Mid-West Feed Limited, Superior Grain by-Products Storage Ltd., Jean Mailhot v. Minister of National Revenue, [1987] 2 CTC 2101, 87 DTC 394

Couture, C.J.T.C.:—At the opening of the hearing of these appeals an application was made by counsel acting on behalf of these taxpayers that they be heard on common evidence. It was granted. Each appeal relates to assessments made by the respondent in respect of the 1979, 1980 and 1981 taxation years.

Counsel informed the Court of their agreement that the assessments be amended as follows:

Superior Grain By-Products Storage Ltd. (Superior): In assessing this appellant's income for its 1979, 1980 and 1981 taxation years, the respondent disallowed deductions of $23,032, $23,242 and $13,813 respectively. The amended figures are $20,367, $18,804 and $12,835. The deductions dealt with operating expenses of an aircraft and allowances for capital cost claimed on this asset.

Jean Mailhot: In assessing this appellant's income for his 1979, 1980 and 1981 taxation years, the respondent added these amounts to income, name ly, $11,436, $36,830 and $9,909. The amended figures are $962, $708 and $2,023 and treated by the respondent as a benefit to Mr. Mailhot for the personal use of an aircraft owned by Superior.

After giving effect to the above corrections the appeals of Superior in respect of 1979, 1980 and 1981 taxation years are disposed of. The items remaining to be dealt with are:

Mid-West Feed Limited (Mid-West): There is no outstanding issue in respect of the 1979 taxation year.

Taxation year 1980 — Mid-West claimed a capital loss of $10,514 on a debt assumed on the sale of a yacht and a loss of $17,347 on the sale of an aircraft. They were refused as capital losses by the respondent on the ground that these assets were acquired by the appellant primarily for the personal use of its controlling shareholder, Jean Mailhot.

For the taxation year 1981 the respondent also refused to accept a portion of that capital loss incurred in the 1980 taxation year, amounting to $3,256, for the same reason given with respect to the 1980 taxation year.

Jean Mailhot: For the taxation year 1979 the respondent added $744 and $4,913 to his declared income of $581,416 as a benefit allegedly conferred upon him by Mid-West. The respondent claimed that Mid-West made a yacht and an aircraft available to the appellant for his personal use thereby conferring a benefit on him qua shareholder. To arrive at the value of this purported benefit the respondent applied this formula:

Cost of the asset x rate of interest prescribed under Regulation 4300 x number of days (or months) asset available in the year over 365 days (or months).

For the taxation year 1980 the respondent added amounts of $4,294 and $9,552 to the appellant's declared income of $33,782 as a deemed benefit from Mid-West for the same reasons as those given regarding the 1979 taxation year and computed by the same formula, except that the assets in question for the taxation year were two aircraft.

For the taxation year 1981 the respondent added an amount of $19,914 to the appellant’s declared income of $710,214 as a benefit conferred upon him by Mid-West, also for the same reasons as those invoked for 1979 and computed by the same formula. The asset involved for that taxation year was a Cessna 310 aircraft.

In appealing its assessments for the taxation years 1980 and 1981 Mid-West is claiming that the yacht and aircraft disposed of during the taxation year 1980 were not personal use properties as defined under paragraph 54(f) of the Income Tax Act (the Act) as they were acquired and owned by the company for business purposes and used in the course of earning its income.

Correspondingly Jean Mailhot in appealing the assessments for the taxation years 1979, 1980 and 1981 claimed that the yacht and aircraft acquired and owned by Mid-West were not personal use properties as defined in the Act, but were acquired and used by the company for business reasons. A substantial portion of the operating costs of these assets had been paid by him personally, and the company never claimed a deduction for capital cost allowance regarding them in computing its income.

Jean Mailhot gave evidence on his behalf and that of Mid-West. In summary it is this. He began his working career with Nipigon Lake Timber Ltd. and worked for it on and off from 1940 to 1960. One of his main occupations during that period was that of captain of a pleasure yacht used by the company's president to entertain clients. This experience brought home to him at an early stage of his business career the importance of a yacht as a means of promoting and attracting business.

In 1953 he was licensed to fly an aircraft owned by the company. He was also safety supervisor for the company and in that capacity he travelled to the various sites where the company carried on logging operations to promote safety and deal with Workmen's Compensation claims. The plane was used for the transportation of equipment, parts and employees to those locations.

