10 August 1994 Internal T.I. 9419327 - EXPENSES INCURRED BY FISHERPERSONS

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Whether sharesmen can deduct the costs of rubber gear, gloves and knives, as well as payments made to lumpers.

Position TAKEN:

Deductible only if sharesmen are self-employed.

Reasons FOR POSITION TAKEN:

If sharesmen are self-employed, they are entitled to deduct the expenses they incur in earning their fishing income.

		August 10, 1994

	Halifax District Office	Head Office
	Client Assistance	Rulings Directorate
	Angus MacIsaac	C. Chouinard
		957-8953
		7-941932

Deductibility of Expenses Incurred by Fisherpersons

This is in response to your memorandum of July 22, 1994 wherein you requested our opinion on the deductibility of expenses incurred by sharesmen.

More specifically, you enquire whether fisherpersons working as sharesmen can claim expenses for oil gear, gloves, knives, payments to lumpers and other expenses, where they receive a T4 slip instead of a T4F slip.

Sharesmen will be entitled to deduct the expenses they incur in earning their income only if they are self-employed. We cannot determine from the information you have provided whether the sharesmen you refer to are employees or self-employed. Generally, the Department considers a person to be a self-employed fisherperson if:

• the person owns or rents a fishing boat;
• the person is a captain of a fishing boat; or
• the person is a sharesman who gets a share of the catch.

There is special U.I.C. legislation in effect that gives self-employed fishermen Unemployment Insurance coverage and it requires "designated" employers to complete T4F information returns. However, we understand that it is possible for a sharesman to be an employee and the existence of a collective agreement and the fact that income is reported as employment income on a T4 are indicators that the sharesmen may be working as employees in a fishing business. Whether a person is an employee or not is a question of fact. In this respect, the courts have established four tests to determine whether a particular contract is a contract of service or a contract for services. These four tests are as follows:

(a)Control Test

The objective of this test is to assess if the individual is limited or restricted under a master-servant relationship. It recognizes that in most cases, the degree of control of an employer over his employee is greater than that which is exercised in an independent contractor relationship. For instance, in a master-servant relationship, the master can order or require not only what is to be done, but how and when it shall be done. In contrast, an independent contractor is usually allowed to choose the manner in which the services are performed.

(b) Integration Test

This test acknowledges that work performed by an employee under an employment contract is done as an integral part of the business, whereas under a contract for services, his work, although done for the business, is not integrated into it, but is only accessory to it.

(c) Economic Reality Test

This test assesses the economic aspects of the relationship between the parties to determine whether the taxpayer is carrying on business for himself or for someone else. The objective of this test is to verify the existence of various factors of an economic nature, and using these facts, attempt to assess the nature of the relationship. Factors to be considered in applying this test include the required investments to be made by the individual, permanency of the relationship, and the skill required by the individual.

(d) Specified Results Test

This test acknowledges that an independent contractor relationship usually involves the undertaking of a specific task after which the relationship ceases and it does not usually require that the undertaking be carried out by a particular individual. In contrast, in an employer-employee relationship, the employee makes himself available to the employer to be used by the employer without reference to a specified result.

Not all of the foregoing tests will be relevant or have the same degree of importance. However, cases to date have in most circumstances indicated that the most important test is the test of control. In order to apply these tests in your situation, you will probably need to obtain more information. In addition, you will need to determine whether the collective agreement is a true collective agreement or whether it is simply an agreement between groups of fisherpersons and the packers.

You indicate that, according to the Fishing Guide (page 10), sharesmen can deduct expenses they incur in respect of rubber gear, gloves and knives. Since the Fishing Guide only applies to individuals who earn income as self-employed fishermen (see page 2), the statement made on page 10 of the Fishing Guide will not apply where the sharesmen are employees. Furthermore, if you find that the sharesmen are employees, they will not be entitled to deduct the costs of rubber gear, gloves and knives, since the amounts employees can deduct as expenses are limited to those specifically set out in section 8 of the Income Tax Act (the "Act").

As regards the payments made by sharesmen to lumpers, if the sharesmen are self-employed, they will be entitled to deduct these payments only if the work done by lumpers is necessary for the sharesmen to earn their fishing income. On the other hand, if the sharesmen are employees, as indicated in Interpretation Bulletin IT-352R, subject to certification by the employer, the sharesmen will be entitled to deduct amounts paid to lumpers only if the following requirements are met:

• they are required by their contract of employment to pay for the services of lumpers;
• they are not reimbursed, nor entitled to reimbursement for such expense; and
• the expense may reasonably be regarded as applicable to the earning of income from an office or employment.

R. Albert
for Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch