REASONS FOR JUDGMENT
Smith J.
[1]
Company 9124-0515 Québec Inc. (the appellant),
also known by the company name "Gestion Brière & Fils," is
appealing an assessment issued under the Excise Tax Act (the ETA) in which the
Minister of National Revenue (the Minister) refused to issue it an input tax
credit (ITC) in the amount of $14,025.07 for the purchase of a recreational
vehicle (the vehicle) with a value of $310,000.
[2]
The notice of assessment is dated November 16,
2012, and the assessment period is from May 1 to July 31, 2012.
[3]
The Minister argues that the appellant cannot
claim the ITC in question because the appellant did not acquire the vehicle for
use primarily in commercial activities, as stipulated in paragraph 199(2)(a)
of the ETA.
[4]
The Minister also argues that the appellant
cannot claim the ITC because it is a recreational vehicle that was acquired
exclusively for personal consumption or use by its primary shareholder, and
because the shareholder did not pay consideration equal to the vehicle’s fair
market value, as stipulated in paragraphs 170(1)(b) and (c) of the ETA.
[5]
The appellant, conversely, maintains that the
vehicle was acquired in the course of its usual commercial activities as a
property and building management company, that it was notably used for business
development and canvassing by affiliated businesses, and that, when it was used
for the personal ends of the main shareholder, the use or lease was at fair
market value.
[6]
The hearing was held on April 19, 2016,
under the informal procedure.
[7]
For the reasons that follow, I find that the
appeal should be dismissed.
I. Summary of facts
[8]
According to Éric Brière, the appellant is
a property and building management company that notably holds a housing stock,
motor vehicles, and plumbing equipment which it rents to third parties and
affiliated businesses, including Plomberie Brière Inc. and Robert et Cie Ltée.
It also has a few vehicles for personal use (Mercedes and BMW).
[9]
The shares of the appellant, Plomberie Brière
Inc. and Robert et Cie Ltée. are all 100% held by Mr. Brière, who is also
the president and chief executive officer.
[10]
On July 2, 2012, the appellant acquired an
Itasca-brand vehicle, a 2012 Ellipse, for $310,000. The sales contract
indicated that a recreational vehicle had been traded in at a value of $32,400.
[11]
On July 5, 2012, a few days after that
transaction, Mr. Brière transferred to the appellant a Cameo fifth-wheel
trailer for a sum of $35,000. According to Mr. Brière, this vehicle was
acquired in 2004 and he had used it only for personal reasons, specifically for
[translation] "camping trips
in Quebec" and trips to Florida.
[12]
Mr. Brière claims he had come up with the
idea of using the new vehicle as a mobile office for business development for
affiliated companies and canvassing. In the meantime, the vehicle was also used
for the personal reasons for which he was billed.
[13]
The appellant entered into evidence a series of
invoices demonstrating that it had billed Mr. Brière and his affiliated
companies at a rate of $2000 plus tax for each week of use. He acknowledged
that he had never paid any of these bills and that everything had been resolved
through accounting entries, in particular an end-of-year dividend declaration.
[14]
During the 24-month period following the date of
acquisition, Mr. Brière was billed for 17 weeks of personal use,
while the affiliated companies were billed for about 10 weeks. According
to the kilometrage record, which covers only 13 months, Mr. Brière
made a 3392-km trip to Myrtle Beach, Virginia, in the summer of 2012, a
second trip of 5284 km to Florida, where he left the vehicle from the end of
December to the beginning of March 2012, and finally, a 12,295-km,
nine-week trip in the summer of 2013 to western Canada, specifically Alberta
and British Columbia by way of the United States.
[15]
The kilometrage record indicates that the
vehicle was also used for about 30 trips during that period, the great
majority of which were for a day in the Granby and Sherbrooke region.
[16]
Mr. Brière maintains that the trip to
western Canada in the summer of 2013 was for the purposes of canvassing and
surveying land for his clients and affiliated companies. He claims that the
vehicle was set up for receiving clients. There was a computer, a printer and
audiovisual equipment for making presentations. He claims that there was a
trailer with which he transported models of what he could build. He described
his vehicle as a "show room" equipped for receiving clients.
