Citation: 2003TCC176
Date: 20030327
Docket: 2000-1731(IT)G
BETWEEN:
LES INSTALLATIONS GMR INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Archambault, J.T.C.C.
[1] Les Installations GMR inc.
(GMR) has appealed from income tax assessments for the
1992 to 1997 taxation years inclusive. These appeals raise a
number of issues. In order to analyse these issues, it is
appropriate to combine, first, the 1992 to 1994 taxation years
(the statute-barred taxation years) and, second, the 1995
to 1997 taxation years (the non-statute-barred taxation
years). For the statute-barred taxation years, at issue is
whether the Minister of National Revenue (the Minister)
was authorized to make reassessments outside the normal
reassessment period and specifically whether, in filing its
income tax returns for those taxation years, GMR made a
misrepresentation that is attributable to neglect, carelessness
or wilful default. If the Minister was authorized to make
assessments in the circumstances, at issue is whether, in
computing its income, the taxpayer corporation was entitled to
deduct $81,978 for the 1992 taxation year, $3,000 for
the 1993 taxation year, and $18,000 for the 1994 taxation
year, which amounts were paid to Réginald Tremblay, the
principal shareholder of GMR. The Minister considered that those
amounts were appropriated for Mr. Tremblay's personal
use whereas GMR claimed that they were used to pay kickbacks to
certain employees of its clients. The Minister disallowed
deduction of those amounts and assessed penalties on the basis of
the income tax payable thereon. These are the only points at
issue for the statute-barred taxation years.
[2] For the non-statute-barred
taxation years, following the admissions made at the beginning of
the hearing,[1] the
only remaining point at issue is the applicability of
section 67.1 of the Income Tax Act (the
Act) to the amounts paid by GMR to some of its
employees. At the beginning of the hearing, the parties agreed
that the amounts at issue for the taxation years concerned, that
is, the amounts claimed by GMR as deductible and disallowed by
the Minister as non-deductible, are $4,604 for the 1995
taxation year, $8,674 for the 1996 taxation year, and
$4,970.50 for the 1997 taxation year.[2] If section 67.1 of the
Act is not applicable, the taxpayer corporation is
entitled to the deduction of these amounts.
Facts
[3] During the relevant taxation
years, GMR operated a business selling and installing petroleum
equipment. GMR's head office is located in St-Romuald,
near Québec. It operates its business in all parts of
Quebec and most of its contracts are carried out outside the
Québec city area. For example, it has carried out
contracts on the Magdalen Islands, in the Mingan archipelago, in
Rivière-du-Loup, in the Beauce region, in the Estrie
region, in Trois-Rivières, in Montréal and in
Papineauville.
[4] GMR had approximately
20 employees. Some of the employees' working conditions
were governed by an order-Quebec's Decree respecting the
installation of petroleum equipment, R.R.Q. 1981, c. D-2, r.
33, made on December 31, 1981, under Quebec's
Act respecting collective agreement decrees. Under
section 7.02 of this order, the employer shall reimburse all
reasonable expenses for transportation, room and board of
employees who must reside away from home. During the
non-statute-barred taxation years, GMR paid $4.28 for breakfast,
$9.63 for lunch and $9.63 for supper. Excluding
breakfast Monday and supper Friday, this amount represented
$103.79 per employee per week.
[5] Mr. Tremblay stated that, of
GMR's contracts from 1991 to 1993, most were obtained through
contacts with individuals in the petroleum industry and the
others were obtained through calls for bids. In early 1993, GMR
signed a five-year comprehensive agreement with a petroleum
company that gave GMR exclusive rights to install petroleum
equipment for the company and entitled it to payment for the
installation work on the basis of the cost-plus method.
[6] Mr. Tremblay stated that in
the construction industry it was routine to have to pay kickbacks
in order to obtain contracts. Following an audit, an auditor from
Quebec's Ministère du Revenu (Revenu
Québec) disallowed the deduction of expenses in the
amount of $81,978.20 claimed by GMR in computing its
business income for the 1992 taxation year. The auditor found
10 cheques issued by GMR to Mr. Tremblay. One of these
cheques, in the amount of $10,978.20, had to do with the
purchase of a car for Mr. Tremblay's daughter.
Apparently the auditor was told that the other cheques, totalling
$70,999.80, were used to pay kickbacks to key individuals in
petroleum companies in order to obtain contracts for GMR. The
auditor also found amounts of $3,000 for the 1993 taxation
year and $18,000 for the 1994 taxation year, apparently used
for the same purpose. Deduction of these amounts as expenses was
disallowed and a penalty in respect thereof was assessed since
GMR refused to name the individuals to whom these kickbacks were
paid.
[7] In GMR's accounting records,
kickbacks are shown in various accounts. For example, for the
1992 taxation year, the "entertainment expenses"
account ($3,000 plus $4,000 plus $10,000 plus $4,000); various
client accounts ($6,000 plus $7,000 plus $10,000 plus $12,000);
and the "wage maintenance" account ($15,000). For
the 1993 taxation year, a kickback in the amount of
$3,000 is shown in one client's account and for the 1994
taxation year, kickbacks are shown in the following accounts:
"equipment maintenance" ($4,000); "miscellaneous
contracts" ($6,000); and "miscellaneous
maintenance" ($4,000 plus $4,000).
[8] According to the testimony of the
Revenu Québec auditor, the amounts of these kickbacks and
the purchase price of the car were not only disallowed as
deductible expenses in the computation of GMR's income but
were also included in Mr. Tremblay's income as a taxable
benefit. To the auditor's knowledge, neither GMR nor
Mr. Tremblay contested that decision. In support of his
testimony, the Revenu Québec auditor submitted his audit
report dated March 21, 1996.
