Kempo,
T.C.J.:—
On
consent
application,
the
appeals
were
joined
for
hearing
on
common
evidence.
All
of
the
appellants,
in
the
1985
and
1986
taxation
years,
were
employed
by
McKay
Pontiac
Buick
(1979)
Ltd.
(the
"dealership")
and
each,
in
computing
their
income
for
each
of
the
said
taxation
years,
included
an
employee
benefit
pursuant
to
paragraph
6(1)(e)
of
the
Income
Tax
Act
(the
"Act")
in
respect
of
a
standby
charge
for
use
of
their
employer's
automobiles.
They
computed
their
standby
charge
by
reference
to
subsections
6(2)
and
6(2.1),
and
claimed
that,
for
them,
the
reference
of
two
per
cent
in
subsection
6(2)
was
to
be
read
as
a
reference
to
1
/2
per
cent
as
per
subsection
6(2.1)
of
the
Act.
With
respect
to
the
single
common
issue
raised
in
these
appeals,
the
respondent
reassessed
each
appellant
on
the
premise
that
each
was
not
employed
principally
in
selling
automobiles
during
the
relevant
time
in
that
their
main
function
and
the
majority
of
their
time
and
effort
was
spent
in
a
managerial
capacity.
Accordingly,
and
pursuant
to
subsection
6(2),
the
respondent
calculated
the
standby
charge
using
the
two
per
cent
referred
to
therein.
The
Law
Subsections
6(2)
and
6(2.1)
of
the
Act
define
the
amount
that
shall
be
deemed
to
be
the
reasonable
standby
charge
in
respect
of
an
automobile
that
is
made
available
for
the
use
of
an
employee
by
an
employer.
The
relevant
parts
of
these
provisions,
as
they
stood
in
1985
and
1986,
read
as
follows:
6.(2)
For
the
purposes
of
paragraph
(1)(e)
an
amount
that
is
a
reasonable
standby
charge
for
the
automobile
for
the
aggregate
number
of
days
in
a
taxation
year
during
which
it
was
made
available
by
an
employer.
.
.
shall
be
deemed
to
be
the
amount
equal
to
the
product
obtained
when
(a)
.
.
.
an
amount
in
respect
of
its
cost
to
the
employer
.
.
.
equal
to
the
percentage
thereof
obtained
when
2%
is
multiplied
by
the
quotient
obtained
when
such
of
the
aggregate
number
of
days
hereinbefore
referred
to
as
were
days
during
which
the
employer
.
.
.
owned
the
automobile
is
divided
by
30
(b)
[not
applicable]
is
multiplied
by
the
proportion
that
(c)
the
lesser
of
(i)
the
aggregate
number
of
kilometres
that
the
automobile
was
driven
(otherwise
than
in
the
performance
of
the
duties
of
the
taxpayer's
office
or
employment)
in
the
year
or
portion
thereof
during
which
the
automobile
was
made
so
available,
and
(ii)
the
product
obtained
when
1,000
is
multiplied
by
(A)
the
quotient
obtained
under
paragraph
(a),
or
(B)
[not
applicable]
is
of
(d)
the
amount
determined
under
subparagraph
(c)(ii)
and
for
the
purposes
of
this
subsection
it
shall
be
assumed,
unless
the
taxpayer
establishes
otherwise
in
prescribed
form,
that
the
aggregate
number
of
kilometres
referred
to
in
subparagraph
(c)(i)
is
not
less
than
the
product
obtained
under
subparagraph
(c)(ii).
6(2.1)
Where
in
a
taxation
year
a
taxpayer
was
employed
principally
in
selling
automobiles
and
an
automobile
owned
by
his
employer
was
made
available
to
him
in
the
year
by
his
employer,
the
amount
that
would
otherwise
be
determined
under
paragraph
(2)(a)
shall,
at
the
option
of
the
employer,
be
computed
as
if
(a)
the
reference
therein
to
"2%
were
read
as
a
reference
to
"1
/2%";
and
(b)
the
cost
to
the
employer
of
the
automobile
were
the
quotient
obtained
by
dividing
(i)
the
cost
to
him
of
all
new
automobiles
acquired
by
him
in
the
year
for
sale
in
the
course
of
his
business
by
(ii)
the
number
of
automobiles
described
in
subparagraph
(i).
The
Issues
The
issues
raised
in
these
appeals
focused
on
two
main
aspects
of
these
provisions
calling
for
interpretation.
