Citation: 2013 TCC 35
Date: 20130131
Docket: 2011-940(IT)G
BETWEEN:
MYRDAN INVESTMENTS INC.,
appellant,
and
HER MAJESTY THE QUEEN,
respondent,
AND BETWEEN:
Docket: 2011-943(IT)G
DANIEL HALYK,
appellant,
and
HER MAJESTY THE QUEEN,
respondent.
REASONS FOR JUDGMENT
Hogan J.
[1]
These appeals from
reassessments for the taxation years of Myrdan Investments Inc. (“Myrdan” or
the “corporate appellant”) ending October 31, 2006 and
October 31, 2007 and for the 2007 taxation year of Daniel Halyk (the
“appellant” or “Mr. Halyk”) involve the question of whether a pickup truck
is an “automobile” within the meaning of that term as defined in subsection 248(1)
of the Canada Income Tax Act (the “ITA”) or whether the vehicle
falls within the exceptions in subparagraphs (ii) and (iii) of paragraph (e)
of that definition.
1. Background
[2]
Mr. Halyk is the
founder of the corporate appellant, Myrdan.
[3]
Mr. Halyk is also the
founder of a public energy service company called Total Energy Services Inc.
(“Total Energy”). During the taxation years under appeal, Mr. Halyk was the CEO
of Total Energy.
[4]
Total Energy operates
30 to 35 branch locations throughout western Canada and the northwest U.S.
Total Energy has three divisions: Chinook Drilling owns and operates
approximately 15 drilling rigs; Bidell Compression operates a gas compression
business; the third division is involved in rentals and transportation.
[5]
Myrdan is a
Canadian-controlled private corporation incorporated under the laws of the province of Alberta. At all relevant times, Mr. Halyk was the 100% shareholder of Myrdan.
Myrdan provides business consulting services, notably to Total Energy, and
invests in a number of other businesses. For example, it has 100% ownership of
Theo Halyk Company Limited (“Theo Halyk Company”), a corporation founded by the
Halyk family. Myrdan is also a direct investor in a bio diesel operation, then
called Milligan Bio-Tech Inc., in Foam Lake, Saskatchewan.
[6]
Trident Capital Partner
(“Trident”) was formed with Myrdan as one of the limited partners. Trident is
an investment business, investing mainly in energy businesses such as Synoil
Energy Services and Phoenix Technology Services. It also owns a company called
GBM Trailer Services, which repairs crude oil tanker trailers. Through Mr. Halyk’s
introduction, Trident also became an investor in the bio diesel Milligan
Bio-Tech Inc., operation in Foam Lake in which Myrdan held an interest.
[7]
Trident typically has
four to six core portfolio investments at any time. Myrdan participates in the
profits of Trident as a 50% limited partner in Trident, but also holds
investments independently.
[8]
In order to fulfil his
duties as CEO of Total Energy, Mr. Halyk was required to travel to a number of
locations to perform business operations necessary for Total Energy. Total
Energy entered into an agreement with Myrdan whereby Myrdan would receive
management consulting fees and a monthly allowance for the operating expenses
with respect to a vehicle that was suitable for Mr. Halyk’s purposes as CEO of
Total Energy. The capital cost of the vehicle would be covered by Myrdan, and
the expense involved in operating it for the purposes of Total Energy’s
business would be covered by Total Energy.
[9]
In December of 2006,
Myrdan purchased a 2007 GMC Sierra truck (the “truck”) for $69,055, including
GST. The truck has seating for five people and a short bed. Upon purchasing the
truck, the appellant traded in a vehicle of the same model as the truck for
$31,395. The truck and the old truck were used by Mr. Halyk for the same
purposes. It is the use of the truck that is in issue for both of the
appellants in these appeals.
