Date: 19980313
Dockets: 97-169-IT-I; 97-3299-IT-I
BETWEEN:
JEAN GODIN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
For the Appellant: The Appellant himself
For the Respondent: Shalene Curtis-Micallef
Reasons for Judgment
(Delivered orally from the Bench at Ottawa, Canada, on March
12, 1998)
Mogan, J.T.C.C.
[1] From May 1993 to May 1995, the Appellant was employed in
the area of Europe formerly known as Yugoslavia. His work was
under the direction of the United Nations. It was connected with
border monitoring and other similar services related to
peacekeeping. The Appellant was paid a salary for the services he
performed in those years. For each of the years under appeal
(1993, 1994 and 1995), the Appellant claims either an overseas
employment tax credit (“OETC”) under section 122.3 of
the Income Tax Act or, alternatively, an exemption from
tax with respect to his salary under paragraph 110(1)(f)
of the Act. The issue in these appeals is to determine
whether, in the circumstances of the Appellant’s
employment, he was entitled to the OETC or the exemption.
[2] The relevant provisions of the Income Tax Act are
parts of sections 110 and 122.3:
110(1) For the purpose of computing the taxable income of a
taxpayer for a taxation year, there may be deducted such of the
following amounts as are applicable:
...
(f) ... any amount that is
...
(iii) income from employment with a prescribed international
organization, ...
to the extent that it is included in computing the
taxpayer’s income for the year;
122.3(1) Where an individual is resident in Canada in a
taxation year and, throughout any period of more than 6
consecutive months that commenced before the end of the year and
included any part of the year (in this subsection referred to as
the “qualifying period”)
(a) was employed by a person who was a specified
employer, other than for the performance of services under a
prescribed international development assistance program of the
Government of Canada, and
(b) performed all or substantially all the duties of
the individual’s employment outside Canada
(i) in connection with a contract under which the specified
employer carried on business outside Canada with respect to
...
there may be deducted, from the amount that would, but for
this section, be the individual’s tax payable under this
Part for the year, an amount equal to that proportion of the tax
otherwise payable under this Part for the year by the individual
that ...
For the purposes of paragraph 110(1)(f), Regulation
8900 identified the United Nations as a prescribed international
organization. One of the issues is whether the Appellant was an
employee of the U.N.
[3] In order to determine the character of the
Appellant’s employment, it is necessary to trace a series
of documents which were entered in evidence. Exhibit R-5 is
a 30-page contract between the United Nations and Canadian
Commercial Corporation (“CCC”) for the provision of
services by CCC to the United Nations protection force
(“UNPROFOR”). Exhibit R-4 is a contract between CCC
and CARE Canada dated May 9, 1994. The first three recitals in
Exhibit R-4 demonstrate that CCC subcontracted to CARE Canada the
task of providing the service personnel. Those recitals
state:
WHEREAS the United Nations Protection Force, Zagreb, Croatia,
(UNPROFOR) requires the Personnel as set forth in the Agreement
No. 4/FOR/CON/1200 dated 9 May 1994 between UNPROFOR and Canadian
Commercial Corporation (CCC), hereinafter called the “U.N.
Contract” which U.N. Contract is attached to and forms part
of this Domestic Contract between CARE Canada (the
“Contractor”) and CCC;
WHEREAS the Contractor has represented to CCC that it has all
the necessary skills, personnel, facilities and resources to
provide the Services to CCC for UNPROFOR;
WHEREAS the Contractor and CCC jointly participated in the
negotiations for a U.N. Contract and the Contractor has
represented to CCC that it has received and understood all the
terms of the U.N. Contract and is willing to fulfil all such
terms in order to fully meet the obligations of CCC to UNPROFOR
in the U.N. Contract;
[4] Exhibit A-1, Tab “A” is a letter agreement
between CARE Canada and the Appellant dated May 18, 1993. This is
an important document and so the entire letter of May 18, 1993 is
set out below:
We are pleased to offer you employment through CARE Canada in
the service of the United Nations Protection Forces (UNPROFOR).
UNPROFOR has entered into an Agreement with the Canadian
Commercial Corporation (CCC) for the provision of Services by
Personnel. CCC will be subcontracting 100% of the Agreement to
CARE Canada.
Your assignment as Associate Officer, Sector Admin. will begin
on May 22, 1993, or as close to that date as possible. Employment
is subject to a medical clearance, inoculations and vaccinations
as required by country health regulations, possession of a valid
passport, and foreign government clearance, and to such other
matters or conditions as CARE and UNPROFOR may reasonably
impose.
This letter of agreement, the appended General Conditions of
Employment, and all other appendices or schedules included
herewith, confirm our mutual understanding of the terms and
conditions of your employment.