After the company's president passed away he was left without a job and went into farming for a short period. At that time he realized that the feed- grain business offered some promises and went from farming into the retail feed-grain business locally. He purchased an old feed mill in downtown Fort William and began manufacturing feed grain. Around 1970 he incorporated a company, Mid-West of which he was and has been the sole shareholder. The capacity of the mill exceeded greatly the business needs of the company and in order to increase its volume the appellant looked for other sources of revenue. One area that was researched was the possibility of manufacturing a pelleted product out of waste grain material. He consulted nearly everyone he knew in the grain business and found brokers in the business of exporting waste grain material who were anxious to deal with him. Apparently there was a shortage of it in Europe.

He was informed by a broker in Winnipeg that if he could pelletize the product that sales would be guaranteed. Between 1970 and 1977 Mid-West carried on this business and while sales were good they had to be earned. This required personal contacts with a large number of people in the brokerage business all of whom resided outside of Thunder Bay. The usual channels of advertising such as newspapers, magazines or television were not effective on promoting this type of business. This was agreed to by a witness for the respondent.

The appellant's busy season was during the summer, that is during the shipping season. He was then in Thunder Bay engaged in Mid-West's business. During the winter, when business was slack, he would vacation in Florida. He did not own any property or residence there, but would stay at hotels. Around 1975 he decided that Mid-West should purchase a yacht to entertain suppliers and clients who were also vacationing in Florida and thereby promote the company's business. However, prior to acquiring the yacht inquiries were made at Revenue Canada by a Mr. Hammond, Mailhot's adviser, regarding the application of the provisions of the Act to the company and its shareholder as a result of the former using a yacht for promotion purposes. He stated that Mailhot wanted to avoid any confrontation with Revenue Canada over the use of a yacht by the company. He was informed by an official of Revenue Canada, that as long as Mailhot paid the operating costs of the yacht personally and that the company did not claim a deduction for capital cost allowance on the yacht that there would not be any imputation of a benefit to him as a shareholder. On the basis of this information Mid-West purchased a yacht in 1976 and Mailhot paid all its Operating expenses. The company never claimed a deduction for capital cost allowance.

A photocopy of a "Guest Register”, which was kept on board the yacht, for the period of December 1976 to April 1977, was filed as an exhibit and Mailhot identified a number of businessmen, executives of various companies, who had been guests on board and had signed the Register. Signing the Register was not compulsory and in fact a number of guests did not sign it. Some whose signature did not appear in the Register were named from Mailhot’s memory.

By 1976 the business of Mid-West was flourishing. This attracted offers to purchase and at the end of 1976 the company's assets were sold.

Following the sale of its assets, Mid-West investigated the possibility of replacing its business operation with something new. Mailhot consulted some of his business acquaintances with whom he had been dealing and decided to get involved in the storing and shipping of the pelletized product that Mid-West had manufactured prior to the disposition of its assets.

Superior was incorporated in August 1977. Initially Mailhot held 35 per cent of the issued shares, Mid-West 15 per cent and three other shareholders were brought in to assist him. They owned 20 per cent, 20 per cent and 10 per cent respectively of the shares. Subsequently, he transferred his equity to Mid-West. At the outset Superior had no financial resources and Mid-West provided all the capital necessary to finance its operations.

Superior acquired an obsolete elevator in Thunder Bay from the Saskatchewan Wheat Pool for $1 and went into business. Some of Mid-West's clients became clients of Superior, but the company had to develop its own new clientele for this kind of business. Again the yacht was used in this process. In a very short period Superior was successful, increasing its gross revenues from $100,000 to $1.5 million by 1979.

According to Mailhot the novelty of the yacht lost some of its appeal and consequently in 1978 Mid-West decided to replace it with an aircraft since he was an experienced pilot. The yacht was offered for sale. It remained idle through 1978 and until its sale in February 1979. The aircraft was a U-206. This is a Single engine craft with a four-seat capacity.

While he had been a licensed pilot since 1953, he nevertheless had to familiarize himself with the operation of the new aircraft. He took a training and refresher course which required in excess of 40 hours of lessons before he could obtain his certificate for instrument flying. The plane was used mainly to transport and entertain customers and others who dealt with Superior, some of whom lived as far away as Vancouver.

