Voyer v. R., [1999] 4 CTC 2324

Garon T.C.J.:

These are appeals from income tax assessments for the 1992 and 1993 taxation years. By these assessments, the Minister of National Revenue dis- allowed deductions of $5,172 and $11,770 for the 1992 and 1993 taxation years respectively, claimed by the appellant in respect of the tax credit for employment out of Canada provided for in section 122.3 of the Income Tax Act. These assessments by the Minister of National Revenue were based on two grounds:

(a) the activities of the appellant’s employer, CRC Sogema Inc. (hereinafter “Sogema”), did not qualify for the tax credit established by subsection 122.3(1) of the Act; and

(b) the services were provided pursuant to an international development assistance program of the Government of Canada under section 3400 of the Income Tax Regulations.

At the hearing, counsel for the respondent informed the Court that, for the purposes of these appeals, the respondent was no longer relying on the first ground cited above, which is set out in subparagraph 13(h) of the Reply to the Notice of Appeal, namely that [TRANSLATION] “Sogema’s activities [...] did not constitute qualified activities under subsection 122.3(1) of the Act”.

The assumptions on which the Minister of National Revenue relied in issuing the assessments under appeal appear in paragraph 13 of the Reply to the Notice of Appeal, which reads as follows:

[TRANSLATION I

13. In making the reassessments, the Minister made inter alia the following assumptions of fact:

(a) the facts stated above and admitted;

(b) during the 1992 and 1993 taxation years, the appellant was employed by CRC Sogema Inc. (“Sogema”) as an international consultant computer centre development and in computer systems and equipment installation;

(c) Sogema is a Canadian-controlled business headquartered in Montreal;

(d) Sogema is a specified employer within the meaning of subsection 122.3(2) of the Income Tax Act (the “Act”);

(e) during the years in issue, Sogema obtained an 18-month contract effective April 4, 1992 with REGIDESO (Régie de production et de distribution d’eau et d’électricité du Burundi):

(f) this contract was part of a project carried out in cooperation with representatives of Hydro-Québec;

(g) the purpose of Sogema’s said contract was to turn around and improve REGIDESO’s operational, commercial and management activi- ties with a view to reducing the operating costs of its hydroelectric power stations and its power and water distribution operations;

(h) Sogema’s activities under the said contract did not constitute qualified activities under subsection 122.3(1) of the Act;

(i) the Canadian International Development Agency granted partial funding of $3,850,000 for the REGIDESO project:

(j) the appellant provided services under a prescribed international development assistance program of the Government of Canada; and

(k) the appellant may not claim tax credits for employment out of Canada amounting to $5,172 and $11,770 for the 1992 and 1993 years respectively.

At the hearing, the only witness for the appellant was the appellant himself and he admitted the facts alleged in subparagraphs (b), (c), (d), (f), (g) and (i) of the Reply to the Notice of Appeal. Subparagraphs (e), (h), (j) and (k) were denied.

First of all, a contract for consulting services came into effect on November 1, 1990 between the Régie de production et de distribution d’eau et d’électricité du Burundi (hereinafter “REGIDESO”) and a group consisting of Hydro-Québec International and Société-conseil CRC/Maheu Noiseux (hereinafter the “consultant”).

This contract provided that the consultant was to provide the services described in Annex A to the contract for the implementation of the turnaround plan for REGIDESO.

One of the recitals of the contract states that REGIDESO has obtained [TRANSLATION] “a credit to contribute to financing of the cost of the project and performance” from the International Development Association, an institution affiliated with the World Bank.

According to the evidence, the contract was amended five times. Only one of those amendments was adduced in evidence. It was a document entitled:

[TRANSLATION]

CONTRACT FOR CONSULTING SERVICES

BETWEEN REGIDESO DU BURUNDI

AND

LE GROUPEMENT HYDRO-QUEBEC INTERNATIONAL/CRC SOGEMA Inc.

