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Citation: 2005TCC290
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Date: 20050425
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Docket: 2004-2012(IT)I
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BETWEEN:
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ALAN PURVES,
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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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REASONS FOR JUDGMENT
BowieJ.
[1] This appeal was heard at Windsor,
Ontario under the Court's informal procedure. It raises a
question as to the precise meaning of certain words in subsection
122.3(1) of the Income Tax Act (the Act).
Facts
[2] Mr. Purves, although he does not
have a university degree in engineering, does have equivalent
qualifications and is therefore able to work as an engineer in
the automotive industry. Some years ago, while working for the
Ford Motor Company, he met Mr. Gary Claxton, who is the general
manager of Comtech International Design Group Inc. (Comtech).
Comtech is a Canadian resident firm that carries on the business
of supplying engineering services of various kinds. Mr. Purves
applied for a job with Comtech, and he was hired. He has worked
for Comtech ever since. Specifically, it is his employment by
Comtech throughout the year 2002 that gives rise to this
appeal.
[3] In January 2002, Comtech entered
into a contract with Kelly Services Inc. (Kelly). Kelly is a
United States resident corporation, and has its principal place
of business in Troy, Michigan. I reproduce here the preamble to
that contract, as well as the terms of it that are most
significant for purposes of this appeal. Comtech is referred to
in the contract as a "tiered supplier", and its type of business
as "Provider of Technical Employees".
This Tiered Supplier agreement (the "Agreement") as dated
above is between Kelly Services, Inc. ("Kelly"), a Delaware
corporation, with its principal place of business located at 999
West Big Beaver Road, Troy, Michigan 48084 and the vendor named
above. this Agreement concerns referrals Kelly may make to Tiered
Supplier for contract labour requirements Kelly received from
General Motors under the Agreement between the customer and Kelly
(date above).
Through this Agreement Kelly and the Tiered Supplier establish
a relationship to supply contract labour personnel to the
customer. Therefore, in consideration of the mutual covenants and
agreements between Kelly and the Tiered Supplier, it is agreed
that:
1. SCOPE OF
WORK AND PRICING. Tiered Supplier will assign its employees
to the customer as requested by Kelly to perform work under the
pricing and pricing terms and conditions set forth in Exhibit A
which is attached and made part of this Agreement. This Agreement
in no way obligates Kelly to refer customer requirements for
contract labour to Tiered Supplier.
...
3.
TIERED SUPPLIER OBLIGATIONS. In addition to assigning
employees to perform the contract labour work contemplated by
this Agreement, Tiered Supplier will recruit, interview, select
and hire applicants best qualified to perform such work. Tiered
Supplier will: (a) maintain all necessary personnel and payroll
records for their employees assigned to Customer locations; (b)
upon request, provide historical files in electronic format of
contract labour assigned to Customer; (c) calculate their wages
and withhold applicable Federal, State and local taxes and
Federal Social Security payments; (d) pay net wages and fringe
benefits, if any, directly to their employees; (e) provide for
liability, fidelity and workers' compensation insurance coverage
in the amounts as hereinafter set forth; and (f) at the request
of Kelly for any valid legal reason, remove any of their
employees assigned to Customer; provided, that this arrangement
shall in no way affect the right of Tiered Supplier, in their
sole discretion as employer, to hire, assign, reassign and/or
terminate their own employees.
Tiered Supplier guarantees that the employees assigned to
Customer under this Agreement shall satisfactorily perform the
work to which they are assigned. If such work is not performed
satisfactorily, Tiered Supplier will upon reasonable notice from
Kelly, cancel all charges for unsatisfactory work. GM purchase
order terms and conditions state that individuals found
unsatisfactory to Buyer (GM) within the first five (5) working
days will be removed at no charge to Buyer for the time the
individual spent on the job.
...
6. PAYMENT
FOR SERVICES. In consideration of Tiered Supplier's
performance hereunder, Kelly agreed to pay Tiered Supplier in
accordance with the pricing guidelines set forth in Exhibit A.
Tiered Supplier will be paid on a monthly basis, 30days after the
last week ending date of the previous month.
Tiered Supplier has 60 days from receipt of payment to bring
to the attention of Kelly any errors or omissions relating to the
payment. Kelly has 60 days from notice from Customer to bring to
the attention of Tiered Supplier any errors or omissions relating
to billing customer for Tiered Supplier contract labour
personnel.
