Tedco Apparel Management Services Inc. v. Minister of National Revenue, [1991] 2 CTC 2669, 91 DTC 1413

Tremblay, T.C.J.: —These appeals were heard on common evidence at Montreal, Quebec, on May 31 and September 26, 1989.

1. Issue to be Decided

The question is whether, in computing tax for the 1984 and 1985 taxation years, the appellant is correct in using the preferential 12 A per cent rate because during those years it was not operating a personal services business. In the submission of the appellant, it was operating a non-qualifying business in 1984. In 1985, as a result of amendments to the Income Tax Act, R.S.C. 1952,

c. 148 (am. S.C. 1970-71-72, c. 63) (the 'Act"), it was operating an active business. This enabled it to pay tax for the two years at issue at 12 A per cent rather than 21 per cent.

The respondent argues that during the two years at issue the appellant was operating a personal services business, alleging that it rendered services to a single entity, namely Tangerine Inc. (hereinafter referred to as "Tangerine") of which the appellant is a shareholder. Further, Mr. Ted Cohen, the appellant's principal shareholder, was, in the respondent's submission, sales director and an employee of Tangerine, and can therefore "reasonably be regarded as an officer or employee" of Tangerine, thus making paragraph 125(7)(d) of the Act applicable. Consequently, the appellant may be regarded as "a personal services business”.

The appellant, on the other hand, argues inter alia that Mr. Cohen was neither an officer nor an employee of Tangerine.

2.01 The appellant has the burden of showing that the respondent's assessments are incorrect. This burden of proof results from several court decisions, including a judgment of the Supreme Court of Canada in Johnston v. M.N.R., [1948] S.C.R. 486; [1948] C.T.C. 195; 3 D.T.C. 1182.

2.02 In the same judgment, the Court held that the facts presumed by the respondent in support of assessments or reassessments are also assumed to be true until proven otherwise. The facts assumed were amended at the inquiry to include the two years at issue. In the instant case, the facts assumed by the respondent are described in paragraphs 8(a) to (I) of the respondent's reply to the notice of appeal. This paragraph reads as follows:

[Translation]

8. In assessing the appellant as he did for the 1984 and 1985 taxation years, the Minister of National Revenue relied, inter alia, on the following facts:

(a) the appellant's 1984 and 1985 fiscal period ended on April 30; [admitted]

(b) during the appellant's 1984 and 1985 taxation years, Mr. Ted Cohen was the appellant’s principal, if not only, shareholder; [admitted]

(c) during the said years, the appellant presumably provided services to a single

entity, namely the company Tangerine Inc.; [admitted] [Exhibit A-1]

(d) during the said period, the appellant was a shareholder in Tangerine Inc.; [admitted]

(e) during the 1984 and 1985 taxation years, it was Mr. Ted Cohen who personally provided Tangerine Inc. with the services that the appellant presumably agreed to provide; [denied as written: his wife also provided services in this connection (trans., page 31)]

(f) during the years at issue, Mr. Cohen acted as sales representative for Tangerine Inc.; [denied as written: it was Tedco for which Mr. Cohen was a sales representative]

(g) in 1984 and 1985, Mr. Cohen acted as an employee of Tangerine Inc., although the said company only retained the services of the appellant; [denied]

(h) in fact, the said company Tangerine Inc. provided Mr. Cohen directly with a car and reimbursed certain expenses incurred by him in connection with his work, such as travel and representation expenses; [denied as written: the said car was used by several persons; further, while some expenses were reimbursed, most were paid by Tedco (Exhibit A-1, page 7)]

(i) from May 1, 1983 to April 30, 1985, Mr. Cohen was subject to control by the company Tangerine Inc.; [denied]

(j) during the same period Mr. Cohen acted much more like an employee of Tangerine Inc. than an employee of the appellant; [denied]

(k) during the said period, the appellant only generated income from the services provided by Mr. Cohen to the company Tangerine Inc., [admitted] and was not involved in any other activity; [denied]

(l) during the period at issue, the appellant did not employ more than five (5) employees full-time throughout the year; [admitted]

3. Facts

3.01 Admissions

In addition to making the admissions concerning the facts assumed by the respondent in paragraph 8 of the aforementioned reply to the notice of appeal (2.02), at the outset of the inquiry (trans., vol. 1, pages 17-37), counsel for the appellant, referring to paragraph 125(7)(d) which is at the heart of the matter, admitted that for the two years at issue the appellant was a personal services business (125(7)(d)) and that Mr. Ted Cohen was an incorporated employee (125(7)(d)(i)) and the specified shareholder of Tedco Apparel Management Services Inc. (hereinafter referred to as "Tedco") (125(7)(d)(ii)).

Counsel for the appellant however do not admit that Mr. Ted Cohen could “reasonably be regarded as an officer or employee" of Tangerine “but for the existence" of Tedco (125(7)(d)(ii) in fine).

On the other hand, counsel for the appellant admits for the two years at issue that Tedco employed less than six persons full-time (125(7)(d)(iii)) and that Tedco and Tangerine are not associated (125(7)(d)(iv)).

3.02 Counsel for the appellant also told the Court that the appellant was known as 97451 Canada Ltée before it became Tedco Apparel Management Services Inc. in 1984. Several of the documents filed have this former name.

The following documents were then filed:

— Exhibit 1-1 Tangerine register of shareholders from its incorporation until 1986;

— Exhibit A-1 contract for services entered into by the appellant and Tangerine on September 1, 1980.

3.03 Contract A-1 reads as follows:

CONTRACT FOR SALES SERVICES

BETWEEN: TANGERINE LTD., a body politic and corporate, duly incorporated according to law, herein represented by Bryant Bramson, duly authorized as he so declares,

(hereinafter referred to as the "PRINCIPAL")

AND: 97451 CANADA LTD., a body politic and corporate, duly incorporated according to law, herein represented by Ted Cohen, duly authorized as he so declares,

(hereinafter referred to as the "CONTRACTOR")

WHEREAS the PRINCIPAL has engaged and wishes to continue to engage the services of the CONTRACTOR in the promotion and sale of its merchandise;

WHEREAS the CONTRACTOR wishes to continue to render such services; and

WHEREAS the parties are mutually desirous of setting forth the terms and conditions of their past and future relationship in writing.

NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL PROMISES AND COVENANTS HEREIN CONTAINED, THE PARTIES DO HEREBY AGREE AS FOLLOWS:

1. The preamble hereto shall form an integral part of the present Agreement, as if recited herein at length.

2. The PRINCIPAL does hereby engage the CONTRACTOR to act as its sales representative in Canada and the U.S.A.

3. The CONTRACTOR does hereby agree to sell such items and lines of merchandise as may be assigned to it, from time to time, by the PRINCIPAL and in rendering such services, it will devote such time and efforts thereto as it shall, in its sole discretion, deem necessary.

4. This Agreement shall remain in full force and effect until terminated by one of the parties in accordance with section 10 hereof.

5. In consideration of the services to be performed by it hereunder, the CONTRACTOR shall be remunerated on a Bonus plus overide [sic] commission basis. The rates of commission to be paid for the sale of various items and lines of merchandise shall be determined by mutual agreement of the parties. The CONTRACTOR shall be entitled to receive its commission with respect of any order or parts of orders made by it, upon the actual shipping of the merchandise.

6. The CONTRACTOR shall furnish its own automobiles and it shall pay all costs of their upkeep and operation.

7. The CONTRACTOR shall be responsible for its travelling expenses, including hotel bills and meals, and any promotional expenses incurred by it in the course of rendering services hereunder, other than those expenses which the PRINCIPAL agrees to pay.

8. The CONTRACTOR shall have full authority to employ sub-agents and salesmen, at such compensation and on such other conditions as it deems proper. The parties hereto agree that such sub-agents and employees shall be engaged at the sole cost and expense of the CONTRACTOR.

9. It is hereby agreed that the CONTRACTOR shall, at all times, have the right to sell goods manufactured or distributed by any third party whatsoever and shall not be restricted in its activities by the PRINCIPAL.

10. Notwithstanding any provision to the contrary, either of the parties hereto may terminate the present Agreement by giving to the other party two (2) months' written notice of its intention to terminate.

11. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the Province of Quebec.

3.04 The appellant’s financial statements for the 1981 to 1988 financial years, ending on April 30 of each year, were filed as Exhibit A-2. The income and expenses for 1984 and 1985 read as follows:

Additionally, the summary of income and expenses for 1981, 1982, 1983, 1986 and 1987 is as follows:

3.05 As Exhibit A-3, the appellant also filed an extract from Tedco's receipt book for the year ending April 30, 1981. It appeared from this document that the commission income came not only from Tangerine but from other sources as well:

The last payments by these companies were in fact made in December 1980. All this information was filed to confirm the appellant's allegation in its notice of appeal (para. 2(c)) that it was authorized, in addition to developing its own products, to provide services to companies other than Tangerine. This was the only year in which it received commissions from sources other than Tangerine.

In cross-examination Mr. Cohen said there was probably a written contract between Tedco and Greisman. The two other contracts were verbal. He confirmed that in the other financial years commissions came only from Tangerine . . . (trans. vol. 1, pages 113-118).

3.06 Testimony-in-chief of Mr. Ted Cohen

The only witness for the appellant was Mr. Théodore Cohen, 40 years old, who described himself as a “marketing consultant".

After his university studies and several years' experience in the garment industry, he decided in 1980 to form his own business, 97451 Canada Ltée, the purpose of which in his own words was:

. . . to be self-employed, right. To be an entrepreneur and to go to a number of companies to represent them as a marketing consultant. In other words, to give them advice on product, to market a product, to open new sources of revenue for the companies that previously did not exist. That's why people who are marketing consultants in the apparel industry work that way. They open new market places as well. (trans, vol. 1, page 52)

3.07 According to Mr. Cohen, during the financial year 1981, although Tedco received commissions only from three companies it did business with nearly a dozen companies, including Diamond & Company and Roths & Company. Apart from Tangerine, only the dealings with two other companies took concrete form, namely Greisman (March to July) and M.O. Jan Fashions in August (trans. vol. 1, pages 55-58).

