Date:
20021219
Docket:
2002-798-IT-I
BETWEEN:
BRENT ILOTT,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent,
AND
2002-799(IT)I
BETWEEN:
BLAINE
ILOTT,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent,
AND
2002-800(IT)I
BETWEEN:
ILOTT BROS.
FARMING COMPANY LTD.,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Reasons
for Judgment
Margeson,
J.T.C.C.
[1]
It was agreed at the outset that these three matters would be
heard on common evidence.
[2]
The Minister of National Revenue ("Minister")
reassessed the Appellant Brent Ilott for the 1998 and 1999
taxation years and included a standby charge in the amount of
$7,488.38 and a benefit for automobile operating expenses in the
amount of $1,400 for each of the two taxation years.
[3]
The assessment was in relation to a 1996 GMC truck which the
Minister claimed was made available to the Appellant and his
spouse by Ilott Bros. Farming Company Ltd. (the "Company"), without any charge to the Appellant or his
spouse.
[4]
Likewise, the Minister assessed the Appellant Blaine Ilott
for a standby charge of $7,555.20 for the 1998 and 1999 taxation
years and an operating benefit of $1,400 for each of the two
taxation years on the basis that the Company made available, a
1996 GMC truck, for the use of the Appellant and his spouse
without charge to the Appellant or his spouse.
[5]
The Minister also assessed the Company by
denying the capital cost allowance ("CCA") amounts
claimed of $1,938 and $1,355 respectively for the two years and
by reclassifying the two GMC extended cab trucks (the
"trucks") from class 10 to class 10.1 on the
Appellant's CCA schedule.
[6]
From these assessments the Appellants appealed.
Evidence
[7]
Gordon Edward Brent Ilott testified that he was a farmer who
lived near the Town of Eston in the Province of Saskatchewan and
has lived there for about 20 years. Exhibit A-1 was entered by
consent. This was a corporate structure chart which set out the
structure of the Company. This showed that Ilott Holdings Inc.
owned 100 per cent of the Company. Brent Ilott owned 39 per
cent of the shares of Ilott Holdings Inc.; Cherene Ilott
owned 11 per cent; Blaine Ilott owned 39 per cent and
Lorreen Ilott owned 11 per cent. This was the
corporate structure as it existed in the years 1998 and 1999.
This witness was a director and shareholder of the Company during
these years and received director's fees and management fees
therefrom.
[8]
He had a wide range of duties including purchasing of lands,
performing farm operations, seeding, spraying, running machinery,
banking, attending meetings with financial institutions, going to
seminars and educational meetings, managing employees and doing
maintenance on the buildings and equipment.
[9]
The Company bank was the Canadian Imperial Bank of Commerce in
Eston in which they held their current account, they had loans in
Kindersley at the Toronto-Dominion Bank, this was about 35 miles
away from the farm. He was involved in business planning but did
not do bookkeeping or accounting. Seeding, fertilizer and
chemicals accounted for a large amount of their expenditures and
of their time. They have to try to get the best price possible
and this takes considerable time. He did the actual seeding and
harvesting while his brother Blaine Ilott did most of the
spraying. He drove trucks and operated machinery as well as doing
maintenance on machinery and buildings. He also did some of the
grain hauling but not a great deal.
[10] They had
long distance contact with the grain elevators, which are found
in four different places. These sites are 35 to 125 miles away
from their farm. They have to be in contact with the elevators at
all times. They have to provide samples to the elevators to have
their product graded in an attempt to obtain the best prices for
it. They take samples of grain from every bin to all the
elevators and they advise them as to what the best grade that
they will allot to the product. They need the trucks, which are
the subject matter of this dispute, to transport these samples to
the elevators. They also attended educational seminars during the
winter and made use of the trucks for that purpose.
[11] By consent,
the Appellants introduced Exhibit A-2, which indicated the
different conference locations that this witness attended during
the years in question. It was also necessary during those years
to negotiate purchases of land from sellers who lived in
Saskatoon, Medicine Hat and Kindersley. They also rented land in
several places and it was necessary to travel to those areas to
negotiate deals. Often times land owners are absentee land owners
and it is necessary to travel to different places to make those
deals.
[12] Exhibits
A-3 and A-4 were rural municipality maps showing the location of
lands in various places, which were either owned or leased by the
Company during the years in question. During the years 1998 and
1999 they farmed 6880 acres of land. The distance from tip-to-tip
was 35 miles (as the crow flies). At all times the operation was
looking at machinery with a view to purchasing it or replacing
what they had. This is a major part of their operation as well as
the maintenance and upkeep of the machinery once they purchase
it. He introduced Exhibit A-5, which was a capital
assets list for the Company between August 1, 2002 and July
31, 2003. It was obvious from this list that the operation was a
substantial one. This list was fairly representative of the asset
position of the Company during the years in question. They had to
travel long distances to purchase farm equipment and vehicles.
The Town of Eston has only one farm dealership and one car
dealership and often times it is not possible to obtain a good
deal there.
[13] During the
years in question he admitted that he used the extended cab in
issue here. He was asked why they purchased an extended cab
vehicle and he said that they lived in the country, there are
mostly gravel roads, they have one of the worst highways in the
area, most people use trucks. He indicated that a return trip to
Saskatoon is 500 kilometres.
[14] He
introduced Exhibit A-6, which was a list of suppliers with whom
they conducted the business of the farm during the years in
question. These businesses were located in many different parts
of the province and other neighbouring provinces as well. Suffice
it to say that the list was a substantial one.