You will be assigned to UNPROFOR’s operations in the
project area for a period of one year. However, without an
express reduction or extension of your length of service, nothing
in this letter or in the General Conditions of Employment or in
any other CARE, CCC or UN publication of any kind may be
construed as offering employment for any period different from
that stated herein.
You will receive a compensation package, applicable to this
assignment only, which includes meals, lodgings, and group
insurance coverage to provide for life and medical insurance, and
an annual salary of $42,500.
In addition to the above, please make note of the
following:
Your home of record is: Ottawa, Ontario
Your employee number is: 10,010
Please review the attached General Conditions of Employment,
appendices and schedules carefully and signed two (2) copies of
the letter. It is important to note that you are required to sign
risk waivers in accepting this assignment. The CARE Canada waiver
is included as a schedule to this contract, and the UN waivers
are being furnished separately. Your signature indicates that you
have agreed to all terms set forth in this Letter of Agreement,
General conditions of Employment, and all accompanying appendices
and schedules. Return the full original, and retain the copy for
your records.
We look forward to having you on our staff.
[5] Paragraph 3 of the above letter refers to “the
appended General Conditions of Employment”. Exhibit R-6 is
a five-page document setting out those general conditions of
employment; it is signed by the Appellant on page 5 and dated
May 19, 1993. It is useful to set out the short preamble
plus paragraph number 2 plus the concluding words of Exhibit
R-6:
These General Conditions apply to overseas contract personnel
in CARE Canada’s employ for a special assignment with the
United Nations Protection Forces. As stated in the cover letter,
UNPROFOR has entered into a Contract for Services with the
Canadian Commercial Corporation (CCC). CCC has subcontracted 100%
to CARE Canada.
...
2. Duties
The duties of the employee under the above-referenced Contract
for Services will be assigned by the United Nations Protection
Forces (UNPROFOR). The employer of record is CARE Canada, but the
employee is under the management of, and responds to direction
from UNPROFOR for the duration of this assignment.
The employee shall be provided with a complete and current
statement of the duties and responsibilities of his/her position.
Such duties and responsibilities are subject to modification by
UNPROFOR. Any revision shall be provided to the Employee and, if
required, annual salary will be adjusted accordingly.
...
THE EMPLOYEE HAS THOROUGHLY READ AND UNDERSTOOD THE TERMS OF
THIS EMPLOYMENT CONTRACT AND ACKNOWLEDGES THAT THIS EMPLOYMENT
CONTRACT CONTAINS UNUSUAL CLAUSES AND A COMPLETE RELEASE AND
WAIVER OF CERTAIN CLAIMS.
[6] With respect to paragraph 110(1)(f) of the
Act, the Appellant argued that he was an employee of the
U.N. In support of that argument, the Appellant stated that his
duties were reassigned from time to time by U.N. personnel in the
work area; his contract was renewed after one year by the U.N.
personnel; and he actually supervised some individuals who were
full-time employees of the U.N. That evidence was not
contradicted subject to the terms of his renewal. The Appellant
seems to take the position that the letter agreement between him
and CARE Canada was a mere formality because all of his
day-to-day working conditions and operations were connected
directly with U.N. personnel in the former Yugoslavia.
[7] The Respondent called as a witness Maria Catana who is a
program officer with CARE Canada and is familiar with its
operations. She stated that the mandate of CARE Canada was to
provide emergency and long-term relief to war-torn areas.
CARE Canada is a non-profit registered charity. In 1993, she was
project co-ordinator for UNPROFOR in Zagreb and acted as a
liaison between CARE Canada and CCC. CARE Canada was approached
by CCC because of CARE Canada’s experience in recruiting
personnel. It is important to note that CARE Canada was the
organization which procured personnel for the whole U.N.
operation in former Yugoslavia. Ms. Catana stated that CARE
Canada had about 200 personnel in the former Yugoslavia
throughout this period of whom approximately 60 individuals were
from Canada.
[8] CARE Canada was responsible for the salary of the
Appellant and all other persons hired by CARE Canada until those
persons were brought back to Canada or to their respective
countries of origin. CARE Canada was also responsible for seeing
that each individual had the appropriate visa, medical
examination and other documents required to travel from a country
of origin to the former Yugoslavia. CARE Canada provided the
transportation costs for travelling both from the country of
origin to the work site and back home again. The funds for all
these costs came from the U.N. through CCC to CARE Canada. The
Appellant acknowledged that he knew the U.N. was paying CARE
Canada indirectly and that he was paid by CARE Canada. His salary
was deposited in his designated bank account in Canada but his
day-to-day living expenses in the work area were provided
directly by the U.N. to the Appellant on site.
