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Citation:2004TCC181
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Date: 20040330
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Docket: 2003-549(IT)I
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BETWEEN:
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CALVIN K. PREDDIE,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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____________________________________________________________________
For the Appellant: The Appellant himself
Counsel for the Respondent: Bonnie Boucher
____________________________________________________________________
REASONS FOR JUDGMENT
(Delivered orally from the Bench at
Toronto, Ontario, on September 18, 2003)
McArthur J.
[1] The issue in this appeal is
whether Calvin K. Preddie, a tutor, was engaged by Kids Count
Consultants Corp. Limited, operating as Sylvan Learning Centre
("Sylvan") as an independent contractor or as an
employee during the 2000 taxation year. The Appellant received
the amount of $5,246 from Sylvan for tutoring services from which
he seeks to deduct motor vehicle expenses of almost the same
amount, $5,239. The Respondent submits that the Appellant was an
employee of Sylvan and there is no provision for this deduction
in section 8 of the Income Tax Act. The Appellant's
position is that he was in the business of tutoring on his own
account.
[2] The Appellant is a highly educated
professional engineer, with an honorary Ph.D. from World
University, and he has been teaching mathematics and other
subjects primarily at St. Lawrence College in Cornwall, Ontario.
He retired after 30 years at St. Lawrence College and commenced a
second career that included writing and publishing a book, which
I believe deals with managing stress in the workplace, and
carrying on a tutoring business under the name of Calpre CE
Enterprises. The Appellant impressed me as being honourable and
having integrity. He had the incorrect impression that he was
being "accused" (and perhaps "accused" is too
strong a word) of scheming with Sylvan to avoid or evade income
tax. I have no doubt that he acted in good faith.
[3] There is not a simple answer to
the issue before me. Much of the Appellant's submissions did
not deal with the issue. The following are the issues he set out
in his Notice of Appeal and they include:
1. Did I enter
into a legal contract with Sylvan Learning Centre?
2. Was that
contract voidable?
3. Was the
contract voided?
4. Was I in a
position as a Service Provider (see copy of Master Business
Licence attached), to enter into a contract with Sylvan Learning
Centre, which is a "for profit", franchise type
operation and not part of any school system?
5. Was Sylvan
Learning Centre as a hiring employer being a small business
operation permitted to contract out (outsource) work even, if it
had, previously been performed by an employee?
6. Operating
under my Business License, was I permitted to claim my automobile
expenses incurred in travelling from my home to Sylvan Learning
Centre in Brampton to provide the contracted services?
7. Does the
Income Tax Act allow false information (about CPP and EI
deductions) to be placed on my file and utilized to calculate my
taxes owing?
8. Can
someone, who knows that CPP and EI deductions were never made,
put that false information on my file?
9. Was there
an oversight when the first re-assessment was done, and if
so, why was the fact that I had declared the income as
Professional Income not addressed?
10. Why was CCRA not
forthcoming, or withholding the truth about the origin of the T4
statement on my file? In one conversation with a CCRA employee or
contract worker, who gave the name of Kerry McKeskey (spelling
uncertain) at 416-973-3392 on June 18, 2002, I was
told that the Auditor was the one who would have filed the T4
statement under his authority as an Auditor.
11. While I do not
question the authority of the Auditor under the Income Tax
Act, I believe that the Act requires that information
submitted be true, and the statements about CPP and EI were
definitely untrue.
12. Is the Income Tax
Act in conflict with accepted practice of the day by both the
Public and Private Sectors that permits contracting out of work
that was formerly carried out by employees? If it is,
shouldn't the Act be updated to reflect current
realities?
[4] Sylvan carries on the business of
promoting a learning centre and Mr. Goran Skalin is a part owner
and executive director. In an affidavit sworn by Mr. Skalin on
September 12, 2003, he described Sylvan Brampton as a
supplemental education service where students normally attend for
no more than an hour twice weekly, and for a period of
4½ months. There is no fixed semester and students
can, therefore, start and discontinue at any time. Students range
from kindergarten age through adults and from those with severe
learning disabilities that require remediation and to those who
are extremely gifted and require enhancement. Subjects range from
beginning reading to advanced mathematics and science. On this
basis, each student requires teaching expertise in specific areas
of education. Some students attend for only a few hours for help
with specific problems. The student mixture is constantly
changing and so are the requirements for teachers who have
expertise in practically every area of education. It is not
possible for Sylvan to have all the required teacher expertise
available on staff and requirements are changing continuously,
sometimes on a day-to-day basis.
[5] Teachers normally work three to
eight hours per week. These teachers are dedicated professionals
who teach in order to make a contribution to the education of
children with special needs who may otherwise not be able to
become productive and successful citizens. Many of the teachers
are retired or semi-retired and wish to control their own
time. Others have various reasons for not being interested in
making staff employment commitments. All of them are available on
an 'as and when required' and 'when available'
basis as self-employed consultants and are selected by
Sylvan based upon their specialized qualifications.
[6] The Appellant is an example of a
retiree who is not interested in making a staff commitment. In
fact, he terminated his contract with Sylvan in 2001 as a result
of the audit decisions of Canada Customs and Revenue Agency.
