McDonald J.A.:
The issue to be addressed in this application for judicial review is whether the provisions of the Income Tax Act (the Act) governing business expense deductions should be interpreted in a manner that responds to Canada’s changing business environment. Specifically, this Court must determine whether a ‘foot and transit courier’ travelling 150 kms a day throughout the Toronto area and carrying a backpack weighing between 20- 50 pounds can deduct as a business expense a modest amount for extra food and water. The Tax Court Judge was of the view that the Act precluded the applicant’s food and beverage expenses from being deducted as they are of a personal nature. Paragraph 18(1)(h) of the Act specifically excludes personal and living expenses from being deducted.
The facts of this case are straightforward. During the years under review the applicant was a self-employed foot and public transit courier. He states that his typical working day would begin at 6:45 a.m. when he was advised via a dispatcher of the packages that were waiting to be delivered that day. From 7:45 a.m. to approximately 9:30 a.m. he picked up and dropped off packages on foot in the downtown Toronto core. At 9:30 a.m. he would travel by subway to make deliveries. He travelled north on the subway line picking up and dropping off packages en route. Between subway stations he would travel between buildings on foot. He would continue to make deliveries in this manner until 6:00 p.m.
According to the applicant, he would cover approximately 150 km on foot and by public transportation every day. He regularly worked ten hours per day, five days per week, fifty-two weeks per year. His courier company considered him an independent contractor. He did not receive vacation pay and was not paid for any break or meal times. The applicant claims to have been paid on a commission basis, receiving a percentage of the amount the client paid for its courier services. According to the applicant, the typical cost of delivering a package is based upon its weight, the speed with which it must be delivered and the distance it is being transported. The further the package must go, the more the client pays and the more money the applicant receives for its delivery. In order to make his job financially viable, he must deliver as many packages as possible, as quickly as possible.
The applicant claims that this type of employment requires him to consume what essentially amounts to an extra meal per day. At the tax court he sought to deduct $8.00 of what he terms extra food and $3.00 for extra bottled water and juice. It is important to stress that the above figures represent amounts over and above what the average individual would need to consume on a daily basis. The applicant is not asking this Court to approve a deduction for all food and beverages consumed but only a reasonable amount for the extra food and water his body requires as fuel for his job.
Pursuant to subsection 9(1) of the Act, a taxpayer is required to declare as income profit from a business or property. In calculating one’s profit the Act allows for certain business deductions. Other deductions are specifically disallowed. Paragraph 18(l)(a) prohibits a deduction for an outlay or expense “except to the extent that it was made or incurred by the taxpayer for the purpose of gaining or producing income from the business or property.” Paragraph 18(l)(h) prohibits the deduction of personal or living expenses. In order to determine whether an expense qualifies as a reasonable business expense or whether it is a personal and living expense the following questions are helpful: (1) what is the need that the expense meets? (2) would the need exist apart from the business? and (3) is the need intrinsic to the business? (See Krishna, The Fundamentals of Canadian Income Tax (5th ed) (Carswell: Scarborough, 1995) at 368). According to lacobucci J. in Symes v. R. (1993), [1994] 1 C.T.C. 40 (S.C.C.) at 60:
If a need exists even in the absence of business activity, and irrespective of whether the need was or might have been satisfied by an expenditure to a third party or by the opportunity cost of personal labour, then an expense to meet the need would traditionally be viewed as a personal expense. Expenses which can be identified in this way are expenses which are incurred by a taxpayer in order to relieve the taxpayer from personal duties and to make the taxpayer available to the business are not considered business expenses since the taxpayer is expected to be available to the business as a quid pro quo for business income recovered.
Traditionally, food and beverages have always fallen within the confines of paragraph 18(1 )(h) for the valid reason that we all need food and water to survive, regardless of our business. Applying Professor Krishna’s analysis, the rationale for not allowing food and beverages to be deducted as business expenses is as follows: the human need for food and water exists apart from the business. It is not a need that is intrinsic to the business. While appropriate meals may make one available for business or better able to perform at one’s business, the need to satisfy thirst and hunger exists independently from the business. Parenthetically I note that the Act allows business persons to deduct up to 50% of their food and beverage expenditures for meals of a business nature. While presumably these individuals require food regardless of their business needs, the Act specifically allows for this deduction. Similarly, if the applicant worked in
business office which provided water coolers for its employees would not the employer be able to deduct the cost of those coolers as a business expense? Having said this, it is not necessary to consider these allowable business deductions further because my analysis of this case does not turn on them. I simply note them in passing.
This appeal presents a particular expense which has been traditionally characterized as personal in nature. If, in coming to a decision, this Court stated that since such expenses have always been personal they must now be personal, the conclusion could be easily and deservedly attacked. For this reason, proper analysis of this question demands that the relationship between child care expenses and business income be examined more critically, in order to determine whether that relationship can be sufficient to justify the former’s deductibility. This proposition, in my opinion, leads naturally to paragraph 18(l)(a), which sets out the relationship required by the Income Tax Act.
