Tremblay,
J.T.C.C.:—This
appeal
was
heard
on
June
16,
1993,
in
Montreal,
Quebec.
1.
Point
at
issue
The
point
at
issue
is
whether
the
appellant
was
correct
in
claiming
the
whole
of
the
amounts
of
$194,860
(1988),
$235,261
(1989)
and
$311,556
(1990)
as
expenses
in
computing
its
income
for
the
1988,
1989
and
1990
taxation
years.
The
appellant
argued
that
these
amounts
were
spent
in
full
on
trips
to
Rio
de
Janeiro
for
customers
as
part
of
contests
to
stimulate
the
sales
of
its
products.
The
appellant
produces
and
sells
various
types
of
heating
and
air
conditioning
products
and
electrical
parts.
Consequently,
all
the
expenses
were
made
in
order
to
earn
income,
the
appellant
argued,
and
are
therefore
entirely
deductible.
According
to
the
respondent,
only
80
per
cent
of
these
expenses
may
be
allowed
because
they
were
paid
or
payable
in
respect
of
the
human
consumption
of
food
or
beverages
or
the
enjoyment
of
entertainment,
the
whole
in
accordance
with
subsection
67.1(1)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act").
Thus,
the
sums
disallowed
and
in
issue
are
$38,971
in
1988,
$47,052
in
1989
and
$62,311
in
1990.
The
appellant
argued
that
the
expenses
incurred
were
for
transportation
and
accommodation,
not
for
food
and
beverages.
The
appellant
further
contended
that
it
was
entitled
to
the
exception
in
paragraph
67.1
(2)(c).
According
to
it,
the
amount
paid
was
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".
2.
Burden
of
proof
2.01
The
burden
is
on
the
appellant
to
show
that
the
respondent's
assessments
are
incorrect.
This
burden
of
proof
arises
from
a
number
of
judicial
decisions,
including
a
judgment
of
the
Supreme
Court
of
Canada
in
Johnston
v.
M.N.R.,
[1948]
S.C.R.
486,
[1948]
C.T.C.
195,
3
D.T.C.
1182.
2.02
The
facts
assumed
by
the
respondent
in
the
instant
case
are
described
at
paragraph
5
of
the
reply
to
the
notice
of
appeal
and
are
set
out
below
(3.02).
3.
Facts
3.01
The
appellant’s
position
with
respect
to
the
facts
is
well
summarized
in
its
notice
of
appeal
at
paragraphs
1
to
24.
The
respondent's
admissions
and
denials
appear
under
each
paragraph.
These
paragraphs
read
as
follows:
1.
The
appellant
is
a
company
duly
incorporated
under
the
statutes
of
Quebec,
and
its
principal
place
of
business
is
located
at
704,
rue
Léveillée,
Terrebonne,
Province
of
Quebec.
[admitted]
Assessments
Concerned
by
the
Appeal
2.
The
assessments
concerned
by
the
appeal
are
reassessments
(nos.
3588868,
3588842
and
3588843)
issued
under
Part
I
of
the
Income
Tax
Act,
dated
March
10,
1992
and
respecting
the
appellant’s
1988,
1989
and
1990
taxation
years.
[admitted]
The
Facts
3.
The
appellant
produced
and
sold
various
types
of
heating
and
air
conditioning
products
and
electrical
parts
during
the
relevant
period,
[admitted]
4.
In
order
to
stimulate
its
sales,
the
appellant
introduced
two
contests
in
which
its
customers
who
registered
in
the
contests
were
entitled
to
fixed
discounts
on
specific
trips
[admitted]
based
on
the
volume
of
purchases
made
from
the
appellant
during
a
definite
period.
[denied
as
drafted]
5.
One
contest
was
introduced
by
the
appellant’s
heating
and
air
conditioning
division,
while
the
other
was
the
responsibility
of
the
electrical
division.
Each
participating
customer
had
to
sign
the
registration
form
of
the
heating
and
air
conditioning
division
or
that
of
the
electrical
division.
[admitted]
6.
Under
the
terms
of
these
contests,
one
point
was
awarded
to
the
entrant
for
every
$100
of
purchases
during
the
contest
period.
Furthermore,
the
contest
registration
forms
contained
a
table
indicating
the
relationship
between
the
number
of
points
accumulated
during
the
contest
period
and
the
balance,
if
any,
to
be
paid
in
order
to
make
that
trip.
[admitted]
1988
Taxation
Year
7.
During
the
taxation
year
ending
July
30,
1988,
the
appellant
introduced
two
contests
for
its
customers
in
which
the
latter
could
win
a
trip
to
Rio
de
Janeiro.
These
contests
began
on
March
1,
1987
and
ended
on
January
15,
1988.
[admitted]
8.
The
table
for
the
heating
and
air
conditioning
division
provided
the
following
relationship
between
the
appellant’s
volume
of
purchases
and
the
amount
payable
by
the
customer
in
order
to
make
the
trip:
|
275
points,
I
will
disburse
for
one
person
|
$1,800
|
|
345
|
|
$1,455
|
|
415
|
|
$1,130
|
|
485
|
|
$
820
|
|
555
|
|
$
530
|
|
625
|
|
$
255
|
|
695
|
II
|
II
|
—
|
|
695
points,
I
will
disburse
for
two
persons
|
$2,450
|
|
810
|
|
$1,945
|
|
925
|
|
$1,480
|
|
1040
|
|
$1,055
|
|
1155
|
|
$
665
|
|
1270
|
|
$
360
|
|
1390
|
|
[ignored]
|
9.
The
electrical
division's
contest
provided
the
following
relationship
between
the
volume
of
purchases
and
the
amount
payable
by
the
customer
in
order
to
make
the
trip:
|
460
points,
I
will
disburse
for
one
person
|
$1,800
|
|
550
|
$1,435
|
|
640
|
$1,095
|
|
730
|
$
780
|
|
820
|
$
495
|
|
910
|
$
235
|
|
1000
|
|
|
1000
points,
I
will
disburse
for
two
persons
|
$2,450
|
|
1200
|
$1,790
|
|
1400
|
$1,220
|
|
1600
|
$
730
|
|
1800
|
$
320
|
|
2000
|
[ignored]
|
10.
Under
the
terms
of
these
contests,
the
client
had
to
have
paid
off
the
accounts
established
in
the
appellant’s
books
at
January
31,
1988
by
February
10,
1988
and
to
have
paid
the
amount,
if
any,
to
be
paid
in
order
to
make
the
trip
by
January
30,
1988.
[admitted]
11.
In
order
to
accompany
the
155
customers
during
the
trip,
30
representatives
of
the
appellant
were
selected
to
accompany
the
customers
[admitted]
for
promotional
purposes.
[denied]
12.
In
a
reassessment
dated
March
10,
1992,
the
Minister
of
National
Revenue
disallowed
the
deduction
of
$38,971
for
the
appellant’s
taxation
year
ending
on
June
30,
1988
on
the
ground
that
all
the
expenses
incurred
by
the
appellant
as
part
of
these
contests
were
entertainment
expenses
and
80
per
cent
deductible.
[admitted]
1989
Taxation
Year
13.
During
the
taxation
year
ending
June
30,
1989,
the
appellant
introduced
two
contests
for
its
customers
in
which
the
latter
could
win
a
trip
to
Nassau.
These
contests
began
on
March
1,
1988
and
ended
on
December
15,
1988.
[admitted]
14.
The
table
for
the
heating
and
air
conditioning
division
provided
the
following
relationship
between
the
volume
of
purchases
from
the
appellant
and
the
amount
payable
by
the
customer
in
order
to
make
the
trip:
|
290
points,
I
will
disburse
for
one
person
|
$1,730
|
|
360
|
|
$1,395
|
|
435
|
|
$1,085
|
|
510
|
|
$
785
|
|
585
|
|
$
510
|
|
655
|
|
$
250
|
|
725
|
4?
|
4/
|
—
|
|
725
points,
I
will
disburse
for
two
persons
|
$2,350
|
|
850
|
|
$1,865
|
|
970
|
|
$1,420
|
|
1090
|
|
$1,015
|
|
1215
|
|
$
640
|
|
1335
|
|
$
345
|
|
1450
|
|
[ignored]
|
15.
The
contest
of
the
electrical
division
provided
for
the
following
relationship
between
the
volume
of
purchases
and
the
amount
payable
by
the
customer
in
order
to
make
the
trip:
|
500
points,
I
will
disburse
for
one
person
|
$1,730
|
|
|
600
|
$1,380
|
|
|
700
|
$1,050
|
|
|
795
|
$
750
|
|
|
895
|
$
475
|
|
|
990
|
$
225
|
|
|
1090
|
|
|
1090
points,
I
will
disburse
for
two
persons
|
$2,350
|
|
|
1310
|
$1,720
|
|
|
1525
|
$1,170
|
|
|
1
745
|
$
700
|
|
|
1960
|
$
310
|
|
|
2180
|
—
|
[ignored]
|
16.
Under
the
terms
of
these
contests,
the
customer
had
to
have
paid
off
the
accounts
established
in
the
appellant’s
books
at
December
30,
1988
by
January
10,
1989
and
to
have
paid
the
amount,
if
any,
to
be
paid
in
order
to
make
the
trip
by
December
30,
1988.
[admitted]
17.
In
order
to
accompany
the
124
customers
during
the
trip,
31
representatives
of
the
appellant
were
selected
to
accompany
the
customers
[admitted]
for
promotional
purposes,
[denied]
18.
In
a
reassessment
dated
March
10,
1992,
the
Minister
of
National
Revenue
disallowed
the
deduction
of
$47,052
for
the
appellant’s
taxation
year
ending
June
30,
1989
on
the
ground
that
all
the
expenses
incurred
by
the
appellant
as
part
of
these
contests
were
entertainment
expenses
and
80
per
cent
deductible.
[admitted]
1990
Taxation
Year
19.
During
the
taxation
year
ending
June
30,
1990,
the
appellant
introduced
two
contests
for
its
customers
in
which
the
latter
could
win
a
cruise
on
the
Royal
Caribbean.
These
contests
began
on
February
1,
1989
and
ended
on
December
15,
1989.
[admitted]
20.
The
table
for
the
heating
and
air
conditioning
division
provided
for
the
following
relationship
between
the
volume
of
purchases
from
the
appellant
and
the
amount
payable
by
the
customer
in
order
to
make
the
trip:
|
300
points,
I
will
disburse
for
one
person
|
$1,800
|
|
395
|
$1,370
|
|
485
|
$
985
|
|
575
|
$
630
|
|
665
|
$
310
|
|
760
|
—
|
|
760
points,
I
will
disburse
for
two
persons
|
$2,250
|
|
910
|
$1,750
|
|
1065
|
$1,255
|
|
1215
|
$
810
|
|
1370
|
$
385
|
|
1520
|
[ignored]
|
21.
