Judgments

Decision Information

Decision Content

T-327-78
The Queen (Plaintiff)
v.
Herbert J. Harman (Defendant)
Trial Division, Walsh J.—Ottawa, December 7 and 13, 1978.
Income tax — Income calculation — Inclusions — Stand by charge for automobile included in Minister's reassessment of defendant's 1972 taxation year pursuant to s. 6(1)(e) but reduced by Tax Review Board — Plaintiff appeals that deci sion and defendant counterclaims contending that the benefit should be calculated pursuant to s. 6(1)(a) — Income Tax Act, S.C. 1970-71-72, c. 63, s. 6(1)(a),(e),(2)(a).
This is an appeal from a judgment of the Tax Review Board allowing in part defendant's appeal against a reassessment of his 1972 taxation year by the Minister of National Revenue. That decision reduced the amount included in the Minister's reassessment for a stand-by charge for personal use of an automobile provided defendant by his employer. Defendant counterclaims that the calculation should have been made under another section of the Act which would have resulted in an even smaller addition to defendant's income. The legal argument hinges on the interpretation to be given paragraphs 6(1)(e) and 6(2)(a) of the Income Tax Act and whether they are properly applied, as the Minister did on the basis that the car was available at all times, or as the Tax Review Board did on the basis that the car was available only on weekends or holidays, or whether, as defendant contends, paragraph 6(1)(e) should not have been applied at all, but that the benefit should have been calculated pursuant to paragraph 6(1)(a).
Held, the action is dismissed and the counterclaim is allowed. The car was not "an automobile available to him in the year for his personal use" in the case of the present taxpayer. The wording of the section is ambiguous and might be properly applied to an executive whose company makes a car available to him primarily for personal use, but this Court's conclusion that the word "otherwise" (following the words personal use) does not mean business use, makes it difficult to avoid the conclusion that this was not an automobile made available to the taxpayer for personal use but rather an automobile made available to him for business use, with personal use being permitted.
INCOME tax appeal. COUNSEL:
Wilfrid Lefebvre and Guy Dupont for plaintiff.
B. A. Crane, Q.C. and Luc Giroux for defendant.
SOLICITORS:
Deputy Attorney General of Canada for plaintiff.
Duquet & Bronstetter, Montreal, for defend ant.
The following are the reasons for judgment rendered in English by
WALSH J.: This is an appeal from a judgment dated October 7, 1977, of the Tax Review Board allowing in part defendant's appeal against a reas sessment made by the Minister of National Reve nue which included a stand-by charge of $486 in the computation of defendant's income for his 1972 taxation year for personal use of an automo bile provided by his employer, which charge was reduced to $162 in the said decision. Defendant counterclaimed against this decision of the Tax Review Board on the basis that the calculation should have been made under another section of the Act which allegedly would have resulted in an even smaller addition to defendant's income. Although the sums involved are small the issue is an important one as the decision will affect a very large number of taxpayers in a similar position to defendant and it was therefore very thoroughly and fully argued both before the Tax Review Board and in this Court. This, I am given to understand is the first time the issue has been raised since the current Income Tax Act came into effect, in which sections 6(1)(e) and 6(2)(a) are new, not having been in the former Act, although a section substantially similar to section 6(1)(a) was in the old Act, R.S.C. 1952, c. 148 as amended, numbered as section 5(1)(a).
It will be convenient to quote the sections in question which are to be interpreted in the light of the facts of the present case:
6. (1) There shall be included in computing the income of a taxpayer for a taxation year as income from an office or employment such of the following amounts as are applicable:
(e) where his employer made an automobile available to him in the year for his personal use (whether for his exclusive personal use or otherwise), the amount, if any, by which an amount that would be a reasonable standby charge for the automobile for the aggregate number of days in the year during which it was made so available (whether or not it was used by the taxpayer) exceeds the aggregate of
(i) the amount paid by him in the year to his employer for the use of the automobile, and
(ii) any amount included in computing his income for the year by virtue of paragraph (a) in respect of the use by him of the automobile in the year; ...
