“Brief Note” Series

A Brief Note on Judicial Pragmatism and Public Policy

In the post-911 era, courts in Canada and in the U.S. have shied away from utilizing public policy in their jurisprudence. For example, the current chief justice of the U.S. Supreme Court contends that if “a case can be decided on narrow grounds, it should be.”^

In Canada’s Reference re Same-Sex Marriage,* the federal government posted four questions to the Supreme Court on the legality of same-sex marriage.

As it was a contentious social issue at the time, the Court decided to answer the questions on narrow and technical grounds: Yes, the Parliament has jurisdiction to legislate same-sex marriage, and yes, the proposed same-sex marriage is consistent with the Charter.

However, when asked whether the opposite-sex requirement for a civil marriage would be consistent with the Constitution, the Court declined to answer as it was inappropriate.

When the reference was released, the Court’s answer was considered “solid,” as the questions were answered on narrow grounds without reference to “public policy.” Accordingly, the answers could not be criticized much, at least from a law professor’s point.

Some observers, both proponents and opponents of same-sex marriage, were disappointed that the Court did not approach the answer as they would have liked. The Court was decidedly pragmatic.

In the era of judicial pragmatism, it’s quite refreshing to see new cases where the courts make their decisions in part on public policy grounds.

Public policies that the courts rely on in recent years are typically well-established, for example, freedom from restraints of trade as discussed in my previous blog “Ambiguous and Uncertain Non-Competition Clauses.” Other examples may include the courts’ refusal to enforce contracts requiring chastity, contracts relating to illegal acts, and contracts that are penal in nature. However, many of these have long been legislated.

^”Fairness for Firefighters” The Economist 329:8638 (July 4, 2009) 26

*[2004] 3 S.C.R. 698, 2004 SCC 79

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Till Tax Do Us Part: A Brief Note on Meal and Entertainment Expenses

Generally speaking, all expenses incurred for the purpose of generating income are deductible, subject to several limitations.

For example, if you spend $5 to buy flour to make cookies, and you sell the cookies to a local bakery for $10, you shouldn’t pay tax on the $10 you make. Rather, you are entitled to deduct the $5 you spent on the flour as the cost of goods sold from the proceeds of $10 and only pay tax on the difference.

Therefore, if you can prove that the money you spent is for the purpose of making money, (you gotta spend money to make money, right?) you usually can deduct the expenses from your revenue as the cost of doing business.

However, this rule is subject to several limitations. One of the most contentious limitations is meal and entertainment expenses.

For many small businesses that sell services rather than goods, client retention is important. Therefore, many business owners and executives are required to wine and dine their clients. While this sort of expense seems a legitimate deduction claim from taxable income, it has been subject to great abuse.

For example, rather than taking a client out for lunch, the business owner may decide to treat his or her spouse to a fancy meal then try to claim the cost as a business expense. Or, rather than staying at home for dinner, the business owner may decide to go out every day and deduct the expense from his or her taxable income.

Therefore, a special rule on meal and entertainment expenses was put in place: only 50% of the amount spent on meals and entertainment for the purpose of generating income is deductible.

While this rule may seem straight forward, it has been the constant subject of fierce litigation between the taxpayers and the CRA because it catches a wide range of expenses, from office coffee to lobster dinner. The 50% rule applies regardless of whether the taxpayer enjoys the benefit of the meal or entertainment. For example, a real estate agent who gives out baseball game tickets can only claim 50% of the ticket price as an expense.

Moreover, expenses not incurred for the purpose of generating income are not eligible. Hence, you go out to lunch by yourself, it’s not deductible. You should bring a client instead.

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