Demers – Quebec Court of Appeal finds that failure to treat hockey players as employees based on flawed and non-independent legal advice was carelessness that opened up a statute-barred year

The individual taxpayer (Demers) was a director of the owner of the RadioX team, which was a minor professional hockey team. The corporation had been treating its players (and other staff) as employees rather than independent contractors for Quebec health tax purposes in accordance with the known views of the ARQ, but then commenced to treat them as independent contractors. The players did not register for GST/QST purposes or invoice for their services, and declined to sign a written contract (which did not reflect the realities of how the team continued to be operated), and the only substantive change made was that the team manager was incorporated.

After finding that the players continued to be employees, the Court of Quebec had next dealt with the due diligence defence of Demers under the equivalent of ITA s. 227.1(3) (the corporation having since been wound up without paying any of the source deductions), which was based on the proposition that he had been advised by his tax advisor, Ms. Rochette (who was also his wife and a co-director of the corporation) that the players were now independent contractors. In rejecting this defence, the Court of Quebec noted that the views of Ms Rochette were based on factually incorrect matters that could have been readily checked by her, including that the players could play for other teams, that they had their own tools and that the team did not reimburse them for their expenses, and also noted that Ms. Rochette had not consulted the jurisprudence. Bouchard JCA found no reversible error here.

However, the Court of Quebec had found that the assessment of the Corporation for its 2006 year had been statute-barred as having been made beyond the four-year prescription period, as the ARQ had not established carelessness of Demers or the Corporation. In reversing this finding, Bouchard JCA noted the principle in Regina Shoppers Mall that a “taxpayer does not make a misrepresentation where he or she thoughtfully, deliberately and carefully assesses the situation and files on what he or she believes bona fide to be the proper method” and found that, given that Demers was the guiding spirit of the Corporation, the findings of fact that “the change in the status of the players did not in any way materialize at the operational level and was strictly motivated by the Corporation’s desire to no longer pay deductions at source” also established carelessness or willful default of the Corporation, so that the year was not statute-barred.

Neal Armstrong. Summaries of Demers v. Agence du revenu du Québec, 2020 QCCA 681 under s. 227.1(3) and s. 152(4)(a)(i).