Section 5

Subsection 5(1) - Income from office or employment


Subsection 5(1) provides for the inclusion in a taxpayer's income from an office or employment of the salary, wage and other remuneration, including gratuities (see Canadian Pacific), received by the taxpayer in the year.

Employee v. independent contractor

As the provision rests on the taxpayer having an office or employment, it does not apply where the taxpayer receives the compensation in question as fees for services performed as an independent contractor. The distinction between an employee and an independent contractor was described as follows in the Sagaz case (at para. 47):

The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account. In making this determination, the level of control the employer has over the worker's activities will always be a factor. However, other factors to consider include whether the working provides his or her own equipment, whether the worker hires his or her own helpers, the degree of financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the worker's opportunity for profit in the performance of his or her tasks.

The above passage largely represents an adoption of a similar statement of principle in the Wiebe case. Similarly, CRA notes that "the traditional tests focus on several major factors: such as degree of control, chance of profit or risk of loss, integration into the business operation and ownership of tools" (IC - 75-6R2). (For a more detailed description of the CRA policy, see RC4110.)

The Sagaz and Wiebe tests are based on the common law. Under art. 2085 of the Quebec Civil Code, "a contract of employment is a contract by which a person, the employee, undertakes for a limited period to do work for remuneration, according to the instructions and under the direction or control of another person, the employer." Accordingly, it has been stated that the test for distinguishing an employee from an independent contractor is different in Quebec (Dupuis, Carreau, see also Wolf), in that the test of control of the individual is the touchstone (see Chabaud). In this regard, it has been stated that "the existence of a relationship of subordination does not depend on the right of direction and control being exercised, but on the existence of the right to exercise such control" (Chabaud). As discussed by Melville et al., prior to the new Quebec Civil Code coming into effect, Quebec courts often applied common law decisions in distinguishing between contracts of employment and contracts for service.

It also has been stated that that "the four-in-one test in Wiebe Door has ... been reduced to representing 'useful guidelines relevant and helpful in ascertaining the intent of the parties'" (Lang). Where the alleged employer and the individuals have a common understanding that the individuals are self-employed, this may be sufficient to establish that they are not employees even if an application of some of the Wiebe tests might suggest the contrary (Royal Ballet). Conversely, a properly drafted agreement of employment with the individual whose terms are largely honoured will likely go a long way toward establishing that the individual is an employee (Mollinaro, Sazio, cf. Burns). In order to give proper weight to the parties' intentions, a court should start with a determination of the parties' intent as to whether their relationship was of employment or independent contractors, and only then turn to see whether this intent is corroborated by objective criteria (e.g., by application of the Wiebe tests): Connor.

An individual who works regular hours for one company (or a related group of companies) at a consistent rate of pay (subject to overtime or bonuses) likely will be found to be an employee even if he or she has a senior position and, in that sense, is not subject to any significant control on what he or she does on a daily basis (Kilbride, see also Maliyar). Similarly a highly skilled professional such as a doctor who is not answerable to his alleged employer for how his or her practice is conducted on a daily basis still may be found to be an employee if he or she works regular hours for a defined basis of remuneration at one institution such as a hospital (Boardman, Marotta).

On the other hand, the receipt of a fixed periodic fee from a particular company may be consistent with being an independent contractor where the individual can be regarded as being in business for himself or herself as evidenced, for example, by the provision of services to other clients (Suspended Power, Ganpaul, McLean, see also DRL).

It potentially is possible for an individual who is an employee for purposes of the Act (whose definition in s. 248(1) includes a director) to also earn fees from his employer as an independent contractor (Sutherland, cf. Dauphinee). Similarly, it is possible for an individual to exercise the same skills (e.g., in the field of teaching) to earn employment to earn employment income from one employer and business income from another institution (Foley). Where, however, an individual who has not actually been appointed as a director of a company, but actually manages and supervises the management, business and affairs of the company and exercises all the powers of the directors rather than the de jure directors of the company, he likely will be found to be a director and, thus, an employee, for purposes of the Act (Pluri Vox TCC).

Note that, as a legally distinct person, there is nothing preventing a corporation from dealing with an individual simultaneously as an employer and as a contractor. For example, an individual could be both a corporate director and an independent contractor. However, where an individual conducts essentially all the corporation's business, this generally will suggest that the individual is an employee rather than an independent contractor (see Pluri Vox FCA).


Remuneration has been defined as "payment for services rendered or work performed" (Blanchard, similarly MacDonald). The normal doctrine of legal substance would suggest that where the parties intend that an advance of money to an employee is a loan, it will be treated as such rather than as remuneration (Ville de Québec, Meredith). However, if there is no intention that the advance will be repaid if the employee is terminated, the advance arguably may represent remuneration when made (Merchant).

Pay equity rewards constitute employment income except to the extent that they represent interest income or taxable superannuation benefits (Eden, Morency).

Source deductions (e.g., statutorily required payments into a pension fund) will be treated as part of the employee's remuneration (Kurisko, Fairey, Hoffman).

As s. 5(1) renders remuneration taxable only when received, an accrued bonus would not be included in income under s. 5(1) (Phillips).

An amount received as damages (including an amount in settlement of a damages claim) for the termination of a contract of employment will not be remuneration that is taxable under s. 5(1) (Atkins, Pollock, Manley). However, in most circumstances (but not all circumstances - see Schwartz) such amounts will now be a retiring allowance as defined in s. 248(1).

S. 5(1) also includes income from an "office," which is defined in s. 248(1). S. 5(1) is supplemented by s. 6(1)(c) which includes director's or other fees received by the taxpayer in respect of , in the course of, or by virtue of an office or employment in the computation of the taxpayer's income from that office or employment. See also Messier.


Andre Lamy Medicine Professional Corporation v. The Queen, 2020 TCC 61

surgeon carried out his research qua employee of his professional corporation

A cardiac surgeon, who carried on his medical practice through a professional corporation, successfully appealed a CRA denial of SR&ED credit claims respecting cardiac research which CRA claimed had been conducted by him in his personal capacity rather than as employee of his corporation. D’Arcy J stated (at paras. 43, 53):

Since Dr. Lamy is the only employee of the Appellant, clearly he is the only one conducting the business of the Appellant, namely performing surgery, providing care to patients and conducting medical research. …

He bills the Government of Ontario for such [medical] services in his own name. The Respondent does not challenge the Appellant’s position that any monies received in respect of such services are received by Dr. Lamy for and on behalf of the person providing the service, i.e., his employer, the Appellant. The result is the same with respect to the research activities: Dr. Lamy signed his own name on the contracts, but he provided the services as an employee of the Appellant.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 127 - Subsection 127(9) - Qualified Expenditure - Paragraph (a) a surgeon carried out his cardiac SR&ED on behalf of his professional corporation 258
Tax Topics - General Concepts - Agency required individual billing to OHIP does not preclude earning of medical practice income by professional corporation 150

Pluri Vox Media Corp. v. Canada, 2013 DTC 5012 [at 5559], 2012 FCA 295

The Court of Appeal confirmed that the sole shareholder of a corporation (the "owner") was also an employee of that corporation. Although the corporation had a board of directors, the evidence showed that the corporation's business was conducted predominantly by its owner. For example, the owner had supervised the work of another individual, whose contract was with the corporation and not with the owner - this would be unusual if the owner were an independent contractor, but not if he were an employee.

The Court of Appeal noted that the trial judge erred in concluding that the owner's status as a de facto or de jure director was determinative. Webb J.A. stated (at para. 10):

[A]n individual could enter into more than one contract with his or her own company and therefore could provide services in different capacities. It follows that the simple fact that an individual is a director or an officer of a company does not, in and of itself, exclude the possibility that other services may be provided by that individual as an independent contractor.

The trial judge had also erred in applying the "control" factor in Sagaz Industries. The trial judge had been caught up in the question of whether the corporation had any practical control over the taxpayer as an employee given that, as sole shareholder, the taxpayer controlled the corporation. The correct question was whether the corporation, as a separate person, had the legal power to control the individual (para. 14). It was unnecessary to decide this question in light of the finding that the owner was conducting business for the corporation rather than on his own account. The taxpayer's appeal was dismissed.

The Queen v. Conseil central des syndicats nationaux du Saguenay/Lac St-Jean (Csn) et al., 2010 DTC 5038 [at 6665], 2010 FCA 375

The taxpayers were union officials who after their election continued to receive their salaries from their regular employers (with the unions reimbursing the employers for those amounts) and also received allowances for meal, travel and child-care expenses directly from the unions. It was acknowledged before the Tax Court that if their positions with the union qualified as "offices," the allowances would be taxable to them under s. 6(1)(b).

The fact that the officials received their salaries through their regular employers did not detract from finding that such salaries represented fixed remuneration to which they were "entitled" by virtue of holding their union positions:

Only the services that the union officials that capacity can explain why they received their usual remuneration during their union leave, and only the fact that the regular employers were reimbursed explains why they agreed to pay the remuneration even though they received no services (para. 41).

Kilbride v. Canada, 2009 DTC 5502, 2008 FCA 335

The taxpayer, who functioned in many respects as an executive of a family-owned company and who worked regular hours for the company and was paid at a consistent rate, was an employee of the company. Although the parties intended that the taxpayer would be an independent contractor, "this [was] not a close case ... requiring the Court to give greater weight to the intention of the parties". [para. 11] Accordingly, various expenses incurred by him were not deductible in computing his income.

Merchant v. The Queen, 2009 DTC 282, 2009 TCC 31

see also Ziobrowska v. The Queen, 2010 DTC 1069 [at 2882], 2010 TCC 64)

In finding that loans made to the taxpayer by his employer were employment income to him when received, Webb, J. stated (at para. 22):

"in a situation where a cheque is issued (or cash is dispersed) to an employee in relation to services that have been rendered and the transaction is labelled an advance or a loan but in reality the employee is only obligated to repay the amount, without interest, from subsequent salary or 'bonuses' paid by the employer, in my opinion, the real character of the amount received is that it is received as a payment of compensation and not a loan. There is no true intention that the employee will have to repay the amount from any source other than the future 'payments' to be made by the employer."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 5 - Subsection 5(1) advance is current remuneration if repayable only out of future earnings 137

Eaton v. Canada, 2008 DTC 6395, 2008 FCA 162

A pay equity award made to the taxpayer by the Canadian Human Rights Tribunal on the basis of a complaint that employees in female-dominated occupations were underpaid by the federal government, constituted employment income (with amounts paid as interest on underpaid salary being taxable as interest, and amounts paid as additional superannuation benefits resulting from higher retroactive salary being taxable as pension income).

Messier v. The Queen, 2008 DTC 4609, 2008 TCC 349 (Informal Procedure)

The taxpayers were "liquidators" (i.e., testamentary executors) of an estate. The will provided that "each of my liquidators shall receive, for fulfilling the duties of his office, a legacy in the amount of ... $15,000 ...". The receipt by them of these sums was taxable to them as income from an office given that, if they had refused to act as liquidators, they would not have been entitled to these sums.

Dupuis v. Canada (Canada Revenue Agency), 2007 DTC 5106, 2006 FC 228

Includes a discussion of the differences in the test distinguishing employee from independent contractor in Quebec and the common law provinces.

Morency v. Canada (Attorney General), 2006 DTC 6069, 2005 FCA 16

The taxpayer's share of amounts received by a pay equity commission from the government of Québec in respect of a pay equity claim, which was then distributed by the Commission to government of Québec employees [including the taxpayer], in proportion to the number of days worked by them in the period covered by the pay equity award, compensated for pay that the taxpayer was entitled to receive but did not receive and, accordingly, was income.

Royal Winnipeg Ballet v. Canada (Minister of National Revenue), 2006 DTC 6323, 2006 FCA 87

Dancers engaged by the Royal Winnipeg Ballet were self-employed rather than employees for Canada Pension Plan and Employment Insurance purposes. The trial judge give insufficient weight to the common understanding of the parties that the dancers were self-employed (although this understanding was not expressed in any written contract). Furthermore, the terms used and the surrounding circumstances were compatible with that understanding. In particular, although the Royal Winnipeg Ballet exercised a considerable degree of control over the dancers, it was no more extensive than would be the case if all the dancers had been guest artists.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Agency 82

Mollinaro v. The Queen, 2000 DTC 6114 (FCA)

Pursuant to an agreement in which the taxpayer's holding company agreed to sell all the shares of a pizza manufacturing company ("Pizza Crust") to a corporate purchaser ("Catelli"), Catelli agreed to enter into an employment agreement with the taxpayer where he would be paid approximately $1.8 million over three years, of which he would be entitled to receive $1.5 million even if he died or was terminated for good reason.

Sexton J.A. rejected a submission of the taxpayer that the payment of $1.5 million was in substance proceeds of disposition of his capital interest in Pizza Crust. First, the taxpayer himself was owed no capital payment by Catelli. Second, given that the employment agreement had most of the terms of usual employment agreements and was seriously negotiated with lawyers and accountants representing the taxpayer, its substance was that of an employment agreement.

Schwartz v. Canada, 96 DTC 6103, [1996] 1 SCR 254

$400,000 was received by the taxpayer in settlement of his claim for damages following the repudiation by a company ("Dynacare") of its agreement to employ him as a senior vice-president. La Forest J., in his reasons, implied (at p. 6117) that the amount could not be characterized as income from an office or employment under s. 5(1) in light of the decisions of the Federal Court of Appeal in the Atkins (76 DTC 6258) and Pollock (84 DTC 6370) cases.

The Queen v. Blanchard, 95 DTC 5479, [1995] 2 CTC 262 (FCA)

Before going on to find that an amount received by the taxpayer from his employer for the termination of a house buy-back agreement was a "benefit" from his employment under paragraph 6(1)(a), Linden J.A. contrasted the wording of s. 6(1)(a) with that of s. 5 (at p. 5480):

"The notion of 'remuneration', however, encompasses only those payments flowing from an employer to an employee for services rendered or work performed."

Words and Phrases

R. v. Gentile, 95 DTC 5176 (Ont. Ct. J. (P.D.))

Approximately $195,000, which a municipal councillor received from a real estate developer over a three-year period by way of cheques or reimbursement of personal expenses, was characterized by Harris J. as being in the nature of remuneration for lobbying services of the councillor rather than as gifts. Furthermore, the councillor effectively was on a developer's payroll.

Attorney General of Canada v. MacDonald, 94 DTC 6262, [1994] 2 CTC 48 (FCA)

Before going on to find that a monthly housing subsidy received by an RCMP Officer from the Department of Supply and Services was a taxable allowance under s. 6(1)(b), Linden J.A. stated (p. 6263):

"The phrase 'salary, wages and other remuneration' is not broad enough to encompass all of those amounts flowing from an employer to an employee which are income from an office or employment, since remuneration is payment for services rendered or things done."

Words and Phrases

Sutherland v. The Queen, 91 DTC 5318 (FCTD)

The taxpayer, who had various other business interests and went to the premises of an incorporated hotel approximately once per week to oversee the various financial concerns of the corporation from the owners' perspective, but who at the same time performed more than might be expected of a director of the corporation, was held not to earn income from an office or employment from the corporation, but instead was an independent contractor. Joyal J. noted (p. 5326) that "not all sums paid to a person who happens to be a director of a company will automatically be considered income from that office".

The Queen v. Fairey, 91 DTC 5230 (FCTD)

The taxpayer's employer, the Cancer Control Agency of British Columbia, was required by statute to deduct an amount from the taxpayer's monthly salary and pay the amount over to a pension fund operated under the provisions of that statute. Muldoon J. found that such pension amounts were received by the taxpayer for purposes of s. 5(1) in that they constituted a part of, and were by law deducted from, his salary.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 56 - Subsection 56(2) 80

The Queen v. Chrapko, 88 DTC 6487, [1988] 2 CTC 342 (FCA)

The employment income of a pari-mutuel teller was not reduced by deductions made from his wages for cash shortages, in light of the requirement in the collective agreement that each employee pay such shortages, and because of evidence that such tellers were paid additional amounts to compensate them for the risk they were assuming for cash shortages.

The Queen v. Kurisko, 88 DTC 6434, [1988] 2 CTC 254 (FCTD), aff'd 90 DTC 6376 (FCA)

6% of a federally-appointed judge's salary was required, by virtue of s. 29.1 of the Judges Act, to be withheld and contributed to the Consolidated Revenue Fund, which was also deemed by that provision to be contributed under a registered pension plan for purposes of the Income Tax Act. The amounts deducted were income. "[T]here need be no concurrence or agreement between employer and employee to make the amount deducted constitute income received by the employee."

Moose Jaw Kinsmen Flying Fins Inc. v. MNR, 88 DTC 6099, [1988] 2 CTC 2377 (FCA)

A decision of the Tax Court that part-time coaches were employees of a non-profit corporation which provided swimming instruction and competitive opportunities for young persons, was upheld. It was stated that in drawing the distinction, the overall evidence must be considered taking into account those of the various tests that may be applicable. [Unemployment Insurance Act]

McNeill v. The Queen, 86 DTC 6477, [1986] 2 CTC 352, [1986] 2 CTC 364, 86 DTC 6486 (FCTD)

A Quebec air traffic controller received from his employer, the federal government, the sum of $15,571 to compensate for house mortgage expenses that he might incur outside Quebec, and the sum of $2,155 which was computed as a percentage of his income, as part of a Department of Transport policy to seek to relocate controllers with anglophone ancestry to outside Quebec so as to avoid labour relations problems. These sums were not "other remuneration" because they were in addition to normal compensation and in no way related to services performed by the controller.

Marotta v. The Queen, 86 DTC 6192, [1986] 1 CTC 393 (FCTD)

A neurologist who received approximately 2/3 of his income in the form of remuneration from the University of Toronto for the teaching of medical students thereby received employment income. "The work facilities were provided by the university through the medium of [his] hospital ... The business in which he was principally engaged was the university's and not his own and the work done was fully integrated within the teaching system or organization of the university. Finally, the work was not defined by or limited to a specified task or specific objective in any contractual sense."

The Queen v. Hoffman, 85 DTC 5508, [1985] 2 CTC 347 (FCTD)

Amounts deducted by the taxpayer's employer from his salary for contributions under the Sociey Security Act (U.S.) constitute employment income. Although he did not direct or consent to the payments of the withheld amounts, he could not dispute that eventually he would derive a benefit from those monies, and jurisprudence indicated that employer contributions from employee remuneration constitute a taxable benefit to the employee.

The Queen v. Manley, 85 DTC 5150, [1985] 1 CTC 186 (FCA)

Mahoney, J. stated that Atkins is authority "for the proposition that an amount paid in settlement of a claim for damages for wrongful dismissal is not salary", but "Atkins is not, and does not purport to be, authority for the proposition that damages, or an amount paid to settle a claim for damages, cannot be income for tax purposes."

The Queen v. Pollock, 84 DTC 6370, [1984] CTC 353 (FCA)

The Atkins decision was not wrongly decided.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Stare Decisis 68
Tax Topics - Income Tax Act - Section 54 - Adjusted Cost Base cost incurred to acquire right to receive damages 62

Lawson v. The Queen, 82 DTC 6331, [1982] CTC 368 (FCTD)

Amounts paid to an employee while he was available for work but not yet being utilized by his employer, were taxable.

Jack Cewe Ltd. v. Jorgenson, 80 DTC 6233, [1980] CTC 314, [1980] 1 S.C.R. 812

It was stated, obiter, that damages for wrongful dismissal are paid as benefits under the employment contract.

Dauphinee v. The Queen, 80 DTC 6267, [1980] CTC 332 (FCTD)

A civil servant employed by the National Research Council, who received payments from the Crown equal in amount to 15% of the revenues derived by the Crown from inventions which he had made outside his every-day duties of employment, was held to have received "other remuneration." This conclusion apparently followed from the concession that his inventions came within the scope of the Public Servants Inventions Act, which applies to "an invention made by a public servant while acting within the scope of his duties or employment" and to "an invention made by a public servant that resulted from or is connected with his duties or employment."

Brackstone v. The Queen, 80 DTC 6060, [1980] CTC 89 (FCTD)

An amount received in settlement of a potential claim for wrongful dismissal was not income from an office or employment. Although the taxpayer's dismissal did not come as "a complete surprise to him ... an apprehension that one may be dismissed, however well founded, is not to be equated with notice of termination of the employment contract."

Boardman v. The Queen, 79 DTC 5110, [1979] CTC 159 (FCTD)

A psychiatrist was employed by a hospital under a contract in which he agreed to work for the hospital as a psychiatrist for a term of two years, and the hospital agreed to pay him at a rate of $2,916 per month, provide three weeks' vacation per annum and up to 36 days of sick leave. It was held that the psychiatrist was an employee rather than an independent contractor, notwithstanding that the hospital regarded him as the latter.

Gahrns v. The Queen, 78 DTC 6436, [1978] CTC 651 (FCTD)

Amounts received by an individual from an affiliate of his employer were characterized as non-taxable receipts in settlement of a threatened claim for damages against the affiliate.

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Tax Topics - General Concepts - Evidence taxpayer able to contradict his receipt 49

Loeb v. The Queen, 78 DTC 6331, [1978] CTC 460 (FCA)

Striking teachers, who entered into contracts of employment with their union in order to continue to be eligible to contribute to a provincial statutory pension plan, also were employees of the union for purposes of the Act, and amounts received by them from the union were remuneration.

Frappier v. The Queen, 76 DTC 6066, [1976] CTC 85 (FCTD)

The taxpayer who "was for all practical purposes a freelance sales person who received orders for securities from personal clients which orders she then placed through whichever brokerage firm she happened to be associated with at the time" (p. 6070) was found in the circumstances not to be an employee of the brokerage firm given that very little if any control was exercised over her work by the brokerage firm and given that she was paid by commission.

The Queen v. Atkins, 76 DTC 6258, [1976] CTC 497 (FCA)

damages for termination of employment contract were not received under the contract

Sums totalling $18,000 which the taxpayer received as compensation for dismissal without notice and in settlement of threatened litigation constituted non-taxable damages. "Monies so paid (i.e., 'in lieu of notice of dismissal') are paid in respect of the 'breach' of the contract of employment and are not paid as a benefit under the contract."

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Tax Topics - Income Tax Act - Section 3 9

The Queen v. Burns, 73 DTC 5219, [1973] CTC 264 (FCTD)

Income purportedly earned by a service company was in fact earned by its shareholder qua employee in light of the fact that there were virtually no changes in the relationship between the employer and the individual following the incorporation of the service company and in light of the absence of a written contract between the service company and the employer.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 56 - Subsection 56(4) 26

See Also

Saunders v. The Queen, 2020 TCC 114 (Informal Procedure)

award pursuant to lost overtime grievance was taxable under surrogatum principle

Three CRA collections employees were awarded a lump sum by the Public Service Labour Relations and Employment Board pursuant to their grievance for having been unfairly denied the right to work overtime hours. They described the conduct of the assistant director in connection with their complaints as harassing, and claimed that the award constituted damages for personal injury and violation of their rights under their collective agreement, and should be treated as a personal injury award that was non-taxable under s. 81(1)(g.1).

After referring to the Tsiaprailis surrogatum principle, Wong J dismissed the appeal, stating (at para. 19):

[T]he compensation award - based on an agreed number of hours - replaced the remuneration the appellants would have received had they been offered and in turn accepted overtime work. Those amounts would have been taxable as employment income at first instance.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 81 - Subsection 81(1) - Paragraph 81(1)(g.1) award to CRA employees for being unfairly denied overtime hours was taxable 208

Ray-Mont Logistiques Montréal Inc. v. Canada (National Revenue), 2020 FCA 113

4-part Wiebe test applied to find employment notwithstanding intent of Quebec parties not to be employer-employee

The appellant, which provided specialized logistics services for the export of agri-food products, engaged workers to transload bags of grain and legumes from trucks or railway cars into sea containers.

After noting (at para. 7) that “the definition of a contract of employment under article 2085 of the Civil Code of Québec places emphasis on the essential characteristic of direction or control,” Boivin JA went on to apply the statement in Grimard, 2009 FCA 47, at para. 43:

[T]here is no antinomy between the principles of Quebec civil law and the so‑called common law criteria used to characterize the legal nature of a work relationship between two parties. In determining legal subordination, that is to say, the control over work that is required under Quebec civil law for a contract of employment to exist, a court does not err in taking into consideration as indicators of supervision the other criteria used under the common law, that is to say, the ownership of the tools, the chance of profit, the risk of loss, and integration into the business.

The Tax Court had found:

“[T]he parties believed that they had established a ‘contract of enterprise or for services’ [and not a contract of employment] …” (quoted at para. 10)

However, the Tax Court had gone on to apply the four Wiebe tests referred to above, and concluded that "the objective reality of the employment relationship, including [such] factors … indicates that there was an employee/employer relationship" (quoted at para. 12).

Boivin JA concluded that he did “not see any palpable and overriding error” in this analysis” (para. 22), so that the appellant was subject to CPP obligations as an employer.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Judicial Comity no error of Tax Court in not following Court of Quebec decision dealing with similar situation 251

Insurance Institute of Ontario v. M.N.R., 2020 TCC 69

the parties’ subjective intention not to be employer-employee can, to some extent, override objective indicia of their relationship

The appellant (the “Institute”), which was a non-profit organization providing inter alia professional and continuing education to the Ontario insurance industry, and an individual (Peter Barlow) who worked as an instructor, agreed in their contracts that Mr. Barlow would be an independent contractor.

