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Citation: 2008TCC681
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Date: 20081218
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Dockets: 2007-4762(IT)I
2008-598(IT)I
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BETWEEN:
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RICHARD G. SCHROTER,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent;
AND BETWEEN:
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JIM JOHANNSSON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1] In
these appeals, two employees of TELUS Corporation dispute the inclusion in
their income of a taxable benefit in regard to parking passes provided by their
employer. Richard Schroter appeals assessments made under the Income
Tax Act for the 1998, 2002 and 2003 taxation years. Jim Johannsson appeals
assessments for the 2002 and 2003 taxation years.
[2] There
are two questions to be decided: (1) does the provision of a parking pass
constitute a taxable benefit, and (2) if it does, what is the value of the
benefit.
[3] As a
preliminary matter, I would mention that the appeals were scheduled to be heard
on the same day but no one informed the self-represented appellants of this.
Understandably, they were surprised to see each other on the morning of the
hearing.
[4] At
the suggestion of counsel for the respondent, the appellants agreed to have
their appeals heard together on common evidence. I reluctantly agreed to this because
the appellants had not prepared for it. As it turned out, though, the
appellants were both quite capable of handling the last minute change.
[5] The
evidence was heard over a three-day period and written submissions were
subsequently received. I wish to thank the parties for the assistance provided
by their written submissions.
Audit History
[6] The
assessments at issue are among a large number that were issued to employees of
TELUS who received parking passes.
[7] An
auditor who was involved in the assessment process testified at the hearing as
to the background of the audit. Based on information provided by TELUS and
after speaking to some employees, the auditor concluded that employees within
the company’s payband 5 were automatically entitled to parking passes. The CRA
decided to assess a benefit to these employees unless satisfactory evidence was
provided that there was significant business use of a particular vehicle.
Because TELUS did not have this information, the auditor invited the affected
employees to provide it.
[8] In
1998, the benefit was assessed at 100 percent of the value of the pass, unless
evidence of business use was provided. In 2002 and 2003, the amount assessed
was automatically reduced by 10 percent to take some business use into account.
If satisfactory evidence of significant business use was provided, a further
reduction was made, which varied depending on the amount of business usage.
[9] Mr.
Schroter was not able to satisfy the auditor of significant business usage and
the benefit to him was assessed at 100 percent for 1998 and 90 percent for 2002
and 2003. Mr. Johannsson was able to demonstrate more than nominal business
usage and the benefit to him was assessed at 75 percent.
Post-audit
history
[10] Many
of the TELUS employees who received assessments for parking passes filed
objections. Because of the large numbers involved, it was decided to take a
test case so that the Court could provide some guidance.
[11] The
first test case is commonly known as Chow v. The Queen (2001 DTC 164
(TCC)). It involved two taxpayers, both of whom were successful in their
appeals. Unfortunately, the decision did not serve as a useful precedent
because the circumstances of the two taxpayers were not sufficiently
representative of all affected employees.
[12] It was
subsequently decided to take another test case with a larger group of
employees. That decision, commonly known as Adler v. The Queen (2007 DTC 783,
2007 TCC 272), came before Deputy Judge Rowe and his decision was not appealed.
Applicable
legal principle
[13] The
relevant statutory provision is paragraph 6(1)(a) of the Act
which provides in part:
6. (1)
Amounts to be included as income from office or employment. There shall be
included in computing the income of a taxpayer for a taxation year as income
from an office or employment such of the following amounts as are applicable
(a)
Value of benefits – the value
of board, lodging and other benefits of any kind whatever received or enjoyed
by the taxpayer in the year in respect of, in the course of, or by virtue of an
office or employment, […]
[14] From
time to time, this Court has commented on the difficulty of determining whether
a taxable benefit has been conferred on an employee in a particular case. In my
view, the subject of free parking fits into the “difficult” category.
[15] Recently,
former Chief Justice Bowman stated in obiter in Rachfalowski v. The
Queen, 2008 DTC 3626, 2008 TCC 258, that he doubted that parking was ever a
taxable benefit.
[16] Deputy
Judge Rowe took a different view in Adler, and concluded that the
provision of a parking pass to TELUS employees constituted a taxable benefit
unless the advantage in a particular case accrued primarily to TELUS. (See Adler,
at para. 75 and 76.)
[17] For the
vast majority of the taxpayers in Adler, it was determined that the
parking passes were a taxable benefit, notwithstanding that some of the
taxpayers had demonstrated business use of the vehicles. In only two of 16
cases did the Court find that there was not a benefit, and in one of those it
was determined that the parking pass was not used by the employee.
[18] With
respect to the one taxpayer who used the pass but was found not to have
received a taxable benefit, Rowe D.J. noted that it was significant that TELUS
supplied this taxpayer with a vehicle for business use. At para. 102, the judge
stated that there was “an understanding that [the taxpayer] use the
Telus-supplied Honda for business purposes and that the free parking space was
provided as an accessory to facilitate its efficient use.”
