21 December 1999 External T.I. 9929515 - EMPLOYER-EMPLOYEE RELATIONSHIP

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: Does an employer- Employee relationship exist?

Position: Factors top be considered were provided

Reasons:. This is a question of fact.

XXXXXXXXXX 		992951
W. C. Harding
Attention:  XXXXXXXXXX 

December 21, 1999

Dear Sirs:

Re: Registration of Individual Pension Plans

This is in reply to your letter of November 1 1999, further to your inquiry of December 10, 1998, to our Registered Plans Division, in which you asked whether the fact that T4 information slips have not been issued for several years would hamper the registration of an individual pension plan for certain employees of a professional corporation.

Since your inquiry relates to a specific proposed transaction, written confirmation of the tax implications may only be provided by this Directorate where the transactions are the subject matter of an advance income tax ruling request submitted in the manner set out in the Department's Information Circular IC70-6R3 Advance Income Tax Rulings which is available from your local Tax Services Office or on the Internet at http://www.ccra-adrc.gc.ca/E/pub/tp/706r3et/706r3e.txt.html. In addition, since the proposal involves the development of a registered pension plan, approval of the plan by the Directorate's Registered Plans Division would also be required. Accordingly we cannot provide answers to your inquiry at this time. However, we can offer the following general comments.

As Registered Plans Division indicated in their reply, the presence of T4s is not necessarily proof that an employee/employer relationship exists. The reporting of remuneration reported on a T4 is a common indicator that an employment relationship exists but it is not conclusive. For purposes of the Act, the determination of whether there is an employer/employee relationship is a question of fact and the Department relies on the basic tests developed by the courts in deciding whether a particular contract is a contract of services (employer/employee relationship) or a contract for services (client and independent contractor relationship). In Weibe Door Services Ltd. 87 DTC 5025 the court mentioned that the tests consist of the control test, the integration test, the economic reality test and the specified results test. In Viau 86 DTC 1437, the Court said that someone can "hold a position" within the meaning of the Act without actually working and it is neither unusual nor infrequent that one can remain employed without actually working. In Henderson 91 DTC 1116, the Tax Court considered whether the taxpayer was in "employment" as defined in subsection 248(1) of the Act. For that purpose, it was stated that "to be in service of some other person" means that the employee has a duty to serve that other person who in turn has a right to those services pursuant to a contract of mutual rights and duties".

We are also of the view that a contract of employment which sets out the rights and obligations of the employer and the employee is an important tool to determine whether or not an employer/employee relationship exists at any particular time. In our view, it is also even more important to find out the actual circumstances surrounding the performance of services and whether such findings of facts agree with what is stated in the contracts.

In the situation you described it is impossible to determine whether or not there is an employer/employee relationship from the information provided. However, you may wish to discuss this matter with officers of your local tax services office who generally review factual situations concerning employer/employee relationships for CPP and EI purposes.

You may also wish to consider the comments made in an article recently published in "Tax Topics" Number 1443 dated November 4, 1999 and published by CCH Canadian Limited. This article provides an extensive list of factors that might be considered when determining whether an individual is an employee or independent contractor.

We trust our comments will be of assistance to you.

Yours truly,

P. Spice
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

c.c.: Christine Modesti
Registered Plans Division

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