Docket: 2006-1149(GST)I
BETWEEN:
DISTRIBUTION S.C.T. INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
____________________________________________________________________
Appeal heard
on August 21, 2006, at Chicoutimi, Quebec
Before: The Honourable
Justice Alain Tardif
Appearances:
|
Agent for the Appellant:
|
Pierre Pilotte
|
|
Counsel for the Respondent:
|
Louis Cliche
|
____________________________________________________________________
JUDGMENT
The appeal from the assessment of Goods and
Services Tax under Part IX of the Excise Tax Act, notice of which is
dated August 3, 2005, in respect of the period from January 15, 2005, to
March 31, 2005, is dismissed in accordance with the attached Reasons
for Judgment.
Signed at Ottawa, Canada, this 15th day of
September 2006.
"Alain Tardif"
Translation certified true
on this 28th day of June, 2007.
Brian McCordick, Translator
Citation: 2006TCC482
Date: 20060915
Docket: 2006-1149(GST)I
BETWEEN:
DISTRIBUTION S.C.T. INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Tardif J.
[1] This is an appeal
from an assessment of Goods and Services Tax (GST) under the Excise Tax Act
("the Act").
[2] In making the
assessment, the Minister of National Revenue ("the Minister")
relied on the following assumptions of fact, which are set out in the Reply to
the Notice of Appeal ("the Reply"):
[TRANSLATION]
(a) The facts
admitted to above.
(b) The Appellant
is a GST registrant.
(c) The Appellant
is a business that operates a network of vending machines in the Saguenay-Lac-St-Jean
region. Most of the machines are concentrated in the Jonquière and Chicoutimi
areas.
(d) In February
2005, the Appellant purchased a 2005 Ford F-series SuperCrew cab 4x4 pickup
truck for $52,784.
(e) The vehicle has
an extended cab, which means that the passenger cabin is equipped with two (2)
rows of seats, arranged one behind the other.
(f) In addition,
it is a four-wheel drive (4x4) vehicle.
(g) Because of the
layout of the cabin, the vehicle has more than three (3) seats.
(h) The Appellant
claimed an input tax credit (ITC) on the purchase price of the vehicle.
(i) The Minister
allowed an ITC based on the deemed value of the vehicle
($30,000), which is the value authorized by the Excise Tax Act where a
registrant purchases a "passenger vehicle" for use as a capital asset
in connection with the registrant's business activities.
(j) In the course
of the audit, Mario Desbiens, the Appellant's president, confirmed, on
three occasions, that 50% of the use of the vehicle is devoted to the delivery
of goods, 25% of its use is devoted to the inspection of goods, and 25% of its
use is devoted to prospecting for new customers.
[3] The Appellant
admitted to all these facts, with the exception of paragraph (j).
[4] Pierre Pilotte represented
the Appellant at the hearing. The Appellant's president, Mario Desbiens, also
attended.
[5] Mr. Pilotte and Mr.
Desbiens said that no log was kept to establish the commercial use of the
vehicle, since 100% of its use was business-related.
[6] Thus, in their
submission, the fact that the vehicle was used solely for business purposes
made a log pointless, since all driving was business-related.
[7] To substantiate his
claims, the president noted that, during the period covered by the assessment,
he owned two other vehicles, and his spouse owned yet another vehicle.
[8] All of these
vehicles were smaller cars, and one or two of them could arguably be described
as sports cars but were certainly not ideal for travel on the snowy roads of
the Saguenay region.
[9] For her part, the
auditor explained the assessment method used. She essentially took two
elements into account: the description of the assessed vehicle, and the
Appellant's president’s use of the vehicle according to the information that he
provided, which is reproduced at paragraph 5(j) of the Reply:
(j) In the course
of the audit, Mario Desbiens, the Appellant's president, confirmed, on three
occasions, that 50% of the use of the vehicle is devoted to the delivery of
goods, 25% of its use is devoted to the inspection of goods, and 25% of its use
is devoted to prospecting for new customers.
