Yorkton Broadcasting Company Limited v. Minister of National Revenue, [1987] 1 CTC 2222, 87 DTC 165

Sarchuk, T.C.J.:—Yorkton Broadcasting Company Limited (Yorkton) appeals from reassessments of income tax with respect to its 1978 to 1981 taxation years. The appellant is a corporation which during these years carried on the business of operating a radio and television station at Yorkton, Saskatchewan. At all relevant times Edward Laurence (Laurence) owned 49 per cent of the issued shares of the appellant. He was the vice-president/ secretary-treasurer of the appellant, as well as the general manager of the radio station. During each of the aforesaid taxation years Yorkton owned and operated aircraft purportedly for the purpose of carrying out various aspects of its business operations. In computing its income from its business for these taxation years Yorkton deducted capital cost allowances deter mined by reference to the cost to it of such aircraft and all expenses incurred by it in operating such aircraft.

Three aircraft form the focal point of the reassessments under appeal. The first, a Piper Cherokee, was owned by the appellant at least from its 1978 taxation year until it was sold in its 1981 taxation year. The respondent's reassessments in so far as they related to this aircraft were based on the fact that during the 1978, 1979, 1980 and 1981 taxation years of the appellant, the Piper Cherokee was leased to another company and the appellant reported rental revenue for it. At the commencement of the trial the appellant conceded that the respondent properly determined the capital cost allowance of the Piper Cherokee aircraft on the basis that it was leasing property owned by the appellant pursuant to Regulation 1100(15) of the Regulations. To that extent the assessments are affirmed.

In December 1978 the appellant acquired a second aircraft, a Cessna Hawk. It is the respondent's position that in the 1979, 1980 and 1981 taxation years this aircraft was flown 60 per cent of the time for personal use and 40 per cent of the time for business use and that this ratio of personal to business use was properly determined for the purposes of paragraphs 20(1)(a) and 18(1 )(a) of the Income Tax Act.

The appellant takes the position that there was no personal use of the Cessna Hawk and that it correctly determined its income subject to tax and its tax payable in this context in accordance with the provisions of the Act.

The third aircraft is a Cessna P210. The appellant's position is that this aircraft was acquired on or about August 29, 1981 (that is in its 1981 taxation year) and that it was entitled to include its cost for the purpose of determining its undepreciated capital cost at the end of that taxation year. Yorkton contends that it properly computed and deducted the capital cost allowance based thereon.

The respondent reassessed on the basis that the appellant did not acquire the Cessna P210 until after the end of its 1981 taxation year with the consequence that it is excluded in calculating the appellant’s capital cost allowance in that year.

One further issue is before the Court. In its 1979 and 1981 taxation years the appellant deducted from the tax otherwise payable by it for such taxation years investment tax credits in respect of the capital cost to the appellant of the Cessna Hawk and Cessna P210 aircraft on the basis that these aircraft were qualified property or qualified transportation equipment as defined by section 127 of the Act.

The respondent reassessed on the basis that neither aircraft was qualified property or qualified transportation equipment as defined in sections 127(10) and 127(10.1)(v) of the Act and Regulation 4601 (f)(i) of the Regulations with the consequence that each aircraft is excluded in calculating the appellant’s allowable investment tax credit within the meaning and for the purpose of subsections 127(5) and 127(9) of the Act.

As was the case with the capital cost allowance calculations the respondent also contended that the Cessna P210 was not acquired in taxation year 1981.

The appeals depend upon the Court's determination of the following questions:

1. When did the appellant acquire the Cessna P210?

2. Was the respondent wrong in assuming that the ratio of personal to business use of the Cessna Hawk aircraft in taxation years 1979, 1980 and 1981 was 60 per cent personal and 40 per cent business?

3. Were the Cessna Hawk and Cessna P210 aircraft qualified property or qualified transportation equipment as defined in section 127 of the Income Tax Act?

