Guy
Tremblay
[TRANSLATION]:—These
cases
were
heard
on
common
evidence
at
Montreal,
Quebec
on
September
25,
1981.
1.
Issue
It
is
necessary
to
determine
whether
the
appellant
companies
should
be
regarded
as
carrying
on
a
business
that
is
a
profession
within
the
meaning
of
section
34
of
the
Income
Tax
Act.
If
not,
the
sums
of
$29,907
and
$35,
364
must
be
included
in
computing
the
income
of
Publicité
Cogem
Ltée
for
the
1975
and
1976
taxation
years,
and
the
sum
of
$8,785
must
be
included
in
the
income
of
Cogem
Inc
for
the
1977
taxation
year.
These
sums
are
to
be
included
in
this
way
as
work
in
progress.
2.
Burden
of
proof
2.01
The
appellants
have
the
burden
of
showing
that
the
respondent’s
assessments
are
incorrect.
This
burden
of
proof
results
not
from
a
single
section
of
the
Act
but
from
several
judicial
decisions,
including
the
judgment
of
the
Supreme
Court
of
Canada
in
Johnston
v
MNR,
[1948]
CTC
195;
3
DTC
1182.
2.02
The
facts
presumed
by
the
respondent
are
set
out
in
subparagraphs
(a)
to
(d)
of
paragraph
2
of
the
respondent’s
replies
to
the
notices
of
appeal.
These
paragraphs
read
as
follows:
2.02.1
Presumptions
of
fact
concerning
Publicité
Cogem
Ltée
2.
In
assessing
the
appellant
for
the
1975
and
1976
taxation
years,
the
respondent
Minister
of
National
Revenue
relied,
inter
alia,
on
the
following
presumptions
of
fact:
(a)
In
its
tax
returns
for
1975
and
1976
the
appellant
sought
to
deduct
sums
of
$29,907
and
$35,364
respectively
under
section
34(1)
of
the
Income
Tax
Act
as
work
in
progress;
(b)
During
the
1975
and
1976
taxation
years
the
appellant
carried
on
the
business
of
an
advertising
agency:
(c)
The
appellant
did
not
carry
on
a
business
that
was
a
profession
during
the
1975
and
1976
taxation
years;
(d)
The
appellant
did
not
practise
a
profession
recognized
by
the
Professional
Code
of
Quebec
(SQ
1973,
c
43
as
amended);
2.02.2
Presumption
of
fact
concerning
Cogem
Inc
2.
In
assessing
the
appellant
for
the
1977
taxation
year,
the
respondent
Minister
of
National
Revenue
relied,
inter
alia,
on
the
following
presumptions
of
fact:
(a)
In
its
tax
return
for
1977
the
appellant
sought
to
deduct
the
sum
of
$8,785
under
section
34(1)
of
the
Income
Tax
Act
as
work
in
progress;
(b)
During
the
1977
taxation
year
the
appellant
carried
on
the
business
of
marketing
advice
and
research;
(c)
The
appellant
did
not
carry
on
a
business
that
was
a
profession
during
the
1977
taxation
year;
(d)
The
appellant
did
not
practise
a
profession
recognized
by
the
Professional
Code
of
Quebec
(SQ
1973,
c
43
as
amended).
Facts
3.
Facts
relating
to
Publicité
Cogem
Ltée
3.01
Publicité
Cogem
was
incorporated
in
1974
under
the
Quebec
Companies
Act.
Its
principal
object
was
to
act
as
an
advertising
consultant
and
agent.
The
principal
paragraph
of
the
objects
set
out
in
the
letters
patent
reads
as
follows:
to
solicit
advertising
contracts,
to
publish
advertising
of
all
types,
to
act
as
consultants
to
advertising
agents,
to
launch
advertising
campaigns
for
clients
of
the
company
and
generally
to
act
as
advertising
consultants
and
agents;
3.02
Mr
Denis
Trudeau,
the
comptroller
of
Publicité
Cogem
from
early
1977,
described
the
services
provided
by
the
appellant
as
follows:
the
development,
design
and
production
of
advertising
messages
and
campaigns
for
media
such
as
television,
radio
and
billboards.
Its
function
does
not,
however,
include
the
recording
of
the
said
commercial
messages;
other
specialists
are
responsible
for
this.
3.03
Exhibit
A-1
was
a
document
describing
Publicité
Cogem
Ltée.
It
appears
from
this
document
that
Publicité
Cogem
is
a
member
of
the
Groupe
Cogem
Inc,
which
includes
a
marketing
advice
and
research
firm,
Cogem
Inc,
a
company
specializing
in
translation,
Traduction
Cogem
Inc,
and
a
public
relations
and
promotion
firm,
Cogem
Affaires
publiques
(Exhibit
A-1,
P
1).
3.04
There
were
approximately
ten
principal
members
of
the
staff
in
1975
and
1976.
In
1981
there
were
between
fifteen
and
twenty.
3.05
The
services
provided
by
Publicité
Cogem
are
service
to
clients
(six
persons,
four
of
whom
are
advertising
managers),
media
service
(three
persons,
including
one
purchaser
and
one
auditor),
a
design
service
(eight
persons,
including
three
copy
writers
and
four
graphic
designers)
and
a
production
service
(three
persons:
one
responsible
for
broadcasting,
one
for
printed
matter
and
one
for
the
hiring
and
payment
of
artists).
Research
services
are
provided
by
Cogem
Inc,
public
relations
and
promotion
by
Cogem
Affaires
publiques
and
English
design
by
F
H
Hayhurst
Co
Ltd.
3.06
All
the
persons
working
in
these
services
held
university
degrees
in
administration,
sociology,
psychology,
French
literature,
journalism,
graphic
arts
or
other
subjects.
3.07
To
understand
the
work
done
by
Publicité
Cogem,
it
is
worthwhile
to
refer
to
the
company’s
policy
set
out
on
pages
4
and
5
of
Exhibit
A-1:
2.
Cogem
advertising
policy
SELLING
YOUR
PRODUCT
At
Publicité
Cogem
we
regard
ourselves
as
professional
advertisers,
and
this
means
that
we
adopt
a
rational
and
systematic
approach
at
all
stages
in
the
development
of
advertising
campaigns.
