|
Citation: 2004TCC375
|
|
Date: 20040528
|
|
Docket: 2001-4371(IT)G
|
|
BETWEEN:
|
|
DIANE BAKER,
|
|
Appellant,
|
|
and
|
|
|
|
HER MAJESTY THE QUEEN,
|
|
Respondent,
AND BETWEEN
2001-4372(IT)G
BRONWEN LAPOINTE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
AND BETWEEN
2001-4373(IT)G
MICHAEL STONE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
AND BETWEEN
2002-114(IT)G
TOWN PROPERTIES LTD.,
Appellant,
and
HER MAJESTY THE QUEEN
Respondent.
|
REASONS FOR JUDGMENT
O'Connor, J.
[1] These appeals were heard on common
evidence. They were argued on the basis of an Agreed Statement of
Facts which reads as follows:
The Activity
1. Town
Properties Ltd. (the "Company") is a company duly
incorporated under the laws of the Province of British
Columbia.
2. At all
material times, the Company owned and operated a commercial
office building located on View Street in the city of Victoria in
the Province of British Columbia and this was its sole asset and
source of income.
3. The Company
carried on a business the principal purpose of which was to earn
income from property.
4. At all
material times, the Company employed at least six individuals as
custodians for the purpose of providing cleaning and maintenance
services for its tenants (the "Workers").
5. The
cleaning and maintenance services provided by the Workers
included janitorial services, ordering supplies, security of the
premises and coordinating the maintenance and repairs of
equipment.
6. The Workers
worked four hours per day, five days per week and their regular
hours were from 6 p.m. to 10 p.m. from Monday to Friday.
7. The names
of the Workers and their monthly hours of work are attached as
Schedule A to this Agreed Statement of Facts.
8. Certain
insurance policies contain definitions of the term
"full-time employee". The majority of these policies
define a full-time employee as one who works at least 20 hours
per week, though there are a few policies that require a person
to work 25 hours per week in order to be considered a full-time
employee. Examples of policies that define full-time employees as
ones working at least 20 hours per week are attached as exhibits
B, C and D to this Agreed Statement of Facts.
9. The Workers
were not covered by any insurance policy in the nature of those
referred to in paragraph 8.
10. The Statistics Canada
"Guide to the Labour Force Survey", revised February
2002, defines "full-time employment" as consisting of
persons who usually work 30 hours or more per week at their main
or only job. This definition applies to 1996 and subsequent
years. Excerpts from the Survey are attached as exhibit E to this
Agreed Statement of Facts.
11. The Human Resources
Development Canada website defines "voluntary part-time
work" in the following manner:
Employees choose to work fewer hours than the standard 37.5 or 40
hours per week. This practice may be temporary (that is,
established for a specific period) or permanent.
Excerpts from the HRDC website are attached as exhibit F
to this agreed statement of facts.
Reassessments of Town Properties Ltd.
12. In computing income
for its taxation years ending 31 March 1998, 31 March 1999,
30 June 1999 and 30 June 2000, the Company claimed the small
business deduction (the "Deduction") pursuant to
subsection 125(1) of the Income Tax Act, R.S.C. 1985, c. 1
(5th Supp.), as amended (the "Act").
13. By Notices dated 1
August 2001 the Minister reassessed the Company's 31 March
1998, 31 March 1999 and 30 June 1999 taxation years to
disallow the Deduction.
14. By Notice dated 31
August 2001 the Company objected to the (re)assessment of each of
the Taxation Years.
15. By Notices dated 28
December 2001 the Minister confirmed the reassessments of the
Company's 31 March 1998, 31 March 1999 and 30 June 1999
taxation years and varied the assessment of its 30 June 2000
taxation year to disallow the Deduction.
Reassessment of Michael Stone
16. On 31 December 1998
Michael Stone exchanged common shares of Sansom Holdings Ltd.
("Sansom") at an agreed transfer value of $200,000 for
Sansom preferred shares and by so doing realized a capital gain
in the amount of $200,000. This exchange of shares was elected on
pursuant to section 85 of the Act and Form T2057 was filed with
the Minister.
17. On 1 January 1999 Mr.
Stone exchanged common shares of Sansom at an agreed transfer
value of $200,000 for Sansom preferred shares and by so doing
realized a capital gain in the amount of $200,000. This exchange
of shares was elected on pursuant to section 85 of the Act and
Form T2057 was filed with the Minister.
18. At all material times,
the only asset owned by Sansom was two shares in the Company.
19. In computing income
for the 1998 taxation year, Mr. Stone did not claim any
capital gains deduction and did not report any disposition of
qualified small business corporation shares.
