Date:
20000915
Docket:
1999-3949-IT-I
BETWEEN:
KEVIN J.
LOVE,
Appellant,
and
HER MAJESTY THE
QUEEN,
Respondent.
Reasons for
Judgment
Sarchuk
J.T.C.C.
[1] These are appeals by Kevin J. Love
from assessments of tax with respect to his 1995, 1996 and 1997
taxation years. In computing his income for those years, the
Appellant reported employment income, which included standby
charges in the amounts of $779, $829 and $788, respectively. By
way of reassessment dated October 13, 1998, the Minister of
National Revenue (the Minister) increased the standby charges and
thereby included additional employment income in the
Appellant's income in the amounts of $5,578.25, $6,009.89 and
$5,981.37, respectively. Subsequently, the Minister reassessed to
reduce these standby charges by $1,350, $1,500 and
$1,650.
[2] In assessing the Appellant, the
Minister made the following assumptions of fact:
(a) the Appellant
is an employee with Westward Ford Credit Ltd. (the
"Employer");
(b) the Appellant
was principally employed in selling or leasing
automobiles;
(c) an automobile
owned by the Employer was made available by the Employer to the
Appellant;
(d) the Employer
has acquired one or more automobiles;
(e) the cost of
the Employer owned vehicle in the 1995,1996 and 1997 taxation
years was determined by dividing the cost to the Employer of all
new automobiles acquired by the Employer in the year for sale or
lease in the course of the Employer's business by the number
of automobiles acquired resulting in the following
amounts:
|
|
1995
|
1996
|
1997
|
|
|
|
|
|
|
Average Cost of New Vehicles Purchased
|
$23,086.00
|
$24,556.00
|
$23,340.00
|
|
Provincial Sales Tax
|
1,616.02
|
1,718.92
|
1,633.80
|
|
Cost
including PST
|
$24,702.02
|
$26,274.92
|
$24,973.80
|
(f) the
automobile made available to the Appellant for 365 days during
each of the 1995, 1996 and 1997 taxation years;
(g) all or
substantially all of the distance travelled by the automobile
during the days the automobile was available were not made in the
course of the office or employment with the Employer.
[3] The Appellant is a shareholder in
Westward Ford Credit Ltd., an automobile dealership located in
Portage la Prairie, Manitoba. He testified that vehicles were
made available to him and to his wife by the dealership, and that
at all times, his wife had the full standby charge added to her
income as required. For his part, he reported a reduced standby
charge in each of the taxation years as previously noted. He
further observed that the vehicle assigned to his wife during the
years in issue was usually a Windstar or Explorer which vehicles
I understood to be vans or SUVs, and was utilized for most of the
family travel. On the other hand, the vehicle assigned to him was
a pickup truck and was rarely driven by his wife.
[4] The Appellant's duties amongst
other things required him to travel to vehicle auctions in
Winnipeg at least once a week. He was also required to pick up
cars at other dealerships on an average of three or four times a
month, on occasion travelling as far as Saskatchewan for this
purpose. The primary vehicle assigned to the Appellant was a
pickup truck. He observed that as a general rule, he had the use
of a number of company vehicles in the course of a year and that
the practice was to affix the dealer's plate to whatever
truck he was driving at any given time. Other than being driven
to and from work and occasionally used to run personal errands
these vehicles were wholly dedicated to business use.
Furthermore, any vehicle so assigned to the Appellant was on
occasion used by the service department and when required, was
loaned to a customer.
[5] The Appellant testified that it had
not been his practise to keep logbooks and that in prior years,
his assessment and reporting of the standby charge had been
accepted by Revenue Canada. When it became evident to him that
Revenue Canada was considering reassessment, he commenced to keep
a logbook in which he recorded on a regular basis the mileage
travelled together with and allocation between personal and
business use. He testified that the nature of his duties and his
use of the truck did not vary in any appreciable way from year to
year during the period of time in issue or in the subsequent
years during which he kept a logbook. The Appellant calculated
the ratio between personal and business use for the periods 1998,
1999 and the first six months of 2000 and maintains that personal
use never exceeded 10%. He further testified that since there had
been no substantial change in the requirements of his employment
that percentage also reflected his personal use of the vehicles
assigned to him in the taxation years in issue.