The U-206 proved to be unsatisfactory for the company's needs and in 1980 it was replaced by a Cessna 310. This is a twin engine long range aircraft with a six-seat capacity. Again Mailhot had to take training courses to fly this new aircraft. He personally paid for all the training courses he had to take to qualify himself to fly the company planes.

The foregoing are the material facts pertaining to these appeals.

As previously mentioned, pursuant to the determination that the yacht and the two aircraft were personal use properties within the meaning of paragraph 54(f) the respondent disallowed a capital loss of $10,514 claimed by Mid-West in respect of the sale of the yacht as a deduction in computing its income for the taxation years 1980 and 1981, and a similar claim for a loss on the disposition of an aircraft in 1980 in the amount of $17,347.

Paragraph 10 of the reply to the notice of appeal filed by the respondent reads:

10. In assessing as he did, the Minister of National Revenue, relied, inter alia, on the following assumptions of fact:

(a) the Appellant is not an active business corporation but derives income from investments only;

(b) Jean Mailhot, at all relevant times, owned 100% of the shares of the Appellant;

(c) the aircraft was used by Jean Mailhot primarily for his personal pleasure and to allow him to enhance his flying expertise;

(d) the boat was a pleasure boat which was operated only in winter when Jean Mailhot was in Florida.

Thomas Frank Appelt, an auditor with Revenue Canada who had prepared the assessments against the appellants gave evidence on behalf of the respondent. This exchange took place between him and counsel for the respondent:

Q. In making the determination these were personal use properties under 54(f), what facts were you concerned with in reaching your decision?

A. The facts I was concerned with was the nature of the corporation itself, the schedules that were prepared by the taxpayer given to me which I analyzed and on the strength of this evidence and other factors we determined that their aircrafts themselves or the boat were used primarily personally and as such put it within the purview of 54(h).

Q. Before going by what you mean by primarily personally and the schedules you referred to, you mentioned first of all the nature of the business itself. What in particular were you referring to?

A. The nature of the business was such that at one time it was an active corporation and enjoying active business income and at the times that have already been alluded to, the business assets of that corporation were sold which rendered that corporation an investment corporation. As such it is our opinion that the income earned from that is passive income, not active business income and for that reason there could be no business expenses.

Dealing with the yacht first, the schedules referred to by the witness related only to the two aircraft and not the yacht. The only evidence regarding the use of this asset was the information contained in the copy of the "Guest Register" and the testimony of Mailhot who supplemented that evidence.

I do not accept the witness' conclusion that the corporate assets of MidWest were personal use property within the meaning of paragraph 54(f) of the Act which reads:

54(f) — "personal-use property" of a taxpayer includes

(i) property owned by him that is used primarily for the personal use or enjoyment of the taxpayer or the personal use or enjoyment of one or more individuals each of whom is

(A) the taxpayer,

(B) a person related to the taxpayer, or

(C) where the taxpayer is a trust, a beneficiary under the trust or any person related to the beneficiary,

(ii) any debt owing to him in respect of the disposition of property that was his personal-use property, and

(iii) any property of the taxpayer that is an option to acquire property that would, if he acquired it, be personal-use property of the taxpayer,

and "personal-use property" of a partnership includes any partnership property that is used primarily for the personal use or enjoyment of any member of the partnership or for the personal use or enjoyment of one or more individuals each of whom is a member of the partnership or a person related to such a member.

In my view whether a taxpayer carries on an active or passive business is a fact which by itself has no relevancy in the application of that subsection. The only determining factor, in my opinion, as provided by this legislation is the actual use of such property by taxpayers or individuals mentioned in clauses (A), (B) or (C) of the subsection, considered in the light of all relevant circumstances.

The test that must be applied in the case at hand is not dependent on the nature of the business of Mid-West, but on whether the assets were used by a "person related" to it,* [1] i.e. Mailhot primarily for his personal use or enjoyment. In the absence of such evidence the corporate assets may not be labelled personal use property, capital losses on the disposition of which are deemed to be nil under subparagraph 40(2)(g)(iii).

Outlays or expenses incurred by a taxpayer are deductible only to the extent that they were incurred for the purpose of earning income from a business or property as provided in paragraph 18(1)(a). If they are not deductible because they do not meet this test, it does not necessarily follow that they convert into a benefit to a proprietor of a business or shareholders of a corporation.

