Jay-Kay Publications Limited v. Minister of National Revenue, [1972] CTC 539

The Chief Justice and Thurlow, J (delivered from the Bench):— Except in one respect, we adopt and rely on the reasons for judgment of the Associate Chief Justice.

We cannot, however, agree with his conclusion on the facts of this case that, even though the articles in the appellant’s publication are of a scholarly character, the “principal function” of that publication is not the “encouragement, promotion or development of . . . scholarship .. .”.

In our view, from the point of view of subsection 19(4), the character of such a publication must, ordinarily, be judged objectively, on an examination of the publication or of evidence as to the contents of that publication, and evidence as to the persons among whom it is circulated, with a view to forming an opinion as to the role that the publication will play in the hands of the reader.

Applying that test, in our view, if it is found that the contents of the publication are of a scholarly character and that the publication is directed to persons learned in the subject matter thereof, it would, in the absence of evidence to the contrary, follow that the function of the publication is the “encouragement, promotion or development of . . . scholarship . . .”. Furthermore, if, to such a publication addressed to such an audience, there be added a reasonable amount of competitive advertising, that would not in itself alter the character of the publication. The statute itself contemplates that this may be the situation.

In this case, it is common ground that the non-advertising matter is of a scholarly character in the medical field and that the publication is addressed to the medical profession. In our view, there is nothing about the advertising included that is so remarkable, either in its quantity or subject matter or any other feature of it, as to change the character of the publication as established by the non-advertising ma- terial. There is, in addition, no evidence to show that the magazine has in fact some function other than is revealed by its objective character.

We are therefore of opinion that the appeal should be allowed and that in place of the answer given by -the learned trial judge there should be substituted an affirmative answer qualified, however, so as to limit it to the publication as exemplified by the ten issues of it that are before the Court.

Sweet, DJ:—What is to be done here is included in an agreement bearing date January 5, 1972 between the parties, namely:

The Federal Court of Canada shall determine pursuant to the provisions of subsection (3) of section 17 of the Federal Court Act, SC 1970, chapter 1 and subsection (1) of section 173 of the Income Tax Act, the following question:

Is the Canadian edition of “Medical Aspects of Human Sexuality” a publication, the principal function of which is the encouragement, promotion, or development of scholarship within the meaning of subsection (4) of the sections 19 and 12A of the Income Tax Act?

Subsection (1) of that section 19 is:

19. (1) In computing income, no deduction shall be made in respect of an otherwise deductible outlay or expense of a taxpayer for advertising space in an issue of a non-Canadian newspaper or periodical dated after December 31, 1965 for an advertisement directed primarily to a market in Canada.

The periodical in question falls under clause (E) of subparagraph (5)(a)(ii) of section 19 of the Act and accordingly it is to be considered “non-Canadian” within the meaning of subsection 19(1).

Nevertheless subsection 19(1) would not be applicable if, having regard to paragraph (4)(b) of section 19, the publication is a “publication the principal function of which is the encouragement, promotion or development of the fine arts, letters, scholarships or religion”.

The learned and distinguished Associate Chief Justice, in his reasons for judgment, said:

Indeed, if the calibre of the people who have written these articles, as well as most of the articles themselves, are considered, this publication must be accepted as a vehicle for the dissemination of scholarship in a field which, until recently, was one that had never been properly treated by doctors.

However His Lordship also said:

Here a most important object of the publication is to serve as an advertising vehicle and the answer to the questions posed must regrettably be that the principal object of this publication is not for the advancement or promotion of scholarship.

Of course the advertising in a publication would be an item, and often an important item, from which the publisher would hope for financial benefit.

Doubtless to Hospital Publications Incorporated — a New York corporation, which granted to the appellant the right and licence to use the name “Medical Aspects of Human Sexuality (Canadian Edition)” — advertising and financial reward therefrom was an important consideration. Furthermore it would be surprising, I think, if the appellant did not also hope for monetary gain.

It seems to me, having regard to the wording of paragraph 19(4)(b) that what is relevant is the principal function of the publication per se and not the publisher’s motive in publishing. If this were not so one would wonder why Parliament would have used the wording “any publication the principal function of which” relating, as I construe it, “principal function” to “any publication”.

I am of the view that if the periodical itself is such that the principal function of its content — the material which it contains — is to encourage, promote or develop fine arts, letters, scholarship or religion, it comes within paragraph 19(4)(b) whether or not the publisher hopes to make money from its publication and whether or not he does make money from it. If it is established that the principal function of the content is the encouragement, promotion or development of fine arts, letters, scholarship or religion, it is irrelevant, in my opinion, whether the motive inducing publication is altruistic or profit seeking. If emphasis be needed for this view it is found in the fact that pervading the entire section 19, and even the very reason for its inclusion in the Act, is the matter of outlay or expense of a taxpayer for advertising space.

Section 19 is based upon anticipation of paid advertising. In my view this applies also to paragraph (4)(b); otherwise I would think that wording quite different than what appears there would have been necessary.

If I read His Lordship’s reasons correctly he did reach the firm conclusion that the content of the periodical did accomplish encouragement, promotion or development of scholarship and in this I respectfully agree. On the other hand, for the reasons given, I do not think that importance of the publication as an advertising vehicle would, in the circumstances which exist here, prevent it from qualifying under paragraph (4)(b) of section 19. Of course, the result I feel should ensue is based on the material in this case. The future could bring changes in this periodical’s content which would impel a different result.

I would allow the appeal and answer the question to be answered in the affirmative qualified as stated by My Lord the Chief Justice and My Lord Thurlow.