[17]
He claims that his efforts eventually bore fruit
and, in support of this claim, submitted a series of invoices for services
rendered in British Columbia by Plomberie Brière Inc. to Mécan Hydro (from
September 20, 2013 to October 13, 2013) and in Alberta to Industries
de Moulage Polymax Inc. (from September 3, 2014 to June 10, 2015). These
invoices suggest that Plomberie Brière Inc. provided materials, equipment and
labour during the indicated periods.
[18]
Plomberie Brière Inc. also took steps to obtain
a certification with Albertan authorities in 2014 and 2015. While stating that
he still has an office in Alberta, he explained that the oil crash and economic
recession that followed meant he no longer really had a presence in western
Canada.
[19]
Mr. Brière also said that he was able to
engage in business development by sponsoring someone named Andrew Ranger,
who participated in NASCAR races in Edmonton in the summer of 2013. The vehicle
was parked on the site of this activity, and Mr. Ranger stayed there for
the duration of the event rather than getting a hotel room. This sponsorship
allowed Mr. Brière special access to the event.
[20]
The Minister, on the other hand, argues that the
recreational vehicle that Mr. Brière used for personal reasons for eight
years was traded in for the vehicle in question, which necessarily suggests a
continuity of personal use. The Minister also notes that the exchange value,
meaning the value accepted by the seller of the new vehicle, was different from
the price of the sale from Mr. Brière to the appellant, for unexplained
reasons.
[21]
The Minister observed that the vehicle was
mostly used for personal reasons for the first 12 months, and was
particularly skeptical that the trip to western Canada was for business
reasons, noting that Mr. Brière was accompanied by his spouse and son and
only had three business meetings. He also asserted that the execution of
contracts in western Canada in 2013 and 2014, as described above, was for
existing clients in the Granby region.
[22]
Regarding the sponsorship, the Minister claimed
that it was more of a pastime and a personal pursuit for Mr. Brière.
[23]
Finally, Johanne Hébert of the company VR
St-Cyr, a recreational vehicle rental company, testified for the respondent.
She recognized the vehicle in question and indicated that such a vehicle was
rented from September 1 to June 15 at a rate of $4500 a week and for
the months of July and August for $5000 per week plus taxes.
II. Applicable law
[24]
Subsection 169(1) of the ETA states the
general rule for calculating an ITC by establishing the conditions that must be
met for a registrant to claim an ITC, specifically that the property or service
acquired must be used for consumption, use or supply in the course of
"commercial activities" of the person as defined in subsection 123(1)
of the ETA:
commercial activity of a person means:
a)
a business carried on by the person (other than a business carried on without a reasonable expectation
of profit by an individual, a personal trust or a partnership, all of the
members of which are individuals), except to the extent to which the business
involves the making of exempt supplies by the person,
b)
an adventure or concern of the person in the
nature of trade (other than an adventure or concern
engaged in without a reasonable expectation of profit by an individual, a
personal trust or a partnership, all of the members of which are individuals),
except to the extent to which the adventure or concern involves the making of
exempt supplies by the person, and
c)
the making of a supply (other than an exempt
supply) by the person of real property of the person, including anything done
by the person in the course of or in connection with the making of the supply;
(activité commerciale)
[My emphasis.]
[25]
The concept of a business is also defined in
subsection 123(1) of the ETA:
"business" includes a profession,
calling, trade, manufacture or undertaking of any kind whatever, whether the
activity or undertaking is engaged in for profit, and any activity engaged in
on a regular or continuous basis that involves the supply of property by way of
lease, licence or similar arrangement, but does not include an office or
employment; (entreprise)
[26]
Subsection 170(1) of the ETA then imposes
restrictions on calculating the ITC, namely that no amount shall be included in
respect of the tax payable by the registrant in respect of certain property or
services. This provision stipulates, among other things:
170(1) In determining an input tax credit
of a registrant, no amount shall be included in respect of the tax payable by
the registrant in respect of:
(a) . . .
