Walsh, J:—This is an appeal from income tax assessments dated January 30, 1964 and March 21, 1967 for appellant’s 1961 taxation year. There are two distinct issues involved in the appeal, the first arising out of the manner in which appellant disposed of certain of its assets in connection with its Jeune Landing lumbering operations on Northern Vancouver Island, and the second with the manner in which it apportioned the expenses arising out of the operation of the vessel "Norsal" used by it partially for business purposes and partially for personal use by its shareholders. The facts relating to the first of these issues are set out in paragraphs 1 to 10 of appellant’s Notice of Appeal, which read as follows:
1. The Appellant was incorporated under the laws of British Columbia and carried on, at all material times, a business of logging.
2. Since 1946, the Appellant and its predecessors logged under agreements with Rayonier Canada Limited certain areas near Jeune Landing on Northern Vancouver Island in the Province of British Columbia.
3. In anticipation of the termination of the logging agreements referred to in paragraph 2 hereof, and under an agreement made as of the 15th day of December, 1959, the Appellant agreed with Rayonier Canada Limited to cause a new company to be incorporated as a wholly-owned subsidiary and to sell to the said new company all land, timber, camp buildings, equipment, machinery and other goods and property forming part of, or used in connection with the carrying out of the said logging agreements with Rayonier Canada Limited, the latter agreeing that it or its nominee would purchase al! of the shares in the capital stock of the said new company and any debt of the new company to the Appellant.
4. Pursuant to the agreement, to which reference is made in paragraph 3 hereof, the Appellant caused a new company called Quatsino Logging Ltd to be incorporated and on or about the 30th day of June, 1960, subscribed for and paid for in cash at $1.00 per share ten fully paid up shares in the capital stock of Quatsino Logging Ltd.
5. On or about the 30th day of June, 1960, the Appellant sold to Quatsino Logging Ltd the property and assets to which reference is made in paragraph 3 hereof for the sum of $84,212.75, being $26,212.75 for the land and $58,000.00 for the remaining assets, and caused Consolidated Forest Products Ltd to sell to Quatsino Logging Ltd a truck and trailer for the sum of $32,000.00.
6. On or about the 1st day of August, 1960, Consolidated Forest Products Limited assigned to the Appellant all of its right, title and interest in the sum of $32,000.00 owed to it by Quatsino Logging Ltd.
7. On or about the 1st day of August, 1960, the Appellant sold at face value to Rayonier BC Limited, nominee for Rayonier Canada Limited, the sum of $116,212.75 owed to it by Quatsino Logging Ltd (being the aggregate of the sums of $26,212.75, $58,000.00 and $32,000.00 referred to in paragraphs 5 and 6 hereof).
8. On or about the 1st day of August, 1960, the Appellant sold all of its shares in the capital stock of Quatsino Logging Ltd to Rayonier BC Limited, nominee for Rayonier Canada Limited, for the sum of $141,579.99. 9. The sale price of the depreciable assets (the sum of $58,000.00 referred to in paragraph 5 hereof) sold by the Appellant to its wholly-owned subsidiary, Quatsino Logging Ltd, was approximately equal to their undepreciated capital cost.
10. The Respondent considered that the sale of the depreciable assets owned by the Appellant, to which reference is made in paragraph 5 hereof, was not made for the sum of $58,000.00 but for the sum of $199,787.25. In assessing the Appellant for the taxation year 1961, the Respondent included in the income of the Appellant an amount of $109,557.54 as recapture of the depreciation of property forming part of certain prescribed classes where a credit existed in the asset pool as at the end of the Appellant’s taxation year 1961, and also reduced the undepreciated capital cost of other prescribed classes by an amount of $90,229.71.
Respondent admits paragraphs 1 to 6 inclusive and paragraph 10 but does not admit paragraphs 7, 8 and 9.
