Racco Industrial Roofing Ltd. v. R., 97 DTC 331, [1997] 2 CTC 3055 (TCC)

Mogan T.CJ.:

The appeals of Racco Industrial Roofing Limited v. The Queen (94- 2170(IT)G) and Rugged Air Systems Limited v. The Queen (94-2171(IT)G) were heard together because they involve the same issue concerning the interpretation of section 67.1 of the Income Tax Act. That section places certain restrictions on the deductibility of an amount paid in respect of the human consumption of food or beverages or the enjoyment of entertainment. In each appeal, the parties filed an agreed statement of facts. There was no oral testimony or documentary evidence apart from the agreed statements of facts. These two appeals were argued on the facts as agreed.

For all practical purposes, the facts as agreed in these two appeals are identical. Therefore, I intend to decide first the appeal in Racco Industrial Roofing Limited v. The Queen; and the decision in Rugged Air Systems Limited v. The Queen will follow. Set out below in its entirety is the Agreed Statement of Facts in Racco Industrial Roofing Limited v. The Queen. In these reasons for judgment, I shall hereafter refer to Racco Industrial Roofing Limited as “the Appellant” as if I were deciding only the one appeal.

Agreed Statement of Facts

1. The Appellant is and was, at all material times, a body corporate organized pursuant to the laws of the Province of Ontario, with its head office located in Thunder Bay, Ontario.

2. The Appellant is and was, at all material times, a Canadian-controlled private corporation, within the meaning of paragraph 125(7)(b) of the Income Tax Act, R.S.C. 1985 (5th Supplement), c. 1, as amended (hereinafter referred to as the “Act’), carrying on the business of installing asphalt, gravel and single-ply membrane roofing surfaces in Thunder Bay, Ontario, (hereinafter referred to as the “In-Town Business”) and in smaller communities located throughout Northwestern Ontario (hereinafter referred to as the “Out-of-Town Business”).

3. The Appellant obtained approximately 75% of its Out-of-Town Business through the use of sealed bids submitted as part of a tendering process (hereinafter referred to as the “Tendered Projects”). The remaining balance of approximately 25% of the Appellant’s Out-of-Town Business was undertaken pursuant to terms whereby it would be paid its costs plus a fixed percentage mark-up of those costs (hereinafter referred to as the “Cost Plus Projects”).

4. At various times during its March 31, 1992 taxation year, the Appellant carried on all or substantially all of its Out-of-Town Business in the following communities located in Northwestern Ontario: Fort Frances, Kenora, and Terrace Bay (hereinafter referred to collectively as the “Regional Job Locations” and singularly as a “Regional Job Location”).

5. The Appellant employs and employed, at all material times, a unionized labour force (hereinafter referred to as the “Employees”) and non-unionized management personnel (hereinafter referred to as the “Supervisors”) for the purpose of carrying on its In-Town Business and its Out-of-Town Business. All of the Employees and Supervisors reside in Thunder Bay, Ontario.

6. The Appellant and the Employees are and were, at all material times, parties to a provincial collective agreement (hereinafter referred to as the “Union Contract”), the terms of which governed the Appellant and its employees.

7. At various times during its March 31, 1992 taxation year, the Appellant assigned various of the Employees and various of the Supervisors to the Regional Job Locations for the purpose of carrying on its Out-of-Town Business.

8. For each of the Employees who performed his duties of employment for the Appellant in a Regional Job Location, the Appellant was obligated to satisfy the requirements contained in the Union Contract. The Union Contract provided that each unionized Employee who was required to report to a job location more than 40 kilometres from Thunder Bay, Ontario which required the Employee to live away from his ordinary place of residence was to be provided with suitable free room and board. (See Exhibit, Tab 1). This obligation under the Union Contract is hereinafter referred to as the “Contractual Obligation”.

9. Each Regional Job Location is more than 40 kilometres from Thunder Bay, Ontario.

10. During its March 31, 1992 taxation year, the Appellant satisfied the Contractual Obligations in respect of its Out-of-Town Business by undertaking the following steps, which were commonplace in the industry:

(a) arranging for and paying directly the cost of lodging for each of the Employees at the Regional Job Locations; and

(b) paying weekly in advance directly to each of the Employees who was performing his duties of employment for the Appellant in a Regional Job Location the sum of $35 per calendar day for food and beverages (hereinafter referred to as the “Per Diems”).

11. The Appellant undertook the same arrangements described in paragraph 10 above for each of the Supervisors who was performing his duties of employment for the Appellant in a Regional Job Location and paid the same Per Diems to all the Supervisors employed by it at each Regional Job Location.

12. The Employees and Supervisors were not required to account to the Appellant for the Per Diems, and no amount by virtue of subparagraph 6(6)(a)(i) of the Act in respect of the Per Diems was required to be included in any of the Employees’ or Supervisors’ incomes.

13. The parties agree that the Per Diems did not exceed a reasonable amount and that it is highly likely that each Employee and Supervisor would spend at least as much as the Per Diems to keep himself or herself sustained at the Regional Job Locations.

14. As part of the process of calculating the amount of the sealed bid to be submitted for the purpose of securing a Tendered Project in communities located in Northwestern Ontario, the Appellant took into account, inter alia, the aggregate Per Diems that would be paid to the Employees and Supervisors; however, the Per Diems were not identified as a separate item in the bids submitted pursuant to this process.

15. In respect of Cost Plus Projects undertaken by the Appellant in Regional Job Locations, the aggregate amount of the Per Diems paid by the Appellant to the Employees and Supervisors was itemized on the invoice that was submitted by the Appellant for payment and therefore was reimbursed by the Appellant’s customers.

16. Each Regional Job Location constituted a particular place of business of the Appellant for purposes of paragraph 67.1(2)(e) of the Act.

17. In filing its return of income for its March 31, 1992 taxation year, the Appellant claimed as a deduction for the purpose of calculating its income, under section 9, paragraph 18(l)(a), section 67, and section 67.1 of the Act, the full amount of the Per Diems paid in respect of Cost Plus Projects (none of which has been disallowed) and the full amount of the Per Diems paid in respect of Tendered Projects (being $122,835) as a reasonable expense incurred for the purpose of gaining or producing business income.

18. By a Notice of Reassessment dated December 13, 1993, the Minister reassessed the Appellant in respect of its March 31, 1992 taxation year by disallowing $24,567 of the amount claimed as a deduction for the Per Diems on the basis that the Appellant was entitled to deduct only 80% of the aggregate Per Diems paid by the Appellant during its taxation year in respect of Tendered Projects, pursuant to subsection 67.1(1) of the Act.

19. The Appellant duly objected to the reassessment referred to in paragraph 18.

20. By a Notification of Confirmation by the Minister dated May 27, 1994, the Minister confirmed the reassessment of the Appellant’s March 31, 1992 taxation year by disallowing $24,657 of the amount claimed as a deduction in respect of the aggregate Per Diems, being 20% of the aggregate Per Diems paid during the year in respect of Tendered Projects, on the basis that:

(a) the Appellant was entitled to deduct only 80% of the aggregate Per Diems paid by the Appellant during its taxation year in respect of Tendered Projects, pursuant to subsection 67.1(1) of the Act; and

(b) paragraph 67.1(2)(e) of the Act did not apply.

The relevant parts of the Income Tax Act are as follows:

67.1(1) For the purpose 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 80% 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.

67.1(2) Subsection (1) does not apply to an amount paid or payable by a person in respect of the consumption of food or beverages or the enjoyment of entertainment where the amount

(a) is paid or payable for food, beverages or entertainment provided for, or in expectation of, compensation in the ordinary course of a business car- ried on by that person of providing the food, beverages or entertainment for compensation;

(b) relates to a fund-raising event the primary purpose of which is to benefit a registered charity;

(c) is an amount for which the person is compensated and the amount of the compensation is reasonable and specifically identified in writing to the person paying the compensation;

(d) is required to be included in computing the income of an employee of the person or would be so required but for subparagraph 6(6)(«)(ii); or

(e) is incurred by the person for food, beverages or entertainment generally available to all individuals employed by the person at a particular place of business of the person and consumed or enjoyed by such individuals.

