DR J H Smylie v. Minister of National Revenue, [1978] CTC 2363, [1978] DTC 1288

Delmer E Taylor:—This is an appeal against income tax assessments by which the Minister of National Revenue increased the taxable income of the appellant by amounts of $7,249.92, $8,000, $8,000 and $8,000 respectively for the years 1971, 1972, 1973 and 1974. The appellant relied upon section 9 and the respondent relied, inter alia, on sections 3 and 4 of the Income Tax Act, RSC 1952, c 148 (prior to the amendments effected by section 1 of SC 1970-71-72, c 63).

Facts

The appellant is and was during the years material, a veterinarian practising in the City of North Bay in the Province of Ontario. The amounts in question were received from the Ministry of Agriculture and Food, Veterinary Services Branch of the Province of Ontario.

Contentions

It was the position of the appellant that the receipts should be considered as capital grants because:

—they were given in the public interest, to ensure veterinary services were available to certain livestock owners;

—they were not computed by reference to specific expenses or specific income deficiency of the recipient.

The respondent contended that the receipts were income from a business as services provided inside Canada.

Evidence

The appellant presented no documentation but described for the Board his veterinary practice, and the role played in it by the assistance provided by the amounts in question which he called grants. In general it was his position that without the grants he could not afford to provide adequate service to the livestock owners (referred to as “large animal practice’’) due to the requirements of the balance of his practice (that usually associated with smaller animals, household pets, etc). Direct fees and mileage charges for services were considerably different, depending on whether or not the client was covered under the appellant’s agreement with the Province of Ontario to provide such services. He covered a very large and difficult area in Northern Ontario, and brought to the attention of the Board that it was only by such grants for a special purpose that an agricultural industry of any kind could hope to survive in his region.

Counsel for the respondent, through the appellant, identified and introduced a copy of the standard form of agreement covering such veterinary services between the Province of Ontario and veterinarians (Exhibit R-1), and also a copy of the general provincial regulations covering these services, called “Veterinary Assistance Policy for Designated Areas’’ (Exhibit R-2). The appellant agreed that he was governed by these documents, although there may have been adjustments or changes to either the fees or the mileage rates during the years in question. The principle involved, however, remained unchanged.

For reference purposes Exhibit R-1 is reproduced in its entirety.

VETERINARY ASSISTANCE POLICY FOR DESIGNATED AREAS

AGREEMENT

Memorandum of Agreement made this

BETWEEN: The Director of the Veterinary Services Branch of the Department

of Agriculture and Food, hereinafter called the “Director”.

of the FIRST PART

—and—

(name)

(address)

hereinafter called the “Veterinarian”

of the SECOND PART;

The Parties hereto agree as follows:

1. Subject to paragraph 7, the Veterinarian shall provide veterinary services under the Veterinary Assistance Policy For Designated Areas to live

stock owners in the designated area of	I	, established
by the Director in his designation dated	.

2. This agreement shall continue in force for a period commencing on the 1st day of APRIL, 19 and ending on the 31st day of March, 19 , unless terminated in accordance with paragraph 12.:

3. A regular call means attendance at the premises of a live stock owner between the hours of 6 a.m. and 6 p.m. on any day other than Sunday or a statutory holiday.

4. —(1) For a regular call to an eligible live stock owner, the Veterinarian

may charge a fee not exceeding the fee prescribed in the schedule of fees appended to this agreement.

—(2) For a call to an eligible live stock owner other than a regular call,

the Veterinarian may charge the sum of $2 in addition to the fee for a regular call.

5. The Director shall pay to the Veterinarian,

(a) the sum of $8,000 in twelve equal monthly instalments; and

(b) travelling expenses at the rate of 7 cents a mile for round trip

mileage for,

(i) calls made to eligible live stock owners, and

(ii) attending any meeting called by the Director.

6. In providing veterinary services, the Veterinarian shall give priority at all times to eligible live stock owners.

7. Subject to the approval of the Director and on such terms and conditions as the Director prescribes, the Veterinarian may provide veterinary services to live stock owners other than eligible live stock owners in an area or areas outside the designated area.

8. For calls made to live stock owners other than eligible live stock owners, the schedule of fees appended to this agreement and the limitation on the additional fee chargeable for calls other than regular calls do not apply.

9. —(1) The Veterinarian will have vacation leave of,

(a) two weeks a year during the first three years of service; and.

(b) three weeks a year thereafter.

(2) The Veterinarian may,

(a) attend a course or courses relating to the practice of veterinary medicine but the time for such course or courses in any year shall not exceed one week;

(b) attend Association meetings relating to the practice of veterinary medicine but not exceeding three days for any meeting.

(3) The Veterinarian shall notify the Director at least one week in advance of taking time off for any purpose mentioned in subsections 1 and 2.