Respondent states that in assessing the appellant with respect to the sale of the assets he assumed that:
(a) The Appellant or its agents agreed with Rayonier Canada Limited or its agents to sell to the latter all lands, timber, camp buildings, equipment, machinery, and other goods and property, including depreciable property, with the exception of certain inventories, forming part of or used in connection with the Jeune Landing Logging Camp and operations of the Appellant or W F Gibson & Sons Ltd, all as more particularly set out in the appraisal thereof made in August 1959 by Universal Appraisal Co Ltd (hereinafter referred to as “the Jeune Landing assets”), for and in consideration of the sum of $272,000.00 which Rayonier Canada Limited undertook to pay;
(b) It was agreed between the parties as evidenced by an agreement between Gibson Bros Industries Ltd, W F Gibson & Sons Ltd, Albert Earson Gibson, James Gordon Gibson, John Lambert Gibson and William Clarke Gibson, and Rayonier Canada Limited dated the 15th day of December 1959 and executed the 30th day of June, 1960, that the said sale of the Jeune Landing Assets would be completed in accordance with the terms of that agreement and more particularly but without restricting the generality of the foregoing:
(i) by the Appellant causing a new company (ultimately known as Quat- sino Logging Limited and hereinafter referred to as ‘‘Quatsino’’) to be incorporated as a wholly-owned subsidiary of the Appellant;
(ii) by transferring the Jeune Landing assets to Quatsino for not less than $90,000.00;
(iii) by Rayonier then purchasing the shares of the Appellant in Quatsino for the sum of $272,000.00;
(c) Pursuant to the said agreement:
(i) Quatsino was incorporated on the 30th day of June 1960 as a wholly- owned subsidiary of the Appellant;
(ii) On or about the 30th day of June 1960 the Jeune Landing assets were transferred by the Appellant to Quatsino for the sum of $116,430.00 being $90,000.00 for depreciable assets of certain prescribed classes of the Income Tax Regulations, $217.25 for incorporation costs, and $26,212.75 for land and timber. On transfer, an account payable in the said sum of $116,430.00 was entered on the books of account of Quatsino in favour of the Appellant;
(iii) On the first of August 1960, the Appellant transferred its shares in Quatsino to Rayonier Canada Limited and received therefor the sum of $272,000.00 in money or money’s worth;
(iv) Thereafter the Jeune Landing assets were transferred by Quatsino to Rayonier at the former’s cost.
(d) Quatsino was, at all material times, a simulacrum, cloak, alias or alter ego of the Appellant or in the alternative, at all material times was the agent of either or both of the Appellant or Rayonier Canada Limited.
Respondent states that of the purchase price of $272,000 the sum of $199,787.25 was received by the appellant for the sale of depreciable property of certain classes, and after giving details of the distribution of this among the various classes and of the undepreciated capital cost of appellant’s assets in these classes prior to the distribution, concludes that the proceeds of distribution of the property of Classes 6, 9 and 10, exceeded the undepreciated capital cost to the appellant of the depreciable property of those classes immediately before the disposition in the amount of $109,557.54 which sum is included in the appellant’s income for the year pursuant to subsection 20(1) of the Income Tax Act.
Alternatively, respondent contends that if the agreement between the parties was not for the sale of assets but for the sale of shares, then appellant was engaged in an adventure in the nature of trade within the meaning of paragraph 139(1)(e) of the Income Tax Act in that it purchased shares in Quatsino with the full and sole intention of reselling the said shares to Rayonier at a profit in accordance with the agreement of December 15, 1959 and that in this event the sum of $141,570 should be included in computing appellant’s income for the year pursuant to sections 3 and 4 of the Income Tax Act, this being the portion of the sum of $272,000 which can reasonably be attributed to the purchase of the shares of Quatsino, the remainder of the said sum being reasonably attributable to the value of the assets transferred by the appellant to Quatsino immediately beforehand.
Respondent also pleads as an alternative that as a result of the said sales there was conferred on the appellant a benefit in the amount of $109,557.54 which sum should be included in computing appellant’s income for the year by virtue of subsection 137(2) of the Act.