[15] The
distance from Kindersley to the farm was 70 miles return and the
return trip to Swift Current was 220 miles. They went to those
places several times per year for the purposes of looking at
machinery and also attending field days. Melrose was 120 miles
return and they went there to visit the elevators and machine
dealerships. Saskatoon was a major centre where they obtained
legal advice, accounting advice, took equipment for repairs and
made purchases. Many of these services could not be obtained
locally, particularly welding specialist services, which was a
270 mile return trip. Medicine Hat was also a major centre where
they did a considerable amount of business. There were grain
elevators there and specialty businesses as well. This is a 270
mile return trip. Regina was visited on occasions as well. He
went to a computer class there with respect to record keeping for
the farm. Generally it was too far away but they had done some
business there as well. This trip covered 500 miles.
[16] He used the
extended cab vehicle in question for these trips because it was a
good vehicle for highway travel. They used it the majority of the
time for checking the farmland before seeding, after seeding,
before and after spraying, when deciding when to harvest, when
checking for pests and diseases in the crops. They used it for
checking the crops almost on a daily basis. This is not normally
just a drive-by but they have to criss-cross the property, go
through the centre and cover as large a part of the crop as they
can. This truck is designed to do this. A quarter section covered
four miles and all boundaries would be checked. This is done
almost daily. They might check 20 quarters in detail and
sometimes they might check 700 miles in a day. In the grasshopper
season, as well as when they are deciding when to seed or spray,
they split up. Otherwise they go in the same truck.
[17] Exhibit A-7
contained the financial statements of the Company, which were
dated July 31, 1999. It showed that chemicals and fertilizer
expenses amounted to $255,309 in 1999 and $225,019 in 1998. This
is the largest single expense for the Company. Truck and
machinery expenses were $57,338 in 1999 and $66,910 in 1998. A
large part of these expenses were related to the use of the
trucks in question.
[18] The trucks
are used for transporting equipment to be repaired and going to
pick it up. The second seat would have been down about
95 per cent of the time when it could accommodate
parts, papers and briefcases. People also rode there on occasion
such as farm employees, friends or family members on the odd
occasion. This amounted to five per cent of the time.
[19] They farmed
12 months of the year and they had no off-farm employment. Every
piece of equipment goes through their own shops for maintenance
and repairs and they work five to six days a week in the winter.
They need the extended cab type truck to travel in. They do all
their own grain marketing during the winter. They do a lot of
driving in the winter to market it. They go to visit the
elevators to ensure grain shipments and to pick up their grain
tickets. During the years in question this was held in
Kindersley. They also used the vehicle to go to conventions and
to pick up parts in Saskatoon, Medicine Hat and Kindersley.
Eighty per cent of the repairs are done during the winter
time.
[20] Exhibit A-8
was a spreadsheet for one of the vehicles in question being a
1996 C1500 shortbox extended cab pick-up vehicle. This was driven
by this witness during the years in issue. He explained that
vehicle in question was not a 'crew cab' which is
designed for carrying people. A 'crew cab' is 10 inches
longer than the 'extended cab' but it has more space in
the back in the second seat. This vehicle had a 6 1/2 foot
shortbox. It also had a rolled top cover which helped them when
they were trying to haul goods and equipment. It had a V-8 engine
with a heavier duty suspension than would be found in a
car.
[21] During the
years 1998 and 1999, the vehicle was driven 50,000 to 60,000
kilometres per year. He always tried to coordinate the use of the
vehicle with farm business. It was used very little for personal
use. The children had their own vehicles and could not drive the
truck for personal use.
[22] Exhibit A-9
was the plate history for a vehicle owned by the witness's
daughter Jenna Ilott. The effective date for the plate was
January 25, 1996 to December 19, 2002.
[23] The
daughter lived at home during 1998 until September. Between
September 1998 and the year 1999 she lived in Saskatoon. Her
vehicle was available for personal use when she was home. He used
this vehicle himself as well on occasion such as going to church.
His wife also used it for shopping. They had an agreement that if
they bought her the car they would be able to use it themselves.
She used her vehicle for personal use as well. They told Canada
Customs and Revenue Agency that they had two cars available for
their use. The second daughter lived at home with them and had
her own car. It was available to the family and was sometimes
used by this witness and by his wife for shopping trips. He
purchased it for her as well. They did not use the truck for
personal use except for going to church sometimes on Sundays,
which was 22 miles return. On other occasions they made minimum
use of the vehicle for personal reasons when they were also
conducting business. When they went long distances it was
basically for business. He would not go primarily for personal
use and use the vehicle in question. When his wife and daughter
used the vehicle it was basically for the picking up and delivery
of parts for the business.
[24] The Company
also owned a 1993 regular cab truck. He uses it personally. He
uses it when he plays hockey in Eston. To travel to Saskatoon is
a long distance, over bad roads. The farm operates 12 months a
year and they need this type of vehicle to do
everything.
[25] In
cross-examination he admitted that the truck contained a
considerable number of options, was not a 'bottom line'
truck and included such amenities such as power windows, power
locks, air conditioning, chrome windows, cassette player, tilt
steering wheel and chrome wheels. He described it as a
'loaded vehicle'. It also had a rolled top cover on the
box as earlier indicated.
[26] The vehicle
also contained a cell phone so that they could communicate with
the farm. They also had the phone for safety reasons such as when
they might be stuck on the roadway. He also used it for shopping
and going to hockey games. His daughter took her car to
university and not the truck.
[27] When his
daughter was at home she used her vehicle after school. When the
children are away there are two trucks left for him to use
personally. He admitted that he kept no log and that the 50,000
kilometre figure came off the odometer. He did not keep a record
of his personal use but it was five to 10 per cent. When they go
to town for business purposes they do personal business as well
and this is not included in the five to 10 per cent usage figure
which he earlier indicated.
[28] He
confirmed the suppliers lists, Exhibit A-6 and said that all of
these places were visited for business purposes.
[29] In
re-direct he said that they buy most of their groceries in Eston.
On occasion they might go to Medicine Hat or Saskatoon. They
would not have gone at all if it were not for the
business.
[30] He would
use the car sometimes to go to church especially when everybody
went but when only two people went they would take the truck.
