Date: 20000623
Docket: 1999-2078-IT-I
BETWEEN:
NANCY JANE HEROD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Sarchuk J.T.C.C.
[1] These are appeals by Nancy Jane Herod from assessments of tax with respect to her 1994 and 1995 taxation years. In computing income for those years, she reported Automobile Standby Charge and Automobile Operating Cost benefits in respect of a personal use of a vehicle provided by her employer, Vincor International Inc. (the employer) in the amounts of $1,271 and $1,632, respectively.
[2] The Minister of National Revenue reassessed to increase the standby charge and operating costs benefits as follows:
|
Year |
Stand-by Charge |
GST |
Operating Costs |
GST |
Total Auto Benefits |
|
1994 |
$3,384 |
$219 |
$1,368 |
$72 |
$5,043 |
|
1995 |
$4,173 |
$270 |
$1,368 |
$72 |
$5,884 |
In so reassessing, the Minister made the following assumptions of fact:
(a) ...
(b) during the 1994 and 1995 taxation years, the Appellant had available for use an automobile leased or paid for by the Employer (the "Company's Vehicles"), and was required to record the kilometres she travelled during each year;
(c) during the entire 1994 and 1995 taxation years, the Appellant received and enjoyed the use of the Company's Vehicle;
(d) the Appellant failed to maintain proper records for the use of the Company's Vehicle;
(e) in each of the 1994 and 1995 taxation years, at least 12,000 kilometres of the distance travelled by the Company's Vehicle was not in connection with or in the course of the Appellant's employment;
(f) the Employer paid all expenses related to the operation of the Company's Vehicle throughout the 1994 and 1995 taxation years;
(g) for the 1994 and 1995 taxation years, the Employer conferred a benefit on the Appellant in respect of the personal use of the Company's Vehicle in the total amounts of $5,043 and $5,844 respectively.
[3] At the commencement of the hearing, the parties advised the Court that the assessment with respect to the 1995 taxation year was no longer in issue. The Appellant confirmed that the appeal for that year was to be dismissed.
[4] The Appellant is currently the national account manager for the employer. During the taxation year in issue, she was the key account manager primarily for the Oakville, Burlington and Mississauga area but was also required to occasionally cover other areas in Toronto. The employer is in the hospitality business and the Appellant's duties included the provision of "wait staff training and other services to the customers". She says this required frequent attendance at functions, consumer tastings, restaurant openings and so forth. At all times, she was required to carry out her duties from a home office and was not required to report back to the head office on a regular basis.
[5] The Appellant testified that the employer required her to keep an expense report in a form provided to her for that purpose. Her practice was to utilize a daytimer to keep track of her various appointments and trips, the information from which was recorded on the company expense report on a weekly basis. Most of her business travel was to and from the office at her residence. She says it was not unusual for her to have performed both business and personal duties in the course of the same trip but is unable to provide specific details. The Appellant produced copies of her weekly expense reports (Exhibit A-2) but concedes that they do not disclose any information which is capable of establishing percentages of use. According to the Appellant, her review of the weekly expense report in preparation for this hearing led her to estimate that the personal use portion did not exceed 10%.
[6] Evidence was adduced on behalf of the Respondent from M.L. Guyatt, an appeals officer with Revenue Canada. Her testimony, in brief, was that the standby charge was properly calculated by the auditor (Exhibit R-2), adding that this was primarily because the absence of adequate records precluded the Appellant from demonstrating that the employer's vehicle was used for business purposes all or substantially all of the time. She further said that for assessment purposes, the policy of Revenue Canada is to use 90% as complying with the "all or substantially all" provisions in paragraph 6(2)(A)(d) of the Income Tax Act (the Act).
[7] Statutory Provisions:
6(1) There shall be included in computing the income of a taxpayer for a taxation year as income from an office or employment such of the following amounts as are applicable:
...
(e) where the taxpayer's employer or a person related to the employer made an automobile available to the taxpayer, or to a person related to the taxpayer, in the year, the amount, if any, by which
(i) an amount that is a reasonable standby charge for the automobile for the total number of days in the year during which it was made so available
exceeds
(ii) the total of all amounts, each of which is an amount (other than an expense related to the operation of the automobile) paid in the year to the employer or the person related to the employer by the taxpayer or the person related to the taxpayer for the use of the automobile;
6(2) For the purposes of paragraph (1)(e), a reasonable standby charge for an automobile for the total number of days (in this subsection referred to as the “total available days”) in a taxation year during which the automobile is made available to a taxpayer or to a person related to the taxpayer by the employer of the taxpayer or by a person related to the employer (both of whom are in this subsection referred to as the “employer”) shall be deemed to be the amount determined by the formula
A/B x [2% x (C x D) + 2/3 x (E - F)]
where
A is the lesser of
(a) the total number of kilometres that the automobile is driven (otherwise than in connection with or in the course of the taxpayer's office or employment) during the total available days, and
(b) the value determined for B for the year under this subsection in respect of the standby charge for the automobile during the total available days,
except that the amount determined under paragraph (a) shall be deemed to be equal to the amount determined under paragraph (b) unless
(c) the taxpayer is required by the employer to use the automobile in connection with or in the course of the office or employment, and
(d) all or substantially all of the distance travelled by the automobile in the total available days is in connection with or in the course of the office or employment;
Analysis
[8] 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 her, 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.
[9] The Appellant contends that the source of her problems is the fact that no guidelines are provided for allocating mileage in instances when there is both a business and a personal reason for a particular use of the vehicle. She maintained that a daytimer was kept and says that it would have assisted her in providing such evidence to the Court but it is no longer available. Quite frankly, given her testimony as a whole, I doubt whether it would have in fact provided her with the information necessary to establish her position. In fact, when asked by the Respondent to provide a summary of her personal mileage, the Appellant wrote "I am unable to provide a detailed summary, since I very frequently will mix business trips with personal on the weekends". By way of example, she spoke of going out for dinner with her husband and opting to dine at a client's restaurant. She concedes the motivation to have dinner was personal but argues that it was good public relations to patronize a client and accordingly, treated this usage of the automobile to be for business purposes. She also noted that "I very often will run errands for business during my personal time, i.e. pick up product samples at the local LCBO or Wine Rack or get photocopies or display materials while I am out doing personal errands".
[10] I accept that given the manner in which the Appellant used the employer's vehicle a precise allocation did present problems. However, it is equally obvious that it was the Appellant's failure to set up a simple system and to use it on a consistent basis which prevented her from providing a reasonable foundation for allocation between personal and business use. This is really what is at the root of her current problems.
[11] The Appellant argued that no one had ever stressed the importance of keeping detailed records to substantiate her position and expressed annoyance, to put it mildly, with what she referred to as Revenue Canada's failure to provide a clear definition of business versus personal mileage. She insisted that as a result her mileage records should not be disputed unless a concise definition was provided. I note, however, that in a document captioned Corporate Policies and Procedures provided to her by the employer, personal use is defined in part as: "personal driving during normal working hours". It seems that this definition alone should have alerted her to the necessity of keeping track of personal as contrasted to business use of the vehicle.
[12] The simple fact of the matter is that a taxpayer is responsible for maintaining records in a form enabling the taxpayer to establish her position. I do not suggest that this record-keeping need be absolutely and perfectly accurate but what has been presented to the Court is inadequate to establish the Appellant's position. The appeals are dismissed.
Signed at Ottawa, Canada, this 23rd day of June, 2000.
"A.A. Sarchuk"
J.T.C.C.