[9] The Minister's audit began
nearly two years later on January 27, 1998, and was
completed on June 12, 1998. After receiving copies of
the Revenu Québec TP-7 forms, the Minister made
reassessments concerning GMR for the statute-barred taxation
years by making the same changes that Revenu Québec had
made. As is indicated in her report, the Minister's auditor
obtained very little co-operation from GMR's representatives,
who even refused to explain to her how GMR's accounting
system worked. On this point, the Minister's auditor wrote as
follows in her report:
[translation]
[The taxpayer corporation] did not co-operate since it did not
provide us with all the accounting records required in order to
follow the audit trail. As well, when we asked the taxpayer
corporation to provide us with certain explanations and vouchers,
they were not given to us.
Apparently, the Minister's auditor was never told that the
payments made to Mr. Tremblay were used to pay kickbacks
since that explanation does not appear in her audit report.
Analysis
Statute-barred taxation years
[10] The relevant provision in disposing of
the issue raised by the statute-barred taxation years is
subparagraph 152(4)(a)(i) of the Act, which
reads as follows:
(4) The Minister may at any time make an assessment,
reassessment or additional assessment of tax for a taxation year,
interest or penalties, if any, payable under this Part by a
taxpayer or notify in writing any person by whom a return of
income for a taxation year has been filed that no tax is payable
for the year, except that an assessment, reassessment or
additional assessment may be made after the taxpayer's normal
reassessment period in respect of the year only if
(a) the taxpayer or person filing the return
(i) has made any misrepresentation that is attributable to
neglect, carelessness or wilful default or has committed any
fraud in filing the return or in supplying any information
under this Act, ...
[Emphasis added.]
The 1992 taxation year
[11] For the 1992 taxation year, I consider
that the respondent has successfully established that GMR made a
misrepresentation that is attributable to neglect, carelessness
or wilful default in deducting from its income the amount of
$10,978.20 used to purchase a car for the daughter of the
principal shareholder. That expense is clearly personal and not
deductible, and no explanation provided in the testimony of
GMR's representatives has shown any reason not to find that
GMR made a misrepresentation that is attributable to neglect,
carelessness or wilful default. Consequently, the Minister was
authorized to make a reassessment for the 1992 taxation year.
[12] Once it was acknowledged that the
Minister was authorized to make such an assessment, the onus was
on GMR to establish facts in support of its claims that the
assessment was erroneous and specifically that it was entitled to
deduct the amount of $70,999.80 paid as kickbacks. As
counsel for the appellant confirmed in his argument,
Mr. Tremblay or any other GMR representative was not about
to disclose the names of the individuals to whom the kickbacks
were paid. As a result, the situation is one in which the
taxpayer refuses to provide full evidence of the facts that can
support its claims that the amounts at issue were paid to third
parties in order to earn business income. According to
Mr. Tremblay, the amounts paid to him by cheque were
deposited into his bank account. Apparently he then withdrew the
money in cash in order to pay it to third parties. Since the
evidence is incomplete, it is far from certain that a court would
accept as probative claims that are uncorroborated by either
testimony from the third parties or documentary evidence
establishing that those amounts were paid to those third parties.
Taxpayers who deliberately act in this manner place themselves in
a very vulnerable position and may become the authors of their
own misfortune.
[13] In particular, this approach was taken
by Judge Kempo of this Court in United Color and
Chemicals Ltd. v. The Queen, 92 DTC 1259, at
page 1263 ([1992] 1 C.T.C. 2321, at page 2327):
... That the rebate arrangements were conducted secretly
and carried an aura of impropriety are, apart from attracting
a heavier burden of proof, not in themselves
determinative....
[Emphasis added.]
[14] In Muller's Meats Ltd. v.
M.N.R., 1969 CarswellNat 101
([1969] Tax A.B.C. 171; 69 DTC 172),
Board Member Davis writes at paragraphs 23 and 24 (Tax
A.B.C., at pages 178 and 179; DTC, at pages 177 and 178):
[23] This appeal raises once again the problem of the
deductibility of unvouchered and unsubstantiated business
expenses. I am of the opinion that, in the case of bribes or
other improper payments, the burden of proof is, if anything,
heavier than in the case of an ordinary and proper payment of a
business expense, because the circumstances surrounding such
payments are clouded with suspicion. If a taxpayer is willing
to pay a bribe in order to do business, it throws open to
question how much reliance can be placed upon his unsupported and
uncorroborated evidence as to the actual amounts he paid to
informants, or whether indeed he paid out any amounts at all
in this fashion. When, as an officer of the company, he
failed to give his wife, whose responsibility it was to record
the payments in the cash book, any information other than
initials and amounts to justify entries with regard to
substantial sums of cash which he claimed to have paid out and
which had been drawn from the company's coffers, it is only
reasonable that he should expect his story to be received with a
certain amount of scepticism by the taxation authorities.
[24] In the circumstances of this matter, not only were there
no receipts evidencing the fact that the payments had been made
but, on the ground that he did not want to imperil the
company's dubious scheme for profit-making, the witness
refused to disclose the names of any of the persons to whom the
alleged payments had been made. This is readily understandable,
but it is well-settled law that, if a taxpayer fails to
support with appropriate receipts his claims with regard to the
deduction of specific items of expense, he has no one but himself
to blame if the Minister of National Revenue declines to permit
him to deduct such items from his income. In the
Holmes case (supra), I had occasion to deal with
this question at some length, and I referred to the Exchequer
Court judgment of Cameron, J., in Murray v. Minister of
National Revenue, (1950) Ex. C.R. 110 at 112 [50 DTC 723 at
725], where the learned judge held that there is an onus on a
taxpayer to come forward with acceptable evidence to show that he
did so expend the sums which he claims as deductions.
[Emphasis added.]
[15] In my opinion, one reason for being
more demanding about evidence where the deduction of kickbacks is
concerned is the real possibility that the taxpayers claiming to
have paid such kickbacks may have kept the amounts concerned,
thus appropriating them for their own benefit, without declaring
them as income. The purchase of a car for Mr. Tremblay's
daughter is an eloquent example of this possibility.
