J M Delaney Lumber LTD v. Minister of National Revenue, [1982] CTC 2863, 82 DTC 1863

Guy Tremblay:—This case was heard on July 12, 1982, at the City of St John’s Newfoundland.

1. The Point at Issue

Pursuant to the notice of appeal and the reply to notice of appeal, the point at issue is whether the appellant company is correct in deducting in the computation of its income for the 1979 taxation year, the amount of $5,120 pursuant to the employment tax credit program. The respondent allowed only $240.

The appellant contends that when it signed the agreement with the Minister of Employment and Immigration in 1978, the only criterion to be eligible for the program was to hire more than the normal work force. According to the appellant, in order to find the normal work force of the company, the representative of Canada Manpower took the average of the appellant’s staff for the previous two months. The respondent, however, took the highest week and the lowest week of 1977 and 1978 in reassessing the appellant.

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:

3. In so reassessing the Appellant’s income tax liability, the Respondent made, inter alia, the following assumptions of fact:

(a) The Appellant employed three eligible workers pursuant to an Employment Tax Credit Program Agreement entered into with the Minister of Employment and Immigration on June 29, 1978;

(b) The Appellant incorrectly certified in the agreement referred to in paragraph 3(a) that a calculation of the normal work force for the purposes of determining eligibility for an employment tax credit was made in accordance with subsection (b) of the definition of “normal work force” as found in the Employment Tax Credit Program Regulations (for employment in an industry not having seasonal employment patterns);

(c) The Appellant certified in the agreement referred to in paragraph 3(a) that all the terms of eligibility for the Employment Tax Credit Program had been read and understood and that it was an eligible employer entitled to receive employment tax credits in that the eligible employment being filled by the eligible worker was in addition to the Appellant’s normal work force and would not have been created without the tax credit offered by the Minister of Employment and Immigration under the agreement;

(d) The number of employees that the Appellant had on its payroll, who were each paid more than 15 hours in the week by the Appellant in 1977 and 1978 was as follows:

	No. of Employees on Payroll
Week Ending	1977	1977	1978
June 17, 24		17	16
July 1, 8, 15, 29		17	16
August 5, 12, 19, 26		17	16
September 6, 9		17	16
September 16, 23, 30		17	15
October 7		15	15

October 14, 21, 28	15	14
November 4, 11	15	14
November 18	14	14
November 25	12	13
December 2, 9	12	13
December 16	12	12

(e) The highest and lowest number of employees who were each paid 15 or more hours of work in any week by the Appellant during the 52 week period immediately preceding the first date on which the Appellant entered into the agreement with the Minister of Employment and Immigration was as follows:

	No. of Employees
Highest	17
Lowest	17

(f) The Appellant’s normal work force during its 1979 taxation year was the number of employees at its place of employment who were on the Appellant’s pay-roll and were each paid wages for 15 or more hours of work during the corresponding week in the preceding year of 1977, as referred to in paragraph 3(d);

(g) The Appellant provided additional employment to its normal work force in the following weeks:

				Additional
		Payroll Normal		Employment
Week Ending	1978	1978	Work Force (Workers)
November 25		13	12	1
December 2		13	12	1
December 9		13	12	1

(h) The Appellant provided three weeks of eligible employment pursuant to the agreement referred to in paragraph 3(a);

(i) The Appellant’s employment tax credit for its 1979 taxation year was calculated as follows:

3 weeks of eligible employment

40 hours/week

$2/hour

$240

(j) The Terms and Conditions of the Agreement referred to in paragraph 3(a) included the following:

TERMS AND CONDITIONS

The Minister and Employer agree that the following terms and conditions shall apply to the parties identified on the reverse side of this document for the purposes of an employment tax credit.

