Date: 20010712
Docket: 2000-5177-IT-I
BETWEEN:
JON A. BEKKERS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Hamlyn, J.T.C.C.
FACTS
[1] These appeals arise as a result of a Notice of Reassessment dated May 3, 1999 in which the Minister of National Revenue (the "Minister") included in the Appellant's income additional automobile benefits for the 1996 and 1997 taxation years in the amounts of $2,115.90 and $6,374.76 respectively.
[2] Commencing on July 2, 1996 and thereafter and throughout 1997, the Appellant received remuneration as an employee of Lakeview Shopping Centre Limited ("Lakeview Ltd.") from Access Communications Incorporated (the "Company"), a sister company of Lakeview Ltd. The Appellant was employed by Lakeview Ltd. but for pension reasons was paid by the Company and the Company was reimbursed by Lakeview Ltd. The Appellant was the President of Lakeview Ltd. At all material times, commencing July 2, 1996 and thereafter, the Appellant had the use of an automobile provided by the Company ("Company car"), as agent for its sister company, Lakeview Ltd. At all times during 1996 and 1997, the Appellant's spouse had the use of a Toyota Tercel automobile. The Toyota Tercel automobile is not in issue.
[3] The Appellant states that he used the Company car for personal driving less than 1,000 kilometres a month, representing less than 10% of the total usage of the Company car during 1996 and 1997. He also states that all or substantially all of the distance driven by the Company car during 1996 and 1997 was in connection with or in the course of the Appellant's office or employment with Lakeview Ltd. The Appellant states that the above assertions are corroborated by a travel log kept by himself during the first six months of 1999 in which year he had the same work duties and travel schedule as in each of 1996 and 1997. As a result, the Appellant contends that he is entitled to a reduced standby charge pursuant to paragraph 6(1)(e) of the Income Tax Act (the "Act") and a consequential adjustment of the assessed operating expense benefit pursuant to paragraph 6(1)(k) of the Act.
[4] The Minister states that the Appellant did not use the Company car all or substantially all of the time for employment purposes. The Minister states that the Appellant did not maintain a record of kilometres driven during 1996 and 1997.
ISSUE
[5] The issue is whether the Appellant is entitled to a reduced standby charge and corresponding adjustment to the automobile operating expense benefit assessed for his 1996 and 1997 taxation years.
STATUTORY FRAMEWORK
[6] The relevant provisions are:
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;
(k) where
(i) an amount is determined under subparagraph (e)(i) in respect of an automobile in computing the taxpayer's income for the year,
(ii) amounts related to the operation (otherwise than in connection with or in the course of the taxpayer's office or employment) of the automobile for the period or periods in the year during which the automobile was made available to the taxpayer or a person related to the taxpayer are paid or payable by the taxpayer's employer or a person related to the taxpayer's employer (each of whom is in this paragraph referred to as the "payor"), and
(iii) the total of the amounts so paid or payable is not paid in the year or within 45 days after the end of the year to the payor by the taxpayer or by the person related to the taxpayer,
the amount in respect of the operation of the automobile determined by the formula
A - B
where
A is
(iv) where the automobile is used primarily in the performance of the duties of the taxpayer's office or employment during the period or periods referred to in subparagraph (ii) and the taxpayer notifies the employer in writing before the end of the year of the taxpayer's intention to have this subparagraph apply, ½ of the amount determined under subparagraph (e)(i) in respect of the automobile in computing the taxpayer's income for the year, and
(v) in any other case, the amount equal to the product obtained when the amount prescribed for the year is multiplied by 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 period or periods referred to in subparagraph (ii), and
B is the total of all amounts in respect of the operation of the automobile in the year paid in the year or within 45 days after the end of the year to the payor by the taxpayer or by the person related to the taxpayer;
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 × [2% × (C × D) + 2/3 × (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;
B is the product obtained when 1,000 is multiplied by the quotient obtained by dividing the total available days by 30 and, if the quotient so obtained is not a whole number and exceeds one, by rounding it to the nearest whole number or, where that quotient is equidistant from two consecutive whole numbers, by rounding it to the lower of those two numbers;
C is the cost of the automobile to the employer where the employer owns the vehicle at any time in the year;
D is the number obtained by dividing such of the total available days as are days when the employer owns the automobile by 30 and, if the quotient so obtained is not a whole number and exceeds one, by rounding it to the nearest whole number or, where that quotient is equidistant from two consecutive whole numbers, by rounding it to the lower of those two numbers;
E is the total of all amounts that may reasonably be regarded as having been payable by the employer to a lessor for the purpose of leasing the
automobile during such of the total available days as are days when the automobile is leased to the employer; and
F is the part of the amount determined for E that may reasonably be regarded as having been payable to the lessor in respect of all or part of the cost to the lessor of insuring against
(a) loss of, or damage to, the automobile, or
(b) liability resulting from the use or operation of the automobile.
