Docket: 2005-3896(GST)I |
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BETWEEN: |
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COBURN REALTY LTD., |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
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Appeal heard on April 6, 2006 at Ottawa, Ontario.
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Before: The Honourable D.G.H. Bowman, Chief Justice |
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Appearances: |
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Counsel for the Appellant: |
Shelley J. Kamin |
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Counsel for the Respondent: |
Amy Kendell |
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JUDGMENT
The appeal from the assessment made under the Excise Tax Act, notice of which is dated July 26, 2005 and bears number 04BP-041270833232, is dismissed.
Signed at Ottawa, Ontario, this 25th day of April 2006.
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"D.G.H. Bowman" |
Bowman, C.J.
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Citation: 2006TCC245 |
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Date: 20060425 |
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Docket: 2005-3896(GST)I |
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BETWEEN: |
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COBURN REALTY LTD., |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
REASONS FOR JUDGMENT
Bowman, C.J.
[1] This appeal is from an assessment made under the Excise Tax Act ("ETA") whereby the Minister of National Revenue disallowed, in the computation of the appellant's net tax for the purposes of the Goods and Services Tax ("GST") payable, input tax credits ("ITC") in respect of a boat, a 36-foot Sea Ray Sundancer cabin cruiser which it purchased from Hutchinson's Boat Works Inc. of Alexandria Bay, New York. The price was $325,479 (US) which was partly satisfied by trading in a 29-foot Sea Ray Amberjack cabin cruiser. These figures are taken from the buyer's order in Tab 2 of Exhibit A-1. They do not correspond to the figures in the notice of appeal. In light of the conclusion I have reached, it is not necessary that I try to reconcile them. GST of $21,883.12 was paid when the boat was imported.
[2] There are two issues:
a) who owned the boat when the GST was paid?
b) If so, whether the appellant is entitled to an ITC in respect of the GST paid on the basis that the boat "was acquired, imported or brought in, as the case may be, for use primarily in commercial activities of the [appellant]" as required by subsection 199(2) of the ETA.
[3] The appellant is a real estate broker with ten offices in eastern Ontario. Paragraphs 2, 3 and 4 of the notice of appeal (which are not admitted by the respondent) read as follows:
2. The Appellant's revenues are derived from the supply of real property, namely, the sale and purchase of homes, cottages, waterfront, vacant land and other properties in the Ottawa area and the so-called "cottage country" of eastern Ontario, in particular, the Rideau Lakes and St. Lawrence River regions. The Appellant is currently attempting to expand its business activities into the Thousand Islands region, to tap into the lucrative high-end recreational property market in that region.
3. The Appellant has ten offices, nine of which are within ten kilometers of a major waterway, and five of which are located in waterfront communities. The offices in the waterfront communities are part of the Appellant's strategic plan to become recognized as a real estate broker that specializes in the recreational and second-residence waterfront marketplace in eastern Ontario.
4. The Appellant relies on approximately seventy commissioned real estate agents, who are engaged as independent contractors, to carry on its business activities. These commissioned agents could leave the Appellant and work for competing real estate brokers at any time. Typically, the mobility of the commissioned agents is high and their loyalty is low.
I think these statements are substantially correct.
[4] I shall deal with the first issue, the ownership of the boat. On this point I agree with the appellant. The boat was purchased and registered in the name of John H. Coburn, the president and sole shareholder of the appellant, the money to purchase the boat was borrowed by Mr. Coburn and his spouse Mardi Friesz and Mr. Coburn is shown as the insured in the policy of marine insurance. Mr. Coburn is shown as the owner on the pleasure craft license. These facts would seem to point to the ownership being in Mr. Coburn. Nonetheless, other countervailing facts point more strongly in the other direction. On the 23rd of June, 2003, the day possession was handed over in Ontario by the vendor, Mr. Coburn executed a declaration of trust stating that the boat was held in trust by him for the appellant. The appellant paid the balance of the purchase price as well as the GST. The boat is shown as an asset on the appellant's books and the amount paid by Mr. Coburn is shown in the appellant's records as a loan from him.