This would happen about 35 times a year and it would be a
distance of 22 miles each time.
[31] Russell
Elliott Blaine Ilott testified that he was a farmer and lived on
the farm in question for 20 years. Exhibit A-1 was accurate as
far as he was concerned. He was also director of the Appellant
Company and was paid management fees in the years in
question.
[32] His duties
included maintenance, looking after the buildings, machinery, the
yard, doing the accounting, doing book work, doing business
planning (long-term and short-term planning), budgeting,
pricing, negotiations for fertilizer, fuel and seeds. At seeding
time he looked after spraying and delivery of the seed to the
fields. At harvest time he coordinated the out-of-field work. He
did work with respect to grain storage, sampling and managing the
trucks. Some travel was involved. They built grain storage in one
of the two years in issue. They came to Saskatoon sometimes or
had materials delivered to the farm. They might also have to go
to other places. During the maintenance period, the travel is
greater than the rest of the year. They travelled mostly to
Eston, Kindersley, Saskatoon and Medicine Hat. The mileage that
they use just covers going and coming and not what they do while
they are there.
[33] Banking was
hectic during the years in question. They were negotiating two
loans. They went to the Kindersley or Eston many times. It is
important that they have personal contact with their banks. He
did the day-to-day bookkeeping.
[34] He was
referred to the financial statements and he said since they spend
about $255,000 on chemicals and fertilizers, pricing is an
important part of their work. He travels to such places as Swift
Current, North Battleford and other places for such purposes. For
dry chemicals or small containers they used the truck in issue
but for large tools they used another truck. The truck in
question is used after that to check the fields. He confirmed
that some of the properties referred to in Exhibits A-3 and A-4
were not farmed during the years in question and there was one
other lot, which was not marked, which was farmed in 1998 and
1999. Otherwise the maps were correct. They farmed 6880 acres and
from tip-to-tip the distance was 35 miles.
[35] Some days
he used the vehicle in question extensively, especially when he
was looking at the fields. Sometimes they do a perimeter check of
every field. If the check is detailed they have to walk into the
fields. Sometimes they follow criss-cross patterns. If there is a
problem, it becomes hectic. During the farming season he would
use the vehicle every time.
[36] He viewed
Exhibit A-2 and confirmed some of the conferences that he
attended and also referred to Exhibit A-6, which was the supplier
list. He was referred specifically to an item at London Drugs and
he said that that purchase was for computer paper for the
business.
[37] There are a
dwindling number of suppliers in Eston and in 1998 and 1999 they
had to go farther away. Travel was extensive. They used the truck
for transporting goods, parts and equipment. In the summer they
used the vehicle in the fields. In the winter the use was more
extensive because of the maintenance program in existence. The
last few years he travelled mainly to Saskatoon and Medicine Hat
for repair purposes.
[38] It is not
possible to buy lumber in Eston so they have to go to Kindersley
and use the truck to transport the lumber. The truck was used for
the grain marketing function when they were negotiating with the
grain buyers. They haul several different types of grain to
different places including parts of Alberta, which might be 450
kilometres away, Medicine Hat Bow Island which is 450 kilometres
away, Swift Current, Coreen which is 800 kilometres away,
Kindersley, Rosetown, Gull Lake which is 80 miles one way and
Plenty which is 40 to 50 miles one way.
[39] With
respect to land rentals and purchases in the years in question,
travel with the vehicle was necessary in going to such places as
Kindersley and as close as just down the road from the farm. They
have to make regular visits to their landlords in Saskatoon,
Kindersley and Eston. During the years in question they made a
deal with the land that they purchased in Medicine Hat. It was
necessary to have a face-to-face meeting with the
seller.
[40] He was
referred to Exhibit A-10, which was one of the trucks in issue
and the one which he operated during the year in question. It was
a so-called 'extended cab truck'. He was asked why he
needed that type of truck and he said that he needed a truck that
could haul something in the front and in the back. The vehicle is
also good for dirt roads and on the highway. He would not use a
car. He was told that the resale value of this type of vehicle
would be greater. They are good to haul kids but they are not
comfortable for the use of an adult sitting in the back. The new
trucks have 4 inches more of leg room in the back than the
vehicle in question. An adult sitting in the back would have to
sit in the middle and would have to straddle the
floor.
[41] In 1998 and
1999 they transported people in the back about five per cent of
the time. This was for short hauls to the fields or people sat in
it for the purpose of eating their meals. The majority of the
time the seat was folded down. They put tools in there, items
such as paint, used it for storing goods and during the winter, a
survival kit, sleeping bags and things of that nature.
[42] The vehicle
had a hauling capacity of 1,500 to 1,600 pounds. It had a
roll-top cover on it which could be opened and allowed you
to haul something four feet high. It can also haul parts, other
equipment and supplies. It can also haul drums of oil. It had a
V8 engine, medium size. It had a standard one-half ton
suspension. It was driven 50,000 kilometres each of the years
1998 and 1999. He had no off-farm employment. In the years
under appeal he had another two vehicles available to
him.
[43] He was
shown Exhibit A-11, which was a driving history for a vehicle
owned by his son Brent Ilott. The effective dates were November
20, 1998 to December 17, 2002 and from January 20, 1995 to
December 17, 1998. This vehicle was on the farm for part of the
year 1998. When the son was at the farm he worked part-time there
and he worked full-time in Provost, Alberta. This witness and the
family used the truck in question for personal driving. He also
had an ordinary 1993 half-ton vehicle that he used.
[44] He was
asked about what personal driving he did with the truck in issue.
He said that he used it for personal reasons like going to
church, 45 times a year but he did not use it personally
otherwise. He did admit that some of the trips were personal and
business use combined. If he had farm shopping to do his wife
would accompany him sometime and go shopping. The main purpose
however, was farm business and if they did not do farm business
on the trip they did not go. He did not recall a time when he
would have used the vehicle for personal business
alone.
