http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/100176/index.do
Szymczyk v. The Queen (December 12, 2014 – 2014 TCC 380, Woods J.).
Précis: For almost 30 years General Motors of Canada Limited (“GMCL”) reported employee benefits from the use of company owned cars on a simplified basis which had been approved by CRA. In 2010 CRA began to audit these benefits on a new basis. They reassessed the appellant and many other employees for 2008 and 2009 adding both greater standby charges and greater operating expense benefits. The Court rejected the taxpayer’s arguments to the effect that the Minister was estopped by virtue of the prior agreement with GMCL and that the Minister should bear the onus of proof. The Court allowed the appeal on the standby charges since the Minister’s pleading did not actually allege the amount of benefit from personal use. On the issue of operating expense benefits the taxpayer was unsuccessful. While the Court stated that it was inclined to award Mr. Szymczyk costs in accordance with the tariff, at the request of the Crown it gave the parties 3 weeks to make submissions as to costs.
Decision: This is part of a saga that commenced with a failed judicial review application in the Federal Court in 2013. Mr. Szymczyk and GMCL have appealed that decision to the Federal Court of Appeal, but that appeal has been held in abeyance pending the decision of the Tax Court in this proceeding:
[1] This appeal under the Income Tax Act concerns the standby charge and operating expense benefit that are required to be included in a taxpayer’s income if an automobile has been supplied by the taxpayer’s employer.
[2] The appellant, Richard Szymczyk, had automobiles assigned to him by his employer, General Motors of Canada Limited (“GMCL” ). He appeals from assessments that increased the amount of the automobile benefit for his 2008 and 2009 taxation years. The appeal is governed by the informal procedure.
[3] By way of background, in 1981 the government proposed to substantially increase the income inclusion required for employer-supplied automobiles. GMCL expressed concern to the Department of Finance about the effect of the proposed legislation on its employees.
[4] It appears that the Department of Finance did not modify the proposed legislation to take GMCL’s concern into account. However, Revenue Canada, Taxation authorized GMCL to use a simplified method of computing the standby charge and operating expense benefit with respect to its executives and senior managers (the “Authorization”). The Authorization also dealt with other employees but this is not relevant to this appeal.
[5] GMCL relied on the Authorization for many years to prepare T4 slips for executives and senior managers, including Mr. Szymczyk for the 2008 and 2009 taxation years. Mr. Szymczyk used the amounts in the T4s to prepare his income tax returns for these years.
[6] The first in-depth audit that the Canada Revenue Agency (CRA) undertook with respect to these benefits commenced in 2010, which was approximately 28 years after the Authorization was issued. The auditor began reviewing GMCL’s records relating to the 2008 taxation year around March 2011 (Affidavit of Norman Fernandez, para. 7). Approximately 350 employees were potentially affected.
[7] The CRA concluded that the Authorization with respect to executives and senior managers was no longer valid due to changed circumstances and it issued assessments to Mr. Szymczyk and others for the 2008 and 2009 taxation years.
[8] Mr. Szymczyk filed notices of objection to the assessments and instituted an appeal to this Court before the objections were dealt with by the CRA. As far as I know, Mr. Szymczyk is the first GMCL employee to have an appeal heard on this issue.
[9] Prior to instituting this appeal, GMCL and Mr. Szymczyk each commenced judicial review applications in the Federal Court with respect to assessments for the 2008 taxation year. Mr. Szymczyk sought a declaration that the assessment issued to him was invalid and unenforceable (
General Motors of Canada Limited v Canada (National Revenue), 2013 FC 1219, at para. 4 and 32).
[10] In the Federal Court, GMCL and Mr. Szymczyk accepted that it was open to the CRA to re-evaluate the Authorization and adopt a different approach on a going-forward basis. However, they objected to assessments being issued on a retroactive basis since the Authorization had been relied on.
