Spectron Computer Corp. v. MNR, 93 DTC 1473, [1993] 2 CTC 3148 (TCC)

Kempo, T.C.CJ.:—This appeal concerns the appellant's 1983, 1984 and 1985 taxation years during which time it was actively engaged in, inter alia, scientific research and development for the purpose of researching and developing computer software solutions (hereinafter sometimes called the"R&D" project) for the purpose of meeting the perceived needs of the North American transportation industry.

The issues

The appellant included various expenditures related to the R&D project in calculating its investment tax credit (the "ITC") for each of its taxation years under appeal. These appeals arose out of the respondent's disallowance of certain expenditures claimed for that purpose with respect to this project; however they were allowed as deductions for the purposes of calculating the appellant's taxable income for each taxation year. At the trial it was common ground that if any of the disallowed expenditures are allowable for the purposes of calculating the appellant’s ITC with respect to the R&D project, they are to be correspondingly disallowed as deductions in the calculation of its taxable income for each year.

At the opening of the hearing counsel for each party advised that, save for two particular expenditure items, all of the rest had been re-examined and resolved by agreement. The particulars of the agreement will be itemized at the end of these reasons.

With respect to two remaining items still in dispute, one concerned interest expenditures arising out of money borrowed to finance the salaries and benefits paid to the appellant's R&D personnel, and the other related to the registration and travel costs arising from computer software conference attendances by its R&D staff in 1984 and 1985.

In a nutshell, if these items are characterized as "prescribed expenditures" within section 2902 of the Income Tax Regulations (the "Regulations") they would not be “qualified expenditures" for investment tax credit purposes within subsections 127(5) and 127(9) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act"). These legislative provisions are set out later under the heading "The Law”.

The facts

The only verbal testimony heard was that of James Figley who was the appellant’s founder and its president at all material times. He testified that the appellant was incorporated in late December 1982 to facilitate research and development in a computer software area which had been the study project of a large transportation company and its national accounting firm in Saskatoon, Saskatchewan. Based on what he had learned in assisting them in this research, Mr. Figley determined there was a good business opportunity to be had in this field as the study had underscored a need that was not being met.

The appellant began by hiring a few programmers to look at relational databases which were extremely new at that time. These employees were University of Saskatoon computer science graduates with degrees in Commerce or Science or Engineering. Free space for the R&D staff was gained initially, but as the project developed larger premises were taken and more R&D staff were hired to move the R&D project along faster.

The interest issue

Salaries and benefits paid to R&D personnel amounted to approximately $160,000 for 1983, $190,000 for 1984 and in excess of $200,000 for 1985. The payroll financing was through shareholder equity input and bank operating loans.

During the 1983, 1984 and 1985 years the appellant was also trading in computer hardware and software sales, earning revenues therefrom of (rounded out) $299,500, $452,500 and $885,700 respectively. Gross profit, before overhead and administration costs, amounted to $110,800, $221,800 and $393,300 respectively according to restated financial statements filed with the appellant’s 1986 tax return. Mr. Figley testified that half of the appellant's borrowings in both 1983 and 1984 were allocated to R&D salary and benefit expenditures, and that in 1985 the percentage was less than one- quarter of the total. These interest amounts were $3,170.98 for 1983, $8,126.35 for 1984 and $9,675.29 for 1985. The balance of the borrowings went to financing the purchase of the computer equipment for profitable resale in an operation which remained apart from the non revenue producing R&D activities.

The appellant's overall plan was to successfully design a relational database called Tranfo which would be copyrighted and then marketed for profitable sale in the future to the North American transportation industry. It was described as a two-stage operation. The first was research and development, the second being marketing. Throughout the 1983-1986 years no income was generated from the project because it was still in its research and development stage.

The respondent allowed amounts expended for salaries and benefits paid to the R&D personnel in the calculation of the appellant’s ITC but disallowed the interest paid on the moneys borrowed to fund these expenditures.

