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Citation: 2004TCC119
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Date: 20040319
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Docket: 2000-3009(IT)G
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BETWEEN:
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STEFAN SIMEK,
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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
Paris, J.
[1] Mr. Simek is appealing the
disallowance of his claim for what is commonly referred to as the
"Overseas Employment Tax Credit" ("OETC"),
found in subsection 122.3(1) of the Income Tax Act (the
"Act") for his 1995 taxation year.
[2] Mr. Simek is a professional
engineer. He is the president and a shareholder and employee of
831594 N.W.T. Ltd. which carried on business in Yellowknife under
the name Ferguson Simek Clark, Engineers and Architects
("FSC"). FSC specializes in building technology
and design for Arctic climates.
[3] Since the early 1980's FSC has
sought out engineering and construction work overseas. Starting
in 1990, it designed and constructed buildings in Yakutsk in
Siberia. Mr. Simek has been responsible for this facet of
FSC's operations because of his fluency in Russian.
[4] In 1994 FSC obtained a contract
worth $17.5 million U.S. to design and build an airport terminal
in Yakutsk. Construction took place in 1994 and 1995. In mid-1995
FSC was awarded another contract worth $12 million U.S. for the
design and construction of 504 housing units in Yakutsk, and
building began in the fall of that year. These projects employed
up to 60 Canadians and 200 Russians in 1995.
[5] As a result of these contracts,
Mr. Simek was required to work for extended periods outside
Canada. On this basis he claimed the Overseas Employment Tax
Credit. One of the conditions for eligibility for the tax
credit is that "... throughout any period of more than 6
consecutive months ... [the taxpayer] ... performed all or
substantially all the duties of (his) employment outside
Canada". The Minister of National Revenue denied the claim
because in his view Mr. Simek did not perform all or
substantially all of the duties of his employment outside of
Canada during 1995.
[6] The only issue before the Court is
whether Mr. Simek met this test. There is no dispute by the
Respondent that the Appellant has met the other conditions for
the tax credit.
[7] According to admissions made by
the Respondent, the duties carried out by Mr. Simek outside
Canada in connection with the Yakutsk airport terminal project
included negotiating the contract, purchasing materials from
Russian and Slovak suppliers, making design changes, assisting
the Yakutian government in obtaining funding for the project,
attending conferences and collecting payments. The Respondent
admitted as well that Mr. Simek's duties outside Canada
relating to the housing unit contract included preparing
drawings, setting up a Cypriot corporation, on-site supervision,
frequent meetings with the client and collection of payments. Mr.
Simek also carried out the negotiations for the contract.
[8] Mr. Simek was the only witness at
the hearing. His evidence showed that he traveled extensively in
connection with the two Yakutsk contracts in 1995, not only to
that city, but to places in Europe, Asia and North America as
well. He presented a summary of this travel that he had prepared
after reviewing a business diary that he kept, his passport and
certain travel receipts. This document along with his testimony
indicated that he worked 210 days outside Canada and worked 93
days in Canada in 1995.
[9] Although Mr. Simek was the
president of the company, he did not have any day-to-day
management responsibilities in Canada. Another employee, whom he
referred to as the "managing partner", handled these
duties. Mr. Simek testified that for the periods he was in
Canada in February and March 1995 he worked about three hours a
day "on the overseas project", although he initially
said it was hard to say how much time he had worked. He said that
he went into the office every day of the week during that time.
From April 27 to May 8 he was back in Yellowknife and according
to his evidence "didn't do much". He said he worked
three hours a day on those dates. For the period May 25 to June 6
he said he worked one day in Toronto and more than seven and a
half hours a day from May 28 to 30. During the time he was home
in July and August he said he worked twelve to fifteen hours a
week. He did not give a specific number of hours worked for the
other days he worked in Canada.
[10] When he was in Yakutsk he worked seven
days a week, generally for ten hours a day. From January 14
to 28 and from July 6 to 11 he said he worked between ten and
twelve hours a day there. The schedule prepared by Mr. Simek
appears to show that he was in Yakutsk for 97 days on seven
separate occasions in 1995. He also said that travel between
Yellowknife and Yakutsk could take between 48 and 64 hours
depending on flight connections.
[11] The only other evidence of actual hours
worked outside Canada related to a trip Mr. Simek made from
Hawaii, where he was vacationing with his family, to China for
some urgent business meetings. He spent six days there and worked
from ten to fourteen hours a day.
[12] There was no evidence of how many hours
Mr. Simek spent performing the duties of his employment on the
rest of the days he worked outside Canada.
[13] In cross-examination Mr. Simek was
shown copies of time sheets that he admitted he had filled in for
FSC showing hours he worked each week for almost all of 1995. The
sheets showed substantially more hours worked in Canada than he
said he had in his evidence-in-chief. The time sheets showed that
Mr. Simek worked about 40% of his total hours in 1995 inside
Canada. He explained that the time sheets were inaccurate, and
that he had overstated the hours worked in Canada and generally
understated the hours worked on days he was out of the country.