[9] The Appellant emphasized the fact that the U.N. could
terminate him for cause. He referred to Exhibit A-1, Tab
“T” which is a document dated November 21, 1997 on
U.N. stationery and signed by Alastair Livingston as “Chief
Border Monitor”. That documents is addressed TO WHOM IT MAY
CONCERN and states:
During the period 1 Jan 1993 - 30 Oct 1995 while serving as
Chief Administrator of the UN Logistics base for UNPROFOR I was
directly involved in all aspects of the support functions of the
Mission. As result I certify that Mr. Jean Godin, while working
as a contract staff member of UNPROFOR was selected by and,
worked specifically under the direction of United Nations staff
who had the ultimate authority to either reassign him, renew or
terminate his contract at any time.
I note that the document is dated less than four months ago
and assume that it was obtained to support the Appellant’s
position.
[10] Ms. Catana’s evidence was in conflict with Exhibit
A-1, Tab “T” with respect to whether the U.N. could
terminate the Appellant’s employment. She stated that if
the U.N. expressed dissatisfaction with the performance of a CARE
Canada employee, there would be serious discussions to determine
whether the matter was simply a clash of personalities (in which
case the employee could be reassigned to a different area) or
whether the competence of the employee was in fact the issue. I
take from the evidence of Ms. Catana that if the U.N. wanted to
terminate for cause the Appellant or some similar individual
employed by CARE Canada, the particular cause sited by the U.N.
if proven would probably be accepted as cause for CARE Canada to
terminate such employment.
[11] This is not the first case to come before the Courts in
Canada concerning an individual employed abroad in a U.N.
operation. In Creagh v. M.N.R., [1997] 1 C.T.C. 2392,
certain pilots and aircraft maintenance engineers had been
involved in a United Nations peacekeeping mission in Cambodia.
Specifically, they were employed by Canadian Helicopters which
had contracted to provide certain air transportation services to
the United Nations. In the Creagh appeal, the taxpayers
argued for relief under both paragraph 110(1)(f) and
section 122.3 which are the same provisions under which the
Appellant herein seeks relief. In dismissing the appeals of James
Creagh and his associates, my colleague, Lamarre Proulx J.
summarized the facts of their employment in the following words
at page 2398:
They received their instructions as to flight routes from the
UN air operations officer. The Appellants were issued UN
identification cards on the back of which appeared the
following:
The bearer of this card is a member of the United Nations
Transitional Authority in Cambodia. All civilian and military
personnel are requested to extend him/her free passage and afford
him/her all privileges necessary in the execution of his/her
duties.
They were taken to the UN field hospital where they received
the required vaccinations. The meals were served in a common mess
area and they ate with UN personnel. The communications equipment
at the base was supplied by the UN. Some of the pilots were
issued a UN driver’s licence to operate UN vehicles. Room
and board was provided by the UN.
Mr. Creagh stated that he did not have a contract of
employment in writing with Canadian Helicopters. He believed that
the other Appellants did not have one either.
Notwithstanding the close connection between James Creagh and
his associates on one hand and the UN personnel on the other
hand, Lamarre Proulx J. found that Mr. Creagh and his associates
were employees of Canadian Helicopters and not employees of the
UN. She stated at page 2401:
The term “employment” is used several times in the
Act, and when it is used, it always means the contractual
relationship of an employer and an employee as is the case when
this term is used in any legal text. It does not mean an activity
in which a person engages. The preposition “with”
cannot change the meaning of the word “employment” in
the Act. If the legislator had wanted to provide for the
case of work activity and not for the case of employment, it
would have used the former expression and not the latter. ...
[12] Exhibit R-2 is a letter dated January 8, 1997 from the
U.N. to the Appellant. The Appellant objected to its introduction
on the grounds of relevance but I held that it was relevant to
compare or contrast the Appellant’s position as a direct
employee of the U.N. with his position in 1993 to 1995 when he
was recruited by CARE Canada.
[13] In order for the Appellant to obtain an exemption under
paragraph 110(1)(f), I would have to conclude that
the Appellant was employed by the U.N. I cannot reach that
conclusion in the face of the documents before me. Clearly, there
was a contract between the U.N. and CCC; and then a contract
between CCC and CARE Canada to recruit appropriate personnel.
CARE Canada recruited the Appellant in accordance with the terms
of Exhibit A-1, Tab “A” which can be
contrasted with Exhibit R-2. The Appellant at all relevant times
remained an employee of CARE Canada notwithstanding the fact that
he was seconded to the U.N. administration in the former
Yugoslavia and was subject to their direction on a day-to-day
basis while he carried out his duties. The seconding of the
Appellant to the U.N. supervisory team in the former Yugoslavia
did not cause the Appellant to become an employee of the U.N. The
Appellant remained an employee of CARE Canada. Therefore, the
Appellant is not entitled to an exemption under paragraph
110(1)(f).