[16] Here, however, there are special
circumstances that argue in favour of Mr. Tremblay's
version of the facts. In fact, before the Minister's audit
began, Mr. Tremblay filed income tax returns that were
amended in order to include in his income the amounts that GMR
paid him for payment to third parties. The total of the amounts
included in Mr. Tremblay's income for the 1991, 1992 and
1993 calendar years is $130,561 whereas the total of the amounts
disallowed by the Minister for GMR's statute-barred taxation
years is $92,000. The disparity between these two amounts is not
surprising since GMR's fiscal year does not correspond to the
calendar year. GMR's fiscal year ends on March 31. That
said, in my opinion, the fact that the total amount declared by
Mr. Tremblay is higher than the total amount of the
kickbacks disallowed by the Minister and the value of the taxable
benefit relating to the purchase of the car lends credibility to
Mr. Tremblay's version of the facts.
[17] As well, if the deduction of the
expense in the amount of $70,999.80 for the 1992 taxation
year were disallowed, there would be an element of double
taxation. In fact, GMR apparently paid the income tax on the
amount of $70,999.80, while Mr. Tremblay in all
likelihood included this same amount in his income. In these
circumstances, I am prepared to accept Mr. Tremblay's
testimony that the amount of $70,999.80 paid to him was used
to pay third parties in order to obtain contracts for GMR.
Consequently, GMR is entitled to deduct this amount in computing
its income.
[18] In deducting $10,978.20 as a personal
expenditure that it knew or ought to have known it was not
entitled to deduct, GMR made a false statement in its income tax
returns in circumstances amounting at least to gross negligence.
Consequently, the penalty provided for in subsection 163(2)
of the Act in respect of that amount must be upheld.
The 1993 and 1994 taxation years
[19] For the 1993 and 1994 taxation years, I
consider that the Minister has not successfully established that
GMR made a misrepresentation that is attributable to neglect,
carelessness or wilful default in filing its income tax returns.
On a balance of probability, the respondent has not successfully
established that the amounts of $3,000 for the 1993 taxation
year and $18,000 for the 1994 taxation year paid as
kickbacks were not paid in order to earn business income.
Consequently, the respondent has not established that a
misrepresentation was made. The respondent's evidence has not
established the extent to which the income tax returns and the
accompanying financial statements could be considered erroneous.
Therefore, the Minister was not authorized to make reassessments
for the 1993 or 1994 taxation years. In any case, even if the
Minister had been authorized to do so, I would have found-as I
did for the 1992 taxation year-that the amounts could be deducted
from GMR's income, for the same reasons noted above.
Non-statute-barred taxation years
Section 67.1 of the Act
[20] There remains the issue of the
applicability of section 67.1 of the Act to GMR's
expense of reimbursing its employees who worked outside the
Québec area. In this case, this section gives rise to a
serious problem of interpretation for a number of reasons. First,
the wording of this section is far from clear; this point is
made, as we shall see, by the fact that Parliament has repeatedly
found it necessary to amend this section. Second, there are
differences between the English and the French versions of this
section, particularly its title,[3] noted in the margin. The French version of the
title reads "Frais de représentation", whereas
the English version of the title reads "Expenses for food,
etc." The French version of the title is misleading.
When we read this section in its entirety, we realize that it is
not limited to that type of expenses. Third, there have been two
cases in which this Court, in circumstances quite similar to
those of these appeals, reached divergent decisions. In Les
Structures G. B. Ltée v.The Queen, 97 DTC 1146,
Lamarre Proulx J.T.C.C. found that section 67.1 of the
Act was applicable to compensation paid to employees for
food expenses. In Racco Industrial Roofing Limited
v. The Queen, 97 DTC 331, Mogan J.T.C.C. found
the opposite: that an employer could deduct
100 per cent of allowances paid to employees required
to work at a remote job site.
[21] First of all, it is worth reproducing
the relevant passages of section 67.1:[4]
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SECTION 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
50% 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.
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ARTICLE 67.1: Frais de
représentation.
(1) Pour l'application de la présente
loi, sauf des
articles 62, 63 and 118.2, un montant payé ou
payable pour des aliments, des boissons ou des
divertissements pris par des personnes est
réputé correspondre à 50 % du
moins élevé du montant réellement
payé ou payable et du montant qui serait
raisonnable dans les circonstances.
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(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
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(2) Exceptions. 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:
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(a) is paid or payable for food, beverages or
entertainment provided for, or in expectation of,
compensation in the ordinary course of a business carried
on by that person of providing the food, beverages or
entertainment for compensation;
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a) le montant est payé ou payable pour des
aliments, des boissons ou des divertissements fournis
contre paiement ou en vue de l'obtention d'un
bénéfice dans le cours normal des
activités d'une entreprise exploitée par
cette personne et qui consiste à fournir contre
paiement ces aliments, ces boissons ou ces
divertissements;
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(b) relates to a fund-raising event the primary
purpose of which is to benefit a registered charity;
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b) le montant est payé ou payable dans le
cadre d'une levée de fonds dont le principal
objet est un objet charitable d'un organisme de
bienfaisance enregistré;
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(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;
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c) le montant est payé ou payable contre
un paiement raisonnable indiqué de façon
précise par écrit à la personne qui
fait ce paiement;
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(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)(a)(ii);[5] or
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d) le montant doit être inclus dans le
calcul du revenu d'un employé de la personne,
compte non tenu du sous-alinéa
6(6)a)(ii);5
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(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.
...
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e) le montant est engagé par la
personne pour des aliments, des boissons ou des
divertissements pris par des particuliers
employés par la personne à un lieu
d'affaires de celle-ci, and offerts, de façon
générale, à tous ces
particuliers.
. . .
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(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.
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(4) Interprétation. Pour l'application
du présent article:
a) aucun montant payé ou payable pour
un voyage à bord d'un avion, d'un train ou
d'un autobus ne peut être considéré
comme payé ou payable pour des aliments, des
boissons ou des divertissements pris pendant le
voyage ;
b) sont assimilés à des
divertissements les loisirs et les amusements.
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[Emphasis added.]