20. By Notice dated 13
January 2000 the Minister reassessed Mr. Stone's 1998
taxation year to include a capital gain in the amount of $200,000
and to allow a capital gains deduction for the disposition of
qualified small business corporation shares (the "Capital
Gains Deduction") in the amount of $150,000 in respect of
the sale of shares of Sansom.
21. In computing income
for the 1999 taxation year, Mr. Stone again claimed the
Capital Gains Deduction in the amount of $150,000 in respect of
the sale of shares of Sansom.
22. By Notices dated 6
July 2001, the Minister reassessed Mr. Stone to disallow the
Capital Gains Deduction in the 1998 and 1999 taxation years.
23. The reassessment for
the 1998 and 1999 taxation years were confirmed on November 22,
2001.
Reassessment of Bronwen Lapointe
24. On 31 December 1998
Bronwen Lapointe exchanged common shares of Lapointe Baker
Holdings Ltd. ("Lapointe") at an agreed transfer value
of $200,000 for Lapointe preferred shares and by so doing
realized a capital gain in the amount of $200,000. This exchange
of shares was elected on pursuant to section 85 of the Act and
Form T2057 was filed with the Minister.
25. On 1 January 1999 Ms.
Lapointe exchanged common shares of Lapointe at an agreed
transfer value of $200,000 for Lapointe preferred shares and by
so doing realized a capital gain in the amount of $200,000. This
exchange of shares was elected on pursuant to section 85 of the
Act and Form T2057 was filed with the Minister.
26. At all material times,
the only asset owned by Lapointe was one share in the
Company.
27. In computing income
for the 1998 taxation year, Ms. Lapointe failed to report a
capital gain on the transfer of the Lapointe shares and did not
claim the Capital Gains Deduction.
28. In computing income
for the 1999 taxation year, Ms. Lapointe reported a capital
gain in the amount of $200,000 and claimed the Capital Gains
Deduction in the amount of $150,000 in respect of the sale of
shares of Lapointe.
29. In computing income
for the 2000 taxation year, Ms. Lapointe deducted a minimum
tax carry-over in the amount of $3,092.00 from her federal tax
payable for the year.
30. On 14 September 1999
the Minister reassessed the 1998 taxation year of Ms. Lapointe to
include a capital gain of $200,000 on the transfer of the
Lapointe shares and to allow the Capital Gains Deduction in the
amount of $150,000.
31. By Notices dated 6
July 2001, the Minister reassessed Ms. Lapointe to disallow
the Capital Gains Deduction in the 1998 and 1999 taxation years
and to reduce the minimum tax carry-over to nil in the 2000
taxation year.
32. The reassessment for
the 1998, 1999 and 2000 taxation years were confirmed on November
22, 2001.
Reassessment of Diane Baker
33. On 31 December 1998
Diane Baker exchanged 50 common shares of M & G Baker Holdings
Ltd. ("M & G") at an agreed transfer value of
$200,062 for 50 M & G preferred shares and by so doing realized
a capital gain in the amount of $200,000. This exchange of shares
was elected on pursuant to section 85
34. On 1 January 1999 Ms.
Baker exchanged 50 common shares of M & G at an agreed transfer
value of $200,062 for 50 M & G preferred shares and by so doing
realized a capital gain in the amount of $200,000. This exchange
of shares was elected on pursuant to section 85 of the Act and
Form T2057 was filed with the Minister.
35. At all material times,
the only asset owned by M & G was one share in the Company.
36. In computing income
for the 1998 taxation years, Ms. Baker did not claim any
capital gains deduction and did not report any disposition of
qualified small business corporation shares.
37. By way of a T1
Adjustment request dated 21 June 1999, Ms. Baker sought to claim
a capital gains deduction and report the disposition of qualified
small business corporation shares.
38. By Notice dated 26
July 1999 the Minister reassessed Ms. Baker's 1998
taxation year to include a capital gain in the amount of $200,000
and to allow the Capital Gains Deduction in the amount of
$150,000 in respect of the sale of shares of M & G.
39. In computing income
for the 1999 taxation year, Ms. Baker again claimed the
Capital Gains Deduction in the amount of $150,000 in respect of
the sale of shares of M & G.
40. In computing income
for the 2000 taxation year, Ms. Baker deducted a minimum tax
carry-over in the amount of $4,579.94 from her federal tax
payable for the year.
41. By Notices dated 6
July 2001, the Minister reassessed Ms. Baker to disallow the
Capital Gains Deduction in the 1998 and 1999 taxation years and
to reduce the minimum tax carry-over to nil in the 2000 taxation
year.