During the course of his evidence, the company’s auditor, Mr Kelsey, said the exact total paid was $258,000 and not $272,000 as $14,000 of the original purchase price had been attributed to a lot with timber on it but this was fully logged by appellant during the first six months of 1960 so the price was reduced accordingly. Of the $258,000, $116,420.01 was shown as the indebtedness of Quatsino to appellant, which indebtedness was assigned by appellant to Rayonier, and the balance of $141,579.99 represented payment for the shares. The figure of $141,570 appears in the balance sheet of appellant for the year 1961 under “Earned Surplus” as “gain on sale of shares in Quatsino Logging Limited”. The difference between this and the approximately $141,580 paid for the shares represents the ten dollars subscription price for same.
Mr Gordon Gibson, one of the four Gibson brothers, who had been in the family logging business together since 1916 and eventually incorporated the appellant Gibson Brothers Industries Limited, testified in a very frank and lucid manner, and there is, in fact, little room for dispute as to the facts. By virtue of an agreement entered into on July 15, 1946 with the British Columbia Pulp and Paper Company Limited, he and his brothers at that time operating under the name of W F Gibson and Sons, undertook to log certain timber lands in the Jeune Landing area of British Columbia, which agreement was to expire on June 29, 1960. British Columbia Pulp and Paper Company Limited later became Alaska Pine and Cellulose Limited and by an agreement dated January 1, 1958, this company in turn assigned to Alpine Logging Limited all its rights in the 1946 agreement and supplemental agreement. Alpine Logging Limited is controlled by Rayonier Canada Limited and although the initial discussions and correspondence in 1959 dealing with what would happen when the agreement expired on June 29, 1960 were with representatives of Alpine Logging Limited, it was ap- parent to all parties that the decisions were being made by Rayonier Canada Limited, and although both companies are parties to the final agreement made on January 1, 1960 and executed June 30, 1960, as are W F Gibson and Sons Limited and the four Gibson brothers as well as the appellant Gibson Brothers Industries Limited, it is not necessary for the purposes of these proceedings to go into the intricate intercompany relationships and the agreement can be considered as having been one made between Gibson Brothers Industries Limited and Rayonier Canada Limited. While the appellant would have liked to continue the logging agreement after it expired, especially as it had all its equipment on the site, it soon became apparent that Rayonier preferred to do this themselves and that as they also had most of the equipment they would require in the area they were not anxious to purchase appellant’s equipment although at the same time they wished to treat appellant fairly in view of their long and friendly association. It was agreed to have a joint appraisal made of the value of the logging operation by independent appraisers, Universal Appraisal Company Limited, and their report dated August 7, 1959 gave as the depreciated value of all the buildings and equipment a figure of $1.- 000,620.30. As appellant had no other timber tracts on which they could use the equipment and there was very little market for the equipment in any event since many independent loggers were being forced out of business at the time, and the cost of moving it would absorb most of the value, appellant was not in a very good bargaining position.
The negotiations culminated in a letter of agreement dated December 15, 1959 whereby it was agreed to extend the logging agreement for six months to December 31, 1960 under terms and conditions which do not concern us here, the important clauses being clauses 2 and 3(a) which read as follows:
2. The Gibson Company will, at its own expense, cause a new company to be incorporated as a wholly owned subsidiary of the Gibson Company (hereinafter called “the new Company’’) and not less than thirty (30) days before the closing date shall have caused to be sold and transferred to the new Company, at an undepreciated capital cost for income tax purposes on the books of the new Company of not less than $90,000, all land, timber, camp buildings, equipment, machinery and other goods and property (exclusive of the inventories referred to in paragraph 3(h) hereof) forming part of or used in connection with the logging camp and operation at Jeune Landing of the Logger and/or of the Gibson Company (herein collectively called “the said assets”) all as are more particularly set out in the appraisal thereof made in August, 1959, by Universal Appraisal Co. Ltd. The new Company shall have such name, form and characteristics as shall have been first approved by Rayonier.
