Citation: 2005TCC398
Date: 20050617
Docket: 2003-3772(IT)G
BETWEEN:
HEWLETT-PACKARD (CANADA) CO. (formerly
Compaq Canada Corp., successor corporation to
Digital Equipment of Canada Limited),
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1] This is an appeal by Hewlett-Packard (Canada) Co. in respect of assessments made under the Income Tax Act, R.S.C. 1985, c.1 (5th Supp.), as amended, for the 1994, 1995 and 1996 taxation years of a predecessor corporation, Digital Equipment of Canada Limited ("Digital"). The appeal concerns weekend trips awarded by Digital to its employees. The Crown takes the position that the hotels used by Digital for these weekends are lodges and that their cost is not deductible by virtue of paragraph 18(1)(l) of the Act. If the position of the Crown is correct, the result is potentially far-reaching because the section prohibits a deduction for the use of lodges regardless of whether the use is for recreation, as it was in this case, or for business.
[2] Paragraph 18(1)(l) reads:
18.(1) In computing the income of a taxpayer from a business or property no deduction shall be made in respect of
[...]
(l) an outlay or expense made or incurred by the taxpayer after 1971,
(i) for the use or maintenance of property that is a yacht, a camp, a lodge or a golf course or facility, unless the taxpayer made or incurred the outlay or expense in the ordinary course of the taxpayer's business of providing the property for hire or reward, or
(ii) as membership fees or dues (whether initiation fees or otherwise) in any club the main purpose of which is to provide dining, recreational or sporting facilities for its members;
[3] The facts are generally not in dispute. For several years, Digital had awarded trips to employees under a program called the Employee Rewards and Recognition Compensation Program. The awards program ended when the company was purchased in 1998. Under the program, trips were awarded annually to employees who achieved specific targets. Some employees qualified on an individual basis by achieving sales quotas, and others qualified on a group basis by meeting targets based on profitability and customer satisfaction surveys.
[4] Digital organized several trips each year to accommodate the large numbers of employees from various divisions who received awards. The trips consisted of all-inclusive weekends for employees and their spouses. Although the trips were essentially holidays, employees who received awards were expected to attend. During the day, employees could spend time as they wished and at night, dinners were organized that included an awards banquet at which employees were individually recognized for their achievements. Digital sometimes organized recreational events but there was no obligation to participate. The cost of the weekends was included as a taxable benefit to employees and part of the taxes resulting from the income inclusion were reimbursed by Digital.
[5] The locations for the weekend trips were chosen based on the budget that was made available. The hotels generally had to be of sufficient size to accommodate a large group and banquet facilities were required. In the taxation years in issue, employees went to the following hotels: Clevelands House Resort, Deerhurst Resort, Chateau Whistler, Isaiah Tubbs Resort, the Chateau Bromont Resort Hotels, The Delta Lodge at Kananaskis, Le Chateau Montebello and L'Esterel. These hotels are all located in Canada in country settings but in other taxation years the venues included Las Vegas, Nevada, Santa Barbara, California and downtown Montreal.
[6] A description of the hotels used was provided by way of excerpts from the websites of four of the hotels at issue: Clevelands House Resort, Deerhurst Resort, The Delta Lodge at Kananaskis and Chateau Bromont Resort Hotels. The parties agreed that these would be representative. The four hotels have a number of common features. They are all large (generally over 200 rooms), are located in beautiful country settings, have an array of modern amenities and have recreational facilities available either at the hotel or nearby. Although it is difficult to determine from the limited excerpts from the websites, it appears that all have facilities to accommodate business meetings.
[7] Three of the four hotels use the word "resort" in their name. I would note that in respect of hotels for which no websites were provided (Isaiah Tubbs Resort, Chateau Whister, Chateau Montebello and L'Esterel), there was no evidence as to the proper name of the hotels and accordingly the names used in these reasons may not be accurate. Although one of the hotels uses the word "lodge" in its name, its website, as well as the other three, use the word "resort" rather than "lodge" to describe the facility as a whole.
