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Date: 20021219 Docket: 2002-798-IT-I
BETWEEN: BRENT ILOTT, Appellant, and
HER MAJESTY THE QUEEN, Respondent, AND
2002-799(IT)I BETWEEN: BLAINE ILOTT, Appellant, and
HER MAJESTY THE QUEEN, Respondent,
AND
2002-800(IT)I BETWEEN: ILOTT BROS. FARMING COMPANY LTD., Appellant, and
HER MAJESTY THE QUEEN, Respondent.
Reasons for Judgment Margeson, J.T.C.C.
[1] It was agreed at the outset that these three matters would be heard on common evidence.
[2] The Minister of National Revenue ("Minister") reassessed the Appellant Brent Ilott for the 1998 and 1999 taxation years and included a standby charge in the amount of $7,488.38 and a benefit for automobile operating expenses in the amount of $1,400 for each of the two taxation years.
[3] The assessment was in relation to a 1996 GMC truck which the Minister claimed was made available to the Appellant and his spouse by Ilott Bros. Farming Company Ltd. (the "Company"), without any charge to the Appellant or his spouse.
[4] Likewise, the Minister assessed the Appellant Blaine Ilott for a standby charge of $7,555.20 for the 1998 and 1999 taxation years and an operating benefit of $1,400 for each of the two taxation years on the basis that the Company made available, a 1996 GMC truck, for the use of the Appellant and his spouse without charge to the Appellant or his spouse.
[5] The Minister also assessed the Company by denying the capital cost allowance ("CCA") amounts claimed of $1,938 and $1,355 respectively for the two years and by reclassifying the two GMC extended cab trucks (the "trucks") from class 10 to class 10.1 on the Appellant's CCA schedule.
[6] From these assessments the Appellants appealed.
Evidence
[7] Gordon Edward Brent Ilott testified that he was a farmer who lived near the Town of Eston in the Province of Saskatchewan and has lived there for about 20 years. Exhibit A-1 was entered by consent. This was a corporate structure chart which set out the structure of the Company. This showed that Ilott Holdings Inc. owned 100 per cent of the Company. Brent Ilott owned 39 per cent of the shares of Ilott Holdings Inc.; Cherene Ilott owned 11 per cent; Blaine Ilott owned 39 per cent and Lorreen Ilott owned 11 per cent. This was the corporate structure as it existed in the years 1998 and 1999. This witness was a director and shareholder of the Company during these years and received director's fees and management fees therefrom.
[8] He had a wide range of duties including purchasing of lands, performing farm operations, seeding, spraying, running machinery, banking, attending meetings with financial institutions, going to seminars and educational meetings, managing employees and doing maintenance on the buildings and equipment.
[9] The Company bank was the Canadian Imperial Bank of Commerce in Eston in which they held their current account, they had loans in Kindersley at the Toronto-Dominion Bank, this was about 35 miles away from the farm. He was involved in business planning but did not do bookkeeping or accounting. Seeding, fertilizer and chemicals accounted for a large amount of their expenditures and of their time. They have to try to get the best price possible and this takes considerable time. He did the actual seeding and harvesting while his brother Blaine Ilott did most of the spraying. He drove trucks and operated machinery as well as doing maintenance on machinery and buildings. He also did some of the grain hauling but not a great deal.
[10] They had long distance contact with the grain elevators, which are found in four different places. These sites are 35 to 125 miles away from their farm. They have to be in contact with the elevators at all times. They have to provide samples to the elevators to have their product graded in an attempt to obtain the best prices for it. They take samples of grain from every bin to all the elevators and they advise them as to what the best grade that they will allot to the product. They need the trucks, which are the subject matter of this dispute, to transport these samples to the elevators. They also attended educational seminars during the winter and made use of the trucks for that purpose.
[11] By consent, the Appellants introduced Exhibit A-2, which indicated the different conference locations that this witness attended during the years in question. It was also necessary during those years to negotiate purchases of land from sellers who lived in Saskatoon, Medicine Hat and Kindersley. They also rented land in several places and it was necessary to travel to those areas to negotiate deals. Often times land owners are absentee land owners and it is necessary to travel to different places to make those deals.
[12] Exhibits A-3 and A-4 were rural municipality maps showing the location of lands in various places, which were either owned or leased by the Company during the years in question. During the years 1998 and 1999 they farmed 6880 acres of land. The distance from tip-to-tip was 35 miles (as the crow flies). At all times the operation was looking at machinery with a view to purchasing it or replacing what they had. This is a major part of their operation as well as the maintenance and upkeep of the machinery once they purchase it. He introduced Exhibit A-5, which was a capital assets list for the Company between August 1, 2002 and July 31, 2003. It was obvious from this list that the operation was a substantial one. This list was fairly representative of the asset position of the Company during the years in question. They had to travel long distances to purchase farm equipment and vehicles. The Town of Eston has only one farm dealership and one car dealership and often times it is not possible to obtain a good deal there.
[13] During the years in question he admitted that he used the extended cab in issue here. He was asked why they purchased an extended cab vehicle and he said that they lived in the country, there are mostly gravel roads, they have one of the worst highways in the area, most people use trucks. He indicated that a return trip to Saskatoon is 500 kilometres.
[14] He introduced Exhibit A-6, which was a list of suppliers with whom they conducted the business of the farm during the years in question. These businesses were located in many different parts of the province and other neighbouring provinces as well. Suffice it to say that the list was a substantial one.