The software conference issue

The second matter in dispute pertained to 1984 and 1985 software conferences held in the U.S.A. which, Mr. Figley urged, were significant and very important to the relational database research that was taken on. He said Canadian expertise was lacking at the time and that even today, some nine years later, there is only one Canadian university engaged in substantial work in the area of relational databases which is the University of Waterloo in Ontario.

Both conferences were organized through the auspices of International Database Management Association, Inc. ("IDMA") of San Diego, California. The expenditures were $3,085.19 for 1984 and $4,754.79 for 1985.

The 1984 forum was called Pick Spectrum '84. It was a three-day February conference in Reno, Nevada which touted itself as the most unique business computer systems forum in the world. Its program was comprised of three individual special interest paths. One was called the computer education path to help those interested in the purchase and use of a business computer. Another was a manufacturers' path involving product updates. The third, which Mr. Figley stressed was of vital interest to the Tranfo project, was the technical path designed specifically for the people who were programmers, engineers and systems analysts. He said that the conference produced relational database information in areas such as assembly language, voice text, voice response, forward incoding and other significantly useful technical matters. The 1985 forum was in identical format, was called International Spectrum USA, and was a three-day meeting held in New Orleans, Louisiana during March.

The benefits realized by the appellant as a result of R&D staff attendances were explained by Mr. Figley thusly:

A. Well, what we found from the experience in 1984, and we'd had tremendous feedback from other organizations, was that you could expect massive productivity increases, and what we found from 1984 was — was not increases in the neighbourhood of 10 per cent improvement in productivity or 20 per cent. We found improvement in multiples. It was incredible the efficiency because of some of the new programming techniques or some of the new software tools that they were able to use. For example, the one year Scott came back with — there was one course on what was called B-trees and it was a new programming methodology based on the relational databases and the change to our software development was immense because it enabled the programmers to shorten the programs up substantially so there was less lines of code and also the software, because there was less lines of code, was far more efficient and also faster, so the applications ran much faster on smaller pieces of equipment. So, after 1985 — well, for 1985 if we could have sent — if we could have afforded to send every one of our software development people we would have sent them because of the massive increases in productivity. Even with the ones that we sent, their feedback to the other ones and the subsequent retraining of the other ones, the increase in productivity was very, very noticeable. [T. 49 1.3 to T. 50 1.3]

Q. What was the purpose of having your people go and attend this conference?

A. The purpose was to upgrade the — the educational skills and the programming skills of — of the R&D personnel that we sent down. [T. 511.18 to 22]

Q. Tell us about 1985. You were at 1985?

A. Yes.

Q. What was that conference like?

A. Again we sent some R&D personnel down there, who attended the training courses that were provided that covered business graphics and artificial intel- ligence, also something called correlatives and the correlatives were — became an extremely important tool in the Tranfo software development because you could essentially format reports within a correlative, which would allow you to, by simply changing the correlative, you would change all of the print formats. Instead of reprogramming something, the end users could actually do this and it was a very powerful tool in the hands of the end user because essentially it turned nonprogrammers into programmers without them having to take any programming education. So that was extremely important.

Q. Did you ever have occasion to apply that kind of technology or knowledge in your research and development.

A. Oh, absolutely. In fact, with only one exception, the tools and techniques that were gathered from the conference were applied. The one exception had to do with a fifth generation language which we tried. It was called Apjan and it was a fifth generation application generator and the product worked. The problem was it was too restrictive in its nature so it was taking a relational database which had an extreme amount of flexibility and it was limiting the flexibility and even though the product itself worked and the people knew — the R&D programmers knew how to use it, the decision was made to discontinue using it because it was restricting the flexibility of the Tranfo software and from a design philosophy point of view we did not want to do that. We wanted to keep it as open as possible and one of the innovative features of the Tranfo software was what was called Parameter Driven and the fifth generation application generator was limiting our ability to put everything in parameters, so it was — it was discontinued. The other tools, the correlatives, the B-trees, the assembly language, they became very important parts of the development process.