(1) the WORKER must be an eligible worker as defined under the Employment Tax Credit Program Regulations;

(2) the period of employment for which entitlement to a tax credit may be available to the employer is the proposed period of employment being not less than 3 months nor more than 9 months;

OR

from the proposed commencement date until the day the WORKER ceases to be employed by the EMPLOYER, whichever is earlier;

(3) the employment tax credit available to the EMPLOYER by reason of the Employment Tax Credit Act shall be claimed by means of a deduction from federal income tax otherwise payable in accordance with the provisions of the Income Tax Act;

(4) any amendment to this agreement requires the mutual consent, in writing, of the parties hereto;

(5) the employment tax credit to which the employer will be entitled for employing the worker in eligible employment shall be at the applicable tax rate identified on the reverse side of this document for each hour for which wages were paid up to a maximum of 40 hours per week (for each worker identified in the Agreement) for the proposed period of employment;

(6) any information required by the MINISTER relating to the employment tax credit shall be provided by the EMPLOYER to the Canada Employment and Immigration Commission;

(7) the agreement and any matters pertaining to it are subject to audit by the Minister of National Revenue when required to determine whether a tax credit is available to the EMPLOYER;

(8) any information obtained or determined through audit by the Minister of National Revenue shall be available for transfer to the MINISTER for any purposes required with respect to the Employment Tax Credit Act and Regulations;

(9) the MINISTER has the right to terminate this agreement at any time if, in the opinion of the MINISTER, the EMPLOYER has failed to comply with the requirements respecting employment set out in the Employment Tax Credit Program Regulations or this agreement, or the employment for which an employment tax credit is sought is no longer considered acceptable for the tax credit, and where this agreement is terminated, eligibility to a tax credit is available only for those hours approved by the MINISTER;

(10) for the purposes of paragraphs 2(a) and (b) on the reverse side of this document affecting the employer’s certification the terms “eligible employer”, “eligible employment”, “eligible worker”, and “Normal Work Force” shall be understood and applied as those terms are defined in the Employment Tax Credit Program Regulations.

(k) The Appellant’s fiscal year was from February 1,1978 to January 31,1979.

3. The Facts

3.01 Mr J M Delaney testified for the appellant company. First, he did not deny or admit the respondent’s assumptions of fact quoted above. The Board must therefore consider that they are true because, legally they are assumed to be correct.

3.02 In his testimony the witness gave, in substance, the facts described in the first three paragraphs of the appellant’s notice of appeal. They read as follows:

In June 1978 our firm J M Delaney Lumber Ltd of Stephenville, Nfld entered into a contract with Canada Manpower Centre, Stephenville. In this contract we agreed to hire three people extra to our normal work force which made us eligible for the Employment Tax Credit Program for that year. At the year end our accountants prepared our financial statement which included a tax credit in the amount of $5,120. Revenue Canada assessed the company, and the assessment was paid assuming our tax credit was in order.

In October 1980 two and a half years later we are told that we are not allowed a tax credit of $5,120, only a credit of $240, and further that we must pay interest on this amount for the ensuing period. We feel this to be totally unjust.

When we signed the agreement with Manpower in 1978 the only criteria to be eligible for the program was that you hire more than your normal work force. To find our normal work force, Canada Manpower took the average of our staff for the previous two months. However, Revenue Canada now states that we had to compare a week in 1978 with a corresponding week in 1977.

3.03 An Agreement signed June 29, 1978 was filed as Exhibit A-1.

3.04 Mr Delaney said that when he signed the Agreement, he did not take the time to read all of the requirements of the Agreement, nor the pertaining regulations and other legal provisions concerning the Employment Tax Credit Program for that year.

3.05 The witness did not explain the basis on which his accountant arrived at $5,120 of tax deduction. He testified, however, that the respresentative of the Canada Manpower Centre did not give the figures concerning the deduction.

4. Law — Analysis

4.01 Law

The main legal provisions involved concerning the employment tax credit program for that year are paragraph 12(1 )(q) and subsections 127(13) and 127(16) of the Income Tax Act, SC 1970-71-72, c 63, as amended, and section 6000 of the Income Tax Regulations. All of those provisions are general provisions which allow the deduction of the employment tax credit. However, specific provisions giving the requirements to compute the employment tax credit program are contained in section 7 of An Act to Amend The Income Tax Act And To Establish The Employment Tax Credit Program, SC 1977-78, c 4, and in section 2 and paragraph 5(g) of the Employment Tax Credit Program Regulations, SOR/78-232 amended by SOR/78-513 and SOR/78-759.

