Collier,
J:—This
is
an
appeal
by
the
Crown
from
a
decision
of
the
Tax
Review
Board.
It
was
heard
at
the
same
time,
and
on
common
evidence,
as
action
T-5754-82.
In
his
1975
income
tax
return,
the
defendant
included
in
income
a
benefit,
pursuant
to
paragraph
15(1
)(c)*
of
the
Income
Tax
Act,
of
$1,800.
The
benefit
arose
from
the
defendant’s
use
of
a
37-foot
vessel
owned
by
a
corporation
of
which
he
was,
in
1975
and
1976,
the
only
beneficial
shareholder.
The
defendant
included
in
income
for
his
1976
taxation
year
a
similar
amount
of
$1,800.
The
defendant
calculated
the
benefits
of
$1,800
as
his
proportionate
personal
use
of
the
vessel
in
relation
to
the
total
operating
expenses
of
the
vessel
for
a
year.
The
vessel
had
been
used
for
business,
as
well
as
personal
use,
in
both
years.
The
Minister
of
National
Revenue
disagreed
with
the
defendant’s
calculation
of
the
value
of
the
benefit
conferred
for
1975.
The
Minister
assessed
the
benefit
at
$6,205.
For
1976,
the
tax
assessor’s
calculation
was
$7,323.
The
defendant
succeeded
before
the
Tax
Review
Board.
The
member
presiding
rejected
the
method
of
valuation
adopted
by
the
Minister.
This
appeal
followed.
As
in
most
cases,
the
facts
are
of
paramount
importance.
The
evidence
before
me
consisted
of
a
transcript
of
the
evidence
given
before
the
Tax
Review
Board.
But
the
defendant
gave
some
additional
oral
evidence.
The
defendant
has
been
in
the
electrical
contracting
business
since
1944.
A
corporation,
Houle
Electric
Ltd,
(Houle
Electric),
was
formed
in
1950,
to
continue
the
business.
In
1970
its
sales
were
two
to
three
million
dollars.
In
1980,
the
volume
had
increased
to
eleven
to
twelve
million.
In
the
late
1970s,
there
were
60
to
100
employees.
The
company
has
carried
on
business
in
various
cities
and
towns
in
British
Columbia.
From
1963
or
1964,
Houle
Electric
had
a
32-foot
vessel.
The
vessel
was
used,
in
part
at
least,
for
entertaining
and
promotion
for
business
purposes.
About
1970,
a
management
company,
Joyce
Management
Limited
(Joyce),
was
incorporated.
The
defendant
was
a
shareholder
in
Joyce,
along
with
a
chartered
accountant
and
a
professional
engineer.
Joyce
was
to
manage
Houle
Electric.
The
other
shareholders
left
after
about
a
year.
The
defendant
became
the
beneficial
owner
of
all
the
shares
of
Joyce.
Joyce,
in
turn,
owned
all
the
shares
in
Houle
Electric.
In
1970,
the
32-foot
vessel
was
traded
in
on
the
purchase
by
Joyce
of
a
37-foot
Canoe
Cove
vessel,
the
“sans
souci”
—
the
vessel
at
issue
in
these
assessments.
Joyce
also
owned
a
building
which
it
rented
to
Houle
Electric.
It
held
a
debenture
from
the
latter
company,
as
security
for
financing.
The
“sans
souci”
was,
for
the
first
year,
used
by
the
shareholders
of
Joyce
for
entertaining
and
business
purposes.
The
evidence
is
silent
as
to
whether
it
was
used
as
well
for
personal
purposes.
I
assume
that
to
be
the
case.
The
capital
cost,
in
1970
or
1971,
to
Joyce
of
the
“sans
souci”
was
agreed
upon
at
$51,924.
It
had
been
purchased
as
a
bare
hull,
then
finished,
with
the
defendant
doing
a
good
deal
of
work
himself
on
the
vessel.