[10]
Myrdan’s original
filing classified the truck as class 10 capital property. Myrdan had one other item
of property in class 10, namely, the old truck, which was disposed of in 2007
as a trade-in for the truck. If the truck was also in class 10, the disposition
of the old truck would not have given rise to recapture. However, since the
Minister of National Revenue (the “Minister”) reassessed on the basis that the
truck was class 10.1 capital property because it was an automobile and as a
result, a passenger vehicle, the trade-in of the old truck gave rise to a
reassessment of $13,048 in respect of recapture. Other consequences of the
Minister’s reclassification of the truck were that a class 10 capital cost
allowance (“CCA”) deduction of $10,834 was denied, and a class 10.1 CCA
deduction of $4,500 was allowed instead.
[11]
The evidence shows that
throughout the relevant period, Mr. Halyk used the truck to make a number of
trips to business locations in his capacity as CEO of Total Energy. He also
made a number of trips to businesses in which Myrdan and/or Trident had invested.
Mr. Halyk estimates that he spent about 60% of his time on Total Energy
business and 40% on Trident/Myrdan business.
[12]
The truck was also used
for travel, including passenger transportation, related to the Alberta government’s Financial Investment and Planning Advisory Commission (“FIPAC”) during
the relevant period. Mr. Halyk testified that his expense reimbursements and
other payments (including an honorarium of approximately $2,000 for two years)
received from the government in respect of his FIPAC work flowed through to
Myrdan: Mr. Halyk was paid personally by the government, but he then turned
over to Myrdan the amounts he received, including those for expenses for travel
related to FIPAC.
[13]
The Minister assumed
that Mr. Halyk did not own a vehicle for personal use. Mr. Halyk’s testimony
was that he and his wife shared a vehicle for personal use, though the car was
in his wife’s name. Mr. Halyk testified as well that there were a few times
when he would use the truck for personal purposes, for example, dropping his
children off at school on his way to work.
[14]
Mr. Halyk also said he
drove directly from home, where all of Myrdan’s files were located, to the
Total Energy office about three times a week. He agreed that the distance from
his home to the Total Energy office was about 16 km, which represented a
round trip of 32 km. The evidence shows that the appellant was in Calgary 45 weeks out of 52 to make the trips from his home to the Total Energy
office, so that those trips total approximately 4,320 km in one year. Of
the total of 28,456 km travelled in the truck in Myrdan’s 2007 taxation
year, the 4,320 km of kilometres travelled between Mr. Halyk’s home and
the Total Energy office would represent approximately 15%.
[15]
At all times, Mr. Halyk
carried equipment, including personal protection equipment, in the truck for
use on site visits and visits to remote northern locations. In addition to
personal protection equipment such as steel-toed boots, fireproof coveralls, a
hard hat, glasses and ear protection, he carried basic tools, extra winter
clothing and an emergency kit. He also sometimes carried extra fuel on northern
trips. He would also carry files and a laptop. Often he would transport passengers
with him in the truck.
[16]
When travelling out of
town for Myrdan, Trident or Total, Mr. Halyk attended managers’ meetings,
performed due diligence, made acquisitions, held safety stand-down meetings, or
dealt with business and financial matters relating to companies in which Myrdan
and Trident were significant investors.
[17]
Using the vehicle log
entered as Exhibit A-8, Mr. Halyk produced a summary of the remote locations he
travelled to in Myrdan’s 2007 taxation year. He started with the trip log and
confirmed travel to remote locations using his daytimer from the Total Energy
office and his Microsoft Outlook calendar, and by speaking to people who had
been his passengers on trips to remote locations. He had not been aware of the
concept of remote locations for tax purposes prior to these proceedings. On the
basis of the summary he constructed from existing records, he estimates that 55%
to 65% of his kilometres travelled fall within the definition of travel to
remote locations provided in subparagraph (e)(iii) of the definition of
“automobile” in subsection 248(1) of the ITA. Mr. Halyk had a core group
of passengers that would travel with him all the way from one location to a
remote location, though some passengers might get on and off at intermediate
stops.
[18]
The evidence shows that
portfolio companies paid management fees to Trident which would cover the cost
of having Mr. Halyk travel to perform business services for the portfolio
companies. Indirectly, those management fees would flow through to Myrdan as a
50% limited partner of Trident.
