Szymczyk: CRA Reneges On Long-Standing Assessing Agreement

Szymczk v. The Queen (2014 TCC 380) is a recent decision from the Tax Court of Canada that addressed whether the taxpayer, Mr. Richard Szymczk, correctly reported standby charge and operating expense benefits in his 2008 and 2009 taxation years as an employee of General Motors of Canada Ltd. ("GM"). The issue at the heart of the decision was whether the CRA could renege on a long-standing agreement it had with GM that allowed it to use a simplified method to compute standby charge and operating expense benefits of its employees.

The taxpayer argued that the CRA was estopped from assessing him contrary to that agreement. The Tax Court did not agree.

GM's Agreement with the CRA

For more than 28 years, the CRA had allowed GM to report its standby charge and operating expense benefit for employees using a simplified, averaging method rather than computing the benefit separately for each individual employee. The CRA issued the administrative authorization (the "Authorization") following what were significant changes to the Income Tax Act (Canada)(the "Act")in 1981 which increased income inclusions for employer-supplied automobiles.

The Authorization provided that the standby charge would be 2% of the average cost (inclusive of sales tax) of all cars in the Product Evaluation Program ( the "PEP"). Operating expense benefit would ½ of the amount so determined (i.e., 50% business / 50% personal).

GM relied on this authorization to determine its standby charge and operating expense benefit for ensuing years – including those for the taxpayer.

Overview of Standby Charge and Operating Expense Benefit

There are two income inclusions for employer-supplied automobiles: 1) standby charge for supply of car: 2) an operating expense benefit for the payment of operating costs.

Standby charge is generally calculated as a 2% monthly inclusion of the cost of the automobile inclusion subject to reduction if the vehicle is used primarily for employment and personal use is limited (less than 1,667 km per month) as per clause 6(1)(e), 6(2) of the Act.

The operating expense benefit is a $0.24/km inclusion for personal use if an employer pays all or part of the operating expenses of an automobile that is subject to a standby charge. Alternatively, where the car is used primarily for employment the employee may designate the benefit as ½ the standby charge but the employee must notify the employer before the end of year.

GM's Product Evaluation Program

During the...