42. The reassessments for
the 1998, 1999 and 2000 taxation years were confirmed on November
22, 2001.
SCHEDULE A
TOWN PROPERTIES LTD.
PAYROLL HOURS WORKED
1997 - 2001
HOURS WORKED
|
1997
|
JAN
|
FEB
|
MAR
|
APR
|
MAY
|
JUN
|
JUL
|
AUG
|
SEP
|
OCT
|
NOV
|
DEC
|
TOTAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maria
Achadinha
|
92
|
80
|
84
|
88
|
88
|
84
|
92
|
24
|
88
|
92
|
80
|
92
|
984
|
|
Jessie Campbell
|
92
|
80
|
84
|
88
|
88
|
84
|
92
|
84
|
88
|
103
|
40
|
72
|
995
|
|
Colleen Taylor
|
92
|
80
|
84
|
88
|
88
|
84
|
92
|
40
|
68
|
92
|
80
|
24
|
912
|
|
Rita Chaves
|
92
|
80
|
84
|
88
|
88
|
84
|
92
|
84
|
28
|
92
|
80
|
92
|
984
|
|
Teresa Scholefield
|
88
|
80
|
84
|
88
|
88
|
84
|
92
|
84
|
88
|
64
|
80
|
92
|
1012
|
|
Gloria Tytgat
|
88
|
80
|
84
|
88
|
88
|
84
|
32
|
84
|
88
|
92
|
80
|
92
|
980
|
|
Sandra Campbell
|
|
|
|
|
|
|
|
44
|
24
|
|
|
|
68
|
|
|
544
|
480
|
504
|
528
|
528
|
504
|
492
|
444
|
472
|
535
|
440
|
464
|
5935
|
|
1998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maria
Achadinha
|
92
|
80
|
88
|
88
|
84
|
88
|
32
|
84
|
88
|
76
|
84
|
92
|
976
|
|
Jessie Campbell
|
92
|
80
|
88
|
88
|
84
|
88
|
92
|
84
|
88
|
88
|
20
|
92
|
984
|
|
Colleen Taylor
|
|
80
|
88
|
84
|
84
|
52
|
80
|
64
|
88
|
84
|
84
|
92
|
880
|
|
Rita Chaves
|
92
|
80
|
88
|
84
|
84
|
88
|
92
|
84
|
88
|
88
|
84
|
36
|
988
|
|
Teresa Scholefield
|
88
|
80
|
88
|
88
|
84
|
88
|
92
|
64
|
88
|
84
|
84
|
92
|
1020
|
|
Gloria Tytgat
|
88
|
80
|
88
|
84
|
84
|
88
|
92
|
44
|
88
|
88
|
84
|
92
|
1000
|
|
Sandra Campbell
|
|
|
|
|
|
36
|
72
|
60
|
|
|
64
|
60
|
292
|
|
|
452
|
480
|
528
|
516
|
504
|
528
|
552
|
484
|
528
|
508
|
504
|
556
|
6140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maria
Achadinha
|
84
|
80
|
92
|
84
|
84
|
88
|
84
|
40
|
76
|
84
|
88
|
76
|
960
|
|
Jessie Campbell
|
84
|
80
|
92
|
88
|
84
|
88
|
88
|
88
|
88
|
84
|
40
|
80
|
984
|
|
Colleen Taylor
|
84
|
80
|
92
|
84
|
84
|
88
|
64
|
48
|
88
|
84
|
88
|
92
|
976
|
|
Rita Chaves
|
84
|
80
|
92
|
84
|
84
|
88
|
84
|
88
|
32
|
80
|
88
|
92
|
976
|
|
Teresa Scholefield
|
84
|
80
|
92
|
84
|
84
|
88
|
84
|
88
|
88
|
64
|
84
|
92
|
1012
|
|
Gloria Tytgat
|
84
|
80
|
92
|
84
|
84
|
88
|
48
|
88
|
88
|
84
|
88
|
92
|
1000
|
|
Sandra Campbell
|
|
|
|
|
|
|
60
|
88
|
76
|
28
|
48
|
20
|
320
|
|
|
504
|
480
|
552
|
508
|
504
|
528
|
512
|
528
|
536
|
508
|
524
|
544
|
6228
|
|
2000
|
JAN
|
FEB
|
MAR
|
APR
|
MAY
|
JUN
|
JUL
|
AUG
|
SEP
|
OCT
|
NOV
|
DEC
|
TOTAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maria
Achadinha
|
84
|
84
|
92
|
76
|
92
|
88
|
84
|
12
|
60
|
88
|
88
|
84
|
932
|
|
Jessie Campbell
|
84
|
84
|
92
|
76
|
64
|
80
|
84
|
92
|
84
|
88
|
52
|
64
|
944
|
|
Colleen Taylor
|
84
|
84
|
92
|
76
|
92
|
88
|
4
|
92
|
84
|
88
|
88
|
84
|
956
|
|
Rita Chaves
|
84
|
84
|
92
|
76
|
92
|
88
|
84
|
92
|
44
|
68
|
88
|
84
|
976
|
|
Teresa Scholefield
|
84
|
84
|
