Citation: 2010 TCC 287
Date: 20100521
Docket: 2009-551(EI)
2009-522(CPP)
BETWEEN:
CAT BROS. OILFIELD CONSTRUCTION LTD.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
ALDERIC CATELLIER,
Intervenor.
REASONS FOR JUDGMENT
Margeson J.
[1]
The Minister of
National Revenue (the “Minister”) assessed the Appellant for employment
insurance premiums in the amount of $1,377.58 for the taxation year 2004 in
respect of seventeen workers of Cat Bros. Oilfield Construction Ltd. (the
“Company”) for the 2004 taxation year.
[2]
The Minister further
assessed the Appellant, for the taxation year 2004, for employment insurance
premiums in the amount of $475.09 in respect of Melody McBride and Jude
Rodrigue.
[3]
The Minister further
assessed the Appellant for employment insurance premiums in the amount of
$2,713.03 for the taxation year 2005, in respect of seventeen other workers.
[4]
The Minister further
assessed the Appellant for Canada Pension Plan contributions in the amount of
$2,433.20 for the 2004 year, for those individuals listed in Schedule “A”
attached to and forming part of the Reply to the Notice of Appeal.
[5]
The Minister further
assessed the Appellant for Canada Pension Plan contributions in the amount of
$46.61 for the 2004 taxation year, in respect of Jude Rodrigue.
[6]
The Minister further
assessed the Appellant for Canada Pension Plan contributions in the amount of
$6,018.72 for the 2005 year, in respect of the individuals listed in Schedule
“B” attached to and forming part of the Reply to the Notice of Appeal.
[7]
These assessments were
confirmed on appeal and the Appellant filed an appeal to this Court and Alderic
Catellier filed a Notice of Intervention.
Evidence
[8]
Melody McBride
testified that the Company rented a truck from her on a daily basis and she
carried fuel and oil, tow ropes, shovels and wrenches on the truck. She also drove
workers to the job site. Sometimes other employees used her truck for the
Company.
[9]
She was paid a rental
fee of $75 per day and $17 per hour for travel and fuel. She bought the fuel,
which averaged out to about $50 per day. It cost her about $250 per month to
service her truck.
[10]
In cross-examination,
she said that she was employed by the Company during the relevant period of
time. She was a labourer and operator. When she was a labourer, she did not use
the truck every day for the Company.
[11]
The most important use
of the truck was to obtain materials for the jobs. They worked throughout
central Alberta, within a time radius of one and one-half
hours. She used her truck all of the time for the Company when she was an
operator. Other workers used her vehicle with her permission to perform work
for the Company. She had no receipts when she bought fuel for her truck and she
kept no receipts for maintenance. She did “keep track” of when she used the
truck for work.
[12]
Her truck was never
used by the Company when she was not working. It was not insured for
rental. She never discussed the rental income or expenses for the truck. She
used her truck to get to work.
[13]
In re-direct, she said
that she was paid a further $20 per hour when she used her truck to haul
machinery around the work-site.
[14]
Alderic Catellier was an
operator for the Company. He used his truck in his work. He was paid $60 per
day and received payment for his fuel. In 2004, he was paid $14,000.
[15]
He carried supplies and
pulled machinery and utility trailers for the Company.
[16]
His truck was used all
day when he was operating and other workers used it for the Company, and he was
paid for that at the rate of $20 per hour. The company also rented his
truck out to others at a rental fee.
[17]
In cross-examination,
he said that he was employed by the Company in the years 2004 and 2005. He did
not keep any receipts for the Company but he kept a record of the number of
hours that his truck was used for the Company.
[18]
The other labourers
would use his truck a couple of times per week, with his permission. He used it
to go back and forth to work and to deliver workers to the job site.
[19]
His truck was not
insured for rental. He did not claim expenses for the truck on his income tax
return or the money he received from the Company for the use of his truck.
[20]
Pierre Catellier
testified that he rented trucks from the normal employees. He paid $20 per
hour for them and paid for the fuel. The trucks were used for pulling machinery
and equipment and to obtain parts for the jobs. When he rented out the
employees’ trucks, he charged double the rates that he paid the employees.
[21]
It cost him about
$1,000 per month for repairs on his trucks. It would cost him $2,200 per month
to rent a truck from a rental agency and about the same in payments if he bought
a truck.
