Jean Thibault v. Minister of National Revenue, [1983] CTC 2211, 83 DTC 182

D E Taylor:—This is an appeal heard in Montreal, Quebec on November 19, 1982, against an income tax assessment for the year 1977 in which the Minister of National Revenue refused to allow a deduction of $3,123.45 claimed by the appellant as “business expenses” against the income earned in that year. The respondent relied, inter alia, upon sections 3, 5, 8(1 )(a), (h) and (i), 8(2) and 248(1) of the Income Tax Act, S.C. 1970-71-72, c. 63, as amended. Some of the documentation and evidence presented was in English, some in French, but since the major arguments were given by the parties in the English language, this decision will be written in that language.

The notice of appeal contains both fact and assumption on the part of the appellant, but it sets out the situation quite completely:

When I first filed my return for 1977 I was not sure of where exactly I should enter my income and consequently entered it under salary because I was led to believe that the fact that I was paid via “T-4’s” left me no choice in the matter.

However, I clearly established in my notes (dated May 1st, 1978 entitled “calculs et explications”, and enclosed with above mentioned income tax return) that I considered myself to be self-employed.

Having had an opportunity to review this matter, it appears that you have assessed me as an “employee”.

Let me demonstrate that I am not an employee.

In 1977 I obtained nine (9) different contracts from five (5) different institutions. All of these contracts were similar (refer to enclosed example), and non-restrictive in the sense that I was able to establish as many contracts as I wished, for any kind of work, and in any number of similar or different types of institutions for the same kind of work.

All of these contracts differ from employee contracts in so far as employee contracts impose certain restrictions (for example, as to outside employment), and include a number of added benefits (including of course a provision for expenses when working off-campus, for example).

Furthermore my contracts were for the most part concurrent, and obliged me to provide my services in different locations. Also, in practice I had the liberty of establishing or modifying lecture hours and could make them regular or irregular.

Add to that the fact that whatever teaching methods I used were completely at my own discretion, thus even the fact of actually giving what could be considered to be “lectures”. For these and related matters, the only control which I ever submitted to was the goodwill of my students.

I was furthermore at liberty to establish the location of my lectures out of individual colleges jurisdiction. (Which I did, for example, at home over the weekend in one case, and in improvised quarters in another case when an illegal strike forced one particular college to close temporarily).

The degree of independence that I had should be obvious if you consider that I determined myself what the actual subject matter of the courses would be, within certain very broad limitations. — A number, a title and broad areas supposed to be covered were the only specifications ever provided (For example, #401-925, Personnel, being a general course on personnel administration).

Finally, l was the only person who could decide if a student had fulfilled course requirements, fact which I . .. demonstrated in practice whenever I felt it was necessary to do So.

Please refer again to photostat of contract which clearly shows that the college does not consider me an employee.

Also, an employee is entitled, by law even, to many things to which I was not entitled, and certainly never felt inclined to claim: severance pay, for example.

From the above I have established that I am an independent contractor:

— I was under no restrictions in my field of endeavour.

— I was able to provide the same services independently and without restrictions at different establishments at the same time.

— No actual control other than as to the general type of course was exercised over me.

My notice of assessment indicates that you are disallowing all of my office and travel expenses.

Attached you will find a copy of form “T2200” completed by personnel department at Vanier College.

This form clearly indicates that in order to meet my contractual obligations I was obliged to defray myself the office and travelling expenses which you have disallowed completely.

In conclusion, I have clearly established that I am entitled to the office and travelling expenses which I have claimed and trust that you will revise my assessment accordingly.

In responding, the Minister noted that the assessment had taken into account several factors, notably “control”; “(lack of) ownership of tools or instruments for work”; “opportunity for profit and risk of loss”; and “integration of the appellant’s work into that of the payors”. In addition, the contracts signed by the appellant resulted in the deduction of unemployment insurance contributions, as well as those for union dues, etc., and finally, the provision of “T-4” slips. Based upon these factors, the Minister concluded the appellant was an employee, and the assessment was struck accordingly.

The details of the deduction claimed showed that $2,022 was for automobile expenses, and $1,123.45 for “rent” for the portion of his personal residence dedicated to his business, as alleged by the appellant. The Minister took particular exception to the “rent” expense, noting that the “contracts” did not require the appellant to provide an office.

In summary, the Minister took the position that the appellant was an employee and, as an employee, he had not demonstrated that the “contract(s) of employment” were such that the expenses he claimed fell under the relevant provisions of the Income Tax Act. The appellant conversely spent little effort to counter the Minister’s contention on that point. He seemed to eschew laying claim to the deductions as an employee. Rather he took the position throughout that he was a “businessman” and, as such, was entitled to the deductions. It should be noted, however, that testimony adduced by the respondent from a Mr. Norman Schaffer, Controller of Personnel Services of C.E.G.E.P. of Rosemont, Quebec, would leave little room for any contention by the appellant that he would be entitled to the deductions claimed as an “employee” and, accordingly, his claim does come down to the “employee v independent contractor” scenario.