3.08 As a result of the contract entered into with Tangerine in September 1980 (Exhibit A-1) he had to spend most of his time on that and neglect the other businesses. Tangerine was a very large business which was then only in the pants industry, but wanted to expand its product line to include blouses, vests, topwear and so on. He received a specific commission in this regard. Accordingly, in order to meet Tangerine's requirements he had to devote time to this work (trans, vol. 1, page 59).

Tangerine initially wanted to hire him as an employee but he said he was already working for the appellant and insisted that a written agreement be made between Tangerine and the appellant (trans, vol. 1, page 60).

According to the contract, he says, it is very clear that the administrative services were between the appellant and Tangerine.

3.09 After some years, he spent considerably less time with Tangerine. He had no office at Tangerine's premises in 1983, 1984 and 1985. He worked in his office in one of his own buildings, located on rue Côte-Vertu in Montreal (trans. vol. 1, pages 61-62).

3.10 Cross-examination of Mr. Ted Cohen

In his cross-examination Mr. Ted Cohen said:

Tangerine did not mind my doing business with other companies. I was not their employee. I was there as an external resource. I was there to bring in new business and new profits. I was not concerned with whether I worked for Tangerine one hour or ten hours a week.

As part of his work, Mr. Cohen often undertook very expensive trips, up to six months a year. He also made trips to Asia of five to seven weeks:

. . . Of course, there were times when it required my time, you know, I was there. It depended on the situation at the time. But overall, I would say, in those years, I was not there very much at all. (trans. vol. 1, pages 63-64)

3.11 On the specific commission regarding blouses, vests and so on, Mr. Cohen's answer was the following:

Q. . . . to develop the blouses. Could you explain a bit, to the Court, how you would get a mandate like that and how it would develop from the start to the end?

A. Sure. In order to maintain myself, my agreement, my contract between my company Tedco and the people at Tangerine, I had to not only produce sales for them but I also had to expand their market. They had their own sales force to sell merchandise. They didn't [sic] me. What they needed me for was new markets and new kinds of products that would bring new income in. And plus to better their product that they had at the time. So, it’s the same as—a good comparison is a farm—I'm just talking off the top of my head—a farm that doesn't—isn't doing well, calls in an outside consultant and bring in fresh ideas or fresh feed or a new kind of livestock, to grow a different product. I grew a new product for Tangerine and I made their old product better. How did I do this. I travelled—most of their business is importing from Asia. I would go there. I would go to the factories and find new product. I would meet customers from Canada there and I would take them to new market places, if they were importing. In fact, when I started, they were importing from Hong Kong, as an example. And I would find a good sweater factory or a mill in Taiwan. I would bring clients to Taiwan and then I would go to Tangerine and say: “Look, there's a product which I found myself. My company, Tedco Management, found the product in Taiwan. I called customer X, they say [sic] the product and they would be willing to import it from you." So I would connect the factory with my client Tangerine. And that [sic] what I was paid for. I was paid to do that kind of work.

. . .Well I was constantly, at the expense of Tedco, you know, Management, seeking out new product. . . (trans. vol. 1, pages 64-65)

3.12 Commenting on the financial statements for 1984 and 1985, in particular the items for travel expenses, Mr. Ted Cohen said the following:

A. Since I didn't work for Tangerine and I was self-employed in my own company, Tedco Apparel which I changed the name, it was 97451 Canada Ltd., but it was very difficult for me to go see a client with a numbered company. And I realized, very early on it, you know, that I should have a name to present, so I changed to Tedco. What happened with expenses was the following. Since I was not an employee of Tangerine, I could decide whether or not certain contractual ideas that the company had [sic]. If Tangerine decided that they want to go into a particular kind of product that I felt, maybe perhaps was not possible to market or to create, or I felt perhaps the expense was so great for me to put that product together that it might be great that they would have the product, but I would go bankrupt, I had to be realistic what were the parameters of what Tedco Management could afford and what it could do or could not do. It’s very simple, it’s— comparing to the electrician who owns a very small business and goes to the house to fix the plugs in the wall and then a big company like Bell Telephone or somebody, hypothetically, comes and says: “Fix this whole building.” He could never even afford to go out and buy the equipment in order to repair the building, let alone hire the labour. Now, I didn't have the labour but I did have labour [sic]. Because to do a thesis, I had to spend a lot of manhours without return. I had to talk to people, you know, I had expensive samples, I had expensive travelling. So, when you put all that together, sometimes Tangerine would ask me to go to Asia to research a product for them, if I so felt it, I would say: No, it’s the cost. It’s simply so great that I can’t bear the cost myself.” So a lot of times, if Tangerine felt that they wanted my company, Tedco Management, to undertake a task which I felt I couldn't handle the expense of or that it was such a great expense that, you know, it was just too much risk for me to handle that expense alone, then the company would pick up a certain part, never the whole, but a certain part of the expenses. So I still shared the risk but they took some of the risk, otherwise I simply would've passed on that particular product which they would ask me to produce or market for them. And that's the — that’s the—you know, that's the right of the entrepreneur who's self-employed, the freedom to chose [sic] you know, what tasks they will undertake and what they won't. And many I undertook, many they shared the expenses with as well, if they insisted, you know, that they wanted me to do it, then they had to go by my terms which were "you share the expenses". And that was our contract.

Q. And it was mostly on special trips that this was . . .

A. Yes, mostly on special trips or if there was a client—if I had a client for them to socialize with and, you know, to spend the day with, then I had to pick up, you know, very large expense that I felt, you know, that I didn't want to. I could be up, you know—when at the time, discuss it with sometimes with the president of the company whoever and said: "Look, this is—we're handling this particular issue for you, Tedco is handling this issue. These are the terms of this issue.” So, it was always, I mean I have any open parameters to spend whatever money I wanted. (trans. vol. 1, pages 70-72)

And the witness gave the example of a trip he took to Asia, he thought it was in 1984, “to develop a line of T-shirts and tops". This trip was planned to last two to three weeks. It took six or seven weeks. The trip cost $20,000. As a result, Tangerine probably paid for part of it.

3.13 Regarding the control Tangerine had over his work method, Mr. Cohen testified as follows:

Q. Okay. In terms of control and how you did the work, how Tedco did the services and when you acted on behalf of Tedco, and how the things were done and on the schedule and everything, was there any such control or was there not any such control or what was the story?

A. I would present to the company on behalf of Tedco, what Tedco felt would be good market direction or marketing, but basically Tangerine contracted with Tedco Management for Tedco Management to pass on new ideas, new clients, to develop new clients, etc. So, there was no—I wouldn't say that Tangerine set out the parameters, they did many times, as I said previously, want me to undertake a very expensive task, do [sic] they shared the—me, I as a representative of Tedco, they wanted Tedco to undertake expensive tasks where they would cost-split really, you know, pick up part of the costs. But that was it, there was no real—the parameters really came from Tedco. Tedco offered the stimulants.

Q. There was a—how you did it, was there any control?

A. No, absolutely none whatsoever.

Q. In terms of your schedule was there any control?

A. None whatsoever. My absenteeism was at my own choice. If I was there, I was there. If I wasn't for a stretch, I wasn't. Obviously, I had to fulfil a task of representing Tedco well with this client, otherwise the client would have dropped Tedco but. . . (trans, vol. 1, pages 102-104)

3.14 The explanation of the witness’ wife's role in his work for Tangerine was as follows:

Q. It was also mentioned in the preliminary remarks, that your wife would have also rendered services on behalf of Tedco to Tangerine.

A. Yes.

Q. Could you expand on that?

A. Yes. Before I was married to my wife, my wife who is trained in a—really is a crafts person, although she is—I don’t know how you define that, she's a professional, she was a professional calligrapher. She taught in many schools and she was a teacher as well but she—teacher of calligraphy, but she—calligraphy is very related to design that's—and she did all of my colour service, because, you know, you work with inks and colours and she would design a lot of the product for me, she would shop the market place and buy samples which, in our industry, are— everything comes from the samples that you buy, you don’t sit down and really create. So, she would, you know, shop the stores for colour ideas, for fashion ideas, she would buy samples and that was her task and that's how we got to know each other. We got married years later but initially she was working for me as an employee and then we decided to et married once we got to know each other. Wives make the best employees, when you get along. So, in any case, that's the story, (trans. vol. 1, pages 104-105)

3.15 On the automobile furnished by Tangerine to Mr. Cohen the latter testified as follows:

A. Okay. The story is quite simple with the car. I, from the time I joined the company, always had my own personal car. In fact, I didn't only have one (1) car, I had two (2) cars, because my employee, one (1) of my employees which was later to be my wife, also had a car where she could—she would pick up stationary [sic] for me or she would purchase samples or go to colour services or find out information for me at the customs department so she—I had to provide a car which I paid for personally which—rather Tedco paid for itself. As a matter of fact, Tedco did pay for those cars, come to think of it, and I also owned in Tedco, my own personal car which I would—you know, I needed my own car.

A. I had paid for the cars but the expenses were picked up by Tedco. I personally

M Ryan: It’s not really relevant, your Honour, it was him or Tedco. We're saying his side of the thing on cars.

