Citation:
2015 TCC 271
Date:
20151105
Docket: 2013-3741(IT)G
BETWEEN:
SYLVIO
THIBEAULT,
Appellant,
and
HER
MAJESTY THE QUEEN,
Respondent.
REASONS
FOR JUDGMENT
D’Auray, J.T.C.C.
Facts common
to the 2008 and 2010 taxation years at issue
[1]
Since 1973, the Appellant has been active in the
pleasure boating industry.
[2]
Over the years, the Appellant incorporated
companies that offered the general public marine tours and whale watching
cruises. In 1984, the Appellant created Croisières Navimex inc. for this very
purpose.
[3]
Croisières Navimex inc., along with Croisières
AML, was one of the largest whale watching companies in Quebec. The vessels
used by Croisières Navimex inc. were held by Investissements Navimex inc. The
Appellant was the sole shareholder and director of these companies.
[4]
In 1996, the Appellant sold Croisières Navimex
inc. and Investissements Navimex inc. to Croisières AML.
[5]
Following that transaction, the Appellant
incorporated the company 3891721 Canada inc., which operated under the name Recherches
et Travaux Maritimes ("RTM"). RTM's operations included the construction,
sale and repair of marine vessels. The Appellant was the sole shareholder, director
and directing mind of RTM. At the time of the hearing, RTM was still in operation.
[6]
In 2003, the Appellant incorporated a new
company, Croisière Charlevoix inc.
[7]
Croisière Charlevoix inc. offers cruise packages
to the general public in the Saguenay—St. Lawrence Marine Park ("Marine
Park").
[8]
The Appellant holds approximately 80 percent of
the shares of Croisière Charlevoix inc. His partner, Mr. Pierre Tremblay, and
the Appellant's son, Mr. Frédéric Thibeault, hold the remainder of the
shares.
[9]
The Appellant is the sole director of Croisière
Charlevoix inc.
[10]
The Appellant also personally owns certain
vessels, including the Grand Charlevoix, built by RTM.
[11]
The Appellant holds five permits allowing him to
operate marine tour companies within the Marine Park. Parks Canada is the
government organization responsible for issuing permits.
[12]
Under section 5 of the Marine Activities in
the Saguenay-St. Lawrence Marine Park Regulations, SOR/2002-76, a marine tour
permit covers only one vessel. The name of the vessel indicated on each permit can
be changed, however, by simple notification to the Marine Park Section.
[13]
During the 2008 taxation year, the five permits
were assigned to the following vessels:
|
Business name
|
Vessel
name
|
Permit validity
period
|
|
Pionniers des baleines (3 permits)
|
Pionnier
IV – Zodiac
|
April 1, 2009 to March 31, 2011
|
|
Pionnier
P-22 – Zodiac
|
|
Pionnier
P-23 – Zodiac
|
|
Exceptionnelle Aventure (1 permit)
|
Grand
Charlevoix – Explorathor P-70
|
|
Oursin (1 permit)
|
Pionnier
I – Bayliner 22
(At time
of sale-P-28 Zodiac)
|
A. 2008 TAXATION YEAR
Facts pertaining to the 2008 taxation year
[14]
In 2008 and 2009, the Exceptionnelle Aventure permit
and the vessel it covered, the Grand Charlevoix, were leased out under a
contract between the Appellant and Croisière Charlevoix inc. ("the Contract").
[15]
That renewable Contract extended over a period
of three months beginning on June 15, 2008. The lease payment was $20,000 if
at least 11,000 passengers were carried during the term of the lease. The lease
payment then rose by $2 for each additional person. If fewer than 11,000
people were carried, Croisière Charlevoix inc. did not have to pay the
Appellant. Since there were fewer than 11,000 passengers in 2009, Croisière
Charlevoix inc. paid no rent to the Appellant.
[16]
In calculating his income for the 2008 taxation
year, the Appellant claimed a business loss of $78,216, detailed as follows:
|
2008
|
Rental revenue – Grand Charlevoix
|
$20,000
|
|
(Less)
|
|
|
Capital cost allowance – Grand Charlevoix
|
$96,000
|
|
Professional fees expenses
|
$2,216
|
|
|
|
[17]
On December 17, 2012, under a new assessment, the
Minister of National Revenue ("the Minister") rejected the capital
cost allowance ("CCA") claimed by the Appellant for the 2008 taxation
year. The Minister maintained that the CCA claimed could not exceed the net leasing
revenue, an amount of $17,784 ($20,000 - $2,216).