Graham J found that Mr. Barlow was not an employee for EI and CPP purposes in accordance with the two-step approach mandated in Connor Homes. Clearly, under the first step, “the subjective intent of each party to the relationship” (para. 7) was that of independent contractors, and the focus was on how to apply the second test of “ascertain[ing] whether an objective reality sustains the subjective intent of the parties” (para. 8).

After stating (at para. 18) that “For the first step to mean something, the outcome of the first step has to affect the application of the test in the second step,” he stated (at para. 26):

[I]if the Wiebe Door and Sagaz factors are completely inconsistent with [their shared] common intention, then their relationship will be the relationship indicated by those factors; and …

if the Wiebe Door and Sagaz factors are inconsistent with that common intention but the parties nonetheless act and carry on their relationship in a manner that is similar to what one would expect from their intentions, then their relationship will be the relationship that they intended.

Applying such factors, the control factor was neutral as was the ownership of tools, Mr. Barlow “had an ability to increase his effective earnings through up-front investment and efficiencies in a manner similar to that of an independent contractor”, so that in that limited sense, he had an opportunity for profit, but he did not face any realistic risk of financial loss.

He concluded (at paras. 68-69):

… If I simply applied the Wiebe Door and Sagaz factors …, I would conclude that Mr. Barlow was not carrying on business on his own account. Those factors … indicate that he was an employee. The control and ownership of tools factors are neutral but Mr. Barlow had no real risk of loss and no true ability to profit.

However, for there to be meaning to the two-step test in Connor Homes, a different test must be applied when the worker and the payor share a common intention. I conclude that because Mr. Barlow and the Institute shared a common intention, I am to apply a lesser standard and consider whether the Institute and Mr. Barlow acted and carried on their relationship in a manner that was similar to an independent contractor relationship. I find that they did. Mr. Barlow’s level of control, ownership of tools, risk of loss and chance of profit are similar to what one would expect from an independent contractor. He conducted his affairs in an entrepreneurial and business-like manner.

Ghumman v. The Queen, 2019 TCC 125 (Informal Procedure)

a life insurance salesman was taxable on compensation received for selling himself a life insurance policy

The taxpayer (“Mr. Ghumman”), who conducted a life insurance broker business through his personal corporation (“GFP”), purchased a life insurance policy (the “Policy”) on his life, resulting in the receipt by GFP of $57,262 in commissions from the insurer and an affiliate of the insurer, with those amounts then being included in what was paid to Mr. Ghumman, who was the sole GFP employee. Mr. Ghumman excluded such commissions from his income in reliance on IT-470R, which stated:

[W]here a life insurance salesperson acquires a life insurance policy, a commission received by that salesperson on that policy is not taxable provided the salesperson owns that policy and is obligated to make the required premium payments thereon.

In dismissing Mr. Ghumman’s appeal of the CRA inclusion of the commissions in his income, Sommerfeldt J stated (at paras 12, 15):

There is nothing in section 8 that permits Mr. Ghumman, in computing his income from employment …, to deduct the commissions received by GFP in respect of the Policy. …

According to the principle enunciated in Bilodeau, if the CRA decides, for whatever reason, not to extend [its] administrative policy … to a particular taxpayer, the taxpayer cannot expect this Court to require the CRA to comply with its administrative policy in a situation where that policy is not consistent with the ITA.

Sommerfeldt J went on to find that CRA’s expressed policy was in any event inapplicable here, stating (at para. 18):

[T] hat policy… applies where the individual who acquires a life insurance policy and who pays the premiums … is the person who receives the commissions. … [I]t was Mr. Ghumman who acquired the Policy, but it was GFP that received the Commissions.

Xia v. The Queen, 2019 TCC 30 (Informal Procedure), aff'd 2020 FCA 35

pooled tip money received at casino was taxable gratuities

The taxpayer, who received wages from working as a slot attendant at a casino in 2011 and 2012 of $27,011 and $29,327, respectively, which he reported in his returns, was also found to be taxable on unreported tip income of $23,937 and $39,219, respectively. The taxpayer unsuccessfully argued that these amounts remained part of the source, that is, the jackpot winnings, that were non-taxable gambling proceeds and were, therefore, not received by virtue of his employment. Campbell J stated (at para. 14):

… The fact that the tip amount is paid to a committee and pooled with other amounts paid to the attendants before distribution does not change the nature of the payment. It remains a gratuity for services provided by the slot attendant by virtue of his employment. …

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 163 - Subsection 163(2) taxpayer failed to inquire re his position that casino tip money was non-taxable 184

6094350 Canada Inc. and Genex Communications Inc.v. Agence du revenu du Québec, 2018 QCCQ 556, aff'd in part (rev'd on statute-barring issue) sub nom.Demers v. Agence du revenu du Québec, 2020 QCCA 681

hockey players were employees of the team

The first corporate appellant (the “Corporation”) owned and operated the RadioX team, which was a minor professional hockey team based in Quebec that played in the Ligue Nord-Americaine de Hockey from 2004 to 2008. It had been treating its players (and other staff) as employees rather than independent contractors for Quebec health tax purposes in accordance with the views of the ARQ which had been expressed to the League. However, in 2006, it commenced to treat them as independent contractors in order to reduce operational costs. The players did not register for GST/QST purposes or invoice for their services, and refused to sign a written contract (which did not reflect the realities of how the team continued to be operated), and the only substantive change made was that the team manager was incorporated.

In finding that this revised approach was incorrect, Cotnam JCQ stated respecting the test of superintendence and control ("factual and legal subordination") (at para. 61, TaxInterpretations translation) that “the fact of the delegation of management of the Team to a management firm does not permit the conclusion that there was an absence of subordination,” and further stated (at paras. 64-65, 70):

The players were required to follow the timetable determined by the Team for practices and games. The duration and frequency of training was fixed by the trainer. …

To the extent they were not available for a game, the players were required to so inform the Team. It was not the player who could secure his replacement … . It was the Team who chose the replacement. ...

It is the trainer who decides on the ice time, the line-up and the choice of who participates in special events, etc.

Respecting other tests noted in the jurisprudence:

  • The players received no bonuses or other profit participations and did not share in losses.
  • Contrary to the contract which they declined to sign, they did not lease their equipment from the Team (it was mostly provided by the Team).
  • They were integrated with the Team activities and identified with it.
  • They were not responsible for producing a specified result.
  • Notwithstanding the unsigned contract, the evidence did not establish that they regarded themselves as independent contractors.
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 227.1 - Subsection 227.1(3) tax advice that was based on clearly flawed factual assumptions could not be relied upon for defence 426
Tax Topics - Income Tax Act - Section 152 - Subsection 152(1) CRA treatment of taxpayer’s players as independent contractors was not binding on the ARQ 95

Russell v. M.N.R., 2016 TCC 143

research assistance to an undergraduate student was not employment income

The appellant (“Russell”) was an undergraduate Chemistry student at Mount Allison University, which required him to undertake research and write a thesis. He obtained an Undergraduate Student Research Award (a “USRA”) from the University, which was funded in part by the Natural Sciences and Engineering Research Council of Canada (“NSERC”) and covered the period from May 6, 2013 to August 23, 2013 (the “Period”). At issue was whether he was an employee for Employment Insurance and Canada Pension Plan purposes.

Visser J noted (at para. 19) that “based on …Rizek, [2013 TCC 273] it is necessary to determine whether the dominant characteristic of the amount received by Mr. Russell for the ‘work’ he undertook…was compensation for work or student assistance.”

In finding that it was the later, he stated (at paras. 22, 23, 25):

[T]he dominant characteristic of the payments to Mr. Russell is that of financial assistance to an Honours student working on his thesis, and ….any benefit to Dr. Meli or the University was secondary.

…The University must administer the NSERC USRA in accordance with the criteria set out by NSERC, and pays recipient students such as Mr. Russell through its accounts payable department, not through its payroll department, as it does not consider award recipients to be employees. …

In contrast [to Rizek], Mr. Russell applied for, and was awarded, an NSERC USRA in his own name based on his own research proposal.

Andrew Peller Limited v. M.N.R., 2016 DTC 1009 [at 2553], 2015 TCC 329

restaurant tips are remuneration from an employer

The taxpayer ran several restaurant businesses in which it redistributed its employees' tips under a tip-sharing arrangement. Campbell J found that these were amounts paid by the employer for the purposes of the Income Tax Act and for CPP and EI calculations. Canadian Pacific was dispositive. In concluding that the taxpayer had “paid” the gratuities to its front line staff, Campbell J stated (at para 49):

[T]he Appellant, during the relevant period, not only ended up with possession of all gratuity and tip amounts… but exerted considerable control over those amounts, engaging in the redistribution of those amounts within the broad definition of “paid” as contemplated in the [Insurable Earnings and Collection of Premiums Regulations].

Other locations for this summary
Tax Topics - Other Legislation/Constitution - Federal - Employment Insurance Act - Section 82 - Subsection 82(1) restaurant tips are remuneration from an employer
Tax Topics - Other Legislation/Constitution - Federal - Canada Pension Plan - Section 8 - Subsection 8(1) restaurant tips are remuneration from an employer
Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Specific v. General Provisions use of "gratuities" in a specific provision did not imply that another kind of gratuity could not be caught under a general provision 246

Hines v. The Queen, 2016 DTC 1003 [at 2509], 2015 TCC 317

shareholder-director was employee, not independent contractor

The taxpayer and two others incorporated, and the taxpayer became a director of, a corporation ("Wellspring") that provided operational services in the oil industry. Wellspring retained the taxpayer as a consultant under contract for $8000 monthly. Lyons J affirmed the Minister's position that the taxpayer was an employee rather than an independent contractor. The control factor of the Wiebe Door test for establishing who owned a business was inconclusive (paras. 25- 29), but the fact that Wellspring initially provided a desk and then from 2008 paid rent to the taxpayer to operate its business from Red Deer indicated that he did not provide his own equipment (paras. 30-31), nor did he have an opportunity to profit and bore virtually no financial risk. (paras. 33 – 36). Lyons J further concluded that the taxpayer was working within Wellspring’s business for his benefit as an employee, evidenced by lack of separate books and records and invoices, and that Wellspring operated out of his residence at the same time that he claimed to be an independent contractor. (para. 37)

Big Bird Trucking Inc. v. M.N.R., 2015 TCC 340

drivers hired regularly, but on a per-load basis, were not employees

Three individuals, who were hired by the appellant (“Big Bird”) to drive trucks, were independent contractors rather than employees for EI and CPP purposes. C. Miller J. noted that (under the Wiebe tests) the drivers had little responsibility for investment or management, and that Big Bird provided the insurance and the truck and trailer (a factor which was given weight in TBT, 2011 FCA 256). However, the (poorly-documented) agreements were that a driver might be offered loads by Big Bird, which the driver might refuse or accept, and which were to be paid for only after the driver submitted an invoice. In addition, there was some risk of damage due to the driver’s own negligence and also a risk of not getting paid if the customer refused to pay Big Bird for the cost of layovers - and there was no dispatcher directing the drivers’ services (para. 22). He stated (at para. 13) that “there is a lack of commitment on either side, a lack of security, a lack of continuity and inherent risk that one seeking employment would find unattractive,” and concluded (at para. 22) that “one side clearly was just looking for the drivers’ services.”

Rogers Estate v. The Queen, 2015 DTC 1029 [at 124], 2014 TCC 348

exercise of stock option surrender plan for FMV was not "remuneration"

Pursuant to a share appreciation right ("SAR") attached to stock options granted by a public corporation which he controlled and of which he was the CEO, the taxpayer surrendered the options for a cash payment equal to their value.

After finding that the surrender payment was not a taxable employee benefit under s. 6(1)(a) (see summary under s. 7(3)(a)), Hogan J found that the payment also was not "salary, wages, and other remuneration" under s. 5(1), quoting the statement in Hale v. The Queen, 90 DTC 6481 (FCTD), aff'd 92 DTC 6473 (FCA) "that the words salaries, wages and other remuneration unavoidably correspond to a sum of money received in return for the provision of services."