[22] The paragraph of the Act that is
particularly problematic here is
paragraph 67.1(2)(e). It is helpful to make a
historical analysis of the manifold amendments made to this
paragraph. First, we note that section 67.1 was added to the
Act by S.C. 1988, c. 55, s. 46,
following the 1987 tax reform. The initial
paragraph 67.1(2)(e) (the 1988 wording) read
as follows:
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(e) is incurred by the person for food,
beverages or entertainment generally available to all
employees of the person at a particular location.
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e) le montant est engagé par la personne
pour des aliments, des boissons et des
divertissements qui sont offerts, de façon
générale, à tous les
employés de la personne à un endroit
donné.
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[Emphasis added.]
[23] Next, this paragraph was amended
by S.C. 1991, c. 49, s. 43. The new
paragraph 67.1(2)(e) (the 1991 wording) read
as follows:
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(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.
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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.
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[Emphasis added to new or amended wording in
comparison with the previous wording.]
The 1991 wording was applicable to taxation years ending after
July 13, 1990. By including the French word
"même" in the expression "au lieu de son
entreprise", the legislative drafter suggested that the food
had to be consumed at the place where the business was located,
whereas the most likely meaning of the English version of the
Act was that the food had to be available to all
individuals employed at a particular place of business. In all
likelihood, it was to correct that situation that
paragraph 67.1(2)(e) was once again amended (the
1994 wording), and this was done by
S.C. 1994, c. 7, sch. II, s. 43,
retroactively applicable to taxation years ending after
July 13, 1990, that is, having the same period of
applicability as the 1991 amendment.
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(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.
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e) le montant est engagé par la personne
pour des aliments, des boissons ou des divertissements pris
par des particuliers employés par la personne
à un lieu d'affaires de celle-ci, et
offerts, de façon générale, à
tous ces particuliers.
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[Emphasis added to new or amended wording.]
Thus the word "même" was removed, and the
French expression "lieu ... de son entreprise" was
replaced with "lieu d'affaires".
[24] The two most recent amendments were
made by the following statutory provisions:
S.C. 1999, c. 22, s. 20, which added a
new paragraph 67.1(2)(e) and replaced the former
paragraph 67.1(2)(e) with
paragraph 67.1(2)(f) (the 1999 wording) and by
S.C. 2002, c. 9, s. 26, which added
paragraph 67.1(2)(e.1) to the Act. These two
amendments are respectively reproduced:
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(e) is an amount that
(i) is not paid or payable in respect of a conference,
convention, seminar or similar event,
(ii) would, but for subparagraph 6(6)(a)(i), be
required to be included in computing any taxpayer's
income for a taxation year because of the application of
section 6 in respect of food or beverages consumed or
entertainment enjoyed by the taxpayer or a person with whom
the taxpayer does not deal at arm's length, and
(iii) is paid or payable in respect of the
taxpayer's duties performed at a work site in Canada
that is
(A) outside any urban area, as defined by the last
Census Dictionary published by Statistics Canada before the
year, that has a population of at least 40,000 individuals
as determined in the last census published by Statistics
Canada before the year, and
(B) at least 30 kilometres from the nearest point on the
boundary of the nearest such urban area; or
(f) is in respect of one of six or fewer
special events held in a calendar year at which the
food, beverages or entertainment is generally available to
all individuals employed by the person at a particular
place of business of the person and consumed or enjoyed by
those individuals.
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e) le montant, à la fois:
(i) n'est pas payé ou payable relativement
à une conférence, à un congrès,
à un colloque ou à un événement
semblable,
(ii) serait à inclure, si ce n'était
le sous-alinéa 6(6)a)(i), dans le calcul
du revenu d'un contribuable pour une année
d'imposition en raison de l'application de
l'article 6 relativement aux aliments, boissons ou
divertissements pris par le contribuable ou par une
personne avec laquelle il a un lien de
dépendance,
(iii) est payé ou payable au titre du travail
accompli par le contribuable sur un chantier qui est
situé au Canada et, à la fois:
(A) à l'extérieur d'une
région urbaine, au sens du dernier dictionnaire du
recensement publié par Statistique Canada avant
l'année, qui compte une population d'au
moins 40 000 personnes selon le dernier recensement
publié par Statistique Canada avant
l'année,
(B) à au moins 30 kilomètres du point le
plus rapproché de la limite de la région
urbaine la plus proche visée à la division
(A);
f) le montant se rapporte à l'un
d'un maximum de six événements
spéciaux tenus au cours d'une année
civile et à l'occasion desquels des
aliments, des boissons ou des divertissements sont
offerts, de façon générale,
à l'ensemble des employés de la
personne affectés à un lieu
d'affaires donné de celle-ci et
pris par ces employés.
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[Emphasis added to new wording of
paragraph 67.1(2)(f) in comparison with former
wording of paragraph 67.1(2)(e).]
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(e.1) is an amount that
(i) is not paid or payable in respect of entertainment
or of a conference, convention, seminar or similar
event,
(ii) would, if this Act were read without reference to
subparagraph 6(6)(a)(i), be required to be included
in computing a taxpayer's income for a taxation year
because of the application of section 6 in respect of food
or beverages consumed by the taxpayer or by a person with
whom the taxpayer does not deal at arm's length,
(iii) is paid or payable in respect of the
taxpayer's duties performed at a site in Canada at
which the person carries on a construction activity or at a
construction work camp referred to in
subparagraph (iv) in respect of the site, and
(iv) is paid or payable for food or beverages provided
at a construction work camp, at which the taxpayer is
lodged, that was constructed or installed at or near the
site to provide board and lodging to employees while they
are engaged in construction services at the site; or
...