(formerly Société conseil CRC/MAHEU NOISEUX)

Amendment 1

This document, hereinafter referred to as “Amendment 1” is not dated [1] and contains two schedules, A and B. The body of the document reads as follows:

[TRANSLATION]

Development of Information Systems and Installation of Various Computer Systems

As stipulated in article 7 of Annex A to the contract and further to the submission of the master plan for informatization, the cost of the additional expertise required for the development and installation of the systems provided for in the master plan is US $511,614.

Details on the resource envelope are set out in Annex A.

Requirements, roles and deliverables are described in Annex B.

The full-time experts retained to carry out this informatization project are:

-Computer development expert: Dominick Voyer

-Computer technology expert: Wendy Osmond

As may be seen, the appellant’s name appears in the body of this document. This amendment to the contract of November 1, 1990, that is to say, Amendment 1, states in particular that the appellant was retained to carry out the informatization project.

The evidence reveals that the appellant was employed by Sogema as a computer consultant during the 1992 and 1993 taxation years. The appellant was hired on contract for an 18-month period starting on April 4, 1992 to provide his services in Burundi. He was part of a team formed to turn around and improve REGIDESO’s commercial and management operations. According to the appellant, his work consisted in installing computer and software systems and revising the administrative procedures framework.

In addition, the evidence shows that an agreement between the Government of Canada, represented by the Secretary of State for External Affairs, acting through the CIDA, and the International Development Association was signed on March 28, 1991. The recitals of that agreement read as follows:

WHEREAS the Government of Canada, the International Bank of Reconstruction and Development and the Association have entered into an agreement dated December 15, 1988 relating to the cofinancing of development project and programs;

WHEREAS in the context of its assistance to Energy sector in Burundi, the Association is implementing a project which will promote rational energy policies and strengthen the efficient management of energy resources;

WHEREAS CIDA has informed the Association that it desires to provide a contribution, to be administered by the Association, to finance the carrying out of the project as described further in Annex “A” hereto (hereinafter called the “Project”);

AND WHEREAS the purpose of the Contribution Agreement (hereinafter called “Agreement”) between the Association and CIDA is to set out the terms and conditions concerning the administration of such contribution and the implementation of the Project.

Article 2.01 of the agreement reads as follows:

Section 2.01. The Contribution shall be administered by the Association for the purpose of meeting the costs of the Project as set out in Annex A. The Association may deduct from the Contribution a fee of two percent (2%) to defray administrative and other expenses of the Association in administering the Project as specified in the budget, Annex A. CIDA hereby authorizes the Association to transfer to itself, as and when needed, appropriate amounts to reimburse for such expenses.

This article refers to Annex A, which reads in part as follows:

II. Components

Hydro-Quebec International/Maheu Noiseux will provide five experts for up to three years each: an economist (investment programs), an expert in commercial management, an expert in finance and accounting, an expert in human resources and personnel management, an expert in purchasing activities. In addition, they will establish, implement and follow up a master plan for informatization.

III. Duration

The duration of the Project will be three (3) years starting as of the date of signature of the Contribution Agreement with the Association.

IV. Forecasted Budget (Can$)

		Year 1	Year 2	Year 3	Total
Experts (HQI/Maheu
Noiseux)		410,000	1,450,000	80,000	1,940,000
World Bank
•	Administration(2%)	40,000	-	-	40,000
•	Contingencies (audits
	and others)	—	—	20,000	20,000

	Year 1	Year 2	Year 3	Total
TOTAL	450,000	1,450,000	100,000	2,000,000

This agreement of March 28, 1991 was amended by a document entitled “First Amending Agreement” dated September 17, 1992. The recitals of the First Amending Agreement read as follows:

WHEREAS the Government of Canada, the International Bank for Reconstruction and Development and the Association have entered into an Agreement dated December 15, 1988, relating to the co-financing of development projects and programs;

WHEREAS in the context of its assistance to Energy sector in Burundi, the Association is implementing a project which will promote rational energy policies and strengthen the efficient management of energy resources;

WHEREAS CIDA and the Association have entered into an Agreement dated March 28, 1991 (hereinafter referred to as the “Agreement”) relating to the Canadian contribution as well as to set out the terms and conditions concerning the administration of such contribution and the implementation of the Project;

AND WHEREAS CIDA and the Association desire to amend the Agreement as set forth in this First Amending Agreement to reflect the changes to the Agreement, as agreed between the Parties.

