Translation disclaimer
This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.
Principal Issues: [TaxInterpretations translation] Is a recognized home childcare provider ("RHCP") a self-employed worker?
Position: According to the facts and provincial laws, a RHCP provides childcare services as a self-employed worker.
Reasons: Despite the fact that RHCPs can combine and negotiate their working conditions including inter alia obtaining additional funding that is associated with the benefits normally offered to employees, the subordination and integration criteria specific to an employee-employer relationship are not an integral part of the contractual relationship between the CO [coordinating offices] and the RHCPs. In addition, the RHCP can determine the RHCP’s hours, is responsible for providing equipment and materials, can hire a person to assist the RHCP, absorbs the risk of loss (not paid if doesn't work, pays the RHCP’s expenses etc.).
XXXXXXXXXX 2010-038244
Danielle Bouffard
October 13, 2011
Dear Sir,
Subject: Recognized home childcare providers (“RHCP”)
This is in response to your July 22, 2010 letter to the Registered Plans Directorate in which you asked XXXXXXXXXX if RHCPs provide their services by virtue of an employment contract or a business contract. We apologize for the delay in analyzing your request.
Unless otherwise indicated, all statutory references below are to the provisions of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supplement), as amended (the “Act”).
Facts
RHCPs provide child care from their homes. Their remuneration comes from the grants paid by the coordinating offices ("CO"), which represent their main source of income, and from the parental contribution of $7 per day. According to what you have said, RHCPs cannot freely set their own rates.
The Act respecting the representation of certain home childcare providers and the negotiation process for their group agreements and various legislative amendments was assented to on June 19, 2009 and instituted a specific regime of collective agreements for work for RHCPs. In addition, that legislation has the effect of declaring RHCPs to be self-employed while granting them a series of measures so that they have access to the social protections that are usually granted to employees. RHCPs belong to a category of workers who do not have real autonomy over economic issues, such as regarding the OHSC [Occupational Health and Safety Commission, Quebec], protective withdrawal, parental insurance and a pension plan.
In order to better understand the reality of RHCPs, we consulted Acts and Regulations that describe a RHCP, the RHCP’s obligations to parents who entrust their children to the RHCP’s care and the RHCP’s mode of remuneration. We have set out some of the provisions of those Acts and Regulations:
The Educational Childcare Act (Chapter S-4.1.1) (“ECA") provides as follows:
52. A natural person who is an own-account self-employed worker who contracts with parents to provide childcare in a private residence, in return for payment, … may be recognized as a home childcare provider by a coordinating office, according to the terms and conditions determined by regulation.
[...]
54. A recognized home childcare provider makes a commitment toward parents to provide educational childcare services to their children in accordance with the law and to manage his or her business in such a way as to ensure the children's health, safety and well-being.
[...]
82. The Government may, by regulation, set the amount of the contribution to be paid by a parent for childcare services for which the childcare provider is subsidized.
[...]
90. The Minister may, according to the conditions and priorities the Minister determines, subsidize childcare providers for the provision of childcare services for which the contribution payable is set by the Government. The amount of such subsidies may vary depending on whether the childcare provider is a childcare centre permit holder, day care centre permit holder or home childcare provider.
(our underlining)
Section 82(a) of the ECA refers to the Reduced Contribution Regulation (C.S-4.1.1, r.1) ("RC Regulations"). The latter specifies, among other things, the amount of the parental contribution and a description of the goods and services that the RHC must provide:
5. The basic contribution is set at $7 per day. The contribution is to be paid monthly or at fixed intervals of less than 1 month, in approximately equal instalments.
6. As consideration for the basic contribution, the childcare provider must provide a child under 5 years of age on 30 September of the reference year with
(1) educational childcare for a continuous period of a maximum of 10 hours per day;
(2) snacks if the child is receiving childcare at the time scheduled for snacks;
(3) a noon meal or an evening meal if the child is receiving childcare during the hours scheduled for those meals, or breakfast in any other case; and
(4) subject to section 10, all the educational material used and any other good or service put at the disposal of or offered or provided by any person to the children received by the childcare provider, while the childcare is provided.
