Jean Lafleur, Michael Polis v. Minister of National Revenue, [1984] CTC 2489, 84 DTC 1478

Tremblay, TCJ [TRANSLATION]:—These cases were heard on common evidence in the city of Montréal, Québec on January 12, 1983. The Court was in addition informed that the final result of these cases would be used for a final settlement of forty other cases of the same type. This is why the evidence is in detail.

1. Point at issue

The question is whether the appellant Lafleur, an associate professor at the École Polytechnique de Montréal (hereinafter referred to as “the school”), is correct in claiming the sum of $3,677.35 in calculating his income for 1978 as expenses incurred for the purpose of earning income. The appellant maintained that in his capacity as an engineer, he furnished professional services to clients through the Centre de Développement Technologique of the École Polytechnique de Montréal (hereinafter referred to as “the CDT”), for which he charged and was paid fees.

The respondent disallowed the expense on the ground, inter alia, that the appellant was paid by the school for the said services on an hourly basis, that the work was done in connection with his employment, and that, on submission of supporting documentation, the school reimbursed the appellant for transportation and representation costs paid by him in connection with research work.

The case of Mr Polis is similar.

2. Burden of proof

2.01 The appellants have the burden of showing that the respondent’s assessments are incorrect. This burden of proof results not from a particular section of the Income Tax Act, but from several judicial decisions including a judgment of the Supreme Court of Canada in Johnston v MNR,[ 1948] CTC 195; 3 DTC 1182.

2.02 The facts assumed by the respondent are described in subparagraphs (a) to (n) of paragraph 8 of the respondent’s reply to the notice of appeal. That paragraph reads as follows:

8. In assessing the appellant Lafleur for the 1978 taxation year, the Minister of National Revenue relied inter alia on the following assumptions of fact:

(a) the appellant is an engineer;

(b) in the 1978 taxation year the appellant was employed by the École Polytechnique de Montréal (hereinafter referred to as “the school”) as an associate professor;

(c) during the same taxation year, the appellant also did various research work for the Centre de Développement Technologique of the École Polytechnique de Montréal (hereinafter referred to as “the CDT”);

(d) the CDT is a research centre which is part of the school, and its function is to conclude and to monitor the performance of research contracts requested by private or governmental agencies;

(e) in connection with his research work, the appellant claimed that he incurred expenses totalling $3,677.35;

(f) the appellant’s research work was done under the control and responsibility of the school;

(g) the appellant received separate remuneration from the school for his research work, based on a fixed hourly rate;

(h) on presentation of supporting documentation, the school reimbursed the appellant for all transportation and representation costs incurred by him for the purposes of his research work;

(1) the school made available to the appellant an office which the latter could use

either to perform his functions as a teacher or to do his research work;

(j) the appellant was not usually required to perform the functions of his employment away from the school;

(k) the equipment and support staff which the appellant required in performing his research work were provided and paid for by the school;

(l) the research work assigned to the appellant was an integral part of the CDT’s operations;

(m) the appellant carried on no business during the 1978 taxation year;

(n) the expenses claimed by the appellant, totalling $3,677.35, are unsupported by any documentation and are unreasonable in the circumstances;

2.03 The facts assumed with respect to the appellant Polis are substantially the same as those for the appellant Lafleur, except as regards the quantum of income and expenditure.

3. Facts

3.01 With respect to the assumed facts, cited above by the respondent, counsel for the appellant Lafleur admitted only paragraphs (a) and (b), and denied as written, or simply denied, the remaining paragraphs.

3.02 The appellant Lafleur in his examination-in chief testified as follows.

(a) He qualified as an engineer in 1966 and obtained his master’s degree in 1968 and his doctorate in 1978. He specialized in foundation work and soil mechanics.

(b) He has been a professor at the school since 1977, and in 1978 in addition to teaching (at a salary of $31,428.79) he also provided professional services, which brough him $8,401.19 in fees. His professional fees are from different sources (Exhibit I-4):

(c) As regards the contract with RSW, this involved preparing a testing program for materials to be used in dams in the LG-4 project at James Bay. A cost estimate of $42,114 for this program (Exhibit A-l) was sent to RSW on November 21, 1977. This amount included 35 per cent for CDT administrative costs. The letter of submission was written on paper of the school and signed by the appellant and by Branko Ladanyi, chief engineer of the geotechnical section of CDT. Overall, this 35 per cent was added for the use of CDT equipment (laboratory and so on). An expert report was subsequently submitted to RSW. This report, which was prepared by the appellant, was not submitted to CDT, the school or any other authority for approval, and the appellant was not given any instructions by the school or CDT in doing this work. It was obtained by the appellant.