(a.1) . . .
(b) a supply,
importation or bringing into a participating province of property or a service
that is acquired, imported or brought in by the registrant at any
time in or before a reporting period of the registrant exclusively for
the personal consumption, use or enjoyment (in this paragraph referred to as
the “benefit”) in that period of a particular individual who was, is or agrees
to become an officer or employee of the registrant, or of another
individual related to the particular individual, except where
(i) the
registrant makes a taxable supply of the property or service to the
particular individual or the other individual for consideration that becomes
due in that period and that is equal to the fair market value of the property
or service at the time the consideration becomes due, or
(ii) if no
amount were payable by the particular individual for the benefit, no amount
would be included under section 6 of the Income Tax Act in respect of
the benefit in computing the income of the particular individual for the
purposes of that Act; and
(c) a supply
made in or before a reporting period of the registrant of property, by
way of lease, licence or similar arrangement, primarily for the personal
consumption, use or enjoyment in that period of
(i) where the
registrant is an individual, the registrant or another individual related to
the registrant,
(ii) where the
registrant is a partnership, an individual who is a member of the partnership
or another individual who is an employee, officer or shareholder of, or related
to, a member of the partnership
(iii) where the
registrant is a corporation, an individual who is a shareholder of the
corporation or another individual related to the shareholder, and
(iv) where the
registrant is a trust, an individual who is a beneficiary of the trust or
another individual related to the beneficiary,
except where the registrant makes a taxable
supply of the property in that period to such an individual for consideration
that becomes due in that period and that is equal to the fair market value of
the supply at the time the consideration becomes due.
[My emphasis.]
[27]
In ExxonMobil Canada Ltd. v. Canada, the Federal Court of Appeal
reviewed the criteria for applying paragraph 170(1)(b) of the ETA as
follows.
38. Paragraph 170(1)(b) provides
that no ITCs may be claimed with respect to property or services acquired
“exclusively for the personal consumption, use or enjoyment” of an employee
(the benefit), unless the employee has paid adequate consideration or the
benefit does not otherwise result in an income inclusion pursuant to
section 6 of the ITA (i.e., it is not a taxable benefit).
[My emphasis.]
[28]
Therefore, if the property is acquired during
the registrant’s reporting period, "exclusively for the personal
consumption, use or enjoyment" of an individual who is an
"officer" or an "employee" of the registrant, that
individual must have paid the registrant "adequate consideration" and
no amount should be included as income from that individual under section 6 of
the Income Tax Act
(the ITA).
[29]
Alternatively, paragraph 170(1)(c) of the
ETA provides for a situation in which the property in question is "by way
of lease . . . primarily for the personal consumption, use or enjoyment"
of an officer or shareholder of the registrant. According to this provision, no
ITC can be claimed "except where the registrant makes a taxable supply of
the property in that period to such an individual for consideration that becomes
due in that period and that is equal to the fair market value . . ."
[30]
Subsection 199(2) of the ETA stipulates the
following:
199(2) Where a registrant acquires
or imports personal property or brings it into a participating province for
use as capital property,
(a) the tax
payable by the registrant in respect of the acquisition, importation or
bringing in of the property shall not be included in determining an input
tax credit of the registrant for any reporting period unless the
property was acquired, imported or brought in, as the case may be, for
use primarily in commercial activities of the registrant; and
(b) where the
registrant acquires, imports or brings in the property for use primarily in
commercial activities of the registrant, the registrant is deemed, for the
purposes of this Part, to have acquired, imported or brought in the property,
as the case may be, for use exclusively in commercial activities of the
registrant.
[My emphasis.]
[31]
In Foote v. The Queen, Mr. Justice Angers
presents a detailed overview of the case law on the interpretation of the term
"primarily":
11. The question of the meaning of
"primarily" has been addressed by the courts in previous decisions.