In the same fashion a taxpayer that is a corporation or an individual may acquire an asset for business reasons that may or may not be used for the purpose of earning income within the strict meaning of paragraph 18(1)(a) and its operating costs may not be deductible for tax purposes, or its operating costs may not be deductible by virtue of a specific provision of the Act such as paragraph 18(1)(e) dealing with recreational facilities and club dues. It does not follow under such circumstances that an asset was acquired for the personal use and enjoyment of a proprietor or corporate shareholders. The occasional or frequent use of a business asset by a shareholder is not sufficient to support the presumption that the asset was acquired primarily for this personal use or enjoyment. The word “primarily” which precedes the phrase "personal use or enjoyment" denotes a factual situation that may only be determined after consideration has been given to all the relevant circumstances. Of course, if a shareholder uses a business asset for his personal use or enjoyment he must reimburse the corporation for the value of the benefit that he derived from the use of the asset.

In the present case, while it may be true that Mid-West was not carrying on a manufacturing business after 1977, it must be remembered that the yacht was acquired in 1976 at a time when it did carry on that business and its acquisition, according to the evidence, was motivated by legitimate business reasons. Furthermore, the evidence established that the yacht was not used by either Mid-West or Mailhot during 1978 and until its sale in February 1979. The mere fact that it was available to Mailhot during these taxation years cannot be construed as providing him with a benefit subject to tax.

In the appeal of The Queen v. Lionel Houle, [1983] C.T.C. 406; 83 D.T.C. 5430 the facts are summarized as follows:

The taxpayer was the sole shareholder of a corporation which owned a yacht that was used during the taxation years in issue by the taxpayer partly for business purposes and partly for personal use. The corporation had purchased the yacht in 1970 at a time when there were two other shareholders. The taxpayer reported a taxable benefit in respect of his personal use of the vessel calculated as a percentage of the total operating expenses based on the number of hours of personal use as compared to business use. The Minister assumed that the yacht was not acquired for business reasons and, in addition to a portion of the operating expenses, attributed a benefit to the taxpayer of a sum representing the value of the funds expended by the corporation on behalf of the taxpayer. The taxpayer's appeal to the Tax Review Board (82 DTC 1208) was allowed and the Crown appealed to the Federal Court — Trial Division.

Held: The Crown's appeal was dismissed. The Court found that the yacht was purchased by the corporation for business reasons. Therefore, the taxpayer's calculation of the benefit was correct.

This appeal dealt with the 1975 and 1976 taxation years of the defendant and the evidence disclosed that during those taxation years the vessel was used as follows:

At page 410 (D.T.C. 5433) Collier, J. said:

In paragraph 7 of the statement of claim, the Minister alleges he assumed, among other things:

that the acquisition or ownership of the yacht by Joyce Management Limited had no business purpose.

I note that allegation was not pleaded as a material fact as required by Rule 408(1) of the Rules of this Court, but merely as an assumption.

[Analysis]

In my view, the evidence before me negates that assumption, and the basic factual premise on which the Minister's assessors arrived at the valuation they did.* [2]

The evidence of the defendant satisfies me this vessel was acquired by Joyce, in 1970, for a business purpose. It was for use to promote business contacts and to assist in obtaining contracts for Joyce's wholly owned subsidiary, House Electric. The evidence which I have earlier set out shows a history of a vessel being used by Houle for business purposes. It is true the defendant shareholder has, in the years in question, used the vessel for personal purposes as well.

In a subsequent paragraph His Lordship adds:

The assessors in this case have, to my mind looked only at the factual situation in 1975-1976. The records kept indicated the vessel was sparingly used: a total of 46 days in 1975 and a total of 30 days in 1976, and that divided between business and personal use. On the basis there had been more personal use than business use, they concluded the vessel, even as far back as 1970, had not been acquired for any business purpose; it was a mere asset to be used by a shareholder of Joyce.

I disagree with that conclusion. As earlier stated, / find from all the evidence given by the defendant, the purpose of the purchase of the vessel by Joyce was, in fact, for a business purpose and for use as a business asset, with only incidental use by shareholders such as the defendant. [Emphasis added.]