Our
agency
policy
is
to
devise
advertising
that
sells
products:
this
means
persuasive
and
effective
advertising,
advertising
that
satisfies
the
real
needs
of
clients
and
meets
their
marketing
objectives.
In
order
to
devise
advertising
that
sells
products,
we
believe
that
creativity
must
be
evident
throughout
the
advertising
process,
from
the
setting
of
objectives
to
the
fine
details
in
the
preparation
of
messages.
Of
course,
the
setting
of
relevant,
realistic
and
quantifiable
objectives
requires
a
detailed
knowledge
of
the
market
and
of
the
competition.
This
is
why
we
believe
it
is
essential
for
our
staff
to
get
to
know
our
clients
and
their
products
and
to
have
an
in-depth
understanding
of
the
characteristics,
attitudes
and
thought
processes
of
our
clients
before
even
setting
advertising
objectives.
This
approach
means
that
we
can
recommend
prior
market
studies
if
there
is
not
sufficient
information
available
to
form
a
basis
for
communications
strategies.
Since
these
objectives
and
strategies
govern
any
advertising
campaign,
we
insist
that
they
are
always
stated
in
writing,
approved
by
the
client
and
used
as
a
Criterion
in
evaluating
results.
Although
this
process
is
essential,
the
fact
remains
that
the
message
itself
is
the
key
to
success
in
any
advertising
campaign.
There
is
one
criterion
to
which
all
our
designers
subscribe:
TRUE
CREATIVITY
IS
SHOWN
IN
RESULTS.
We
do
not
believe
in
magic
formulas.
On
the
contrary,
we
believe
that
the
development
of
truly
persuasive
messages
results
from
the
exploration
of
several
approaches
and
often
from
a
team
effort.
Thus,
campaigns
are
designed
by
teams
consisting
of
a
copy
writer
and
an
artistic
director.
3.08
The
appellant
is
remunerated
in
one
of
two
ways:
either
by
fees
or
by
a
commission
of
15%
of
the
costs.
Approximately
35%
of
the
appellant’s
income
comes
from
fees
and
65%
from
commissions
on
costs.
Costs
may
be
made
up
of
office
rental,
recording,
salaries
of
actors
making
the
messages,
transportation
costs
and
so
on.
Since
advertising
campaigns
are
always
involved,
it
is
often
the
client
who
decides
on
the
type
of
remuneration,
following
discussions
on
the
nature
of
the
advertising
campaign
to
be
conducted.
3.09
Exhibit
A-1
(pp
22
and
23)
gives
a
list
of
the
company’s
thirty-eight
principal
clients:
breweries,
banks,
food
companies
and
even
the
Quebec
government.
Exhibit
A-2
contains
the
records
of
the
General
Purchasing
Service
of
the
Department
of
Public
Works
and
Supply
in
respect
of
Publicité
Cogem.
The
latter
is
included
in
the
“Audio-visual,
Graphic
arts
and
advertising”
file.
Inclusion
of
the
said
file
is
possible
only
after
a
study
has
been
made
of
the
agency’s
products
and
of
the
curriculum
vitae
of
each
of
the
principal
persons
active
in
the
agency.
When
there
is
advertising
work
to
be
done,
the
government’s
computer
compiles
a
list
of
agencies
chosen
at
random;
it
is
these
agencies
that
are
requested
to
submit
tenders
and
from
them
that
the
final
choice
of
the
agency
that
will
do
the
work
is
made.
3.10
Income
for
the
years
in
question
was
as
set
out
below,
according
to
the
financial
statements
attached
to
the
tax
returns
filed
as
Exhibit
1-1:
|
1975
|
1976
1976
|
|
Fees
and
commissions
earned
—
gross
|
$450,211
|
$1,052,616
|
|
Expenditures
billed
to
clients
|
212,081
|
616,925
|
|
Fees
—
net
|
238,130
|
435,691
|
|
Current
expenses
|
220,007
|
415,725
|
|
Before-tax
profit
|
18,123
|
19,966
|
|
After-tax
profit
|
13,123
|
14,566
|
According
to
Mr
Trudeau,
the
income
from
commissions
could
be
ob-
tained
by
taking
between
15
and
17%
of
the
“Expenditures
billed
to
clients”
($212,081
and
$616,925).
3.11
Some
of
the
employees
of
Publicité
Cogem
are
members
of
the
Institute
of
Canadian
Advertising,
which
has
its
own
code
of
ethics.
The
Institute
does
not,
however,
accept
“companies
as
members,
but
only
individuals”.
This
is
why
Publicité
Cogem
is
not
a
member.
3.12
With
respect
to
confidentiality,
Mr
Trudeau
testified
that
he
was
not
subject
to
a
written
code
of
ethics,
but
that
it
went
without
saying
that
because
of
the
very
nature
of
the
work
this
code
would
be
observed,
if
the
advertising
agency
wished
to
keep
its
clients.
4.
Facts
relating
to
Cogem
Inc
4.01
Mr
Pierre
Legendre,
marketing
consultant
and
vice-president
of
marketing
research
at
the
national
level
for
Cogem
Inc,
was
the
sole
witness
for
the
appellant.
He
has
worked
for
the
company
since
1976.
Cogem
Inc
was
incorporated
under
the
Quebec
Companies
Act
in
1971.
The
letters
patent
of
BC
Co
Inc,
from
which
the
name
was
changed
to
Cogem
Inc
in
1973,
describe
its
objects
as
follows:
1.
Consultation,
information,
planning,
recommendations,
analysis
of
services,
marketing,
clientele,
administration
and
procedures;
2.
Sale,
rental,
negotiation,
purchase
or
sale
or
rental
of
any
necessary
equipment,
including
computers
and
electronic
transmitters
and
receivers
for
this
purpose.
4.02
According
to
his
testimony,
Cogem
Inc
provides
two
kinds
of
service:
marketing
advice
and
commercial
research.
