Citation: 2007TCC141
Date: 20070515
Docket: 2004-3516(GST)I
BETWEEN:
BRIAN JENNER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
(Delivered orally from the bench on
December 11, 2006, at
Québec, Quebec, and modified for more clarity and
precision.)
Archambault J.
[1] Brian Jenner is appealing from an
assessment established by the Minister of National Revenue (Minister)
under the Excise Tax Act (Act). The Minister refused to grant
part of the input tax credits (ITC) regarding the purchase of a Land
Rover sport utility vehicle, the retail price of which is $83,000. The Minister
only granted the ITC calculated based on a deemed cost of $30,000 because he
considered it a passenger vehicle that did not benefit from the exclusion set
out in the Income Tax Act (ITA) for vehicles acquired for the operation of a
car sale or rental business.
[2] The relevant
legislative provisions are reproduced below. First there is section 201 and
subsection 123(1) of the Act that set out the rules for calculating the ITC for
passenger vehicles:
201. Value of passenger vehicle – For the purpose of determining an
input tax credit of a registrant in respect of a passenger vehicle
that the registrant at a particular time acquires, imports or brings into a
participating province for use as capital property in commercial activities of
the registrant, the tax payable by the registrant in respect of the
acquisition, importation or bringing in, as the case may be, of the vehicle
is deemed to be the lesser of
(a) the tax
that was payable by the registrant in respect of the acquisition, importation
or bringing in, as the case may be, of the vehicle; and
(b) the
amount determined by the formula
(A × B) - C
where
A is the
tax that would be payable by the registrant in respect of the vehicle if the
registrant acquired the vehicle at the particular time
(i) where the registrant is bringing the vehicle into a
participating province at the particular time, in that province, and
(ii) in any other case, in Canada
for
consideration equal to the amount deemed under paragraph 13(7)(g) or (h)
of the Income Tax Act to be, for the purposes of section 13 of that Act, the capital cost to a
taxpayer of a passenger vehicle to which that paragraph applies
...
C is …
zero.
123(1) Definitions ‑ (1) In section 121, this Part and Schedules
V to X,
“passenger vehicle” has the meaning assigned
by subsection 248(1) of the Income Tax Act;
[Emphasis added.]
Subsection 248(1)
ITA states:
"passenger vehicle" means an automobile acquired after June 17, 1987 (other than
an automobile acquired after that date pursuant to an obligation in writing
entered into before June 18, 1987) and an automobile leased under a lease
entered into, extended or renewed after June 17, 1987;
"automobile" means
(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,
but does not include
...
(d) except for the purposes of section 6, a motor vehicle
acquired to be sold, rented or leased in the course of carrying on a
business of selling, renting or leasing motor vehicles or a motor
vehicle used for the purpose of transporting passengers in the course of
carrying on a business of arranging or managing funerals;
[Emphasis
added.]
Paragraph
13(7)(g) ITA states:
(7) Rules applicable ‑ Subject to subsection 70(13), for the purposes of
paragraphs 8(1)(j) and 8(1)(p), this section, section 20 and any
regulations made for the purpose of paragraph 20(1)(a),
[...]
(g) where the cost to a taxpayer of a passenger vehicle
exceeds $20,000 or such other amount as is prescribed, the capital cost
to the taxpayer of the vehicle shall be deemed to be $20,000 or that other
prescribed amount, as the case may be;
[Emphasis
added.]
[3] The two parties
agreed from the start that the resolution of the case depended on whether the
Land Rover was acquired in the course of carrying on a business of renting or
leasing vehicles. Mr. Jenner admitted that if it were a simple vehicle rental
or lease (and not carrying on a rental or lease business), admitted, he would not have the right to more than he
had already been granted.
[4] At the start of the
hearing, Mr. Jenner admitted
all the facts the Minister took for granted at paragraph 5 of the Response
to the Notice of Appeal as follows:
[translation]
…
(b) the
Appellant registered for GST purposes;
(c) the Appellant is President and CEO of The Helicopter
Association of Canada (HAC), of which the Quebec establishment is located
in the Appellant's residence at 2577 Chemin du Foulon, Sillery, Quebec,
G1T 1X9;
(d) the Appellant is also an employee of HAC;
(e) on October 16, 2003, the Appellant acquired a Land Rover
utility vehicle, Range Rover model, for which the retail price is $83,000;
(f) at that time, the Appellant was also the owner of a Monaco
brand camper, The Executive model;
(g) on January 1, 2004, the Appellant rented these vehicles to HAC
for the period of January 1, 2004, to December 31, 2008;
(h) the lease sets out that the vehicles were to be registered and
insured under the joint names of the HAC and the Appellant;
(i) for the duration of the lease, HAC is responsible for the
running maintenance and operating costs;
(j) the Appellant is the sole user of the vehicles rented to HAC;
(k) the Appellant claimed an input tax credit (ITC) for the
acquisition of the Range Rover vehicle calculated on the retail price of the
vehicle;
(l) The Minister only granted the ITC on the amount prescribed by
the Act for a passenger vehicle, namely $30,000.
