Citation: 2013 TCC 337
Date: 20131025
Docket: 2012-1301(GST)G
BETWEEN:
GESTION FORTIER INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Hogan J.
[1]
On March 1, 2011, the
respondent, through the Minister of National Revenue (the Minister), assessed
the appellant pursuant to Part IX of the Excise Tax Act (the ETA),
R.S.C. (1985), c. E-15, for the periods of June 1, 2006, to June 31, 2006,
January 1, 2007, to March 31, 2007, October 1, 2007, to March 31, 2008,
July 1, 2008, to September 30, 2008, January 1, 2009, to March 31, 2009,
October 1, 2009, to December 31, 2009, and April 1, 2010, to June 30, 2010 (the
period in question). This assessment resulted from two distinct elements.
First, the Minister submits that Gestion Fortier Inc. (Gestion Fortier) was not
eligible for the input tax credits (ITC) it had claimed regarding, first,
the purchase of a motor home and second, for maintenance of said motor home.
With regard to the ITC, the assessment was made outside the normal assessment
period set out in the ETA. It is therefore the Minister's burden to prove that
the appellant made a misrepresentation of the facts, whether by neglect,
carelessness or wilful default. Essentially, the Minister alleges that the
motor home was purchased for personal, not commercial, purposes.
[2]
Second, the Minister
submits that Gestion Fortier should
have collected taxes on the benefits represented by Réal Fortier's use of the
company's vehicles for his personal travel. With regard to these benefits, the
assessment was made during the normal assessment period. It is, therefore, the
appellant who must show that the assessment is without merit.
[3]
On
April 20, 2006, the appellant acquired a 2001 Vantare Vogue motor home for US$245,000 (around
CAN$260,000). According to Mr. Fortier, a friend had told him that the
motor home was for sale. A month and a half after receiving this information,
Mr. Fortier purchased it, through the appellant.
[4]
According to Mr.
Fortier's testimony, Gestion Fortier sometimes [translation]
"sold rolling stock". This represented a very small part of its
activities and, generally, trailers were sold, all done by word of mouth. Mr.
Fortier estimated the actual value of the motor home at the time of purchase
was $350,000 to $380,000.
[5]
The purchase was made
with a line of credit from the Caisses Desjardins. In 2006, Mr. Fortier invested
$28,000 to $30,000 to improve the motor home. The work on the motor home was merely
to make it more attractive looking; no essential repairs were required. The
total cost of the motor home was therefore around $295,000.
[6]
According to Mr.
Fortier, over the winter, he rented the motor home for two or three weeks
total. The motor home was parked at a campground in Florida every winter. Mr.
Fortier admitted that he spent two to three months per year in Florida and claimed that he lived in a condo. Occupation of the condo was not proven.
According to Mr. Fortier, the rest of the year, meaning other than in the
winter, the motor home was parked in a warehouse belonging to Gestion Fortier.
[7]
Certain discrepancies
were identified with regard to the motor home rentals. First, payments were
made directly to Mr. Fortier. The amount of these payments was then deducted
from Mr. Fortier's advances from the company to reflect the transactions in the
company's accounting. Additionally, the rental contracts were rather incomplete
(no proof of insurance or driver's licence, etc.), Mr. Fortier explained that
he only leased to friends who did not even drive the motor home and who had
sufficient insurance.
[8]
The motor home was
decorated with metal plates with Mr. Fortier's and his wife's first names. Mr.
Fortier explained that friends had given him these plates and engraved them,
for the purpose of making the motor home more [translation]
"attractive and different".
[9]
The evidence shows that
Gestion Fortier was a member of the Fédération québécoise de camping et de caravaning,
meaning it benefited from a discount on insurance for the motor home. Mr.
Fortier stated that Gestion Fortier was only a member in order to benefit from
the discount. The insurance policy had a special proviso that commercial
activities, including commercial rental, was not covered. In short, the
insurance only covered personal use.
[10]
The evidence also
showed that Mr. Fortier had already rented a motor home before acquiring the
one in question in this case. This was therefore an activity with which he had
some experience.