[18]
Aside from the $20,000 amount that the Appellant
received from Croisière Charlevoix inc. for lease of the vessel Grand
Charlevoix, the Appellant received no other leasing revenue from the vessels
or permits held in his own name, for the 2008, 2009 and 2010 taxation years.
Issue
[19]
The issue to be resolved for the 2008 taxation
year is whether the Minister was justified in rejecting a $96,000 CCA for the vessel
Grand Charlevoix and thus whether the Appellant could claim a net
business loss of $78,216.
Submissions of the
parties
[20]
The Appellant submits that during the 2008
taxation year, he used the Grand Charlevoix in a leasing business that he
operated that year, which he supervised personally and continuously. The
Appellant maintains that he invested great effort into his personal business. Therefore,
the Appellant submits that subsection 1100(17.3) of the Income Tax
Regulations ("ITR") applies. Hence, he submits that
subsection 1100(15) of the ITR, meant to limit the amount of the CCA
a taxpayer may claim, does not apply. In addition, the Appellant submits that
he may claim a CCA of $96,000 for the 2008 taxation year.
[21]
The Respondent submits that in 2008, the
Appellant leased his vessel Grand Charlevoix to Croisière Charlevoix
inc. He therefore "leased" the vessel Grand Charlevoix, pursuant
to subsections 1100(17) and 1100(17.2) of the ITR.
[22]
The Respondent maintains that the exception in
paragraph 1100(17.3)(b) of the ITR does not apply to the facts in
the instant case since the Appellant did not operate a ship leasing business
during the 2008 taxation year.
[23]
Consequently, the Respondent argues that the
$20,000 amount received by the Appellant from Croisière Charlevoix inc. was revenue
earned from property, not a business. The Respondent, therefore, maintains that
the CCA for the 2008 taxation year must be limited to the net leasing revenue.
Analysis
[24]
To decide the issue, I must determine whether,
for the 2008 taxation year, the vessel Grand Charlevoix was a "leasing
property" within the meaning of subsection 1100(15) of the ITR.
[25]
Subsection 1100(17) of the ITR defines a
"leasing property" and subsection 1100(17.2) of the ITR
considers as rent derived from property services offered to a company that are
accessory to use or occupancy of property.
[26]
Paragraph 1100(17.3)(b) of the ITR
provides that subsection 1100(17.2) of the ITR does not apply to
property owned by an individual if that property is used in a business operated
by that individual during the year and personally and continuously supervised
by him throughout the part of the year when the business is normally operated.
[27]
Therefore, if I rule that paragraph 1100(17.3)(b)
of the ITR applies in the instant case, the Appellant could claim the
full CCA in respect of the Grand Charlevoix, because that property would
not be a "leasing property." However, if I conclude that paragraph 1100(17.3)(b)
of the ITR does not apply, the CCA claimed by the Appellant could not
exceed his net leasing revenue, that is, $17,784 pursuant to subsection 1100(15)
of the ITR.
[28]
It is therefore important to analyze the
provisions of the Income Tax Act ("ITA") and the provisions
of the ITR that apply in the instant case.
[29]
Paragraph 20(1)(a) of the ITA allows
a taxpayer to claim a CCA. Paragraph 20(1)(a) reads as follows :
20. (1) Deductions permitted in computing
income from business or property -- Notwithstanding
paragraphs 18(1)(a), 18(1)(b) and 18(1)(h),
in computing a taxpayer’s income for a taxation year from a business or
property, there may be deducted such of the following amounts as are
wholly applicable to that source or such part of the following amounts as
may reasonably be regarded as applicable thereto
a) Capital
cost of property [CCA] -- such part of the capital cost to the taxpayer of
property, or such amount in respect of the capital cost to the taxpayer of
property, if any, as is allowed by regulation;
[...]
[Emphasis added]
[30]
The provisions of the ITR that are
relevant in the instant case are subsections 1100(1), 1100(15), 1100(17),
1100(17.2) and 1100(17.3).
[31]
Subsection 1100(1) of the ITR provides as
follows:
1100. (1) [Deductions] - For the purposes of
paragraphs 8(1)(j) and (p) and 20(1)(a) of the Act, the
following deductions are allowed in computing a taxpayer’s income for each
taxation year:
[...]
