Date: 20010712
Docket: 2000-5178-IT-I
BETWEEN:
GREGORY J. KEATING,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Hamlyn, J.T.C.C.
[1] These appeals arise as a result of Notices of Reassessment dated May 9, 1999 for the 1996 and 1997 taxation years and June 19, 2000 for the 1998 taxation year, in which the Minister of National Revenue (the "Minister") included in the Appellant's income additional automobile benefits for the 1996, 1997 and 1998 taxation years in the amounts of $20,939.00, $23,369.76 and $13,619.85, respectively.
[2] During the 1996, 1997 and 1998 taxation years, the Appellant was an employee of Access Communications Incorporated (the "Company"). At all times during 1996, 1997 and 1998 the Appellant had the use of an automobile provided by the Company ("Company car"). At all times during the 1996 and 1997 taxation years, the Appellant's spouse had the use of a Lexus automobile. The Lexus automobile is not in issue.
[3] The Appellant states that he used the Company car for personal driving less than 1,000 kilometres per month, representing less than 10% of the total usage of the Company car during 1996, 1997 and 1998. The Appellant states that all or substantially all of the distance driven with the Company car during 1996, 1997 and 1998 was in connection with or in the course of the Appellant's office or employment with the Company. 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 to the assessed operating expense benefit pursuant to paragraph 6(1)(k) of the Act.
DAILY ROUTINE
[4] Daily during 1996, 1997 and 1998 the Appellant left his Porter's Lake residence in the morning and drove the Company car 2.5 kilometres to the Lakeview Shopping Centre (the "Shopping Centre"). At the Shopping Centre he met with the Shopping Centre's manager to discuss the Shopping Centre's operations. He also reviewed the activities of the Shopping Centre's hardware store and the Centre's beverage room. All of these businesses were part of the Keating Group of Companies (the "Keating Group") of which the Appellant's father held the controlling interest. The Appellant then would proceed 27.5 kilometres to the Company offices in Dartmouth to conduct his work activities in relation to the Access cable business operation. Towards the end of his work day the Appellant would return in the vehicle to the Shopping Centre and deal with further business activities in relation to the Shopping Centre, the hardware business and the beverage room business. At the conclusion of his day the Appellant returned home. The Appellant acknowledges the 2.5 kilometres driven from his residence to the Shopping Centre and the 2.5 kilometres from the Shopping Centre back to his residence was personal use driving. The personal use of the Company car, as explained by the Appellant, was less than 10% of the Company car's total usage.
THE KEATING GROUP OF COMPANIES
[5] According to the Appellant, he worked for the flagship company of the Keating Group. The flagship company of the Keating Group was Access Communications Incorporated. The Appellant was the President and C.E.O. of Access. The Appellant was also the Vice-President and a director of the Shopping Centre. The Appellant's father held the controlling interest in each of the companies in the Group. The Appellant's father relied on the Appellant, as part of his duties, to direct the operations of Access and the Shopping Centre, as well as other businesses.
THE ABSENCE OF A "LOG"
[6] For 1996, 1997 and 1998 the Appellant did not maintain a "log" for travel. However, in 1999 the Appellant maintained a log for six months. The Appellant's evidence was that in 1999 he had the same work duties, responsibilities and travel schedules as in each of 1996, 1997 and 1998.
ISSUE
[7] 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, 1997 and 1998 taxation years.
STATUTORY FRAMEWORK
[8] The relevant provisions of the Act 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 (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; and
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;
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. 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]
ANAYLSIS
AUTOMOBILE STANDBY CHARGE
[9] Paragraph 6(1)(e) provides for a standby charge for an automobile that is made available to a taxpayer or to a person related to the taxpayer by the taxpayer's 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 personal use of a taxpayer or a person related to the taxpayer. 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,[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 traveled 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.
[10] The Appellant has argued that he meets all of the above conditions required to qualify for a reduced standby charge. The issue in this case is whether the Appellant is able to substantiate that he in fact has met the required conditions.
[11] In Tremblay v. The Queen, [2] Judge Tardif stated 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.
[12] 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.
[13] 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:
The requirement of s. 230(1) may fairly be characterized as absolute but the consequence of not complying is liability to conviction of an offence under s. 238(2), not necessarily a conclusion that transactions which ought to have been recorded did not occur. The failure to record transactions will inevitably handicap a taxpayer seeking to discharge the burden of proving that they took place but the responsibility of the trial judge in such circumstances is to decide, on a balance of probabilities having regard to all the evidence and its credibility, whether any, all or none took place. The proper approach was demonstrated by Strayer, J., in Schwartz v. Her Majesty the Queen, 87 D.T.C. 5274 at 5275.
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]
[14] The Appellant does not have any records pertaining to his use of the Company car for the 1996, 1997 and 1998 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
[15] The Appellant's viva voce evidence is strong and compelling. He stated that he had in 1999 the same work duties and travel schedules as in each of 1996, 1997 and 1998 and his travel log for 1999 corroborates his sworn statements concerning his use of the Company car for the 1996, 1997 and 1998 taxation years. His employer, Access Communications, as directed by his father, the controlling shareholder in all the Keating Companies, specifically charged the Appellant, as part of his employment duties to supervise the operations of the cable company, the shopping centre, the hardware company and the beverage room. His evidence was clear and uncontroverted that his use of the automobile in the performance of his employment duties was more than 90% of the vehicle's use. Therefore I conclude the personal use component was less than 10%. The Appellant's evidence also was clear that personal use was less than 12,000 kilometres per year. 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
[16] The appeals for the 1996, 1997 and 1998 taxation years 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 Access Communications.
Signed at Ottawa, Canada, this 12th day of July 2001.
"D. Hamlyn"
J.T.C.C.
COURT FILE NO.: 2000-5178(IT)I
STYLE OF CAUSE: Gregory J. Keating 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
2000-5178(IT)I
BETWEEN:
GREGORY J. KEATING,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on common evidence with the appeals of Jon A. Bekkers
(2000-5177(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 the 1996, 1997 and 1998 taxation years 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.