Layne M McFarlane v. Minister of National Revenue, [1982] CTC 2766, 82 DTC 1787

M J Bonner:—This appeal from an assessment of income tax for the 1979 taxation year raises the troublesome question whether the source of certain revenues earned by the appellant was employment, as found by the respondent, or business, as asserted by the appellant. It was common ground that the appellant is entitled to the sum of $283.95 in deductions disallowed on assessment if the source is not employment. This follows because the prohibition contained in subsection 8(2) of the Income Tax Act could not apply. The revenues in question are four payments totalling $2,200 received by the appellant from the University of Regina for teaching a course.

The appellant was the only witness at the hearing. He gave his evidence with care and complete candour. He is a chartered accountant and holds a business administration degree from the University of Regina. At all relevant times he was employed full time as an audit manager in the Department of the Provincial Auditor for Saskatchewan. In December of 1978 he was approached by the assistant dean of the faculty of administration of the university and was asked to consider teaching “Auditing Theory and Applications”. Apparently, an unusually great number of students had enrolled in that course and the university decided it should divide them into two classes rather than the usual one during the four-month term commencing in January of 1979. The appellant was offered $2,200, payable in four equal monthly instalments. He accepted the initial offer, although he understood that compensation was negotiable.

A contract in writing was formed, it reads as follows:

On the recommendation of Dean Shaw, the University is prepared to contract for teaching and related services as follows:

1. Services are to consist of teaching Administration N382B in the 1979 Winter Semester, and related duties.

2. The services are to be provided during the period January 1, 1979 to April 30, 1979, and are to be performed under the direction of, and to the satisfaction of, Dean D E Shaw of the Faculty of Administration.

3. The University will pay Mr McFarlane the sum of $2,200 for such services. Payment will be made in four equal monthly installments of $550, in arrears. This includes any statutory obligations for which the University may be liable.

To indicate acceptance of this agreement, please sign and return the enclosed copy of this letter.

The appellant was afforded a great deal of latitude. There appears to have existed a general expectation that he would deliver about forty hours of lectures. He was permitted to choose the day or days and time of his lectures. He was permitted to select the textbook to be used for the course. He was probably not asked for an outline of the course he intended to follow", [1] but he handed one in to the Faculty anyway, because he knew that other lecturers did so.

The university provided typing services, although the appellant was not aware of it at the time. It also provided photocopying as required by the appellant, but the appellant did not avail himself of this service, save when he wanted to distribute materials in significant quantity.

One class of costs which the appellant seeks to deduct is the cost of using space in his home for purposes of preparation and setting of tests and final exams. The respondent assumed that the appellant could have used the university library. The appellant pointed out, with considerable logic, that the lack of privacy in a university library makes its use for such purposes quite impractical.

The evidence was that 80% of the total time spent by the appellant in discharging his duty to the university was spent in preparing lectures and in setting and marking tests and exams. The remaining 20% was spent in lecturing. The university did not, apparently, monitor the appellant’s work or attempt to control what he did.

In Dr William H Alexander v MNR, [1969] CTC 715; 70 DTC 6006, Jackett, P, at 724 [6011] described, in a general way, the nature of contracts of service and contracts for services as follows:

On the one hand, a contract of service is a contract under which one party, the servant or employee, agrees, for either a period of time or indefinitely, and either full time or part time, to work for the other party, the master or the employer. On the other hand, a contract for services is a contract under which the one party agrees that certain specified work will be done for the other. A contract of service does not normally envisage the accomplishment of a specified amount of work but does normally contemplate the servant putting his personal services at the disposal of the master during some period of time. A contract for services does normally envisage the accomplishment of a specified job or task and normally does not require that the contractor do anything personally.

It will be observed that the contract now in question is one which, in its own words, calls for provision by the appellant of “teaching and related services”. That contract, as I see it, requires the performance of certain specified work, namely, the teaching of the auditing theory and applications course, together with all the necessary advance preparation, examination and grading of student performance. It does not just call upon the appellant to work during the hours of lecturing. As previously mentioned, the appellant was obliged to devote whatever time he found necessary to preparation, lecturing and testing. The amount of time actually spent in doing such work appears to have been a matter of no concern to the university. It was the result which counted so far as the university was concerned. If the appellant was an employee, he was paid on a rather unusual piece-work basis.

The written contract did not expressly impose any obligation on the appellant to personally perform any of the contemplated services. Probably, both parties expected that, so far as possible, the appellant would do the work personally. The written contract was obviously not intended to be exhaustive. However, the appellant testified that on one occasion, when he could not lecture as scheduled, he arranged for a substitute and later repaid the favour by lecturing to one of the substitute’s classes. This does not appear to be a case of a contract whereby the appellant agreed to place his personal services at the disposal of the university for any particular perid of time, whether named or of indefinite duration.

The indications thus far point more clearly to a contract for services than to a contract of service. The respondent relied strongly, however, upon the following sentence of the contract:

The services . . . are to be performed under the direction of .. . Dean D E Shaw of the Faculty of Administration.

The presence of the right to control not only the task to be done, but how it is to be done, is strongly indicative of a master-servant relationship. The quoted words appear, at first blush, to be rather sweeping. However, it is not at all clear that in the context of a relationship between a person possessing the considerable professional and practical qualifications of the appellant and a university, those words of general import should be interpreted as reserving to the university the right to exercise the sort of detailed control contemplated by the test in question. Furthermore, it would appear that neither the appellant nor the university so conducted themselves as to indicate that they regarded the contract as bestowing a right of control of the type relevant here. I do not find that the control test, on the evidence, points to a finding that the contract was one of service.

In H Lionel Rosen v Her Majesty the Queen, [1976] CTC 462; 76 DTC 6274, a case upon which the respondent placed great reliance, Marceau, J, considered the situation of another part time university lecturer. In that case the integration test pointed fairly clearly to a contract of service. His Lordship said:

The work done by the plaintiff for the three schools at which he taught was done as an integral part of the curriculi of the schools; the courses were regular courses and, if I may say so, the business in which he was actively participating was the business of the schools not his own. His situation as part time teacher was essentially different from that of a guest speaker or lecturer but it was not for that matter essentially different from that of a full time professor.

Here, I observe, the appellant’s services were required to meet a short-term bulge in the number of students who wanted to take the course in question. His work did not fill an ongoing need of the university. It was, therefore, accessory and not part of the regular business of the university. The application of the integration test to the evidence does not point to a conclusion that the appellant was engaged under a contract of service.

Finally, it should be noted that the university did not deal with the appellant as it did with its regular teaching staff. The appellant was not required to join or pay dues to the faculty association whichi represented full time and part time teachers. The university made deductions at source only for income tax and unemployment insurance and it did issue a T4 slip. However, it did so only because the respondent issued a “ruling” that all individuals who taught a class were employees and subject to statutory deductions. I do not regard the action of the university in the circumstances as any reflection of an assumption, on the part of its officials, that the appellant was an employee.

On the evidence I conclude that the appellant was engaged under a contract for services. The appeal will be allowed and the assessment referred back to the respondent for reconsideration and reassessment on the basis that the appellant is entitled to the deductions in issue.

Appeal allowed.