With respect to the first question the appellant's position that the Cessna P210 was acquired in taxation year 1981 is based on the existence of a retail purchase order dated August 28, 1981 (Ex. AP-1) and upon the evidence of Laurence and of Robert John MacPherson (MacPherson), the owner of Prairie Flying Service (1976) Ltd. (the Dealer). According to counsel for the appellant the retail purchase order constituted the contract of purchase and sale between the appellant and the Dealer. He noted that the terms of this contract provided, inter alia, that:

(a) title to the goods passes to the purchaser when the full purchase price is paid or the Dealer accepts other financial arrangements satisfactory to the Dealer (Ex. AP-1, paragraph 5);

and contended that the Dealer was satisfied with the financial arrangements set out in the retail purchase order and that title to the goods therefore passed to the appellant. This, it was submitted, was consistent with other facts, such as:

(b) the Dealer agreed to make modifications to the aircraft to a value of $6,000 to $8,000;

(c) the goods were in existence when the contract was made;

(d) the dealer accepted the trade-in of the Cessna Hawk;

(e) the retail purchase order specified that it is the intention of the parties that when the order is accepted by the Dealer it is a fully enforceable contract (Ex. AP-1, paragraph 9);

MacPherson stated that on August 28, 1981 the Cessna Hawk was accepted in trade on the purchase of the Cessna P210 with the balance of the purchase price to be financed. He testified that the “trade-in arrangements" were satisfactory to the Dealer and that “they had a contract" as of that date, adding that he would not have agreed to commence the modifications requested by the appellant unless he was satisfied that the Cessna P210 was in fact sold.

MacPherson agreed that the modifications were not completed until on or about October 5, 1981. Coincidentally on this date a second document, a retail instalment contract (Ex. AP-2) between the dealer and Yorkton was executed. With respect to this retail instalment contract counsel for the appellant suggested that it was merely the mechanism by virtue of which the remaining balance of the purchase price was financed by Yorkton, but had nothing to do with the actual contract of purchase and sale. Finally although his evidence is somewhat vague it is not seriously disputed that possession of the Cessna P210 was taken by Yorkton on approximately October 16, 1981.

The respondent's position was that there was no absolute contract of sale in August 1981. The transfer of the aircraft was to take place at a later, unspecified time; conditions still had to be fulfilled by the Dealer; financial arrangements had not been concluded and possession was not taken by the appellant until October 1981. These factors, it was submitted, precluded a conclusion that the aircraft was acquired in the 1981 taxation year.

Pursuant to subsection 127(9) the “investment tax credit" of this taxpayer at the end of its 1981 taxation year is to be calculated in respect of the capital cost to it of a qualified property or qualified transportation equipment acquired by it in the year. With respect to the meaning of this phrase counsel for the respondent relies on M.N.R. v. Wardean Drilling Ltd., [1969] C.T.C. 265; 69 D.T.C. 5194 and upon section 20, Rule II of the Sale of Goods Act, R.S.S. 1978, c. S-1 which reads:

20. Unless a different intention appears the following are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer:

Rule II. Where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state the property does not pass until that thing be done and the buyer has notice thereof.

Counsel for the appellant contended that subsection 19(2) of the Sale of Goods Act required the Court to have regard to the terms of the contract, the conduct of the parties and the circumstances of the case for the purpose of ascertaining the intention of the parties. Subsection 19(1) of the Sale of Goods Act was also relevant in that it provided that where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at the time the parties to the contract intended it to be transferred. Counsel argued that the evidence of Laurence and of MacPherson established the intentions of the parties. When the Dealer accepted the trade-in it was obviously satisfied with the financial arrangements and as a result property passed to Yorkton in accordance with paragraph 5 of the Retail Purchase Order. This was, according to counsel, express evidence of the intentions of the vendor and the appellant which demonstrated that a binding contract existed on August 28, 1981.

I do not agree. Reference to the Sale of Goods Act and in particular the subsections referred to by counsel lead me to the conclusion that the retail purchase order relied upon by the appellant is not a contract of sale and purchase but at best an agreement to sell. Title did not pass to Yorkton in taxation year 1981 and would not have passed to it until some time in the future when the full purchase price was paid (paragraph 4, Ex. AP-2). Indeed in response to a question MacPherson stated that in the event the financing arrangements had fallen through in the interim he would have continued to own the aircraft.

With respect to the August 28 transaction MacPherson testified that the balance of the purchase price was to be financed. He said

Q. So in respect of this August 28th retail purchase order it would have been possible, for example, for Yorkton Broadcasting to be financed through, say, the Royal Bank or someone else in the city, for example?

A. That’s correct. Mr. Laurence could have financed wherever he wished to. This is one of the options that was available to him at that time.

