|
Docket: 2004-925(IT)I |
|
BETWEEN: |
|
G. WILLIAM KEITH, |
|
Appellant, |
|
and |
|
|
|
HER MAJESTY THE QUEEN, |
|
Respondent. |
____________________________________________________________________
Appeals heard on November 23, 2004, at Charlottetown, Prince Edward Island, by
|
The Honourable Justice Campbell J. Miller |
|
|
|
|
|
Appearances: |
|
|
|
|
|
Counsel for the Appellant: |
Bruce S. Russell, Q.C. |
|
Counsel for the Respondent: |
Edward Sawa |
____________________________________________________________________
JUDGMENT
The appeals from assessments of tax made under the Income Tax Act for the 1999, 2000 and 2001 taxation years are allowed, with costs, and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment allowing a reduced standby charge on the basis of 2,605, 1,805 and 1,830 personal kilometres driven in 1999, 2000 and 2001, respectively, on the 1998 Mercedes Benz.
Signed at Ottawa, Canada, this 7th day of December, 2004.
|
"CampbellJ. Miller" |
Miller J.
|
Citation: 2004TCC793 |
|
Date:20041207 |
|
Docket:2004-925(IT)I |
|
BETWEEN: |
|
G. WILLIAM KEITH, |
|
Appellant, |
|
and |
|
|
|
HER MAJESTY THE QUEEN, |
|
Respondent. |
REASONS FOR JUDGMENT
Miller J.
[1] Mr. Keith appeals by way of the informal procedure the 1999, 2000 and 2001 assessments, whereby the Minister of National Revenue brought standby charges of $14,348 for each of those years into Mr. Keith's income. Mr. Keith maintains he is entitled to a reduced standby charge as the company vehicle was used substantially all of the time for business purposes.
[2] Throughout 1999, 2000 and 2001, Mr. Keith was President and 50% owner of Conventional Holdings Ltd. (Conventional Holdings): Mrs. Keith was the remaining 50% shareholder. Conventional Holdings owned Seafood Express (PEI) Ltd. (Seafood Express), a transport business, which during the relevant period operated approximately 40 trucks, trailers and refrigerator units, with over 40 available drivers. Seafood Express supplied Prince Edward Island products (e.g. lobster, potatoes) throughout the eastern United States, central Canada and as far away as Nevada and California. The trucks would bring produce back to Prince Edward Island. My impression is that Seafood Express was a successful, thriving business in large measure due to Mr. Keith's personal efforts in marketing and maintaining personal contacts with both suppliers and customers.
[3] Seafood Express operated from premises at 20 Upton Road in Charlottetown. Mr. Keith maintained an operating office at those premises from which he managed the Seafood Express business. His services in that regard were provided to Seafood Express through the auspices of a management agreement between Conventional Holdings and Seafood Express. Mr. Keith, at all material times, was an employee of Conventional Holdings.
[3] Conventional Holdings, as well as owning the operating company and providing management services to it, also was involved in the real estate business, owned a disinfection building and contracted with Ultramar to rent property to manage a diesel fuel centre. In 2001 it also had an interest in a newly developing golf resort in Prince Edward Island. Mr. Keith sat on the board of the golf project.
[4] Mr. Keith maintained a home office for Conventional Holdings, from which he retained control of both Conventional Holdings and Seafood Express finances. Mrs. Keith served as bookkeeper for both companies. The financial books, ledgers, accounts receivable, accounts payable, depreciation schedules and other records were all dealt with from the home office. It was evident that Mr. Keith had a real concern about maintaining the privacy of his private companies' records. Also at the home office, Mr. Keith maintained a (GPS) computer system, so that he could constantly be aware of where all Seafood Express's trucks were at any given time. He could also remain in constant contact with his drivers through the GPS. He referred to this as the bloodline to what was happening in his business. He remained available in off hours at home to deal with any and all emergencies that might arise with the trucks whether in Canada or the United States. As Mr. Keith put it, the business was 24/7.
[5] Mr. Keith described his daily routine of leaving home early, going to pick up the mail and then heading to the operating office. He there dealt with the mail and the other managerial concerns of the transport business until 11:00 or 11:30 in the morning. He would return to his home address and have lunch and work at the home office until 2:30 p.m. or 3:00 p.m., but he would then return to the operating office to check on the employees and do other necessary chores. He would normally be the last one to leave the office before returning home for the day.
[6] Mr. Keith also did a considerable amount of travelling off the island in servicing his customers and dealing with his suppliers. He travelled 12 to 16 times a year for trips of one, two or three days. Approximately half of these trips appear to have been to Moncton, New Brunswick with several to Halifax, Nova Scotia over the three-year period. Also, two of his major customers had locations in Prince Edward Island, for example in Souris, a 60 or 70 kilometre drive from Conventional Holdings' office.
[7] Mr. Keith relied primarily on what he referred to as his business vehicle to carry out the business travel. His business vehicle was a black 1998 Mercedes Benz convertible owned by Conventional Holdings, though initially leased. Mr. Keith was the only person to drive this vehicle. The Keith family (wife and two teenagers, though only one was old enough to drive during the relevant period) had a Honda Acura, a full-size Mercedes Benz sedan and a Harley Davidson bike for personal use. Mr. Keith was the sole driver of the bike; he would put 17,000 kilometres in a summer on the bike.
[8] Based on service records, Mr. Keith estimated the business vehicle travelled 13,382 kilometres in 1999, approximately 15,000 in 2000 and 16,700 in 2001. Mr. Keith believed the business vehicle was used 95% to 98% for business trips only. He acknowledged there may have been an occasional personal errand or personal use when his wife accompanied him on a business trip that might also have involved some recreation. Only one trip was specifically acknowledged in that regard, a trip to Nova Scotia in June 1999 for which only 800 kilometres of the 1,600 kilometre trip was claimed as business. Given Mrs. Keith's involvement in the business, Mr. Keith asserted that the few times that she travelled with him she was extremely helpful from a business perspective.
