Date: 20000727
Docket: 1999-5124-GST-I
BETWEEN:
TUSKET SALES & SERVICE LIMITED,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Hamlyn, J.T.C.C.
[1] This is an appeal with respect to an assessment under Part IX of the Excise Tax Act (the "Act") for the period January 1, 1993 to February 29, 1996, by Notice of Assessment No. 01CB0202152 dated July 17, 1996.
[2] The Appellant is a corporation involved in the sale of new and used motor vehicles.
[3] Between 1994 and 1995, the Appellant sold 14 vehicles to one Vaughn Pictou ("Pictou"), a status Indian. The Appellant accepted some trade-in vehicles. Pictou did not charge GST on these trade-in vehicles.
[4] Pictou operated a gas bar and convenience store business on the Acadia Reserve in Yarmouth County, Nova Scotia.
[5] The Minister of National Revenue (the "Minister") has disallowed the input tax credits claimed by the Appellant.
[6] In assessing the Appellant, the Minister relied on, inter alia, the following assumptions that were accepted by the Appellant's counsel:
6(b) the Appellant is a GST registrant with GST Registration No. 105 425 276;
6(c) the Appellant was a corporation involved in the sale and repair of new and used motor vehicles;
6(d) the Appellant is required by the Excise Tax Act, R.S.C. 1985, c. E-15, as amended to file its GST returns on a quarterly basis;
6(e) during the period under appeal the Appellant sold no less than 14 motor vehicles to Vaughn Pictou, and as part of these transactions took trade-ins of motor vehicles, all of which is detailed on the first page of the Notice of Appeal;
6(f) in filing its tax returns for the period under appeal the Appellant claimed notional input tax credits on vehicles taken as a trade-in from Vaughn Pictou. The details of the amounts claimed are listed in the table on the first page of the Notice of Appeal under the heading "Disallowed Notionals";
6(h) the Appellant did not pay GST to Mr. Pictou in respect of the vehicles he traded in and which are detailed on page one of the Notice of Appeal and the Appellant did not acquire documentation from Mr. Pictou indicating that GST was paid;
6(i) at no time did Mr. Pictou attempt to register for purposes of the Act.
[7] The following assumption was not accepted by the Appellant's counsel:
6(g) Throughout the period under appeal Vaughn Pictou was involved in various profitable commercial activities, including the buying and selling of motor vehicles, with annual sales exceeding $30,000.
ISSUE
[8] The issue is whether the Appellant is entitled to claim notional input tax credits on motor vehicles traded in by Pictou in the period under appeal.
ANALYSIS
[9] Section 165 of Part IX of the Act provides that every recipient of a taxable supply made in Canada must pay to the Crown a tax equal to 7% of the consideration for the supply. Liability for GST arises from the supply of goods and services made in the course of carrying on a commercial activity. The definition of "supply" in subsection 123(1) of the Act is quite broad and includes any sale, transfer, barter, lease, gift or disposition of property, any provision of property or a service, and any agreement to provide property or a service. The definition of "commercial activity" refers to the following three distinct activities:
1. A "business" carried on by a person other than a business carried on by an individual, a personal trust or a qualifying partnership without a reasonable expectation of profit.
2. An adventure or concern in the nature of trade other than an adventure or concern in the nature of trade carried on without a reasonable expectation of profit.
3. The making of a supply of real property, including anything done by the person in the course of or in connection with the making of the supply.
[10] "Property" means any property, whether real or personal, movable or immovable, tangible or intangible, corporeal or incorporeal, and includes a right or interest of any kind, a share and a chose in action, but does not include money. Subsection 240(1) provides that every person who makes a taxable supply in Canada in the course of a commercial activity is required to be registered for GST. Specifically excluded from this general requirement to register are small suppliers, persons whose only commercial activity is selling real property, otherwise than in the course of a business, and non-residents who do not carry on any business in Canada. In order to qualify as a small supplier throughout any calendar quarter and the following month, subsection 148(1) provides that the total taxable supplies made by the person in the four previous calendar quarters cannot exceed $30,000. The Minister asserts that Pictou was not a small supplier and was required to register for GST purposes.
