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.
[1] Apparently the appellant purchased a Cadillac Seville (“Cadillac”) in September 1997 and paid GST of $4,749.36. The Minister allowed him ITC’s of $3,749.36 in September 1997 in respect of the Cadillac. An additional amount of $33.04 was not allowed as an ITC since Mr. McKay did not have the necessary documentation. Mr. McKay advised that this amount is no longer in issue.
[2] Paragraph 20(1)(a) of the Income Tax Act
[3] See for example, Revenue Canada, GST Memorandum 400-3-4, “Passenger Vehicles and Aircrafts” (September 12, 1992), at paragraph 34.
[4] See Ruhl v. Canada [1998] G.S.T.C. 4; McDonald v. The Queen [1998] 4 C.T.C. 2569 and Wood v. M.N.R., 87 D.T.C. 312, all decisions of the Tax Court of Canada.
[5] See definition of the word “use” in The Oxford Illustrated Dictionary, Second Edition, 1989 and The Random House Dictionary of the English Language, Second Edition, 1987 and the definition of the word “utilisation” in Le Robert Dictionnaire de la Langue Française, Deuxième Édition.