[32]
In view of subsection 1100(15) of the ITR,
the total deduction a taxpayer may claim for property in a prescribed category
that is "leasing property" may not exceed the net revenue for the
year earned from lease of that property.
(15) Leasing Properties -- Notwithstanding
subsection (1), in no case shall the aggregate of deductions, each of which
is a deduction in respect of property of a prescribed class that is leasing
property owned by a taxpayer, otherwise allowed to the taxpayer under
subsection (1) in computing his income for a taxation year, exceed the
amount, if any, by which
a) the aggregate of amounts each of which is
(i) his income
for the year from renting, leasing or earning royalties from, a leasing
property or a property that would be a leasing property but for
subsection (18), (19) or (20) where such property is owned by him, computed
without regard to paragraph 20(1)(a) of the Act, or
[...]
[Emphasis added]
[33]
Subsection 1100(17) of the ITR defines
the phase "leasing property" as all depreciable property where this
is the property of the taxpayer and has been used by the taxpayer primarily to
earn gross revenue consisting of rent, royalty or leasing revenue.
(17) ["Leasing property"] -- Subject
to subsection (18), in this section and section 1101, “leasing
property” of a taxpayer or a partnership means depreciable
property other than
(a) rental
property,
(b) computer
tax shelter property, or
(c) property
referred to in paragraph (w) of Class 10 or in paragraph (n) of
Class 12 in Schedule II,
where such property is owned by the
taxpayer or the partnership, whether jointly with
another person or otherwise, if, in the taxation year in respect of
which the expression is being applied, the property was used by the taxpayer
or the partnership principally for the purpose of gaining or producing gross
revenue that is rent, royalty or leasing revenue, but for greater
certainty, does not include a property leased by the taxpayer or the
partnership to a lessee, in the ordinary course of the taxpayer’s or
partnership’s business of selling goods or rendering services, under an
agreement by which the lessee undertakes to use the property to carry on the business
of selling, or promoting the sale of, the taxpayer’s or partnership’s goods or
services.
[Emphasis added]
[34]
Subsection 1100(17.2) of the ITR expands
the scope of the word "rent" in subsection 1100(17) of the ITR.
The subsection is worded as follows:
(17.2) [Presumed rental] -- For the purposes
of subsections (1.11) and (17), gross revenue derived in a taxation year
from
(a) the right of a person or partnership, other than
the owner of a property, to use or occupy the property or a part
thereof, and
(b) services
offered to a person or partnership that are ancillary to the use or
occupation by the person or partnership of the property or the part
thereof
shall be
considered to be rent derived
in the year from the property.
[Emphasis added]
[35]
However, paragraph 1100(17.3)(b) of the ITR
allows a taxpayer to exclude the application of subsection 1100(17.2) of
the ITR if the individual uses the property in a business he operates in
the year and supervises personally and continuously. He may then be excluded from
the restrictions governing the CCA.
(17.3) [Presumed rental-exception] -- Subsection
(17.2) does not apply in any particular taxation year to property owned
by
(a) a
corporation, where the property is used in a business carried on in the year by
the corporation;
(b) an
individual, where the property is used in a business carried on in the year by
the individual in which he is personally active on a continuous basis
throughout that portion of the year during which the business is ordinarily
carried on; or
[...]
[Emphasis added]
[36]
Given the language of paragraph 1100(17.3)(b)
of the ITR, I first must determine whether the Appellant's property (the
vessel Grand Charlevoix) was used in a business that the Appellant operated
during the 2008 taxation year, and then determine whether the Appellant personally
and continuously supervised that business throughout that part of the year in
which the business operated.
[37]
In Stewart v Canada, Judges Iacobucci and
Bastarache of the Supreme Court of Canada, in a unanimous ruling, ruled that
for a commercial activity to be recognized under section 9 of the ITA, the
taxpayer must show that a source of revenue exists.
[38]
Once the taxpayer has shown that a source of revenue
exists, that source must be classified, in other words, is it derived from revenue
earned by a business or property?
[39]
In the instant case, I do not have to answer the
first question, to determine whether a source of revenue exists, because, at the
hearing, the Respondent indicated that when making the assessment, the Minister
had taken the position that a source of revenue did exist.