The
first,
and
more
obvious,
was
that
where
several
employees
use
what
can
be
simplistically
described
as
a
fleet
of
vehicles
pending
their
sale
(being
the
situation
of
this
case),
the
application
of
subsection
6(2)
would
require
massive
amounts
of
record
keeping
to
be
done
on
a
kilometre
driven,
car-by-car,
day-by-day,
employee-by-
employee
basis.
The
second
aspect
involved
whether
subsection
6(2.1)
envisioned
management
employees
who
were,
as
a
question
of
fact,
principally
involved
in
respect
of
the
selling
of
automobiles
so
that
the
word
"in"
used
in
the
phrase
“principally
in
selling"
does
not
mean
"as"
a
salesman.
The
appellants’
counsel
submitted
that
the
two
provisions,
when
read
side
by
side,
would
mandate
this
broad
interpretative
approach
to
subsection
6(2.1)
as
it
was
the
only
one
which
was
explicitly
directed
to
employment
in
car
sales
with
the
fleet-use
concept.
The
Facts
The
employment
and
function
of
each
of
the
appellants
was
summarized
by
counsel
for
the
appellants
into
three
categories
as
follows:
Management:
A.K.
(Keith)
McKay-President
and
founder
of
the
dealership
Robert
(Bob)
W.
McKay-Vice-President
and
General
Manager
Donald
G.
MacWilliam-Secretary-Treasurer-financial
and
administration
J.
(Jack)
B.
McKay-Service
Manager
and
Supervisor
of
used-car
sales
manager
Sales
and
Sub-Management:
D.R.
Glover-Used
Car
Sales
Manager
D.G.
McLeod-Time
Sales
Manager
Ancillary
Services
and
Sub-Management:
L.L.
Szostak-Parts
Manager
L.A.
Clarke-Body
Shop
Manager
C.W.
Davies-Shop
Foreman
Much
evidence
was
led
with
respect
to
the
employment
functions
of
each
of
the
appellants.
All
were
in
some
sort
of
management
category.
None
were
permitted
to
sell
automobiles
in
a
manner
competitive
to
the
floor
salespeople.
Some
such
sales
had
occurred,
but
only
to
family
or
to
close
friends.
All
were
actively
employed
principally
(i.e.
mostly,
primarily
but
not
exclusively)
with
respect
to,
or
in
the
course
of,
and
for
the
sole
and
ultimate
purpose
of
car
sales
for
their
employer.
None
were
principally
employed
as
a
car
salesman.
Rather,
they
were
employed
as
a
necessary
and
vital
adjunct
to
the
sales
force,
and
they
formed
an
essential
and
overall
management
function
for
the
operation
as
a
whole.
Each
could,
and
would,
often
appear
on
the
sales
floor
to
approve
tentative
sales
and
to
fill
in
for
each
other
as
needed.
The
dealership's
obvious
financial
success
during
the
two
years
under
appeal
reflected
the
essential
functions
of
good
management
in
all
its
aspects.
Business
realities,
and
success
in
this
highly
competitive
field,
mandated
the
availability
of
repair
and
warranty
services
at
the
dealership.
No
used
car
sale,
or
car
sale
involving
a
trade-in,
could
be
finalized
without
the
direct
involvement
of
the
used
car
manager
whose
function
was
to
participate
in,
and
ultimately
authorize,
the
value
of
the
used
car
being
sold
or
of
the
value
of
the
trade-in
vehicle
on
the
sale
of
another
vehicle.
Similarly,
no
time
or
financed
sale
could
occur
without
the
direct
involvement
of
the
time
sales
manager.
Around
55
per
cent
of
the
sales
were
done
on
a
financed
basis.
The
physical
layout
of
the
dealership
graphically
portrayed
that
75
per
cent
was
utilized
for
car
sales,
20
per
cent
for
service
and
5
per
cent
for
parts.
Approximately
82
per
cent
of
the
dealership's
revenues
was
in
respect
of
sales.
The
remaining
18
per
cent
of
revenue
was
derived
from
the
auxiliary
services
offered.
The
record
keeping
as
mandated
by
General
Motors
required
expenses
to
be
allocated
to
the
exact
department
where
possible.
That
was
the
reason,
it
was
said,
why
the
expenses
relating
to
those
individ-
uals
having
management
responsibilities
were
allocated
amongst
the
various
departments.
Management
was
not
paid
by
commission
but
rather
was
rewarded
by
bonuses
on
the
basis
of
dealership
profitability.