Q. Can you give an example of where you actually used that technology to make a presentation to a customer?

A. Absolutely. In 1986 we were trying to obtain an account with T & T Texmart.

Q. Who is T & T Texmart?

A. T & T is the single largest transportation company in the world. They're based out of Australia. They have the fourth largest merchant fleet in the entire world, fourth only to some of the Arabs. They have more planes and helicopters than the Canadian government. They are simply a massive corporation. We were shortlisted on one of their subsidiaries in Mississauga called T & T Texport which hauls all the textiles for Sears and Eaton's, Mark’ Work Wearhouse, companies like that, and we were short-listed with an IBM software house out of Pennsylvania and with T & T's own data processing group. T & T North America has a data processing group and at that time they had about 40 programmers and to — the relational database technology was quite new for the personnel at T & T, who were making the decision, so a little exercise was developed. They laid out the basic parameters of the type of program that was going to be developed and the type of output and also the type of changes that were going to be made to this and their software group came back with an estimate that it was going to take roughly about two months to deliver the end product and, of course, at a cost of thousands of dollars and Spectron delivered the code the next day for this exercise. And based on that, it was short-listed down to two, dropping their data processing group out. The techniques that were being used within the Tranfo software just made it so easy to change various things. Because it was set up in parameters, they could set things up extremely quick and, using some of the features, you know, for example the B-trees and the correlatives and that, we could develop software that was very powerful extremely quickly and eventually in 1986 we won the contract, which was a million-dollar contract. [T. 52 1.4 to 1.55 1.12]

Mr. Figley further emphasized that, apart from interest in the subject matters being presented, no commonality existed between the attendees of these forums. For example they did not share or partake in any club or organizational memberships having a common nature or purpose. He said this kind of thing was neither required nor contemplated in any way. However he readily agreed that commonality of attendees arose from their interest in computers be it as a manufacturer or as a user or as a professional technician, the latter of which included the appellant’s R&D personnel in relational database research.

Both issues

As noted earlier, the expenditures made for interest and for the conferences were disallowed for ITC purposes because they were categorized by the respondent as “prescribed expenditures" pursuant to Regulation 2902 (infra) and thus were excluded from the definition of “ qualified expenditures” within the meaning of subsection 127(9) of the Act.

The law

For the sake of simplicity and brevity, only those parts of the relevant legislative provisions of substantive impact will be reflected. I propose to elicit the enactments as they read for the 1985 taxation year because the significant parts of the provisions remained substantively the same for all of the appellant's 1983, 1984 and 1985 taxation years.

The Act

37(1) [Scientific research and experimental development]—Where a taxpayer .. . . carried on a business in Canada and made expenditures in respect of scientific research and experimental development in the year, there may be deducted in computing his income for the year the amount, if any, by which the aggregate of

(a) such amounts as may be claimed by the taxpayer not exceeding all expenditures

of a current nature made in Canada by the taxpayer in the year . . .

(i) on scientific research and experimental development related to the

business and directly undertaken by or on behalf of the taxpayer . . .

(b) such amount as may be claimed by the taxpayer not exceeding the lesser of

(i) the expenditures of a capital nature made in Canada (by acquiring property other than land) in the year . . . on scientific research and experimental development relating to the business and directly undertaken by or on behalf of the taxpayer, and. . . .

37(7) Definitions — In this section

(c) references to expenditures on or in respect of scientific research and experimental development

(ii) . . . include only

(A) expenditures each of which was an expenditure incurred for and all or substantially all of which was attributable to the prosecution, or to the provision of premises, facilities or equipment for the prosecution, of scientific research and experimental development in Canada. . . .

127(5) [Investment tax credit] — There may be deducted from the tax otherwise payable by a taxpayer under this Part for a taxation year an amount equal to the aggregate of

[Note: hereafter the subprovisions provide various calculations and percentages pertaining to a taxpayer's "investment tax credit" at the year end.]

127(9) Definitions — In this section

investment tax credit of a taxpayer at the end of a taxation year means the amount, if any, by which the aggregate of

(a) the aggregate of all amounts each of which is the specified percentage of . I or the specified percentage of a qualified expenditure made by him in the year,

qualified expenditure means an expenditure in respect of scientific research and experimental development made by a taxpayer. . . that qualifies as an expenditure described in paragraph 37(1)(a) or subparagraph 37(1)(b)(i), but does not include

(a) a prescribed expenditure

[Emphasis added.]

