DR John Jenkins v. Minister of National Revenue, [1979] CTC 2192, 79 DTC 185

The Assistant Chairman:—John Jenkins, a medical doctor (the “appellant”), has appealed to this Board from an assessment for tax for each of the 1971,1972 and 1973 taxation years. The appellant, on November 1,1971, became “associated” with a partnership known as Anaesthesia Associates, which association lasted until June 30, 1973. On July 1, 1973, he became “associated” with another partnership, Anaesthesia Services, which association lasted for the balance of 1973 and into 1974. In his income tax returns for those years, with respect to the period when he was such an “associate”, the appellant reported his income as though he were an independent contractor or carrying on business. The respondent, by a reassessment for each of the said years, indicated that he was of the opinion that the appellant was an “employee” of each partnership and assessed accordingly—hence the appeals. The issue thus becomes—Was the appellant an independent contractor or an employee in his association with

(a) Anaesthesia Associates,

and (b) Anaesthesia Services?

Counsel agreed that, should I hold that the appellant was an independent contractor in both relationships, the appeals should be allowed and it be held that the income tax returns, as filed by the appellant, were correct. They also agreed that, should I hold he was an employee of each partnership, the appeals should be dismissed. Both counsel agreed that, should I hold that with respect to one relationship he was an employee and with respect to the other an independent contractor, the appeal for 1971 and 1972 should be allowed or dismissed depending on the finding of independent contractor or employee. Then in such case, for 1973 the appeal must be allowed, as the Minister was wrong with respect to one relationship and the assessment for 1973 should be referred back to the Minister for variation to allow the appellant expenses in the amount of $2,685.76 over those already allowed.

The appellant graduated from medical school in 1958. After being qualified, he practised his profession in Alberta for two years and, following that, in Ontario for seven years, after which he returned to Dalhousie University from which he had been graduated. He had decided to specialize in anaesthesia and took some of his resident training there. Nearing the end of that training he wished to complete it at the Toronto General Hospital (hereinafter called “the Hospital”) in Toronto, Ontario, and in the furtherance of that desire, on advice, wrote to the Head of its Department of Anaesthetics to ascertain whether or not he could complete his residency training there. He was accepted and came to the Hospital where he completed his residency on June 30, 1971. He then took time off to prepare for his written and oral examinations to become a specialist in that field. I am not certain when the appellant ascertained that all of the specialists in anaesthesia at the Hospital were associated with each other in a partnership under the name of Anaesthesia Associates (hereinafter referred to as “Associates”) but, in due course during his residency or when he joined them as an associate, he became aware of that fact. The Head of the Anaesthesia Department of the Hospital was also a partner in Associates.

Dr Lunderville, a partner at all times relative to these appeals, gave evidence at the hearing of the appeals. He stated that all anaesthetists at the Hospital were on staff; that is, they had the privilege of practising their profession and specialty at the Hospital. For their mutual interest, those anaesthetists, all of whom were specialists, joined together in a partnership (Associates). If the members of the partnership (Associates) were of the view that a greater number of anaesthetists were needed to adequately satisfy all the needs of the Hospital, Associates entered into a relationship with an anaesthetist by way of a written contract so that his services would be available to satisfy those needs. Dr Lunderville stated that there was one person who was an anaesthetist at the Hospital who was not associated with Associates. He also stated that no one could be a partner of Associates if he were not a specialist. It should be borne in mind that Associates only performed their specialty at the Hospital (and at the Clarke Institute of Psychiatry which was, in effect, considered another operating room of the Hospital) and at no other hospital. Dr Lunderville stated that, to his knowledge, all other downtown hospitals had a similar group operating at their hospital alone and at no other. It should be mentioned that Dr Jenkins was associated with Associates at the Hospital from November 1, 1971, to June 30, 1973. He was then associated with Anaesthesia Services (hereinafter referred to as “Services”) at St Michael’s Hospital, also in the City of Toronto, from July 1, 1973. While Dr Lunderville did not know in detail the relationship between St Michael’s Hospital and Services, and Services and its associates, he understood that the relationship was quite similar to that which existed at the Hospital. The appellant stated that his services at St Michael’s Hospital and his relationship with Services was similar to that which he had at the Hospital and with Associates.

