Tillo E Kuhn v. Minister of National Revenue, [1982] CTC 2208, 82 DTC 1198

Guy Tremblay:—This case was heard in Toronto, Ontario on December 1, 1981.

1. The Point at Issue

The point is whether the appellant, a Professor of Economics at York University of Toronto is correct in deducting in the computation of his net income for the 1977 taxation year, the amount of $7,022.43. The appellant contends that these expenses were made for the purpose of earning income from an outside consulting business.

The respondent contends among other things that the outside consulting work during the said year was done for De Leuw Cather Company Ltd which paid the appellant a salary against which the above expenses cannot be deducted.

2. The Burden of Proof

2.01 The burden is on the appellant to show that the respondent’s assessment is incorrect. This burden of proof results particularly from several judicial decisions, including the judgment delivered by the Supreme Court of Canada in Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

2.02 In the same judgment the Court decided that the assumed facts on which the respondent based the assessment or reassessment are also deemed to be correct. In the present case the assumed facts are described in the Reply to Notice of Appeal as follows:

5. In so reassessing the Appellant for the 1977 taxation year, the Respondent made the following assumptions and findings of fact:

(a) the facts set out or admitted above; (It sums all the facts alleged in the Notice of Appeal were denied except the fact that he was a full-time Professor of Economics at York University)

(b) that the Appellant was employed by De Leuw Cather Canada Limited from August 15, 1974 to May 20, 1977;

(c) that the Appellant’s income from De Leuw Cather Canada Limited for the taxation year 1977 was reported by way of T-4 slips which indicated deductions made at source in respect of income tax, Canada Pension Plan contributions and Unemployment Insurance premiums;

(d) that the Appellant was reimbursed by De Leuw Cather Canada Limited for all legitimate expenses in relation to the Appellant’s employment with that company;

(e) that in the Appellant’s return of income for the taxation year 1977, no income was reported against the expenses claimed;

(f) that the expenses claimed were wholly personal in nature.

3. The Facts

The facts alleged in the Notice of Appeal were substantially proven by the appellant under chief and cross-examination.

These allegations are as follows:

Facts alleged and the appellant’s testimony

3.01 Dr Kuhn is a professor who is employed full time by York University. This is admitted by the respondent.

3.02 His contract of employment with York University encourages him to involve himself in outside work. Provision 18.05 of the York University Collective Agreement (Exhibit A-1) indeed encourages “outside professional activities” because among other things they “can bring benefits to and enhance the reputation of the university and the capacities of the employees 3.03 Dr Kuhn has, in fact, been engaged in such outside consulting since 1955:

Q You have in fact done work outside of York University. For example, you did work for De Leuw Cather.

A Yes, I came to Canada in ’54 and since 1955 I have basically done a great deal of outside work in something like seventeen (17) different countries.

Q For people other than De Leuw Cather?

A Yes many. The World Bank, The International Development Bank, Normandy Lee Associates in Oakville, Lamar Valoise in Montreal, in West Africa and East Africa, etcetera, etcetera, etcetera. From ’55, a consistent pattern. I have a huge list of my references, reports, publications. (SN p 8)

The witness said that the University encourages us to do applied work “in my case particularly, international work, transport planning, energy planning, and the like. I’m an applied economist”. (SN p 6, lines 14 to 16).

3.04 The consulting practice was incorporated on July 1, 1977 under the name Tillo E Kuhn & Associates Limited.

Dr Kuhn has, over the years, performed a substantial amount of consulting work for a firm known as De Leuw Cather Co Ltd (“De Leuw”).

His association with De Leuw has never had any of the earmarks of employment. For instance,

(a) he has hired his own staff on occasion;

(b) he had the right to pick and choose assignments rather than being obligated to accept all assignments;

(c) he did not have regular working hours;

(d) he was not required to report for work at De Leuw’s offices — he could perform his duties at any location of his choosing;

(e) De Leuw did not provide him with his own working location; and

(f) he was responsible for his own research materials and backup staff.