Management
was
expected
to
gain
customers
in
multifarious
ways.
The
testimony
of
Keith
McKay
was
that
this
sales
aspect
impacted
on
the
lifestyles
of
management
and
of
their
families,
and
frequently
determined
the
kind
of
lifestyle
they
actually
led
because
personal
contact
with
many
people
was
desirable.
He
had
made
a
tape
that
was
played
frequently
on
local
radio.
On
one
of
these
advertising
broadcasts,
which
backgrounded
the
dealership's
name,
his
own
name
and
voice
was
identified
using
the
following
phrases:
'Tm
Keith
McKay,
and
when
you
buy
one
of
my
cars
you
buy
me."
“Selling
you
a
new
car
for
less
is
the
easy
part
of
my
job.”
“My
name
on
the
back
of
your
new
car
is
like
getting
me
in
the
back
seat.”
“You
get
Keith
McKay
with
every
car
at
McKay
Pontiac
Buick.”
The
employment
of
any
one
of
the
appellants
could
have
been
terminated
if
they
had
not
performed
their
respective
management
functions.
Failure
in
not
having
sold
any
or
many
cars
themselves
would
not
have
prejudiced
their
employment
in
the
dealership.
However
the
extensive
sales
experience
and
involvement
in
the
car
sales
business
by
the
three
Messrs.
McKay
and
of
Mr.
MacWilliam
rendered
non-sales
by
them
highly
unlikely.
That
each
of
these
particular
four
appellants
took
pleasure
and
pride
in
their
own
direct
car
sales
accomplishments
was
obvious.
The
evidence
as
a
whole
establishes
a
very
close
integration
with
and
affinity
amongst
management
and
sales
in
all
of
its
aspects,
particularly
with
respect
to
the
three
Messrs.
McKay,
Mr.
MacWilliam,
Mr.
Glover
in
used
car
sales
and
Mr.
McLeod
in
time/credit
sales.
I
am
unable
to
come
to
the
same
conclusion
concerning
Messrs.
Szostak,
Clarke
and
Davies
however,
and
find
as
a
fact
that
their
functions
and
duties
were
predominantly
in
the
service
or
ancillary
field
and
not
principally
in
vehicle
sales.
The
Position
of
the
Parties
Counsel
for
the
appellants
submitted
the
following:
1.
The
phrase
in
subsection
6(2.1)
says
that
the
taxpayer
must
be
principally
employed
in
selling
automobiles;
it
might
have
required
the
activity
to
be
as
an
automobile
salesperson,
but
it
did
not
say
that.
There
being
an
ambiguity,
the
phrase
may
be
interpreted
to
mean
principally
employed
in
the
business
of
selling
automobiles.
The
word
“in”
suggests
involvement
in
something.
In
this
case,
all
of
the
appellants
were
principally
employed
(involved)
"in"
selling
automobiles,
and
the
fact
that
they
were
not
involved
"as"
salesmen
is
irrelevant.
2.
In
reassessing
these
appellants
the
respondent
used
the
averaging
provisions
of
subsection
6(2.1)
to
determine
cost
in
computing
the
benefit
but
then
applied
2
per
cent
from
the
other
provision,
subsection
6(2).
In
other
words,
the
respondent
used
one
half
of
the
former
provision
because
it
was
convenient,
and
for
the
other
half
he
applied
the
latter
provision
which
had
the
higher
rate.
So,
while
the
reassessments
are
probably
erroneous
on
their
face,
the
methodology
underscores
the
purpose
of
having
subsection
6(2.1)
for
automobile
dealers
in
that
it
seeks
to
provide
a
more
reasonable
and
simplified
way
of
computing
the
benefit
to
the
employees.
When
seen
in
this
light,
it
would
not
make
any
sense
to
confine
its
application
to
those
employees
acting
as
salespeople—and
indeed
the
provision
does
not
do
that
in
the
terminology
employed.
Counsel
for
the
respondent
took
the
position
that:
1.
Subsection
6(2.1)
is
fairly
clear
in
its
wording
and
is
not
intended
to
apply
to
management.
It
was
the
corporate
dealership
that
was
involved
principally
in
the
business
of
selling
automobiles.
It
does
not
follow
that
simply
because
the
company
was
involved
that
therefore
all
of
its
employees
automatically
followed
suit.
The
principal
function
of
all
of
the
appellants
was
not
in
selling
automobiles;
rather
it
was
to
oversee
the
running
of
the
company,
its
departments
and
employees
and
to
ensure
that
everything
ran
properly.
They
could
not
be
terminated
if
they
did
not
sell
any
cars.
They
were
precluded
from
competing
with
their
floor-sales
employees
for
obvious
reasons.
This
was
the
way
the
corporate
employer
set
up
the
whole
situation
—management
and
sales
were
deliberately
set
up
to
be
separate
and
distinct.
Subsection
6(2.1)
recognizes
this
distinction,
and
it
does
not
seek
to
give
the
lower
rate
benefit
to
management.
2.
Interpretation
Bulletin
IT-63R2
dated
May
22,
1984,
paragraph
15,
recognized
that
employees
in
managerial
positions
may
be
eligible
for
subsection
6(2.1)
treatment
if
they
met
the
principal
employment
criteria
described
in
paragraph
14.
These
paragraphs
state:
14.
It
is
a
question
of
fact
whether
an
individual
is
employed
principally
in
selling
automobiles.
The
Department
considers
that
an
individual
would
normally
be
employed
principally
in
selling
automobiles
where
the
chief
activity
was
the
selling
of
automobiles,
that
is,
where
most
of
the
individual’s
time
and
effort
was
spent
directly
in
the
sale
of
automobiles.
15.
Employees
in
managerial
positions,
such
as
general
managers
and
sales
managers,
may
be
eligible
for
subsection
6(2.1)
treatment
if
they
meet
the
principal
employment
criterion
described
in
14
above.
However,
it
is
the
Department's
view
that
senior
executives
who
are,
for
the
most
part,
engaged
in
the
administration
of
the
business
do
not
meet
this
criterion.
Parts
managers,
service
managers
and
similar
employees
are
not
normally
eligible
for
subsection
6(2.1)
treatment,
under
the
same
reasoning.
Where
subsection
6(2.1)
is
not
applicable,
subsection
6(2)
is
applicable
in
the
computation
of
the
reasonable
standby
charge
referred
to
in
paragraph
6(1)(e).
3.
The
three
Messrs.
McKay,
and
Mr.
MacWilliam,
were
high-level
management
responsible
for
overseeing
the
whole.
Mr.
McLeod,
the
time
sales
manager,
operated
like
a
loans
officer
in
a
bank
who
approved
car
loans
on
a
deal
put
together
by
someone
else.
Mr.
Glover,
the
used
car
manager,
was
an
approvals
officer
and
similarly
acted
or
reacted
to
a
deal
put
together
by
someone
else.
The
remaining
three
appellants
were
even
more
removed
from
the
selling
activities.
Accordingly,
and
based
on
the
facts
of
this
case,
the
majority
of
the
time
of
each
of
the
appellants
was
spent
in
performing
their
managerial
functions
and
not
“principally
in
selling
automobiles”
as
subsection
6(2.1)
requires.
Analysis
The
first
aspect
to
be
determined
concerns
the
correct
interpretative
approach
to
be
applied
to
subsection
6(2.1)
of
the
Act.
Counsels'
analysis
and
submissions
succinctly
underscore
the
fact
that
its
phraseology
is
wanting
in
preciseness,
and
that
its
wording
is
ambiguous.
Subsection
6(2)
is
the
general
and
broad
provision.
Simplistically
stated,
its
calculations
are
premised
on
cost
per
vehicle,
its
use,
and
a
2
per
cent
factor.
Subsection
6(2.1)
is
obviously
an
exception
to
the
general
provision.
It
is
directed
to
one
particular
kind
of
employment
activity
and,
given
that
activity,
permits
a
lesser
factor
of
1
/2
per
cent
and
a
cost
averaging
rather
than
a
car-by-car
cost
analysis.
As
postulated
by
counsel
for
the
appellants,
it
does
implicitly
recognize
the
common
practice
in
the
automobile
sales
industry
of
fleet-use
of
dealership
vehicles
by
its
employees.
I
am
not
convinced
that
the
narrow
approach
is
the
proper
one
to
be
applied.
If
Parliament
had
wanted
to
restrict
the
benefits
of
subsection
6(2.1)
to
an
employment
activity
conducted
as
an
automobile
salesperson
it
could
have
said
so
in
clear
and
simple
terms.
It
is
not
a
complex
or
elusive
concept.
It
is
capable
of
being
easily
expressed
if
that
was
to
have
been
its
purpose
or
intent.