[15] The distance from Kindersley to the farm was 70 miles return and the return trip to Swift Current was 220 miles. They went to those places several times per year for the purposes of looking at machinery and also attending field days. Melrose was 120 miles return and they went there to visit the elevators and machine dealerships. Saskatoon was a major centre where they obtained legal advice, accounting advice, took equipment for repairs and made purchases. Many of these services could not be obtained locally, particularly welding specialist services, which was a 270 mile return trip. Medicine Hat was also a major centre where they did a considerable amount of business. There were grain elevators there and specialty businesses as well. This is a 270 mile return trip. Regina was visited on occasions as well. He went to a computer class there with respect to record keeping for the farm. Generally it was too far away but they had done some business there as well. This trip covered 500 miles.
[16] He used the extended cab vehicle in question for these trips because it was a good vehicle for highway travel. They used it the majority of the time for checking the farmland before seeding, after seeding, before and after spraying, when deciding when to harvest, when checking for pests and diseases in the crops. They used it for checking the crops almost on a daily basis. This is not normally just a drive-by but they have to criss-cross the property, go through the centre and cover as large a part of the crop as they can. This truck is designed to do this. A quarter section covered four miles and all boundaries would be checked. This is done almost daily. They might check 20 quarters in detail and sometimes they might check 700 miles in a day. In the grasshopper season, as well as when they are deciding when to seed or spray, they split up. Otherwise they go in the same truck.
[17] Exhibit A-7 contained the financial statements of the Company, which were dated July 31, 1999. It showed that chemicals and fertilizer expenses amounted to $255,309 in 1999 and $225,019 in 1998. This is the largest single expense for the Company. Truck and machinery expenses were $57,338 in 1999 and $66,910 in 1998. A large part of these expenses were related to the use of the trucks in question.
[18] The trucks are used for transporting equipment to be repaired and going to pick it up. The second seat would have been down about 95 per cent of the time when it could accommodate parts, papers and briefcases. People also rode there on occasion such as farm employees, friends or family members on the odd occasion. This amounted to five per cent of the time.
[19] They farmed 12 months of the year and they had no off-farm employment. Every piece of equipment goes through their own shops for maintenance and repairs and they work five to six days a week in the winter. They need the extended cab type truck to travel in. They do all their own grain marketing during the winter. They do a lot of driving in the winter to market it. They go to visit the elevators to ensure grain shipments and to pick up their grain tickets. During the years in question this was held in Kindersley. They also used the vehicle to go to conventions and to pick up parts in Saskatoon, Medicine Hat and Kindersley. Eighty per cent of the repairs are done during the winter time.
[20] Exhibit A-8 was a spreadsheet for one of the vehicles in question being a 1996 C1500 shortbox extended cab pick-up vehicle. This was driven by this witness during the years in issue. He explained that vehicle in question was not a 'crew cab' which is designed for carrying people. A 'crew cab' is 10 inches longer than the 'extended cab' but it has more space in the back in the second seat. This vehicle had a 6 1/2 foot shortbox. It also had a rolled top cover which helped them when they were trying to haul goods and equipment. It had a V-8 engine with a heavier duty suspension than would be found in a car.
[21] During the years 1998 and 1999, the vehicle was driven 50,000 to 60,000 kilometres per year. He always tried to coordinate the use of the vehicle with farm business. It was used very little for personal use. The children had their own vehicles and could not drive the truck for personal use.
[22] Exhibit A-9 was the plate history for a vehicle owned by the witness's daughter Jenna Ilott. The effective date for the plate was January 25, 1996 to December 19, 2002.
[23] The daughter lived at home during 1998 until September. Between September 1998 and the year 1999 she lived in Saskatoon. Her vehicle was available for personal use when she was home. He used this vehicle himself as well on occasion such as going to church. His wife also used it for shopping. They had an agreement that if they bought her the car they would be able to use it themselves. She used her vehicle for personal use as well. They told Canada Customs and Revenue Agency that they had two cars available for their use. The second daughter lived at home with them and had her own car. It was available to the family and was sometimes used by this witness and by his wife for shopping trips. He purchased it for her as well. They did not use the truck for personal use except for going to church sometimes on Sundays, which was 22 miles return. On other occasions they made minimum use of the vehicle for personal reasons when they were also conducting business. When they went long distances it was basically for business. He would not go primarily for personal use and use the vehicle in question. When his wife and daughter used the vehicle it was basically for the picking up and delivery of parts for the business.
[24] The Company also owned a 1993 regular cab truck. He uses it personally. He uses it when he plays hockey in Eston. To travel to Saskatoon is a long distance, over bad roads. The farm operates 12 months a year and they need this type of vehicle to do everything.
[25] In cross-examination he admitted that the truck contained a considerable number of options, was not a 'bottom line' truck and included such amenities such as power windows, power locks, air conditioning, chrome windows, cassette player, tilt steering wheel and chrome wheels. He described it as a 'loaded vehicle'. It also had a rolled top cover on the box as earlier indicated.
[26] The vehicle also contained a cell phone so that they could communicate with the farm. They also had the phone for safety reasons such as when they might be stuck on the roadway. He also used it for shopping and going to hockey games. His daughter took her car to university and not the truck.
[27] When his daughter was at home she used her vehicle after school. When the children are away there are two trucks left for him to use personally. He admitted that he kept no log and that the 50,000 kilometre figure came off the odometer. He did not keep a record of his personal use but it was five to 10 per cent. When they go to town for business purposes they do personal business as well and this is not included in the five to 10 per cent usage figure which he earlier indicated.
[28] He confirmed the suppliers lists, Exhibit A-6 and said that all of these places were visited for business purposes.
[29] In re-direct he said that they buy most of their groceries in Eston. On occasion they might go to Medicine Hat or Saskatoon. They would not have gone at all if it were not for the business.