[40]
As to whether the source derives from revenue generated
by a business or arising from the use of property, in Stewart [supra],
Judges Iacobucci and Bastarache stated that the distinction between revenue generated
by a business and that arising from use of property is generally based on the
fact that a business requires a higher level of activity by a taxpayer. They
write as follows at paragraph 51 of their reasons:
51 Equating “source
of income” with an activity undertaken “in pursuit of profit” accords with the
traditional common law definition of “business”, i.e., “anything which occupies
the time and attention and labour of a man for the purpose of profit”: Smith, supra, at p. 258; Terminal Dock, supra.
As well, business income is generally distinguished from property income on
the basis that a business requires an additional level of taxpayer activity:
see Krishna, supra, at p. 240. As such, it is logical
to conclude that an activity undertaken in pursuit of profit, regardless of the
level of taxpayer activity, will be either a business or property source of
income.
[Emphasis added]
[41]
In Oke v Canada, the Federal Court of Appeal examined
the concept of operating a business in subsection 1100(17.3) of the ITR.
The Court had thereby to determine whether the revenue earned by Mr. Oke had
been generated by a business or property. Mr. Oke had purchased a recreational
vehicle and had placed it in a fleet of recreational vehicles that a third
party, Coast-to-Coast, rented to film production companies. Under the agreement
signed by Coast-to-Coast and Mr. Oke, the latter had to look after regular
maintenance of his recreational vehicle and ensure that it was insured. Over
the years in issue, Mr. Oke had been active in the business of Coast-to-Coast,
performing several duties related to the rental of recreational vehicles,
including his own. Mr. Oke specifically took part in public presentations to
promote the fleet of vehicles among film producers. He also helped oversee the
transfer of recreational vehicles between Coast-to-Coast and the producers, in
addition to reviewing certain rental contracts between the parties.
[42]
From the outset, Judge Pelletier stated that revenue
earned from leasing generally constitutes revenue arising from the use of property.
He specified, however, that leasing revenue may constitute business revenue
when the services provided extend beyond those normally provided as part of a
rental. On this point, he set out the following principles:
[26] As noted above, there is a distinction
between commercial activity and personal activity. As between these two
alternatives, the threshold for business is very low, as demonstrated by the
statutory definition which refers to “an undertaking of any kind
whatsoever.” When the issue is the characterization of a given commercial
activity, the test is somewhat more demanding. In Stewart, above at para. 51, the Supreme Court of Canada, briefly touched
upon the relevant considerations:
Equating "source of income"
with an activity undertaken "in pursuit of profit" accords with the
traditional common law definition of "business", i.e., "anything
which occupies the time and attention and labour of a man for the purpose of
profit": Smith, supra, at p. 258; Terminal Dock, supra. As well, business
income is generally distinguished from property income on the basis that a
business requires an additional level of taxpayer activity: see Krishna, supra,
at p. 240.
[27] The focus on the level of activity is
reflected in a line of jurisprudence dealing with real estate rental
properties: Wertman v. M.N.R., [1964] C.T.C. 252, 64 D.T.C. 5158 (Ex. Ct.); Walsh v. M.N.R., [1965] C.T.C. 478, 65
D.T.C. 5293 (Ex. Ct.); Burri v. The Queen, [1985] 2 C.T.C. 42, 85 D.T.C. 5287 (F.C.T.D.) – and the case Canadian Marconi Co. v. The Queen, [1986]
2 S.C.R. 522, [1986] 2 C.T.C. 465, 86 D.T.C. 6526 (S.C.C.) [Canadian Marconi] which applied this
line of reasoning more broadly.
[28] The cumulative effect of these cases was
summarized by Peter W. Hogg, Joanne E. Magee and Jinyan Li, Hogg et al., Principles of Canadian Income Tax Law, 7th ed. (Toronto: Carswell, 2010) at 160:
Prima facie, of
course, the rents derived from letting an apartment building, office building
or shopping centre, are income from property. The rents are paid for the use of
the property, not services provided by the landlord. The difficulty arises from
the fact that a landlord will often supply to tenants, in addition to the right
to occupy the rented premises, services of various kinds. Where the services
supplied consist of only those services which are of a kind customarily
included with rented premises, for example, maintenance of building, heating,
air conditioning, water, electricity, and parking, the rent is still regarded
as income from property. But if the services supplied go beyond those which
are customary for an office building or apartment building or shopping centre
(or whatever the property is), it becomes more plausible to characterize the
owner’s operation as a business rather than the mere letting of property.