The
contest
of
the
electrical
division
provided
for
the
following
relationship
between
the
volume
of
purchases
and
the
amount
payable
by
the
customer
in
order
to
make
the
trip:
|
575
points,
I
will
disburse
for
one
person
|
$1,800
|
|
|
710
|
$1,355
|
|
|
815
|
$
950
|
|
|
980
|
$
595
|
|
|
1115
|
$
275
|
|
|
1250
|
|
|
1250
points,
I
will
disburse
for
two
persons
|
$2,250
|
|
|
1500
|
$1,740
|
|
|
1750
|
$1,260
|
|
|
2000
|
$
810
|
|
|
2250
|
$
390
|
|
|
2500
|
—
|
[ignored]
|
22.
Under
the
terms
of
these
contests,
the
customer
had
to
have
paid
off
the
accounts
established
in
the
appellant's
books
at
December
30,
1989
by
January
10,
1990
and
to
have
paid
the
amount,
if
any,
to
be
paid
in
order
to
make
the
trip
by
December
30,
1989.
[admitted]
23.
In
order
to
accompany
the
187
customers
during
the
trip,
36
representatives
of
the
appellant
were
selected
to
accompany
the
customers
[admitted]
for
promotional
purposes,
[denied]
24.
In
a
reassessment
dated
March
10,
1992,
the
Minister
of
National
Revenue
disallowed
the
deduction
of
$62,311
for
the
appellant’s
taxation
year
ending
June
30,
1990
on
the
ground
that
all
the
expenses
incurred
by
the
appellant
as
part
of
these
contests
were
entertainment
expenses
and
80
per
cent
deductible.
[admitted]
[Translation.]
3.02
The
facts
assumed
by
the
respondent
appear
at
paragraph
5
of
the
reply
to
the
notice
of
appeal.
They
were
admitted
or
denied
by
the
appellant
as
follows:
5.
The
Minister
took
for
granted
the
following
facts
in
assessing
the
appellant:
(a)
during
the
taxation
years
in
issue,
the
appellant
enabled
its
customers
to
enter
voluntarily
various
contests
giving
them
a
chance
to
earn
a
discount
on
a
trip;
[admitted]
(b)
the
registration
forms
contained
a
table
indicating
the
relationship
between
the
number
of
points
accumulated
during
the
period
and
the
amount,
if
any,
to
be
paid
out
for
the
participant;
[admitted]
(c)
entering
the
contests
enabled
the
customers
to
accumulate
one
(1)
point
for
every
hundred
dollars
($100)
of
purchases;
[admitted]
(d)
entry
in
the
contests
was
subject
to
certain
restrictions,
namely
that
the
participants
could
not
be
reimbursed
in
cash
or
credit
for
points
accumulated;
[admitted]
(e)
representatives
of
the
appellant
were
selected
to
accompany
the
customers
on
the
trips
for
promotional
purposes;
[admitted]
(f)
the
net
cost
(total
cost
less
customers'
outlay)
to
the
appellant
for
these
contests
for
the
1988,
1989
and
1990
taxation
years
was
respectively
$194,860,
$235,261
and
$311,556;
[admitted]
(g)
the
net
cost
to
the
appellant
of
these
contests
was
amounts
paid
or
payable
for
food,
beverages
or
entertainment;
[denied]
[Translation.]
3.03
Testimonial
evidence
3.03.1
The
only
witness
heard
was
Mr.
René
Lessard.
An
employee
of
the
appellant
since
1950,
he
became
its
president
in
1990,
after
passing
through
various
stages
from
regular
salesman
to
sales
manager
in
Quebec
City,
then
in
Montreal,
and
vice-president.
He
owned
one
share
of
the
appellant,
the
shares
of
the
latter
being
mainly
owned
by
U.S.
and
British
interests.
3.03.2
It
was
when
the
witness
was
manager
in
Quebec
City
and
while
that
subsidiary
was
losing
money
that,
on
May
24,
1966,
he
proposed
the
incentive
of
a
trip
for
their
customers
to
the
board
of
directors,
as
summarized
in
the
notice
of
appeal.
Two
competing
businesses,
Fonderie
de
l’Islet
and
A.
Roy
de
l'Assomption,
were
already
using
this
kind
of
incentive.
The
one
proposed
by
the
witness
(Exhibit
A-1)
avoided
the
disadvantages
of
the
trips
organized
by
the
competitors:
a
longer
and
more
appropriate
period.
In
addition,
airline
companies
offered
one
free
ticket
for
every
15
paying
passengers,
etc.
3.03.3
The
chartered
aircraft
departed
from
Montreal.
It
cost
the
appellant
more,
that
is
$100
per
person,
for
Halifax
customers,
who
first
had
to
take
an
airplane
to
get
to
Montreal.
The
Halifax
people
also
had
to
accumulate
more
points,
that
is
30
more
points.
The
witness
also
explained
that
adjustments
were
made
with
respect
to
the
electrical
division
and
the
heating
and
air
conditioning
division.
In
fact,
one
was
more
profitable
than
the
other.
He
proved
paragraphs
8,
9,
14,
15,
20
and
21
of
the
notice
of
appeal.
3.03.4
To
finance
the
expenditures
for
these
trips,
the
appellant
raised
its
prices
and
abolished
discounts:
The
expenses
of
such
a
trip
would
naturally
be
absorbed
by
the
customer,
without
the
latter
realizing
it
too
much.
