Brian E Forst v. Minister of National Revenue, [1982] CTC 2053, 82 DTC 1056

D E Taylor:—This is an appeal heard in Vancouver, British Columbia, on October 20 and 22, 1981, against income tax assessments for the years 1975, 1976, 1977 and 1978, arising out of the fact that the Minister of National Revenue assessed the taxpayer on the basis that he was an employee, not an independent contractor. In so assessing the Minister of National Revenue disallowed expenses claimed in the following amounts: 1975 — $3,521.31; 1976 — $9,268.59; 1977 — $9,116.03. Flowing from this, the Minister did not permit the taxpayer to use the general averaging provisions of the Income Tax Act for the year 1978. In addition, the Minister had disal- lowed deduction of $15,000 for two years, based upon the income-averaging annuity provisions of the Act. The respondent relied, inter alia, upon sections 5, 6, 8, 18, 61 and 248 of the Income Tax Act, SC 1970-71-72, c 63, as amended.

In the net result, the parties agreed that the issues to be placed before the Board were two, with a possible third depending on the outcome of the first two. First, the Board was requested to decide whether the appellant was an employee or an independent contractor; second, to determine whether as a “radio artist” (or some similar appellation), he was entitled to the $15,000 income-averaging annuity deductions; and finally, in the event that the appellant was declared to be an independent contractor by the Board, to determine whether part or all of the expenses claimed and disallowed were appropriate.

With regard to the year 1978, it was agreed that the same situation held — that only if the appellant were successful in establishing his “independent contractor” status would the Board be required to examine this matter. In the interest of time the parties dealt with the first and second issues at the hearing and agreed to an adjournment so that the Board could consider the evidence presented, and make a decision on these points. Accordingly, in the event that the Board reached the conclusion that the appellant was an “independent contractor”, the hearing would be resumed for the sole purpose of the parties presenting evidence on the quantum of the expenses deductible; whereas, if the Board reached the conclusion that the appellant was an employee, there would be no need for a further hearing, and at least that part of the appeal would be dismissed. The sole item related to the “independent contractor” issue which was critical to this appeal, was the income (whether salary as an employee, or fees as an independent contractor) which arose out of his relationship with Radio NW Ltd (“NW”) in Vancouver, BC. It was acknowledged by the Minister that the appellant had earned other income from the use of his talents, and no effort was made to establish that he was or was not an “independent contractor” with regard to these other amounts, separate and distinct from his efforts for NW. If that remained an issue between the parties after this decision, it would be left to them to consider it.

With respect to the year 1975, it was also agreed by counsel for the appellant that only those expenses (if any at all were deductible) which were incurred after September 1, 1975 should be allowed. Brian Forst had been an employee of NW from January 1, 1975 to August 31, 1975, whereupon commencing September 1, 1975 he formed the proprietorship “Forst Productions” (not a limited company), and thereafter conducted his affairs under that name and style, with a fiscal year running September 1 to August 31 each year. Again, the quantum of expenses properly deductible would only arise as an issue before the Board in the event the appellant was declared by the Board to be an “independent contractor” from September 1, 1975 forward. This decision will deal only with the “independent contractor” and the “radio artist” disputes, and the decision of those issues will determine whether a further hearing will be required. In reviewing the evidence and testimony, various terms such as “broadcaster”, “artist”, “program director”, “entertainer”, “host”, etc., may occur. Nothing is to be attached to the use of these or any similar words, the process involved being to determine that what Mr Forst was, according to the Income Tax Act and the jurisprudence, not to question that which he was called or called himself.

The primary points made in the Notice of Appeal and the Reply to Notice of Appeal on which the parties were in agreement, as I understand them, were:

Prior to the years under appeal and during the period in issue, the appellant was at all times a Broadcaster for N.W.

Prior to the 1975 taxation year, the appellant reported his income from N.W. as employment income. Starting on September 1, 1975, the income from N.W. was reported as professional income.

On March 15, 1974, the appellant entered into an Agreement with N.W. to provide his services to N.W. for the period May 1st, 1974 to April 30, 1976.

The 1974 contract provided that:

(a) the appellant carry out all functions expected of the morning host in the time period from 5 to 8:30 A.M. for 5 days per week.

(b) the appellant be responsible for the preparation and conduct of the programs,

and accept counsel and direction from the C.K.N.W. management.

(c) payment for the appellant’s services be made monthly on the basis of a specified annual amount.

(d) C.K.N.W. pay the lease costs for an automobile and provide gasoline privileges to the appellant.

(e) the appellant guarantee his exclusive broadcast services to Radio N.W. Ltd.

(f) C.K.N.W. provide, at no cost to the appellant, a replacement for his vacation period.

(g) the appellant undertake not to take vacations during BBM periods or the two weeks prior to such periods, and not to take more than 3 weeks vacation at one time.

During the years under appeal, the appellant either in his name or in the name of his proprietorship, Forst Productions, entered into further agreements with N.W. for his services.

By letter dated August 26th, 1975, the appellant’s accountant informed N.W. that the appellant’s future cheques should be made out to Forst Productions, however, all deductions, except the one for income tax, to remain the same.

During the years under review, the appellant performed services for other agencies, radio and television stations. The financial returns from these were small, and reported as income.

