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Citation: 2006TCC55
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Date: 20060523
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Docket: 2005-1671(IT)I
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BETWEEN:
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LAURA J. FOLEY,
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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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AMENDED REASONS FOR JUDGMENT
Little J.
A. FACTS:
[1] The
Appellant maintains that in the 2001 and 2002 taxation yeas she was both an
employee and also a freelance instructor and field archaeologist. The Appellant
claims that she is entitled to deduct various business expenses from the income
that she received as a freelance instructor.
[2] The
Respondent maintains that the Appellant was an employee in the 2001 and 2002
taxation years and that as an employee she was not allowed to deduct the losses
that she claimed.
[3] The
evidence before the Court established the following facts:
(a) during the 2001
and 2002 years the Appellant was employed as a school principal by St. Paul's Roman
Catholic Separate School Division #20;
(b) during the 2001
and 2002 years the Appellant was a lecturer at St. Thomas More College and the University of Saskatchewan. During the summers of 2001 and 2002 the
Appellant was a field archaeologist and she organized and supervised trips to
the Middle East with students from the University of Saskatchewan. (Note: St. Thomas More College is an affiliated college of the University of Saskatchewan);
(c) during the 2001 year the
Appellant received income totalling $92,282.00 from the following sources:
St. Thomas More College $
7,712.40
University of Saskatchewan $
8,300.15
St. Paul's Roman Catholic Separate School Division #20 $76,269.55
Total $92,282.10
(d) during the 2002 year the
Appellant received income totalling $82,251.00 from the following sources:
St. Thomas More College $
4,011.00
St. Paul's Roman Catholic Separate School Division #20 $78,240.00
Total $82,251.00
(e) The Appellant was paid a salary
by St. Paul's Roman Catholic Separate School;
(f) St. Paul, St. Thomas More College and the University of Saskatchewan each provided classroom space,
office space and a telephone for the Appellant to perform her duties at no cost
to the Appellant;
(g) in filing her income tax return
for the 2001 and 2002 taxation years the Appellant claimed employment expenses
relating to her employment with St. Paul's Roman Catholic Separate School of $1,227.55 and $1,658.75 respectively;
(h) the Appellant was allowed to
deduct employment expenses relating to her employment with St. Paul's Roman Catholic Separate School of $1,227.55 in 2001 and $1,658.75 in 2002;
(i) in filing her income tax returns
for the 2001 and 2002 years the Appellant also claimed business expenses
totalling $7,938.32 and $8,400.97 respectively;
(j) the Minister of National
Revenue (the "Minister") disallowed the expenses referred to in (i)
above.
B. ISSUES TO BE DECIDED
[4] The issues to be decided are:
1. Was the Appellant an independent
contractor when she delivered lectures at St. Thomas More College and the University of Saskatchewan in 2001 and 2002 and when she acted as a field archaeologist
in the Middle East?
2. If the Appellant was an
independent contractor in 2001 and 2002, was she entitled to deduct the
expenses that she claimed?
C. ANALYSIS AND DECISION
[5] The Appellant testified that her income from
the freelance instructing activity consisted of preparing and presenting
lectures at St. Thomas More College or the University of Saskatchewan in
the evening, carrying on archaeological research in Saskatchewan plus arranging
and assisting archaeological field trips to the Middle East with a number of
students from the University of Saskatchewan in the summer time.
[6] The Appellant also said that her instructing and
field trips continued in 2003, 2004 and 2005. The Appellant said that she
received the following payments from St. Thomas More College or the University
of Saskatchewan for the "freelance instructing":
2003 $10,000.00
2004 $12,000.00
- $15,000.00
[7] The Appellant also testified that she believes
that her income from freelance instructing in future years will exceed her
expenses.
[8] In a situation of this nature I must determine
whether the Appellant was an employee of St. Thomas More College or the University of Saskatchewan in 2001 or 2002 or whether the Appellant was an
independent contractor.
