Date: 20020125
Docket: 1999-1110-IT-G
BETWEEN:
DENIS RIOUX,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor Judgment
Tardif, J.T.C.C.
[1] This is an appeal concerning the 1996 taxation year.
[2] The issue is whether the appellant received benefits amounting to $12,820 resulting from the personal use of an automobile put at his disposal by the company for which he worked.
[3] In 1996, the appellant was employed by Usinage de Rimouski Inc. as its chief executive officer. As president of that same company, he ran the business and assumed all responsibilities pertaining to day-to-day affairs and to the planning of all the company's orientations.
[4] The business specialized in metal machining and the manufacture of various parts. The plant was very dynamic and had sophisticated high-tech equipment. Business flourished to the point where the plant operated on two shifts, that is, with two work crews.
[5] The appellant was the directing mind of the business. In addition to administration, he performed a number of manual tasks, including certain fine tuning and adjustment operations, which often required him to go to work outside regular day schedules. In other words, the appellant was concerned with ensuring that the very high-precision work done at the plant was performed to customers' satisfaction, that being the sole guarantee of the success and development of the business.
[6] In 1996, Usinage de Rimouski Inc. put a vehicle, a Jeep Grand Cherokee, at the appellant's disposal, and that vehicle travelled 19,255 kilometres that year.
[7] The appellant contended that the Jeep Grand Cherokee was put at his disposal for the purpose of carrying out the duties and responsibilities he had taken on for the company solely with respect to administration and to the management of the performance of manual work.
[8] The appellant stated that the company operated out of two separate places of business 6.6 kilometres apart. The plant was located in the Rimouski industrial park. This was where all the manufacturing, processing and machining work was performed. It was a very busy, dusty and noisy place. Performing administrative and clerical work there was most difficult, particularly since it was for all practical purposes impossible to work there effectively and maintain confidentiality; there was no space suited for offices for the performance of clerical work.
[9] Thus, for the reasons stated above, a second place of business was set up in the appellant's private residence where the clerical work and administration were mainly done.
[10] The company's accountant repeated the appellant's arguments in explaining and justifying the relevance of the place of business in the private residence. She stated that the accounting and clerical work were done there by the appellant's wife, who, for that purpose, had all the conventional and usual equipment. She also mentioned that the Minister of National Revenue (the "Minister") had, as a result of the audit, accepted, after negotiation, that there were in fact two places of business.
[11] The appellant testified that he regularly had to travel between the two places of business at all hours of the day and even of the night and that he also often had to go to the plant on weekends to deal with emergencies and to do certain checks.
[12] According to the appellant, all the travel done between his private residence and the plant in the Rimouski industrial park had been done solely in the performance of his duties and was in no way private in character. He thus concluded that he had derived no benefit from the use of the Jeep Grand Cherokee even when that use was for his daily trips in the morning, at noon and in the evening.
[13] The Minister for his part does not dispute the kilometrage travelled for emergencies or each time the appellant's presence was required outside the regular daily schedule. However, the Minister claims that the 6,000 kilometres of daily travel from the residence to the plant located in the Rimouski industrial park had nothing to do with his employment with the company, but represented essentially private and personal transportation comparable to that which any person must do in order to go to work every day.
[14] As the appellant paid the company nothing for the use of the Grand Cherokee, the Minister concluded that he had enjoyed benefits constituting income from his employment, which had to be included in his personal income tax return.
[15] For 1996, the regular daily trips between the personal residence and the plant in the industrial park totalled 6,000 kilometres. That is the figure on which was based the calculation of the amount the respondent included in the appellant's taxable income as a benefit from the use of a vehicle.
[16] It is not impossible that the appellant performed some minor work at the administrative centre located in his residence. In this regard, the evidence mainly showed that he brought there the documents his spouse needed in order to carry out her administrative and clerical responsibilities.
[17] Place of business status was given to the personal residence following negotiations subsequent to the audit of the file. Did that acknowledgement have the effect of effacing the private nature of the family residence? I do not believe so. Those premises continued to be a residence, with all the attributes thereof.
[18] Is the fact of having transported certain documents having to do with administrative follow-up sufficient to turn personal transportation into business transportation?
[19] The appellant's daily trip from his residence to the plant was something essentially personal. That kilometrage is not different from the kilometres travelled by any person who occasionally takes work home with him.
[20] This situation has become all the more frequent and widespread since the advent of portable computers, on which it is possible, in some instances, to transport all the files used in connection with one's duties. In the instant case, the weight of evidence suggests that the appellant's duties and tasks were performed mainly at the plant in the Rimouski industrial park.
[21] The office was fitted up in the residence for reasons of economy, efficiency and necessity. The work done there was done chiefly by the appellant's spouse. The fact that the appellant worked there sporadically, as circumstances dictated, and that he brought various pieces of paperwork there is definitely not a sufficient basis for concluding that his presence there was essential to the point that personal transportation became business transportation.