Contentions

For the appellant:

The Minister erred in assessing the income as income from office or employment within the meaning of Subsection 5(1) in that I am a contract performer and do not enjoy an employee/employer relationship with Radio ‘NW and in fact am precluded from any benefits or advantages normally accorded their employees and further there is no obligation by them beyond the period of the contract. As a contract performer I provide services to other businesses either through Radio ‘NW, as agent, or through my resources. Accordingly the expenses incurred in generating this income should be allowed as they are both reasonable and related to the income earned.

Further that the Minister erred in disallowing the deductibility of Income Averaging Annuities purchased with respect to earnings as a contract performer under Section 61 [(1)](b)(iii) or alternatively Section 61 [(1 )](b)(iv).

For the respondent:

The appellant was at all material times an employee of N.W.

No employment relationship could exist between the appellant’s proprietorship and the appellant.

There was no bona fide business purpose for the interposition of Forst Productions in the employment relationship between N.W. and the appellant.

The amounts claimed as deductions by the appellant were not expenses incurred for the purpose of gaining income from a business but were personal or living expenses of the appellant.

The appellant was not a public entertainer such as a theatre, motion picture, radio or television artist.

Evidence

The appellant as well as Mr Ted Smith, president and general manager of NW, testified regarding their views of the independence provided to Mr Forst in the performance of his task; the recognition that only in this way could he perform; that the program constantly gained first rating with the listeners; that Mr Forst had a unique talent which allowed him to integrate into a highly desirable package the various elements of humour, music, weather, sports, travel and road conditions, news events, etc. the program was supported by advertising revenue, and he was given considerable freedom in dealing with the advertisements, often assisting in writing them himself. The general thrust of their testimony was that Forst provided an entertainment package and, in so doing, carefully scrutinized the various elements impinging on that package — the general content, the people assisting him, and, in particular, the music organization and scheduling. The appellant recalled certain instances where he had not taken up the suggestions of the president and general manager, and Mr Ted Smith corroborated the degree of latitude left to Mr Forst. The contracts between Forst and NW were entered and discussed with the parties.

The respondent, through a Mrs Judy Anderson from the staff of NW, produced copies of the payroll records. Counsel emphasized the areas therein which would support the contention that Forst was an employee. Counsel for the appellant provided the various witnesses, including Mrs Anderson, with opportunities to explain why the special circumstances with Mr Forst made it either easier or simply good business practice to make some deductions as if he were an employee, and to provide him with certain benefits normally considered as coming to an employee.

The evidence considered by each counsel to be significant was summarized in argument, and certain selected parts are dealt with in the argument portion of this decision in more detail.

Argument

Counsel for the appellant presented a summary of his argument with regard to the two points being considered:

(Re: Independent Contractor)

1. The business or proprietorship, Forst Productions, is not a separate legal entity or a separate entity for tax purposes from Brian Forst.

2. The situation is not to be compared to where a corporation is interposed between the individual who provides the services and the entity to which the services are provided.

3. The only effect is that the business or proprietorship Forst Productions has adopted August 31 as its fiscal year-end.

4. There is a business or proprietorship called Forst Productions which has income.

5. The issue is whether Mr Forst is an employee of Radio NW Ltd or whether Forst Productions provides his services to Radio NW Ltd.

6. Most of the 1975 Income to August 31, 1975 should have been reported as employment income, but the income thereafter is correctly reported as business or professional income.

7. Regardless of whether his income is from employment or from the business of providing services, Mr. Forst can annually purchase an Income Averaging Annuity and claim a deduction pursuant to subsection 61(1).

8. Mr. Forst has developed a highly marketable commodity as a unique radio personality which he sells to Radio NW Ltd.

9. When Mr. Forst changed from being an employee to being self-employed, he exercised an option legally available to him.

10. Although the contracts retain certain phrases inferential of an employeremployee relationship the evidence shows that the true relationship was one of the provision of services.

11. Other Income was earned by Forst Productions.

12. If Mr. Forst had continued as an employee of Radio NW Ltd. he could not have worked for others.

13. The work conditions are not consistent with that of an employer-employee relationship.

14. Mr. Forst is not an announcer or a disc-jockey. He is a radio artist.

15. Mr. Forst is in a business with a high mortality rate.

Deduction for payments made to purchase an Income Averaging Annuity.

Statutory Provisions:

Subsection 61(1) permits a deduction in respect of:

(b) (iii) the individual’s income for the year from the production of a literary, dramatic, musical or artistic work;

(iv) The individual’s income for the year from his activities as an athlete, a musician or a public entertainer such as a theatre, motion picture, radio or television artist.

The availability of this deduction does not depend on whether the individual is an employee or self-employed, so if Mr. Forst’s income fits within the descriptions in

(iii) or (iv), he is entitled to the deduction regardless of whether or not he is established to be self-employed.

Dictionary Definitions:

“Production”

Webster’s Dictionary:

1. Something that is produced naturally or as the result of labour and effort.

(Example)

“Skillful artisans, whose choice productions could secure a ready sale”

2. A literary or artistic work.

3. The staging or performing of a theatrical entertainment.

Webster’s New Collegiate Dictionary:

4. A work presented on the stage or screen or over the air.

“Artistic”

Webster’s Dictionary

1. Characterized by taste, discrimination and judgment or by art and skill.

Webster’s New Collegiate Dictionary:

2. Showing imaginative skill in arrangement or execution.

Webster’s New World Dictionary:

3. Done skillfully and tastefully.

“Work”

Webster’s Dictionary and Webster’s new Collegiate Dictionary:

1. Something produced or accomplished by effort, exertion or exercise of skill.

2. Something produced by the exercise of creative talent or expenditure of creative effort.

3. Artistic production — including writings, musical, dramatic and cinematographic works.

“Entertainer”

Webster’s Dictionary:

1. One who entertains.

“Artist”

Webster’s New Collegiate Dictionary:

1. Skilled performer.

Webster’s Dictionary:

2. A usually adept or skillful public performer or entertainer.

Webster’s New World Dictionary:

3. A person who does anything very well, with imagination for form, effect, etc.

Submission:

The evidence establishes that Mr. Forst’s income comes from a production (something produced as the result of labour and effort) of an artistic (showing imaginative skill in arrangement or execution, characterized by taste, discrimination and judgment or by art and skill) work (something produced or accomplished by the exercise of creative talent or expenditure of creative effort). Also, his activities are those of a public entertainer (one who entertains) such as a radio artist (a usually adept or skillful public performer or entertainer who does something very well, with imagination for form, effect, etc.).

Counsel stressed the virtual lack of control or direction exercised over Mr Forst by NW, as evidenced by both the appellant and Mr Ted Smith. Further, the indications in the payroll records of the status of an employee for Mr Forst had been appropriately explained by the other witnesses — that they were done that way simply for convenience, and that they did not consider Mr Forst as an employee. Two particularly critical comments made by counsel should be noted:

And if I put that question to myself and say, well, whose business is it, I think that the answer is it’s Mr. Forst’s business. He’s in the business of creating an entertainment package to sell to CKNW. (italics mine)

Well, CKNW would obviously still be in the radio business without Frosty Forst and it would still have a morning show and it would still find another format. The unique format of Frosty Forst isn’t available except from Frosty Forst, (italics mine)

With regard to the “income-averaging annuity” issue, it was the view of counsel that section 61 of the Income Tax Act (SC 1970-71-72, c 63, as amended) did not indicate any narrow view, but that it applied to all who could qualify — simply Mr Forst’s income was from the “production of a literary, dramatic, musical or artistic work” (paragraph 61 (1)(iii), or it was from “his activities . . . as . . . a .. . radio . . . artist’. (61 (1)(iv) )

Counsel for the respondent dealt first with the “income-averaging annuity” issue, and pointed out that the relevant section should indeed be interpreted in a narrow sense. It was intended, according to counsel, to provide a format for deferral of some tax in situations where the taxpayer’s income fluctuated greatly — e.g. where a writer might spend three years writing a book with virtually no income during that time, and then receive a great deal of income in the fourth year.

As to the “independent contractor” issue, the contracts themselves could only be interpreted one way — that he was an employee. There were indications throughout the contracts, and in the process of remunerating Mr Forst which were entirely consistent with the status of an employee. In essence, Mr Forst was allowed a great deal of latitude, perhaps little control was exercised — but that was strictly dependent on the public ratings. If the ratings started to drop, or if Mr Forst went too far in any direction, management would simply step in and correct it. Counsel acknowledged that Mr Forst’s show was extremely popular, and had remained that way for the 10 or more years he had been at NW. Those factors, however, were equally applicable to an employee status, and did not prove the appellant’s case.

Jurisprudence was cited by the parties in support of their positions, and included specific references to:

No 113 v MNR, 9 Tax ABC 25; 53 DTC 308;

Dr William H Alexander v MNR, [1969] CTC 715; 70 DTC 6006;

Decisions between:

Canadian Broadcasting Corporation and the Minister of National Revenue In re the Unemployment Insurance Act, 1971 NR 25, 26 and 28;

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

Reginald Hibbert Boardman v Her Majesty the Queen, [1979] CTC 159; 79 DTC 5110;

Paul Hecht v MNR, [1980] CTC 2513; 80 DTC 1438;

Richard J Haynes v MNR, [1980] CTC 2616; 80 DTC 1510;

Henry L Molot v MNR, [1977] CTC 2170; 77 DTC 111:

Donald B MacDonald v MNR, [1974] CTC 2204; 74 DTC 1161.

Certain phrases in the three agreements were referenced by counsel and the entire agreements are quoted hereunder. The amounts involved are not at issue, and they have been deleted from the contracts.

Exhibit A-1

CKNW/98

March 15th, 1974

Dear Brian:

Re: 1974/75 — 1975/76 Contract Agreement

This letter will serve as an agreement between Radio NW Ltd. and Brian Forst for your services as breakfast show host, and becomes effective May 1st, 1974.

You will act as morning personality on CKNW, and will carry out all functions expected of the morning host in the time period from 5:00 a.m. — 8:30 a.m., five (5) days a week. You will be responsible for the preparation and conduct of the programme, and will accept counsel and direction from CKNW Management. You will aalso perform such announcing duties as required from time to time by CKNW under what is termed as “production”.

You will also act as Music Director for CKNW and carry out those duties which are incumbent upon that position.

The terms of this agreement will be two years with an effective starting date of May 1st, 1974, and will be in effect until April 30th, 1976. Negotiation for subsequent contract will start no late than ninety (90) days before the expiration of this contract, and will conclude no later than sixty (60) days before the expiration.

Payment for your services by CKNW will be on a monthly basis .. . per year for your services as early morning personality, and .. . per year for your services as Music Director for the first year of the contract. Payment for the second year will include an additional fifteen percent (15%).

You will be paid ten percent (10%) of the net billing on the Early Bird portion (from 5:00 a.m. — 6:00 a.m.) of the programme for the first year of this agreement, and fifteen percent (15%) the second year.