The Regulations

2902. For the purposes of the definition “ qualified expenditure” in subsection 127(9) of the Act, a prescribed expenditure is

(a) an expenditure of a current nature incurred by a taxpayer in respect of

(i) the general administration or management of a business, including

(A) an administrative salary or wages and related benefits in respect of a person whose duties are not all or substantially all directed to the prosecution of scientific research and experimental development, except to the extent that such expenditure is described in subsection 2900(2) or (3),

(B) a legal or accounting fee,

(C) an amount described in any of paragraphs 20(1)(c) to (g) of the Act,

(D) an entertainment expense,

(E) an advertising or selling expense,

(F) a convention expense,

(G) a due or fee in respect of membership in a scientific or technical society or organization, and

(H) a fine or penalty, or

(ii) the maintenance and upkeep of premises, facilities or equipment to the extent that such expenditure is not attributable to the prosecution of scientific research, and experimental development,

except any such expenditure incurred by a corporation that derives all or substantially all of its revenue from the prosecution of scientific research or the sale of rights in or arising out of scientific research carried on by it;

[Emphasis added.]

Section 2902 of the Regulations as it read for the 1983 and 1984 taxation years actually referenced subsection 127(10.1) of the Act which was numbered as subsection 127(9) for the appellant's 1985 taxation year.

With respect to Regulation 2902(a)(i)(C), it was common ground that only paragraph (c) of subsection 20(1) of the Act was applicable here which was further narrowed to subparagraph (i) and (ii) thereof. It reads:

20(1) [Deductions permitted in computing income from business or property] — Notwithstanding paragraphs 18(1)(a), (b) and (h), in computing a taxpayer's income for a taxation year from a business or property, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto:

(c) [interest] an amount paid in the year or payable in respect of the year . . . pursuant to a legal obligation to pay interest on

(i) borrowed money used for the purpose of earning income from a business or property. . . .

(ii) an amount payable for property acquired for the purpose of gaining or producing income therefrom or for the purpose of gaining or producing income from a business. . . .

or a reasonable amount in respect thereof, whichever is the lesser;

Analysis

This case revolves around the correct interpretation of Regulation 2902(a)(i) which establishes those kinds of scientific research and experimental development expenses (hereafter called “R&D expenses") that are excluded in the calculation of the appellant's investment tax credit (' ITC").

Generally speaking, the ITC is an aggregate amount arrived at under subsection 127(5) of the Act which is deductible from the tax otherwise payable by a taxpayer who, according to subsection 37(1), carried on a business in Canada and incurred R&D expenses of a current nature (those of a capital nature are irrelevant here) in respect of research related to the taxpayer's business.

These R&D expenses exclude what has been described as prescribed" expenses as defined in Regulation 2902(a) which are in respect of "the general administration or management of a business". The two items thereunder which have been put in dispute here are not entirely without ambiguity.

The interest issue

Appellant's counsel conceded the appropriateness of the interest disallowance if it was incurred for the purposes of earning income within the meaning of subparagraph 20(1)(c)(i) or (ii) of the Act. He emphasized, however, that this was not the purpose with respect to the R&D project here in that the interest liability arose out of borrowings made for the purpose of financing the first stage salary costs in the course of this project which, if achieved, would thereafter be marketed for profit during the second stage. A business activity normally generates income. In contrast, an R&D activity normally generates only expenses, not income. He stated that Parliament could have easily targeted "interest" as a prescribed expense, and if that had been the case the matter would have been at an end. However, having used the words "an amount described in any of paragraphs 20(1)(c) to (g) of the Act" one must go to those provisions to determine the meaning. Paragraph 20(1)(c) is applicable here which mandates that the use of the borrowed funds be "for the purpose of earning income” from a business or property. The appellant's R&D activities during the years in question did not fit that description, paragraph 20(1)(c), does not apply and hence the interest claimed here is not a prescribed expense and should not have been disallowed.