[45] In
cross-examination he said that this vehicle was almost identical
to that driven by his brother. He had a CD player in this
vehicle. He described it as "just
about loaded". It did not have a power seat. Sometimes his
wife went with him but the majority of the time she did not. She
would do personal shopping when she went to town on farm business
as well.
[46] In 1999 the
son went to school and took his vehicle with him. In 1998 he took
this vehicle to his other work as well. The witness said that
they grocery shopped in Eston. They used the subject truck as
well. They used it five per cent of the time for personal use.
This did not include the dual purpose trips. He used it for going
to conferences for himself and his wife. Normally they go empty
but they might bring something back with them.
Argument on behalf
of the Appellant
[47] In
argument, counsel said that the central issue was the extent of
the personal use of both vehicles. According to him the issues
were: 1) do the vehicles meet the definition of
"automobile" within the meaning of
subsection 248(1) of the Income Tax Act
("Act")? He opined that the truck was not a
motor vehicle designed or adapted primarily to carry individuals
on highways and streets. Rather, the truck was designed primarily
to carry and/or transport goods or equipment; 2) were the trucks
used in such a way that "all or substantially all" of
such use in each taxation year was for the transportation of
goods, equipment or passengers in the course of gaining or
producing income?
[48] It was his
contention that the Minister had accepted in the assessments that
the vehicles were used at least 80 per cent of the time for
business. This is a relevant consideration in interpreting the
words, "all or substantially all". On the question of
whether or not they were "automobiles", counsel
referred to the definition found at subsection 248(1) of the
Act with respect to "automobile" and
"passenger vehicle" as set out in paragraph 6(1)(k) of
the Act. However, he took the position that the definition
of "automobile" is the threshold test. Here he relied
intrinsically upon the decision of Bowman J. in Ruhl (W.) v.
Canada, [1998] G.S.T.C. 4, where the learned trial judge was
dealing with a 1995 Ford F-250 3/4 ton truck used by the
Appellant in his farming business. In that case, the learned
trial judge found that the vehicle in question was not a
passenger vehicle because it was not designed primarily to carry
passengers. It was designed primarily to carry goods and
equipment. To carry individuals was the secondary purpose of the
design. This reasoning was adopted wholeheartedly by the
Appellant in support of his position that the vehicles in
question in this case were not "automobiles" because
the definition of "automobile" means:
(a) a motor vehicle that is designed or
adapted primarily to carry individuals on highways and streets
and that has a seating capacity for not more than the driver and
8 passengers,
but does not include . .
. . .
He
contended that the vehicles in issue in this case were designed
primarily for carrying goods and there was no evidence to the
contrary. Both of the Appellants testified as to the carrying
capacity of trucks. He further contended that the vehicles in
question met the definition under subparagraph
248(1)(e)(ii) of the Act as being pick-up trucks or
similar vehicles, the use of which in the taxation year they were
acquired, was all or substantially all of the time for the
transportation of goods, equipment or passengers in the course of
gaining or producing income. In Ruhl, supra, there was a
much smaller operation involved and the nature of what was being
hauled was not as substantive as in the case at bar. Further, the
learned trial judge concluded that 80 per cent was
"substantially all of the time".
[49] There was
evidence before this Court that the vehicles were used most of
the time for hauling goods or carrying goods and equipment. The
meaning of the term "substantially" is in issue. The
definition of "automobile" is also in issue with
respect to the formula used in the calculation of the reasonable
standby charge. If the Court finds that it was an
"automobile" then it must look at the use to which the
vehicle was put. If all or substantially all of the distance
travelled by the automobiles in the total available days was not
in connection with or in the course of the office or employment,
then the assessment would stand. But, if the Court finds that it
was so used for 80 per cent of the time, then the standby charge
must be pro-rated and the appeals should be allowed in that
respect.
[50] In that
regard he further referred to the decision of Wood v.
M.N.R., 1987 CarswellNat 419, [1987] 1 C.T.C. 2391, 87 DTC
312, where Taylor J. at paragraph 5, said:
... I
would think the Minister might be hard-pressed to refuse a claim
where the percentage was 89 per cent, maybe even
85 per cent or 80 per cent or lower . . .
Clearly the term "substantially all" does not lend
itself to a simple mathematical formula. Further it would seem to
me that any particular definition of "substantially"
would be only valid with reference to the specific context in
which it is found.
[51] He referred
to the definition of "substantial" as found in The
Concise Oxford Dictionary of current English, Sixth Edition
in support of his position taken in this case.
[52] He also
referred to Eberle v. The Queen, 2000 CarswellNat 3190,
[2001] C.T.C. 2598, 2001 DTC 158, where a similar factual
situation was presented to McArthur J. where he said at paragraph
12:
. . . There
was evidence that other vehicles were available to him for
personal use. He kept no logs and other records and his memory
was somewhat faulty, but I accept that he used the truck in
connection with his work to the extent of 80% of the time. The
standby charges shall be adjusted pursuant to subsection 15(5)
which states in effect that a shareholder who has an automobile
made available to him by the corporation shall include a benefit
as the circumstances require. The estimate of 20% for personal
use is somewhat rough and ready, but is the most reasonable
considering the evidence available to me.
[53] He relied
upon McKay v. R., 2000 CarswellNat 2274, [2000] G.S.T.C.
93, where Rip J. allowed the appeal where the Appellant had
estimated that the vehicle was used for business 80 per cent to
90 per cent of the time. The taxpayer did not maintain a log and
there was no evidence of the distances travelled for business and
personal use. He relied upon the Appellant's testimony that
at least 80 per cent of the use of the Silverado was
for business. This proportion was sufficient to satisfy the
requirement that its use was "substantially" to earn
income from the business and "exclusively" for
commercial activities.