[11]
Mr. Fortier submits
that in 2008 or 2009—the evidence is unclear on this—he asked Mr. Turgeon to
help sell the motor home. Mr. Turgeon is an acquaintance of Mr. Fortier. Apparently,
at the time the mandate was given, Mr. Turgeon had just started working as a
self-employed worker, buying motor homes. The mandate consisted of trying to
find a buyer, but Mr. Fortier did not provide any details about the asking
price or Mr. Turgeon's compensation.
[12]
The motor home is an
American brand and not very well known in Quebec. For example, the motor home
in question is not listed in the reference books used by buyers. Mr. Turgeon
explained during his cross-examination that a buyer's first question is always
the brand. It is surprising that Mr. Fortier had not thought of this impediment
during the month and a half he considered purchasing it. It seems that the lack
of popularity of the brand and the model in question is a factor that could
prevent resale. Moreover, Mr. Fortier seems like an experienced businessman. I
am sure he was aware of this fact.
[13]
The evidence shows that
it was only in 2011 that proactive steps were taken to sell the motor home. Ads
were taken out in newspapers and specialized magazines and on the Internet; the
motor home was put up for sale at two auctions and on consignment with VR
Émond. These steps were allegedly taken on Mr. Turgeon's advice, after he
realized how much trouble he was having selling it by word of mouth.
[14]
In 2012, the motor home
was finally sold for $125,000.
[15]
Counsel for the
appellant cited cases that hold that when the Court must decide an issue that
falls in a grey area, such as whether there has been a capital gain or business
income, the burden on the Minister is heavier if he seeks to justify
assessments outside the normal assessment period. In case of doubt, the
appellant has the benefit and the appeal must be allowed.
[16]
I have reviewed this
issue in Cameron v. The Queen,
the relevant passages of which state the following:
20 The
starting point is Regina Shoppers Mall Limited v. The Queen, a Federal
Court decision. The central issue in that case was whether the taxpayer should
have included the profit of the sale of a lot in its income tax return as a
capital gain or as income. The taxpayer had included it as a capital gain, and
the Minister found that there was a misrepresentation that allowed him to
assess after the normal period. Addy J., at paragraph 10 of the decision,
explained that when a taxpayer files an income tax return on what he believes
to be the proper method, after thoughtful, deliberate and careful assessment,
there can be no misrepresentation. This position was accepted by the Federal
Court of Appeal at paragraph 7 of its decision.
21 Moreover, at paragraph 15 of his
judgement, Addy J. explained that the act does not impose on taxpayers the duty
to report in a manner which the Minister prefers. If the taxpayer carefully
considers his position and does not attempt to deceive the Minister, there is
no misrepresentation.
22 Petric v. The Queen shows the courts have broadly interpreted the principle propounded
in Regina Shoppers Mall. That case was not about an issue of capital
gain or income, but the fair market value of the property. Madam
Justice Lamarre stated:
38 …The matter of fair market value is a controversial issue, to be
settled on the basis of the interpretation of the facts in evidence, as is the
question of whether proceeds of disposition should be characterized as income
or as a capital gain (Regina Shoppers Mall Limited) or of whether
corporations are associated (1056 Enterprises Ltd.)…
23 And later,
she added:
40 Although
fair market value is ultimately a question of fact to be resolved by the trier
of fact, it is mostly a question of opinion answered by analysing different
methodological approaches. Certainly the Minister is entitled to disagree
with a taxpayer's view of fair market value and can reassess, within the
limitation period, on the basis of his own evaluation. However, where the
issue is whether the Minister should be allowed the benefit of an exception to
the application of the limitation period, it must be shown that the taxpayer
made a misrepresentation in filing his or its tax return. In the case at
bar, I am of the view that unless it can be said that the appellants' view of
fair market value was so unreasonable that it could not have been honestly
held, there was no real misstatement.