Additional fees will be paid for services other than those outlined in this agreement.

CKNW will pay all lease costs for a station identified automobile and agrees to give you gasoline privileges at a service station to be designated by CKNW.

In the event you are not able to fulfill your duties because of illness, CKNW will carry on payment for the first day of such illness. From the second day, for a period of three months, payment will be sixty percent (60%) of the basic rate in accordance with Radio NW’s Sickness Protection Plan.

If you are unable to perform duties for any reason than certifiable illness or accident, you will be responsible for payment for a replacement acceptable to CKNW for a period no longer than five (5) working days. At that time, this agreement will be suspended until you are able to resume full duties.

This agreement guarantees your exclusive broadcast services for Radio NW Ltd., and confirms that any assignment involving other media must be cleared with CKNW Management and must not interfere with the requirements implied in this agreement.

CKNW will provide, at no cost to you, a replacement for a vacation period of four (4) weeks, plus five (5) days, one of those days to be Boxing Day. Four (4) of these days can be taken as part of a 3-day weekend. This is inclusive of statutory holidays. It is understood that vacations cannot be taken during BBM periods or for two weeks prior and no more than three (3) weeks vacation can be taken at any one time.

Sincerely,

RADIO NW LTD.

Agreed by:

Hal Davis Date:

Manager

HD:vh

Exhibit A-2

CKNW/98 815 McBride Plaza New Westminster, BC V3L 2C1 Phone 522-2711

August 27th 1975

Mr. Brian Forst,

21318 — 32nd Avenue,

R.R.1 Langley B.C.

Dear Brian,

re: 1975/76 Contract Agreement

This letter will serve as an agreement between Radio NW Ltd. and Brian Forst and/or Forst Productions for your services as Breakfast Show Host, replacing all other agreements and becoming effective September 1st 1975. This agreement may be assigned to a limited company on the obtaining of the written consent of Radio NW Ltd., such consent not to be unreasonably withheld.

You will act as morning personality on CKNW and will carry out all functions expected of the Morning Host in the time period from 5:00 am to 8:30 am five days a week. You will be responsible for the preparation and conduct of the program, and will accept counsel and direction from CKNW Management. You will also perform such announcing duties as required from time to tiome by CKNW under what is termed as “Production”.

You will also act as Music Director for CKNW and carry out those duties which are incumbent upon that position.

You will act as host of the daily Road Show during the vacation period of the regular program personality to a maximum of three weeks per year, but no more than two weeks at any one time.

The terms of this agreement will be for one year with an effective starting date of September 1st 1975 and will be in effect until August 31st 1976. Negotiations for a subsequent contract will start no later than ninety days before the expiration of this contract, and will conclude no later than sixty days before the expiration.

Payment for your services by CKNW will be on a monthly basis at a rate of . . . per year for your services as Early Morning Personality and .. . per year for your services as Music Director.

You will be paid 15% of the net billing on the Early Bird portion from 5:00 am to 6:00 am.

Additional fees will be paid for services other than those outlined in this agreement.

CKNW will pay lease costs for a station identified automobile to a maximum value of $235.00 and agrees to give you gasoline privileges at a service station to be designated by CKNW. You will be responsible for excess mileage and any repairs or maintenance on the vehicle in excess of $235.00, and CKNW reserves the right to recover $25.00 toward your gasoline purchases.

In the event you are not able to fulfill your duties because of illness, CKNW will carry on payment for the first day of such illness. For the second day, for a period of three months, payment will be sixty-six percent of the basic rate in accordance with Radio NW Ltd. sickness protection plan.

If you are unable to perform duties for any reason in uncertifiable illness or accident, you will be responsible for payment for a replacement acceptable to CKNW for a period no longer than five working days. At that time this agreement will be suspended until you are able to resume full duties.

This agreement guarantees your exclusive broadcast service for Radio NW Ltd. and confirms that any assignment involving other media must be cleared with CKNW management and must not interfere with requirements implied in this agreement.

CKNW will provide at no cost to you, a replacement for a vacation period for a total of six weeks plus Christmas Day, Boxing Day and New Year’s Day. This is inclusive of statutory holidays. It is understood that vacations cannot be taken during BBM periods or for two weeks prior, and no more than three weeks vacation can be taken at any one time.

H.L. Davis	Brian Forst
Manager
Radio NW Ltd.
(Date)	(Date)
Exhibit A-3
	CKNW/98
Forst Productions
2760 — 248th Street,
Aldergrove B.C.
	re: 1976/77 Contract Agreement

This letter will serve as an agreement between Radio NW Ltd and Forst Productions specifically for the services of Brian Forst.

(1) Under terms of this agreement Forst Productions agrees to provide the services of Brian Forst to carry out all functions expected of the morning host Monday through Friday in the time period of 5:00 am — 8:30 am. Forst Productions will be responsible for the preparation and conduct of the program, and its employee will accept counsel and direction from CKNW management. Forst Productions agrees to provide personnel to perform such announcing duties as required from time to time by Radio NW Ltd. under what is termed “Production”.

(2) Forst Productions also undertakes, as required, to provide a Music Director for CKNW to perform those duties incumbent upon that position.

(3) Forst Productions will provide a host for the daily Road Show during the vacation period and for statutory holidays of the regular program host to a maximum of 15 days per year but not more than 5 days at any one time, such services to be paid for at the rate of . . .