4.03
The
marketing
advice
consists:
in
providing
services,
selling
professional
time
to
businesses
or
individuals
needing
advice
at
that
level.
Advice,
for
example,
on
launching
a
new
product,
advice
on
improving
a
distribution
network,
advice
on
preparing
a
file.
I
can
think
of
the
case
of
a
radio
station
that
approached
us
because
it
had
to
apply
to
the
CRTC
for
a
licence
and
it
needed
a
document
proving
that
a
market
existed.
In
that
case
we
conducted
a
study
and
the
results
were
subsequently
presented
to
the
CRTC
(TS
p
6).
4.04
Commercial
research
consists
of
market
studies,
in
other
words,
consumer
studies:
This
may
be
a
product
test
where,
for
example,
a
cigarette
company
wishes
to
conduct
blind
tests
of
a
new
product.
It
may
call
upon
our
services
to
request
that
we
design
a
study
and
then
conduct
it.
This
study
will
generally
consist
in
distributing
packages
of
cigarettes
prepared
by
our
client
and
unidentified
packages,
and
then
administering
a
questionnaire
that
will
provide
data
to
be
analysed
by
us.
Subsequently,
we
submit
a
report
to
our
client
on
which
he
will
base
his
decision
as
to
whether,
for
example,
the
new
product
meets
certain
standards
in
respect
of
quality
and
consumer
acceptance.
That
is
one
example.
There
are
others:
we
do
a
lot
of
work
for
Loto-Quebec,
for
example.
We
have
conducted
market
penetration
studies
for
Loto-Quebec.
In
those
studies
we
tried
to
determine,
for
example,
the
extent
of
purchases
of
lottery
tickets
in
the
various
lotteries
run
by
Loto-Quebec,
the
socio-demographic
profile
of
the
purchasers
of
these
tickets
and
also
their
attitude
to
the
organization’s
advertising.
This
is
another
type
of
market
study
(TS,
pp
7
and
8).
4.05
Market
studies
may
also
involve
qualitative
research:
Qualitative
research
is
essentially
where,
instead
of
conducting
quantitative
studies,
we
get
together
a
small
number
of
consumers,
ten,
for
example,
for
a
group
discussion
led
by
a
specialist.
During
the
discussion,
which
may
last
from
one
and
one-half
to
two
hours,
an
attempt
is
made
to
generate
hypotheses
concerning
the
basic
attitudes
and
motivation
of
consumers
with
respect
to
products
or
services
(TS,
p
8).
4.06
The
people
working
for
Cogem
Inc
in
the
area
of
commercial
research
and
marketing
are
university
graduates
who
took
courses
in
subjects
relevant
to
commercial
research:
statistics,
psychology
or
sociology.
There
are
also
graduates
in
law,
accounting
and
engineering.
They
are
members
of
the
Professional
Marketing
Research
Society.
4.07
This
society,
which
exists
all
across
Canada,
has
its
head
office
in
Toronto
under
the
name
of
“Professional
Marketing
Research
Society’’
(PMRS).
It
also
has
a
chapter
in
Montreal
and
one
in
Vancouver.
The
Society’s
constitution
and
code
of
ethics
were
filed
as
Exhibit
A-1.
Its
major
objectives
are
to
promote
and
encourage
the
development
of
reliable
techniques
and
standards
in
the
fields
of
marketing
and
social
research
and
better
ethical
practices.
The
professional
members
of
this
Society
must
spend
the
greater
part
of
their
time
in
the
practice
or
teaching
of
marketing
or
social
research
(TS,
pp
10,
11
and
12).
It
is
not
possible
for
a
corporation
to
be
a
member
of
PMRS.
4.08
An
issue
of
“Imprints”,
the
“pmrs
newsletter”,
a
monthly
publication
of
PMRS,
was
filed
as
Exhibit
A-2.
An
issue
of
the
PMRS
Journal
(which
appears
less
regularly
and
contains
specialized
articles
on
data
analysis
and
other
techniques
used
by
members
in
their
activities)
was
filed
as
Exhibit
A-3
(TS,
pp
13
and
14).
4.09
A
copy
of
a
special
publication
prepared
by
the
methodologists
at
Statistics
Canada
following
the
symposium
on
October
21
and
22,
1980
jointly
sponsored
by
PMRS
and
Statistics
Canada
was
also
filed,
as
Exhibit
A-4.
Its
purpose
was
to
improve
communications
between
groups
in
the
public
sector,
the
academic
world
and
the
private
sector
in
Canada
working
in
the
area
of
investigative
research
(TS,
pp
15
and
16).
4.10
Cogem
Inc
is
remunerated
in
one
of
two
ways:
(a)
on
an
hourly
basis
(where
the
project
is
reasonably
well
defined
and
It
is
very
difficult
to
estimate
costs
in
advance,
the
employees
complete
detailed
time
sheets
plus
actual
outside
costs);
(b)
or
by
a
fixed
amount
where
there
is
a
specific
survey
and
it
is
necessary
to
bid
in
competition
with
other
firms.
The
estimate
is
based
on
past
experience
of
what
was
expended
on
similar
products.
Between
75
and
85%
of
the
income
of
Cogem
Inc
is
obtained
from
billings
for
a
fixed
amount.
4.11
The
results
of
the
work
of
Cogem
Inc
always
find
concrete
expression
in
a
written
document,
in
the
form
of
a
research
report
or
a
marketing
advice
report.
4.12
Cogem
Inc
is
also
included
in
the
central
file
of
suppliers
of
the
General
Purchasing
Service
of
the
Department
of
Public
Works
and
Supply.
Exhibit
A-5
was
a
document
entitled
“State
of
record”
for
Cogem
Inc;
“File:
Professionals
in
Administration”.
The
company
is
entered
under
four
specialties:
12.
Administrative
systems
consultant
22.
Marketing
consultant
40.
Studies
and
research
in
sociology,
demography
52.
Studies
and
research
—
opinion
polls.
4.13
Exhibit
A-5
also
contained
a
series
of
documents
including
a
tender
updated
to
obtain
new
entries,
and
attachments
describing
the
work
done
for
various
clients
by
the
principal
professionals
at
Cogem
Inc:
1.