[8] As for references to "lodge," the website of Deerhurst Resort uses "lodge" in a map to describe the main building but the website does not otherwise use the word. The website of The Delta Lodge at Kananaskis uses the term "mountain resort" to describe the facility and describes one of the two buildings on site as the "the 'Lodge' portion of the resort." The website of the Chateau Bromont Resort Hotels describes the facility as "resort hotels." It is comprised of three independent hotels, the Auberge du Chateau, Chateau Bromont and Pavillon des sens. I did not see of any reference to "lodge" in its website.
[9] The Minister of National Revenue disallowed an amount of $453,980 for each of the three taxation years at issue. The Crown concedes that the expenses were incurred for the purpose of earning income and therefore the only issue is the application of paragraph 18(1)(l). The taxpayer concedes that $19,000 is properly attributable to the use of golf courses and accordingly the amount in dispute is $434,980 for each taxation year.
[10] The amount disallowed is the same for each year. This is the result of an agreement between the taxpayer and the Canada Revenue Agency that the expenses of only one year, 1994, would be reviewed in detail and this amount would be considered representative of the other years under appeal.
[11] Counsel for the Crown suggests that the ordinary meaning of "lodge" includes a broad range of accommodation, including a hotel. If, however, "lodge" is limited to describing hotels in country settings, the Crown submits that it includes the hotels that Digital used in the relevant taxation years.
[12] Counsel for the taxpayer suggests that not all hotels are lodges within the common meaning of the term and that lodge generally describes accommodation that is small, rustic, unsophisticated and seasonal. In the alternative, the taxpayer submits that if I were to conclude that the hotels used by Digital are lodges, the expenses at issue qualify for the exclusion in subparagraph 18(1)(l)(i) for an "outlay or expense in the ordinary course of the taxpayer's business of providing the property for hire or reward."
Analysis
[13] The main question in this appeal is whether the word "lodge" in paragraph 18(1)(l) includes resort hotels of the type that Digital employees visited during the taxation years at issue. The hotels vary in style but all are quite large, have a range of modern amenities, and appear to cater to both business groups and vacationers.
[14] Paragraph 18(1)(l) has been in the Act since tax reform in 1972. The relevant part of the provision prohibits a deduction for expenses incurred for the use or maintenance of four types of facilities: a yacht, golf course, camp or lodge. It is not clear on the words of the section that it applies to facilities in the nature of hotels but this uncertainty was resolved when the Supreme Court of Canada determined that the use of a lodge that functioned as a hotel was subject to paragraph 18(1)(l) by virtue of the broad meaning of the word "use": Sie-Mac Pipeline Contractors Ltd. v. The Queen, 93 D.T.C. 5158 (S.C.C.).
[15] I am not aware of any cases that have considered hotels similar to those used by Digital. The two cases referred to by the parties concerned fishing lodges: Sie-Mac Pipeline and The Queen v. Jaddco Anderson Limited, 84 D.T.C. 6135 (F.C.A.).
[16] The Canadian Oxford Dictionary, second edition (2004), lists the following entries for "lodge" in reference to a building:
1 a hotel or inn, esp. in a resort area. 2 N Amer. the main building in a resort or summer camp, usu. containing a dining area etc. 3 Cdn (esp. in proper names) an old people's home. 4 a house occupied in the hunting or fishing season. 5 a N American Indian's tent or wigwam. 6 a small house at the gates of a park or in the grounds of a large house, occupied by a gatekeeper, gardener, etc. [...]
[17] An historical context for "lodge" is found in the following from The Encyclopedia Britannica (15th edition):
lodge, originally an insubstantial house or dwelling, erected as a seasonal habitation or for some temporary occupational purpose, such as woodcutting. In this sense the word is currently used to describe accommodations for sportsmen during hunting season and for recreationists, such as skiers.
The lodge became a more permanent type of house as the lands around European mansions were developed as parks. The lodge was the cottage of the gamekeeper, caretaker, gatekeeper, or gardener and might be at the park's entrance or elsewhere on the grounds, usually displaying some architectural relation to the main buildings. Lodges could be of considerable size in royal parks and be occupied by important persons. Lord John Russell, for example, lived in Pembroke Lodge at Richmond Park, London, by permission of Queen Victoria, for more than 30 years.