(4) The terms of this agreement will be for one year with an effective starting date of September 1st 1976 and will be in effect until August 31st 1977. Negotiations for a subsequent contract will start no later than ninety days prior to the expiration of this contract and will conclude no later than sixty days before the expiration.

(5) In the event no agreement is reached and negotiations are entered into by Forst Productions for the services of Brian Forst with another broadcasting station, Radio NW Ltd. will have fourteen days to equal any offer made to Forst Productions that is better than the last offer made by Radio NW Ltd. It is understood that the definition of “better” implies that the offer must be more than 5% in excess of the final offer made by Radio NW Ltd.

(6) Payment for the services of a Morning Host will be on a monthly basis at a rate of.. . per year. Payment for the services of Music Director and for Production Services as defined in (1) will be on a monthly basis at a rate of $. .. per year.

(7) In addition Forst Productions will be paid .. . per month in lieu of percentage of the net billing of the Early Bird portion from 5:00 am — 6:00 am for those days on which Forst Productions provides the host.

(8) Additional fees will be paid for services other than those outlined in this agreement. Radio NW Ltd. will pay lease costs for a station identified automobile to a maximum value of $235.00. It agrees to provide the gasoline privileges to the Morning Host at a service station to be designated by Radio NW Ltd. Forst Productions will be responsible for excess mileage and any repairs or maintenance on the vehicle in excess of $235.00. Radio NW Ltd. reserves the right to $25.00 per month toward gasoline purchases.

(9) The company’s normal staff benefits except participation in the Pension Plan will be extended to Brian Forst. The whole cost of these benefits will be billed to Forst Productions.

(10) In the event that Forst Productions is not able to provide the services of Brian Forst because of illness, Radio NW Ltd. will carry on the payment for the first day of such illness. For the second day and for a period of no more than ninety days, payment will continue at the rate of sixty percent of the basic rate in accordance with Radio NW Ltd. sickness protection plan.

(11) If Forst Productions is unable to provide the services of Brian Forst for any reason other than a certifiable illness or accident, Forst Productions will be responsible for payment for a replacement acceptable to CKNW for no more than five working days. At that time this agreement will be suspended until Brian Forst is able to resume full duties.

(12) In the event that Brian Forst suffers an illness or disability which prevents him from broadcasting for a period longer than three months, or commits a flagrant violation of braodcast ethics which shall be considered to be just cause for his dismissal, all articles of this agreement may be terminated without notice by payment of arrears of salary to the date of such termination.

(13) Forst Productions guarantees the exclusive broadcast services of Brian Forst for Radio NW Ltd., and confirms that any assignment involving other media must be cleared with CKNW management and must not interfere with requirements implied in this agreement.

(14) Radio NW Ltd. will provide at no cost to Forst Productions a replacement for a vacation period for a total of six weeks plus Christmas Day and Boxing Day and New Year’s Day. This is inclusive of statutory holidays. It is understood that vacations cannot be taken by Brian Forst during BBM periods or for two weeks prior, and no more than three weeks vacation can be taken at any one time.

Hal L. Davis	Brian Forst
Manager	Forst Productions
Radio NW Ltd.
Aug 25/76
(Date)	(Date)

In written submissions dealing with the contracts, counsel for the appellant commented:

Brian Forst carries on business under the name “Forst Productions”, a business or proprietorship of which he is the sole proprietor. It is a separate business entity in that it carries on a business separate from other activities of Brian Forst. He could, for example, conduct another. business enterprise in his own name, and another one in a joint venture or partnership with others under yet another name. Each would be conducted as separate businesses, possibly with separate letterheads, office addresses, and telephone numbers, and each entering into separate contracts with separate incomes and expenses. Thus, from Brian Forst’s point of view, and for accounting purposes, each business would be a separate entity. The appropriate amount of the income or loss from each would be reported in Mr. Forst’s tax return, and the income and expense statement of each would be filed with his return. From the point of view of legal liability, Forst Productions is not a separate legal entity from Brian Forst. Accordingly, from the point of view of income tax treatment, the results of the business operations of Forst Productions are reported within Brian Forst’s tax return and become a part of the computation of his income for tax purposes.

Therefore, paragraph 1 of my Summary Argument (reproduced earlier) would more appropriately read:

“1. For accounting and business purposes the business or proprietorship Forst Productions is a separate entity from Brian Forst, the business of which is to provide certain services of Brian Forst, including those of a radio artist, to radio stations. Forst Productions is not a separate legal entity for purposes of legal liabilty, and accordingly although the results of its business operations are separately shown, they are reported within Brian Forst’s personal tax return and become part of the computation of his income for tax purposes.”

The response from counsel for the respondent was:

Although for business purposes Forst Productions may well be a separate entity, having a separate year end and keeping separate accounts, legally it is not a separate entity, as was admitted on behalf of the Appellant. Therefore the legal entity which is liable under the contracts with Radio N.W. Ltd. remains Brian Forst, whether he enters these contracts in his own name or in the name of Forst Productions. Forst Productions cannot contract for the services of its employee Brian Forst, as Brian Forst cannot be the sole proprietor, and therefore the employer, and his own employee at the same time.

