Citation: 2007TCC573
Date: 20071025
Docket: 2007-1252(IT)I
BETWEEN:
GILLES GAUTHIER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Tardif J.
[1] This is an appeal
from an assessment made under the Income Tax Act concerning the 2002
taxation year. The assessment pertains to a benefit derived from the personal
use of an automobile.
[2] In making and
confirming the reassessment of March 27, 2006, in respect of the 2002 taxation
year, the Minister of National Revenue ("the Minister") relied
on the following assumptions of fact:
[TRANSLATION]
(a) For the
taxation year in issue, Abbott Laboratories Limited made an automobile
known as a Chevrolet Astro Van available to the Appellant. (admitted)
(b) During the
taxation year in issue, the Appellant was a service technician. (admitted)
(c) The Appellant's
work consisted in repairing diagnostic equipment that was sold to hospitals and
CLSCs in the province of Quebec by one of the corporations
within the Abbott Laboratories Limited group. (admitted)
(d) The Appellant's
employer had to offer Quebec hospitals and CLSCs emergency service
seven days a week with a response time of four hours. (admitted)
(e) The Appellant
submitted his expense accounts for the Minister's audit. 8% of the
expenses therein are allocated to personal travel:
(i) business-related driving 55,465 km
(ii) personal driving 4,875 km
60,340 km
(admitted)
(f) The following
anomalies were discovered in the course of the expense account audit:
(i) Based on expense
accounts submitted, the Appellant entered approximate distances, and stated
only the city or towns visited, and not the names and addresses of the
customers visited. (admitted)
(ii) The Appellant
travelled to Trois-Rivières more than thirty (30) times, and the Minister
noticed, using Maps & Streets software, that the Appellant
entered excess distances for each of these trips, sometimes amounting to
70 km per trip. (admitted)
(g) Since the
odometer was not in issue, the Minister determined that the Appellant had
concealed part of his personal travel by overestimating the distance driven on
business trips. (denied)
(h) In view of the
irregularities detected, the Minister inferred that the personal use percentage
attributable to the vehicle supplied by the employer was greater than 10%. (denied)
(i) The
Minister revised, as follows, the calculation of the taxable benefit in respect
of the standby charge and operating expense of the vehicle supplied by the
employer: (admitted)
|
Standby charge
|
Vehicle 1
$28,222.64 x 2% x 7/12 =
Vehicle 2
$24,282.93 x 2% x 5/12 =
|
$3,951.17
$2,428.29
|
Operating expense
|
Revised value of benefit
Minus: value of benefit stated on
initial T4 slip
Increase in benefit
|
1000 km x $0.16 x 7 mos. =
|
$1,120.00
$7,499.46
$2,428.29
$5,257.10
|
[3] The provisions of
the Act that are relevant to this question read:
6(1)(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, except any benefit
. . .
(iii) that was a benefit in respect of the use of an automobile;
. . .