This financing was not completed until the aircraft was delivered to Yorkton in October 1981. There was no evidence before the Court that any financing arrangements had been made as at August 28, 1981. In fact Mr. Laurence said:

I went to banks to discuss financing and I went to the Bank of Montreal, my bank, they were doing some work with us on our building. The Bank of Montreal didn’t feel that they could do any better than that offered through, the financing offered through Cessna. Our intention was to get as long-term financing as we could, so we waited until the Cessna financing came up.

The “Cessna financing” referred to by Laurence was the retail instalment contract, (Ex. AP-2) dated October 5, 1981.

In my view the reasoning in Wardean is applicable to the case at bar. The facts, as set out in the headnote are as follows:

Toward the end of 1963, the respondent oil well drilling company . . . decided to purchase an additional drilling rig and subsidiary equipment. Orders were given for the rig and equipment, invoices received, and documents regarding terms of payment exchanged with the vendors before the end of the year. Delivery of the drilling rig (an existing rig which had to be modified for the respondent company's purposes) took place in February 1964; delivery of the subsidiary equipment (which had to be manufactured to the company’s specifications) took place later in 1964. Maintaining that the company had not acquired the drilling rig or the subsidiary equipment in 1963, the Minister disallowed the capital cost allowance claimed by the company on these two items in its 1963 return. The company contended that it had acquired both items in 1963 because, prior to the end of that year, there existed binding and enforceable contracts of sale and purchase in respect of the rig and equipment. . . .

The Court held that:

The respondent company was not entitled to deduct the capital cost allowance it had claimed in 1963 on the drilling rig and the subsidiary equipment. Neither item had been acquired by the company in 1963. . ..

In his judgment Cattanach, J. stated at 266 (D.T.C. 5194):

On the other hand, while admitting that the rig and substructure were not paid for or delivered until the year 1964, the respondent contends that both such items were acquired during the 1963 taxation year because prior to the end of that year there was in existence a binding contract of sale and purchase enforceable by the vendor against the respondent and conversely and that, therefore, the respondent is entitled to capital cost allowance on these two items of equipment in its 1963 taxation year even though they were not delivered until 1964.

He went on to say at 270 (D.T.C. 5197):

In section 20(5)(e) of the Act "undepreciated capital cost" is defined as follows:

(5) In this section and regulations made under paragraph (a) of subsection (1) of section 11,

(e) "undepreciated capital cost" to a taxpayer of depreciable property of a prescribed class as of any time means the capital cost to the taxpayer of depreciable property of that class acquired before that time, minus . . .

The decision in this appeal turns on the question as to when the rig and substructure were "acquired" by the respondent. The submission on behalf of the respondent was, as I understood it, that goods are acquired by a purchaser thereof when the vendor and the purchaser have entered into a binding and enforceable contract of sale and purchase. The test and concept of a contract was that adopted by the Tax Appeal Board in the decision now under appeal.

With all deference I cannot accede to that view.

In my opinion the proper test as to when property is acquired must relate to the title to the property in question or to the normal incidents of title, either actual or constructive, such as possession, use and risk” [Emphasis added.]

Yorkton did not in any sense of the word take possession of the Cessna P210 until, at the very earliest, October 16, 1981. It did not have the use of the Cessna P210 prior to that time and in fact retained possession of and used the trade-in, the Cessna Hawk, throughout this period of time. Furthermore the Dealer was bound to do something for the purpose of putting the aircraft in a deliverable state.

Considering all of the evidence before me and in particular the circumstances surrounding the execution of the retail purchase order and the re- tail instalment contract as well as the conduct of the parties I have concluded that a contract to purchase the Cessna P210 did not exist as at August 31, 1981, the fiscal year end of the appellant. It follows that the Cessna P210 was not acquired in the appellant’s 1981 taxation year.

Turning now to the second question. The appellant is a company which carries on a broadcasting business deriving 98 per cent of its income from the sale of advertising. It contends that the very nature of its business is such that it is not practically possible to establish a direct link between a cost or expense relating to a public relations activity and a specific sale of advertising.

Mr. Laurence was its business manager during the relevant taxation years. Counsel for the appellant argued that given the unique nature of the broadcasting business, Laurence’s public relations activities formed an integral part of the success of the appellant. These activities included the use of the aircraft even in those instances when no specific business purpose could be ascribed to a flight. Flights during which Laurence was accompanied by a sponsor or advertiser client of the appellant which might otherwise be described as pleasure flights were, according to counsel, properly included in the category of business use. The appellant also contended that flights categorized by Laurence as training flights (which formed a large segment of the total flying time) were properly included as a business related activity on the basis that the training was undertaken to enable Laurence to fly exclusively on company business.

Counsel for the appellant submitted that the Department of National Revenue accepted that a taxable benefit under paragraph 15(1)(c) of the Income Tax Act was derived only when a shareholder has made “considerable use” of an aircraft, and that it regarded considerable use as being one- third or more of the total flying time. (paras. 5, 7, I.T. Bulletin 160R2)

With respect to that portion of the air time dedicated to training flights counsel cited Edward Tercier and Tercier Motors Ltd. v. M.N.R., [1984] C.T.C. 2629; 84 D.T.C. 1620. In that case it was held that the expense involved in training an individual to fly a helicopter was deductible because the helicopter was to be used for business purposes. The fact that the trainee was the principal shareholder of the corporation was found to be irrelevant in the factual context of that case.

The respondent's position is that although Yorkton owned an aircraft which it occasionally used in the course of its business the evidence adduced fell far short of establishing the level of use for business purposes claimed. Counsel for the respondent led Laurence through a thorough examination of his flight log (Ex. AP-3) and flight book (Ex. AP-4). He submitted that any reasonable analysis of Laurence's testimony with respect to the nature and purpose of the flights recorded made it obvious that there was very substantial “personal use” of the aircraft.

Although all flights made in the taxation years in issue were canvassed by counsel I propose to refer only to 1979. In that year the total air time of the Cessna Hawk was 123.3 hours. Counsel established that 19.6 hours were related to maintenance and/or repair and 15.3 hours were devoted to training. He submitted that the evidence elicited from Laurence in cross- examination established that 56.1 hours of flight time related strictly to Laurence's personal use of the aircraft. Using these figures he calculated that the maximum number of hours which could be ascribed to business use was 31.6 hours.

Counsel for the respondent further submitted that the 56.1 hours personal use represented approximately 46 per cent of the total flying time while business use accounted for 25 per cent of that time (maintenance and training accounting for the balance.).

I do not necessarily accept the absolute accuracy of the ratio of Laurence's personal use of the aircraft in 1979 as calculated by counsel. However it is not necessary for the respondent to establish this ratio with such exactitude. Rather it is incumbent on the appellant to demonstrate that the assumptions of fact which led the respondent to utilize a 60/40 personal use to business use ratio were wrong.

The evidence elicited from Laurence makes it apparent that personal use of the Cessna Hawk by Laurence was not incidental to business use. Furthermore the evidence does not support a finding that there was some business purpose present in virtually every flight as alleged. Exhibits AP-5 and AP-8 are analyses of the aircraft logs prepared by the appellant covering the period from December 1978 to August 31, 1982. His analysis of the period December 1, 1978 to October 16, 1981 shows total flight time of 328 hours and 54 minutes. The time allocated by the appellant to personal use was one hour and three minutes or .3 per cent of that total. For the period October 22, 1981 to August 31, 1982 (the first year of operation of the Cessna P210) there was alleged to be no personal use in a total flight time of 91.18 hours.

This evidence is not credible. It flies in the face of the facts to submit that personal use of the aircraft by Laurence was negligible and that business use accounted for nearly 100 per cent thereof. For example for the 1979 taxation year the evidence discloses, inter alia, the following flights:

The foregoing flights total 52.3 hours of air time. Laurence explained that the Winnipeg flights were made in whole or in part to consult with a national sales representative. He told the Court that the selling of broadcast time in the immediate broadcast area is carried out by four local salesmen and a manager. (I note that neither Regina or Saskatoon are within this area). National companies which sell products throughout Canada are handled by national representatives (not employees of the appellant) who report to the appellant by telephone on a monthly basis and who visit the appellant once or twice a year. Laurence’s evidence implies that on at least three occasions additional flights to Winnipeg for consultations were necessary.

Mr. Laurence's testimony fails to convince me that all of the flights taken to Winnipeg, to Regina or to Saskatoon were the result of the compelling nature of Yorkton's business in those cities which required such frequent and immediate attendance. On the face of it many of these trips appear to be nothing more than personal trips which are being camouflaged by the so-called business meetings. The evidence elicited from Laurence suggest little if any business purpose in these flights and graphically demonstrates the failure of the appellant to satisfy this Court that there was only incidental personal use of the aircraft.

