Paul Hecht v. Minister of National Revenue, [1980] CTC 2513, 80 DTC 1438

Guy Tremblay:—This case was heard in Montreal, Quebec, on May 11, 1978, and on March 19, 1979. The Board has taken the matter under advisement after receiving the written submissions on April 17, 1979.

1. The Point at Issue

The point is whether the appellant (a teacher in different colleges) was an employee or an independent contractor, and hence was correct in claiming automobile expenses in computing his net income for the 1972 and 1973 taxation years.

2. Burden of Proof

The burden is on the appellant to show that the respondent’s assessments are incorrect. This burden of proof results particularly from several judicial decisions including the judgment delivered by the Supreme Court of Canada in R W S Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

3. Facts

3.01 During the years 1972 and 1973, the appellant was a teacher in different institutions.

3.02 In 1972, the appellant taught full-time at Dawson College. He had two contracts—one with the Mathematics Department, one through continuing Education and Electro technology. He received two separate pay cheques. He had a contract as well with Beth Jacob School of Canada teaching chemistry and mathematics, and a contract with Yeshivah Merkaz Hatorah teaching chemistry. The contracts were filed as Exhibits A-1 and R-1.

3.03 In 1973, the appellant taught at Dawson College on a full-time basis. He had other contracts with Beth Jacob School. He also had a further contract with Dawson College for the summer with the Mathematics Department. The contracts were filed as Exhibits R-2 and R-3.

3.04 During the relevant taxation years the appellant deducted from his income the following amounts:

1972— $1,140 as capital cost allowance, insurance, gas, oil, maintenance and tires for his car, and $100 for pen, paper, etc (for a total of $1,240);

1973— $1,000.32 as capital cost allowance, insurance, gas, oil, maintenance and tires for his car.

3.05 In assessing the appellant, the respondent refused the deduction of these expenses on the basis that the appellant was an employee and not an independent contractor. The Income Tax Act does not provide such a deduction for employment of that nature.

3.06 It was admitted during the evidence that 60% of the appellant’s expenses were personal and only 40% were related to his work.

3.07 During each of the said taxation years the appellant deducted as employment expenses the sum of $150 provided by paragraph 8(1)(a) which was allowed by the respondent.

3.08 In the statement concerning employment at Dawson College (Exhibit A-2) it is written among other things:

Compatibility of objectives by members of the Dawson community should be assumed; differences as to means of attaining these objectives should add zest to the life of the College.

Each member should have a definable “work load’’ or set of responsibilities; beyond this, he should be expected to be available to students according to schedule that is determined by student needs and common sense. The same commitment of each member of the community should not be measured by anyone but himself.

3.09 At Dawson College, he was obliged to be available 32% hours a week. Upon student’s complaints, lack of availability would have been a possible ground for dismissal. He was not, however, required to stay on the premises throughout. If he wished he could have only a schedule of tutorials to suit himself. At Merkaz Hatorah College and Beth Jacob School, he did his work at home.

3.10 If a teacher was absent because of illness or a family emergency, he could make arrangements and ask someone competent within the Department to cover for him. However, it is not a general principle that a teacher could make arrangements to be replaced for any reasons by somebody else who was not approved by the authority.

3.11 At Dawson College as at the other schools where he worked, the appellant negotiated his contract with the general director. He attempted to get the highest category classification he could. The classification, however, was decided on the basis of objective criteria including the teacher’s degrees and experience.

3.12 Concerning remuneration, there was no room for individual bargaining in that respect, the union negotiating on behalf of the teaching collectivity. During the negotiations the “Décret tenant lieu de Convention Collective Entre le Personnel Enseignant (représenté par la CSN) et Les Collèges D’Enseignement Général et Professionnel” (Exhibit R-4) Council No 3812-72 was created by Dawson College as a guideline to fix the salaries. The college, however, was not legally bound by that document. The decree was issued by Order-in-Council 3812-72 on December 15, 1972, and took effect from July of 1971.

3.13 The respondent’s witness, Mr G Brown, was department chairperson in 1971-1972 at Dawson College. He has been teacher and administrator there since 1970. The matrix of salaries in that document (Exhibit R-4) was the basis on which the government funded Dawson College for payment of its teachers. The salaries were those that were actually paid to teachers at Dawson College.