[19]
The services provided
by Mr. Halyk on any given trip were often performed for more than one entity. For
example, Total Energy branches and portfolio companies of Myrdan and Trident
might be visited on the same trip. Typically, Mr. Halyk would allocate the
cost of a trip according to its primary purpose, but he would try on the way to
do as much as possible for all the businesses he was involved in.
[20]
The appellants, on the
issue of costs, introduced evidence that the Canada Revenue Agency (“CRA”)
auditor did not review a box of documents prepared by the appellants and left
at the office of Mr. Halyk and Myrdan’s accountant. The auditor issued a proposed
reassessment and then the appellants were subsequently reassessed, all without the
documents prepared by the appellants having been reviewed. The fact that the
auditor did not review the documents made available by the appellants,
including the agreement between Total Energy and Myrdan, is not relevant for
the purpose of making a determination on the central issue in these appeals,
namely, the use of the truck.
2. Issues
[21]
The majority of issues
identified in the pleadings have been resolved by Minutes of Settlement. The
central issue remaining in these appeals is the use of the truck owned by
Myrdan and operated by Mr. Halyk. An inquiry into the use of the truck will
determine whether it is an “automobile” pursuant to the definition in subsection
248(1) of the ITA what method should be used to calculate the
shareholder benefit to Mr. Halyk. If the truck was not an automobile, it was
properly classified by the taxpayer as class 10 capital property. If the truck
was an automobile, the Minister’s assessment on the basis that the truck was a
“passenger vehicle” included in class 10.1 is correct. The definition of
“passenger vehicle” includes an automobile. The appellant’s position is that
the truck is not an automobile, since it falls within either or both of the
following exclusions in subparagraphs (ii) and (iii) of paragraph (e) of
the definition of “automobile”:
(ii) . . . a . . . truck
. . . the use of which . . . is all or
substantially all for the transportation of goods, equipment or passengers in
the course of gaining or producing income, or
(iii) . . . a . . . truck
. . . used . . . primarily used for the
transportation of goods, equipment or passengers in the course of earning or
producing income at one or more locations in Canada that are
(B) at least 30 kilometres outside the nearest point on the boundary
of the nearest urban area, as defined by the last census dictionary published
by Statistics Canada before the year, that has a population of at least 40,000 individuals
as determined in the last census published by Statistics Canada before the
year.
[22]
The respondent’s
position is that the truck meets the requirements for neither of the above exclusions.
[23]
In respect of Mr.
Halyk’s appeal, the issue is whether he received a benefit taxable under
subsection 15(1) of the ITA and, if so, what the value of that benefit
was. If the truck was an automobile, the value of the shareholder benefit is
calculated under subsection 6(2) of the ITA. If the truck was not an
automobile, the value of the shareholder benefit must be determined by other
means. In the reassessment for Mr. Halyk’s 2007 taxation year, the
Minister assessed a shareholder benefit of $13,811 in respect of a passenger
vehicle stand by charge and $3,872 in respect of passenger vehicle operating
costs.
[24]
An ancillary issue was
raised by the respondent as to the admissibility of a summary document prepared
by Mr. Halyk. The objection was based on the fact that the summary document was
not shown on the appellants’ list of documents.
3. Law and Analysis
3.1 Preliminary matter: admissibility
of summary document
[25]
The document prepared
by Mr. Halyk purports to be a summary of trips to remote locations already
recorded in the trip log entered as Exhibit A-8. The respondent objects to its
introduction on the basis that it was not mentioned in the list of documents
and that it contains new information that was not recorded contemporaneously
with the events in question. The information added pertains to the passengers
carried on Mr. Halyk’s trips to remote locations.
[26]
The respondent relies on Walsh v. The Queen as authority for
excluding the summary document, since in Walsh Justice Sheridan decided
“[t]here was no justification to deviate from the general rule [section 89 of
the Tax Court of Canada Rules (General Procedure)] of excluding
from evidence documents not referred to in a party’s pleadings or list of
documents.”
