|
Citation: 2003TCC621
|
|
Date: 20030912
|
|
Docket: 2002-4618(GST)I
|
|
BETWEEN:
|
|
STEPHEN G. COLLIER,
|
|
Appellant,
|
|
and
|
|
|
|
HER MAJESTY THE QUEEN,
|
|
Respondent.
|
REASONS FOR JUDGMENT
Hershfield, J.
[1] This is an appeal from a
reassessment for the period from January 1, 1998 to
December 31, 1999 (the "Period"). The reassessment
assessed GST during the Period on taxable supplies which the
Appellant failed to declare and remit and denied input tax
credits ("ITCs") in respect of a commercial activity (a
vending machine business) for expenses incurred during the Period
on the construction of a home which the Appellant used for the
conduct of his business. ITCs were also denied in respect of
expenses incurred during the Period for the maintenance of his
dogs.
[2] In a written submission made by
the Respondent following the hearing of the appeal, the
Respondent relies on the following facts and analysis:
A. FACTS
2. The
Appellant was registered for GST purposes for the operation of
vending machines.
3. The
Appellant's wife, Elaine Collier, was a GST registrant with
respect to her business, a bed and breakfast (the "B &
B").
4. Sometime in
1998, the Appellant and his wife constructed a new home (the
"new home"). Both the B & B and the vending machine
businesses were run out of the new home.
5. Elaine
Collier was allowed 50.8% of the total input tax credits on the
construction of the new home. This amount was based on the
percentage of the home used for the B & B business.
6. The
Appellant stated in his evidence that the vending business uses
7.1% of the premises for its business;
7. The
Appellant has claimed 7.1% of the total input tax credits on the
construction of the new home. The Minister has disallowed this on
the basis of subsection 208(4) of the Excise Tax Act.
B.
ANALYSIS
8. Subsection
208(4) reads as follows:
208(4) 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.
9. A plain
reading of the section indicates that the eligibility for the
input tax credit should be determined by looking at the
registrant, in this case, the appellant.
10. The Appellant's
business uses his property 7.1% of the time. Thus, looking at
this registrant, it is obvious that he is not eligible for the
input tax credit.
11. The Respondent submits
that it is improper to consider all the businesses run out of the
property to determine the appellant's eligibility for the
input tax credits.
12. Subsection 208(4) is
clear. It states "where an individual who is a
registrant". I submit that it is improper to consider other
registrants operating their business out of the same property to
determine the appellant's eligibility for input tax
credits.
13. The Appellant's
spouse was entitled to and did receive input tax credits with
respect to her business and her business' use of the
property.
14. The Appellant is not
entitled to any input tax credits for the use of his residence
for his vending business.
15. Sullivan and
Driedger on the Construction of Statutes[1] states the following with
respect to the plain meaning rule:
If a text has a plain meaning, extra-textual evidence of
legislative intent (like legislative history or presumed intent)
is inadmissible to contradict that meaning. The plain meaning
constitutes definitive evidence of legislative intent and it is
impermissible to rely on other factors to contradict it. Further,
other factors may not be relied on to "create"
ambiguity - that is, cast doubt on the meaning of a text that is
otherwise plain.
16. Thus, I submit that
the plain reading of subsection 208(4) indicates that in defining
the eligibility for input tax credits, one should look at the
registrant concerned and not at other registrants that might be
operating businesses out of the same establishment.
c. GUARD DOG
EXPENSES
17. I was not asked to
provide submissions with respect to input tax credits claimed for
"guard dog" expenses. However, I would submit that the
expenses relating to the appellant's dog were personal
expenses and would have been incurred regardless of whether the
appellant was engaged in the vending business. In his evidence,
the Appellant admitted that he bought his dog(s) before he ever
commenced the vending business.
[3] While the foregoing narrows the
facts and issue that the Respondent wants me to consider, the
Appellant's evidence at the hearing warrants elaboration. The
Appellant has also made a submission since the hearing but same
consists largely of evidentiary matters covered at the hearing
and I will deal with same in the elaboration that follows.