A. I had cars. Tedco had cars that it operated, to be right.

Q. Because I don't see them on the statements here.

A. Yes, Tedco had cars which it operated. Now Tangerine was an—is and was an image company. Tedco is not an image company, it’s a consulting company. Image means that it needs very high profile with its customers that it looks like it's a very successful company and they insisted in, I believe in eighty (80)—insisted in eighty-two (82) or in eighty-three (83), they insisted that they wanted me to have— while I dealt with their clients, they wanted me to present myself in a very up-scale automobile. I believe an Audi or something. So although to get to their office, I paid my own parking, in other words, I gave the bill into Tedco and Tedco paid the parking and paid my automobile expenses, besides for that, in the garage of the building, they would keep a car which I had use of. Other people had use of it as well. As a matter of fact, the car I had in eighty-three (83), they had a head-shipper, I remember, whose wife operated a farm, this a little embarrassing, but he used to transport bags of manure some times in the car and I didn't like the smell of the car. So, I wasn't that excited about, for me, image is not important. I like to have a station-wagon or something, a jeep that I enjoyed at the time. So, you know, I had the use and access of a car which was very—it was an Audi or something, it was very expensive and after that it was a BMW.

Q. How did you go to the office?

A. I drove my own car. I had—Tedco paid for a parking space in that building so that I could drive in—it's very hard to get parking there—so that I could drive in and out of the building. Besides . . .

Q. The car stayed there on the premises at night?

A. Yes. It was Tangerine's car. It was not mine. They had a spot for it. They—I don't know what they used it for when I wasn't there. Don't forget, a lot of the times I travelled. I would be in Asia, a number of times a year, for four (4) to seven (7) weeks at a time. So I didn't need any, I didn't need their car. I had two (2) of my own cars, besides that I couldn't physically drive three (3) cars at the same time. (trans. vol. 1, pages 105-107)

3.16 On the expenses shown in the financial statements, Mr. Cohen testified as follows:

Q. At the time of expenses that were being borne by Tedco, in the process of rendering the service, I’m going back to their statement.

A. Right.

3.16(a) Salaries

Q. You're showing salaries and levies, who were those paid to?

A. Those were paid myself, my designer. . .

Q. Which became your wife?

A. Which became my wife. And I had a lot of contract expenses which fell under salaries. In other words, for example, it's best to talk in example. I presented to you graphics which were done, you know, drawings which were done by a professional graphics artist whom I paid that service. Now, is that considered a salary? It's a salary, I had to pay the guy a thousand dollars ($1,000) who had all the machinery, the electroset machine, it's very complicated to do the graphics. So that was an employee.

3.16(b) Rent, taxes and insurance

Q. Rent, taxes and insurances?

A. Well, rent, taxes and insurance were, you know, for my own premises, etc. I had to carry my own insurance on Tedco and it was liability insurance of some sort and my automobile insurance on Tedco, it's [sic] automobile which Tedco paid.

3.16(c) Travel

Q. Travelling?

A. Some of the times that I travelled for the company Tangerine would share the expenses, sometimes I had to pay for them totally on my own.

3.16(d) Samples

Q. Samples, what's that?

A. If l . . .

Q. Under what circumstances would you have to buy samples?

A. Very simply, if Tangerine required of me to create a certain blouse style that became involved, that had pictures or images on the colour, I would have to buy it sample as the first idea and then work to change it, but I needed a premise to start from. It was a tool of my trade as a management consultant of Tedco—as a management consultant, that they had to buy a certain amount of product to copy and to change and to get and to base an idea from.

Q. Tedco would pay for those?

A. Absolutely.

3.16(e) Entertainment and promotion expenses

Q. Entertainment and promotion?

A. Many times when I would go to find, when Tangerine would ask me to develop a product or to better a product they had, Tedco had to—had to deal with retail clients to market it; and had to get information from retail clients to—how to build the product, what are the other suppliers showing. So in order to pass, for Tedco, to pass the management on—to pass the information on it, I had to, you know, be in contact and promote with retail clients as well it brought [sic]. Tedco brought retail clients to Tangerine which required some either a meal, you know, spending time with the people or travelling with the people, this is common to a consulting firm bringing new clients. There's sales, there's expenses involved. And these were sales expenses.

3.16(f) Professional fees

Q. Professional fees, like twenty-nine hundred (2,900) one year and fifty-two hundred (5,200) . . .

A. Well, the professional fees went up when—if I was going into a new—as a representative of Tedco, if we were going into a new product, I would have to pay professional service for that, you know. To see how it was evolved, to see if it was financially feasible, to understand the legalities of it, there's always legal costs involved. Whether you can import a certain product, etc. So, I had to draw upon professional fees which incidentally Tangerine never had anything to do with my professional fees. And that’s about everything I see here. (trans. vol. 1, pages 108-11)

3.17 On the contract entered into [by] Tangerine in September 1980 (Exhibit A-1), the witness said in cross-examination that the written contract only confirmed a situation of fact which had existed since July 1980. He stated that he was the only shareholder of Tedco, as he was the only shareholder of the numbered company 97451 Canada Ltée. The commission received by Tedco was from /2 per cent to 1 per cent of Tangerine's gross sales. Tedco sometimes also received a bonus when the products it brought in were exceptional. Tedco's main function was to provide products for sale, as stated in clause 3 of the contract. However, before providing a product, it has to be created. Tangerine “wanted somebody to build product and to market. . .” (trans, vol. 1, page 122).

3.18 In cross-examination, the witness said that in December 1986, Tangerine's shares were sold to the Algo group. A merger of 18 companies then followed.

From 1982 to 1984, Tedco held 15 per cent of the B common shares in Tangerine. This did not mean the witness was a director of Tangerine. He was not familiar with Tangerine's internal situation. Tedco also sold its Tangerine B shares in December 1986.

From that time onward, the rules and the nature of the company were changed.

Contract A-1 between Tedco and Tangerine remained unchanged (trans, vol. 1, pages 136-42).

3.19 As to the services to be provided, Mr. Cohen confirmed in cross- examination the testimony already given in his examination-in-chief, inter alia:

Q. But the services rendered from Tangerine to Tedco, was there any direction given by Tangerine or guidelines?

A. I would say the guidelines was [sic] mutual. I would say, part of the time, they would ask of me certain tasks, as a representative of Tedco; part of the time, Tedco would give them direction and, part of the time, it was the meeting of the minds where Both the principals and myself would understand a direction concerning the task that Tedco would be asked to do. So, there was no—I didn't come in nine o'clock (9:00) in the morning and say: "Here's your work for today.” I might've come on July first (1st) and we discussed the proposition of opening a new division for the company of Tangerine and l’d come back a week or two (2) later and we would discuss how I feel we should go about it. There was always this give and take. We could go on a contract on every specific detail, but there's always a give and take of how something should be done between a company and its contract service.

Q. It is correct to say, Mr. Cohen, that Tedco was selling the existing line of merchandise?

A. I was selling but there are other people involved in the sales as well, of course. I don't know what you mean by selling. You'd also have to give me a much more define, you know, it sounds a very broad word.

Q. It said in the contract sales and representations.

A. Yes, and as I said earlier on, sale implies a lot of things. I mean, for the purposes of making the contract, you put in the word sale. But sales, it’s not a bagel factory where you put some dough and then an hour later the bagel comes out. It's a very, very long process. And I wasn't a salesman. If I was, the company would've treated me as a sales agency and hire me as a sales agency, which they didn't.

Q. Who determined the sales territories that Tedco could work?

A. I never worked a territory. It was a global concept. I was brought in as a university trained executive to market for the company and the word sale, really in my case, in the case—as a representative of Tedco, meant that I was supplying overall market direction. The company had many salesmen, many, ten (10), twenty (20), l have no idea.

Q. The company had salesmen?

A. Yes, yes Sir. They had sales offices across Canada. They had sales offices in Vancouver, they have a major sales office in Toronto. They were quite equipped with sales offices and salesmen. (trans. vol. 1, pages 144-46).

Q. Tedco was paid a commission, a percentage?

A. Tedco was paid a percentage of sales which varied year to year, yes.

Q. On all sales made by Tangerine?

A. Yes, year to year.

Q. Who determined the sale prices of the line of merchandise of Tedco?

A. The management of Tangerine. Sometimes, they would consult with me because I did open new territories and new products for them, continuously. So they would, of course, consult with me on how I I felt, what my feelings were, because I did all the research in building the product to sale. So I was consulted on price points but I, you know, I couldn't say that !' set the price points, the marketing price points (trans. vol. 1, page 147)

Q. Who would determine the discounts to give your clients?

A. Who determined that? The clients determined the discounts and the company Tangerine decides whether or not they want to acquiesce to [sic] the retailer or the clients demands. Sometimes, they did, sometimes, they didn’t. I, again, had absolutely no say in what they were signing. If you went, for example, Eaton's and ask for their contracts with Tangerine, you'd never see Tedco or any of its representatives, including myself, or anybody else. We saw a decision that was made by the principal owners of Tangerine with their account base. (trans. vol. 1, pages 147-48)

A. He [Tedco] was paid based on a commission . . . it was by month, . . .

A. As a matter of fact, it got me very aggravated sometimes because I was the President and Tedco was earning more than me, so . . . (trans. vol. 1, pages 218-19)

3.20 Mr. Cohen had no office assigned to him in Tangerine's premises (trans, vol. 1, page 150). He did not have to make a written report to Tangerine (trans. vol. 1, page 151). He had a Tedco, not a Tangerine, business card (trans, vol. 1, page 153).

He had nothing to do with billing, collection of accounts or customers' bad debts:

Q. With bad debts of clients?

A. Absolutely nothing to do with that at all. That was part of the internal business management of Tangerine. I didn't take any of the risks in Tangerine and Tangerine didn't take any of the risks in Tedco, with myself as a representative. You have to understand that if I bought—if I put together a package for Tangerine and it was lousy, I took all the risks and lost all the money as a representative of Tedco. If Tangerine undertook a risk by marketing to somebody, it was their risk. But I didn't own Tangerine, it was not my risk. (trans. vol. 1, pages 157-58)

The bonus given to Tedco by Tangerine was always the result of discussion and depended largely on the time spent on Tangerine's business by Tedco (trans. vol. 1, pages 158-59).

