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Docket: 2002-4712(IT)I |
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BETWEEN: |
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DOUGLAS MCGOLDRICK, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
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Appeal heard on June 18, 2003 at Toronto, Ontario
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By: The Honourable Justice J.M. Woods |
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Appearances: |
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For the Appellant: |
The Appellant himself |
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Counsel for the Respondent: |
Nimanthika Kaneira |
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JUDGMENT
The appeal in respect of assessments for the 2000 and 2001 taxation years is allowed and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the cost of entertainment events is not included in computing income and that the cost of free meals and hams and turkeys is included in computing income pursuant to paragraph 6(1)(a) of the Income Tax Act.
Signed at Ottawa, Canada this 5th day of September, 2003.
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"J.M. Woods" |
J.M. Woods J.
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Citation:2003TCC427 |
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Date: 20030905 |
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Docket: 2002-4712(IT)I |
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BETWEEN: |
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DOUGLAS MCGOLDRICK, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
REASONS FOR JUDGMENT
Woods J.
[1] Mr. Douglas McGoldrick appeals income tax assessments for the 2000 and 2001 taxation years in respect of meals and other "perks" provided free of charge by his employer.
[2] The appeal was heard under the Court's Informal Procedure.
Facts
[3] Many of the facts are not in dispute. Mr. McGoldrick is an employee of Casino Rama Services Inc. ("Casino Rama") located near Orillia, Ontario. Casino Rama is a large casino complex with over 2,000 full-time employees.
[4] The employer provided one meal per shift at no charge to employees such as Mr. McGoldrick and reported the cost as a taxable benefit on T4 slips. It also provided other "perks" such as entertainment events and free hams and turkeys on holidays and similarly reported the cost as a taxable benefit. The amount of the taxable benefit was calculated by dividing the total cost of providing the benefits by the number of employees entitled to take advantage of them. In Mr. McGoldrick's case, approximately $4.50 per day, or just under $1,000 per year, was reported in respect of all these benefits.
[5] Most of the testimony related to the provision of the free meal per shift. Employees had an opportunity to eat free of charge at the staff cafeteria, the Turtle Island Café, on their half hour break. They were generally not allowed to bring food onto the premises for sanitation reasons and Casino Rama's location made it impractical to eat offsite. Further, employees were not allowed to leave the premises during shifts without permission. Accordingly, employees had no alternative for meals, other than vending machines located in lounges. The testimony of the Vice President, Human Resources of Casino Rama was that the provision of meals was for the employer's benefit as it enhanced the attractiveness of the casino.
[6] Mr. McGoldrick did not like eating at the Turtle Island Café but because there was no alternative he ate there on most days. He also did not enjoy the entertainment events and only occasionally attended them. He did not comment on the quality of the turkeys and hams so I assume they were satisfactory.
Issue
[7] The issue is whether the provision of meals and other "perks" constitutes a taxable benefit for purposes of paragraph 6(1)(a) of the Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1 (the "Act"). The provision of meals is the main issue and much of the $4.50 per day taxable benefit related to it.
[8] The quantum of the benefit was not at issue and the parties did not make submissions on it. For the most part the calculation of the benefit appeared to be reasonable assuming that these items constituted taxable benefits.
Submissions of Parties
[9] Mr. McGoldrick submits that the provision of free meals is in essence a reimbursement for depriving him of his right to bring food to work. It was suggested that a reimbursement is not a taxable benefit based on cases such as The Queen v. Hoefele, 95 DTC 5602 (F.C.A.).
[10] The Crown suggests that Mr. McGoldrick saved money by being provided free meals and that meals, being an ordinary every day expense, is a taxable benefit. It was submitted that the fact that Mr. McGoldrick did not want the employer to provide meals is irrelevant as the courts have held that employee benefits unilaterally provided are still taxable.
[11] The Crown referred to the following cases: Blanchard v. The Queen, 95 DTC 5479 (F.C.A.); The Queen v. Hoefele; Dionne v. The Queen, 97 DTC 265 (T.C.C.); Tremblay v. The Queen, 2000 DTC 2414 (T.C.C.); Leduc v. R., [1996] 1 C.T.C. 2873 (T.C.C.); and Dunlap v. The Queen, 98 DTC 2053 (T.C.C.).
Analysis
[12] The relevant part of paragraph 6(1)(a) of the Act reads:
(1) There shall be included in computing the income of a taxpayer for a taxation year as income from an office or employment such of the following amounts as are applicable:
(a) Value of benefits - the value of board, lodging and other benefits of any kind whatever received or enjoyed by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment, ...
[13] As a preliminary matter, paragraph 6(1)(a) refers to a benefit "received" or "enjoyed." Based on Mr. McGoldrick's view of the Turtle Island Café, he perhaps did not "enjoy" a benefit from the use of this facility. Therefore the question is whether a benefit has been "received."
[14] The determination of whether an employee has received a benefit can be difficult. As Bowman J. (as he then was) stated in Pezzelato v. The Queen, 96 DTC 1285 (T.C.C.), at page 1288:
It is easy to point to extremes at either end of the spectrum, but the cases that come with increasing frequency before the courts are not at either end. They fall somewhere in between. The courts must decide on which side of the line each case falls.
