Citation: 2011 TCC 223
Date: 20110420
Docket: 2010-3801(GST)I
BETWEEN:
SCARLET NELSON and LARRY NELSON,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1]
The appellants, Scarlet and Larry
Nelson, appeal in respect of an assessment made under the Excise Tax Act. The
issue concerns the disallowance of an input tax credit in the amount of $1,500
that was claimed in relation to a motor vehicle acquired by the appellants, as
partners, for use in their farming activities. The period at issue is from
January 1 to December 31, 2008.
[2]
The applicable legislative provisions
are sections 123(1) (definition of “exclusive”), 201, 202(2), 202(4), and
203(2) of the Act. They are reproduced below.
123(1)
In section 121, this Part and Schedules V to X,
“exclusive”
means
(a) in
respect of the consumption, use or supply of property or a service by a person
that is not a financial institution, all or substantially all of the
consumption, use or supply of the property or service, […]
201 For
the purpose of determining an input tax credit of a registrant in respect of a
passenger vehicle that the registrant at a particular time acquires, imports or
brings into a participating province for use as capital property in commercial
activities of the registrant, the tax payable by the registrant in respect of
the acquisition, importation or bringing in, as the case may be, of the vehicle
is deemed to be the lesser of
(a) the tax
that was payable by the registrant in respect of the acquisition, importation
or bringing in, as the case may be, of the vehicle; and
(b) the amount determined by the formula
(A
× B) - C
where
A is the tax that would be payable by the registrant in respect
of the vehicle if the registrant acquired the vehicle at the particular time
(i) where the
registrant is bringing the vehicle into a participating province at the
particular time, in that province, and
(ii) in any other case, in Canada
for
consideration equal to the amount that would be deemed under paragraph 13(7)(g)
or (h) of the Income Tax Act to be, for the purposes of section 13 of
that Act, the capital cost to a taxpayer of a passenger vehicle in respect of
which that paragraph applies if the formula in paragraph 7307(1)(b) of the Income
Tax Regulations were read without reference to the description of B,
B is
(i) if the
registrant is deemed under subsection 199(3) or 206(2) or (3) to have acquired
the vehicle or a portion of it at the particular time, or the registrant is
bringing the vehicle into a participating province at the particular time, and
the registrant was previously entitled to claim a rebate under section 259 in
respect of the vehicle or any improvement to it, the difference between 100%
and the specified percentage (within the meaning of that section) that applied
in determining the amount of that rebate, and
(ii) in any other case, 100%; and
C is
(i) where the
registrant is bringing the vehicle into a participating province at the
particular time, the total of all input tax credits that the registrant was
entitled to claim in respect of the last acquisition or importation of the
vehicle by the registrant or in respect of any improvement to it acquired or
imported by the registrant after the vehicle was last so acquired or imported,
and
(ii) in any other case, zero.
202(2)
Where a registrant who is an individual or a partnership acquires or imports a
passenger vehicle or aircraft or brings it into a participating province for
use as capital property of the registrant, the tax payable (other than tax
deemed to be payable under subsection (4)) by the registrant in respect of that
acquisition, importation or bringing in, as the case may be, shall not be
included in determining an input tax credit of the registrant unless the
vehicle or aircraft was acquired or imported, or brought in, as the case may
be, by the registrant for use exclusively in commercial activities of the
registrant.
202(4)
Notwithstanding subsections (2) and (3), where a registrant who is an
individual or a partnership at any time acquires or imports a passenger vehicle
or aircraft, or brings it into a participating province, for use as capital
property of the registrant but not for use exclusively in commercial activities
of the registrant and tax is payable by the registrant in respect of the
acquisition, importation or bringing in, as the case may require, for the
purpose of determining an input tax credit of the registrant, the registrant is
deemed
(a) to have
acquired the vehicle or aircraft on the last day of each taxation year of the
registrant ending after that time; and
(b) to have
paid, on that day, tax in respect of the acquisition of the vehicle or aircraft
equal to the amount determined by the formula
A
× B
where
A is
(i) in the
case of an acquisition or importation in respect of which tax is payable only
under subsection 165(1) or section 212 or 218, as the case may require, and in
the case of an acquisition deemed to have been made under subsection (5) of a
vehicle or aircraft in respect of which no tax under subsection 165(2) was
payable by the registrant, the amount determined by the formula
C/D
where
C is the
rate set out in subsection 165(1), and
D is the
total of 100% and the percentage determined for C,
(ii) in the
case of the bringing into a participating province of the vehicle or aircraft
from a non-participating province and in the case of an acquisition in respect
of which tax under section 220.06 is payable, the amount determined by the
formula
E/F
where
E is the
tax rate for the participating province, and
F is the total of 100% and the percentage determined for E, and
(iii) in any
other case, the amount determined by the formula
G/H
where
G is the total of the rate set out in subsection 165(1) and the tax
rate for a participating province, and
H is the total of 100% and the percentage determined for G, and
B is
(i) where an
amount in respect of the vehicle or aircraft is required by paragraph 6(1)(e)
or subsection 15(1) of the Income Tax Act to be included in computing
the income of an individual for a taxation year of the individual ending in
that taxation year of the registrant, nil, and
(ii) in any
other case, the capital cost allowance in respect of the vehicle or aircraft
that was deducted under the Income Tax Act in computing the income of
the registrant from those commercial activities for that taxation year of the
registrant.