[18] Although dictionaries sometimes use the word "hotel" to describe "lodge," I do not think that most Canadians would describe large hotels with a range of modern amenities as "lodges."
[19] In order to determine the common meaning of a non-technical word such as "lodge," it is relevant to consider how it is used by the tourism industry. The only evidence in this appeal concerning industry usage relates to the hotels at issue. Although there was no evidence of the proper names of all eight hotels, it appears that only one (Delta) uses the word "lodge" in its name. According to the four websites, two hotels use "lodge" to describe a particular building within the resort (Deerhurst and Delta) and all of the websites use the word "resort" to describe the facility as a whole. These references tend to confirm my understanding that "lodge" has a narrower meaning than "hotel" or "resort."
[20] The word "lodge" is occasionally used in the industry in a broad sense (Econolodge, for example) but this usage is not common and in my view it is a stretch of the normal meaning of "lodge" to describe all hotels as "lodges." Counsel for the taxpayer is correct in suggesting that hotels occasionally use "lodge" in their name for marketing reasons.
[21] It is not necessary for purposes of this appeal to determine a precise meaning of "lodge." I am not sure that there is one. At one end of the spectrum, "lodge" clearly applies to small rustic dwellings used for fishing and hunting. At the other end, it clearly does not apply to large modern hotels located in cities. It is not necessary that I consider where the line should be drawn for purposes of paragraph 18(1)(l). In my view the common meaning of "lodge" does not include large resort hotels of the type that are at issue in this appeal.
[22] Counsel for the Crown relies heavily on the decision of Sie-Mac Pipeline. In my view, this decision is not of assistance to the Crown because the facility at issue was not at all similar to the large hotels that were used by Digital. The facility in Sie-Mac Pipeline was a traditional-style fishing lodge - small, remote, rustic and used primarily for fishing. Although the Tax Court decision of BruléJ. compared the fishing lodge to Chateau Montebello and Banff Springs Hotel, the judge was not considering whether these large hotels were lodges.
[23] The French version of paragraph 18(1)(l) also supports the conclusion that I have reached. The French version uses the terms "pavillon" and "chalet-hôtel" in place of "camp" and "lodge."
[24] It appears that the term "pavillon" is not properly used to describe a large hotel. "Pavillon" is defined in Larousse as "villa, lodge, pavilion, [...], shooting box, [...], summer-house." The website of Deerhurst Resort uses the term "pavilion" to describe a building that houses a spa. Similarly, the website for Chateau Bromont Resort Hotels uses "pavillon" as the name for a facility that has a spa and 12 bedrooms.
[25] As for "chalet-hôtel," the term is difficult to find in dictionaries. The reference to chalet tends to suggest something smaller than a large hotel. The Crown referred to a computer database issued by the Government of Canada called TERMIUM Plus that is produced by the Translation Bureau. According to this source, "chalet-hôtel" is defined in a Dictionary of Tourism and Leisure published in Paris and its meaning may be translated as: "a comfortable hut offering meals and generally accessible from the road."
[26] I would conclude, then, that the French version of paragraph 18(1)(l) does not support the broad meaning of "lodge" that is suggested by the Crown.
[27] For these reasons, I have concluded that the word "lodge" as used in paragraph 18(1)(l) does not apply to large hotels of the type that are at issue in this appeal. In my view the word "lodge" is not commonly used to describe these types of hotels, and if Parliament had wanted to deny a deduction for using these types of hotels, other words would have better described this intent.
[28] As a result of this conclusion, it is not necessary that I comment on the taxpayer's alternative argument that the expenses were incurred in the ordinary course of the taxpayer's business of providing the property for hire or reward.
[29] The appeal is allowed, with costs, and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis
that the taxpayer is entitled to deduct $434,980 in computing income for each of the 1994, 1995 and 1996 taxation years.
Signed at Toronto, Ontario, this 17th day of June, 2005.
"J. Woods"
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