Jaddco Anderson Limited v. Her Majesty the Queen, [1981] CTC 11, 81 DTC 5002

J Jerome, ACJ:—In this case the facts are agreed and there is no dispute.

The plaintiffs and their position was traced in the agreed statement as to facts which was filed, and they are re-described as a result of the order that was sought at the beginning of the trial and was granted.

The plaintiffs, it was agreed, are not now the legal owners of the fishing property, the lodge in question, or camp, and the expense which is the subject of this case was incurred by them in the nature of a customer of the commercial operation of the lodge.

It is agreed that the $8,000 was expended by them in that capacity in the entertainment of clients of the plaintiffs’ business, which is separate and distinct from the operation of the lodge itself. There were therefore in the position of corporate customers of an entertainment establishment or a hospitality establishment, attempting to entertain clients.

I am not concerned with the amount that is in the judgment as to whether or not the amount is appropriate to the size of the business; and I don’t have to be concerned about whether the persons entertained were, in fact, proper clients of the company within the meaning of the regulations that are submitted.

I only have to be concerned with whether or not this particular expense for entertainment of clients in running this business is prohibited by the narrow terminology of subparagraph 18(1 )(l)(i) of the regulations.

The language referred to is as follows:

In computing the income of a taxpayer from a business or a property, no deduction shall be made in respect of

1. an outlay or expense made or incurred by the taxpayer after 1971, (i) for the use or maintenance of property that is a yacht, a camp, a lodge, or a golf course or facility unless the taxpayer made or incurred that expense in the operation of the business as a revenue-producing operation.

It is contended by Her Majesty that this expense in this particular case is caught by the clear language of the first part of that subparagraph, and therefore the expense, although it is for the lease or hire of the property, is nonetheless for the use or the maintenance of a property that is admittedly caught by this section.

I add it for emphasis that there is equally no dispute that this particular property is the kind of property that is intended to be caught by this section, so that is not in dispute, either.

On the other hand, I ask myself that if it was the intention of Parliament to discriminate against one particular kind of entertainment of proper clients, then it should have done so; and I cannot accept the propostion that it was Parliament’s intention to permit, in some cases, entertainment of clients of a business in one kind of commercial establishment but not to permit it in another kind of commercial establishment, unless it clearly indicated its intention so to do, which it has not.

And I would find that if I were to give the rather broad interpretation that was sought by the defendant in this matter, I would be concluding that the legitimate entertainment of clients of the plaintiff’s business at a tourist kind of commercial establishment would be discriminated against by Parliament as opposed to, for example, the very same kind of entertainment for a different sort of event, a different sort of weekend at a different sort of competitive commercial establishment.

And unless Parliament provides me the language to determine that they intended such discrimination against the operators of one kind of business over another, I am not prepared to accept that proposition.

The second is that in the latter part of subparagraph (i) of paragraph 1, it is indicated that obviously the owner of the property, or the proprietor of a property that is in the business of running a fishing lodge can deduct expenses for maintenance of the property, and that is such a self-evident proposition in the operation of the taxation scheme, that, in my opinion, it does not need to be imported into a subparagraph of this particular exclusionary provision; and I conclude, therefore, that its presence ought not to be taken as an indication of a parallel to the first part of the sentence; which means indeed it was intended here not to catch the taxpayer who was trying to entertain his clients at a tourist lodge instead of another kind of hotel, but, rather, to catch the taxpayer who is incidentally—whether it be corporate or personal —incidentally the owner of the kind of property that is described in the sub-clause.

It intended, in other words, not to catch the person who entertains clients at a fishing lodge instead of a hotel, or who uses a yacht instead of transporting clients in some other way to some different kind of event.

Rather, it is intended to catch the taxpayer who is incidentally the owner of a kind of facility that is described in the sub-clause and attempts to write off some of his own expense in his maintenance or use of his own property, when, in fact, that property is not operated as a business, and is used incidentally, by the taxpayer, albeit in a legitimate fashion, to entertain his clients. That, to me, is a more reasonable interpretation of the intention of Parliament in this exclusionary provision.

Finally, I would have to conclude that if Parliament—it would have been simpler had Parliament made the parallel specifically that I have already made by inference; that is, to include in the words of the Section that it is, indeed, attempting to exclude deduction of this expense by the owner, and the insertion of that language in the clause would certainly clarify the position greatly. But equally, I must conclude that if it was Parliament’s intention, as it would have to be the submission of the Defendant, that taxpayers are entitled to entertain their clients within the usual limits at one kind of commercial establishment but not at fishing lodges, equally it would have been a simple task for Parliament to make that discriminatory exclusion against one kind of entertainment, and since they have not done so, I conclude that it was not their intention so to do, but only to catch the incidental owner who attempts to write off his own expense to own this type of facility, and to deduct from his income from another business part of that expense.

I therefore find that, for the reasons cited, that I will allow the appeal.

And I conclude that the determination of the Tax Review Board, as described at the bottom paragraph of page four of the judgment, which is as follows:

I conclude that subparagraph 18(1 )(l)(i) of the Income Tax Act does apply to the Opponent’s company’s expenditures of $8,000 in 1972 for the use of recreational facilities, and bars the Opponent from deducting said amount from the income for that year.

I come to the opposite conclusion, for the reasons that I cite; and I conclude that subparagraph 18(1 )(l)(i) of the Income Tax Act does not apply for the reasons which I have cited, and I therefore allow the appeal with costs.