Tax Court of Canada justices have refused to accept CRA's policy of setting an inflexible arbitrary percentage of 90% as its interpretation of "all or substantially all" since there is no legal basis to support such a narrow determination of time. Instead, there needs to be a careful assessment the facts and circumstances of each case.
In Reluxicorp Inc. v. The Queen, Justice Lucie Lamarre ruled that 75% was sufficient to meet the "all or substantially all" test in a complicated GST case dealing with the assessment of franchise fees paid to a United States entity. Reluxicorp Inc. was the owner of the Montreal “Residence Inn by Marriott” where management made 74.83% of the reservations for long‑term stays for 2007 based on total revenues earned by the company. Lamarre’s conclusion is consistent with previous judgments, which she refererenced in her decision.
In 549931 Alberta Ltd. v. The Queen, Justice Eric Bowie also found that 75% meets the “all or substantially all” test as far as business use of a motor vehicle. He recognizes that the Minister of National Revenue has used 90% as a rule of thumb for many years conceding that it is useful for taxpayers and their advisers to have some degree of predictability. In his ruling, he stated:
"The fact remains, however, that if Parliament had intended that 90%, or any other fixed percentage, should govern, then it would have expressed that in the statute, rather than using what is obviously, as Judge Bowman put it in Ruhl v. Canada, an expression of some elasticity. No doubt Parliament thought some flexibility was desirable to avoid the harsh results that might flow from minor deviations from the intended use of a vehicle in unforeseen circumstances if no exceptions were permitted from the intended rule that "all" (la totalité) of the use must be for the qualifying purpose."
In McDonald v. The Queen, the Appellant was being taxed on the personal use of a company vehicle because he also did not meet the 90% guideline of travel related to his employment. In this particular case, Justice Gerald Rip noted that the words "substantially all" need not be interpreted as 90% or more but may be a lesser proportion of the whole based on the facts and ruled that 85% of job-related travel was sufficient as far as meeting the statutory requirement. In his ruling, he stated:
“The word ‘substantially’ is not defined in dictionaries as a fixed portion of a whole. The so-called ‘90% rule’ is a rule of thumb that is no doubt convenient to assessors and tax advisors in determining a reasonable standby charge.
“The Oxford English Dictionary defines "substantially" to mean, among other things… b. essentially, intrinsically, c. actually, really…
“The same dictionary defines the word "substantial" to include "of ample or considerable amount, quantity or dimensions".
“These dictionary definitions confirm that the word ‘substantially’… is elastic and an unsatisfactory medium for conveying the concept of an ascertainable proportion of the whole.”
In Keefe v. The Queen, Justice Gerald Sheridan was satisfied that the Appellant’s specific case makes it clear that something less than 90% might be sufficient since a simple mathematical formula is not always appropriate.
"The 90% value does not appear in the legislation itself. Further, the case law is very clear that what constitutes "all or substantially all" is a question of fact depending on the circumstances of each case."
In Seto v. The Queen, Justice Diane Campbell agreed with Justice Sheridan, noting that the Minister of National Revenue disregarded the facts and circumstances by improperly adding amounts to the Appellant's income and then assessing gross negligence penalties on those amounts.
"While the business use of the automobile was only 69% and does not satisfy the 90% threshold, this may not be fatal to the Appellant’s claim."
In Keith v. The Queen, the Appellant and his wife owned Seafood Express, a successful export company supplying lobster and other products from Prince Edward Island to the United States. Even though Mr. Keith’s percentages of the use of his car for business purposes fell just short of the 90% mark, Justice Campbell J. Miller concluded that the taxpayer still met the test for all or substantially all of his business use of the car. He cited other cases noting that “90% business use constitutes substantially all must be an elastic not formulaic application.”
In Watts v. The Queen, Justice Donald G. H. Bowman decided that an amount varying from 76% to 81% of the Appellant’s income that was taxable in Canada over a three-year period could qualify as “all or substantially all”. In his ruling, he noted that:
“There has been a fair amount written about the somewhat imprecise term ‘all or substantially all’. The unofficial departmental position is 90% but the meaning of the expression should not be decided on the basis of an arbitrary percentage.
“In Pronovost v. The Queen…
In Ruhl (W.) v. Canada.. it was observed that they are terms of some elasticity and that ‘an unsatisfactory medium for carrying the idea of some ascertainable proportion of the whole. They do not require a strictly proportional or quantitative determination’.
The 90% rule used by the CCRA has no statutory basis although it may be necessary that some sort of rigid criterion be applied administratively. That does not mean that the court must follow it. The 90% rule, even if it had some basis in law, is itself defective because it leaves unanswered the question ‘90% of what? time? mileage? number or weight of passengers or goods carried?’
“In Lim v. The Queen, I commented further on the meaning of ‘substantial’ or ‘substantial completion’
I shall, however, deal briefly with the concept of ‘substantial completion’. The words ‘substantial’ or ‘substantially’ appear in a number of statutes, including the Income Tax Act and mechanics' lien statutes of the provinces. They have been the subject of a certain amount of judicial commentary. Their meaning in a particular statute has often occasioned some difficulty. The terms are somewhat flexible and relative, and their meaning is derived from the context in which they are used and the facts of the particular case…
“I think it would be absurd to conclude that the appellant's rights under the Income Tax Act should depend on the assignment of an arbitrary percentage to the words ‘all or substantially all’. This mechanical exercise runs counter to common sense.”