[30] He would use the car sometimes to go to church especially when everybody went but when only two people went they would take the truck. This would happen about 35 times a year and it would be a distance of 22 miles each time.
[31] Russell Elliott Blaine Ilott testified that he was a farmer and lived on the farm in question for 20 years. Exhibit A-1 was accurate as far as he was concerned. He was also director of the Appellant Company and was paid management fees in the years in question.
[32] His duties included maintenance, looking after the buildings, machinery, the yard, doing the accounting, doing book work, doing business planning (long-term and short-term planning), budgeting, pricing, negotiations for fertilizer, fuel and seeds. At seeding time he looked after spraying and delivery of the seed to the fields. At harvest time he coordinated the out-of-field work. He did work with respect to grain storage, sampling and managing the trucks. Some travel was involved. They built grain storage in one of the two years in issue. They came to Saskatoon sometimes or had materials delivered to the farm. They might also have to go to other places. During the maintenance period, the travel is greater than the rest of the year. They travelled mostly to Eston, Kindersley, Saskatoon and Medicine Hat. The mileage that they use just covers going and coming and not what they do while they are there.
[33] Banking was hectic during the years in question. They were negotiating two loans. They went to the Kindersley or Eston many times. It is important that they have personal contact with their banks. He did the day-to-day bookkeeping.
[34] He was referred to the financial statements and he said since they spend about $255,000 on chemicals and fertilizers, pricing is an important part of their work. He travels to such places as Swift Current, North Battleford and other places for such purposes. For dry chemicals or small containers they used the truck in issue but for large tools they used another truck. The truck in question is used after that to check the fields. He confirmed that some of the properties referred to in Exhibits A-3 and A-4 were not farmed during the years in question and there was one other lot, which was not marked, which was farmed in 1998 and 1999. Otherwise the maps were correct. They farmed 6880 acres and from tip-to-tip the distance was 35 miles.
[35] Some days he used the vehicle in question extensively, especially when he was looking at the fields. Sometimes they do a perimeter check of every field. If the check is detailed they have to walk into the fields. Sometimes they follow criss-cross patterns. If there is a problem, it becomes hectic. During the farming season he would use the vehicle every time.
[36] He viewed Exhibit A-2 and confirmed some of the conferences that he attended and also referred to Exhibit A-6, which was the supplier list. He was referred specifically to an item at London Drugs and he said that that purchase was for computer paper for the business.
[37] There are a dwindling number of suppliers in Eston and in 1998 and 1999 they had to go farther away. Travel was extensive. They used the truck for transporting goods, parts and equipment. In the summer they used the vehicle in the fields. In the winter the use was more extensive because of the maintenance program in existence. The last few years he travelled mainly to Saskatoon and Medicine Hat for repair purposes.
[38] It is not possible to buy lumber in Eston so they have to go to Kindersley and use the truck to transport the lumber. The truck was used for the grain marketing function when they were negotiating with the grain buyers. They haul several different types of grain to different places including parts of Alberta, which might be 450 kilometres away, Medicine Hat Bow Island which is 450 kilometres away, Swift Current, Coreen which is 800 kilometres away, Kindersley, Rosetown, Gull Lake which is 80 miles one way and Plenty which is 40 to 50 miles one way.
[39] With respect to land rentals and purchases in the years in question, travel with the vehicle was necessary in going to such places as Kindersley and as close as just down the road from the farm. They have to make regular visits to their landlords in Saskatoon, Kindersley and Eston. During the years in question they made a deal with the land that they purchased in Medicine Hat. It was necessary to have a face-to-face meeting with the seller.
[40] He was referred to Exhibit A-10, which was one of the trucks in issue and the one which he operated during the year in question. It was a so-called 'extended cab truck'. He was asked why he needed that type of truck and he said that he needed a truck that could haul something in the front and in the back. The vehicle is also good for dirt roads and on the highway. He would not use a car. He was told that the resale value of this type of vehicle would be greater. They are good to haul kids but they are not comfortable for the use of an adult sitting in the back. The new trucks have 4 inches more of leg room in the back than the vehicle in question. An adult sitting in the back would have to sit in the middle and would have to straddle the floor.
[41] In 1998 and 1999 they transported people in the back about five per cent of the time. This was for short hauls to the fields or people sat in it for the purpose of eating their meals. The majority of the time the seat was folded down. They put tools in there, items such as paint, used it for storing goods and during the winter, a survival kit, sleeping bags and things of that nature.
[42] The vehicle had a hauling capacity of 1,500 to 1,600 pounds. It had a roll-top cover on it which could be opened and allowed you to haul something four feet high. It can also haul parts, other equipment and supplies. It can also haul drums of oil. It had a V8 engine, medium size. It had a standard one-half ton suspension. It was driven 50,000 kilometres each of the years 1998 and 1999. He had no off-farm employment. In the years under appeal he had another two vehicles available to him.
[43] He was shown Exhibit A-11, which was a driving history for a vehicle owned by his son Brent Ilott. The effective dates were November 20, 1998 to December 17, 2002 and from January 20, 1995 to December 17, 1998. This vehicle was on the farm for part of the year 1998. When the son was at the farm he worked part-time there and he worked full-time in Provost, Alberta. This witness and the family used the truck in question for personal driving. He also had an ordinary 1993 half-ton vehicle that he used.
[44] He was asked about what personal driving he did with the truck in issue. He said that he used it for personal reasons like going to church, 45 times a year but he did not use it personally otherwise. He did admit that some of the trips were personal and business use combined. If he had farm shopping to do his wife would accompany him sometime and go shopping. The main purpose however, was farm business and if they did not do farm business on the trip they did not go. He did not recall a time when he would have used the vehicle for personal business alone.