[11] The Federal Court applications were dismissed by Justice Mactavish for lack of jurisdiction. As for Mr. Szymczyk, his application was dismissed on the basis that the Tax Court of Canada had the exclusive jurisdiction to give the relief that he was seeking. Justice Mactavish also stated in obiter that if the Tax Court concludes that the assessment is correct, “the Minister’s conduct cannot serve to relieve [Mr. Szymczyk] of his statutory obligation to pay” (at para. 108 and 118).
[12] GMCL and Mr. Szymczyk have appealed the Federal Court decision. As I understand it, the appeal is being held in abeyance pending this decision.
After an extensive review of the facts and the applicable law the Court first concluded that the Minister was not estopped by the Authorization from issuing the reassessments in question:
[43] The Authorization does not expressly state that it is valid only if there are no material changes in the law or facts, but this is implicit in the Authorization. GMCL and Mr. Szymczyk cannot reasonably have expected that the Authorization would be valid if the material circumstances changed.
[44] In my view, both the law and the facts did materially change, such that the Authorization is no longer valid in the taxation years at issue.
[45] First, there was a material change in the law with respect to the operating expense benefit.
[46] When the Authorization was issued in 1982, the Act contained no specific provision dealing with operating expenses. Rather, the benefit was computed in accordance with the general employee benefit provision in paragraph 6(1)(a), which required an income inclusion for “the value of board, lodging and other benefits of any kind […].”
[47] The law was changed effective in 1993 by the enactment of paragraph 6(1)(k) to provide a specific rule for operating expenses. For Mr. Szymczyk in the relevant taxation years, the income inclusion is 24 cents per kilometre driven otherwise than in connection with employment.
[48] This change to the legislation is material and in my view invalidated the Authorization.
[49] There was also a material change in the factual circumstances that were the basis for the Authorization. Revenue Canada stated in the Authorization that it was being issued partly because the vehicles turned over frequently, every 5,000 kilometres or 3 months. In the relevant taxation years, the PEP policy had changed to 12,000 kilometres or 3 months, whichever is earlier. In my view, this is also a material change that invalidates the Authorization.
[50] The Crown suggests that there are several other material changes in the facts. It is difficult to confirm this because the Authorization does not set out in detail the facts on which it is based. However, one does not need a multitude of material changes to invalidate the Authorization.
[51] For these reasons, I would conclude that the Authorization cannot be relied on with respect to the computation of automobile benefits to Mr. Szymczyk in the 2008 and 2009 taxation years. The Minister is not estopped from issuing the assessments that are under appeal.
Next the Court rejected Mr. Szymczyk’s argument that the Minister should bear the onus of proof:
[54] Mr. Szymczyk submits that it is unfair for him to bear the burden of proof because the Authorization dispensed with detailed record keeping.
[55] The problem with this submission is that the Authorization was not valid for the relevant taxation years. Material circumstances had changed since 1982, and GMCL chose not to attempt to obtain a new Authorization. This decision put both GMCL and its employees at risk that the CRA would not follow the Authorization.
[56] Since the Authorization was not valid, it is fair for Mr. Szymczyk to bear the usual burden of proof.
[57] Mr. Szymczyk further submits that the onus of proof should be reversed because two key assumptions are “arbitrary, capricious and not founded in any facts.” He also submits that the Minister did not contact him prior to issuing the assessments.
[58] I agree with Mr. Szymczyk that the assumed facts are partly arbitrary, but this is not a reason for the Crown to bear the burden of proof. The burden of proof with respect to pleaded assumptions is placed on taxpayers because the facts are usually within the taxpayers’ knowledge or control. It is not unfair for Mr. Szymczyk to bear the burden of proof simply because some assumptions are arbitrary.
[59] With respect to the failure of the CRA to contact Mr. Szymczyk prior to issuing the assessments, the issue is one of fairness. In my view, it is not unfair for Mr. Szymczyk to bear the burden of proof simply because he was not contacted prior to the assessments being issued.
[60] For these reasons, I reject the submissions of Mr. Szymczyk regarding shifting the onus of proof. However, I will have more to say about assumptions below.
