Gamache v. The Queen, docket 1999-1803-GST-I (Informal Procedure)

Date: 20000731

Docket: 1999-1803-GST-I

BETWEEN:

ANDRÉ GAMACHE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Tardif, J.T.C.C.

[1] The point for determination is whether the appellant is entitled to claim as an input tax credit ("ITC") all the GST he paid on the price of supplies purchased for the purpose of converting his residence into a "bed and breakfast".

[2] The appellant adduced very elaborate evidence. He explained the background to his plan to build and operate a bed and breakfast. The Court was able to observe from numerous photos that the project was an ambitious one, well structured and well directed.

[3] The appellant also described his future projects and his plans for a possible expansion, adding that this dispute had held up their implementation.

[4] As to the validity of his appeal, he contended that, at the relevant time, more than 90 percent of his building converted to a bed and breakfast was intended for clients.

[5] He noted in this connection that the areas occupied exclusively by his live-in partner and he were very small, and maintained that virtually all the areas and rooms fitted up on the three floors had been designed and developed for the well-being and comfort of clients.

[6] To support and substantiate his assessment of things, the appellant said that, at the start of the project, he had even lived with his live-in partner in a tent during the summer on the lot next to the bed and breakfast in order to accommodate clients and maximize his project's profitability.

[7] In her capacity as monitoring officer for the Fédération des agricotours du Québec, Odile Bélanger visited the premises. She testified that the bed and breakfast operated by the appellant met the Fédération's standards and that it offered five accredited rooms. She also noted that Quebec tourists were increasingly looking for luxury, services and facilities when choosing a bed and breakfast.

[8] She described the bed and breakfast in question as a private residence fitted up to receive tourists, with a maximum of five rooms being available. She also noted that a bed and breakfast generally has common areas shared by guests and members of the operator's family, the quality and surface area of which areas vary from one bed and breakfast to another. She also stated that the Fédération des agricotours du Québec characterized any establishment with more than five rooms as an inn.

[9] The photographs filed in evidence clearly illustrated the extent of the project carried out by the appellant. He began his project with a modest residence and turned it into an imposing building, which clearly required significant investment and considerable work.

[10] This appeal concerns the refund of the ITCs with respect to the carrying out of the project.

[11] To be entitled to all the ITCs, the appellant had to show that 90 percent of his bed and breakfast was intended for commercial occupancy, in which case the operation in question would be deemed to be entirely carried on in the course of commercial activities.

[12] Can it be concluded from the evidence adduced by the appellant that during the relevant period 90 percent or more of the bed and breakfast as fitted up was intended for potential tourist clients?

[13] Danièle Sénécal and Sonia Soucy, both first-hand witnesses of the bed and breakfast's development, testified that the space reserved for the appellant and his live-in partner was very limited and represented in all less than 10 percent of the area of the complex as a whole, the remainder being set aside for clients.

[14] Manon Soucy, a tax audit technician who, along with Laurent Thériault, was responsible for the appellant's file, also testified with respect to the assessment of the operation. She explained that she had visited the appellant's bed and breakfast. She described the complexities with which she had had to deal in order to assess and define the so-called commercial activities of a bed and breakfast and, in particular, to distinguish those activities from the personal activities.

[15] Having observed the actual purpose of the building in question, she explained, she had ruled out the economic, solely income-based approach, which would have rendered the appellant's refund claim inadmissible. Instead, she took stock of the premises, assessing the available space reserved for clients, looking at the common areas and, lastly, visiting the premises that could be defined as private. Ms. Soucy admitted that this approach was not scientific nor without its shortcomings but said it was one essentially guided by common sense, experience and reasonable use.

[16] According to Ms. Bélanger, a bed and breakfast is a private home fitted up for commercial purposes in which it is possible to receive clients in a maximum of five bedrooms.

[17] It is clear from this that one of the features that attracts clients is no doubt the specific context of a private ambience and atmosphere, enabling users to appreciate local colour and values in a rather familial setting.

[18] Ms. Soucy visited and examined the premises fitted up on the three floors. She determined that the first floor was for the exclusive use of clients, the third for the personal use of the appellant and his live-in partner, and the second for both clients and the owners. She therefore ultimately set the commercial use at 50 percent.

[19] The appellant contended for his part that more than 90 percent of the space at his bed and breakfast was commercial and criticized the respondent's unscientific approach in, among other things, drawing conclusions from the mere presence of sheets on a washing machine.

[20] The evidence adduced by the appellant was scarcely any more scientific and consisted mainly of the testimony of Ms. Sénécal and Ms. Soucy, both of whom contended that the vast majority of the available space was accessible to clients and dedicated to their comfort and well-being. She described the private areas as being strictly minimal and marginal.

[21] I do not believe it is possible to draw a clear distinction between the commercial, private and common spaces. To do so, I think it would be necessary to use the so-called economic method to illustrate, through income, the annual vacancy rates. This would unequivocally establish that the common spaces were used in by far the greatest proportion by the clients. Thus the essentially mathematical approach could lead to a conclusion more consistent with the actual situation. In the instant case, this approach was ruled out by both the respondent and the appellant himself, particularly since the appellant's bed and breakfast was just starting up.

[22] I do not believe that valid conclusions respecting the commercial use of a bed and breakfast can be drawn from the operators' plans, intentions and predictions. Although the respondent's approach was not scientific, I believe it was appropriate and reasonable in the circumstances and context at the time it was used.

[23] The burden of proof was on the appellant, who, in order to succeed, had to show on a preponderance of evidence that over 90 percent of his building was actually for commercial use.

[24] In actual fact, the appellant did not confirm or substantiate his claims with figures that only he possessed, that is to say, for example, by means of his reservation book, a breakdown of his income, etc. To want, imagine and implement a project which it is hoped will be more than 90 percent commercial is not sufficient for it to be so in actual fact.

[25] The Court acknowledges the appellant's noble intention of eventually implementing a plan under which operations would be carried on year-round through the addition of various services and multiple interest centres. However, this is not the question. This Court must essentially decide whether, at the time of the assessment of it, the business served a commercial purpose in a proportion of over 90 percent. The evidence adduced does not at all lead to this conclusion, but rather establishes that the respondent's assessment was reasonable, realistic and consistent with the condition of the premises and their potential at the time it was conducted.

[26] For these reasons, the appeal is dismissed.

Signed at Ottawa, Canada, this 31st day of July 2000.

"Alain Tardif"

J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 28th day of February 2001.

Erich Klein, Revisor