However,
to
interpret
this
provision
either
narrowly
in
the
sense
of
the
activity
being
"as"
a
salesperson,
or
broadly
in
the
sense
of
the
activity
being
“in
respect
of”
selling
automobiles,
seems
to
me
to
be
adding
words
to
the
provision
that
are
not
there.
Each
is
on
the
extreme
end
of
the
spectrum.
The
provision
in
my
view
contemplates
a
mid-line
approach.
There
is
to
be
a
nexus
or
significant
relationship
between
the
employee's
principal
employment
duties
with
that
of
their
sales
activities,
and
that
that
relationship
and
connection
is
to
be
more
than
merely
incidental
or
ancillary.
The
burden
is
on
each
of
these
appellants
to
establish,
on
a
balance
of
probabilities,
that
their
actual
management
activity,
"principally",
as
the
Shorter
Oxford
English
Dictionary
defines
it,
“in
the
chief
place,
mainly,
above
all;
for
the
most
part,
in
most
cases"
made
them
an
active
participant
"in"
selling
automobiles.
The
definition
does
not
mandate
exclusivity,
but
it
does
call
for
a
significant
degree
of
sales
involvement
to
satisfy
the
meaning
attributable
to
the
word
“in”.
Using
the
above
meaning
as
a
guideline,
and
applying
it
to
the
situation
as
described
in
the
case
for
each
appellant,
the
employment
functions
of
the
appellants
Messrs.
Szostak,
Clarke
and
Davies
were
simply
too
remote
or
ancillary
in
nature
to
satisfy
the
principal
employment
connection
to
sales
activities.
With
respect
to
Mr.
MacWilliam,
his
management
activities
were
incidental
to
sales
participation
as
he
was
principally
involved
in
matters
of
overall
finance,
administration
and
personnel.
The
most
significant
sales-management
employee
in
this
case
was,
in
my
opinion,
the
appellant
Mr.
Glover.
Functioning
as
a
used-car
sales
manager
he
could
make
or
break
a
deal,
and
it
would
be
unreasonable
to
regard
this
management
activity
as
not
being
principally
exercised
in
a
sales
environment.
The
same
pertains
to
the
management
functioning
of
the
time-sales
manager,
Mr.
McLeod.
With
respect
to
the
three
Messrs.
McKay,
my
analysis
of
how
they
actually
exercised
their
management
role
and
function
was
that
they
balanced
it
equally
between
keeping
the
dealership's
overall
business
activities
on
track
with
that
of
attracting
and
keeping
customers,
accompanied
by
the
occasional
sale
themselves
plus
giving
deal
approvals
where
required.
There
appears
to
be
little
doubt
but
that
the
dealership
was
“McKay”.
However
that
is
but
one
aspect
of
the
whole.
Dedicated
and
competent
management
in
its
classic
sense
on
the
one
hand,
and
dedicated
competent
selling
activities
on
the
other,
are
almost
always
interdependent
for
a
successful
business
outcome.
As
to
the
McKays',
however,
neither
of
these
two
functions
was
exercised
in
a
manner
subservient
to
the
other.
Concomitantly,
neither
of
these
functions
was
predominant.
As
noted
earlier
“principally”
does
not
mean
exclusivity.
It
would
be
unreasonable,
in
my
view,
to
find
that
the
management
activities
of
the
three
Messrs.
McKay
were
not
principally
"in"
selling
automobiles.
To
have
held
otherwise
would
belie
the
factual
realities
of
the
case
as
it
would
have
required
their
presence
on
the
sales
floor
"as"
a
salesperson.
I
have
already
determined
that
Parliament
had
not
mandated
this
narrow
an
approach.
Conclusion
The
appeals
of
the
appellants,
Messrs.
MacWilliam,
Szostak,
Clarke
and
Davies
are
dismissed.
The
appeals
of
each
of
the
Messrs.
McKay,
and
of
Messrs.
Glover
and
McLeod
are
allowed
and
the
matter
referred
back
to
the
Minister
of
National
Revenue
for
reconsideration
and
reassessment
on
the
basis
that
the
automobile
standby
charge
is
to
be
calculated
under
and
pursuant
to
the
provisions
of
subsection
6(2.1)
of
the
Act.
As
these
appeals
were
heard
on
common
evidence,
there
will
be
one
set
of
costs
on
a
party-to-party
basis.
Four
appeals
dismissed.
Five
appeals
allowed.
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