Docket: 2003-628(IT)I

BETWEEN:

DANIEL SPUEHLER,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

____________________________________________________________________

Appeals heard on July 24, 2003, at Edmonton, Alberta,

By: The Honourable Justice A.A. Sarchuk
Appearances:
For the Appellant:	The Appellant himself
Counsel for the Respondent:	Galina Bining

____________________________________________________________________

JUDGMENT

          The appeals from assessments of tax made under the Income Tax Act for the 1998 and 1999 taxation years are dismissed.

Signed at Ottawa, Canada, this 3rd day of September, 2003.

"A.A. Sarchuk"

Citation: 2003TCC611

Date: 20030903

Docket: 2003-628(IT)I

BETWEEN:

DANIEL SPUEHLER,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR JUDGMENT

Sarchuk J.

[1]      This is an appeal by Daniel Spuehler from reassessments of tax by the Minister of National Revenue (the Minister) for the 1998 and 1999 taxation years as a result of which the amounts of $33,084 and $35,355, respectively, were added to his income.

[2]      The basic facts are not in dispute. In the taxation years in issue, the Appellant was employed by Brandette Well Servicing Ltd. (Brandette). Throughout those years, the Appellant rented his personal truck to Brandette and it was used in the course of his employment. From January 1, 1998 to April 1998, the vehicle was a Chevrolet one-ton truck. In April, the Appellant acquired a 1998 Dodge truck which was rented to Brandette through to the end of the 1999 taxation year. The Dodge was purchased and paid for by the Appellant and the documents before the Court indicate that the bank loan for this purpose was solely in his name. At all relevant times, the income earned from these trucks was deposited to the Appellant's bank account in respect of which his spouse did not have signing authority.

[3]      In both of the taxation years, the Appellant's wife reported net business income from the rental of the trucks in the amount of $22,325 and $21,559, respectively, calculated as follows:

	1998	1999
Revenue Expenses	$37,698	$38,644
Fuel	3,616	540
Insurance	1,042	1,158
Interest	2,152	3,228
Maintenance and repairs	1,897	1,278
Motor vehicle expenses	116	0
Office expenses	150	0
Capital Cost Allowance	6,400	10,881
Net Income	$22,325	$21,559

[4]      In reassessing the Appellant, the Minister calculated his net business income as follows:[1]

	1998	1999
Revenue Expenses	$37,698	$38,644
Fuel	1,916	286
Insurance	552	614
Interest	1,140	1,711
Maintenance and repairs	1,006	678
Net Income	$33,084	$35,355

Respondent's position

[5]      The Respondent contends that the Appellant transferred or assigned to his spouse the rights to the net business income derived from the rental of the two vehicles in the amounts of $33,084 and $35,355 in the two taxation years, respectively, and that these amounts were correctly included in his income in accordance with the provisions of subsection 56(4) of the Income Tax Act.

Appellant's position

[6]      The Appellant explained the decision to treat the income from the truck rental as follows. In 1997, he and his wife commenced work on "a brand new farm" and since both were actively involved in the farm business "she quit her job and in 1997, she stayed at home and did a lot of the work in relation to the farm start-up". As a result, they also decided, in the Appellant's words, on "an income-splitting procedure, I thought why not have the vehicle, this one on - in her name and the revenue she could collect and also that would be part of her income, as payment for what she does. And there's all the other revenue that came from Brandette and from the farm was claimed by myself. And I always felt that that was a fair, you know, just a fair split of the income".

Decision

[7]      The Appellant cannot succeed on this ground. The relevant provisions of the Act provide as follows:

56(4)     Where a taxpayer has, at any time before the end of a taxation year, transferred or assigned to a person with whom the taxpayer was not dealing at arm's length the right to an amount ... that would, if the right had not been so transferred or assigned, be included in computing the taxpayer's income for the taxation year, the part of the amount that relates to the period in the year throughout which the taxpayer is resident in Canada shall be included in computing the taxpayer's income for the year unless the income is from property and the taxpayer has also transferred or assigned the property.

251(1) For the purposes of this Act,

(a)         related persons shall be deemed not to deal with each other at arm's length;

(b)         ...