In Mid-West Feed Ltd. v. M.N.R., 87 DTC 394, Chief Judge Couture
(as he then was) of the Tax Court of Canada held that the world
"primarily" means in excess of 50% of the total use of the asset. Mr. Justice
Pratte of the Federal Court of Appeal wrote in Mother’s Pizza Parlour
(London) Ltd. v. The Queen, 88 DTC 6397, that when different
parts of the same building are permanently used for what are considered to be
two different purposes, the most important factor in determining the purpose
for which the building is primarily used is the amount of space in the
building that is used for each one of those two purposes.
12. In the present case, two units of the
three-storey complex are used for the purpose of earning rental income. As much
as I can appreciate the fact that, for the appellant, the object of the project
was to build herself a residence, I cannot ignore the other use of the complex.
A qualitative assessment may nevertheless be relevant. The Federal Court
of Appeal in Burger King Restaurants of Canada Inc. v. The Queen, 2000 DTC 6061,
said that the qualitative evidence must be sufficiently persuasive and must
be capable of being analysed in such a way as to cause the court to displace
the result of the quantitative space test. Although the appellant may have
invested more money in her own unit, the evidence is insufficient to allow this
court to analyse such a possibility and conclude that the qualitative evidence
displaces the result of the quantitative space test. [...]
[My emphasis.]
[32]
The presence of the words "for use
primarily in" in subsection 199(2) of the ETA presupposes an
intention on the day of acquisition. In that respect, the courts have analyzed
the property’s actual use in order to validate the registrant’s original
intention. In the decision Coburn Realty Ltd. v. The Queen, the Court had to determine
whether the appellants were eligible for an ITC after acquiring a vehicle and a
boat under subsection 199(2) of the ETA. Chief Justice Bowman (as he then
was) made the following comments:
9. The words in subsection 199(2)
"... for use primarily in commercial activities..." imply purpose or
intent. The French version of the provision is consistent with this
interpretation:
"... en vue d’être
utilisé principalement dans le cadre de ses activités commerciales."
10. Statements by a taxpayer of his or
her subjective purpose and intent are not necessarily and in every case the
most reliable basis upon which such a question can be determined. The actual
use is frequently the best evidence of the purpose of the acquisition. In 510628
Ontario Limited v. The Queen, 2000 GTC 877 (T.C.C. [Informal
Procedure]), the following was said:
[11] It should be
noted that the expression "for use primarily ..." requires the
determination of the purpose of the acquisition, not the actual use.
Nonetheless, I should think that as a practical matter if property is in fact
used primarily for commercial purposes it is a reasonable inference that it was
acquired for that purpose.
11. I shall turn then to the actual use
that was made of the boat. Mr. Coburn testified that the boat was used
for entertaining clients and for rewarding his sales staff. He stated that the
appellant was seeking to expand its business to cottage country. I accept that
he wished to expand the appellant’s business but I am not persuaded that the
boat was used or was intended to be used primarily for business purposes. Although
I think there was probably an element of business in some of its use, the
evidence of its actual use does not support the conclusion that the primary
purpose of its acquisition was for use in the appellant’s business.
12. The word "primarily" is
generally taken to mean over 50%. The problem is, however, to determine what
one should apply the 51% to: time, number of trips, distance travelled, number
of passengers, length of voyage, the amount of business generated, the number
of potential sales locations visited? All of these factors may have a bearing
but they illustrate the difficulty in applying a mechanical sort of test.
Ultimately, it boils down to a question of judgement and common sense.
13. The appellant put in evidence a number
of pages which he described as a log that his accountant advised him to prepare
after the end of the season. He stated that it was "reconstructed"
but this is not accurate. If something is "reconstructed" it means
that there was something that previously existed that could be reconstructed.
One cannot reconstruct something that never existed in the first place. It is
more accurate to say that the log was created ex post facto or after the
event.
. . .
15. In summary, it seems that this
expensive boat was used largely for entertaining friends and family. There
may have been some element of business but on only three trips were clients
taken on board and of the seventy or so agents that worked for the appellant
only about four were taken out on the boat, the most frequent passenger being
Mardi Friesz, Mr. Coburn’s spouse.