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e.1) le montant, à la fois:
(i) n'est pas payé ou payable relativement
à des divertissements ou à une
conférence, à un congrès, à un
colloque ou à un événement
semblable,
(ii) serait à inclure, si ce n'était
le sous-alinéa 6(6)a)(i), dans le calcul
du revenu d'un contribuable pour une année
d'imposition en raison de l'application de
l'article 6 relativement aux aliments ou boissons pris
par le contribuable ou par une personne avec laquelle il a
un lien de dépendance,
(iii) est payé ou payable au titre du travail
accompli par le contribuable sur un chantier au Canada
où la personne exerce une activité de
construction ou dans un campement de travailleurs de la
construction mentionné au
sous-alinéa (iv) relatif au chantier,
(iv) est payé ou payable pour des aliments ou des
boissons fournis dans un campement de travailleurs de la
construction, où le contribuable est logé,
qui a été construit ou installé sur le
chantier, ou près de celui-ci, en vue de fournir des
repas et un logement aux employés pendant qu'ils
exécutent des services de construction sur
le chantier; ...
|
The 1999 version is manifestly clearer than the previous ones.
For example, in the 1999 French version, the use of the
expression "affectés à " now makes clear
that it is the employees who must be located at the person's
place of business not the food that must be consumed there.
Positions of the parties
[25] At the hearing, counsel for the parties
asked the Court for leave to submit at a later date written
arguments stating their respective positions on the applicability
of section 67.1 of the Act. In her written argument,
counsel for the respondent argues that the interpretation by
Judge Lamarre Proulx in Les Structures G. B.
Ltée (supra), not the interpretation in
Racco (supra), should be relied on. She
concludes that GMR's place of business was located at
St-Romuald and that the places of business of GMR's
clients where GMR carried out its contracts did not constitute
places of business for GMR. She argues that this issue was not
raised in Racco since the parties admitted at the outset
that "[e]ach Regional Job Location constituted a particular
place of business of the Appellant for purposes of
paragraph 67.1(2)(e)[6] of the Act"[7] and therefore Mogan J.T.C.C. was
not called upon to determine whether the regional job location
constituted a particular place of business of the taxpayer
corporation.
[26] Lastly, counsel for the respondent
notes that [translation] "Subsection 67.1(2) of the
Act was amended following the decision by Lamarre
Proulx J.T.C.C. in order to include, among the exceptions,
amounts paid for food in respect of the taxpayer's duties
performed at a work site in Canada that is outside any urban area
with a population of at least 40,000 individuals and at least
30 kilometres from the nearest such urban area."[8] She adds:
[translation] "Nothing in the evidence establishes that the
work was performed at a work site that is outside any urban area
with a population of at least 40,000 individuals and at least
30 kilometres from the nearest such urban area."[9]
[27] At page 4 of his written argument,
counsel for the appellant argues that GMR has met all the
conditions set out in paragraph 67.1(2)(e) by
establishing the following facts:
[translation]
1. The
appellant company specializes in the installation, construction
and maintenance of service stations and reservoirs and in the
installation and maintenance of petroleum equipment;
2. The
appellant company's activities cover a large territory in all
parts of the province of Quebec;
3. The
appellant company's head office is located in St-Romuald;
4. The
appellant company's duties are performed and its contracts
carried out elsewhere than at its head office;
5. The meal
allowances paid to employees were paid in relation to duties
performed and contracts carried out elsewhere than at the
appellant company's head office, that is, in locations and at
sites located in all parts of the province of Quebec; and
6. The
appellant company was required to pay employees these meal
allowances because it was subject to the construction order
governing the installation of petroleum equipment ....
Counsel for the appellant then adds:
[translation]
Since the nature of the appellant company's operations
necessarily implies that its employees must perform their duties
at the locations and sites of the contracts, that is, elsewhere
than at the appellant company's head office, we consider
that, as in Racco Industrial Roofing ltd
(hereinafter "Racco"), each regional job
location constitutes a particular place of business for the
purposes of paragraph 67.1(2)(e) of the
Act. Indeed, paragraph 67.1(2)(e) provides
that the amount is paid ... for food ... generally available to
all individuals employed by the person at a particular place
of business of the person and consumed by such individuals.
Paragraph 67.1(2)(e) provides that the amount must be
paid, not for food consumed at the place of business (that is,
the head office) of the appellant company but, rather, for food
consumed at a particular place of business of the appellant
company.
Counsel for the appellant continues:[10]
[translation]
Paragraph 67.1(2)(e) of the Act does not
require that all the appellant company's employees,
regardless of their duties, be eligible for reimbursement of
these expenses. Paragraph 67.1(2)(e) merely provides
that the amount shall be paid for food ... consumed by
individuals at a particular place of business of their employer
to the extent that the food is generally available to all
individuals employed by the appellant company at the particular
place of business. Thus the conditions are met if, generally,
all the employees working at a particular regional job location
are eligible for reimbursement of these expenses.
Interpretation Bulletin IT-518R, entitled "Food,
Beverages and Entertainment Expenses", reads as follows at
paragraph 11:
"One example of a location which would generally be
considered "a particular place of business" is a customer's
premises which are located well outside the municipality where
the employer's operations are usually centred. Also, a site
that qualifies as a "special work site" for the purposes of
subparagraph 6(6)(a)(i), can generally be considered a
"particular place of business". As a result, food, beverages and
entertainment as described in 9 above, that are available to all
of that employer's employees working at such a place of
business, would not be subject to the 50% limitation."
Counsel for the appellant concludes:[11]
[translation]
Lastly, to the extent that doubt subsists concerning the
interpretation of paragraph 67.1(2)(e) of the
Act, the appellant company claims that this doubt should
be resolved in favour of the taxpayer corporation, in accordance
with the analysis proposed by the Supreme Court of Canada in
Corporation Notre-Dame de Bon-Secours v.
Communauté urbaine de Québec
(95 DTC 5017, at page 5023).
Conclusion
[28] The main difficulty raised in
determining the applicability of paragraph 67.1 is the scope
to be given to the expression "place of business"
("lieu d'affaires"). The Act does not define the
expression "place of business" for the purposes of its
application. Essentially, this expression can have two meanings:
a broad meaning, according to which it means any location where a
taxpayer operates a business; and a narrow meaning, according to
which it means a place where a person owns or rents premises
where employees and clients of the person's business can
come. Counsel for the respondent has claimed that GMR has only
one place of business, in St-Romuald, whereas counsel for
the appellant has claimed that GMR has a place of business at
each client's location where it performs its duties.