3.21 On the payment of expenses incurred on his long trips, it so happened that Tangerine gave him an American Express credit card issued in Tangerine's name when the latter decided to pay part of the expenses of the trip. This American Express card was also used in Montreal in restaurants, for promotion purposes with groups of buyers, for example, but only when Tangerine requested it (trans, vol. 1, pages 161-63).

3.22 Still in cross-examination, Mr. Cohen admitted that, in 1987, Tedco received from Tangerine a dividend of $287,000 (trans. vol. 1, pages 172-73), as indeed appears in the financial statements A-2.

3.23 Until the sale of Tangerine shares to Algo in December 1986, Tedco had an office at 2605 Côte-Vertu in a building which the witness personally owned. Tedco had its own telephone. Algo subsequently provided Tedco with an office on avenue Grey (trans, vol. 1, pages 176-77).

3.24 Mr. Cohen explains that Tedco had caused a trademark to be registered for "Kid*Gear" clothing with the federal government in June 1985. The merchandise, purchased in Asia in October 1985 under this trademark, arrived in February 1986. The cost of this merchandise, once in Canada, was $22,000 (trans. vol. 1, pages 178-81).

This product consisted mainly of vests for children with an insignia or design on them. Mr. Cohen and his wife had developed this project independ ently of Tangerine. Five files of correspondence, bills and other supporting documentation were filed as Exhibits A-5 to A-9. The first document goes back to September 30, 1984 (Exhibit A-5) and it states the following:

KID * GEAR is a unique concept in infant/toddler clothing and accessories. Designed by a mother, it attempts to fulfil some of the child's early needs in an interesting and creative way.

Mr. Cohen says he spent a lot of time in 1985 bringing out this product. He says it explains why Tedco's income from Tangerine decreased from $160,000 in 1984 to $97,000 in 1985. Tedco was thus forced to spend less time on Tangerine.

In 1986, for several monetary reasons, Tedco had to stop marketing this product. The chief reason was that Ogilvy, which had the retail distribution of it, could not sell it easily. The product was not a success (trans, vol. 1, pages 87-101). _‘

3.25 Examination-in-chief of Mr. Bryant Bramson, witness for the respondent

Mr. Bryant Bramson, president of Tangerine from its incorporation in around 1976, testified that from 1983 to 1985 the principal shareholders were Mr. Allan Zeman, a numbered company, 99095 Canada Inc. (formerly the company Flair Fabrics (1977) Ltd., founded by Mr. Joe Schaffer), Mr. Bryant Bramson himself, his management company Stemar Sales Agency Inc., Mr. Jack Wiltzer and, finally, Tedco Apparel Management Services Inc. (Exhibit 1-1) In the same period, the vice-president was Mr. Joe Schaffer and the secretary, Mr. Jack Wiltzer. Mr. Ted Cohen was not an officer.

3.26 Mr. Bramson testified as follows regarding Tedco:

Tedco was contractor on the market place, working for other companies and we went into an agreement with Tedco to do sales in Canada and in the United States for Tangerine. (trans. vol. 1, page 201)

Before the contract was signed, in September 1980, Mr. Bramson explained what happened before this contract was entered into:

A. Well, before September first (1st) nineteen eighty (1980), not very much happened because—I mean, Tedco was engaged by other companies, other than just for—you know, we tried to get Tedco to work, you know, to be a contractor, mostly, for our company. But he was engaged with other companies,—so . .. We tried to get him, by signing a contract, to spend more time for our company. That was basically the reason for signing this contract, or having a contract with him.

Q. You said the purpose of the contract was to have Tedco putting more time. . .

A. Right, spend more time with our company, you know. But we could not govern Tedco, you know. We did not—they were their own company and we tried to get them to do as much as they could for our company, naturally. (trans. vol. 1, pages 202-203)

3.27 As to the work, counsel for the respondent asked whether there were work conditions specified by Tangerine:

A. No. Not rea-. . . What we wanted to do was is [sic] branch out. We were in the — basically in the ladies' pants business, you know. And what we wanted to do, is get Tedco to get us into more product, you know. And he was like a fashion consultant and, that way, you know, he could help us, to put us into the blouse business or T-shirt business. At that time, in eighty ('80), I think, when we signed the contract, we were only and strictly in ladies’ pants business. We didn't do blouses and T-shirts and sweaters and jackets; and we hired Tedco to put us in to new related products, you know, to—so that we could increase our business. (trans. vol. 1, page 204)

The witness said the following regarding the type of products sold by Tedco:

It was pants and blouses, and T-shirts and sweaters. You know, whatever he creates, he could create on the market place to bring us more business. (trans. vol. 1, page 205)

3.28 No customer list was given to Tedco by Tangerine. Mr. Bramson said that Tedco was in the marketplace and knew all the customers. Tedco had no fixed quota. It also had no minimum.

3.29 The witness set the selling price of merchandise. He sometimes asked Mr. Cohen to check the highest price the market could bear. However, he (Mr. Bramson) always made the final decision on the selling price and the terms of payment. Tedco had nothing to do with this area (trans. vol. 1, pages 206-208). The witness said the following:

A. Tedco was a—it was a separate company. He had no—nothing to I used to call him from time to time to come in to talk, to fill me in in [sic] what was happening of [sic] the market place, you know. So, maybe once every ten (10) days, two (2) weeks, he would come in to our company and explain what was happening. I don’t know the time period but I used to call—I would've liked him to come every day, but, you know, it was hard to get them to come every day. He was working with other companies at the time. So, I mean, from time to time, I would call him and we would sit down and have a little pow-wow together and see, you know, how— what was happening on the market place. (trans. vol. 1, page 209)

3.30 Tedco did not have to report to Tangerine on its comings and goings. When Tedco made out a sales order, a copy was sent to Tangerine. The latter also gave samples to Tedco. They were used for sales.

On receipt of orders, Tangerine "place[d] them in Hong Kong and Taiwan and Korea and the Far-East [sic] would import it and ship to people who Tedco sold to . . . Invoicing the clients. . .” (trans, vol. 1, page 211).

Tedco did not collect bills. In general, Tangerine was responsible for bad debts. However, Tedco was sometimes responsible:

. . . a few times, in cases, not very often during the year, Tedco would get us to ship an account that we thought the credit was not good. But because he guaranteed the ground, Tedco, we would ship him and if he didn't pay, Tedco had to pay. Tedco was responsible for, not so many, you know, but the odd account, he would have to guarantee the payment of the customer. (trans. vol. 1, page 212)

3.31 Mr. Bramson gave the following explanation regarding the commissions and bonuses paid to Tedco by Tangerine:

A. Exactly, I can’t tell you but I can tell you that Tedco would work on a commission. I don't remember exactly how much between a half ( /z) and one percent (1 per cent) of total sales that Tedco did for Tangerine. And he was remunerated under those basis [sic]. It was based on his sales. I don't remember exactly the numbers because, even though I was the President of the company, we had a comptroller in our company, you know, not all the deals were made through me, you know. A lot of deals were made with the comptroller of our company. (trans. vol. 1, pages 213-14)

Tangerine's gross sales in 1983 and 1984 were on the order of $20,000,000. Counsel for the appellant admitted that the commissions received by Tedco were calculated on Tangerine's total sales, not on the sales promoted by Tedco only (trans. vol. 1, pages 215-16).

3.32 On the expenses reimbursed to Tedco by Tangerine in 1984 and 1985, at the request of counsel for the respondent, the witness answered that Tedco paid its own expenses without being reimbursed. However, Tangerine paid part of the expenses for an especially costly trip (3.34.1) (trans. vol. 1, page 219).

3.33 Regarding a car placed at Mr. Cohen's disposal by Tangerine, the witness said “absolutely not”. There was indeed a special car used to impress certain clients, but this was exceptional. Mr. Cohen only used it rarely (trans, vol. 1, page 220).

3.34 Credit card

3.34.1 Regarding a credit card which Tangerine apparently loaned Mr. Cohen during 1983 and 1984, Mr. Bramson recalled that it was used primarily on a trip by Mr. Cohen to Asia. Tangerine had asked Tedco "to build a line specifically for a blouse line” (trans, vol. 1, page 220), which required Mr. Cohen to stay two to three weeks longer. The credit card helped him to finance part of this. It was a special case. In general, Tangerine did not pay Tedco's expenses (trans, vol. 1, pages 221-24) It was further admitted by counsel for the appellant that there are two types of expenses paid by credit card, those on a trip to Asia as explained above and those to meet with special Tangerine customers whom Mr. Cohen had been asked to meet and to pay for their meals and transportation (gasoline) (trans, vol. 1, pages 227-28).

3.34.2 Two credit cards issued to Théodore Cohen were filed as Exhibit 1-3. The monthly bills for these cards ranged from October 1983 to December 1985.

A Visa card (account No. 4521-180-440-134) and an American Express card (account No. 3735-904372-01022). . . The latter was issued as follows: Théodore Cohen, Tangerine Imports. The Visa card was issued as: Théodore Cohen EXP. The bills for these cards were paid by Tangerine Imports Limitée.

The great majority of transactions relate to expenses for meals, hotels and cars (fuel and repairs). In all there were 319 transactions (78 Visa and 241 American Express). However, the Visa card was also used in Hong Kong (North Sea Fishing: $220.35) and Tsimshatsui (the Regent, $1,940.14).

In general the expenses were incurred in the Montreal area. There were also some in Toronto and Florida.

Mr. Cohen said he used two cars. Tangerine required him to use an up-scale one to project a better image for the company.

