Date: 20001020
Docket: 1999-4273-GST-I
BETWEEN:
ANDREW E. McKAY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Rip, J.T.C.C.
[1]Andrew McKay has appealed an assessment issued under Part
IX of the Excise Tax Act (“Act”) which
rejected his request for an input tax credit (“ITC”)
within the meaning of section 169 of the Act on the
purchase in or around August 1997 of a Chevrolet Silverado
truck.
[2] Mr. McKay is an insurance agent. In 1997 he also carried
on the business of buying and selling recreational vehicles
(“RVs”). The appellant was registered under Part IX
of the Act. The Silverado was purchased to move RVs within
the stock yard, to help deliver the RVs to customers and to pick
up purchased RVs.
[3] Mr. McKay described the Silverado as a
“pick-up” truck that was not fully enclosed.
The Silverado had an extended cab with room for four persons. A
“hitch” was installed on its rear.
[4] Mr. McKay filed his Goods and Services Tax
(“GST”) return for the period from March 1, 1997 to
June 30, 1998 reporting GST collectible of $9,420.00 and claiming
ITCs of $11,473.87.[1]
[5] In the Minister’s view, Mr. McKay used the Silverado
in the business less than 90 per cent of the time. He did not
keep a log of the use of the Silverado and sold the vehicle
within nine months of its acquisition.
[6] Mr. McKay testified he had another vehicle for daily
personal use and rarely used the Silverado for personal use. He
might drive the Silverado to go to the store to pick up material.
He decided to sell the Silverado because its cost was not
justified. However, when used, he insists it was used 80 per cent
to 90 per cent of the time in the business.
[7] The recreational vehicle business was not very successful
for Mr. McKay. The business was essentially carried on during the
summer and fall of 1997 and only two or three vehicles were sold
by him. His total sales for 1997 and 1998 totalled
“about” four.
[8] Mr. Scott Kerr, an auditor with Revenue Canada,
testified that according to the appellant’s records he had
ten transactions while operating the business. (I assume each
purchase and each sale is a separate transaction). He also stated
that no tax was charged when Mr. McKay purchased the Silverado
and no tax was collected by him when he sold the Silverado to an
automobile dealer. Mr. Kerr agreed the Silverado was used in
the business but the number of transactions was limited and no
log of use was available to verify the proportion of use as
between business and personal.
[9] Mr. McKay argued that he intended to use the
Silverado in the business more than he “in fact” did.
But because of the lack of business, the Silverado spent most of
the time sitting in the yard. Mr. McKay estimated using the
Silverado for business during the time he owned it about 25 to 30
hours.
[10] Mr. McKay did not deduct capital cost allowance for
income tax purposes in 1997 in respect of the Silverado.[2]
[11] The appellant’s case, in its simplest terms, is
that he purchased the Silverado for his business, he used it in
the business, the business did not turn out as intended and since
the Silverado was not used much, it was sold. He is thus entitled
to the ITCs.
[12] The respondent’s position is that the Silverado is
a passenger vehicle since it could seat up to four passengers and
the appellant’s use of the Silverado in any year was not
all or substantially all for the transportation of goods for his
business or exclusively for a commercial activity.
[13] In the Minister of National Revenue’s
(“Minister”) view the Silverado was a
“passenger vehicle” within the meaning of subsection
123(1) of the Act and subsection 248(1) of the Income
Tax Act (“ITA”) and therefore he is not
entitled to any ITC in respect of the purchase of the Silverado.
For the purpose of subsection 123(1), the definition of
“passenger vehicle” is assigned the definition in
subsection 248(1) of the ITA. A “passenger
vehicle” means, on the facts at bar, an
“automobile”. An “automobile” is defined
in subsection 248(1) of the ITA as meaning:
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
...