[29] Interestingly, the expression
"place of business" is found in many provisions of the
Act, particularly subsection 230(1), which requires
every person carrying on a business to keep records and books of
account at its place of business. This expression is also found
in section 8 dealing with the deduction of expenses incurred
by employees, specifically in paragraph 8(1)(f)
dealing with sales expenses. One condition employees must meet in
order to deduct these expenses is to be required to carry on the
duties of their employment "away from the employer's
place of business".
[30] I consider that, for the purposes of
those two sections, the narrow meaning of the expression
"place of business" must be used. Indeed, it would be
surprising for a construction contractor with a head office to
state that it met the condition set out in subsection 230(1)
by keeping its records in its truck at the various locations
where it carried out its construction contracts, rather than at
its premises where its employees and clients came. Taxpayers are
expected to keep their records at a location that the
Minister's auditors can readily reach in order to examine the
records. As well, if the broad meaning of the expression
"place of business" were used in applying
paragraph 8(1)(f) of the Act, commission
salespersons could not meet the condition of being required to
carry on the duties of their employment "away from the
employer's place of business", if all the locations
where salespersons travelled to sell the employer's products
(locations where salespersons carried on activities relating to
the employer's business) were "places of business"
of the employer.
[31] The expression "place of
business" is also found in paragraph 20(1)(ee)
of the Act, which authorizes deduction of the connection
costs of public utilities at the place of business. In The
Queen v. Guaranteed Homes Ltd., 78 DTC 6510 ([1978]
CTC 636), Smith D.J.T.C.C. was called upon to determine the
scope of the expression "place of business"[12] for the purposes of
paragraph 20(1)(ee). At page 6515 DTC (CTC, at
page 642), Smith D.J.T.C.C. writes:
... For example, if a construction firm is working on a
contract to build a house on a lot owned by the person for whom
it is being built, the firm may be said to be carrying on its
business of housebuilding on that lot, but it cannot be said to
be doing so at its place of business.[13]
[32] If the principle of uniformity of
expression[14]
were applied to the expressions "place of business" and
"lieu d'affaires" used in
paragraph 67.1(2)(e) of the Act, the narrow
meaning of these expressions would have to be used. That said, we
must not limit ourselves to this principle; we must also ask
ourselves which of the two meanings is the most appropriate for
the purposes of section 67.1 of the Act, in light of
its object, its context, and the intention of Parliament in
adopting and subsequently amending it. This point was made by the
Supreme Court of Canada in Québec (Communauté
urbaine) v. Corp. Notre-Dame de
Bon-Secours, [1994] S.C.J. No. 78 (Q.L.);
[1994] 3 S.C.R. 3. At paragraph 25 (Q.L.)
Gonthier J. summarizes the principles of interpretation of
tax legislation as follows:
...
The rules formulated in the preceding pages, some of which
were relied on recently in Symes v. Canada, [1993] 4
S.C.R. 695, may be summarized as follows:
- The interpretation of tax legislation should follow
the ordinary rules of interpretation;
- A legislative provision should be given a
strict or liberal interpretation depending on the purpose
underlying it, and that purpose must be identified in light of
the context of the statute, its objective and the legislative
intent: this is the teleological approach;
- The teleological approach will favour the taxpayer or
the tax department depending solely on the legislative provision
in question, and not on the existence of predetermined
presumptions;
- Substance should be given precedence over form to the
extent that this is consistent with the wording and objective of
the statute;
- Only a reasonable doubt, not resolved by the
ordinary rules of interpretation, will be settled by recourse to
the residual presumption in favour of the
taxpayer.
[Emphasis added.]
I also note the comments by Gonthier J. concerning the
last principle stated in this summary, a principle also cited by
counsel for the appellant. Gonthier J. first writes as
follows, at paragraph 22:
In light of this passage 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.]
Gonthier J. then continues as follows, at
paragraph 25:
Two comments should be made to give Estey J.'s
observations their full meaning: first, recourse to the
presumption in the taxpayer's favour is indicated when a
court is compelled to choose between two valid interpretations,
and second, this presumption is clearly residual and should play
an exceptional part in the interpretation of tax
legislation....
[33] The intention of Parliament can be
determined not only by analysing the wording of the provision but
also by carefully taking into account the Minister of
Finance's explanatory notes that accompany amendments to the
Act when they are tabled in Parliament.[15]
[34] A careful reading of section 67.1
of the Act shows that, since 1988 and particularly when
computing business income, taxpayers may no longer deduct
100 per cent of the amount paid or payable for food,
beverages or entertainment.[16] Contrary to what is suggested by the
marginal note[17]
in the French version, "Frais de
représentation", nothing in subsection 67.1(1)
of the Act indicates that the expenses involved are
limited to food expenses that constitute entertainment expenses.
On examining the exceptions set out in subsection 67.1(2) of
the Act and the rule of interpretation set out in 67.1(4)
of the Act, we must conclude that the general rule set out
in subsection 67.1(1) (the general rule) is
that, during the non-statute-barred taxation years at issue here,
a taxpayer could deduct only 50 per cent of food
expenses, regardless of whether they constituted entertainment
expenses. Thus, the general rule is not limited to what are
commonly referred to as "business meals".
[35] In order to support and illustrate this
conclusion, let us analyse the exception set out in
paragraph 67.1(2)(d) of the Act. The general
rule does not apply to an employer if the food expenses
constitute a taxable benefit in the hands of employees, or would
do so but for subparagraph 6(6)(a)(ii) of the
Act.[18] This subparagraph refers to the benefit
constituted by board provided to employees working at a
"remote location", that is, a location at which,
because of its remoteness from any established community,
employees could not reasonably be expected to establish and
maintain self-contained domestic establishments. In those
circumstances, the benefit need not be included in employees'
employment income, and the employer may deduct 100 per cent
of food expenses it incurs for employees.