Analysis
[10] The Appellant's
president did not deny that he personally provided the various percentages on
which the Minister based his assessment. Essentially, he argued that he did not
understand why he had provided such a breakdown. However, based on the
auditor's testimony, this was not an off-the-cuff estimate made during a
general conversation; rather, it was in response to specific questions that
were sent well before they were answered.
[11] In other words, the
auditor contacted Mr. Desbiens and explained that Mr. Desbiens would
have to provide explanations and estimates regarding the use of the vehicles.
Mr. Desbiens responded that he would not be able to provide an adequate
answer on the spot. The answer was given later on. Based on this, it can
be concluded that the estimate was the product of a certain amount of forethought,
and that this clearly made the answer plausible.
[12] The purchaser of a
vehicle is entitled to claim an input tax credit (ITC) under sections 169 and 201 of the
Act. The purpose of this measure is essentially to obtain an ITC after purchasing
property that will be used to earn income. There can be situations in
which a motor vehicle is purchased for two purposes: a business purpose and a
personal purpose.
[13] In such situations,
is not necessarily easy to do an adequate breakdown between personal and
business use. Consequently, it is very important for anyone in such a situation
to do whatever is necessary to be able, in the event of an audit, to provide
the most accurate information possible concerning the use of the vehicle.
[14] One can certainly
assert that a vehicle was used exclusively for business purposes. However, such
an assertion must be plausible and realistic.
[15] The burden of proof
will be heavier where the vehicle is suitable for personal use. This is one
such case, and it gives rise to questions:
·
Why
did the Appellant purchase a luxury vehicle equipped with features that were
not essential, but were expensive and very pleasant for personal use?
·
Was
the vehicle purchased by an individual or legal entity whose ultimate objective
is to make a profit?
·
Why
was an attractive and practical vehicle not used for personal purposes?
[16] When a person
decides to purchase a vehicle with features that raise questions, the person
must make careful, attentive and disciplined use of the vehicle so that he or
she can ultimately provide persuasive evidence that the vehicle was used
exclusively for business purposes.
[17] A log can be a very
useful way to do this, especially if the alleged use can be confirmed by
documentary evidence.
[18] Essentially, in the
case at bar, the only evidence adduced was oral evidence, and the explanations differed
greatly from the facts that came to light when the file was reviewed.
[19] No log was kept, on
the basis that all the mileage was business-related.
[20] The rather
unconvincing explanation given to justify the options on the vehicle was that
they wanted to place certain provisions on the seats in order to protect them
from the heat or the cold.
[21] As for the fact that
the Appellant's president had two other vehicles, once again, the explanations
were not very persuasive, except to the extent that they showed that he was a
vehicle enthusiast.
[22] Since the two
vehicles in question were not adapted to the region's long winters, it seems
totally unlikely that the pickup truck was not used for personal purposes for a
significant part of the year.
[23] All in all, the
vague and contradictory explanations provided on the Appellant's behalf are
certainly not sufficient or adequate enough to cause this Court to conclude
that the Appellant has discharged its burden of proof.
[24] Based on the
evidence regarding the vehicle's description, and based on the initial
explanations given, the type of vehicle that the Appellant's president
possessed, and the prevailing climate in the region where the vehicles were
used, the Court finds that it is unlikely, and perhaps even utterly impossible,
that the vehicle that the Appellant purchased for $52,784, namely a 2005 Ford F‑series
four-door, 4x4 SuperCrew cab pickup truck with two rows of seats, was used and
continues to be used exclusively for business purposes.
[25] Since the
calculations regarding the personal use of the vehicle were reasonable, there
is no reason to alter them.
[26] For all of these
reasons, the appeal is dismissed.
Signed at Ottawa, Canada, this 15th
day of September 2006.
"Alain Tardif"
Translation certified true
on this 28th day of June, 2007.
Brian McCordick, Translator
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