|
|
28
|
8
|
|
|
|
|
|
|
204
|
|
Gloria Tytgat
|
84
|
84
|
92
|
76
|
92
|
88
|
84
|
92
|
40
|
88
|
88
|
84
|
992
|
|
Sandra Campbell
|
|
|
92
|
|
|
|
20
|
80
|
64
|
20
|
|
32
|
308
|
|
Ann B. Rina
|
|
|
|
76
|
92
|
88
|
64
|
92
|
64
|
88
|
80
|
|
644
|
|
Andrea Johnson
|
|
|
|
|
|
|
80
|
|
64
|
|
36
|
84
|
264
|
|
|
504
|
504
|
552
|
456
|
552
|
528
|
504
|
552
|
504
|
528
|
520
|
516
|
6220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maria
Achadinha
|
80
|
80
|
88
|
84
|
88
|
84
|
88
|
52
|
60
|
92
|
88
|
68
|
952
|
|
Jessie Campbell
|
92
|
80
|
88
|
84
|
92
|
84
|
88
|
92
|
80
|
92
|
88
|
52
|
1012
|
|
Colleen Taylor
|
92
|
80
|
88
|
84
|
92
|
84
|
80
|
40
|
80
|
92
|
88
|
84
|
984
|
|
Rita Chaves
|
80
|
80
|
88
|
84
|
88
|
84
|
88
|
92
|
20
|
92
|
88
|
84
|
968
|
|
Gloria Tytgat
|
80
|
80
|
88
|
40
|
40
|
|
|
|
|
|
|
|
328
|
|
Ann B. Rina
|
52
|
80
|
88
|
84
|
88
|
84
|
88
|
92
|
80
|
92
|
88
|
44
|
960
|
|
Andrea Johnson
|
40
|
|
|
44
|
88
|
84
|
88
|
92
|
80
|
92
|
88
|
84
|
780
|
|
Sandra Campbell
|
|
|
|
|
|
|
8
|
52
|
64
|
|
|
40
|
164
|
|
Marybeth Gabriel
|
|
|
|
|
|
|
|
40
|
24
|
|
|
32
|
96
|
|
|
516
|
480
|
528
|
504
|
576
|
504
|
528
|
552
|
488
|
552
|
528
|
488
|
6244
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maria Achadinha
|
92
|
80
|
84
|
|
|
|
|
|
|
|
|
|
256
|
|
Jessie Campbell
|
56
|
80
|
84
|
|
|
|
|
|
|
|
|
|
220
|
|
Colleen Taylor
|
92
|
80
|
84
|
|
|
|
|
|
|
|
|
|
256
|
|
Rita Chaves
|
92
|
80
|
84
|
|
|
|
|
|
|
|
|
|
256
|
|
Ann B. Rina
|
92
|
80
|
84
|
|
|
|
|
|
|
|
|
|
256
|
|
Andrea Johnson
|
92
|
80
|
84
|
|
|
|
|
|
|
|
|
|
256
|
|
Marybeth Gabroe
|
36
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
552
|
480
|
504
|
|
|
|
|
|
|
|
|
|
1536
|
[2] I have included Schedule
'A' since it is quite relevant. I have not included
Schedules 'B', 'C', 'D', 'E' and
'F' of the Agreed Statement of Facts but can confirm that
the summaries of same contained in Respondent's Written
Submissions are accurate.
[3] The Respondent's Written
Submissions read as follows:
Overview
1. In order to
qualify for certain highly preferential tax treatment, the
Appellants seek a finding that employees who work only four hours
per day, five days per week are engaged in full-time employment.
An analysis of the case law, the purpose of the provision in
question, and basic common sense dictate that a higher standard
and more objective test must be established.
Statement of Facts
2. The facts
are as set out in the Agreed Statement of Facts.
3. Town
Properties Ltd. ("Town Properties") is a corporation
that earns rental income from a commercial office building
located in the City of Victoria. Through the relevant period, it
employed at least six individuals as custodians for the purpose
of providing cleaning services for its tenants. These individuals
worked from 6:00 pm to 10:00 pm from Monday to Friday, for a
total of 20 hours per week.