3. The parties hereto will enter into an agreement for the sale and purchase of the shares of the new Company and the said inventories substantially as follows:
(a) On some date after the termination of the 1946 Agreement to be agreed upon between the parties hereto but not later than February 15th, 1961 (herein called “the closing date”), Rayonier or its nominee will purchase all the issued shares in the capital of the new Company for a total consideration of $272,000, payable to the Gibson company in cash on the closing date subject to reduction as hereinafter provided.
The final agreement executed on June 30, 1960, contains substantially similar clauses (this date would seem to be incorrectly stated in the agreement since there is in the file a copy of a letter dated July 14, 1960 from Rayonier Canada Limited to appellant’s attorneys which commences "We enclose the Logging Agreement and the Sale Agreement, both in quadruplicate, for execution by your clients”). This letter reads, in part,
1. The assets, other than inventories, will be sold and transferred to Quatsino as at June 30th, 1960 for a total consideration of $116,212.75, comprising $90,000 for boats, fixtures, logging equipment, etc and $26,212.75 for land and timber. Quatsino will issue ten shares at $1.00 each to Gibson Bros industries Ltd, or its nominees, and the balance will be set up as an open account owing to Gibson Bros Industries Ltd. This sale and transfer will be fully reflected in the minutes of Quatsino . . .
5, Closing date will be August 1st, 1960.
6. On the closing date, you will deliver to us all documents necessary to complete the sale, including the executed Indemnity Agreement; the certificates, duly endorsed, representing all issued shares in Quatsino; the resignations of all the directors (being Gibson nominees); minutes accepting the resignations and approving the change in shareholders and directors; executed Assignment to be drawn by you from Gibson: Bros Industries Ltd to Rayonier BC Limited covering the debt arising on the sale of the assets to Quatsino; all documents executed in connection with the sale of the assets to Quatsino; and incorporation documents, company seal, Minute book, share register, share certificate book and all other pertinent contracts, books, records and material relating to Quatsino and its assets. If you wish us to draw the minutes referred to above, will you please give us particulars of the original shareholders and directors.
7. On the closing date, the agreed purchase price will be paid in full to Gibson Bros Industries Ltd. Unless you have some objection, we might prefer to complete our purchase by two distinct transactions, namely — pay $116,212.75 for the debt and pay the balance of the purchase price for the shares. Prior to closing, we must of Course agree upon any reduction in the purchase price by reason of any of the equipment, machinery, etc being no longer in existence or in unsatisfactory repair or condition.
Our nominees to be directors of Quatsino and owners of one share each in its capital stock are William E Breitenback, Ross R Douglas, Gordon L Draeseke, Peter Sloan and R W Blatchley. The other five shares will be acquired in the name of Rayonier BC Limited.
With respect to the incorporation of Quatsino, there is a letter dated May 10, 1960 from Rayonier Canada Limited to appellant’s attorneys which refers to the enclosure of "Memorandum and Articles of association, both in duplicate, of Quatsino Logging Ltd” and goes on to say: “We have reserved the name Quatsino Logging Ltd, for twenty-one days from April 29th last.” and a letter the next day dated May 11, 1960 from appellant’s attorneys to appellant stating that they have now received and enclose the proposed memorandum and articles of association of the company which is to be named “Quatsino Logging Ltd”, that they have looked through them and they appear to be in order and that the company has the ability to acquire the assets proposed to be transferred to it. The letter goes on to say: “Unless you find something objectionable, we propose to advise Rayonier that the documents are in order and to proceed with incorporation of the company.”
it is abundantly clear that although Quatsino Logging Ltd may have actually been incorporated by appellant’s attorneys, the ground work was laid by Rayonier Canada Limited and the form and characteristics of the company were approved by it. The balance sheet as of July 15, 1960 of Quatsino Logging Ltd shows an amount of $116,420.01 as owing to Gibson Brothers Industries Limited and this includes payment of the expenses of incorporation in the amount of $217.26 so appellant was reimbursed for this by Rayonier Canada Limited.
The extension of the logging agreement following June 30 proved to be unnecessary as the 47 million square feet called for under it had already been delivered by appellant prior to that date. Mr Gibson testified that all assets and inventories were turned over as of June 30, 1960 and appellant’s insurance coverage on them cancelled as of that date. Although the shares in Quatsino were not transferred. until August 3, he never at any time gave any instructions to the shareholders or directors of Quatsino, nor did Quatsino do any business of any nature whatsoever while a wholly-owned subsidiary.
It is necessary to explain the figure of $58,000 referred to in paragraph 19 of appellant’s Reasons for Appeal as the sale price of its depreciable assets which differs from the figure of $90,000 used in the agreement. One large piece of equipment consisting of a lumber truck and trailer valued at $32,000 was actually owned by Consolidated Forest Products Limited, a subsidiary of appellant and since this was included in the assets sold to Quatsino Logging Ltd, Consolidated Forest Products Limited, on August 1, 1960, assigned its rights to payment of this amount to appellant.
Respondent’s original reassessment in 1964 added the sum of $141,570 as profit on sale of shares of Quatsino Logging Ltd. Subsequently, by the 1967 reassessment, this sum was deleted but the appellant’s capital cost allowance schedules were adjusted so as to include recapture of capital cost allowance totalling $109,557.54 arising out of the alleged proceeds of disposition of depreciable property used in the Jeune Landing operation being $199,787.25. Respondent in its Reply to the Notice of Appeal, however, does not altogether abandon the contention that the sum of $141,570 resulted from an adventure in the nature of trade under paragraph 139(1)(e) arising out of the purchase of the shares in Quatsino with the full and sole intention of selling them to Rayonier at a profit in accordance with the agreement of December 15, 1959, but retains this as an alternative argument.
Respondent’s principal argument is based on paragraph 4(d) of its Reply to Notice of Appeal in which it is stated:
(d) Quatsino was, at all material times, a simulacrum, cloak, alias or alter ego of the Appellant or in the alternative, at all material times was the agent of either or both of the Appellant or Rayonier Canada Limited.
On the facts of this case I agree with this conclusion.
Appellant relies on the case of Sazio v MNR, [1968] CTC 579; 69 DTC 5001, which held at page 588 [5007]:
Ever since the Salomon case, [1897] AC 22, it has been a well settled principle, which has been jealously maintained, that a company is an entirely different entity from its shareholders, Its assets are not their assets, and its debts are not their debts. It is only upon evidence forbidding any other conclusion can it be held that acts done in the name of the company are not its acts or that profits shown in its accounts do not belong to it. The fact that a company may have been formed to serve the interests of a particular person is not sufficient to establish the relationship of principal and agent between that person and the company. In order to hold otherwise it must be found that the company is a “mere sham, simulacrum or cloak”.
It is significant to note the part of this quotation stating:
It is only upon evidence forbidding any other conclusion can it be held that acts done in the name of the company are not its acts or that profits shown in its accounts do not belong to it.
Certainly it is clear in the present case that Quatsino Logging Ltd was never formed with the intention of carrying on any business but that it merely acquired certain assets from appellant for which it eventually paid with funds furnished by Rayonier Canada Limited including even the costs of its incorporation, and that the second stage whereby Rayonier Canada Limited then bought the shares of Quatsino from appellant for the balance of the purchase price as previously agreed was part and parcel of one transaction whereby the assets in question were acquired for the price of $272,000 (less $14,000 deducted for lumber removed prior to the agreement as see supra).