The evidence in relation to the purchase and use of the yacht by Mid-West satisfies me that the company has clearly rebutted the assumptions upon which the respondent based his assessments. They are without foundation. The yacht in question was owned by Mid-West as a corporate asset, employed for business purposes and not used by Mailhot primarily for his personal use or enjoyment.

Since he personally paid for all the operating expenses related to the use of the yacht and the company never claimed a deduction for a capital cost allowance with respect to it, I cannot subscribe to the proposition advanced by the respondent that he was in receipt of a benefit under these circumstances, even if he had made incidental use of it for his personal benefit.

Mailhot impressed me as an honest and conscientious business man. He answered all the questions put to him in a straightforward manner and I have no reason to reject or regard his testimony with suspicion.

For the above reasons, I am satisfied that the yacht was a corporate asset of Mid-West and the capital loss incurred as a result of its disposition during the taxation year 1980 was deductible in computing its income for the 1980 and 1981 taxation years within the limitations prescribed by the Act and the regulations made thereunder.

With respect to the aircraft the respondent alleged in his reply to the notice of appeal that:

(a) the aircraft were used by Jean Mailhot primarily for his personal pleasure and to allow him to enhance his flying experience.

To support this allegation the respondent relied exclusively on a computation of the number of hours of flying time ascribable, according to his views, to Mailhot because they seemed to indicate a personal rather than business purpose.

The first aircraft, the U-206, was purchased in April 1979 and was sold in June 1980 and used only between August 5, 1979 and May 19, 1980. MidWest's representatives had prepared for the purpose of making their representations to Revenue Canada a detailed submission in the form of two schedules of the flying time of each aircraft. They were given to the official who processed the assessments. The data in these schedules had been obtained from a log that had been kept by Mailhot personally since the flight logs of the aircraft were left with them when they were sold. Copies of these schedules and the supporting log were entered as exhibits.

In the course of being cross-examined, Appelt said that in his opinion the use of a corporate asset by an employee or shareholder in the ratio of 50 per cent of the total use of the asset was sufficient to meet the requirements of paragraph 54(f) and bring this asset within the meaning of “personal use property" for income tax purposes. In the light of the wording of paragraph 54(f) I cannot agree with this view. To my mind the true meaning of this enactment is clearly reflected by the word “primarily”. When regarded in its ordinary sense it implies a "use" of an asset that exceeds any other use. That is it must be the predominant use. In the Shorter Oxford Dictionary "Primarily" is defined as ”. . . 2. Of the first importance, principal, chief.” "Principal" is also defined in the same dictionary as: “First in rank of importance . . . hence principally — adv. in the chief place, mainly, above all."

In Barnes v. Deveson, a judgment of the Supreme Court of Victoria (Australia) reported at [1960] V.R. 604, Little, J. said this at page 605 with respect to the meaning of primarily:

In my opinion, as was argued by the informant, the language under consideration plainly imparts "purpose" and the word “primarily” means that the purpose of carrying goods is the principal — the principal purpose it was constructed to serve as distinct from a subsidiary purpose. [Emphasis added.]

Consequently, if the use of a corporate asset is the feature to be considered in the application of paragraph 54(f) it must be in excess of a ratio 50 per cent of the total use of that asset. However, I am not satisfied that the number of hours of a corporate asset was used by a shareholder or an employee, by itself, is sufficient to trigger the application of the subsection. I would venture to say that the use of the asset must be considered in relation to all the relevant circumstances in order to arrive at a proper determination of the question whether it was primarily used by a person described in the paragraph.

In assessing Mid-West for the taxation years under appeal, the respondent accepted the number of hours of flying time as recorded in the schedules. However, he reallocated a substantial amount of flying time which had been recorded and considered by Mid-West as corporate use to Mailhot's personal use, thereby shifting the ratio of total flying time of the aircraft from a corporate use to a personal use by Mailhot by a wide margin.

These schedules contained detailed data including the date of flight, location of departure, location of arrival and hours of each flight. The total flying time was also attributed to each party or concern which had commissioned the aircraft. This information was shown in separate columns under the names of each party. There was a column for Mid-West, Superior, Mailhot and one captioned "others" which, according to the evidence, contained the number of hours flown on behalf of other business ventures in which Mid-West was interested. There was also a column captioned “Unallocated” in which was recorded the flying time of the aircraft that was not related to a strictly business trip, but which Mid-West considered as corporate use. This included the time spent by Mailhot on training and the time involved in flying the aircraft to a destination for the purpose of their maintenance and regulatory inspections.

