Date: 20000721
Docket: 1999-2085-GST-I
BETWEEN:
510628 ONTARIO LIMITED, o/a ROSSET LANDSCAPING,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Bowman, A.C.J.
[1] This appeal is from an assessment made under the Excise Tax Act for the period from April 1, 1993 to December 31, 1996.
[2] Initially there were several issues, but they were all resolved with the exception of two, both having to do with a Cadillac automobile.
[3] The respondent consents to judgment deleting from the appellant's liability for GST the following amounts:
- GST on $9,653.17 now accepted as a shareholder's loan $631.52
- GST on $2,280 now accepted as an employment grant $149.16
- GST on year end accruals $414.76
Total $1,195.44
These numbers do not appear to be exactly 7% of the amounts in issue. I have accepted the figures as submitted.
[4] Judgment will issue giving effect to these concessions.
[5] There remains therefore the issue of an input tax credit on the purchase of a 1993 Cadillac and ITC on the repairs of the Cadillac.
[6] The appellant carries on a landscaping business under the name of Rosset Landscaping. It is owned and controlled by Michael Rosset. The months May to November are the busy season in the landscaping business. In those months it could employ as many as 15 persons. In the winter the staff is reduced and the appellant's principal activity is maintenance and repair of commercial properties and apartment buildings owned by Michael Rosset and his father.
[7] The appellant owns several vehicles — a tandem truck and a number of pickup trucks and other equipment necessary for its business.
[8] In 1994 Mr. Rosset was in Toronto and he saw a used pearl white 1993 Cadillac Seville on a dealer's lot. Its mileage was about 32,000 kilometres. He was quite taken with it and caused his company, the appellant, to buy it for $38,200. With adjustments, plus provincial sales tax and GST the total came to $44,040. The GST was $2,677.50.
[9] The appellant claimed this amount as an input tax credit. I note in passing that there is a limitation in section 201 of the Excise Tax Act on the amount of ITC that can be claimed for luxury automobiles analogous to that contained in subsection 13(7) of the Income Tax Act. The limit in 1994 was $24,000.
[10] That is not of course the problem. The problem is whether the appellant is entitled to any ITC in respect of the purchase of the car. The Minister disallowed the claim on the basis that the vehicle was not acquired
for use primarily in commercial activities of the registrant [the appellant]
within the meaning of paragraph 199(2)(a) of the Excise Tax Act.
[11] It should be noted that the expression "for use primarily ..." (en vue d'être utilisé) requires the determination of the purpose of the acquisition, not the actual use. Nonetheless, I should think that as a practical matter if property is in fact used primarily for commercial purposes it is a reasonable inference that it was acquired for that purpose.
[12] Mr. Topp, who represented the appellant, brought out a number of facts that he said supported his client's position that the Cadillac was acquired for use primarily in the appellant's business.
(a) Mr. Rosset works all the time. He is, to use Mr. Topp's term, a workaholic. From this he contends that I should conclude that if Mr. Rosset is using the Cadillac he is using it for the company's business. I accept that the evidence establishes that Mr. Rosset works very hard, particularly in the summer. He is unmarried and has no children. He testified that for errands he and his girlfriend use her car.
(b) The Cadillac has a very low mileage — about 5,000 kilometres per year, whereas the pickup truck that Mr. Rosset uses puts on about 35,000 kilometres per year. I do not believe that this fact points very clearly in either direction. It could indicate, as Mr. Topp suggests, that given Mr. Rosset's predisposition to work, the low mileage shows that whenever he was using the car he was engaged in business activity. It would be as easy to draw just the opposite inference, i.e., that considering how much time he spent working he did not have time to be driving around in his car. Frankly, I think the second hypothesis is the more probable. Mr. Rosset has a motorcycle — a Harley-Davidson. It has an extremely low mileage. I would not infer from this fact that he used it in the company's business.
[13] Counsel for the respondent points to a number of considerations that militate against the conclusion that the Cadillac was acquired primarily for use in the appellant's business. The assessor, Ms. Glanz, testified that it was kept in immaculate condition. It would be a little surprising if a person working on landscaping, getting in and out of a car in working clothes could keep the car clean. Mr. Rosset has no personal automobile. When the appellant purchased the Cadillac it had gone from many years without an automobile such as the 1993 Cadillac.
[14] I accept that Mr. Rosset works hard. However, I find it inherently improbable that a landscape architect — even a successful one such as the appellant — would acquire an upscale car like a Cadillac primarily for business purposes. Indeed the argument was not that the car was used over 50% of the time for business purposes. The argument was that it was used exclusively for business purposes. I find it far more probable that Mr. Rosset saw the car, fell in love with it — as men tend to — and had his company buy it. No doubt he had some business purpose in mind. I am sure he did use it to some extent in the business, but I am not convinced that the principal purpose of its acquisition, or indeed its principal use, was for the landscaping business.
[15] The subsidiary question is more interesting and more difficult. At a time when the Cadillac was unquestionably being used for business purposes, it was involved in an accident. Mr. Rosset was picking up an alternator for one of the pickup trucks. It was rear-ended and extensive damage was done to it. It cost about $3,500 to repair the damage and $257.03 in GST was paid on the repair bill. The appellant claims this as an ITC.
[16] I can see no reason to deny this claim. I do not think that merely because I have been unable to find that the Cadillac was acquired for use primarily in the appellant's business, it necessarily follows that expenses that arise directly out of a commercial activity of the appellant does not give rise to an ITC.
[17] Mr. Topp refers to section 7 of Interpretation Bulletin IT-521R, which reads:
Accident repair expenses, whether incurred to repair damages resulting from the accident to a "motor vehicle" driven by the individual or to the property of others, are deductible in full if the vehicle was being used for business purposes at the time of the accident. Any amount deductible is net after recoveries through insurance or damage claims. No portion of such expenses is deductible if the vehicle was being used for personal purposes at the time of the accident.
[18] It is true that the Excise Tax Act and the Income Tax Act are to some degree in pari materia. I do not however think that administrative practices applicable under one act, however beneficial, can be transposed to the other act. However, I can see no reason as a matter of logic or common sense to deny an ITC on this obvious business expense, or to cast any doubt on this sensible and beneficial administrative practice.
[19] The appeal is allowed and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment to reduce the appellant's GST liability for the period in question by $1,452.47.
[20] The appellant is entitled to its costs, if any, to the extent that they are allowed by the tariff.
Signed at Ottawa, Canada, this 21st day of July 2000.
"D.G.H. Bowman"
A.C.J.