Dr. Preddie, the Appellant, was a valued resource to Sylvan
as an instructor of Senior, Intermediate and Applied Mathematics.
He was engaged under contract to provide his services to Sylvan
on an 'as and when required' and 'when available'
basis. Sylvan provided a Blanket Purchase Order to the Appellant
specifying details including quoted rate of payment and the
requirement of invoicing.
[7] The Contract and the Purchase
Order specify that, as self-employed educational
contractors, instructors are responsible to pay all applicable
federal and provincial taxes and Canada Pension Plan
contributions. No payroll tax, Canada Pension Plan or Employment
Insurance premiums were ever made by Sylvan on behalf of the
self-employed educational consultants, including
Dr. Preddie. No T4 slips were ever issued and submitted by
Kids Count Consultants Corporation Ltd. or Sylvan Learning Centre
Brampton for any of the self-employed educational
consultants, including Dr. Preddie.
[8] I accepted the affidavit of Mr.
Skalin, conscious that he was not present to be
cross-examined which is reflected negatively in the weight
this affidavit is given. Mr. Skalin has a personal interest
in establishing an independent contractor relationship with his
workers and his affidavit is certainly weighted in that
direction. Schedule "A" to his affidavit is his
analysis, which consists of eight pages of the relationship
between Sylvan and the workers. Four pages are devoted to
control. This form was provided to him by CCRA. Very briefly, he
sets out the following: Who is responsible for planning the work
to be done? Who decides how and how much the worker is to be
paid? Who decides on the time frames? Who decides how the work is
to be done? Who decides on the hours of work? Who decides on the
work location? Who assigns the individual tasks? Who supervises
the tasks? Who sets the standards to be met? Who decides whether
the work must be redone? Who covers the related costs? Who is
responsible for training? Who is responsible for related costs?
Who decides on the territory to be covered? Who decides on
periodic activity reporting? Who decides if the work is to be
done by the worker himself? Who hires helpers?
Analysis
[9] I find that the Appellant was a
highly skilled teacher and tutor when he entered into an oral
agreement with Sylvan. He has found teaching a rewarding
experience and was well set in his manner of teaching. When asked
by Mr. Skalin to use the Sylvan method, he refused, at least
in part, and he agreed to tutor the Sylvan students in math only
on the condition that he use his methods. He taught with a
different approach although he did take a one hour Sylvan course
and spent three hours observing other tutors. He had 30
years' previous experience. He decided what the students
should be taught and how. He spoke with the parents with respect
to their children's needs and progress. Over the year of
teaching and longer, he received no complaints. He used his own
calculator and prepared his classes at home. He had not signed or
seen many of the documents presented to him by Respondent's
counsel prepared by Sylvan until after he terminated his
association with Sylvan.
[10] Counsel for the Respondent relied on a
guarantee wherein a student could have free tutoring if not
satisfied. The Appellant did not know anything about this. He was
not restricted. Also, he was not restricted from tutoring
elsewhere while engaged by Sylvan. He considered himself an
independent contractor as did Sylvan. He stated he would not have
driven his car 50 kilometres round trip from Mississauga to
Brampton for $15 an hour had he not depended on a
non-employee relationship. He stated he took the work
because he had the freedom to do it his way. He also needed the
money to publish his book. If he could not make a session, he had
the responsibility of finding a replacement suitable to Sylvan.
This never happened, however, and this point was somewhat
contradicted by the affidavit of Goran Skalin.
[11] The Appellant taught at Sylvan's
premises and went whenever he was called and had no input into
who his students were. He was paid, as I stated, $15 an hour
regardless of whether Sylvan was paid by the parents or students.
He used some of his textbooks and the students were supplied with
pen, paper and other material by Sylvan. Now, with respect to
documents:
(a) The Respondent relied on a
written contract that gave Sylvan the right to control yet the
Appellant did not sign this contract until after he left Sylvan
in 2002.
(b) The questionnaires which are filed
as Exhibits R-1 and R-2.
(c) Evidence filed as Exhibits
R-8, R-9, R-12 and R-14 include Sylvan literature which
lean towards the tutors being employees.
The Appellant did not know anything about these documents. He
taught in the manner he had for 30 previous years. Exhibit
R-14 is a non-disclosure agreement. He never signed one and
saw this document for the first time during this hearing. These
type of cases rely on their own individual merits.
[12] Mr. Hugh Cullaton gave evidence on
the Respondent's behalf. He is an experienced appeals officer
who spent a long time examining the relationship between Sylvan
and its workers and he concluded it was one of employee/employer.
He received 13 "Contracts of Service Workers
Questionnaires" which he had sent out for completion by the
Sylvan workers. He carefully reviewed the answers and completed a
master copy. The same Questionnaire referred to their combined
answers and it was filed as Exhibit R-10. He looked at
control and concluded that, if Sylvan did not exercise control,
it had a right to do so given the documents including the
contract that the worker signed. Mr. Cullaton was very
thorough and dedicated to his position. I believe in the 2000
taxation year, there were 23 workers. These answers were given
considering all workers collectively, yet, each case has to be
considered on its own merits.
