Bernice Bradford v. Minister of National Revenue, [1988] 2 CTC 2359, 88 DTC 1661

Taylor, T.C.J.:—This is an appeal heard in Kamloops, British Columbia on July 28, 1988 against an income tax assessment for the year 1982 in which the Minister of National Revenue disallowed some of the expenses charged against income by the taxpayer. During the period of the calendar year 1982, from January 1 to October 31, the appellant had been an employee by her own agreement (of a certain Dr. Neufeld, at a dental clinic in Kelowna, British Columbia. From this salary all the appropriate deductions were made. After that date —by virtue of an agreement with Dr. Neufeld —Miss Bradford contended that she functioned as an independent contractor to Dr. Neufeld. During all of the year 1983, the taxpayer also provided services to another dental clinic in Midway, British Columbia (some 100 km from Kelowna, British Columbia) of which clinic Dr. Neufeld was also a member. Her arrangements at Midway were, in her view, quite different from those at Kelowna. Effectively, she took with her the equipment (minor tools, brushes, polish, etc.) which she would need at Midway, and she did what work was to be done there perhaps two days per month on an average for which she received a set fee —about $100 per day from which no deductions were made. She was responsible for her own travel expenses, and under circumstances where—for whatever reason —there was no work to be done at Midway when she arrived, she simply did not get paid her “fee”. In effect, Miss Bradford according to her appeal worked as an "independent contractor" during all the year 1983 with respect to her work at Midway, and changed her working arrangements at Kelowna to a similar basis as at November 1, 1982. She filed the following statement of income and expenses for the year 1982 with her income tax return.

In In reviewing the above Statement, the Minister of National Revenue allowed all the expenses except those detailed in the Minister’s reply to notice of appeal:

The Minister provided no explanation of the rationale for allowing such expenses as were treated that way—in view of the contention of the Minister that Miss Bradford was at all material times an employee, rather than an independent contractor. The Minister however, did provide the following information in the reply to notice of appeal regarding the expenses disallowed.

(d) the convention expenses claimed by the Appellant were in relation to a Dental Conference held in Hawaii in 1982;

(e) the seminar expenses claimed by the Appellant related to a seminar sponsored by the Kamloops Dental Society, and a seminar in Hope, British Columbia;

(1) the Appellant did not have a business licence in 1982.

The position of the Minister was:

5. The Respondent relies, inter alia, upon Section 3, Paragraph 8(1)(h), and Subsection 8(2), and the definition of "business" in Subsection 248(1) of the Income Tax Act.

6. The Respondent submits that the Appellant was an employee of Dr. Neufeld and the Midway Dental Clinic throughout her 1982 taxation year, and that the amounts claimed by her for convention and seminar expenses were not deductible from her employment income.

It would serve little purpose to review in detail the testimony provided by Miss Bradford, since in my view, the difference in her operating procedures between that of an employee January 1 to October 31 and as she contends an "independent contractor" from November 1 to December 31, were minimal. There is no question she could have and would have done almost the same thing as an "employee" for the last two months of the year as she did in her alleged role as an "independent contractor". I accept that she probably had some more flexibility with regard to days and hours she worked, and perhaps some small choice of patients, but that would be no different than I am sure Dr. Neufeld could have worked out with her while she remained as an employee. I would however reproduce the "contract" as Exhibit A-2 upon which Miss Bradford bases her claim.

Service contract between Bernice Bradford, R.D.H., and Don R. Neufeld, D.D.S.

This contract is effective November 1, 1982, and is subject to discussion and/or revision at the discretion of either/or both parties.

Services:

Bernice will provide dental hygiene services, as defined by the British Columbia Dental Act. For services rendered, Bernice will bill Dr. Neufeld 34% of her gross production, to be billed at the end of each month, and to be paid within four days.

Bernice will assume responsibility for her business expenses including continuing education courses, dental hygiene licenses, association dues, uniforms, when required. Dr. Neufeld will provide adequate facilities to perform the dental hygiene services. The days of work are at the discretion of Bernice, after making the necessary arrangements with those involved.

During testimony Miss Bradford stated that Exhibit A-2 had been prepared and signed by the parties at some time after November 1,1982 —but in my view that is not a substantial point. I am satisfied that the agreement detailed therein was that which the parties considered in effect as of November 1, 1982. It was also evident that the new agreement conveniently provided a prospect for Miss Bradford to attend the very "convention" and “seminar” to which the Minister has taken umbrage, and to do so in the expectation of considering the cost thereof as deductible expenses. Little information was provided at the hearing regarding the "convention" and the "seminar" but there was no substantial indication from the Minister that the attendance was not in a direct sense related to her work as a dental hygienist.

I am satisfied that neither the convention expenses nor the seminar expenses would be clearly deductible items for Miss Bradford in her capacity as an "employee". I am equally satisfied in the capacity of an "independent contractor" they should at least be considered. The question becomes simply whether Miss Bradford was an "independent contractor" —that is in business for herself in a manner not dissimilar to that of Dr. Neufeld, or was she an employee of Dr. Neufeld. After that the viability of the amounts in question should be addressed, if necessary.

Counsel for the appellant summarized the situation before the Court and reviewed certain case law. I take the liberty of indicating my impression of the main points noted by him:

— the appellant did have some control over when she provided her services

—she decided where to go— Kelowna or Midway—to some degree on the basis of which place would provide her the greater income

— she did have a say in how many patients she was prepared to see

—she carried and paid for a certain part of her professional liability insurance

—and "Your Honour, I think that one of the things that distinguishes her is the fact that she has made a conscious decision as to who she will supply those services to.”

"In other words, she has made a decision not only that she will work for a particular individual, and provide her services in that context, but that she will provide only certain amount of services to that particular individual and certain other services will be provided to another individual.”

As opposed to those expressions, it was not overlooked by counsel for the Minister that:

— Miss Bradford did not bill the patient directly, this was done by Dr. Neufeld;

—the Dentists Act of the province of British Columbia places very serious restraint on the capacity of dental technicians and I quote in particular from:

67. Categories of ancillary bodies to the profession of dentistry are established whose functions are to aid the dentistry in the performance of the dentist's duties, to carry out certain authorized duties and technical procedures on the patients of a licensed Member who delegates those authorized duties or procedures to a member of an established ancillary body. There may be ancillary bodies established whose members are persons not registered under the Act and ancillary bodies whose members are persons registered under the Act.

70. (a) All members of the ancillary [sic] bodies established pursuant to sections 67 and 68 must work under the personal supervision or direction of a licensed Member as set out in these Regulations.

(b) Personal supervision means that a licensed Member must be in the dental office in which the relevant member of an ancillary body is performing those duties. The personal supervision need not be by the employer Member so long as a licensed Member is supplying this personal supervision.

(c) Direction means that a licensed Member shall issue the necessary instructions as to which of these authorized duties are delegated to members of an ancillary body and the licensed Member shall be responsible for the propriety of any duties so delegated for the particular patient. The licensed Member shall have examined the patient and given specific instructions for performance of the duties or technical procedures within an appropriate time period. Once having given these instructions, the licensed Member need not be present when the authorized duties or procedures are carried out.

Analysis

Jurisprudence

The question of "employee or independent contractor" has been reviewed many times in the case law and was dealt with competently by both counsel. While 1 do not prescribe that the comments found in some of the judgments with which I am particularly familiar are more appropriate than in others, referring to these might facilitate me in providing a general perspective of my views on the matter, recognizing as I do that there appears to have been a discernible metamorphosis over the past several years.

Latimer v. M.N.R., [1977] C.T.C 2128 at 2136; 77 D.T.C. 84 at 90, the comment is made:

Without trying to examine in depth the meaning to be attributed to these particular criteria given by Lord Wright, the Board could not find justification within these criteria alone for ruling against the appellant's case. In my opinion the case does come down to the issue—common and prominent in the argument of both counsel—of control, or the master/servant relationship.

And from pages 2138-9 (D.T.C. 91-2).

In summary, the Board points out that the responsibility of the appellant at this hearing was greater than just to show that some aspects of his arrangement with the Corporation were different than those generally established and understood as portraying "employment". He had the further and substantial responsibility to persuade the Board that he had been engaged in a recognizable individual business endeavour, and that he had maintained himself, for the entire period under review, in a role distinguishable from regular employment. This he has failed to do.

From Molot v. M.N.R., [1977] C.T.C. 2170; 77 D.T.C. 111. One finds at page 2183 (D.T.C. 120) the following comments in support of the dismissal of the appeal:

In the instant case control existed to whatever degree considered adequate and advisable by the University, over its full-time staff, and the evidence does not support the view that it was further diluted or, as alleged, eliminated entirely to accommodate the particular circumstances associated with part-time staff. My reading of the cases cited does not lead me to the conclusion that where control is shown to exist and be operative, that it should be ignored as the deciding factor. Rather, one might conclude that in a situation where the evidence in support of “control” is not totally persuasive on its own merits, a conclusion that the case concerns an employee rather than an independent contractor might be reached by also reviewing the role (and integration) of the appellant in the overall function of the organization. Control still remains the main characteristic of a normal employer-employee relationship, as indicated by the Rosen case (supra). With respect to the argument for lack of “integration” on its own merits aside from “control”, as proposed by counsel for the appellant, the Board accepts that the appellant may not have been involved to a great extent in the social life, or the administrative detail and support services, associated with the University but the part he played in his role as a teacher cannot be disengaged from the totality of the teaching function of the institution, on these grounds.

In Forst v. M.N.R., [1982] C.T.C 2053 at 2065; 82 D.T.C. 1056 at 1065, we read:

There is no question that the ownership and management of N.W. respects his judgment in such matters, and leaves him virtually uninhibited in his endeavours. That is a credit both to N.W. and to Forst, but it does not determine the question as to his relationship to N.W. for income tax purposes, as one of an independent contractor.

. . . It is the specific contract itself which determines whether the operation under review is that of "employment" or "business", and not the style or format within which that contract is arranged. Calling it a business, and enhancing it with attributes normally found in a business structure, does not a business make. Every relationship, whether "employment" or “business”, is founded on some form of contract—written, oral, explicit or implied—and it is to the terms of the contracts available in this matter that the Board must look for guidance.

Woolner v. M.N.R., [1983] C.T.C. 2546 at 2551; 83 D.T.C. 490 at 495:

I do not have great difficulty in visualizing a relationship in which one party "worked almost exclusively” for another party; or made services available "for an indefinite period”, and still retained the status of an "independent contractor”.

I do not accept that requiring Mr. Woolner to comply with Petrofina's normal standards and procedures for the production of design and drafting work would of itself (nor even in conjunction with "h" and "e" above) make him into the employee of Petrofina as opposed to an independent contractor. There was no indication in the evidence that Mr. Woolner's precise or even general design and drafting functions, and the results therefrom, were dictated—or could be dictated—by Petrofina.

And at page 2552 (D.T.C. 496):

I can only suggest that when an issue comes down to as narrow a problem as was demonstrated in the present appeal, the task for an appellant to overturn a presumption that he was an "employee" is probably more difficult when he is faced with the normal deductions (and possibly ancillary employee benefits) having been part of the contractual arrangements as seen, acted upon or permitted by the payor.

From The Queen v. Cork, [1984] C.T.C. 479 at 481; 84 D.T.C. 6515 at 6517:

The defendant needed the transportation provided by his automobile; and the expense incurred thereby was for the purpose of gaining or producing income from his business: it was travelling expense incurred by him while away from home (also the site of this office in this case) in the course of carrying on his business at various different places where he was engaged to perform his professional services.

In Gleddie v. M.N.R., [1985] 1 C.T.C. 2217 at 2224; 85 D.T.C. 224 at 233-4:

As I see the Boardman (supra) case [2] , however, (notwithstanding the fact that it was the intention of both parties therein to create an "independent contractor" relationship and many of the terms of reference in the contract attested to this), there were two facts which mandated that the decision in Boardman (supra) should be unfavourable that appellant—and I quote from pages 163 and 5113 respectively:

Income tax will be deducted at source unless the Contractor provides an exemption from (sic) the Federal Government.

The plaintiff was paid subsistence and travelling allowance at the same rate as employees of the public service.

[Analysis]

Neither of these constraints apply to Mr. Gleddie and therefore I do not feel obliged to produce the same result on this matter.

And at page 2226 (D.T.C. 236):

I have no difficulty in visualizing an independent contractor operating out of a base of operations (i.e. his home) making a decision to perform exclusive functions for a particular client—which client provides all needed facilities and thereby the taxpayer reduces perhaps eliminates the normal need and cost of a separate base of operations, at least during the period of the exclusive assignment.

In the Federal Court case of Marotta v. The Queen, [1986] 1 C.T.C. 393; 86 D.T.C. 6192, Mr. Justice McNair reviewed the traditional "test" which had arisen out of some case law—control, integration, economic reality and specified result and in dismissing that appeal noted on page 399 (D.T.C. 6196):

While the relationship between the plaintiff and the university may have possessed some of the features of a contract for services, especially from the standpoint of control, it is my view that the features common to a contract of service greatly outweigh them in terms of the other three so-called tests.