Losses occurring as the result of fraud which are brought to
the attention of Kelly or Tiered Supplier will be resolved upon
discovery, without a time limitation. Resolutions to make Kelly
or Customer whole will be agreed to by all parties involved at
the time of discovery.
In the event of termination of this Agreement, Kelly shall be
obligated to pay Tiered Supplier for satisfactory services
performed up to the time of termination.
Kelly, in turn, had entered into an agreement with General
Motors Corporation (GMC) whereby it supplied personnel, including
those qualified to work as engineers in the automotive industry,
to GMC. The contract between Kelly and GMC was not put into
evidence, but it was not disputed that it was under this contract
that Mr. Purves worked for GMC.
[4] The evidence as to the assignment
of the duties Mr. Purves was required to perform and the
oversight of his performance was sparse, but it is common ground
that he performed those duties in the United States, and it seems
that he was assigned to do work, or "projects", by supervisory
staff at GMC for whom the work was done, and that day-to-day
supervision of his work lay with GMC staff. Mr. Claxton did say
that he visited the worksite "to see how things were going", but
I took this to mean that he had an occasional discussion with GMC
supervisory staff as to their level of satisfaction, and not that
he personally inspected the work product to satisfy himself as to
its quality.
[5] Mr. Purves was employed by
Comtech, and it supplied his services to GMC in satisfaction of
its obligation to Kelly and Kelly's obligation to GMC. GMC had
engineering work for Mr. Purves to do in connection with its
design and manufacturing operations, and it assigned that work to
Mr. Purves, it exercised control over him in the performance
of it, and it used the work product for its purposes. Comtech had
no contract with GMC or anyone else whereby it was responsible
for delivering a work product, as opposed to the labour of
Mr. Purves. Mr. Purves had no contract with either GMC or
Kelly. Comtech was his employer. It paid him, it had the right to
fire him, and it was reimbursed for his salary by Kelly, which in
turn was reimbursed by GMC.
[6] The credit that Mr. Purves claimed
when he filed his income tax returns for 2000 is commonly called
the overseas employment tax credit. This is, of course, a
misnomer as there is no requirement to work "overseas" in order
to qualify; only to work outside Canada. I was told by counsel at
the beginning of the hearing of this appeal that thousands of
people commute daily from Ontario to Michigan to work. Certainly
the Act does not require that a person live overseas
during the period of the work in order to qualify, and counsel
for the Respondent did not suggest that it does.
[7] Subsection 122.3 of the Act
reads:
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122.3(1) Where an individual is resident in Canada in a
taxation year and, throughout any period of more than 6
consecutive months that commenced before the end of the
year and included any part of the year (in this subsection
referred to as the "qualifying period")
(a) was
employed by a person who was a specified employer, other
than for the performance of services under a prescribed
international development assistance program of the
Government of Canada, and
(b) performed
all or substantially all the duties of the individual's
employment outside Canada
(i) in connection with a contract under which the
specified employer carried on business outside Canada with
respect to
(A) the exploration for or
exploitation of petroleum, natural gas, minerals or other
similar resources,
(B) any construction,
installation, agricultural or engineering activity, or
(C) any prescribed
activity, or
(ii) for the purpose of obtaining, on
behalf of the specified employer, a contract to undertake
any of the activities referred to in clause (i)(A), (B) or
(C),
there may be deducted, from the amount that would, but
for this section, be the individual's tax payable under
this Part for the year, an amount equal to ...
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122.3. (1) Lorsqu'un particulier réside au
Canada au cours d'une année d'imposition et
que, tout au long d'une période de plus de 6
mois consécutifs ayant commencé avant la fin
de l'année et comprenant une fraction de
l'année (appelée la
« période admissible » au
présent paragraphe) :
a) d'une part, il a été
employé par une personne qui était un
employeur déterminé, dans un but autre que
celui de fournir des services en vertu d'un programme,
visé par règlement, d'aide au
développement international du gouvernement du
Canada;
b) d'autre part, il a exercé la
totalité, ou presque, des fonctions de son emploi
à l'étranger :
(i) dans le cadre d'un contrat en vertu duquel
l'employeur déterminé exploitait une
entreprise à l'étranger se rapportant
à, selon le cas :
(A) l'exploration pour la découverte ou
l'exploitation de pétrole, de gaz naturel, de
minéraux ou d'autres ressources semblables,
(B) un projet de construction ou d'installation, ou
un projet agricole ou d'ingénierie,
(C) toute activité visée par
règlement,
(ii) dans le but d'obtenir, pour le compte de
l'employeur déterminé, un contrat pour la
réalisation des activités visées
à la division (i)(A), (B) ou (C),
peut être déduite du montant qui serait,
sans le présent article, l'impôt à
payer par le contribuable pour l'année en vertu
de la présente partie une somme égale
à ...