Certain sections of the ECA refer to the Educational Childcare Regulation (C. S-4.1.1, R.2) ("EC Regulation"), which in particular describes the role and responsibilities of a RHCP and the conditions that a person must meet to qualify for recognition as a RHCP. Section 51 of the EC Regulations provides, among other things, as follows:
51. To be recognized, a natural person must
(1) be at least 18 years of age;
(2) be able to be present at the home childcare service for all the hours of childcare, except in the cases provided for in section 81;
[...]
5 be capable of offering a childcare environment that ensures the health, safety and well-being of the children to whom the person proposes to provide childcare;
6 have, in the private residence where the person proposes to provide childcare, sufficient space for the number and age of the children;
[...]
9 be covered by a civil liability insurance policy for an amount of at least $1,000,000 per claim with coverage extending to the person's activities as a childcare provider and, where applicable, the activities of any adult assistant and those of the person designated to occasionally replace the natural person;
[...]
Finally, the Act respecting the representation of certain home childcare providers and the negotiation process for their group agreements and various legislative provision amendments (RSQ, chapter R-24.0.1) (the "Act on Representation and Negotiation") allows RHCPs to join together and form associations for the purpose of entering into a collective agreement to negotiate, in particular, their working conditions. The topics to be negotiated are provided for in Section 31 and may relate, inter alia, to the subsidy paid to finance their services and to give them access to social security programs, health, safety, training and professional development.
It is expected that government funding may include:
- an integrated, overall percentage to stand in lieu of monetary compensation for days of leave equivalent to those paid under the Act respecting labour standards and under the National Holiday Act;
- financial compensation to offset the difference between the rate of the premium or contribution applicable to a self-employed worker under the plans established by the Act respecting parental insurance respecting the Québec Pension Plan, and the rates applicable to an employee under those plans;
- financial compensation so that a home childcare provider may enjoy coverage under the Act respecting industrial accidents and occupational diseases; and
- financial compensation based on the contribution that a home childcare provider must pay under section 34.1.1 of the Act respecting the Régie de l’assurance maladie du Québec
It is specified that “[t]he subsidy determined as a result of this process is paid to the home childcare provider according to the terms and conditions determined by the Minister.” To that subsidy may be added any other subsidy to which the RHCP is eligible by virtue of the ECA.
Question
For the purposes of the Act, does a RHCP derive income from an office or employment or, rather, from a business?
Our Comments
As explained in Information Circular 70-6R5, since your situation involves specific taxpayers and one or more transactions, you should submit all relevant facts and documents to the appropriate Tax Services Office for their opinion. However, we are able to offer the following general comments that may be helpful to you.
In order to determine whether an individual holds an office or employment for the purposes of sections 5, 6, 7 and 8 of the Act, it is necessary to determine whether that individual is providing services under an employment contract (an employee-employer relationship) or a business contract (a self-employed worker).
The question of whether RHCPs are self-employed remains a question of mixed fact and law that can only be resolved after an analysis of the facts of a particular situation. To assist RHCPs in making that determination, the CRA suggests that they should refer to Circular RC4110 Employee or Self-Employed? in the Section - Deciding a worker's employment status in the province of Quebec at the following internet link: http: // www.cra-arc.gc.ca/E/pub/tg/rc4110/rc4110-08f.pdf.
Since the Act does not clearly define the term "employee", where an individual is resident in Quebec, reference must be made to Quebec civil law to determine whether the individual is acting under an employment contract or a business contract.
Articles 2085, 2098 and 2099 of the Civil Code of Québec ("CCQ") defines "employment contract” and “business contract” [contract of enterprise] in these terms:
2085. A contract of employment is a contract by which a person, the employee, undertakes for a limited period to do work for remuneration, according to the instructions and under the direction or control of another person, the employer.
[...]
2098. A contract of enterprise or for services is a contract by which a person, the contractor or the provider of services, as the case may be, undertakes to carry out physical or intellectual work for another person, the client or to provide a service, for a price which the client binds himself to pay.
[...]
2099. The contractor or the provider of services is free to choose the means of performing the contract and no relationship of subordination exists between the contractor or the provider of services and the client in respect of such performance.
By virtue of Quebec civil law, the main test that emerges from the case law is a relationship of subordination, and more specifically, the payor's right to control the worker (for example, how to do the work, schedules and places of work and priority on worker availability). However, in cases where the employer has not regularly exercised the employer’s power of direction or control, it is not easy to substantiate that power. Indirect (or indeterminate) evidence must be used to determine whether or not there is a relationship of subordination. In that analysis, it must be determined whether that indirect evidence makes the existence of a power of direction or control probable or, on the contrary, makes the worker's autonomy in the performance of the contract probable.