203(2)
For the purposes of this Part, where a registrant who is an individual or a
partnership acquired or imported a passenger vehicle or an aircraft for use as
capital property exclusively in commercial activities of the registrant and the
registrant begins, at any time, to use the vehicle or aircraft otherwise than
exclusively in commercial activities of the registrant, the registrant shall be
deemed to have
(a) made,
immediately before that time, a taxable supply by way of sale of the vehicle or
aircraft; […]
[3]
The applicable principles from the
above are summarized below.
(a)
If the vehicle is a passenger
vehicle with a cost exceeding $30,000, the input tax credit is pro-rated
accordingly (s. 201).
(b) The input tax credit is not further pro-rated if the
vehicle is all or substantially all used in commercial activities (s. 123(1),
s. 202(2), s. 203(2)).
(c)
The input tax credit is further
pro-rated if the vehicle is not all or substantially all used in commercial
activities (s. 123(1), s. 202(4), s. 203(2)).
[4]
The appellants acknowledge that
the pro-ration required under (a) above in respect of a passenger vehicle whose
cost exceeds $30,000 applies to them. In their particular circumstances, the input
tax credit is reduced to 60 percent of the GST paid for the vehicle.
[5]
The appellants submit that (b)
above also applies to them for the reason that the vehicle is all or
substantially all used in commercial activities. They submit that 54 percent
commercial use should satisfy this test because that is 90 percent (all or
substantially all) of the 60 percent that is allowed under (a) above.
[6]
If the exclusivity test in (b)
above does not apply to the appellants, the test in (c) applies. In this case,
it is acknowledged that no input tax credit can be claimed. The input tax
credit in (c) above is based on capital cost allowance that was deducted in
respect of the vehicle under the Income Tax Act. Capital cost allowance
is a discretionary deduction and none was claimed in this case. The appellants’
representative explained that it made no sense to claim capital cost allowance
since the deduction would be subject to the restricted farm loss provisions.
[7]
No evidence was presented by the
appellants at the hearing. Their representative took the position that the
respondent was taking too narrow a view of the exclusivity test by interpreting
the phrase “all or substantially all” as 90 percent. The representative
suggests that 54 percent commercial use should be sufficient, on the basis that
this is 90 percent of the 60 percent that is allowed on account of the cost of
the vehicle.
[8]
The respondent’s interpretation
effectively double counts the pro-ration, it is submitted. In the appellants’
view, a more equitable result is achieved with their interpretation.
[9]
I am not satisfied that the appellants’
interpretation is more equitable. It is reasonable that two adjustments should
be made, one for personal use and one for the cost of the vehicle. I do not
accept that there is double counting.
[10]
Regardless of the equities,
however, the appellants’ interpretation cannot be justified based on the wording
of the legislation.
[11]
In order to avoid a pro-ration for
personal use, the vehicle must be all or substantially all used in commercial
activities. The phrase “all or substantially all” means only slightly less than
total use: 547931 Alberta Ltd. v The Queen, [2003] GSTC 68 (TCC), para
7. The percentage suggested by the appellants, 54 percent, does not satisfy
this test.
[12]
For these reasons, the claim for
the input tax credit will be disallowed. Although the result for the appellants
is unfortunate, the relief that the appellants seek runs counter to clear
legislative provisions.
[13]
The appeal will be dismissed.
Signed at Ottawa, Ontario this 20th day of April 2011.
“J. M. Woods”
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