Scott Beachkowski v. Minister of National Revenue, [1988] 1 CTC 2176, 88 DTC 1103

Taylor, T.C.J.:—This is an appeal heard in Vancouver, British Columbia, on December 3, 1987, against an income tax assessment for the year 1982 in which the Minister of National Revenue disallowed an amount of $3,532.89 deducted by Mr. Beachkowski as capital cost allowance (C.C.A.) on an automobile, and presumably interest expense on the purchase of the same automobile. The respondent's attention in this appeal was directed toward bringing to the Court the reasons for disallowing the capital cost allowance on the automobile, but since paragraph 8(1)(j) also deals with interest on the purchase of an automobile, the Court has assumed the amount of interest disallowed was also for that purpose — no other explanation was provided at the hearing, and it was the respondent who referenced the amount of $3,532.89, in the reply to notice of appeal. The "disallowance" in the assessment notice was calculated as follows:

Disallowed —

Interest	$ 606.12
C.C.A.	3,810.00
	$4,416.12
20% Personal	883.23
	$3,532.89

The appellant was employed as a commercial sales representative by Tremco Ltd. from March 27, 1982 to November 30, 1982. He used his automobile in the performance of these duties during that period of time. The position of the respondent was:

— the Appellant ceased to use his automobile for the purpose of earning income from employment on November 30, 1982;

— the Appellant was not using his automobile for the purpose of earning income from employment at the end of his 1982 taxation year.

— . . . the Appellant had no depreciable property at the end of his 1982 taxation year that would give rise to a deduction for capital cost allowance as provided for in the Act and Regulations.

— The Respondent relied, inter alia, upon Subsection 13(7) and Paragraphs 8(1)(i), 8(1)(j), 13(21)(b) and 13(21)(f) of the Income Tax Act, and upon Regulation 1100(6) of the Income Tax Regulations.

The taxpayer did not contest any of the facts or assumptions alleged by the Minister but simply contended that he should be entitled to the deduction according to his reading of the relevant Interpretation Bulletin. The Minister referenced the case of Leslie W. Ainsworth v. M.N.R., [1968] Tax A.B.C. 782; 68 D.T.C. 596.

In my view the above case (Ainsworth) cannot be applied directly to the instant appeal — at least for the main reason for which that appeal was dismissed — Mr. Ainsworth did not own an automobile at the end of the fiscal year. Mr. Beachkowski retained his automobile, even though it was not being used for the month of December in the same manner it had been used earlier in the year, due to the fact that Mr. Beachkowski was not a commissioned salesman during that period of time.

Counsel for the Minister relied on two arguments — first, that the phrase “in the performance of the duties of his office or employment as is allowed by regulation” from paragraph 8(1)(j) of the Act, eliminated the deduction for Mr. Beachkowski since subsection 1100(6) of the Income Tax Regulations stated :

. . . allowed to the taxpayer in computing his income for the year such amount as he may claim in respect of an automobile or aircraft not exceeding the amount that would be allowed under subsection (1) if the automobile or aircraft, as the case may be, had been acquired by him for the purpose of gaining or producing income from a business.

Subsection (1) referenced in that regulation, states (in the portion counsel considered relevant):

. . . Of the undepreciated capital cost to him of the property of the class as of the end of the year. . . property of the class . . .

Counsel thereby reached the conclusion that Mr. Beachkowski did not have any property “in that class" at the end of the year because the automobile was not being used by the taxpayer for the purpose of earning commission income at that point in time according to the Minister. Before moving on I would simply note, without attaching any particular significance to it, that subsection 1100(6) refers only to "business", while subsection (1) does refer both to "business" and "property", as the basis of the income of the taxpayer.

As I see it, from Mr. Paris’ rationale noted above, that would mean a taxpayer purchasing an automobile on January 1 of a taxation year and losing his employment position (for whatever reason) on December 30 of that same year, having used his automobile to earn income for that entire period, would nevertheless not be entitled to any deduction for capital cost allowance. I find that logic difficult to accept — although I can appreciate how the Minister reaches that conclusion.

When queried by the Court regarding this unrealistic application of the Act, Mr. Paris then turned for his second argument to subsection 13(7), paragraphs 13(21)(b) and 13(21)(f) of the Act. As he explained it, these sections left the taxpayer in the position that — "he shall be deemed to have disposed of it . . .", because after termination of his employment, Mr. Beachkowski had commenced to use the automobile "for some other purpose" — that other purpose being as a personal vehicle.

