TELEPHONE 954-8585
FACSIMILE 990-1233
11725-1(sn)
XXXXX August 9, 1995
Dear XXXXX
Further to a letter of June 23, 1992 from XXXXX wherein you have requested clarification concerning the Department's position as to the criteria to be used to determine whether an employer/employee relationship exists between two persons, we have now been able to complete our review of the documentation provided to us and our comments follow. Please accept our apologies for the delay in our response. Our response has been made possible by the finalizing and release of the Department's policy with respect to agency.
Background
1. The City of XXXXX ("the City") established a public transit service in 1981. Since the inception of the transit service, the City has contracted out the bus driving by periodically calling for tenders to enter into a Transit Operation Provision Contract ("the contract") The contract under review is the fifth such contract and was negotiated with XXXXX on March 21, 1990.
2. Summarized, the terms of the contract require XXXXX to provide "operators and other services" to the City and the City to provide the buses. The contract details the responsibilities that each party has and the various degrees of control each party has over the other, and in particular the control that each party has over the activities of the bus drivers themselves.
3. Paragraph 26 of the contract contains the following wording:
"Notwithstanding anything to the contrary herein contained, the Contractor XXXXX shall at all times be an independent contractor to the City and none of the Contractor's employees shall be at any time deemed to be employees of the City."
4. In April 1991, as a result of an application made by Canadian Union of Public Employees, XXXXX Labour Relations Board ("the Board") reviewed the terms of the contract in detail and despite the wording of paragraph 26, concluded that or the purposes of the XXXXX Labour Relations Code, the City x and XXXXX were common employers of the bus drivers.
5. The application to the Board was made as a result of non-unionized employees of XXXXX losing certain benefits which would have accrued to them if they had been employees of the City and part of the union which was party to a collective agreement with the City.
6. The criteria used by the Board to determine that the City, as well as XXXXX was an employer of the bus drivers, are those which have been derived from common law.
7. It appears that as a result of this decision, XXXXX has not been charging GST on that portion of its billings to the City which are considered to be the "wages" of the bus drivers. However, it appears that GST is being charged on any amounts billed which are not considered to be in respect of bus drivers' wages. No documentation has been provided as to the exact disclosure given to the amounts being invoiced.
Questions
1. Is a ruling pursuant to the XXXXX Labour Relations Code satisfactory evidence that an employer/employee relationship exists for GST purposes?
2. If the ruling by the Board is not sufficient evidence that an employer/employee relationship exists, what other factors should be considered before making a ruling.?
3. If an employer/employee relationship exists between the City and the employees of XXXXX but only part of the payment by the City to XXXXX relates to the services provided by the employees while the balance of the payment is related to other services provided by XXXXX must the payment be allocated and on what basis should the allocation be made?
Discussion
With respect to relying on a decision made pursuant to the XXXXX Labour Relations Code to determine whether an employer/employee relationship exists for GST purposes, it is not possible to definitively state that decisions pursuant to certain pieces of legislation will be adhered to for purposes of determining how GST will apply to a particular transaction while other decisions pursuant to other pieces of legislation will not be used for purposes of GST. The issue of whether a person is an employer should be resolved by determining whether the person possesses the characteristics normally attributed to an employer under common law principles. If the tests used to determine an employer/employee relationship pursuant to a particular piece of legislation are based on common law principles then the decision pursuant to that particular piece of legislation would be persuasive, although it is technically not binding on the Department.
It was noted in your letter of June 23, 1992, that the Department has placed reliance on determinations of the existence of employer/employee relationships pursuant to the Canada Labour Code. A specific reference was made to a response letter written to the XXXXX There is a significant difference between the circumstances under which the XXXXX employer/employee relationship existed and the circumstances under which the employees of XXXXX would also be employees of the City. In the case of the XXXXX because of the unique circumstances under which longshoremen work, it is possible for any one individual to work for numerous different shipping companies in any one year. This situation has necessitated the establishment of a number of non-profit organizations to coordinate the pay function for longshoremen. These organizations have special status in the Canada Labour Code in that they are viewed as the employer of the longshoremen for purposes of determining various benefits including holiday pay, but there was no indication from the background provided from the XXXXX that the XXXXX was also an employer as a result of the application of the tests of common law. For purposes of GST, the important aspect of the relationship between the shipping companies, XXXXX and the longshoremen is that XXXXX was appointed to act as agent for the shipping companies, with respect to the payment of the longshoremen, and the Department accepted that agency relationship. Without the provisions of the Canada Labour Code, the shipping companies would have been the sole employers of the longshoremen. However, once an agency relationship has been established between the shipping companies, as principals and the XXXXX as agent and that relationship has been accepted for purposes of GST, it was not necessary for the XXXXX to also be established as an employer of the longshoremen.
