Golden Arrows Schoolbuses Limited v. Minister of National Revenue, [1989] 1 CTC 2204, 89 DTC 150

Taylor, T.C.J.: —These are appeals heard in Edmonton, Alberta, on December 6, 1988, against income tax assessments in which the Minister of National Revenue disallowed investment tax credits taken by the appellant for the years 1983 and 1984. The Minister’s reply to notice of appeal sets out the facts and assumptions:

In reassessing the Appellant as he did and with regard to the matters here in issue, the Respondent relied, inter alia, upon the following assumptions:

— that in 1983 the Appellant purchased four buses which he used both as school buses and as "charter buses" during his 1983 and 1984 taxation years;

— that the principal business of the Appellant was running school buses;

— that the buses in question were used primarily as school buses;

— that the buses used as school buses are designed to carry passengers only and not to carry 20 or more passengers and their luggage;

— that no changes had been made to the general design of these buses for the purpose of carrying passenger luggage;

— that the buses were acquired principally for the purpose of transportation within a metropolitan area, city, town, village, municipality or other similar community or area;

. . . the buses in question were not designed for the purpose of transporting 20 or more passengers plus their luggage and are therefore not prescribed property for the purpose of the Income Tax Regulations, 4601(d).

. . . the buses in question were school buses and are therefore not prescribed property for the purpose of the Income Tax Regulations, 4601(d).

. . . the buses in question were acquired for the purpose of transportation within a metropolitan area, city, town, village, municipality or other similar community or area and are therefore not prescribed property for the purpose of the Income Tax Regulations, 4601(d).

The Respondent relies, inter alia, upon Section 3, subsections 127(5) and 127(10) and paragraph 20(1)(a) of the Income Tax Act, R.S.C. 1952, c. 148 as amended by S.C. 1970-71-72, c. 63, s. 1, and to subsection 4601(d) of the Income Tax Regulations, applicable to the 1983 and 1984 taxation years of the Appellant.

The evidence and testimony showed that during each of the years in question, the company earned in gross revenue, more than $750,000, about $400,000 of that revenue from school bus operation, and the balance of about $350,000 from charter bus operation. The company had about twenty- five buses during this time, all of them of the "school bus” type (as later described by a witness). Four of these buses had been modified by building in overseat luggage racks, and they were licensed and insured for on- highway charter bus travel in Alberta, and by special permit out of province. These "charter buses" (as they may be called for reference purposes) were rarely used for regular school bus trips, and then only in an emergency. Conversely several of the regular "school buses" could be licensed and insured—on a special basis—for charter trips, if necessary, and indeed were regularly so used. The Company was not making any claim (or even partial claim) for investment tax credits on these “school bus cum charter bus" vehicles. The claim at issue in these appeals was on the four buses allegedly dedicated to the charter operation. A Mr. Ronald Thomas Mattison, a witness for the Minister, who was an Inspector of motor vehicles with the province of Alberta, described for the Court the construction and operating standards for “school buses’, and agreed that the vehicles in question would be described by him as "school buses’, as opposed to "motor coaches", the more commonly understood on-highway passenger carrying vehicles (such as Gray Coach, Greyhound, Gray Goose, etc.). Essentially the “school bus" construction was a body box, placed then riveted and bolted, on a truck chassis, while the motor coach was more of a “unibody” construction. Mr. Mattison noted that although the provincial standards for "school buses” were very high and enforced, there was not much in the way of similar standards for motor coach vehicles. The requirements for “school buses” were considerably more rigid and higher than for motor coaches, according to this witness.

Counsel for the appellant pointed out that the buses in question all were equipped to carry more than 20 passengers and that luggage could easily be stored on the racks up above, or even on the floor of the bus. Counsel explained that the use to which the vehicles were put, should be the guideline in looking at Regulation 4601(d) of the Act.

Counsel for the Minister, noted that there did not appear to be jurisprudence directly on the point, but provided the Court with certain dictionary references.