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) cash surrender of employee stock options for their value was not shareholder benefit 124
Tax Topics - Income Tax Act - Section 39 - Subsection 39(1) - Paragraph 39(1)(a) capital gain can arise from property which is not capital property 271
Tax Topics - Income Tax Act - Section 7 - Subsection 7(3) - Paragraph 7(3)(a) s. 7 a complete code for taxation of stock option benefits 230
Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Options holding one's employee stock options until just before they expire is not typical of an adventure in the nature of trade 185

McCormick v. Fasken Martineau DuMoulin LLP, 2014 SCC 39, [2014] 2 S.C.R. 108

equity partner not an employee under (human rights) control and dependency test

The appellant was an equity partner at the respondent law firm, whose partnership agreement required retirement at 65. The respondent applied to have the appellant's age discrimination complaint dismissed on the grounds that, as an equity partner, he was not an employee under BC's Human Rights Code.

The Abella J stated (at para. 28) that in making this determination:

Ultimately, the key is the degree of control, that is, the extent to which the worker is subject and subordinate to someone else's decision-making over working conditions and remuneration... .

She then found (at para. 39) that "as an equity partner, he was part of the group that controlled the partnership, not a person vulnerable to its control." Therefore, he was not an employee under the Code and could not contest the mandatory retirement. Abella J went on to state (at para. 46) an employee finding "would only be justified ... where the powers, rights and protections normally associated with a partnership were greatly diminished."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 96 equity partner not an employee under (human rights) control and dependency test 172

1392644 Ontario Inc. (Connor Homes) v. Canada (National Revenue), 2013 FCA 85

examine intent before applying factual tests

The taxpayer was a licensed operator of foster homes and group homes through which it provided care for children with serious behavioural and developmental disorders. The Court found no basis for overturning the trial judge's finding that the taxpayer's youth workers and area supervisors were employees rather than independent contractors, and hence had pensionable employment under the Canada Pension Plan and insurable employment under the Employment Insurance Act.

Although each contract clearly indicated contractual work on its face (e.g. "nothing in this agreement shall be construed so as to restrict in any way the freedom of the Independent Contractor(s) to conduct any other business or activity for his/her individual profit"), the trial judge's findings supported the conclusion that the work was practically indistinguishable from employment - for example, workers had no ability to increase their income by cutting costs or producing more, nor did they control the hours they worked.

Mainville JA also stated (at paras. 39-40):

In this case, the Tax Court Judge appears to have proceeded in an inverse order, dealing with the parties' intent as set out in their mutual contracts at the end of his analysis. The first step of the analysis should always be to determine at the outset the intent of the parties and then, using the prism of that intent, determining in a second step whether the parties' relationship, as reflected in objective reality, is one of employer-employee or of independent contractor.

However, the incorrect ordering of the trial judge's analysis was not enough to shake his conclusions.

M.A.P. v. M.N.R., 2012 DTC 1112 [at 3065], 2012 TCC 70

Lamarre J. found that a clergyman, who worked as the full-time manager of a small charitable organization ("MAP"), which provided support to former prison inmates) was an employee having regard inter alia to the integration test. While MAP and the worker had attempted to structure their affairs so that the worker would be treated as an independent contractor (for example, he was generally responsible for his own equipment and office), the evidence showed that he acted and generally represented himself as MAP's director, and "the services of the worker were integral to MAP's core function rather than being merely ancillary..." (para. 51).

Accordingly, the appeal of MAP from CPP and EI assessments, and income tax source deduction assessments, was dismissed. (The reasons do not disclose whether the income tax assessment of MAP was restricted to the 10% penalty under s. 227(8), and there was no discussion as to whether MAP was liable for the source deduction amounts themselves having regard to s. 227(8.1).)

Chabaud c. La Reine, 2012 DTC 1076 [at 2856], 2011 TCC 438 (Informal Procedure)

Archambault J. found that "bursary" amounts that the taxpayer received from the University of Laval in connection with his postdoctoral fellowship at that university were employment income rather than amounts described under s. 56(1)(n) (scholarship, bursary, fellowship or prize for achievement), because his work was in the nature of "employment" under Quebec civil law. Under art. 2085 of the Civil Code, "a contract of employment is a contract by which a person, the employee, undertakes for a limited period to do work for remuneration, according to the instructions and under the direction or control of another person, the employer." The relative independence of research fellows as employees was irrelevant given that they were ultimately accountable to their supervisors. Archambault J. stated (at para. 72):

Having more independence does not necessarily mean that there is no relationship of subordination. The existence of a relationship of subordination does not depend on the right of direction and control being exercised, but on the existence of the right to exercise such control.

Follwell v. The Queen, 2011 DTC [at 1709], 2011 TCC 422 (Informal Procedure)

Hershfield J. found that the taxpayer was not engaged in a business in respect of his work as the assistant rugby coach at Queen's University. As the honorarium was only enough to cover the taxpayer's expenses, there was no reasonable expectation of profit. Hershfield J., considering the control factor in Sagaz, also found that the university had control over the taxpayer, notwithstanding that the control was not exercised and the taxpayer was essentially given a free hand. Employers are able to "dictate the desired result" (such as improving Rugby team performance) to an employee without concerning themselves with implementation details (para. 42).

Boisvert v. The Queen, 2011 DTC 1296 [at 1670], 2011 TCC 290

Real property with a value of $68,000 was devised to the taxpayer (conditional upon settlement of the estate) "as a token of gratitude for the services" the taxpayer was called upon to perform under the will as liquidator of the estate. The taxpayer accepted his appointment as liquidator. Tardif J. found that the value of the property was remuneration from an office. The fact that the compensation was generous relative to the level of work performed did not alter this finding.

Pluri Vox Media Corp. v. The Queen, 2011 DTC 1175 [at 960], 2011 TCC 237 (Informal Procedure), aff'd on different reasoning, supra

Rip C.J. found that Mr. Reesink, the taxpayer's sole shareholder, worked for the taxpayer as an employee rather than an independent contractor. Rip C.J. stated (para. 25):

Mr. Reesink was also a director of Pluri Vox, albeit a de facto director. The directors, the de jure directors, are not acting as directors; to the extent they do anything, they follow Mr. Reesink's wishes. Who is running the company? Mr. Reesink says he is and on the facts before me he is. It is Mr. Reesink who actually manages and supervises the management, business and affairs of Pluri Vox. It is clear that he exercised all the powers of the director [and] he was and is, in fact, a director of Pluri Vox. And since he was (and is) a de facto director of Pluri Vox, he may be an officer of the appellant.

Sochatsky v. The Queen, 2011 DTC 1065 [at 346], 2011 TCC 41, 2012 TCC 65

amount booked as loaned-back bonus was remuneration

The taxpayer was a director, shareholder and employee of a corporation ("Northern"). He resigned from his directorship and employment in 2001. In that year, Northern declared a $3.7 million bonus, withheld and remitted source deductions from this amount and recorded a loan to it from the taxpayer for the remaining amount of the bonus. In 2002, the taxpayer directed that $350,000 be paid by Northern to each of two corporations controlled by the taxpayer or his wife (purportedly for management services provided by them to Northern notwithstanding that these corporations were not organized until 2002), and the balance to him.

The taxpayer's position was that the two $350,000 amounts paid to the two corporations (who included these amounts in their 2002 returns) were not income to him. Jorré J. found at para. 79 that the taxpayer had received these two amounts in 2001 in light of the withholding and remittance of source deductions on the full $3.7 million amount of the bonus, the booking by Northern of a loan back to it of the net bonus proceeds and the absence of any evidence that this was done without his knowledge or consent.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Payment & Receipt bonus booked as loan back/constructive receipt 131
Tax Topics - Income Tax Act - Section 56 - Subsection 56(2) 168

MacIntyre v. The Queen, 2010 DTC 1053 [at 2801], 2010 TCC 27 (Informal Procedure)

The taxpayer was employed as a ships pilot by the Atlantic Pilotage Authority ("APA") and was paid a flat salary pursuant to a collective agreement when he worked as scheduled every second week in the Halifax harbor. In addition, he had the option of accepting assignments for pilotage services during the other weeks, and when he did so he received a percentage of the fees his employer charged to the ship owners. In light inter alia that the collective agreement provided that such work performed outside scheduled weeks was done by him in his capacity of employee, the authority the APA had to ensure compliance by the taxpayer with the provisions of the collective agreement and the fact that there was very little risk of the taxpayer not receiving the fees for work performed by him in the non-scheduled weeks, the income from such supplementary work was employment income to him.

Ganpaul v. The Queen, 2009 DTC 731, 2009 TCC 205 (Informal Procedure)

Before going on to apply the four-fold test in the Sagaz Industries case to find that the taxpayer, who was responsible for overseeing the marketing and packaging processes of a corporation in the sugar industry in consideration for a fixed monthly fee, was an independent contractor, Sheridan, J. stated (at para. 9) that "it is not unusual for a consultant to be paid a fixed monthly fee for his services".

Merchant v. The Queen, 2009 DTC 282, 2009 TCC 31

advance is current remuneration if repayable only out of future earnings

In finding that loans made to the taxpayer by his employer were employment income to him when received, Webb, J. stated (at para. 22):

"in a situation where a cheque is issued (or cash is dispersed) to an employee in relation to services that have been rendered and the transaction is labelled an advance or a loan but in reality the employee is only obligated to repay the amount, without interest, from subsequent salary or 'bonuses' paid by the employer, in my opinion, the real character of the amount received is that it is received as a payment of compensation and not a loan. There is no true intention that the employee will have to repay the amount from any source other than the future 'payments' to be made by the employer."

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 5 - Subsection 5(1) 137

Ville de Québec v. The Queen, 2008 DTC 4967, 2007 TCC 329

Amounts that the appellant paid to its employees after they were injured were characterized as advances in respect of the employees' entitlement to receive disability payments from the Québec Board of Occupational Health and Safety, rather than as remuneration, so that such amounts were not subject to source deductions.

Carreau v. The Queen, 2008 DTC 3106, 2006 TCC 20

Bédard J. noted that the question whether an individual would have been regarded as an employee of Hydro Quebec under the "personal services business" definition should be determined on the basis of the test of employment contained in the Civil Code of Quebec, which rules are incompatible with the rules set out in the leading tax cases on what constituted employment including the Wiebe and Sagaz Industries cases and noted (para. 12) that, following the codification in the Code of what constituted employment "the courts no longer have the latitude that the common-law courts have to define what constitutes a contract of employment or a contract of enterprise or service".

Lockhart v. The Queen, 2008 DTC 3044, 2008 TCC 156

The taxpayer, who was the president of a start-up technology company ("AVL") was issued shares of AVL in recognition of past services. Although it was anticipated that these shares would be exchanged by him for escrowed shares of another corporation ("USX") on an acquisition of the AVL shares by USX, this did not represent a contractual restriction on his right to deal with AVL shares. The value of the shares (net of the subscription price) was included in his employment income.

Lang v. M.N.R., 2007 DTC 1754, 2007 TCC 547

Individuals that the taxpayers retained on an engagement-by-engagement basis to perform duct cleaning at houses which the taxpayers had lined up through their efforts, in consideration for a portion of the fee collected from the homeowners, and with the requirement on the individuals to rectify any deficiencies in the cleaning at their own expense, were found to be independent contractors for Canada Pension Plan and employment insurance purposes. Before reaching this conclusion, Bowman C.J. stated (at para. 34) that "the four-in-one test in Wiebe Door has ... been reduced to representing 'useful guidelines relevant and helpful in ascertaining the intent of the parties'" and that "intent is a test that cannot be ignored but its weight is as yet undetermined".

Suspended Power Lift Service Inc. v. The Queen, 2007 DTC 1505, 2007 TCC 519 (Informal Procedure)

An individual whom the taxpayer retained to provide specified bookkeeping services for a fixed amount per week and who provided bookkeeping services to other of her clients as well was found to be an independent contractor rather than an employee, with the result that the taxpayer was not obligated to pay employer premiums under the Canada Pension Plan Act in relation to her services.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 153 - Subsection 153(1) - Paragraph 153(1)(a) withholding triggers remittance obligation 64

Maliyar v. The Queen, 2007 DTC 337, 2006 TCC 671 (Informal Procedure)

A mechanical engineer who worked 35 hours a week plus overtime at the offices of a corporation under the supervision of a project manager and who was assigned work on a regular basis with strict project guidelines, was found to be an employee.

Pellerin c. La Reine, 2006 DTC 3341, 2006 TCC 383 (Informal Procedure)

amounts received from accident-victim son in mother's care were not income to her

Amounts received by the taxpayer from her son while he was suffering partial, permanent incapacity from a traffic accident did not represent income from employment or income from services rendered but, instead, represented amounts given by him to her in appreciation for what she had done for him.

