Richard J Haynes v. Minister of National Revenue, [1980] CTC 2616, 80 DTC 1510

D E Taylor:—This is an appeal heard in the City of Toronto, Ontario, on April 18, 1980, against an income tax assessment for the year 1976 in which the Minister of National Revenue disallowed an amount of $1,825.65 claimed against income of $3,200 which was received by the appellant in the capacity of a lecturer. Both the appellant and the respondent relied upon the provisions of section 8 of the Income Tax Act.

Background

The appellant has several university degrees in fields associated with the computer software services, and is properly addressed as Dr Richard J Haynes. The letter by which this appeal was launched contains the following comments:

I look forward to arguing my case before the Board, and am confident that by winning I will be setting a precedent for many people in similar situations across Canada.

In view of the obvious importance which Dr Haynes attaches to this matter—clearly one of principle as well as financial—and his view that it is of potentially wide application, it would be in order to reproduce the entire notice of appeal which contains the grounds for the appeal noted above:

1. The basic issue is simple. DNR claims that income I received from lecturing at the Univesity of Toronto was from employment. I claim that my position was that of independent contractor, not employee.

2. The lectures I gave were sponsored by two professional societies, the Society of Industrial Accountants (SIA), and the Institute of Canadian Bankers (ICB). In both cases students were primarily members of these societies and were directed to U of T by them. They did not therfore identify themselves as U of T students in the conventional sense. The curricula were controlled by the societies, in the SIA’s case very tightly, and in the ICB’s case somewhat more loosely. At no time did U of T offer me direction, advice or comments on the exact syllabus, textbooks used, teaching material and methods, assignments, or evaluation criteria. U of T’s role was simply “housekeeping”—provision of floorspace and some administration.

This is in contrast with Molot, Rosen and Klemes who all taught courses offered by the university as part of its normal undergraduate and postgraduate programs. Unlike them I was not “integrated into the teaching function of the university”. Rather, I was either an agent of U of T, or equally arguably an agent of the societies. Anyone who claimed that I was employed by U of T might equally claim that I was employed by the societies.

It is interesting to note that the SIA have since broken their contract with U of T, and have moved the location of their lectures to George Brown College. This emphasizes the arms-length nature of the relationship between SIA and U of T. Since my activities were controlled by the societies rather than by U of T, this further emphasises the arms-length nature of my relationship with U of T.

3. You cannot become an employee without signing a contract of employment and being aware that you have done so. Attached is the “Course Arrangements” form which I signed for the lectures in question. Note the words “undertake the assignment” which in no way connote permanent employment.

4. One of the characteristics of a business is a diversity of income sources, compared with one source when employed. In 1976 I was only paid directly by one source (U of T), but on behalf of two sources (the societies). In 1977 however, I earned income from U of T for lecturing, and also from the SIA directly for designing a new course. In addition I have been planning to write a textbook and diversify into other areas, such as a clearing house for specifically Canadian case-studies. As these activities develop, DNR would presumably eventually agree that I was indeed running a business. DNR allowed my business deduction in 1975. Presumably, therefore, a business existed in the intervening years, including the year in question.

5. I am employed full-time by IBM Canada Ltd, who permit me to give lectures on condition that it does not interfere with my job. In other words IBM has first claim on my private time for travel, overtime, etc. This lends an element of casualness to my relationship with U of T which would not be tolerated in a conventional employment contract. In fact I was forced to cancel lectures several times because of business trips, and rescheduled them directly with the students, rather than through U of T.

6. Three additional differences between an employee and an independent contractor are:

(a) A professional employee is usually provided with office space and secretarial services. I was not.

(b) An employee usually receives payment at regular intervals. I received payment in a lump sum at the end of a lecture series.

(c) A professional employee is usually paid even if work is not immediately available, because it is assumed that he will be required in the near future. I received no payment if a course was cancelled, no matter how short the notice, and had no relationship with U of T during such a period.

7. At year end 1976 I expected a T4A consistent with my contractor status. Instead I received a T4 which implied that I was an employee. When I contacted U of T I was told that T4’s were issued at DNR’s request. The fact that I received a T4 does not therefore imply that I was really an employee, it simply indicates that DNR decided that everyone paid by U of T’s computer was an employee whether they liked it or not.

8. The deduction in dispute was allowed in 1975. Nothing has changed in my circumstances and the Income Tax Act remains the same. I do not therefore understand why the deduction was not allowed in my 1976 return.

Contentions

For the appellant the matter is simple—he was an employee with IBM but, separately, was in the business of providing his professional services for the functions at issue.

The respondent asserted that:

—the appellant was an employee of the University of Toronto and received salary from the said University;

—the appellant was not required by his contract of employment to maintain an office in his home, nor was he required by the said contract of employment to supply and pay for supplies that were consumed directly in the performance of the duties of his employment;

—the appellant provided no evidence to substantiate his claim for business expenses.