(d) As regards the contract with SEBJ, the work was similar in nature to that described above for RSW. It was also obtained and done by the appellant. Here again, no instructions or approval were given by the school or CDT. The latter was only involved in billing. Bills were submitted for $9,203 on May 9, 1978 and $6,653.20 on June 6, 1978 (Exhibit A-2).

(e) The appellant also obtained the contract with MRNQ on his own initiative. In fact, he had worked for this department as a consultant from 1974 to 1977 and knew most of the senior personnel, who referred work to him. In this case, the appellant on March 17, 1978 had sent MRNQ a proposal for experimental drainage work in Hull (Exhibit A-3). An agreement was concluded between MRNQ and the school (referred to as “‘the Centre” in the agreement), and this is Exhibit 1-1.

Under that agreement, the appellant is to supervise the work to be done, but is not a party to the contract. In the body of the agreement, one finds that “the Centre is responsible for . . .”, “the Centre shall . . .” and the Centre undertakes . . .”. The lump sum paid was $15,000, that is $10,000 when the agreement was signed on September 1, 1978 and the balance of $5,000 when the report was submitted. The appellant, who received $2,000, maintained in cross-examination that he personally worked over 50 hours. The submission was sent directly by the appellant without going through the CDT. As the said submission was accepted, an agreement was subsequently concluded — Exhibit I-1.

(f) As regards the sum of $663.14 in fees which the appellant received, this came from a “pool” created by four engineers at the school working in geotechnology. This “pool” was supported by a percentage of the net fees earned by them, in order to offset between themselves the losses from greater or less use of the equipment by one of other of them. This pool was redistributed annually.

(g) As regards the amount of $250, this came from a consultation done by the appellant for several clients.

3.03 Regarding the expenses claimed, totalling $3,821.35, the appellant produced details in Exhibit A-4. His expenses claimed, allowed and disallowed are broken down as follows:

3.04 In cross-examination, the appellant Lafleur said that in 1978 he had done between 10,000 and 12,000 miles with his car (a 1978 Chevrolet), approximately 2,000 miles of which was on business.

3.05 Mr Denis Beaudry, assistant director of the CDT, testified as follows.

(a) he has worked for the CDT since 1972. He was an auditor and administrator, and in 1981 was appointed assistant director.

(b) The CDT is part of the school; it is a department within the school.

(c) The CDT was created in 1971 when it was found that a significant proportion of professors were giving consultations or doing work for industry. At that time the school realized the value of improving relations between the university and the country’s industry. By forming the Centre and providing it with the appropriate equipment, a service was being made available to professors, students and industry. The equipment is used for research. By paying for its use, industry is contributing to its upkeep and renewal.

(d) The staff of the CDT consists of a director, an assistant director, two accountants and three secretaries. None of these individuals has the competence or authority to direct, criticize or review the opinions or work done by the engineering professors.

(e) When a professor has to use the CDT’s equipment for his external consultation work, he usually works through the school, which assists in establishing costs by always adding 35 per cent of the direct costs spent for use of the equipment.

(f) There are two kinds of research done by the CDT: grant-aided research and sponsored research. Grant-aided research is what is requested by a professor who receives a grant from the governments of Canada or of Quebec, or some other government, to do the work. However, the grant only pays the costs. A professor who does grant-aided research receives no payment in addition to his salary.

Sponsored research, on the other hand, is what is requested or sponsored by an external agency who pays the costs, including the fees paid to the professor in charge of the said work.

(g) The gross amount of the bills for sponsored research in which the CDT’s equipment was used amounted to $2,000,000 in 1982.

For the financial years 1977/78 and 1978/79, namely from June 1 of one year to May 31 of the next year, the following data regarding sponsored activities are taken from the financial statements (Exhibit 1-2):

The professors attracted 70 per cent of the sponsored research to the school. The school received 30 per cent directly.

(h) The professors are entitled to spend up to 20 per cent of their time on sponsored research.

(i) Exhibit 1-3 is Note DG-105 (general directives) dated June 1, 1977, replacing DG-79 of August 28, 1974, and concerns the “Administration of Scientific and Technical Services Provided Externally”.