4. The
Appellants assumed that the custodians qualified as full-time
employees of Town Properties. On that basis, Town Properties
claimed the small business deduction under subsection 125(1) of
the Income Tax Act (the "Act") and the
individual shareholders claimed the capital gains deduction for
qualified small business corporation shares under section 110.6
of the Act.
5. The
Minister of National Revenue reassessed the Appellants to deny
those claims.
Points in Issue
6. The issue
is whether an individual working only 20 hours per week for an
employer is engaged in full-time employment with that
employer.
Submissions
The Act
7. The
significance of the phrase "full-time employees" arises
from the definition of "specified investment business"
in subsection 125(7) of the Act. In order to qualify for the
small business deduction under subsection 125(1) of the Act, a
corporation must earn income from "active business".
"Active business" is defined in subsection 125(7) as
being any business "other than a specified investment
business ...".
Respondent's Authorities, Tab 12
8. If the
activities of Town Properties fall within the definition of
"specified investment business" then it does not carry
on active business and does not qualify for the small business
deduction. The definition of "specified investment
business" is as follows:
"specified investment business" carried on by a
corporation in a taxation year means a business ... the principal
purpose of which is to derive income (including ... rents...)
from property but ... does not include a business carried on by
the corporation in the year where
(a) the corporation
employs in the business throughout the year more than 5 full-time
employees, ...
9. Similarly,
the individual shareholders' eligibility for the capital
gains deduction depends on Town Properties having carried on
"active business". If Town Properties did not have at
least five full-time employees, the individual shareholders do
not qualify for the deduction.[1]
"Full-time" means "regular working hours of
each day"
10. Case law, dictionary
definitions and the use of the term in other Federal legislation
supports an objective definition of "full-time" that is
identified for corporations of any nature. The most recent and
authoritative of these sources define a "full-time
employee" as one who is employed for the entirety of a
normal working day.
11. In the case of
Hughes & Co. Holdings Ltd., Justice Muldoon of the
Federal Court Trial Division considered the definition of
"full-time employee". In paragraphs 38 through 40, the
Court reviewed a number of dictionary definitions. At paragraph
40, Justice Muldoon concludes that a person is not a full-time
employee if "his services were 'not required for the
normal work day, week, month or year'... " or if
"he was regularly employed to work fewer than the regular
working hours of each working day ..."
Respondent's Authorities, Tab 4, Para. 40.
12. In the Tax Court
decision of Woessner v. The Queen, Justice Beaubier also
considered the issue of whether or not certain workers were
full-time employees. Like Justice Muldoon, he initially referred
to a dictionary definition.[2] He went on to consider the decision in Hughes
& Co. and adopt the definition set out in that case.
Justice Beaubier found that the workers in question were not
full-time employees for the following reasons:
They were not required to work a normal day, week or month.
They were regularly employed to work fewer than the regular
working hours of each day.
Respondent's Authorities, Tab 3, Para. 15.
13. In the Dictionary
of Canadian Law, "full-time employee" is defined as
"an employee whose regular work week exceeds thirty
hours" and "full-time employment" is defined as
occupying a position "where the employee is required to work
at least twenty-nine hours per week."
Respondent's Authorities, Tab 5.
14. The Canadian Oxford
Dictionary defines "full-time" as "occupying
or using the whole of the available working time" and
"the total normal duration of work."
Respondent's Authorities, Tab 6.
15. Certain Federal
legislation contains definitions of terms similar to
"full-time employment", though these definitions are
typically for the purpose of specific circumstances. Nonetheless,
they offer some guidance. These references include the
following:
Public Service Superannuation Regulations: "where
normal hours of work per week are established ... the greater of
the normal hours of work per week so established and 30 hours per
week"; "where no normal hours of work per week are
established ... 37.5 hours per week";[3]
Immigration and Refugee Protection Regulations:
"For the purpose of this section, full-time work is
equivalent to at least 37.5 hours of work per week";
"'full-time job equivalent' means 1,950 hours of
paid employment";[4]
Immigration and Refugee Protection Act: ... if
appointed as full-time members, must devote the whole of their
time to the performance of their duties under this Act";[5]
CanadaLabour Code: "The full-time members
of the Board must not hold any other employment or office in
respect of which they receive any remuneration."[6]
16. The references to
"full-time employment", or other such similar terms,
set out above support defining "full-time employment"
as employment in which one is "regularly employed to work
the regular working hours of each day". On any application
of this definition, it is clear that four hours per day is far
less than the regular working hours of a day. If one is to attach
a specific number of hours to this definition, the minimum number
of hours mentioned is 29 per week.
