Minister of National Revenue v. Robert A. F. Montgomery, [1970] CTC 115, 70 DTC 6080

Kerr, J.:—This is an appeal from a decision of the Tax Appeal Board with respect to an assessment of income tax for the respondent’s 1966 taxation year.

In computing his income the respondent claimed a deduction of $43.30 which he had paid as ‘‘wardroom dues’’ (sometimes called ‘‘mess dues’’) as an officer in the Royal Canadian Naval Reserve (RCNR) at H.M.C.S. Tecumseh, which is a unit or ship of the Royal Canadian Navy at Calgary. He claimed the deduction as ‘‘annual professional dues’’ under Section 11(10) (a) of the Income Tax Act, the pertinent part of which reads as follows, in English and French, respectively :

11. (10) Notwithstanding paragraphs (a) and (h) of subsection (1) of section 12, the following amounts may, if paid by a taxpayer in a taxation year, be deducted in computing his income from an office or employment for the year

(a) annual professional membership dues the payment of which was necessary to maintain a professional status recognized by statute,

to the extent that he has not been reimbursed, and is not entitled to be reimbursed in respect thereof.

11. (10) Par dérogation aux alinéas a) et h) du paragraphe (1) de l’article 12, les montants suivants, s’ils ont été payés par un contribuable dans une année d’imposition, peuvent être déduits dans le calcul de son revenu provenant d’une charge ou emploi pour l’année:

a) les cotisations annuelles de membres de société professionnelle, dont le paiement était nécessaire afin de conserver un statut professionnel reconnu par la loi,

dans la mesure où ce contribuable n’a pas été remboursé, et n’a pas le droit de l’être, à cet égard.

The appellant disallowed the deduction, and the respondent then appealed to the Tax Appeal Board, which allowed the appeal.

In this appeal the appellant says that the payment of the wardroom dues did not constitute the payment of annual professional membership dues within the meaning of Section 11(10) (a) of the Act, and that the payment was not necessary to maintain a professional status recognized by statute; and, further, that the payment was a personal or living expense of the respondent, the deduction of which was prohibited by Section 12(1) (h) of the Act. The respondent says that in addition to being a barrister practising law in Calgary he was an officer of the Royal Canadian Naval Reserve (RCNR) at H.M.C.S. Tecumseh during his 1966 taxation year and had to pay the wardroom dues, as such officer, in order to remain in the naval reserve and maintain his professional status as an officer in that Reserve.

The issue is whether Section 11(10) (a) includes the said wardroom dues.

The respondent rose from a naval cadet in 1945 to his present rank of Commander in the RCNR. I need not go into details respecting his training, experience and qualifications in that Reserve, it is sufficient to say that he became a commissioned officer in the Royal Canadian Navy in 1948, that in 1966 he was Executive Officer of H.M.C.S. Tecumseh and is now its Commanding Officer, and that in his 1966 taxation year he was a fully qualified commissioned officer in the RCNR on duty at H.M.C.S. Tecumseh.

There is no doubt that the Wardroom Mess of H.M.C.S. Tecumseh and its Wardroom Mess Rules (Exhibit R-l) were duly established under authority which flowed from the National Defence Act, the Queen’s Regulations and Orders (Q.R. & O., Exhibit R-3) and Canadian Forces Administrative Order (CFAO) 27-1 (Exhibit R-4).

CFAO 27-1 provides, inter alia, that officers (designated therein by rank) shall mess in the wardroom (paragraph 6), that all officers appointed to a ship or fleet establishment shall join the mess in which they belong and take their meals there (paragraph 13), and that a monthly mess subscription may be charged to all members to defray operational costs (paragraph 21). Other provisions govern mess administration, control of mess funds, sale of liquor, operation of wet and dry canteens, settlement of accounts, ete.

The Wardroom Mess Rules of H.M.C.S. Tecumseh in effect in the respondent’s 1966 taxation year, provide, inter alia, that all RCN and RCNR active list officers ‘‘borne’’ in H.M.C.S. Tecumseh shall be members of the Mess (Art. 11(a)) and that all members shall pay wardroom dues on the basis of one day’s pay per quarter.

Article 27.38 of Q.R. & O. provides that when a mess account owed by an officer is overdue, the commanding officer may order that the officer concerned is subject to an administrative deduction in an amount sufficient to pay the account.