It is necessary to reproduce here sections 1, 2 and 3 of the directive, which read as follows:

ADMINISTRATION OF SCIENTIFIC AND TECHNICAL SERVICES PROVIDED EXTERNALLY

1. SCHOOL POLICY

Any work done for clients outside the school and involving the school’s equipment, staff (professional or support) or students MUST be submitted for approval to the director of the department, institute or research centre concerned, and be done under the administrative responsibility of the Centre de développement technologique (CDT) of the school, in accordance with the rules stated in the CDT manual.

2. DEFINITIONS

Services provided externally, to which these directives apply, are defined and classified as follows:

(a) Sponsored research

Work done under the direction of a professor or research assistant, making use of school staff, students or equipment, involving a significant degree of originality, innovation or conception in the search for a solution to a problem, for which one or more reports is submitted setting forth the methodology used and results obtained, and which may contain conclusions or recommendations.

(b) Professional consultation

Expert analysis done in the capacity of a professor of the school and culminating in a report containing conclusions and recommendations, but not involving the use of school staff or equipment other than for the purposes of computer calculation or typing of the report.

When professional consultation does not make any use of a school service, or of the name, initials, symbol or address of the school, it may be regarded as done on a personal basis and is governed only by school policies and contractual agreements, personal or collective, with the individuals concerned. Otherwise, such professional consultation is considered as done in the capacity of a school professor and is governed by these directives.

(c) Scientific and industrial tests

Work making use of school staff or equipment, but involving only a minor degree of innovation, originality or conception, and usually resulting in the submission to the client of a report containing experimental results which may or may not be summarized, commented on or legally certified.

(d) Rental of equipment or facilities

The mere use by an external client of school equipment or facilities, on the premises or elsewhere, making use of school staff ordinarily assigned to the operation of such equipment or facilites, but not involving any responsibility or guarantee as to the validity or accuracy of the results, and including no service involving professional expertise other than advice or instructions concerning the operation or method of use of the equipment or facilities.

3. ROLE OF CENTRE DE DÉVELOPPEMENT TECHNOLOGIQUE

The school has made the CDT responsible for co-ordinating the provision of, and for administering, the services described above, in light of the responsibilities directly devolving on the other research centres of the school (NINEP and IREM) and of the authority which must be exercised by department and institute directors over the assignment of their staff and the use of their facilities and equipment.

(j) Section 4 of the said directive concerns “billing”. This section reads as follows:

4. BILLING

The CDT has complete responsibility for preparing, issuing and collecting bills from external clients; it must be informed of any estimate submitted, verbally or in writing, to a client, and approve any submission.

The preparing of a bill or submission shall be done by totalling the DIRECT COSTS incurred in connection with the work or service rendered, and adding thereto a surcharge for GENERAL COSTS.

DIRECT COSTS include in particular, but not exclusively, the following items:

— the fees of professors, research assistants and professionals involved in the project;

— the salaries of professional research assistants;

— the payment made to students and support staff for the time spent by them on the project, whether regular or overtime;

— fringe benefits corresponding to these salaries;

— direct costs of equipment and supplies used;

— the cost of services used — for example, the cost of typing, duplicating and photocopying, laboratory fees, computer time, the costs of design, composition, typography and so on;

— costs of travel and long distance calls incurred in completing the project.

A further amount shall be added to the total of direct costs for GENERAL COSTS, calculated in terms of a percentage of the total direct costs; his additional amount shall consist of two items:

— CDT operating costs, namely, management, contract administration, liability insurance, advertising, billing and collection, and so on;

— net revenue paid to the department concerned for encouraging research, in a fund known as the “CDT revenue fund" of the department.

The additional percentages for general costs that shall ordinarily be applied to each category of service, and the division in accordance with the two items mentioned above, is defined in appendix DG-105A.

(k) The directive regarding “Additional Amounts for General Costs” reads as follows:

SERVICES PROVIDED EXTERNALLY: ADDITIONAL AMOUNTS FOR GENERAL COSTS

For the contracts signed or services sponsored on or after June 1, 1977, the additional amounts for general costs are ordinarily as follows:

(a) Sponsored research and rental of facilities or equipment

The additional amount for general costs is 35% of direct costs, which corresponds to 26% of the amount billed. The distribution of this 26% is ordinarily:

16% to the CDT operations fund

10% to the CDT revenue fund of the department concerned.