Whether Brian Forst entered his contracts with Radio N.W. Ltd. in the name of “Brian Forst” (1974), which was admitted to be an employment contract, or as “Brian Forst and/or Forst Productions” (1975) or as “Forst Productions” (1976) does not change the relationship between Radio N.W. Ltd. and Brian Forst, the two legal parties to the contract. It is the relationship agreed upon and existing throughout between Radio N.W. Ltd. and Brian Forst, as set out in the contract and as brought forth in the testimony, which determines whether this contract is a contract of service or a contract for services (e.g. Boardman v. The Queen 79 DTC 5110).

Each individual contract entered into by Brian Forst, whether under the name of Forst Productions or not, with the hirers of his services, be they Radio N.W. Ltd., BCTV or CBC, must be considered by itself to determine whether the services are performed as an employee or as an independent contractor.

There is nothing preventing an employee, such as a carpenter, mechanic, lawyer or accountant, from offering the same services, which he normally provides as an employee under a contract of service, to another party as an independent contractor under a contract for services. It is the relationship between the parties to each individual contract which must be established and which determines whether the person rendering his services is an employee or an independent contractor.

It is submitted, therefore, that not only from the point of view of income tax treatment but also from the point of view of party to the contract Forst Productions is not a separate entity from Brian Forst. The issue, therefore, remains in what Capacity, i.e. as employee or as independent contractor, did Brian Forst work for Radio N.W. Ltd.”

Findings

To deal first with the question of the income-averaging annuity, the relevant portions of the Act into one of which the appellant must fit read:

61. (1) In computing the income . ..

(b) the amount . . .

(iii) the individual’s income for the year from the production of a literary, dramatic, musical or artistic work,

(iv) the individual’s income for the year from his activities as an athlete, a musician or a public entertainer such as a theatre, motion picture, radio or television artist . . .

I would not rule out that the work of Mr Forst could fall within the parameters of subsection (iii) above, but it is unnecessary to consider that possibility in depth. I am quite satisfied that it does fall under subsection (iv) above, in that the activities in question were those of a radio artist. There is nothing in my reading of section 61 which would indicate the narrow parameters for interpretation of the section proposed by counsel for the respondent. However Mr Forst’s work might be described, the evidence is that he entertains the public, does it “with skill and good taste”, and by use of radio. His contracts have called for very substantial payments by NW for these services, and the audience ratings indicate it is accepted and eagerly awaited by a large segment of the British Columbia population. The program for which he is responsible is in effect an early morning variety show covering matters of local and general interest, which necessitates continued updating and modifications to retain and increase the audience ratings. While it is not impossible for Mr Forst to continue working until a normal retirement age (say 65 years of age), it is probably unlikely that he will do so. Section 61 is a self-adjusting section in that it does not avoid the payment of income tax, it merely defers that payment which is required then at a later date. As I see it, the section is designed to permit a taxpayer whose occupation qualifies him, to make a reasoned judgment on whether to pay the tax or to defer the payment. Obviously if the income of the taxpayer increased rather than decreased, he could have made a poor decision in deferring part of his income, but that is the risk which he takes. Mr Forst qualifies as a radio artist, as I understand the term. I do hasten to point out that this should not be interpreted as providing the same opportunity for anyone working in the field of radio — obviously each case would require its own particular examination.

Turning to the other question, that of “independent contractor’, the general views I hold on that subject were recorded in Haynes v MNR, [1980] CTC 2616; 80 DTC 1510. The major case law dealing with this point was referenced therein, and summarized on 2621 and 1514 respectively:

I am not aware that the term “independent contractor” when used with regard to the Income Tax Act has a connotation any different than “businessman”, unless the reference point is section 8(1 )(f) of the Act — “Salesman’s Expenses”. In that latter context, however, the taxpayer still remains unequivocally an employee, but is accorded certain special privileges for deductions. Accordingly, in the instant matter, the task for the appellant is to show to the Board that he was in the “business” of providing teaching services. Otherwise he was an “employee”. There is nothing in between.

And on 2622 and 1515 respectively:

Where payment is made to an individual for services, and that individual does not represent a recognizable business structure, it is proper for the Minister to characterize the payment prima facie as income from employment. To successfully contend otherwise, the payee must establish that the underlying contract was for “the accomplishment of a specified job”, and not for “personal services”. A critical element in so establishing, as noted in Molot (supra), is to demonstrate that control, even residual or exigency control, over the process, manner, or circumstance for the provision of the service, did not reside with the payor. This appellant has not done so. In addition, the three other ancillary tests cited in Hauser (supra) demonstrate that the appellant’s contract was one “of service”, rather than “for service”.

The particular dilemma facing this taxpayer is that outlined by counsel for the appellant and underlined in the earlier quotations in this decision:

He’s in the business of creating an entertainment package to sell to CKNW.

And later:

The unique format of Frosty Forst isn’t available except from Frosty Forst.

As I read that, the “entertainment package” put together by Forst is in fact the entertainer Forst (the radio artist), dressed up to be even more appealing to the audience with interesting and dynamic, but subordinate accessories. The package would be a non-starter without Forst — at least NW had no great desire to depart from the successful format of using Forst as the central element. It is Forst that NW wants and needs, not the packaging, and as I see it, it is just part of his role at NW to put the package together if he thinks it would improve the show. Certainly if he did not think a certain element of the packaging would be a benefit to the show, he would drop it

— his evidence indicated that he had in fact done so on occasions. There is no question that the ownership and management of NW respects his judgment in such matters, and leaves him virtually uninhibited in his endeavours. That is a credit both to NW and to Forst, but it does not determine the question as to his relationship to NW for income tax purposes, as one of an independent contractor.