Article 2 of the First Amending Agreement stipulates as follows:

2. The parties agree to modify the Annex A of the Agreement as follows:

(a) Section IV, Forecasted Budget (Can $), is modified as follows:

Year 1	Year 2	Year 3	Year 4	Total
(Apr90-	(Apr91-	(Apr.92-	(Apr.93-
Mar.91)	Mar.92)	Mar.93)	Mar.94)
Experts	1,310,000 788,000 1,625,000 3,723,000
(HQI/Maheu
Noiseux)
World Bank
-Administration	40,000	37,000	—	77,000
-Contingencies	—	25,000	25,000	50,000
(audits, others)
TOTAL	1,350,000 850,000 1,650,000 3,850,000

Articles 4 and 5 of the First Amending Agreement are worded as follows: 4. This Amending Agreement is supplementary to the “Agreement” and is to be read with and construed with the “Agreement” as if this Amending Agreement and the Agreement constitute one (1) Agreement.

5. Except as this Amending Agreement otherwise provides, the Agreement is in all respects ratified and confirmed and all terms, provisions and covenants thereof shall remain in full force and effect.

According to the testimony of Isabelle Bérard, the CIDA Senior Development Officer of the Rwanda/Burundi Program, the CIDA had decided to co-finance a portion of the project following a visit by representatives of the Government of Burundi. These representatives suggested that, if the CIDA co-financed the project, a portion of the credit granted by the World Bank could be used to pay the Government of Burundi’s debt. The CIDA initially undertook to grant the sum of $2,000,000, but a subsequent agreement amended the contract for the purpose of granting additional amounts for a total of $3,850,000.

Appellant’s Claims

The appellant contends that the First Amending Agreement under which his services were provided is a separate contract and concerns different services from those provided for under the initial contract of March 28, 1991. He added that the First Amending Agreement of September 17, 1992 concerned certain specific services and, since the work he performed was among those services, it follows that his work was not done under a CIDA program. He contended that the Government of Canada, through the CIDA, participated only in certain parts of the project in question.

The appellant also argued that his services were provided solely pursuant to Amendment I of the contract for consulting services of November I, 1990 and that the CIDA did not finance the services provided for in that amendment. Thus, he concluded, the services he had provided were wholly financed by the World Bank.

Respondent’s Claims

The respondent argued that the First Amending Agreement to the initial financing contract merely amended that initial contract and must not be viewed as a separate contract. Although this First Amending Agreement might be considered as a separate contract, the appellant’s work was included in the initial contract between the World Bank and the CIDA by reason of the following language: “In addition, they will establish, implement and follow up a master plan for informatization”. On this point, the appellant responded that this wording merely referred to the master plan. He rejected the respondent’s suggestion that his work consisted in implementing the “master plan” since the contract specifically named the five experts who were appointed and the appellant’s name did not appear among them.

Analysis

The point for determination is thus whether the appellant provided the services here in issue under a prescribed international development assistance program of the Government of Canada.

The tax credit for employment out of Canada is established by section 122.3 of the Act. The relevant part of that provision appears in paragraph 122.3(1 )(«) of the Act and reads as follows:

Where an individual is resident in Canada in a taxation year and, throughout any period of more than 6 consecutive months that commenced before the end of the year and included any part of the year (in this subsection referred to as the “qualifying period”)

(a) was employed by a person who was a specified employer, other than for the performance of services under a prescribed international development assistance program of the Government of Canada...

A prescribed international development assistance program of the Government of Canada is defined in section 3400 of the Income Tax Regulations, which provides as follows:

For the purposes of paragraphs 122.3(1)(a) and 250(1 )(4) of the Act, each international development assistance program of the Canadian International Development Agency that is financed with funds (other than loan assistance funds) provided under External Affairs Vote 30a, Appropriation Act No. 3, 1977-78, or another vote providing for such financing, is hereby prescribed as an international development assistance program of the Government of Canada.

