Thurlow, CJ:—We do not need to hear from you Mr Lefebvre and Ms Olsen.
The critical issue in the appeal, as we see it, is whether the service rendered or function performed by contractors in the appellant’s 1974 and 1975 taxation years, in cutting, making and trimming shirts, was “a service or function that would normally be performed by an employee of the” appellant within the meaning of subparagraph (b)(iii) of the definition of “cost of labour” in section 5202 of the Income Tax Regulations.
In Canadian Clyde Tube Forgings Limited v The Queen,  CTC 21, this Court affirmed the view of Mahoney, J. in the Trial Division that the adverb “normally” relates to the modus operandi of the manufacturer and processor Claiming inclusion of the particular outlay in its cost of labour, and went on to say:
Clause (b)(iii) of the definition of cost of labour does not refer to a service or function that would normally be performed by an employee of a (i.e. any) corporation. It uses the definite article “the” before the word “corporation” thus pointing clearly to the corporation claiming the deduction from the tax otherwise payable as the relevant entity, namely, in this case, the Appellant. Since normally it engages Weram Limited to do its machining, rather than using its own employees, it does not meet the requirements of the clause.
Applying this reasoning to the facts of the present case, it appears to us that the modus operand! of the appellant in the years in question, and indeed in the years before and since, has been to contract out all the cutting, making and trimming of shirts and to confine the cutting, making and trimming carried out by its own employees to the production of pants. Notwithstanding similarities in the two functions, the method of carrying on its business adopted by the appellant has been at all relevant times to maintain a clear separation of the shirt manufacture from the pant manufacture and, so far from the cutting, making and trimming of shirts being a function that would normally be performed by the appellant’s employees, the opposite is what, in fact, occurs, that is to say, that the function of cutting, making and trimming shirts would not normally be performed by the appellant’s employees but would normally be performed by contractors.
Counsel submitted that to apply the regulation in this way would be, in effect, to add restrictive wording to it, but we do not think that is so. On the contrary, to interpret the wording as counsel suggested would, in our view, require the insertion of words such as “of a kind” after the word function in subparagraph (b)(iii).
The appeal accordingly fails, and is dismissed with costs.