67.1(4) For the purposes of this section,

(a) no amount paid or payable for travel on an airplane, train or bus shall be considered to be in respect of food, beverages or entertainment consumed or enjoyed while travelling thereon; and

(b) “entertainment” includes amusement and recreation.

The Per Diem amount of $35 was “an amount paid or payable in respect of the human consumption of food or beverages” within the meaning of subsection 67.1(1). The parties agree that the Per Diem amount was reasonable. The parties disagree on the interpretation of paragraph 67.1(2)(e). The Appellant claims that the Per Diems paid in respect of Tendered Projects fall within paragraph 67.1(2)(e), but the Respondent claims that that paragraph does not apply to such Per Diems. Having regard to paragraphs 17 to 20 of the Agreed Statement of Facts, the conflicting claims of the parties may be summarized as follows:

(i) The Appellant claimed as a deduction in computing income for the 1992 taxation year the full amount of the Per Diems ($35 per day for food and beverages) paid in respect of Cost Plus Projects, plus the full amount of the Per Diems paid in respect of Tendered Projects (being $122,835) on the basis that such amounts were reasonable expenses incurred for the purpose of gaining or producing business income and were within the exception in paragraph 67.1(2)(e).

(ii) The Minister of National Revenue allowed as a deduction the full amount of the Per Diems in respect of the Cost Plus Projects; but disallowed the deduction of $24,657 (being 20% of the Per Diems paid in respect of Tendered Projects) on the basis that the Appellant was entitled to deduct only 80% of these latter Per Diems because they were not within the exception in paragraph 67.1(2)(e).

The only issue is the interpretation of paragraph 67.1(2)(e) as applied to the facts herein. In recent years, the Supreme Court of Canada has made a significant contribution to the law with respect to the interpretation of taxing statutes. A case in point is Québec (Communauté urbaine) c. Notre- Dame de Bonsecours (Corp.) [1994] 3 S.C.R. 3 (S.C.C.). In the Bon-Secours case, Gonthier J. wrote the reasons for a unanimous Court. After referring to other decisions of the Supreme Court of Canada in Stubart Investments Ltd. v. R., [1984] 1 S.C.R. 536 (S.C.C.), Golden v. R., [1986] 1 S.C.R. 209 (S.C.C.) and Bronfman Trust v. R., [1987] 1 S.C.R. 32 (S.C.C.), Gonthier J. stated at page 17:

...there is no longer any doubt that the interpretation of tax legislation should be subject to the ordinary rules of construction. At page 87 of his text Construction of Statutes (2nd ed. 1983), Driedger fittingly summarizes the basic principles: “the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament”. The first consideration should therefore be to determine the purpose of the legislation, whether as a whole or as expressed in a particular provision. The following passage from Vivien Morgan’s article “Stubart: What the Courts Did Next” (1987), 35 Can. Tax J. 155, at pp. 169-70, adequately summarizes my conclusion:

There has been one distinct change [after Stubart], however, in the resolution of ambiguities. In the past, resort was often made to the maxims that an ambiguity in a taxing provision is resolved in the taxpayer’s favour and that an ambiguity in an exempting provision is resolved in the Crown’s favour. Now an ambiguity is usually resolved openly by reference to legislative intent.

[Emphasis added].

The teleological approach makes it clear that in tax matters it is no longer possible to reduce the rules of interpretation to presumptions in favour of or against the taxpayer or to well-defined categories known to require a liberal, strict or literal interpretation. I refer to the passage from Dickson C.J., supra, when he says that the effort to determine the purpose of the legislation does not mean that a specific provision loses all its strictures. In other words, it is the teleological interpretation that will be the means of identifying the purpose underlying a specific legislative provision and the Act as a whole; and it is the purpose in question which will dictate in each case whether a strict or a liberal interpretation is appropriate or whether it is the tax department or the taxpayer which will be favoured.

As a first step, I propose to be guided by the following sentence quoted above:

The first consideration should therefore be to determine the purpose of the legislation, whether as a whole or as expressed in a particular provision.