[5] During his
testimony, Mr. Jenner produced
the rental contract (Exhibit A‑1) and it shows the agreement was for
the rental of two vehicles, including a camper that is not in question and the
Land Rover. Paragraph 2 of the contract specifically sets out that lessee,
namely Mr. Jenner's employer, was responsible for "all running maintenance
and operating costs of the Vehicles" and the lessor, Mr. Jenner,
described in the agreement as the owner, was responsible for "major
repairs of the Vehicles." The contract only concerns the rental of the
vehicles. It has nothing to do with providing any type of service whatsoever.
Mr. Jenner admitted that the only property subject to the rental was the camper
and the sport utility vehicle and that he did not rent vehicles to other
clients.
[6] The question the
Court is faced with is the following: in these circumstances, can Mr. Jenner be
considered as having carried on a vehicle or recreational vehicle rental or
lease business during the relevant period?
[7] The Court, without
hesitation, finds that Mr. Jenner's activities did not constitute the operation
of a business and that the passages Mr. Jenner relied on to justify his
position, the comments of L'Heureux-Dubé
J. in Hickman Motors Ltd. v. Canada, [1997] 2 S.C.R. 336, 1997
CarswellNat 3046,
were taken out of context and are of no use to him.
[8] From my
understanding of the issue in Hickman
Motors, which is based on
the explanations provided to me during the hearing, the issue was whether the
parent company, after acquiring a heavy equipment rental business from a
subsidiary during a liquidation, could be considered as having carried on this
rental business and with the right to the capital cost allowance, even if it
had only held this business for five days, after which the business was sold to
another company.
[9] The comments by L’Heureux‑Dubé J. are not helpful for
determining whether the rent Mr. Jenner earned should be considered as business
income or as property income. The case law adopts the following statements by
Iacobucci J.
who, regarding paragraph 144 of Hickman Motors on the distinction
between the two types of income, cites professor Vern Krishna and
summarizes his statements as follows: "He distinguishes between the two on
the basis that "business" connotes some kind of activity." He
also cites from the same paragraph, the following by Peter W. Hogg and
Joanne E. Magee in Principles of Canadian Income Tax Law (1995),
at page 195: "A gain acquired without systematic effort is not
income from a business. It may be income from property, such as rent, interest
or dividends." As Iacobucci J. stated, at the end of paragraph 144:
"Unless the taxpayer actually uses the asset "as part of a
process that combines labour and capital" (Krishna, supra, at p.
276), any income earned therefrom does not qualify as income from a business,
but rather falls into the category of income from property."
[10] In my opinion, the decision rendered by the
Supreme Court in Hickman Motors does not modify this approach. Income
from property is income that can be mainly attributed to this source. It does
not require important work to exist, whereas income from a business generally
requires two elements: work and capital. Sometimes there is little or no
capital. However, work (for example, service provision) is necessary to the
production of business income. We will use the example of a doctor carrying out
his medical profession with minimal capital of $1,000, as was the case in Grenier
v. The Queen, 2003 DTC 227, [2005] 2 C.T.C. 2210,
para. 3. A doctor carrying out his profession in a hospital may very well
carry out a business with very little of his own capital. However, in general,
a business requires the combination of capital and work. This approach has
allowed the courts to distinguish between income from property and income from
a business.
[11] In this case, Mr.
Jenner acquired the two vehicles, the camper and the Land Rover, which he
rented to his employer because the employer needed them so it could provide
them to Mr. Jenner for his duties as president and CEO, and the employer did
not want to acquire the vehicles. The rent to which Mr. Jenner was entitled
allowed him to repay the cost of acquiring the vehicles and, in his opinion,
make a profit. According to the lease
between him and his employer, the employer was responsible for the costs of use
and general maintenance and Mr. Jenner, as lessor, was only responsible for
major repairs. Wisely, in my
opinion, Mr. Jenner even obtained an extended guarantee from the manufacturer
of the Land Rover, which allowed him to limit his financial risk, since major
repairs would be taken on by a third party.
[12] Once the Land Rover
was acquired, he no longer had much to do as lessor, other than cash in the
rental fees every month or every year. It was as the lessee's employee that he
drove the vehicles and took care of the running maintenance. I restate that
under the terms of the lease, Mr. Jenner had no obligation to provide anything
other than the use of the Land Rover and the camper. Considering he had only
one client and the maintenance of these vehicles did not require any
intervention by him as lessee, except if there was a major repair—and the evidence
did not show that such an expense was incurred—he cannot be considered as
having operated a rental business.
[13] I see absolutely no
distinction between Mr. Jenner's activity as a lessor who makes a profit from
property and that of all the building owners who rent them out and take the
financial risk associated with doing so, particularly in cases where there are
repairs to be made and when there is non-payment of rent and collection
measures must be taken. Mr. Jenner is in the same situation as these building
lessors, and maybe even in a better position, since it is his employer/lessee
who is responsible for the maintenance of the vehicles. The owners of buildings
are recognized by the case law as earning property income.
[14] For all these reasons,
I find that Mr. Jenner's appeal should be dismissed, and without cost to the
Respondent, because it was an informal procedure.
Signed at Ottawa, Canada, this 15th day of May 2007.
"Pierre Archambault"
on this 18th day
of July 2007
Elizabeth Tan,
Translator
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