Iacobucci J. went on to state that:
In turning to paragraph 18(l)(a), however, I must take pains not to eviscerate needlessly paragraph 18(l)(h) and its related jurisprudence, when faced with a particular expense, and it may be both proper and expedient to refer to past decisions which have characterized the expense as ‘personal’ within 18(1 )(h), such that an extensive analytical approach invoking the words of paragraph 18(1 )(a) may not be required. On the facts of this case, paragraph 18(1 )(a) may be of greater assistance than the simple prohibition against deducting ‘personal expenses’ in paragraph 18( 1 )(h), as I re-examine whether child care expenses truly constitute personal expenses. However, not every expense which has been tradi-
For the purposes of this Act, other than sections 62, 63 and 118.2, an amount paid or payable in respect of the human consumption of food or beverages or the enjoyment of entertainment shall be deemed to be 50% of the lesser of
(a) the amount actually paid or payable in respect thereof, and
(b) an amount in respect thereof that would be reasonable in the
circumstances.
tionally characterized as a personal expense will deserve a similar reexamination.
The Minister urges this Court to rely on the latter part of this quotation as well as past jurisprudence that establishes quite correctly that food and beverages are personal expenses. However, the facts of this case are such that a re-examination of the prohibition on this deduction is necessary. Indeed, the reasoning of Iacobucci J. in Symes at page 55 is applicable to the case at hand:
The decision to characterize child care expenses [in this case, food and beverage] as personal expenses was made by judges. As part of our case law, it is susceptible to re-examination in an appropriate case. In Saluturo v The Queen [cite omitted] this Court had occasion to state the following:
Judges can and should adopt the common law to reflect the changing social, moral and economic fabric of the country. Judges should not be quick to perpetuate rules whose social foundation has long since disappeared. Nonetheless, there are significant constraints on the power of the judiciary to change the law....The judiciary should confine itself to those incremental changes which are necessary to keep the common law in step with the dynamic and evolving fabric of our society.
I would also note that unlike in Symessupra where the Supreme Court analyzed the deductibility of child care expenses generally, this Court is not re-considering the prohibition on the deduction of the broad category food and beverage expenditures. Instead, it is considering the more limited issue of whether the extra food and beverages consumed by a courier can be deducted when a corresponding deduction in the form of fuel is allowed for couriers using automobiles.
This case would be different from that of an individual who chooses to eat more or more expensive food products which is clearly a personal preference or choice. In this case, the extra food would not have been consumed because the applicant wishes to eat more on a given day. The extra food would be required to enable the applicant to get from point A to point B. He would not be choosing to eat and drink more -- he would have to. Just as a courier’s automobile requires fuel in the form of gas to move, the applicant alleges that he requires fuel in the form of food and water. The foot and transit courier and the automobile courier are engaged in identical activities the only difference being one uses a car as a means of transport and the other his body or a bicycle. Because the courier who drives the automobile is allowed to deduct his or her fuel, the foot and transit courier should be able to deduct the fuel his body needs. However, because we all require food and water to live, he can only deduct the extra food and water he must consume above and beyond the average person’s intake in order to perform his job. This is similar to the automobile courier who is only entitled to deduct that portion of the fuel used for a business purpose. The extra fuel consumed for personal needs cannot be deducted. This result takes into account the different methods by which the same job is done and puts all couriers on an equal footing. Arguably, it also recognizes and encourages [rather than discourages as a prohibition on this expense would] new environmentally responsible ways of producing income.
The concern with this decision is that by moving away from a bright line rule prohibiting the deduction of food and beverage expenses I have opened the floodgates to a myriad of claims for deductions for personal expenses. I would note that the floodgates argument is always referred to when seeking to preserve the status quo. However, in this context, I do not find these concerns valid as the analogy between fuel for an automobile and fuel for the human body provides an appropriate line for the courts to draw. Only where there is a corresponding business deduction allowed for fuel in the form of gasoline for the same type of business will a deduction for the extra food and water a human needs to consume as its fuel be allowed. For instance, a rickshaw driver would be entitled to deduct the extra food and drink he needs to consume to do his job because his corresponding compatriot -- the taxi driver -- is entitled to a deduction for his gasoline. A construction worker, however, who engages in physically demanding work would not be entitled to deduct his food and beverage expenses despite the fact that his job may require him to eat and drink more because there is no corresponding position where fuel in the form of gasoline would be entitled to a deduction under the Act. Thus, this decision provides a narrow exception for the deduction of food and beverages as business expenses under the Act and should in no way be interpreted as providing a basis to challenge all traditional prohibitions on the deduction of food and beverages as a business expense under the Act.
In light of the above conclusion, the matter must be referred back to the Tax Court Judge for determination of two factual issues not addressed by him because of the position taken on the preliminary legal question: that is as to the deductibility of the expense. Specifically, it was unnecessary to determine whether in fact the taxpayer required extra amounts of food and beverages because of the nature of his business as a “foot and transit courier”. Thus, it is open to ask whether there is persuasive evidence to support the allegation that the needs of the taxpayer are, for example, greater than those of a construction worker. As well, if the taxpayer is able to establish what he is alleging then the Tax Court Judge must fix an amount which represents a reasonable deduction. I have doubts as to whether Perrier is necessary in lieu of tap water or commercially bottled water.
For the above reasons I would allow the application for judicial review, set aside the judgment of the Tax Court dated August 6, 1997, and remit the matter to the Tax Court Judge for a determination with respect to the factual issues which remain outstanding.
Appeal dismissed.
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