What that case indicates, however, is that there should be some reason provided
for the Court’s exercising its discretion to allow a document in evidence where
it has not been referred to in the pleadings or a list of documents. The
appellant’s position is that there are reasons to exercise the discretion under
section 89 of the Rules, since the Minister had access to the document
long before the hearing. The contents of the summary document can also be
verified by referring to the original trip log, which was made
contemporaneously with the travel in question. The appellant relies on BG
Excel Plumbing & Heating v. The Queen,
in which a similar after-the-fact reconstruction was admitted by the Court,
since the reconstruction could be substantiated from pre-existing records and
by third parties.
[27]
The Court has discretion under section 89 of the Rules to
allow a document into evidence even if it does not meet the requirements set
out in that section. Subsection 4(1) of the Rules, provides that the Rules
are to be liberally construed to secure the just, most expeditious and least
expensive determination of every proceeding on its merits. I note that the
appellants provided their summary document to the Crown in December of 2011, 10 months
before the hearing took place. The Crown was not taken by surprise with respect
to this matter.
3.2 Was
the truck an automobile?
3.2.1 Was the appellant transporting
“goods” or “equipment” in the course of gaining, earning or producing income?
[28]
The respondent argues that Mr. Halyk’s transport of equipment in the
truck does not meet either of the tests in subparagraphs (ii) and (iii) of
paragraph (e) of the definition of “automobile” because the truck was
not being used to transport equipment for the purpose of gaining, earning or
producing income. The respondent relies on two informal procedure cases in
which a taxpayer carried at all times in a pickup truck tools and other
equipment in one instance,
and spare oil in the other.
In both of those cases, the Court held that the items in question were not
transported for some purpose related to the production of income.
[29]
The evidence shows that
Mr. Halyk did use the equipment in
question here on safety stand-down tours, for example and was required to wear
the safety equipment in order to have access to work sites, besides which he
had to set an example for the staff in the various businesses Myrdan and Total
had invested in. These instances of the use of safety equipment had a clear
income-producing purpose. My finding on this point is consistent with the
Court’s finding in Pronovost v. The Queen
(also an informal procedure case), where equipment such as tools and first aid
kits was kept in a truck at all times but was still “transported” for the
purposes of the exclusion in the definition of “automobile”.
3.2.2. Can work for all the businesses
visited by Mr. Halyk be counted as use in gaining, earning or producing income
for Myrdan?
[30]
The appellant argues
that, on account of the agreement between Myrdan and Total Energy that Myrdan
provide a vehicle for Mr. Halyk to use in his role for Total Energy, use of the
truck for both Myrdan’s purposes and Total Energy’s should be counted as use
for income-earning purposes in the tests for determining whether to exclude the
truck from the definition of automobile.
[31]
The respondent submits
that the tests for determining use of a
vehicle in producing income can only apply to income earned for the owner of
the vehicle, i.e., Myrdan. Therefore, Mr. Halyk’s use of the truck in the other
businesses owned by Myrdan and Total Energy should not count in applying the
use tests in subparagraphs (ii) and (iii) where the connection to income earned
by Myrdan is too remote.
[32]
With respect to visits
to branches of Total Energy, the appellant referred to the service agreement
between Myrdan and Total Energy to show that Myrdan gained income by charging
Total Energy a fee for providing Mr. Halyk’s management services,
including an amount for his use of the truck. Thus, work done at branches of
Total Energy had a clear income-producing purpose for Myrdan. Furthermore,
portfolio companies of Trident paid management fees to the partnership, which
would flow back to Myrdan as 50% owner of Trident.
[33]
The respondent also contended
that all the kilometres travelled for FIPAC should be excluded on the basis
that such use of the truck was not for the purpose of gaining, earning or producing
income. I agree that this travel does not meet the “primarily” test applicable
with respect to remote locations, since it was travel between Calgary and Edmonton. However, the travel for FIPAC did include transporting passengers, and there was
an income-earning purpose in the sense that work on a government committee
could boost the profile of Mr. Halyk and, by extension Myrdan. Further, Myrdan
itself was compensated (through Mr. Halyk) for the use of the truck on FIPAC
trips.