[36] The analysis of the wording of
paragraph 67.1(2)(d) of the Act shows that
this paragraph refers solely to employees working at a
"remote location" and not, during the
non-statute-barred taxation years at issue,[19] to employees working at a
"special work site" referred to in
subparagraph 6(6)(a)(i) of the Act, that is, a
location at which the duties performed by employees were of a
temporary nature, if the employees maintained at another location
self-contained domestic establishments as their principal places
of residence. Consequently, during the non-statute-barred
taxation years, when employees worked at a special work site of
their employer, the exception set out in
paragraph 67.1(2)(d) was not applicable and, unless
the other exceptions set out in section 67.1 were
applicable, the employer could deduct only 50 per cent
of the expense for food provided to employees. For example, the
expense for food consumed during a trip by bus, train or
airplane[20] in
order to travel to the "special work site" would not be
subject to the general rule but that exception applies only to
the expense for food consumed during the trip; it does not allow
the employer to deduct 100 per cent of the expense for food
consumed by its employees at the "special work
site".
[37] We may wonder why Parliament made an
exception for food expenses at remote locations but not at
special work sites. Could paragraph 67.1(2)(e) of the
Act be applicable to special work sites? In my
opinion, if Parliament had intended to allow an employer to
deduct 100 per cent of expenses for food consumed by its
employees at a special work site, it would not have limited the
exception set out in paragraph 67.1(2)(d) to
subparagraph 6(6)(a)(ii) but would simply have
referred to paragraph 6(6)(a). Why would Parliament
allow under paragraph 67.1(2)(e) what it denied under
paragraph 67.1(2)(d)? It could be argued that a
distinction needs to be made: in order to benefit from the
exception for food consumed at a special work site, the food must
be provided to all individuals employed at that site. Although
this interpretation is possible, I do not consider it convincing.
Generally speaking, an employer that provides board to its
employees assigned to a "remote location" or a
"special work site" provides board to all its
employees. It is reasonable to consider that Parliament intended
to refer only to board provided to employees working at
"remote locations" and to subject expenses for food
provided at special work sites to the general rule. Thus this
conclusion, too, argues in favour of using the narrow meaning of
the expression "place of business" used in
paragraph 67.1(2)(e).
[38] If, subsequent to this analysis of
paragraph 67.1(2)(e) of the Act, we had the
slightest doubt about the scope of the expression "place of
business" contained therein, that doubt would vanish on
consultation of the explanatory notes published by the Minister
of Finance when the 1987 tax reform was made public, as well as
the explanatory notes accompanying the bills to add
section 67.1 in 1988 and to make the subsequent amendments
to this section. In my opinion, these explanatory notes shed a
great deal of light on this issue. In particular, the 1987
Supplementary Information Relating to Tax Reform Measures
reads as follows:
Currently, a taxpayer may deduct reasonable expenses for meals
and entertainment incurred for business purposes. The present law
effectively allows a deduction for some part of expenses that are
personal in nature since business meals and entertainment
necessarily involve an element of personal consumption.
The White Paper proposed to limit the deduction for these
expenses to 80 per cent of their cost. The
80-per-cent limitation would apply to all business
meals, including food and beverages, as well as to the cost of
meals while travelling or attending a seminar, conference,
convention or similar function. As well it would apply to
tickets to an entertainment or sporting event, gratuities and
cover charges, room rentals to provide entertainment, and the
cost of private boxes at sports facilities. Where a taxpayer is
reimbursed for the cost of a business meal or entertainment, the
80-per-cent limitation would apply to the person making the
reimbursement.
The 80-per-cent limitation would not apply to
· the cost to
a restaurant, airline or hotel of providing meals to customers in
the ordinary course of business;
· meals or
entertainment expenses relating to an event intended primarily to
benefit a registered charity;
· the cost of
meals or entertainment that is included as a taxable benefit to
the employee or where the employer is reimbursed for the
cost;
· the cost
of meals and recreation provided by an employer for the
general benefit of all employees. Executive dining rooms and
similar facilities, however, will be subject to the 80-per-cent
limitation.
The above rules, which apply to both corporations and
individuals, would come into effect for expenses incurred after
1987.
The restriction proposed received general support. It was also
noted that similar, and in some cases more severe, restrictions
apply in other countries. However, the Commons and Senate
committees recommended that these expenses be deductible in full
for persons in travel status.
The government gave careful consideration to these
suggestions but rejected the notion that out-of-town meals
and entertainment should be excluded from the restriction,
since they too involve an element of personal consumption.
The government intends to proceed with the 80-per-cent limitation
on business meals and entertainment expenses as proposed in the
White Paper.
[Emphasis added.]
[39] The 1988 explanatory notes accompanying
the bill that added section 67.1 to the Act
include explanations for the exceptions made to the general rule
set out in section 67.1 and, in particular, an explanation
for the more restrictive exception set out in
paragraph 67.1(2)(e). This explanation reads as
follows:
Where the amount is incurred to provide food, beverages or
entertainment to all employees at a particular location. This
provision will exempt costs incurred for a Christmas party or
similar event to which all employees at a particular location
have access.
[Emphasis added.]
[40] When paragraph 67.1(2)(e)
was amended in 1991, the following explanatory note was
released:
Paragraph 67.1(2)(e) of the Act provides an exemption from the
restriction on the deductibility of food, beverages and
entertainment expenses where an amount in respect of such
expenses is incurred to provide food, beverages or entertainment
to all employees at a particular location. This paragraph is
intended to exclude from the application of subsection 67.1(2)
costs incurred in respect of events to which all employees at a
particular location have access, such as a firm party.
This paragraph is amended to clarify that, for this exemption
to apply, the food, beverages or entertainment must be generally
available to all employees at a particular location of the
employer and consumed or enjoyed by such
employees.
[Emphasis added.]