At the hearing several exhibits were filed touching upon the relationship between the appellant and Associates, and the appellant and Services, as well as the partnership agreement of Associates. Reference to the partnership agreement was on a basis of what the relationship was between the partners, as well as indicating what the partnership could do with respect to other anaesthetists. For the period in question there was no suggestion that the appellant was a partner in Associates. While reference was made to many clauses in the partnership agreement (Exhibit A-1), as I view them, the main ones were:

3. The capital of the Partnership (sic) shall consist of a sum derived by the addition of the amounts contributed by each partner on the basis of $30 for each 10% of one full share of the income of the Partnership (sic) received by that partner under the terms of this agreement.

7. The rent of the partnership premises, insurance premiums, and other outgoings in respect thereof, the wages and salaries of all persons employed and all expenses in or about the said premises and all losses (if any) arising therein, shall be paid and borne out of the earnings of the practice or in case of deficiency, the losses shall be borne and paid by the partners in proportion of the amount of capital paid in by each partner.

8. The net profits of the practice, determined on a fees billed basis in accordance with generally accepted accounting practice, shall be allocated among and belong to the partners in shares determined as hereinafter provided and such profits shall be paid to the partners entitled thereto on a quarterly basis, always having sutticient working capital on hand for the carrying on of the practice.

11. Proper books of account shall be kept and entries shall be made therein of all such matters, transactions and things as are usually written and entered in books of account and books, letters and other things belonging to or concerning the partnership shall be kept at the office where the partnership business is being carried on and each partner shall have free access at all reasonable times to inspect, examine and copy them.

22. If and when any person ceases to be a partner for any reason, the remaining partners shall continue the partnership under the provisions of this agreement and shall pay to the party ceasing to be a partner or to the personal representative or representatives of a deceased partner, the following amounts, namely:

(a) an amount equal to the capital of each former partner in the partnership; and (b) an amount equal to such former partner’s undrawn share of profits from the operations of the partnership which have not been transferred to capital account, including such partner’s share of the net profits for the period ended on the date of his or her ceasing to be a partner; provided however that in determining net profits for the period ended on the date of such partner ceasing to be a partner there shall be deducted from accounts receivable a reserve equal to 15% of such accounts receivable.

The amount owing to a former partner or his or her personal representative or representatives may be paid in up to twelve consecutive equal monthly instalments.

24. All partners agree not to practice Anaesthesia except within the terms of the Partnership. It is further agreed that any professional fees or income derived by partners for medical practice other than the practice of Anaesthesia and outside the agreed duties of the Partnership shall belong to them individually and shall be outside the terms of the Partnership.

28. .. .

(b) New appointees on a full time basis will be engaged as independent contractors on a fee basis by the Partnership for a probationary period and for such time at least as may be necessary until they obtain a specialist qualification.

(c) Notwithstanding the provisions of paragraph 28(b) above, qualified and previously established anaesthetists who may be appointed to the Anaesthetic Staff of The Toronto General Hospital, may at the discretion of the Partnership as a whole be admitted as full partners.

The contract between the appellant and Associates for a fourteen-month period was dated November 1, 1971, (Exhibit A-2) and it reads as follows:

WHEREAS by an agreement dated December 7,1970, Roderick Angus Gordon and others as therein named became partners upon the terms as therein mentioned, under the name of ANAESTHESIA ASSOCIATES,

AND WHEREAS the PARTY OF THE FIRST PART has agreed to appoint the PARTY OF THE SECOND PART as an Assistant in the Practice of Anaesthesia for a period of one year dating from the 1st day of November, AD 1971, upon the terms herein set out:

NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the sum of $28,000, which said sum shall be paid by the PARTY OF THE FIRST PART to the PARTY OF THE SECOND PART in fourteen equal monthly instalments commencing on November 30, AD, 1971, the PARTY OF THE SECOND PART agrees to act as an Assistant in the Practice of Anaesthesia conducted by the PARTY OF THE FIRST PART subject to the terms, conditions and stipulations expressed in the following articles, that is to say:

1. Appointment as an Assistant under this agreement to commence on the 1st day of November, AD, 1971, and to terminate on December 31, 1972.

2. THE PARTY OF THE SECOND PART agrees to perform professional duties in the Practice of Anaesthesia conducted by the PARTY O THE FIRST PART, as may from time to time be assigned to him, including such night calls and emergency calls as may from time to time be required.

3. THE PARTY OF THE SECOND PART agrees to provide and maintain a motor car for the purpose of responding to Emergency calls arising in the Practice of Anaesthesia, and to carry in force adequate public liability insurance covering the operation of such vehicle.

4. THE PARTY OF THE SECOND PART agrees to become a Member of the Canadian Medical Protective Association and to undertake such Conditions of Membership as may be required for this purpose.

5. THE PARTY OF THE SECOND PART shall be entitled to 20 working days as holiday during the period of this agreement, working days to be defined as being from Monday to Friday of each week and specifically excluding from this definition Saturdays, Sundays and other Hospital Holidays.

6. THE PARTY OF THE SECOND PART shall be entitled to absence from duty of twenty working days due to illness during the period of this agreement, working days to be defined as in paragraph 5 of this agreement.

7. This Agreement may be terminated at any time during the term thereof by Notice in Writing to that effect directed by the Party giving notice to the other Party of this agreement, such notice to be given sixty days prior to the date of termination by mailing by registered mail a Notice in Writing to the other Party at the last known place of address, service to be effective on date of mailing thereof.

Another contract between the same parties was signed in December 1972 covering the period until June 30, 1973. Its terms and conditions were exactly the same as the first contract except that the consideration was $15,000 for six months and the term was only for six months.

From the evidence given at the hearing by the appellant and Dr Lunder- ville, it was clear that neither thought the appellant was an employee of Associates. However, what one thinks is the relationship between himself and another person does not determine what that relationship is—what has to be determined is the status the appellant occupied. According to Dr Lunderville, the Hospital would advise Associates how many anaesthetists would be needed “tomorrow” or next Monday and the number of anaesthetists so required would be assigned to those tasks by someone representing Associates. That number of anaesthetists would be chosen from either the partners of Associates or the persons who were, like the appellant, assistants as described in Exhibit A-2. Anaesthetists for emergencies were provided for from the same group as were those who were on allday call. There was no differentiation between the anaesthetists (that is, partner or assistant) assigned to an operating room unless one person was specifically requested by a patient or the surgeon. The partnership had an office where the books of accounts of the partnership were kept. It was adequate for that purpose but it was not a location for private business. After each day, each anaesthetist would prepare, for each case that he had provided services, a statement with respect to those services, which report was left in a certain place in the Hospital. That day or the next day, those statements were taken to the office and from them a billing was made. The bill in the name of Associates was sent to the patient and in due course the account would be paid. While the evidence indicated that some payments would come back in the name of the anaesthetist who performed the service (including the appellant), the bulk were in the name of Associates. All money went into Associates’ bank account.

As to his relationship with Services, the appellant signed an agreement on July 3, 1973, covering the period July 1 to December 31, 1973. It was signed by the appellant and a Dr P Bailey and contained five paragraphs as follows:

1. Remuneration to be paid at the rate of $28,000 per annum in monthly instalments.

2. Fringe benefits to be paid by Anaesthesia Services.

a) Medical Protective Association fee.

b) OHIC premium.

c) Hospital parking.

3. Holidays or sick leave will be ten scheduled operating days; weekends are included at both ends amounting to a total of 16 days.

4. You will take your full rotation of calls—from first to fifth; statutory holidays will be worked in rotation with the rest of the staff. On other operating days you must be available from 8:00 am to 4:00 pm.

5. Paid leave of absence of four days will be allowed for such things as

a) meetings

b) writing of examinations

c) other academic projects.

At the foot of the contract was a handwritten sentence as follows:

Dec. 30/73

This contract to be extended for a further six months.

No partnership agreement, if there were one, was filed with respect to the persons associated together in Services.