One car was licensed Z14-5940; it was a Honda Civic. He also had a Jeep Wagoneer. However, another car was owned by Tangerine, probably a BMW licensed XMX-943, registered in Ontario. Additionally, Mr. Cirella, appeals officer, said that telephone calls to Consumer Location indicate that the car registered as 214-5940 was leased by Tangerine, but they could not say what kind of car it was.

Mr. Ted Cohen's 1985 tax return was also filed as Exhibit 5-8. Attached to it is a letter from Tangerine to Tedco. It reads as follows:

We wish to inform you that the amount of the taxable benefits resulting from the use of an automobile by your employee for 1985 is $7789.60. This covers the period January 1985 to December 1985.

This amount must be recorded and included in his 1985 T4.

3.35 The prospectus for the Algo Inc. group, dated November 21, 1986, was filed as Exhibit 2-5. This business, specializing in women's clothing, was founded in 1942. In 1960 it began expanding by forming subsidiaries. In 1985 it had consolidated sales (including the 13 subsidiaries) of over $150,000,000. In fall 1986 Algo bought, inter alia Tangerine's shares, including those held by Tedco. According to Mr. Cohen, Tedco then received 400,000 to 450,000 shares in the Algo group in payment for the Tangerine shares.

At December 31, 1986, Algo recorded consolidated sales of over $189,000,000 and the shareholders’ equity increased from $21,000,000 at December 31,1985 to $36,000,000 at December 31, 1986 (Exhibit 2-6).

3.36 According to Exhibit I-4 (extracts from the minute book of Tangerine Imports):

(a) Tedco (under the name 97451 Canada Ltée) became a shareholder of Tangerine on May 26, 1982; from June 27, 1978, the other shareholders were Stemar Sales Agency Inc., Allan Zeman, Jack Wiltzer, Flair Fabrics (1977) Ltd. (now known as 99095 Canada Inc.) and Robert Deckelbaum; in May 1982,97451 Canada Ltd., and in October 1986, 151941 Canada Inc.;

(b) on November 14, 1986, Tedco transferred 3,000 class A common shares, 1,100 class A preferred shares and 98,094 class B preferred shares to Algo;

(c) Mr. Ted Cohen was appointed vice-president of Tangerine on September 13, 1986 by a resolution of all the directors of Tangerine; he was never appointed director;

(d) in April and September 1986, Tangerine declared dividends of $500,000 and $2,590,000 respectively; Tedco held 15 per cent of the shares.

3.37 In cross-examination, Mr. Cohen admitted that in 1982 Tedco received 111 class A common shares and 110 class A preferred shares from Tangerine. He said that in 1984 Tedco received 189 class A common shares. These 300 class A common shares then had a value of $300. They were transferred to Tedco to encourage Mr. Cohen to do more work for Tangerine on Tedco's behalf.

It appeared from Tedco's financial statements ending April 30, 1987 that a dividend of $367,279 was received from Tangerine. The financial statements ending April 30, 1988 show a dividend received of $103,741. These dividends total $471,020. According to Mr. Cohen, these dividends were paid by Algo because after December 1986, that is, after the 18 companies were merged, there was only one bank account, that of Algo.

3.38 Tedco allegedly received between 400,000 and 450,000 Algo shares in return for 102,194 Tangerine shares (3.36(b)) held by Tedco (trans, vol. 2, pages 35 et seq.).

3.39 According to Mr. Cohen, from January 1, 1987 onward Tedco's income consisted only of dividends. Tedco did not even have a telephone any longer (trans. vol. 2, page 53).

3.40 The agreement entered into by Ted Cohen and Tangerine Imports Limitée and dated November 14, 1986 was filed as Exhibit 1-7. This agreement is an employment contract which the parties could terminate by six months' notice, but only after four and a half years from January 1, 1987 had first elapsed.

Mr. Cohen explained that he signed agreement I-7 at the request of the Algo group management (attorneys, accountants, managers and so on) who wished him to work as an Algo group employee, not as the employee of a company (Tedco) which was acting as an independent contractor.

According to Mr. Cohen he realized that if he wanted to work with the Algo group it would have to be as an employee, and as he was being offered good working conditions he could not refuse.

4. Act-Legal Théory and Case Law—Analysis

4.01 Act

The principal provision of the Income Tax Act involved in the instant case is paragraph 125(7)(d). It reads as follows:

125.(7) In this section,

(d) “personal services business” carried on by a corporation in a taxation year means a business of providing services where

(i) an individual who performs services on behalf of the corporation (in this paragraph and paragraphs 8(3)(a.1) and 18(1)(p) referred to as an "incorporated employee"), or

(ii) any person related to the incorporated employee

is a specified shareholder of the corporation and the incorporated employee would reasonably be regarded as an officer or employee of the person or partnership to whom or to which the services were provided but for the existence of the corporation, unless

(iii) the corporation employs in the business throughout the year more than five full-time employees, or

(iv) the amount paid or payable to the corporation in the year for the services is received or receivable by it from a corporation with which it was associated in the year; . . .

4.02 Legal theory and case law

The legal theory and case law referred to by the parties are the following:

1. Archambault, Pierre. "Employé et travailleur autonome: distinction juridique et le problème des sources du droit”, Revue de planification fiscale et successorale, vol. 9, No. 2 (1987), page 287;

2. Dennis Sport Import Ltée c. Le sous-ministre du Revenu du Québec, SOQUIJ No. 87F-1;

3. Thivierge, Yves. “L’évolution jurisprudentielle de la distinction entre employé et travailleur autonome", Revue de planification fiscale et successorale, vol. 6, No. 1 (1984), page 9;

4. Quebec Asbestos Corporation v. Couture, [1929] S.C.R. 166;

5. Hôpital Notre-Dame de /'Espérance and Théoret v. Laurent, [1978] 1 S.C.R. 605;

6. Braive v. M.N.R., [1981] C.T.C. 2790; 81 D.T.C. 748 (T.R.B.);

7. Montreal v. Montreal Locomotive Works, [1947] 1 D.L.R. 161; [1946] 3 W.W.R. 748;

8. Alexander v. M.N.R., [1970] Ex. C.R. 139; [1969] C.T.C. 715; 70 D.T.C. 6006;

9. Lafleur v. M.N.R., [1984] C.T.C. 2489; 84 D.T.C. 1478 (T.C.C.);

10. Wiebe Door Services Ltd. v. M.N.R., [1986] 3 F.C. 553; [1986] 2 C.T.C. 200; 87 D.T.C. 5025;

11. Beiss v. Le sous-ministre du Revenu du Quebec, [1981] R.D.F.Q. 48;

12. Woolner v. M.N.R., [1983] C.T.C. 2546; 83 D.T.C. 490 (T.R.B.);

13. Bass v. M.N.R., [1988] 1 C.T.C. 2022; 87 D.T.C. 666 (T.C.C.);

14. No. 129 v. M.N.R., 9 Tax A.B.C. 287, 53 D.T.C. 451;

15. No. 361 v. M.N.R., 16 Tax A.B.C. 34, 56 D.T.C. 478;

16. Grolier Limitée c. Le sous-ministre du Revenu du Quebec, SOQUIJ No. 87F-33;

17. The Queen v. Daly, [1981] C.T.C. 270; 81 D.T.C. 5197;

18. Jenkins v. M.N.R., [1979] C.T.C. 2192; 79 D.T.C. 185 (T.R.B.);

19. RCR International Inc. v. M.N.R., 85-131 (UI) (T.C.C.).

4.03 Analysis

4.03.1 Appellant's argument

4.03.1(1) Subject to the admissions at the outset of the inquiry (3.01) and referring to subparagraph 125(7)(d)(ii) cited above (4.01), counsel for the appellant established that the only point to be decided was whether Mr. Ted Cohen could reasonably be regarded "as an officer or employee of Tangerine, but for the existence of Tedco" (trans, vol. 2, page 80).

It is only fair to note, as counsel did with respect to the provisions of subparagraphs 125(7)(d)(iii) and (iv) cited above, that the fact they were not met (that is, that Tedco did not have five full-time employees and Tedco and Tangerine are not associated corporations) is fatal to the appellant; If one of these two conditions had been met, this would place the situation outside the concept of a personal services business. As the appellant cannot benefit from either of these “ways out", it becomes necessary to examine, in light of the evidence, just how subparagraph 125(7)(d)(ii) applies.

The appellant's argument regarding application of subparagraph 125(7)(d)(ii) is that quite apart from the existence of Tedco, the relationship between Mr. Ted Cohen and Tangerine was one of an independent contractor and not of an officer and employee, as the respondent maintains.

4.03.1(2) Counsel for the appellant contends that the main test in Quebec for deciding whether a person is an employee or an independent contractor is whether there is a subordination relationship, including independence, in the work method.

Counsel relied chiefly on Dennis Sport Import Ltée (4.02(2)), Quebec Asbestos Corporation (4.02(4)), Hôpital Notre-Dame de l'Espérance and Thé- oret v. Laurent (4.02(5)), Braive (4.02(6)), Beiss (4.02(11)) and on the analytical articles by Pierre Archambault (4.02(1)) and Yves Thivierge (4.02(3)).

Counsel cited at length from Dennis Sport Import Ltée (4.02(2)), in which Judge Simon Brossard of the Court of Quebec (then the Provincial Court) made a a distinction between the tests applied in the ordinary law of Quebec and those recognized in the common law provinces and in federal law. Judge Brossard said the following:

[Translation]

From the abundant case law cited by the parties, the Court concludes that the distinction between an employee and a self-employed worker has to be looked at in light of the specific facts.

In the common law provinces and in federal law, the distinction between a contract of employment and a contract for services is made in accordance with various criteria grouped under four headings, used by the respondent in the instant case to determine whether the workers are employees or self-employed workers. These criteria are:

1. control and supervision;

2. economic position;

3. specific result;

4. integration.