[13] The assumptions of fact in the Reply to
the Notice of Appeal are of little assistance. Paragraph 11(a) of
the Reply reads: "during the 2000 taxation year, the
Appellant was an employee of the Employer, employed pursuant to a
contract of service". This is the issue that I must decide.
Paragraph 11(b) states: "during the 2000 taxation year, the
Appellant was not employed as an independent contractor with the
Employer". Paragraph 11(c) states: "during the 2000
taxation year, the Appellant was issued a T4 slip from the
employer in the amount of $5,246". This statement is
incorrect and a source of great distress for the Appellant.
Paragraph 11(d) states: "with letter dated May 9,
2002, the Minister requested the Appellant to provide contract of
employment, (Form T2200, Declaration of Employment) and
documentation to support his professional income and
expenses"; and paragraph 11(e) stated that the Appellant
failed to produce the documentation required in paragraph 11(d).
The Appellant explained he did not provide the requested
documentation because he thought it was Sylvan being investigated
and he had no involvement. I do not see what any of these
assumptions of fact have to do with assisting in determining the
issues.
[14] Counsel presented several cases and
referred to the Supreme Court of Canada decision in 671122
Ontario Ltd. v. Sagaz Industries Canada Inc., [2001] 2 S.C.R.
983, which case is cited frequently when dealing with this type
of issue. Sagaz is a vicarious liability torts case that
deals extensively with employee and independent contractor
questions. The remarks of the Supreme Court of Canada apply
equally to the present situation. From the headnote to this case,
the Court was of the following opinion:
... There is no one conclusive test which can be universally
applied to determine whether a person is an employee or
independent contractor. What must always occur is a search for
the total relationship of the parties. The central question is
whether the person who has been engaged to perform the services
is performing them as a person in business on his own account. In
making this determination, the level of control the employer has
over the worker's activities will always be a factor.
However, other factors to consider include whether the worker
provides his or her own equipment, whether the worker hires his
or her own helpers, the degree of financial risk taken by the
worker, the degree of responsibility for investment and
management held by the worker, and the worker's opportunity
for profit in the performance of his or her tasks. ...
At page 1001, in referring to control, Major J. stated:
"The test has been broken down completely in relation to
highly skilled and professional workers, who possess skills far
beyond the ability of their employers to direct".
[15] I believe this sentence applies to
Dr. Preddie. Obviously, he was highly skilled at tutoring
mathematics, a professional engineer with over 30 years'
teaching experience, and he was well-respected in his
profession having been invited to speak and give seminars at
universities and colleges in Canada. His evidence, combined with
the affidavit of Mr. Skalin with respect to control, tilts
the scale in favour of his being an independent contractor. The
Respondent's argument that the Appellant must have used
Sylvan's methodology because it paid tens of thousands of
dollars for it[1]
falls short of the direct evidence of the Appellant which I
accept. The Respondent adds that Exhibit R-14 and the other
documents indicate control, yet the Appellant did not see many of
these documents, if any, until after he left Sylvan. He first saw
the non-disclosure agreement at this hearing.
[16] The Respondent states that I should not
consider only the control exercised by Sylvan over the Appellant
but also the control it could have exercised according to the
contract. I find in this instance, it is more important to look
at what actually transpired rather than what Sylvan could have
done. This principle is stated in income tax cases frequently.
The control test favours the Appellant.
[17] With respect to who provided the tools,
the facts are that Sylvan provided the premises and some books,
supplies, liability insurance, and the Appellant provided his own
calculator, some books, his own home office to prepare his
lectures and also his car to travel. This test is
inconclusive.
[18] With respect to chance of profit or
risk of loss, the Appellant did not share in Sylvan's profit
or loss. Clearly, this test favours an employer-employee
relationship. Responsibility for management: Sylvan provided the
students, set the lesson rate, collected from parents. If this is
a test, this evidence favours the employer and employee
relationship but I give little weight to it. It is my
understanding that Sagaz does not apply the integration
test, formerly included as one of the four tests set out in
Montreal v. Montreal Locomotive Works Ltd., [1947] 1
D.L.R. 161 and adopted by MacGuigan J. in Wiebe Door Services
Ltd. v. M.N.R., 87 DTC 5025. To do so is to answer the
question of whose business was it and that is the primary
question before me. The tests referred to are simply to be used
as evidence in deciding whose business it was. As stated,
Sylvan's business was to attract the students, provide a
premise and promote a learning environment, the Appellant's
business was to tutor independently.
[19] In conclusion, considering all the
evidence as a whole, and on the balance of probabilities, I find
the Appellant was in the business of tutoring on his own account.
He was so highly skilled, he needed no control. His fee of $15 an
hour was a bargained amount. Both parties referred to the
relationship as one of independent contractor. The business of
Sylvan was to get the students and tutor together. The Appellant
was in the business of tutoring. For these reasons, the appeal is
allowed with costs, if any.
Signed at Ottawa, Canada, this 30th day of March, 2004.
McArthur J.
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