The Board recognizes and respects the fine distinction that counsel for the appellant proposes to make between the conduct of “Forst Productions” and that of “Brian Forst”. There is certainly nothing to prohibit Brian Forst from operating under any name and style, and in as many different ways as the law permits. To that degree, the Board is in general agreement with counsel. However, setting oneself up as a taxpayer operating under a trade name does not of itself have any bearing upon the critical point at issue here. That critical issue is expressed in the above submission from counsel for the appellant in a few words: . . each entering into separate contracts with separate incomes and expenses .. .”. 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.

In looking at these contracts, it appears to me that great benefit can be derived from relating them to the contract and the comments by the learned Justice in Alexander (supra), to which counsel for the appellant made substantial reference. In that case, the appeal was allowed and I quote from 726 and 6012 respectively:

With considerable hesitation, having regard particularly to the fact that during the years in question the appellant carried on the work exactly as he would have done if he had been an employee, my conclusion is that he was working under a contract for services and was therefore not an officer or servant.

By all appearances, the learned justice in the above case took into account factors which could lead to either conclusion and, on balance, decided in favour of the appellant at 725 and 6011 respectively:

The problem arises in these cases because, in fact, there can be a contract of service that has features ordinarily found in a contract for services and there can be a contract for services that has features ordinarily found in a contract of service.

and

Here I am faced with a contract that can be analyzed either as a contract of service with deviations from the normal, or a contract for services with deviations from the normal. I must, therefore, seek some basis for a conclusion as to what is the correct character to assign to it.

At the risk of placing too narrow a platform under the judgment of the learned justice in Alexander (supra), I would suggest that the factor which weighed eventually in favour of that appellant is expressed at 725 and 6012 respectively in the following manner:

On the other hand, there is this central obligation on the contract for the appellant to provide “coverage” for the professional radiological work of the Hospital whether or not he is able to do it personally and regardless of the volume that it may attain. This obligation clearly contemplates a situation where the appellant would have to hire one or more other radiologists not merely for some emergency or temporary period but on a permanent basis. I find here not only a “freedom” but an obligation on the appellant, in certain possible circumstances, to have work under the contract done by somebody other than himself. In Ready Mixed Concrete (South East), Ltd v Minister of Pensions and National Insurance, (1968) All ER 433, MacKenna, J said at page 440:

“The servant must be obliged to provide his own work and skill. Freedom to do a job either by one’s own hands, or by another’s is inconsistent with a contract of service, though a limited or occasional power of delegation may not be

In Alexander (supra), the Hospital which was the other party to the contract, had in the agreement virtually the absolute minimum in terms of control, even the capacity to control the work of the appellant is almost nonexistent (see Molot (supra)). In my reading of the contract which is reproduced in that judgment (Alexander) the following seem to stand out as the only areas indicating “control”: (718 and 6007 respectively)

In addition, the Radiologist is responsible for consultation with regards to methods and procedures used in the Radiology Department (Italics mine)

. . ., and be responsible to “The Administrator” for the administration of the Radiology Department in all its activities and divisions, subject to the policies and directions which are given by “The Administrator’, to “The Director’, with due observation to the best interest of the patients and all relevant legislation, the Standards of Accreditation bodies and the provisions of the Hospital Bylaws. (Italics mine)

3.23 To report and discuss with “The Administrator” on all matters which in the opinion of “The Director” should be brought to the attention of, or considered by “The Administrator”. (Italics mine)

The contract in Alexander contained a clause on 719 and 6008 respectively): . . Shall be renewed automatically . . . unless . .

With regard to termination on 719 and 6008 respectively), on finds:

3.4 The Board of Governors, upon the recommendation of “The Administrator” shall have the right to discharge “The Director” and terminate this Contract if he is guilty of any criminal offence .. .”. (Italics mine)

Both of the immediately above-noted factors together with similar points were emphasized by counsel for the Minister in his competent argument in Alexander, summed up by the learned Justice at 723 and 6011 respectively:

The other view, being the view that the Minister proceeded on in making the assessment, might be stated as follows: The appellant has a position or post in the Hospital of a continuing and full time character. He occupies an office there and he has no other office. He is an integral and essential part of the Hospital staff. To all outward appearances he is just as much a senior officer of the Hospital as is the Administrator. He participates in the employment of the staff under him. He directs their activities. He is responsible to the Hospital authority for the proper operation of his department and he must make his department work in cooperation with the other parts of the Hospital operation. According to any sort of layman’s sense of the term the appellant had all the functions and responsibilities of a senior officer on the staff of the Hospital.

It is clear from the decision that even this accumulation of evidence pointing to the status of Dr Alexander as an employee, did not overcome the positive elements seen by the learned Justice in the virtual lack of control but particularly in the obligation of Dr Alexander to provide coverage.

