Date: 19980727
Docket: 97-2209-IT-I
BETWEEN:
DOUGLAS J. MCDONALD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Rip, J.T.C.C.
[1] In his appeals from income tax assessments for 1992 and 1993 taxation years, Douglas J. McDonald claims that he was not in receipt of benefit due to his personal use of an automobile owned or leased by his employer pursuant to subsection 6(1) of the Income Tax Act ("Act").
[2]At all relevant times Mr. McDonald was employed as a Safety Manager by the Parks and Property Department of the Municipality of Metropolitan Toronto ("Metro"). In carrying on the duties of his employment Mr. McDonald was required to attend on a daily basis various parks and recreational facilities in the Metro park system in the greater Toronto area. These sites and his office in downtown Toronto were his work-sites but his fixed work location was his office at 365 Bay Street for most of 1992 until Metro Government moved to Metro Hall late in the year. After the move, his office and fixed work location was located at Metro Hall. Both locations are in downtown Toronto.
[3]Metro provided the appellant with a car to use when travelling between work-sites. The cars were equipped with a telephone and an alarm. In the trunk of the car were safety and protective equipment: hard hat, safety boots, clothing, gloves, air and soil sampling equipment, tools, etc.
[4]During the day, when he was not using the car, Mr. McDonald parked the car in the garage at Toronto's new City Hall for most of 1992, and in the garage at Metro Hall during the rest of the appeal period.
[5]Mr. McDonald testified that the automobile was parked at his residence in the evenings and on weekends. He said he did not make personal use of the car since it was identifiable as a Metro vehicle and he did not want any adverse publicity if anyone saw him using the car for personal errands.
[6]Metro required Mr. McDonald to maintain a travel log indicating the number of kilometres travelled for business and personal reasons and his final destination for each trip. Many of the entries suggest the distance travelled to a particular destination is greater than the distance between the trip's points of origin and destination. Mr. McDonald stated that he may visit several sites on a given trip, but usually reports the original and final destinations on the log.
[7]Mr. McDonald testified that on many, if not most, mornings he would drive the car from his home to various work-sites in Metro before proceeding to his office. Similarly, if at the end of the day he was at a Metro park, he would drive directly home in the car. Other than driving from his home to the office in the morning and return in the evening, Mr. McDonald did not use the car provided to him for personal purposes. Any personal travel would be in his wife's car.
[8]The appellant did not dispute that any distance he drove the car between his home and office, the place of employment to which he reports regularly, is personal travel. The issue between the parties is whether any other travel was personal. In making the assessments, the Minister had assumed, among other things, that Mr. McDonald failed to maintain a proper records for use of the Metro supplied vehicles and that the portion of the personal use of that vehicle was 15% of its total use by Mr. McDonald. Respondent's counsel advised me that the Minister considers the expression "substantially all" in the phrase "substantially all of the distance travelled" in paragraph 6(2)(d) to mean 90% or more of the distance travelled.[1]
[9]By letter dated March 30, 1993 the Manager of Metro's GST office, Paul Ambos, wrote to the Toronto District Office of Revenue Canada with respect to paragraph 5 of Revenue Canada Interpretation Bulletin IT-63R3 concerning personal use of a motor vehicle. Mr. Ambos described the appellant's (and other employees') situation using a Metro vehicle and specifically requested clarification of the expressions "employee's place of work" and "to a point of call other than the employer's place of business to which the employee reports regularly".[2] On April 29, 1993, Revenue Canada replied to Mr. Ambos, in effect paraphrasing paragraph 5 of Bulletin IT-63R3:
In addition to what would obviously be considered personal use of a motor vehicle supplied by an employer (e.g., vacation trips, personal shopping trips, etc.), the Department considers personal use to include travel between the employee's place of work and home, even though the employee may have to return to work after regular duty hours. An exception to this view occurs, however, where (as required by the employer or with the employer's permission) the employee proceeds directly from home to a point of call other than the employer's place of business to which the employee reports regularly (e.g., effecting repairs at customers' premises), or returns home from such a point. These particular trips are not considered to be of a personal nature. Also, where privately owned motor vehicles are prohibited from entering a restricted area in which the employment duties are performed, and the distances to be travelled within the restricted area are such that a motor vehicle is necessary, the use and availability of the employer's motor vehicle within the restricted area is not considered to be for personal use.
[10]On receipt of the letter from Revenue Canada, Metro distributed a memorandum on May 31, 1993 to affected employees outlining the Minister's view. The memorandum cautioned that the onus is on Metro and the employee to provide details of all business and personal use of Metro owned or leased automobiles. The memo added that a detailed log of all distances driven must be kept by employees to document the business and personal use of the vehicles. Mr. McDonald said he relied on the memorandum when preparing his travel logs and filing his income tax returns for 1993 and 1994.
