Francis J Fricker v. Minister of National Revenue, [1982] CTC 2454, 82 DTC 1438

D E Taylor:—This is an appeal heard in Toronto, Ontario, on March 4,1982 in connection with an income tax assessment for the year 1978 in which the Minister of National Revenue assessed to tax an amount of $847.34 as an automobile standby charge. The respondent relied, inter alia, upon paragraph 6(1)(e), subsections 6(2) and 15(5) of the Income Tax Act, SC 1970- 71-72, c 63, as amended.

The appellant’s Notice of Objection and Notice of Appeal gave the following information:

Enclosed with my return I made claim for repayment of tax paid for private use of company car, as per the decision in Herbert J Harman case versus Revenue Canada reported in the Financial Post per photostat attached.

I drive approximately 36,000 miles a year as President of a small chain of 12 restaurants from Belleville, Ontario in the East to Windsor, Ontario in the West. I frequently either leave directly from home to visit these restaurants or return directly to house at night from one of the restaurants (in effect I have 13 places of business). Invariably I have company goods (place mats, popcorn, guest cheques in my car for delivery to the restaurants or pieces of equipment for repair). I live only 10 miles from the office and in my judgment the amount of tax collected for private use of car is excessive, and my situation very comparable to that in the Harman* case. I was assessed tax on $847.34 for 1978.

'Harman v MNR, [1978] CTC 2144 (TRB); 78 DTC 1138; The Queen v H J Harman, [1978] CTC 12 (FCTD); 79 DTC 5037; [1980] CTC 83 (FCA); 80 DTC 6052

The company car used by me, is in my judgment, “A vehicle made available to me as President of my company primarily for business use”, under these circumstances the rules to be applied should be those outlined on Page 6 Example 2 of the 1981 tables 405, 405A and 405B — income tax deductions at source, and not the rule outlined on Page 5(b) which governs a car used primarily for personal use.

The car in question is driven approximately 40,000 miles per year of which about 10% is for personal use, and 90% used in the course of business, which involves the supervision of thirteen restaurants throughout Ontario from Cornwall in the east to Windsor in the west.

In the Reply to Notice of Appeal, the respondent contended:

(a) The Appellant is President of Total Food Systems Limited and a shareholder thereof;

(b) in 1978, he reported employment income of $55,103.59 which he received from G & H Steel Industries Limited, a company associated with Total Food Systems Limited;

(c) in 1978, Total Food Systems Limited leased an automobile for 12 months at a monthly cost of $212.93 which it made available to the Appellant for his personal use;

(d) the automobile is used by the Appellant for his personal use;

(e) the Appellant paid nothing to the corporation for the use of the automobile;

(f) a reasonable stand-by charge for the automobile is $847.34, (approximately 1/3 of the leasing cost).

The hearing itself produced these additional details:

Q And during the 1978 taxation year you had use of a company car?

A Yes

Q And what kind of car was that?

A An Audi Fox stationwagon.

Q And how much does an Audi Fox cost, if one was to purchase that car?

A In 1978, I don’t know. I think it was about $8,000, $7,500. We were leasing it so it was a little difficult for us to establish the precise . . . but it was in that neighbourhood.

Q Do you keep a record of your mileage when you use your car?

A I haven’t done historically. I’ve started to do it now because the Income Tax Act has changed as it relates to these things and I’ve been advised it would make a lot of sense to do so.

Q But in the 1978 taxation year you did not keep a record of your mileage?

A No.

Q Did you keep a diary of your oil and gas expenditures?

A No, but they’re all available through our company records, because they’re all turned in on expense accounts.

Q Do you have them here today?

A I don’t.

Q Is there any reason why you choose not to keep a record of your mileage for the purpose for which you use the car?

A I don’t think I expected it to be of significance. In hindsight, perhaps it would have . . . If I’d visualized that National Revenue was going to do what it did, it might have made sense. It was self-evident, I felt. I had two personal cars and I lived in Markham and I worked in .. . I’m not certain I really analyzed the situation at that point in time.

Q You just mentioned you had two personal cars. Let’s talk about those cars for a minute. What kind of cars are they?

A I’ve a Pontiac Parisienne, with air-conditioning and automatic transmission. My wife loathes standard. In the Audi we have a standard. And I have in my name, although my daughter uses it at university, a Volkswagen B convertible.

Q So the second car that you referred to is used by your daughter and she’s away at school?

A Well, she isn’t away at school. She was in Ottawa for a fair time. She is now working on an MBA on a semester system. She was at McMaster but right now she’s working across the road.

Q Knowing how daughters drive, do you get to use it?

A I don’t get to use it that often but I do get to use it.

Q And your wife drives the Pontiac Parisienne?

A We both drive.

Q And she doesn't drive other cars besides the Pontiac Parisienne?

A She doesn't like standard. I think she’s driven the one I’ve got now once.

Q And when you go out to . . . Who drives, you or your wife?

A It depends how far we’re going. I’d say usually I drive.

Q Now, companies usually act by resolution. Did you have a company resolution or policy about the use of company cars?

A No. I think . .. When you say that, I think you’re talking about large corporations. I don’t think that is true to say of small companies; and it is, in terms of the number of people we have in the office, a small company.

Q Is there a company policy with respect to the shareholders’ use of the company cars?

A (Shaking his head)

Q And, as President, you would basically dictate what that policy would be, would you not?

A If I was totally outrageous, the Chairman of the Board would probably discipline me but in practice, I wouldn’t.