On balance the appellant has failed to show that the respondent's assessment, based as it was on assumption that in 1979, 1980 and 1981 the Cessna Hawk was flown 60 per cent of the time for personal use, was wrong.

The decision in E. Tercier et al., (supra), affords limited assistance to the appellant. In that case the Court found that the helicopter was to be used for business purposes and that as a result the expense involved in training the individual taxpayer to fly the aircraft was deductible. In the case at bar where the facts disclose that the aircraft was dedicated more to personal use than to business use it is certainly not wrong to allocate the time attributed to training between those two uses. That is the effect of the respondent's assessment and I see no error therein.

Turning to the third question, in view of my earlier conclusion that the Cessna P210 aircraft was not acquired by the appellant in taxation year 1981 it follows that this aircraft is to be excluded in calculating the appellant’s capital cost allowance and business investment tax credit calculations in that taxation year.

What remains to be determined is whether the Cessna Hawk which was acquired in taxation year 1978 was “qualified transportation equipment" as defined in the Act and whether the appellant was entitled to deduct certain investment tax credits in that year in respect of the capital costs thereof.

Investment tax credit is defined as follows:

127(9) For the purposes of subsections (5) to (8) and subject to subsection (11.1), “investment tax credit” of a taxpayer at the end of a taxation year means the amount, if any, by which the aggregate of

(a) an amount equal to 5% of the aggregate of all amounts each of which is the capital cost to him of a qualified property or qualified transportation equipment acquired by him in the year or the amount of a qualified expenditure in respect of scientific research made by him in the year, determined without reference to subsection 13(7.1). [Emphasis added.]

This subparagraph must be read in conjunction with subsection 127(10.1) which provides:

127 (10.1) Definitions. For the purposes of subsections (9) and (10),

(d) “Qualified transportation equipment’’ — of a taxpayer means prescribed equipment acquired by him after November 16, 1978 that has not been used, or acquired for use or lease, for any purpose whatever before it was acquired by the taxpayer and that is”

(i) to be used by him principally for the purpose of transporting passengers, property or passengers and property, in Canada or to and from Canada, in the ordinary course of carrying on a business in Canada other than a business . . . [Emphasis added.]

There is no dispute between the parties that an aircraft is prescribed equipment for the purposes of paragraph 127(10.1)(d).

Three elements must be established by the appellant. These are (a) that the Cessna was used for the purpose of transportation of passengers and/or property; (b) that this was its principal use; and (c) that such use occurred in the ordinary course of the appellant carrying on its business.

With respect to the word “principally” as it is used in subparagraph (i) counsel for the appellant urged the Court to accept the meaning given to that word by the Department of National Revenue in IT Bulletin 443. This Bulletin discusses the restrictions set by Regulation 1100(15) - (20) with respect to the amount of capital cost allowance that can be claimed on leasing property owned by a taxpayer. Paragraph 3 reads:

3. The word “principally” in the definition of leasing property in Regulation 1100(17) means “primarily” or “chiefly”. In establishing whether a depreciable property is used principally for a given purpose, the determining factor is the proportion of time that the property is used for that purpose. Property used more than 50% of the time for the purpose of gaining or producing gross revenue that is rent, royalty or leasing revenue is considered to be used principally for that purpose. Such revenue includes charter fees and other revenue for the use of a vessel leased to an operator on a “bare-boat” basis.

Counsel for the appellant contended that paragraph 127(10.1 )(d) does not state that the appellant’s business has to be that of transporting passengers and/or property, and clearly it was not. He argued:

. . that the phrase “transport or passengers”, etc., really just means that it is used to carry on business in Canada. I think that is really what the legislative draftsman was getting at at the time.

Counsel submitted that on the evidence before the Court the appellant met that test.

The respondent takes the position that the aircraft was used, at best, no more than 40 per cent of the time for business purposes and therefore did not qualify. Counsel also cited two decisions in which the meaning of the words contained in paragraph 127(10)(c), “qualified property means a property . . . acquired by the taxpayer ... to be used by him . . . primarily .. .” were considered. These are: Bunge of Canada Ltd. v. The Queen, [1984] C.T.C. 284; 84 D.T.C. 6276; and O'Neill v. The Queen, [1984] C.T.C. 682; 85 D.T.C. 5026. Although not expressed quite so baldly it appears that the respondent's position is that the words “principally” and “primarily” are virtually synonymous. Accordingly these decisions are of precedential value in interpreting the meaning of the word “principally” as it is used in paragraph 127(10.1)(d).