Pierre
Legendre,
Vice-President,
senior
consultant,
CAAP
(Certified
Advertising
Agency
Practitioner),
ICA;
2.
Maurice
Guertin,
senior
analyst,
MA
marketing;
3.
Coleen
Cooney,
analyst,
BA
psychology;
4.
Robert
Tétreault,
senior
consultant,
BA,
LSC,
CA;
5.
Gérard
Virthe,
President,
agrologist
and
MS
in
marketing;
6.
Michel
Lord,
Vice-President
and
senior
consultant,
CAAP,
ICA
and
MBA;
7.
Roney
Audet,
senior
consultant,
MBA;
8.
Alain
Prévost,
senior
consultant,
master’s
degree
in
psychology,
Dijon,
France.
The
following
is
a
brief
summary
of
10
of
the
102
projects
directed
by
these
persons
and
the
fees
relating
thereto:
1.
Maple
syrup
market
study
(Montreal,
Toronto,
Chicago,
New
York,
Los
Angeles
and
Dallas)
$56,000;
2.
Study
of
agri-food
needs
in
Quebec
$43,000;
3.
Study
of
the
market
for
meat
$31,000;
4.
Study
of
the
market
for
sterilized
bags
(Quebec
and
Ontario)
$30,000;
5.
Advice
on
the
marketing
and
advertising
of
two
brands
of
beer
in
Quebec
$450,000;
6.
Marketing
advice
and
research
on
the
development,
positioning
and
launching
of
a
new
brand
of
beer
in
Quebec
$300,000;
$7.
Advice
on
the
marketing
and
advertising
of
baby
powder
for
use
by
adults
$35,000;
8.
Socio-economic
impact
of
the
presence
of
head
offices
in
Quebec
$50,000;
9.
Quantitative
study
of
bus
transportation
$15,000;
10.
Product
tests
and
use
and
attitudes
study
of
smokers
across
Canada
$180,000.
4.14
In
respect
of
confidentiality
it
goes
without
saying,
according
to
the
witness,
that
research
results
are
confidential.
The
PMRS
code
of
ethics
lays
down
precise
rules
on
this
subject.
According
to
Mr
Legendre,
the
penalty
for
failure
to
comply
with
the
code
of
ethics
is
expulsion
from
the
PMRS.
4.15
Persons
wish
to
work
as
marketing
consultants
are,
however,
not
required
to
be
members
of
PMRS
in
order
to
conduct
commercial
research.
A
person
could
open
an
office
and
hold
himself
out
as
a
marketing
consultant
without
having
any
relevant
professional
qualification.
It
is
agreed
that
members
of
PMRS
have
greater
credibility
than
nonmembers.
Moreover,
membership
in
PMRS
would
even
be
a
prerequisite
for
major
clients.
4.16
The
notice
of
reassessment
for
1977
issued
on
October
9,
1979
and
the
T7WC
form
giving
the
basic
calculation
of
the
reassessed
tax
were
filed
as
Exhibit
A-6.
The
notice
of
objection,
Exhibit
A-7,
is
dated
October
31,1979.
4.17
In
cross-examination,
Mr
Legendre
described
the
difference
between
an
advertising
agency
and
a
consultant:
An
advertising
agence
(like
Publicité
Cogem
Ltée)
consists
of
someone
conducting
advertising
campaigns
who
purchases
air
time
or
space
in
newspapers.
A
marketing
consultant
(like
Cogem
Inc)
determines
strategies,
in
the
last
analysis,
a
strategy
for
launching
new
products.
This
could
include
“a
recommendation
of
the
advertising
strategy
to
be
adopted
concerning
the
proportion
of
a
marketing
budget
to
be
devoted
to
advertising
or
even
a
recommendation
not
to
advertise”
(TS,
p
43).
The
work
of
a
marketing
consultant
generally
concerns
smaller
undertakings,
small
businesses
that
do
not
themselves
have
the
resources.
A
cigarette
manufacturer
like
R
J
R
Macdonald
would
not
come
to
us
for
advice.
It
would
approach
us
to
ask
us
to
conduct
consumer
surveys
because
it
does
not
have
the
facilities
or
the
specific
expertise
necessary
in
the
area.
And
that
is
quite
distinct
from
advertising.
Q.
That
would
be
the
market
study?
A.
An
example
of
a
marketing
consultant’s
project
—
I
shall
give
a
practical
example.
Someone
came
to
us
about
a
month
ago,
someone
who
already
owns
a
publication
and
who
had
an
idea
for
a
new
publication.
An
idea
that
at
first
glance
seemed
to
be
quite
attractive,
which
is
not
—
because
there
are
people
who
have
Crazy
ideas,
in
which
case
we
tell
them
so
at
once.
Well,
he
approached
us
to
determine
whether
in
our
opinion
there
was
sufficient
market
potential
for
him
to
invest
two
hundred
or
two
hundred
and
fifty
thousand
dollars
to
set
up
the
publication
and
get
it
started.
We
suggested
a
project
to
him,
a
consulting
project
consisting
of
meeting
specialists
in
the
field,
investigating
other
markets
such
as
the
US,
English
Canadian
and
so
on,
and
then
in
the
second
stage,
where
the
project
consists
of
research,
testing
the
concept
of
the
publication
among
consumers
on
an
exploratory
basis
to
determine
consumer
interest
in
publications
of
that
kind.
Subsequently,
we
will
make
a
recommendation
to
him
as
to
whether
to
go
ahead
with
his
project.
That
is
a
typical
consulting
project.
That
is
the
kind
of
client,
for
example,
although
there
are
others
who
might
approach
us.
(TS,
pp
44
and
45)
4.18
Mr
Legendre
stated
that
the
two
appellants
both
had
their
head
offices
at
1420
Sherbrooke
Street
West,
Montreal,
Quebec,
although
they
are
located
on
different
floors.
According
to
the
witness,
perhaps
5
or
10%
of
the
income
of
Cogem
Inc
might
come
from
clients
who
were
also
clients
of
Publicité
Cogem
Ltée.
The
converse
is
also
apparently
true.