(2) For the purposes of paragraph (1)(e) "an amount that would be a reasonable standby charge for the automobile" for the aggregate number of days in a taxation year during which it was made available by an employer shall be deemed not to be less than,
(a) where the employer owned the automobile at any time in the year, an amount in respect of its capital cost to the employer equal to the percentage thereof obtained when 1% is multiplied by the quotient obtained when such of the aggregate number of days hereinbefore referred to as were days during which the employer owned the automobile is divided by 30 (except that if the quotient so obtained is not a full number it shall be taken to be the nearest full number or, if there is no nearest full number, then to the full number next below it), ...
6. (1) There shall be included in computing the income of a taxpayer for a taxation year as income from an office or employment such of the following amounts as are applicable:
(a) the value of board, lodging and other benefits of any kind whatever (except the benefit he derives from his employer's contributions to or under a registered pension fund or plan, group sickness or accident insurance plan, private health services plan, supplementary unemployment benefit plan, deferred profit sharing plan or group term life insurance policy) received or enjoyed by him in the year in respect of, in the course of, or by virtue of an office or employment;
The facts are not in dispute. Defendant, a very frank and clear witness stated that he was employed as a travelling sales representative by Brooke Bond Foods Limited (hereinafter called the employer) since 1957 living in Peterborough, Ontario, and having a sales area extending from there to Bancroft and Lake St. Peter in the North, east to Perth, south to the outskirts of Kingston, and from there to Bowmanville and northeast to Lindsay and Haliburton, an area of 10,000 square miles. In order to cover the territory he would be away from home two or three nights a week. While normally he worked a nine-hour day five days a week, he might be working longer than this on days when he was returning home from a business
trip to an area perhaps two hours from Peterbor- ough. He would also on occasion when one of his customers, for example a restaurant, ran out of coffee on a Saturday or Sunday make a special delivery to that customer on one of those days. The employer, a subsidiary of an English company, was in the grocery business, selling such items as Black Diamond cheese, Red Rose tea and an extensive line of spices. His customers would be independent grocers, variety stores, restaurants and hotels. Ini tially a small warehouse was maintained in Peter- borough with supplies which would be renewed from Toronto about once a week. He would be furnished with a delivery truck which he would keep stocked from the warehouse and make his sales directly from it. In recent years he primarily took orders from his customers which would then be shipped directly to them from his employer. Eventually the employer instead of providing its salesmen with delivery trucks provided station wagons for this purpose. However the station wagon would normally be loaded with a large assortment of display items, including posters and bins. Cardboard display bins for Black Diamond cheese, for example, would be flat and opened up for assembly but metal racks for the cheese and for Red Rose iced tea mix were not collapsible. In addition large spice racks were provided for retail stores which when assembled consisted of a series of shelves and were about four feet wide by six feet high. They came in six sections that had to be assembled in the store. Samples of new lines would also be in the car to show to customers and he always carried a supply of coffee as restaurants frequently ran short of it. Accordingly the rear seat of the station wagon was always closed down to the floor and the rear of it was normally filled with merchandise of this sort. On the passenger side of the front seat he usually kept his briefcases, order forms and other documents and did his paper work in the car except for his weekly report on Friday which he would do in his home.
In practice the vehicle was of little use to him as a personal car as it would take at least a half hour to unload it, assisted by some of his children if he wished to use it for family use when at home. Actually in 1972, the year with which the assess ment is concerned, out of a total mileage of 27,780 miles driven only 1,230 miles were for personal use. He would simply leave the car fully loaded in the driveway overnight. He did not actually require it for personal use in any event as his wife also had a station wagon.
He was required to keep careful records, how ever, showing the mileage covered each week and the expenditure for gas, oil and washing of the car and any other incidental expenses, and distinguish ing personal mileage from business mileage. The employer allowed its salesmen who had had an accident free record the preceding year, such as defendant, 1,000 free miles of personal use in the following year; with this exception a charge of 5¢ a mile was made for personal use. Actually in 1972 defendant paid the company $15 for 300 miles of personal use which indicates that he paid slightly more than was necessary, but this is a trivial matter and not an issue. The company authorized its salesmen to purchase the cars from local deal ers so that they could readily be serviced locally, but set out detailed specifications as to what make of car should be purchased, what options should be on the car, and so forth. After finding out which local dealer would give the best price, this was then invoiced by the dealer to the company and paid by it. The company also paid for all insurance and other expenses of the car.
There were no restrictions prohibiting the per sonal use of the car, and provided the company was advised permission could be obtained for a salesman's wife or adult members of his family to drive it. It could also be taken across the border if desired provided the company was notified in advance. There was very little limitation or control therefore by the employer on the personal use of the car by the employee, but in practice it would so
constantly be used for business purposes and most of the time filled with merchandise that it would be inconvenient to use it for personal purposes even if it were available for such use outside of the hours in which it was being used for business purposes. In the case of defendant there were only eight weeks during the year 1972 in which any personal use was made of the car and the chart shows that during the weeks which he believes were his holiday weeks no use was made of it whatsoever, so apparently if the family went on a trip during this period it was the wife's car which was used.
Defendant's evidence was corroborated in all material respect by William McDiarmid the Finance Director of the employer. He testified that the company has 145 salesmen about 35 of whom would have rural territories and that in all cases whether the salesman had a city or rural territory a car is provided by the company on the same basis as for defendant. This has been company policy since the 1940's. The free 1,000 miles of personal use is to encourage safe driving by employees and as a reward for an accident free record the previ ous year. Since only 5¢ a mile is charged for personal use in any event this is equivalent only to a bonus of $50. He stated that the policy is somewhat different when senior executives of the company such as himself are provided with vehi cles for personal use, since this is then considered to be part of their compensation and shown on their T4 slips in the amount approved by the Income Tax Department. He would pay for his own gas when his car was used for personal pur poses. He stated that at one time in accordance with the policy of the parent company in England the logo of the company appeared on the side of the vans provided for salesmen, but that some years ago this policy was abandoned as they felt that the advertising value was not great in any event and that the salesmen would appear to be a more professional group if they were driving ordi nary station wagons which served the purpose just as well without any identification to indicate that the wagons belonged to the company.
The legal argument hinges on the interpretation to be given to paragraphs 6(1)(e) and 6(2)(a) and whether they are properly applied as the Minister did in this case, whether they should be applied as the decision of the Tax Review Board did on the basis that the car was only available to defendant on weekends, annual holidays and on statutory holidays, or whether as defendant contends para graph 6(1)(e) should not have been applied at all but that the benefit (since he concedes that there was some benefit) should have been calculated pursuant to paragraph 6(1)(a), as would have been done under the old Act.
While the reassessment by the Minister in the present case was made on March 11, 1974, it appears to be in accordance with the policy later set out in Interpretation Bulletin IT-63R dated September 30, 1974, which reads in part as follows:
1. The bulletin deals with the amount to be included in an employee's income for the availability or use of his employer's automobile. Where the employee actually uses the automobile, paragraph 6(1)(a) requires the inclusion in his income of the value of the benefit. Where an employer makes an automobile available for an employee's use, whether or not he uses it, paragraph 6(1)(e) requires the employee to include in his income a charge for having the automobile on standby. Since paragraph 6(1)(a) is still the main charging section, the stand by charge is only included in an employee's income to the extent that it exceeds the aggregate of any amounts already included in his income by virtue of paragraph 6(1)(a) and any amounts he paid to his employer for the use of the automobile.
3. An employer is considered to make an automobile available for an employee's personal use when he gives the employee the custody and control of the automobile and he does not impose strictly enforced rules prohibiting its use by the employee for his own personal purposes....
5. Normally the value of a benefit under paragraph 6(1)(a) arising from an employee's personal use of the employer's automobile is that proportion of the total operating cost of the automobile that his personal use bears to its total use for the year. For this purpose "operating cost" includes such things as licences, insurance, repairs, gasoline, oil, servicing charges ...
and capital cost allowance for an automobile owned by the employer ....
6. A payment by an employee to his employer for his personal use of the automobile reduces the benefit added to income under paragraph 6(1)(a).
7. For the purposes of paragraph 6(1)(e), subsection 6(2) sets out the rules for determining the reasonable standby charge for an automobile for the aggregate number of days the employer makes it available for the personal use of an employee during the period in the year that the employer owned or leased it ....
8. Paragraph 6(1)(e) brings into the employee's income the amount by which the standby charge exceeds the total of the amounts brought into income for his use of the automobile under paragraph 6(l)(a) and the amounts he has paid the employer for its use ....