The
prices
of
hot
air
furnaces
were
increased,
while
trying
to
remain
competitive.
The
"New
Yorker"
boilers
were
increased
by
about
three
per
cent.
The
oil-fired
hot
water
heaters
were
increased
slightly.
Only
the
air
conditioners
were
not
increased.
In
any
case,
the
number
of
points
given
on
these
machines
is
small.
The
five
per
cent
discount
that
we
used
to
give
on
the
Slant-Fin
baseboard
was
cancelled.
(See
separate
sheet
for
more
details.)
In
studying
these
trips
more
closely,
we
realized
that
the
cost
was
lower
because
of
certain
benefits
that
we
were
unaware
of.
For
example,
the
airline
gave
us
one
free
ticket
for
every
15
tickets
that
we
buy.
We
could
probably
obtain
the
same
thing
from
the
hotels.
The
airline
(Air
France)
was
prepared
to
pay
for
the
brochure
that
we
would
have
to
print
to
advertise
the
trips.
The
country
visited
(the
West
Indies)
was
prepared
to
organize
cocktail
parties,
folk
dances,
cock
fighting,
etc.
All
that
as
long
as
we
had
a
minimum
of
50
persons.
[Translation.]
The
witness
filed
a
summary
of
the
promotional
trips
from
1970
to
1980.
The
number
of
travelling
customers
rose
from
28
in
1970
to
86
in
1980,
with
as
many
as
95
in
1974
and
1976
and
98
in
1977.
Sales
of
the
appellant's
goods
increased
from
$1,028,941
in
1970
to
$4,353,190
in
1980,
and
profits
from
$68,867
(1970)
to
$480,252
(1980).
3.03.5
The
advertising
for
the
customer
promotion
and
the
calculation
of
points
for
a
trip
in
a
given
year
began
in
March
of
the
previous
year
and
ended
on
January
15
of
the
given
year.
Consequently,
for
the
trip
to
Rio
de
Janeiro,
the
calculation
of
points
begin
in
March
1987
and
ended
on
January
15,
1988.
The
trip
took
place
in
February.
The
sheet
advertising
the
trip
to
Rio
de
Janeiro
and
the
registration
forms
for
interested
customers
were
filed
as
exhibits
A-3
and
A-4.
The
registration
form
signed
by
the
customers
of
the
heating
and
air
conditioning
division
and
by
those
of
the
electrical
division
differed
only
with
respect
to
the
number
of
points.
It
read
as
follows:
Destination
RIO
REGISTRATION
FORM
POWRMATIC
OF
CANADA
LIMITED
According
to
the
following
explanations
and
conditions,
I,
the
undersigned
.
.
.wish
to
enter
the
contest
and
therefore
undertake
to
purchase
enough
merchandise
in
order
to
participate
in
this
trip
to
Rio
de
Janeiro
in
1988.
|
275
points,
I
will
disburse
for
one
person
|
$1,800
|
|
345
|
$1,455
|
|
415
|
$1,130
|
|
485
|
$
820
|
|
555
|
$
530
|
|
625
|
$
255
|
|
695
|
|
|
695
points,
I
will
disburse
for
two
persons
|
$2,450
|
|
810
|
$1,945
|
|
925
|
$1,480
|
|
1040
|
$1,055
|
|
1155
|
$
665
|
|
1270
|
$
360
|
|
1390
|
|
(The
points
are
not
transferable
from
one
company
to
another
or
redeemable
for
cash
or
credit.)
Please
send
literature
to:
Signature
Date
The
Company
reserves
the
right
to
refuse
any
person
from
this
contest
[sic],
excepting
those,
[sic]
who
have
signed
a
registration
form,
and
their
wives
or
active
associates.
*Excluding
electrical
division
THERE
WILL
BE
A
MAXIMUM
OF
TWO
TRIPS
GIVEN
PER
COMPANY.
Destination
RIO
REGISTRATION
FORM
POWRMATIC
OF
CANADA
LTD
According
to
the
following
explanations
and
conditions,
I,
the
undersigned
.
.
.
wish
to
enter
the
contest
and
therefore
undertake
to
purchase
enough
merchandise
in
order
to
participate
in
this
trip
to
Rio
de
Janeiro
in
1988.
|
460
points,
I
will
disburse
for
one
person
|
$1,800
|
|
550
|
$1,435
|
|
640
|
$1,095
|
|
730
|
$
780
|
|
820
|
$
495
|
|
910
|
$
235
|
|
1
000
|
|
|
1000
points,
I
will
disburse
for
two
persons
|
$2,450
|
|
1200
|
|
$1,790
|
|
1400
|
|
$1,220
|
|
1600
|
|
$
730
|
|
1800
|
|
$
320
|
|
2000
|
//
|
II
|
—
|
(The
points
are
not
transferable
from
one
company
to
another
or
redeemable
for
cash
or
credit.)
Please
send
literature
to:
Signature
Date
The
Company
reserves
the
right
to
refuse
any
person
from
this
contest
[sic],
excepting
those,
[sic]
who
have
signed
a
registration
form,
and
their
wives
or
active
associates.
*Excluding
electrical
division
THERE
WILL
BE
A
MAXIMUM
OF
TWO
TRIPS
GIVEN
PER
COMPANY
THE
COMPANY
RESERVES
THE
RIGHT
In
the
case
of
cancellation
on
the
part
of
our
customer
for
whatever
reason,
to
retain,
or
to
charge
a
minimum
amount
of
10
per
cent
of
the
price
of
the
trip.