In
the
years
under
review,
the
vessel
was
not
technically
used
by
Joyce
for
business
promotion
purposes.
But
it
was
used
on
behalf
of
Houle
Electric,
Joyce’s
source
of
income,
to
entertain,
and
to
promote
the
obtaining
of
private,
industrial
and
commercial
electrical
contracts
by
Houle
Electric.
The
defendant,
on
the
advice
of
his
accountants,
kept
an
accurate
record,
in
the
years
under
review,
of
the
hours
and
dates
on
which
the
vessel
was
used
for
business
purposes,
and
for
personal
use
by
him.
The
defendant
agreed
he
had
absolute
control
as
to
the
use
of
the
vessel,
and
by
whom.
But
one
must
not
overlook
the
corporate
entities.
The
defendant,
as
an
officer
and
the
beneficial
shareholder
in
Joyce,
could
direct
the
vessel
to
be
used
by
Houle
Electric
to
promote
business
contracts.
He
could
also
direct,
as
the
major
shareholder
in
Joyce,
its
use
by
himself.
In
1975
the
vessel
was
used
as
follows:
|
Personal
use:
|
29
days
—
160.2
hours
|
|
Business
use:
|
17
days—
64.7
hours
|
|
In
1976
the
use
was
as
follows:
|
|
|
Personal
use:
|
24
days
—
150.6
hours
|
|
Business
use:
|
6
days
—
33.6
hours
|
The
hours
were
calculated
from
the
engine
hours
logged.
The
hourly
use
I
have
set
out
came
from
the
plaintiff’s
pleadings.
It
was
agreed
at
trial
the
hours
of
personal
use
would
be
less
than
that
shown
above,
and
the
hours
of
business
use
would
be
somewhat
greater
than
set
out
above.
The
defendant,
for
business
and
his
own
use,
operated
the
vessel
from
approximately
May
to
the
end
of
August
or
September.
The
“sans
souci”,
with
minor
exceptions,
was
not
used
in
the
late
fall
or
winter
months.
This
was
because
of
weather
and
temperature
conditions.
But
technically,
and
the
Minister
relies
on
this
point,
the
vessel
was
available
for
personal
use
by
the
defendant,
if
he
so
chose
and
if
he
elected
to
defy
the
elements
and
endure
the
cold,
throughout
the
whole
of
the
years
in
question.
The
assessors
charged
the
non-actual
use
time
to
the
defendant.
I
add,
for
what
they
might
be
worth,
these
final
facts.
Joyce
did
not,
in
1975
and
1976
claim
any
capital
cost
allowance
in
respect
of
the
vessel.
The
defendant
personally,
without
remuneration,
performed
at
least
100
hours
maintenance,
in
each
year,
on
the
vessel.
That
concludes
my
review
of
the
facts.
Counsel
for
the
plaintiff
contended
that
in
arriving
at
the
value
of
a
benefit
under
subsection
151
(1
)
of
the
statute,
there
were
three
possibilities:
1.
If
there
was
a
full
appropriation
of
the
funds
or
property
of
the
corporation
to
a
shareholder,
then
paragraph
15(1
)(b)
applied.
2.
If
there
was
an
occasional
appropriation
to
a
shareholder
(benefit
or
advantage)
of
a
corporate
business
asset,
then
under
paragraph
15(1)(c)
the
proper
valuation
would
be
to
allocate
the
operating
expenses
(in
this
case
as
was
done
by
the
defendant
Houle).
3.
But
where
the
acquisition
of
the
asset
(in
this
case
the
vessel)
was
not
for
any
business
reason
of
the
corporation,
but
was
for
the
benefit
and
personal
use
and
enjoyment
of
the
shareholder,
the
measure
of
value
under
paragraph
15(1)(c)
should
include:
(a)
a
portion
of
the
operating
expenses,
and
(b)
a
recognition
that
the
funds
of
the
company
to
acquire
the
vessel
had
been
used
or
employed
to
the
exclusion
of
other
use
of
the
funds;
those
funds
could
have
been
used
or
employed
in
revenue
producing
ways.