(e) a motor vehicle of a type commonly called a van or
pick-up truck or a similar vehicle
(ii) that has a seating capacity for not more than the driver
and 2 passengers and that, in the taxation year in which it is
acquired, is used primarily for the transportation of goods or
equipment in the course of gaining or producing income, or
(ii) the use of which, in the taxation year in which it is
acquired, is all or substantially all for the transportation of
goods, equipment or passengers in the course of gaining or
producing income;
[14] Subsection 202(2) of the Act provides that an
individual registrant, such as the appellant, may not claim an
ITC in respect of a passenger vehicle acquired for use as capital
property unless the vehicle is acquired by the registrant for use
exclusively in commercial activities.
[15] Subsection 202(4), however, states that an individual
registrant may, at the end of his or her taxation year, claim an
ITC in respect of a motor vehicle that is a capital property that
is not used exclusively in the registrant’s commercial
activities. In such a case, the ITC is to be determined by
reference to the capital cost allowance deducted by the
registrant in respect of the vehicle under the ITA.
[16] According to subsection 123(1) of the Act, the
word “exclusive” means:
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 . . .
[17] The Minister considers that for a taxpayer’s use of
a passenger vehicle to be “all or substantially all”
for the transportation of goods in a commercial activity, its use
must be at least 90 per cent or more in the commercial activity.
Similarly, the Minister considers a passenger vehicle is used
exclusively in commercial activities if it is used 90 per cent in
those activities.[3] The Courts have reduced the threshold to less than 90
per cent, depending on the circumstances of the particular
case.[4] And since
the appellant did not claim capital cost allowance on the
Silverado for income tax purposes in 1997, the respondent claims
Mr. McKay is precluded from claiming an ITC pursuant to
subsection 202(4) of the Act.
[18] I agree with the respondent that if Mr. McKay did
not use the Silverado exclusively in his commercial activities,
he cannot claim an ITC under subsection 202(4) of the
Act since he did not deduct any capital cost allowance for
income tax purposes for the relevant year. The main question
before me, then, is whether “all or substantially
all” of the use of the Silverado by the appellant was in a
commercial activity. Did he use the Silverado exclusively in the
business? Does the fact that the vehicle was rarely used at all a
factor in deciding a significant portion of its use?
[19] The phrase “the use of which...” (or in
the French language
“l’utilisation ...”) in the
definition of “automobile” in subsection 248(1) of
the ITA suggests the act of employing the motor vehicle,
or putting it into service, for any purpose, in particular the
purpose for which it is to be used.[5] Common sense would dictate that
during the time a motor vehicle is parked in a garage or in a
yard, the vehicle is not being used. Thus, the time the motor
vehicle is parked (and not used) does not enter into the formula
or calculation determining whether the use of the motor vehicle
“is all or substantially for the transportation of goods .
. . in the course of gaining or producing income.” It is
the actual use of the motor vehicle that is relevant, even though
the vehicle may be stored in a yard more than 90 per cent of the
time the taxpayer owned it. The definition of
“automobile” is not concerned whether or not the
motor vehicle is “available for use”.
[20] In the case at bar the Silverado was used by Mr. McKay in
the business for about 30 to 35 hours. He estimated the vehicle
was used for business 80 per cent to 90 per cent of the time it
was used. He did not maintain a log so there is no evidence on
distances travelled for business and personal use.
[21] I am prepared to rely on Mr. McKay’s testimony that
at least 80 per cent of the use of the Silverado was for
business. This proportion is sufficient to satisfy that its use
was substantially to earn income from the business and
“exclusively” for commercial activities. Mr.
McKay’s action in disposing of the Silverado so soon after
acquiring it corroborates his evidence that the vehicle was
acquired for the business and used for the business and when the
business was not making proper use of it, the vehicle was sold.
On the balance of probability, personal use of the Silverado was
insignificant. The Silverado was used substantially all of the
time for the purpose of earning income from a business and
therefore used “exclusively” in Mr. McKay’s
commercial activities. The Silverado was not a “passenger
vehicle” within the meaning of subsection 123(1) of the
Act.
[22] The appeal is allowed with costs, if any.
Signed at Ottawa, Canada, this 20th day of October
2000.
"Gerald J. Rip"
J.T.C.C.
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