A-2-79
The Queen (Appellant)
v.
Herbert J. Harman (Respondent)
Court of Appeal, Urie and Ryan JJ. and Kerr
D.J.—Ottawa, December 20, 1979 and January
21, 1980.
Income tax — Income calculation — Inclusions — Standby
charge for automobile included in Minister's reassessment of
defendant's 1972 taxation year pursuant to s. 6(1)(e) of the
Income Tax Act but was reduced by Tax Review Board —
Trial Division dismissed Crown's appeal from Board's decision
and held that calculation should be made pursuant to s.
6(1)(a) — On appeal, whether s. 6(1)(e) should be applied in
computing taxpayer's income, or whether the benefit should be
calculated pursuant to s. 6(1)(a) — Income Tax Act, S.C.
1970-71-72, c. 63, ss. 6(1)(a),(e),(2)(a).
By a reassessment of the respondent's income tax for the
1972 taxation year the Minister of National Revenue applied
sections 6(1)(e) and 6(2) of the Income Tax Act to add a
"standby charge" to respondent's income in respect of an
automobile provided him by his employer. On an appeal by the
taxpayer the Tax Review Board held that section 6(1)(a) may
also apply, but that the automobile was ordinarily available to
the taxpayer for personal use on Saturdays and Sundays,
annual leave and holidays, for he was required to use it for
business purposes during other days of the week, and the Board
accordingly reduced the standby charge. The Crown appealed
from the Board's decision to the Trial Division. The Trial Judge
dismissed that appeal and maintained the taxpayer's counter
claim that the calculation should have been made under section
6(1)(a) of the Act. The present appeal is from that judgment.
The issue for determination is whether section 6(1)(e) should
be applied in computing the taxpayer's income or whether the
benefit of the automobile should be calculated pursuant to
section 6(1)(a).
Held, the appeal is dismissed. The issue as to what is the
intention, meaning and scope of section 6(1)(e), considered in
its full context and according to the natural sense of its words,
is fairly arguable. Availability of an automobile is not the sole
or determining consideration in this section or in the compa
rable section 15(5). The purpose for which the employer pro
vides the automobile is a relevant consideration also. The facts
establish that the employer provided an automobile necessary
for and predominantly for the use of the employee in his
employer's business, and although the employee had permission
to use it for personal purposes the opportunity to do so was
minimal. Section 6(1)(e) does not apply to the automobile
under consideration; section 6(1)(a) more aptly applies in the
circumstances of this case.
INCOME tax appeal.
COUNSEL:
W. Lefebvre and G. Du Pont for appellant.
B. Crane, Q.C. and L. Giroux for respondent.
SOLICITORS:
Deputy Attorney General of Canada for
appellant.
Gowling & Henderson, Ottawa, for respond
ent.
The following are the reasons for judgment
rendered in English by
KERR D.J.: By a reassessment of the respond
ent's income tax for the 1972 taxation year the
Minister of National Revenue applied sections
6(1)(e) and 6(2) of the Income Tax Act, S.C.
1970-71-72, c. 63, as amended, to add a "standby
charge" in the sum of $486 to the respondent's
income, in respect of an automobile provided to
him by his employer. On an appeal by the taxpay
er the Tax Review Board held that section 6(1)(a)
may also apply, but that the automobile was only
ordinarily available to the taxpayer for personal
use on Saturdays and Sundays, annual leave and
statutory holidays, for he was required to use it
and did use it for business purposes during other
days of the week, and the Board accordingly
reduced the standby charge to $162.20.'
The Crown appealed from the Board's decision
to the Trial Division and by a judgment rendered
on December 13, 1978 [[1979] 2 F.C. 315], the
learned Trial Judge dismissed that appeal and
maintained the taxpayer's counterclaim that the
calculation should have been made under section
6(1)(a) of the Act. The present appeal is from that
judgment.
The $486 was arrived at according to section 6(2)(a) by
multiplying $4,054.96 (the cost of the automobile), by 365
30
days.
The Board's computation was:
$4,054.96 x 120 days = $162.20.
30
The issue for determination is whether section
6(1)(e) should be applied in computing the tax
payer's income or whether the benefit of the
automobile should be calculated pursuant to sec
tion 6(1)(a).
Section 6(1)(a) and (e) and section 6(2) are as
follows:
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;
(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; and
(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,
then to the full number next below it), and
(b) where the employer leased the automobile from a lessor
at any time in the year, an amount equal to 1/3 of the cost
incurred by the employer for the purpose of leasing the
automobile for the aggregate number of days hereinbefore
referred to.
The facts are not in dispute; they are detailed in
the reasons of the Trial Judge. I think that, rather
than attempting to summarize them, it will be
more informative for me to set forth at this point
the following recital from the Trial Judge's reasons
[at pages 317-321]:
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 Peterborough.