Appellant’s attempt to distinguish the case of Claude Belle-Isle v MNR, [1964] CTC 40; 64 DTC 5041, approved in the Supreme Court, [1966] CTC 85; 66 DTC 5100, in which appellant sold a hotel to a corporation formed for the purpose of receiving payment partly in shares of the corporation and partly in the form of a mortgage, the value placed on the shares being the difference between the mortgage and the selling price. On the same date he sold the shares to a third party for a sum substantially in excess of the value attributed to them when he acquired them as part of the consideration for the sale of the hotel. The Minister at first sought to tax the whole profit as income from an adventure in the nature of trade as he did in the present case but later agreed to limit the taxable portion to an amount representing the recapture of capital cost allowance on the presumption that the second transaction established the true value of the shares and that this supported the recapture of the capital cost allowance. This was upheld. While in the present case the assets were not sold to Quatsino for a consideration expressed partially in cash and partially in shares of that company, they were in effect sold to Rayonier for a consideration to be paid in part in cash by Quatsino with funds provided by Rayonier and in part by Rayonier undertaking to buy shares which appellant would subscribe in Quatsino, at a pre-arranged price, greatly in excess of what appellant had paid for them. The intervention of a third company created apparently for this express purpose is not in my view sufficient to distinguish the situation here from that in the Belle-Isle case. The situation might have been different had appellant, knowing its logging agreement was about to expire, and without any prior discussions or agreement with Rayonier decided to incorporate a company and transfer to it the machinery and equipment of its Jeune Landing operations for $90,000 plus $26,- 212.75 for land and timber. At a later date, if it had then received an offer from Rayonier Canada Limited to buy the shares of this company which it had formed, it is likely that the question of recapture of capital cost allowance on the depreciable assets so disposed of would never have arisen and appellant might have been able to argue thai the profit realized on the sale of the shares of the company so formed was capital gain. I am expressing no opinion on this since this is not what happened, but I wish to emphasize the distinction between such a situation and the present one where the incorporation of Quatsino Logging Ltd was clearly part and parcel of the agreement from its inception and formed part of the method adopted for the eventual disposition of these assets to Rayonier Canada Limited.
Appellant relies strongly on subsection 20(4) of the Income Tax Act which, in the case of property which has been transferred by one or more transactions between persons not dealing at arm’s length, limits the taxpayer who has eventually acquired it to capital cost allowance only on the amount that was the capital cost to the original owner. On this basis, although appellant and Rayonier Canada Limited were dealing at arm’s length the sale by appellant to Quatsino and the subse- queht acquisition by Rayonier Canada Limited of these assets from Quatsino when its assets were distributed to its shareholders were both non-arm’s length transactions and hence Rayonier Canada Limited was limited to claiming capital cost allowance on $90,000. It so happened in the present case that a fire took place in the cook-house, one of the major depreciable assets, shortly after it was acquired by Rayonier Canada Limited and when the insurance claim was settled in 1961 the Minister, in crediting this to recaptured capital cost allowance, limited Rayonier Canada Limited to the figure of $90,000, by implication accepting the purchases by Quatsino from appellant and Rayonier from Quatsino at their face value as non-arm’s length transactions. Appellant argues that if the Minister now adopts the position that the sale by appellant to Quatsino and acquisition of the depreciable assets by Rayonier Canada Limited from Quatsino are to be looked on as a mere sham, simulacrum or cloak to cover a direct sale of these assets from appellant to Rayonier Canada Limited then this company would be entitled to take these assets on its books at the price paid and claim capital cost on them accordingly as subsection 20(4) would have no application, the transaction being an arm’s length one. According to appellant’s counsel, the Minister is now adopting a contradictory position in applying paragraph 20(6)(g) in apportioning the price paid between depreciable and non-depreciable property, reaching a conclusion that in so far as present appellant is concerned, the sum of $199,787.25 was received for the sale of depreciable property. Paragraph 20(6)(g) reads as follows:
(6) For the purpose of this section and regulations made under paragraph (a) of subsection (1) of section 11, the following rules apply:
(g) where an amount can reasonably be regarded as being in part the consideration for disposition of depreciable property of a taxpayer of a prescribed class and as being in part consideration for something else, the part of the amount that can reasonably be regarded as being the consideration for such disposition shall be deemed to be the proceeds of disposition of depreciable property of that class irrespective of the form or legal effect of the contract or agreement; and the person to whom the depreciable property was disposed of shall be deemed to have acquired the property at a capital cost to him equal to the same part of that amount;
He points out further that all parties entered into this transaction with the benefit of good legal and accounting advice and in full awareness of the tax situation and that the price paid was affected by these considerations so that in the event that Rayonier Canada Limited had been able to claim capital cost allowance on the full price paid for the depreciable property rather than on the $90,000 attributed to this in the agreement, and on the other hand had appellant believed that it would be called upon to pay recaptured capital cost allowance on the portion of the total price attributed by the Minister to depreciable assets by the application of paragraph 20(6)(g), then on the one hand the purchasers might have been willing to pay more and on the other hand appellant would have insisted on a higher price because of this. These arguments are hypothetical, however, and, while it is desirable that the Minister should be consistent in his application of the Income Tax Act to the purchaser and to the vendor, he is under no obligation to be so. The decision in the present case concerns only the appellant and whether or not Rayonier Canada Limited was properly reassessed on December 17, 1964 with respect to the treatment of the insurance proceeds in its 1962 taxation year is not an issue before me. No notice of objection was taken to it. As counsel for respondent points out, subsection 20(4) is a section applying to the purchaser and not to the vendor. By applying paragraph 20(6)(g) to appellant, in order to attribute the sum of $199,787. 25 as the value of the depreciable property sold, it would appear that the same figure should also have been applied in the case of Rayonier Canada Limited, but the fact that a different position was taken in the 1964 reassessment of its 1962 taxation year does not, in my view, estop respondent from applying this section in appellant’s case. Neither can appellant successfully argue that since the purchaser is limited to capital cost allowance on $90,000 under subsection 20(4) if the two transactions are taken at their face value and hence, the Minister in due course, benefits by the limitation of the capital cost allowance to the lower amounts which the purchaser can claim on this figure, it is not necessary for him to attempt to recover recaptured cost allowance from the vendor, and that this is the purpose of subsection 20(4), in view of the Minister’s right to treat the interposition of Quatsino Logging Ltd as a sham and consider the sale of the assets and the sale of the shares as one single arm’s length transaction and apply paragraph 20(6)(g) thereto.
Having reached a conclusion that appellant’s appeal must fail on this ground it is unnecessary for me to deal with the argument as to whether, in any event, a benefit was conferred on appellant in the amount of $109,557.54 within the meaning of subsection 137(2) of the Act or the alternative argument that the sale of the shares for a profit of $141,570 was an adventure in the nature of trade within the meaning of paragraph 139(1)(e) of the Act.
I now turn to the second issue raised in the appeal. Appellant states in its Notice of Appeal that it owned the vessel “Norsal" which was used by it in connection with its logging business but there was no need for this when this business ceased and it then endeavoured, unsuccessfully, to dispose of it by sale. Being unable to arrange a sale it entered into the business of chartering the vessel to earn income and minimize the loss on the investment. The income from such chartering for the years 1959 to 1963 inclusive was as follows:
| 1959 | nil |
| 1960 | $650 |
| 1961 | $3,650 |
| 1962 | $7,550 |
| 1963 | $17,192 |
In addition to this the vessel was from time to time used personally by the shareholders of appellant’s parent company and appellant, in filing its 1961 and 1962 tax returns, calculated the net loss from the operation of the vessel, and, to determine the amount of non-allowable expenses arising by reason of personal use, apportioned such net losses in the ratio that such personal use bore to the total use of the vessel in each such year. Upon receipt of respondent’s objection to this method, appellant then proposed that the calculation be made by first deducting the fixed expenses of the vessel and then applying to the variable expenses only, such as crew wages, fuel and galley the ratio that personal use bore to the total use of the vessel. By this method of computation the non-allowable expenses would have been $4,327 in the taxation year 1961 and $4,318 in the taxation year 1962. Respondent, in his Reply to the Notice of Appeal, admits this.