[11] The notional input tax credit mechanism, before it was eliminated, deems GST to have been paid by a registrant, in certain circumstances, where the registrant has acquired used tangible personal property from a person not required to charge tax. This enabled the registrant to claim notional input tax credits in respect of these purchases to the extent that they were used for consumption, use or supply in a commercial activity. Section 176 formerly read as follows:
(1) Subject to this Division, where
(a) used tangible personal property is supplied in Canada by way of sale after 1993 to a registrant, tax is not payable by the registrant in respect of the supply, and the property is acquired for the purpose of consumption, use or supply in the course of commercial activities of the registrant, or
(b) used tangible personal property is supplied in Canada by way of sale before 1994 to a registrant, tax is not payable by the registrant in respect of the supply, and the property is acquired for the purpose of supply in the course of commercial activities of the registrant.
for the purposes of this Part, the registrant shall be deemed (except where the supply is a zero-rated supply or where section 176 applies to the supply) to have paid, at the time any amount is paid as consideration for the supply, tax in respect of the supply equal to the tax fraction of that amount.
[12] During the period in question the Appellant sold 14 motor vehicles to Pictou, a status Indian. In 12 of these transactions the Appellant accepted trade-ins which were applied against the purchase price. The vehicles purchased by Pictou were delivered to Pictou on a reserve. No GST was payable by Pictou on the purchases. Pictou did not charge GST on the trade-ins. The Appellant claimed input tax credits on the trade-ins pursuant to section 176 of the Act.
[13] The three managers and sales persons of the Appellant who dealt with Pictou in relation to the purchases, including the trade-ins, gave evidence as to how Pictou structured and used his purchases. In summary, six of the vehicles purchased were new vehicles, three of those vehicles were traded back to the Appellant. Extended warranties were obtained on two of the new vehicles. On each purchase Pictou and the Appellant went through a formal delivery check list that was the Appellant's normal custom in retail as opposed to wholesale transactions. A five year service package was purchased by Pictou in relation to the purchase. One purchase had a number of personal choices by Pictou included in the vehicle. In relation to two of the purchases, the vehicles were traded back to the Appellant because Pictou found one of the vehicles was not comfortable for his back.
[14] The Appellant's witnesses stated that the Appellant dealt with Pictou as a retail customer who had a preference to trade vehicles on a continuing and frequent basis, and because of Pictou's status as a native, he was able to do without the imposition of GST, and this was an incentive to trade. Pictou also apparently bought and traded vehicles with other dealers in the same area on the same basis.
[15] There was some evidence towards the end of the period in question indicating Pictou had been assessed under the Excise Tax Act in relation to the vehicle transactions and there was some evidence to indicate that after the period in question Pictou held himself out as a car dealer.
[16] Pictou and his family, during the period in question, were seen driving the several vehicles around the community where Pictou lived and the Appellant carried on business. In this same community, Pictou carried on a gas bar and convenience store business that produced, in the view of one witness, ample resources for Pictou to trade vehicles as he did.
[17] The best evidence as to whether the several vehicles purchased or traded by Pictou were part of a business of Pictou should have come from Pictou. He was not offered as a witness by the Appellant who had the primary onus of proving its case nor, indeed, did the Respondent call Pictou in response to the Appellant's evidence in relation to Pictou.
CONCLUSION
[18] On balance and notwithstanding the primary evidence deficiency by the Appellant, I have concluded that Mr. Pictou, in relation to the vehicle transactions with the Appellant, used all those vehicles as personal use vehicles.
DECISION
[19] The appeal is allowed and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that in relation to the subject transactions the Appellant can claim a notional input tax credit pursuant to subsection 176(1) of the Act. Mr. Pictou did not make a taxable supply of vehicle trade-ins in the course of a commercial activity and he was not required to charge GST on the trade-in vehicles.
Signed at Ottawa, Canada, this 27th day of July 2000.
"D. Hamlyn"
J.T.C.C.