9124-0515 Québec v. R - TCC: No ITC’s on $310,000 RV - not used primarily for commercial purposes

 9124-0515 Québec v. R - TCC:  No ITC’s on $310,000 RV - not used primarily for commercial purposes


9124-0515 Québec Inc. v. The Queen (April 19, 2016 – 2016 TCC 208, Smith J.).

Précis:   The taxpayer purchased a very expensive recreational vehicle in 2012:

[10]        On July 2, 2012, the appellant acquired an Itasca-brand vehicle, a 2012 Ellipse, for $310,000. The sales contract indicated that a recreational vehicle had been traded in at a value of $32,400.

The sole issue in this appeal was whether the taxpayer acquired the vehicle for use primarily in commercial activities, as required by paragraph 199(2)(a) of the Excise Tax Act (“ETA”).  After reviewing the evidence the Court concluded that the taxpayer had not demonstrated that it met that requirement.  As a result the appeal was dismissed.  There was no order as to costs since this was an informal procedure appeal.

Decision:   The vehicle was used by the taxpayer’s controlling shareholder, Mr. Brière, much of the time and he was charged a rental of $2,000 per week.  The Court accepted the Crown’s evidence  that this was not a reasonable commercial rental.  Moreover the Court concluded that the vehicle was not acquired primarily for use in commercial activities:

[23]        Finally, Johanne Hébert of the company VR St-Cyr, a recreational vehicle rental company, testified for the respondent. She recognized the vehicle in question and indicated that such a vehicle was rented from September 1 to June 15 at a rate of $4500 a week and for the months of July and August for $5000 per week plus taxes.

[35]        Mr. Brière’s testimony confirms, in the eyes of the Court, that he is a motivated businessman who has had some success as an entrepreneur. But that is not the issue.

[36]        All of the evidence must be reviewed to determine whether, during the periods of personal use of the vehicle, Mr. Brière paid a consideration equal to the fair market value. Alternatively, it must be determined whether the appellant acquired the vehicle for use primarily in commercial activities.

[37]        In this context, it is difficult to disregard the fact that, when the vehicle was acquired, Mr. Brière already possessed a recreational vehicle that he had been using for purely personal reasons for almost eight years. He stated that this vehicle had never been used for commercial purposes and he had never rented it to his affiliated companies.

[38]        Furthermore, that recreational vehicle was traded in during the appellant’s purchase of the vehicle in question, though the transfer from Mr. Brière was carried out a few days later. The trade-in value was $33,400, while the contract of sale from Mr. Brière to the appellant a few days later was for $35,000. No explanation was offered for the difference in price.

[39]        As for the use of the vehicle in the 12 months following its acquisition, the appellant submitted a kilometrage record to the Minister in late September 2013, several months after the Minister requested it. This delay raises doubts about the authenticity of the record and gives the clear impression that it was created by memory after the fact.

[40]        Even assuming that the record is authentic for the purposes of this analysis, I conclude that the vehicle was mostly used for personal purposes for the 12-month period following the acquisition date. In fact, nearly 70% of its trips were for personal reasons, and no explanation was offered for the multiple one-day trips between the head office and neighbouring cities to visit "clients" during that period.

[41]        In addition to being used for a personal trip of about four weeks almost immediately after its acquisition, the vehicle was parked in a recreational vehicle lot in Florida so that it would be available for Mr. Brière and his family for a period of almost ten weeks during the winter.

[42]        The vehicle was then used for almost nine weeks (summer 2013) on a trip to western Canada, which was about 12,295 km and passed through the United States. Mr. Brière was accompanied by his spouse and his son. I am far from convinced that this trip was for business purposes, given the presence of family and how few meetings were held. Furthermore, the sponsorship of Andrew Ranger suggests that Mr. Brière was instead pursuing his hobby or personal interest in NASCAR racing. In any case, for the purposes of these proceedings, it is not necessary for the Court to arrive at a definitive conclusion regarding the use of the vehicle during the summer of 2013.

[45]        The application of paragraph 170(1)(c) of the ETA is also problematic; even if the appellant provided the vehicle "by way of lease" for Mr. Brière’s consumption or use during the weeks for which he was billed, I am far from convinced that there was a taxable supply for consideration equal to the fair market value of the property. In that light, I prefer the testimony of Ms. Hébert of VR St-Cyr, since she has no interests in this case. I therefore find that the taxable supply was for consideration far below the fair market value.

As a result the appeal was dismissed:

[53]        The burden of proof was on the appellant. It had to convince the Court on the balance of probabilities that the vehicle was used by or leased to Mr. Brière for adequate consideration, or was acquired for the purpose of its commercial activities during the period in question, from May 1 to July 31, 2012. I find that the appellant did not reverse this burden.

There was no order as to costs since this was an informal procedure appeal.