In the present case the main issues are in the definition of “normal work force” and of “eligible employment”. One can find those definitions in sections 2 and 5 of the said Employment Tax Credit Program Regulations. Section 7 of An Act To Amend The Income Tax Act And To Establish The Employment Tax Credit Program, section 2 and paragraph 5(g) of the Employment Tax Credit Program Regulations read as follows:

7. (1) There is hereby established a program, to be known as the Employment Tax Credit Program and in this section referred to as “the Program”, pursuant to which the Minister of Employment and Immigration may enter into agreements with eligible employers providing for deductions from tax otherwise payable by them under Part 1 of the Income Tax Act in respect of employment during the program period.

(2) For the purposes of subsection (1), the “program period” commences on a day to be fixed by proclamation and ends on March 31, 1981.

(3) No agreement may be entered into under subsection (1) after March 31, 1980 and an agreement entered into in respect of eligible employment that commences after that day is of no force or effect.

(4) The deduction from tax otherwise payable under Part 1 of the Income Tax Act to which an eligible employer who enters into an agreement under subsection

(1) is entitled in respect of a particular eligible worker is

(a) $2 per hour if the worker is first employed by him in eligible employment in the Province of Newfoundland, Prince Edward Island, Nova Scotia or New Brunswick or in the Gaspé Peninsula,

(b) $1.75 per hour if the worker is first employed by him in eligible employment in a prescribed designated region, or

(c) $1.50 per hour if the worker is first employed by him in Canada outside the provinces and Pensinsula referred to in paragraph (a) and the prescribed designated regions

for each hour of eligible employment for which wages are paid by the employer to the eligible worker up to a maximum of 40 hours per week for a period of not more than 12 months calculated from the day on which the worker is first employed by the employer in eligible employment.

(5) For the purposes of subsection (4),

“Gaspé Peninsula” means that portion of the Gaspé region of the Province of Quebec that extends to the western border of Kamouraska County and includes the Magdalen Islands;

‘‘prescribed designated region” means a region of Canada, other than the Province of Newfoundland, Prince Edward Island, Nova Scotia or New Brunswick or the Gaspé Peninsula, that is designated as such under the Regional Development Incentives Act.

(6) On the recommendation of the Minister of Employment and Immigration, the Treasury Board may make regulations

(a) defining the terms “eligible employer”, “eligible employment” and “eligible worker”; and

(b) prescribing the form and the terms and conditions of agreements under subsection (1).

(7) Every person is guilty of an offence punishable on summary conviction who,

(a) in or in relation to an application to enter into an agreement under subsection (1), or

(b) in or in relation to any information given to the Minister of Employment and Immigration under such an agreement,

makes a statement or representation that he knows to be false or misleading or fails to disclose any information with the intent of misleading any other person.

2. In these Regulations,

“normal work force” means

(a) in the case of an employer providing employment in any business where, at the place of employment during the fifty-two week period imediately preceding the first date on which the employer entered into an agreement with the Minister,

(i) there was a week for which ten or more employees were each paid wages for fifteen or more hours of work in that week, and

(ii) the highest number of employees who were each paid wages for fifteen or more hours of work in any week during that period exceeded by more than 33 / per cent the lowest number of employees who were each paid wages for fifteen or more hours of work in any other week during that fifty- two week period,

the number of employees at the place of employment who were on the payroll of the employer and were each paid wages for fifteen or more hours of work during the corresponding week in the preceding year, . . .

5. For the purposes of the Act, “eligible employment” means employment in Canada that meets the following conditions:

(g) the employment is additional to the normal work force of the employer at

the place of employment in each week for which the tax credit is claimed, . . .

4.02 Analysis

4.02.1 The facts are not really in dispute. All of the respondent’s assumptions of fact quoted above in subparagraph 2.02, were not denied by the appellant. The interpretation and the application of the regulations quoted above are the only issues in dispute. Mr Delaney said he did not read the regulations before signing the Agreement.

4.02.2 After reading the legal provisions involved in this case, the Board concludes that the method used by the respondent to compute the tax credit (as explained in the assumptions of fact quoted in paragraph 2.02) is correct. The reassessment must be maintained and the appeal is dismissed.

5. Conclusion

The appeal is dismissed in accordance with the above reasons for judgment.

Appeal dismissed.