16. While I accept that the fulfilment of a
business purpose can be a pleasurable experience, as it undoubtedly was here, I
do not think the evidence in this case, including the log prepared after the
end of the season, establishes that the principal purpose of acquiring the boat
was primarily for use in the appellant’s commercial activities. There is no
evidence that many of the high earning agents were rewarded by cruises or that
clients or potential clients were entertained or shown cottages or homes along
the St. Lawrence.
17. In the event that the business use
increases to the point at which it can be said to be the principal use, there
is some relief available in a subsequent year to the appellant under subsection 199(3)
of the ETA. That point had not been reached in 2003. The evidence would have to
be more persuasive and complete than it has been here.
[My emphasis.]
[33]
In 9180-2801 Québec Inc. v. The Queen, Mr. Justice Lamarre
(as he then was) had to determine whether the appellant could claim an ITC on
the purchase of a vehicle that was supposedly used by a shareholder with a 60%
share for commercial activities:
11. . . .The test imposed by subsection 199(2)
ETA, as such, does not specify an evaluation period. This legislative provision
requires that the vehicle be acquired for the purpose of being used primarily
for commercial purposes. Therefore, the appellant would have had to show
that this was the intention at the time of acquisition.
[My emphasis.]
[34]
Based on the reasoning in Coburn, the
Court rejected the appellant’s ITC claim. The judge explained:
13. In the present case, the evidence
does not show that based on the actual use of the motor vehicle, the intention
at the beginning was to use it primarily for commercial purposes. Nor did
the appellant submit sufficient evidence establishing that this was the primary
reason for the purchase at the time of acquisition. In fact a careful review
of the use of the vehicle indicates that in the months following its purchase,
for all intents and purposes, it was used solely for personal reasons. It
was only in April, May and October 2009 that the business use
significantly surpassed the personal use. In all the other months, except for
November when the commercial use slightly exceeded the personal use, personal
use predominated (see summary of travel records, Exhibit I-1, Tab 6).
[My emphasis.]
III. Analysis
[35]
Mr. Brière’s testimony confirms, in the
eyes of the Court, that he is a motivated businessman who has had some success
as an entrepreneur. But that is not the issue.
[36]
All of the evidence must be reviewed to
determine whether, during the periods of personal use of the vehicle, Mr. Brière
paid a consideration equal to the fair market value. Alternatively, it must be
determined whether the appellant acquired the vehicle for use primarily in
commercial activities.
[37]
In this context, it is difficult to disregard
the fact that, when the vehicle was acquired, Mr. Brière already possessed
a recreational vehicle that he had been using for purely personal reasons for
almost eight years. He stated that this vehicle had never been used for
commercial purposes and he had never rented it to his affiliated companies.
[38]
Furthermore, that recreational vehicle was
traded in during the appellant’s purchase of the vehicle in question, though
the transfer from Mr. Brière was carried out a few days later. The
trade-in value was $33,400, while the contract of sale from Mr. Brière to
the appellant a few days later was for $35,000. No explanation was offered for
the difference in price.
[39]
As for the use of the vehicle in the 12 months
following its acquisition, the appellant submitted a kilometrage record to the Minister
in late September 2013, several months after the Minister requested it.
This delay raises doubts about the authenticity of the record and gives the
clear impression that it was created by memory after the fact.
[40]
Even assuming that the record is authentic for
the purposes of this analysis, I conclude that the vehicle was mostly used for
personal purposes for the 12-month period following the acquisition date. In
fact, nearly 70% of its trips were for personal reasons, and no explanation was
offered for the multiple one-day trips between the head office and neighbouring
cities to visit "clients" during that period.
[41]
In addition to being used for a personal trip of
about four weeks almost immediately after its acquisition, the vehicle was
parked in a recreational vehicle lot in Florida so that it would be available
for Mr. Brière and his family for a period of almost ten weeks during the
winter.
[42]
The vehicle was then used for almost nine weeks
(summer 2013) on a trip to western Canada, which was about 12,295 km
and passed through the United States. Mr. Brière was accompanied by his
spouse and his son. I am far from convinced that this trip was for business
purposes, given the presence of family and how few meetings were held.
