Landry c. La Reine, 2003 TCC 59 (Informal Procedure)

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Appeal heard on December 16, 2002, at Bathurst, New Brunswick

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JUDGMENT

The appeal from the assessment made under the Excise Tax Act, dated July 11, 2000, bearing number 01GE0100481 and covering the period from January 1, 1997, to September 30, 1999, is allowed, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment.

Signed at Edmundston, New Brunswick, this 24th day of February 2003.

J.T.C.C.

Translation certified true

on this 19^th day of April 2004.

Sophie Debbané, Revisor

REASONS FOR JUDGMENT

Angers, J.T.C.C.

[1]      This is an appeal from a reassessment dated July 11, 2000, by which the Minister of National Revenue (the "Minister") determined the appellant's liability for GST/HST under the Excise Tax Act (the "Act") for the period from January 1, 1997, to September 30, 1999, by making certain adjustments to the appellant's return. The appellant is appealing with respect to one such adjustment, that is, the one concerning an input tax credit relating to the appellant's purchase of a Ford Windstar van.

[2]      The appellant is a registrant under Part IX of the Act and his principal activity during the period at issue consisted in a saw-sharpening service. The van in question was purchased on or about May 13, 1999. At the time of the purchase, the appellant paid the sum of $2,990.33 as a Harmonized Sales Tax (HST) and it is this amount that he claims as an input tax.

[3]      The appellant purchased the van to better meet the growing needs of his commercial activities and to expand the territory he serves and thus better meet the needs of his clientele. In addition to sharpening saws, band saws and similar tools, the appellant also made sales. He explained that, on Mondays, he made deliveries along his route and also collected blades and saws for sharpening. He works in his workshop on the other weekdays and is available for emergencies. The van in question, which was described as a seven-passenger van, is equipped with a side door, which gives the appellant easy access to show his merchandise to his clients. Before purchasing the van, the appellant used a small truck of the pick-up variety, which he kept after purchasing the van. He explained that he uses the pick-up for his personal use, except once a week when he has to transport a lawnmower to perform his maintenance work at the Caisse populaire de Petit-Rocher. He has to drive three-quarters of a mile to get there. Furthermore, the appellant goes to the said credit union every weekday evening to do the cleaning and maintenance and he uses his van as his means of transport.

[4]      The appellant does not maintain a log on the use of the van for personal or commercial purposes. He explains the situation, saying that he does not need to keep a log since he uses the van solely for commercial purposes. On weekends, he uses the pick-up for his personal use. He explains that, if he had to use his van for personal purposes, he would have to remove his inventory and that would take forty-five minutes.

[5]      Paul Haché, an auditor with the Canada Customs and Revenue Agency, testified that the appellant had stated on his tax return for 1997 that the rate of commercial use of his pick-up was 67 percent. The appellant did not refer to the use of his pick-up in his 1998 and 1999 tax returns. In 1999, the appellant did not deduct from his income any expense related to these vehicles except the depreciation for the two vehicles in question.

[6]      If the van is used 100 percent for commercial purposes, Mr. Haché wonders why depreciation was declared for both vehicles, when the value of the vehicle that the appellant no longer used for commercial purposes should have been reduced accordingly. On cross-examination, what was underscored was the fact that two different accountants had prepared the appellant's tax returns for 1997 and for 1999 and that the appellant had not noticed these errors: like a number of taxpayers, the appellant does not check his returns before he signs them.

[7]      The appellant maintains that, in 1999, he used the van solely for commercial purposes and the pick-up solely for personal purposes, apart from the exception mentioned above. Moreover, depreciation was deducted for both vehicles because of an accounting error that should not deprive the appellant of his input tax credit. The respondent maintains that the commercial activity must be exclusive or almost exclusive. Since the appellant did not keep a log on the use of his vehicle, the Minister was entitled to apply the percentage of use established by the appellant in 1997 and to make the calculation in accordance with the formula set out in subsection 202(4) of the Act.

[8]      The parties do not question the fact that the van is a passenger vehicle for the purposes of the Act. The question at issue is whether the van was used exclusively in the context of the appellant's commercial activities.

[9]      Subsection 202(2) of the Act states that the tax payable by a registrant who is an individual in respect of the acquisition of a passenger vehicle shall not be included in determining his input tax credit unless he acquired it for use exclusively in the commercial activities of the registrant. Subsection 202(4) of the Act provides for the formula for calculating the input tax credit where the registrant who is an individual does not use the passenger vehicle exclusively for commercial activities.

[10]     Subsection 123(1) of the Act gives the following definition of the word "exclusive":

"exclusive" means

(a) in respect of the consumption, use or supply of property or a service by a person that is not a financial institution, all or substantially all of the consumption, use or supply of the property or service, and

(b) in respect of the consumption, use or supply of property or a service by a financial institution, all of the consumption, use or supply of the property or service;

[11]     In the case at bar, the van in question was purchased for the appellant's commercial activities. The appellant does not keep a log of its use because the van is used solely for the purposes of his commercial activities. Not only does he use it to visit his clients once a week, but he also uses it to store an inventory of accessories for saws and routers in order to meet the needs of his clientele. He uses it every day to do the maintenance and cleaning at the credit union and he may also use it if the need arises. His pick-up is used for his personal needs and he uses it only once a week to take his lawnmower to the credit union. I accept the appellant's testimony that he uses his van exclusively in the context of his commercial activities. The appellant's tax returns contain some errors that are sometimes detrimental to the appellant and sometimes to his advantage. Despite the fact that the tax returns occasionally contradict the evidence adduced at the hearing by the appellant, I accept his version of the facts as truthful. The fact that he has a vehicle for his personal purposes changes the percentage of use that had been established.

[12]     For these reasons, I find that the appellant used the van substantially in order to generate an income and that he therefore acquired it for exclusive use in the context of his commercial activities.

[13]     The appeal is allowed and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment.

Signed at Edmundston, New Brunswick, this 24th day of February 2003.

J.T.C.C.

Translation certified true

on this 19^th day of April 2004.

Sophie Debbané, Revisor