The Court allowed the appeal on the standby charges, but only because it found the Minister’s pleading defective. Moreover it was critical of both counsel for never having raised the defects inherent in the Minister’s pleading:
[67] The relevant assumption is reproduced below.
e) the total number of kilometres driven by the appellant for personal use in the 2008 and 2009 taxation years was deemed to be 20,004 per year.
[68] I would first comment concerning the use of the term “deemed” in the assumption because it sticks out like a sore thumb. The legislation does not contain a deeming rule for personal use, although previous versions of the legislation had done so. Although the choice of the term “deemed” is unfortunate, nothing turns on this.
[69] The real problem is that the stated assumption does not support the standby charge that was assessed.
[70] Mr. Szymczyk had four automobiles assigned to him in each of 2008 and 2009, each with a different assumed cost. In this case, the legislation requires that personal use be calculated separately for the periods that each automobile was made available. The problem is that there is no assumption as to personal use for each of these periods.
[71] To illustrate, the pleaded assumption was that personal use was 20,004 kilometres per year. If this use occurred entirely by one of the assigned automobiles, then according to the formula in s. 6(2) there is no income inclusion with respect to the other assigned automobiles. This is obviously an unlikely factual scenario, but it illustrates the point that personal use has to be determined for a period of use of each automobile.
[72] What is the result of this? The burden of proof with respect to these relevant facts must be shifted to the Crown. In
The Queen v Loewen, 2004 FCA 146, at paragraph 11, Justice Sharlow stated:
[11] […] If the Crown alleges a fact that is not among the facts assumed by the Minister, the onus of proof lies with the Crown. This is well explained in
Schultz v. Canada, [1996] 1 F.C. 423, [1996] 2 C.T.C. 127, 95 D.T.C. 5657 (F.C.A.) (leave to appeal refused, [1996] S.C.C.A. No. 4).
[73] As a final matter, it is troubling that neither party raised this as an issue. If the appeal were heard under the general procedure, it would be appropriate to seek submissions from the parties. However, the appeal was heard under the informal procedure, it involves a small amount of tax, and it does not have precedential effect. It is not in the interests of justice to prolong this appeal for this reason.
[74] Accordingly, I would conclude that the Crown has the burden to establish the personal use of each automobile that was assigned, and that this burden has not been satisfied.
[75] For this reason, the appeal will be allowed with respect to the standby charges.
On the issue of the operating expense benefit, Mr. Szymczyk was not successful since he had not met the onus of proof:
[79] I turn now to the central issue which is whether Mr. Szymczyk has established a prima facie case as to personal kilometres driven. In my view, Mr. Szymczyk’s evidence in this regard falls short.
[80] As mentioned earlier, Mr. Szymczyk was not called to testify at the hearing by his counsel, and for the most part he relied on the evidence presented in the Federal Court judicial review application.
[81] The Crown did call Mr. Szymczyk and asked him some questions regarding personal use. However, at no time did Mr. Szymczyk provide an estimate of the total number of personal use kilometres that he drove. Mr. Szymczyk has not satisfied the burden.
[82] Mr. Szymczyk also submits that he should be permitted to designate the benefit based on one-half the standby charge. The problem is that the designation was not made in the relevant year as required by s. 6(1)(k). It would not be appropriate to ignore this requirement.
[83] The Minister’s determination of the operating expense benefit will be upheld.
While the Court stated that it was inclined to award Mr. Szymczyk costs in accordance with the tariff, at the request of the Crown it gave the parties 3 weeks to make submissions as to costs.
Comment: Since this case was argued under the informal procedure rules in theory at least it has no precedential weight:
No precedential value
18.28 A judgment on an appeal referred to in section 18 shall not be treated as a precedent for any other case.
Tax Court of Canada Act, R.S., 1985, c. 51 (4th Supp.), s. 5.
As a practical matter however the decision is likely to determinative on the issue of the Authorization acting as a form of estoppel in the 2008 and 2009 taxation years (as opposed to the factual calculation of benefit amounts) unless it is reversed on appeal. In retrospect it seems that the decision to pursue the informal procedure rules may have been an unfortunate one since it operated to limit the evidence and argument before the Court.