[14] If the Appellant is to obtain any relief under subsection
122.3(1) of the Act, he must establish that CARE Canada
carried on business outside Canada within the meaning of
subparagraph 122.3(1)(b)(i). Exhibit R-3 is the Letters
Patent issued by the Government of Canada incorporating CARE
Canada on April 12, 1977. The objects of CARE Canada are stated
in Exhibit R-3 as follows:
1. To furnish and support a service of relief, rehabilitation
and reconstruction.
2. To apply for, secure, acquire by grant, legislative
enactment, assignment, transfer, purchase or otherwise, and to
exercise, carry out and enjoy any charter, licence, power,
authority, franchise, concession, right or privilege, that any
government or authority or any corporation or other public body
may be empowered to grant, and to pay for, aid in and contribute
toward carrying the same into effect.
Toward the end of Exhibit R-3, the Letters Patent contain the
following specific statement:
... The corporation is to be carried on without pecuniary gain
to its members and any profits or other accretions to the
corporation are to be used in promoting its objects. ...
[15] I am satisfied from examining the Letters Patent of CARE
Canada that it is a “not for profit” corporation.
That fact alone does not mean that CARE Canada could not or would
not carry on a business but it is a starting point. From there I
turn to the service which CARE Canada provided to CCC and,
through CCC, to the U.N. It was simply a service of providing
personnel to work in the area of former Yugoslavia. CARE Canada
was paid in Canada for providing that personnel and in turn paid
those personnel at their respective bank accounts outside the
former Yugoslavia. As I understand the evidence of Ms. Catana,
there were very few administrative functions performed by senior
officers of CARE Canada in the former Yugoslavia. In other words,
once the personnel recruited by CARE Canada were seconded to the
U.N., the senior administrative staff of CARE Canada was no
longer connected with the day-to-day duties of such
personnel.
[16] In Timmins v. M.N.R., [1996] 3 C.T.C. 175, the
taxpayer was employed in Malawi, Africa by the Province of New
Brunswick in its Department of Agriculture. Apparently, there was
a contract between the province and the Canadian International
Development Agency (CIDA). Under that contract, the provincial
department of agriculture provided services for the purpose of
establishing and administering dairy farms in Malawi in return
for a fee and reimbursements of certain expenses by CIDA. The
question was whether the New Brunswick Department of Agriculture
carried on business in Malawi within the meaning of subsection
122.3(1) of the Income Tax Act. The Federal Court Trial
Division dismissed Mr. Timmins’ appeal and, in delivering
judgment, Wetston J. made the following statement at page
185:
I find that the phrase “carried on business”, in
subsection 8(10) and subsection 122.3(1) of the Act,
means those activities of an employer which are carried on for
profit. The provisions in question were intended to assist
specified employers in competing for foreign contracts, by
reducing their overall costs and, therefore, their contract bids.
Because the costs of competing for a contract are influenced by
the operation of the provisions, the deduction or credit was
obviously intended to improve the financial positions of
specified employers. The notions of decreasing costs and
increasing competitiveness, envisaged by these provisions,
suggest that employers who are fulfilling contracts in foreign
countries must be involved in commercial activity, for the
purpose of earning a profit. ...
After reviewing certain authorities concerning the
“preponderant purpose test”, Wetston J. continued at
page 190:
In conclusion, the preponderant purpose test, as described in
Hearst, supra, is appropriate for determining whether or
not a specified employer is carrying on business under a
contract, in the context of subsections 8(10) and 122.3(1) of the
Act. ...
[17] On the basis of the Timmins case, I conclude that
CARE Canada was not carrying on business outside Canada with
respect to the activities of the Appellant in former Yugoslavia.
In particular, CARE Canada was not engaged in any commercial
activity for profit. Therefore, it did not have a reasonable
expectation of profit and, on that basis, I find it impossible to
conclude that CARE Canada was carrying on business at all with
respect to its activities in recruiting personnel for the U.N.
operation in former Yugoslavia. In my opinion, the Appellant has
failed to prove that CARE Canada “carried on business
outside Canada” within the meaning of subparagraph
122.3(1)(b)(i).
[18] I conclude that the Appellant is not entitled to any
relief under section 122.3 of the Income Tax Act. I
do not have any doubt concerning my conclusion but, if I did have
such doubt, it would be resolved in favour of the Respondent in
accordance with the decision of my colleague, Teskey J., in the
appeal of Clark v. M.N.R. [1996] 3 C.T.C. 2727. Mr. Clark
was employed by CARE Canada but assigned to work in the former
Yugoslavia. Teskey J. found that CARE Canada was not carrying on
business in the former Yugoslavia. The appeals for the taxation
years 1993, 1994 and 1995 are dismissed.
Signed at Ottawa, Canada, this 13th day of March, 1998.
"M.A. Mogan"
J.T.C.C.
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