Date: 20000727
Docket: 1999-5124-GST-I
BETWEEN:
TUSKET SALES & SERVICE LIMITED,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Hamlyn, J.T.C.C.
[1]
This is an appeal with respect to an assessment under Part IX of
the Excise Tax Act (the "Act") for the
period January 1, 1993 to February 29, 1996, by Notice of
Assessment No. 01CB0202152 dated July 17, 1996.
[2]
The Appellant is a corporation involved in the sale of new and
used motor vehicles.
[3]
Between 1994 and 1995, the Appellant sold 14 vehicles to one
Vaughn Pictou ("Pictou"), a status Indian. The
Appellant accepted some trade-in vehicles. Pictou did not charge
GST on these trade-in vehicles.
[4]
Pictou operated a gas bar and convenience store business on the
Acadia Reserve in Yarmouth County, Nova Scotia.
[5]
The Minister of National Revenue (the "Minister") has
disallowed the input tax credits claimed by the Appellant.
[6]
In assessing the Appellant, the Minister relied on, inter
alia, the following assumptions that were accepted by the
Appellant's counsel:
6(b) the
Appellant is a GST registrant with GST Registration
No. 105 425 276;
6(c) the
Appellant was a corporation involved in the sale and repair of
new and used motor vehicles;
6(d) the
Appellant is required by the Excise Tax Act, R.S.C. 1985,
c. E-15, as amended to file its GST returns on a quarterly
basis;
6(e) during
the period under appeal the Appellant sold no less than 14 motor
vehicles to Vaughn Pictou, and as part of these transactions took
trade-ins of motor vehicles, all of which is detailed on the
first page of the Notice of Appeal;
6(f) in
filing its tax returns for the period under appeal the Appellant
claimed notional input tax credits on vehicles taken as a
trade-in from Vaughn Pictou. The details of the amounts
claimed are listed in the table on the first page of the Notice
of Appeal under the heading "Disallowed Notionals";
6(h) the
Appellant did not pay GST to Mr. Pictou in respect of the
vehicles he traded in and which are detailed on page one of the
Notice of Appeal and the Appellant did not acquire documentation
from Mr. Pictou indicating that GST was paid;
6(i) at
no time did Mr. Pictou attempt to register for purposes of the
Act.
[7]
The following assumption was not accepted by the Appellant's
counsel:
6(g)
Throughout the period under appeal Vaughn Pictou was involved in
various profitable commercial activities, including the buying
and selling of motor vehicles, with annual sales exceeding
$30,000.
ISSUE
[8]
The issue is whether the Appellant is entitled to claim notional
input tax credits on motor vehicles traded in by Pictou in the
period under appeal.
ANALYSIS
[9]
Section 165 of Part IX of the Act provides that every
recipient of a taxable supply made in Canada must pay to the
Crown a tax equal to 7% of the consideration for the supply.
Liability for GST arises from the supply of goods and services
made in the course of carrying on a commercial activity. The
definition of "supply" in subsection 123(1) of the
Act is quite broad and includes any sale, transfer,
barter, lease, gift or disposition of property, any provision of
property or a service, and any agreement to provide property or a
service. The definition of "commercial activity" refers
to the following three distinct activities:
1.
A "business" carried on by a person other than a
business carried on by an individual, a personal trust or a
qualifying partnership without a reasonable expectation of
profit.
2.
An adventure or concern in the nature of trade other than an
adventure or concern in the nature of trade carried on without a
reasonable expectation of profit.
3.
The making of a supply of real property, including anything done
by the person in the course of or in connection with the making
of the supply.
[10]
"Property" means any property, whether real or
personal, movable or immovable, tangible or intangible, corporeal
or incorporeal, and includes a right or interest of any kind, a
share and a chose in action, but does not include money.
Subsection 240(1) provides that every person who makes a
taxable supply in Canada in the course of a commercial activity
is required to be registered for GST. Specifically excluded from
this general requirement to register are small suppliers, persons
whose only commercial activity is selling real property,
otherwise than in the course of a business, and non-residents who
do not carry on any business in Canada. In order to qualify as a
small supplier throughout any calendar quarter and the following
month, subsection 148(1) provides that the total taxable supplies
made by the person in the four previous calendar quarters cannot
exceed $30,000. The Minister asserts that Pictou was not a small
supplier and was required to register for GST purposes.