(b) Professional consultation in the capacity of a professor of the school

The additional amount for general costs is 25% of the direct costs, which corresponds to 20% of the amount billed. The distribution of this 20% is ordinarily:

12% to the CDT operations fund

8% to the CDT revenue fund of the department concerned.

(c) Scientific and industrial tests

The additional amount for general costs is 60% of direct costs, which corresponds to 2716% of the amount billed. The distribution of this 3716% is ordinarily:

2216% to the CDT operations fund

15% to the CDT revenue fund of the department concerned.

(l) It is even possible for a professor who has accepted a sponsored commission not to go through the Centre in accordance with the established procedure, but to personally lease the equipment.

(m) It often happens that the professor does not receive the scheduled amount of fees, as in a case where the forecast of expenses necessary to complete the contract was inadequate. Similarly, neither the school nor the client, in the case of the government, reimburses reception expenses resulting from an announcement regarding research work. These expenses are borne by the professor.

(n) The school pays for professional liability insurance with regard to sponsored research.

3.06 Mr Michael Polis, an engineer and also a professor at the school, testified as follows

(a) He was qualified as an electrical engineer in 1966 and obtained his doctorate in 1972. He was a research assistant at the school in 1972, and became a professor in 1973.

(b) His fees from sponsored projects between 1972 and 1980 are broken down as follows (by the CDT).

(c) The competition between engineers is very keen. It is necessary to do a lot of contracts. He had certain contacts in 1978 with Sidbec Dosco, but these produced no results until 1979. Often there was no result.

(d) The fee of $2,612 earned in 1977 came primarily ($2,500) from the University of Quebec at Montreal, as the result of a technological forecasting project in the area of urban transport.

(e) The fee of $250 earned in 1978 consisted of making an estimate of current (amplitudes) in the rails of the Montreal Metro. As a change to the Metro trains was being considered at the time, this required checking these estimates.

(f) In 1978 he belonged, inter alia, to the Institute of Electrical and Electronic Engineers. There are 100,000 members throughout the world, and 1,500 in Montreal. He is one of the persons responsible for organizing a conference on computers to be held in Montreal in 1985.

(g) Each year he writes an article on a specialized subject and gives two addresses to generalists.

(h) Mr Polis said regarding the foregoing income: “It is completely personal, and I used no school equipment or technicians: I did these consultations strictly in my own capacity as an engineer” (trans p 130). He said that as he had not used school equipment or staff, he did not have to go through the CDT.

(i) In 1977 and in 1978, the expenses claimed by Mr. Polis are:

(j) Mr Polis said that this was consultation work, not using equipment or staff, and so he always used the office at his home to do the work. He also gave consultations there, just as he used his house to entertain possible clients socially.

3.07 Mr Jacques Lessard, a financial management officer at the University of Quebec at Montreal, testified as follows.

(a) There was a contract between Mr Polis and the UQAM In 1976 and 1977. In 1976 this concerned a sponsored commission for the Office de la Planification de Développement of Quebec. The work was done from April 16, 1976 to June 17, 1976. The fee was $2,500. In the same year, there was another agreement covering the period from June 18, 1976 to July 28, 1976. Because of the strike of employees which lasted four to five months, this amount was not paid until February 11, 1977. The notice of payment was filed as Exhibit 1-2.

(b) By a sponsored commission is meant a lump sum. In such a case the university does not pay disbursements.

4. Act — Case law — Analysis

4.01 Act

The principal provisions of the Income Tax Act concerned in the case at bar are 3, 5, 8, 18 and 67. They will be cited in the analysis if necessary.

4.02 Case law and academic opinion

Case law

1. André Lalonde v MNR, [1982] CTC 2358; 82 DTC 1341;

2. Quebec Asbestos Corporation v Couture, [1929] SCR 166;

3. Wolfgang Hauser v MNR [1978] CTC 2728; 78 DTC 1532;

4. Affiliated Technical Services of Canada v Le sous-ministre du Revenu du Québec, [1981] RDFQ 208;

5. Sarah Beiss v Le sous-ministre du Revenu du Québec, [1981] RDFQ 48;

5. Thomas Alexander McPherson v MNR, NR 91, March 24, 1976.

Academic opinion

7. Nadeau, Traité de Droit Civil du Québec, 1949, Tome 8, No 406, p 353.

4.03 Analysis

4.03.1 The nub of the problem consists in determining whether the income of the appellants resulting from research done constitutes salary or the income of an independent person.

4.03.2 It was established that the two principal types of research done by the CDT are grant-aided research, by govenment or other aid in the form of a grant, and research sponsored by an agency which is an external client, and which pays the costs, including the amounts paid to professors (paragraph 3.05(f)).

Sponsored research includes the use of equipment and staff at the school (paragraph 3.05(i)). It is even possible that a professor who has accepted a sponsored commission may not go through the Centre, using the established procedure described by Mr Denis Beaudry (paragraphs 3.05(c), (e) ,(g) and (j). The professor may lease the equipment personally (paragraph 3.05(1)).

There is also a third type of work, known as professional consultation, requiring no use of equipment or staff at the school. This work is regarded as being done on a purely personal basis. There is no obligation to go through the school.

4.03.3 In the case “of professional consultation”, as given by Mr Polis (paragraph 3.06(h)), the Court is of the opinion that the weight of the evidence is that this was business income, based both on the facts described in paragraph 3.06(h), especially as regards the professor’s independence, and also in light of the definition of “professional consultation” in section 2(b) of the directives cited above (paragraph 3.05(i)).

4.03.4 As regards grant-aided research, professors receive only the salary paid by the school and the grant is used only for paying the cost of materials (paragraph 3.05(f)). There can be no question of this being business income.

4.03.5 Sponsored research is essentially at the heart of the problem here.

It is worth reviewing the principal criteria established by academic opinion and case law to determine whether a case involves a contract of service for a salary or a contract for services resulting in business income, by

(a) the criterion of control;

(b) the criterion of the economic reality;

(c) the criterion of the specific result;

(d) the criterion of integration.

These criteria are not necessarily exhaustive, as Cooke, J said in Construction Industry Training Board v Labour Force Ltd, [1970] 3 All ER 220, at 244: “no list of tests which has been formulated is exhaustive, and . . . the weight to be at- tached to particular criteria varies from case to case”. In G L Engineering Ltd v MNR, NR 571, October 31, 1979, Dubinsky, J undertook a valuable review of the decided cases.

4.03.6 The criterion of control

This criterion is well known. The nature and degree of the control exercised by One person over another is a very important factor, but not the only one. Nadeau in his Traité de Droit Civil du Québec (Tome 8, p 353) emphasizes the importance of this criterion: “The fundamental criterion for classifying masterservant relations is the right to give orders and instructions to the servant on the manner in which his work will be done.”

According to the testimony (by Messrs Lafleur, Polis and Denis Beaudry), no one in authority in the CDT has the competence or authority to direct, criticize or review the opinions or work of professors (paragraph 3.05(d)).

Additionally, according to Exhibit 1-1 it is the school which undertakes to do the work (paragraph 3.02(e)). The appellant Lafleur is not even a party to the contract. A clause simply provides that he will supervise the work. Further, in order to protect itself the school pays for liability insurance on sponsored research (paragraph 3.05(n)).

Section 3 of the general directive is more specific:

The school has made the CDT responsible for co-ordinating the provision of, and for administering, the services described above (sponsored research, rental of equipment, and so on), in light of the responsibilities directly devolving on the other research centres of the school (CINEP and IREM) and of the authority which must be exercised by department and institute directors over the assignment of their staff and the use of their facilities and equipment.

At first sight it appears that anyone who has the responsibility of coordinating the provision of, and of administering, the services is the person who takes full responsibility for the project. This interpretation appears to be confirmed by the wording of contract A-2 (paragraph 3.02(d)).

Additionally, it appeared from the testimony of Mr Beaudry that the Centre’s work consists primarily of accounting preparation for the budget and coordinating staff who will work together, and the equipment which will be used, on the project, in light of the use of staff and equipment for other purposes at the school and other projects. In short, this is what appears to be meant by the end of section 3, cited above, beginning with “in the light of the responsibilities”.

This interpretation appears to be confirmed by the key provisions of the general directive cited above, regarding billing for direct costs and additional amounts for general costs (paragraphs 3.05(j) and (k)).

Further, in direct costs (paragraph 3.05(j)), reference is made to “fees of professors” involved in the project. The substance of the research is apparently done by a professor who supervises the work of men and machines. I would tend to accept this interpretation, which would however appear to contradict contract A-l.

In fact, the appellant is not subject to direction by the CDT in his working hours, except for the year as a whole, in which he cannot spend more than 20 per cent of his ordinary working time on sponsored research (paragraph 3.05(h)). There is nothing to prevent him from working on weekends and on his days off.