251(2) For the purpose of this Act, "related persons", or persons related to each other, are

(a)         individuals connected by blood relationship, marriage or common-law partnership or adoption;

[8]      The object of these provisions is to prevent the avoidance of tax by way of a transfer of property to the spouse. Subsection 56(4) accomplishes this by effectively ensuring that the property transferred, in this case income, remains in the transferor for tax purposes. It is clear that it is directed specifically against potential avoidance of tax through the transfer of a right to income between parties not dealing at arm's length. Although I accept that the Appellant did so in the honest belief that there was nothing improper about the division of income between husband and wife in circumstances such as these, the fact remains that the sections in issue are unequivocal in their language and intent. Accordingly, the Appellant's appeals in respect of this issue cannot be allowed.

[9]      The second issue relates to the business income earned by the Appellant from the rental of the trucks to Brandette in the amount of $33,084 and $35,355 in the two taxation years, respectively. It is not disputed that the Appellant failed to maintain a mileage log in respect of either vehicle and during a meeting with a Canada Customs and Revenue Agency (CCRA) assessor estimated that he drove approximately 40,000 kilometres per year of which 21,000 (or 53%) was considered by the assessor to be business-related.

[10]     The Appellant resided in or near Entwistle some 40 kilometres north of Drayton Valley (Drayton) which was Brandette's base. He testified that there is no dispute that when he drove to Drayton and "from there out to a lease" the travel from Drayton to his home was properly considered as personal use of the vehicle. However, he maintains that much of his employment required him to work in the Grand Prairie general area which he said was over 400 kilometres from his residence. When working in this area, he did not go first to the office in Drayton but proceeded directly to Grand Prairie from his home. Furthermore, with respect to these trips Brandette paid him the full mileage charge of 85 ¢ per kilometre. Notwithstanding this the trips were considered by CCRA as personal, that is home to work. He contends that 107 trips of 191 in taxation year 1998 and 173 out of 234 in 1999 were direct trips from his residence to the actual location of the work he was required to perform.

[11]     The Appellant produced a number of worksheets which he was required to keep and turn over to Brandette for truck rental payment calculations. These documents, he said, enabled him to establish the exact number of kilometres travelled in the course of his employment and for which he was paid by Brandette for the use of the vehicle. Thus, the Appellant argues that his analysis based on these records support his contention that 85% of approximately 45,000 kilometres driven in each year represented work related and not personal use of the vehicle.

[12]     I am unable to accept the Appellant's position. First, since he kept no mileage log whatsoever the amount driven in each of the taxation years in issue is at best an approximation and at worst pure guesswork. The original estimate provided by the Appellant to CCRA was 40,000 kilometres. He now says it is closer to 45,000 kilometres but provides little support for the added mileage. Furthermore, the Appellant failed to take into account the amount of use of the vehicle for farm purposes and when specifically examined by counsel on this point conceded that he "couldn't even begin to tell you. You know, when I want to go check a field --- can I tell her now? Just that if you go check a field to see sometimes that happens to be the vehicle of choice, it's the nearest one, you know. This Revenue thing is starting to kill us. You know like you've got to worry about what you take for a vehicle, where, when" and "I can't tell you how many kilometres, really".

[13]     While it does appear as though the Respondent's assessment on the basis that business use of the vehicle represented 53% of the total use in each of the two taxation years may be on the low side, the evidence before this Court falls far short of establishing that 85% of the mileage could properly be attributed to business use. I add only that the Appellant did himself no favour by completely ignoring the importance of maintaining adequate records of personal and business usage. It is only if information kept in this manner was available to the Court would it be appropriate to alter the allocation that was made by the Minister. The appeals are dismissed.

Signed at Ottawa, Canada, this 3rd day of September, 2003.

"A.A. Sarchuk"

CITATION:

2003TCC611

COURT FILE NO.:

2003-628(IT)I

STYLE OF CAUSE:

Daniel Spuehler and Her Majesty the Queen

PLACE OF HEARING:

Edmonton, Alberta

DATE OF HEARING:

July 24, 2003

REASONS FOR JUDGMENT BY:

The Honourable Justice A.A. Sarchuk

DATE OF JUDGMENT:

September 3, 2003

APPEARANCES:

For the Appellant:

The Appellant himself

Counsel for the Respondent:

Galina Bining

COUNSEL OF RECORD:

For the Appellant:

Name:

N/A

Firm:

N/A

For the Respondent:

Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada

---