The appellant (MAI), which operated a ferry service between Newfoundland and Nova Scotia, allocated all its inputs between the taxable and exempt supplies made by it (nearly all of which were supplies made by it on the vessels) by measuring the areas on its ferries used exclusively in making taxable supplies (including the provisions of passenger cabins, restaurant and dining facilities and retail stores and separate and enlarged seating in a separate area) and those used exclusively in making exempt supplies (the general seating areas and vehicle passenger decks) to determine relative percentages for those two categories of use, and then treating those percentages as also being applicable to the use of the common areas on the ferries (including corridors, walkways, stairways, public washrooms, the exterior deck, crew cabins, the engine room and navigation facilities) and as also being applicable to the terminal and corporate office areas and to the use of fuel. The Crown made various challenges to this methodology including treating the terminal and exterior deck (which included minor outdoors seating for passengers) as being used exclusively in exempt activities.
In accepting MAI’s methodology, D’Arcy J stated (at paras. 117, 120, 179):
A GST registrant is entitled to use any method that is fair and reasonable provided that it complies with the provisions of the GST Act. The CRA cannot simply substitute its method for that of the GST registrant. …
[A] GST registrant should be entitled to determine its input tax credits on the basis of information in its possession without having to resort to hiring expensive third parties, such as valuators or, as I will discuss, engineers to measure spaces on its ships or experts to try to determine what percentage of fuel is consumed to propel a ship and what percentage is consumed to produce electricity, heat or hot water. …
[A] methodology that is based on the actual use of the space used to carry on an integrated business such as the one carried on by the Appellant and that involves a detailed review of all areas of its operations is a fair and reasonable method … .
He also noted (at para. 126) that the taxpayer’s method appeared to be better than the output-based method used by it in earlier reporting periods and accepted by CRA.
Regarding the fuel use, D’Arcy J accepted MAI’s evidence that the weight and electricity requirements of the ferry areas used in taxable activities substantially increased fuel consumption.