The Income Tax Act as a whole is lengthy, complicated and all encompassing in its attempt to tax income from business, employment and property whether received by an individual, corporation, partnership or trust. It also taxes capital gains while exempting from tax many transfers of capital property which would otherwise result in capital gains. Therefore, I shall attempt to determine not the purpose of the Act as a whole but only the purpose of section 67.1. In my opinion, the purpose of section 67.1 can best be determined by looking at the law immediately before its enactment. This section was first enacted in 1988 applicable (generally speaking) to expenses incurred after 1987. Under paragraph 18(1)(a), any non-capital expense incurred for the purpose of gaining or producing income from business or property is deductible in computing income. Specifically, the cost of inviting a customer to lunch or dinner or to a theatrical or sporting event is deductible under paragraph 18(1)(a). By ordinary commercial standards, it is an accepted cost of promoting business akin to advertising. Treating a customer in this manner involves “the human consumption of food or beverages or the enjoyment of entertainment” in the words of subsection 67.1(1).

Before the enactment of section 67.1, any reasonable amount expended on the human consumption of food or beverages or the enjoyment of entertainment was deductible if it satisfied the “purpose” test in paragraph 18(1)(«). After the enactment of section 67.1, any such reasonable amount was deductible only to the extent of 80% even if it did satisfy the “purpose” test in paragraph 18(1)(a), unless it fell within a specific exception in subsection 67.1(2). In Lor-Wes Contracting Ltd. v. R., (1985), 85 D.T.C. 5310 (Fed. C.A.), the Federal Court of Appeal quoted a statement by the Minister of Finance in the House of Commons as a guide to the interpretation of a specific provision of the Income Tax Act. In this appeal, the origin of section 67.1 can be found in a document entitled “Income Tax Reform” issued by the Minister of Finance on June 18, 1987 in which he stated his intention to limit the deduction for “business meals and entertainment expenses”. The document states at page 86:

As part of broadening the tax base to permit lower tax rates, the deduction for business meals (including food and beverages) and entertainment expenses (such as accommodation at a resort and tickets for the theatre, a concert, athletic event or other performance) will be limited to 80 per cent of their cost.

Business meals and entertainment involve an element of personal consumption and therefore some part of their cost can properly be characterized as a personal expense that should not be deductible. While it is difficult to ascertain what portion of the cost of meals and entertainment represents personal consumption, it is clear that a full deduction for such expenses simply because they are undertaken in the course of business allows the write-off of some part of expenses that are of a personal nature. Many countries have limited the deductibility of meals and entertainment expenses. For example, similar restrictions currently apply in the United Kingdom, Australia and the United States.

Section 67.1 with its 80% limitation was enacted in 1988 as a direct consequence of the Minister’s proposal for income tax reform announced on June 18, 1987.

The purpose of section 67.1 as set out in the general rule in subsection (1) seems obvious. I am more concerned with the purpose of paragraph 67.1(2)(e) which is one of five exceptions within subsection 67.1(2) to the general rule expressed in subsection 67.1(1). I will review briefly the first four of the exceptions in subsection 67.1(2) and state what I regard to be the purpose of each exception.

(a) An exception for any person who carries on a business of providing food, beverages or entertainment for compensation. The owner of a restaurant who treats a regular customer by not charging him for a meal does not pay the retail price for that meal. The actual cost of that meal to the owner would be difficult to determine and the 80% rule would be difficult to apply. The same principle would apply to the owner of a theatre or a hockey team who gave away a pair of tickets.

(b) An exception for any fund-raising event for charity. A benefit performance at a theatre or a banquet to benefit a charity will not be affected by the 80% rule with respect to the issuing of a charitable receipt.

(c) An exception for a compensated amount. If an amount paid or payable by a taxpayer is 100% reimbursed, application of the 80% rule would not be fair to the taxpayer.

(d) An exception for an amount which must be included in the income of an employee. If an amount is 100% deducted by the payor and 100% included by the payee in the computation of income, there is no need to apply the 80% rule which would otherwise restrict the deduction. For interpretive purposes, I am ignoring the reference to subparagraph 6(6)(a)(ii).