The respondent holds his officer’s commission during the pleasure of Her Majesty. Section 21(1) of the National Defence Act reads as follows:

21. (1) Commissions of officers in the Royal Canadian Navy, the Canadian Army and the Royal Canadian Air Force shall be granted by Her Majesty during pleasure.

Evidence was given by the respondent and LCDR Gwillim, RCNR, who has served, like the respondent, as Executive Officer of H.M.C.S. Tecumseh. They said they had never known or heard of a refusal by an officer to pay wardroom dues, and they thought that if an officer refused to pay his dues the procedure would be for the Executive Officer to first discuss the matter with the officer and, if refusal persisted, it would be regarded as a breach of discipline and the matter would be referred to the Commanding Officer who would have several courses open to him, such as asking the officer to resign, declaring him persona non grata and refusing permission for him to be on the ship, making an administrative deduction of the dues from his pay, charging him with conduct to the prejudice of good order and discipline under Section 118 of the National Defence Act, and forwarding to Headquarters at Ottawa a recommendation for his release from the service.

They also regarded the wardroom mess as an integral part of the ship or unit in the tradition of the naval service, a place where the officers meet socially, eat their meals, hold mess functions, have entertainments, discuss matters of interest in their line of duty and service, a place that encourages and promotes a camaraderie essential to the service. Necessary funds for the mess are raised in various ways. The mess dues are used along with other money, including profits, if any, from the bar, in the operation of the mess, which includes such things as buying furniture, making grants to Sea Cadet Corps, providing wreaths at commemorative services, and making presentations to officers on their departure from the ship.

The officers who gave evidence were of the opinion that a persistent refusal of a naval officer to pay his wardroom dues could, and probably would, lead to his discharge from the service and loss of his commission. Whether it would or would not have that result in an individual case, I am satisfied that payment by officers of their wardroom dues is a necessity in normal circumstances and, as for the respondent, it was necessary for him to pay his wardroom dues at H.M.C.S. Tecumseh.

The meaning of the word ‘‘profession’’ is now much wider than it formerly was. It has been the subject of judicial exposition and scholarly research.* [1]

‘‘Professional’’ has the following meanings in the Shorter Oxford English Dictionary, Third Edition :

Professional

1. Pertaining to, proper to, or connected with a or one’s profession or calling.

2. Engaged in one of the learned or skilled professions 1793.

8. That follows an occupation as his (or her) profession, lifework, or means of livelihood; spec. applied to one who follows, by way of profession, what is generally followed as a pastime, as a p. cricketer, etc. Disparagingly applied to one who “makes a trade” of politics, etc. 1805. b. of play, sports, etc.: Engaged in for money; engaged in by professionals (as dist. from amateurs) 1884.

4. That is skilled in the theoretic or scientific parts of a trade; that raises his trade to the dignity of a learned profession 1860.

Thorson, P. said, in Frank C. Bower v. M.N.R., [1949] Ex.C.R. 61 at 69; [1949] C.T.C. 77 at 84:

The observations or du Parcq, L.J. [in Carr v. Inland Revenue Commissioners, [1944] 2 All E.R. 163] on the subject are also very useful. His view was that it was dangerous to try to define the word “profession” but subject to that he said, at page 166:

“I think that everybody would agree that, before one can say that a man is carrying on a profession, one must see that he has some special skill or ability, or some special qualifications derived from training or experience. Even there one has to be very careful, because there are many people whose work demands great skill and ability and long experience and many qualifications who would not be said by anybody to be carrying on a profession.

Ultimately one has to answer this question: Would the ordinary man, the ordinary reasonable man—the man, if you like to refer to an old friend, on the Clapham omnibus—say now, in the time in which we live, of any particular occupation, that it is properly described as a profession? I do not believe one can escape from that very practical way of putting the question; in other words, I think it would be in a proper case a question for a jury, and I think in a case like this it is eminently one for the Commissioners. Times have changed. There are professions today which nobody would have considered to be professions in times past. Our forefathers restricted the professions to a very small number; the work of the surgeon used to be carried on by the barber, whom nobody would have considered a professional man. The profession of the chartered accountant has grown up in comparatively recent times, and other trades, or vocations, I care not what word you use in relation to them, may in future years acquire the status of professions. It must be the intention of the legislature, when it refers to a profession, to indicate what the ordinary intelligent subject, taking down the volume of the statutes and reading the section, will think that ‘profession’ means. I do not think that the lawyer as such can help him very much.”