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 Dia
mond cheese, Red Rose tea and an extensive line of spices. His
customers would be independent grocers, variety stores, restau
rants and hotels. Initially a small warehouse was maintained in
Peterborough 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 assem
bled 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 assessment
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, however, showing
the mileage covered each week and the expenditure for gas, oil
and washing of the car and any other incidental expenses, and
distinguishing 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 neces
sary, but this is a trivial matter and not an issue. The company
authorized its salesmen to purchase the cars from local dealers
so that they could readily be serviced locally, but set out
detailed specifications as to what make of car should be pur
chased, 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 personal 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 whatso
ever, 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 previous 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 vehicles for person
al use, since this is then considered to be part of their compen
sation 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 purposes. 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 ordinary 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(l)(e) and 6(2)(a) and whether they are prop
erly 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 wheth
er as defendant contends paragraph 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.
Thereafter the Trial Judge reviewed at some
length the arguments made before him by counsel
in respect of the facts and the provisions of the
Act, including section 15(5) 2 where a corporation
has made an automobile available to a sharehold
er, which were substantially the same as those
made in this Court.
In summary, the principal arguments made in
this Court were the following:
For the appellant. That section 6(1)(e) is not
ambiguous; the conditions precedent to its
application are (1) that an automobile has been
z 15....
(5) Where a corporation has made an automobile available
to a shareholder in a taxation year for his personal use (wheth-
er 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 shareholder) exceeds the aggregate of
(a) the amount paid in the year by the shareholder to the
corporation for the use of the automobile, and
(b) any amount included in computing the shareholder's
income for the year by virtue of subsection (1) in respect of
the use by him of the automobile in the year,
shall be included in computing his income for the year.
made available by an employer to his employee,
and (2) the automobile can be used for the
employee's personal purposes; the key element is
"availability" of an automobile; the section pro
vides a scheme of taxation whereby the actual
usage of an automobile would be disregarded in
favour of a more convenient approach, namely,
availability for personal use; the section does not
require or infer that the personal use be inciden
tal or essential, primary or secondary, and
should not be restricted only to situations where
an automobile has been made available primari
ly for personal use; and the automobile here was
made available to the respondent for personal
use during each of the days of the 1972 taxation
year, and the computation of $486 for the stand
by charge was proper.
For the respondent. That the automobile was
made available to the respondent for business
use, was required to be so used and was almost
constantly so used; it was not made available for
his personal use throughout the year, was
unsuitable for such use, and in fact was used for
personal purposes on only a few days in the
year; that section 6(1)(e) has no application at
all to this automobile, as it was not provided
"for his personal use (whether for his exclusive
personal use or otherwise)"; the words "or oth
erwise" qualify the word "exclusive", and do not
mean "business use"; the French text of section
6(1)(e) 3 supports the conclusion that the inci
dental personal use of an automobile provided
mainly for business purposes does not fall within
the section, and the same words used in section
15(5) clearly apply only to an automobile pro
' 6. (1) Doivent être inclus dans le calcul du revenu d'un
contribuable tiré, pour une année d'imposition, d'une charge
ou d'un emploi, ceux des éléments appropriés suivants:
e) la fraction, si fraction il y a, lorsque son employeur a mis
dans l'année une automobile à sa disposition pour son usage
personnel (Ã titre exclusif ou autre), de la somme qui
représenterait les frais raisonnables pour droit d'usage de
l'automobile pendant le nombre total de jours dans l'année,
durant lesquels elle a ainsi été disponible (qu'elle ait ou non
été utilisée par le contribuable), qui est en sus du total de
(i) la somme qu'il a payée dans l'année à son employeur
pour l'usage de l'automobile, et de
(ii) toute somme incluse dans le calcul de son revenu pour
l'année en vertu de l'alinéa a) au titre de l'usage qu'il a
fait de l'automobile dans l'année; .. .
vided for personal use.
The Trial Judge stated his conclusion as follows
[at page 329]:
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 taxpayer. The wording of the section is
ambiguous and might perhaps be properly applied to an execu
tive 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 interpretation
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, defend
ant's counterclaim being maintained 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.
It appears to me that the issue as to what is the
intention, meaning and scope of section 6(1)(e),
considered in its full context and according to the
natural sense of its words, is fairly arguable. In my
opinion, availability of an automobile is not the
sole or determining consideration in this section or
in the comparable section 15(5). The purpose for
which the employer provides the automobile is a
relevant consideration also. In the present case the
facts establish that the employer provided an
automobile necessary for and predominantly for
the use of the employee in his employer's business,
and although the employee had permission to use
it for personal purposes the opportunity to do so
was minimal. Thus, I doubt that section 6(1)(e),
properly construed, applies to the automobile here
under consideration and I believe that section
6(1)(a) more aptly applies in the circumstances of
this case.
Therefore I would dismiss the appeal and allow
the taxation to be dealt with as provided in the
judgment of the Trial Division, with costs.
* * *
URIE J.: I concur.
* * *
RYAN J.: I concur.
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.