Date: 19980622
Docket: 97-1913(IT)I
BETWEEN:
MO SHUK YIN CHEUNG,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Hamlyn, J.T.C.C.
[1] These appeals are in respect of
the Appellant's 1992 and 1993 taxation years.
[2] 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
[3] 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
[4] 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 Corporation 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
[5] The Appellant did not appear at
the proceeding. The evidence was given by the Appellant's agent,
her son.
[6] 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.
[7] 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.
[8] 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.
[9] The Appellant's two sons, for the
years in question, drove the automobile from time to time to
"keep it in order".
[10] When the Appellant was in Toronto she
used the vehicle.
[11] On the insurance documents, albeit for
the subsequent year, she was listed as the principal driver.
[12] The Corporation did not place any
restrictions on the use of the vehicle by the Appellant.
THE APPELLANT'S ARGUMENT
[13] 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
[14] 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
[15] 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]
[16] 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.
[17] 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
[18] I conclude the Corporation conferred a
benefit on the Appellant in respect of the personal portion of
the automobile standby charges and operating cost.
[19] 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
[20] The appeals are dismissed.
Signed at Ottawa, Canada, this 22nd day of June 1998.
J.T.C.C.
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