Date: 19981123
Docket: 97-3314-IT-I
BETWEEN:
RICHARD ROMERIL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
(Delivered orally from the Bench at Calgary, Alberta, on November 20, 1998)
Bowie J.T.C.C.
[1] During the 1994 taxation year the Appellant and his wife took a trip to Europe at the expense of General Motors of Canada Ltd. (GM). The issue in this appeal is whether the value of that trip is, in whole or in part, income from his employment pursuant to sections 5(1) and 6 of The Income Tax Act (the Act).
[2] The Appellant was the only witness at the trial, and his evidence was not challenged by counsel for the Respondent; I accept it in its entirety.
[3] In 1994 the Appellant was employed as the general manager of Calgary Motor Products Ltd. (CMP), a large General Motors dealership in the city of Calgary. This dealership was at that time wholly owned by one Larry Shaw, an entrepreneur with a variety of business interests. In the lexicon of General Motors, Mr. Shaw, as the sole owner, was the dealer principal of CMP. Mr. Shaw was looking to the future and considering, as part of his long-term estate planning requirements, that he needed to groom someone to be his successor as dealer principal. Ultimately, his interest in the dealership would be liquidated by a sale of his shares to such a person. Mr. Shaw also had a short-term plan to expand his dealership through the acquisition of another large General Motors dealership, Lynnwood Chevrolet Oldsmobile (Lynnwood). It was his intention to buy Lynnwood, and to merge its operations with those of CMP, creating one of the largest dealerships in the country, and the only one which would sell the entire line of General Motors vehicles. This would be accomplished by the construction of large new premises, consisting of two showrooms, and merged facilities for service, body shop, parts and used vehicle sales. The administrative functions of the two dealerships would also be merged.
[4] General Motors, through its franchise agreements, maintains close control over the operations of its dealerships. The sale of a dealership requires approval by the GM management in Oshawa of the new dealer principal. Even the sale of an interest in a dealership would require approval. It was therefore critical to Mr. Shaw’s plans, both for the short and the long run, that the senior management of GM be favourably disposed towards them.
[5] During 1994 CMP, by reason of a successful sales record during a period of competition among dealerships across Canada, won the right to send two representatives of the dealership to a convention to be held in and about the south of France in September of that year. Almost invariably, when a dealership wins such an award it is represented there by the dealer principal and his wife. Conventions of this sort are typically attended by a large number of GM head office personnel, including several of the most senior executives. Mr. Shaw decided that his interests would be best served if, instead, the Appellant and his wife were to attend. The reason for this was simply that the Appellant was the best candidate, and perhaps the only viable one, to be taken into an ownership position with the company, with the long term expectation that he would buy Mr. Shaw’s entire interest and become the dealer principal. He also was the individual who would be the day-to-day manager of the new merged dealership. For both these reasons Mr. Shaw wanted the Appellant to attend the convention, both to meet and become known to the GM executives who would be there, and to meet the other dealer principals who would attend, and discuss a variety of business problems with them. He therefore asked the Appellant and his wife to attend as the representatives of the CMP dealership. The Appellant, quite understandably, viewed this request as an invitation he could not refuse, and he and his wife therefore attended and took part in the convention.
[6] The evidence before me as to the exact nature of the agenda for this convention was scant indeed. It was a one week event, from Monday to Saturday, exclusive of travel. The arrival point in Europe was Nice, in the south of France, and some travel by cruise ship and sightseeing apparently was involved. The Appellant testified that meal times were almost entirely devoted to shoptalk among the dealers and GM executives, and that there were some organized functions of an entirely business nature, including a meeting attended by the president, and at least one vice-president, of GM. He also estimated that some 50% of the unstructured time was devoted to shoptalk, and to meeting with the GM executives present. The Appellant’s wife did not take part in the discussions about the management problems of automobile dealerships, but she did meet and get to know, and be known by, the GM dealers and executives, and their spouses. As the Appellant put it in his evidence, he and his wife did not particularly enjoy the week. It was not the type of vacation that they would have chosen for themselves, and they had the feeling throughout, no doubt for good reason, that they were on display.