[19] In
these appeals, I consider that it is important to adopt the approach taken by
the Tax Court of Canada in Adler. The Adler group of appeals was
intended to provide guidance in respect of other TELUS employees. It is
important that this Court adopt a consistent approach on this issue.
[20] If the
decision in Adler had been clearly wrong, I would have taken a fresh
look. But in my view the conclusion in Adler was a reasonable one to
take on a difficult issue. I think it should be followed.
Richard
Schroter
[21] I will
first consider the parking pass issued to Richard Schroter. The taxation years
at issue are 1998, 2002 and 2003.
[22] Mr.
Schroter first received a parking pass in 1998 when he was promoted to the
position of Director of Income Taxation for TELUS. Prior to the receipt of the
pass, Mr. Schroter routinely took the bus to work.
[23] The
main thrust of Mr. Schroter’s submission is that TELUS did not provide the
parking pass to him as a perk but in order to facilitate the overtime that
would be required in his new position. At page 112 of the transcript of his
cross‑examination, Mr. Schroter stated:
When I was provided with the parking pass,
my manager told me at the time that that was being provided to me so that it
could allow me to do more work. And so that’s what my time sheets support, that
that was a tool that allowed me to do that additional work.
[24] If it
is determined that TELUS provided the pass to Mr. Schroter in order to enable him
to do more work, this would be sufficient to distinguish the facts from any of
the 14 taxpayers in Adler who were found to have received a taxable
benefit.
[25] My
conclusion on this issue, though, is that the evidence is not sufficient to
establish that the manager provided the pass primarily for business reasons.
[26] I do
not doubt that Mr. Schroter had a conversation with his manager, T.K. McGillicuddy,
Vice President, Taxation, about how the parking pass would facilitate the
performance of his increased duties after his promotion. However, I am not
satisfied that this was the main reason that the pass was given to Mr.
Schroter.
[27] I
note, for example, that Mr. McGillicuddy had provided a letter to the CRA
during the audit which suggests that all employees in payband 5, which included
Mr. Schroter, were entitled to parking passes.
[28] Mr.
McGillicuddy wrote (Ex. R-4):
Generally, parking was provided to
employees in bands 5 and above, and to a limited number of employees below band
5 who had a particular need for it.
[29] In
order for Mr. Schroter to establish TELUS’ purpose in providing the pass, I
think it was crucial for Mr. Schroter to have called Mr. McGillicuddy to
provide evidence at the hearing. It is not sufficient in the circumstances to
rely on Mr. Schroter’s testimony.
[30] I have
also considered whether, regardless of TELUS’ intent, the actual business use
of the vehicle by Mr. Schroter is a sufficient basis to conclude that the
parking pass is not a taxable benefit.
[31] Mr.
Schroter testified that his daily commute time was reduced by about one hour
when he drove his own car as opposed to taking public transit. He also
testified that he had conscientiously spent this additional hour at work rather
than at home. All of this testimony was convincingly corroborated by supporting
documentation.
[32] This
argument has some appeal from a common sense point of view, but in my view it
would be contrary to Adler to find that the primary beneficiary of the
pass was TELUS. Mr. Schroter’s decision to drive to work was essentially a
matter of personal choice.
[33] I refer to the findings of D.J. Rowe in Adler in
relation to Douglas Alloway, at para. 112:
[…] It is apparent
Alloway worked hard in carrying out the onerous duties associated with his
executive position but the better view of the evidence is that the use of the
parking space was inextricably linked to personal choices made by him
throughout the year rather than pursuant to any direction or requirement –
either express of implied – on the part of his employer. Alloway admitted he
considered the parking pass had enabled him to work overtime and to receive
better raises and achieve promotion within Telus. As a result of Alloway’s
decisions to use his vehicle for personal convenience and to facilitate working
overtime or for direct business purposes and not billing for that usage, Telus
received an ancillary benefit which even though not quantifiable on the
evidence was far less than the lion’s share of the total benefit flowing from
the provision of the pass. That main, primary benefit was received by Alloway
and for that reason it is taxable.
[34] In the
result, I find that the provision of a parking pass to Mr. Schroter was a
taxable benefit. I turn now to a consideration of the value of the benefit.
[35] In
Adler, there was no dispute about the value. It was determined based on
the price of parking charged to the public in the underground garage used by
TELUS employees in downtown Edmonton. The public could purchase a monthly pass
for about $160, which included GST.
[36] Mr.
Schroter submits that this approach is wrong because it ignores the fact that
there are alternative means of travel to work. These include taking the bus, or
driving a personal vehicle and parking in a nearby, but less expensive, parking
lot.
[37] Mr.
Schroter also submits that the Minister’s approach does not take into account
the cost of operating a vehicle. He suggests that this cost eliminates any
economic advantage to a parking pass as compared to public transit.
[38] The approach suggested by Mr. Schroter looks at the
cost saved rather than the value of what was received. This is not generally how the courts have approached
the value issue. (See for example Mommersteeg v. The Queen, 96 DTC 1011
(TCC).)