[5] In light of all of these facts I am satisfied that the boat has, from the outset, been owned by the appellant and Mr. Coburn is a trustee of it for the appellant.
[6] I turn next to the more difficult question whether the boat was acquired, imported or brought in "for use primarily in commercial activities of the [appellant]." Subsections 199(2) and (3) of the ETA read:
(2) Where a registrant acquires or imports personal property or brings it into a participating province for use as capital property,
(a) the tax payable by the registrant in respect of the acquisition, importation or bringing in of the property shall not be included in determining an input tax credit of the registrant for any reporting period unless the property was acquired, imported or brought in, as the case may be, for use primarily in commercial activities of the registrant; and
(b) where the registrant acquires, imports or brings in the property for use primarily in commercial activities of the registrant, the registrant is deemed, for the purposes of this Part, to have acquired, imported or brought in the property, as the case may be, for use exclusively in commercial activities of the registrant.
(3) For the purposes of this Part, where a registrant last acquired or imported personal property for use as capital property of the registrant but not for use primarily in commercial activities of the registrant and the registrant begins, at a particular time, to use the property as capital property primarily in commercial activities of the registrant, except where the registrant becomes a registrant at the particular time, the registrant shall be deemed
(a) to have received, at the particular time, a supply of the property by way of sale; and
(b) except where the supply is an exempt supply, to have paid, at the particular time, tax in respect of the supply equal to the basic tax content of the property at the particular time.
[7] At the opening of trial counsel for the respondent moved to amend the reply to the notice of appeal to add the following paragraph:
15. In the alternative, he submits that the input tax credits claimed by the Appellant for the tax paid on the boat should be restricted to an amount that is reasonable in the circumstances, having regard to the nature of the commercial activities of the Appellant, pursuant to subsection 170(2) of the Act.
[8] Counsel for the appellant opposed the motion and I denied it on the basis that to raise, on the morning of trial, an assertion involving the factual issue of reasonableness was unfair to the appellant. In retrospect, if I had, with the consent of the appellant's counsel, allowed the motion, I might have had a degree of flexibility to give the appellant a partial measure of relief.
[9] The words in subsection 199(2) "... for use primarily in commercial activities..." imply purpose or intent. The French version of the provision is consistent with this interpretation:
"... en vue d'être utilisé principalement dans le cadre de ses activités commerciales."
[10] Statements by a taxpayer of his or her subjective purpose and intent are not necessarily and in every case the most reliable basis upon which such a question can be determined. The actual use is frequently the best evidence of the purpose of the acquisition. In 510628 OntarioLimited v. The Queen, 2000 GTC 877, the following was said:
[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.
[11] I shall turn then to the actual use that was made of the boat. Mr. Coburn testified that the boat was used for entertaining clients and for rewarding his sales staff. He stated that the appellant was seeking to expand its business to cottage country. I accept that he wished to expand the appellant's business but I am not persuaded that the boat was used or was intended to be used primarily for business purposes. Although I think there was probably an element of business in some of its use, the evidence of its actual use does not support the conclusion that the primary purpose of its acquisition was for use in the appellant's business.
[12] The word "primarily" is generally taken to mean over 50%. The problem is, however, to determine what one should apply the 51% to: time, number of trips, distance travelled, number of passengers, length of voyage, the amount of business generated, the number of potential sales locations visited? All of these factors may have a bearing but they illustrate the difficulty in applying a mechanical sort of test. Ultimately, it boils down to a question of judgement and common sense.
[13] The appellant put in evidence a number of pages which he described as a log that his accountant advised him to prepare after the end of the season. He stated that it was "reconstructed" but this is not accurate. If something is "reconstructed" it means that there was something that previously existed that could be reconstructed. One cannot reconstruct something that never existed in the first place. It is more accurate to say that the log was created ex post facto or after the event.
[14] I shall set out here the entries in the log that were prepared by Mr. Coburn.