[34]
The respondent relies
on Lyncorp International Ltd. v. The
Queen,
to exclude the kilometres travelled by Mr. Halyk to visit the Theo Halyk
Company, a wholly owned subsidiary of Myrdan. In that case, Lyncorp, the
appellant corporation was denied the deduction of expenses incurred by its
owner for travel to businesses in which it had invested. Lyncorp paid the
expenses for that individual’s travel to provide support services gratuitously
to the businesses. The Court in Lyncorp held that the connection to Lyncorp’s
income from business or property was too tenuous, since Lyncorp would only
profit from these expenses by receiving future dividends from its investments
in the business venture if they were profitable.
[35]
The position adopted by the
respondent with respect to travel to and from the Theo Halyk Company, is at
odds with the CRA’s position concerning the application of paragraph 20(1)(c),
which set out the requirement to be satisfied with respect, to the deduction of
interest on borrowed money. The provision provides that the borrowed money must
be used for the purpose of earning income from a business or property in order for
interest to be deductible. The CRA accepts that interest on borrowed money used
to make an interest-free loan is nonetheless deductible in the following
context:
25. Interest
expense on borrowed money used to make an interest-free loan is not generally
deductible since the direct use is to acquire a property that cannot generate any
income. However, where it can be shown that this direct use can nonetheless
have an effect on the taxpayer’s income-earning capacity, the interest may be
deductible. Such was the case in Canadian Helicopters where in the court
found that there was a reasonable expectation on the part of the taxpayer of an
income-earning capacity from the indirect use of the borrowed money directly
used to make an interest-free loan. Generally, a deduction for interest
would be allowed where borrowed money is used to make an interest-free loan to
a wholly-owned corporation (or in cases of multiple shareholders, where
shareholders make an interest-free loan in proportion to their shareholdings)
and the proceeds have an effect on the corporation’s income-earning capacity,
thereby increasing the potential dividends to be received. These comments are
equally applicable to interest on borrowed money used to make a contribution of
capital to a corporation of which the borrower is a shareholder (or to a
partnership of which the borrower is a partner). A deduction for interest in
other situations involving interest-free loans may also be warranted depending
upon the particular facts of a given situation.
[Emphasis added.]
It
is reasonable to infer that the service provided by Mr. Halyk to the Theo Halyk
Company enhanced that corporation’s ability to pay dividends to Myrdan.
Moreover, Lyncorp is distinguishable on the basis that none of Lyncorp’s
subsidiaries were wholly owned by it.
[36]
Mr. Halyk also testified that, on his December 29, 2006 trip to Theo Halyk
Company’s business locations in Foam Lake, he also stopped in at Milligan Bio‑Tech. Milligan was a portfolio
company of both Myrdan and Trident. The evidence shows that Milligan paid management
fees. Thus, the kilometres driven to Foam Lake, which may have included visits
to the Theo Halyk Company, can reasonably be included in the “all or
substantially all” and “used . . . primarily” tests in the
exclusions from the definition of “automobile” in subsection 248(1).
3.2.2.
How many of the
kilometres travelled by Mr. Halyk were personal?
[37]
The Minister is reassessing
Mr. Halyk relied on the assumption that, in the 2007 calendar year, 17,599 km
were driven in the course of Mr. Halyk’s personal use of the truck. No such
assumed figure was provided with respect to the reassessment of Myrdan’s taxation
year ending October 31, 2007.
[38]
On the basis of Mr.
Halyk’s testimony, I conclude that personal use of the truck amounted to approximately
4,320 km in Myrdan’s taxation year ending October 31, 2007. This
estimate is based on three trips from Mr. Halyk’s home to the Total Energy
office, the distance involved being 16 km one way, which means three round
trips of 32 km each, or 96 km per week. The evidence shows that Mr. Halyk
was in Calgary 45 weeks out of 52 to make these trips from his home to the Total
Energy office, so that the trips total approximately 4,320 km in one year.
Out of the total of 28,456 km travelled in the truck in Myrdan’s 2007
taxation year, 4,320 km represents approximately 15% of the kilometres
travelled between Mr. Halyk’s home and the Total Energy office.