In the Bunge case the appellant purchased new equipment which discharged grain from its grain elevators into ships docked at a wharf situated at about 200 feet from the elevators. The appellant took the position that that equipment was to be used “primarily for the purpose of. . . the storing of grain” and accordingly claimed investment tax credits in the taxation years in issue. The Federal Court of Appeal found that the equipment required to discharge grain from the appellant’s silos was equipment used for the “storing of grain” because the discharge of grain from a silo appeared to the Court to be a necessary and integral part of the storing of the grain. That being the case the new discharging facilities were used by the appellant primarily for the purpose of the storing of grain.

In O'Neill the appellant was in the business of purchasing fish from fishing boats and selling them to processors. He purchased equipment which unloaded fish from the boats by a vacuum method. The method also cleaned and removed the scales from most fish, and the fish were less likely to be bruised than under the former method of unloading fish. The appellant took the position that the equipment was acquired by him to be used primarily for the purpose of processing fish and accordingly claimed that investment tax credit. The Court found that the equipment was not "qualified property” as it was not used primarily for the purpose of processing fish. The cleaning and scaling of the fish was at best a fringe benefit and did not put the appellant in the processing business. In the course of his judgment Cullen J. stated:

In my view the plaintiff’s appeal fails on the ground that the ABCO air unloader was not used primarily for the purpose of manufacturing or processing fish. The benefits accruing the plaintiff were incidental to the main purpose of his work, namely buying and selling fish.

Counsel for the appellant argued that these decisions were not analogous and that the Court ought not to place reliance upon them. I must note that this position is somewhat inconsistent in that the appellant itself relies on Interpretation Bulletins in which the Department of National Revenue clearly and unequivocally stated that the terms "primarily” and "principally” both mean "chielfly” and are used interchangeably. Notwithstanding that, I agree that Bunge and O'Neill were decided on substantially different facts and are for that reason of limited assistance.

He further submitted that paragraph 127(10.1)(d) was to be construed most broadly and urged the Court to look at the legislative history of these provisions. This was permissible for the purpose of interpreting a statute and was done by the Federal Court of Appeal in Lor-Wes Contracting Ltd. v. The Queen, [1985] 2 C.T.C. 79; 85 D.T.C. 5310 (F.C.A.), to enable that Court to determine the purchase of an investment tax credit when interpreting the meaning to be given to the definition of qualified property.

Counsel also noted that the Supreme Court of Canada in Jean-Paul Gagnon v. The Queen, [1986] 1 C.T.C. 410; 86 D.T.C. 6179 referred to an article in the Queen's Law Journal in the course of considering the purpose of paragraph 60(b) of the Income Tax Act and in Stubart Investments Limited v. M.N.R., [1984] C.T.C. 294; 84 D.T.C. 6305 (S.C.C.) Estey, J. stated that when interpreting an enactment a Court must examine the theme, intent and policy object of the enactment.

These cases were authority for the submission that this Court should consider the wording of paragraph (i) of Resolution 2 of the Notice of Ways and Means Motion to amend the Income Tax Act which added the definition of qualified transportation equipment to the Act. In particular counsel referred to the comments of the then Minister of Finance, who stated:

The importance of transportation was strongly emphasized by First Ministers last February. A modern and efficient transportation system is fundamental to prosperity throughout this vast country. I am therefore proposing that investment in equipment for rail, air, water and long-haul road transportation now qualify for the basic 7 per cent investment tax credit.

Counsel submitted that:

the foregoing made it clear that paragraph 127(10.1)(d) should be interpreted to mean that any aircraft used principally for the purpose of carrying on a taxpayer’s business in Canada is entitled to investment tax credit.

Although conceding that Mr. Laurence on occasion used the aircraft to carry gratuitous passengers, it was argued that such use was incidental, occurring only when the aircraft was used in the ordinary course of the appellant's business. The fact that these passengers were gratuitous was irrelevant: Kenny v. C.P.R. (1902), 5 Terr. L.R. 420; Scott v. Marshall (1965), 54 W.W.R. 1 (B.C.S.C.). It was also the appellant’s position that even if Laurence flew the plane with no other person on board, he should be considered, for the purposes of this section, to be transporting himself as a passenger.

With respect to the “transportation of property" counsel referred to subsection 248(1) of the Income Tax Act which reads in part:

Property means property of any kind whatever whether real or personal or corporeal or incorporeal and, without retricting the generality of the foregoing, includes

(a) a right of any kind whatever, a share or a chose in action, . . .