Services provided by an apartment building that would be indicative of a
business classification would include services normally provided by a hotel,
i.e., housekeeping, laundry service, restaurant and room service, etc. The
extreme case is, of course, a hotel, where the extent of the services supplied
to guests makes it obvious that it is a business. Where the range of
services supplied by the landlord falls below hotel level, it becomes a
question of degree whether the nature and extent of the services makes it
appropriate to characterize the income as earned from a business.
[Emphasis added]
[43]
At paragraph 29 of his reasons, Judge Pelletier advocates
a comparative approach to determine whether revenue is generated by a business
or arises from the use of property.
[29] This line of cases supports a
comparative approach to the question of whether income is generated by a
business or arises from the use of property. The higher the level of activity,
the more likely it is that one is engaged in a business; the lower the level of
activity the more likely it is that the income derives from the use of
property.
[44]
In the light of the comparative approach in Oke,
Judge Pelletier found that there is no significant difference between the level
of activity or services rendered by Mr. Oke in respect of his own recreational vehicle
and those of the other owners. He therefore ruled that the revenue arose from
the use of property and was not generated by a business, and that the exception
set out in paragraph 1100(17.3)(b) of the ITR did not apply. The
property therefore was "leasing property" within the meaning of subsection
1100(17) of the ITR. The CCA claimed by Mr. Oke consequently was limited
to the net leasing revenue under subsection 1100(15) of the ITR.
[45]
I therefore will use the comparative approach
advocated by Judge Pelletier in Oke to determine whether the Appellant in
the instant case operated a vessel leasing business.
[46]
The Contract signed on February 18, 2008, by the
Appellant as lessor and by the Appellant as representative of Croisière
Charlevoix inc., is worded as follows:
[TRANSLATION]
Québec, February 11, 2008
Contract
Made at Québec
By and Between
Party of the First Part Croisière Charlevoix Inc.
Represented
by Sylvio Thibeault
47
Dalhousie Street, Québec
Hereinafter called "the Lessee"
And
Party
of the Second Part Sylvio Thibeault
47
Dalhousie Street, Québec, Quebec
G1K
8S3
Hereinafter
called "the Lessor"
Whereas the Lessee operates a business
providing cruise packages intended for the general public;
Whereas the Lessor is an individual who has
developed solid expertise in the field and contributes to management and promotion,
and owns a shipyard;
In consideration of the foregoing statements,
which form an integral part of the present contract and in consideration of the
following statements, the parties covenant as follows:
Object of the agreement: Lease of the Grand
Charlevoix for a period of three (3) months commencing June 15 and ending
September 10
The vessel shall remain available to promote
the sale of this type of vessel and also as a prototype on trial.
Monthly payment: The amount of rent paid by
the Lessee is $20,000 for the period.
Rent: $20,000
if more than 11,000 passengers
$2 for each additional passenger
Payable at end of lease
Residual value: at the end of this Contract,
the residual value of the vessel shall be the sole responsibility of the Lessor.
Insurance: Agreement has been reached on $1,000,000
of insurance coverage. The Lessee agrees to maintain in force a "Hull and
machinery" vessel insurance policy in an amount not less than the market
value of the vessel, and to designate the Lessor as Co-insured and mortgage
creditor. This coverage shall not be changed without prior notice of thirty
(30) days to the Lessor.
Maintenance: The Lessee personally covenants
to perform maintenance on the vessel consistent with accepted industry
standards and practices.
The Lessee takes personal responsibility for
the operation and the maintenance of the vessel. He assumes the cost of restoring
the vessel to perfect working condition. He shall supply the crew, but the Lessor
may request replacement of a crew member at any time. The Master shall be Frédéric
Thibeault.
The Lessor warrants and covenants to:
1. Deliver the vessel at
Petite-Rivière-Saint-François on or about June 15;
2. Provide the Lessee with a detailed maintenance program, indicating
the required frequencies, for the vessel as well as its components and systems,
such as the engines. Upon delivery, provide any person identified by the Lessee,
at the Lessor's expense, with training on the mechanics and operation of the
vessel. If he desires, the Lessor may have the vessel's condition inspected by
a person from his technical unit and, if necessary, may make recommendations, all
at the Lessee's expense. The Lessor is responsible for the sound operability of
the vessel at the time of its delivery, without "latent defects";
3. Provide
promotional material to the Lessee;
4. Grant
the Lessee a licence to use the trademark or name "Explorathor" in
its advertising material, at no cost;
5. The Lessor is
responsible for expenses resulting from normal wear and tear.