June 23, 2003 Crew from Hutchinson's Boat Works. Delivery of boat to Rockport, Ontario.
June 26, 2003 Unless otherwise stated, the crew was always John Coburn. Guests: Mardi Friesz (Mr. John Coburn's spouse) and also a salesperson with the appellant.
June 27, 2003 Guests: André Gagnon (a real estate consultant). Pam Coburn (John's sister) and Mardi Friesz.
June 28, 2003 André Gagnon, Pam Coburn, Mardi Friesz.
Trip to Kingston, Ontario.
June 29, 30 & July 1, 2003 Same guests as on June 28 plus Dianne and Ron Phillips, Ian & Sheila McCurdy. Dianne Philips was a sales representative. Ian and Sheila McCurdy were clients of Dianne Phillips. Nora and Garth Durrell were neighbours. Ken Goodfellow was a coach.
July 2, 2003 Guests: Mardi Friesz, Pam Coburn and André Gagnon.
July 3, 2003 Same guests as July 2.
July 4, 5 & 6, 2004 Day trips around Rockport. Guests: Mardi Friesz and Peter Friesz (a relative of Mardi) and friend.
July 11 & 12, 2003 Installation of Navigation Software.
July 22, 2003 A 6 day cruise. The only people on board were John Coburn and his spouse, Mardi Friesz.
August 9, 10 & 11, 2003 In addition to Mr. Coburn's spouse, Mardi Friesz, the guests, Nora and Garth Durrell, Mr. Coburn's neighbours.
August 22 & 23, 2003 The guests were André Gagnon and guests and Jean Malouin and guests.
August 29 & 30, 2003 Ron and Dianne Phillips as well as Mardi Friesz. The comment on this page of the log was "anchored over with these seasoned boaters. Talked business, boating and retirement?? who was kidding who? Back to business tomorrow."
Sept. 6 & 7, 2003 General maintenance.
Sept. 19, 20 & 21, 2003 Guests were Mardi Friesz and Earl Villeneuve and guest.
[15] In summary, it seems that this expensive boat was used largely for entertaining friends and family. There may have been some element of business but on only three trips were clients taken on board and of the seventy or so agents that worked for the appellant only about four were taken out on the boat, the most frequent passenger being Mardi Friesz, Mr. Coburn's spouse.
[16] While I accept that the fulfilment of a business purpose can be a pleasurable experience, as it undoubtedly was here, I do not think the evidence in this case, including the log prepared after the end of the season, establishes that the principal purpose of acquiring the boat was primarily for use in the appellant's commercial activities. There is no evidence that many of the high earning agents were rewarded by cruises or that clients or potential clients were entertained or shown cottages or homes along the St. Lawrence.
[17] In the event that the business use increases to the point at which it can be said to be the principal use, there is some relief available in a subsequent year to the appellant under subsection 199(3) of the ETA. That point had not been reached in 2003. The evidence would have to be more persuasive and complete than it has been here.
[18] The appeal is dismissed.
Signed at Ottawa, Canada, this 25th day of April 2006.
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"D.G.H. Bowman" |
Bowman, C.J.
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CITATION: |
2006TCC245 |
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COURT FILE NO: |
2005-3896(GST)I
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STYLE OF CAUSE: |
Coburn Realty Ltd. and Her Majesty The Queen |
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PLACE OF HEARING: |
Ottawa, Ontario
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DATE OF HEARING: |
April 6, 2006 |
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REASONS FOR JUDGMENT BY: |
The Honourable D.G.H. Bowman, Chief Justice |
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DATE OF JUDGMENT AND REASONS FOR JUDGMENT: |
April 25, 2006 |
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APPEARANCES: |
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Counsel for the Appellant: |
Shelley J. Kamin |
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Counsel for the Respondent: |
Amy Kendell |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
Shelley J. Kamin |
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Firm: |
Barrister and Solicitor 70 Gloucester Street Ottawa, Ontario |
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K2P 0A2 |
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For the Respondent: |
John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Canada |
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