This,
in
order
to
defray
a
part
of
the
expenses
of
organization,
reservations;
hotel,
airline
and
side
tours
cancellations,
etc.
However,
if
the
notice
of
cancellation
has
been
given
three
weeks
before
departure,
this
charge
will
not
be
applicable.
RESPONSIBILITY
The
organizers
of
these
trips
and/or
their
agents
act
only
as
agents
of
the
various
carriers,
their
responsibility
being
only
to
deliver
the
tickets;
they
assume
no
responsibility
nor
obligation
concerning
the
schedules
of
trains,
ships,
airplanes,
and
all
other
means
of
transportation
placed
entirely
or
partially
at
the
disposal
of
the
traveller.
They
cannot
be
held
responsible
in
the
case
of
war,
errors,
omissions,
lost
[sic]
of
luggages
[sic],
wounds,
accidents,
or
delays
or
inconveniences
resulting
from
vehicle
defects
or
any
other
reasons,
or
for
the
harm
to
a
person's
physical
or
mental
well-being
due
to
negligence,
insolvency
or
default
on
the
part
of
those
responsible
for
the
transporting,
feeding
or
lodging
of
the
traveller,
or
for
having
agreed
to
fulfil
their
obligations
only
with
respect
to
the
following
pages
and
the
delivery
of
tickets.
POWRMATIC
MAINTAINS
THE
PRIVILEGE
To
modify
or
change
the
places,
routes
or
arrangements
of
the
trip,
for
the
benefit
and
well-being
of
the
travellers,
and
that
[s/c]
said
organizers
can
in
no
way
be
held
responsible
for
such
modifications
or
changes.
CURRENCY
EXCHANGE
RATES
The
amount
[sic]
of
points
required
for
one
free
trip,
and
also
any
amounts
required
to
be
paid
for
the
trip,
are
based
on
currency
exchange
rates
at
March,
1986.
In
the
event
of
decline
in
value
of
Canadian
dollar
relative
to
Brazilian
or
American
currency,
we
reserve
the
right
to
revise
the
above.
Signature
The
witness
admitted
that
the
registration
form
was
sent
only
to
customers
who
had
a
chance
to
acquire
the
required
number
of
points.
Small
customers
were
thus
at
once
eliminated.
3.03.6
On
December
7,
1987,
the
customers
who
were
likely
to
have
acquired
the
required
points
by
January
15
following
were
invited
to
give
notice
by
December
16
at
the
latest
of
their
intention
to
go
on
the
trip
(Exhibit
A-6)
and
to
pay
half
the
required
amount.
On
January
15,
1988,
a
letter
was
sent
to
each
customer
in
order
to
inform
them
of
the
number
of
points
accumulated
as
of
that
date
and
requesting
the
balance
due
by
February
10
(Exhibit
A-7).
Exhibit
A-8
provides
the
names
of
the
customers
as
well
as
the
number
of
persons
per
customer
and
the
amounts
paid.
Exhibit
A-9
provides
a
breakdown
for
each
sector
(Montreal,
Quebec
City,
Ottawa,
Halifax,
Toronto,
plant,
head
office)
of
the
number
of
persons
(total
153),
the
cost
of
the
trip
(total
$309,901),
money
received
(total
$115,045),
the
number
of
customers
who
had
paid
(total
58),
the
number
of
customers
who
had
accumulated
enough
points
(total
62).
3.03.7
On
January
11,
1988,
a
final
letter
from
the
appellant
was
sent
to
each
customer
before
the
trip,
informing
them
that
"the
government
considers
this
trip,
or
the
part
of
the
trip
which
we
are
paying
for
you
and
your
companion,
as
a
taxable
income"
(Exhibit
A-10).
Furthermore,
a
letter
of
November
25,
1988
sent
by
the
appellant
to
Revenue
Canada
and
the
reply
of
December
7,
1988,
filed
jointly
as
Exhibit
A-11,
show
that
those
amounts
were
not
taxable
since
there
was
no
employer-employee
relationship
between
the
appellant
and
its
customers.
A
letter
of
February
16,
1989
sent
to
the
customers
corrected
that
of
January
11,
1988.
3.03.8
Exhibits
A-12
to
A-22
concern
various
items
of
correspondence
and
other
documents
pertaining
to
the
trips
of
1989,
1990
and
1991.
All
these
exhibits
are
somewhat
of
the
same
nature
as
those
previously
filed
for
1988,
the
whole
to
show
that
the
same
method
was
still
being
used.
Exhibit
A-23
filed
jointly
consisted
of
documents
pertaining
to
the
appellant's
first
contest
in
1967.
The
trip
to
the
West
Indies
took
place
in
April
aboard
a
jet
of
the
company
Air
France.
3.03.9
The
witness
stated
that
there
was
a
review
every
two
or
three
years
of
the
entire
price
mechanism
for
products
sold,
of
the
contribution
required
from
trip
participants
and
of
the
points
awarded
in
order
for
the
whole
to
be
efficient
and
profitable.
The
balance
sheet
is
still
positive.
3.03.10
The
criterion
for
selecting
the
appellant's
representatives
in
order
to
make
the
trip
with
the
customers
was
the
number
of
customers
each
salesman
had.