As I view the respective purposes of paragraphs (a) through (d), there is no consistent pattern. In paragraph (a), it would be difficult to determine the amount on which the 80% rule would be applied. Paragraph (b) appears to be a policy decision to benefit registered charities. In paragraphs (c) and (d), there is no net reduction of income for the “amount paid or payable” and so there is no point in attempting to apply the 80% rule. I find that paragraphs

(a) through (d) are not helpful in construing paragraph (e). I will state again paragraph (e) in context with the opening words of subsection (2):

67.1(2) Subsection (1) does not apply to an amount paid or payable by a person in respect of the consumption of food or beverages or the enjoyment of entertainment where the amount

(e) is incurred by the person for food, beverages or entertainment generally available to all individuals employed by the person at a particular place of business of the person and consumed or enjoyed by such individuals.

Paragraph (e) is aimed at an amount paid or payable for food, beverages or entertainment available to and consumed or enjoyed by employees of the payor. In other words, paragraph (e) will apply only if the persons consuming the food or beverages or enjoying the entertainment are employees of the person paying the amount. There are two further conditions in paragraph (e). The food, beverages or entertainment must be (i) “generally available to all individuals employed” by the payor “at a particular place of business” of the payor; and (ii) “consumed or enjoyed” by such employees.

I do not see any requirement in paragraph (e) that the food or beverages or entertainment be consumed or enjoyed at the payor’s place of business. Specifically, paragraph (e) does not end with the words “...at such place of business”. Conversely, there is no prohibition against having the food, beverages or entertainment available at the payor’s place of business. In my view, the exception in paragraph (e) would apply to the following four examples. First, a corporation with a plant in Toronto and a second plant in Halifax buys a block of tickets to a “Blue Jay” baseball game and offers a ticket to each employee at the Toronto plant. Second, an employer invites all of its employees to its annual picnic at a public park several kilometres from its place of business. Third, an employer brings in a caterer to provide a Christmas party for all of its employees at its place of business. Fourth, an employer operates a cafeteria at its place of business to provide either free or subsidized lunches for all of its employees. The first example is obviously entertainment. The second and third examples are entertainment in the form of a meal for a special occasion. The fourth example is practical with no element of entertainment because the employer is simply providing a lunch at the work place for the convenience of all employees. However different the examples, each appears to satisfy the conditions in paragraph (e).

I turn now to the facts of this case. The Agreed Statement of Facts will hereafter be referred to as “ASOF”. The Per Diem was the sum of $35 per calendar day for food and beverages paid to each employee at a Regional Job Location (ASOF - paragraph 10). The Per Diem did not exceed a reasonable amount and it is highly likely that each employee would spend at least as much as the Per Diem to keep himself/herself sustained at a Regional Job Location (ASOF - paragraph 13). Each Regional Job Location was more than 40 kilometres from Thunder Bay and was “a particular place of business” of the Appellant for the purpose of paragraph 67.1(2)(e) (ASOF - paragraphs 9 and 16). Payment of the Per Diem was in accordance with the Appellant’s obligation under the Union Contract (ASOF - paragraphs 6, 8 and 10). Unlike the first three examples in the preceding paragraph, the Per Diem was not an opportunity or occasion to treat or entertain employees of the Appellant. Rather, the purpose of the Per Diem was to discharge the Appellant’s obligation to feed those employees who were required to work far from home.