Appellants' position
17. The Appellants'
rely upon the definition of "full-time employment" set
out in Ben Raedarc Holdings Ltd. v. The Queen.[7] However,
Hughes & Co. is a decision of the Federal Court Trial
Division and should be accorded greater weight than Ben Raedarc.
Further, Woessner is a General Procedure decision of the
Tax Court decided subsequent to the Ben Raedarc matter.
For these reasons, the definitions of "full-time
employment" applied in both Hughes & Co. and
Woessner is to be preferred.
18. There do exist
dictionary definitions[8] and legislative references[9] which might suggest a definition of
"full-time employment" that takes into account the
normal working hours of a particular class of employees, however
these references appear in the context of legislation that has
very narrow and specific purposes. It is therefore inappropriate
to apply such a definition to a provision of the Act (subsection
125) that must encompass the entire spectrum of property-related
businesses operating in Canada.
19. In any event, there is
no evidence before the Court regarding the standard number of
hours worked by custodians. Therefore, the Appeals should be
dismissed even if the Appellants' definition of
"full-time employment" is applied.
20. An examination of the
purpose of section 125 makes it clear that the definition of
"full-time employee" suggested by the Appellants'
is inconsistent with the objectives of Parliament.
Purpose is to ensure that "active" meant
truly active
21. In Lerric
Investments Corp. v. The Queen, the Federal Court of Appeal
sought to interpret a definition contained in subsection 125(7).
The Court recognized that it was difficult to ascertain whether
and how the provision was to apply and therefore supported an
investigation of the scheme of the legislation. The Court quoted
with approval the comments of the Trial Judge, Justice Bowman,
regarding the scheme of the legislation:
The concept of specified investment business seems to have
been a response to certain decisions of the courts which treated
virtually any commercial activity of a corporation, however
passive, ... as an active business. ...
The result was the introduction of the concept of specified
investment business the purpose of which [sic] to ensure that
"active" meant truly active and that the word not be,
in effect, judicially written out of the Act. Therefore the
object of the new legislation was to ensure that the business of
a corporation that invested in rental properties would not be
considered "active" unless there was sufficient
activity in the corporation's business to justify the
employment of over five full-time employees.
Respondent's Authorities, Tab 1, Para. 6.
22. The Federal Court of
Appeal then went on to make its own comments regarding the scheme
of section 125:
Section 125 distinguishes between active and inactive
corporations, only the former being eligible for the small
business deduction. Ordinarily, a business whose income is
primarily derived from property is treated as inactive and
therefore ineligible for the deduction. Subparagraph 125(7)(e)(i)
provides an exception to this rule and allows the small business
deduction to a corporation that derives income from property
indicia of activity. As Bowman JTCC explained, the
requirement that the corporation employ more than five full-time
employees simply operates as a test to ensure that a corporation
is sufficiently active such that it should qualify for the
deduction.
Respondent's Authorities, Tab 1, Para. 9.
23. Defining
"full-time employment" to be equivalent to the standard
number of hours worked in the industry is inconsistent with
section 125's goal (as stated by Justice Bowman and the
Federal Court of Appeal) of ensuring that a certain minimum level
of activity exists in a corporation prior to allowing it the
small business deduction. Such a test would lead to differing
definitions of "full-time employment" between
industries. Section 125 would thus be applied in an inconsistent
and subjective manner, violating the principal that similarly
situated taxpayers should be taxed equally.
24. As Justice Bowman
noted, the very problem with the rental industry was that such
corporations earned passive income. That limited level of
activity was considered by Parliament to be too low to warrant be
considered "active business" and gaining the tax
benefits that go with that label. It would be contrary to common
sense and to the scheme of the legislation to now say that such
corporations are carrying on "active business" as long
as they are no more passive than other corporations in the rental
industry. Such corporations must engage in activity that is above
the average for the rental industry, not merely at the
average.
25. Justice Bowman and the
Federal Court of Appeal recognized that, in section 125,
Parliament sought to increase the level of activity corporations
were required to engage in if they were to qualify for the small
business deduction. To find that 20 hours of work per week is
sufficient activity would be to erode the language of the
section. This is precisely what Justice Bowman and the Federal
Court of Appeal were not prepared to do.
Ordinary meaning of the phrase is clear
26. The expression
"full-time employment" is a common one in our society.