4.19
Cogem
Inc’s
tax
return
including
the
financial
statements
for
1977
were
filed
by
the
respondent
as
Exhibit
I-1.
5.
Act,
Case,
Law,
Analysis
5.01
Act
The
principal
provision
of
the
Income
Tax
Act
involved
in
this
case
is
subsection
34(1),
which
reads
as
follows:
34.
(1)
In
computing
the
income
of
a
taxpayer
for
a
taxation
year
from
a
business
that
is
a
profession,
the
following
rules
apply:
(a)
paragraph
12(1
)(b)
is
not
applicable;
(b)
every
amount
that
becomes
receivable
by
him
in
the
year
in
respect
of
property
sold
or
services
rendered
in
the
course
of
the
business
shall
be
included;
(c)
for
the
purposes
of
paragraph
(b),
an
amount
shall
be
deemed
to
have
become
receivable
in
respect
of
services
rendered
in
the
course
of
the
business
on
the
day
that
is
the
earliest
of
(i)
the
day
upon
which
the
account
in
respect
of
the
services
was
rendered
(ii)
the
day
upon
which
the
account
in
respect
of
those
services
would
have
been
rendered
had
there
been
no
undue
delay
in
rendering
the
amount
in
respect
of
the
services,
and
(iii)
the
day
upon
which
the
taxpayer
was
paid
for
the
services;
and
(d)
where
the
taxpayer
so
elects
in
his
return
of
income
under
this
Part
for
the
year,
no
amount
shall
be
included
in
respect
of
work
in
progress
at
the
end
of
the
taxation
year,
except
as
otherwise
provided
by
this
section.
5.02
Case
Law
Counsel
for
the
two
parties
referred
the
board
to:
1.
Alfio
Seni
v
MNR,
33
Tax
ABC
88;
63
DTC
694;
2.
Thomas
Lamb
v
MNR,
34
Tax
ABC
79;
63
DTC
975;
3.
Ralph
J
Sazio
v
MNR,
[1968]
CTC
579;
69
DTC
5001;
4.
James
A
Cameron
v
MNR,
[1972]
CTC
380;
72
DTC
6325;
5.
Axler
&
Palmer
Ltd
v
MNR,
[1973]
CTC
2167;
73
DTC
119;
6.
Pierre
Tremblay
v
MNR,
[1979]
CTC
2631;
69
DTC
305;
7.
Dr
H
Hoyle
Campbell
v
MNR,
[1979]
CTC
279;
79
DTC
5202;
[1980]
CTC
319;
80
DTC
6329.
5.03
Analysis
5.03.1
The
basic
problem
is
to
determine
whether
the
businesses
operated
by
the
appellant
companies
are
professions.
A
second
problem
arises:
can
a
corporation
practise
a
profession?
A.
Do
advertisement
writers
and
commercial
researchers
practise
a
profession?
5.03.2
Since
the
Income
Tax
Act
does
not
define
the
term
“profession”,
it
is
necessary
to
take
it
in
its
ordinary
meaning.
In
this
regard
the
undersigned,
who
rendered
the
judgment
in
Pierre
Tremblay
v
MNR,
[1979]
CTC
2631;
79
DTC
305,
has
not
changed
his
mind
since
then
and
still
believes
that
the
proper
meaning
to
be
given
to
this
word
at
this
time
is
that
given
in
the
said
judgment
at
[1979]
CTC
2638;
79
DTC
310;
An
occupation
in
which
knowledge
recognized
in
a
certain
field
of
endeavour
is
placed
at
the
disposal
of
others
and
in
which
mental
and
intellectual
work
predominates
in
comparison
with
physical
and
manual
work.
5.03.3
As
a
result
of
the
evidence
adduced
by
the
appellant
companies,
the
Board
is
of
the
view
that
the
actions
of
the
principal
officers
of
the
appel-
lants,
both
Publicité
Cogem
Ltée
(paras
3.02,
3.05,
3.07,
as
confirmed
by
the
submission
of
the
financial
statements
and
the
explanations
given
in
para
3.10)
and
Cogem
Inc
(paras
4.02,
4.03,
4.04,
4.05,
4.11,
4.17,
as
confirmed
by
the
description
of
certain
projects
completed
and
para
4.13),
substantially
fit
the
above
description.
The
nature
of
these
projects
is,
moreover,
similar
in
many
respects
to
that
of
the
projects
described
in
Pierre
Tremblay.
5.03.4
The
specialized
university
training
(paras
3.06,
4.06
and
4.13)
of
those
who
direct
and
perform
the
work
confirms
the
fact
that
the
projects
cannot
be
carried
out
validly
and
at
the
correct
level
of
quality
by
just
anyone,
even
though
a
person
with
no
preparation
could,
according
to
the
evidence,
lawfully
hold
himself
out
as
a
marketing
consultant
and
act
as
such
(para
4.15).
5.03.5
Moreover,
the
organization
of
the
appellants
and
their
associated
companies
(paras
3.03
and
3.05)
shows
the
serious
nature
of
the
work
that
their
officers
are
able
to
perform.
B.
Can
a
corporation
practise
a
profession?
5.03.6
A
second
problem
was
raised
by
the
representative
of
the
respondent.
Even
if
the
individuals
working
for
the
appellants
practise
the
profession
of
advertisers
or
commercial
researchers
and
marketing
consultants,
can
a
corporation
practise
a
profession?
Counsel
for
the
parties
referred
the
Board
to
several
judgments.
The
findings
in
some
of
these
cases
seem
on
their
face
to
answer
the
above
question
in
the
affirmative.
These
cases
should
be
examined
carefully.
5.03.6.1
Thomas
Lamb
(decision
rendered
by
Mr
R
S
W
Fordham
of
the
former
Tax
Appeal
Board)
In
1958
the
appellant,
a
professional
engineer
residing
in
Alberta,
incorporated
a
private
company
to
carry
on
his
professional
practice.
The
appellant
held
all
the
issued
shares
of
the
company
except
for
a
few
assigned
to
his
wife
and
children
for
incorporation
purposes.
He
became
the
president
and
chief
engineer
of
the
company.
The
company
opened
and
maintained
an
office
in
the
appellant’s
residence.
The
company
had
its
own
bank
account,
held
meetings
of
shareholders
and
directors
and
filed
its
annual
returns
with
the
provincial
registrar
of
companies.
During
the
following
three
years
the
appellant
performed
his
work
as
an
engineer
as
an
officer
and
employee
of
the
company.
Notices
of
the
fees
to
be
paid
were
issued
on
stationery
on
which
the
company’s
name
was
stamped
above
the
appellant’s
name.
Cheques
received
in
payment
were
made
out
to
the
company
and
not
to
the
appellant,
who
reported
as
income
his
salary
and
his
fees
as
a
director.
Taking
the
position
that
the
company
existed
only
as
a
sham,
the
Minister
assessed
the
appellant
on
the
total
fees
received
by
the
company.
Mr
Fordham
allowed
the
appeal
on
the
ground
that
the
company,
primarily
through
the
efforts
of
the
appellant
as
its
chief
engineer,
continued
to
carry
on
the
practice
of
the
profession
of
an
engineer
previously
practised
by
him
alone.
Dismissal
of
the
appeal
would
have
been
tantamount
to
saying
that
a
company
must
be
recognized
as
a
legal
entity
for
all
purposes
except
that
of
the
Income
Tax
Act.
Mr
Fordham
said:
“I
can
find
no
grounds
for
piercing
the
corporate
veil
.
.
To
have
upheld
the
contention
of
the
Department
would
have
been
to
enter
into
direct
conflict
with
the
first
principle
of
corporate
law.
5.03.6.2
Alfio
Seni
(decision
rendered
by
Mr
Boisvert
of
the
former
Tax
Appeal
Board)
The
appellant
held
a
civil
engineering
degree
from
two
European
universities.
As
a
recent
arrival
in
Canada,
he
was
not
a
member
of
a
professional
association
and
could
not
lawfully
practise
his
profession.
He
was
employed
on
salary
by
a
firm
of
consulting
engineers.
He
also
taught
at
and
did
other
work
for
a
technical
school.
In
1961
he
took
several
trips
in
his
own
car
to
study
the
structure
of
large-scale
bridges.
In
his
1961
tax
return
he
claimed
his
travelling
expenses.
The
Department
disallowed
this
expense
on
the
ground
that
the
appellant
was
an
employee
and
that
the
expenses
were
not
authorized
by
the
Act.
The
appeal
was
allowed
in
part.
In
addition
to
working
on
salary,
the
appellant
also
practised
his
profession
himself,
albeit
illegally.
What
he
earned
at
the
technical
school
was
income
from
a
business
and
the
research
concerning
the
bridges
was
connected
with
this
work.
Only
part
of
the
expenses
was
allowed,
because
the
evidence
was
not
clear
in
respect
of
the
amount
of
the
expenses
for
use
of
the
car.
5.03.6.3
James
A
Cameron
(Supreme
Court
of
Canada)
The
taxpayer
and
two
associates
were
district
managers
of
a
construction
company.
The
president
(and
sole
shareholder)
of
the
construction
company
regarded
the
three
associates
as
promising
men
and
was
anxious
that
they
should
participate
in
the
ownership
of
the
company
so
as
to
be
able
to
take
over
control
after
his
active
business
life.
He
proposed
that
they
form
a
company,
with
which
he
preferred
for
various
reasons
to
deal
in
order
to
achieve
his
objective.
In
1964
the
taxpayer
and
his
associates
formed
a
private
management
company,
of
which
they
became
equal
shareholders
and
employees.
A
few
months
later,
a
management
and
other
contracts
provided,
inter
alia,
that
the
management
company
would
provide
management
services
to
the
construction
company.
It
was
also
agreed
that
the
three
associates
should
perform
the
same
duties
as
they
had
previously
performed
as
employees
of
the
construction
company,
and
that
this
company
would
pay
the
management
company
administration
fees
of
fifteen
per
cent
of
the
construction
company’s
profits
and
also
budgeted
expenses
of
the
management
company
to
cover
salaries.
Furthermore,
the
management
company
would
use
the
administration
fees
paid
to
purchase
the
president’s
shares
in
the
construction
company.
The
taxpayer
and
his
associates
then
resigned
as
employees
of
the
construction
company
but
continued
to
perform
their
duties
as
before.
During
1965
and
1966
the
management
company
received
administration
fees
from
the
construction
company
and
paid
tax
on
the
amounts
received.
In
his
tax
returns
for
these
two
years
the
taxpayer
reported
as
income
the
salaries
and
bonuses
received
from
the
management
company.
The
Department
reassessed
the
taxpayer
and
added
to
his
reported
income
(and
to
that
of
his
two
associates)
one-third
of
the
fees
(less
certain
adjustments)
received
by
the
management
company.
The
taxpayer
appealed
from
this
decision.
The
Exchequer
Court
allowed
the
taxpayer’s
appeal.
The
Department
appealed
to
the
Supreme
Court,
where
it
took
the
position
that
the
amounts
added
to
the
taxpayer’s
income
were
income
received
by
him
from
his
employment
with
the
construction
company,
the
agreement
between
this
company
and
the
management
company
being
a
mere
sham.
The
appeal
by
the
Minister
was
dismissed
by
the
Supreme
Court
on
the
ground
that
the
said
agreement
was
not
a
sham
but
in
fact
met
the
primary
objectives
of
the
president
of
the
construction
company.
The
legal
rights
and
obligations
created
by
the
agreement
were
exactly
those
which
the
parties
intended.
The
administration
fees
were
paid
in
accordance
with
the
agreement.
Payment
of
the
said
fees
could
not
be
legally
enforced
by
the
taxpayer
and
his
associates,
but
only
by
the
management
company.
The
taxpayer
could
not
legally
force
the
management
company
to
pay
him
the
money.
If
a
saving
in
tax
resulted,
this
was
incidental
to
the
overall
plan.