Nevertheless, De Leuw has always issued a T-4 slip to him.

The witness said “the T4 slip struck me as a mechanical device that facilitated their somewhat peculiar accounting system. I guess there was no great discussion about it”. (SN p 8, lines 24 to 26).

Q Were you required by De Leuw Cather to simply do what you were told? In other words, if they put something on your desk, an assignment, were you required to perform that assignment?

A No. Perhaps I can explain it as a package. It was strictly a pick and choose operation by both sides and I have some of the old work sheets there. The way it would work, for example, there was the Dominican Republic Transportation Study, which was a project financed by the InterAmerican Development Bank. So, the chief engineer would approach me and would say, “Would you be interested perhaps to pitch in’? I said, “Yes, I speak Spanish”. “Well, when are you available? Does it fit in with your university schedule? Could you brief another colleague?” Etcetera, etcetera. In other words, I guess to summarize it, I had all the hallmarks of an independent sub-contractor, if you like. (SN pp 9, 10)

3.05 As Exhibit A-2, 17 pages of weekly time report were filed. They are signed by the appellant. They are printed sheets in the name of De Leuw. The first week ends January 7, 1977 and the last week ends May 27, 1977. During this last week, the appellant worked 9 hours. He worked on the following project: 1. MOT “Rôle of Auto” study (he attended a committee meeting in Ottawa, 7.05 hours); 2. “MSUA proposal a study design” (meeting in Ottawa and preparation of response to MSUA, 0.5 hours); and 3. “Dominican Republic Transport Study” (Organizational meeting in Ottawa, 1 hour). The other projects on which the appellant worked during those weeks were: “Interfuel Substitution”, “Road Builders Brief”, “Eastern Ontario Mar- ina”, ‘Industrial Fuel Conversion” and “Guinea-Bissau Transport Study”, etc. The week when he worked the most was the week ending February 25, 1977. He worked 41 hours. It is divided as “normal” 37.50 hours and “overtime” 3.50 hours.

MR TRUSTER: What we have is time sheets, I guess you would call them, that show that Professor Kuhn did not work nine to five. He worked spasmodically.

THE WITNESS: I think it’s an important point. I mean I have a full-time profession, yet my brain isn’t idle after hours. So, this very nice Canadian consulting firm, of course, thought this would be very good if I could help them from time to time by mutually agreeable hours and locations. So, the way they operate — they are very proud of their system. Take this one for example, it shows a particular week during this period. Tillo Kuhn, who has a computer number, was on the Dominican Republic Transport Study and it tells exactly what I did. Two hours on Monday, one hour on Tuesday, maybe after lecture, two hours on Wednesday. That totals five

(5) hours, and there is a project number that shows Dominican Republic. In the same week, Nicaraguan Housing Study, work sessions with so and so, and so and so, three hours on Thursday, two hours on Friday, and so on. Then there are, of course, other weeks where there is nothing and other weeks where there is more.

So, in summary, if I may express it very bluntly, in a very straightforward fashion, I was my own agent, of course. I’m not stupid to go into projects I don’t like. For example, Nicaragua Housing Study, that was a dictatorship at the time and I asked myself, should I, as a Canadian, work somehow in Nicaragua. Well, the answer was, it was International Earthquake Relief, so on ethical grounds I accepted it, because if it had been maybe, I don’t know, an industrial plant, I wouldn’t have taken it. So, quite plainly I could pick and choose as so could the counterpart. (SN PP 10, 11)

The appellant also testified that he had to hire soil engineers, an agricultural specialist in sugar cane and statisticians.

3.06 Prior to, and during the first half of 1977, Dr Kuhn (and after July 1, 1977 his corporation) performed consulting assignments for various organizations including De Leuw. During the first half of 1977 his consulting work was performed only for De Leuw.

However, even during the first half of 1977, Dr Kuhn continued to solicit assignments from organizations other than De Leuw.

He incurred expenses in the course of such efforts. He also incurred expenses in order to maintain his professional knowledge (eg research assistants, travel, periodicals). Expenses for which he was not reimbursed were deducted on his 1977 income tax return.