6(1)(e) Standby
charge for automobile – where the taxpayer's employer or a person
related to the employer made an automobile available to the taxpayer, or to a
person related to the taxpayer, in the year, the amount, if any, by which
(i) an amount that is a reasonable standby charge for the automobile
for the total number of days in the year during which it was made so available
exceeds
(ii) the total of all amounts, each of which is an amount (other
than an expense related to the operation of the automobile) paid in the year to
the employer or the person related to the employer by the taxpayer or the
person related to the taxpayer for the use of the automobile;
6(2) Reasonable standby charge -- For the purposes of paragraph 6(1)(e),
a reasonable standby charge for an automobile for the total number of days (in
this subsection referred to as the "total available days") in a
taxation year during which the automobile is made available to a taxpayer or to
a person related to the taxpayer by the employer of the taxpayer or by a person
related to the employer (both of whom are in this subsection referred to as the
"employer") shall be deemed to be the amount determined by the
formula
A/B × [(2% × (C × D) + 2/3 ×
(E - F)]
where
A is
(a) the
lesser of the total number of kilometres that the automobile is driven
(otherwise than in connection with or in the course of the taxpayer's office or
employment) during the total available days and the value determined for the
description of B for the year in respect of the standby charge for the
automobile during the total available days, if
(i) the taxpayer is required by the employer to use the automobile in connection with
or in the course of the office or employment, and
(ii) the distance travelled by the automobile in the total available days in primarily
in connection with or in the course of the office or employment, and
(b) the value determined for the description
of B for the year in respect of the standby charge for the automobile for the
total available days, in any other case;
B is
the product obtained when 1,667 is multiplied by the quotient obtained by
dividing the total available days by 30 and, if the quotient so obtained is not
a whole number and exceeds one, by rounding it to the nearest whole number or,
where that quotient is equidistant from two consecutive whole numbers, by
rounding it to the lower of those two numbers;
C is
the cost of the automobile for the employer where the employer owns the vehicle at
any time in the year;
D is the number obtained by dividing such of the total available days as
are days when the employer owns the automobile by 30 and, if the quotient so
obtained is not a whole number and exceeds one, by rounding it to the nearest
whole number or, where that quotient is equidistant from two consecutive whole
numbers, by rounding it to the lower of those two numbers;
E is
the total of all amounts that may reasonably be regarded as having been payable
by the employer to a lessor for the purpose of leasing the automobile during
such of the total available days as are days when the automobile is leased to
the employer; and
F is
the part of the amount determined for E that may reasonably be regarded as
having been payable to the lessor in respect of all or part of the cost to the
lessor of insuring against
(a) the loss of, or damage to, the automobile, or
(b)
liability resulting from the use or operation of the automobile.
6(1)(k) Automobile operating expense
benefit – where
(i) an amount is determined under
subparagraph 6(1)(e)(i) in respect of an automobile in computing the
taxpayer's income for the year;
(ii) amounts related to the operation
(otherwise than in connection with or in the course of the taxpayer's office or
employment) of the automobile for the period or periods in the year during
which the automobile was made available to the taxpayer or a person related to
the taxpayer are paid or payable by the taxpayer's employer or a person related
to the taxpayer's employer (each of whom is in this paragraph referred to as
the "payor"),
and
(iii) the total of the amounts so paid or
payable is not paid in the year or within 45 days after the end of the year to
the payor by the taxpayer or by the person related to the taxpayer,
the amount in respect of the operation of
the automobile determined by the formula
A – B
where
A is
(iv) where the automobile is used
primarily in the performance of the duties of the taxpayer's office or
employment during the period or periods referred to in subparagraph (ii) and
the taxpayer notifies the employer in writing before the end of the year of the
taxpayer's intention to have this subparagraph apply, 1/2 of the amount
determined under subparagraph 6(1)(e)(i) in respect of the automobile in
computing the taxpayer's income for the year, and
(v) in any other case, the amount equal
to the product obtained when the amount prescribed for the year is multiplied
by the total number of kilometres that the automobile is driven (otherwise than
in connection with or in the course of the taxpayer's office or employment)
during the period or periods referred to in subparagraph 6(1)(k)(ii),
and
B is the total
of all amounts in respect of the operation of the automobile in the year paid
in the year or within 45 days after the end of the year to the payor by the
taxpayer or by the person related to the taxpayer; and
248(1) "automobile" means
(a) a motor vehicle that is
designed or adapted primarily to carry individuals on highways and streets and
that has a seating capacity for not more than the driver and 8 passengers;
but does not include
(b) an ambulance,
(b.1) a clearly marked
emergency-response vehicle that is used in connection with or in the course of
an individual's office or employment with a fire department or the police;
(c) a motor vehicle acquired
primarily for use as a taxi, a bus used in a business of transporting
passengers or a hearse used in the course of a business of arranging or
managing funerals,
(d) except for the
purposes of section 6, a motor vehicle acquired to be sold, rented or leased in
the course of carrying on a business of selling, renting or leasing motor
vehicles or a motor vehicle used for the purpose of transporting passengers in
the course of carrying on a business of arranging or managing funerals, and
(e) a motor vehicle
(i) of a type commonly called a van or pick-up
truck, or a similar vehicle, that has a seating capacity for not more than the
driver and two passengers and that, in the taxation year in which it is
acquired or leased, is used primarily for the transportation of goods or
equipment in the course of gaining or producing income,
(ii) of a type commonly called a van or pick-up
truck, or a similar vehicle, the use of which, in the taxation year in which it
is acquired or leased, is all or substantially all for the transportation of
goods, equipment or passengers in the course of gaining or producing income, or
. . .