[41] In October 1998, when the new
amendments replacing paragraph 61.1(2)(e) with
paragraph 67.1(2)(f) were made public, the Minister
of Finance provided the following explanations:
New paragraph 67.1(2)(f) is an amended version of
existing paragraph 67.1(2)(e). As indicated in the
explanatory notes issued comtemporaneously with the introduction
of section 67.1, paragraph 67.1(2)(e) was intended to
allow for the full deductibility of meal and entertainment
expenses associated with special events such as "a Christmas
party or similar event to which all employees at a particular
location have access". This paragraph has, however, been
interpreted to apply more broadly than this. Accordingly,
paragraph 67.1(2)(f), which replaces the original
paragraph 67.1(2)(e) limits the exemption for food,
beverages or entertainment generally available to all employees
at a place of business to such expenses incurred in respect of 6
or fewer special events held in a calendar year.
[Emphasis added.]
[42] In my opinion, these explanatory notes
argue in favour of using the narrow meaning of the expression
"place of business"("lieu d'affaires") for
the purposes of paragraph 67.1(2)(e). In particular,
these explanatory notes do not state that
paragraph 67.1(2)(e) allows full deduction of food
expenses if the food is provided to all employees assigned to a
"special work site". The example given is still that of
a party or similar event to which all employees assigned to a
place of business are invited. Consequently, clients' places
of business located outside Québec at which GMR carried
out construction work do not constitute GMR's places of
business for the purposes of section 67.1 of the Act.
As Smith D.J.T.C.C. acknowledged in Guaranteed Homes
Ltd. (supra), although a construction company does
business on a client's premises, the client's place of
business is not the construction company's "place of
business".
[43] During the non-statute-barred taxation
years, GMR's only place of business was in St-Romuald.
Consequently, GMR does not meet all the conditions for the
exception set out in paragraph 67.1(2)(e) of the
Act to be applicable. Indeed, since only GMR's
St-Romuald employees who worked outside the Québec area
were eligible for meal allowances, GMR cannot be said to have
incurred expenses for meals made generally available to all
individuals employed by it at its place of business in
St-Romuald. Obviously, it cannot be argued that food provided to
all employees but under certain conditions constitutes valid
availability for the purposes of this paragraph since an employer
could, for example, provide food to all its employees who met
with clients at restaurants in order to maintain good relations
with them: those meals would be "business meals"
clearly referred to in section 67.1 of the Act. That
interpretation would obviously run counter to the intention of
Parliament.
[44] I consider that there is another, if
less obvious, reason to find that GMR is not entitled to the
benefit of the exception set out in
paragraph 67.1(2)(e). What GMR made available to its
employees was not food but rather an allowance in reimbursement
of their meal expenses. Thus, in my opinion, GMR cannot be said
to have made "food ... generally available to all
individuals employed by [it ...]" that was
"consumed ... by such individuals". In Racco
(supra), my colleague Mogan J.T.C.C. addressed this
issue. He acknowledged that there may be two possible
interpretations of paragraph 67.1(2)(e) of the
Act: a liberal interpretation, according to which this
paragraph is applicable regardless of whether the employer
provides food itself or reimburses its employees for food
expenses; and a strict interpretation, according to which this
paragraph is applicable only if food is provided by the
employer. In support of the strict interpretation,
Mogan J.T.C.C. noted the difference between the wording of
subsection 67.1(1) and the wording of
paragraph 67.1(2)(e). The English version of
subsection 67.1(1) refers to any amount paid "in
respect of the human consumption of food", which indicates
that the general rule has a broad meaning, referring both to
amounts paid directly for food and to allowances paid to
employees in reimbursement of food expenses.
Paragraph 67.1(2)(e) refers to amounts "incurred
... for food", which confirms that it has a narrow meaning,
referring only to direct expenses for food.
[45] On the basis of the French version of
section 67.1, my colleague Mogan J.T.C.C. found in
favour of the broad interpretation since the same French word
"pour" was used to translate both the English
expression "in respect of" in subsection 67.1(1)
and the English word "for" in
paragraph 67.1(2)(e). In my opinion, the strict
interpretation should be used instead because it better reflects
the intention of Parliament, as is shown by the explanatory notes
quoted above.[21]
The English version in my view better reflects the intention of
Parliament: what must be offered to all individuals employed at
an entity's particular place of business and consumed by them
is food, not food allowances. Even if I relied on a different
interpretation than that of Mogan J.T.C.C., the same four
examples illustrating the scope of
paragraph 67.1(2)(e) given in paragraph 7 of the
reasons by Mogan J.T.C.C. can be used: baseball games,
picnics, Christmas parties, and cafeteria services. Indeed, these
examples illustrate instances in which the employer makes food
directly and generally available to its employees.
[46] For all these reasons, the appeal by
GMR for the 1997 taxation year is dismissed. All the other
appeals are allowed. The assessments for the 1993 and 1994
taxation years are vacated. The assessments for the 1992, 1995
and 1996 taxation years are referred back to the Minister for
reconsideration and reassessment on the basis that:
(i) for the 1992 taxation year, GMR is entitled to a deduction
in the amount of $70,999.80, and the penalty assessed under
subsection 163(2) of the Act is applicable only to
the underestimated income in the amount of $10,978.20; and
(ii) for the 1995 and 1996 taxation years:
(a) the amount of the expenses in respect of the cheques
issued to Mr. Tremblay, deduction of which was disallowed,
is $5,625 (instead of $7,500) for the 1995 taxation year and
$5,925 (instead of $11,850) for the 1996 taxation year, and
no other penalty regarding these amounts may be assessed under
subsection 163(2) of the Act;
(b) GMR is entitled to the deduction in the amount of
$4,187 in computing its business income for the 1996
taxation year; and
(c) with respect to meal allowances, GMR is not entitled to an
amount higher than the amount that it was allowed by the
Minister.
GMR is entitled to 75 per cent of its costs.
Signed at Ottawa, Canada, this 27th day of March 2003.
J.T.C.C.
Translation certified true
on this 11th day of February 2004.
Sophie Debbané, Revisor
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