He argued that Mr. Laurence “always had some form of property with him — whether it be advertising material, public relations material or legal documents" during the course of these flights, and that this met the test of “transporting property". In support he cited MacDonald Estate v. M.N.R., 1 Tax A.B.C. 250; 50 D.T.C. 109 (T.A.B.); Wheeler Air Lines Ltd. v. M.N.R., 35 Tax A.B.C. 179; 64 D.T.C. 290 (T.A.B.), and M.N.R. v. Wain-Town Gas and Oil Co. Ltd., [1952] C.T.C. 147; 52 D.T.C. 1138 (S.C.C.).

It is not disputed that there were occasions when the aircraft was utilized to transport radio station personnel for business purposes. It is also a fact that a substantial portion of the “business use" of the aircraft involved the carriage of Laurence alone or in the company of his wife.

The word “passenger" has been variously defined and there is no definition of general application. Black's Law Dictionary (5th Ed.) states, and I quote the relevant part:

Passenger: In general, a passenger is one who gives compensation for a ride. . . . The word passenger has however various meanings, depending upon the circumstances under which and the context in which the word is used; sometimes it is construed in a restricted legal sense as referring to one who is being carried by another for hire; on other occasions, the word is interpreted as meaning any occupant of a vehicle other than the person operating it. American Mercury Ins. Co. v. Bifulco, 74 N.J. Super. 191, 181 A. 2d 20, 22. [Emphasis added.]

The Shorter Oxford English Dictionary defines the word:

Passenger: One who travels in some vessel or vehicle, esp. on board ship or in a ferry — or passage-boat; later applied also to travellers by any public conveyance entered by fare or contract. (The prevailing sense.)

Counsel for the respondent referred the Court to several decisions in which the term “passenger" was considered. Most of these decisions related to sections of provincial Vehicles Acts and must be considered with care.

In Koos v. McVey, [1937] O.R. 369, the Court of Appeal for Ontario held that the words “any person being carried in . . ." meant any person other than the owner or driver of the motor vehicle. In Scott v. Marshall the Superior Court of British Columbia held that the word “passenger" in the Motor Vehicles Act, R.S.B.C. 1979, c. 288 was to be construed as the equivalent of “person being carried in" but should not be restrictively construed so as to exclude an owner riding in his own vehicle being driven by another person. However it is reasonable to infer from the reasons of the Superior Court that an owner/driver would not have been included in the meaning of the word “passenger".

In Digby v. General Accident, Fire and Life Assurance Corporation Limited, [1943] A.C. 121 (H.L.) Viscount Maugham, in the course of considering the provisions of a policy of insurance by virtue of which the policyholder was indemnified against all sums which the policy should “become legally liable to pay in respect of any ‘claim by any person', including passengers in the motor car" stated at page 132:

I will add to this that, in my view, a driver is clearly not a passenger.

This comment may well be obiter dictum, but it has persuasive value.

Generally speaking the word “passenger" appears to describe a person who is being conveyed from one place to another, but who does not have any responsibility for the conduct of the conveyance, be it motor vehicle, aircraft or vessel. In my opinion the ordinary everyday use of the word “passenger" makes it clear that it cannot be applied to a person piloting an aircraft.

With respect to the submissions by counsel for the appellant that there was adequate evidence of the transportation of property I can only say that Laurence's occasional carriage of corporate documents in his briefcase is not the economic policy objective sought by the legislators when they enacted the relevant sections.

It follows therefore that not all of the 40 per cent of the air time which was accepted by the respondent as being attributable to business use can be considered in my determination of the “principal use of the aircraft" for the purposes of paragraph 127(10.1 )(d). However even if it could be so considered I have concluded that the meaning of the word “principally" in the context of the section in issue cannot be satisfied by facts which establish no more than a 40 per cent use of the aircraft for business related purposes. I note as well that the Shorter Oxford English Dictionary defines “principally" as follows:

principally: in the chief place, mainly, above all; for the most part, in most cases.

Even if the section were to be as generously construed as urged by counsel for the appellant, on the evidence before me I am not at all convinced that this aircraft was used “principally" or “chiefly" or “mainly" or for the most part or in most cases for the purposes of transporting passengers and/or property.

Accordingly the appeals are dismissed.

Appeals dismissed.