Furthermore, the sponsorship of Andrew Ranger suggests that Mr. Brière
was instead pursuing his hobby or personal interest in NASCAR racing. In any
case, for the purposes of these proceedings, it is not necessary for the Court
to arrive at a definitive conclusion regarding the use of the vehicle during
the summer of 2013.
[43]
The appellant claims that it is eligible for an
ITC following the purchase of the vehicle under paragraph 170(1)(b) or (c)
of the ETA. However, applying these provisions is problematic for several
reasons.
[44]
Paragraph 170(1)(b) of the ETA assumes,
first of all, that the property in question was acquired by the registrant
"exclusively for the personal consumption, use or enjoyment" of an
individual who is an officer or employee of the registrant. The appellant,
though, is claiming the opposite, and maintains that the vehicle was acquired
as part of its commercial activities as a property and building management
company. This is a flagrant contradiction.
[45]
The application of paragraph 170(1)(c) of
the ETA is also problematic; even if the appellant provided the vehicle
"by way of lease" for Mr. Brière’s consumption or use during the
weeks for which he was billed, I am far from convinced that there was a taxable
supply for consideration equal to the fair market value of the property. In
that light, I prefer the testimony of Ms. Hébert of VR St-Cyr, since
she has no interests in this case. I therefore find that the taxable supply was
for consideration far below the fair market value.
[46]
Given my findings on the appellant’s intention
when the vehicle was acquired, I find that it is not eligible for an ITC for
the period in question, since the vehicle was mostly used for the personal
reasons of its main shareholder. It is therefore my opinion that the appellant
did not acquire the vehicle "for use primarily in commercial activities of
the registrant" within the meaning of paragraph 199(2)(a) of the ETA.
[47]
Finally, I would add that I am not disregarding
the possibility that Mr. Brière came up with the idea of using the new
vehicle as a mobile office for business development for affiliated companies
and for canvassing, especially in western Canada. That said, I believe that
this was just a nascent idea when the vehicle was purchased.
IV. Conclusion
[48]
To conclude, I agree with the respondent’s
analysis, which indicated that the appellant is not eligible for an ITC because
the vehicle was acquired exclusively for Mr. Brière’s personal consumption
and use and he did not pay adequate consideration (and there is no evidence to
determine whether he declared a benefit under section 6 of the ITA) within
the meaning of paragraph 170(1)(b) of the ETA.
[49]
Furthermore, if I accept the appellant’s claims
that the property was supplied by way of lease as per paragraph 170(1)(c)
of the ETA, I must also agree with the respondent’s analysis that the appellant
is not eligible for an ITC because Mr. Brière did not pay consideration
equal to the fair market value.
[50]
Since I have concluded that the vehicle was
acquired exclusively, or at least primarily, for Mr. Brière’s personal
consumption or use, it is evident that I reject the appellant’s argument that
the vehicle was acquired in the course of its normal commercial activities as a
property and building management company or that the vehicle was acquired
"for use primarily in commercial activities of the registrant" within
the meaning of paragraph 199(2)(a) of the ETA.
[51]
I have arrived at these conclusions having
conducted a quantitative analysis (in examining the kilometrage record and the
weeks of personal use) as well as a qualitative analysis, considering the use
of the previous recreational vehicle immediately prior to the purchase of the
vehicle in question.
[52]
The respondent submitted as evidence a brochure
with photos of the vehicle in question. It is clearly a luxury recreational
vehicle which could only be financially profitable if it was leased for
consideration equal to the fair market value, which was not the case here.
[53]
The burden of proof was on the appellant. It had
to convince the Court on the balance of probabilities that the vehicle was used
by or leased to Mr. Brière for adequate consideration, or was acquired for
the purpose of its commercial activities during the period in question, from
May 1 to July 31, 2012. I find that the appellant did not reverse
this burden.
[54]
For the reasons above, the appeal is dismissed
without costs.
Signed at Winnipeg, Manitoba, this 23rd day of
September 2016.
"Guy Smith"
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