On the things that really counted like money all that Mr Gallagher did would be to have the salaries taken from that matrix depending on one’s classification and years of experience and that would be the salary. (Evidence of G Brown pp 24 and 25)

3.14 The appellant’s counsel made objection to the production of another document entitled “Academic Employment Policies and Practices” of Dawson College (for implementation September 1, 1971). The objection was made on the basis that it was only a draft. Two pages indeed were blank, Appendix V entitled “Quebec Pension plan for teachers” and Appendix VI: Remuneration pattern in force 1971-72.

The decision of the Board is that this document must be accepted as evidence on the basis that the final contract should have been filed by the appellant himself. It is indeed a fundamental document concerning the present case. The appellant had the burden of proof. Moreover, Mr Brown said the draft “was eventually adopted by the Board if I remember.”

3.15 The salary was paid on an annual basis without any additional remuneration for extra work like extra tutorials (SN p 27).

3.16 Exhibits R-4 and R-5 state the relevant steps of the dismissal procedures.

3.17 The appellant used equipment and supplies of the College.

3.18 Concerning the time schedule at Dawson College, Mr Grant Brown testified that the final decision rested with the head of the department or the committee (SN pp 27 and 33). The appellant in his testimony:

A. The number of hours, the overall number of hours was set down by a curriculum as far as total number of hours but within that framework some of those hours can be work done by the student at home. Some of the hours can be done in a tutorial group. It doesn’t always have to be in the classroom. It’s unlike high school or the elementary school where the students sit in there and you have to be there.

Q. Who decides how many hours will be in the classroom, how many hours are working with the student being at home. How many hours will be tutorial hours?

A. The department of education sets rough guidelines.

3.19 Concerning the subject matter, the choice of workload, and even the minimum and maximum of students in a class, the final decision rested with the director of the college even if a teacher might express his choice (SN p 33). Moreover, within his general discipline, a teacher might have been asked by the college authorities to teach any subject whether in his range of preferences or not (SN pp 33 and 49).

4. Law— Precedent Cases—Comments

4.1 Law

The sections of the new Income Tax Act involved in the present case are 4, subsections 8(1) and 8(2).

4.2 Precedent Cases

The parties referred to the following cases:

1. James Sim v MNR, [1966] CTC 383; 66 DTC 5276;

2. Dr WH H Alexander v MNR, [1969] CTC 715; 70 DTC 6006;

3. H Lionel Rosen v HMQ, [1976] CTC 462; 76 DTC 6274;

4. Don Whiteside v MNR, [1977] CTC 2328; 77 DTC 239;

5. Paul Laurent v MNR, [1978] CTC 2412; 78 DTC 1311;

6. Wolfgang Hauser v MNR, [1978] CTC 2728; 78 DTC 1532;

7. Montreal v Montreal Locomotive Works Ltd et al, [1947] DLR 161;

8. Donald M Ladd v MNR, [1978] CTC 3071; 78 DTC 1775;

9. Henry L Molot v MNR, [1977] CTC 2170; 77 DTC 111;

10. Francis J Hayes v MNR, [1973] CTC 2262; 73 DTC 210;

11. Harold Stanton King v MNR, 21 Tax ABC 15; 58 DTC 721;

12. William Keppie Murray v MNR, [1950] CTC 7; 50 DTC 723;

13. Jean Lavoie c Sous-Ministre du Revenu du Québec, (28/03/78) Provincial Court, Montreal—024446-762;

14. Norman Keesal v Deputy Minister of Revenue of the Province of Quebec, (12/07/77) Provincial Court, Montreal—500-19-3544-70;

15. Alfio Seni v Sous-Ministre du Revenu de Québec, (20/01/78) Provincial Court, Montreal—024460-771;

16. John Starkey v MNR, (20/07/78) appeal to the Umpire NR 266;

17. Thomas A McPherson v MNR, (24/03/76) appeal to the Umpire.

4.3 Comments

A. Evidence concerning the quantum of the expenses

4.3.1 The respondent’s solicitor in his pleading submitted that no proof has been adduced in order to establish by means of vouchers that the claimed expenses were effectively incurred by the appellant. In paragraph 2, the Board refers to the Johnston case. Mr Justice Rand said that every assumed facts made by the assessor to base the assessment are deemed to be correct and the appellant must contradict those assumed facts to reverse the burden of proof. In reading all the assumed facts given in paragraph 3 of the reply to the notice of appeal of the respondent, there is no assumption to the effect that the assessment was based on the fact that no vouchers or other documents establish the quantum of expenses. The majority of the assumed facts indeed concern the fact that the appellant is an employee. It is the same in the “Notification by Minister” dated June 8, 1977, confirming the assessment consecutively to the Notice of Objection before the Minister. It reads as follows:

confirms the said assessments as having been made in accordance with the provisions of the Act and in particular on the ground that the taxpayer’s income is from an office or employment within the meaning of subsection 5(1) of the Act, and as provided by section 8(2) the expenditures claimed amounting to $1,240 in 1972 and $1,000.32 in 1973 do not come within any of the deductions permitted by section 8 or any other section; an amount of $150 was allowed as employment expense in accordance with paragraph 8(1)(a) of the said Act.

In the Nathaniel C Brewster v HMQ, [1976] CTC 107 at 111; 76 DTC 6046 at 6049, Mr Justice Gibson stated:

In law the onus is on the taxpayer to destroy some or all of the assumptions. But it is open to the defendant to plead other facts not relied in making the assessments or reassessments, but in that event, the onus is on the Minister of National Revenue to prove such other facts.

No evidence was given by the respondent about that.

Moreover, the claimed expenses are reasonable as is also the admission concerning expenses of a personal nature. Hence, the Board considers the quantum of the claimed expenses as proven.

B. Employee or Independent Contractor

4.3.2 To ascertain whether a taxpayer is an employee or an independent contractor, the courts have stated four criteria:

(a) the control test;

(b) the economic reality test;

(c) the specific result test;

(d) the integration test.

Those tests are explained in one of the most recent cases, the Wolfgang Hauser v MN Ft, (supra).

C. The Control Test

4.3.3 Mr Justice Cardin wrote in the Wolfgang Hauser case 2731 [1154]:

This test, which in certain circumstances is still applicable, has been found by the courts to be too inflexible in determining the issue, particularly in respect of professionals, highly trained and skilled tradesmen.

In the H Lionel Rosen case (supra), the plaintiff taxpayer resigned his job as a full-time university professor in 1970 and joined the civil service. Thereafter, he continued lecturing on a part-time basis at several universities and colleges. The Federal Court held that the taxpayer was not an independent contractor. In that case, it was put into evidence that Mr Rosen had prior negotiations with respect to his time table with the different authorities of the university and college where he was employed, and that he had the widest discretion with respect to his way of teaching, the content of the courses, and the textbooks. He had no office and received a T-4 slip. He had to deduct CPC and UI. He was not required to attend meetings.

Mr Justice Marceau of the Federal Court stated:

On the one hand, I am of the opinion that, in a case like this one, it may be insufficient to rely on the single test of control even if the characteristic that test alludes to remains the main one of a normal employer-employee relationship.

In Morren v Swinton and Pendlebury Borough Council, [1965] 2 All ER 349, Lord Parker, CJ:

The cases have over and over again stressed the importance of the factor of superintendence and control, but it is not the determining test is quite clear. In Cassidy v MNR, Somerwell, LJ, referred to this matter, and instanced, as did Denning, LJ, in the later case of Stevenson, Jordon & Harrison, Ltd v MacDonald & Evans, that clearly superintendence and control cannot be the decision test when one is dealing with a professional man, or a man of some particular skill and experience. Instances of that have been given in the form of the master of a ship, an engine driver, a professional architect or, as in this case, a consulting engineer. In such cases there can be no question of the employer telling him how to do work; therefore, the absence of control and direction in that sense can be of little, if any, use as a test.

On the other hand, the degree of control that the universities could exercise over the plaintiff’s lecturing activities appears to me to have been no different than the degree of control a modern university today exercises over the experienced and specialized members of its teaching staff, who are undoubtedly employees. The general freedom he was given in the teaching and examination of his students is certainly not exceptional today, specially at the postgraduate level or in a continuing education division.

In the case of Don Whiteside v MNR, [1977] CTC 2328; 77 DTC 239, the appellant’s main activity was that of a consultant, but two days a week he taught some remedial work as a part time teacher, in a community college. The contract of employment was very widely written.

.. . to instruct students in research techniques, basic methods of viewing social problems as well as introduce them to basic sociological principles.