The Court however considers that reference must be made to the ordinary law of Quebec, which is of French origin, and it finds that the criteria used in this Quebec case law are principally the subordination of the worker to his employer and his dependence on the latter in the work method.

In a frequently cited case, the Supreme Court of Canada said the following:

It has the principal distinguishing features of a contract for services: the method adopted for payment; the right to select the men he employed, set their wages, give them directions and dismiss them; liability for damages resulting from his failure to supply the factory; and most importantly, the lack of any relationship of subordination between Couture and the company and his independence in work methods.

The chief difference between a contract of service and a contract for services is the subordination of the employee in the former. Even in the case of piecework, workers may be hiring out their services if they are subject to a manager's direction; but if, on the contrary, the workers are not subject to such subordination, they are contractors.

(Baudry-Lacantinerie & Wahl. Traité de droit civil, 3rd ed., "Du contrat de louage", tome 2, part 1, Nos. 1638 and 1641.)

Moreover, this is how the Quebec courts have ruled . . .

In Quebec case law, the relationship of subordination is an essential requirement for a court to recognize employee status.

In the instant case, accordingly, the applicant would have had to be able to give the workers orders and instructions on how their work should be done. There is no indication in the record that the applicant had authority to do this and that the workers were bound to accept it.

The predominant position of this control criterion was affirmed in Sarah Beiss (4.02(11)) where it states at page 57:

Throughout this lengthy judgment, we have applied the various tests generally invoked in jurisprudence in determining the employer-employee relationship, and in the light of those which are applicable in our opinion the appellant is certainly not an employee. We are also of the opinion that the control test is still the most important, if not the only proper one to use.

Counsel for the appellant accordingly concluded that "the principal and determining test is still control and the relationship of subordination".

4.03.1(3) On the test of control, according to counsel for the appellant, the weight of Mr. Cohen's testimony both in chief (3.13) and in cross-examination (3.19 and 3.20) and that of the witness for the respondent, Tangerine's president Mr. Bryant Bramson, in his examination-in-chief (3.26, 3.29 and 3.30) is to confirm that Tangerine had no control over either Mr. Cohen or over Tedco.

4.03.1(4) On the test of risk of loss, it is well known that an employee does not share in his employer's losses. He draws his salary even if his employer's business is doing badly. If the employer goes bankrupt, salary earned by the employee but not yet paid is even protected by the Bankruptcy Act.

In the instant case, counsel for the appellant submitted, the evidence takes a different form. Mr. Cohen stated that neither Tedco nor he personally had to pay the bills of customers who bought from Tangerine through Tedco (3.20).

However, Mr. Bramson was less categorical, saying that it sometimes happened that Tangerine wanted to refuse an order from a Tedco customer but Tedco had guaranteed it. As the account resulting from the order proved to be bad, Tedco had to pay (3.30).

Of course, Tedco was required to pay because of the guarantee given, but such an act is not the ordinary behaviour of an employee. In the submission of counsel for the appellant, it is a sign that in these few cases where the guarantee was given, Mr. Cohen did not act as an employee.

4.03.1(5) On the test of the specific result, referred to inter alia in Alexander (4.02(8)) at page 724 (D.T.C. 6011), it appeared that this test requires that the independent contractor has a specific commission regarding a particular job to be done. It is the carrying out of the commission which is important in order to be paid. The employee is hired to be available for his employer so many hours a day or a week. If the employer does not have work to give him, he must still pay him.

The balance of the evidence is that Mr. Cohen did not have to work a certain number of hours a day or a week, but rather had to perform specific tasks, inter alia developing a line of blouses, vests and topwear (Mr. Cohen: 3.08, 3.10, 3.11 and 3.12; Mr. Bramson: 3.27). In the submission of counsel for the appellant, this confirms once again that Mr. Cohen cannot be regarded as an employee.

4.03.1(6) Tedco did not work exclusively for Tangerine. Moreover, this was expressly provided in clause 9 of contract A-1 (3.03) It reads as follows:

It is hereby agreed that the CONTRACTOR shall, at all times, have the right to sell goods manufactured or distributed by any third party whatsoever and shall not be restricted in its activities by the PRINCIPAL.

In 1981, Tedco did business with a dozen or so companies, though it received income from only three companies (3.07)

In 1985 and 1986, independently of Tangerine, Tedco tried to launch the product "Kid*Gear" which Ogilvy was responsible for distributing at retail. It was not a success. However, because Tedco spent less time with Tangerine, Mr. Cohen said, the income dropped from $160,000 in 1984 to $97,000 in 1985 (3.24).

Counsel for the appellant pointed out that in Woolner (4.02(12)), at page 2552 (D.T.C. 495), in 1983, Judge Taylor, then a member of the Tax Review Board, held that the fact of working most of the time for the same person, in that case Petrofina, did not necessarily make someone an employee, when ordinarily he could have worked for someone else. A period of economic difficulty did not make it easy to find other people for whom to do work. The appeal in No. 361 v. M.N.R. (4.02(15)) was largely allowed on the same basis.

4.03.1(7) (a) Employee's special fringe benefits and other matters in evidence

Vacation and office

Mr. Cohen had no vacation paid for by Tangerine and no office provided by Tangerine (3.20). Counsel for the appellant submitted that this confirms Mr. Cohen was not an employee.

4.03.1(7)(b) Pay

Mr. Bramson even pointed out in his testimony that Tedco had higher income than he did, when he was president of Tangerine (3.19 in fine). It is difficult to believe counsel for the appellant submitted, that in a company like Tangerine, an employee, if Mr. Cohen is an incorporated employee within the meaning of subparagraph 125(7)(d)(i) of the Act, could earn more than the president.

4.03.1(7)(c) Employee of Tangerine in 1986

In 1986, Tangerine became a fully-owned subsidiary of Algo: it no longer dealt with Tedco but with Mr. Ted Cohen personally and it hired him as an employee (3.40). This was a very strict contract which was even referred to in the Algo prospectus. This new contract had to be different from the first in which ne was regarded as independent because of Tedco. Moreover, both in the prospectus (Exhibit 2-5, page 21) and in the 1986 Algo financial statements (Exhibit 2-6, page 17), Mr. Ted Cohen was listed as an Algo vice-president and as having the vice-presidency of Tangerine as his principal occupation (3.40).

Surely this confirms the point to which it was intended that Mr. Cohen should be an employee of Tangerine so he could be elected vice-president of Tangerine and Algo. Counsel for the appellant submitted that this policy after November 1986 confirmed the fact that previously Mr. Cohen could not be regarded as a Tangerine employee.

4.03.1(7)(d) Car

The balance of the evidence both from Mr. Cohen (3.15) and from Mr. Bramson (3.33) shows that Tangerine placed a luxury car at Mr. Cohen's disposal when he had to meet with Tangerine clients. However, these were exceptional cases.

The Department of National Revenue's evidence is far from being clear as to the identity and ownership involved in the car registered as Z14-5940 (3.34(2)).

Counsel for the appellant submitted that the letter from Tangerine to Tedco (Exhibit 1-8) relating to the amount of $7,789.60 for the use of a car placed at Mr. Cohen's disposal under paragraph 6(1)(e) of the Act meant that this provision applies automatically once the car is given to someone for his or her use.

For the purposes of the instant case, counsel for the appellant submitted, this does not reverse the balance of evidence, establishing that the car was used only exceptionally for special circumstances as we know. This fact cannot be conclusive as to whether Mr. Cohen was a Tangerine employee.

4.03.1 (7)(e) Tangerine shares transferred to Tedco

To encourage Mr. Cohen and thus Tedco to spend more time on Tangerine's business, the latter company transferred a number of shares then worth $300 to Tedco in 1982 and 1984. These were special shares that did not participate in the former profits (3.37). Counsel for the appellant submitted that this fact is not significant in showing that Mr. Cohen should be regarded as an employee.

4.03.2 Respondent's argument

4.03.2(1) Counsel for the respondent submitted at the outset that the important fact is whether Mr. Cohen can reasonably be regarded as an employee or officer of Tangerine, in accordance with subparagraph (125 (7)(d)(ii) The French text says “employé ou cadre". With the word “reasonably”, therefore, counsel for the respondent submitted, this test should not be strictly applied.

4.03.2(2) Though it appears from contract A-1 that it is the “principal” (Tangerine) who decides what the "contractor" (97451 Canada Ltd., which later became Tedco) will sell (clauses 2 and 3) counsel for the respondent argues that in the instant case, the most important test is not the subordination relationship.

A much more significant fact in determining the employer-employee relationship, he submitted, is the payment of commission ('/2 to 1 per cent depending on the year) not only on the sales made through Tedco but on all Tangerine's gross sales (3. 31) The latter amounted to $20,000,000 (3.31). The commissions received were $160,000 in 1984, $97,000 in 1985 and $240,000 in 1986 (3.04).

In counsel for the respondent's submission, such a method of payment is much more appropriate to an employee who is a commission salesman, or still better senior officer, of a company than to an independent contractor doing a limited job for the company. Just on this basis alone, is it not reasonable to regard the "incorporated employee" as a Tangerine officer?

4.03.2(3) Fringe benefits

During the vacation taken by Mr. Cohen each year, commissions continued to accumulate on Tangerine's total sales. “If those are not "fringe benefits", I wonder what they are", counsel for the respondent said.

4.03.2(4) Returning to the test of control, counsel for the respondent noted that although Mr. Cohen maintained that he was doing what he wanted and was given no orders by anyone, there were still certain points that should be considered. First, it was Tangerine's products which Tedco had to sell and Mr. Bramson, the Tangerine's president, says clearly that he was told each month what sales were made by Tedco (trans, vol. 1, page 210).