The Lessee covenants to:
1. Leave the word
"Explorathor" on the sides of the vessel during the term of the
Leasing Contract;
2. Provide the Lessee,
at no cost, promotional material on the vessel, such as video and photos taken
by the Lessor, at its discretion, during the term of this Leasing Contract. The
Lessee must display the Lessor's name as credit for the photos used.
This Contract constitutes
the entire agreement between the parties.
In the event of incompatibility, differences,
or difficulties of interpretation between the terms and conditions of this Contract
and those of any other document between the parties, the terms and conditions of
this Contract shall prevail and take precedence.
Signed on the date and in the place
indicated at the start of this document for the purpose of each party binding
itself,
This Contract is renewable.
_______________________ _______________________
Croisière
Charlevoix Inc. Sylvio Thibeault
[47]
It is noted that apart from certain clauses in
the Leasing Contract between the Appellant and Croisière Charlevoix inc., the
contract clauses reiterate the principles set out in the provisions of Chapter
V, Book V of the Civil Code of Québec on "Affreightment." There
is nothing unusual in the Contract, then, regarding the Lessor's obligations as
part of leasing a vessel.
[48]
Two clauses in the Contract, however, are
unusual. The first stipulates that the Lessor covenants to grant a licence to
the Lessee to use the trademark or name "Explorathor" in its
advertising material and that the Lessee must leave the name "Explorathor"
on the sides of the vessel for the term of the Leasing Contract. Moreover, the Lessor
covenants to provide the Lessee with promotional material on the vessel. The Contract
also stipulates that the vessel must remain available for promoting sales of
this type of vessel.
[49]
In my opinion, these obligations are not
relevant in the instant case. Indeed, these obligations serve only one purpose,
to promote the sale of vessels by RTM, of which the Appellant is the sole
shareholder. As I have already noted, the Grand Charlevoix was built by RTM.
Thus, promotion focused on selling this type of vessel is of no benefit
whatsoever to Croisière Charlevoix inc. or to the Appellant's leasing
activities, but only to the Appellant's company RTM.
[50]
The second unusual clause in the Contract requires
the Appellant to provide promotional material to Croisière Charlevoix inc.
[51]
In his testimony, the Appellant explained all
the work he did when leasing the Grand Charlevoix to Croisière
Charlevoix inc. The Appellant participated in the development of pamphlets and
promotional videos and the design of the Croisière Charlevoix inc.
transactional website. In that capacity, the Appellant checked the number of
users and the keywords searched by browsers every day, to improve the Croisière
Charlevoix inc. website.
[52]
The Appellant also said that he visited all the
tourism establishments in Charlevoix to ensure that the Croisière Charlevoix
inc. advertising brochures were available. He stated as well that he looked
after construction of a stand for the Croisière Charlevoix inc. ticket office
and the landscaping surrounding this stand. In addition, he searched for a
catering service and had emergency repairs made to the Grand Charlevoix.
[53]
The Appellant submits that he personally
operated a vessel leasing business. Not only did he lease out the Grand
Charlevoix, but he also offered a wide range of services that he personally
and continuously oversaw during the term of the lease.
[54]
According to the Respondent, the Appellant did
not operate a leasing business. The Appellant held five permits yet only one permit
and one vessel were leased out. According to the Respondent, the evidence
showed that the Appellant made no effort to lease his other vessels.
[55]
Moreover, the Respondent argued that the supply
of promotional material by the Appellant was not sufficient activity in the
case of a vessel leasing business to qualify the leasing revenue as business
revenue rather than revenue arising from use of a property. The Respondent argued
further that the work performed by the Appellant was undertaken as a
shareholder in Croisière Charlevoix inc., not for his personal business
activities related to vessel leasing.
[56]
I noticed during the Appellant's testimony that
he made no distinction between the companies in which he held shares and the
activities related to the vessels and permits he held personally. According to the
Appellant, it mattered little whether the work was done for Croisière
Charlevoix inc. or for his personal vessel leasing business activities.
[57]
In this regard, the Appellant submits that his case
is the same as that in C.J. Bouchard Réparation Ltée. c Canada. The Appellant cites paragraph 5
of Judge Dussault's reasons, which reiterates paragraph 15(r) of the Respondent's
Reply to the Notice of Appeal, setting out one of the facts assumed by the Minister
in establishing the assessment. The Appellant submits that these facts apply to
his case.
[TRANSLATION]
15(r) the Minister considered that the
appellant was carrying on a business during the fiscal year ending on October
31, 1995, since, in addition to renting the ship, it provided Navimex with a
cruise marketing service by means of its only employee, Guy Gagnon;
[58]
The Appellant submits that, just as for Mr. Gagnon
in the CJ Bouchard case, he provided the cruise marketing service.
[59]
It is difficult for me to use a paragraph in the
Respondent's Reply to the Notice of Appeal in the CJ Bouchard case to
find for the Appellant without knowing the factual background in that case and
the terms of the leasing contract between the parties at that time.
[60]
It should be noted that the reasons for the
decision in CJ Bouchard bear on other tax years, not on the period
covered by paragraph 15(r) of the Reply to the Notice of Appeal. For the tax years
in issue, Judge Dussault ruled that the revenue from "bare boat"
lease of the vessel constituted revenue arising from the use of property.
[61]
In the instant case, of the five vessels and permits
held by the Appellant personally, only the Grand Charlevoix linked to
the Exceptionnelle Aventure permit was leased out. There is no evidence showing
that the Appellant attempted to lease his other vessels.
[62]
If I use the comparative approach set out in Oke
and compare the facts in the instant case with the Burstow v The Queen case, where Judge O’Connor of
this Court ruled that Mr. Burstow operated a leasing business, I conclude
that in Burstow, the vessel in question was leased under an
all-inclusive arrangement. The services accessory to the leasing of a vessel,
such as mooring, cleaning, maintenance, insurance, promotion, as well as the
hiring of staff, were all provided by Mr. Burstow.
[63]
In the instant case, beyond that part of promotion
provided personally by the Appellant through the supply of promotional material,
all the other activities related to leasing a vessel were handled by the Lessee,
Croisière Charlevoix inc. It was responsible for supplying the vessel's crew. It
was also responsible for operating the vessel and covering the costs inherent
in commercial operation of the vessel, specifically the maintenance costs,
docking fees, insurance premiums, as well as the piloting and labour costs. Furthermore,
Croisière Charlevoix inc. remained liable for any losses or damage that might
result from its commercial operation.
[64]
In addition, based on Oke, for a source
of revenue to constitute revenue from a business, the services provided by the taxpayer
must exceed what is usually provided as part of leasing. In the instant case,
the basic accessory services, such as the inherent commercial operating
expenses that I mentioned in paragraph 63 of these reasons, were not provided
by the Appellant. It is therefore difficult, in my view, to find that the services
provided by the Appellant exceeded what is normally provided as part of leasing
a vessel.
[65]
In any event, I believe that the supply of
promotional material is not an activity sufficient for the purposes of subsection
1100(17.3) of the ITR.
[66]
In reference to the other activities carried out
by the Appellant that were not specified in the Contract, including the distribution
of pamphlets, construction of a stand for the Croisière Charlevoix inc. ticket
office, landscaping around the stand and selection of a caterer, I find after
reviewing all the evidence that these activities are not relevant to the analysis
of subsection 1100 (17.3) of the ITR. Those activities were carried out
by the Appellant in his capacity as shareholder of Croisière Charlevoix inc. Some
of these activities are unrelated to a vessel leasing business. Moreover, the
Appellant admitted that those activities were aimed at customers of Croisière
Charlevoix inc. It is also interesting to note that when Croisière Charlevoix
inc. was sold to Mr. Tremblay in 2010, the website and the stand were sold
as property of Croisière Charlevoix inc.
[67]
The evidence also shows that the Appellant did
not attempt to lease out any of his other vessels. In my opinion, the Appellant
therefore cannot successfully claim that he operated a vessel leasing business
in 2008.
[68]
Given all the facts mentioned in these reasons, I
believe that the income earned by the Appellant from leasing the vessel Grand
Charlevoix is income arising from the use of property.
[69]
The Appellant therefore "leased" the Grand
Charlevoix to Croisière Charlevoix inc. under subsection 1000(17) of the ITR.
Consequently, a CCA of $78,216 was rightly rejected by the Minister pursuant
to subsection 1100(15) of the ITR, and subsection 1100(17.3) of the ITR
does not apply in the instant case.