[22] On the weight of evidence, the appellant's place of work was the place of business located in the industrial park more than six kilometres from his residence. Like any employee, the appellant had to travel there to perform his work.
[23] In accordance with the judgment in Cumming v. M.N.R., 67 DTC 5312, the respondent did not question the number of kilometres travelled between the residence and the plant for emergencies or exceptional trips as such travel was done outside normal and usual schedules. There is therefore no reason to analyze this aspect, which is not in issue.
[24] I repeat that the dispute essentially concerns the appellant's daily travel from his residence to the plant, five days a week.
[25] The appellant maintained that in 1996 he had made very limited use, for personal purposes, of the Jeep Grand Cherokee owned by his employer, evaluating such use at less than 10 percent. To show that that use was quite limited, the appellant resorted to a log describing the use of the vehicle; he also said that he had preferred to drive the other vehicle, a Passat.
[26] These were very unconvincing arguments, particularly since I find it rather odd that the record was found hours before the trial.
[27] As to the appellant's preference for driving the Passat, I do not think it useful to comment thereon.
[28] The evaluation of the benefit represented by the use for personal purposes need not be dealt with to dispose of this appeal since that is not a matter in dispute. The only question is whether the regular daily travel by the appellant from his residence to the plant constituted personal use or whether it was rather professional or business use. In other words, it falls to be decided whether the 6,000 kilometres travelled by the appellant in the Jeep Grand Cherokee in 1996 was travel for private or personal purposes or travel forming part of his office or employment with the company he ran.
[29] In answering this question, I think it useful to consider a passage from the judgment by Robertson J.A. of the Federal Court of Appeal in Canada v. Adams, [1998] F.C.J. No. 477 (Q.L.). Robertson J.A. wrote as follows:
17 In summary, the broad wording used in both linguistic versions of paragraph 6(1)(e), coupled with its legislative history, support the Minister's position. In my respectful view, unrestricted or exclusive use of an employer's automobile is not a condition precedent to the imposition of a standby charge. Nor is actual usage required, whether it be for personal or business purposes. What is required is that an employer have made an automobile available to, or at the disposition of, an employee and, correlatively, that he or she have had a right to use it. This is only logical since subsection 6(2) deems an employee to have made personal use of an employer's automobile, irrespective of whether this is so. . . . That being said the harsh consequences which flow from a deeming provision are tempered by the "minimal personal use" exception grafted on to subsection 6(2) in response to this Court's decision in Harman. This is the point in time where actual usage and the purposes for which the automobile was made available become relevant considerations.
[30] The Jeep Grand Cherokee was at the appellant's disposal for his personal use; this is quite clear from the following excerpts from his testimony:
Yvan Bujold questioning Denis Rioux:
[TRANSLATION]
Q. In 1996, could you tell the Court what use you made of the Grand Cherokee for personal purposes?
A. We used the Grand Cherokee as little as possible to . . . but I will tell you that, if we were going to go down to Saint-Simon to my parents' place in the middle of the winter, on New Year's Eve, we took the Grand Cherokee. I admit that, and . . .
Q. To Saint-Simon; it was your parents who were there . . .
A. Yes.
Q. . . . Saint-Simon. How far is that from Rimouski?
A. It's 50 kilometres away.
Q. O.K.
A. That may have happened a few times during the year.
Q. O.K.
A. Maybe about five times.
Q. You say you used the Grand Cherokee for personal purposes to go see your parents, who live in Saint-Simon, which is located some 50 kilometres from Rimouski?
A. Yes.
Q. Five times during the winter?
A. Yes.
. . .
Q. And apart from those trips to Saint-Simon to visit your parents five or so times in winter, what other personal use did you make of the Grand Cherokee?
A. My brother and sister-in-law live in Bic, and sometimes we often took a trip to Bic on Sundays, but again, as I say, it was a few times during the year because . . .
Q. And how many times might you have travelled to Bic in the Grand Cherokee? How far is Bic from Rimouski?
A. About 10 kilometres, and perhaps seven, eight, ten times a year, mostly in winter.
[31] If the matter of the limited nature of the use had been in dispute, it would have been useful to assess the quality of the record or log discovered by the appellant's spouse. That matter is, however, not at all in issue.
[32] According to the appellant, the round trips between the two places of business were considered necessary and essential for the performance of his duties; he took no account of the fact that the place of business set up in the family residence was first and foremost his personal residence. I do not believe that the creation of a space for business or professional purposes is sufficient to completely obscure the primary purpose of the premises, which moreover remain a private residence.
[33] With the advent of computers and the possibility of having gigantic volumes of data in one's possession in a very small space, virtually all personal residences could be transformed into places of business.
[34] While that is theoretically possible, and indeed acceptable, I do not believe that it is sufficient to override the primary purpose.
[35] In support of his arguments, the appellant also referred to Cumming, supra.
