Mahoney,
J:—The
issue
is
whether
payments
made
by
the
plaintiff
to
an
independent
contractor
fall
within
the
definition
of
“cost
of
labour’’
under
section
5202
of
the
Income
Tax
Regulations.
The
plaintiff
included
the
payments
in
computing
the
amount
of
its
claim
of
a
manufacturing
or
processing
tax
credit
under
section
125.1
of
the
Income
Tax
Act
for
its
1973
taxation
year.
The
Minister
of
National
Revenue
disallowed
the
inclusion
of
those
payments
and
thereby
reduced
the
credit
from
$34,940
to
$5,497.
The
arithmetic
is
not
in
issue
and
it
is
not
disputed
that
if
the
amount
paid
the
contractor
is
properly
to
be
included
in
“cost
of
labour”,
the
credit
claimed
by
the
plaintiff
should
be
allowed.
The
plaintiff
is
engaged
in
the
manufacture
and
processing
of
special
pipes
and
fittings
for
the
refining
industry.
The
entire
operation
is
carried
out
in
the
plaintiff’s
plant
into
which
it
receives
semi-finished
fittings
and
flanges.
The
semi-finished
items
are
delivered
by
the
plaintiff
to
the
contractor
for
machining.
They
are
then
returned
to
the
plaintiff
for
finishing,
such
as
painting,
and
are
stocked
there
and
shipped
from
there
to
customers.
The
contractor
supplies
the
necessary
machines
and
tools,
employs
the
machinists
and
is
paid
at
agreed
piece
rates.
The
machinery
is
all
located
in
the
plaintiff’s
plant
and
the
contractor’s
employees
do
all
their
work
there.
To
any
observer,
the
entire
operation,
from
receiving
to
shipping,
would
appear
to
be
a
single,
integrated
process.
There
are
no
artificial
physical
barriers
between
the
areas
of
the
plant
occupied
by
the
plaintiff
and
the
contractor
nor
superfluous
segration
of
the
employees
of
one
from
those
of
the
other.
This
modus
operand!
was
adopted
when
the
plant
was
established
in
1960
and
continues
today.
Section
5202
defines
“cost
of
labour”
as:
...
an
amount
equal
to
the
aggregate
of
(a)
the
salaries
and
wages
paid
or
payable
during
the
year
to
all
employees
of
the
corporation
for
services
performed
during
the
year,
and
(b)
all
other
amounts
each
of
which
is
an
amount
paid
or
payable
during
the
year
for
the
performance
during
the
year,
by
any
person
other
than
an
employee
of
the
corporation,
of
functions
relating
to
(i)
the
management
or
administration
of
the
corporation,
(ii)
scientific
research
as
defined
in
section
2900,
or
(ii)
a
service
or
function
that
would
normally
be
performed
by
an
employee
of
t
he
corporation.
Certain
immaterial
exclusions
follow.
The
question
is
whether
the
payments
to
the
contractor
are
amounts
“paid
or
payable
for
.
.
.
a
service
that
would
normally
be
performed
by
an
employee
of
the
[plaintiff]’’.
The
argument
turned
on
the
construction
to
be
given
subparagraph
(b)(iii)
of
the
definition
and,
particularly,
the
meaning
of
the
word
“normally’’.
The
service
or
function
performed
by
the
contractor
is
clearly
a
necessary
service
or
function
in
the
course
of
the
plaintiff’s
manufacturing
and
processing
operation.
The
contracting
of
the
performance
of
that
service
or
function
to
an
independent
contractor
by
the
plaintiff
is,
on
the
evidence,
unique.
It
is
normal
for
a
corporation
carrying
on
such
an
operation
to
carry
it
on
in
its
entirety
and
the
service
or
function
performed
by
the
contractor
for
the
plaintiff
is
a
service
or
function
normally
performed
by
employees
of
such
corporation.
It
is
not,
however,
a
service
or
function
normaly
performed
by
the
plaintiff’s
employees.
The
plaintiff
normally
engages
the
contractor,
rather
then
its
own
employees,
to
perform
that
service
or
function.
Indeed,
its
own
employees
have
never,
before,
during
or
since
its
1973
taxation
year,
performed
that
service
or
function.
Nothing
in
the
related
provisions
of
the
Act
or
regulations
leads
me
to
conclude
that
the
pertinent
words
of
the
definition
of
the
“cost
of
labour”
are
to
be
interpreted
otherwise
than
in
their
plain
English
sense.
The
adverb
“normally”
appears
clearly
to
relate
to
the
modus
operandi
of
the
manufacturer
and
processor
claiming
inclusion
of
the
particular
outlay
in
its
costs
of
labour.
Put
briefly,
it
is
subjective
not
objective
normalcy
that
is
determinative
of
whether
the
amount
paid
or
payable
is
properly
a
“cost
of
labour”.
The
action
is
dismissed
with
costs.
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