[54] Generally
when looking at the term "all or substantially all" it
does not need to be a quantitative calculation. Eighty per cent
is "substantially all" according to the cases. The
evidence before this Court is that the trucks in question were
used to haul many things. The vehicles were used 50,000
kilometres per year or 1,000 kilometres per week. The reason for
that was because of the trips to so many different places. The
vehicles in question were not "crew cabs" but
"extended cabs". Ninety five per cent of the time the
seat was folded so as to be able to accommodate parts and
equipment and to haul other things. These vehicles were used
"substantially" in the transportation of goods and
equipment. They were used "all or substantially all" of
the time in the context of fulfilling their duties to the
Company. It is not necessary that they should be hauling goods,
but only travelling in the course of the office or
employment.
[55] In
conclusion, counsel stated that if the Court finds that they were
"automobiles" then it must look to the formula. What
were the parties doing in fulfilling their duties to the Company.
The evidence here was that they were used to haul samples of
grain, they were going back and forth to conventions on behalf of
the Company. They were hauling goods and equipment.
[56] It is
admitted that there was some personal use going to church on
Sunday mornings. If the vehicles were used 52 weeks of the year
for such purposes that would only be about 1,800 kilometres and
the use was less than that. The Court should look at the dual use
of the vehicles such as business and pleasure. Also, under the
"substantially all" rule under the formula. The appeals
should be allowed, with costs.
Argument
on behalf of the Respondent
[57] Counsel for
the Respondent referred to Ruhl, supra, and said that
there were not many facts referred to in that case as the basis
upon which the decision was reached was uncertain. In any event,
the vehicle there was used completely for commercial purposes and
there was no issue as to it only being used 80 per cent of the
time for such purposes. The Court found that the vehicle was
designed primarily for hauling goods but secondarily, to haul
people. There may have been evidence there as to what it was
designed for. However, there is no such evidence in the case at
bar.
[58] On the
facts of this case it is clear that the vehicles were designed to
carry passengers and did so both for the Appellants and their
wives. In the case at bar, due to a change in times, they have a
different type of vehicle altogether. It has a shorter box, it is
designed to haul fewer goods and more people. The Appellants
themselves said that more people drive this type of vehicle now
and this Court should not follow the case of Ruhl, supra.
The Court in Ruhl must have had evidence that the vehicle
was not designed primarily for the purpose of hauling people.
These are different cases.
[59] In
McKay, supra, Ruhl was considered but the Court did not
pick up on the issue as to whether or not the vehicle in question
was an "automobile" as it has been argued here.
However, the definition is clear, it is not ambiguous. A
pick-up truck is specifically excepted under subparagraph
248(1)(e)(ii) of the Act. The vehicles in question
here do not meet this definition. If this kind of truck was
intended to be included in subparagraph (i), it would have said
so. It must be a specific exception.
[60] The next
question that arises is whether or not the vehicles were used all
or substantially all of the time in the transportation of goods
and equipment. There was no logbook presented and the Appellants
themselves admitted that they used the vehicles for the purposes
of going to church and for other personal activities on occasion.
The Minister did not accept the position that 80 per cent is
enough use of a vehicle for business purposes to allow a
proration in the formula.
[61] Counsel
referred to the case of Guignard v. Canada, [2002] T.C.J.
No. 506 (Q.L.) and Canada v. Adams, (C.A.) [1998] 3
F.C. 365, [1998] F.C.J. No. 477 (Q.L.) and suggested that
these cases seem to be suggesting that 90 per cent
would be sufficient for such purposes but they do not talk about
a figure less than 90 per cent. With respect to the period
of time in question the Court must ask the question, were they
transporting goods and equipment for earning income during a
sufficient period of time? This does not include the field trips
or shopping trips. There was a personal benefit when the vehicle
was used for dual purposes. This must be taken into account under
both sections. The burden is on the Appellant to meet the
threshold.
[62] He referred
to the decision of Tremblay v. Canada, [2000] T.C.J.
No. 547 (Q.L.), where Tardif J. at paragraph 44
concluded:
In short, as soon
as an automobile is made available, there is a presumption that
12,000 kilometers a year of 1,000 kilometers a month are driven
for personal purposes.
As this is a
presumption, it may be rebutted by clear and explicit evidence of
actual use in terms of kilometers driven, which is why a log is
practically indispensable.
[63] In order to
rebut this presumption you must have unequivocal evidence to the
contrary. The Appellants have failed to rebut the presumption in
this particular phase and would find it difficult to do so
without a logbook.
[64] Further, in
order to extricate themselves from the definition of
"automobile" in the Act there must be clear
evidence. Further, as indicated before, there is insufficient
evidence to establish on the balance of probabilities that their
vehicles were used all or substantially all the time for the
purpose of transporting goods and passengers to earn
income.
[65] With
respect to the appeals of the Company, if the Court finds that
the vehicles in question were automobiles, then they must be
reclassified from Class 10 to Class 10.1 on the
Appellant's CCA Schedule. This is not disputed by counsel for
the Appellant.
[66] The appeals
should be dismissed.
Rebuttal
[67] In
rebuttal, counsel referred again to the case of Ruhl, and
said that if Judge Bowman had had particular evidence before him about
the design of the vehicle he would have said so in his decision.
The Respondent's argument about the pick-up trucks is not
acceptable. The definition of "automobile" came in to
play in 1998. The evidence here indicates that in one case there
was no more than five per cent use made of the vehicle for
personal reasons and in the other case there was no more than 10
per cent. The absence of the logbook alone should not detract
from the other evidence as to the use of the vehicles.
[68] He
questioned the conclusion of the Court in paragraph 45 of the
Tremblay decision and suggested that that would be a
marked departure from the general rule. The Court should rely
upon the evidence in general.
[69] Further,
the judge in that case may only have been talking in terms of the
evidence in that case and not setting a general rule.