He said that he exaggerated his hours in Canada because his
employer required all employees to work 37 1/2 hours a week and
he wanted his timesheets to show he was complying with this
requirement for internal accounting purposes. However, since the
company was being paid a fixed price for its work on the two
Yakutsk contracts he knew that the time sheets were not being
used for billing purposes and he did not feel it was a problem to
inflate the hours he worked. Furthermore, since he was not paid
overtime he did not feel there was a point to recording all the
hours he worked while he was out of the country. He also added
that his "partners" in the company would not have been
concerned with the number of hours he was working on the Yakutsk
projects.
[14] The Appellant's counsel submitted
that the evidence of Mr. Simek clearly showed that he performed
substantially all of his duties of employment outside Canada in
1995. By his estimate Mr. Simek worked 200 to 210 days outside
Canada for an average of ten hours a day, and approximately 80
days in Canada at a rate of three hours a day. He calculated that
Mr. Simek therefore performed 89.75% of his duties outside of
Canada.
[15] He went on to argue that, in any event,
the determination of whether all or substantially all of the
duties of employment were performed outside Canada was not simply
a mathematical exercise of comparing the amount of time worked
inside and outside Canada but that there should also be a
subjective component to the test. He suggested that the
Court should consider the relative importance of the duties
performed in each location and not only the time taken to perform
them in deciding whether substantially all of the duties were
performed outside Canada. In other words, duties of greater
significance to an employer should be weighted more heavily in
the assessment of where substantially all the duties were
performed. Counsel referred to this as a "contextual
approach" involving a qualitative as well as quantitative
assessment of the duties performed. He submitted that the
duties performed in Canada in this case were less important than
those he performed abroad and therefore the time spent in Canada
should be discounted for the purpose of deciding whether Mr.
Simek met the "all or substantially all" test.
[16] I am not satisfied that the Appellant
has met the onus of showing that the Minister erred in
reassessing to disallow the OETC. Mr. Simek's evidence did
not provide me with any specific amounts of time worked for over
100 days outside Canada and on many days inside Canada as well.
Furthermore, I am not convinced that Mr. Simek's estimates of
the hours he worked are reliable. For the dates that he did give
hours worked in Canada, it was almost invariably three hours a
day or very close to it despite changes in what was taking place
on the construction site in Yakutsk. For example, in February
1995 the construction of the airport terminal was in full swing,
while by summer it appears to have been substantially completed.
The construction on the housing units started in October. By Mr.
Simek's own account he did not have a lot of work to do in
July and August in Canada because FSC was waiting for funding for
the housing unit project. However, his estimate of time worked in
the summer was roughly equivalent to what he said he worked in
February. I also note that Mr. Simek himself admitted it was
difficult to say how much time he worked when back in Canada in
February. I attribute this difficulty to the fact that he did not
keep any record of his hours worked, apart from his time sheets
which he now says are inaccurate.
[17] I have the same concerns about the days
worked by Mr. Simek outside Canada. The evidence is clear
with respect to days spent in Yakutsk, where it appears that he
had a relatively stable work routine, but I do not accept a
blanket figure of ten hours a day for the remaining days.
Mr. Simek's work duties varied enormously on those days,
as did the locations in which he performed them. Overall, I did
not find Mr. Simek's evidence relating to the number of hours
worked to be persuasive.
[18] I also find Mr. Simek's evidence
relating to the accuracy of his time sheets to be self-serving
and of little weight. I note that the time sheets contain
breakdowns of the work down by Mr. Simek for many days, and show
time being allocated to different tasks. I am left with the
impression that more care was taken in completing them than Mr.
Simek would have one believe. In addition, the time sheets
do not uniformly show only thirty-seven and a half hours of time
worked per week; overtime is shown in many instances, despite Mr.
Simek's position that it did not matter if he recorded it or
not. Finally, no witnesses from FSC were called to corroborate
his statements that others in the company would not have been
concerned about the accuracy of the time sheets or about the
hours of work he put in.
[19] Given the uncertainty concerning the
hours Mr. Simek worked inside and outside Canada, I am unable to
compare those two quantities as would be required in order to
make a finding on whether he performed all or substantially all
of his duties of employment outside the country.
[20] Furthermore, I am not persuaded that
factors other than time should be taken into account in this case
in considering whether all or substantially all of the duties of
employment were performed outside Canada. The phrase
"substantially all" is intended to convey "the
idea of some ascertainable proportion of the whole"
(Ruh v. The Queen, [1998] G.S.T.C. 4
(T.C.C.). In my view this means that I am required to measure the
work done by Mr. Simek inside and outside Canada in some fashion.
The relative importance of tasks carried out by Mr. Simek is not
a useful basis for comparison because "importance"
cannot be quantified with any certainty. On the other hand, the
amount of time spent working is an accepted measure of work and
provides an objective means of comparison.
[21] In conclusion, as the Appellant has not
shown on the balance of probabilities that the Minister erred in
assuming that Mr. Simek did not perform all or substantially all
of the duties of his employment outside Canada in 1995, he is not
entitled to the overseas employment tax credit for that year. The
appeal is therefore dismissed, with costs.
Signed at Ottawa, Canada, on this 19th day of March 2004
Paris, J.
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