10. Subject to the approval of the Director, the Veterinarian may refuse to provide veterinary services to live stock owners who are in default of payment to the Veterinarian for services previously provided.

11. —(1) The Director or any person authorized by him to act on his be-

half may inspect the business premises of the Veterinarian, may examine the books, records and documents of the Veterinarian, and may inquire into the providing of veterinary services by the Veterinarian.

(2) The Director or his representative may make such recommendations

as he sees fit to the Veterinarian.

12. This agreement may be terminated at any time by the Director or by the Veterinarian by giving at least two months’ notice in writing to the other party, as the case may be.

Signed, Sealed and	)	(Sgd.)
Delivered of the
		Acting Director
presence of
	I	Veterinarian
(Sgd.) ? ?	)	Veterinarian

Argument

The appellant based the legal argument for his appeal on St John Dry Dock and Shipbuilding Company Limited v MNR, [1944] CTC 106; 2 DIC 663. In particular he quoted one part of the judgment found on page 126 [672]:

In the present case, the purpose .of the Act and:the agreements and Orders in Council made under its authority was to secure the construction of a dry dock of the first class on the Atlantic Coast and the subsidy payments were made as an aid to such construction in order to accomplish the purpose of the Act. That purpose was a special one, in the public interest, quite apart from the trade and business operations of the appellant and had nothing whatever to do with its trade or business profits or gains. Since the subsidy was paid and received for such special purpose, in the national interest, it cannot be said to be a trade or business receipt or revenue in the hands of the appellant or an item of trade or business profit or gain to it. It was paid and received for the purpose which the Act was designed to achieve and, in my opinion, that statutory purpose stamps the subsidy as an amount that should not be regarded as an item of annual net profit or gain or gratuity to the appellant or taken into computation. for income tax purposes.

Counsel for the respondent argued that there was no distinction to be made between the funds received by the appellant under his agreement- with the Province of Ontario and the balance of the fees he charged his clientele. The taxpayer, according to the agreement (Exhibit R-1), was under the control and supervision. of the “Director”, whether or not that control and supervision were regularly exercised. There was nothing special or unique about the services provided under the ayrëement—they were identical to those which would be provided under Similar circumstances to persons not covered by the agreement*. The only difference was in the amount the veterinarian could charge directly to the client—a lesser amount being authorized for those under the agreement than for those outside its coverage. Counsel referred the Board to the cases of Okalta Oils Limited v MNR, [1955] CTC 39; 55 DTC 1029 (Exch) and Nuclear Enterprises Ltd v MNR, [1971] CTC 449; 71 DTC 5243, in support of the income tax assessments.

Findings

It is interesting to note that the amounts in question have been described as “grants” by the appellant in his notice of appeal and that word has also been used in the reply to notice of appeal from the respondent. This is not the terminology used in the assessment no- tices under appeal—in which the amounts are described as “Income received under the Veterinary Assistance Policy”. My review of the documentation submitted (Exhibits R-1 and R-2) has not indicated to me any basis upon which these amounts should be described as grants (the word is not used in either document) nor whether or not such a designation could be significant. The agreement, in my opinion, indicates that the amounts received ($8,000 for each full year) had the character of a basic annual fee for which the Province of Ontario obtained first call under certain circumstances on the services of the appellant for livestock owners in the area, and restricted his right to charge more than set direct fees for the functions under contract. The Board also notes that the financial statements of the appellant, prepared by Thorne Gunn & Co, Chartered Accountants, attached to the income tax returns for the years in question show as gross income from his veterinary practice the amounts of $89,167, $106,001, $122,119 and $122,287 respectively described in each year as “Income from professional fees, farm, clinic and government retainer fees”. Apparently the amounts in question were not included in these totals, but the facts available to the Board indicate that they would appropriately be described as retainer fees and included in such income.

Looking at the case law cited by the appellant, St John Dry Dock and Shipbuilding Company Limited v MNR (supra), it would appear to me that he is relying primarily upon the phrase in his quotation “in the public interest’, and indeed it would be reasonable to assume that the veterinary services he provided under the agreement were of value to the public. They were, however, of value to him also—providing at least a minimum income under any set of circumstances for the maintenance of his practice. The appellant must also read the phrase “in the public interest” together with the portions of the quotation which immediately follow “quite apart from the trade and business operations of the appellant and had nothing whatever to do with its trade or business profits or gains”. A careful and complete reading of the St John Dry Dock case (supra) identifies many other areas of distinction which must be made when examining the facts in this case, and comparing them to that one. There is no basis in this appeal to consider the income or the services rendered arising from the agreement as in any way “apart” from the balance of the appellant’s income or revenue.

Decision

The appeal is dismissed.

Appeal dismissed.