[4] The property in question is a
5,959 square foot home located on 13 acres in or near the Blue
Mountains in the Collingwood area. The property is bounded by a
provincial park and close to a private ski club and a golf
course. The Appellant acknowledged that there were few commercial
enterprises in the area.
[5] The 13-acre property consisted of
two fields and a forested area. The home, on a hill, overlooks a
pond with an island with willow trees.
[6] The property was acquired with a
view to the future retirement of the Appellant and his wife. They
were seeking a change in lifestyle. The Appellant was winding
down a marketing consulting business for high tech companies. As
well, but prior to the vending machine business which was his
primary activity in the subject Period, he had engaged in the
stained glass and word processing businesses as a sole
proprietor. No evidence was provided as to the level of activity
and commerciality of these activities. The Appellant did testify,
when addressing the business need for having his dogs, as to the
number of vending machines he operated and the coinage he handled
on a regular basis. However, even this operation, which was
clearly a commercial activity, was declining in the subject
Period. That is, the number of vending machines being operated
was declining.
[7] During the subject Period the
Appellant's wife worked for an insurance company in the
property and commercial underwriting area. More recently she has
changed jobs and is working as a consultant. The Respondent
accepts that she operated a bed and breakfast ("B &
B") at the subject property as a sole proprietor at all
relevant times even though the B & B did not have its first
guest until the summer of 2001. No evidence was offered as to the
commerciality of the B & B business. It was not necessary to
do so given that the Respondent's own assumptions and
assessing position did not put the commerciality of the B & B
at issue. I note here as well that the Appellant testified that
his wife also had a sewing business that she operated from their
home - as if saying so made it so. I certainly would not on the
evidence provided have found this to be a commercial
activity.
[8] While the Respondent's
submission refers to a new home built in 1998 by the Appellant
and his wife on the subject property, the Appellant described the
construction as a major addition designed for business
activities. Regardless, it is not at issue that the Appellant and
his wife resided at the subject property as their sole residence
and that there was a substantial improvement to the real property
in 1998. Subsection 208(4) is the appropriate provision of the
Excise Tax Act (the "Act") to consider in
deciding the issue as narrowed by the Respondent. It is not at
issue whether the improvements to the real property were designed
to some extent at least for a commercial activity. The Respondent
accepts business use by the Appellant's wife in respect of
the B & B at 50.8% and, as asserted by the Appellant, at 7.1%
by him for his vending business. That is, the Respondent has
accepted the overall business use of the property at 57.9% but it
does not admit to the relevance of such combined use. Rather, the
Respondent argues that, on a plain reading, subsection 208(4) is
a bar to the Appellant claiming an input tax credit since
his use of the property is not primarily for business. I
do not accept the Respondent's position that there is a
readily discernible plain meaning construction of this provision
on the facts of this case. However, before explaining my
position, I find it necessary to make further observations on the
personal versus business use of the subject property as advanced
by the Appellant at the hearing and in his submission.
[9] The Appellant and his wife live in
a very gracious four-bedroom home. There are no separate
commercial areas for the B & B activity except as the
Appellant allows from time to time and except as his wife chooses
to use them as such. In such cases, allocating use of the
property between personal and commercial use is difficult.
Factors to consider might include time spent in various areas of
the B & B by guests versus time spent in the same
area by the owners for their personal use. Some spaces will be
necessary for or complement personal enjoyment while at the same
time might be argued to complement the business use of the
property. I have not been provided with the basis for the
Respondent's acceptance of the 50.8% commercial use of the
subject property as a B & B. It must, I assume, reflect a
carving up of various spaces and recognizing in respect of each
such space a personal use versus business use factor. Once such
allocation is made there is, it seems to me, a notional
segregation of space that is attributed 100% commercial usage or
100% personal use as the case may be. In effect the Respondent
has said that 50.8% of the subject property is segregated, 100%,
as commercial use space. [2] I would add that such notionally segregated commercial
use space cannot be recounted as available space for personal use
by anyone. Its use has been fully accounted for.