Analysis
and Decision
[70] There does
not seem to be much argument in this case with respect to the
issues. With respect to the Appellants Blaine Ilott and
Brent Ilott, the issues are as follows:
1)
Did the trucks in
question constitute an "automobile" within the meaning
and for the purpose of the Act?
2)
Was the use of the
trucks in question "all or substantially all" for the
transportation of goods, equipment or passengers in the course of
gaining or producing income by the
"Company"?
[71] In the
event that the Court should find that the vehicles in question
did not constitute an "automobile" within the meaning
and for the purpose of the Act then the appeals must be
allowed in full. However, should the Court find that the vehicles
in question were "automobiles", within the meaning and
for the purpose of the Act, then the Court must further
determine whether or not the Minister has correctly calculated
the standby charge in each case.
[72] With
respect to the appeals of Ilott Bros. Farming Company Ltd., if
the Court should find that the vehicles in question were not
"automobiles" within the meaning and purposes of the
Act then those appeals must be allowed in full. However,
should the Court find that the vehicles in question were
automobiles then the parties have agreed that the Minister was
correct in re-classifying the vehicles as Class 10.1
assets as opposed to Class 10 assets as claimed by the
Appellant.
[73] With
respect to the evidence given by the two Appellants the Court is
satisfied that in essence their evidence was straightforward,
informative and believable. The Court takes no issue with their
testimony in that respect and finds that their evidence was
credible.
[74] That leaves
for consideration the effect of the evidence and whether or not
the Appellants have been able to establish on a balance of
probabilities that the vehicles in question were not
"automobiles" or, if they were automobiles, whether the
use of the vehicles was "all or substantially all" for
the transportation of goods, equipment or passengers in the
course of gaining or producing income.
[75] With
respect to the issue as to whether or not the vehicles in
question were automobiles, there was a dearth of evidence in that
regard. Neither party introduced any evidence whatsoever to go to
the main issue as to whether or not these vehicles met the
definition of "automobile" in that they were or were
not designed or adapted primarily to carry individuals on
highways and streets and that they had a seating capacity for not
more than the driver and eight passengers. Further, there was no
evidence that would prove on a balance of probabilities that the
motor vehicles in question met the specific exceptions as set out
within the definition section of the Act.
[76] The Court
accepts the argument made on behalf of counsel for the Respondent
that the exceptions contained in the Act are specific and
that in order to be advantaged of such exceptions the Appellants
must establish by proof positive that the exceptions apply to
them. The Court is satisfied that in the present case these
exceptions do not apply to the motor vehicles in
question.
[77] As
indicated above there was also a dearth of evidence with respect
to whether or not the motor vehicles in question were
"designed or adapted primarily to carry individuals on
highways and streets...". Both parties relied upon the
evidence in general in that respect and did not address the issue
specifically.
[78] It is
obvious that there is no duty upon the Respondent to introduce
evidence to that effect as he is entitled to rely upon the
presumptions contained in the Reply. However, the same thing
cannot be said of the Appellants. Insofar as the Court is
concerned, in order for the Court to accede to the argument of
the Appellants in this regard, it would have been necessary for
there to have been evidence, be it from the Appellants
themselves, from some other knowledgeable persons or from some
expert to this effect, but there was no such evidence. Indeed,
neither of the Appellants in their evidence indicated that these
vehicles were not designed or adapted primarily to carry
individuals on highways and streets.
[79] The
evidence indicated that these motor vehicles were in very common
use in the farming community in which the Appellants reside. They
were obviously used for the carrying of passengers and goods and
equipment and they were obviously used on a personal basis by the
Appellants and their families for carrying goods and passengers
as well. Some of these uses, of course, had nothing whatsoever to
do with transportation of passengers or goods in the course of
carrying on a business or for gaining or producing
income.
[80] There was
nothing in the evidence with respect to the nature of these
vehicles, which would indicate that they were not designed
primarily for the purposes as referred to in the definition of
"automobile" under the appropriate provisions of the
Act and the evidence given would appear to be quite to the
contrary.
[81] Counsel for
the Appellants relied substantially upon the decision in Ruhl,
supra, but this Court is satisfied that Judge Bowman in that
case must have had before him evidence, which was sufficient to
indicate to him that the vehicle in question was not an
"automobile" because he said in paragraph 7:
To begin
with, it is obvious that the vehicle is a pick-up
truck.
He then
decided that the vehicle, being an extended cab truck and having
a seating capacity for more than the driver and two passengers
did not qualify within the exclusion of subparagraph (i) of the
definition.
[82] At
paragraph 13 he went on to say:
. . . The
purpose of its acquisition and the use to which it was put was
solely to transport goods and equipment, and the fact that
between loads it happened to occasionally be empty does not
detract from that fact. Moreover, even if the somewhat mechanical
totaling up of mileage shown on the log were appropriate, which I
tend to question, 80% is in my view substantially all of the
time.
[83] It is
obvious from this statement that the learned trial judge must
have had information before him from which he could draw this
conclusion. He did not refer to the particular evidence in this
decision but this Court can only conclude that there must have
been evidence of this nature for him to be able to so decide. In
the case at bar there was no such evidence indicating the limited
purpose of their acquisition or their design. Any evidence might
have been sufficient to tip the balance in favour of the
Appellants, but that evidence was not forthcoming. The Court is
unable to conclude as did the learned trial judge in
Ruhl.
[84] The other
cases referred to do not deal specifically with this issue and
one can only conclude that it was not raised in those
cases.
[85] In the case
at bar, this issue is clearly before the Court and on the basis
of the evidence the Court has no difficulty in concluding that
the motor vehicles in question do meet the test of an
"automobile" within the meaning of
subsection 248(1) of the Act. The Court is satisfied
that they were "designed or adapted primarily to carry
individuals on highways and streets and they had a seating
capacity for not more than the driver and eight passengers".