[45] In cross-examination he said that this vehicle was almost identical to that driven by his brother. He had a CD player in this vehicle. He described it as "just about loaded". It did not have a power seat. Sometimes his wife went with him but the majority of the time she did not. She would do personal shopping when she went to town on farm business as well.
[46] In 1999 the son went to school and took his vehicle with him. In 1998 he took this vehicle to his other work as well. The witness said that they grocery shopped in Eston. They used the subject truck as well. They used it five per cent of the time for personal use. This did not include the dual purpose trips. He used it for going to conferences for himself and his wife. Normally they go empty but they might bring something back with them.
Argument on behalf of the Appellant
[47] In argument, counsel said that the central issue was the extent of the personal use of both vehicles. According to him the issues were: 1) do the vehicles meet the definition of "automobile" within the meaning of subsection 248(1) of the Income Tax Act ("Act")? He opined that the truck was not a motor vehicle designed or adapted primarily to carry individuals on highways and streets. Rather, the truck was designed primarily to carry and/or transport goods or equipment; 2) were the trucks used in such a way that "all or substantially all" of such use in each taxation year was for the transportation of goods, equipment or passengers in the course of gaining or producing income?
[48] It was his contention that the Minister had accepted in the assessments that the vehicles were used at least 80 per cent of the time for business. This is a relevant consideration in interpreting the words, "all or substantially all". On the question of whether or not they were "automobiles", counsel referred to the definition found at subsection 248(1) of the Act with respect to "automobile" and "passenger vehicle" as set out in paragraph 6(1)(k) of the Act. However, he took the position that the definition of "automobile" is the threshold test. Here he relied intrinsically upon the decision of Bowman J. in Ruhl (W.) v. Canada, [1998] G.S.T.C. 4, where the learned trial judge was dealing with a 1995 Ford F-250 3/4 ton truck used by the Appellant in his farming business. In that case, the learned trial judge found that the vehicle in question was not a passenger vehicle because it was not designed primarily to carry passengers. It was designed primarily to carry goods and equipment. To carry individuals was the secondary purpose of the design. This reasoning was adopted wholeheartedly by the Appellant in support of his position that the vehicles in question in this case were not "automobiles" because the definition of "automobile" means:
(a) 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 . . . . .
He contended that the vehicles in issue in this case were designed primarily for carrying goods and there was no evidence to the contrary. Both of the Appellants testified as to the carrying capacity of trucks. He further contended that the vehicles in question met the definition under subparagraph 248(1)(e)(ii) of the Act as being pick-up trucks or similar vehicles, the use of which in the taxation year they were acquired, was all or substantially all of the time for the transportation of goods, equipment or passengers in the course of gaining or producing income. In Ruhl, supra, there was a much smaller operation involved and the nature of what was being hauled was not as substantive as in the case at bar. Further, the learned trial judge concluded that 80 per cent was "substantially all of the time".
[49] There was evidence before this Court that the vehicles were used most of the time for hauling goods or carrying goods and equipment. The meaning of the term "substantially" is in issue. The definition of "automobile" is also in issue with respect to the formula used in the calculation of the reasonable standby charge. If the Court finds that it was an "automobile" then it must look at the use to which the vehicle was put. If all or substantially all of the distance travelled by the automobiles in the total available days was not in connection with or in the course of the office or employment, then the assessment would stand. But, if the Court finds that it was so used for 80 per cent of the time, then the standby charge must be pro-rated and the appeals should be allowed in that respect.
[50] In that regard he further referred to the decision of Wood v. M.N.R., 1987 CarswellNat 419, [1987] 1 C.T.C. 2391, 87 DTC 312, where Taylor J. at paragraph 5, said:
... I would think the Minister might be hard-pressed to refuse a claim where the percentage was 89 per cent, maybe even 85 per cent or 80 per cent or lower . . . Clearly the term "substantially all" does not lend itself to a simple mathematical formula. Further it would seem to me that any particular definition of "substantially" would be only valid with reference to the specific context in which it is found.
[51] He referred to the definition of "substantial" as found in The Concise Oxford Dictionary of current English, Sixth Edition in support of his position taken in this case.
[52] He also referred to Eberle v. The Queen, 2000 CarswellNat 3190, [2001] C.T.C. 2598, 2001 DTC 158, where a similar factual situation was presented to McArthur J. where he said at paragraph 12:
. . . There was evidence that other vehicles were available to him for personal use. He kept no logs and other records and his memory was somewhat faulty, but I accept that he used the truck in connection with his work to the extent of 80% of the time. The standby charges shall be adjusted pursuant to subsection 15(5) which states in effect that a shareholder who has an automobile made available to him by the corporation shall include a benefit as the circumstances require. The estimate of 20% for personal use is somewhat rough and ready, but is the most reasonable considering the evidence available to me.
[53] He relied upon McKay v. R., 2000 CarswellNat 2274, [2000] G.S.T.C. 93, where Rip J. allowed the appeal where the Appellant had estimated that the vehicle was used for business 80 per cent to 90 per cent of the time. The taxpayer did not maintain a log and there was no evidence of the distances travelled for business and personal use. He relied upon the Appellant's testimony that at least 80 per cent of the use of the Silverado was for business. This proportion was sufficient to satisfy the requirement that its use was "substantially" to earn income from the business and "exclusively" for commercial activities.
[54] Generally when looking at the term "all or substantially all" it does not need to be a quantitative calculation. Eighty per cent is "substantially all" according to the cases. The evidence before this Court is that the trucks in question were used to haul many things. The vehicles were used 50,000 kilometres per year or 1,000 kilometres per week. The reason for that was because of the trips to so many different places. The vehicles in question were not "crew cabs" but "extended cabs". Ninety five per cent of the time the seat was folded so as to be able to accommodate parts and equipment and to haul other things. These vehicles were used "substantially" in the transportation of goods and equipment. They were used "all or substantially all" of the time in the context of fulfilling their duties to the Company. It is not necessary that they should be hauling goods, but only travelling in the course of the office or employment.
[55] In conclusion, counsel stated that if the Court finds that they were "automobiles" then it must look to the formula. What were the parties doing in fulfilling their duties to the Company. The evidence here was that they were used to haul samples of grain, they were going back and forth to conventions on behalf of the Company. They were hauling goods and equipment.
[56] It is admitted that there was some personal use going to church on Sunday mornings. If the vehicles were used 52 weeks of the year for such purposes that would only be about 1,800 kilometres and the use was less than that. The Court should look at the dual use of the vehicles such as business and pleasure. Also, under the "substantially all" rule under the formula. The appeals should be allowed, with costs. Argument on behalf of the Respondent
[57] Counsel for the Respondent referred to Ruhl, supra, and said that there were not many facts referred to in that case as the basis upon which the decision was reached was uncertain. In any event, the vehicle there was used completely for commercial purposes and there was no issue as to it only being used 80 per cent of the time for such purposes. The Court found that the vehicle was designed primarily for hauling goods but secondarily, to haul people. There may have been evidence there as to what it was designed for. However, there is no such evidence in the case at bar.
[58] On the facts of this case it is clear that the vehicles were designed to carry passengers and did so both for the Appellants and their wives. In the case at bar, due to a change in times, they have a different type of vehicle altogether. It has a shorter box, it is designed to haul fewer goods and more people. The Appellants themselves said that more people drive this type of vehicle now and this Court should not follow the case of Ruhl, supra. The Court in Ruhl must have had evidence that the vehicle was not designed primarily for the purpose of hauling people. These are different cases.
[59] In McKay, supra, Ruhl was considered but the Court did not pick up on the issue as to whether or not the vehicle in question was an "automobile" as it has been argued here. However, the definition is clear, it is not ambiguous. A pick-up truck is specifically excepted under subparagraph 248(1)(e)(ii) of the Act. The vehicles in question here do not meet this definition. If this kind of truck was intended to be included in subparagraph (i), it would have said so. It must be a specific exception.
[60] The next question that arises is whether or not the vehicles were used all or substantially all of the time in the transportation of goods and equipment. There was no logbook presented and the Appellants themselves admitted that they used the vehicles for the purposes of going to church and for other personal activities on occasion. The Minister did not accept the position that 80 per cent is enough use of a vehicle for business purposes to allow a proration in the formula.
[61] Counsel referred to the case of Guignard v. Canada, [2002] T.C.J. No. 506 (Q.L.) and Canada v. Adams, (C.A.) [1998] 3 F.C. 365, [1998] F.C.J. No. 477 (Q.L.) and suggested that these cases seem to be suggesting that 90 per cent would be sufficient for such purposes but they do not talk about a figure less than 90 per cent. With respect to the period of time in question the Court must ask the question, were they transporting goods and equipment for earning income during a sufficient period of time? This does not include the field trips or shopping trips. There was a personal benefit when the vehicle was used for dual purposes. This must be taken into account under both sections. The burden is on the Appellant to meet the threshold.
[62] He referred to the decision of Tremblay v. Canada, [2000] T.C.J. No. 547 (Q.L.), where Tardif J. at paragraph 44 concluded:
In short, as soon as an automobile is made available, there is a presumption that 12,000 kilometers a year of 1,000 kilometers a month are driven for personal purposes.
As this is a presumption, it may be rebutted by clear and explicit evidence of actual use in terms of kilometers driven, which is why a log is practically indispensable.
[63] In order to rebut this presumption you must have unequivocal evidence to the contrary. The Appellants have failed to rebut the presumption in this particular phase and would find it difficult to do so without a logbook.
[64] Further, in order to extricate themselves from the definition of "automobile" in the Act there must be clear evidence. Further, as indicated before, there is insufficient evidence to establish on the balance of probabilities that their vehicles were used all or substantially all the time for the purpose of transporting goods and passengers to earn income.
[65] With respect to the appeals of the Company, if the Court finds that the vehicles in question were automobiles, then they must be reclassified from Class 10 to Class 10.1 on the Appellant's CCA Schedule. This is not disputed by counsel for the Appellant.
[66] The appeals should be dismissed.
Rebuttal
[67] In rebuttal, counsel referred again to the case of Ruhl, and said that if Judge Bowman had had particular evidence before him about the design of the vehicle he would have said so in his decision. The Respondent's argument about the pick-up trucks is not acceptable. The definition of "automobile" came in to play in 1998. The evidence here indicates that in one case there was no more than five per cent use made of the vehicle for personal reasons and in the other case there was no more than 10 per cent. The absence of the logbook alone should not detract from the other evidence as to the use of the vehicles.
[68] He questioned the conclusion of the Court in paragraph 45 of the Tremblay decision and suggested that that would be a marked departure from the general rule. The Court should rely upon the evidence in general.
[69] Further, the judge in that case may only have been talking in terms of the evidence in that case and not setting a general rule.