[Emphasis added]
24 In Savard v. The Queen, the
Tax Court of Canada stated again that taxpayers have the right to disagree with
the Minister in their interpretation of the Act, without this necessarily being
considered a misrepresentation. Tardif J. stated:
78
Does a person have to include, when he or she fills
out a tax return, everything that might be income, based not on his or her own
analysis but on speculation as to what the Agency might want to attribute to
him or her? I do not believe so. In this case,
there was enough information to justify the interpretation adopted by the
Appellant: that he had no obligation to declare the payments of fees by his
employer as taxable benefits. In fact, the debate as to who really benefited
from the services for which the fees were paid is clear evidence of how complex
the case was and how much confusion surrounded it.
[Emphasis added]
25 Recently, in Chaumont v. The
Queen, the taxpayer's interpretation was clearly incorrect, but the fact he
had acted in good faith lead the Court to find that there was no
misrepresentation. Tardif J. stated:
15
Although the appellant's submissions were unusual and even
surprising, they were neither far-fetched nor unreasonable enough for it to be
concluded that he made a wilful default or mistake with the intent to escape
from his Canadian tax obligations.
16
Firstly, he expressed his objection, and secondly, he took
initiatives to show that his allegations had merit, while taking into
consideration the fact that certain income, specifically, pension income paid
to a citizen who lives in a country other than the one that pays the pension,
is not taxed.
…
18 To
conclude that the appellant's conduct was a wilful default or that it
constituted a sufficient error to permit the Minister to assess beyond the
normal period, would affect any taxpayer's right to contest the merits of an
assessment, and would cause the limitation period imposed by Parliament to be
essentially theoretical.
26 In the light of the above-noted
decisions, it appears that adopting a thoughtfully considered position that
contradicts the Minister's position does not in itself mean the taxpayer made a
misrepresentation that would allow the Minister to assess outside the normal
period.
[17]
In the present case,
there is no grey area. The respondent was able to prove that the appellant
purchased the motor home for personal reasons and not for the purpose of
reselling it.
[18]
The overall evidence
shows that no serious action was taken to sell the motor home before 2011. It
is strange that Mr. Fortier was so quick to make improvements only to then not
be proactive about reselling it. I do not believe that a seasoned businessman
would wait so long before putting ads in the newspapers and on the Internet. If
his true goal was to flip the motor home, more concrete steps would have been
taken than mere word of mouth. Added to that is the evidence suggesting a more
private than commercial use of the vehicle. In short, for all these reasons, I
believe that the Minister has met his burden of proving the appellant's
misrepresentation due to negligence. The evidence shows that the appellant did
not have the intention to resell the motor home when he claimed the ITC. Having
reached this conclusion, I feel that the Minister has met his burden of proving
the existence of circumstances that allow for an assessment to be made outside
the normal assessment period.
[19]
Mr. Fortier described
the travel for which he used the company's vehicles. He explained that he had
to go to the various buildings owned by the company on a daily basis, mainly to
render services to the tenants and ensure that the warehouses were secure. He
also had to go to the bank, make purchases, attend business meetings, etc.
[20]
A travel log was provided
as evidence. This log was created at the request of the auditor to illustrate a
typical year, because there is no contemporaneous log. The log provided was
therefore created from recollections, credit card statements, etc. Its
probative value is therefore not very high.
[21]
Mr. Fortier alleges
that his personal use of the company's vehicles did not exceed 10%. He stated
that he used his spouse's vehicle for his personal transportation. Indeed, as
of 2008, he no longer had a personal vehicle in his name, and simply used his
spouse's.
[22]
As to the issue of the
benefits related to the use of the vehicles, Mr. Fortier has the burden to show
that the Minister erred in his assessment. Since the periods during which these
benefits were received were within the normal assessment periods, the parties
agree on this issue. Mr. Fortier provided unconvincing evidence, based on his
testimony and the log reconstructed from his memory of events. Since he did not
have a personal vehicle in his name, it would not be surprising if Mr. Fortier
had used the company's vehicles for his personal travel.
[23]
In short, Mr. Fortier was
unable to prove that the Minister erred when making the assessment regarding
the benefits related to the use of the vehicles.
[24]
For all these reasons,
the appeal is dismissed, with costs.
Signed at Ottawa, Canada, this 25th day of October 2013.
"Robert J. Hogan"
Translation certified true
on this 26th day of February 2014.
François Brunet,
Revisor
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