After July 1, 1977, he did, in fact, succeed in obtaining consulting work directly related to proposals made during 1977. Of course not all of his efforts in 1977 resulted in assignments.

The appellant testified that he attempted to get other projects:

Q One other question I would like to ask, Professor, during the course of performing work for De Leuw Cather, did you investigate or actively in some manner attempt to get other projects?

A Yes, I did and for the following reason. I found this particular working regime, while it had some advantages — this is a worldwide firm with a very nice active Staff with offices all over Canada and internationally; a very good support organization perhaps, because I’m just a small, little enterprise, they did a lot of marketing and so on and so forth — I found the fee structure rather unattractive because consultants, I think, work roughly on two-thirds to them for the head office and promotion, one-third, or something like that, for myself, so I found that a little — the work was quite hard, you know. I had to go to Nicaragua and the Dominican Republic. So, during that period I had discussions with them and I said, “I think I’d like to perhaps pursue my own — under my own auspices again”. So, I actively promoted work during this period which then flowered forth, of course, in the rest of 1977, in fact with the federal government and other assignments that followed from that period. This was with the goodwill, of course, of — well, they couldn’t do anything about it anyway — of the firm.

So, I engaged in very active promotion for the period after — I should mention I have five (5) children, so I have to work pretty hard to keep them all fed; we have seven people. (SN pp 12, 13)

3.07 The appellant filed as Exhibit A-3, the details of the amount of $7,022.43. It is entitled “Statement of Income and Expenses” for the period January 1, 1977, to June 30, 1977. It reads as follows:

Statement of Income and Expenses

For the period January 1, 1977 to June 30, 1977
Income (Gross)
Consulting income from De Leuw Cather Co Ltd	$10,492.72
(See T-4 supplementary)
Expenses
1. Accounting, legal, collection	$ 212.50
2. Advertising, promotion	897.69
3. Automobile expenses (gasoline, ins, repairs, rentals)	810.00
4. Business tax, fees, licenses	10.00
5. Fire and liability insurance	120.00
6. Interest, exchange, bank charges	15.00
7. Maintenance and repairs (except automobile, truck)	210.00
8. Office expenses, postage, stationery	265.02
9. Rent	840.00
10. Salaries, wages, allowances, bonuses	1,166.00
11. Supplies, materials	767.46
12. Telephone	514.13
13. Travelling expenses (except automobile)	872.88
14. Professional subscriptions & dues	321.75
TOTAL	$7,022.43
Add: Capital cost allowance	©
Total expenses (deduct from “Gross Income”)	7,022.43
Excess of income over expenses	$ 3,470.29

3.08 Other details were given concerning each item. Only a percentage of the actual amount was claimed in the following items:

3.09 To explain the item no 10 — salaries, the appellant gave the name of seven persons who received amounts from him: Tim Allen $63; Nils Larsson $220/ Russel Byers $400; Murray Shaw $200; Christopher Kuhn $30; Gerald Byers $200 and Ken Byers $156. The appellant explained that those people worked for him. Among them, Nils Larsson town-planner architect, worked on the Nicaragua Housing Study, Gerald Byers worked on the conversion and the rehabilitation of premises on the Gatineau River. All those wages were paid before June 30, 1977.

3.10 The appellant explained concerning the rent that it was in his wife’s house. “It’s an office, ground floor with a separate entrance, adjacent wash- room, two large built-in wall cabinets, spacious built-in book shelves, fully furnished, writing desk, shelvings, work areas, curtains, filing cabinet, electrically heated, telephone extension, and a separate entrance.” (SN p 46, lines 17 to 21). He refused, however, to tell who paid for this house.