[22]
In cross-examination,
he said that he owned 60% of the shares of the Company. He and his brother were
directors. He had knowledge of the practices of the Company.
[23]
He was referred to the
Replies to the Notices of Appeal and said that the persons listed in Schedule
“C” were employees of the Company in 2004 and 2005.
[24]
The operators and
labourers were paid a set rate for the use of their vehicles. There were
different rates depending on the use of the truck. No receipts were kept for
expenses related to the trucks but a record was kept of the number of hours the
truck was used. The Company was invoiced each day for the trucks.
[25]
He assigned the
workers’ trucks to others without the consent of the owners. There were no
contracts between the Company and the truck owners.
[26]
In response to
questions from the Intervenor, he said that not all workers received the same
allowance rates, contradicting paragraph 7(i) of the Reply to the Notice of
Appeal. He also contradicted paragraph 7(k) of the Reply to the Notice of
Appeal.
[27]
In response to the
presumption contained in paragraph 7(u), he said that he believed that he had a
right to assign the workers’ trucks to others.
[28]
The Respondent called
Allan Dahl, who had been employed by the Company in 2004, 2005 and 2006. He was
an equipment operator who used his truck to get to work, deliver fuel, and
carry tools for repairing equipment.
[29]
He was paid $100 per
day for the use of his truck. He gave the Company no receipts for his fuel. He
did keep a time sheet for the use of his truck. The Company could not
assign his truck without his permission. His truck was not insured for rental. He
claimed his truck income and expenses as part of his farming operation.
Argument on behalf of the Respondent
[30]
Counsel for the
Respondent said that there were two issues to be decided:
(1) Were the payments for the
trucks rental payments or allowances?
(2) If they were allowances,
were they a reasonable allowance?
[31]
His position was that
they were an allowance and that they were reasonable.
[32]
He referred to the case
of Arnett & Burgess Oil Field Construction Ltd. v. Minister of National
Revenue, 2002 CarswellNat 1074 (T.C.C.). The facts were similar to the
present case where the Court decided that the trucks were not rented to the
employer. As here, the use of the trucks was tied to the employment. The employer
offered the workers employment and paid them a per diem if they used their
trucks. The trucks were not put at the general disposition of the employer.
[33]
There, as in the case
at bar, there was no sort of interim possessing interest in the trucks passing
to the employer so that they might make whatever use of them as they seem fit.
The owners had to give their permission to the employer to use the trucks.
Therefore, the payments, in both cases were on allowance and are governed by
paragraph 6(1)(b) of the Income Tax Act and subsection 2(1),
paragraph 5(1)(a) and section 93 of the Employment Insurance Act,
section 2 of the Insurable Earnings and Collection of Premiums
Regulations and section 2, subsection 6(1), sections 12 and 27.2 of the Canada
Pension Plan.
[34]
These sections define
payments that are includable and not includable. In the case at bar, the
payments were predetermined for the use of the trucks at the discretion of the
workers who did not have to account to the employer for expenses. These
payments were an allowance and were includable under paragraph 6(1)(b)
of the Income Tax Act unless the amounts were reasonable.
[35]
However, because the
amounts were not based solely on the number of kilometres for which the
vehicles were used in connection with or in the course of the office or
employment are deemed not to be reasonable under paragraph 6(1)(b)(vii.1)
and (x).
[36]
Therefore, the amounts
are taxable, insurable and pensionable.
[37]
In Arnett & Burgess
Oil Field Construction Ltd. above, the Court concluded that the presumption
was a rebuttable one. Counsel takes issue with this finding and argues that
there are no grounds for such a conclusion when you consider the appropriate
section.
[38]
He relied upon the
decision in Yates v. R., 2009 FCA 50, [2009] 3 C.T.C. 183 (F.C.A.), and
in particular at paragraph 37 of that decision.
[39]
However, even if the
deeming provisions are rebuttable the onus is on the taxpayer to prove that the
allowance was reasonable. Here the taxpayers did not include the allowance in
their income.
[40]
In the case of Yates
above, the Minister did find the amounts to be reasonable and allowed their
deduction so that the presumption was rebutted in that case.
[41]
The presumption has not
been rebutted here.
[42]
The appeal should be
dismissed.
Argument by the Appellant
[43]
The Appellant said that
if he leased the vehicles they would cost more and if he bought them they would
cost more.
