Citation: 2009TCC54
Date: 20090127
Docket: 2007-3717(GST)I
BETWEEN:
AMBERHILL COLLECTION INCORORATED,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Sheridan, J.
[1] The Appellant is
appealing the reassessment of the Minister of National Revenue under the Excise
Tax Act for the period November 1, 2002 to October 31, 2005. By way of
background, the Respondent failed to file its Reply to the Notice of Appeal
within the 60-day period under the Informal Procedure Rules.
As a consequence, the factual assumptions upon which the Minister based his
decision are not (as they normally would be) presumed to be true and the onus shifts
to the Respondent to prove its case against the Appellant. Further, the facts
alleged in the Notice of Appeal are assumed to be true.
[2] The Notice of
Appeal consists of a cover letter from the Appellant’s accountant indicating its
intention to appeal the reassessment under the Informal Procedure, together
with copies of a letter from the accountant regarding the reasons for the
Notice of Objection and another from the president of the Appellant, Ms. Kristy
A. Dukelow, in response to the proposed audit adjustments. It is the facts
alleged in these three documents that are assumed to be true. At the hearing of
the appeal, the Appellant called no witnesses.
[3] The Respondent’s
only witness was Matthew Bolta, the auditor in charge of the Appellant’s file.
Mr. Bolta was a credible witness who presented his testimony in a very
forthright manner.
[4] Its agent having
advised the Court that the Appellant did not dispute the assessment of GST on
certain shareholder benefits, the only issue is whether a Yukon Denali owned by
the Appellant was a “passenger vehicle” under the Excise Tax Act. The
Appellant had claimed input tax credits on the full purchase price of the Yukon
Denali on the basis that it was not a “passenger vehicle”; in reassessing the
Appellant’s claim, the Minister decided otherwise and reduced the eligible ITC’s
to reflect the monetary limit imposed by section 201 of the Act.
[5] Subsection
123(1) of the Act adopts the definition of “passenger vehicle” that
appears in subsection 248(1) of the Income Tax Act:
"automobile" means
(a)
a motor vehicle that is
designed or adapted primarily to carry individuals on highways and streets and
that has a seating capacity for not more than the driver and 8 passengers.
[Emphasis added].
…
[6] The Yukon Denali is caught by this portion of the
definition; the question is whether it falls within the exclusions to the
definition of "motor vehicle" under subparagraphs (e)(i) or
(ii):
“automobile”
means
…
but
does not include,
…
(e) a motor
vehicle
(i) of a type
commonly called a van or pick-up truck, or a similar vehicle, that has a
seating capacity for not more than the driver and two passengers and that, in
the taxation year in which it is acquired or leased, is used primarily for the
transportation of goods or equipment in the course of gaining or producing
income,
(ii) of a
type commonly called a van or pick-up truck, or a similar vehicle, the use of
which, in the taxation year in which it is acquired or leased, is all or
substantially all for the transportation of goods, equipment or passengers in
the course of gaining or producing income, or
…
[7] The Respondent’s
position is that neither of these exclusionary clauses is applicable to the
Yukon Denali: in respect of subparagraph (e)(i), the Yukon Denali had a
seating capacity for more than the driver and two passengers; in respect of
subparagraph (e)(ii), its use was not “all or substantially all”
for the transportation of goods, equipment or passengers in the course of
gaining or producing income.
[8] Looking first at
subparagraph (e)(i), in support of the Minister’s position, counsel for
the Respondent referred to the auditor’s evidence that he had inspected the
Yukon Denali and described it as having seating in the mid-section area of the
vehicle and another seat at the very back. The Respondent relied on Kowalchuk and Olson and urged the Court not to
follow the approach in Muller.
[9] As the case law readily demonstrates, the
determination of the seating capacity of a vehicle will depend on the facts of
each case. In addition to the evidence set out above, Mr. Bolta’s testimony also confirmed the Appellant’s
allegations that the middle seat was folded down and the back seat had been
removed. When quizzed about the exact nature of the seating, he was candid in
his admission that he might be confusing the Appellant’s vehicle with a similar
one owned by his in-laws. This is understandable given the number of files an
auditor would typically handle.