[36] The judgment in Cumming, supra, is based on very different facts in that the concerned party could not perform his work anywhere other than at the office located in his residence. This is apparent from the following passages at pages 5318 and 5319:
. . . It was, however, admitted in the course of argument that the appellant conducted part of his practice at his home, that the nature of the business was such that the bookkeeping and financial activities had to be carried on at a location different from that where the patients were treated and that there were no office facilities available to him at the hospital where he might have carried out this part of his business.
While I think it might be said in a particular sense that the appellant exercised his profession at the hospital, as I see it, he had no base of his practice there. . . .
In my opinion the base of the appellant's practice, if there was any one place that could be called its base, was his home. . . .
It seems to me that if the appellant had not found it convenient to carry out at his home that part of the work of his practice in fact done there and had maintained an office for the purpose, whether near to or at some distance from the hospital, there could have been little doubt that such office was the base of his practice and that both the reasonable expense of maintaining it and the expense of travelling between it and the hospital would have been expense of his business. The result is, I think, the same where the office, such as it was, was at his home and the work was done there. In the present case it seems to me to be the only single place which could be regarded as the base from which his professional operation was carried on.
[37] The benefit relating to the use of an automobile is specifically set out in paragraph 6(1)(e) of the Income Tax Act (the "Act"), which reads as follows:
(e) Standby charge for automobile — 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.
[38] As to the determination of what constitutes a reasonable standby charge for an automobile, and for the purpose of computing the benefit, reference must be made to subsection 6(2) and paragraphs 6(1)(k) and (l) of the Act. Subsection 6(2) reads as follows:
(2) Reasonable standby charge. 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
AB |
× [(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;
. . .
Paragraphs 6(1)( k) and (l) read as follows:
(k) Automobile operating expense benefit — 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, 1/2 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
(l) Idem — the value of a benefit in respect of the operation of an automobile (other than a benefit to which paragraph (k) applies or would apply but for subparagraph (k)(iii)) received or enjoyed by the taxpayer in the year in respect of, in the course of or because of, the taxpayer's office or employment.
[39] The appellant argues that the personal use of the vehicle put at his disposal by the company was so limited that the Minister should not consider it.
[40] In coming to this conclusion, the appellant assumes that his daily travel between his residence and the plant in the industrial park was not personal, but was necessary to the performance of his duties.
[41] That daily travel totalling 6,000 kilometres annually is the sole basis of the calculation of the benefit, since the Minister conceded that the kilometrage travelled in response to emergency calls or any other trip made outside the regular schedule was part of the performance of his duties or was for non-personal purposes.
[42] However, the evidence showed beyond a doubt that the appellant's place of work was mainly the plant, although he might perform certain duties at the office set up in his residence. His primary duty was to run the plant and, for that, his constant presence was required there.
[43] To conclude that none of the travel between the two places of business was personal in nature would be to completely disregard the fact that the place of business at the residence was first and foremost the appellant's personal residence.
[44] It is possible that some trips were exclusively related to the appellant's employment; indeed, they were determined to have been so related, since the calculation of the benefit in issue was based solely on the daily trips.
[45] It is not enough that one accommodate one's employer by running a few errands on one's daily travel from home to one's place of work and by devoting, while at home, a certain amount of mental energy to preparing and planning one's work to justify a conclusion that such travel is for business purposes; if that were the case, a very large number of taxpayers could claim that there is nothing personal about their own daily travel between home and work.
[46] I think it useful to reproduce a passage from the decision by Mr. M. J. Bonner of the Tax Review Board in Verner v. M.N.R., 83 DTC 289, at page 291:
I can find nothing in the evidence which would support a conclusion that the Appellant, when at home, was there in order to carry on the operations of the business. It follows that the cost of driving between home and work is not deductible. A distinction is to be drawn between driving in the course of carrying on a business and driving from home to a place where the business operations commence.
[47] I find on the evidence adduced that what is involved in the case at bar is kilometres travelled for personal purposes in the Jeep Grand Cherokee put at the appellant's disposal by the company for which he worked. Consequently, that travel constituted a benefit that must be included in the appellant's personal income. As the method used and the calculations were not challenged, there is no reason to intervene with respect to them.
[48] The appeal is therefore dismissed, with costs.
Signed at Ottawa, Canada, this 25th day of January 2002.
"Alain Tardif"
J.T.C.C.
Translation certified true on this 16th day of July 2002.
[OFFICIAL ENGLISH TRANSLATION]
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
1999-1110(IT)G
BETWEEN:
DENIS RIOUX,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on August 9, 2001, at Rimouski, Quebec, by
the Honourable Judge Alain Tardif
Appearances
Counsel for the Appellant: Yvan Bujold
Counsel for the Respondent: Annick Provencher
JUDGMENT
The appeal from the assessment made under the Income Tax Act for the 1996 taxation year is dismissed, with costs, in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 25th day of January 2002.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 16th day of July 2002.
Erich Klein, Revisor