The respondent in assessing Mid-West as mentioned before accepted the number of hours of flying time recorded by the company but reallocated the bulk of the flying time shown in the column “Unallocated” to Mailhot personally on the contention that the training was for his personal benefit and the time allocated to this activity was therefore for personal use.

The respondent also ascribed to Mailhot flying time with respect to business trips which the company had considered corporate use. The result of this reallocation of the flying time of the aircraft created a distorted picture of the facts in favour of the assessments which, in my opinion, is not justifiable on a correct appreciation of the evidence and the legislation.

The schedules cover four distinct periods: From August 5, 1979 to December 31, 1979. From January 1, 1980 to May 19, there is a period approximately of two months between the sale of the U-206 and the acquisition of the Cessna 310, that is from May 19 to July 12 during which no flying time is recorded (the Cessna 310 was purchased in June 1980). From July 12, 1980 to December 31, 1980, and from January 1, 1981 to December 31, 1981.

For the first period, that is August to December 1979 the aircraft was flown for a total of 41.4 hours, 18.2 hours was allocated to Mailhot for personal use, and 15.7 hours recorded in the "Unallocated" column representing as mentioned before the hours flown by Mailhot at a training school and the hours flown for maintenance purposes. On the basis of this allocation Mailhot used this aircraft for approximately 44 per cent of the flying time for that period. As mentioned previously he personally paid for all his training costs. He also paid 77.8 per cent of the operating costs of the aircraft for the period from May 1979 to August 1980.

For the period from January 1, 1980 to August 1980 the recorded flying time of these aircraft is 118.5 hours, 31.1 entered in the "Unallocated" column, and 15.7 allocated to Mailhot for personal use. For the two periods, that is from August 1979 to August 1980 the total flying time aggregated 159.9 hours, 46.8 as “Unallocated” and 33.9 to Mailhot personally or 21.2 per cent of the total flying time.

Considered on an annual basis, that is for the calendar year 1980, which is also the fiscal year of the appellants, during which the two aircraft were owned by Mid-West, their total flying time for the year was 236.5 hours of which 74.6 as "Unallocated" which included additional training time for Mailhot in respect of the second aircraft, and 36.1 hours ascribed to him for personal use which gives a percentage of personal use of 15.3 per cent.

For the 1981 fiscal year the total flying time of the Cessna 310 was 163.9 hours, the “Unallocated” hours were 17 and 79.4 hours or 48.5 per cent of the flying time for the year was for the personal use of Mailhot.

The respondent's interpretation of the above data gives an entirely different picture of the use of the aircraft. First, he deleted from the column "Unallocated" all the time earmarked for training flown and attributed it to Mailhot personally and arrived at these results:

For the period August 1979 to December 1979 he allocated 11.2 hours of training time to Mailhot in addition to the 18.2 hours shown on the schedule as personal to arrive at a personal use of 29.4 out of 41.4 hours of total flying time for the period. This is 71 per cent.

From January 1980 to August 1980 the total flying time was 118.5 hours of which 15.7 were recorded as personal to Mailhot. By adding to this the training time, 22.7 hours, and the time in respect of two trips when Mailhot had to return to Thunder Bay, 40.2 hours, the result is a total of 78.6 hours of personal use out of 118.5 or 66.3 per cent. It was explained in evidence with respect to the 40.2 hours that Superior's building had suffered substantial damages caused by a derailment of two railway box cars which had completely disrupted its operations and Mailhot who was at the time vacationing in Florida was required to return to Thunder Bay to deal with this problem.

On a calendar year basis for 1980 the auditor added to the 33.9 hours shown in the schedule for personal use by Mailhot 48.5 hours of training time, 40.2 hours for the emergency trip and another 9.2 hours allocated to Superior in the schedules for a total of 131.8 hours of personal time out of 236.5 hours of total flying time or 55.7 per cent of personal use.

For the fiscal year 1981 the auditor treated as personal use in addition to the 79.4 hours allocated to Mailhot in the schedule 17.6 hours for a total of 97 hours out of 163.9 hours of total flying time or 59.2 per cent. Out of the 17.6 hours, 12.1 were earmarked to Superior as business trips in the schedule and no evidence was adduced by the appellant regarding the purposes of these trips. Nonetheless, in the light of all the circumstances under which Mid-West operated its aircrafts and also in spite of the lack of evidence with respect to the purposes of a couple of trips in 1981, I do not consider that a percentage of 59.2 per cent of personal use carries much weight in determining whether the aircraft was used "primarily" for the personal use or benefit of Mailhot in the overall picture.