DRL Group Ltd. v. M.N.R., 2006 DTC 3113, 2006 TCC 331

Individuals working as tour guides and greeters in the cruise ship industry were found to be independent contractors rather than employees of the appellant for Employment Insurance and Canada Pension Plan purposes given the degree of control they had over their work (they were responsible for developing their own "spiel", they worked from the dockyard rather than from rented space, they did not have to work on a particular day if they did not wish to do so, they invoiced for the work they performed, some of them worked for other cruise ship operators as well, and they provided their own clothing other than a red vest for identification purposes), and the practice in the industry was to treat such individuals as independent contractors and not as employees. School bus drivers retained by the appellant were specifically deemed by s. 6(e) of the Employment Insurance Act regulations to be employed.

Algoma Taxicab Management Ltd. v. M.N.R., 2006 DTC 2497, 2006 TCC 71

The taxpayer, a taxicab driver, was found to be self-employed given that the rental fee he paid for the use of the taxicab could range between 62% and 70% depending upon factors which were mostly under his control and the revenues he generated could be significantly increased by demonstrating initiative, he ran the risk of loss through credit card fare charge-backs or NSF cheques and his taxicab operation was not highly integrated with that of the taxicab lessor given that he was free to work whenever he wished and for as long or as short a shift as he wished, and could take time during those shifts to do personal errands.

Foley v. The Queen, 2006 DTC 2281, 2006 TCC 55 (Informal Procedure)

In addition to being employed as a school principal, the taxpayer worked as a freelance instructor at a college. She was successful in establishing that this supplementary endeavour was a business rather than employment, thereby entitling her to deduct some of the expenses claimed by her.

Au v. The Queen, 2005 DTC 794, 2005 TCC 303

At the same time that an individual ("Johnson") had companies controlled by Johnson offer employment to the taxpayer, Johnson indicated to the taxpayer that Johnson would provide in his will that the taxpayer would receive 1/9 of Johnson's estate on death. Johnson later amended his will to provide that the taxpayer would receive 10% of the his estate provided the taxpayer was still then an employee. When the taxpayer's employment later was terminated, the taxpayer sued and received lump sums from the companies, which he included in his income as employment income, and also received a lump sum of $3,080,000 from Johnson, which represented approximately 10% of the net value of Johnson's estate at that time.

McArthur J. found that if the interest in the estate had been paid to the taxpayer in the normal course of events, it would not have been employment income, and the damages received in settlement of a claim for this amount accordingly were non-taxable.

McLean v. The Queen, 2004 DTC 2585, 2004 TCC 200 (Informal Procedure)

The taxpayer ran his own hog operation on his farm but also worked as a barn manager at a nearby 6,400 hog-feeder farm. He was found to be an independent contractor given that the owner of the hog-feeder farm did not supervise the taxpayer's work, let him hire his own assistants (over its objections, in one instance), the taxpayer used his own tools and equipment and he shouldered a degree of financial risk in that he was paid a bonus equal to $1 for every hog shipped.

Preddie v. The Queen, 2004 DTC 2427, 2004 TCC 181 (Informal Procedure)

A retired engineer was engaged by a student tutoring company which provided the premises and some books, supplies, liability insurance, with the taxpayer providing his own calculator, some books, his home office to prepare his lectures and also his car to travel. The taxpayer was found to be an independent contractor given, among other things, that he refused to follow the teaching approach prescribed by the company and taught only on the condition that he use his own methods, which reflected his high degree of qualification and his over 30 years of teaching experience. McArthur J. noted that it was not appropriate to apply the integration test, which had not been applied in the Sagaz case ([2001] 2 S.C.R. 983).

Shaw Communications Inc. v. MNR, 2003 DTC 1459 (TCC), aff'd 2003 DTC 5707 (FCA)

Individuals who hooked up customers of the appellant for the provision to the customers of cable or internet services, or who sold such services on behalf of Shaw ("Shaw") were found to be employees of Shaw rather than independent contractors for purposes of the Employment Insurance Act and the Canada Pension Plan Act.

The agreement with each individual pointed to employment status: Shaw was required to pay the individual's workers compensation monthly premiums, and insurance premiums for disability and life insurance all of which Shaw deducted out of amounts paid to the individuals; Shaw provided medical and dental insurance without charge to the individual; upon termination the individual received a payment in lieu of notice; and the terms were not negotiated.

In addition, Shaw had "overarching control" over the individuals (particularly the installers) including detailed scheduling control over when and where they worked; the selling individuals (although not the installers) did not own significant tools; for all practical purposes the individuals could not hire helpers; and notwithstanding their responsibility for some expenses there was no real prospect of the individuals suffering a loss; the compensation of the installers on a piece-work basis and the sellers on a commission basis was not inconsistent with employment status; and the individuals had no separate business premises, no separate customers (the customers being Shaw customers) and virtually no capital to invest.

Dion Neckwear Ltd. v. Christian Dior SA (2002), 215 DLR (4th) 413, 2002 FCA 29

Taxicab drivers who contracted with the appellant to drive vehicles owned by them, or leased by them from separate owners, were not engaged in insurable employment given that the appellant did not own the "tools of the trade" (the taxicabs) and the drivers were in a position to gain a profit or suffer a loss from the operation of the business and, in fact, their degree of financial risk was higher than that of the appellant.

671122 Ontario Ltd. v. Sagaz Industries Canada Inc., [2001] 2 S.C.R. 983, 2001 SCC 59

The supply of car seat covers to Canadian Tire represented the chief revenue source of a Canadian company("Design"). Design lost this business to a replacement supplier ("Sagaz") as a result of bribes paid to a Canadian Tire executive by the controlling shareholder ("Landow") of a New York corporation ("AIM") which had been retained by Sagaz to promote business with Canadian Tire. Sagaz was found not to have vicarious liability to Design for the tortious conduct of AIM, as vicarious liability would only arise for acts of an employee (or agent) rather than an independent contractor.

AIM was an independent contractor because it was engaged in business on its own account. Central to the inquiry was the fact that AIM decided how much time to devote to Sagaz and how much time to devote to its services for other supply companies (so that "although Sagaz controlled what was done, AIM controlled how it was done" (para. 55). In addition, AIM had its own offices, paid it own costs of conducting its business, and would have realized a loss if these expense had exceeded its commissions.

Major J stated (at para. 47):

Although there is no universal test to determine whether a person is an employee or an independent contractor, I agree with MacGuigan J.A. [in Wiebe] that a persuasive approach to the issue is that taken by Cooke J. in Market Investigations, supra. The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account. In making this determination, the level of control the employer has over the worker's activities will always be a factor. However, other factors to consider include whether the worker provides his or her own equipment, whether the worker hires his or her own helpers, the degree of financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the worker's opportunity for profit in the performance of his or her tasks.

Baptist v. The Queen, 2000 DTC 2045 (TCC), briefly aff'd 2001 DTC 5574 (FCA), 2001 FCA 298

Compensation received by a police officer for performing special paid duty, i.e., compensation received directly from third parties for performing services in uniform at their special request, represented income from employment rather than income from a business. The contracts with the third parties were entered into by the police force and the force had, and exercised, the right to control the manner in which the work was done.

Saardi v. The Queen, 99 DTC 767, [1999] 4 CTC 2488 (TCC)

A lump sum of Cdn.$50,000 that the taxpayer received from his former U.S. employer was found to be compensation for damages suffered by him in agreeing to move to the United States to start his new job. On this basis, the amount was not taxable under s. 5(1).

Gernhart v. The Queen, 96 DTC 1672, [1996] 3 CTC 2369 (TCC), briefly aff'd 98 DTC 6026 (FCA), Docket: A-625-96

Tax equalization payments received by a U.S. resident while employed in Canada were found to constitute part of her remuneration for services within the meaning of s. 5(1).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) tax equalization payment 75

Phillips v. The Queen, 95 DTC 194, [1994] 2 CTC 2416 (TCC)

In finding that bonuses that a company had declared in favour of its controlling shareholder were not employment income to him, Bowman TCJ. stated (at p.196):

"It is true that as controlling shareholder he could have required the company to pay it to him but he did not do so. Employment income must be received, not receivable, to be taxed ... . Nor can I accept that the mere bookkeeping entry of moving the bonus owing to Mr. Phillips from a 'bonus payable' to 'due to shareholder' connotes receipt. Accounting entries are supposed to reflect reality, not create it ..."

Locations of other summaries Wordcount
Tax Topics - General Concepts - Payment & Receipt book entry did not give rise to receipt 101

Meredith v. The Queen, 94 DTC 1271, [1994] 1 CTC 2538 (TCC)

In finding that amounts advanced to a commissioned salesman and director of a corporation in excess of the commissions earned by him, constituted loans rather than remuneration, Kempo TCJ. stated (p. 1277-1278):

"that if a commissioned sales person may be expected to earn commission income in the future, and to help out in the meantime the employer pays advances in anticipation that sales events will happen, those amounts may appropriately be treated as short term loans".

Hall v. Lorimer, [1993] BTC 473 (C.A.)

The special commissioner did not make any reversible error in finding that a "vision mixer" who undertook short engagements for a large number of television companies (generally 120 to 150 engagements per year typically lasting only one day), who incurred very substantial expenditures in the course of obtaining and organizing those engagements, and who took the risk of his fees becoming bad debts, was self-employed, notwithstanding that he did not risk any of his own capital in the various engagements.

Shilton v. Wilmshurst, [1991] BTC 66, [1991] UKHL TC_64_78 (HL)

As part of the trade of a professional soccer player to another team, his former team paid him £75,000 to induce him to agree to the trade so that it could receive a transfer fee from the other team. The £75,000 "signing-on fee" was an emolument of his employment.

Head and Head Holdings Ltd. v. Intertin Canada Ltd. (1991), 5 OR (3d) 192 (Ont. Ct. G.D.)

A "joint venture" manager of one of the defendant's stores was found in obiter dicta to be an employee given that his freedom of action was severely limited by the joint venture agreement and by the defendant's detailed operational policies, and given the retention of ownership by the defendant of the place of business and the merchandise sold there.

McMenamin v. Diggles, [1991] BTC 218 (Ch. D.)

The Court did not disturb the Commissioners' finding that a senior clerk, who provided at his own expense full clerking services to the 20-barrister members at St. James' Chambers in consideration for a percentage of the gross fees of each barrister, did not hold an "office".

Wiebe Door Services Ltd. v. MNR, 87 DTC 5025, [1986] 2 CTC 200 (FCA)

tests distinguishing contract of service and for services

It was stated that no single test is determinative for the purpose of distinguishing a contract of service from a contract for services, although it was stated that the best synthesis is that in Market Investigations where Cooke, J. stated that factors to be considered in determining whether the person who has engaged himself to perform the services is performing them as a person in business on his own account include absence of control over the way in which he performs the services and whether he provides his own equipment, whether he hires his own helpers, what degree of financial risk has been taken and whether he has an opportunity of profiting from sound management in the performance of his task.

Canadian Pacific Ltd. v. A.G. (Can.), [1986] 1 S.C.R. 678.

Tips which were paid by customers of a CP hotel to CP which in turn distributed the tips among the hotel employees constituted in respect of each employee "remuneration ... paid by his employer" for purposes of the Unemployment Insurance Act, 1971.

Narich Pty. Ltd. v. Commissioner of Pay-roll Tax, [1984] BTC 8019 (PC)

The contracts between a franchisee of Weight Watchers International Inc., and "Lecturers" who instructed in the Weight Watchers' programme, provided that "the Lecturer is not an employee of the Company but is an independent contractor...". It was found, however, "that a lecturer is tied hand and foot by the contract with regard to the manner in which she performs her work under it ... [T]he only possible conclusion is that she is an employee."

Locations of other summaries Wordcount
Tax Topics - General Concepts - Payment & Receipt indirect receipt of wages 30

Sazio v. MNR, 69 DTC 5001 (Ex Ct)

The taxpayer, who succeeded to the position of head coach at a football club, resigned from that position, became an employee of a company owned by him and his wife, and had the company enter into an agreement with the club pursuant to which his services would be provided to the club. In finding that the fees received by the company were not income to the taxpayer, Cattanach J. noted that, with the exception of minor departures (e.g., the taxpayer in some cases was reimbursed for expenses directly by the club, and the company violated a prohibition in the services agreement against engaging in other businesses the services agreement was scrupulously adhered to by the parties and (at p. 5006) "the agreements entered into between the appellant and the Company and the Club were bona fide commercial transactions all in furtherence of the Company's legitimate objects".

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 56 - Subsection 56(4) 163

Administrative Policy

2 December 2021 External T.I. 2021-0898441E5 - XXXXXXXXXX paid sick days

COVID (or other) sick-leave payments are s. 5(1) income

On May 20, 2021, the Province amended the Employment Standards Act (B.C.) to require employers to provide employees with up to three days of paid leave if they needed to stay home for specified COVID-19 related reasons. Although employers were generally required to pay the employees’ wages, eligible employers were potentially entitled to be reimbursed by the B.C. government for part or all of such sick leave payments pursuant to the Province’s Sick-Leave Reimbursement Program (“SLRP”).