The Court is not satisfied that the evidence disclosed that the
vehicles in question were designed primarily to carry and/or
transport goods and equipment.
[86] The
evidence disclosed that these vehicles were used for such
purposes but on the basis of any evidence given and any
reasonable presumptions that the Court is entitled to draw from
the evidence, it must conclude that the vehicles were designed or
adapted primarily to carry individuals on highways and streets.
These qualities were known to the Appellants and the Appellant
Company when the vehicles were purchased and the vehicles were
used for such purposes.
[87] The more
substantive issue on the evidence is the use made of the trucks
during the years under appeal.
[88] The Court
is satisfied that even though the departmental assessing policy
may be the "90 per cent rule" the cases make it clear
that something less than that might be sufficient to meet the
Appellants' needs here. Further, the Court is satisfied that
no specific quantitative figure can be used in the determination.
The Court must look at the use of the trucks in the context of
the facts of each individual case and the Court accepts the
statements of Taylor J. in Wood, supra, that clearly
the term "all or substantially all" does not lend
itself to a simple mathematical formula. Further, it would seem
to the Court that any particular definition of
"substantially" would be only valid with reference to
the specific context in which it is found.
[89] In the case
at bar, there were obviously a number of uses made of the
vehicles in question as indicated. Clearly some of these uses
were personal but the Court is satisfied that, as Bowman J.
decided in Noseworthy v. R., 1996 CarswellNat 873,
[1996] 2 C.T.C. 2006, 96 DTC 3234, that it can base its decision
solely upon the testimony of the two Appellants who came and
testified as to the situation in effect in the years in question
and to the present. As Bowman J. said in that case, "it
may not be the best evidence but under the informal procedure the
Court does not think that it is obliged necessarily to employ
such evidentiary rules as the best evidence rule". The
Appellants here were certainly in a position to testify of their
own knowledge and the Court has to conclude on the basis of their
own evidence whether it was substantial enough to meet their
burden.
[90] On the
basis of the evidence of the two Appellants here, the Court is
satisfied that during the years in question, the use of the
trucks was such that "all or substantially all" of such
use in each taxation year was for the transportation of goods,
equipment and/or passengers in the course of gaining or producing
income.
[91] In the case
of Brent Ilott, he testified as to the extensive use of the
vehicle in question in the farming operation and described the
long distances that the vehicle had to travel during various
parts of the year in the operation of the farming business. Even
in the winter time the vehicle travelled long distances for the
purposes of hauling parts and equipment for repairs. He also
attended educational seminars during the winter, which were
obviously for the purposes of carrying on their business. It was
also necessary to visit persons from whom they were either going
to rent the lands or purchase lands. Sometimes these were
absentee landlords who lived some considerable distance away from
the farm. As he indicated, they farm 6,880 acres of land and the
distance from tip-to-tip was 35 miles (as the
crow flies). Likewise, they had to travel some considerable
distances to try to obtain the best prices on the machinery as
well as trying to market their crops for the best price. There
can be no doubt from this evidence that the vehicles in question
was a type of vehicle which was most useful in their business.
Undoubtedly it was also useful for the limited personal use that
they made of it.
[92] The seat
would have been down 95 per cent of the time, which would
indicate that the vehicle was being used at those times for
hauling of goods, materials, small pieces of equipment or
briefcases. He said that people rode there on occasion only such
as farm employees, friends and family for what he described as
the odd time or about five per cent of the time. There was also
clear evidence that he had other vehicles available for his use
during the years in question. The vehicle was also used for going
back and forth to the church which was a return trip of 22 miles
on Sundays and it was used for other personal matters. As he
said, the "odd other time". It was his position that
any long distances that were travelled were primarily for
business and not personal although he was obviously admitting
that when they went primarily for the purposes of the business
they also completed personal matters as well.
[93] In
cross-examination he said that he would have used the vehicle for
personal reasons for about five to 10 per cent of the time but
this did not include the dual use time.
[94] Giving the
weight to the evidence of this witness that it deserves, the
Court is satisfied that he would have used the motor vehicle in
question for at least 90 per cent of the time.
Consequently, the Court is satisfied that the use made of the
truck was such that "all or substantially all" of such
use for those taxation years was for the transportation of goods,
equipment and/or passengers in the course of gaining or producing
income.
[95] The facts
in this case are dissimilar from those viewed by Tardif, J.
in Tremblay, supra. In that case the learned trial judge
was obviously not impressed by the nature of the evidence given
on behalf of the Appellant because he found that the evidence was
not very specific in terms of total kilometres travelled for
business purposes. The Appellant had testified that the total
might be 40,000 to 60,000 kilometres per year but they kept no
record of it. Tardif, J., did not think that it was enough for
the Appellant to say that he used the vehicle essentially for
travel between home and work and then have the Court conclude
that the kilometres represented by that travel was less than 10
per cent of the total. Further, in that case the Court was
satisfied that the calculation of the Appellant was not as
accurate as he had indicated. The Court obviously concluded that
his evidence was a guesstimate at best, was not accurate, was
imprecise and it obviously did not attach much credibility to
it.
[96] On the
other hand, in the case at bar the Court is very satisfied that
the witness here was credible. It would be reasonable to conclude
that the Appellant here would have used the vehicle for the
transportation of goods, equipment and/or passengers in the
course of gaining or producing income for at least 90 per
cent of the time as evidenced by the evidence of this witness as
to the type of driving that he did and to what extent. This is
the very type of driving that one would expect in operating this
business. Likewise, it is reasonable to conclude on the basis of
the Appellant's evidence that the amount of driving that he
did, personally did not amount to any more than 10 per cent of
the time.
[97]
Consequently, the appeal of this Appellant is allowed and the
matter is referred back to the Minister for reassessment and
reconsideration on the basis that this Appellant is entitled to
have his standby charge recalculated pursuant to subsection 15(5)
of the Act. In all other respects the appeals are
dismissed. There will be no costs.