The
purpose
of
the
representatives’
presence
was
to
get
to
know
the
customers
other
than
as
purchasers
of
products
and
to
develop
human
relations
with
them.
During
the
trip,
there
were
no
presentation
sessions
on
the
appellant’s
products
or
conferences
or
meetings
with
films
on
the
subject.
3.03.11
The
witness
also
explained
that
since
1976
the
appellant
had
always
taken
a
physician
on
their
trips
to
serve
the
travellers.
3.03.12
Throughout
his
testimony,
it
was
clear
that
the
amounts
paid
by
the
appellant
were
used
to
pay
for
transportation,
transfers,
hotels.
Furthermore,
meals
and
alcoholic
beverages
were
at
the
travellers’
expense,
except
for
one
meal
and
one
gala
which
took
place
on
a
certain
evening.
4.
Act—case
law
and
doctrine—analysis
4.01
Act
The
main
provisions
of
the
Income
Tax
Act
(the
Act)
involved
in
this
appeal
are
subsection
67.1(1),
paragraph
67.1
(2)(c)
and
subsection
67.1(4).
They
read
as
follows:
67.1
Expenses
for
food,
etc.
(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
per
cent
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)
Exceptions.
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;
67.1(4)
Interpretation.
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
other
provisions,
that
is
paragraphs
67.1(2)(a),
(b),
(d)
and
(e)
and
subsection
67.1(3),
have
no
bearing
on
the
instant
case.
4.02
Case
law
and
doctrine
The
case
law
and
doctrine
invoked
by
the
parties
were
as
follows:
1.
Ast
Estate
v.
Canada,
[1992]
2
C.T.C.
2251,
92
D.T.C.
1898
(T.C.C.);
2.
Canterra
Energy
Ltd.
v.
The
Queen,
[1987]
1
C.T.C.
89,
87
D.T.C.
5019
(F.C.A.);
3.
Johns-Manville
Canada
Inc.
v.
The
Queen,
[1985]
2
S.C.R.
46,
[1985]
2
C.T.C.
111,
85
D.T.C.
5373;
4.
Morguard
Properties
Ltd.
v.
City
of
Winnipeg,
[1983]
2
S.C.R.
493,
3
D.L.R.
(4th)
1;
5.
Nowsco
Well
Service
Ltd.
v.
Canada,
[1990]
1
C.T.C.
416,
90
D.T.C.
6312
(F.C.A.):
6.
Reeson
Investments
Ltd.
v.
Canada,
[1990]
1
C.T.C.
190,
90
D.T.C.
6420
(F.C.T.D.);
7.
Stubart
Investments
Ltd.
v.
The
Queen,
[1984]
1
S.C.R.
536,
[1984]
C.T.C.
294,
84
D.T.C.
6305;
8.
Transport
Jacques
Lemieux
Inc.
v.
M.N.R.,
[1991]
1
C.T.C.
2612,
91
D.
T.C.
500
(T.C.C.);
9.
Côté,
P.-A.,
L'interprétation
de
la
loi
fiscale—quelques
problèmes,
(1991)
39
R.F.C.
no.
2,
page
258;
10.
Cross,
Sir
Rupert,
Statutory
Interpretation,
2nd
ed.
by
John
Bell
and
Sir
George
Engle,
London,
Butterworths,
1987,
pages
22-30.
4.03
Analysis
4.03.1
Based
on
the
evidence
adduced
by
the
parties,
the
issues
that
arise
therefrom
are
the
following:
(a)
Were
the
amounts
paid
or
payable
by
the
appellant
on
the
contest
in
respect
"of
the
human
consumption
of
food
or
beverages
or
the
enjoyment
of
entertainment"
within
the
meaning
of
section
67.1
of
the
Act?
(b)
Are
the
amounts
paid
or
payable
by
the
appellant
enumerated
at
subsection
67.1(2)
and
thus
excepted
from
the
application
of
subsection
67.1(1)
of
the
Act?
More
particularly,
were
those
amounts
paid
or
payable
amounts
"for
which
the
person
is
compensated
and
the
amount
of
the
compensation
is
reasonable
and
specifically
identified
in
writing"
to
the
customers
taking
part
in
the
contest?
4.03.2
Respondent's
Argument
4.03.2(1)
This
second
issue
involves
the
exception
of
subsection
67.1(1)
provided
by
provision
67.1
(2)(c),
that
is
to
say
that
subsection
67.1(1)
does
not
apply
to
the
amount
paid
or
payable
in
the
case
where
the
amount
"is
an
amount
for
which
the
person
is
compensated
and
the
amount
of
the
compensation
is
reasonable
and
specifically
identified
in
writing
(by
the
customers
in
the
instant
case)
to
the
person
paying
the
compensation"
(that
is
to
say
here
the
appellant).
4.03.2(2)
According
to
counsel
for
the
respondent,
the
"writing"
cannot
be
the
registration
form
(Exhibit
A-4)
described
above
at
paragraph
3.03.5.
According
to
him,
in
fact,
that
form,
which
was
not
even
sent
to
all
customers,
but
only
to
the
best
customers
(3.03.5),
constituted
quite
simply
a
point
of
departure
for
the
appellant
to
control
the
customers
who
might
possibly
be
able
to
take
part
in
the
promotion.
This
form,
with
the
number
of
points
needed
(3.03.5)
and
the
amount
required,
was
far
from
being
"specifically
identified
in
writing".
On
this
subject,
counsel
for
the
respondent
stated
the
following:
.