The contract of employment stated that he was hired as a consultant. Mr Cardin held that it was not a conclusive criterium and stated:

There is no evidence that the appellant acted as a consultant to the school’s administrators or staff or that he was consulted in the organization of the school’s educational program. Although the subjects the appellant taught at Manitou Community College were part of the appellant’s specialized field of knowledge, there is no doubt from the evidence that the appellant was engaged at Manitou Community College not as a consultant, but as a part-time teacher, and that his work, although it may have earned the appellant an income, was not derived from his consultant business, but from his work as a teacher.

and further:

Although the courts in recent decisions tend to consider the test of control, the strict application of the master-servant relationship rule, to be unsatisfactory and incomplete in determining whether professional persons in a particular set of circumstances are employees or not, there is in the instant appeal clear evidence of some form of control by Manitou Community College over the appellant’s specific teaching responsibilities at the school, over the exact courses he was to give, the days and the times at which he was to give them, and over the remuneration he was to receive for teaching them. Whether or not the appellant agreed with it, the College authority issued to the appellant a T-4 Form which, (although not be itself an irreversible proof that the appellant was an employee), recorded the statutory periodic deductions made from the appellant’s remuneration during the pertinent tax year and which form is made out by an employer in respect of his employees.

On the preponderance of the evidence, the Board has no hesitation in concluding that the appellant’s teaching activities at Manitou Community College were that of an employee and not that of an independent consultant. In my opinion, there is no significant difference between the College’s control over the appellant as a part-time teacher and the control the school exercised over the full- time teachers; the freedom which the appellant alleged to have had in the preparation of his courses and the marking of exams, etc is in my view not more nor less than the same freedom enjoyed by full-time teachers in all educational institutions.

In this instance, it is the opinion of the Board that the college authorities had no control over the appellant as a contractor may have over a carpenter. However, they had enough control over him to conclude that the appellant was certainly not an independent contractor but an employee.

The Dawson College authorities indeed hired the appellant in 1972 and 1973 on a full-time basis (para 3.02 and 3.03). The remuneration was according to guidelines fixed by governmental authorities and union. There was no room for individual bargaining (para 3.12). There was no extra remuneration for extra work, the pay was on an annual basis (para 3.15).

Despite the fact that “the time commitment’’ of the appellant “should not be measured by anyone but himself” (Exhibit A-2 cited in para 3.08), the appellant had to follow the time schedule established by the committee and the college authorities (para 3.18). Moreover, the appellant had to be available to answer the questions of the pupils and give further explanations than those given during the courses. A lack of availability could have been a possible ground for dismissal (para 3.09). Concerning the subject matter of the courses, the final decision rested on the college authorities (para 3.19).

D. The Economic Reality Test

The person who is in business as an independent contractor:

runs the risk of financing the equipment, supplying the help necessary to operate and administer his business . . . and he then has to ensure that he has sufficient clients to . .. (Wolfgang Hauser, (supra)).

render his business economically viable.

In the case at bar, Mr Hecht used the equipment and supplies of the college. All clerical staff, helping him directly or indirectly, are hired and paid by the college and not by him. The appellant does not seek any clients.

E. The Specific Result Test

In the Wolfgang Hauser case, Mr Cardin further said with respect to that test:

This test which was adopted by Chief Justice Jackett of the Exchequer Court in the Alexander case, distinguished, a contract for services from a contract of service in these words at p 724 of CTC and p 6011 of DTC.

“I do not think that I need to review the authorities as a preliminary to reaching a conclusion. It seems evident that what is an appropriate approach to solving the problem in one type of case is frequently not a helpful approach in another type. 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.

In the above-mentioned case, Dr Alexander was obliged to provide coverage of all the radiological work of the hospital whether or not he did the work personally.

In the present case, the appellant was under an obligation to teach personally and put his services at the disposal of his employer. The contracts of employment of the appellant filed as Exhibits A-1, A-2, R-1, R-2 and R-3 are constituted as personal services contracts. The appellant was hired because of his personal ability to teach Mathematics and Chemistry.

F. The Integration Test

The Board draws the attention of the parties to the comments made in the H Lionel Rosen case on p 466 [6276] by Mr Justice Marceau who stated:

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 esssentially 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.

It is the Board’s opinion that these comments apply to the present case.

The Board finally, without a doubt, concludes that from all aspects the appellant in 1972 and 1973 was an employee and not an independent contractor.

5. Conclusion

The appeal is dismissed in accordance with the above reasons for judgment.

Appeal dismissed.