With respect to the payor's control over the work performed or the services rendered by the worker, the Justices of the Federal Court of Appeal in Grimard v. The Queen, 2009 DTC 5056, stated the following:
[30] Among other things, article 2085 of the Code states that, for a contract of employment to exist, the work must be under the direction or control of an employer. Its equivalent for the contract for services, article 2099, requires the lack of any subordination between the contractor and the client in respect of the performance of the contract.
[31] According to the Le Petit Robert and the Le Petit Larousse Illustré dictionaries, subordination of a person involves his or her dependence on another person or his or her submission to that person's control. Therefore, a contract for services is characterized by a lack of control over the performance of the work. This control must not be confused with the control over quality and result. The Quebec legislator also added as part of the definition the free choice by the contractor of the means of performing the contract.
[32] A contract is concluded by the exchange of the consent of the parties to the contract. Therefore, when a contract is interpreted, articles 1425 and 1426 of the Code require that the mutual intention of the parties be determined and that a certain number of factors be considered, such as the circumstances in which it was formed.
The judges added the following regarding indicators of supervision in paragraph 43:
… In determining legal subordination, that is to say, the control over work that is required under Quebec civil law for a contract of employment to exist, a court does not err in taking into consideration as indicators of supervision the other criteria used under the common law, that is to say, the ownership of the tools, the chance of profit, the risk of loss, and integration into the business.
In the case under consideration, the intention of the parties (or at least that of the Government of Quebec) is found in the ECA and the Regulations thereunder. As stated above, the government's intention with respect to RHCPs appears to be that those workers are treated as self-employed workers, acting on their own behalf.
In reading Articles 2085 and following of the CCQ, one must determine whether or not there is a relationship of subordination so as to conclude whether the RHCPs provide services under an employment contract or a business contract.
In the context of "family day care" where several children are entrusted to the care of a RHCP, parents cannot demand exclusivity in the services rendered by the RHCP to their child. If the parent is not satisfied with the child care given to the child, the parent can withdraw the child from that family day care and file a complaint, but cannot terminate the RHCP.
The same is true of the Quebec government. Since the government subsidizes childcare services in Quebec and the day care services must have, among other things, educational content (section 83 of the ECA), supervision measures, which take the form, in particular, of reports and intermittent visits by the CO, have been established to ensure that RHCPs offering subsidized spaces provide the services for which they are paid.
Section 42 of the ECA states that one of the functions of the CO is "to ensure that the home childcare providers it has recognized comply with the standards that apply to them by law; …”.
Also, section 54 of the ECA states that the RHCP "...makes a commitment… to manage his or her business in such a way as to ensure” the children’s health, safety and well-being.
Thus, we note that the Quebec government reserves the right, through COs, to ensure that the RHCP provides childcare services in accordance with the Acts and Regulations dealing with educational childcare services. However, the evaluation of the quality of the services rendered must, in our opinion, be done jointly with the parents. That supervisory power is not sufficient to conclude that there is a relationship of subordination. The current legislation provides a regulatory framework and does not allow COs to exercise control over RHCPs.
We must therefore continue our analysis and take into account indicators of supervision and autonomy to determine whether or not there is a relationship of subordination.
We understand that RHCPs must provide educational child care (the choice of activities is theirs) while ensuring children in their care with continual protection. The hours of care, within certain government boundaries, are negotiated with parents. They are responsible for providing space, equipment, toys, educational materials and food for meals and snacks. They are also responsible for all their expenses related to their day care activities, including the maintenance of a liability insurance policy. If they themselves cannot provide child care (or a person responsible for replacing them), they are not entitled to any payment from parents or the government. They assume the risk of loss related to the management of their activities. Furthermore, the RHCP is not entitled to any benefits normally associated with employment (including holidays, sick days and paid statutory holidays).
In conclusion, taking into account the foregoing facts and indicators, the RHCP acts, in our opinion, as a self-employed worker in the provision of the day care services offered to children occupying a place subsidized by the Government of Quebec.
We hope that these comments are of assistance.
Best regards,
François Bordeleau, Advocate
Manager
Business and Partnerships Section
Income Tax Rulings Directorate
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