Citation: 2008TCC16
Date: 20080115
Docket: 2007-1266(IT)I
BETWEEN:
ROGER THIBAULT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Jorré J.
[1] This is an appeal
from a reassessment made by the Minister of National Revenue
("the Minister") in respect of the 2002 taxation year. The
Appellant requested that the informal procedure apply.
[2] The reassessment in
question added to the Appellant's income
(1) $6,342.20
on account of a standby charge for an automobile (paragraph 6(1)(e) of
the Income Tax Act (ITA); and
(2) $1,920
on account of an automobile operating expense benefit (paragraph 6(1)(k)).
Since the total benefit reported in
the tax return was $2,585.48, the reassessment had the effect of increasing the
Appellant's income by $5,676.72.
Facts
[3] The Appellant was
an employee of Abbott Laboratories Limited ("Abbott") in 2002. The
company made a Chevrolet Astro vehicle available to him.
[4] Abbott sold
diagnostic devices to hospitals and CLSCs.
[5] The Appellant was a
service technician. He had to install, repair and maintain the equipment sold
by Abbott.
[6] He went to the
hospitals and CLSCs in the Chevrolet Astro van. He transported his
equipment and the parts in the van.
[7] The vehicle as
built by General Motors had more than three seats, but certain modifications
were made to the vehicle in question in order to facilitate the transportation
of equipment. For example, storage trays and a movable safety screen were
added.
[8] In order to
transport the equipment, the rear bench seat was removed and the Appellant put
it in his garage. The Appellant testified that the equipment that he
transported in his vehicle weighed approximately 1000 to 1500 pounds.
[9] The Appellant could
reinstall the rear bench seat, but in order to do so, he had to remove a
lot of the equipment.
[10] In addition to
working his regular hours, the Appellant had to be on call at other times
because Abbott offered its customers a 24-hour emergency service with a
four-hour response time. Even when he was not on call, he sometimes worked
outside regular hours. For example, he sometimes helped out other technicians
when they were having problems. Consequently, the vehicle generally had all the
work equipment in it and had only two seats available. It was only in
exceptional cases that the Appellant removed the equipment and reinstalled the
bench seat. This was something that the Appellant might do if he was going
on vacation, for example.
[11] The Appellant did
not keep a log of all his trips setting out the distance driven and the purpose
of each trip. However, he was able to provide his weekly expense accounts,
which contain general information about his travel.
[12] The Appellant
reported a total driving distance of 41 491 km to his employer, of which 4 010
km (roughly 9.66%) were for personal use.
[13] The auditor
testified that the Minister audited a significant number of employees. He
examined the Appellant's file by using fuel purchases and assuming that fuel
consumption was 13 litres per 100 km driven. Based on this analysis, he
discovered certain anomalies and concluded that the personal use was 12.37% or
5 132 km (see pages 1 to 3 of Exhibit I-3).
[14] He then computed the
benefit under paragraph 6(1)(e) by using the formula in
subsection 6(2) based on the assumption that all or substantially all of
the distance driven in the automobile was not driven in connection with or in
the course of his employment.
[15] The auditor also
computed the automobile operating expense (paragraph 6(1)(k)). At
page 2 of Exhibit I‑3, the auditor states:
[TRANSLATION]
In conclusion, the record does not
reflect the total number of kilometres actually travelled for business and
personal purposes; consequently, the personal driving is deemed, in
accordance with the case law, to be 12 000 km (1 000 km
per month) for the purposes of the assessment.
[Emphasis added.]
Consequently, the standby charge
benefit was computed on the basis of 12 000 km of personal use.
[16] Changing the
personal use percentage from 9.66% to 12.37% — a 28% increase — causes the
benefit included in the taxpayer's income to increase from $2,585.48 to $6,340.20
— a 145% increase.
[17] In his Reply at
subparagraph 6(h), the Minister states that he assumed, in his calculations,
that the personal use was assessed as 14.186%. The evidence contains no
explanation of the source of this percentage, which differs from the auditor's
12.37% reported on page 2 of Exhibit I-3.
Analysis
Is the vehicle an automobile?
[18] The first issue is
as follows: Is the vehicle an "automobile" within the meaning of
subsection 248(1) of the ITA, considering that, according to the description
given above, it normally has only two available seats? If it is not an
automobile, paragraphs 6(1)(e) and 6(1)(k) do not apply (but it
must nonetheless be determined whether there was a benefit under paragraph 6(1)(a).)
[19] This first issue was
considered in Gariépy v The Queen,
where, in circumstances similar to those of this decision, Bédard J. held that
the vehicle was an automobile within the meaning of the ITA. I agree with his
analysis of this issue. The vehicle in the case at bar is also an
automobile.
Does Anderson v. The Queen apply?
[20] The Appellant cites
the decision in Anderson v. The Queen.
Although certain aspects of that case are similar to the instant
decision, there are important differences.
[21] In Anderson, the disputed trips
were solely between the employer's office and the employee's house. The
Minister had assessed a benefit under paragraph 6(1)(a) of the ITA
in respect of those trips. The trips from the house to a site where the technician
would have to make a repair were accepted as business travel. The vehicles
were used only for business trips and trips away from home and for no other
purpose.
[22] The employer
insisted that the employees take their vehicles home, because it asked the
employees to respond to calls when they were at home, and a quick response was
only possible if the vehicles containing the equipment were kept at their homes.
Such calls were received when the technicians were on call, but they were also occasionally
received when they were not on call but their help was needed. In view of
the circumstances, Beaubier J. determined that the trips between office and home
did not constitute a benefit to the employees.
[23] Although some
similarities exist, the circumstances of this decision are materially different.
For one thing, the trips in issue here are not between the employer Abbott's
office and the employee's personal residence.