Actually no calculation was made under para graph 6(l)(a), but as the amounts added to income under that paragraph would be deducted as a credit on the amounts paid under paragraph 6(l)(e), the result is the same, for, as defendant points out although no actual calculation for the application of paragraph 6(1)(a) was submitted in evidence it would appear that it would be less than the amount arrived at by the application of para graph 6(1)(e) and even with the further deduction of the $15 paid by defendant to his employer for the use of the car in 1972 by virtue of subpara- graph 6(1)(e)(î) the total deductions would still be less than the amounts added to tax by the applica tion by the Minister of paragraph 6(1)(e).
It goes without saying that the Interpretation Bulletin is in no way binding on the Court. The question to be decided is whether paragraphs 6(1)(e) and 6(2)(a) were properly used by the Minister in this case or can properly be used in similar cases.
The Minister relies on the use of the word "available" in paragraph 6(1)(e), noting that the word is unqualified by any limitation such as "conveniently available", "available at all times", or any similar words. The contention is that since there were no restrictions imposed by the employer on the car's personal use by defendant it was so available to him at all times during the year, since even on the days when it was in business use or when defendant was away from home with it, it was still available for his personal use outside of business hours, and since a day consists of 24
hours it must be considered as having been avail able at least part of every day in the year for personal use. Applying the fraction in paragraph 6(2)(a) he reaches a figure of 12% and since the figure of $4,054.96 as the capital cost of the car is not disputed by defendant 12% of this works out to $486 the amount of the assessment. The decision of the Tax Review Board takes the position that since a day consists of 24 hours the car is not available for personal use on any day which it is not so available for 24 hours and hence working days should be excluded even if the car might be available for personal use in the evening. On this basis the Board concluded that it was available for personal use on 104 days on Saturdays and Sun- days to which it adds another 16 days for statutory holidays and annual leave fixing the availability at 120 days which when divided by 30 gives a figure of 4%. Applying this to the figure of $4,054.96 results in the amount of $162.20.
Defendant's counsel in arguing that the provi sions of paragraph 6(1) (e) and the interpreting paragraph 6(2)(a) should not be applied at all in the case of someone in the position of defendant, contends that the emphasis should not be on the word "available" but on the whole clause "avail- able ... for his personal use". The car in question was certainly made available to defendant primari ly for business use, any personal use permitted being strictly incidental thereto. It is his conten tion that this paragraph should only be applied to the business executive who is provided with a company car for his personal use, although he is also expected to use it in connection with his business, but that for someone in the position of defendant it is paragraph 6(1) (a) which should be applied and he should be deemed to be receiving a benefit as a result of being allowed to use the car for personal use when it is not being used for business purposes. In this event, while other expenses in addition to the capital cost of the car
are taken into consideration, including insurance, maintenance, gas and oil and so forth, the portion of these total expenses deemed to be a benefit for an employee according to defendant would be determined on the basis of the mileage in which the vehicle was used for personal use as against the total mileage of the car in the year in question. In the present case this would work out to a very low percentage of something under 5%.
In support of this argument defendant points out that paragraph 6(1)(e) really starts out by dealing with an automobile available for personal use, and only brings in possible business use by the phrase in parenthesis "whether for his exclusive personal use or otherwise". Defendant contests the sugges tion that the word "otherwise" means business use, contending that it really qualifies the word "exclu- sive" and really applies to a case where other people are using it than the taxpayer himself, such as members of his family or perhaps other employees of the company. Certainly the word "otherwise" is a vague and unsatisfactory term to use in a taxing statute. In the case of Edmonton National System of Baking Limited v. M.N.R.' Angers J. commented unfavourably on the use of the words "or otherwise" in a statute stating at page 188:
Does it come within the scope of the very general and indefinite words "or otherwise", too often used in statutes by legislators who have not a clear and precise notion of the subject treated?
I fully agree with this statement. The French version of the statute supports this argument, the words "whether for his exclusive personal use or otherwise" being translated as "pour son usage personnel (à titre exclusif ou autre)".