The testimony and evidence were in most aspects similar to that which has been presented to the Board in other cases wherein a teacher has claimed expenses. The case law and authorities relied upon by counsel for the respondent is replete with such information, and the cases of Rosen, Molot, Ladd and Hecht* [1] were particularly emphasized. While not referenced at the hearing, I would also add the cases of Brian E Forst v. MNR [1982]CTC 2053; 82 DTC 1056; E Libera v. MNR [1981] CTC 2298; 81 DTC 276; and J A Cork v MNR, [1981] CTC 2367; 81 DTC 346 — all of which deal with the subject of “business v. employment income” under more general circumstances, as opposed to a specific teaching environment.

I am impressed by the acknowledged efforts of Mr. Thibault in this matter to arrange his affairs so that he could provide instruction and instruction material in a range of particular courses for which he believed he had special expertise, which courses were not generally available in the school curricula. His alleged intention was to do so in a manner which would eventually leave him considerable personal and professional flexibility and latitude. His logical contention is that he could not have supported himself, had he been restricted to dealing with just one school — there was not sufficient demand in one place. Accordingly, he essentially went out and actively pursued — indeed sold — his expertise to various schools under differing arrangements and at different times. I can believe him when he says that it was his objective to become “independent” in this way, and thereby in his mind to have his own “business”. I do not doubt that during the period under review he pursued this goal arduously, including the development and provision of certain of his own course material and outlines. Unfortunately, his efforts did not prove that there was a viable “business” opportunity there, and he is no longer pursuing that goal. For that result, to some degree he lays the blame on Revenue Canada for not allowing the expenses he incurred — at least those he claimed. He believes that the disputed taxation resulted largely from the fact that he was usually required to sign a standard form of “employment” contract similar to that which has been referenced in many previous income tax cases.

The jurisprudence leans heavily on this “contract” for dismissing many such appeals. The complaint of the taxpayer, in effect, is that the school should not have made deductions but rather left such matters to the discretion of the taxpayer. The policy of the schools in requiring that these employment contract forms be signed and deductions made may be based on the understanding of the school administration that the liability for such deductions rests initially with the schools. It may appear to this appellant as a “Catch 22” situation — a teacher cannot get the position or assignment desired without the contract form, and the contract form carries with it the deductions. However, the contract form is more than just a form permitting such deductions — it provides the basis for the control of the teachers’ activities by the school. It might well be argued that positive indications of “economic rality”, “integration” and “specific result” noted in the jurisprudence above, as far as the paying institution is concerned, devolve from the ultimate ability to “control” and, where control or the right to control is established, these ancillary factors may warrant less detailed review.

The only major distinction between the instant case and that of Molot (supra) is that this appellant made arrangements with various teaching institutions whereas Molot dealt only with one institution. I have not been presented with a cogent argument which would make that distinction one of merit and, to that degree, the result must be consistent with Molot (supra). However, another point has troubled me considerably in reviewing this appeal. How do I distinguish this appellant from a lawyer, accountant, engineer, etc., apparently doing the same thing as this appellant alleges that he did — setting out to sell professional expertise to a range of “clients” while retaining his own independence and decision-making capability? On the surface there would seem to be little distinction to be made, and this appellant eloquently highlighted that point for the Board. But this appellant is assuming that a lawyer, accountant, engineer, etc., could do precisely that which he did and still somehow retain that elusive designation “businessman”. In my view, there is a point of distinction that must be drawn. It would appear to me that even if a taxpayer (lawyer, accountant, engineer or teacher) sets out with the avowed purpose of putting himself into business, but in the process of so doing, he enters into a contract(s) providing another party with the elements of control — (that is he signs a personal service contract), then for the purposes of the Income Tax Act his alleged plan of business definition has been aborted. An independent contractor by definition may enter into separate business arrangements with several parties. But if one or all of those contracts can be described as a “contract of service” rather than a “contract for service”, then the “business” identification is clearly at risk to that extent when challenged by the Minister. The teaching profession may leave less room for the “independent contractor” to operate than that which obtains for some other professions because of the requirement to co-ordinate all efforts toward one single objective — education, according to the standards and policies established for the institution. I would make reference to the lucid examination of that point in the judgment of Mr. Justice Cattanach in Thomas Alexander McPherson v. MNR, (dated March 26, 1976 and cited as NR-91), an appeal under the Unemployment Insurance Act.

Personal service contracts are not transformed into business contracts simply by grouping several of them together, by associating them with “business” as opposed to an “employee” intention on the part of the taxpayer, or by the subjective interpretation of them by the taxpayer.

Decision

The appeal is dismissed.

Appeal dismissed.