[9] In determining whether a person is an
independent contractor or an employee Canadian Courts have developed a number
of tests. The Courts have developed a test focusing on the total relationship
of the parties with the analysis centered around four elements:
1. Degree of control and
supervision;
2. Ownership of
tools;
3. Chance of profit
and risk of loss; and
4. Integration.
[10] These tests were propounded by the Federal Court
of Appeal in Wiebe Door Services Ltd. v. M.N.R. and accepted and expanded by
subsequent cases. The Supreme Court of Canada recently had a chance to revisit
the issue in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc. Speaking for the Court, Major J.
stated:
Although there is no universal test to determine
whether a person is an employee or an independent contractor, I agree with
MacGuigan J.A. that a persuasive approach to the issue is that taken by Cooke
J., in Market Investigations, supra. The central question is whether the
person who has been engaged to perform the services is performing them as a
person in business on his own account. In making this determination, the level
of control the employer has over the worker's activities will always be a
factor. However, other factors to consider include whether the worker provides
his or her own equipment, whether the worker hires his or her own helpers, the
degree of financial risk taken by the worker, the degree of responsibility for
investment and management held by the worker, and the worker's opportunity for
profit in the performance of his or her tasks.
[11] Accordingly, Major J. considered the central question to be determined
is "whether the person who has been engaged to perform the services is
performing them as a person in business on his own account or is performing
them in the capacity of an employee".
[12] The requirement to take a holistic approach in examining the four
tests has been emphasized by the Federal Court of Appeal on past occasions:
... we view the tests as being useful subordinates in
weighing all of the facts relating to the operations of the Applicant. That is
now the preferable and proper approach for the very good reason that in a given
case, and this may well be one of them, one or more of the tests can have
little or no applicability. To formulate a decision then, the overall evidence
must be considered taking into account those of the tests which may be
applicable and giving to all the evidence the weight which the circumstances
may dictate.
Similarly, Major
J. stated in Sagaz:
It bears repeating that the above factors constitute a
non-exhaustive list, and there is no set formula as to their application. The
relative weight of each will depend on the particular facts and circumstances
of the case.
[Emphasis added]
[13] As stated above, the Wiebe Door test can be divided into four
categories:
I. Control
[14] Mr. Justice MacGuigan said in Wiebe Door:
The traditional common-law criterion of the employment
relationship has been the control test, as set down by Baron Bramwell in R.
v. Walker (1858), 27 L.J.M.C. 207, 208:
It seems to me that the difference between
the relations of master and servant and of principal and agent is this: A
principal has the right to direct what the agent has to do; but a master has
not only that right, but also the right to say how it is to be done.
[15] The Appellant testified that she was responsible
for the content of her lectures and the supervision and direction of the "archaeological
digs". The Appellant said that she did not feel "controlled" by
St. Thomas More College nor by the University of Saskatchewan.
[16] The Appellant also noted that during the field
trips to the Middle East during the summer there is no supervision or control
by the University, i.e. she is totally on her own.
[17] The Appellant also said that she was allowed to
engage other people to deliver the lectures.
II. Ownership of Tools
[18] The parties agree that St. Thomas More College or the University of Saskatchewan provided the classroom space. The Appellant said
that she supplied her own computer, photographic materials and books. The
Appellant also brought her background experience, her extensive knowledge on
Archaeology and her ability to lecture.
[19] The Appellant said that she has purchased a
great many books on Archaeology. She said: "I have the best library in Near
East Archaeology in the Province
of Saskatchewan — better than the library at the
University."
III. Chance for Profit and Risk of Loss
[20] In an employee/employer relationship it is the employer who bears the
burden of profit or loss; the employee does not assume a financial risk as he
receives the same wage no matter what the employer's financial situation.
[21] In the present case, it is agreed that the Appellant was paid based on
the rate agreed upon. In Precision Gutters the following comment is
found:
... In my view, the ability to
negotiate the terms of a contract entails a chance of profit and risk of loss
in the same way that allowing an individual the right to accept or decline to
take a job entails a chance of profit and risk of loss.
The evidence was that the Appellant negotiated the rate for the Periods in
question. The Appellant said that she was required to apply for a contract with
the University at the beginning of each year. In other words the renewal of the
lecturing position was not necessarily continued each year.