In my view subsection 13(7) and the subsections quoted above have no bearing on this appeal. Subsection 13(7) specifically says:

. . . acquired property . . . for the purpose of gaining or producing income therefrom . . .

that is in my view from business or property. Mr. Beachkowski's relevant section is paragraph 8(1)(f) of the Act, which states:

. . . for the purpose of earning income from the employment. . .

This Court on many occasions has brought out that a commission salesman falling within paragraph 8(1)(f) of the Act is not in business, but is an employee, — a specific kind of employee with certain deduction privileges, but an employee nevertheless.

Therefore, it remains to be seen if Mr. Beachkowski is caught by the words arising out of paragraph 8(1)(j) ”. . . as is allowed by regulation”, based on the Minister's first argument (supra) when the exact words of subsection 1100(6) are examined:

1100(6) — For the purposes of paragraphs 8(1)(j) and 20(1)(a) of the Act, in computing a taxpayer's income from an office or employment for a taxation year, there is hereby allowed to the taxpayer in computing his income for the year such amount as he may claim in respect of an automobile or an aircraft not exceeding the amount that would be allowed under subsection (1) if the automobile or aircraft, as the case may be, had been acquired by him for the purpose of gaining or producing income from a business. [Emphasis mine.]

As I read that regulation, the only restriction would appear in the amount "he may claim”, that is "not exceeding" the amount which could be claimed if paragraph 20(1)(a) applied.

From that interpretation, it is difficult to see where there is a specific legislative bar to Mr. Beachkowski charging the full C.C.A. for the automobile he owned while employed as a commission salesman, and still owned at the end of the taxation year 1982. There does not appear to be any provision under which the taxpayer could calculate the C.C.A. on some "proportionate basis" since subsection 1100(3) of the Income Tax Regulations does not seem to apply.

With regard to the interest "charge" noted above, I do not see in paragraph 8(1)(j) even the prospect of disallowing that charge as the Minister has done — if indeed the amount did relate to the purchase of the car, and that is what I have assumed.

In summary, the C.C.A. provisions of the Act which come into effect relative to the "year-end" use of an asset, when that asset has been acquired for the purpose of gaining or producing income from property or business, seem to me to provide very unsteady support for the Minister to disallow a similar charge, under the circumstances of this case — where the taxpayer is an employee.

Accordingly the appeal will be allowed to the full extent of the amount indicated by the respondent to be in issue — $3,532.89. I would only add that the text in the explanation of the reassessment at issue, this comment was used by Revenue Canada:

According to the Income Tax Act, Capital Cost Allowance may be claimed only if your automobile was used for business as at the end of the year (i.e. December 31st). Since you ceased your employment on November 30, 1982, your automobile was not used for business purpose on December 31st and therefore Capital Cost Allowance is not allowable.

As I see it, the term"business" is totally inapplicable in the context of this case.

One further note — reference was made earlier to the taxpayer's main argument. In the notice of appeal, the taxpayer included the following comment:

IT-272R, paragraph 19, indicates that if the use of the vehicle ceased temporarily a deemed disposition will not be considered, as long as the nature of employment has not changed. I remained in the same type of employment (different employer) in 1983 and a company car was provided in the new employment. There was no choice, even though my car was available for business purposes.

I do have some reservations about reading that Interpretation Bulletin (as the taxpayer has done) to provide complete support for his position. In addition, while the use of Interpretation Bulletins to determine income tax cases should be very carefully applied, there is certainly some value to them when little else gives enlightenment or guidance. I am not sure where the Minister finds legal support for the interpretation given above, or for that matter where there is legal support for several of the interpretations given in IT-272R (supra) but it does add further to the opinions I have already expressed favourably to the appellant's case reflecting the precise words of subsection 1100(6). I recognize that one could make the argument that "the nature of his employment" (see IT-272R) had changed — due to termination of the employment. But according to his own testimony, Mr. Beachkowski continued to regard himself as a “commission salesman”, searching for employment — in his view, the nature of his employment had not changed

— he remained a commission salesman, but had no job until he relocated. The use of his automobile (if he did so use it) during this "hiatus" period may not have been a deductible expense to him — but that specific issue was not raised. In my view the Interpretation Bulletin provision again does little to clearly support the Minister’s case and I am not persuaded that it can legally be said that at the relevant year end (December 31, 1982) there were no assets remaining in the "class" which included the automobile.

The appeal is allowed and the matter referred back to the respondent for reconsideration and reassessment.

The appellant is entitled to party and party costs.

Appeal allowed.