Justice Muldoon decided that "Parliament expressed the term
"full-time employment" in the ordinarily understood use
of the words."[10]
27. In The Queen v.
Gaudet, the Federal Court of Appeal sought to discover
"the ordinary meaning of the words used by the
legislator" in determining what constituted a full-time
student. The Court ultimately simply applied common sense and
found that the facts of that case meant that the Appellant failed
on "even a vague understanding of the ordinary meaning of
the words".
Respondent's Authorities, Tab 2, Para. 5.
28. After examining the
scheme of section 124, Justice Bowman also concluded that he must
"draw the line where one's good sense tells one to draw
it".[11]
29. Applying basic common
sense to the issue in the Appeals of Town Properties and the
individual shareholders, it is clear that 20 hours of work per
week cannot constitute full-time employment on any reasonable
definition. Setting the standard so low would lead to absurd
situations of after school jobs amounting to full-time employment
and would render the difference between full-time and part-time
virtually meaningless. If one were employed for only 20 hours per
week, one could easily take on a second job that involved an
equal number of hours. That alone would demonstrate that the
person was not fully occupied by their initial 20 hours of
employment.
30. The custodians working
for Town Properties work only from 6:00 pm to 10:00 pm. They
would actually be able to work a full 9:00 to 5:00 day in
addition to their custodial duties. Clearly, their employment
with Town Properties does not take up the "regular working
hours of the day" and does not amount to full-time
employment.
Order Sought
31. The Respondent
requests that the Appeals be dismissed with costs.
[4] The Appellant referred to
Raedarc Holdings Ltd. v. The Queen, 98 DTC 1218 (TCC).
Relevant excerpts from that decision are found at 1224 and 1225
and read as follows:
No single consideration will allow the Court to arrive at the
answer because the meaning ascribed to the term in another
statute does not mean that the legislators intended to adopt that
meaning under the Act unless they specifically said so. Likewise
the Court cannot adopt holus bolus the evidence of any one
witness or group of witnesses as to what the term means under the
Act nor can it ascribe to it the definition set out in a number
of insurance policies.
Webster's Third New International Dictionary describes
'full-time' as:
The amount of time considered the normal or standard amount
for working during a given period (as a day, week or month).
The Oxford English Dictionary, Second Edition, Volume VI
defines 'full-time' as:
The total number of hours normally allotted to daily or weekly
work, etc.
The Oxford English Dictionary defines 'part-time'
as:
Employed, occurring, lasting, etc. for part of the time or for
less than the customary time.
The Dictionary of Canadian Law, Second Edition, refers to:
Full-time basis. In relation to an employee of a particular
class, means engaged to work, throughout the year, all or
substantially all of the normally scheduled hours of work
established for persons in that class of employees. Pension
Benefits Standards Act, R.S.C. 1985 (2d Supp.), c. 32,
s. 2.
Full-time employee. An employee whose regular work week
exceeds thirty hours. Inflation Restraint Act, 1982,
S.O. 1982, c. 55, s. 4.
Full-time employment. Employment requiring continuous service
in an office or position, where the employee is normally required
to work the minimum number of hours prescribed by the person
having authority to establish the hours of such employment.
From such references the Court considers that in the absence
of a clear definition in the Act, in terms of the minimal number
of hours that must be worked to qualify one as a 'full-time
employee' under the relevant sections, it must consider in
the circumstances of this case what were the normally scheduled
hours of work established for janitors in the Vancouver area
during the periods in question and whether or not the workers
here worked all or substantially all of those hours. What was
considered to be the normal or standard amount of time for
janitors to work during the years in question? Did the workers in
question work less than the customary time?
What were the minimum number of hours prescribed by the person
who had authority to establish the hours of employment?
In the case at bar there was evidence led by the Appellants,
from persons who were very knowledgeable in the field as to what
hours a janitorial staff were normally required to work in the
Victoria area and they gave reasons for establishing such hours
which reasons were not unreasonable and were not challenged.
Further, no evidence was introduced by the Respondent, nor did
it come out in the cross-examination, that the evidence given by
the witnesses called by the Appellants was unreliable, inaccurate
or not according to standards established in the Victoria
area.
The Court is satisfied that some of the workers in question
were full-time employees of the Appellant, Town Properties Ltd.
during the relevant years.
In so deciding, the Court has considered the argument raised
by counsel for the Respondent that having due regard to the
ratio decendi in Corporation Notre-Dame de
Bon-Secours, supra, as well as Symes v. Canada, 94 DTC
6001 [1993] 4 S.C.R. 695 and the technical notes to the Income
Tax Act and Regulations, 8th Edition, referable to section
125 of the Act, that the workers here do not qualify.
However, nothing in those notes or cases assist the Court here
in deciding what the legislators meant by the term 'full-time
employee' in the absence of further specifications.
