Date: 20000915
Docket: 1999-3949-IT-I
BETWEEN:
KEVIN J. LOVE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Sarchuk J.T.C.C.
[1] These are appeals by Kevin J. Love from assessments of tax with respect to his 1995, 1996 and 1997 taxation years. In computing his income for those years, the Appellant reported employment income, which included standby charges in the amounts of $779, $829 and $788, respectively. By way of reassessment dated October 13, 1998, the Minister of National Revenue (the Minister) increased the standby charges and thereby included additional employment income in the Appellant's income in the amounts of $5,578.25, $6,009.89 and $5,981.37, respectively. Subsequently, the Minister reassessed to reduce these standby charges by $1,350, $1,500 and $1,650.
[2] In assessing the Appellant, the Minister made the following assumptions of fact:
(a) the Appellant is an employee with Westward Ford Credit Ltd. (the "Employer");
(b) the Appellant was principally employed in selling or leasing automobiles;
(c) an automobile owned by the Employer was made available by the Employer to the Appellant;
(d) the Employer has acquired one or more automobiles;
(e) the cost of the Employer owned vehicle in the 1995,1996 and 1997 taxation years was determined by dividing the cost to the Employer of all new automobiles acquired by the Employer in the year for sale or lease in the course of the Employer's business by the number of automobiles acquired resulting in the following amounts:
|
|
1995 |
1996 |
1997 |
|
|
|
|
|
|
Average Cost of New Vehicles Purchased |
$23,086.00 |
$24,556.00 |
$23,340.00 |
|
Provincial Sales Tax |
1,616.02 |
1,718.92 |
1,633.80 |
|
Cost including PST |
$24,702.02 |
$26,274.92 |
$24,973.80 |
(f) the automobile made available to the Appellant for 365 days during each of the 1995, 1996 and 1997 taxation years;
(g) all or substantially all of the distance travelled by the automobile during the days the automobile was available were not made in the course of the office or employment with the Employer.
[3] The Appellant is a shareholder in Westward Ford Credit Ltd., an automobile dealership located in Portage la Prairie, Manitoba. He testified that vehicles were made available to him and to his wife by the dealership, and that at all times, his wife had the full standby charge added to her income as required. For his part, he reported a reduced standby charge in each of the taxation years as previously noted. He further observed that the vehicle assigned to his wife during the years in issue was usually a Windstar or Explorer which vehicles I understood to be vans or SUVs, and was utilized for most of the family travel. On the other hand, the vehicle assigned to him was a pickup truck and was rarely driven by his wife.
[4] The Appellant's duties amongst other things required him to travel to vehicle auctions in Winnipeg at least once a week. He was also required to pick up cars at other dealerships on an average of three or four times a month, on occasion travelling as far as Saskatchewan for this purpose. The primary vehicle assigned to the Appellant was a pickup truck. He observed that as a general rule, he had the use of a number of company vehicles in the course of a year and that the practice was to affix the dealer's plate to whatever truck he was driving at any given time. Other than being driven to and from work and occasionally used to run personal errands these vehicles were wholly dedicated to business use. Furthermore, any vehicle so assigned to the Appellant was on occasion used by the service department and when required, was loaned to a customer.
[5] The Appellant testified that it had not been his practise to keep logbooks and that in prior years, his assessment and reporting of the standby charge had been accepted by Revenue Canada. When it became evident to him that Revenue Canada was considering reassessment, he commenced to keep a logbook in which he recorded on a regular basis the mileage travelled together with and allocation between personal and business use. He testified that the nature of his duties and his use of the truck did not vary in any appreciable way from year to year during the period of time in issue or in the subsequent years during which he kept a logbook. The Appellant calculated the ratio between personal and business use for the periods 1998, 1999 and the first six months of 2000 and maintains that personal use never exceeded 10%. He further testified that since there had been no substantial change in the requirements of his employment that percentage also reflected his personal use of the vehicles assigned to him in the taxation years in issue.