[39] However,
the “cost-saved” approach suggested by Mr. Schroter was accepted in an obiter
comment by the Federal Court of Appeal in McGoldrick v. The Queen, 2004
DTC 6407, 2004 FCA 189.
[40] Mr.
McGoldrick was an employee of a casino which provided free meals to staff in a
cafeteria during their shifts. The employees were not allowed to bring food to
work.
[41] The
appeal court upheld the Tax Court decision that the amount of the benefit
should be based on the employer’s cost of providing the meals, but this was
because there was a lack of evidence as to the cost saving to Mr. McGoldrick.
In the course of their reasons, the Federal Court of Appeal accepted that the
proper measure of the benefit is not what was actually received but what was
saved. At paragraph 9, Malone J.A. stated:
As a general rule, any material acquisition in respect
of employment which confers an economic benefit on a taxpayer and does not
constitute an exemption falls within paragraph 6(1)(a) […] In this case, the
benefit is the money saved by the taxpayer in preparing a lunch or in making a
food purchase from the casino vending machines while at work.
(Emphasis
added.)
[42] Although
I have reservations about the approach suggested in McGoldrick, I feel
compelled to follow it.
[43] The
question is, then, what is the appropriate cost saving to Mr. Schroter.
[44] In my view, it is not an appropriate comparator in this case to look at the
cost of public transit or the cost of parking in another lot.
[45] After his promotion in 1998, Mr. Schroter had increased responsibilities and duties
and it was desirable that he work longer hours. From his perspective, the most
effective way to accomplish this, without intruding on personal time, was to
drive his vehicle and park in the TELUS building. I am not satisfied that there
was an alternative that was as satisfactory to Mr. Schroter.
[46] Finally,
I would note that I do have some difficulty with the Minister’s calculation of
the benefit which had a GST component to it. There was no argument before me on
whether the value of the parking pass should include this component. As it is
not a large amount, I have concluded that, in the context of this informal
procedure appeal, it is appropriate to make an adjustment to the assessments to
exclude the GST in computing the benefit. This conclusion could of course be revisited on
another occasion. I understand that other TELUS employees currently have
appeals pending in this Court.
Jim Johannsson
[47] Mr.
Johannsson is a long-time employee of TELUS with experience in many areas of
the company. The taxation years at issue in his appeal are 2002 and 2003,
during which he held positions of Director of Consumer Strategy and Director of
Marketing Operations.
[48] As
with Mr. Schroter, Mr. Johannsson testified that it was his understanding that
TELUS provided the parking pass to him because he needed a vehicle for work.
However, the circumstances that led this understanding are different from Mr.
Schroter’s.
[49] The
relevant part of Mr. Johannsson’s cross-examination is reproduced below, at
pages 212 and 218:
Q. So, just to reiterate then, you applied for the
pass, it was not given to you by anyone apart from your own application.
A. I had to request it, that’s
..
Q. You had to request it.
A. And then it was actually,
there was a fair bit of time between, as I recall, from the time I requested it
to the time I actually received it.
[…]
Q. Do you know the process used
in determining who got parking passes?
A. I have questions about the
process. I’m not a hundred percent sure. I’ve got an understanding of it, but
my experience seems to be slightly different from what I understood the process
to be or what the alleged process to be that I’ve seen contested by CRA.
So, for example, you know, CRA
alleges that the parking passes were awarded automatically on pay band 5, and
my experience is not consistent with that. […] my experience at Telus
consistently, through all of these years, has been more on the basis of need.
You know, if you need the parking pass, you and your manager agree that there
is a need and there’s a decision made whether or not it’s going to be granted.
[50] In
addition to this testimony, Mr. Johannsson provided a letter from his former
supervisor which confirmed that he regularly needed transportation in the
course of his duties.
[51] I have
concluded that TELUS did provide the parking pass to Mr. Johannsson not
primarily as a perk but for business reasons. Although it would have been
preferable for Mr. Johannsson’s supervisor to have been called as a witness and
be subject to cross-examination, it is clear that TELUS led Mr. Johannsson to
believe that the parking pass was provided on the basis of need because he had
to apply for it. It would not be fair in the circumstances to find that TELUS’
decision was made on some other basis.
[52] It may
seem odd that TELUS would have a policy of automatically providing parking
passes to employees in payband 5 and yet Mr. Johannsson, who was in that payband,
was required to apply for one. Based on the evidence before me, however, this
is not surprising because it appears that TELUS had not clearly communicated
its policy to employees.
[53] In the
result, I find that the parking pass provided to Mr. Johannsson was provided
primarily for business reasons and that Mr. Johannsson did not receive a
taxable benefit.
Conclusion
[54] In the
result, Mr. Schroter’s appeal will be allowed only to delete the GST component
from the value of the parking pass. Mr. Johannsson’s appeal will be allowed in
full.
[55] As for costs, since Mr. Schroter was for the most part
unsuccessful in his appeal there will be no order as to costs. Mr. Johannsson is entitled to his costs, if
any, as well as a reimbursement of the Court’s filing fee.
Signed at Toronto, Ontario this 18th day
of December 2008.
Woods
J.
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