3.2.2 The “all or substantially all” test: use to
transport goods, equipment or passengers in the course of gaining or producing
income
[39]
In Pronovost, Associate
Chief Judge Bowman (as he then was) pointed out:
The 90% rule used by
the CCRA has no statutory basis although it may be necessary that some sort of
rigid criterion be applied administratively. That does not mean that the court
must follow it . . .
[40]
In 547931 Alberta,
Judge Bowie adopted a similar view:
. . . [i]f
Parliament had intended that 90%, or any other fixed percentage, should govern,
then it would have expressed that in the statute, rather than using what is
obviously, as Judge Bowman put it in Ruhl v. Canada, an expression of
some elasticity. . .
[41]
In Ruhl v. Canada,
Judge Bowman (as he then was) discussed the flexibility that the courts are
entitled to show in interpreting terms such as “primarily” and “substantially
all”:
The terms
“substantial” or “substantially all” are expressions of some elasticity. It has
been said that they are an unsatisfactory medium for carrying the idea of some
ascertainable proportion of the whole. They do not require a strictly
proportional or quantitative determination.
[42]
In light of the above, the appellants have demonstrated that they have
satisfied the “all or substantially all” test in subparagraph (e)(ii) of
the definition of “automobile” in subsection 248(1) of the ITA.
3.2.5 The “used . . . primarily”
test: use to transport goods, equipment or passengers in the course of earning
or producing income in remote locations
[43]
The appellants have
also demonstrated that the use of the truck brings it within subparagraph
248(1)(e)(iii) of the definition, which requires use primarily
for income-earning or -producing purposes in remote locations. The respondent
has argued that “primarily” represents a standard of at least 50%; however,
this standard, like the “all or substantially all” standard, is flexible.
[44]
The appellant’s estimate,
based on Mr. Halyk’s summary chart, is that 15,407 of the 28,456 km travelled
in the truck were for trips to remote locations that meet the description in
subparagraph (iii). Furthermore, Mr. Halyk’s oral testimony was that 55% to 65%
of the kilometres travelled in the truck were to remote locations. Counsel for
the respondent has pointed out that the trip log is not in itself sufficient to
prove that the required standard has been met. While it is true that the
contemporaneous log only records the number of kilometres on the truck’s
odometer at any given fill-up point, it does specify remote destinations such
as Foam Lake, Lloydminster and Estevan. This corroborates Mr. Halyk’s oral
testimony.
[45]
The respondent says the 50% test is not met for remote locations if
the metric is days spent travelling to remote locations, as opposed to
kilometres driven. This observation is based on a comment in Pronovost pointing
out that the Minister’s own 90% rule (for the “all or substantially all” test)
does not specify a metric (e.g., kilometres or time) and that the application
of such a “rigid criterion” has no statutory basis and is not binding on the Court. The type of vehicle
purchased (one that could travel off-road) and the equipment and materials
transported in the truck (emergency equipment and spare fuel) suggest that it
was intended for use, and actually used, for the chief purpose of travel to
remote locations.
[46]
The respondent argues that the time spent or kilometres driven in travelling
to Nisku should not count for the purpose of the remote location calculation,
since Edmonton and Nisku are practically contiguous. Nisku is not 30 km
away from Edmonton, which has a substantial population. Nisku does not meet the
30‑kilometre requirement in subparagraph (iii). However, I note that
Mr. Halyk did not count travel to Nisku as a destination in his summary
chart of travel to remote locations. It is only mentioned as a stopping point
on the way to Foam Lake, so travel through Nisku should not reduce the number
of kilometres travelled on trips to Foam Lake itself.
[47]
The respondent argues
that, if an “urban area” (with a population of at least 40,000) is driven
through on the way to a remote location, the kilometres between that urban
location and another should be excluded in applying the test under subparagraph
(iii). For example, there was a trip from March 16 to 21, 2007 that included Foam Lake, Weyburn, Lampman, and Regina. The respondent submits that any travel between Regina and another urban location (this could refer to any of Edmonton, Calgary or Saskatoon) should be eliminated from the “primarily” calculation.