[44]
He did not consider the
payments to be an allowance but a rental that he paid for the vehicles. He had
his own insurance coverage on the vehicles while they were being used by the
Company.
[45]
He did not believe that
the vehicle owners should be taxed on the payments. If the workers did not have
trucks, he would have leased them elsewhere.
[46]
As far as basing the
payments on kilometres driven, that formula would not work for the Company. The
trucks were being used to haul heavy machinery.
[47]
He believed that there
was a rental arrangement in effect and the payment was not an allowance. He did
not know any other way to do it.
Argument by the Intervenor
[48]
The intervenor said
that he was not permitted to include his truck earnings in his income in
addition to his income.
[49]
The company would ask
me if it could use the truck before it used it. If you rent a truck from a
rental agency, you are not permitted to use it for any purpose that you choose.
Analysis and Decision
[50]
As indicated by counsel
for the Respondent, there are two issues in this case:
(1) Were the payments paid to the employees
rental payments or allowances under the relevant statutory provisions?
(2) If the payments were
allowances, were they reasonable?
[51]
There is only one
conflict in the evidence adduced and that is whether or not the Company had to
seek the permission of the truck owners before it used their trucks for Company
purposes.
[52]
The evidence of Pierre
Catellier on this issue was not convincing. In direct testimony, he said that
he had a right to assign the trucks to others without the owner’s permission.
In response to questions about the presumptions contained in the Reply to the
Notice of Appeal at paragraph 7(u), he said that he believed that he had the
right to assign the trucks to others.
[53]
This evidence was
contradicted by the evidence of Melody McBride who said that other workers used
her truck with her permission. Likewise, Alderic Catellier testified that
other workers would use his truck a couple of times per week with his
permission. Allan Dahl also said that the Company could not assign his truck
without his permission. The Court is satisfied that the Company could not
assign any of the trucks without the owner’s permission.
[54]
The Court is satisfied
that the trucks were not rented by the workers to the Appellant. As in the case
of Arnett & Burgess Oil Field Construction Ltd. above, the use of
the trucks was tied to the employment of the workers. The Company offered the
truck owners employment and paid them a per diem if they used their trucks in
the course of their employment or if the Company used their truck when driven
by other workers.
[55]
The Court is satisfied
that the trucks were not in the general disposition of the Company. There was
no interim possessory interest in the property passing to the Appellant so that
it might make what use of the truck it saw fit, as in the case of Arnett
& Burgess Oil Field Construction Ltd. above. Therefore the per diem
paid to the owners was properly classified as “an allowance” under paragraph
6(1)(b) of the Income Tax Act.
[56]
Further, the Court is
satisfied that the allowance was not based solely on the number of kilometres
for which the vehicle was used in connection with or in the course of the
office or employment of the workers and under subparagraph 6(1)(b)(x) it
is deemed not to be a reasonable allowance.
[57]
In the case of Tri-Bec
Inc. v. R., 2002 CarswellNat 4349 (T.C.C.), Lamarre Proulx J. said at
paragraph 19 of her decision:
19 Subparagraph 6(1)(b)(x) of the Income Tax Act
is clear in my view. Since section 174 of the Act refers to this
statutory provision, a reasonable allowance for the use of a motor vehicle is
one that is fixed on the basis of the number of kilometres travelled by the
taxpayer in the performance of the office or employment.
This Court accepts that position.
[58]
That same decision was
reached in Beauport (Ville) v. Canada (Minister of National Revenue – M.N.R.), 2001 FCA 198, [2002] 2 C.T.C. 161 (F.C.A.).
[59]
The Court can perceive
nothing in the wording of subparagraph 6(1)(b)(x) that would allow it to
conclude that the requirement creates a rebuttable presumption that can be met
by the giving of appropriate evidence. The meaning of the section is clear and
unambiguous.
[60]
In the event that the
section created a rebuttable presumption as referred to the Arnett &
Burgess Oil field Construction Ltd. case, the Court is satisfied that no
satisfactory evidence was given in this case that would allow the Court to
conclude that the amount was reasonable.
[61]
The appeal is dismissed
and the Minister’s decision is confirmed.
Signed at New
Glasgow, Nova Scotia, this 21st day of May 2010.
“T.E. Margeson”
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