Citation: 2009TCC424
Date: 20090904
Docket: 2008-3293(GST)I
BETWEEN:
GILLES LARIVIÈRE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Favreau J.
[1]
The
appellant is appealing from the assessment dated October 26, 2007,
notice of which bears the number FRP-497(2007-04), and the reassessment dated
November 27, 2008, in which the Minister of Revenue of Quebec, as an agent for
the Minister of National Revenue (collectively the Minister), assessed the
appellant for a net tax amount of $4,002.53 under the Excise Tax Act, R.S.C.
1985, c. E-15, as amended (the ETA), plus interest and penalty, for the period
from May 1, 2002, to June 30, 2005 (the period at issue).
[2]
The issues
are related to the input tax credits (ITCs) claimed in regard to the following:
(a)
the cost of
food and veterinarian bills for a guard dog;
(b)
the cost of
a laptop computer and office printer;
(c)
the cost of
building a shed to house a furnace and to store some equipment and the cost or
renovating a garage; and
(d)
the cost of
a Dodge Dakota pick-up truck as well as of gasoline for and maintenance of said
vehicle.
[3]
During the
period at issue, the appellant operated a welding business; more specifically,
he assembled trailers. The appellant's place of business was his personal
residence, and he was a registrant for the purposes of the Goods and Services
Tax (GST). In addition to operating his business, the appellant worked
full time for the City of Trois-Rivières as a police officer.
Food and veterinarian expenses
for the guard dog
[4]
Based on
the evidence adduced, the appellant has always had dogs at his residence. The
dog in question is a German shepherd acquired before the appellant started
operating his business in 2002.
Therefore, he was not bought specifically to guard
the garage attached to the residence where the business was operated. The dog guards both the residence and the garage of the
appellant. Since the dog is used for both the
appellant's personal needs and the needs of his business, no ITCs should be
allowed for food and veterinary expenses incurred by the appellant during the
period at issue.
Cost of a laptop computer and printer
[5]
The IBM
laptop computer was purchased on September 2, 2002, for $1,250 from an Alain
Pelletier. It was a used computer, and the appellant did not pay GST
on the purchase. According to the appellant,
the laptop was bought to prepare invoices for clients. The experiment being inconclusive, the appellant loaned it
to his bookkeeper. No matter what the laptop was used for, technically, the
appellant cannot be entitled to ITCs because he paid no GST at the time of its
purchase. Since the printer was not discussed
and no specific submissions were made concerning it at the hearing, the claim
for ITCs regarding the printer must be disallowed.
Cost of building a shed
[6]
The shed
was built to house the heating system required for the garage only. The welding and
painting that were done in the garage increased the risk of fire. ITCs were allowed on the purchase of the oil-fired warm-air
heating system, but disallowed on the cost of building the shed itself because
the conditions in subsection 208(4) of the ETA had been met. During the period at issue, subsection 208(4) read as
follows:
Improvement to capital real property by
individual – Where an
individual who is a registrant acquires, imports or brings into a participating
province an improvement to real property that is capital property of the
individual, the tax payable by the individual in respect of the improvement
shall not be included in determining an input tax credit of the individual if,
at the time that tax becomes payable or is paid without having become payable,
the property is primarily for the personal use and enjoyment of the individual
or a related individual.
[7]
At the
hearing, the agent for the appellant filed as Exhibit A-1 an assessment report
dated April 22, 2008, from a general partnership called André Leblanc
et associés, a chartered appraiser firm. According to that report,
the total area taken up by the appellant's business is 1,649 square feet
compared to a total area of 3,228 square feet for the appellant's
residence and accessory buildings, that is, 45% of the total area of the
property, not taking into account the land, which is 1,493.5 square
metres.
[8]
Even if we
accept the findings in the appraisal report, the percentage of commercial use
of the property after the shed was built did not increase enough so that the
entire property could be considered as being used primarily for commercial
purposes.