.
.this
requires
quite
a
calculation
which
cannot
be
made
at
the
time
of
registration;
that
everything
depends
on
the
level
of
sales
in
the
year
in
question
in
order
to
determine
whether
the
purchaser
company
reached
460
points
or
2,000
points.
At
the
time
of
completion
of
the
registration
form,
which
my
colleague
claims
is
the
document
that
falls
under
the
exception
of
the
Act,
this
was
certainly
not
known;
it
was
not
known
then,
in
the
month
of
January
1987,
whether,
in
January
1988,
it
has
been
a
good
year,
a
bad
year,
a
poor
year.
So
no
details
were
available
at
that
point
to
determine
how
much
the
trip
in
question
would
cost
us.
That
is
why
I
think
that
everything
pertaining
to
the
registration,
the
accumulation
of
points
can
be
set
aside
with
respect
to
the
promotional
trip.
JUDGE:
You
mean
that
no
one
wanted
to
consider
it
as
the
writing?
Me
LECLAIRE:
Exactly.
It
cannot
really
and
seriously
be
considered
as
part
of
the
writing
which
is
provided
in
paragraph
67.1
(2)(c).
It
was
only
a
tool
for
the
company
to
take
into
account
and
to
have
a
better
control
of
this
promotion
which
they
had
introduced
in
order
to
provide
an
entertainment
for
the
customers
for
the
purpose,
obviously,
for
the
purpose
of
stimulating
greater
sales
for
the
years
to
come.
That
is
the
only
thing;
there
was
no
other
use
than
that.
[transcript
pages
67-68]
[Translation.]
As
to
the
other
documents
produced
during
the
year
by
the
appellant
and
sent
to
customers
and
those
signed
at
the
end
by
the
customers
and
the
payments
made,
counsel
for
the
respondent
argued
the
following:
Me
Leclaire:
But
that
was
not
the
purpose;
that
was
not
the
purpose
of
those
documents;
it
was
quite
simply
in
order
to
know
whether
you
had
four
hundred
and
sixty
(460)
points
and
had
to
spend
eighteen
hundred
dollars
($1,800)
for
one
person
or
whether
you
were
lucky
enough
to
accumulate
two
thousand
(2,000)
points
and
win
a
trip
for
two
persons
free
of
charge.
That
was
the
purpose
for
both
the
registration
form
and
for
all
the
other
documents
which
followed
from
it
and
which
related
to
it.
.
.
.
[transcript,
page
69]
[Translation.]
4.03.2(3)
He
compared
these
documents
to
a
cheque
stub.
To
this
end,
he
stated
the
following:
.
.
.that
accompanies
my
pay
cheque
every
two
weeks;
I
could
use
it
at
the
end
of
the
year
to
calculate
my
annual
income,
but
that’s
not
what
constitutes
a
T4,
which
is
the
formal
document
which
is
provided
by
the
employer
with
the
total
income
for
the
year.
The
information
is
perhaps
the
same,
but
the
purposes
sought
are
uniquely
and
completely
different.
[Translation.]
4.03.2(4)
He
stated
that
no
reasonable
compensation
had
been
paid:
Nothing
within
the
meaning
of
67.1
(2)(c).
And
I
claim,
once
again,
the
trip
to
Rio,
that
the
company
that
was
able
to
accumulate
2,000
points
and
which
sent
two
persons
for
zero,
zero,
zero,
zero,
paid
no
reasonable
compensation
within
the
meaning
of
67,
.
.within
the
framework
of
subsection
(2)(c).
And
that
it
was
not
because
a
person
was
able
to
accumulate
460
points
and
had
paid
$1,800
for
a
trip
that
cost,
I
don’t
know,
2,000.
.
.
.
Me
NADEAU:
Roughly
$2,000,
yes.
Me
LECLAIRE:.
.
.2,200,
that
that
was
not
a
reasonable
compensation
either
within
the
context
of
subsection
2(c),
in
the
exception
of
(2)(c).
That
this
was
a
promotional
trip,
that
the
accumulation
of
points
and
the
outlay
of
money
provided
by
the
registration
form
in
no
way
related
to
what
was
reasonable,
to
the
reasonable
cost
of
the
trip.
I
will
briefly
restate
my
argument:
section
67.1
is
a
complete
code
of
how
to
approach
the
situation.
Section
67.1,
the
general
rule,
and
that
none
of
the
exceptions
apply
to
the
appellant
before
the
Court
today.
4.03.3
With
respect
to
the
first
issue
described
above
(4.03.1),
that
is
whether
the
amounts
paid
or
payable
with
respect
to
the
contests
were
in
respect
of
the
human
consumption
of
food
or
beverages
or
the
enjoyment
of
entertainment,
counsel
for
the
respondent
contended
that
the
trips
organized
by
the
appellant
were
not
business
trips
for
customers,
but
rather
trips
for
pleasure,
entertainment,
and
that
the
80
per
cent
rule
should
apply
to
the
trip
from
start
to
finish
(transcript
page
74).
Furthermore,
he
submitted
that
section
67.1
was
a
complete
code
in
itself.
Certain
minor
elements
are
not
taken
into
account
such
as
those
provided
in
subsection
67.1
(4):
Which
does
not
mean
that
the
cost
of
the
airfare,
the
cost
of
the
seat
on
the
aircraft,
cannot
be
subject
to
67.1
in
the
case
of
a
trip
for
entertainment,
as
we
claim
is
here
the
case,
and
for
customers
whose
trip
has
been
paid,
to
the
extent
that
the
trip
was
paid
by
Powrmatic,
and
also
for
the
employees,
where
it
was
clearly
paid
by
Powrmatic.