[11]Paragraph 6(1)(e) requires an employee to include in income a "reasonable standby charge" for an automobile that is made available to the employee by the employer. Section 6(2) of the Act sets out the formula to calculate the amount of the "reasonable standby charge". Some relevant factors in the formula are the number of days in a taxation year the vehicle is made available to the employee by the employer, the total number of kilometres driven during the days the car is available to the employee and whether substantially all of the distance travelled by the automobile in the days it was available to the employee is in connection with or in the course of the employee's employment: paragraph 6(2)(d).
[12] An appeal similar to that at bar was before Lamarre Proulx, J.T.C.C. in Biermann v. M.N.R.[3] A taxpayer used an employer owned car to travel to various client locations. These locations were situated between the taxpayer’s home and office. Consequently, he frequently found it more convenient to travel directly to his home from these locations at the end of a work day and to proceed directly to them in the morning. The Minister assumed that this travel was for personal purposes. Lamarre Proulx J.T.C.C. held that this travel was required for business purposes and was not an employment benefit to the taxpayer. At p. 407 she stated:
Counsel for the Respondent raises the point that travelling between home and the office has always been considered personal expense. This is generally true. However, in the case at bar, when the taxpayer went home he carried with him pieces of equipment that he had to deliver the next day to the CNR repair station. Had the taxpayer resided east of this plant he could not have had a valid business purpose in going home. But under the circumstances of this case, he could. I find it difficult to determine that these trips are of a personal rather than of a business nature, where they meet both characteristics. I find support in this regard in the case of Yorke v. M.N.R., 89 DTC 12.
[13] Lamarre Proulx, J.T.C.C. did not follow Revenue Canada 's administrative policy as outlined in Interpretation Bulletin IT-63R2 but rather she found that the taxpayer’s travel to his home could not be distinguished from the business travel required by his employer.
[14] An employee may have multiple work locations and travel to such places from his or her home is considered personal travel: Carter, supra. However, an employee also may have only one fixed work location but is required to travel to other places where the employer carries on business or for a business purpose. If it is more efficient or cost effective to the employer for the employee to begin or complete such trips at the employee's home, then such travel ought not be characterized as personal.
[15] The characterization of the locations visited by an employee is important in determining advantage to the employee. This will largely be a matter of fact. One may want to consider the frequency to which a particular location is visited, its relation to the employee’s home as opposed to the fixed work location, and the degree of travelling required by the employee regardless of the destination. In the case at bar, the logs indicate that the appellant travelled most workdays to multiple locations. Given the numerous places the appellant visited during the taxation years in issue, I am of the opinion that none of them can fairly be classified as “places of business to which the employee reports regularly”. The word "regularly" means "... constantly ... steadily ...".[4] Consequently, I am of the opinion that such travel by Mr. McDonald should not be classed as personal and should not be taxed as an employee benefit under paragraph 6(1)(e).
[16] I would also add that I do not find that Mr. McDonald's method of maintaining his travel logs was deficient. He kept a daily log of his travels. His credibility was not challenged and his explanation that a trip may include travel to several sites, yet the log may specify only the origin and final destinations, is reasonable. [5] (I note that on some occasions, several destinations were specified for single trip).
[17]It is quite likely that as a result of my finding that travel between various work-sites and his home is not personal, the portion of the personal use of Metro's vehicle by Mr. McDonald is less than 10% and thus I need not concern myself with the meaning of the words "all or substantially all". However, assuming the personal use is still more than 10%, or if I erred in concluding such travel is not personal, I have to consider the meaning of the words "all or substantially all" in the context of subsection 6(2) of the Act.
[18]The word "substantially" is not defined in dictionaries as a fixed portion of a whole. The so-called "90% rule" is a rule of thumb that is no doubt convenient to assessors and tax advisors in determining a reasonable standby charge.
[19] The Oxford English Dictionary defines "substantially" to mean, among other things,
b. essentially, intrinsically
c. actually, really
[20]The same dictionary defines the word "substantial" to include "of ample or considerable amount, quantity or dimensions".
[21]In the French version of subsection 6(2), the words "all or substantially all" are "la totalité, ou presque". The word "presque" is defined by Le Petit Robert as "à peu près". The Collins-Robert French-English, English-French Dictionary does not include the words "substantial" or "substantially" in the English meaning of the word "presque". The words included are: "almost" and "nearly". The word "substantially" is translated in Collins-Robert as "considérablement" in the context of "considerably" and "en grande partie" when the word "substantially" means "to a large extent".
[22]These dictionary definitions confirm that the word "substantially", as Bowman, J.T.C.C. remarked in Ruhl v. Canada[6] , is elastic and an unsatisfactory medium for conveying the concept of an ascertainable proportion of the whole. The words "substantially all" in the context of paragraph 6(2)(d) need not be interpreted as 90% or more but may be a lesser proportion of the whole depending on the facts. In the case at bar, at least 85% of the distance travelled was in connection with Mr. McDonald's employment and in my view that is substantially all of the distance travelled by the automobile in the total days it was available to Mr. McDonald.