Respondent's counsel pointed out that, but for the R&D provisions in the Act, all R&D expenditures with respect to new product development would normally have to be capitalized and therefore if the interest expense is not deductible under paragraph 20(1)(c) of the Act, it is not deductible elsewhere. The purpose of subparagraph (C) in Regulation 2902(a)(ii) is to disallow financing costs (its terminology being merely legislative shorthand) save and except the case where the taxpayer was deriving all or substantially all of its revenues from its R&D operation. This was not the case here, and there is simply no other avenue available to this appellant for this kind of expense. In any event, paragraph 20(1)(c) of the Act is applicable to the appellant's situation in that the interest arose out of borrowings used to gain or produce income from property i.e. the end product which if successful would be patented and then marketed. If the interest was disallowed on the basis of no revenue being generated during the years under appeal, it would have been wrong.

Conclusion

I conclude that the Minister properly disallowed the interest claimed on the basis that it was a prescribed expense pursuant to Regulation 2902(a)(i)(C).

In my view appellant-counsel’s analysis and argument goes beyond simple ambiguity which he claims ought to be resolved in the appellant's favour pursuant to the established authorities. The ostensible anomaly is resolvable by the contemporary words-in-total-context approach which has as its focus the determination of the object and purpose of these provisions. The law is not restricted to a literal and virtually meaningless interpretation where the words employed will support, on a broader construction, a conclusion which is workable and in harmony with the evident purposes of the Act. The Queen v. Golden, [1986] 1 S.C.R. 209, [1986] 1 C.T.C. 274, 86 D.T.C. 6138 at pages 214-15 (C.T.C. 277, D.T.C. 6140). If the ambiguity cannot be resolved on this approach, then any reasonable doubt remaining may be resolved in the taxpayer's favour.

What was being advanced was that since no revenue was being derived, nor could possibly be derived, from the appellant's R&D activities during the period under appeal, paragraph 20(1)(c) of the Act could not be applicable, thus rendering subparagraph (C) of the regulation inapplicable as well. In my view that analysis is circular and if accepted renders the latter meaningless. It also ignores the general proposition of law that interest is normally capitalized.

Subsection 248(1) of the Act defines property as meaning (I am paraphrasing) property of any kind whatever whether real or personal or corporeal or incorporeal and including a right of any kind whatever. Since the appellant's R&D project had not derived any revenue but remained ancillary to its principal business of trading in computers, subparagraph (C) of the regulation is operative and the amounts contemplated therein are not allowable because they were interest amounts arising from borrowed money used to gain or produce income from property within the purview of paragraph 20(1)(c) of the Act. That no income was or could have been gained or produced at that time from the property being researched and developed is not determinative because the purpose and direct use of the borrowed funds was focused to that end and no issues were raised concerning the efficacy of the projects under research.

The above analysis and conclusions represent a workable solution, avoid anomaly and are in keeping with the legislative object, purpose and language of the Act and the Regulations. Even if this approach may well have stretched the statutory language employed, it avoids absurdity and gives effect to the obvious purpose of the provisions being interpreted. The Queen v. Consumers' Co-Operative Refineries Ltd., [1987] 2 C.T.C. 204, 87 D.T.C. 5409 (F.C.A.) at page 206 (D.T.C. 5411).

Accordingly, the appeals with respect to the interest issue fail.

The convention expenses issue

Counsels’ arguments moved in separate directions respecting the nature and purpose of the conferences attended by the appellant's R&D staff and the meaning to be assigned to the word “convention” in subparagraph (F) of Regulation 2902(a)(i).

Respondent's counsel submitted that what was really going on was a threepronged conference for buyers, users and manufacturers in a vacation type setting designed to attract those people having a common interest in computers. Thus he said it was a"convention" within its ordinary meaning in that it encompassed different aspects of an underlying theme appealing to those having that common interest. With respect to Interpretation Bulletin IT-357R2 dated November 6, 1989, it is to be noted that the preamble proposes a distinction to be made between a training course on the one hand and a convention or business meeting on the other, and in paragraph 9 it avers that a convention does not become a training course when some of the sessions take the form of workshops. Counsel submitted that the whole matter here was a convention and that even if it was a conference it would be included within the general nature and parameters of administrative or management concerns and thus be a prescribed expense.

