Donald Macintyre v. Minister of National Revenue, [1972] CTC 2121, 72 DTC 1134

Maurice Boisvert:—This appeal is from an assessment for the taxation year 1968, dated June 27, 1969.

The income tax return indicates that during 1968 appellant earned a net income of $5,411.46 as a free lance actor. The sum of $632.49 was deducted from his income, and he claimed the sum of $25.37 in overdeductions.

After examining the return, respondent raised the net income for the year to $6,380.76, as shown by Form T7W-8, set out below:

section 12(1) of the Income Tax Act, RSC 1952, c 148). We know that a profession is grouped, for income tax purposes, with a “calling, trade, manufacture or undertaking of any kind whatsoever and includes an adventure or concern in the nature of trade but does not include an office or employment” (paragraph 139(1)(e) of the aforementioned Income Tax Act).

Appellant objected to the assessment. Respondent reconsidered the assessment and notified said appellant its conclusions were that “the contribution of $2.00 to ACTRA Insurance Plan on your behalf by Canadian Marconi Company and the contribution of $26.80 to ACTRA Pension and Insurance Plans on your behalf by the National Film Board have been properly added to your income in accordance with the provisions of paragraph (a) of subsection (1) of section 16 of the Act [s/c]”.

The appeal was heard in Montreal on March 23, 1971. There was an investigation and counsel for the appellant presented verbal argument. Respondent’s counsel asked to plead in writing, and this was granted. The record was only completed on August 13, 1971. This judgment is therefore made pursuant to the Income Tax Act in effect at that time, and by the undersigned then a Member of the Tax Appeal Board.

The sections of the Act relied on by the Minister in his Notification in reply to appellant’s notice of objection read as follows:

5. (1) Income for a taxation year from an office or employment is the Salary, wages and other remuneration, including gratuities, received by the taxpayer in the year plus

(a) the value of board, lodging and other benefits of any kind whatsoever (except the benefit he derives from his employer’s contributions to or under a registered pension fund or plan, group sickness or accident insurance plan, medical services plan, supplementary unemployment benefit plan, deferred profit sharing plan or group term life, insurance policy) received or enjoyed by him in the year in respect of, in the course of, or by virtue of the office or employment; ... .

12. (1) In computing income, no deduction shall be made in respect of (a) an outlay or expense except to the extent that it was made or incurred by the taxpayer for the purpose of gaining or producing income from property or a business of the taxpayer, . . .

16. (1) A payment or transfer of property made pursuant to the direction of, or with the concurrence of, a taxpayer to some other person for the benefit of the taxpayer or as a benefit that the taxpayer desired to have conferred on the other person shall be included in computing the taxpayer’s income to the extent that it would be if the payment or transfer had been made to him.

At the start of the argument counsel for the respondent moved to amend the Reply to the Notice of Appeal. In support of his motion he alleged that the assessor had erred in assessing appellant under section 5 of the Act. Clearly, since appellant was not an employee, but a professional actor, section 5 could not apply, especially as the employer’s payments are an exception to the general rule. Such payments cannot be regarded as remuneration within the meaning of section 5. I refer the parties to the following decisions: Henry Butt Norris v MNR, 17 Tax ABC 257, Campbell v MNR, 13 Tax ABC 273; Pazuk v MNR, 13 Tax ABC 264. The proposed amendment would fall under section 4 of the Act, which reads as follows:

4. Subject to the other provisions of this Part, income for a taxation year from a business or property is the profit therefrom for the year.

In doing this section 16 of the Act was tied in with section 4 instead of section 5.

As appellant did not show cause, the amendment was allowed. With this amendment, the question to be decided is whether or not appellant transferred taxable income to ACTRA in accordance with section

16. This is what counsel for the respondent says in his written submission:

(TRANSLATION)

. . . Appellant Donald Maclntyre is a “free lance” artist who belongs to an association known as ACTRA (Association of Canadian Television and Radio Artists); this association is composed of artists of the same kind and represents its members in dealings with producers, ie the persons hiring them. Inter alia, ACTRA enters into agreements with different producers, eg Canadian Marconi Company and the National Film Board, by which these producers are to make contributions to an ACTRA pension and insurance plan. The point at issue here is: must the contributions of the two producers cited in the foregoing example, contributions equal to 2 per cent of Mr. Maclntyre’s salary and made to the ACTRA insurance plan, be included in his income?

. . . The word “profit” used in the Income Tax Act, particularly section 4, means net profit, ie gross income from a business less the expenses necessary to earn this income.

The problem could not be better stated. Subsection 16(1) states that ‘‘a payment or transfer of property made pursuant to the direction of, or with the concurrence of, a taxpayer to some other person for the benefit of the taxpayer or as a benefit that the taxpayer desired to have conferred on the other person shall be included in computing the taxpayer’s income to the extent that it would be if the payment or transfer had been made to him”. (The italics are mine.) It must be conceded that appellant had consented to the payment of 2 per cent of the fees due him in his professional capacity. But if he had been paid this 2 per cent he would have had to pay the premiums himself, and would have been entitled to deduct the amount as an expense; otherwise he could not have earned his salary, for the very good reason that he was bound by his contracts and membership in ACTRA to make these expenditures. Appellant, therefore, by paying the expenses which he was entitled to deduct (subsection 12(1)), took nothing away from his taxable income, because it was taxable only on the profit, which is the difference between gross income and net income, ie after deducting expenses to earn such income, in this case professional fees. I cannot see how a legitimate and deductible expense could be the object of a payment that would then become taxable.