Evidence

The appellant dealt with the above assertions of the Minister by noting the following:

(a) It is not a fact that he was an employee of the University of Toronto—this is the issue before the Board.

(b) While he was paid, he did not receive a salary.

(C) He was required to maintain an office.

(d) He was supplied with nothing by U of T.

(e) The details substantiating his claim for business expenses are contained in the statement submitted with his income tax return.

Dr Haynes submitted to the Board two U of T forms which, in his view, were identical to any he would have signed, or of which he was aware at the time of the engagement. The first form noted his willingness to “undertake an assignment” (Exhibit A-1); and the second (Exhibit A-2) contained the following questions and answers:

(8)(a) Is office space available to this employee at your place of business?

Yes No

(b) Is this employee required to maintain an office elsewhere?

Yes No

If “yes”, explain below. “The School of Continuing Studies does not provide office space for its part-time instructors for grading or course preparation duties, etc.”

The balance of Dr Haynes’ testimony largely related to the assertions made in the notice of appeal.

Dr Warren Jevons, Assistant Director and Secretary of the School of Continuing Studies at U of T was called by the respondent as a witness. He supplied to the Board four other documents (Exh R-1) made available from the appellant’s file at U of T. These represented different courses for which the appellant was responsible, but the material thereon significant to this matter was identical, and examples are given below:

UNIVERSITY OF TORONTO

SCHOOL OF CONTINUING STUDIES 119 St George Street Toronto Canada M5S 1A9

Confirmation of Teaching Arrangements 1975-76 (RIA Programme)

Course: BUSINESS MATHEMATICS

Campus: St George

Instructor: Dr R J Haynes
Schedule	Lectures	Day	Dates	Time	Location
Fall Term
Winter Term
Spring Term	10	Thurs	May 13-July 15 7-9 pm 308 Galbraith Bldg
Total Lectures	10		Duration

Stipend: $700 (Payment will be made at the conclusion of the course, or for

courses commencing in the Fall and ending in the Spring, a payment will be made in December and the balance at the conclusion of the course.)

Changes in Schedule: Any changes in the arrangements outlined above must be discussed with the course co-ordinator. In particular, notification is required of any circumstances which will prevent an instructor from meeting his class as scheduled, so that the appropriate alternative arrangements may be agreed upon.

Facilities: Classrooms are allotted as scheduled above, but it should be noted that the School does not provide office accommodation for preparation or marking. This is the responsibility of each instructor.

Other Information: Please read the attached bulletin which outlines important information about the School and RIA Programme requirements.

NB All teaching arrangements are contingent upon sufficient enrolment, and while we are reluctant to cancel courses, this is occasionally necessary.

Please confirm your willingness to teach by signing and returning this form to Mrs M Sayer at the address above:

Date April 26/76 (Sgd) Richard J Haynes

Signature

Additional Confidential Information Required for Payment Authorization

Individual ( U of T personnel Number (if known) 368 703

( Are you a student? Cl

( Regularly appointed U of T staff? II Check ( Previously paid by U of T? M if “Yes” ( Name in full including all given names and surname (Please Print):

(

( Dr RICHARD JOHN HAYES

(

( Mailing Address (Home): 52 Thursfield Cres, Toronto M4G 2N5 ( Birth Date Nov 6, 1946 Sex M Social Insurance No 454 067 244

UNIVERSITY OF TORONTO

SCHOOL OF CONTINUING STUDIES

158 St George Street

Toronto, Ontario, Canada M5S 2V8

(416) 987-2400

COURSE ARRANGEMENTS WITH

R J Haynes

Course Number SCSOOOB Course Name Computer Concepts & Applications Description of Assignment

Term Sessions Day Dates Time Hours Location

Fall 12 Tues Sept 21-Dec 7 6:30-9:00 pm 2 21/2 Room 243 Winter 8 Jan 4-Feb 22 Galbraith Spring

Summer

Total 20		Total 50
Term	Stipend $36 per hr	Vacation pay included	Total $1,800

Fall	$1,080
Winter	720
Spring
Summer
	Total $1,800

Please adhere to these arrangements unless you have secured the co-ordinator’s agreement to any proposed change.

August 30, 1976	(Sgd) E Kein
Date	Co-ordinator

Dr Jevons noted for the Board that while it was not considered necessary or proper by U of T to monitor the performance of a lecturer such as the appellant in view of his professional background, assumed integrity and dedication, nevertheless the authority so to do rested with the University in the event that complaints were received, and action contemplated. In the event that severe action were required, it would be the responsibility of the individual who had approved Dr Haynes’ application to relieve him of his role. Further, no effort was made by U of T to monitor the office arrangements required or made outside the University for assignment preparation, marking or grading of papers, etc. It was simply made clear to the lecturer that the University did not take on the responsibility of providing facilities for such functions (to whatever degree deemed necessary or desirable by the lecturer)—that was up to the lecturer.

Argument

Dr Haynes put forward that there were several differences which could be seen between his situation and the situations in the following cases:

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

H Lionel Rosen v The Queen, [1976] CTC 462; 76 DTC 6274;

Dr V Klemes v MNR, [1977] CTC 2210; 77 DTC 120.

Essentially, these differences were that there was no control whatsoever exercised over him in the performance of his duties; that he was not integrated in any way into the teaching function of U of T (his relationship was to the School of Continuing Studies, not with the regular degree program); and that in certain circumstances the examinations were not even set by the University but by the particular society involved. He allowed “exemptions” from classes, often established and provided the course material, and generally conducted his assignment without any relationship whatsoever with the University. There was no “continuity” of assignment, nor any “cancellation fee” for him in the event that a course was terminated.

Counsel for the respondent, in addition to the judicial cases referenced by the appellant, noted with approval the decision in Wolfgang Hauser v MNR, [1978] CTC 2728; 78 DTC 1532. In counsel’s view, the evidence of a “business” as opposed to an “employee” relationship did not exist, and the information available to the Board refuted the very contention of the appellant. Further, the portion of the deductions claimed which related to “rental” or “supplies” had not been substantiated by vouchers, and could not be claimed since the evidence of Dr Jevons showed that the University had not required any such expenditures.

Findings

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

The basic argument from this appellant is that since “control” in the sense of direct, detailed, remedial, personal, perhaps even physical control of his activities was not exercised by the University, no such control existed. The response to that is simple and direct—control in that sense is not the only criterion in a determination of an employer/employee (the classic master-servant) relationship, particularly where taxpayers of the professional status of this appellant are involved. Control in such cases may be more discreet and suffused, but it nonetheless remains—it remains in the capacity to control in the event such is required in the judgment of the party paying for the services. This was noted in Molot (supra), [1978] CTC 2183 and 77 DTC 120, in the following way and is equally applicable to this case:

In the instant case control existed to whatever degree considered adequate and advisable by the University, over its full-time staff, and the evidence does not support the view that it was further diluted or, as alleged, eliminated entirely to accommodate the particular circumstances associated with part-time staff.

In Hauser (supra), the Chairman of this Board examined the issue in further detail where the appellant was practising his own profession, not teaching it as in Molot (supra). That situation made the task of the Chairman more exacting than was posed in Molot (supra), and in reviewing the several obvious indications of control, he noted at [1978] CTC 2731 and 78 DTC 1543 respectively:

Although these factors would not be present if the appellant were in fact a private practitioner, the application of the control test, in my view, is not in the circumstances of this appeal, a wholly satisfactory or conclusive one.

He then went on to review the appeal from three other aspects noted in earlier jurisprudence, and concluded for purposes of his decision (at 2733 and 1536 respectively):

As a result of applying all four tests . .., there is nothing that supports the contention that the appellant was under a contract for services or was an independent contractor. All the evidence . . . clearly indicates that the appellant was under a contract of services and was an employee.

It was noted in Molot that the distinction emphasized in Hauser (supra) (contract for services vs contract of services) had been pointed out in Dr W H Alexander v MNR, [1969] CTC 715; 70 DTC 6006, but at the time of the Molot hearing, it had not been clarified or expanded. Hauser (supra) not only clarifies and expands that distinction but in my view links it directly to the three ancillary tests noted therein: “The Integration Test”, “The Economic Reality Test”, and “The Specific Result Test”. All three tests are clearly useful to silhouette the “contract of services” or “contract for services” aspect, when the issue of control itself is not immediately evident.

Turning to the particular case at hand, the Board would note as follows in relation to the above criteria:

—The only distinciton between this appeal and that of Molot (supra) is that Molot’s function related to the regular course of study, whereas Haynes was involved with the School of Continuing Studies. I fail to see how that is of merit in limiting the control retained by U of T.

—As to the specific other party contracting with Haynes, it can only be the U of T—the appellant received his remuneration only from U of T, none from the SIA or from ICB directly.

— U of T had the contracts for service with ICB and SIA, and it was for U of T to fulfill these under its own discrection. Using the appellant’s services was one mechanism in so doing—there could have been other methods of procedures.

—The appellant had a contract of service, he had no flexibility which has been evidenced to the Board permitting him to “sub-contract” the work.

—The teaching function performed by the appellant was a normal part of the total teaching role of the University.

—The appellant has not demonstrated any of the characteristics for earning income which are consistent with a businessman establishing a venture or an enterprise.

Summary

The Board notes again a portion from Alexander (supra), [1970] CTC 724 and 70 DTC 6011 respectively:

A contract of service does not normally envisage the accomplishment of a specified amount of work but does normally contemplate the servant putting his personal services at the disposal of the master during some period of time. A contract for services does normally envisage the accomplishment of a specified job or task and normally does not require that the contractor do anything personally.

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

Decision

The appeal is dismissed.

Appeal dismissed.