Conclusion
[6] Having listened to and observed the Appellant in the course of his testimony, I am satisfied that he was a credible witness and that the logbook reflects, with reasonable accuracy, his use of corporate vehicles in 1998 and 1999 as well as in the first six months of 2000. The system used by him is straightforward, simple to implement and use, and included a reference to the specific corporate vehicle that was being driven on any particular day. I am also satisfied that the Appellant's personal to business ratio of 8%, 8.7% and 8.4% calculated on the basis of the information contained in the logs is reasonable. Counsel for the Respondent argued that these numbers should not be applied to the previous years. To some extent that is a valid argument, however, I accept the Appellant's testimony that there was no substantive difference between his work patterns in 1995, 1996 and 1997 and those in the subsequent years. I note as well that the logbooks he kept disclose a variation of .7% between 1998 and 1999 and .4% between 1999 and 2000. Given his testimony, it is most unlikely that there would have been any variation in the earlier years substantial enough to warrant rejecting his testimony.
[7] The relevant provisions of the Act require an employee who enjoys a benefit as a result of the employer paying operating expenses to include it in income. The value of this benefit for that purpose is an amount equal to the portion of the operating costs paid by the employer that relates to the personal use, i.e. in this case, a reasonable standby charge, plus the equivalent to the GST thereon. The standby charge may be reduced to the extent that personal use kilometres are less than 1,000 times the number of months the automobile was available to the employee. The entitlement to reduce the standby charge in this fashion is only available where the automobile is used all or substantially all of the time in connection with the employment. Accordingly two conditions must be satisfied in order to substantiate a reduced standby charge. First, the taxpayer must establish on a balance of probabilities that the personal use kilometres were less than 1,000 times the number of months the automobile was available to him, and second, that the automobile itself was used all or substantially all of the time in the course of employment. Thus, it is most evident that a taxpayer must maintain adequate records of personal and business usage if a reduced standby charge is to be claimed.
[8] The plain fact of the matter is that a taxpayer is responsible for maintaining records in a form enabling that taxpayer to establish his position. This Appellant recognized that fact albeit not in time to prevent him from being reassessed with respect to the taxation years in issue. However, I have concluded that his extrapolation of the percentage of use as between personal and business in the subsequent years together with his testimony is sufficient to establish his claim. Accordingly, the appeals are allowed and the assessments are referred back to the Minister for reassessment in accordance with subsections 6(2) and 6(2.1) of the Act on the basis that the taxpayer was required by the employer to use the automobile in connection with his employment and that all or substantially all of the distance travelled by the automobile in the total available days was in connection with or in the course of the employment.
Signed at Ottawa, Canada, this 15th day of September, 2000.
|
"A.A. Sarchuk" |
J.T.C.C.
COURT FILE NO.: 1999-3949(IT)I
STYLE OF CAUSE: Kevin J. Love and Her Majesty the Queen
PLACE OF HEARING: Winnipeg, Manitoba
DATE OF HEARING: August 16, 2000
REASONS FOR JUDGMENT BY: The Honourable Judge A.A. Sarchuk
DATE OF JUDGMENT: September 15th, 2000
APPEARANCES:
Agent for the Appellant: Jerry Lupkowski
Counsel for the Respondent: Sidney Restall
COUNSEL OF RECORD:
For the Appellant:
Name: N/A
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
1999-3949(IT)I
BETWEEN:
KEVIN J. LOVE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on August 16, 2000, at Winnipeg, Manitoba, by
the Honourable Judge A.A. Sarchuk
Appearances
Agent for the Appellant: Jerry Lupkowski
Counsel for the Respondent: Sidney Restall
JUDGMENT
The appeals from assessments of tax made under the Income Tax Act for the 1995, 1996 and 1997 taxation years are allowed, without costs, and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that pursuant to subsections 6(2) and 6(2.1) of the Act, the Appellant was required by the employer to use an automobile in connection with his employment and all or substantially all of the distance travelled by the automobile in the total available days was in connection with or in the course of the employment.
Signed at Ottawa, Canada, this 15th day of September, 2000.
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"A.A. Sarchuk" |
J.T.C.C.