Finally, as Dubinsky, J observed in G L Engineering Ltd v MNR:

. . . the circumstances which existed rather than the declarations of the parties, eg calling themselves independent contractors, are determinative of the parties’ real relationship.

This criterion of control offers both pros and cons, that is, fundamental arguments supporting the case put forward by the respondent and that of the appellant Lafleur. In order to shed more light on the matter, the other criteria need to be examined.

4.03.7 The criterion of the economic reality

In this connection it is worth citing the judgment of Lord Wright in Montreal v Montreal Locomotive Works Limited , [1947] 1 DLR 161, at 169:

The great difference of opinion on this question in the Courts below illustrates the difficulty which is inherent in deciding a question like this. In earlier cases a simple test, such as the absence or presence of control, was often relied on to determine whether the case was one of master and servant, mostly in order to decide issues of tortious liability on the part of the master or superior. In the more complex conditions of modern industry, more complicated tests often have to be applied. It has been suggested that a fourfold test would in some cases be more appropriate, a complex involving (1) control; (2) ownership of the tools; (3) chance of profit; (4) risk of loss. Control in itself is not always conclusive. Thus the master of a chartered vessel is generally the employee of the shipowner though the charterer can direct the employment of the vessel. Again the law often limits the employer’s right to interfere with the employee’s conduct, as also do trade union regulations. In many cases the question can only be settled by examining the whole of the various elements which constitute the relationship between the parties. In this way it is in some cases possible to decide the issue by raising as the crucial question whose business is it, or in other words by asking whether the party is carrying on the business, in the sense of carrying it on for himself or on his own behalf and not merely for a superior.

In the case at bar the tools are the property of the school, which weighs in favour of the respondent’s argument. Although a professor can rent them in his own name (paragraph 3.05(1)) to do his sponsored work, the appellant Lafleur did not rent them personally in the work entered in evidence in the Court. However, rental by the appellant could favour his own argument.

As regards the “chance of profit”, it can be said first that up to a point the school receives a profit by the additional amount of 35 per cent for general costs. This 35 per cent is calculated on the direct costs as a means of aiding the CDT operations fund and the CDT revenue fund of the department concerned (paragraphs 3.05(e), (j) and (k)). The professor takes the balance after the direct costs and the general costs have been deducted. However, it was established (and this may be applicable in determining the “risk of loss”) that if the costs are higher than expected the professional fees of the professor may be proportionately reduced or even obliterated. The professor is also required to absorb reception expenses in some cases (paragraph 3.05(m)).

In Thomas Alexander McPherson Cattanach, J considered as determining control:

. . . by the simple expedient of providing him with an allocation of funds or a budget. If the appellant exceeds that budget he is required to bear the excess over the budget himself and this happened on one occasion when the appellant exceeded his budget by $9,000. He made up the over expenditure by going out and obtaining a grant from a public spirited person. This, in my view, is a most effective method of control. What matters is the right of control where there is scope for it and in the case of the appellant such control exists if only in incidental or collateral matters.

McPherson concerned a hospital which made the appellant, a doctor, responsible for a budget. The Court held that the hospital exercised control over the doctor by the budget for which he was responsible. The appeal was dismissed.

In the case at bar, on the other hand, the budget is fixed or approved by the sponsor following agreement with first the appellant and then the school. The argument of Cattanach, J does not appear to have the same force here.

Accordingly, in applying this criterion there are points for and against the appellant, and it would appear that the effect is neutral.

4.03.8 The criterion of the specific result

As Cardin, J properly noted in Hauser, this criterion was adopted by Jackett, CJ in Alexander, cited above, and by Dubinsky, J in G J Engineering Ltd. He writes that it seems evident that what is an appropriate approach to solving the problem in one type of case is frequently not a helpful approach in another type:

On the one hand, a contract of service is a contract under which one party, the servant or employee, agrees, for either a period of time or indefinitely, and either full-time or part-time, to work for the other party, the master or the employer. On the other hand, a contract for services is a contract under which the one party agrees that certain specified work will be done for the other. A contract of service does not normally envisage the accomplishment of a specified amount of work but does normally contemplate the servant putting his personal services at the disposal of the master during some period of time. A contract for services does normally envisage the accomplishment of a specified job or task and normally does not require that the contractor do anything personally. [My emphasis.] If in this case the appellant had been given a post to work as a radiologist in the hospital full-time for an indefinite period of time at an annual salary there could, I should have thought, have been little doubt that he was an officer or employee of the hospital.