Counsel for the appellant relied on the case law to contend that his client, in the circumstances, was in business, an independent contractor and not an employee of either Associates or Services. The position of counsel for the respondent was similar except he stressed the partnership agreement of Associates and the agreement the appellant had with Associates and Services. It was clear that the appellant was not a partner in Associates. It was pointed out that the billings were all in the name of Associates and the proceeds from those billings, whether in the name of Associates or the appellant, all went into Associates’ bank account. Salary to persons employed by Associates was covered by paragraph 7 of the partnership agreement, which agreement also stated that all losses were to be paid and borne out of the earnings of the practice or, in the case of deficiency, losses were to be borne and paid by the partners in proportion of the amount of capital paid in by each partner. The appellant had no risk of loss nor opportunity of profit in excess of the amount stipulated in his agreement with Associates. The partnership agreement indicated that, while a partner would have free access to the books of the partnership (paragraph 11), the appellant would not have such access. The payment to a partner on retirement (paragraph 22) would not include the appellant. Paragraph 26 sets forth the holidays, etc of a partner—the amount allowed the appellant is different. Paragraph 28(b) indicates that new appointees—and it can only be considered that the appellant was one—would be engaged as an independent contractor on a fee basis by the partnership for a probationary period. With respect to the agreement between the appellant and Associates, counsel referred to the second recital wherein the partnership appointed the appellant as an assistant for a period of one year. He was to be paid at the rate of $2,000 per month for that period. He made special reference to clause 2 which states that the appellant was to do that which was assigned to him by Associates. Reference was also made to clause 7 to indicate that either party could terminate the relationship by giving notice of sixty days. In taking the position that the appellant had not met the onus of destroying the assessment for 1973 with respect to his relationship with Services, counsel for the respondent pointed out the terms of the agreement and submitted that each one of the five clauses contained indicia that he was an employee of Services.

Reference was made by each counsel to several cases, but they both referred to the decision of Jackett, P of the Exchequer Court (as he then was) in Dr William H Alexanders MNR, [1971] CTC 715; 70 DTC 6006, and the decision of the Chairman of this Board in Wolfgang Hausers MNR, [1978] CTC 2728; 78 DTC 1532. Dr Alexander was a radiologist and was under a contract with a hospital. In considering that appeal, the learned President Stated at 725 and 6011 respectively:

Here I am faced with a contract that can be analyzed either as a contract of service with deviations from the normal, or a contract for services with deviations from the normal.

After considering the law, the contract and facts of the case, he concluded at 726 and 6012 respectively:

With considerable hesitation, having regard particularly to the fact that during the years in question the appellant carried on the work exactly as he would have done if he had been an employee, my conclusion is that he was working under a contract for services and was therefore not an officer or servant.

Both counsel referred in detail to the reasons of the learned Chairman of this Board in the Hauser case, especially the four tests as set forth by him: namely, the control test, the integration test, the economic reality test, and the specific result test. Counsel for the respondent pointed out in that case where the learned Chairman quoted from the Alexander case:

If, in this case, the appellant had been given a post to work as a radiologist in the Hospital full time for an indefinite period of time at an annual salary there could, I should have thought, have been little doubt that he was an officer or employee of the Hospital.

The suggestion virtually was that, by changing a few words, this statement would apply to these appeals.

As I view the facts of this case, with respect to the Hospital, Associates had an arrangement whereby it would satisfy the needs and requirements of the Hospital insofar as anaesthetists were concerned. Associates was a partnership whose partners were all practising their profession through the partnership. The partnership was a business within the ambit of subsection 248(1) of the Income Tax Act. The appellant’s relationship was not with the Hospital but with Associates, however not as a partner. He was not, as was Associates, carrying on business as a partner. He was doing what was “assigned to him” to do by Associates. While he was undoubtedly competent in his field, nonetheless the right to control the appellant was, pursuant to the contract, in Associaltes. Whether or not that right was ever exercised is irrelevant—it nonetheless existed. He was paid a stipulated amount for a stipulated period, regardless of the success or failure of the partnership. He had no risk as to a loss from the business. The length of his holidays was determined by the agreement although the evidence indicated that if he wished to have a certain period as holidays and he put in for that period, and no other person (presumably partner or associate) had booked for the same period, he would be off then. I cannot see that the appellant is other than an employee of Associates for the period when he was under contract to it. His contract I would say was a contract of service, not a contract for services. The appellant had a skill which the partnership needed. He was engaged by the partnership to use that skill and, since he was Skilled, “orders or control” was not needed, but that does not say the right to control was not present.

With respect to his relationship with Services, the only evidence was that it operated in the same manner as Associates and the written contract was also the same. As I understand that evidence, the appellant was not a partner of Services and he did not bill for services rendered—Services billed and collected the money. The appellant had no risk of loss nor expectation of gain beyond the contracted remuneration. In addition the contract stated, among other things, that certain fringe benefits would be paid on behalf of the appellant by Services. I view his relationship here likewise not to be that of an independent contractor, but one of an employee.

The result is judgment will go dismissing the appellant’s appeal for each of the three years in question.

Appeal dismissed.