In
the
third
situation,
the
Minister
concluded
that
an
annual
value
should
be
attributable
to
the
funds
so
expended.
In
this
case
it
was
arrived
at
by
taking
the
initial
cost
in
1970
of
approximately
$52,000,
and
a
capitalization
figure
of
8
per
cent.
The
assessor,
Mr
Lahti,
who
gave
evidence,
used
this
formula:
A
The
initial
assessment
was
based
on
the
operating
expenses
which
were
divided
into
variable
expenses
based
on
the
use
of
the
yacht,
personal
and
business
and
on
fixed
expenses
which
were
based
on
365
day
year,
allowing
business
expenses
to
be
deducted
on
the
number
of
days
used.
Q
Subsequently
the
Department
took
a
different
position
after
the
filing
of
the
Notice
of
Objection
and
took
the
position
that
the
actual
benefit
was
as
set
out
in
paragraph
13
of
the
Reply,
did
it
not?
A
Yes,
we
felt
that
the
auditor
involved
was
slightly
in
error.
We,
the
Department,
maintain
that
the
assessment
should
be
done
according
to
the
number
of
days
being
365
in
a
year
less
the
number
of
days
used
for
business,
the
rest
being
personal,
to
all
the
operating
expenses
and
to
the
8
percent
of
the
cost
of
the
yacht.
A
Well,
it
effectively
shows,
brings
into
the
income
of
the
taxpayer,
the
operating
costs
paid
by
the
company
and
the
rate
of
return
on
investment
as
a
taxable
benefit
to
the
taxpayer.
It
allows
for
a
deduction
for
any
non-personal
use.
To
illustrate,
I
set
out,
as
an
example,
the
Minister’s
dollar
calculation
of
the
benefit
for
1975.
Operating
Costs
$3,039.00
Variable
—
personal
use
portion
|
.5
X
$1,329.00
|
$
664.00
|
|
|
Fixed
—
personal
use
portion
|
|
|
HI
X
$1,710.00
|
1,616.00
|
2,280.00
|
|
Rate
of
Return
on
Capital
Expended
|
|
|
8%
of
$51,924.00
|
4,154.00
|
|
|
Personal
use
portion
|
|
|
345
X
$4,154.00
|
|
3,925.00
|
|
Total
personal
use
benefit
|
|
$6,205.00
|
The
use
of
this
formula
was
predicated
on
Revenue’s
view
of
the
factual
situation
as
set
out
as
follows
in
Lahti’s
evidence:
Q
Mr
Lahti,
as
I
understand
the
formula,
the
effect
of
it
really
is
that
all
of
the
downtime,
the
time
the
yacht
is
not
being
used
is
effectively
charged
to
the
shareholder.
Could
you
indicate
to
the
Chairman
the
Department’s
position
as
to
why
they
did
this?
A
Well,
the
Department
felt
that
the
primary
reason
for
the
purchase
of
the
yacht
or
building
of
the
yacht
was
for
personal
use
and
pleasure
of
the
shareholder
and
the
entertainment
was
incidental
use.
Q
The
business
entertainment
you
mean?
A
Yes.
Q
Mr
Lahti,
this
formula
for
determining
this
benefit,
I
think
your
last
comment
was
that
this
is
something
that
the
Department
thinks
might
be
appropriate
in
a
case
where
the
primary
purpose
is
personal?
A
Yes.
Q
But
if
the
primary
purpose
is
business,
then
the
Department
might
not
seek
to
apply
a
formula
like
that?
A
That’s
right.
Q
What's
the
test
for
determining
what’s
primary?
A
There
would
probably
be
various
tests,
but
I
would
suggest
the
log
here
would
be
the
primary
test
to
indicate
more
personal
use.
Q
Well
number
of
hours
used
or
number
of
days.
A
Yes,
whichever.
