Pelletier v. Agence du revenu du Québec, 2021 QCCQ 670 (Court of Quebec)

The ARQ accepted that the helicopter, that the corporate taxpayer (Héli) rented out for use by corporate group members (one of which was involved in the office furniture and equipment business), was used by the lessees primarily (over 23%) for commercial purposes (business travel and promotion) but assessed the indirect individual shareholder of Héli (Pelletier) under TA s. 111 (equivalent to ITA s. 15) to increase the valuation of the personal use of the helicopter based on: increasing the value of the depreciation of the helicopter from the 4% straight-line rate used in preparing Héli’s financial statements (and accepted by CRA) to the 25% declining-balance rate of CCA applicable to Class 9 property; and recharacterizing some of the flights as having been taken for personal purposes.

Regarding the appropriate rate of depreciation, Dortélus JCQ noted (at para. 119, TaxInterpretations translation) that this entailed applying the test of “what would the shareholder have paid to receive the benefit had he not been a shareholder.” Before accepting that the 4% rate accorded with generally-accepted accounting principles, he found (at para. 120) that Pelletier had established that the 4% rate was “more in line” with this test.

He also found (at para. 133) that the various trips challenged by the ARQ had been established by Pelletier to be “necessary and incidental to trips that were solely commercial,” including some helicopter-ferrying to close down a fishing camp that had been used for client entertainment and the helicopter’s use in connection with training a pilot.

A corporate helicopter was used partly for the personal use of the individual shareholder (Pelletier). The ARQ (contrary to the CRA approach) assessed to increase the amount of the shareholder benefit includible in the income of Pelletier and to assess the corporation (“Héli”) under QSTA s. 290 (the equivalent of ETA s. 173(1)) on the basis that the value of the depreciation of the helicopter should be increased from the 4% straight-line rate used in preparing it financial statements to the 25% declining-balance rate applicable to Class 9 property (such as helicopters).

Dortélus JCQ noted that the appropriate test was that of “what would the shareholder have paid to receive the benefit had he not been a shareholder” (para. 119, TaxInterpretations translation). He accepted that the 4% rate accorded with generally-accepted accounting principles, and found (at para. 120) that the taxpayers had established that the 4% rate was “more in line” with this test.

He also found (at para. 133) that various trips (treated by the ARQ as having been personal) had been established by the taxpayers to be “necessary and incidental to trips that were solely commercial,” including some helicopter-ferrying to close down a fishing camp that had been used for client entertainment, and the helicopter’s use in connection with training a pilot.