[11] The
notional input tax credit mechanism, before it was eliminated,
deems GST to have been paid by a registrant, in certain
circumstances, where the registrant has acquired used tangible
personal property from a person not required to charge tax. This
enabled the registrant to claim notional input tax credits in
respect of these purchases to the extent that they were used for
consumption, use or supply in a commercial activity. Section 176
formerly read as follows:
(1)
Subject to this Division, where
(a)
used tangible personal property is supplied in Canada by way of
sale after 1993 to a registrant, tax is not payable by the
registrant in respect of the supply, and the property is acquired
for the purpose of consumption, use or supply in the course of
commercial activities of the registrant, or
(b)
used tangible personal property is supplied in Canada by way of
sale before 1994 to a registrant, tax is not payable by the
registrant in respect of the supply, and the property is acquired
for the purpose of supply in the course of commercial activities
of the registrant.
for the purposes of this Part, the registrant shall be deemed
(except where the supply is a zero-rated supply or where section
176 applies to the supply) to have paid, at the time any amount
is paid as consideration for the supply, tax in respect of the
supply equal to the tax fraction of that amount.
[12] During
the period in question the Appellant sold 14 motor vehicles to
Pictou, a status Indian. In 12 of these transactions the
Appellant accepted trade-ins which were applied against the
purchase price. The vehicles purchased by Pictou were delivered
to Pictou on a reserve. No GST was payable by Pictou on the
purchases. Pictou did not charge GST on the trade-ins. The
Appellant claimed input tax credits on the trade-ins pursuant to
section 176 of the Act.
[13] The three
managers and sales persons of the Appellant who dealt with Pictou
in relation to the purchases, including the trade-ins, gave
evidence as to how Pictou structured and used his purchases. In
summary, six of the vehicles purchased were new vehicles, three
of those vehicles were traded back to the Appellant. Extended
warranties were obtained on two of the new vehicles. On each
purchase Pictou and the Appellant went through a formal delivery
check list that was the Appellant's normal custom in retail
as opposed to wholesale transactions. A five year service package
was purchased by Pictou in relation to the purchase. One purchase
had a number of personal choices by Pictou included in the
vehicle. In relation to two of the purchases, the vehicles were
traded back to the Appellant because Pictou found one of the
vehicles was not comfortable for his back.
[14] The
Appellant's witnesses stated that the Appellant dealt with
Pictou as a retail customer who had a preference to trade
vehicles on a continuing and frequent basis, and because of
Pictou's status as a native, he was able to do without the
imposition of GST, and this was an incentive to trade. Pictou
also apparently bought and traded vehicles with other dealers in
the same area on the same basis.
[15] There was
some evidence towards the end of the period in question
indicating Pictou had been assessed under the Excise Tax
Act in relation to the vehicle transactions and there was
some evidence to indicate that after the period in question
Pictou held himself out as a car dealer.
[16] Pictou
and his family, during the period in question, were seen driving
the several vehicles around the community where Pictou lived and
the Appellant carried on business. In this same community, Pictou
carried on a gas bar and convenience store business that
produced, in the view of one witness, ample resources for Pictou
to trade vehicles as he did.
[17] The best
evidence as to whether the several vehicles purchased or traded
by Pictou were part of a business of Pictou should have come from
Pictou. He was not offered as a witness by the Appellant who had
the primary onus of proving its case nor, indeed, did the
Respondent call Pictou in response to the Appellant's
evidence in relation to Pictou.
CONCLUSION
[18] On
balance and notwithstanding the primary evidence deficiency by
the Appellant, I have concluded that Mr. Pictou, in relation to
the vehicle transactions with the Appellant, used all those
vehicles as personal use vehicles.
DECISION
[19] The
appeal is allowed and the assessment is referred back to the
Minister of National Revenue for reconsideration and reassessment
on the basis that in relation to the subject transactions the
Appellant can claim a notional input tax credit pursuant to
subsection 176(1) of the Act. Mr. Pictou did not make a
taxable supply of vehicle trade-ins in the course of a commercial
activity and he was not required to charge GST on the trade-in
vehicles.
Signed at Ottawa, Canada, this 27th day of July 2000.
"D. Hamlyn"
J.T.C.C.
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