The flaw in the respondent's assessing process, if only the flying time is considered, resides mainly in his approach to the training time treated as personal use of Mailhot. Unquestionably if a corporation acquires an asset which requires special skill to operate the costs of training and the use of that asset while the employee or shareholder operator is in training cannot be regarded as anything but a business related expense in the absence of clear and unequivocal evidence that the asset was acquired for their personal use. It cannot be taken into account in a computation of the number of hours an asset was used by such an individual for his personal benefit. The assumption of the respondent stated in his reply to the notice of appeal that the asset was used by Mailhot primarily for his personal pleasure and to allow him to enhance his flying experience was not proven and is not supported by the evidence. It is pure speculation on his part.

In Edward Tercier and Tercier Motors Ltd. v. M.N.R., [1984] C.T.C. 2629; 84 D.T.C. 1620 Christie, A.C.J.T.C. held that the costs of training a pilot to operate a company's helicopter is an expense of the corporation if the aircraft is to be used for business purposes and such costs cannot be imputed to the operator himself as a benefit or advantage under paragraph 15(1)(c) of the Act. At page 2631 (D.T.C. 1622) he says:

In the circumstances I see no reason why that portion of the $7,560.40 which is related to the time spent training Tercier to fly the helicopter is not properly deductible by the company as an expense incurred by it for the purpose of gaining or producing income within the meaning of pargraph 18(1)(a) of the Act. The fact that Tercier was the principal shareholder of the company is irrelevant. The clear distinction of identity between a corporation and its shareholders must not be lost sight of: Salomon v. Salomon & Co. Ltd., [1897] A.C. 22.

The same rationale applies in the present appeal.

In so far as the trips related to the emergency event which required the attendance of Mailhot in Thunder Bay in 1980 at a time when he was vacationing in Florida, I consider these trips as business motivated. I cannot distinguish them from any other business trip on behalf of the company. This is not the situation of a taxpayer commuting between his residence and his place of business. Mailhot happened to be vacationing when this unexpected event occurred that required him to interrupt his holidays. There is a material distinction between this situation and the one described in the decision of the Tax Appeal Board in Starky v. M.N.R., 27 Tax A.B.C. 6; 61 D.T.C. 360 in which the appellant therein had taken up residence for the summer in Jasper and was commuting regularly to Edmonton, his place of business. The Board held that under such circumstances the flights to and from Jasper were for his own convenience and therefore of a personal nature. Even if it was conceded that these flights from Florida to Thunder Bay and return had to be attributed to Mailhot personally the number of hours involved added to the hours of personal use shown on the schedule for the year 1980 would amount to 32 per cent of the total flying time of the aircraft for the year. Hardly a percentage that is indicative of use that is primarily for the personal use or enjoyment of Mailhot.

The appeals of Superior are allowed and the assessments for the 1979, 1980 and 1981 taxation years referred back to the respondent to be reassessed in accordance with the provisions of the settlement agreed to by the parties as indicated at the commencement of these reasons. I make no order with respect to costs on those appeals. The appeal of Mid-West for 1979 is dismissed, and its appeals for 1980 and 1981 taxation years are allowed and the assessments referred back to the respondent to be reassessed on the basis that the capital losses as claimed by the company were a proper deduction in computing its income as the yacht and the two aircraft owned by it were corporate assets used in its business and not personal use property within the meaning of paragraph 54(f). In so far as Mailhot is concerned the appeals respecting his 1979, 1980 and 1981 taxation years are also allowed and the assessments referred back to the respondent for reassessing in accordance with the provisions of the settlement agreed to by the parties with respect to the amounts added back to his income as a benefit from the use of Superior's assets. In so far as the alleged benefit derived from the use of the assets of Mid-West is concerned the amounts added back to his income by the respondent must be deleted.

All these assessments are referred back to the respondent for reassessment in accordance with these reasons.

Mid-West and Mailhot are both entitled to their costs on a party-party basis.

Appeals allowed in part.