Q Whatever policy applies to company cars, basically it’s . . .

A It would be established by me. The Chairman of the Board doesn’t interfere with that aspect.

Q And the rules with respect to the choice of a car would emanate from you?

A The rules with respect to the choice of a car would emanate from me. They would have to conform to the . . .

Q And with respect to the use, you would decide what is the appropriate use?

A Within the company or with respect . . .

Q With respect to the use of the company car?

A Yes, I would make the decisions with respect to the use.

Q Do you drive to work?

A Yes, but I have 13 places I have to drive.

Q But do you drive to your office?

A Yes, when I go to my office.

Q And do you use the car on the weekends?

A This car?

Q The Audi?

A Well, I don’t now have an Audi but occasionally I would use it on weekends. And from time to time, I must say, I would use my own private car on company business, not very often, but from time to time.

Q And have you used this car in travelling on vacation?

A Very, very seldom because I have a cottage on Lake Winnipeg in Manitoba and we don’t drive that far; and I occasionally take a week off in Florida in winter and we fly; and my mother is still living in England and I try to get home for her birthday in October and I fly. So, in fact, I’ve used up my four weeks’ allotment for now, not having much opportunity to vary that, so I would say 98 per cent of the time, no, I don’t use my Car.

Q But the car was available for your personal use?

A Yes.

(Counsel for the respondent)

. . . I can’t comment then on what the Federal Court intended, but what I can only say is that it seems from what the Federal Court says in that case that if you’re not under 6(1)(e) and 6(2), then you’re under the general benefit provision of 6(1 )(a); and then you calculate what the benefit to the employee is under 6(1)(a), because that’s what they say.

My understanding is this: that as it is reflected in the Harman decision, one looks at 6(1 )(e) and 6(2), and if the taxpayer does not fit within those sections, then one looks to 6(1)(a) to determine the benefit and that was the old law.

... I feel that it’s not relevant to my appeal here to decide whether or not the appropriate section to be taxed is 6(1 )(e) or 6(1 )(a) because my position is that 6(1 )(e) and 6(2) are applicable herein and they satisfy the situation fully.

But what the Court said in that decision, what the Federal Court of Appeal said in that decision was for this automobile and, implicit in that, for this particular taxpayer, the paragraph to be applied is paragraph 6(1 )(a) and I don’t think they went any further than that. And that is how much guidance they have given us from that point. They said: in this particular case, where the facts were that this man used the car for business purposes and very rarely and almost couldn't use it for personal use because it would take hours to unload the car, in that particular fact situation, don’t look at those sections, let’s look at 6(1 )(a).

Now, if I may just turn momentarily to paragraph 6(1 )(a), it is my alternate submission that if the Board finds that it is not satisfied or he does not fall on these facts in paragraph 6(1 )(e) and subsection 6(2), that the standby charge which has been assessed by the Minister should be included in his income pursuant to 6(1)(a) as the value of the benefit that he received from the use of this car, and that is consistent with the approach that was adopted in Bouchard — in Harman, and is referred to in Bouchard.

Without going into details regarding the evidence, it is sufficient to note that I was unable to discern a distinction of substantial merit between the facts in this case and the facts outlined in Harman (supra). The indication is that this appellant rarely, if ever, used the car in question for personal reasons, and to that degree his case, if anything, is stronger than that of the appellant Harman. The relevant jurisprudence, therefore, is to be found at 88 and 6055 respectively of the Federal Court of Appeal judgment in Harman (supra):

In the present case the facts establish that the employer provided an automobile necessary for and predominantly for the use of the employee in his employer’s business, and although the employee had permission to use it for personal purposes the opportunity to do so was minimal. Thus, I doubt that section 6(1 )(e), properly construed, applies to the automobile here under consideration and I believe that section 6(1 )(a) more aptly applies in the circumstances of this case.

Axiomatically, therefore, there is no relevance in this matter to the case of Ernest Bouchard v MNR, [1981] CTC 2488; 81 DTC 762, also quoted by counsel for the Minister as judicial support for the Minister’s assessment. In Bouchard (supra), the Board specifically held as a fact that the automobile was provided for personal not business use, and as a result it was not necessary for the Board to consider the altenative argument of the respondent under paragraph 6(1 )(a). It strikes me, however, that any alternative argument proposed by the respondent under paragraph 6(1 )(a) would be identical for all practical purposes to the contention of the taxpayer in this appeal

— that he wished to be assessed under paragraph 6(1 )(a). Any alternative argument advanced by counsel now under paragraph 6(1 )(a) might be debatable — the amount at issue has been assessed as a stand-by charge under paragraph 6(1 )(e) and not as a benefit under paragraph 6(1 )(a). If the Minister wished to reassess and thereby confront the taxpayer with a new and different task, that might be done, but it is not my perception, at the appeal process, that such re-structuring of the assessment is always appropriate. I am not persuaded that the rationale for taxation under para- graph 6(1 )(a) automatically includes and encompasses the conditions prescribed in paragraph 6(1 )(e). Further, the Board was not shown definitively in this matter that any amount was warraned even under paragraph 6(1 )(a), even if applicable.

The appellant in this appeal has met the task of showing that the assessment as it was struck does not accord with the relevant, current jurisprudence.

Decision

The appeal is allowed and the matter referred back to the respondent for reconsideration and reassessment in a manner not inconsistent with the above Reasons for Decision.

Appeal allowed.