In the case of the City and the employees of XXXXX without the decision of the XXXXX Labour Relations Board, XXXXX would be the sole employer of the bus drivers. The only circumstances under which XXXXX could pay employment income to the bus drivers, and recover those payments from the City without attracting GST are those where the City would also be an employer of the bus drivers. There is no agency relationship existing between the City and XXXXX If such a relationship was contemplated, since XXXXX is initially paying the bus drivers and subsequently requesting reimbursement of those payments from the City, XXXXX would take on the role of agent. In the fact scenario of the XXXXX the principal was the sole employer. In the fact scenario of the City and XXXXX it is the agent who is the sole employer. In such circumstances, the agency relationship does not allow the reimbursement to flow from the City to XXXXX without attracting tax unless the City and XXXXX are both established as employers of the bus drivers.
Given these comments, if reliance is to be placed on the finding of the XXXXX Labour Relations Code that an employer/employee relationship exists between the City and the bus drivers, and that in fact, both the City and XXXXX are employers of the bus drivers, the tests used to arrive at this conclusion must be examined to determine if the same tests would be used for purposes of GST.
It is important to be aware that it is not the status of the XXXXX Labour Relations Board x or the A XXXXX Labour Relations Code which is the determining factor in this matter. It is the tests used to arrive at the final decision. Generally, a decision arrived at by a provincial authority would not be sufficient to determine how to apply GST, a federal tax, to a particular transaction. The methods used to arrive at the decisions are the important determinant.
Attached to this letter is an excerpt from the policy proposal on "the meaning of agency". The excerpt speaks to some of the factors which may be considered in assessing whether a person is an employer and refers to some of the leading jurisprudence in the area. Although this is not an exhaustive discussions, these factors can be used as a starting point for determining whether a particular person is an employer when there is no other evidence to rely on. Reference to page 7 of the decision of the Board with respect to the employer status of the City will show that it was the tests developed at common law which were used by the Board in determining the City's employer status. The decision contains an extensive discussion of the application of the tests to the circumstances surrounding the relationship between the City and the bus drivers. The conclusion arrived at was that the City was also an employer of the bus drivers. Given the methods used to arrive at this determination are the same as those which are used for purposes of GST, it is appropriate in this particular case, to concur with the position of the Board and to treat the bus drivers as being employees of the both the City and XXXXX Your initial inquiry letter indicated that at June 30, 1992, no determination had been requested of or issued by Revenue Canada, Taxation as to whether an employer/employee relationship exists between the City and the bus drivers. If a position for purposes of income tax has since been taken by the Department, and that position does not find both the City and XXXXX to be employers of the bus drivers, it would be necessary to revisit the position we have taken for purposes of GST. Although it is not absolutely necessary the position taken for purposes of GST agree with a position taken for purposes of income tax, in these particular circumstances, on such a fundamental income tax concept as employment, it would be difficult to take a different position.
No documentation has been provided as to how XXXXX is invoicing the City. The background material provided infers that the reimbursement to XXXXX by the City, of the payroll and payroll related expenses, is shown separately on a particular invoice since no GST is being charged on these amounts but GST is being charged on other amounts being invoiced. The disclosure rules for GST are contained at subsection 223(1) of the Excise Tax Act. It is not necessary that the amounts which are not taxed be separately disclosed from the amounts which are taxed. It is the amount of tax actually charged which must be disclosed or which must be stated as being included.
Should you require any further assistance in this matter, contact one of the members of the Application Team in the Tax Provisions Unit. They are: Ken Mathews (613) 952-9585, Suzanne Leclaire (613) 954-7931, and Sara Nixon (613) 954-4397.
Yours truly,
H.L. Jones
Director
General Applications Division
GST Rulings & Interpretations
684(REG)
Mitch Bloom (signoff)
| c.c.: |
Application Team XXXXX |
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