The tenure of the notes indicate that the intention of the
legislators was to give some relief to small businesses and small
family types of businesses, but such an intention does not
detract from the fact that no minimum number of hours were
referred to nor is there anything in the notes to indicate that
the legislators did not intend that such relief might accord to a
business like that of the Appellants, given the facts that have
been established here.
This business was a substantial one, in terms of income and
expenses. It operated a real estate business and employed a
substantial number of employees as well as utilizing the services
of agents.
The Court finds that some of the employees were 'full-time
employees' given the established facts here. Such employees
were those who worked all or substantially all of four hours per
day, five days a week, throughout the years in question, in
accordance with the Court's finding as to what constituted a
'full-time employee', as indicated above.
One would think that it would be a relatively easy task,
providing records were kept properly, of proving that there were
more than five full-time employees during the years in question.
However, in this case there are some difficulties for the
Appellants in light of the evidence adduced.
The evidence in that regard is somewhat confusing and
contradictory.
If the Court were to accept holus bolus the evidence of
the witnesses called on behalf of the Appellant, it would have to
find that there were more than five 'full-time employees'
throughout the year in question.
Michael Stone said that there were six full-time employees on
the janitorial staff and that they were managed by
Jessie Campbell. He said that there were six because each
one took a floor for security and safety purposes. But he was
obviously of the belief that at least six persons worked four
hours per day, five days per week throughout the year.
He believed that Exhibit R-3 and Exhibit A-1, Tab 5 would show
that there were more than six full-time employees during the
years in question but he did not examine these documents closely
and he did not point out the basis for such a conclusion. He had
to rely on the timesheets.
Dick Lawson said that there were six full-time employees on
the janitorial staff during the years in question.
The timesheets were prepared by Jessie Campbell and the
bookkeeping by Equitex. It is obvious that he accepted them as
factual and accurate.
He said that the employees worked from 6 to 10, five days per
week and that it took 24 person hours to do the cleaning each
week. He did not keep the records himself and obviously he could
not confirm from his own knowledge that there were six full-time
employees there throughout the years in question.
With respect to Exhibit R-3 he could only say that he may have
seen it. It was prepared by the bookkeeper for Equitex and he may
have discussed it with him. "He had no reason to question
its accuracy".
Jessie Campbell was the author of the timesheets at
Exhibit A-1, Tab 5. Her evidence was that there are normally
five full-time employees plus herself. She said that there are
always six in total.
Her timesheets were prepared at the end of each month or
totalled. She said, "that is all that I do", obviously
referring to her method of recording the hours.
The years in question are the taxation years of Town
Properties Ltd. ending March 31, 1991, March 31, 1992 and March
31, 1993.
Apart from the general evidence of the witnesses that there
were always six full-time employees, the only other evidence was
provided at Exhibit A-1, Tab 5 Exhibit R-3 and Exhibit R-4.
From Exhibit R-3 the Court concludes that the reference to
1992 and 1993 were the fiscal years of Town Properties Ltd. but
it contains conflicting information. At the top of the document
are written the words "six individuals, five days per week,
four hours per day".
However, when one looks at the list of workers for 1992 there
are only four employees who have the full twelve months of
employment and one other has eleven months of work. For the year
1993 there were only four. Only these persons could reasonably be
considered by the Court as having worked "substantially all
of the regular hours" so as to possibly include Colleen
Carpenter as a full-time employee in 1992. Various other
workers were there only for portions of the year not approaching
the required number of months.
However, The Queen v. Hughes, supra , is in support of
the proposition that subparagraph 125(7)(e)(i) of the Act
requires that to avoid "specified investment business
status", a taxpayer must have "more than five full-time
employees". This clearly means at least six full-time
employees.
[5] Counsel for the Appellant also
referred to certain other decided cases and to certain dictionary
definitions, extracts from the Public Service Superannuation
Act and from the Pension Benefits Standards Act. In my
opinion the Authorities referred to by the Appellant are not
sufficiently on point to lead to the conclusion that the janitors
of Town Properties Ltd. were engaged in "full-time
employment". In my opinion the Authorities referred to by
counsel for the Respondent more closely meet or compare with the
facts in the present appeals in particular the decisions in
Hughes & Co. and Woessner referred to at
paragraph 17 of the Respondent's Written
Submissions.
[6] I have been persuaded that the
Respondent's Written Submissions are correct and applicable
and consequently on that basis the appeals are dismissed with
costs.
Signed at Ottawa, Canada, this 28th day of May 2004.
O'Connor, J.
Email this Content