Lahti
added
that
the
formula
adopted
by
Revenue
was
used
only
in
respect
of
vessels.
Not
in
respect
of
company
owned
automobiles,
cottages
or
aircraft
used
for
personal
use
by
a
shareholder.
Mr
Lefebvre,
counsel
for
the
defendant
on
this
appeal,
candidly
stated
the
appropriateness
of
the
Minister’s
formula
in
this
case
depended
on
findings
of
fact
that
(a)
the
vessel
had
been
acquired,
not
for
a
business
purpose,
but
really
for
the
use
and
benefit
of
the
defendant
shareholder,
and
(b)
that
$50,000
of
Joyce’s
funds
had
been
“dedicated”
or
used
for
realizing
that
personal
desire
of
the
defendant.
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.
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.
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,
Houle
Electric.
The
evidence
which
I
have
earlier
set
out
shows
a
history
of
a
vessel
being
used
by
Houle
Electric
for
business
purposes.
It
is
true
the
defendant
shareholder
has,
in
the
years
in
question,
used
the
vessel
for
personal
purposes
as
well.
The
defendant,
in
his
evidence,
pointed
out
that
some
of
the
funds
used
by
Joyce
to
purchase
and
outfit
the
“sans
souci"
came
from
profits
realized
by
Houle
in
previous
years.
His
evidence
was,
and
I
accept
it,
that
the
predecessor
vessel
had
been
reasonable,
to
some
extent,
for
the
business
profits
generated
by
Houle
Electric
prior
to
and
during
1970.
The
assessors
in
this
case
have,
to
my
mind,
looked
only
at
the
factual
situation
in
1975
and
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,
I
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.
Mr
Lefebvre
contended
there
was
no
evidence
of
a
corporate
decision
by
Joyce
to
acquire
the
vessel
as
a
corporate
asset.
I
am
not
sure
exactly
what
is
meant.
If
the
argument
is
there
are
no
company
minutes
or
other
written
memoranda
regarding
the
purchase,
I
simply
say
that
is
not
necessary.
These
are
private
companies.
They
act
through
their
agents,
officers
or
directors.
As
a
matter
of
practical
business
reality,
decisions
of
this
kind
are
frequently
not
formally
recorded.
But
the
hard
facts
are:
Houle
Electric
had
owned
a
32-foot
vessel;
Joyce
decided
to
trade
it
in
on
a
substitute
vessel,
the
“sans
souci”;
the
oral
evidence
of
the
defendant
and
the
corporate
financial
sheets
are
proof,
to
my
mind,
a
corporate
financial
decision
was
made
to
acquire
the
vessel
as
a
corporate
business
asset.
The
factual
underpinning
for
the
Minister’s
assessment
is,
on
my
findings
of
fact,
absent.
Mr
Lefebvre
agreed
that
if
the
“sans
souci”
had
been
acquired
for
a
business
purpose,
and
the
use
of
her
by
the
defendant
was
incidental
or
occasional,
then
the
proper
method
of
valuation
was
to
allocate
the
operating
costs.
That
was
the
method
used
by
the
defendant.
There
was
considerable
argument
before
me
as
to
the
validity,
in
any
event,
of
the
Minister’s
formula.
In
view
of
the
factual
conclusion
I
have
reached,
it
is
neither
necessary,
nor
desirable,
that
I
should
express
any
view.
The
appeal
is
dismissed.
The
decision
of
the
Tax
Review
Board
is
confirmed.
The
Minister
of
National
Revenue
shall,
pursuant
to
subsection
178(2)
of
the
Income
Tax
Act,
pay
all
reasonable
and
proper
costs
of
the
defendant
in
connection
with
this
appeal
(see
The
Queen
v
Creamer,
[1977]
CTC
20;
77
DTC
5025).
These
reasons
will
apply
in
action
number
T-5754-82.
There
will
only
be
one
set
of
costs
recoverable.
They
will
be
in
this
action.
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