While some passing reference was made at the hearing to the comment of the Minister in the reply to notice of appeal, that the vehicles were used “within a Metropolitan area, city, town, village, etc." (see Regulation 4601(d)) in my view that need not be pursued—that assertion has no support on the evidence.

Analysis

The critical point at issue in these appeals must be examined from the viewpoint expressed by the Minister, in his interpretation of Regulation 4601(d) of the Act:

Qualified Transportation Equipment

4601. For the purposes of paragraph 127(10.1)(d) of the Act, the following depreciable property of a taxpayer (other than property prescribed pursuant to section 4600) is prescribed equipment:

(d) property included in Class 10 in Schedule II by virtue of paragraph (a) of that Class that is a bus designed for the purpose of seating 20 or more passengers and carrying their luggage, but not including

(i) a bus acquired principally for the purpose of transportation within any metropolitan area, city town, village, municipality or other similar community or area, or

(ii) a school bus;

Essentially the Minister contends that the appellant fails to qualify for the credit sought on one or both grounds:

(a) the vehicles in question, are not

. . . designed for the purpose of seating 20 or more passengers and their luggage . . . [Emphasis added.]

or (b) the vehicles are:

“a school bus.”

In support of the first proposition, the Minister referred to a definition to be found in "Webster's New Collegiate Dictionary”

''design"—"to devise for a specific function or end." I do not agree that such a simple definition is the only one to be taken into account. I would refer to another definition from the same source —"to have as a purpose." (Emphasis added).

I have no doubt that the purpose for the vehicles in question was for seating and transporting 20 or more passengers and their luggage. The vehicles were fitted with luggage racks—rather basic and simple overhead fixtures, it is true, but there was no evidence adduced from which the Court could conclude that these luggage racks were unsatisfactory for carrying the specific luggage normally taken along by the passsengers on these particular charter trips. There is also a clear indication that as a result of the limited passenger loads permitted on charter trips by the provincial licenses, that adequate luggage space was available right on the floor of the buses. It is not the Court's function to decide whether there was sufficient attention paid to safety, passenger comfort, etc., on these charter trips, but simply to decide whether the buses were suitably designed for the purpose of carrying 20 or more passengers and their luggage—perhaps their light luggage or overnight bags alone, we do not know—and the buses do fit that kind of criteria in my view.

We turn then to another point raised by counsel for the Minister, whether the vehicles are excluded simply because they were "school buses". The argument of the Minister was essentially that a "school bus" was a vehicle of specific physical, technical, and construction configuration, and when built to the standards set for school buses, it always remained a school bus under the terms of Regulation 4601(d). I believe that assertion fails. First, it was clear from the testimony of Mr. Mattison, that the school bus construction standards were higher than for motor coaches —not lower than competing designs. The motor coaches may have been sleeker, faster and more comfortable, but Mr. Mattison's testimony did not leave the Court with the view that "school buses" should not be used for charter purposes, simply because of any inferior design. Rather the reverse, that if anything they were at least the equal of motor coaches, from the essential and critical design perspectives. There seems to be no provincial regulatory constraint on the use of such "school bus" vehicles for highway charter purposes.

Finally—an examination of the definition of "a school bus", as put forward by the Minister in this appeal.

“school bus—a vehicle that is either publicly owned or privately owned and operated for compensation and that is used for transporting children to or from school or on activities connected with school."

From that definition, it is clear that the use to which the vehicle is put, is critical to the term "a school bus". There is no evidence that the four vehicles in question were used (except perhaps on an emergency basis) —"for transporting of children to and from school".

As I see it, these appeals would be on tenuous grounds, only if it could be shown that the purpose for which the vehicles were acquired was for the transporting of children to and from school. Since that has not been shown to be the case, I find no merit, in the Minister's contentions based on physical and technical grounds.

The appeals are allowed, and the entire matter is referred back to the respondent for reconsideration and reassessment. The appellant is entitled to party-and-party costs.

Appeals allowed.