Moreover, in cross-examination, the appellant said about the expenses that he had “to furnish my own research material, my own office space, my own typewriter, my own paper, my own research backup”. (SN p 39)

He also explained that part of the $7,000 was used in view of future business:

It's two components. It is one component that is general support expense to do what I did for De Leuw Cather which was not covered by expense claims against De Leuw Cather. The other portion is my own start up of my own incorporated business which was a continuation of previous work. That is to say — would an example help? (SN p 40)

3.11 Concerning the travelling expenses (except automobile) which is item no 13 of Exhibit A-3, the appellant under cross-examination explained most of the 12 figures which totalled $880.31. The main one is $256 under the title of American Airlines. It was a trip to the University of California in Berkeley, where he was a former faculty member. It was a “convention and contact established particularly on energy”. The study he had to make for De Leuw was focussed very heavily on energy for automobiles (SN p 51).

He also explained a $23.35 expense while in the Dominican Republic as a “good illustration of this general principle of how to cost account”:

My trip to the Dominican Republic and back was, of course paid for by De Leuw Gather, but there were approaches for future work. So, I went to the city of Santiago, which is in the interior, to consult with colleagues at the University and a consulting engineer there for possible business promotion. So, I did not charge that to De Leuw Cather, but to this particular activity, $23.35. (SN p 51)

In cross-examining the appellant, the respondent filed two letters received by the appellant from De Leuw. One was dated August 15, 1974 (Exhibit R-1) and the other one dated May 3, 1977 (Exhibit R-2).

3.12 Exhibit R-1 reads as follows:

Dear Doctor Kuhn:

This letter will confirm our offer of employment to you as head of our economics discipline effective September 7, 1974.

The starting salary for this position will be $30,000 per year. You will be eligible on joining to participate in our pension plan, medical insurance scheme, group life insurance plan and long term salary continuance plan. There is also a car allowance of $125 per month plus 80 percent of the cost of gasoline with this position.

During the first six months of your employment it is understood that you will spend up to one half of your time with De Leuw Gather and the balance as Professor, Department of Economics, Faculty of Administrative Studies at York University. Your salary and car allowance during this period will be prorated to reflect the actual time spent with us as a proportion of that for full-time employment.

A suitable title for this position will be agreed to with you and we appreciate that this must also be satisfactory to York University.

After the initial six month period it is understood that you will be on sabbatical from York University, probably until September 1976, and that you will be able to spend a much greater portion of your time with us depending on arrangements to be worked out with the University.

Accordingly, the details of your employment with us and the opportunity to obtain shares in our Company will be resolved with you during the latter part of the initial six month period. Booklets explaining all of our employee benefits are enclosed with a general job description for the position. It is understood that all of your professional assignments will be carried out through De Leuw Cather, other than your commitments to York University.

We are confident that you have the reputation and expertise to develop and organize an effective economics discipline in our organization and that your decision to join us will be of mutual benefit.

At the bottom of the letter, the appellant signed in the following way: “I accept the terms of employment outlined in this letter — Ottawa, 16 August 1974”.

3.13 To explain the third paragraph of Exhibit R-1 above, the appellant testified as follows:

Q lt gives us some idea of how much of a full year you were putting in with them.

A Well, I would be glad to explain that. De Leuw Cather, for their accounting purposes, struck a form of rate that could have been annual or monthly or weekly or hourly. So, they have a factor of so many hours per year and you will find in this other Exhibit, of course, that sum of $30,000 per annum, divided by the number of hours that are normally expected by people to work in the year, multiplied by, for example, one hour for the Dominican Republic. So, this is simply an arithmetic exercise in saying that Kuhn gets paid, I don’t know, $20 per hour. This is for the convenience of their own accounting system. They, in turn, have to add their overhead and after bill the client, in this case the InterAmerican Development Bank.

If it gives them joy to call that employment, that’s fine with me. I don't call it employment myself. But, it’s a free country and they can call it employment. (SN PP 28, 29)

3.14 To complete the sixth paragraph of Exhibit R-1 concerning the “general job description for the position”, two documents were annexed to the agreement. First the description of the “chief economist” function reads as follows:

Chief Economist

1. Specific Responsibilities:

Responsible to the Senior Vice-President Technical for the coordination, development and quality of all activities in the field of economics in the Company on domestic and overseas assignments. These include:

(a) All transportation economics projects;

(b) Other projects dealing with economics studies not related to transportation;

(c) Supporting other disciplines as required on road, rail, transit and land use projects.

2. See general job description for Chief Engineers and Planners attached.

and the description of the latter function was also annexed which reads as follows:

Chief Engineers & Planners

General Responsibilities

Responsible to the Senior Vice-President Technical for the coordination, development and quality of all technical services in their discipline within the Company. Develop and supervise technical quality control and staff development activities of all personnel in their discipline. Recommend internal research programs.

Specific Duties

1. Technical Personnel Development — Responsible for professional development programs for all staff in their discipline. Recommend and manage technical training and development of budgets.

2. Quality Standards & Control — Responsible for Company quality and performance standards and with Branch Managers for offers of service, proposals, reports and oral presentations in their discipline.

3. Technical Staff Management — With Branch Managers, ensure that adequate staff resources are being maintained to meet the current and future work load on projects. Jointly responsible with Branch Managers for recommending staff transfers, hiring and firing and annual performance review for personnel in their discipline.

4. Research and Development — Recommend and control approved internal research and development programs in their discipline.

5. Business Development — Responsible for preparation and maintenance of brochure material, resumes and other promotional literature, also recommend and undertake promotional activities in their discipline as part of the Company Development Program.

6. Annual Reports — Prepare annual review of performance and forecast of work volume in their discipline in cooperation with Branch Managers.

7. Technical Contacts — Maintain contact with professional societies and with affiliated companies.

8. Recommend methods for the dissemination of technical information within and outside the Company. Review all material relating to their discipline prior to publication.

3.15 Exhibit R-2 is a contract between the appellant and De Leuw effective May 20, 1977. It reads as follows:

Dear Tillo:

This will confirm our recent conversation concerning the ongoing relationship between De Leuw Cather, Canada Ltd, its affiliates and yourself.

(1) Effective May 20, 1977, T E Kuhn will terminate his employment with the firm and change his title to Consulting Economist.

(2) T E Kuhn will complete all current assignments at his present salary rate of $22.04 ($18.20 + 22% fringe) to avoid billing and budget problems.

(3) T E Kuhn will be reimbursed on future projects chargeable to clients at the rate as billed to the client for his services less 20 per cent to cover costs incurred in administration, management, office and clerical expenses for the project: plus all reimburseable expenses claimed by T E Kuhn and allowable by the client.

(4) T E Kuhn will be reimbursed on future work not chargeable to clients for promotion, proposals or technical advice at the rate of $20 per hour plus out-of- pocket expenses directly related to the work. Reimbursement for promotion and proposals will apply where the prospective fees for T E Kuhn are less than one- third of the total fee.

All work of this nature will be subject to prior agreement between T E Kuhn and the Branch concerned.

(5) In consideration of the foregoing:

(a) De Leuw Cather agrees that T E Kuhn may promote and undertake assignments involve his acting as an individual consultant.

(b) T E Kuhn agrees that De Leuw Cather, Canada Ltd will have first call over others upon his services in the promotion and execution of all projects involving transportation economics.

(6) The above arrangement will remain in effect for 12 months unless there is mutual agreement for a change between both parties.

I am sure these new arrangements will be mutually satisfactory and if you are in agreement with them, please sign and return the attached copy.

(signed)

AGREED:

T E Kuhn

3.16 To explain paragraph 5 of Exhibit R-2 above, the appellant testified as follows:

A Well, I guess this would cover perhaps the previous situation where it would have been unethical to compete against the host company. For example, in the previous period, to just zero in on the nature of my contractual relationships, if in the period preceding this letter I had suddenly gone out and had promoted myself for work, let’s say, with a competitor, Normandy Lee Associates, Oakville versus De Leuw Cather. I think this letter simply covers that I am free to do as I like in any of my spare time.

Much looser arrangements. Paragraph 4 reflects, as I said, a mutual benefit arrangement. If they have some work for me, they will let me know. If I have some- thing for them, I can promote it and it will be good for them. It’s a form of. . . what would you Call it? . . . a form of affiliation or whatever.

Q So, paragraph 5, if I understand it correctly . . . or, is it fair to say that T E Kuhn will have first call over your services . . .

A Right.

Q But, thereafter, you are free to work with whomever you wish.

A Yes (SN pp 32, 33)

3.17 In commenting on paragraph 6 of Exhibit R-2 above, the appellant gave the following information:

I should incidently mention that De Leuw Cather, during the period covered by the time sheets, had a very excellent transport economist in Montreal, whom I was supposed to help and guide. He unfortunately died subsequently in a car crash in West Africa. So, there was somebody on staff who was doing, let’s say, the routine transport economics function and I, as an outsider with a name, scholarly name, one of my roles would be to help him out and give senior guidance. You know, you have to see the distinction between employment . . . he was on full-time salary, and if he needed me he would give a phone call and say, “I need help”, and then I would spend an hour on the phone or a half an hour.

I don’t know whether this is coming through, the nature of a senior technical man who is somehow in demand and a firm such as this Canadian firm wishing to avail itself of a good name with good scholarly connections on an ad hoc basis. That's all it is basically. (SN pp 33, 34)

3.18 The appellant explained that De Leuw had an international subsidiary. He explained about the expenses:

Q Who paid your expenses for this?

A De Leuw Cather would pay the expenses for that, strictly for that job.

Q Would that be true of any out-of-town expenses involving De Leuw Cather work?

A Yes, the way it would work is, if there was a specific request to go to any specific place, as stated in this letter quite plainly, I would have to ask permission, “Can I go to Nicaragua?’ or go wherever and they would specifically cover that on a specific expense account sheet, which would be job related and I guess they then take the billings for time plus expenses and bill it to the client. You see the nature of the cost accounting is that there is Til Io Kuhn, a professor, Tillo Kuhn, a collaborator of De Leuw Cather who has to keep his account very straight with that firm, and Tillo Kuhn, an independent consultant. There are three animals involved basically. (SN p 35)

3.19 The appellant testifed that from 1955 he had worked in 16 or 17 different countries for different international companies and agencies (United Nations, InterAmerican Development Bank, World Bank (SN p 36).

3.20 According to the appellant, the $10,492.72 received for the first months of 1977 (January 1 to May 20, 1977) was calculated according to the projects sheets (Exhibit A-2 and SN p 59, lines 6, 7).

4. Law — Comments

4.01 Law

The main provisions of the Income Tax Act involved in the present case are paragraphs 8(1 )(h), (i) and (j), subsection 8(2), paragraphs 18(1)(a) and (h). They shall be quoted if it is required.

4.02 Comments

4.02.1 During the first part of 1977 (January 1 to June 30) which is the period involved in the present appeal, the appellant was under two different agreements with De Leuw Cather Company Ltd (despite the fact that during the meantime he was a Professor of Economics at York University).

The first agreement (Exhibit R-1) accepted by the appellant on August 16, 1974 was effective on September 7, 1974. This agreement lasted until May 20, 1977 when the new agreement (Exhibit R-2, see para 3.15) became effective.

4.02.2 It is admitted by the respondent (SN p 72) that after May 20, 1977, the appellant was an independent contractor according to the second agreement, Exhibit R-2.

The problem which remains is whether during the first period (January 1 to May 20) the appellant, pursuant to the agreement, Exhibit R-1, was an employee or an independent contractor.