Analysis and Decision
[70] There does not seem to be much argument in this case with respect to the issues. With respect to the Appellants Blaine Ilott and Brent Ilott, the issues are as follows:
1) Did the trucks in question constitute an "automobile" within the meaning and for the purpose of the Act? 2) Was the use of the trucks in question "all or substantially all" for the transportation of goods, equipment or passengers in the course of gaining or producing income by the "Company"?
[71] In the event that the Court should find that the vehicles in question did not constitute an "automobile" within the meaning and for the purpose of the Act then the appeals must be allowed in full. However, should the Court find that the vehicles in question were "automobiles", within the meaning and for the purpose of the Act, then the Court must further determine whether or not the Minister has correctly calculated the standby charge in each case.
[72] With respect to the appeals of Ilott Bros. Farming Company Ltd., if the Court should find that the vehicles in question were not "automobiles" within the meaning and purposes of the Act then those appeals must be allowed in full. However, should the Court find that the vehicles in question were automobiles then the parties have agreed that the Minister was correct in re-classifying the vehicles as Class 10.1 assets as opposed to Class 10 assets as claimed by the Appellant. [73] With respect to the evidence given by the two Appellants the Court is satisfied that in essence their evidence was straightforward, informative and believable. The Court takes no issue with their testimony in that respect and finds that their evidence was credible.
[74] That leaves for consideration the effect of the evidence and whether or not the Appellants have been able to establish on a balance of probabilities that the vehicles in question were not "automobiles" or, if they were automobiles, whether the use of the vehicles was "all or substantially all" for the transportation of goods, equipment or passengers in the course of gaining or producing income.
[75] With respect to the issue as to whether or not the vehicles in question were automobiles, there was a dearth of evidence in that regard. Neither party introduced any evidence whatsoever to go to the main issue as to whether or not these vehicles met the definition of "automobile" in that they were or were not designed or adapted primarily to carry individuals on highways and streets and that they had a seating capacity for not more than the driver and eight passengers. Further, there was no evidence that would prove on a balance of probabilities that the motor vehicles in question met the specific exceptions as set out within the definition section of the Act.
[76] The Court accepts the argument made on behalf of counsel for the Respondent that the exceptions contained in the Act are specific and that in order to be advantaged of such exceptions the Appellants must establish by proof positive that the exceptions apply to them. The Court is satisfied that in the present case these exceptions do not apply to the motor vehicles in question.
[77] As indicated above there was also a dearth of evidence with respect to whether or not the motor vehicles in question were "designed or adapted primarily to carry individuals on highways and streets...". Both parties relied upon the evidence in general in that respect and did not address the issue specifically.
[78] It is obvious that there is no duty upon the Respondent to introduce evidence to that effect as he is entitled to rely upon the presumptions contained in the Reply. However, the same thing cannot be said of the Appellants. Insofar as the Court is concerned, in order for the Court to accede to the argument of the Appellants in this regard, it would have been necessary for there to have been evidence, be it from the Appellants themselves, from some other knowledgeable persons or from some expert to this effect, but there was no such evidence. Indeed, neither of the Appellants in their evidence indicated that these vehicles were not designed or adapted primarily to carry individuals on highways and streets.
[79] The evidence indicated that these motor vehicles were in very common use in the farming community in which the Appellants reside. They were obviously used for the carrying of passengers and goods and equipment and they were obviously used on a personal basis by the Appellants and their families for carrying goods and passengers as well. Some of these uses, of course, had nothing whatsoever to do with transportation of passengers or goods in the course of carrying on a business or for gaining or producing income.
[80] There was nothing in the evidence with respect to the nature of these vehicles, which would indicate that they were not designed primarily for the purposes as referred to in the definition of "automobile" under the appropriate provisions of the Act and the evidence given would appear to be quite to the contrary.
[81] Counsel for the Appellants relied substantially upon the decision in Ruhl, supra, but this Court is satisfied that Judge Bowman in that case must have had before him evidence, which was sufficient to indicate to him that the vehicle in question was not an "automobile" because he said in paragraph 7:
To begin with, it is obvious that the vehicle is a pick-up truck.
He then decided that the vehicle, being an extended cab truck and having a seating capacity for more than the driver and two passengers did not qualify within the exclusion of subparagraph (i) of the definition.
[82] At paragraph 13 he went on to say:
. . . The purpose of its acquisition and the use to which it was put was solely to transport goods and equipment, and the fact that between loads it happened to occasionally be empty does not detract from that fact. Moreover, even if the somewhat mechanical totaling up of mileage shown on the log were appropriate, which I tend to question, 80% is in my view substantially all of the time.
[83] It is obvious from this statement that the learned trial judge must have had information before him from which he could draw this conclusion. He did not refer to the particular evidence in this decision but this Court can only conclude that there must have been evidence of this nature for him to be able to so decide. In the case at bar there was no such evidence indicating the limited purpose of their acquisition or their design. Any evidence might have been sufficient to tip the balance in favour of the Appellants, but that evidence was not forthcoming. The Court is unable to conclude as did the learned trial judge in Ruhl.
[84] The other cases referred to do not deal specifically with this issue and one can only conclude that it was not raised in those cases.
[85] In the case at bar, this issue is clearly before the Court and on the basis of the evidence the Court has no difficulty in concluding that the motor vehicles in question do meet the test of an "automobile" within the meaning of subsection 248(1) of the Act. The Court is satisfied that they were "designed or adapted primarily to carry individuals on highways and streets and they had a seating capacity for not more than the driver and eight passengers". The Court is not satisfied that the evidence disclosed that the vehicles in question were designed primarily to carry and/or transport goods and equipment.