Conclusion
[6] Having listened to and observed the
Appellant in the course of his testimony, I am satisfied that he
was a credible witness and that the logbook reflects, with
reasonable accuracy, his use of corporate vehicles in 1998 and
1999 as well as in the first six months of 2000. The system used
by him is straightforward, simple to implement and use, and
included a reference to the specific corporate vehicle that was
being driven on any particular day. I am also satisfied that the
Appellant's personal to business ratio of 8%, 8.7% and 8.4%
calculated on the basis of the information contained in the logs
is reasonable. Counsel for the Respondent argued that these
numbers should not be applied to the previous years. To some
extent that is a valid argument, however, I accept the
Appellant's testimony that there was no substantive
difference between his work patterns in 1995, 1996 and 1997 and
those in the subsequent years. I note as well that the logbooks
he kept disclose a variation of .7% between 1998 and 1999 and .4%
between 1999 and 2000. Given his testimony, it is most unlikely
that there would have been any variation in the earlier
years substantial enough to warrant rejecting his
testimony.
[7] The relevant provisions of the
Act require an employee who enjoys a benefit as a result
of the employer paying operating expenses to include it in
income. The value of this benefit for that purpose is an amount
equal to the portion of the operating costs paid by the employer
that relates to the personal use, i.e. in this case, a reasonable
standby charge, plus the equivalent to the GST thereon. The
standby charge may be reduced to the extent that personal use
kilometres are less than 1,000 times the number of months the
automobile was available to the employee. The entitlement to
reduce the standby charge in this fashion is only available where
the automobile is used all or substantially all of the time in
connection with the employment. Accordingly two conditions must
be satisfied in order to substantiate a reduced standby charge.
First, the taxpayer must establish on a balance of probabilities
that the personal use kilometres were less than 1,000 times the
number of months the automobile was available to him, and second,
that the automobile itself was used all or substantially all of
the time in the course of employment. Thus, it is most evident
that a taxpayer must maintain adequate records of personal and
business usage if a reduced standby charge is to be
claimed.
[8] The plain fact of the matter is
that a taxpayer is responsible for maintaining records in a form
enabling that taxpayer to establish his position. This Appellant
recognized that fact albeit not in time to prevent him from being
reassessed with respect to the taxation years in issue. However,
I have concluded that his extrapolation of the percentage of use
as between personal and business in the subsequent years together
with his testimony is sufficient to establish his claim.
Accordingly, the appeals are allowed and the assessments are
referred back to the Minister for reassessment in accordance with
subsections 6(2) and 6(2.1) of the Act on the basis that
the taxpayer was required by the employer to use the automobile
in connection with his employment and that all or substantially
all of the distance travelled by the automobile in the total
available days was in connection with or in the course of the
employment.
Signed at Ottawa, Canada,
this 15th day of September, 2000.
J.T.C.C.
COURT FILE
NO.:
1999-3949(IT)I
STYLE OF
CAUSE:
Kevin J. Love and Her Majesty the Queen
PLACE OF
HEARING:
Winnipeg, Manitoba
DATE OF
HEARING:
August 16, 2000
REASONS FOR JUDGMENT
BY: The Honourable Judge A.A.
Sarchuk
DATE OF
JUDGMENT:
September 15th, 2000
APPEARANCES:
Agent for the
Appellant:
Jerry Lupkowski
Counsel for the
Respondent: Sidney Restall
COUNSEL OF
RECORD:
For the
Appellant:
Name:
N/A
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
1999-3949(IT)I
BETWEEN:
KEVIN J.
LOVE,
Appellant,
and
HER MAJESTY THE
QUEEN,
Respondent.
Appeals heard on August
16, 2000, at Winnipeg, Manitoba, by
the Honourable Judge
A.A. Sarchuk
Appearances
Agent for the
Appellant:
Jerry Lupkowski
Counsel for the
Respondent: Sidney Restall
JUDGMENT
The
appeals from assessments of tax made under the Income Tax
Act for the 1995, 1996 and 1997 taxation years are allowed,
without costs, and the assessments are referred back to the
Minister of National Revenue for reconsideration and reassessment
on the basis that pursuant to subsections 6(2) and 6(2.1) of the
Act, the Appellant was required by the employer to use an
automobile in connection with his employment and all or
substantially all of the distance travelled by the automobile in
the total available days was in connection with or in the course
of the employment.
Signed at Ottawa, Canada,
this 15th day of September, 2000.
J.T.C.C.
Email this Content