The Appellant obtained 75% of its Out-of-Town business through Tendered Projects and 25% through Cost Plus Projects (ASOF - paragraph 3). For the Cost Plus Projects, the aggregate amount of the Per Diems paid by the Appellant to its employees was itemized on the invoice; submitted to the Appellant’s customer for payment; and was therefore reimbursed upon payment (ASOF - paragraph 15). The full amount of those Per Diems was deducted in computing income and allowed by the Minister of National Revenue (ASOF - paragraph 17). I assume that the Per Diems in respect of Cost Plus Projects were regarded as falling within the exception in para- graph 67(l)(2)(c):

67.1(2) Subsection (1) does not apply to an amount paid or payable by a person in respect of the consumption of food or beverages or the enjoyment of entertainment where the amount

(c) is an amount for which the person is compensated and the amount of the compensation is reasonable and specifically identified in writing to the person paying the compensation;

Having regard to the terms of the Union Contract and the fact that each Regional Job Location was more than 40 kilometres from Thunder Bay, the Per Diem was paid to each employee at a Regional Job Location in accordance with the financial obligation of the Appellant as employer, and without regard to whether a particular employee was working on a Tendered Project or Cost Plus Project. By the same token, the Appellant deducted in computing income the full amount of the Per Diems paid without regard to Tendered Projects or Cost Plus Projects. It was only upon issuing the notice of reassessment for 1992 that the Minister of National Revenue made a distinction allowing the deduction of 100% of the Per Diems with respect to Cost Plus Projects but allowing the deduction of only 80% of the Per Diems with respect to Tendered Projects. From a practical point of view, the distinction is difficult to explain because an employee on a Cost Plus Project is paid the same $35 Per Diem as an employee on a Tendered Project and for the same purpose (i.e. to provide food and beverages while working far from home).

The Respondent argues that paragraph (c) will not apply if the employer provides an allowance for food and beverages rather than buying directly the food and beverages. On the facts of this case, the Per Diem of $35 may be regarded as an allowance for food and beverages but I assume that it is not included in the income of an employee because of subparagraph 6(l)(b)(vii). If it were so included, the Appellant would be relying on the exception in paragraph 67.1(2)(d). Because the parties have agreed that the amount of the Per Diem is reasonable and likely to be spent on food and beverages (ASOF - paragraph 13), I conclude that the Per Diem amounts are not included in the income of the employees but are regarded as reimbursements paid in advance for amounts expended by employees travelling away from home in the performance of the duties of their employment. From a tax point of view, the employees are treated the same whether they are working on a Tendered Project or a Cost Plus Project. It is only the employer (Appellant) who is treated differently by the Minister in the manner described above.

Taking a broad view of paragraph 67.1(2)(e), the Per Diem paid to an employee working on a Tendered Project appears to satisfy the conditions in that paragraph. The purpose of the Per Diem is to provide food and beverages for the employee working far from home. The amount of the Per Diem is reasonable and likely to be expended for that purpose. The Per Diem is generally available to all employees of the Appellant at any Regional Job Location; and the food and beverages are consumed by such employees.

Taking a more narrow view of paragraph 67.1(2)(e), the language seems to support the Respondent because it states: “...where the amount is incurred by the person for food, beverages or entertainment...”. These words indicate that the food and beverages will be purchased directly by the employer and not indirectly by an employee with funds provided by the employer. The words “for food, beverages or entertainment” in paragraph 67.1(2)(e) may be contrasted with the words “in respect of the consumption of food” in subsection 67.1(1) and the opening part of subsection 67.1(2). The question arises whether the draftsperson, when using “for” in subsection 67.1(2)(e), was attempting to achieve a meaning different from the words “in respect of” in the opening parts of subsections 67.1(1) and (2). I will compare the relevant portions of section 67.1 in the English language version and the French language version of the Act as set out below.

67.1(1) 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 80% 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.

67.1(2) Subsection 1 does not apply to an amount paid or payable by a person in respect of the consumption of food or beverages or the enjoyment of entertainment where the amount

(e) is incurred by the person for food, beverages or entertainment generally available to all individuals employed by the person at a particular place of business of the person and consumed or enjoyed by such individuals.

67.1(1) Pour l’application de la présente loi, abstraction faite des articles 62, 63 et 118.2, un montant payé ou payable pour des ailments, des boissons ou des divertissements pris par des personnes est réputé correspondre à 80% du moins élevé du montant réellement payé ou payable ou du montant qui serait raisonnable dans les circonstances.