[86] The evidence disclosed that these vehicles were used for such purposes but on the basis of any evidence given and any reasonable presumptions that the Court is entitled to draw from the evidence, it must conclude that the vehicles were designed or adapted primarily to carry individuals on highways and streets. These qualities were known to the Appellants and the Appellant Company when the vehicles were purchased and the vehicles were used for such purposes.
[87] The more substantive issue on the evidence is the use made of the trucks during the years under appeal.
[88] The Court is satisfied that even though the departmental assessing policy may be the "90 per cent rule" the cases make it clear that something less than that might be sufficient to meet the Appellants' needs here. Further, the Court is satisfied that no specific quantitative figure can be used in the determination. The Court must look at the use of the trucks in the context of the facts of each individual case and the Court accepts the statements of Taylor J. in Wood, supra, that clearly the term "all or substantially all" does not lend itself to a simple mathematical formula. Further, it would seem to the Court that any particular definition of "substantially" would be only valid with reference to the specific context in which it is found.
[89] In the case at bar, there were obviously a number of uses made of the vehicles in question as indicated. Clearly some of these uses were personal but the Court is satisfied that, as Bowman J. decided in Noseworthy v. R., 1996 CarswellNat 873, [1996] 2 C.T.C. 2006, 96 DTC 3234, that it can base its decision solely upon the testimony of the two Appellants who came and testified as to the situation in effect in the years in question and to the present. As Bowman J. said in that case, "it may not be the best evidence but under the informal procedure the Court does not think that it is obliged necessarily to employ such evidentiary rules as the best evidence rule". The Appellants here were certainly in a position to testify of their own knowledge and the Court has to conclude on the basis of their own evidence whether it was substantial enough to meet their burden.
[90] On the basis of the evidence of the two Appellants here, the Court is satisfied that during the years in question, the use of the trucks was such that "all or substantially all" of such use in each taxation year was for the transportation of goods, equipment and/or passengers in the course of gaining or producing income.
[91] In the case of Brent Ilott, he testified as to the extensive use of the vehicle in question in the farming operation and described the long distances that the vehicle had to travel during various parts of the year in the operation of the farming business. Even in the winter time the vehicle travelled long distances for the purposes of hauling parts and equipment for repairs. He also attended educational seminars during the winter, which were obviously for the purposes of carrying on their business. It was also necessary to visit persons from whom they were either going to rent the lands or purchase lands. Sometimes these were absentee landlords who lived some considerable distance away from the farm. As he indicated, they farm 6,880 acres of land and the distance from tip-to-tip was 35 miles (as the crow flies). Likewise, they had to travel some considerable distances to try to obtain the best prices on the machinery as well as trying to market their crops for the best price. There can be no doubt from this evidence that the vehicles in question was a type of vehicle which was most useful in their business. Undoubtedly it was also useful for the limited personal use that they made of it.
[92] The seat would have been down 95 per cent of the time, which would indicate that the vehicle was being used at those times for hauling of goods, materials, small pieces of equipment or briefcases. He said that people rode there on occasion only such as farm employees, friends and family for what he described as the odd time or about five per cent of the time. There was also clear evidence that he had other vehicles available for his use during the years in question. The vehicle was also used for going back and forth to the church which was a return trip of 22 miles on Sundays and it was used for other personal matters. As he said, the "odd other time". It was his position that any long distances that were travelled were primarily for business and not personal although he was obviously admitting that when they went primarily for the purposes of the business they also completed personal matters as well.
[93] In cross-examination he said that he would have used the vehicle for personal reasons for about five to 10 per cent of the time but this did not include the dual use time.
[94] Giving the weight to the evidence of this witness that it deserves, the Court is satisfied that he would have used the motor vehicle in question for at least 90 per cent of the time. Consequently, the Court is satisfied that the use made of the truck was such that "all or substantially all" of such use for those taxation years was for the transportation of goods, equipment and/or passengers in the course of gaining or producing income.
[95] The facts in this case are dissimilar from those viewed by Tardif, J. in Tremblay, supra. In that case the learned trial judge was obviously not impressed by the nature of the evidence given on behalf of the Appellant because he found that the evidence was not very specific in terms of total kilometres travelled for business purposes. The Appellant had testified that the total might be 40,000 to 60,000 kilometres per year but they kept no record of it. Tardif, J., did not think that it was enough for the Appellant to say that he used the vehicle essentially for travel between home and work and then have the Court conclude that the kilometres represented by that travel was less than 10 per cent of the total. Further, in that case the Court was satisfied that the calculation of the Appellant was not as accurate as he had indicated. The Court obviously concluded that his evidence was a guesstimate at best, was not accurate, was imprecise and it obviously did not attach much credibility to it.
[96] On the other hand, in the case at bar the Court is very satisfied that the witness here was credible. It would be reasonable to conclude that the Appellant here would have used the vehicle for the transportation of goods, equipment and/or passengers in the course of gaining or producing income for at least 90 per cent of the time as evidenced by the evidence of this witness as to the type of driving that he did and to what extent. This is the very type of driving that one would expect in operating this business. Likewise, it is reasonable to conclude on the basis of the Appellant's evidence that the amount of driving that he did, personally did not amount to any more than 10 per cent of the time.
[97] Consequently, the appeal of this Appellant is allowed and the matter is referred back to the Minister for reassessment and reconsideration on the basis that this Appellant is entitled to have his standby charge recalculated pursuant to subsection 15(5) of the Act. In all other respects the appeals are dismissed. There will be no costs.