[24] Moreover, the trips
in issue here were driven for personal purposes. Abbott allowed the
vehicle to be used for personal purposes (see Exhibit I‑1,
page 3). The employer in Anderson did not permit any personal use.
[25] The facts of Anderson differ from the facts
of the instant decision. Consequently,
the applicability of paragraphs 6(1)(e) and 6(1)(k) must be
considered.
Standby charge
[26] The Minister
assessed the standby charge benefit on the basis that it was 2% per month,
multiplied by 12 months, multiplied by the cost of the Chevrolet Astro. By
calculating the benefit in this manner, the Minister assumed that all or
substantially all the distance travelled by the Chevrolet Astro was not in
connection with or in the course of Mr. Thibault's employment.
[27] By taking this
position, the Respondent was following the administrative practice under which
anything above 10% personal use means that "all or substantially all"
("la totalité ou presque") of the use is not related to
business.
[28] Although it is helpful,
both for taxpayers and the Minister's employees, to have an informal
percentage-based rule as a guide, this administrative rule cannot be binding on
the courts, and I must apply the "all or substantially all" test to
the specific facts of this decision having regard to the case law.
[29] Under the
circumstances, the 12.37% personal use that was calculated here was not high
enough to conclude that all or substantially all of the use of the Chevrolet
Astro was not related to business.
[30] Consequently, the
standby charge benefit cannot be computed as 2% of the vehicle's price; rather,
it must be computed as a percentage equal to [(A/B) X 2%] where B is 12 000 km
and A is the number of kilometres travelled for personal purposes.
Operating expense benefit
[31] According to the
Minister's calculations, the operating expense benefit was 12 000 km X
$0.16 = $1,920.
However, paragraph 6(1)(k) very clearly states that the benefit is equal
to the number of kilometres travelled for personal purposes, multiplied by the
prescribed amount.
[32] The operating
expense benefit must be computed based on the kilometres actually travelled for
personal purposes, not arbitrarily based on a figure of 12 000 km.
[33] I tried to understand
where this mistake came from, and why the auditor concluded, in Exhibit I‑3,
that it was necessary, [TRANSLATION] "according to
the case law", to use 12 000 km. I am not certain, but it might
simply be an erroneous reading of the cases. The Respondent provided me with
two decisions which
stated that where there is a standby benefit, there is a presumption of
1 000 km per month or 12 000 km per year that can only be
rebutted with clear evidence as to personal use.
[34] However, the
comments in both of those cases were made in the context of
paragraph 6(1)(e) and where the formula in subsection 6(2) applied.
In the definition of "A" in the formula, there is presumed to be
1 000 km of personal use per month or 12 000 km of personal
use per year, unless it is shown that all or substantially all the use is
devoted to employment-related purposes.
[35] These comments do
not apply in the context of paragraph 6(1)(k). I note that Example 1 in the Canada
Revenue Agency's Information Bulletin IT-63R5 sets out the calculation
correctly.
Distance travelled for personal
purposes
[36] The only thing that
remains to be determined is the distance travelled for personal purposes.
Although the Minister's Reply assumed a personal use of 14.186%, the auditor
determined that it was 12.37%, or 5 132 km.
[37] In Exhibit I-3, the
auditor sets out the anomalies that he believes that he has identified, as well
as his calculation of the personal use.
[38] The Appellant
submits that some mistakes were made in the calculation. Among other
things, he believes that the vehicle's fuel consumption is greater than
the 13 L / 100 km determined by the auditor, because that
calculation does not take account of the weight of the equipment transported,
the effect of the road conditions, and the impact of the winters. The amount of
13 L / 100 km is the average fuel consumption established by Natural
Resources Canada for a 2002 Chevrolet Astro. The Appellant also says that
the auditor did not include a business trip to Cowansville that would add 250
to 300 km to the calculation.
[39] I agree that the
trip to Cowansville should be taken into account and that the vehicle's fuel
consumption was undoubtedly greater than the consumption established by Natural
Resources Canada, but this does not account for the entire difference
concerning the points set out at page 1 of Exhibit I‑3 under the headings
[TRANSLATION] "July 27, 2002" and [TRANSLATION]
"August 30, 2002."
[40] Consequently, I find
that the auditor's calculation was too high, but that the distance reported by
the Appellant was too low. In light of all the facts, 4 400 km of
personal driving would be reasonable.
[41] I note that the
facts in Gariépy were very different. There, a distance of 16 563 km
was travelled over a seven‑month period, and, based on the Minister's
factual assumptions, the appellant told his employer that he drove
9 905 km on business. The Court found that the appellant had not
rebutted the Minister's presumption that 7 000 km had been
travelled for personal purposes.
[42] In Gauthier v.
Canada, [2007] T.C.J. No. 441, 2007 TCC 573, another decision
involving a vehicle similar to the one in the instant case, I note that
paragraph 17 states that the auditor concluded that the personal-use
percentage was 9.9%. Tardif J. rejected this conclusion and accepted
the appellant's determination.
[43] In the future, I would
recommend that the Appellant keep a detailed travel log if he is using a
vehicle for business purposes.
Conclusion
[44] The appeal from the
assessment is allowed, with costs of $30, and the matter is referred back to
the Minister of National Revenue for reconsideration and reassessment on the
basis that
(1) the standby charge benefit must be calculated as
follows:
4 400
km x $26,425.84
x 2% x 12 = $2,325.47; and
12 000
(2) the operating expense benefit must be calculated as
follows:
4 400
km x $0.16/km = $704.
Signed at Ottawa, Canada, this 15th day of January 2008.
"Gaston Jorré"
Translation
certified true
on this 8th day of
May 2008.
Brian McCordick,
Translator
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