Defendant goes further with this reasoning and states that in subsection 15(5) of the Act dealing with the situation where an automobile is made available to a shareholder the English version is identical in wording to the English version of paragraph 6(1)(e) but the French translation now reads "pour son usage personnel (qu'il s'agisse ou
1 [1947] C.T.C.169.
non d'un usage personnel exclusif)". Since a shareholder can never have any business use for the car in his capacity as a shareholder, any such use for company business being as a director or officer, it is clear that this subsection which deals only with shareholders as such cannot foresee a business use of the car and supports defendant's contention that the word "otherwise" cannot mean business use. During the course of argument plain tiff's counsel was prepared to concede to the validi ty of this reasoning, but still contended that since the car was available for personal use by defendant 365 days a year paragraphs 6(1)(e) and 6(2)(a) should apply. If this is so and it is conceded that paragraph 6(1)(e) which nowhere uses the word "business" does not foresee business use of the car but merely deals with personal use then it must be said that it is a particularly poorly drawn para graph and would seem to have no application to situations dealing with business use of the car. It must be repeated that the word "personal" is what is emphasized in the paragraph, which would seem to have no application except to a situation where the car was provided for the employee for such use only during the course of the year, and not for the entire year, in which event it would have some meaning to charge the employee only with the portion of the year during which it was available to him for such personal use.
Plaintiff's counsel stated that the purpose of paragraph 6(1)(e) was to enable a simple calcula tion to be made in all cases where an employer made an automobile available to an employee whether exclusively or not for personal use and avoid the more difficult calculation under para graph 6(1)(a) which was the sort of calculation that had to be made under the corresponding paragraph 5 (1) (a) of the former Act. Instead of basing the charge on the actual use of the car, and the proportion of all the expenses in connection therewith, which required also a determination of the percentage of personal use as compared with business use, paragraphs 6(1)(e) and 6(2)(a) base the charge solely on availability of the car whether it is used or not and apply the percentage formula so calculated solely to capital cost of the car. It is
true of course that credit is given against the resulting figure for any amount actually paid by the employee for such use and for any amount included under paragraph 6(1) (a) in computing the taxpayer's income (which figure the assessor did not even calculate in the present case). The purpose presumably is to establish as a minimum figure what is deemed to be "a reasonable standby charge" in the event that the arrangement made with the employer as to the amount to be paid by the taxpayer for the actual use of the car for personal purposes is so low, or the employee's personal use of the car is so slight, that the two when added together are still less than what is deemed to be "a reasonable standby charge". If a calculation has to be made under subparagraph 6(1)(e)(ii) however of the amount which would have been included in the employee's income under paragraph 6(1)(a), then the whole argument that paragraph 6(1)(e) is intended to simplify the assessment fails unless no personal use of the car whatsoever was made during the year, in which case no calculation would have to be made under subparagraph 6(1)(e)(ii). In all other cases a com putation under paragraph 6(1)(a) would have to be made and it would be simpler and far more equitable if a calculation has to be made in any event to base the assessment on the results of this calculation. Actually, as pointed out, the Interpre tation Bulletin issued subsequently foresees the necessity of this computation.
If paragraph 6(1)(e) is only to be applied in cases where although the car is available for per sonal use no such personal use is made, then it must have a very limited use. Moreover the inter pretation sought by plaintiff inevitably leads to extraordinary inequities. Basing the calculation on availability alone whether the car is used or not for personal purposes would mean that an executive who is provided with a company car to use as he chooses (and this is by no means uncommon since, especially in the case of small one-man companies, the personal car of the owner is very frequently registered in the company's name and the expenses charged to the company) would only pay 12% of the capital cost of the car unless he is assessed on the actual use under paragraph 6(1)(a), whereas an employee, such as defendant in the present
case, who makes very limited or no use of the car for personal purposes would be assessed exactly the same amount by the application of paragraphs 6(1)(e) and 6(2)(a) if the argument is accepted that it is available to him at all times unless there is a control or restriction on his personal use, even if such availability in practice is of necessity lim ited to weekends, holidays, and possibly some slight evening use, since it is being fully used for business purposes at all other times. In fact, based on the sum of 5¢ a mile charged to defendant in the present case, after the first 1,000 miles which he received free, we would have a situation where, if he had used the car for personal use for 11,000 miles in the year 1972 he would have been charged for 10,000 miles of such use or $500 and would have been subject to no assessment under para graphs 6(1)(e) and 6(2)(a), the $500 he would pay being greater than the $486 stand-by charge cal culated on the basis of alleged availability of the car at all times for personal use, whereas because he used it for only 1,230 miles he would be subject to the $486 assessment less the $15 he actually paid for use of the car if these paragraphs are applied to him. In other words the greater the personal use the less the assessment he would have to pay, which is surely an anomaly which could not have been intended.