[22] An important factor to be noted in this situation is the ability of
the Appellant to turn down offers made by the Appellant. In this situation the
Appellant testified that she turned down some jobs that were offered to her.
[23] It should also be noted that in Wolf, Desjardins J.A. expanded
the notion of risk to factors beyond financial risk:
In consideration for a higher pay,
the appellant, in the case at bar, took all the risks of the activities he was
engaging in. He was not provided health insurance benefits nor a pension plan
by Canadair. He had no job security, no union protection, no educational
courses he could attend, no hope for promotion. The profit and the risk factors
were his.
[24] It should also be noted that the Appellant did not have any benefits
from the University such as health care, sick leave, a pension plan or other
benefits normally received by employees.
IV. Integration
[25] This is a difficult
test to apply.
Nevertheless, in Canada v. Rouselle et al., Hugessen J. of the Federal
Court made the following comments on the Integration Test:
[25] The judge did not mention the factor of
"integration" as such. Clearly in light of the case law cited above,
it was not essential for him to speak of it. However, if he had considered it
it is apparent that, from the employees' standpoint, the latter were not in any
way integrated into the employer's business.
[26] Their comings and goings, their hours and
even their weeks of work were not in any way integrated into or coordinated
with the operations of the company paying them. Although their work was done
for the company's business, it was not an integral part of it but purely
incidental to it.
In other words, the question is:
The observations of Lord
Wright, of Denning L.J., and of the judges of the Supreme Court in the U.S.A. suggest that the fundamental test to be applied is
this: "Is the person who has engaged himself to perform these services
performing them as a person in business on his own account?"
[26] The Appellant said
that her classes are not absolutely essential for the work at the University to
continue. The Appellant testified: "I have to convince the University that
I should be hired."
In other words the classes in question that were
taught by the Appellant were not "integral" to the curriculum of the University.
V. Contractual Intent
[27] This is another test
that the Courts have applied in determining whether a person is an employee.
[28] In each year St. Thomas More College issued a letter to the
Appellant. In a letter from St. Thomas More to the Appellant dated April 27,
2001 the following comment is found:
I am writing to offer
you an appointment as a seasonal lecturer for the academic year 2001-02.
[29] In Wolf, Noël J.A. made the
following remarks concerning the role that contractual intent plays in the
classification of an employee:
... I acknowledge that the
manner in which parties choose to describe their relationship is not usually
determinative particularly where the applicable legal tests point in the other
direction. But in a close case such as the present one, where the relevant
factors point in both directions with equal force, the parties' contractual
intent, and in particular their mutual understanding of the relationship cannot
be disregarded.
[30] I have concluded that in the 2001 and 2002
taxation years the Appellant was an independent contractor and not an employee
of either St. Thomas More College or the University of Saskatchewan.
[31] I must next determine whether the Appellant may
deduct the expenses that she claimed.
[32] I have concluded that the following expenses are
deductible by the Appellant:
2001 2002
Subscription Expenses $570.00 $660.00
Meals and Entertainment $588.50 $247.50
Office Expenses $805.00 $768.00
Office Cleaning Expenses $165.36
Supplies $928.78
Supplies $1,606.00
Accounting Fees $450.00
Telephone Expenses $300.00 $65.00
Capital Cost Allowance $1,055.82 $1,612.32
[33] I have concluded that the following expenses are
not deductible by the Appellant:
2001 2002
Trip to Seattle $967.43
Trip to Toronto $2,675.72
Trip to Amsterdam $725.82
Other Travel Expenses $533.18 $1,023.00
Other Expenses $382.00
Class 8 Additions $928.00
Class 10 Additions $331.00
[34] I have determined that these expenses are not
deductible because I am not satisfied from the evidence that was presented that
these expenses were essential to enable the Appellant to carry on her freelance
business activity.
[35] The appeals are allowed, without costs, and the
Minister is to make the adjustments as outlined above.
Signed at Ottawa,
Canada, this 23rd day of May 2006.
Little
J.
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