Secondly, Mr. Cohen was highly qualified. "I was very well known in the industry as a bright young man who had some fresh ideas and could help a company" (trans, vol. 1, page 58).

What was said about control in Wiebe Door Services Ltd. (4.02(10)), at page 203 (D.T.C. 5028) can be applied to Mr. Cohen:

. . . In addition, the test has broken down completely in relation to highly skilled and professional workers, who possess skills far beyond the ability of their employers to direct.

Thus, counsel for the respondent submitted, because of Mr. Cohen's qualifications there were not so many instructions to be given or control to be exercised in the performance of his work.

4.03.2(5) It is clear that after November 1986, Mr. Ted Cohen, because of the new contract I-7 (3.40), was an employee. Mr. Bramson and Mr. Cohen stated that the latter did exactly the same work after November 1986 as before. Counsel for the respondent submitted that it would be reasonable to regard Mr. Cohen as an employee or officer both before and after November 1986. Especially as Mr. Cohen said that while in November 1986 the shareholders' book changed considerably, “the contract for sale service which was presented as evidence [Exhibit A-l] I believe, or whatever call it [sic], has never changed" (trans, vol. 1, page 133).

This is confirmed by Mr. Bramson:

Q. For yourself, as President of Tangerine, was there a difference in the services rendered by Tedco after November eighty-six ('86)?

A. No, the services seem to have stayed the same . . . (trans. vol. 1, page 243)

4.03.2(6) Counsel submitted that the fundamental test cited in Wiebe Door Services Ltd.(4.02(10)) should be applied, referring to Cook, J.'s decision in Market Investigations Ltd. v. M.S.S., [1968] 3 All E.R. 732 (Q.B.D.).

The fundamental test to be applied is the following: "Did the person who undertook to perform these duties do so as a person working for himself or herself?”

As the commission was paid on Tangerine's total sales, is it not reasonable to think that Mr. Cohen was working for Tangerine rather than for himself, counsel for the respondent concluded?

4.03.2(7) On the product "Kid*Gear", counsel for the respondent referred to Mr. Cohen's argument that because of the time spent on this product Tedco received only $97,000 in commissions in 1985, compared to $160,000 in 1984 (3.24). The financial statements ended on April 30, 1985, counsel for the respondent commented; and the evidence showed that most of the time devoted to the product "Kid*Gear" by the witness was during 1985 and 1986 calendar years. Further, as the commissions paid to Tedco were calculated on Tangerine's total sales, it may properly be asked what importance the time spent by Tedco has.

4.03.2(8) Bonuses

Counsel for the respondent referred to Mr. Cohen's testimony regarding the obtaining of bonuses. He said he had to discuss with Tangerine. In general, a bonus is the type of remuneration that is applicable to an employee, not a shareholder as such (the latter receive dividends), still less to an independent contractor.

Black's Law Dictionary defines "bonus" as follows: "A premium or extra remuneration in consideration of offices performed. An extra consideration."

The Larousse dictionary defines the word “boni” [bonus] as follows: "Excédent de salaire accordé à l'ouvrier qui dépassé les normes de fabrication. [Addition to salary given to a worker who exceeds production requirements]."

Mr. Cohen admitted in cross-examination (trans, vol. 1, page 159) that the discussion regarding bonuses related to bonuses received both for past and for present services, that is for the current year.

Counsel for the respondent suggested that an independent contractor cannot discuss bonuses for services rendered as an employee nor services during the current year, still less in past years.

4.03.2(9) Expenses paid for Tedco by Tangerine

Counsel for the respondent noted that the general statements made by Messrs. Cohen and Bramson, alleging that the expenses paid for Tedco by Tangerine were somewhat exceptional. They were special requests by Tangerine. These statements are contradicted by Exhibit I-3, which describes the expenses paid by credit card from October 1983 to December 1985 (3.34). The costs of meals, hotels and cars (gas and repairs) are the basis of most of the 319 transactions.

If we consider that the period is one of 27 months, that comes to more than 11 exceptions a month, including five restaurant expenses between Christmas 1983 and January 1, 1984. Counsel for the respondent stated that this was a lot of special and exceptional requests.

As regards the car used to impress customers (probably a BMW), there are $2,000 in expenses with the Kenbec garage in a period of two years and an average of over three gasoline fill-ups a month. Counsel for the respondent submitted that the wish to impress customers was not exceptional.

The amount of $7,789.60 for use of the car (3.34(2) in fine) was included by Mr. Cohen in his personal income. Does this act not show, counsel for the respondent concluded, that he was an employee?

4.03.2(10) Counsel for the respondent submitted that Mr. Cohen emphasized several times his personal skill acquired through experience or study:

I was very well known in the industry as a bright young man . . . (trans. vol. 1, page 58)

In the apparel business, I have a lot of education for what I do. (trans. vol. 1, page 79)

I was brought in as a university trained executive to market for the company . . . (trans. vol. 1, page 146)

He was even offered the opportunity to become a vice-president of Levi Strauss Canada, which counsel for the resportdent said indicated that Tangerine hired Mr. Ted Cohen much more than Tedco “as its sales representative in Canada and in the U.S.A.” (Exhibit A-1, clause 2).

4.03.2(11) Counsel for the respondent noted that this $300 in shares received in 1982 and 1984 generated $471,000 in dividends in 1987 and 1988. Further, in 1986, they were transformed into 425,000 Algo shares worth $3,500,000. Is it not reasonable, he concluded, to consider that such a benefit was received as a senior Tangerine officer rather than as an independent contractor?

4.03.2(12) Counsel for the respondent also explained that the Algo merger which occurred in 1986 had been planned since 1973.

The group of businessmen which formed Algo expanded by forming several small companies using their experience and the Algo equity. This is explained in the Algo prospectus (Exhibit I-5) at page 6 under the heading "History":

In the 1960’s, Algo began to expand its operations into other segments of the ladies’ fashion apparel industry. It would identify market segments which, in management's opinion, offered an attractive investment opportunity, and would establish a new business in that segment of the market with an experienced executive or small group of executives who would manage the day-to-day operations and have an equity interest therein. In this manner, the Company commenced its fabric business in 1960 by establishing Hamil Textiles Ltd. in association with Harry Miller, an officer and director of Algo, and it launched its apparel import operations in 1973 in association with Allan Zeman, an officer and director of Algo.

Concurrently with its expansion, the operations of the Algo Group were organized to permit each company in the group to operate with a substantial amount of autonomy under the guidance of its own management team and to be responsible for the design, production, management and sale of its product lines. Each company in the Algo Group has developed and continues to expand its own management, design, marketing and production administration staffs. Through this program, the Company has evolved from a small Canadian dress manufacturer to a diversified supplier of apparel and textile products with 13 subsidiaries and consolidated sales in excess of $150,000,000 in fiscal [sic] 1985.

In the submission of counsel for the respondent, Tangerine was one of the 14 small companies formed through Algo by experienced executives, which was merged in 1986.

Tangerine’s principal shareholders in 1984 and 1985 (3.25) namely Messrs. Joseph Schaffer, Allan Zeman, Bryant Bramson and Jack Wiltzer, are experienced executives who are among the directors and officers of Algo (Exhibit 1-5, page 20). On the next page, there also appears the name of Ted Cohen, whose principal occupation is given as vice-president of Algo and vice-president of Tangerine. After the list of directors, there is the following wording:

During the last five years, all of the directors and officers have been engaged in their present principal occupations or in other executive capacities with the companies indicated opposite their names or with related or affiliated companies,

It thus appears, counsel for the respondent submitted, that in Algo's general structure, Mr. Cohen had been one of the experienced executives of Tangerine for several years, though he was not officially appointed a director.

4.03.2(13) Counsel for the respondent noted Mr. Cohen's statement that after 1986, pursuant to agreement 1-7, he always paid tax personally on income received from Algo. Counsel noted that the financial statements of Tedco (Exhibit A-2) in 1987 and 1988 show that it continued to include commissions of $191,397 in 1987 and $247,500 in 1988 in its income.

According to counsel for the respondent, the witness' credibility is open to question.

4.03.3 Appellant's reply

4.03.3(1) On the argument by counsel for the respondent regarding Tedco's 1987 and 1988 financial statements (4.03.2(13)), counsel for the appellant pointed out that while it is true that the sums of $191,397 and $247,500 in "commissions and fees" were included in Tedco's income in 1987 and 1988, "salaries, management fees and levies" were also paid to Mr. Cohen, namely $131,603 in 1987 and $200,421 in 1988. This was the sense in which Mr. Cohen said he paid taxes personally.

Further, counsel for the appellant alleged that because of clause 7 of agreement I-7, cited below, the fact that the commissions were first included in Tedco's income before being distributed to Mr. Cohen is not in any way unusual. That clause reads as follows:

7. The rights and obligations created hereunder may not be assigned by the Executive, saving only that the Executive shall have the right to transfer all his rights and obligations hereunder to a corporation (the "Corporation") subject to each and every one of the following conditions:-

a) the Corporation shall execute an agreement (the "Agreement") in form and substance satisfactory to the Company undertaking to be bound by the present agreement as if it had been an original signatory hereto;

b) the Executive shall intervene in the Agreement in order to jointly and severally guarantee each and every one of the obligations of the Corporation to be assumed by, under or in virtue of the Agreement and to undertake to carry out for and on behalf of the Corporation each and every one of the duties and obligations assumed by the Corporation in favour of the Company.

4.03.3(2) On the argument by counsel for the respondent regarding the statement by Messrs. Cohen and Bramson about the services rendered before and after agreement 1-7 (4.03.2(5)), counsel for the appellant states that certain distinctions have to be made.

4.03.3(2)(a) In respect of the bonus or compensation before agreement I-7, the bonus was issued as the result of negotiations between the parties. After the agreement, bonuses were set by Algo (clause 5 of agreement I-7).