[4] The Appellant described
the nature of his work. It consisted in maintaining and repairing extremely
sophisticated equipment operated by hospitals and health professionals within a
very large geographical area.
[5] Thus, the Appellant had
to respond to emergency calls seven days a week, 24 hours a day. In order
to do so, he had to travel great distances. He also had to travel to perform
preventive maintenance.
[6] The employer provided
him with a motor vehicle so that he could perform his duties. The vehicle underwent
numerous modifications and additions which increased its weight considerably, but
reduced the available space significantly.
[7] From a practical
standpoint, only the two front seats were available, that is to say, the
driver's seat and one passenger seat. The remaining space was taken up by
tools, equipment, and parts stock.
[8] The employer had no
special policy regarding the personal use of the vehicle in question.
Essentially, the vehicle, with the exception of the cage containing the driver
and passenger seats, was transformed; the remaining space was devoted to
various devices, parts, instruments, tools, a kit, etc., that is to say, the
supplies necessary for the maintenance and repair of the equipment sold and
distributed by Abbott Laboratories Limited.
[9] Having learned that the
personal use of the vehicle could be considered a taxable benefit in the event
that the distance driven for personal purposes exceeded 10%, the interested
parties, including the Appellant, used their appointment books to estimate the
business-related distances driven, in relation to the distances driven for
personal purposes.
[10] It is clear, simply from
the method employed, that the appointment book used in lieu of a log was not
capable of providing an accurate personal‑use distance.
[11] First of all, the
Appellant himself admitted that the method was not as reliable as one would like;
and secondly, the annual distance was changed significantly when the Respondent
showed, very clearly, that the employed calculation method was unreliable.
[12] Indeed, after
notifying the employer that roughly 6% of the total distance driven by the
vehicle was for personal purposes, the Appellant changed the personal-use
estimate to 9.9%, a difference of 3.9%.
[13] This upward
correction is certainly an admission that the Appellant's files were quite
incomplete and were definitely not consistently reliable. If a true log book,
based on the odometer, had been kept daily, only a clerical error would have
been possible, and the discrepancy would certainly not have been so great.
[14] This is a very important aspect of the case,
especially since the burden of proof was on the Appellant. The confusion, the
lack of reliability, and even the absence of a log book are, in and of
themselves, very important elements that must be analysed having regard not
only to what is reasonable, but to what is plausible as well.
[15] The evidence disclosed certain elements that I must
take into account. Firstly, I do not accept the Appellant's
allegations that the people responsible for the file did not understand the way
in which the Appellant operated or the type of vehicle that he used.
[16] Indeed, the
Appellant himself was the subject of a more thorough investigation because he
had submitted totally incoherent numbers. Under such circumstances, it was
entirely reasonable to examine more carefully the information that the
Appellant personally recorded and supplied.
[17] The audit resulted in the personal-use percentage
being increased from 6% to 9.9%, a fact that was, in and of itself, amply
sufficient to attract the Minister's auditors' attention.
[18] Admittedly, this was not a significant discrepancy,
but it constitutes evidence that the method used to calculate the personal
driving distance was inadequate and unreliable.
[19] In such a situation, the Court is faced
with two possible scenarios. In the first scenario, since the Appellant did not
keep a valid log, and he admitted to only a part of the personal use of the
vehicle, his evidence is not reliable, and, since he has failed to discharge
his onus of proof, the assessment would have to be confirmed on its merits.