[98] With respect to the Appellant Blaine Ilott, he said that they hauled people in the back of the truck about five per cent of the time. That included taking people to the fields and other people sitting in the truck in order to eat their meals. According to him most of the time the seat was folded down so that it could be used for hauling tools, parts and items such as paint. It made a good storage compartment.
[99] Sometimes a winter survival kit and sleeping bags might also have been stored either there or in the back of the truck. He likewise had two other vehicles that were available to him for part of the time. He used the truck for personal reasons going back and forth to church 45 times a year but not otherwise. He did admit there were some joint trips at which time business was conducted as well as attending to personal affairs. However, the main purpose was for the farm business and if they did not do farm business they did not use the vehicle. He did not recall a time when a trip would have been made with the vehicle for personal reasons alone.
[100] In cross-examination he said that he used the vehicle five per cent of the time for personal reasons. This did not include the dual use trips.
[101] For the same reasons that the Court has given with respect to Brent Ilott, the Court is satisfied that this Appellant has established on a balance of probabilities that during the years in issue the use made of the truck by him was such that "all or substantially all" such use in each taxation year was for the transportation of goods, equipment and/or passengers in the course of gaining or producing income.
[102] The Court is satisfied that the Appellant used the truck for such purposes for at least 90 per cent of the time. The Appellant said that he used it for 95 per cent of the time for such purposes but the Court is satisfied that unintentionally, he was a bit light on the calculation of the amount of time during which the truck was used to go back and forth to church and a bit heavy on the time when the other vehicles were available for his use. He did not take into account sufficiently the dual use of purposes for which the truck was used.
[103] In the end result, the appeal is allowed with respect to this Appellant and the matter is referred back to the Minister for reassessment and reconsideration based upon the above Court's findings. The Appellant is entitled to have the standby charge reassessed in accordance with the provisions of subsection 15(5) of the Act.
[104] The Appellant is entitled to no further relief. There will be no costs.
[105] It is obvious, on the basis of the above Court's findings, that the appeals of Ilott Bros. Farming Company Ltd. must be dismissed and the assessment of the Minister confirmed.
Signed at Ottawa, Canada, this 19th day of December 2002.
J.T.C.C. COURT FILE NO.: 2002-798(IT)I 2002-799(IT)I 2002-800(IT)I
STYLE OF CAUSE: Brent Ilott Blaine Ilott and Ilott Bros. Farming Company Ltd. v. Her Majesty The Queen
PLACE OF HEARING: Saskatoon, Saskatchewan
DATE OF HEARING: November 6, 2002
REASONS FOR JUDGMENT BY: The Honourable T.E. Margeson
DATE OF JUDGMENT: December 19, 2002
APPEARANCES:
Counsel for the Appellants: Beaty Beaubier
Counsel for the Respondent: Lyle Bouvier
COUNSEL OF RECORD:
For the Appellant: Priel Stevenson Hood & Thornton Name: Barristers & Solicitors 500 321A 21st Street East Firm: Saskatoon, Saskatchewan S7K 0C1
For the Respondent: Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada
2002-798(IT)I BETWEEN: BRENT ILOTT, Appellant, and
HER MAJESTY THE QUEEN, Respondent.
Appeals heard on common evidence with the appeals of Blaine Ilott (2002-799(IT)I) and Ilott Bros. Farming Company Ltd. (2002-800(IT)I) on November 6, 2002, at Saskatoon, Saskatchewan, by
the Honourable Judge T.E. Margeson
Appearances
Counsel for the Appellant: Beatty Beaubier Counsel for the Respondent: Lyle Bouvier
JUDGMENT
The appeals from the assessments made under the Income Tax Act for the 1998 and 1999 taxation years are allowed, without costs, and the matter is referred back to the Minister of National Revenue for reassessment and reconsideration on the basis that the Appellant is entitled to have his standby charge recalculated pursuant to subsection 15(5) of the Act.
The Appellant is entitled to no further relief.
Signed at Ottawa, Canada, this 19th day of December 2002.
J.T.C.C.
2002-799(IT)I BETWEEN: BLAINE ILOTT, Appellant, and
HER MAJESTY THE QUEEN, Respondent.
Appeals heard on common evidence with the appeals of Brent Ilott (2002-798(IT)I) and Ilott Bros. Farming Company Ltd. (2002-800(IT)I) on November 6, 2002, at Saskatoon, Saskatchewan, by
the Honourable Judge T.E. Margeson
Appearances
Counsel for the Appellant: Beatty Beaubier Counsel for the Respondent: Lyle Bouvier
JUDGMENT
The appeals from the assessments made under the Income Tax Act for the 1998 and 1999 taxation years are allowed, without costs, and the matter is referred back to the Minister of National Revenue for reassessment and reconsideration on the basis that the Appellant is entitled to have his standby charge recalculated pursuant to subsection 15(5) of the Act.
The Appellant is entitled to no further relief.
Signed at Ottawa, Canada, this 19th day of December 2002.
J.T.C.C.
2002-800(IT)I BETWEEN: ILOTT BROS. FARMING COMPANY LTD., Appellant, and
HER MAJESTY THE QUEEN, Respondent.
Appeals heard on common evidence with the appeals of Brent Ilott (2002-798(IT)I) and Blaine Ilott (2002-799(IT)I) on November 6, 2002, at Saskatoon, Saskatchewan, by
the Honourable Judge T.E. Margeson
Appearances
Counsel for the Appellant: Beatty Beaubier
Counsel for the Respondent: Lyle Bouvier
JUDGMENT
The appeals from the assessments made under the Income Tax Act for the 1998 and 1999 taxation years are dismissed.
Signed at Ottawa, Canada, this 19th day of December 2002.
J.T.C.C.
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