As is clear from the foregoing, the appellant did not claim that the exception stated in the phrase in parentheses in section 3400 of the Regulations can apply here. In other words, the appellant did not contend that the funds provided by the CIDA in this case were “loan assistance funds”.

In my view, there is simply no basis for the appellant’s claim that the First Amending Agreement of September 17, 1992 is a contract that must be considered separately from the Contribution Agreement of March 28, 1991. Indeed, this argument contradicts the express terms of article 4 of the First Amending Agreement, which for convenience I reproduce again:

4. This Amending Agreement is supplementary to the “Agreement” and is to be read with and construed with the “Agreement” as if this Amending Agreement and the Agreement constitute one (I) Agreement.

It is thus expressly stated that the contract of March 28, 1991 and the First Amending Agreement of September 17, 1992 constitute a single contract. Effect must be given to the parties’ clearly expressed intent.

It is thus indisputable that, as of September 17, 1992, the Government of Canada, through the CIDA, was co-financing, with the International Development Association, the work performed in Burundi by Sogema as part of the implementation support project for the REGIDESO turnaround plan. The work the appellant did for Sogema in Burundi starting on September 17, 1992 was clearly part of this project. It was not established that the appellant might have provided the services in question here as part of another project.

With respect to the work performed by the appellant prior to September 17, 1992, the date on which the contract of September 28, 1991 was amended by the First Amending Agreement, it must be determined whether the appellant’s services were provided in the context of an international development assistance program of the Canadian International Development Agency.

First of all, it is true that, unlike the First Amending Agreement, the Contribution Agreement does not expressly provide for the work that was done by the appellant. However, after stating that the Hydro-Québec International and CRC/Maheu Noiseux group [2] was to provide the services of five experts in the fields specified therein, article IT of the initial financing contract of March 28, 1991 adds the following:

[...] In addition, they will establish, implement and follow up a master plan for informatization.

In my view, the terms “implement” and “follow up” in the context of this sentence imply a carrying out of and follow up to the master plan for informatization and the taking of measures giving effect thereto. These words are broad enough to encompass the work necessary for the realization of the master plan for informatization.

This interpretation of this sentence from article II of Annex A to the Contribution Agreement of March 28, 1991 appears to be quite consistent with the terms used in article 7 of Annex A of the contract for consulting services dated November 1, 1990, which reads as follows:

[TRANSLATION]

For the development and installation of the various computer systems required and recommended by the REGIDESO, 12 person-months are forecast (as an indication) and the exact number will be specified at the time the master plan for informatization is put in place. This service will be provided starting in the first year, following acceptance of the master plan for informatization (6 p-m) and will continue in the second year of the term, for which 6 p-m are also forecast.

Amendment 1 to the contract for consulting services refers to article 7 of Annex A to the contract of November I, 1990 and stipulates in particular that:

The full-time experts retained to carry out this informatization project are:

-Computer development expert: Dominick Voyer

-Computer technology expert: Wendy Osmond

It is therefore clear that the use of the services of experts for the implementation of the informatization project was envisioned well before the appellant began providing his services on April 1, 1992. This conclusion follows from both article 7 of Annex A to the contract of November 1, 1990 as amended by Amendment 1 to the contract for consulting services, and article IT of Annex A to the Contribution Agreement of March 28, 1991 prior to its being amended by the First Amending Agreement of September 17, 1992.

So it appears from the above that the services provided by the appellant were so provided at the time when the project in question was financed by both the International Development Association and the Government of Canada through the Canadian International Development Agency.

In my opinion, it therefore follows that the appellant provided services in the context of an international development assistance program of the Canadian International Development Agency financed out of funds whose source is that referred to in section 3400 of the Income Tax Regulations.

It is therefore my view that the appellant was not entitled to the tax credit provided for by section 122.3 of the Act since his services were partially financed by the CIDA, as were the services of the other experts retained by the Hydro-Québec International and Sogema group for the purposes of the same project.

For these reasons, the appeals are dismissed.

Appeal dismissed.