[10] The Appellant submits that the
segregated commercial use space for the B & B is some 68.5%
of the subject property. This is unreasonable in my view
considering the basis of the allocations he urges. For example,
the large, open, front foyer to the home (436 square feet) is
described by the Appellant as a front reception and display area
90% of which he has designated for business use. This is the
front foyer of their home. The kitchen/dining area is described
to include the Appellant's wife's office and sewing area
and out of a total of some 800 square feet (over 60% of which is
their own kitchen and dining room albeit shared at breakfast with
paying guests when they have them) the Appellant acknowledges
only some 120 square feet as personal. That the Appellant has
designed commercial space to be shared with necessary or
enhancing personal space does not make the space less personal in
its function and use. What is "necessary or enhancing"
personal space is subjective but in the context of this gracious
home designed without any real or apparent separation between
self and guest (other than the upstairs bedrooms and lounge area
totalling 1,345 square feet which afford reasonable separation of
guest quarters) one might expect that much of the remaining space
might be seen as enhancing a chosen personal lifestyle as opposed
to being so heavily weighted to accommodate business needs.
[11] In short, the allocations of business
use advanced by the Appellant are unreasonable in my view. On my
review of the evidence I might have allowed some 2,700 square
feet or some 45% for the B & B. Nonetheless the Respondent
has accepted commercial use of the property of 50.8% for the
Appellant's wife's B & B activities and commercial
use of 7.1% in respect of the Appellant's activities.
Further, it has accepted that the Appellant's wife's use
of the property was not, for the purposes of subsection 208(4),
primarily for personal purposes but the Respondent does
not admit that the use of the property as a whole (by its various
users) is not primarily for personal purposes.[3] Such distinction is not so
readily drawn from the wording of the subject provision of the
Act.
[12] As I have said, accepting that 50.8% of
the property being used for commercial activity by the
Appellant's wife, should mean, or so it seems to me, that
notionally 50.8% of the property has been carved out and accepted
as 100% commercial use space not available to her or anyone
else for any other purpose. In this context the usage
assigned to the Appellant's wife for the B & B
is "spent" which means the portion of the property left
for her or anyone else's personal use is 49.2%. Since
less than one-half of the property is available for the
Appellant's use (personal or otherwise) the bar to ITC claims
in subsection 208(4) does not apply. That is, in this
context, a plain reading of the subject provision does not
support a finding that the subject property "is
primarily for the personal use and enjoyment of the individual or
a related individual". That is the test in the Act.
The Act does not ask if a particular person's use of
the property is more personal than business. It is not the use of
the property by an individual. The Act in this
instance asks if the property is primarily for the
personal use of the Appellant (i.e. the individual accepted as
having made an improvement to the property) and his wife (a
related individual). For the Appellant and his wife, the use of
the property is accepted at 57.9% for business.
[13] I do not mean to be blindly dismissive
of the Respondent's position that the subject provision needs
to be read as asking if the particular person's use of the
property is more personal than business. Perhaps neither that
construction nor the construction I have advanced above is
"plain" in light of the other. Accordingly, I have
considered a hypothetical example of property shared by arm's
length persons in the hope of seeing how the subject provision
might best be construed.
[14] Consider the case of two unrelated
co-owners of real property. Each occupies recognizable, separate
space and each has done and paid for their own improvements. They
may have agreed on how improvements would be accounted for on a
sale of the property. Co-owner "A" spent $100,000.
"A" occupies and improved 50% of the total space all
for business purposes. "B" occupies and improved the
other 50% of the space 95% for personal use. "B" spent
$20,000.00 on the 5% commercial improvements. The property as a
whole is not primarily for personal use. The construction of
subsection 208(4) that I have advanced would give "A"
ITCs on $100,000.00 and "B" ITCs on $20,000.00. The
Respondent would presumably give "A" ITCs on
$100,000.00 and "B" no ITCs.[4] The approach I have advanced helps
persons, who have small relative commercial usage of a property,
ride the coattails of persons with higher relative commercial
usage of the property. Why should co-owned shared property give
such a dramatic benefit to one of the users or conversely why
should such case deprive a commercial user of credits where
another uses a majority of the whole of the shared property for
personal use? The better question might be whether I have
properly defined "the property" in this example. It
seems to me I have not. There are two properties consisting of
one space used by "A" and another space used by
"B". For the purposes of subsection 208(4) the test of
personal use of "the property" must be applied to each
property.