I can only read that to indicate that the learned Justice took an overall view of the facts and circumstances outlined to him. That would be consistent with the views expressed in the earlier jurisprudence noted above.

It is therefore not surprising to find in Wiebe Door Services Ltd. v. M.N.R., a judgment of the Federal Court of Appeal, [1986] 2 C.T.C. 200 at 204; 87 D.T.C. 5025 at 5028-9:

Taken thus in context, Lord Wright's fourfold test is general, indeed an overarching test, which involves “examining the whole of the various elements which constitute the relationship between the parties.” In his own use of the test to determine the character of the relationship in the Montreal Locomotive Works [3] case itself, Lord Wright combines and integrates the four tests in order to seek out the meaning of the whole transaction.

. . . I interpret Lord Wright's test not as the fourfold one it is often described as being but rather as a four-in-one test, with emphasis always retained on what Lord Wright, supra, calls "the combined force of the whole scheme of operations.” even while the usefulness of the four subordinate criteria is acknowledged.

Lord Denning's [4] test may be more difficult to apply, as witness the way in which it has been misused as a magic formula by the Tax Court here and in several other cases cited by the respondent, (See Umpires' decisions in appeals from M.N.R/s decisions in Re/Max Real Estate Calgary South v. M.N.R., N.R. 1069; Sairoglou v. M.N.R., N.R. 1085; Terra Engineering Laboratories Ltd. v. M.N.R., N.R. 858; Barnard v. T.M. Energy House Ltd., [1982] 4 W.W.R. 619 (B.C. C.C.).) in all of which the effect has been to dictate the answer through the very form of the question, by showing that without the work of the "employees" the "employer" would be out of business (“Without the installers, the Appellant would be out of business"). As thus applied, this can never be a fair test, because in a factual relationship of mutual dependency it must always result in an affirmative answer. If the businesses of both parties are so structured as to operate through each other, they could not survive independently without being restructured. But that is a consequence of their surface arrangement and not necessarily expressive of their intrinsic relationship.

Contemporarily, we read Moose Jaw Kinsmen Flying Fins Inc. v. M.N.R., [1988] 2 C.T.C. 2377;88 D.T.C. 6099 at 6100 which summarizes the position to be taken by the Court in these words as:

. . . we view the tests as being useful subordinates in weighing all of the facts relating to the operations of the Applicant. That is now the preferable and proper approach for the very good reason that in a. given case, and this may well be one of them, one or more of the tests can have little or no applicability. To formulate a decision then, the overall evidence must be considered taking into account those of the tests which may be applicable and giving to all the evidence the weight which the circumstances may dictate.

In this case, perhaps the most cogent evidence was the employment contract

In Moose Jaw Kinsmen Flying Fins Inc., supra, there was a written contract—which was finally interpreted as providing for an employer-employee relationship between the parties. In the instant case, we also have a contract—at least to the degree that Exhibit A-2 encodes the respective positions of the parties.

It seems to me that to follow the progress outlined in the jurisprudence above particularly from Moose Jaw Kinsmen Flying Fins Inc., supra, this Court should first examine the "contract" to see if it points in any identifiable direction, and then to see if the actual work arrangements between the parties were consistent with the contract in support of the apparent direction.

In my view Exhibit A-2 gives little if any support for the Minister’s contention that this was an employer-employee relationship. Leaving aside for the moment the general context of the working arrangements of Miss Bradford (which will be examined later in a review of the relevant "tests") and the fact that she had been to November 1, 1982 an employee of Dr. Neufeld, I can find little therein which would not be quite consistent with a contract for "services", that is the engagement of the appellant by Dr. Neufeld as on an independent contractor basis. It is quite clear from the testimony that the relationship outlined in Exhibit A-2 did in fact obtain in the actual working conditions determined between the parties. Miss Bradford set and maintained her own working hours and provided dental hygiene services to the patients with little or no instructions or interference from Dr. Neufeld. But, the patients as such were never the patients of Miss Bradford. She may have on occasion recommended further or different dental hygiene work, and she may have provided assistance and advice to the patients. But they were the patients of Dr. Neufeld and Miss Bradford was at all times under the supervision and control of Dr. Neufeld, clearly spelled out in the Dentists Act.