[20] In the second
scenario, the vehicle, which has undergone major modifications, was set up in
such an unusual manner, and had such unusual contents, that it cannot have been
used for personal purposes. This is the scenario propounded by the Appellant,
since he compared the vehicle used for his work to an ambulance.
[21] When he was called upon to explain and describe the
distance driven for personal purposes, he initially described it as marginal,
and referred to small errands, trips to accommodate people, and short detours.
[22] While these explanations are not very convincing, I must
take the type of vehicle involved — a vehicle that clearly was not very suited
to personal use — into account.
[23] Indeed, this is not
a vehicle that would make its user proud, or offer much useful space or
advantages such as four-wheel drive.
[24] It was essentially a utility vehicle that
was modified significantly, thereby depriving it of most of its suitability for
personal use.
[25] Granted, the vehicle must have been used for personal
purposes, and the Appellant admitted to this. To what precise extent, though?
Only an adequately kept log book would have enabled us reliably to determine
the true personal-use percentage.
[26] However, this was a
very unusual vehicle that was not well‑suited to touring and personal
use; under the circumstances, considering the nature and type of vehicle, it
was quite reasonable for a user to consider a log book to be of secondary
importance, since the vehicle was rather unsuitable for personal use.
[27] The vehicle could conceivably serve personal purposes
quite often, notably if the user had no personal vehicle, or if it were
possible to empty its contents quickly.
[28] The Appellant admitted that the issues raised by the
auditors were valid. However, he added that there were often all kinds of
imponderables that made it very difficult to calculate exact distances,
especially based on an appointment book that was not intended to keep a precise
account of the distances driven.
[29] By way of illustration, he cited an emergency
call that required him to take various detours, and certain errands which he
had to do and which were unrelated to the hospitals, such as a trip to take
possession of a piece of equipment from headquarters, and a trip to deliver
something on behalf of a colleague. All of these things were in conjunction
with his employment.
[30] It is clear that the Appellant would have avoided this
litigation if he had kept a proper log book. It is just as clear that it was
the Appellant's responsibility, as the user of the vehicle, to keep one.
[31] Even though the
vehicle was highly atypical, it was indeed an automobile within the meaning of
subsection 248(1) of the Act and of the analysis provided by the
Honourable Justice Paul Bédard in Stéphane Gariépy v. Her Majesty the Queen, Docket 2007-35(IT)I, 2007TCC513.
[32] The special nature of this vehicle limited its personal use
considerably; moreover, while the absence of a log was inexcusable, it was not
fatal in the instant case given the nature of the vehicle. Under the
circumstances, I find that the distance driven for personal purposes was very
marginal, and was below the threshold at which a taxpayer must report a taxable
benefit.
[33] In other words, due to the numerous unusual
characteristics of the vehicle, I believe that the Appellant is in a
veritable grey area.
[34] Why is a vehicle used for personal purposes?
To go on private or personal trips. The temptation to use a company vehicle can
be stronger when one does not have a personal vehicle. But in the case at bar,
the Appellant had his own vehicle.
[35] If this had been a
very comfortable, very luxurious, very safe (4 x 4), very roomy, very
economical or very eccentric vehicle, it would have been difficult to believe
that a reasonable person, having regard to the circumstances, would have refrained
from using a vehicle that had such attributes, especially if one of the
qualities in question were necessary and the employer did not prohibit such
use.
[36] However, if a
vehicle possesses none of those attributes, and is otherwise cumbersome, it is
difficult to believe that it can be put to significant personal use.
[37] This valid aspect
makes the Appellant's argument reasonable. Indeed, the Appellant's remarks
are much more reasonable than the Respondent's assumptions, despite the lack of
an adequate and reliable log book.
[38] For these reasons, I
allow the appeal and vacate the assessment.
Signed at Ottawa, Canada, this 25th day of October 2007.
"Alain Tardif"
Translation
certified true
on this 22nd day
of November 2007.
Brian McCordick,
Translator
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