Appellant states that in assessing for its 1961 and 1962 taxation years, respondent has computed the non-allowable expenses applicable to the personal use by taking the portion of total expenses (including capital cost allowance) which such use bore to the total use of the vessel and thus increased the income of the appellant for the taxation year 1961 by an amount of $7,027.75 and revised the business loss sustained in the taxation year 1962 by reducing the said loss by an amount of $10,868.25, in each case the figures representing the difference between the computation proposed by the appellant as set forth above and that employed by the respondent. Respondent does not admit this and in reply states as follows:
6. With respect to the vessel Norsal, he assumed that:
(a) The Appellant in the years 1961 and 1962 incurred expenses of $22,507.58 and $28,853.92 respectively and sustained a net loss in the amount of $18,917.58 and $21,303.92 of which sums respectively the sums of $11,354.75 and $15,186.25 were not related to the gaining or producing of income by the Appellant;
(b) In computing the amount of the said loss not incurred in the gaining or producing of income, the Appellant considered that only the portion of the net loss on operation of the boat that personal use had to total use was to be deducted from the said loss and that the excess of the net loss over such sum was a proper deduction from income:
(c) The Respondent considered that only the proportion of the total expenses of operation of the boat that personal use had to total use was to be deducted from the said loss and that the excess of the net loss over such sum was a proper deduction from income.
7. The Appellant in its Notice of Appeal has now alleged that the portion of the loss attributable to the gaining or producing of income should be computed by first deducting the fixed expenses of the vessel and then applying to the variable expenses only (eg crew wages, fuel & galley) the ratio that personal use bore to total use of the vessel. By this method of computation, the non-allowable expenses would be $4,327.00 in the taxation year 1961 and $4,318.00 in the taxation year 1962.
8. The Respondent submits that the method of computation employed by the Respondent in assessing the Appellant as detailed in subparagraph (c) of paragraph 6 herein is the proper method of calculation.
Neither party was able to refer to any jurisprudence on this question so it is necessary to examine it on basic principles. There is no dispute about the portion of the total use which was attributed to personal use by the officers of the company. It appears to me that the proper approach is to divide all expenses, including capital cost allowance, on this basis, attributing to appellant company its portion of such total expenses and, after deducting the total income received by the company from the chartering of the boat from its share of the total expenses, the balance would represent the allowable loss to be claimed by appellant. The only case which I have been able to find which recognizes a distinction between capital cost allowance and actual Operating expenses is that of Cumming v MNR, [1967] CTC 462; 67 DTC 5312, in which the operating expenses of an automobile were imputed 25% to business use on the basis of mileage but the capital cost allowance was imputed 50% on the basis of time involved. Since, in the present case, there is no dispute as to the apportionment and no figures before the Court as to the relative distance covered by the vesse! while in personal use as distinguished from business use or the proportion of the vessel’s time which was devoted to personal use as distinguished from business use, this case is not applicable. In. the case of automobile expenses, these are normally dealt with in accordance with Information Bulletin No 28 of the Taxation Division of January 6, 1965.* This takes capital cost allowance into consideration in the apportionment of the total expenses in the use of a car between personal and business use. I see no reason not to apply this principle here.
If appellant’s officers were chartering a boat from someone with whom they were dealing at arm’s length, the charges would certainly be sufficiently high as to include an element of capital cost allowance. It is only by apportioning the gross expenses, including capital cost allowance, that the true expense picture appears, and by then applying the revenue from chartering the boat, which revenue accrues entirely to the company as owners, against the company’s portion of these expenses, it can be determined whether the company has suffered a gain or a loss which will be taxed accordingly. This is, in effect, what the Minister has done in his reassessment.
Since I therefore find that respondent’s method of assessing the loss on the operation of the vessel "Norsal" is correct, the appeal must also fail on this issue.
Appellant’s appeal is therefore dismissed with costs.
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