The following can be read at page 22 of prospectus I-5, under the heading "Manager-Shareholders' Bonuses":

It has been the Company's practice to pay modest base remuneration to shareholders or their related management companies for services rendered during the fiscal year supplemented by bonuses based on estimated annual pre-tax profits.

Commencing in 1987, the Company intends to establish bonus or other incentive plans for its executives in addition to the payment of base remuneration. It is expected that the bonus plans will provide for the establishment of a bonus pool for each company in the Algo Group and for the payment to the participants in each bonus pool of a specified percentage of pre-tax earnings of the company in question in excess of the target earnings established for that company in respect of the fiscal year in question.

4.03.3(2)(b) As to the right to work for other businesses (4.03.1(6)), it appears that before agreement 1-7 Tedco had the right to work for other businesses (3.03, clause 9 of Exhibit A-1).

This was no longer possible after agreement I-7, because of clause 6 of the said agreement which reads as follows:

6. The Executive undertakes during the full Term of the Employment:-

a) to devote his normal working hours, attention and skills to the affairs of the Company and not to be actively engaged in any other business or enterprise;

and

b) not to directly or indirectly participate or make financial investments in or make loans to or render advisory or other services to or for any person, firm or corporation (other than the Company), which carries on business in competition with the Company, with Algo Group Inc. or with any of the subsidiaries of Algo Group Inc.

Under clause 8 of agreement I-7, Mr. Cohen even has to keep secret what he learns at Algo regarding that company's affairs. He even undertakes by clause 9 not to compete with Algo for one year after his departure. Clearly, all this did not exist under agreement A-1 (3.03).

4.03.3(2)(c) Under agreement A-1, Mr. Cohen was paid on commission and subsequently given bonuses. Under agreement I-1, he was paid by salary and bonuses.

4.03.3(2)(d) Before, under agreement A-1, Mr. Cohen was not a vice-president of Tangerine. After, under agreement 1-1, he was a vice-president of both Tangerine and Algo.

4.03.3(3) On the meaning of the word "reasonably" in subparagraph 125 (7)(d)(ii) , counsel for the appellant said the following:

[Translation]

Mr. Cossette argued that the word "reasonably" in that section—that it was put there to make things easier for the Department when it is making assessments under the section. I do not think that this word is there for that reason, your Honour.

My opinion on this is that, since the Department—it goes somewhat with the fact that they are telling us to disregard the other matter. Then, they are asking us to make a mental abstraction. Then, they are saying if we make this mental abstraction, is it reasonable to say that?

I do not think they want to add more ease or difficulty to the provision. I think that “reasonably” should be read in terms of the mental abstraction we are being asked to make.

In any case, I do not think this is very important one way or the other.

4.03.4 Decision

The problem is whether under subparagraph 125(7)(d)(ii) of the Act Mr. Cohen can "reasonably be regarded as an officer or employee" of Tangerine.

The word “reasonably”, even in a taxing section as in the instant case, should not be strictly construed but be construed in light of all the circumstances, as was stated in A.-G. Canada v. Matador Inc. and Matador Converters Co., [1980] C.T.C. 51; 80 D.T.C. 6018, at 55(D.T.C. 6022).

The Federal Court of Appeal applied this principle in light of section 68 of the Act.

4.03.5 The tests used to determine the difference between an employee and an independent contractor have been gradually developed by the legal theory and case law over a period of time.

The tests are the following:

— the degree or absence of control exercised over the work done;

— the ownership of the tools needed for the work;

— the chance of profit and risk of loss;

— the ownership of the business;

— the degree to which the work done is integrated into the payer's business;

— the remuneration.

4.03.6 The degree or absence of control exercised over the work done

Counsel for the appellant dwelt at length (4.03.1(2)) on the fact that in Quebec the subordination test is given priority However, in Quebec as in the other provinces in Canada further developments have deprived this test of its conclusive effect. At the present time, it often happens that highly qualified employees or professionals have knowledge or skills much greater than their employer's capacity. This means that the latter is unable to direct employees, ana so the control test does not apply. Especially when control of the independent contractor's work is most of the time much closer than that of an employee's work. That was the opinion of the Federal Court of Appeal in Wiebe Door Services Ltd. (4.02(10)) at page 203 (D.T.C. 5028), cited in part in paragraph 4.03.2(4).

The Court does not question Mr. Cohen's skill who, through his study and experience, proved to be an asset for Tedco and for Tangerine. Further, it is because of Mr. Cohen's ability that, in its prospectus I-5, Algo considered him one of the experienced executives in one of its subsidiaries and appointed him vice-president of the company (4.03.2(12)).

Accordingly, the control test cannot be conclusive by itself in the instant case.

4.03.7 The ownership of the tools needed for the work

This test is based on the fact that if the tools needed for the work belong to the worker, the courts tend to say that the worker is an independent contractor and not an employee. On the other hand, if the tools are owned by the person paying for the work done, then the tendency is to say that the worker is an employee.

This test is rarely decisive. The value of the tools may sometimes make this test significant.

In the instant case, while on the one hand Mr. Cohen used his own office located at 2605 Côte-Vertu and his own telephone (3.20 and 3.23), on the other hand the balance of the evidence was that a car provided by Tangerine was used by Mr. Cohen (3.34.2), despite the statements by Messrs. Cohen (3.15) and Bramson (3.33) that these were only exceptional cases and despite some difficulty identifying the car licensed as 214-5940 (3.34.2). The automobile expenses paid by Tangerine for a car used by Mr. Cohen were some $2,000 in a period of two years, with an average of three fill-ups a month (4.03.2(9)).

As I said above, this test is not conclusive. It will be considered together with the other tests.

4.03.8 The chance of profit and risk of loss

The test of chance of profit and risk of loss is based on the concept that in an employer-employee relationship, the employee generally incurs no expense in performing his work, takes no financial risk and has no opportunity of making a profit. On the other hand, the factors of chance of profit and risk of loss are associated with an individual who is operating his own business.

The risk of loss is apparent when the person involved has given the payer— here, Tangerine—a financial guarantee or has granted him a loan, which does not apply in the instant case.

In his argument (4.03.1(4)), counsel for the appellant pointed to the fact that, according to Mr. Bramson's testimony, Mr. Cohen on two occasions, in exceptional situations, guaranteed a buyer for Tangerine, and on those occasions he was obliged to pay Tangerine. However, I do not think that this fact can reasonably be interpreted as indicating an employer-employee relationship or the business of an independent contractor.

The chance of profit is more apparent in a case where the person involved is a shareholder of the payer and substantial dividends can accordingly be paid to him.

In the instant case Mr. Cohen, through Tedco, owned 410 shares in Tangerine during the years at issue, that is 300 class A common shares and 110 class A preferred shares (3.37). Each of these shares was subsequently subdivided by ten, thus multiplying their number by ten. Additionally, 98,094 class B preferred shares were issued to Tedco.

We find that on November 14, 1986 Tedco apparently transferred the following Tangerine shares to Algo:

— 3,000 class A common shares;

— 1,100 class A preferred shares;

— and 98,094 class B preferred shares (3.36(b)).

In April and September 1986, Tangerine declared dividends of $500,000 and $2,590,00 respectively (3.36(d)). Tedco, which had about 15 per cent of Tangerine's shares, would thus have received $463,500 in dividends in 1986.

Does the fact of owning 15 per cent of Tangerine's shares and so receiving $463,500 in dividends become a decisive factor in support of the appellant's argument that the "incorporated employee" Mr. Cohen was an independent contractor? It is a point in his favour, but not a conclusive one.

Additionally, the fact that the said shares were transferred from Tangerine to Tedco in 1982 and 1984 as encouragement is also not conclusive enough to regard Mr. Cohen as an employee.

4.03.9 The ownership of the business

As this test is linked to the preceding one, it is not conclusive in the instant case one way or the other.

4.03.10 The test of specific result

This test, referred to in Alexander (4.02(8)), was considered by counsel for the appellant (4.03.1(5)). His argument is that the job given to Tedco was to develop a line of blouses, vests and topwear.

From this standpoint, this test supports the appellant's argument. However, that was not the only work done by Mr. Cohen: like all the other Tangerine salesmen, he sold the latter's products.

4.03.11 Remuneration

The type of remuneration may sometimes be useful in determining the nature of the relationship between the payer and the worker.

In the instant case, Tedco was paid /2 to 1 per cent commission depending on the year. As counsel for the respondent pointed out (4.03.2(2)), the commission in the instant case is calculated not only on the sales made by Tedco but on all Tangerine's gross sales (3.31). Such remuneration is much more appropriate to an employee who is a commission salesman, or even more to a senior officer of a company, than to an independent contractor doing work which is limited to a specific result.

In my view, this part of the evidence is very significant and even conclusive. As the commission was paid on Tangerine's total sales, is it not thus reasonable to think that Mr. Cohen was working for Tangerine rather than as an independent contractor (4.03.2(6))?

4.03.12 The respondent's argument regarding bonuses (4.03.2(8)), which by their very nature apply to employees and not to independent contractors, seems in a way to have less force than it is given by counsel for the respondent if we look at Algo's policy of issuing bonuses “to shareholders or their related management companies" (prospectus 2-5, page 22, cited in paragraph 4.03.3(2)(a)). In another way, however, this confirms that an individual is directly a shareholder of an Algo subsidiary like Tangerine or indirectly through a company like Tedco; the person was important enough to Algo for its general policy on subsidiaries to be to grant a bonus based on the annual pre-tax profit of the subsidiary. Is it not reasonable to consider that individual as an officer of this subsidiary? The answer is yes.

5. Conclusion

The appeal is dismissed for the foregoing reasons for judgment.

Appeal dismissed.