230. (1) Every person carrying on business and every person who is required, by or pursuant to this Act, to pay or collect taxes or other amounts shall keep records and books of account (including an annual inventory kept in prescribed manner) at the person's place of business or residence in Canada or at such other place as may be designated by the Minister, in such form and containing such information as will enable the taxes payable under this Act or the taxes or other amounts that should have been deducted, withheld or collected to be determined.
[emphasis added]
DAILY ROUTINE
[7] On typical workdays during 1996 and 1997 the Appellant drove the Company car from his Dartmouth residence and travelled two kilometres to his Dartmouth office or 2.5 kilometres from his residence to his infant daughter's daycare and then on to work, all of which is considered by the Appellant to be personal travel.
[8] The Appellant drove the Company car extensively beyond the Dartmouth office for work-related purposes for the Keating Group of Companies. The evidence in relation to the Appellant's work-related duties was clear, straightforward and did involve driving with respect to other Keating companies. I have concluded this driving was part of his duties with respect to Lakeview Ltd.
THE KEATING GROUP OF COMPANIES
[9] Lakeview Shopping Centre Limited, Access Communications Inc. and Altimax Developments, a division of Lakeview Shopping Centre Limited., are all
part of the Keating Group of Companies. The Appellant's father-in-law held the controlling interest in each one of the companies in the group. The Appellant's work duties were primarily related to Lakeview Shopping Centre, however these duties also involved other companies of the Keating Group.
THE ABSENCE OF A "LOG"
[10] The Appellant, for 1996 and 1997, did not maintain a travel log. Prior to to his employment with Lakeview Ltd., the Appellant worked for Proctor & Gamble and was familiar with the maintenance of a travel log.
[11] For the first six months in 1999 the Appellant maintained a travel log of the kilometres travelled. The Appellant stated he had the same work duties and responsibilities and travel schedules in 1996 and 1997 as he had in the first six months of 1999.
ANALYSIS
AUTOMOBILE STANDBY CHARGE
[12] Paragraph 6(1)(e) provides for a standby charge for an automobile that is made available to a taxpayer by the taxpayer's employer or a person related to the employer in a given taxation year. The standby charge brings into income the value of the benefit derived by a taxpayer from a company car that is made available for the taxpayer's personal use. Subsection 6(2) provides a formula for determining the value of such benefit. The definition of "A" found in subsection 6(2) provides for a reduction in the standby charge that is to be included in a taxpayer's income, if certain conditions are met. In The Queen v. Adams et al.,[1]Robertson J. reviewed the conditions required to qualify for a reduced standby charge. He stated at page 6271:
The so-called "minimal personal use" exception is contained within the definition of "A" set out in subsection 6(2). Essentially, the exception enables an employee to obtain a reduction in the amount of the standby charge, otherwise applicable, if the following conditions precedent are satisfied. First, the employer must require the employee to use the automobile in the performance of his or her duties of employment. Second, "all or substantially all" of the distance travelled by the automobile during the time it was made available to the employee must be in connection with or in the course of his or her employment. In this regard, the Minister has adopted the policy that at least 90% of the automobile's use must be for employment purposes: see IT-63R4. Third, personal use of the automobile must be less than 12,000 km per year. Thus, employees who use an employer's automobile exclusively for business purposes are not required to include in income a standby charge. This is so because "A" will equal zero. Employees who make personal use of their employer's automobile are entitled to a reduction in the standby charge, provided that such use is minimal; that is to say all three conditions precedent are met.
[13] The Appellant has argued that he meets all of the above conditions required to qualify for a reduced standby charge. The issue then becomes whether the Appellant is able to substantiate that he in fact has met the required conditions.
[14] In Tremblay v. The Queen,[2] Judge Tardif enunciated that with respect to claiming a reduced standby charge, it is not sufficient for an appellant to merely allege repetitively that their personal use of a company car was less than 10%. Also, Judge Tardif stated that while there is no obligation to keep a log book, the decision not to maintain one compounds the evidentiary problem faced by a taxpayer having to prove with precision the personal content in the total kilometres involved.
[15] Section 230, as it applies to this case, provides that every person that is required by the Act to pay taxes must keep records at the person's place of residence in Canada in such form and containing such information as will enable the taxes payable under the Act to be determined.