[98] With
respect to the Appellant Blaine Ilott, he said that they hauled
people in the back of the truck about five per cent of the time.
That included taking people to the fields and other people
sitting in the truck in order to eat their meals. According to
him most of the time the seat was folded down so that it could be
used for hauling tools, parts and items such as paint. It made a
good storage compartment.
[99] Sometimes a
winter survival kit and sleeping bags might also have been stored
either there or in the back of the truck. He likewise had two
other vehicles that were available to him for part of the time.
He used the truck for personal reasons going back and forth to
church 45 times a year but not otherwise. He did admit there were
some joint trips at which time business was conducted as well as
attending to personal affairs. However, the main purpose was for
the farm business and if they did not do farm business they did
not use the vehicle. He did not recall a time when a trip would
have been made with the vehicle for personal reasons
alone.
[100] In cross-examination he
said that he used the vehicle five per cent of the time for
personal reasons. This did not include the dual use
trips.
[101] For the same reasons
that the Court has given with respect to Brent Ilott, the
Court is satisfied that this Appellant has established on a
balance of probabilities that during the years in issue the use
made of the truck by him was such that "all or substantially
all" such use in each taxation year was for the
transportation of goods, equipment and/or passengers in the
course of gaining or producing income.
[102] The Court is satisfied
that the Appellant used the truck for such purposes for at least
90 per cent of the time. The Appellant said that he used it for
95 per cent of the time for such purposes but the Court is
satisfied that unintentionally, he was a bit light on the
calculation of the amount of time during which the truck was used
to go back and forth to church and a bit heavy on the time when
the other vehicles were available for his use. He did not take
into account sufficiently the dual use of purposes for which the
truck was used.
[103] In the end result, the
appeal is allowed with respect to this Appellant and the matter
is referred back to the Minister for reassessment and
reconsideration based upon the above Court's findings. The
Appellant is entitled to have the standby charge reassessed in
accordance with the provisions of subsection 15(5) of the
Act.
[104] The Appellant is
entitled to no further relief. There will be no costs.
[105] It is obvious, on the
basis of the above Court's findings, that the appeals of
Ilott Bros. Farming Company Ltd. must be dismissed and the
assessment of the Minister confirmed.
Signed at
Ottawa, Canada, this 19th day of December 2002.
J.T.C.C.
COURT FILE
NO.:
2002-798(IT)I
2002-799(IT)I
2002-800(IT)I
STYLE OF
CAUSE:
Brent Ilott
Blaine
Ilott and
Ilott Bros.
Farming Company Ltd. v.
Her Majesty The Queen
PLACE OF
HEARING:
Saskatoon, Saskatchewan
DATE OF
HEARING:
November 6, 2002
REASONS FOR
JUDGMENT BY: The Honourable T.E.
Margeson
DATE OF
JUDGMENT:
December 19, 2002
APPEARANCES:
Counsel for
the
Appellants:
Beaty Beaubier
Counsel for
the
Respondent:
Lyle Bouvier
COUNSEL OF
RECORD:
For the
Appellant:
Priel Stevenson Hood & Thornton
Name:
Barristers & Solicitors
500 321A 21st Street East
Firm:
Saskatoon, Saskatchewan S7K 0C1
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2002-798(IT)I
BETWEEN:
BRENT
ILOTT,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Appeals
heard on common evidence with the appeals of Blaine Ilott
(2002-799(IT)I) and Ilott Bros. Farming Company Ltd.
(2002-800(IT)I) on November 6, 2002, at
Saskatoon,
Saskatchewan, by
the
Honourable Judge T.E. Margeson
Appearances
Counsel for
the
Appellant:
Beatty Beaubier
Counsel for
the
Respondent:
Lyle Bouvier
JUDGMENT
The appeals
from the assessments made under the Income Tax Act for the
1998 and 1999 taxation years are allowed, without costs, and the
matter is referred back to the Minister of National Revenue for
reassessment and reconsideration on the basis that the Appellant
is entitled to have his standby charge recalculated pursuant to
subsection 15(5) of the Act.
The
Appellant is entitled to no further relief.
Signed at
Ottawa, Canada, this 19th day of December 2002.
J.T.C.C.
2002-799(IT)I
BETWEEN:
BLAINE ILOTT,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Appeals
heard on common evidence with the appeals of Brent Ilott
(2002-798(IT)I) and Ilott Bros. Farming Company Ltd.
(2002-800(IT)I) on November 6, 2002, at
Saskatoon,
Saskatchewan, by
the
Honourable Judge T.E. Margeson
Appearances
Counsel for
the
Appellant:
Beatty Beaubier
Counsel for
the
Respondent:
Lyle Bouvier
JUDGMENT
The appeals
from the assessments made under the Income Tax Act for the
1998 and 1999 taxation years are allowed, without costs, and the
matter is referred back to the Minister of National Revenue for
reassessment and reconsideration on the basis that the Appellant
is entitled to have his standby charge recalculated pursuant to
subsection 15(5) of the Act.
The
Appellant is entitled to no further relief.
Signed at
Ottawa, Canada, this 19th day of December 2002.
J.T.C.C.
2002-800(IT)I
BETWEEN:
ILOTT BROS.
FARMING COMPANY LTD.,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Appeals
heard on common evidence with the appeals of Brent Ilott
(2002-798(IT)I) and Blaine Ilott (2002-799(IT)I) on
November 6, 2002, at
Saskatoon,
Saskatchewan, by
the
Honourable Judge T.E. Margeson
Appearances
Counsel for
the
Appellant:
Beatty Beaubier
Counsel for
the
Respondent:
Lyle Bouvier
JUDGMENT
The appeals
from the assessments made under the Income Tax Act for the
1998 and 1999 taxation years are dismissed.
Signed at
Ottawa, Canada, this 19th day of December 2002.
J.T.C.C.
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