[7] Counsel for the Respondent conceded in argument that, in the particular circumstances giving rise to the Appellant’s attendance, this was not simply a pleasure junket for either the Appellant or his wife, but a trip which was genuinely related to the business of CMP, and to the Appellant’s future business prospects. Since then the Appellant has, in fact, become a part owner of the dealership, and he is now the managing partner of the combined operations of CMP and Lynnwood. That could not have been accomplished without the approval of GM management, which in turn could not likely have been achieved if he had not attended the convention in 1994.
[8] Counsel referred me to a number of decisions of this Court, and of the Federal Court, which deal with the question whether attendance at a particular convention was a taxable benefit to an employee. As the Federal Court of Appeal recently observed,[1] the answer to this question is largely fact driven. The question which a trial judge must answer in each case was succinctly formulated by Stone J.A. in the Lowe case in these words:[2]
... The essential question in the present case, it seems to me, is whether on the facts the principal purpose of the trip was business or pleasure. ...
This, of course, does not mean that any pleasurable activities undertaken which would normally be associated with vacationing and which are enjoyed by the taxpayer during a business convention should be treated as a benefit, so long as the business aspect predominates.[3]
[9] Considering all the evidence in this case, I am satisfied that the primary reason for the Appellant’s attendance at this convention was as part of the fulfilment of his duties as the general manager of CMP. He was, in effect, sent by Mr. Shaw. It was an important element in bringing Mr. Shaw’s plans to fruition that the Appellant meet and be assessed by the GM executives who were there. It was important, too, that his wife should also undergo their scrutiny. As Bell J. has said,[4] in a context only slightly different from the present one, the role of spouses in promoting good business relationships is well established. Counsel for the Respondent, quite properly, did not dispute that the Appellant’s wife’s attendance at the convention was for business related reasons, to the same extent as was his own.
[10] Counsel for the Respondent also accepted in the course of argument that this convention was not in the nature of a vacation for either the Appellant or his wife. His submission was that their attendance there served two different purposes; one was in furtherance of the plans of Mr. Shaw, and the other was to further his own career within the dealership and the GM organization. The latter, he submitted, was purely of benefit to the Appellant, not his employer, and therefore the portion of the cost attributable to that purpose should be taxed as a benefit in his hands.
[11] In my view this argument is without merit. This Appellant’s circumstances are quite distinct from those considered by Sarchuk J. in Faubert v. The Queen,[5] where an amount paid by the Appellant’s employer to reimburse the fees paid by him for a course which he was encouraged, but not required, by his employer to take was found to be a taxable benefit, because the effect of the course was simply to enhance the employee’s qualification for a better position within the employer’s organization, and not to enable him to better perform his present job. Here the predominant purpose of the Appellant’s attendance at the convention, and that of his wife, was to further the employer’s business. He was, for practical purposes, told by his employer to go.
[12] It is not difficult to see that there will be a great many commercial situations in which an employee, while attending to her employer’s business, will acquire skills, experience, and contacts which will stand her in good stead in the future, and will have a significant beneficial effect on her future career. It would be absurd, and contrary to authority, to conclude that a value is to be placed upon this accretion to the employee’s career prospects and taxed in her hands as an employment benefit. This kind of situation falls within the purview of what Stone J.A. had in mind when he said in Lowe:[6]
... It seems to me in light of existing jurisprudence that no part of the appellant’s trip expenses should be regarded as a personal benefit unless that part represents a material acquisition for or something of value to him in an economic sense and that if the part which represents a material acquisition or something of value was a mere incident of what was primarily a business trip it should not be regarded as a taxable benefit within subparagraph 6(1)(a) of the Act. ...
[13] It follows that this appeal should be allowed, and the assessment referred back to the Minister of National Revenue for reconsideration and reassessment, on the basis that Appellant did not receive a taxable benefit as a result of his or his wife’s attendance at the convention.
[14] The Appellant is entitled to his costs.
Signed at Ottawa, Canada, this 23rd day of November, 1998.
"E.A. Bowie"
J.T.C.C.