[9]
Although
the shed and the garage are used exclusively for commercial purposes, building
a shed to house the garage heating system constitutes, nonetheless, an
improvement to capital real property made by an individual within the meaning
of subsection 123(1) of the ETA. The words "capital property",
"improvement" and "real property" are defined as follows in
subsection 123(1) of the ETA:
“capital property”
in respect of a person, means property that is,
or would be if the person were a taxpayer under the Income Tax Act,
capital property of the person within the meaning of that Act, other than
property described in Class 12, 14 or 44 of Schedule II to the Income
Tax Regulations;
"improvement"
in respect of property of a person, means any
property or service supplied to, or goods imported by, the person for the
purpose of improving the property, to the extent that the consideration paid or
payable by the person for the property or service or the value of the goods is,
or would be if the person were a taxpayer under the Income Tax Act,
included in determining the cost or, in the case of property that is capital
property of the person, the adjusted cost base to the person of the property
for the purposes of that Act;
"real property"
“real property” includes
(a) in respect of property in the Province of Quebec,
immovable property and every lease thereof,
(b) in respect of property in any
other place in Canada, messuages, lands and tenements of every nature
and description and every estate or interest in real property, whether legal or
equitable, and
(c) a mobile home, a floating
home and any leasehold or proprietary interest therein;
[10]
The first
paragraph of article 900 of the Civil Code of Quebec sets out that land,
and any constructions and works of a permanent nature located thereon and
anything forming an integral part thereof, are immovables.
[11]
As stated
by Justice Angers in Polley v. The Queen, 2008 TCC 192, at paragraph 9,
The purpose of subsection 208(4) is to prevent
an ITC from being claimed on the cost of improvements to capital real property
if the property is primarily for the personal use and enjoyment of the
registrant.
[12]
The Act
does not distinguish between improvements that are made solely for commercial
purposes and those that are not. If all the conditions in
subsection 208(4) are present, the tax paid on the improvement does not
give rise to an ITC.
[13]
In this
case, the conditions for applying subsection 208(4) of the ETA are present
because, despite the improvements made to it, the property taken as a whole is
still primarily for the personal use and enjoyment of the appellant.
Dodge Dakota pick-up truck,
maintenance costs and gasoline
[14]
According
to the appellant's testimony, the Dodge Dakota was bought at an auction in 2003
for $5,000. This is a vehicle from the Ministère de la Faune du Québec
[Quebec wilfdlife ministry] that had 280,000 kilometres on it. The vehicle was in bad condition and was always broken.
[15]
In addition
to the pick-up, the appellant also owned four more vehicles: a Ford F-150 truck
and Firebird, Corvette and Focus automobiles.
[16]
In his 2002
tax return, the appellant did not claim a deduction for expenses of operating a
motor vehicle. For 2003, the appellant reported that he had used a vehicle
for business purposes and driven 5,200 kilometres for business, that is, 23.6%
of the total distance of 22,000 kilometres driven. For 2004, he did the same, reporting a distance of 6,266
kilometres driven for business, that is, 25.3% of the total distance of 24,820
kilometres driven. Despite the business use
percentages of 23.6% and 25.3%, the appellant claimed 100% of the ITCs
attributable to the acquisition cost and usage fees for the Dodge Dakota.
[17]
At the
hearing, the appellant admitted that he did not keep a log for his business
travel and for the distance he had driven for that purpose. To justify claiming
expenses for the Ford F-150, the appellant stated that the Ford F-150 was used
when the Dodge Dakota was broken.
[18]
The auditor
from the Ministère du Revenu du Québec testified at the hearing and stated that
the appellant had claimed ITCs for all of the gasoline bills for the Dodge
Dakota and the Ford F-150, even though some of the gasoline purchases had been
made by the appellant's son, Luc Larivière. He also operated a welding
business and used the same vehicles to operate his own business. The audit also showed that the two vehicles did not have
commercial licence plates.
[19]
The burden
of proof to demonstrate the commercial use of the Dodge Dakota is on the
appellant and not the respondent.
Keeping a log is the best way to clearly establish
the distance actually driven for business purposes.
[20]
The quality
of the evidence submitted by the appellant and especially the lack of precision
concerning the use of the vehicle in the appellant's business mean that the
appellant did not discharge his burden of proof and cannot obtain the ITCs
claimed in regard to the purchase of the Dodge Dakota and the cost of using
that vehicle.
[21]
For these reasons, the
appeals are dismissed.
Signed at Montréal, Quebec,
this 4th day of September
2009.
"Réal Favreau"
on this 14th day
of October 2009
Margarita
Gorbounova, Translator
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