[48]
Counsel for the appellants
correctly pointed out that this interpretation is not supported by the wording
of subparagraph (iii). If Mr. Halyk was travelling from Edmonton to Estevan on
business, and he picked up or dropped off passengers in Regina along the way, that
does not disqualify the kilometres travelled between Edmonton and Regina. Travel to the ultimate destination, Estevan, meets the definition in subparagraph (iii).
Edmonton and Regina were merely stop overs on the way to remote locations
where business was conducted.
[49]
The respondent has
argues that two other trips in Mr. Halyk’s summary chart should be excluded
from the subparagraph (iii) calculation, on the basis that no passengers or
equipment were transported. Specifically, they are the trips to Rocky Mountain
House from January 22 to 26, 2007 (410 km) and to Lloydminster and Estevan
on September 5 to 10, 2007 (2,630 km). Indeed, no passengers are recorded
on the summary chart. However, as discussed above, the evidence shows that Mr.
Halyk was at all times transporting equipment for use in earning or producing
income.
4.1
Mr. Halyk’s
benefit
[50]
Because the truck is not
an automobile, the automobile benefit provisions in subsection 15(5), paragraph
6(1)(e), subsection 6(2) and paragraph 6(1)(k) of the ITA do
not apply.
[51]
The respondent did not make any
proposal with respect to how Mr. Halyk’s shareholder benefit should be
calculated if, as I have concluded, the truck is not an automobile. The
appellants’ position is that this Court should rely on the method described in McHugh
(B.J.) v. Canada.
Where the personal use of property is incidental to the business purpose for
which the property was acquired, McHugh suggests a valuation approach
based on the “fair rental value” of the shareholder’s actual use of such
property owned by the corporation.
[52]
McHugh does not mandate a method for determining
the fair rental value of a vehicle that is based on actual use. In the absence
of market information about the fair rental value of a truck such as the one
used by the appellant, it appears reasonable to apply the statutory rate that
is used to calculate the employee benefit for personal use of a passenger
vehicle. Applying the 22-cent rate to 4,320 personal use kilometres, the
shareholder benefit works out to $950.40.
5. Conclusion
[53]
For the reasons noted
above and taking into account the Minutes of Settlement entered into by the
parties and filed at the hearing, the appeals are allowed and the reassessments
are referred back to the Minister for reconsideration and reassessment on the
basis that:
Myrdan’s taxation year ending October 31, 2006
a.
Myrdan did not carry on
a personal services business.
b.
The income earned by
Myrdan in the course of providing services to Total Energy Services Inc. was
income from an active business.
c.
Myrdan is entitled to
additional advertising expenses of $4,097.
d.
Myrdan is entitled to
additional insurance expenses of $746.
e.
Myrdan is entitled to
additional repairs and maintenance expenses of $1,147.
f.
Myrdan is entitled to
additional travel expenses of $3,217.
g.
Myrdan is not entitled
to any additional expenses other than those noted above.
Myrdan’s taxation year ending October 31, 2007
1.
Myrdan did not carry on
a personal services business.
2.
The income earned by
Myrdan in the course of providing services to Total Energy Services Inc. was
income from an active business.
3.
Myrdan is entitled to
additional advertising expenses of $4,676.
4.
Myrdan is entitled to
additional insurance expenses of $1,044.
5.
Myrdan is entitled to
additional repair and maintenance expenses of $1,406.
6.
Myrdan is entitled to
additional travel expenses of $3,978.
7.
The assessed capital
cost allowance (“CCA”) with respect of the Motor Home of $12,000 shall remain
as assessed;
8.
Myrdan’s pickup truck is
automotive equipment within class 10 of Schedule II to the Income Tax
Regulations and is not a passenger vehicle within class 10.1.
Mr. Halyk’s 2007 taxation year
1. The assessed personal
use benefit with respect to the Motor Home of $6,544 shall be removed from
income.
2. The assessed operating
costs with respect to the Motor Home of $1,785 shall be removed from income.
3. Mr. Halyk’s personal
use of Myrdan’s (pickup truck) resulted in an aggregate taxable benefit of
$950.54.
Signed at Ottawa, Canada, this 31st day of January
2013.
“Robert J. Hogan”
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