B. 2010
TAXATION YEAR
Facts related to
the 2010 taxation year
[70]
In May 2010, the Appellant sold the shares he
held in Croisière Charlevoix inc. as well as all its assets to his partner,
Mr. Pierre Tremblay, for the sum of $170,000. In his income tax return for
the 2010 taxation year, the Appellant reported a capital gain of $153,070.
[71]
In 2010, the Appellant also sold the Grand
Charlevoix to Croisières du Fjord for the sum of $750,000. The Appellant then
reported a capital gain of $197,405 on his income tax return for 2010. However,
the Appellant purchased a smaller vessel, the Cap Éternité, from Croisières
du Fjord.
[72]
In 2010, the Appellant also sold the Oursin
business, consisting of the marine tours permit and the Zodiac P 28, which
was linked to the Oursin permit prior to the sale, for the sum of $167,712. The
Appellant deemed the properties sold an "eligible capital property" within
the meaning of subsection 14(5) and section 54 of the ITA. The
revenue from the eligible capital property account was on the order of $58,656.
On his income tax return for the 2010 taxation year, the Appellant reported a
loss of $4,588, as shown in the table below.
|
2010
|
Sale of Oursin licence
|
$58,656
|
|
(Less)
|
|
|
Depreciation – Equipment
|
$1,705.15
|
|
Depreciation – Cap Éternité
|
$45,851.22
|
|
Depreciation – P 34
|
$9,221.52
|
|
Depreciation – Permit: Excep. Av.
|
$6,666.00
|
|
Net business loss
|
($4,588)
|
[73]
The Respondent submits that the Appellant may
not claim $63,444 as CCA for the 2010 taxation year, for several reasons.
[74]
First, at paragraph 30 of its Reply to the Notice
of Appeal, the Respondent claims that the Appellant does not operate a business.
[75]
The Respondent further argues that the Appellant
is unable to claim a CCA in respect of the vessels Cap Éternité,
P 34 and the Exceptionnelle Aventure permit. According to the Respondent, the
capital cost of this property is unrelated to the source of revenue generated
by the sale of the Oursin business.
[76]
Finally, the Respondent also submits that the
Appellant obtained a capital gain from the sale of marine tours pursuant to paragraphs
39(1)(a) and 40(1)(a) of the ITA. The Respondent submits
that these assets are depreciable property, not eligible capital property.
[77]
The Appellant submits that all his vessels and permits
must be deemed a single leasing business that he operates on a personal basis. He
therefore believes the CCA can be claimed against his business revenue, for all
the property reported in his income tax return.
Issue
[78]
Was the Minister justified in denying the
Appellant the CCA of $63,444 that the Appellant deducted from the profit
earned on the sale of the Oursin permit and the Zodiac P 28?
Analysis
[79]
I believe that the Appellant is not entitled to
depreciation deductions in the amount of $63,444, for the following reasons.
[80]
First, the Appellant cannot claim that he
operated a vessel leasing business during the 2010 taxation year. No leasing
activity took place in 2010 and no leasing revenue was reported by the Appellant.
When the Appellant failed to reach agreement with Mr. Tremblay on the
price to lease the vessel Cap Éternité, the Appellant did not attempt to
lease it, but instead placed the Cap Éternité in storage shortly
after buying it in 2010.
[81]
The evidence also reveals that the Appellant did
not attempt to lease his other vessels during the 2010 taxation year. Thus, the
Appellant did not operate a leasing business in 2010. Moreover, the restriction
in subsection 1100(15) of the ITR applies and the CCA must be reduced to
nil due to the lack of net leasing revenue for 2010.
[82]
We also note from subsection 20(1) of the ITA
that the deduction under this subsection must be linked to the revenue source. The
Appellant admitted that there was no link between both the permit and the
vessels he depreciated and the revenue source, that is, the revenue generated
by the sale of the Oursin permit and the Zodiac P 28.
[83]
I am of the view that, for all these reasons, the
Appellant is not entitled to the CCA requested in 2010.
Conclusion
[84]
The appeal for the 2008 and 2010 tax years is dismissed,
with costs.
Signed at Montréal, Quebec, this 5th day of November 2015.
"Johanne
D’Auray"
Translation
certified true
On this 14th day of July 2016
François Brunet,
Revisor
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