[15] A useful starting point for determining whether something constitutes a taxable benefit for purposes of paragraph 6(1)(a) is the following passage cited by the Supreme Court of Canada in The Queen v. Savage, 83 DTC 5409 which is taken from the judgment of Evans J.A. in R. v. Poynton, 72 DTC 6329 (Ont. C.A.), at page 6335:
I do not believe the language to be restricted to benefits that are related to the office or employment in the sense that they represent a form of remuneration for services rendered. If it is a material acquisition which confers an economic benefit on the taxpayer and does not constitute an exemption, e.g., loan or gift, then it is within the all-embracing definition of s. 3.
[16] This is a very broad test which would encompass free meals provided to employees. Use of the staff cafeteria by Mr. McGoldrick results in a material acquisition that confers an economic benefit equal to the value of the meals received.
[17] Notwithstanding the breadth of this general statement, courts have tended to recognize that where something has been provided to an employee primarily for the benefit of the employer, it will not be a taxable benefit if any personal enjoyment is merely incidental to the business purpose: Lowe v. The Queen, 96 DTC 6226 (F.C.A.).
[18] This approach was taken, in essence, in a recent decision of the Quebec Court of Appeal that decided that a reimbursement of meals during overtime work was not a taxable benefit. The reasoning of the court was that a meal expense would not otherwise have been incurred and the small expense of producing a meal at home should be ignored: Deputy Minister of Revenue for Quebec v. Confederation des Caisses Populaires et d'economie Desjardins du Quebec, 2002 DTC 7404 (Que. C. A.). The reasons of Delisle J. state at paragraph 34:
(translation)
There is here, no taxable advantage that the employee has to include in the calculation of his income. The meal or transportation expenses reimbursed would not normally have been incurred. While it can be said that the food the employee would have consumed at home is still intact, such as his subway ticket, still the inconvenience of the expense outweighs that small saving.
[19] A similar approach was taken, but not in the context of meals, in the case of Chow v. The Queen, 2001 DTC 164 (T.C.C.). That case held that a free parking spot provided by an employer did not constitute a taxable benefit.
[20] The testimony of the Vice President, Human Resources of Casino Rama was that the required use of the Turtle Island Café was for the benefit of the employer. If the personal element is incidental, it should not constitute a taxable benefit. In my view the personal element is not incidental. The fact that Mr. McGoldrick did not like eating at the Turtle Island Café should not be determinative. Also, the amount of the expense saved is not immaterial compared with the amount of the taxable benefit and it should not be ignored.
[21] Mr. McGoldrick submits that the Federal Court of Appeal decision in Hoefele is applicable in that it held that a taxpayer is not enriched where he is being compensated or made whole. Mr. McGoldrick stated that he was being made whole for being deprived of his right to bring a meal to work.
[22] This line of reimbursement cases can be distinguished because they all concerned the reimbursement of out of pocket costs. They can also be distinguished because they did not involve a reimbursement of ordinary every day expenses. The judgment of Linden J. A. in Hoefele makes this distinction, at paragraph 11:
Therefore, the question to be decided in each of these instances is whether the taxpayer is restored or enriched. Though any number of terms may be used to express this effect--for example, reimbursement, restitution, indemnification, compensation, make whole, save the pocket--the underlying principle remains the same. If, on the whole of a transaction, an employee's economic position is not improved, that is, if the transaction is a zero-sum situation when viewed in its entirety, a receipt is not a benefit and, therefore, is not taxable under paragraph 6(1)(a). It does not make any difference whether the expense is incurred to cover costs of doing the job, of travel associated with work or of a move to a new work location, as long as the employer is not paying for the ordinary, every day expenses of the employee.
[23] I have come to a different conclusion with respect to the entertainment events. They were only occasionally attended by Mr. McGoldrick and in this case I do not believe that a benefit has been "received."
[24] No evidence was provided with respect to the hams and turkeys and accordingly I conclude that the cost in respect of these items is taxable.
Conclusion
[25] The appeal is allowed and the assessments are referred back to the Minister for reconsideration and reassessment on the basis that the cost of entertainment events is not included in computing income and that the cost of free meals and hams and turkeys is included in computing income pursuant to paragraph 6(1)(a) of the Act.
Signed at Ottawa, Canada this 5th day of September, 2003.
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"J. M. Woods" |
J.M. Woods J.
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CITATION: |
2003TCC427 |
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COURT FILE NO.: |
2002-4712(IT)I |
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STYLE OF CAUSE: |
Douglas McGoldrick v. Her Majesty the Queen |
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PLACE OF HEARING: |
Toronto, Ontario |
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DATE OF HEARING: |
June 18, 2003 |
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REASONS FOR JUDGMENT BY: |
The Honourable Justice J. M. Woods |
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DATE OF JUDGMENT: |
September 5, 2003 |
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APPEARANCES: |
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For the Appellant: |
The Appellant himself |
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Counsel for the Respondent: |
Nimanthika Kaneira |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
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Firm: |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |