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Citation: 2004TCC200
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Date: 20040405
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Docket: 2003-2343(IT)I
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BETWEEN:
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JOHN K. McLEAN,
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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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REASONS FOR JUDGMENT
Sheridan, J.
FACTS
[1] John McLean and his wife Wendy
farm near Manitou, Manitoba. Mr. McLean has over 20 years
experience in raising livestock. Mr. McLean ran his own hog
operation and supplemented his farm income with other off-farm
income including some custom baling and custom feeding of hogs in
1995 and 1999. In 1997, he was offered the position of manager at
Kaleida Pork Ltd., a 6,400 hog-feeder farm about four miles from
the McLean farm. For each of the taxation years in question, 1999
and 2000, Mr. McLean signed a contract with Kaleida.
[2] As barn manager, Mr. McLean was
responsible for readying hogs for market: feeding them, watering
them, administering medications, weighing them, disposing of hog
mortalities and shipping finished hogs to market. For each beast
shipped, Mr. McLean received a bonus of $1.00. Not a lot, but
enough to augment a farm income that had seen diminishing
returns; not bad, considering Kaleida's average annual sales of
19,000 hogs. Throughout the period in question, he continued to
work on his own farm raising sheep and cattle. His intention has
always been and remains to return exclusively to his own farm
operation. In the meantime, he is rebuilding his livestock
holdings.
[3] Mr. McLean provided his own truck
and other tools and equipment to carry out his duties at Kaleida.
His testimony was that he used the truck daily in the normal
errands of the hog-barn operation, storing tools, delivering feed
and medications, removing garbage and disposing of swine
mortalities. He also used a tractor, snowblower, and smaller
items including drills, saws, ladders and power tools. He
incurred costs in fuel, lubricants, repair, insurance and
licensing of the motor vehicles.
[4] Mr. McLean worked approximately
30-35 hours per week, normally starting at 7:00 a.m. and
continuing as required until his tasks were completed. If, for
example, hogs were being shipped, longer hours were required of
him. On other days, Mr. McLean did not go to the hog barn at
all. Although the contract contemplated that Kaleida provide
management training for Mr. McLean, in fact, this never occurred.
Mr. McLean explained that Kaleida had sought him out for the
position; he was hired for his expertise and it was recognized
that he did not need such training. On cross-examination he
stated that this clause is standard in the industry and meant to
apply to those with less experience than he had in the hog
business. Though the contract provided for supervision of Mr.
McLean's work by "Puratone supervisory personnel", no
one ever showed up to do this, presumably as a result of the
confidence Kaleida had in Mr. McLean. Representatives from
Kaleida did visit the barn from time to time, perhaps three times
per year. Their infrequent visits accounted for the retroactive
signing of the annual contracts between Mr. McLean and Kaleida.
The evidence is clear that Mr. McLean came and went as he
pleased, allocating his time as he saw fit between his work at
Kaleida and his own place. His uncontradicted testimony was that
Kaleida was interested in results, not in enforcing the
technicalities of its contract with Mr. McLean. It was
enough that they shared an interest seeing as many healthy,
high-quality hogs as possible sent to market: that
determined Kaleida's profitability and Mr. McLean's bonus.
[5] In addition to the barn work, Mr.
McLean was also responsible for Kaleida's bookkeeping. He had
some sort of office space at Kaleida and maintained a
home-farm office as well for when he was not at Kaleida. He
kept records according to farm record-keeping standards. His
wife, Wendy, prepared the T4's and other employee deductions,
helped with the books and was generally on call if
Mr. McLean "needed a hand" at the Kaleida barn
from time to time. For this, she was paid in 1999 the princely
sum of $775, a business expense amount disputed as unreasonable
by the Minister. A few times a year, Mr. McLean was required to
attend Kaleida business meetings in Winnipeg, a two-hour drive
(one way) from his farm and claimed approximately $300 for meals
related to these meetings. Again, the Minister rejected these
claims on the ground of unreasonableness.
[6] Mr. McLean testified on his own
behalf. No witnesses were called by the Respondent.
ANALYSIS
1. Was Mr. McLean in a
contract for services or a contract of service?
[7]The Minister argued that Mr. McLean was working under a
contract of service and referred the Court to the test set out in
the Supreme Court of Canada decision 671122 Ontario Ltd.
v. Sagaz Industries Canada Inc[1] and to the Federal Court
of Appeal decision Wolf v. Canada[2]. In Wolf,
Desjardins, J.A. quotes from Sagaz the approach to be
taken by the Court in determining the status of an individual as
an employee or an independent contractor:
...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.
It bears repeating that the above factors constitute a
non-exhaustive list, and there is no set formula as to
their application. The relative weight of each will depend on the
particular facts and circumstances of the case.
[8] Mr. McLean took the position that
he was an independent contractor working under a contract for
services. In support of this, he relied on, among other things,
CCRA's Form RC4110, a departmental checklist that mirrors the
Sagaz test. Mr. Friesen, Mr. McLean's accountant and
his agent at the hearing, followed the Form RC4110 criteria as he
put his questions to Mr. McLean regarding his relationship with
Kaleida. Mr. McLean's uncontradicted evidence was that at no
time during the audit did the auditor refer to the
Form RC4110 questions or pose questions of a similar
nature.
[9] In considering the evidence, the
Court has followed the advice of Décary, J.A. in
Charbonneau v. Canada[3] (cited with approval in Wolf) who
cautioned that "we must not pay so much attention to the
trees that we lose sight of the forest [...] The parts must
give way to the whole". The Court is satisfied that, when
taken as a whole, the evidence is clear that Mr. McLean was an
independent contractor. Looking at the "central
question" of whether Mr. McLean was performing his
duties at Kaleida "in business on his own account", the
Court finds that he was. Mr. McLean ran his own show. Such was
his experience and expertise in hog production that Kaleida
sought him out for the position, did not supervise his work, let
him hire his own assistant (over their objections, in one
instance) and relied on him to achieve their mutually desired
result in the marketplace. Mr. McLean used his own tools and
equipment in performing his work at the barn, exactly the same
sorts of things he used on his own farm. It would have been
virtually impossible for him to do his work at Kaleida without
having (at least) a truck and a tractor at his disposal. That the
contract is silent in this regard is the best evidence of the
sheer obviousness of this fact. Smaller tools were stored in his
truck or transported in his truck between his home farm and the
hog barn. As for risk, Mr. McLean shouldered a certain degree of
financial risk in that his bonus was tied directly to the success
rate he achieved in delivering healthy heavy Kaleida hogs to
market. By the same token, his work at Kaleida presented him an
opportunity for profit.
[10] The list in Wolf is not meant to
be exhaustive nor to be rigidly applied in making a determination
as to the status of the worker. Mr. McLean was a forthright and
credible witness. On the evidence presented, the Court is
satisfied that Mr. McLean was an independent contractor.
2. Was the income received from Kaleida "incoming from
farming"?
[11] Mr. McLean earned $60,663 in 1999 and
$70,708 in 2000 at Kaleida. He argued that his chief source of
income was farm income and that his Kaleida income formed a part
of his total farm income. In support of his position, he cited
Anderson v. R.,[4]a case involving a taxpayer who divided
his time between farming and certain custom clean-up work at the
Husky Oil refinery located some 25 miles from his farm. In
applying the standard tests for making this determination, the
Court found that the Andersons' off-farm work did nothing to
diminish the farming operation as his chief source of income.
[12] Mr. McLean argued, and the Court
agrees, that the facts of this case are even more compelling. Mr.
McLean has never ceased farming. The evidence is clear that it is
only because of the declining market that Mr. McLean has been
forced to augment the family income by taking additional work at
Kaleida. He continues to rebuild his herd with the intention of
returning exclusively to operating his own farm as soon as his
own farm income permits him to do so. Mr. McLean's off-farm work
is essentially the same as his farm work. The Court finds that
his chief source of income is farming; accordingly, Mr. McLean is
entitled to deduct his Kaleida business expenses for 1999 and
2000 from his total farm income.
[13] The Minister argued that most of the
business expenses claimed ought to be disallowed as unreasonable
or as "personal or living expenses". On
cross-examination, Mr. McLean was taken through the details of
the business expense items set out in the column entitled
"Contract-Kaleida Pork"[5]. The Court is satisfied that, with the exception
of the amount claimed for "Utilities & telephone",
the amounts claimed are business expenses that can reasonably be
deducted from his total income from farming. Mr. McLean's
evidence was unclear as to what the total of $2,010 for
"Utilities & telephone" included and what portion
ought to be allocated to each of the home farm and to Kaleida
expenses. For that reason, the $1,050 "Utilities &
telephone" expense is disallowed for 1999 and 2000. As well,
the total allowable expenses for each of the taxation years must
be reduced by the "arbitrary" amount of $2,750 already
allowed by the Minister for feed, livestock, veterinary costs,
fuel, fence repairs, motor vehicle expenses and utilities.
Finally, the Minister inadvertently included in the amount of
farming income for 1999 and 2000 a double entry in the amount of
$2,925.00. The total farm income shall therefore be reduced for
each of the taxation years by this amount. At the hearing of
these appeals, the Minister conceded the deduction of $19,835.60
and $22,932.44 for 1999 and 2000, respectively for the wages Mr.
McLean paid to his helper at Kaleida.
[14] The appeal is allowed in accordance
with these Reasons.
Signed at Ottawa, Canada, this 5th day of April 2004.
Sheridan, J.
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