[16] In Archambault v. Canada,[3] Judge Archambault reviewed the jurisprudence relating to section 230 and stated at paragraph 44:
Associate Chief Judge Christie provided a very good summary of the state of the law on that issue [s.230] in Kay v. Canada, [1994] T.C.J. No. 487, para. 9:
It may be appropriate to say something about taxpayers keeping records and books of account. Under subsection 230(1) of the Income Tax Act every person carrying on business and every person who is required to pay taxes shall keep records and books of account in such form and containing such information as will enable the taxes payable under the Act to be determined. Failure to comply with the subsection will not, of itself, result in the dismissal of an appeal against a reassessment of liability to income tax. But it could interfere with an appellant's ability to discharge the burden of proof on him of showing that, on a balance of probability, the reassessment is in error. This was recently dealt with by the Federal Court of Appeal in Sidhu v. M.N.R., 93 D.T.C. 5453 (F.C.A.). Mahoney J.A. in delivering the judgment of the Court said at page 5454-5:
Associate Chief Judge Christie provided a very good summary of the state of the law on that issue [s.230] in Kay v. Canada, [1994] T.C.J. No. 487, para. 9:
It may be appropriate to say something about taxpayers keeping records and books of account. Under subsection 230(1) of the Income Tax Act every person carrying on business and every person who is required to pay taxes shall keep records and books of account in such form and containing such information as will enable the taxes payable under the Act to be determined. Failure to comply with the subsection will not, of itself, result in the dismissal of an appeal against a reassessment of liability to income tax. But it could interfere with an appellant's ability to discharge the burden of proof on him of showing that, on a balance of probability, the reassessment is in error. This was recently dealt with by the Federal Court of Appeal in Sidhu v. M.N.R., 93 D.T.C. 5453 (F.C.A.). Mahoney J.A. in delivering the judgment of the Court said at page 5454-5:
The law places the onus on the taxpayer in such cases to prove wrong the Minister's reassessment on the basis that the taxpayer is in a better position to prove what actually happened, if he chooses and is able to do so. Unfortunately, the plaintiff has not
been willing or able to particularize in any way the purchases made by him. He has confirmed on many occasions that the figures provided by his accountant as to his total purchases were correct. If he had made any effort to corroborate this and his oral evidence had seemed forthcoming and credible, it might have been possible to find in his favour even in the absence of any vouchers, receipts or other written records. Unfortunately neither of these requirements were met.
[emphasis added]
[17] The Appellant does not have any records pertaining to his use of the Company car for the 1996 and 1997 taxation years. However, this does not necessarily bar him from claiming a reduced standby charge. Despite a lack of records kept, corroborating oral and other evidence, if credible, can nevertheless discharge the Appellant's evidentiary task of proving on a balance of probabilities that he used the Company car more than 90% for employment purposes.
CONCLUSION
[18] The Appellant's evidence was credible and uncontroverted. I am satisfied he established on a balance of probabilities that for the periods in question the personal use kilometres was less than 10% of the total kilometres travelled in the Company car that was made available to him and this personal use was less than 12,000 kilometres per year. From the evidence I conclude that his employer required him to use the vehicle in the performance of his duties of employment and all or substantially all of the distance travelled by the Company car during the time the vehicle was made available to him was in connection with and in the course of his employment. Thus, the Appellant is entitled to a reduced standby charge and corresponding adjustment to the automobile operating expense benefit assessed in relation to the Company car.
DECISION
[19]The appeals for 1996 and 1997 are allowed, with costs, and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that all or substantially all of the distance travelled in the Company car in the total available days was in connection with the Appellant's employment with Lakeview Shopping Centre Limited.
Signed at Ottawa, Canada, this 12th day of July 2001.
"D. Hamlyn"
J.T.C.C.
COURT FILE NO.: 2000-5177(IT)I
STYLE OF CAUSE: Jon A. Bekkers and
Her Majesty the Queen
PLACE OF HEARING: Halifax, Nova Scotia
DATE OF HEARING: June 27, 2001
REASONS FOR JUDGMENT BY: The Honourable Judge D. Hamlyn
DATE OF JUDGMENT: July 12, 2001
APPEARANCES:
Counsel for the Appellant: Bruce S. Russell
Counsel for the Respondent: Marcel Prevost
COUNSEL OF RECORD:
For the Appellant:
Name: Bruce S. Russell
Firm: McInnes Cooper
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2000-5177(IT)I
BETWEEN:
JON A. BEKKERS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on common evidence with the appeals of
Gregory J. Keating (2000-5178(IT)I), on June 27, 2001 at Halifax, Nova Scotia,
by the Honourable Judge D. Hamlyn
Appearances
Counsel for the Appellant: Bruce S. Russell
Counsel for the Respondent: Marcel Prevost
JUDGMENT
The appeals for 1996 and 1997 are allowed, with costs, and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 12th day of July 2001.
|
"D. Hamlyn" |
J.T.C.C.