Jay-Kay Publications Limited (Appellant)
v.
Minister of National Revenue (Respondent)
Court of Appeal, Jackett C.J., Thurlow J. and
Sweet D.J.—Toronto, October 30, 1972.
Income tax—Advertising in non-Canadian publication—
Whether expense deductible—Whether encouragement of
scholarship principal function of publication—Income Tax
Act (1972), section 19.
Appellant company, which was owned by two men with
long associations in the advertising business, published in
Canada under licence from an American publisher a Canadi-
an edition of an American publication "Medical Aspects of
Human Sexuality" which contained scholarly articles on
that subject and was distributed free to some 22,000 doc
tors. The licence agreement was conditional on the genera
tion of advertising revenue in the Canadian edition rising
from $56,000 in 1971 to $650,000 in 1975. Advertising was
the sole source of the publication's revenue in Canada.
Held, reversing Noël A.C.J., the principal function of the
publication was the encouragement, promotion or develop
ment of scholarship within the meaning of section 19(4).
The character of a publication must be judged objectively
on the basis of its contents and the persons among whom it
will circulate in order to determine the role it will play in the
reader's hands. That the publisher's motive for the publica
tion was advertising revenue is irrelevant.
APPEAL from Noël A.C.J., ante p. 1025.
D. G. H. Bowman for appellant.
J. A. Scollin, Q.C. and M. J. Bonner for
respondent.
JACKETT C.J. (orally)—Except in one respect,
we adopt and rely on the Reasons for Judgment
of the Associate Chief Justice.
We cannot, however, agree with his conclu
sion 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 ... scholar
ship ...".
In our view, from the point of view of section
19(4), the character of such a publication must,
ordinarily, be judged objectively, on an exami
nation 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 evi
dence to the contrary, follow that the function
of the publication is the "encouragement, pro
motion or development of ... scholarship ...".
Furthermore, if, to such a publication addressed
to such an audience, there be added a reason
able 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 charac
ter 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 quan
tity or subject matter or any other feature of it,
as to change the character of the publication as
established by the non-advertising material.
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 publi
cation as exemplified by the ten issues of it that
are before the Court.
* * *
THURLOW J. concurred.
* * *
SWEET D.J.—What is to be done here is
included in an agreement bearing date the 5th
day of January 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, S.C. 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:
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 newspa
per 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 subsection (5)(a)(ii) of section 19 of the
Act and accordingly it is to be considered "non-
Canadian" within the meaning of section 19(1).
Nevertheless section 19(1) would not be
applicable if, having regard to subsection (4)(b)
of section 19, the publication is a "publication
the principal function of which is the encour
agement, promotion or development of the fine
arts, letters, scholarship 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 finan
cial benefit.
Doubtless to Hospital Publications Incor-
porated,—a New York corporation, which
granted to the appellant the right and licence to
use the name "Medical Aspects of Human Sex
uality (Canadian Edition)''—advertising and
financial reward therefrom was an important
consideration. Furthermore it would be surpris
ing, I think, if the appellant did not also hope
for monetary gain.
It seems to me, having regard to the wording
of section 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, scholar
ship or religion, it comes within section 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 seek
ing. If emphasis be needed for this view it is
found in the fact that pervading the entire sec
tion 19, and even the very reason for its inclu
sion 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
subsection (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 encourage
ment, 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 subsec
tion (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 differ
ent 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.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.