We all know there's no such thing as a free lunch. Apparently, you can also
pay tax on it, according to a case that wound its way through the Tax Court of
Douglas McGoldrick is a floor supervisor at Casino Rama, north of Toronto
near Orillia, Ont. For sanitary reasons, employees are not permitted to bring
their own food on to casino premises. Owing to the casino's remote location, it
is impractical for employees to eat off-site during their half-hour meal breaks.
Consequently, the casino provides each employee with one free meal per shift in
the employee cafeteria, the Turtle Island Cafe. The only alternative is using
coin-operated vending machines.
On most days, Mr. McGoldrick ate at the cafeteria, but he testified that "he
did not enjoy the experience." He maintained that if he were permitted to bring
his own lunch, it would be equal to or better and cheaper than the meals
provided by the employer. Mr. McGoldrick claimed that the menu selection was
limited. According to his testimony, the cafeteria served stuffed green peppers
four days out of five during one week in February.
Despite this, each year Mr. McGoldrick was required to pay tax on about
$1,000 worth of these "free meals," reported to him as a taxable benefit on his
When he first told his story to the Tax Court of Canada in 2003, and
subsequently to the Federal Court of Appeal in 2004, the only issue before the
courts was whether or not the free meals provided to him in 2000 and 2001 were
Under the Tax Act, employees are taxed not only on their monetary
remuneration, such as salary and bonus, but also on any benefits they receive
during the year. Mr. McGoldrick argued that the value of the meals ought not to
be taxable since they were not provided as an employee benefit, but because of
business considerations, namely sanitation. He contended that the provision of
these free meals should not be a taxable benefit if any personal enjoyment is
merely "incidental" to the business purpose.
Unfortunately for Mr. McGoldrick, both courts concluded that the money he
saved by being provided with daily free meals was not immaterial, and therefore
the benefit should be taxable.
Mr. McGoldrick did not give up. As he continued to be assessed each year with
a taxable benefit equal to about $1,000 on his T4, he continued to object to
these assessments -- and again found himself before the court.
This time, he had a different approach. Rather than arguing that the free
meals were not a taxable benefit, he objected to the amount of the taxable
benefit. Because he ate in the Turtle Lounge only 50% of the time, he argued he
should not be paying taxes on the full amount.
The Canada Revenue Agency argued that it didn't matter whether Mr. McGoldrick
used the benefit or not. Since the total value of the meals was mathematically
correct, "it is irrelevant whether or not he used the Turtle Lounge 50% of the
time or 100% of the time, or anything in between. The free meals were available
throughout the working year." The judge disagreed and found that since Mr.
McGoldrick used the cafeteria only half the time, his taxable benefit should be
reduced by 50%.
What about other employees, who may also want to challenge their "free"
meals? The judge's answer was emphatic: "By no means is this conclusion intended
to apply to all. Any case is dependent on its particular facts."