The evidence shows that the holder of the policy was the “Trustees of the Association of Canadian Television and Radio Artists Insurance and Retirement Savings Plan”, and that that policy covered loss of fees as a result of accidents, illness, loss of limbs, etc. The premiums were payable directly to the trustees by the Canadian Marconi Company and the National Film Board, under contracts between ACTRA and the two aforementioned companies. As the contracts are identical, we need only reproduce the clause relating to insurance from one of them, which reads as follows:

The Corporation shall continue to contribute an amount equal to 2% of the gross fees of each performer, payable by cheque to the Actra Insurance and Retirement Savings Plan, and mail to the National Office of Actra. These amounts shall be payable monthly, on or before the 15th of the month following the earning of such fees.

As can be seen, what respondent is claiming to tax is a contribution made by a third party to ACTRA, which insures its members and pays their premiums. This contribution by persons entering into contracts with free lance artists is as much for the protection of such persons as of artists who have accidents, or who fulfil one of the conditions giving rise to a claim against the contracting party under contracts binding on both actor and ACTRA.

The only problem in dispute is stated thus in the Statement submitted by counsel for the appellant at the start of the investigation:

. . . What is at issue is a two per cent contribution which is known as the ACTRA Fund. It is a trust fund for the purchase of certain insurance, and on page 2 of the original Reply to the Notice of Appeal it was referred to in the following way, and I am reading from Clause 4(c)(iii): “The remaining two per cent added by the engagor is used by ACTRA to purchase sickness and accident insurance. This latter amount has been held by Respondent to be taxable’’, and it is the two percent which is added by the engagor and which is to be distinguished from a three percent and another two percent having to do with retirement benefits.

Reference must be made in this appeal to the science of accounting. Appellant called an accounting expert as a witness in the case, since he is the auditor at the office of the ACTRA trustees. He assisted in the establishment of the accounting system for the professional Association to which appellant belongs. The accountant heard as a witness stated the following:

(TRANSLATION)

Q: So, according to accounting rules, and setting aside the provisions of the statute because you are not in a position to testify on legal aspects, but in accounting and with your knowledge of this plan, is the 2 per cent income for the individual working, or is it something else? A: The 2 per cent is paid into a common fund administered by the trustees. A member has no voice in deciding on what will be done with it. As to risk, and the protection given him, it is the office of trustees — not to use the expression “board” — which every year, two or three times a year, looks at the financial situation and the direction to be given to the insurance plan, so that the members, with the means available to the office of trustees, can obtain the maximum protection, as was originally conceived or understood in the minds of all of them.

Q: It is neither more nor less than a fund to protect occupational hazards? A: Yes, these monies are completely separate and subject to annual audit and financial statements produced for the benefit of the members of the association.

If, therefore, this is not income, the premium paid cannot be subject to assessment in the case of an independent professional of theatre or radio, as well as television.

In Spicer & Pegler's Income Tax and Profits Tax, by H A R J Wilson, FCA, at p 136, section 3(v), the following deductions are mentioned among those which are allowed: “Insurance premiums on policies of indemnity in respect of the business, eg fire, burglary, workmen’s compensation, employers’ liability, loss of profits, etc.”

I would add that the Department of National Revenue has always allowed, as expenses that are deductible from profit in the case of professionals, insurance premiums paid to protect income against any loss resulting from illness or accident.

I refer the parties to the following comments taken from The Law of Income Tax, Surtax and Profits Tax, by Wheatcroft, at p 1237, para 1-503:

What is profit is primarily a question of fact to be ascertained by the tests applied in ordinary business; questions of law only arise when some express Statutory direction applies which excludes ordinary commercial practice or when the facts cannot be ascertained sufficiently precisely and some presumption of law must be invoked to fill the gap. (Sun Insurance Office v Clark, [1912] AC 443, at p 455; 6 TC 59, at p 78). In general, therefore, if accounts are prepared in a normal commercial manner and in accordance with current accountancy practice the profit shown by these accounts will be taken as the taxable profit, subject to any specific statutory provisions and to the overriding power of the court to disregard accountancy practice where that practice appears to them to be based on a mistaken view of the law. See Associated Portland Cement Manufacturers, Ltd v IRC: Associated Portland etc v Kerr (1945), 27 TC 103.

In the circumstances, taking into account the admissions and the evidence, I think the appeal should be allowed. All taxpayers must receive equal treatment. If appellant were an employee, such a premium would not be treated as remuneration; but as he is a professional, this premium, which is a professional expenditure recognized as a legitimate and deductible expense, would for him be taxable income. Would not such an interpretation make nonsense of the theory?

This appeal also related to certain expenses amounting to the sum of $945.50. As the parties were agreed, and respondent accepted the amount of $472.75 as an allowable deduction, the appeal is allowed in part only on that item, and in toto for the other question considered.

Appeal allowed in part.