[10] In the unusual
circumstances of this case, the onus is on the Respondent to demolish the facts
alleged by the Appellant in its Notice of Appeal. In my view, the Respondent’s
evidence falls short of that mark.
[11] Mr. Bolta’s evidence was that the Yukon Denali was in
excellent condition. That statement is consistent with the facts alleged in the Notice of Appeal that the
Appellant used the Yukon Denali in “… the high-end equestrian and travel goods
accessory market along with a related sales stream in the posh pet accessory
market. Her business requires her to attend many trade and trunk shows in the United States
on an annual basis.” According to the Notice of Appeal, image is everything
in her business. To meet the expectation of clients and to avoid the high cost
of shipping the merchandise to each destination, the Appellant invested in the
Yukon Denali to transport and display the goods sold in its business:
The industry
is very accustomed to, and expects, quality to be present in all respects. I
simply cannot show up to trade or trunk shows in standard cargo or cube vans.
Image is very important and, without any doubt, is linked directly to my sales
volumes.
[12] In
her letter dated August 4, 2006 forming part of the Notice of Appeal, the
president of the Appellant further described the vehicle and its use as
follows:
To reiterate
what has been stated previously by myself and my accountant, the cargo area is
used to transport a collapsible display amoir (very large), all product, and
accessories to whichever trade or trunk show that I am may be attending. The
cargo area is always packed to capacity from floor to roof and most times the
front passenger seat is packed as well.
Not only can
the back seat be removed entirely, it has been and was sold as soon as
the truck was purchased. You [the auditor] saw this
when you viewed the truck when you were attending the audit. That is what I
would call a permanent alteration (which is apparently what the regulations
state in the strictest sense). The middle seat folds down to form part of the
floor in the cargo area. As stated when you attended the audit, nobody has ever
sat in those sets (sic) and you agreed that the seats and carpet on the
floor looked unused. It does not make any sense to “permanently alter” the
truck by removing the middle seat and installing some kind of floor system
since it was already done – all you have to do is fold the seat down. Incurring
extra costs for no reason makes absolutely no sense. My accountant informs me
that this is a major issue from CRA’s point of view and that just goes against
any common sense that I would have to somehow permanently alter that seat
somehow. In actual fact the truck only has room for one passenger and that seat
is almost always packed with product.
…
[13] In the
circumstances of this case, I am satisfied that the Yukon Denali did not have
seating for more than the driver and two passengers. Accordingly, it is
excluded from the definition of “motor vehicle” under subparagraph (e)(i)
and is not a “passenger vehicle” as defined under the Excise Tax Act.
[14] The next step is
to determine the extent to which the Appellant used the Yukon Denali in its
business. Based on the kilometers recorded in the vehicle logs provided by the
Appellant during the audit, Mr. Bolta calculated a business use of 62% in 2004
and 72% in 2005 which, according to the Minister, is not sufficient to satisfy
the legislative provisions.
[15] In
the Notice of Appeal, Ms. Dukelow conceded that the business did not exceed 90%;
however, she also noted that the logs were incomplete in that they did not show
the kilometers driven locally for business purposes. She further buttressed her
position that the Yukon Denali was used almost exclusively for the Appellant’s business
by explaining that she had access to a car for personal use, a car which “…has
a much more friendly suspension and [is] easier to park in tight downtown
spaces.” Mr. Bolta’s evidence does not in any way contradict these
additional facts. On balance, I am satisfied that the Appellant used the Yukon
Denali 85% of the time for business purposes, sufficient to satisfy the “all or
substantially all” requirements of the Act.
[16] The appeal is
allowed and referred back to the Minister of National Revenue for
reconsideration and reassessment on the basis that the Yukon Denali was not a
“passenger vehicle” as defined by the Excise Tax Act.
Signed at Ottawa, Canada, this 27th day of January, 2009.
“G. A. Sheridan”
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