Plaintiff relies on the judgment of Lord Dono- van in the well known case of Mangin v. I.R.C. 2 where he stated at page 746:
First, the words are to be given their ordinary meaning. They are not to be given some other meaning simply because their object is to frustrate legitimate tax avoidance devices ... moral precepts are not applicable to the interpretation of revenue statutes.
Secondly, "... one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the
2 [1971] A.C. 739.
language used": per Rowlatt J. in Cape Brandy Syndicate vs Inland Revenue Commissioners ... .
Thirdly, the object of the construction of a statute being to ascertain the will of the legislature it may be presumed that neither injustice nor absurdity was intended. If therefore a literal interpretation would produce such a result, and the language admits of an interpretation which would avoid it, then such an interpretation may be adopted.
Fourthly, the history of an enactment and the, reasons which led to its being passed may be used as an aid to its construction.
Reference was also made to the judgment of Lord Atkinson in Ormond Investment Company, Lim ited v. Betts 3 at page 162:
... the words of the statute must be adhered to, and that so called equitable constructions of them are not permissible ....
These and many other cases have established that equity has no place in the interpretation of tax statutes.
On the other hand there is a long line of cases
establishing that the imposition of a tax must be clearly set out in the statute and that any ambigui ty or uncertainty must be interpreted against the taxing authority. For example in Ormond Invest ment Company, Limited v. Betts (supra) Lord Buckmaster in dealing with the construction of a tax statute stated at page 151:
... I have not overlooked the cardinal principle relating to Acts that impose taxation on the subject, a principle well known to the common law and that has not been and ought not to be weakened—namely, that the imposition of a tax must be in plain terms. In the words of Lord Blackburn in Coltness Iron Co. v. Black ((1881) 6 App.Cas. 315, 330): "No tax can be imposed on the subject without words in an Act of Parliament clearly showing an intention to lay a burden on him." It is in that respect kindred to the creation of a penalty or the estab lishment of a crime. The subject ought not to be involved in these liabilities by an elaborate process of hair-splitting arguments.
In Canada in the Supreme Court case of The Canadian Northern Railway Co. v. The King 4 Brodeur J. stated at page 275:
A law imposing taxation shall always be construed strictly against the taxing authorities, since it restricts the public in the enjoyment of its property.
3 [1928] A.C. 143.
4 (1922) 64 S.C.R. 264.
This judgment was confirmed in the Privy Council'.
I conclude that in the present case the car was not "an automobile available to him in the year for his personal use" in the case of the present taxpay er. The wording of the section is ambiguous and might perhaps be properly applied to an executive whose company makes a car available to him primarily for personal use, but once it is concluded that the word "otherwise" (following the words personal use) does not mean business use, and I have so concluded, then it is difficult to avoid the conclusion that this was not an automobile made available to the taxpayer for personal use but rather an automobile made available to him for business use, with personal use being permitted. This would seem to be a logical literal interpreta tion of the unfortunate and clumsy wording of paragraph 6(1)(e), and since there is at the very least ambiguity and doubt in the interpretation which must be interpreted against the taxing authorities the action must be decided against plaintiff, defendant's counterclaim being main tained and defendant's 1972 tax assessment being referred back to the Minister for reassessment pursuant to the provisions of paragraph 6(1)(a) of the Act. The fact that it is more in accord with equity is an added reason for dealing with the matter in this way, although the proceedings could not have been decided on that basis alone.
Since plaintiff's action has failed and defend ant's counterclaim been maintained costs will be in favour of defendant in any event, but even if this were not so, the Court would by virtue of the . provisions of section 178(2)(a) of the Act direct that plaintiff pay all reasonable and proper costs of defendant since the amount in controversy does not exceed $2,500.
5 [1923] 3 D.L.R. 719.
 You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.