Appellant's counsel focused on the technical user aspect of the program, that it was the only public forum available in North America providing technical information and training, and that it lacked commonality of organizational or professional attributes amongst the invitees which is an essential characteristic and therefore it ought not be regarded as a convention. What the appellant's R&D employees attended was a conference, not a convention. While conceding a convention does include certain attributes of a conference, he urged the converse was not true for the basic reason that the only commonality of its attendees was the topic or subject matter of the meeting which is often narrow in scope. He noted, as an example, the obvious differences between an annual "convention" of Canadian Bar Association lawyers and a "conference" respecting treaty land entitlements attended by lawyers plus perhaps others interested in that topic. A conference lacks organizational commonality amongst its invitees and also lacks the normal characteristics attributable to matters of "general administrative or management" concerns normally arising out of conventions to which Regulation 2902(a)(i) is generally focused.

Conclusion

At the outset Regulation 2902(a) is a definition provision which, by its usage of the word “including” in paragraph (i), connotates an enlargement from the preceding words “general administration or management" expenditures. Minicom Data Corp. v. Canada, [1992] 2 C.T.C. 2196, 92 D.T.C. 1876 (T.C.C.) at pages 2198-99 (D.T.C. 1878). In other words, subparagraph (F) is to be interpreted in an expansive way rather than being limited to whether it falls within the general ambit of general administrative or management aspects of a business. It may encompass some of those characteristics but may also include others which are not to be disregarded.

An established principle of statutory interpretation is that where the same word or words are used in different parts of the same statute they ought to be accorded the same meaning unless there is an obvious reason for not doing so. Differing contexts or purposes attract caution and may require departure from the general rule.

The subject matter of "conventions" arose in Graves v. Canada, [1990] 1 C.T.C. 357, 90 D.T.C. 6300 (F.C.T.D.) wherein the taxpayers were operating an independent distributorship of Amway products and in connection therewith attended networking meetings in the United States designed to develop leadership skills germane to the expansion of their business. In the course of his judgment Mackay, J., at pages 366-67 (D.T.C. 6307), noted that if the meetings had attributes pertaining to educational or training sessions involving advanced study or testing, or formal curricula normally associated with training sessions to maintain or upgrade skills or knowledge, the expenses incurred in connection therewith were likely allowable under paragraph 18(1)(a) of the Act. That provision permits deductions for expenditures made or incurred for the purposes of earning income from business or property. Skills acquired from the meetings respecting sales, marketing and networking were seen in the nature of a capital asset and not allowable as an expense except within the limits of subsection 20(10) of the Act. This provision permitted deductibility, notwithstanding its capital aspects, of expenses “in attending, in connection with the business, not more than two conventions held during the year by a business or professional organization”. At page 367 (D.T.C. 6308) he said:

The word “convention” is not defined in the Act. Generally, a convention is defined as being an “act of convening”; "formal assembly” (Concise Oxford Dictionary); or as “an assembly or meeting of members or representatives of political, legislative, fraternal, etc. organizations” (Black’s Law Dictionary. 5th Ed. 1979). In this case, the plaintiffs attended meetings arranged by their particular line of distributorship which involved the assembly or convening of members of the distributorship line. They were not loose gatherings of people. They were organized in order to bring together members of the line of distributorship, and other interested persons, for business purposes. In my view these gatherings could be categorized best, under the Income Tax Act, as conventions.

[Emphasis added.]

Mackay, J. went on to note some of the jurisprudence on this subject matter emanating out of the Tax Court, adding at page 367 (D.T.C. 6308), that a "convention" under subsection 20(10) could include matters of its nature, structure and organization, its relationship to the taxpayer’s business, its location, its purposes and possibly its frequency of occurrence. For the Graves situation, the finding was that the Amway meetings were conventions within the meaning of subsection 20(10) of the Act.

It is obvious that the issue is one of fact. And I agree with appellantcounsel's submission that convention includes conference, but not necessarily the reverse. There is a difference; it is subtle, but nonetheless vital to the appellant.

The French wording in subparagraph (F) of the Regulation uses the term "congrès" which, according to Harrap's New Standard French and English Dictionary, means "(a) congress; (b) c. de l’enseignement, etc., educational, etc., congress or conference". The word "congress" in the Oxford English Dictionary (2nd Ed.) means “going or coming together, meeting. A formal meeting or assembly of delegates or representatives for the discussion or settlement of some question. . . . Also an annual or periodical meeting or series of meetings of some association or society, or of persons engaged in special studies". I have purposefully emphasized the above words to highlight that congrès includes a conference, that it includes people who are delegates or representatives and that the meetings may be annual or periodical or a series of some association or society. Accordingly, the French version presupposes some form of commonality respecting both participants and purpose. Both are present in the English dictionary definitions of convention, but the former appears only once in the two dictionary definitions of conference.

convention

— the summoning or convening of an assembly; an assembly of persons met for a common purpose; esp: a meeting of the delegates of a political party for the purpose of formulating a platform. . . . (Dictionary source not identified by counsel.)

— an assembly or gathering of persons for some common object; esp. a formal assembly met for deliberation or legislation on important matters, ecclesiastical, political or social. (The Oxford English Dictionary, 2nd Ed.)

conference

— formal interchange of views; a meeting of two or more persons for discussing matters of common concern. (Dictionary source not identified by counsel.)

— a formal meeting for consultation or discussion; e.g. between representatives of. . . societies, parties, etc. (The Oxford English Dictionary, 2nd Ed.)

The upshot of the above is that if any assembly or gathering portrays a commonality of purpose (which is what we have here) and a commonality of participants (which does not exist here except peripherally through their general interest in computer technology) it will, prima facie, be a convention. Anything short of that will more than likely be a conference which is what occurred here. In Graves, supra, it was noted that the participants were "not loose gatherings of people”.

The meetings attended and the study path chosen was for its technical information which was focused on relational databases. While they may not have been training courses per se, they were the most appropriate and the best available resources at the time to serve the appellant’s needs for technical education and knowledge. Of the three pathways available, the yellow one was the only one targeted because it was designed specifically for the programmer, the engineer and the systems analyst professional. The fact that product updates may have been introduced to those participating in this path would be unavoidable, and in any event was not their principal need or focus. Further, it is appropriate to note that the technical path would literally have nothing to do with the usual aspects of administration or management of a business and that only the professional R&D staff had attended.

I conclude that the expenditures claimed by the appellant respecting the software conferences attended in the Unites States by its R&D staff during its 1984 and 1985 taxation years were not prescribed expenditures within the meaning of Regulation 2902(a)(i)(F).

ITC Expenses allowable by settlement of the parties

As mentioned in the opening part of these reasons, counsel had come to an agreement respecting partial settlement of all of the other items which were originally put in contention in these appeals. It was as follows:

For the 1983 taxation year, expenses totalling $8,267.72 are allowable for purposes of calculating the appellant's ITC and concurrently are disallowed as deductions for the purposes of calculating income for that year with the balance of the expense claims advanced by the appellant, (except for interest) being withdrawn. For the 1984 taxation year, ITC expenses allowable under identical circumstances total $21,465.28 with the balance, (except for the interest and conferences) being withdrawn. For the 1985 taxation year, ITC expenses allowable, again under identical circumstances, total $48,191.56 with the balance (except for interest and conferences) being withdrawn.

Conclusion

In accordance with these reasons for judgment and the parties' settlement, the appeals are allowed and the matters are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that for each taxation year the following expenses are to be allowed for the purposes of calculating the appellant's investment tax credit for that year and correspondingly are to be deducted for the purposes of calculating the appellant's income for that year:

The appellant is entitled to its costs on a party-to-party basis.

Appeal allowed in part.