[15] Where a property consists of segregated
spaces as in the above example, treating each segregated space as
a separate "property" for the purposes of subsection
208(4) seems a logical approach to resolving the issue posed by
such example. What if the spaces in question are not actually
segregated spaces? Can "the property" referred to in
subsection 208(4) be a notionally segregated space?
[16] I am forced to consider this question
given the facts of this appeal. The Appellant and his wife have
taken the unusual position that the B & B operated on shared
property is hers and hers alone. I am forced then into this
intellectual maze of how to treat a shared personal property an
undivided part of which is devoted to only one person's
business.
[17] While I was inclined at one point in my
consideration of this appeal to suggest that a shared property,
such as a married couple's home, could not be split into
multiple properties primarily for the commercial use of one and
primarily for the personal use of another, I have come to the
view that this is not only possible but is an appropriate
conclusion on the facts of this case.[5] The subject provision directs itself
to "the property" that the Appellant has improved. If
it is correct to notionally carve up the property as between
personal and business use, it is only a small step to accept that
"the property" the Appellant has improved is the
notionally segregated property that excludes his wife's
B & B. This case is based on segregated uses.
Portions of this "home" have been accepted as being
carved out for a B & B operated solely by the
Appellant's wife. The Appellant's wife then must be seen
as having one property consisting of two portions: her home
portion (shared by her and the Appellant) which is 42% of the
whole property and her B & B portion which is 51% of the
whole property. The portion of her property used for her and the
Appellant's personal use is 42/93rds which is to say her
property is not primarily for her and the Appellant's
personal use. Similarly, the Appellant must be seen as having one
property consisting of two portions: his home portion (shared by
him and his wife) which is 42% of the whole property and his
vending business portion which is 7% of the whole property. The
portion of his property used for him and his wife's personal
use is 42/49ths which is to say his property is primarily for his
and her personal use.[6] This approach is consistent with the language of the
subject subsection and affords a result that makes the most sense
to me in the context of a shared property an undivided part of
which is used in the operation of a sole proprietorship. I am
satisfied that the segregation of uses in this case directs me to
find that the Appellant, as a person making an improvement to the
subject property, is not entitled to ITCs as "the
property" he improved (his home exclusive of the B & B
operated solely by his wife) was primarily for his and his
wife's personal use. Accordingly the appeal is dismissed on
this point.
[18] As to the guard dog expenses, I am not
satisfied that the Appellant has met the required burden of proof
to claim a portion of food and veterinary care expenses for his
pet dogs. The Appellant testified that on a prior break-in at a
former home, the police had said that dogs were a good deterrent
against theft. Since the Appellant carried large sums of coinage
around for deposit while making collection rounds at his vending
machines, he kept the dogs in his vehicle to deter potential
robberies. I accept his testimony that the dogs in this setting
would bark at strangers approaching the vehicle but these were
not trained guard dogs. They were friendly pet golden retrievers
that would not bother guests at the B & B. That
they were put to some use as they accompanied their owner while
he serviced his business does not detract from their primary
reason for being kept which was as pets. He would have incurred
100% of the subject expenses regardless of the incidental
business benefit derived from having his pets accompany him on
business. As stated in the Respondent's submission there was
also evidence at the hearing that the Appellant had one of these
dogs since 1982 which was before he even started the vending
machine business. It was owned as a pet. It was replaced by a
similar dog in 1998 when the original dog died. In any event, I
am not satisfied that any expenses were incurred here as part of
the Appellant's business. Accordingly the appeal is dismissed
on this point as well.
Signed at Ottawa, Canada, this 12th day of September 2003.
Hershfield, J.
Email this Content