5.03.6.4
Ralph
J
Sazio
(Cattanach,
J
of
the
former
Exchequer
Court)
Since
1950
the
appellant
had
been
a
trainer
for
a
professional
football
club
and
had
also
been
engaged
in
various
other
business
activities.
In
April
1964
the
appellant
incorporated
a
private
company
of
which
he
became
the
majority
shareholder.
One
of
the
company’s
objectives
was
to
provide
the
services
of
a
sports
trainer.
On
April
15,
1964
the
appellant
resigned
as
the
Club
trainer
and
on
the
same
day
the
said
club
engaged
the
company
as
its
trainer
for
the
balance
of
the
term
of
the
original
contract
between
the
appellant
and
the
club.
On
December
8,
1964
the
appellant
was
formally
engaged
as
general
manager
of
the
company
at
a
fixed
salary;
this
confirmed
in
writing
an
oral
agreement
entered
into
in
April
1964.
Also
on
December
8,
1964
the
club
again
hired
the
company
as
its
trainer
at
a
new
rate
of
pay.
The
company
received
the
sum
of
$20,143
Under
the
contract
of
April
15,
1964
and
$22,143
under
the
contract
of
December
8,
1964.
It
included
these
amounts
in
its
1964
and
1965
tax
returns.
The
Minister
of
National
Revenue
took
the
position
that
the
fees
received
by
the
company
were
income
of
the
appellant
for
the
training
services
rendered
personally
by
him.
The
principal
arguments
of
the
Minister
were
as
follows:
(1)
the
appellant
was
an
employee
of
the
club;
(2)
the
payments
by
the
club
to
the
company
were
made
with
the
agreement
of
the
appellant
for
his
benefit;
and
(3)
the
1964
agreements
were
not
bona
fide
business
transactions
but
an
attempt
to
reduce
the
appellant’s
income
artificially.
The
appeal
was
allowed
on
the
ground
that
the
company
had
been
lawfully
incorporated
and
that
it
could
legitimately
pursue
the
objectives
described
in
its
charter.
The
Court
distinguished
the
case
from
Kindree
v
MNR,
[1964]
CTC
386;
64
DTC
5248,
where
the
administration
of
medical
services
was
restricted
by
the
general
provisions
of
the
Medical
Act
and
according
to
the
code
of
ethics
of
the
medical
profession,
to
natural
persons,
there
being
no
such
restrictions
in
the
case
before
the
Court.
By
its
very
nature
a
company
must
act
through
natural
persons.
The
fact
that
it
may
have
been
formed
to
serve
the
interests
of
a
particular
person
did
not
necessarily
mean
that
an
agency
relationship
existed
between
that
person
and
the
company.
In
the
case
at
bar
the
company
was
fully
competent
to
engage
in
the
training
activities.
The
agreements
made
in
respect
of
these
activities
were
bona
fide
business
activities.
The
Court
cited
CIR
v
Peter
McIntyre
Ltd,
12
TC
1006,
where
the
respondent
company
operated
an
auctioneer,
valuer
and
real
estate
agent
business.
According
to
Lord
President
Clyde,
such
a
business
was,
at
least
in
part,
what
is
known
as
a
profession.
He
later
added
“Because
a
professional
business
may
be
carried
on
by
a
company
as
well
as
by
an
individual”.
5.03.6.5
Dr
H
Hoyle
Campbell
(Supreme
Court
of
Canada)
The
taxpayer,
a
doctor,
incorporated
a
company
in
Ontario
in
1954
to
operate
a
private
hospital.
He
acquired
all
the
shares
of
the
company.
The
company
employed
the
taxpayer
and
paid
him
a
fixed
salary.
In
return
the
taxpayer
paid
to
the
company
all
the
fees
he
received
from
the
provincial
health
insurance
plan
for
medical
services
rendered.
The
plan
required
that
the
billings
for
practitioners’
services
be
paid
directly
to
the
practitioners.
For
the
1967,
1968
and
1969
taxation
years
the
taxpayer
reported
as
income
not
the
professional
fees
received
from
the
plan
but
the
amounts
received
as
salary
and
bonuses
from
the
company.
The
Minister
of
National
Revenue
reassessed
on
the
ground
that
the
fees
received
from
the
plan
were
income
of
the
taxpayer
and
consequently
added
a
total
of
$86,492
to
the
taxpayer’s
income
for
the
years
in
question.
The
taxpayer
appealed
to
the
Federal
Court,
Trial
Division,
which
decided
in
1974
that
since
the
company
was
attempting
to
practise
medicine,
an
activity
that
was
forbidden
to
companies
by
The
Medical
Act
of
Ontario,
the
Minister’s
reassessment
was
correct
in
principle.
In
1979
the
Federal
Court
of
Appeal
([1979]
CTC
279;
79
DTC
5202)
decided,
by
a
majority
of
2
to
1,
that
in
running
the
hospital
and
employing
the
taxpayer,
the
taxpayer
was
merely
doing
what
he
was
allowed
to
do
under
The
Private
Hospitals
Act
of
Ontario,
under
which
the
company
had
been
incorporated,
and
it
allowed
the
appeal.
In
its
judgment
the
Supreme
Court
of
Canada
summarized
the
judgment
of
the
Federal
Court
of
Appeal
and
drew
its
conclusions
therefrom
as
follows:
The
Federal
Court
of
Appeal,
by
a
majority,
with
Ryan,
J
dissenting,
was
of
the
view
that
the
respondent
was
entitled
to
succeed
in
his
challenge
of
tax
assessments.
LeDain,
J
distinguished
the
Kindree
case
and
also
Carruthers
Clinic
Ltd
v
Herdman,
[1956]
OR
770,
on
the
ground
“that
here
there
is
a
genuine
hospital
operation
governed
by
and
licensed
under
the
Private
Hospitals
Act
of
Ontario,
with
a
charter
approved
pursuant
to
that
Act
empowering
the
hospital
corporation
to
engage
qualified
medical
practitioners
for
the
provision
of
medical
services”.
He
continued:
“I
agree
with
my
brother
MacKay
that
this
makes
the
agreement
between
the
appellant
and
the
hospital
corporation
a
lawful
one”.
