Jacques Rochette v. Minister of National Revenue, [1981] CTC 2508, 81 DTC 439

Guy Tremblay [TRANSLATION]This case was heard at Quebec City, Quebec on February 21, 1980.

1. Issue

It is necessary to determine whether the appellant, who, according to the appellant himself, worked as a consulting biochemist, and, according to the respondent, as a biochemist employed part time, for two hospital centres, is entitled to claim expenses in the amount of $10,000 over the four years 1973, 1974, 1975 and 1976 as against his income.

2. Burden of Proof

The burden is on the appellant to show that the respondent’s assessments are incorrect. This burden of proof derives not from one particular section of the Income Tax Act, but from a number of judicial decisions, including the judgment delivered by the Supreme Court of Canada in Johnston v Minister of National Revenue [1948] CTC 195; 3 DTC 1182.

The same judgment also laid down that there is a rebuttable presumption that the facts relied on by the Minister are true.

3. Facts Presumed by the Respondent

Subparagraphs (a) to (g) of paragraph 6 of the respondent’s reply to the notice of appeal contain the presumptions of fact relied on by the respondent in issuing the assessments relating to the 1973 to 1976 taxation years inclusive. These subparagraphs read as follows:

(a) During the taxation years in question, the appellant worked part time as a biologist for Laboratoire d’Expertise L E Inc and the Hôpital Général de la région de l’Amiante Inc;

(b) The appellant was not paid by these two institutions on the basis of the number of professional services rendered, but rather received a fixed salary of $300 per month from the Hôpital Général de la région de l’Amiante Inc and $200 per month from Laboratoire d’Expertise L E Inc;

(c) Deductions were made at source from the salary paid to the appellant by the Hôpital General de la région de l’Amiante Inc and T-4 slips were sent to the appellant by his employer;

(d) The premises and equipment necessary for the appellant’s work were provided by Laboratoire d’Expertise L E Inc and by the Hôpital General de la region de l’Amiante Inc;

(e) The appellant had to perform a large proportion of the duties of his position in premises provided by the two employers mentioned;

(f) The appellant had to report regularly to his two employers;

(g) The appellant’s remuneration in the service of the two employers mentioned was fixed and predetermined and did not vary by reference to the number of professional services rendered.

4. Facts Admitted and Proved

4.01 According to his own testimony, the appellant was a consulting biochemist during the years in question from 1973 to 1976. He is a member of the Société québécoise de Chimie clinique.

4.02 The work of a consulting biochemist consists in exercising quality control over the professional services requested by doctors (inter alia, control of analyses performed by medical technologists).

4.03 During the years in question he worked full time as an employee of the Hôpital St-Sacrement. He also worked at the Hôpital général de la région de l’Amiante situated at Thetford Mines and for Laboratoire d’Expertise L E Inc situated at Charny. During the said years the appellant resided on rue Du- chesneau in Quebec City.

4.04 According to Mr J P Jutras, the Director of the Hôpital Général de la région de l’Amiante, the appellant has worked as a consulting specialist in biochemistry since 1971.

The appellant received $300 per month at the Hôpital général de la région de l’Amiante. This amount was agreed upon in 1971 for a fixed number of professional services. In fact, during the years in question the appellant performed a much greater number of professional services than had been agreed upon at the outset. The appellant and the hospital were aware of this fact. The hospital never received additional invoices. The agreement as to a fixed amount relieved the appellant of the need to submit invoices for the professional services performed and the hospital of the need to issue several cheques.

4.05 The appellant did not receive the advantages and fringe benefits enjoyed by employees: pension fund, health insurance and so on. However,the appellant agreed that deductions of income tax at source be made, and the hospital agreed to this and remitted the amounts to the Department of National Revenue.

4.06 According to his own testimony, the appellant never hesitated to perform additional work, although he did not file invoices. He went to the hospital at any time on request: day, night or Sunday. He even went there one Christmas morning.

4.07 His work consisted in conducting discussions with the chief technologist, giving courses and meeting doctors.

4.08 According to the appellant, he did not have to submit reports to the hospital authorities. He reported only to the chief of the laboratory and to the management of the anatomy and pathology professional services. On occasion he was consulted by hospital management on certain questions such as the selection of instruments, the assessment of various pieces of equipment and the future direction of the laboratories.

4.09 The appellant also worked as a consulting biochemist at the Hôpital Notre-Dame at Charny. At such times, however, he was representing Laboratoire d’Expertise L E Inc, following an agreement between the said hospital and L E Inc. He was then receiving $200 per month from the company.

4.10 The consulting work at the hospital in Charny was performed at that time on the hospital premises and not in the laboratories. The work was of the same kind as that performed in the Thetford Mines hospital.

4.11 As against this income from Laboratoire d’Expertise L E Inc and the Hôpital Général de la région de l’Amiante he claimed the following expenses in the years in question:

4.12 In reassessments, notices of which were sent on May 25, 1978, the respondent assessed the appellant with respect to the said years. In issuing these reassessments, the respondent disallowed the following deductions:

4.13 Following notices of objection from the appellant, the respondent confirmed the said assessments.

5 Act, Case Law, Comments

5.01 Act

The principal provisions of the Income Tax Act involved in this case are subsections 8(1), (2) and paragraph 18(1 )(a).

The principles expressed in these sections may be summarized as follows: the only expenses allowed as against employment income are those provided for in section 8. However, as against income from business or property the deductions allowable are those incurred for the purposes of earning income: paragraph 18(1 )(a).

5.02 Case law

The Board was referred to the following case law:

1. Quebec Asbestos Corp v Couture, [1929] SCR 166;

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

5.03 Comments

5.03.1 As the basic issue is to determine whether the appellant is an employee or operates a business, it is important to set forth the principal factors that characterize each of these.

In commenting on article 1683 of the Civil Code, L Faribault summarizes Quebec Asbestos Corp v Couture as follows at 148 of volume 12 of his Traité de Droit Civil du Québec:

In Quebec Asbestos Corporation v Couture, [1929] SCR 166, the Supreme Court held that a contract of service is distinguished above all from a business contract by the subordination of the servant to the master. It attributed the following characteristics to a business contract:

1. the manner of payment adopted, 2. the right of the employer alone to select the employees, 3. his right to determine their salaries; 4. his right to direct and dismiss them; 5. the absence of any subordination; and 6. the fact that the entrepreneur alone is liable for damages caused by the business.

A. Income from the Thetford Mines hospital

5.03.2 After studying the evidence relating to these various factors, the Board has concluded that the income earned for the work performed at the Hôpital Général de la region de l’Amiante was income from a business.

With respect to the work performed, it is quite similar to any professional work performed by a biochemist working in a hospital and paid a salary. However, what is characteristic of this case is the manner of payment adopted. At first sight, it appears that the $300 per month was a fixed salary. The evidence showed, however, and this was confirmed by the Director of the Hôpital Général de la région de l’Amiante, Mr Jutras, that the salary established in 1971 was paid by reference to the number of services rendered. The projected number of services per month produced an income of approximately $300.

The fact that there was an agreement not to present an invoice for each act and to deduct tax and so on (para 4.04) makes no difference to the substance of the remuneration. The fact that subsequently the appellant performed more professional services than were provided for at the outset and that he did not claim additional payments also makes no difference to the substance of the agreement, although this fact tends to confirm the impression that a salary was involved here.

5.03.3 This substance of the agreement is confirmed, moreover, by the fact that the hospital did not treat him as an employee with respect to pension funds and so on (para 4.05).

5.03.4 The cross-examination of the appellant and Mr Jutras did not contradict these facts; on the contrary, it provided an opportunity to confirm them. Their testimony was not contradicted.

B. Income from Laboratoire d’Expertise L E Inc

5.03.5 The Board has not, however, reached the same conclusion in its consideration of the income of $200 per month from Laboratoire d’Expertise.

No evidence was adduced relating to this remuneration. This factor is of primary importance in the instant case. The appellant has not reversed the onus.

5.03.6 The Board fully realizes, however, that if one item is allowed as being income from business a new problem will arise, namely, the question of the division of the expenses. The Board feels that the parties will agree on a solution to this problem without difficulty.

6. Conclusion

The appeal is allowed in part and the matter referred back to the respondent for assessment in accordance with the above reasons for judgment.

Appeal allowed in part.