[9] Of the total kilometres travelled by the business vehicle in 1999, 2000 and 2001, Mr. Keith estimated 2,500 kilometres in 1999 and 2000, and 3,000 kilometres in 2001 were for visiting island customers, 3,360 kilometres were for travelling between the offices twice a day and the balance was for off-island business trips. In support of the off-island trips, Mr. Keith submitted mainly receipts or invoices for the bridge toll and for gas. The Canada Revenue Agency (CRA) appeals officer found such supporting documentation insufficient to justify the off-island travel. She arbitrarily estimated two trips per year to major customer/supplier locations. This resulted in considerably less off-island business mileage than estimated by Mr. Keith. On balance, I find Mr. Keith's supporting materials, combined with his oral testimony, more compelling than the very rough estimate by CRA, and I accept Mr. Keith's numbers as accurately reflecting the on- and off-island business travel. The following chart summarizes Mr. Keith's estimate of his mileage for the business vehicle:
|
Year |
1999 |
2000 |
2001 |
|
Total kilometres |
13,382 |
15,000 |
16,700 |
|
Visiting island customers |
2,500 |
2,500 |
3,000 |
|
Visiting Glasgow golf development |
|
|
1,700 |
|
Travel between office/week day |
2,400 |
2,400 |
2,400 |
|
Weekend |
960 |
960 |
960 |
|
(2 trips a day) |
|
|
|
|
Off-island business |
7,522 |
9,140 |
8,640 |
[10] The Respondent considered the travel between offices as personal, and also concluded the receipts could not justify the extent of the on- and off-island business travel, in reaching a determination that not all or substantially all the kilometres were in connection with business. The Minister therefore assessed the full standby charge in accordance with section 6(2) of the Income Tax Act.
[11] I differ with Mr. Keith's mileage estimates in a couple of respects. First, regarding the travel between offices, I find that of the two trips per day between his home office and operating office, only one represents business travel. Mr. Keith, like any other employee, left his principal residence to go to work in the morning and returned at the end of the day. Simply because he had a home office does not turn this daily commute into business travel. The mid-day trip, however, to go from his operating office to the home office, where he worked two or three hours every day, and then back to the operating office does constitute business travel. For that reason I am designating half of the 3,360 daily inter-office travel as personal. Second, Mr. Keith acknowledged that up to 5% of his travel in the business vehicle could pertain to personal errands. I find therefore that 5% of the on-island business travel of 2,500, 2,500 and 3,000 kilometres in 1999, 2000 and 2001 was personal; that is, 125, 125 and 150 kilometres. Finally, Mr. Keith acknowledged that on a trip in 1999, 800 kilometres in the business vehicle were more properly personal travel. I conclude that of the total kilometres in 1999, 2000 and 2001 travelled by the business vehicle, 2,605, 1,805 and 1,830 were personal kilometres. As a percentage, the business travel represents 80.5%, 88% and 89% of total kilometres travelled.
[13] Turning now to the standby charge legislation, the pertinent parts of subsection 6(2) of the Income Tax Act read as follows for the relevant years:
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 × [2% × (C x D) + 2/3 × (E - F)]
where
A is the lesser of
(a) the total 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 primarily in connection with or in the course of the office or employment; ...
[14] The taxpayer can only claim a reduced standby charge if he is required to use the car in connection with his employment, and all or substantially all of the distance travelled is in connection with his employment. Other cases, for example, see Keefe v. R.,[1] McKay v. R.[2] and Ruhl v. R.[3] have considered that the administrative rule of thumb that 90% business use constitutes substantially all must be an elastic not formulaic application. Mr. Keith's percentages are just short of the 90% mark, but viewing his use of the business vehicle in context of what he did for the company, that is, maintaining that personal contact with suppliers and customers vital to the success of his business, I am satisfied that some minimal commuting travel does not detract from the position that the car was used substantially all in connection with his employment. This finding is supported by the fact that Mr. Keith was the sole driver and that he had other vehicles available for personal use. Indeed, during the summer he spent considerable time on his motorcycle.
[15] In summary, Mr. Keith meets both criteria set forth in subsection 6(2) of the Act, which qualify him for a reduced standby charge. I therefore allow the appeals with costs and refer the matter back to the Minister for reconsideration and reassessment allowing a reduced standby charge on the basis of 2,605, 1,805 and 1,830 personal kilometres driven in 1999, 2000 and 2001 on the business vehicle.
Signed at Ottawa, Canada, this 7th day of December, 2004.
|
"CampbellJ. Miller" |
Miller J.
|
CITATION: |
2004TCC793 |
|
COURT FILE NO.: |
2004-925(IT)I |
|
STYLE OF CAUSE: |
G. William Keith and Her Majesty the Queen |
|
PLACE OF HEARING: |
Charlottetown, Prince Edward Island |
|
DATE OF HEARING: |
November 23, 2004 |
|
REASONS FOR JUDGMENT BY: |
The Honourable Justice Campbell J. Miller |
|
DATE OF JUDGMENT: |
December 7, 2004 |
|
APPEARANCES: |
|
Counsel for the Appellant: |
Bruce S. Russell, Q.C. |
|
Counsel for the Respondent: |
Edward Sawa |
|
COUNSEL OF RECORD: |
|
For the Appellant: |
|
Name: |
Bruce S. Russell, Q.C. |
|
Firm: |
McInnes Cooper |
|
For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |