compensate Able Enterprises
Ltd. for his parents’ personal use of the vehicle in that year by reducing the
balance of his shareholder loan.
[15]
The
appeal will be dismissed with costs.
"K. Sharlow"
FEDERAL COURT OF
APPEAL
NAMES OF COUNSEL AND
SOLICITORS OF RECORD
DOCKET: A-341-10
STYLE OF CAUSE: Earl
Babich v.
Her Majesty the Queen
PLACE OF HEARING: Vancouver, British Columbia
DATE OF HEARING: November
1, 2012
REASONS FOR JUDGMENT BLAIS C.J.
OF THE COURT BY: SHARLOW
J.A.
MAINVILLE J.A.
DELIVERED FROM THE
BENCH BY: SHARLOW
J.A.
APPEARANCES:
|
Earl
Babich
|
FOR
THE APPLICANT
|
|
Selena
Sit
|
FOR
THE RESPONDENT
|
SOLICITORS
OF RECORD:
|
N/A
|
FOR THE APPLICANT
|
|
Myles J. Kirvan
Deputy Attorney General of Canada
|
FOR THE RESPONDENT
|
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