I am satisfied that in Section 11(10) (a) the word “professional” is not used in its widest sense, nor yet in its former restricted sense of the learned professions of the Church, Medicine and Law. Its meaning lies somewhere between those extremes.

The subsection was enacted in a framework of circumstances so as to deal, income tax-wise, with a known state of affairs, and we must try to reach the common sense meaning of the subsection, taken as a whole, in the light of the circumstances with reference to which it was enacted and the object, appearing from those circumstances and the words used, which Parliament had in mind and intended. Parliament had in mind, I feel sure, the present day concept of organized societies and associations of doctors, dentists, lawyers, engineers, chartered accountants and other professional persons, which have been given a special status by statute and have the power to make regulations gov- erning the issue of certificates and licences to practise the profession, examinations of candidates for membership and the right to practise, discipline of members, and a variety of other matters, including the regulation of the practice and the professional conduct of its members.

Counsel for the appellant submitted that a lawyer, for example, who is carrying on a general practice, does not need Section 11(10) (a) in order to deduct his Barristers Society’s dues, for such dues may be deducted as a business expense of carrying on his practice; but that the lawyer who is employed. and receives a salary under a contract of employment requires Section 11(10) (a) in order to deduct such dues, which are dues that each of the lawyers must pay in order to maintain his membership in the Society and the right to practise which goes with such membership.

I am satisfied that as an officer in the RCNR the respondent is a person with a ‘‘profession’’, that the status of an officer in the RCNR is a professional status recognized by statute, i.e. the National Defence Act, that the wardroom mess of H.M.C.S. Tecumseh is composed of RCNR officers, and that it was necessary for the respondent to pay his wardroom dues.

But it does not follow that those wardroom dues fall within Section 11(10)(a). It is my opinion that the necessity that Parliament was contemplating in that subsection is directly related to the essential purpose to be served by the payment of the professional membership dues. Inherent in the subsection is a direct relationship between membership in a professional society and professional status. The status recognized by statute is a professional status that is dependent upon membership in the professional society. No membership, no status. Such dues are no doubt used for the needs of the society, but the primary purpose of their payment is retention of membership, with its rights and privileges. It is clear to me that wardroom dues are paid for a very different purpose, namely, to defray operational costs of the mess, which is a room or suite where the members meet, eat, converse, entertain, etc. A wardroom mess can be established by a very few officers, even three or four. I understood LCDR Gwillim to say that he had served in 50 messes. The purpose of the payment of wardroom dues is not, in my opinion, to maintain a professional status. The status of a navy officer does not call for membership in a mess, unlike the practice of medicine, for example, which calls for membership in a medical society established by statute.

Officers receive their commissions from the Crown. No dues are paid to obtain or maintain their commissions and officer status. My attention was not drawn to any specific recognition of a wardroom mess in a statute, and I scarcely think that the status of membership in a wardroom mess is a professional status recognized by statute.

The consequence of failure on the part of an officer to pay his wardroom dues conceivably might be loss of his status as an officer, and in that negative and limited sense it may be said that payment is necessary to maintain his status, but, in my opinion, that possibility is remote from what Parliament was contemplating and endeavouring to provide in the Income Tax Act when enacting Section 11(10)(a). If it were intended to include dues payable for operation of messes in the armed forces, it would have been easy to have said so expressly.

In my opinion, therefore, the wardroom dues in question are not deductible under Section 11(10) (a).

Counsel for the appellant argued that annual . . . dues’’ are restricted to payments that are payable only once a year. I am allowing the appeal on other grounds above mentioned, but on this particular point it is my view that those words include payments that have the ‘‘quality of being recurrent’’, even although paid monthly or quarterly, as was held by Thorson, P. in respect of the words ‘‘annual payment’’ in another section in Western Leaseholds Ltd. v. M.N.R., [1961] C.T.C. 477 at 496.

The appellant is not asking for costs.

The appeal is allowed, without costs, the judgment of the Tax Appeal Board is set aside, and the assessment made by the appellant is restored.