[25] The appeals for 1992 and 1993 will be allowed with costs and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that substantially all of the distance travelled by the automobile in the total available days was in connection with Mr. McDonald's employment.[7]
Signed at Ottawa, Canada, July 27, 1998.
"Gerald J. Rip"
J.T.C.C.
[1] Revenue Canada adopted the expression "substantially all" to mean at least 90% for purposes of paragraph 6(2)(d) in Interpretation Bulletin IT-63R5, paragraph 8(b), that is, the Department considers that the "all or substantially all" test is met where 90% of the distance travelled by automobile during the days it was available to the employee was in connection with, or in the course of, an office or employment. Revenue Canada also adopted the expression "substantially all" to mean at least 90% in Interpretation Bulletin IT-151R4 which considers the expression in the context of scientific research and experimental development expenditures: paragraph 37(8)(a). See also Wardean Drilling Co. Limited v. M.N.R., [1974] C.T.C. 190, 74 DTC 6164 (F.C.T.D.); [1978] C.T.C. 270, 78 DTC 6202 (F.C.A.) and Wood v. M.N.R. [1987] C.T.C. 2391, 87 DTC 312 (T.C.C.) and Ruhl v. Canada [1997] T.C.J. No. 1365 (T.C.C.)
[2] The three situations described in the letter are:
Situation 1:
An employee uses an employer's vehicle to travel to or from the employee's home to an employer location other than where employee regularly reports. For example, an employee may regularly report to Metro Hall but his job requires him to investigate operations or supervise employees at various other locations of the employer, such as Metro Parks, water or sewage treatment facilities, or Homes for the Aged. Therefore, the employee may travel to the other location on his way to Metro Hall in the morning or may travel from Metro Hall to the other location on his way home at night.
Situation 2:
An employee uses an employer's automobile to travel to or from his home and his fixed work location (Metro Hall, area office, etc.) and home again in the evening. The automobile is used during the day to go to meetings or respond to situations as required.
Situation 3:
An employee uses an employer's automobile to travel to or from the employee's home to the location to which the employee regularly reports. However, while travelling to the regular location, the employee performs certain work-related functions. For example, an employee of the Transportation Department regularly reports to the office at Metro Hall, but is required to inspect the previous nights road construction or repairs (such as to the Don Valley Parkway) on his way to the office. Therefore, the employee, while travelling to or from Metro Hall in the morning or evening is performing work-related functions.
[3] 89 DTC (T.C.C.). But see Carter v. M.N.R., [1991] T.C.J. No. 242 (T.C.C.) where Dussault, J.T.C.C., on the facts before him, agreed that the Minister had rightly assumed the car was used by the taxpayer mostly for business purposes but that the use of the car between home and work was of a personal nature and consequently a taxable benefit. "The fact that someone has to work at three different locations does not change that proposition..."
In arriving at his decision, I note that Dussault, J.T.C.C. stated that he could not agree with the taxpayer's position that travel from his home to a worksite, a restaurant, and back was for business purposes since one could not reach that conclusion by analyzing the taxpayer's log sheets.
[4] See, for example, The Oxford English Dictionary.
[5] See Graves et al. v. The Queen, 90 DTC 6300 at 6305 per McKay, J. There is no evidence Mr. McDonald merely estimated distances on his log sheets.
[6] [1997] T.C.J. No. 1365. See also Wood v. M.N.R., 87 DTC 312, 313 per Taylor, J.T.C.C.
[7] The Minister also assessed the Appellant’s income for an operating expense benefit pursuant to paragraph 6(1)(k). This provision includes in income any benefit received by an employee by virtue of his or her employer paying the operating expenses related to a vehicle which the employee uses for personal purposes. This section becomes operational when it is shown that a reasonable standby charge is determined pursuant to paragraph 6(1)(e), the operating expenses of an automobile made available to the employee were paid by the employer, and these amounts were not paid by the taxpayer within the year or 45 days following the end of the year. The taxpayer must include in his income an amount determined by the formula outlined in the paragraph.
The benefit amount is limited to one-half of the standby charge when, within the year, the taxpayer notifies his or her employer in writing that he or she intends to use this provision, and the vehicle is “used primarily” in the performance of the employee’s duties. On the facts before me, Mr. McDonald used the vehicle primarily in the performance of his duties as an employee. There is no evidence before me, however, that Mr. McDonald notified Metro within the prescribed period of his intention to have subparagraph 6(1)(k)(iv) apply. Of course, such notice, or lack thereof, by Mr. McDonald may no longer be important.