After noting that government assistance not included in income under s. 9(1) may be includible under s. 12(1)(x), CRA stated:

Since the SLRP amounts received by an employer are likely received in the course of earning income from a business, they should be included in the employer’s income in accordance with subsection 9(1) … .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Expense Reimbursement wage-reimbursement payments received by employers were s. 9 income 143

S4-F14-C1 - Artists and Writers

Common law distinction between employment contract and contract for services

1.11 If the contract is formed in a province or territory other than Quebec, the CRA’s approach is to examine the total relationship between the worker and the payer using a two-step approach.

Step 1 - Look at the intention of the parties when they entered into the working arrangement.

Step 2 - Determine whether the intent of the parties is reflected in the facts by looking at the following elements:

  • the level of control the payer has over the worker's activities

  • whether the worker or payer provides the tools and equipment

  • whether the worker can subcontract the work or hire assistants

  • the degree of financial risk the worker takes

  • the degree of responsibility for investment and management the worker holds

  • the worker's opportunity for profit

  • any other relevant factors, such as written contracts.

Then determine whether the actual working conditions are more consistent with a contract of service or with a contract for services.

Quebec distinction

1.12 If the contract is formed in the province of Quebec, the CRA’s approach is to examine the relationship between the worker and the payer, using a three-step approach.

Step 1 - Look at the intention of the parties when they entered into the working arrangement.

Step 2 - Determine whether the employment meets the definition of a contract of employment or of a business contract (contract for services) defined in the Civil Code of Québec by considering the following factors:

  • carrying out the work

  • remuneration

  • relationship of subordination

Step 3 - Compare each party's intentions with their actual working relationship. Decide whether the conditions of the working relationship represent the status that the parties have chosen and that they are consistent with the definitions of the Civil Code of Québec.

1.13 In applying these criteria, it is the complete interaction between the worker and the payer that must be considered. In the common law, no single criterion determines whether an individual is an employee or a self-employed person; all the criteria are considered relevant. In the civil law, direction or control of the other person is essential

7 June 2019 STEP Roundtable Q. 15, 2019-0798351C6 - CPP/EI Rulings

A CPP/EI status ruling can trigger a payroll audit

CRA indicated that when the CPP/EI Rulings Division provides a ruling on whether a worker is an employee or an independent contractor in relation to an employer/services recipient:

[I]t does not automatically send a referral to the Trust Accounts Examination Division after the ruling is completed. A referral is sent in specific situations and solely to ensure compliance from the employer. For example:

  • If the ruling changed the employment status of the worker from self-employed to employee or from employee to self-employed ...
  • Or for example if the ruling confirmed there was an employer/employee relationship and no source deductions have been made and the payer has not reported the wages or issued T4 slips in the name of the worker

26 June 2018 External T.I. 2018-0746971E5 - Bonus received after death of employee

employment income recognized in year of entitlement notwithstanding T4 reporting not until payment

A retired employee, who had a right to receive a bonus payment (a restricted share unit) in 2017 and in 2018, died in 2017 which, under the terms of the plan, resulted in all entitlements becoming payable immediately. However, the employer did not make the payment to the deceased’s estate until 2018, when it became aware of the death.

Guide T4001 provided:

Employment income and retroactive pay adjustments that you pay to a deceased employee, or to the employee’s estate, have to be reported on a T4 slip in the year in which the amounts are paid even if they were earned by or owed to the employee in a different tax year.

However, Guide 4011 appeared to contemplate recognition of employment income in the year of death. CRA indicated that both statements are correct:

The T4 prepared by the employer would reflect the year of payment, which in your example occurred in 2018 and the amounts received by the estate should be reported on the final return of the deceased in 2017, the year of death.

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 200 - Subsection 200(1) constructive receipt does not accelerate T4 reporting obligations 138

28 July 2017 External T.I. 2017-0685961E5 - Taxation of Settlement Amounts

amounts received in settlement of employment grievances to be s. 5 income on general principles

CRA found that lumps sums paid to current and former employees in settlement of a grievance regarding the cancellation of various post-retirement health and insurance benefits likely did not qualify as retiring allowances (since current employees were included) and likely were deemed to be s. 5 employment income under s. 6(3)(b) (i,e., they were provided “to an employee (or former employee) to satisfy an obligation outlined in a written or oral agreement made with his or her employer (or former employer), either immediately before, during, or immediately after employment.” CRA also considered the amounts to be s. 5 employment income on more general principles, stating:

The Canadian courts have consistently viewed amounts received as the result of grievances filed by virtue of a contract of employment (e.g., grievance for violation of a collective agreement) to be taxable as employment income. Therefore, to [that] extent … the amount would be included in employment income under subsection 5(1) or paragraph 6(1)(a) … .

[T]o the extent that part of the Settlement Amount was provided as a remedy for the violation of the employees’ rights under the Canadian Charter of Rights and Freedoms, that portion will be considered non-taxable damages [for which there] are no reporting or withholding requirements… .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Retiring Allowance settlement amount (re post-retirement benefits reduction) also paid to current employees likely not retiring allowance 171
Tax Topics - Income Tax Act - Section 6 - Subsection 6(3) - Paragraph 6(3)(b) settlement amounts paid after repudiation of post-retirement health benefits were deemed employment income 230

21 July 2017 Internal T.I. 2017-0714931I7 F - Retiring allowance - Sick Leave

payout on termination of accumulated sick leave credit is employment income to extent otherwise would have been paid at year end

On termination of employment, the employee would be paid the value of his or her accumulated sick leave credits. CRA considered that this payment would be a retiring allowance (and thereby presumably excluded from CPP contribution requirements) except for the amount paid in excess of the equivalent of 20 days, which generally would be considered to be employment income given that this excess, in the absence of the termination, would have been paid out to the employee at the end of the year.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Retiring Allowance payout of accumulated (non-excess) sick leave credits on termination of employment was a retiring allowance 168
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Death Benefit includes payout on death of accumulated (non-excess) sick leave credits 195

19 December 2016 External T.I. 2016-0643191E5 F - Deferred Salary Leave Plan (DSLP)

salary advance arrangement results in recognition when advances made rather than when earned

The deferred salary leave plan (“DSLP”) rules in Reg. 6801(a) permit a hybrid arrangement under which, during the employee’s leave, the employee first receives amounts whose recognition is deferred under the DSLP rules, and then receives advances of salary or wages which are to be earned after returning to work, with such amounts in both cases being included in the employee’s income under ss. 6(3) and 5(1). CRA then indicated that in this type of arrangement (or one where the employee only receives advances during the leave – in which case, it is not within the DSLP rules), the employee is entitled to a s. 8(1)(n) deduction as the advances are “repaid” (i.e., out of reduced pay cheques following the return to work).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 8 - Subsection 8(1) - Paragraph 8(1)(n) deduction where “repayment” of advances made during employee leave 217
Tax Topics - Income Tax Regulations - Regulation 6801 - Paragraph 6801(a) comprehensive discussion, including: seasonal workers cannot participate; and DSLP can be married with a salary advance arrangement 462

6 June 2016 Internal T.I. 2015-0590411I7 F - Revenu d’emploi ou allocation de retraite

"salary" paid after notice period was retiring allowance

Regular pay is subject to CPP/EI withholding, whereas retiring allowances are not (see Special payments chart). The Directorate considered three situations. The most challenging was one where a terminated employee received from her employer: "Compensation 1" paid in lieu of notice for the period from Date 2 to Date 3; "Compensation 2," representing severance pay covering the period from Date 3 to Date 4; and her regular salary from Date 4 to Date 5. The taxpayer purportedly became eligible to again start accumulating years of service under the pension plan when her “salary” resumed.

The Directorate concluded that Compensation 1 was regular pay, and Compensation 2 was a retiring allowance. Respecting the subsequent “salary” payments, the Directorate stated:

In spite of the fact that contributions of the taxpayer to the pension plans continued to accumulate for the period from Date 4 to Date 5, … the taxpayer and the employer did not have an employment relationship during that period…since [citing Schwartz] she was not required to provide services. …

Thus, since… there was no [recommencement] of employment on Date 4… the amounts paid between Date 4 and Date 5 constituted the continued payment of a retiring allowance.

…[W]e do not understand how the taxpayer could resume pension accruals on Date 4 when there was no employment on Date 4.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Retiring Allowance “salary” paid after employment duties had ceased was retiring allowance 620

26 April 2016 Internal T.I. 2015-0623571I7 - one-time salary transition payment

advance to employee is current s. 5 income

An employer is considering changing its payroll system to a payment-in-arrears system, so that employees will be paid for work that was done two weeks previously. The employer will pay existing employees a one-time transition payment (TP), at the date of conversion, instead of having a gap in pay. However, upon termination of employment, the employee generally would be required to make a payment to the employer (the employer may choose to take the money from a payment being made to the employee).

In concluding that the “TP would likely be considered a salary advance which should be included in the employees’ income in the year it is received,” the Directorate stated:

[W]here an employer makes a payment to an employee that is an advance on account of the employee’s future earnings, the amount received is generally not considered to be a loan to which subsection 80.4(1)… applies. …

Normally, an employee is not required to repay a salary advance as long as he or she continues to perform the services (i.e., remains employed). The fact that an employer is entitled to recover some part of the advance if an employee ceases employment before he or she has provided services in respect of which the advance was made, does not change the nature of the payment. Such advances are generally included in an employee’s income under subsection 5(1)… .

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 8 - Subsection 8(1) - Paragraph 8(1)(n) deduction for repayment of transitional advance 163
Tax Topics - Income Tax Act - Section 80.4 - Subsection 80.4(1) employee advance not a “loan” 123

2015 Ruling 2014-0542411R3 - Carrying on business in Canada and PE

seconded employees respected as employees notwithstanding their payroll is paid by (and reimbursed to) ForCo

Various ForCo employees are key to large construction “Projects” of its Canadian sister. They will be “seconded” to the ForCo, so that they will be treated as CanCo employees, notwithstanding that they will stay on the ForCo payroll. CRA ruled that there will be no Reg. 105 withholding on the payroll reimbursement payments made by CanCo to ForCo.

Locations of other summaries Wordcount
Tax Topics - Treaties - Income Tax Conventions - Article 5 PE in Canada of ForCo avoided through seconding employees to its Cdn sister and meeting in Canada up to 90 days annually only offsite 533
Tax Topics - Income Tax Regulations - Regulation 102 payroll reimbursement payments under employee secondment arrangement not subject to Reg. 105 205
Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(2) no mark-up on cross-border payroll reimbursement represented to accord with s. 247 107

12 February 2015 External T.I. 2014-0550771E5 F - Allocation à des bénévoles - chantier particulier

quite unrepresentative remuneration: exempt

A registered charity sends volunteers on missions to developing countries and pays them an allowance of $X per day based on the National Joint Council Travel Directive. Respecting the treatment of this allowance, CRA stated (TaxInterpretations translation):

[R]emuneration that is quite unrepresentative of the services rendered would not be taxable. However, when it is significant enough to influence the participation of the volunteer, it generally will become taxable as employment or business income.

In this case, in the absence of remuneration…the volunteers would be neither employees nor independent contractors. Consequently, the allowance would not be taxable… .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(1) - Total Charitable Gifts mission work volunteers foregoing allowances 123
Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit modest compensation to volunteers qua independent contractors not income 106
Tax Topics - Income Tax Act - Section 6 - Subsection 6(6) mission work under 2 years in LDCs 109

S2-F3-C1 - Payments from Employer to Employee

Timing of recognition of payment of employment income

1.8 A payment from an employer that is deemed [by s. 6(3)] to be employment income is included in an employee's income and taxed in the earliest year in which:

  • the employee receives it;
  • the amount is paid or transferred to another person for the benefit of the employee or such other person, at either the employee's direction or with the employee's agreement (see subsection 56(2)); or the amount is credited to an employee's debt or account, set apart for the employee or otherwise available to the employee without being subject to any restriction concerning its use (constructive receipt).

S3-F9-C1 - Lottery Winnings, Miscellaneous Receipts, and Income (and Losses) from Crime

Accumulated vacation and sick leave credits

1.6 Payments in respect of accumulated vacation leave and sick leave are considered to be income from an office or employment and taxable under subsection 5(1) in the year in which the payment is received. However, as confirmed in... Harel v. DMR (Que.), [1977] CTC 441, 77 DTC 5438 (S.C.C.), an amount received upon or after retirement in respect of unused sick leave credits qualifies as a retiring allowance (see Interpretation Bulletin IT-337R4 (Consolidated), Retiring Allowances).

