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Citation: 2003TCC611
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Date: 20030903
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Docket: 2003-628(IT)I
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BETWEEN:
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DANIEL SPUEHLER,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Sarchuk J.
[1] This is an appeal by Daniel
Spuehler from reassessments of tax by the Minister of National
Revenue (the Minister) for the 1998 and 1999 taxation years as a
result of which the amounts of $33,084 and $35,355, respectively,
were added to his income.
[2] The basic facts are not in
dispute. In the taxation years in issue, the Appellant was
employed by Brandette Well Servicing Ltd. (Brandette). Throughout
those years, the Appellant rented his personal truck to Brandette
and it was used in the course of his employment. From January 1,
1998 to April 1998, the vehicle was a Chevrolet one-ton
truck. In April, the Appellant acquired a 1998 Dodge truck which
was rented to Brandette through to the end of the 1999 taxation
year. The Dodge was purchased and paid for by the Appellant and
the documents before the Court indicate that the bank loan for
this purpose was solely in his name. At all relevant times, the
income earned from these trucks was deposited to the
Appellant's bank account in respect of which his spouse did
not have signing authority.
[3] In both of the taxation years, the
Appellant's wife reported net business income from the rental
of the trucks in the amount of $22,325 and $21,559, respectively,
calculated as follows:
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1998
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1999
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Revenue
Expenses
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$37,698
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$38,644
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Fuel
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3,616
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540
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Insurance
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1,042
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1,158
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Interest
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2,152
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3,228
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Maintenance and repairs
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1,897
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1,278
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Motor vehicle expenses
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116
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0
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Office expenses
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150
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0
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Capital Cost Allowance
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6,400
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10,881
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Net Income
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$22,325
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$21,559
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[4] In reassessing the Appellant, the
Minister calculated his net business income as follows:[1]
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1998
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1999
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Revenue
Expenses
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$37,698
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$38,644
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Fuel
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1,916
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286
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Insurance
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552
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614
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Interest
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1,140
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1,711
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Maintenance and repairs
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1,006
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678
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Net Income
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$33,084
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$35,355
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Respondent's position
[5] The Respondent contends that the
Appellant transferred or assigned to his spouse the rights to the
net business income derived from the rental of the two vehicles
in the amounts of $33,084 and $35,355 in the two taxation years,
respectively, and that these amounts were correctly included in
his income in accordance with the provisions of subsection 56(4)
of the Income Tax Act.
Appellant's position
[6] The Appellant explained the
decision to treat the income from the truck rental as follows. In
1997, he and his wife commenced work on "a brand new
farm" and since both were actively involved in the farm
business "she quit her job and in 1997, she stayed at home
and did a lot of the work in relation to the farm start-up".
As a result, they also decided, in the Appellant's words, on
"an income-splitting procedure, I thought why not have the
vehicle, this one on - in her name and the revenue she could
collect and also that would be part of her income, as payment for
what she does. And there's all the other revenue that came
from Brandette and from the farm was claimed by myself. And I
always felt that that was a fair, you know, just a fair split of
the income".
Decision
[7] The Appellant cannot succeed on
this ground. The relevant provisions of the Act provide as
follows:
56(4) Where a taxpayer has, at any time
before the end of a taxation year, transferred or assigned to a
person with whom the taxpayer was not dealing at arm's length
the right to an amount ... that would, if the right had not
been so transferred or assigned, be included in computing the
taxpayer's income for the taxation year, the part of the
amount that relates to the period in the year throughout which
the taxpayer is resident in Canada shall be included in computing
the taxpayer's income for the year unless the income is from
property and the taxpayer has also transferred or assigned the
property.
251(1) For the purposes of this Act,
(a) related
persons shall be deemed not to deal with each other at arm's
length;
(b)
...
251(2) For the purpose of this Act, "related
persons", or persons related to each other, are
(a)
individuals connected by blood relationship, marriage or
common-law partnership or adoption;
[8] The object of these provisions is
to prevent the avoidance of tax by way of a transfer of property
to the spouse. Subsection 56(4) accomplishes this by effectively
ensuring that the property transferred, in this case income,
remains in the transferor for tax purposes. It is clear that it
is directed specifically against potential avoidance of tax
through the transfer of a right to income between parties not
dealing at arm's length. Although I accept that the Appellant
did so in the honest belief that there was nothing improper about
the division of income between husband and wife in circumstances
such as these, the fact remains that the sections in issue are
unequivocal in their language and intent. Accordingly, the
Appellant's appeals in respect of this issue cannot be
allowed.
[9] The second issue relates to the
business income earned by the Appellant from the rental of the
trucks to Brandette in the amount of $33,084 and $35,355 in the
two taxation years, respectively. It is not disputed that the
Appellant failed to maintain a mileage log in respect of either
vehicle and during a meeting with a Canada Customs and Revenue
Agency (CCRA) assessor estimated that he drove approximately
40,000 kilometres per year of which 21,000 (or 53%) was
considered by the assessor to be business-related.
[10] The Appellant resided in or near
Entwistle some 40 kilometres north of Drayton Valley (Drayton)
which was Brandette's base. He testified that there is no
dispute that when he drove to Drayton and "from there out to
a lease" the travel from Drayton to his home was properly
considered as personal use of the vehicle. However, he maintains
that much of his employment required him to work in the Grand
Prairie general area which he said was over 400 kilometres from
his residence. When working in this area, he did not go first to
the office in Drayton but proceeded directly to Grand Prairie
from his home. Furthermore, with respect to these trips Brandette
paid him the full mileage charge of 85 ¢ per kilometre.
Notwithstanding this the trips were considered by CCRA as
personal, that is home to work. He contends that 107 trips of 191
in taxation year 1998 and 173 out of 234 in 1999 were direct
trips from his residence to the actual location of the work he
was required to perform.
[11] The Appellant produced a number of
worksheets which he was required to keep and turn over to
Brandette for truck rental payment calculations. These documents,
he said, enabled him to establish the exact number of kilometres
travelled in the course of his employment and for which he was
paid by Brandette for the use of the vehicle. Thus, the Appellant
argues that his analysis based on these records support his
contention that 85% of approximately 45,000 kilometres driven in
each year represented work related and not personal use of the
vehicle.
[12] I am unable to accept the
Appellant's position. First, since he kept no mileage log
whatsoever the amount driven in each of the taxation years in
issue is at best an approximation and at worst pure guesswork.
The original estimate provided by the Appellant to CCRA was
40,000 kilometres. He now says it is closer to 45,000 kilometres
but provides little support for the added mileage. Furthermore,
the Appellant failed to take into account the amount of use of
the vehicle for farm purposes and when specifically examined by
counsel on this point conceded that he "couldn't even
begin to tell you. You know, when I want to go check a field ---
can I tell her now? Just that if you go check a field to see
sometimes that happens to be the vehicle of choice, it's the
nearest one, you know. This Revenue thing is starting to kill us.
You know like you've got to worry about what you take for a
vehicle, where, when" and "I can't tell you how
many kilometres, really".
[13] While it does appear as though the
Respondent's assessment on the basis that business use of the
vehicle represented 53% of the total use in each of the two
taxation years may be on the low side, the evidence before this
Court falls far short of establishing that 85% of the mileage
could properly be attributed to business use. I add only that the
Appellant did himself no favour by completely ignoring the
importance of maintaining adequate records of personal and
business usage. It is only if information kept in this manner was
available to the Court would it be appropriate to alter the
allocation that was made by the Minister. The appeals are
dismissed.
Signed at Ottawa, Canada, this 3rd day of September, 2003.
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