Francis J Hayes v. Minister of National Revenue, [1973] CTC 2262, 73 DTC 210

The Assistant Chairman:—This is the appeal of Francis J Hayes from an income tax assessment in respect of his 1970 taxation year.

The appellant in 1970 acted as an economic consultant for the Social Planning Secretariat of the Privy Council and as such earned $513.33.

The appellant also signed three contracts with Loyola College of Montreal for teaching economics in the Evening Division for which he earned $3,200 in 1970.

The following expenses were claimed by the appellant as deductible in the 1970 taxation year:

According to the appellant, these expenses of $740 were incurred by him as an independent contractor in both his capacity as a consultant to the Privy Council and as a lecturer in the evening courses at Loyola College without there being a breakdown of expenses for each activity.

There is, in my opinion, for income tax purposes an important difference between the appellant’s activities as a consultant and his activities as a teacher of economics at the evening courses at Loyola College.

As a consultant to the Privy Council the appellant was performing professional services as a free agent and was not in a master-servant relationship with the Privy Council. In the Memorandum of Agreement between Her Majesty the Queen in Right of Canada and the appellant dated June 3, 1970 (Exhibit A-1) the following paragraph appears:

It is understood and agreed that this agreement is a contract for the performance of a service and that the consultant is engaged as an independent contractor providing consultant services to Her Majesty and is not engaged as an employee or servant of Her Majesty.

The appellant, in my opinion, in his activities as “consultant” was engaged in a business, no matter how small, within the meaning of paragraph 139(1)(e) of the Income Tax Act and as such expenses incurred for the purpose of producing income for the appellant’s business are deductible pursuant to paragraph 12(1)(a).

The appellant’s activities as a teacher in the Evening Division at Loyola College are of a completely different nature. The appellant, quite apart from being a lecturer in the evening courses, was employed at Loyola in the capacity of Associate Professor in the Department of Economics on a regular basis and under a regular salary contract. Three other contracts were signed by the appellant relative to his activities as a part-time member of the faculty in the Department of Economics in the Evening Division. In my opinion, these contracts meet all the requirements of an employment contract and establish an employer-employee relationship between Loyola College and the appellant.

Loyola College had the power of selecting its employees, the appellant was in receipt of fixed wages established by Loyola College for giving lectures at specified times and dates, the appellant’s work was subject to supervision and Loyola College had the power to suspend or dismiss the appellant.

Notwithstanding a letter on file from Mr C McMullan, Director of Personnel at Loyola College, who confirms that an honorarium of $3,400 was included in the appellant’s T4 slip and should be treated as professional fees, the appellant, in my opinion, in his capacity as part-time lecturer at the evening courses at Loyola College was an employee of that institution and as such the expenses incurred by him to be deductible must meet the requirements of subsection 11(10). Subsection 11(10) is an exception to the general rule of taxation, and for that reason its wording must be strictly interpreted and applied. It reads as follows:

11. (10) Payments by employee in performance of duties.—Notwithstanding paragraphs (a) and (h) of subsection (1) of section 12, the following amounts may, if paid by a taxpayer in a taxation year, be deducted in computing his income from an office or employment for the year

(a) annual professional membership dues the payment of which is

necessary to maintain a professional status recognized by statute,

(b) office rent, or salary to an assistant or substitute, the payment of which by the officer or employee was required by the contract of employment,

(c) the cost of supplies that were consumed directly in the performance of the duties of his office or employment and that the officer or employee was required by the contract of employment to supply and pay for,

(d) annual dues to maintain membership in a trade union as defined . . .

In his claim for the deductibility of certain expenses in 1970, the appellant specifies an amount of $20 for professional dues which, pursuant to paragraph 11(10)(a), are in fact deductible and should have been allowed.

Paragraphs 11(10)(b) and (c), dealing with rental expenses and cost of supplies also claimed by the appellant as deductible, both contain a very restricting clause—“the payment of which was required by the contract of employment”.

The three contracts of employment signed by the appellant in relation to his part-time teaching do not contain any requirement that the appellant pay or maintain an office off campus or that he be required to pay for the cost of supplies. Nor can such requirement be considered as implicit in the contracts, and the Board has no alternative but to apply strictly the wording of paragraphs 11(10)(b) and

(c) and to conclude that the rental expenses and the cost of supplies are not deductible. The appellant in his notice of appeal based his claim on the document—“1970 Income Tax Guideline for University Faculty”. The Board must arrive at its decision on the basis of the Income-Tax Act as it is written and/or the decisions of higher courts exclusively, and it is not, nor can it be, bound by other publications on the subject.

Therefore the only expense relative to the appellant’s employment as part-time teacher which is deductible under subsection 11(10) is the amount of $20 for professional dues.

In the appellant’s capacity as consultant to the Privy Council as an independent contractor and not as an employee—what expenses were incurred by him for the purpose of producing income from his business?

The appellant not having broken down his expenses so as to indicate what percentage of the expenses were for the purpose of producing income from his business as a consultant and what percentage of expenses were incurred relative to his employment as a part-time teacher, the Board can only estimate as equitably as possible the expenses incurred by the appellant for the producing of income from his consultant activities.

The appellant earned $513.33 in 1970 from his activities as a consultant as compared to $3,200 earned by him in that year as a part- time teacher. The appellant’s income as a consultant, therefore, was roughly 1/6 of that earned as a part-time teacher. In the absence of better criteria, it would appear to me to be a fair and reasonable apportionment of the appellant’s expenses to allow 1/6 of the expenses claimed by him for telephone, travelling, rent, light and heat, periodicals and supplies which I consider to be expenses incurred to produce income from the appellant’s consultant business.

The appeal is therefore allowed in part and the matter referred back to the Minister for reconsideration and reassessment taking into account the deductibility of $20 for professional dues under paragraph 11 (10)(a) and the deductibility of $2, $15.50, $69.85, $11, $16.66, and $5 for telephone, travel, rent, heat and light, periodicals and supplies respectively, being expenses incurred by the appellant to produce income from a business and deductible pursuant to paragraph 12(1)(a).

Appeal allowed in part.