He
also
held
that
its
lawfulness
was
not
affected
by
the
provisions
that
the
services
of
the
respondent
to
patients
were
to
be
performed
as
an
employee
of
the
hospital
and
that
the
income
from
such
services
was
to
go
to
the
hospital.
MacKay,
DJ,
the
other
member
of
the
majority,
was
of
the
view
that
it
was
the
respondent
and
not
the
hospital
who
was
practising
medicine.
Although
in
my
view,
the
Carruthers
case
has
only
marginal
relevance
here,
dealing
as
it
does
with
a
restrictive
covenant,
I
do
not
see
that
the
apprehension
raised
in
that
case
about
unqualified
persons
or
entities
becoming
parties
to
the
doctor-patient
relationship
exists
here.
There
are
no
third
parties
to
the
doctor-patient
relationship
in
this
case,
and
this
means
that
the
danger
perceived
in
the
Carruthers
case
is
not
present
here.
Moreover,
there
is
no
question
of
the
liability
of
the
respondent
to
the
discipline
and
control
of
the
Ontario
College
of
Physicians
and
Surgeons.
Ryan,
J,
in
dissent,
after
a
lengthy
review
of
the
facts,
concluded
that
Heald,
J
was
right
in
holding
that
the
hospital
was
endeavouring
to
practise
medicine,
as
well
as
carrying
on
its
hospital
services.
He
recognized
that
it
was
not
easy
to
draw
the
line
between
providing
authorized
hospital
services
and
engaging
in
the
prohibited
practice
of
medicine
and
he
expressed
the
view
that
a
corporation,
licensed
to
carry
on
a
hospital,
may
employ
doctors
under
contracts
of
service
to
provide
medical
services
incidental
to
its
undertaking.
If
this
be
the
test,
I
am
of
the
opinion
that
it
has
been
met
in
this
case.
Conclusion
of
the
Supreme
Court
I
cannot
agree
that
the
particular
facts
of
this
case,
when
considered
in
the
light
of
the
Crown’s
concession
of
the
good
faith
of
the
respondent
in
incorporating
a
company
to
operate
a
private
hospital
and
the
eschewing
by
the
Crown
of
any
suggestion
of
sham,
provide
a
basis
upon
which
to
uphold
the
assessments
against
the
respondent.
In
my
view,
the
Federal
Court
of
Appeal
correctly
held,
on
the
particular
facts
here,
that
it
was
the
respondent
and
not
the
hospital
who
was
practising
or
endeavouring
to
practise
medicine.
Moreover,
that
did
not
inevitably
require
the
conclusion
that,
in
assigning
his
fees
to
the
hospital,
the
respondent
was
assigning
his
own
money
rather
than
carrying
out
an
arrangement
under
which
the
fees
belonged
to
the
hospital.
The
billing
procedure
was
required
by
provincial
regulations
and
cannot
be
the
controlling
element
in
determining
to
whom
the
tees
belong
when
there
was
a
valid
arrangement
for
the
provision
ot
a
salary
to
the
respondent
and
for
the
accounting
of
fees
to
the
hospital
as
employer.
I
would
dismiss
the
appeal
with
costs.
5.03.6.6
Axler
&
Palmer
Ltd
(Tax
Review
Board
per
Mr
Flanagan)
The
appellant
company
had
been
incorporated
in
1956
as
a
real
estate
broker.
Until
1969
it
computed
its
net
income
on
a
cash
basis.
The
respondent
reassessed
the
appellant,
claiming
that
the
company
should
instead
compute
its
income
on
an
accrual
basis.
The
principal
issue
was
whether
real
estate
brokerage
was
a
profession.
It
was
agreed
between
the
parties
that
if
the
Board’s
decision
were
affirmative,
there
could
be
no
discussion
as
to
whether
the
company
practised
this
profession.
The
appeal
was
allowed
on
the
ground
that
since
the
word
“profession”
had
a
broader
meaning
than
previously,
real
estate
brokerage
could
be
regarded
as
a
profession.
5.03.7
Most
of
these
cases
dealt
with
the
problem
at
issue
in
the
instant
case
by
asking
first
whether
there
were
bona
fide
business
transactions,
which
is
not
necessary
in
the
instant
case.
The
principles
derived
from
these
cases
may,
however,
be
used
to
resolve
the
problem.
The
Board
is
of
the
view
that
once
it
is
proved
that
professional
activities
were
carried
on
through
a
corporation,
these
activities
should
be
regarded
as
having
been
carried
on
by
the
corporation
unless
a
special
Act
prohibits
corporations
from
practising
the
said
profession.
Since
the
corporation
was
incorporated
under
the
appropriate
Act,
it
is
entitled
to
pursue
the
objects
set
out
in
its
charter.
5.03.8
The
evidence
showed
that
the
two
appellant
companies
had
been
lawfully
incorporated
under
the
Quebec
Companies
Act
(paras
3.01
and
4.01)
and
that
they
were
acting
in
accordance
with
their
charters
(paras
3.02
to
3.12
and
4.02
to
4.19).
No
evidence
was
adduced
to
show
that
any
legislation
prevented
a
company
from
practising
the
profession
of
advertisement
writer
or
commercial
researcher
and
marketing
consultant.
Thus,
since
the
appellant
companies
were
legitimately
incorporated,
in
line
with
the
reasoning
in
Ralph
J
Sazio
(para
5.03.6.4)
they
could
legitimately
pursue
the
objects
described
in
their
charters.
The
learned
Cattanach,
J
referred
in
Sazio
to
the
English
case
of
CIR
v
Peter
McIntyre
Ltd
(para
5.03.6.4
in
fine),
where
Lord
President
Clyde
stated
that
a
profession
may
be
practised
by
a
company
as
well
as
by
an
individual.
In
Axler
&
Palmer
Ltd
the
Department
of
National
Revenue
had
already
admitted
that
a
corporation
may
practise
a
profession
(para
5.03.6.6.).
6.
Conclusion
The
appeals
are
allowed
and
the
matter
referred
back
to
the
respondent
for
reassessment
in
accordance
with
the
above
reasons
for
judgment.
Appeals
allowed.
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