In the case of Mr Lafleur, it was admitted that he is an employee under his contract of employment with the school. However, in the work done in connection with sponsored research, he was hired first by a sponsor (a third party whom he found himself) for a well-defined task (calculating the resistance of materials, and so on), and not for a period of time, even though the work must be done within a time limit. I am inclined to feel that this is a business.

4.03.9 The criterion of integration

To fully understand this criterion, it is necessary to cite Cattanach, J in Thomas Alexander McPherson v MNR, NR 91, March 24, 1976:

In the earliest cases the simple test of absence or presence of control was relied upon if the relationship was one of master and servant, such as scullery maid and were mostly in order to determine tortious liability on the part of the master.

In the complexity of modern times other tests have been propounded of necessity. In the net result the various elements of the relationship between the parties must be examined with extreme care and one crucial issue which can be determinative of the relationship between the parties is whose business was it. Is one party carrying on the business in the sense of carrying it on for himself or on his own behalf and not merely for a superior, but despite this the element of the right to control still remains an important test and cannot be disregarded.

Over the years, the courts have sought to lay down rules for our guidance in determining the nature of the link existing between the parties. One of the criteria often cited is the one formulated by Lord Denning in Stevenson Jordan and Harrison, Ltd v MacDonald and Evans, [1952] 1 TLR 101, at 111, where he says:

One feature which seems to run through the instances is that, under a contract of service, a man is employed as part of the business, and his work is done as an integral part of the business; whereas, under a contract for his services, his work, although done for the business, is not integrated into it but is only accessory to it. [My emphasis]

This test appears to be difficult to apply here at first sight, as there is a third party in the case, namely the sponsor. It is in fact the principal party in question. In speaking of integration, surely the reference is to its business. Here the work of the appellant and the school, regarded as a whole, is not integrated in the business of the sponsor: that is clear.

In using the criterion, the question should actually be put as follows: is the sponsored research an integral part of the school?

In this connection it would appear that, since 1971, sponsored research has been an integral part of the school, while before it was a function of the professors. The school was unaware of it at that time and allowed the professors to do it. However, when it was integrated, was only the administration of costs integrated or the substance as well?

In this connection, I am inclined to feel that the professors retained the substance, as it is they who in fact do the research and sign the reports.

4.03.10 The criteria taken as a whole appear to favour the appellants’ argument.

4.03.11 Mr Polis: income and expenses

4.03.11.1 The evidence was that the amount of $2,612 was entered as income, and the amount of $2,500 was earned in 1976. The consequences of a strike of the employees were that Mr Polis was not paid until February 1977 (paragraphs 3.06(d) and 3.07(a)). As this was business income, this amount was due and even payable in 1976, and is accordingly taxable in 1976.

4.03.11.2 Expenses

The expenses claimed total $949.27 in 1977 and $833.67 in 1978 (paragraph 3.06(1)). The representation and stationery costs are allowed. On rent, he is claiming one seventh of taxes and interest. On insurance, electricity and heating, a claim is made for the balance after deducting $100.

The evidence is that the office was one of seven rooms in the house. This does not necessarily mean one seventh of the house. Of course, allowance must be made for the fact that the office is not used exclusively for the purposes of professional work. The Court thinks it is reasonable to allow 10 per cent of taxes, interest, insurance, electricity and heating expenses. One third of the telephone expenses is allowed.

4.03.12 Mr Lafleur: expenses

The expenses of the appellant are summarized in paragraph 3.03.

First, the Court cannot allow the rental of $1,000 as submitted by the appellant. If this is rental, it should be included in his income. The cost of the office used should be calculated in terms of the expenses of the house. No evidence was presented in this regard. However, as in the case of Mr Polis, in order to resolve the problem the Court will allow 10 per cent of the insurance and interest. One sixth of the automobile expenses is allowed (see paragraph 3.04). The representation expenses at conferences are allowed in their entirety. With regard to expenses for social activities, after an examination of the exhibits the sum of $300 is allowed. The telephone expenses are allowed as claimed, namely $135.37 (one third of $406.10).

5. Conclusion

The appeals are allowed in part and the whole is referred back to the respondent for reassessment in accordance with the foregoing reasons for judgment.

Appeal allowed in part.