Reverting now to the case at hand, I would suggest that the particular contract entered as Exhibit A-3, covering the period September 1, 1976 to August 31, 1977, is more favourable to the appellant’s case than the one for the preceding period — Exhibit A-2. Accordingly, the Board will use Exhibit A-3 to compare it with the contract and the judgment in Alexander (supra). On the point of the continuity of the contract, it would appear to me that Exhibit A-3 would favour the contention of Mr Forst more than the Alexander contract favoured Dr Alexander. That of Mr Forst is for a specified period of time, and not of indefninite duration. On the other hand, Dr. Alexander’s contract did not specify days and hours of work, whereas that of Mr Forst does in precise terms: “Monday to Friday in the time period 5:00 am — 8:30 am”. In the area of “control”, while this is not impressive in either contract, that of Mr Forst used the term . . will accept counsel and direction from CKNW management”, phraseology which can hardly be described as leaving Mr Forst with greater independence than Dr Alexander. As to termination of the contracts, I see little to choose between them, if anything this factor is less favourable to Mr Forst since the contract of Dr Alexander uses the term “discharge”, whereas that of Mr Forst uses “dismissal”; and such termination is only exercisable by the Board of Governors of the Hospital in Alexander (supra) while there does not appear to be any bar to the dismissal of Mr Forst solely by the manager of CKNW, who signed the contract on behalf of NW. Taken together, these factors would not augur well for the contentions of Brian Forst in this appeal, even when the reference point is the Alexander appeal (supra) upon which his counsel so relied substantially. However, any doubt which might remain to favour the cause of this appellant, is dispelled when the contract in this appeal is put to the same ultimate test used in Alexander (supra): — “personal service contract”, or “obligation to provide services”. It is readily apparent from Exhibit A-3 that the last sentence in clause (1), clauses (2) and (3), and the first sentence in clause (8) could be interpreted (and they were so interpreted by counsel for the appellant) to permit Mr Forst the freedom to fulfill these ancillary responsibilities with the services of some party other than himself. The evidence would indicate that he did provide these services himself, but that would not be a deciding factor against him (see Alexander (supra) at 726 and 6012 respectively):

. . . the contract must be classified according to its terms and having regard to the various possible situations to which it may apply.

However, there is no such latitude allowed Mr Forst in connection with his duties as Morning show host. That portion of clause (1) deals specifically and solely with the services of Brian Forst. In the appreciation I have of the contract, no one other than Brian Forst would or could fill that responsibility. This is particularly reinforced by the overriding preamble to the entire contract:

This letter will serve as an agreement between Radio NW Ltd and Forst Productions specifically for the services of Brian Forst.

It is also noted that clause (13) of the Forst agreement calls for the “exclusive broadcast services” of Brian Forst, a fact which, although not totally destructive to his case, is hardly in its favour. To the degree critical to this decision, the relationship between NW and Mr Forst, as it pertained to the responsibilities of Morning Host, was that between an employee and an employer, even in light of the rationale for the judgment in Alexander (supra). Taken in the context of the more recent decisions of this Board, and the judgments of the Courts, the appeal of Mr Forst for tax classification as a “businessman” (see Hanes (supra)) is even more untenable.

Focusing in on the other clauses noted above (all of (2) and (3) and part of (8)), any income from these activities might stand outside the regular role as Morning Host, if it were not for clauses (10) and (11) of the said agreement which read “In the event that Forst Productions is not able to provide the services of Brian Forst . .and “If Forst Productions is unable to provide the services of Brian Forst ...”, respectively. It would be difficult to seen any basis in the contract for limiting these clauses only to his work as Morning Host. They are part and parcel of the agreement (in the preamble)” . .. specifically for the services of Brian Forst”, and would indicate to me that the intent of clauses (2) and (3) was directed at Brian Forst to personally fill these roles, which is exactly what did occur. However, it is not necessary for the Board, in order to determine the specific matter at issue, to consider the relationship which might have ensued between NW and the appellant if he had chosen to fulfill these other obligations with personnel other than himself, and if this had been permitted by NW. It is sufficient to conclude that there is nothing in the evidence which would support the exclusion from regular salary income of any part of the total amount which arose as a result of his contractual obligations to NW.

Summary

The contract between Forst Productions and Radio Station CKNW Ltd (Exhibit A-3) is in fact a contract of service (employment) between Brian Forst and the radio station. It does not contract for Brian Forst to provide a service to NW — it provides for the services of Brian Forst to NW Ltd. Forst Productions was not a recognizable business structure which, independently of Brian Forst, could or did contract to provide certain services to NW. It has not been shown in this appeal, the manner by which an individual contracting with another party to provide his specific services can classify that contract as one “for services", rather than one “of services" for income tax purposes. While in the particular circumstances of this appeal, the vehicle allegedly providing the services of the appellant was not a limited company but a proprietorship, to the degree any other comparisons are valid, the Board would refer to William W Fotheringham v MNR, [1977] CTC 2372; 77 DTC 275, a matter dismissed by the Board. I am not persuaded that the use of a proprietorship form of structure throught which to filter personal service income should be effective against the Income Tax Act, when the use of a corporate form has been regarded as unacceptable for essentially the same purpose.

I would note for the record a specific submission of counsel for the appellant on this point:

A sole proprietor is the owner of a business, and can contract not only for the provision of services by that proprietorship, but also that such services shall be performed by a specific person, including, if appropriate, the proprietor himself. The fact that Brian Forst cannot be an employee of his own sole proprietorship does not stop his sole proprietorship from contracting with Radio NW Ltd for the provision of his services; nor does it assist counsel for the Crown in establishing the relationship of Brian Forst to Radio NW Ltd to be that of an employee.

I am not aware of jurisprudence which would support that contention. Decision

The appeal is allowed in part inorder that Brian Forst may deduct from his income the amounts of $15,000 per year in the years 1976 and 1977, on account of income-averaging annuities purchased. In all other respects the appeal is dismissed. The entire matter is referred back to the Minister for reconsideration and reassessment accordingly.

Appeal allowed in part.