4.02.3 Pursuant to the agreement, Exhibit R-1 quoted above, there are numerous elements which at first glance indicate that the appellant was hired as an employee:

(a) three (3) times in the agreement, Exhibit R-1, “employment” is mentioned (paras 1, 3 and 6), but there is no mention of Mr Kuhn being an independent contractor;

(b) the agreement also speaks of a “position” (para 4). Indeed the agreement confirms the “offer of employment”, “as head of our economics discipline” (para 1). The last paragraph gives a short description of the function “to develop and organize an effective economics discipline in our organization”. Moreover, in paragraph 6 two addenda were annexed to the letter (Exhibit R-1) “Job Description”: “Chief Economist” and “Chief Engineers & Planners”. The description of the functions speaks for itself (see para 3.14 of the Facts);

(c) the agreement, Exhibit R-1, (para 2) also speaks about a “salary” of $30,000 with participation in a pension plan, medical insurance scheme, group life insurance and long term salary continuance plan;

(d) with this position, there is a car allowance of $125 per month plus 80 per cent of the cost of gasoline; and,

(e) the opportunity to obtain shares of the company.

4.02.4 All those elements and specifically the reading of the “responsibilities” and “specific duties” of the functions given in the addenda (see para 3.14 of The Facts) are strongly in favour of the respondent’s thesis, ie that the appellant was an employee of De Leuw Cather Company Ltd for the period of January 1 to May 20, 1977.

According to the agent of the appellant, who quoted the case of Dr W WH Alexander v MNR, [1969] CTC 715; 70 DTC 6006, one must look at the facts or the substance.

If all these above elements are only the form of the Agreement, what is the substance explained by the evidence?

4.02.5 The testimony of the appellant was given to explain the types of projects he had been doing during 1977 and the years before; the existence of the different projects, he spoke about, is confirmed by Exhibit A-2 summarized in para 3.05 of The Facts. They were important projects and because of their nature they could certainly have been done by an independent contractor. However, it is not impossible for them to have been done by a highly qualified employee. One must not forget that the appellant had to organize the economics discipline (Exhibit R-1, para 7), and this includes fulfilling the duties of “Chief Economist” and “Chief Engineers and Planners” (Exhibit R-1, para 6 and addenda in paragraphs 3.12 and 3.14 of The Facts).

4.02.6 In his argument, the agent for the appellant said that the fact that his client was remunerated at so many dollars an hour is not conclusive as being an employee. The agent said that it is the kind of remuneration he received himself as a chartered accountant. However, as he has a business, he is an independent contractor.

It is a strong argument. However, when a person is paid as “normal hours” for the first 37.50 hours in a week and is paid as “overtime” for the other hours (see para 3.05 of The Facts), it seems to the Board that this is material or substantial fact to confirm all the other substantial facts (paras 4.02.3 and 4.02.4 above), and that the appellant’s function pursuant to the agreement, Exhibit R-1, was as an employee.

The Board concludes that the agreement, Exhibit R-1, substantially describes the legal reality.

4.02.7 Even if the appellant was an employee pursuant to the agreement, Exhibit R-1, the Board thinks that some expenses must be allowed for the period of January 1 to June 30, 1977. First the expenses incurred during the period May 20 to June 30, 1977 (pursuant to the new agreement, Exhibit R-2) must be allowed because, as admitted by the respondent, the appellant then was an independent contractor.

Moreover, the Board thinks that the expenses incurred between January 1 to May 20 as advertising and promotion, in view of the future new agreement and the incorporation of Tillo E Kuhn & Associates Limited, should be allowed.

4.02.8 Pursuant to the evidence, however, the Board is not ready to admit that the expenses were proven. The appellant and his agent informed the Board that in fact they did not know they had to prove every item which appeared in Exhibit A-3. They had not brought to Court all the vouchers. According to them indeed, when they met the respondent’s employees to discuss the notice of objection, they then had every voucher on hand. However, the said employees were not interested in asking questions about these because they said: “Well, you’re an employee. It doesn’t count”. (SN p 58, lines 22, 23). In sum, they thought that the total amount of $7,022.43 was not in dispute.

The appellant shall have to meet the representatives of the respondent to show the vouchers. However, as the amount involved cannot be so substantial, the Board would suggest permitting a deduction of $1,500 to settle the whole matter, including advertising expenses (January 1 to May 20) and the expenses incurred after May 20 to June 30.

5. Conclusion

The appeal is allowed in part and the matter is referred back to the respondent for reassessment in accordance with the above Reasons for Judgment.

Appeal allowed in part.