Payments from a union

1.10 A union member who is on strike or locked out need not include strike pay in income. This is the case, even if the member performs picketing duties as a requirement of membership. In the decision of the Supreme Court of Canada in Wally Fries v. The Queen, [1990] 2 CTC 439, 90 DTC 6662, payments of strike pay were held not to be income from a source. On the other hand, payments made by a union to its members for services performed during the course of a strike are included in income if the member is employed by or is a consultant to the union whether permanently, as a member of a temporary committee… .

10 April 2013 Internal T.I. 2013-0475991I7 F - Montant- période de raccordement

terminated employee treated as continuing to be an employee due to employer’s continued treatment as an employee for EI, CPP and RPP purposes

Upon the taxpayer's termination of employment, the taxpayer chose, instead of severance pay, to benefit from an income maintenance plan (the "Plan") of the employer under which a reduced annual salary was received during the "Springboard Period," and a reduced salary in a different amount was received in the subsequent "Linking Period." During the Springboard Period, the employee was required to be actively looking for employment and to not hold outside employment. An amount from the reduced salary paid to the taxpayer during the Springboard Period was reserved for the Linking Period in order to contribute, inter alia, to a flexible benefits plan and a pension plan of the employer. During the two periods, amounts paid to the taxpayer were subject to employer source deductions and the taxpayer's participation in the pension plan was maintained.

Before indicating that no conclusion could be reached on the treatment of the amounts paid during the Linking Period (or whether there was a salary deferral arrangement) without an examination of the contract, the Directorate stated:

In the given situation, the employer treated the amounts paid to the taxpayer as income from employment for the purposes of computing Employment Insurance premiums and benefits, Canada Pension Plan accruals or eligible years of service under the registered pension plan.

Consequently, we consider that an employment relationship existed between the taxpayer and the employer until the end of the Springboard Period and that the amounts paid to the taxpayer during that period constituted employment income.

13 February 2013 External T.I. 2012-0448621E5 - Employee Referral Fee

recruitment referral fee

After being referred to an internal recruitment program for identifying potential candidates from existing employees' social networks, with the employer agreeing to pay the referring employee a referral fee, CRA stated:

a referral fee paid by an employer to an employee under the employee referral program is required to be included in the employee's employment income under subsection 5(1) or paragraph 6(1)(a)....

6 November 2012 External T.I. 2012-0455951E5 - Flexible Benefits

The employer provides a flexible benefit plan, whereby the employee can choose from various options including a health care spending account (HCSA). In finding that an employee is required to include in income the value of flexible credits received as part of the employee's annual incentive award, CRA stated:

Under the employer's annual incentive award, the employee still has the choice, on an annual basis, to direct his or her incentive award to a HCSA or receive it in cash. Effectively, the employee chooses to forgo cash remuneration for a non-taxable benefit. Further it is our view that at the time the employee is assigned the variable credits, he or she will be considered to have received a performance-related award which, as stated above, is required to be included in his or her employment income.

10 October 2012 External T.I. 2012-0451751E5 F - Statut fiscal des artistes /présomption

status as an employee not affected by presumption in Quebec Status of Artists Act that an independent contractor

Performing, recording and film artists bind themselves to producers through engagement contracts pertaining to specified performances. Is CRA is bound by the presumption in s. 6 of the Act respecting the professional status and conditions of engagement of performing, recording and film artists (Quebec) - that for the purposes of that Act, an artist who regularly binds himself to one or several producers by way of engagement contracts pertaining to specified performances is deemed to practise an art on the artist’s own account – where the artist otherwise would be regarded as an employee? CRA responded:

As stated in section 6 … the presumption has effect only for the purposes of that Act and therefore does not affect the purposes of the application of the Income Tax Act.

Consequently … despite the presumption contained in section 6 … the tax status of performing, recording and film artists will be determined by the criteria usually applied by the CRA.

14 May 2012 Internal T.I. 2010-0367831I7 F - Régime de pension étranger. France

contributions paid by employer to voluntary French pension funds for expatriates were constructively received by employee member

Contributions were paid by the employer of a Canadian resident of French nationality to the Caisse de retraite pour la France et l’Extérieur (CRE) and to the Institution de Retraite des Cadres et Assimilés de France et de l’Extérieur (IRCAFEX). The employer initially had been a French corporation but after the individual’s move to Quebec, it was a Canadian subsidiary. Membership in such Funds was on a voluntary basis. Although contributions to the Funds were the responsibility of the member (the individual), the rules governing the Funds never required the employer to contribute to them. The employer could agree to contribute on the member’s behalf. Funds represented voluntary insurance that allow citizens to maintain benefits comparable to those enjoyed while a resident of France. The French employee is the adherent to the contract and is responsible for payments.

The Directorate stated:

From all of the jurisprudence, it can be concluded that where an amount is applied or paid for or on behalf of a taxpayer but has not been received physically, there is a constructive payment. …

Given that the employer acted on behalf of the employee by paying an invoice that otherwise would be borne by the employee, we are of the view that the amounts were constructively received by the employee.

Where an employer so undertakes, under a contract to fulfill obligations that would otherwise be borne by the employee, the amount should be added to the employee's employment income under subsection 5(1).

Words and Phrases
constructive receipt
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Retirement Compensation Arrangement since employer acted as employee agent in making pension contributions, no RCA, EBP or SDA 73

29 March 2012 Internal T.I. 2011-0430871I7 F - Participation à une étude de recherche clinique

"volunteers" for drug clinical trials earned business rather than employment income

"Volunteer" participants in clinical research studies conducted by pharmaceutical companies were providing their services under contracts for services rather than contracts of service (employment).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit compensation received by participants in clinical drug studies were business income even where they had a personal interest in the study 187

29 February 2012 External T.I. 2011-0431131E5 F - Sommes versées en règlement d'un grief

damages on retroactive reinstatement are taxable

After a unionized employee filed a grievance for wrongful dismissal, the employer will pay the employee a lump sum. CRA stated:

[C]ompensation for damages received in respect of wages or other unpaid benefits (such as vacation) is generally considered taxable employment income under subsection 5(1). Similarly, in the case of retroactive reinstatement of an employee, compensation for taxable damages will be considered employment income and not a retiring allowance.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 60 - Paragraph 60(j.1) - Subparagraph 60(j.1)(v) previous employment years of service included if bought back 145
Tax Topics - Income Tax Act - Section 60 - Paragraph 60(j.1) - Subparagraph 60(j.1)(ii) - Clause 60(j.1)(ii)(B) employer contributions vest for each year bought back by an employee 121
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Retiring Allowance damages for event occurring during employment generally will be non-taxable 204

13 October 2011 External T.I. 2010-0382441E5 F - RSG- Employé / travailleur autonome

home childcare providers were self-employed given relative autonomy

Recognized home childcare providers ("RHCPs") provide child care from their homes. Their remuneration comes from the grants paid by the coordinating offices ("CO"), which represent their main source of income, and from the parental contribution of $7 per day.

In finding that RHCPs are self-employed rather than employees CRA first noted the Grimard decision, (2009 FCA 47), which referenced the primary test of subordination, but also stated:

… In determining legal subordination, that is to say, the control over work that is required under Quebec civil law for a contract of employment to exist, a court does not err in taking into consideration as indicators of supervision the other criteria used under the common law, that is to say, the ownership of the tools, the chance of profit, the risk of loss, and integration into the business.

CRA then stated:

In the context of "family day care" where several children are entrusted to the care of a RHCP, parents cannot demand exclusivity in the services rendered by the RHCP to their child. If the parent is not satisfied with the child care given to the child, the parent can withdraw the child from that family day care and file a complaint, but cannot terminate the RHCP.

The same is true of the Quebec government. … The current legislation provides a regulatory framework and does not allow COs to exercise control over RHCPs. …

We understand that RHCPs must provide educational child care (the choice of activities is theirs) while ensuring children in their care with continual protection. The hours of care, within certain government boundaries, are negotiated with parents. They are responsible for providing space, equipment, toys, educational materials and food for meals and snacks. They are also responsible for all their expenses related to their day care activities, including the maintenance of a liability insurance policy. If they themselves cannot provide child care (or a person responsible for replacing them), they are not entitled to any payment from parents or the government. They assume the risk of loss related to the management of their activities. Furthermore, the RHCP is not entitled to any benefits normally associated with an employment (including holidays, sick days and paid statutory holidays).

17 May 2011 External T.I. 2010-0391651E5 - Royalty payment in IP

payment to employee of royalties, generated from IP developed by the employee in the course of employment and assigned to the employer, was employment income

A faculty member employed by the university generates IP in performing research in the course of that employment, which is assigned to the university in consideration for a share of any royalties that are generated as a result of the university’s commercialization of that IP. CRA stated

Where the rights to the IP belong to the University and the University flows part of the royalty to the Faculty, the royalty payment will be considered employment income since the IP was developed in the course of the Faculty's employment and the ownership of the IP belongs to the University (the employer).

5 January 2011 External T.I. 2008-0305252E5 - Taxation of Post-Doctoral Fellowships

Income from a post-doctoral fellowship generally is considered to flow from a period of paid training, i.e., post-doctoral students generally are analogous to articling students or medical residents, so that they are considered to be employees rather than students.

26 November 2010 External T.I. 2008-0299301E5 F - Sommes reçues par des médecins résidents

medical residents were employees notwithstanding trainee role, so that fellowships were employment income

Medical residents are paid by the health care facility where they do their residency. They have dual status as trainees and employees in the health care institutions, and in addition to providing care services, they carry out research and teaching. Are the scholarships or fellowships paid to them included under s. 56(3)? In responding affirmatively, CRA stated:

To determine whether the amount received by medical residents represents an amount from employment, it is necessary to determine whether there is a relationship of subordination between the employer and the medical resident. … [I]t is necessary to look for the presence of a certain number of supervisory indicators … including … mandatory presence at a workplace, more or less regular work assignment, imposition of rules of conduct or behaviour, requirement for progress reports and control of the quantity or quality of work performed. …

[I]t would appear that the relationship between the medical residents and the health care facility is one of employer-employee. If this were the case, we are of the view that amounts received by residents should be included in computing the income of residents as income from an office or employment under section 5.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 56 - Subsection 56(3) fellowships received by medical residents were not exempted under s. 56(3) 32

30 September 2010 External T.I. 2010-0376881E5 - Board Member Fees

In light of the definition of "office" in s. 248(1), remuneration paid to board members is considered to be income from an office and subject to withholding of tax at source.

7 July 2009 External T.I. 2008-0267941E5 F - Pompiers volontaires

someone normally is a “volunteer” rather than employee if any compensation is too small to be motivating

Before going on to infer a broader meaning of “volunteer” in the context of s. 81(4), CRA indicated that normally, a “volunteer” (i.e., someone who would not receive any benefits from the municipality as employment or business income) would references the situation where any consideration paid “does not adequately reflect the amount of work performed nor the quality of the services provided (whereas “where the amount of remuneration paid … is sufficient to influence their involvement or participation, it is very likely that the remuneration is taxable as employment income or income from a business”).

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 81 - Subsection 81(4) “volunteer” in s. 81(4) references its broader meaning under provincial standards legislation, and is initially applied by the employer municipality 253

10 June 2009 External T.I. 2008-0300041E5 F - Paiements ou remboursement de frais de formation

bonus taxable even where employee requests that it be spent on skills training

An employer received an additional budget envelope from a government Ministry, identified as a lump-sum performance bonus, so that the Ministry had the means to promote and recognize its management staff. The Ministry provided that an employee could request that the lump sum performance bonus be used for skills development. In finding that the bonuses were taxable under s. 5(1) irrespective of any such application thereof, CRA stated:

[W[here an employee renounces an amount to which the employee is or will be entitled, such as a bonus paid or to be paid in the course of the employee’s employment, by converting it into a non-taxable tuition payment or reimbursement, the employee must include the amount of remuneration so converted in computing his income for the year in which the conversion takes place. The fact that the funds for the bonus come from a Ministry of the government does not affect the nature of the payment made to employees.