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[8] At the outset the parties agreed
that Comtech employed Mr. Purves, that Comtech is a specified
employer as the expression is defined in
subsection 122.3(2), that Mr. Purves performed all or
substantially all of the duties of his employment outside Canada
during 2002, and that he was engaged in that employment for the
entire year 2002. As a result, the dispute is narrowed to this:
did Mr. Purves perform those duties in connection with a contract
under which Comtech carried on business outside Canada with
respect to any engineering activity?
[9] Counsel for the Appellant argues
that since Mr. Purves is a person who does engineering work, and
since it is his services that the Appellant is providing under
its contract with Kelly, then it must follow that his duties were
performed in connection with a contract under which Comtech
carried on business with respect to engineering activity. An
engineer, he says, necessarily performs engineering services, so
if you provide an engineer then you are providing engineering
services.
[10] Counsel for the Respondent argues that
while Comtech may provide engineering services in other contexts
to other customers, what it provides under its contract with
Kelly is not engineering services, and it is therefore not
carrying on business with respect to engineering activity. What
GMC requires is the services of an engineer; Kelly is in the
personnel business, and it provides personnel services to GMC.
Comtech provides to Kelly exactly what Kelly provides to GMC. The
business that Comtech is carrying on under its contract with
Kelly is therefore not engineering, but the supply of personnel.
Support for this view is found in the decision of this Court in
Fonta v. The Queen,[1] but the opposite result was
recently reached in Claveri v. Canada.[2] Both of
these cases were decided on facts very similar to the present
case. Counsel for the Appellant relied on the decision of the
Federal Court of Appeal in Timmins v. Canada,[3] but I do not find that
it is helpful. Timmins dealt with the meaning of the word
"business", a matter that is not in issue here.
[11] When subsection 122.3(1) is
reduced to the elements that are in dispute in this case, without
the unnecessary verbiage, it requires the Appellant to show that
he
... performed ... the duties of [his] employment
outside Canada in connection with a contract under which
[Comtech] carried on business outside Canada with respect to
... any ... engineering activity.
So far as it is relevant to this appeal, the business of
Comtech was supplying the Appellant's services to GMC through the
intermediary, Kelly; those services were supplied by Comtech
under its contract with Kelly, and they were supplied in Detroit
at the premises of GMC, where he performed his duties. The only
question that remains, then, is whether Comtech's business of
supplying engineers to Kelly's clients can be said to be "with
respect to any engineering activity". In my view this question
must be answered in the affirmative. In Nowegijick v. The
Queen[4]
Dickson J., as he then was, said:
The words "in respect of" are, in my opinion, words of the
widest possible scope. They import such meanings as "in relation
to", 'with reference to" or "in connection with". The phrase "in
respect of" is probably the widest of any expression intended to
convey some connection between two related subject matters.
[12] It is beyond dispute that the element
of its business that caused Comtech to assign the Appellant to do
work for GMC is a subject matter that is related to the work that
GMC needed to have done, which is certainly engineering
work − or "engineering activity", to use the
statutory language. It follows that the Appellant's employment
falls within section 122.3, and that he is entitled to the credit
that it confers.
[13] It may well be that Parliament did not
have fact situations like the present one in mind when it enacted
section 122.3. It does appear to be unfair that Mr. Purves,
who works in Detroit but sleeps at home in Windsor every night,
should be favoured with the tax credit while his neighbours who
work in Detroit but are employed directly by GMC, or those who
work for automobile manufacturers situated in Windsor, are not.
Counsel for the Respondent referred me to Interpretation Bulletin
IT-497R4, and to the Department of Finance Technical Notes issued
on the enactment of section 122.3. They do not seem to
contemplate arrangements such as the one in issue here. However,
the law is clear. If the provisions of the Act are not
ambiguous then I must apply them as they are written.[5] Whether the language
chosen by the drafter has left a loophole that was not intended
is a matter for Parliament to decide, and to remedy if it sees
fit.
[14] The appeal is allowed. The assessment
is referred back to the Minister for reconsideration and
reassessment on the basis that the Appellant is entitled to the
credit claimed under section 122.3. The Appellant is entitled to
his costs.
Signed at Ottawa, Canada, this 25th day of April, 2005.
Bowie J.
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