It
is
as
simple,
as
easy,
as
direct
as
that;
67.1
is
the
complete
answer
to
the
situation,
and
one
need
go
no
further
than
subsection
(1).
[Translation.]
4.04
Judgment
of
the
Court
4.04.1
First
issue
As
to
the
first
point
at
issue,
that
is
the
application
of
subsection
67.1(1),
the
balance
of
evidence
shows
that
the
amounts
paid
or
payable
by
the
appellant
for
the
customers
were
to
pay
for
air
transportation,
transfers
from
the
airport
to
the
hotel,
hotel
or
boat,
and
not
for
meals
or
alcoholic
beverages,
with
one
or
two
exceptions
(3.03.12).
These
facts,
furthermore,
were
admitted
by
counsel
for
the
respondent
(transcript
page
75).
The
fact
that
the
appellant
increased
the
prices
of
certain
products
in
order
to
finance
these
trips
does
not
in
any
respect
change
the
nature
of
the
expenses
paid.
With
respect
to
the
respondent's
argument
that,
for
the
appellant’s
customers,
these
were
not
business
trips,
but
rather
pleasure
trips,
I
am
of
the
view
that
it
is
the
appellant’s
intention
that
is
important.
It
was
against
it
that
the
assessments
were
issued.
For
it,
which
paid
the
expenses
in
large
part,
this
was
a
business
expense,
even
if
there
was
no
information
session
concerning
its
products
(3.03.10).
Without
claiming
that
this
was
the
only
factor
that
might
have
caused
the
increase
in
sales
(3.03.4),
the
increase
in
the
number
of
customers
and
in
the
amount
of
sales
during
subsequent
years
clearly
shows
the
appropriateness
of
organizing
these
trips
and
that
these
were
business
trips
for
the
appellant.
4.04.2
Second
issue
4.04.2(1)
As
to
the
second
point
in
issue,
that
is
whether
the
exception
provided
at
paragraph
67.1
(2)(c)
applies
in
the
case
where
subsection
67.1(1)
would
apply,
my
conclusions
also
lead
me
to
answer
in
the
affirmative.
Let
us
cite
the
text
again:
67.1(2)
Exceptions.
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.
.
.
.
The
respondent
contended
that
the
registration
form
(Exhibit
A-4)
could
not
constitute
the
valid
formal
writing.
This
written
document
is
among
other
things
imprecise.
One
cannot
know
sales
results
in
advance;
this
was
only
a
contractual
instrument
for
the
appellant,
etc.
[4.03.2(2)].
This
written
document,
as
it
appears
above
(3.03.5),
gives
the
number
of
points.
It
is
known,
however,
that
each
point
equals
$100
worth
of
purchases
by
the
customer.
Thus,
on
the
one
hand,
the
customer
knew
that
he
had
to
make
$27,500
worth
of
purchases
in
order
to
obtain
275
points.
On
the
other
hand,
he
knew
that
if
he
reached
that
number
of
points,
he
would
have
to
pay
$1,800,
that
is
15
per
cent
of
$27,500,
which
is
at
first
glance
reasonable,
and
the
more
sales
increase,
the
lower
the
outlay.
It
is
clear
that
the
final
future
result
could
not
be
known
at
the
time
of
registration,
but
the
criteria
were
set
in
such
a
way
that
the
amount
would
be
established
precisely.
Furthermore,
what
is
important
is
that
the
mechanism
was
established
so
that
the
outlays
to
be
paid
by
the
customers
before
the
trip
were
actually
made
(3.03.6).
It
is
not
necessary
for
the
whole
to
be
made
in
a
single
document;
the
statute
reads
“specifically
identified
in
writing".
Exhibit
A-8
(3.03.6),
which
is
the
consequence
of
the
completed
registration
and
purchases
made,
gives
the
exact
amount
paid
by
each
customer.
It
was
not
necessary
that
a
formal
written
document
such
as
a
T4
be
made,
as
the
respondent
argued,
or
that
reference
be
made
to
the
Income
Tax
Act.
It
is
the
substance
which
is
important,
not
the
form.
4.04.2
I
am
of
the
view
that
the
terms
of
the
text
of
paragraph
67.1
(2)(c)
were
met.
Even
if
a
doubt
remained,
I
agree
with
counsel
for
the
appelant
that
this
provision
should
be
interpreted
in
a
manner
favourable
to
the
taxpayer.
The
[Federal]
Court
of
Canada’s
judgment
in
Lor-Wes
Contracting
Ltd.
v.
The
Queen,
[1985]
2
C.T.C.
79,
85
D.T.C.
5310,
and
[the
Supreme
Court's
judgment
in]
Johns-Manville
Canada
Inc.,
supra,
[4.02(3)]
may
be
referred
to
on
this
point.
4.05
Appellant’s
employees
It
was
admitted
by
the
respondent
that
the
expenses
of
the
appellant's
employees
were
100
per
cent
deductible.
Those
employees,
in
fact,
went
on
the
trips
in
order
to
work.
5.
Conclusion
The
appeal
is
therefore
allowed,
with
costs,
and
the
assessments
are
referred
back
to
the
Minister
of
National
Revenue
for
reconsideration
and
reassessments.
Appeal
allowed.
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