67.1(2) Le paragraphe (1) ne s’applique pas au montant payé ou payable par une personne pour des aliments, des boissons ou des divertissements dans les cas suivants:

(e) le montant est engagé par la personne pour des aliments, des boissons ou des divertissements pris par des particuliers employés par la personne au lieu même de son entreprise, et offerts, de façon générale, à tous ces particuliers.

The French language version of the Act is instructive because it does not use any words comparable to the English words “in respect of”. Indeed, the French language version uses the word “pour” (the French equivalent of the English word “for”) in the opening parts of subsections 67.1(1) and (2) where the English language version uses “in respect of’. And in subparagraph 67.1(2)(e), the French language version uses “pour” where the English language version uses “for”. I have underlined in the opening parts of subsections 67.1(1) and (2) the word “pour” in the French language version and the phrase “in respect of’ in the English language version where one is used in place of the other. Also, in paragraph 67.1(2)(e), I have underlined “pour” where it is used in place of “for”.

From comparing the English and French versions of the Act, I conclude that the draftsperson, in paragraph 67.1(2)(e), by using the word “for” was not attempting to achieve a particular meaning different from the meaning in the opening parts of subsections 67.1(1) and (2) where the words “in respect of’ are used. On the facts of this case and considering the argument put forward by the Respondent, I am not prepared to hold that the word “for” in paragraph 67.1(2)(e) requires the employer as payor to purchase directly the food and beverages and then make them generally available to all employees at a particular place of business. If the draftsperson had wanted to apply the 80% rule to an employer who paid a reasonable food and beverage allowance to all employees at a particular place of business (i.e. by barring such employer from the exception in paragraph 67.1(2)(e)), more explicit language would be required. The subtle use of “for” in paragraph 67.1(2)(e) does not achieve the legislative result sought by the Respondent when the French language version of the Act uses the word “pour” throughout as an equivalent to “in respect of” and “for”.

There is a further reason for allowing this appeal. In the carrying on of any business, there are discretionary expenses (like inviting a client to lunch or to a sporting event) and mandatory expenses (like complying with the terms of a collective agreement). In my opinion, the draftsperson did not intend that the 80% rule (a 50% rule since February 1994) whould apply to mandatory expenses. To be specific, if the Respondent’s interpretation of paragraph 67.1(2)(e) is correct, and if the Appellant has similar projects after 1994, the Appellant could deduct in computing income a full 100% of the Per Diem paid to an employee working in a Cost Plus Project but could deduct only 50% of the Per Diem paid to an employee working on a Tendered Project, when both Per Diems are paid under the same collective agreement for the same purpose (food and beverages) to persons doing the same kind of work at the same location. In the passage from the Bon-Se- cours case quoted above, the Supreme Court of Canada has stated that the words of an Act are to be read in their ordinary sense harmoniously with the scheme of the Act. As I understand the scheme of the Income Tax Act, mandatory non-capital expenses are 100% deductible in computing income if they satisfy the “purpose” test in paragraph 18(1)(a) unless their deduction is restricted or prohibited in very specific language. I require language more specific than the subtle use of the word “for” in paragraph 67.1(2)(e) to restrict the deduction of Per Diems paid to employees of the Appellant working on Tendered Projects.

And finally, although the limited class rule (Ejusdem Generis) was not argued, I make the following observations. In section 67.1, the words “food” and “beverages” are always used in conjunction with “entertainment”. It is possible that the draftsperson intended that the 80% rule would not apply unless there were an entertainment element about the consumption of the food and beverages. In other words, inviting a customer to lunch or dinner is different from providing a reasonable meal allowance to workers at a remote job site. I do not suggest, however, that the 80% rule would apply to every meal with an entertainment element. The examples of the annual picnic and Christmas party noted above should be excepted under paragraph 67.1(2)(e) if they are open to all employees.

The appeal is allowed with costs. At the commencement of these reasons for judgment, I stated that I would decide first the appeal of Racco Industrial Roofing Limited v. The Queen, (94-2170(IT)G). These reasons apply also to the appeal of Rugged AirSystems Limited v. The Queen, (94- 2171(IT)G). There will be two sets of costs prior to the hearing, and only one set of costs for the hearing.

Appeal allowed.