Miss Bradford did not contend that her "business" was directly with the patients as clients—her client was Dr. Neufeld. The only way that Miss Bradford (or any other dental hygienist) can function in Alberta is under the direction or control of a dentist—and if the Court were to take that fact as determinative (a conclusion urged by counsel for the Minister) then no dental hygienist in Alberta could ever be anything other than an employee; and this Court would be rejecting the specific direction of the Federal Court in Wiebe Door Services Ltd., supra, to look at all the circumstances. I would also note the reference in Marotta, supra, from page 396 (D.T.C. 6194) of the same point:

Superintendence and control is an important, determinative test but it cannot be the decisive test in the case of a professional man of particular skill and expertise. In such cases, there can be no question of the employer telling him how he must do his work: Morren v. Swinton, etc., supra. Resort must often be had to other tests.

In addition, I believe it reasonable for this Court to conclude that Dr. Neufeld in signing Exhibit A-2 was fully aware of the practical restrictions inherent in the Dentists Act and was satisfied he could retain the degree of supervision necessary even under the allegedly altered relationship with Miss Bradford. I cannot find that the so-called "control" test should serve to negate the contention of Miss Bradford in this case, particularly in the light of the clear working arrangements outlined between the parties in Exhibit A-2. It seems to me that something of substantial import would be required to overturn the action, intent and operation which arises out of the persons setting up a mutual agreement such as Exhibit A-2.

As I read the most recent jurisprudence—Marotta, supra, Wiebe Door Services Ltd, supra, and the Moose Jaw Kinsmen Flying Fins Inc., supra, the so-called integration test is not much of a test at all. With regard to the economic reality test, I am satisfied from the testimony of Miss Bradford that both her gross income and net income depended on her deciding on how many hours a week or days she would work, and on how much expenses she felt it reasonable to incur in earning that income. Clearly she selected the most profitable work and places to work, within the framework of living up to her professional responsibilities as she saw them. In the same way it was established at the hearing that no deductions (such as union dues or pension) were made from the earnings of Miss Bradford and that she was to be responsible for her own requirements in such areas, which are normally implied in employer-employee relationship. The “specified result” test would not appear to go against her contention.

Faced with a contract (Exhibit A-2) which gives little support to the Minister's "employee" assertion and is in substantial agreement with the appellant's "independent contractor" perspective; faced with the fact that the working arrangements between the parties adhered to the contract above; and finding no indicia in the so-called tests noted above which would serve to invalidate Miss Bradford’s assertion, the Court reaches the conclusion that she has established her claim to operating as an "independent contractor" in the circumstances. As I see it, the intention of the parties in this arrangement would not serve to support Miss Bradford's contention, if the facts of the working and operational conditions did not bear it out. But since there is no serious contradiction of the parties’ intention to enter into an "independent contractor" type of relationship, that must prevail.

The general principle that commends itself to me arising out of this appeal and the recent jurisprudence noted is that under a given set of circumstances within which there are certain aspects of "employee", some others of "independent contractor", and even others that are somewhat ambiguous, that the intentions and objectives of the parties, if clearly and unequivocally stated and agreed upon, should be a prime factor in the determination of the Court. I would note a quotation from the judgment allowing the appeal in Bass v. M.N.R., [1988] 1 C.T.C. 2022 at 2026; 87 D.T.C. 666 at 669:

In the instant case the appellant from the outset asserted his wish not to be an employee of the Company but rather to have his freedom and independence as a consultant. Though he was not an integral part of the Company's operations, he was certainly a valuable and necessary asset. His expert advice assisted and guided management personnel of the Company. His part in the whole plan of operations was peripheral and not integral to it. He did not participate in the Company pension plan as did employees of the Company. He could only participate in “fringe benefits" if he paid for them himself, whereas employees received them as part of their remuneration package. He was precluded from benefiting from the gains, if any, made by the Company from following his advice. Likewise, he was not liable for any losses. He had no statutory holidays or vacation pay.

After the findings that Miss Bradford qualifies for the term "independent contractor" (businesswoman), the Court now turns to the actual and major bone of contention—the main item in dispute—the cost of attendance at the dental convention in Hawaii which cost $900. No challenge is made by the Minister to the quantum of the expenditure, only to the principle of deductibility. I am unable to see in subsection 20(10) of the Income Tax Act any realistic basis for the Minister disallowing the deduction, and none was given at the hearing in my view—see Michayluk v. M.N.R., [1988] 2 C.T.C. 2236. As for the other deductions claimed, I did not gather from the evidence or testimony that they were unreasonable in the circumstances.

The appeal is allowed, and the entire matter is referred back to the respondent for reconsideration and reassessment. The appellant is entitled to party-and-party costs.

Appeal allowed.