14 April 2009 External T.I. 2009-0307791E5 F - Allocation de retraite et congé de maladie

payment of accumulated sick leave on termination was employment income given pattern of annual payouts

Pursuant to the collective agreement, an employer grants sick leave to its employees annually, with the balance of the sick leave paid out in December of each year, except that if there is a termination of employment during the year, the balance is paid out at that time. What is the treatment of the payment of unused annual sick leave upon the employee’s resignation, retirement or termination? CRA responded:

[T]he payment of a lump sum to cover the balance of unused sick leave accumulated over the years can be considered a retirement allowance. However, when the payment of the balance of such leave is made annually in accordance with an employment agreement … this payment is not in recognition of long service when the payment is made upon the employee's departure … [and] is usually considered employment income

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Retiring Allowance payout of accumulated sick leave on employment termination can be a retiring allowance – but not where it has been annually distributed 118

1 April 2009 Internal T.I. 2009-0307151I7 F - Employé ou travailleur autonome

Bills deeming workers not to be employees were unconstitutional

Two Bills that declared various individuals responsible for a family childcare service and workers designated as a family-type resource to be independent contractors rather than employees were not relevant to those workers’ classification as employees or independent contractors for ITA purposes given that those Bills were judicially declared to be unconstitutional. Such an individual’s status was to be determined based on “whether the individual is providing services under a contract of service (employee-employer relationship) or a contract for services (business relationship).”

Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Interpretation Act - Section 8.1 unnecessary to address effect of provincial statutes declared to be invalid 178

24 July 2007 External T.I. 2007-0227261E5 F - Remise de certificats cadeaux à des employés

gift certificates given out to employees on a draw are cash equivalent taxable gifts

An employer gave out $25 gift certificates to its employees at a recognition event, as prizes awarded in a draw in which only the employees participated. CRA stated:

[A]n employee who receives a prize in a draw organized by the employee’s employer, which is open only to employees, must include the value of the prize in computing the employee’s employment income by virtue of subsection 5(1).

The CRA has a policy that an employer may give up to two non-cash gifts or awards per year on a tax-free basis. However, this policy does not apply to cash or cash equivalent gifts and awards. The CRA considers a cash equivalent item to include a gift certificate.

16 November 2006 External T.I. 2006-0203131E5 F - Régime à traitement différé

advances received were salary rather than loans and, when repaid, reduced employment income

An employee signed a deferred salary leave contract for the period from June 29, 2002, to December 29, 2006, with his leave being taken from May 14 to November 11, 2005. On May 15, 2006, he resigned. The employer withheld his last two pay cheques to reduce the balance remaining on his deferred salary contract, and offered to provide post-dated cheques to pay off the balance.

After finding that the requirements of Reg. 6801(1)(a) were not all satisfied because the leave was not taken at the end of the deferral period, CRA indicated that:

  • The payments received by the employee during the leave period likely were advance payments of wages rather than loans given that “there was no note, no acknowledgement of debt and, above all, the fact that the amount received was recovered by reducing the salary paid upon return from leave.”
  • Such prepaid salary (i.e., the amounts received while on leave) were required to be included in the employee's income for the year in which it was paid, i.e., the 2005 taxation year.
  • However, in the year of resignation, i.e. 2006, since the salary for the last two pay periods was withheld to recover part of the prepaid salary, the amount of salary received by the employee - net of the deductions made by the employer – was to be included in the employee's income for 2006
  • In addition, any cheques written by the employee in 2006 for prepaid salary reimbursements would reduce his employment income for 2006 and, if repaid in 2007, would reduce the employee's 2006 employment income, so that the employer would be required to file an amended T4 slip for that taxation year.
Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 6801 - Paragraph 6801(a) - Subparagraph 6801(1)(a)(v) failure for leave to be taken at the end of the deferral period 142

11 August 2006 External T.I. 2006-0195781E5 F - Bourses de perfectionnement

changed tests for distinguishing employment following Sagaz and Wolf

Before going on to indicate that Natural Sciences and Engineering Research Council of Canada fellowships paid to host organizations to cover $30,000 of the minimum $40,000 cost of engaging graduates to engage in authorized research projects likely were employment income “because of the relationship of subordination that appears to exist between the … recipient and the host organization,” and after referring to the Sagaz and Wolf decisions, CRA stated:

As a result of these judgments, the CRA has developed an approach to assess the overall relationship between the parties to determine the nature of the working relationship. Under this approach, a three-step process must be followed:

(1) At the outset, it is necessary to ask the following question: Is the person who has been engaged to provide the services providing them as a self-employed person or as an employee?

(2) Seven well-defined elements must then be analyzed. Those elements are as follows:

  • The level of control the payer has over the worker's activities.
  • Does the worker provide their own equipment?
  • Can the worker subcontract the work or hire assistants?
  • What level of financial risk does the worker assume?
  • Does the worker have to assume a level of responsibility for investment and management?
  • Does the worker have the opportunity to profit from the performance of the work?
  • Any other relevant factors.

(3) In addition to the first two components, the CRA must also consider the intention of the parties.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 56 - Subsection 56(1) - Paragraph 56(1)(n) National Research Council fellowships likely are employment income 72

19 May 2005 External T.I. 2005-0113681E5 F - Dédommagement pour congédiement injustifié

court-ordered reinstatement order gives rise to employment income

In response to a query concerning the tax treatment of compensation paid to an employee for wrongful dismissal, CRA stated:

[W]here, pursuant to a court order or out-of-court settlement, a dismissed employee is retroactively reinstated in the employee’s employment and the employer is required to pay the employee compensation for damages, in lieu of salary and other employment benefits (including compensation for expenses incurred by the employee in seeking new employment), the amount paid to the employee should be treated as taxable employment income pursuant to subsection 5(1) or section 6 and not as a retiring allowance. This position also applies where there is no availment by the taxpayer of the right to reinstatement. …

[C]ompensation identified as interest (including pre-judgment interest and post-judgment interest) is taxable as interest income pursuant to paragraph 12(1)(c) if it is interest by its nature.

17 February 2005 External T.I. 2004-0104331E5 F - Indemnisation et autres paiements

portions of settlement payment that compensated for lost vacation credits and reimbursed for psychotherapy and medication costs were taxable under s. 5(1)

Pursuant to an agreement in settlement of her complaint against her employer, the taxpayer received a sum allocated to the following three amounts: an allowance for loss of vacation credits; reimbursement for psychotherapy and medication costs incurred by her that were not covered by her employer's health care plan; and compensation for pain and suffering under section 53(2)(e) of the Canadian Human Rights Act. CRA found the first two items to be taxable under s. 5(1) and the third item to be non-taxable.

2001 Ruling 2001-009074

Physicians employed by a university who earn medical fees that the university bills and collects as their agent would be able to earn such fees through a corporation given that the university does not control how many patients they see, or when they see them, the physicians assume all the risks associated with their clinical practices and there is no legal prohibition against their practising their profession through a corporation.

10 April 2001 External T.I. 2001-0071235 - PAYMENTS TO CHURCH STAFF FOR FUNERAL

Amounts paid by a funeral home to employees of a church would not constitute employment income to them provided it was established that they received such payments as agents for their employer, the church.

1 March 1999 External T.I. 9821695 - PAY IN LIEU OF NOTICE, R/A

Because the purpose of a payment in lieu of statutory notice of termination is to replace earnings that would otherwise have been earned under the contract of employment, a payment of such an amount constitutes employment income.

2 July 1998 External T.I. 9804555 - DAMAGE SETTLEMENT

Damages received by a teminated employee that could be attributed to aggravated and punitive damages relating to malicious actions, intentional infliction of mental suffering, defamation or injury to reputation, would be exempt as would damages awarded by a Human Rights Tribunal or a settlement in lieu thereof, provided the damages did not relate to the loss of employment but related solely to damages arising from human rights violations by the former employer.

1998 Revenue Canada Paper 9824890

Comprehensive discussion of issues arising out of termination of employment.

11 October 1994 Internal T.I. 9418166 - EX GRATIA PAYMENT

An ex gratia payment authorized by an Order in Council in connection with a wrongful dismissal grievance will be taxable either as employment income or a retiring allowance.

18 July 1994 External T.I. 9410785 - INCOME FROM AN OFFICE

Fees earned by an individual as a result of his appointment as Committee of an estate are taxable as income from an office under s. 5(1).

26 May 1994 Internal T.I. 9333317 F - Crown Corp. Employees Working Outside Canada (T2 File)

An individual working in Japan for a provincial government supposedly as an independent contractor likely would in fact be an employee in light of the control test and four-in-one ("entrepreneur") test.

10 February 1994 Internal T.I. 9316307 F - Indians — Taxation of Income from Various Sources

Discussion of the four tests that are applied by the courts in distinguishing between a contract of service and a contract for services.

25 March 1992 T.I. (Tax Window, No. 18, p. 18, ¶1829)

An amount received pursuant to a court order or judgment for hurt feelings or loss of self-respect would not be considered to be employment income.

21 November 1991 Memorandum (Tax Window, No. 13, p. 4, ¶1606)

Where an employee foregoes salary and elects to take an equivalent credit in a flexible dollar allowance account under a flexible benefits plan, the foregone salary is taxable at the time of the credit to the account.

30 August 1991 T.I. (Tax Window, No. 8, p. 16, ¶1428)

Where an employee exchanges unused vacation entitlements for credits in a flexible benefit plan, the amount credited to the plan is taxable in the year of exchange.

15 May 1991 Speech of B.W. Dath (Tax Window, No. 3, p. 7, ¶1257)

Current position of RCT on relocation payments.

IC 75-6R2 "Required Withholding from Amounts Paid to Non-Resident Persons Performing Services in Canada," para. 66

The status of the non-resident as either an independent contractor or an employee is a question of fact. Rules which govern this determination are consistent with those applied to Canadian resident employees and the traditional tests focus on several major factors: such as degree of control, chance of profit or risk of loss, integration into the business operation and ownership of tools.

CRA Guide, RC4110, "Employee or Self-Employed?"

IT-316 (Cancelled) Awards for Employees' Suggestions and Inventions 10 May 1976

Payments made to employee re inventions that are employer's property are employmnet income

4. In order to apply the correct tax treatment to any amount received by an employee for an invention made by him, ownership of the invention must first be determined. Thus, where the rights to the invention vest in the employer, any payment made by him to the employee will be considered as an award and treated in the same manner as an award for employees' suggestions. On the other hand, where the invention belongs to the employee, any amount he receives from his employer in connection with the invention will be treated in the following manner:

(a) Where he is in the business of making inventions, the amount he receives for the sale of his rights in the invention will be taxable as income from a business;

(b) Where he is not in the business of inventing, the sale of his rights in the invention to his employer will be considered a disposition of capital property subject to capital gains tax in the normal way.

(c) Where the amount he receives is given to him as an award while the rights in the invention still remain his property, such amount will be income received in the course of his office or employment.


Dov Begun, "Equity Based Compensation and Stock Options", 2017 Annual CTF Conference draft paper

Need to avoid constructive receipt under a phantom plan (p. 4)

The CRA … interprets the word “received” in the ITA as referring to amounts constructively received as well as actually received…. [1984 CTF Roundtable, Q.13] ...

[E]ven if a particular incentive plan fits within an exception to the SDA definition, if the employee has the ability to request payment or the amount is available for the employee's use prior to the date normally fixed for payment, the CRA could require the employee to include the amount in income in a year earlier than the year in which payment is actually received. Accordingly, as a general matter, it is advisable to ensure that a participant in a phantom equity incentive plan is not entitled to demand payment at the time of their own choosing but rather the timing of the payment is either elected at the outset, or determined by some external factor outside the control of the participant.

Timing of election under DSU and dividend equivalents (p. 7)

In order to avoid the risk of constructive receipt, it is generally advised that the election to either take the cash or compensation in the form of DSUs should be made prior to the date that the annual bonus or the director fees, as the case may be, become payable. [fn 10: 2014-0535951E5]…

DSU plans may also be structured to provide for dividend equivalents in the same manner as described above for RSUs. …

As the stock price approaches the peak of the cycle, DSUs might actually provide an incentive for top executives to leave as it is only on employment termination that the value of the DSUs can be realized.

Gael Melville, Lucie Champagne, Yves Plante, "Tax Considerations for the Newly-Self-Employed", 2011 Canadian Tax Journal, Vol 59, p. 843

Includes discussion of the significance of the new Quebec Civil Code coming into effect in 1994; and of the significance of the contractual intent.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(12) 9

Worndl, "Employee or Independent Contractor - Some Guidelines", Tax Profile, Vol. 3, No. 36, June 1993, p. 324.

Baston, "Tax Planning for Executive Hiring and Firing", 1991 Corporate Management Tax Conference Report, c. 10.

Discussion of signing bonuses and inducements.

Wilson, "Employment Status under the Income Tax Act", 1991 Corporate Management Tax Conference Report, c. 2

Includes a review of U.K. and Australian jurisprudence.

Subsection 5(2) - Loss from office or employment

Administrative Policy

11 April 2001 External T.I. 2000-007322

There is no provision of the Act to allow a deduction to an employee as a result of him being required pursuant to the terms of a stock option agreement to repay to his employer corporation an amount equal to the taxable benefit under s. 7(1)(a) which was triggered upon the acquisition of shares under the stock option agreement.