Tax Court of Canada Judgments

Date: 20000411

Docket: 96-1319-IT-G

BETWEEN:

JANE M. BAPTIST,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Bonner J.

[1] This is an appeal from an assessment of income tax for the 1993 taxation year. The Appellant is now, and was in 1993, a police officer. During that year she earned wages from her employer, the Metropolitan Toronto Police Force ("force"). In addition, she earned compensation for the performance of work variously described as pay duty or special pay duty ("SPD"). In a return of income for 1993 the Appellant reported as income from employment the wages received by her from the force. As well, she reported the compensation received by her for SPD as the revenues of a business and claimed deductions for vehicle expense and office expense in arriving at profit from the business. The Minister of National Revenue ("Minister") assessed tax on the basis that both the wages and the compensation for SPD were income from employment and consequently the Minister found that the deductions sought were prohibited by subsections 8(2) and 8(10) of the Income Tax Act ("Act").

[2] The primary issue in this appeal is whether compensation for SPD is income from an office or employment within the meaning of subsection 5(1) of the Act or whether it is income from a source which is a business. There is a secondary issue with respect to the quantum of deductible expense in the event that the SPD activity constitutes a business.

[3] SPD appears to be a scheme for the provision of police services on a cost recovery basis where the need for such services flows from the activities of a particular person or group. An assignment of SPD is generated by a process which starts with a request by a client who requires the services of a police officer for a special occasion. For example, a funeral director may require motorcycle officers to escort a funeral procession. A person who organizes an exhibition, concert or sporting event such as a hockey or baseball game which might be expected to attract large crowds may require police officers to direct traffic to and from the site of the event and to keep order while the event is being staged. Permits issued for the construction of a building may contain a condition which requires the builder to arrange for the presence of officers for the purposes of ensuring the safety of the public and directing the flow of traffic when equipment on the street adjacent to the construction site may interfere with the safe passage of vehicles and pedestrians. Such work is commonly performed by police officers on SPD. It is performed not at the expense of rate payers generally but rather at the expense of the client.

[4] It may be helpful at the outset to refer to four principal features of SPD which distinguish it from day to day duty performed by a police officer in return for wages paid by the employer. First, police officers are not required to undertake SPD. It is assigned only to those officers who volunteer for it. Second, SPD is performed only during the officer's time off from ordinary duty. Third, the officer's compensation for SPD is paid directly to the officer by the client whose request has led to the assignment of SPD. The police force assumes no responsibility for the collection of the money earned by the officer who has performed SPD. Fourth, the hourly rate earned by an officer on SPD is fixed, not by the collective agreement between the Toronto Police Association[1] and the force, but rather by the Association acting unilaterally.

[5] The position taken by counsel for the Appellant is that the Appellant, when performing SPD, provides her services not to the force, her employer, but rather to the client who has requested them. Counsel asserts that the police force and its officers come together in a joint venture in which the force acts as agent for the individual police officer to form a contract with the client for the provision by that police officer of a service to the client. That service, according to the argument, is not a police service but is in the nature of a security service, is performed pursuant to contracts of service and is outside the contract of employment.

[6] Counsel refers to provisions of the Police Services Act[2] which restrict the ability of an officer to perform secondary employment. She notes that subsection 49(2) of that Act permits officers to provide their services in a private capacity to third parties where the services have been arranged through the police force. Section 49 reads in part:

49. (1) A member of a police force shall not engage in any activity,

...

(d) in which he or she has an advantage derived from employment as a member of a police force.

(2) Clause (1)(d) does not prohibit a member of a police force from performing, in a private capacity, services that have been arranged through the police force.

According to the Appellant's argument it is subsection 49(2) which permits police officers to perform SPD.

[7] The Respondent maintains that a police officer in performing SPD earns income from employment as an employee of the police force.

[8] At the hearing of the appeal evidence was given by Frank Chen, director of financial administration of Toronto Police Services. Mr. Chen described SPD as an assignment of work requested by the client for the purpose of performing a police activity particularly for that client.

[9] The SPD scheme is structured and operated in accordance with rules and policy directives which form part of the body of directives governing all aspects of police operations. According to Mr. Chen the Rules are developed by the corporate planning group within the police administration.

[10] Section 6 of the Rules deals with SPD. A careful reading of section 6 is essential to an understanding of the system. Section 6 reads:

6.6.0 SPECIAL PAY DUTIES

6.6.1 AUTHORIZATION FOR PAY DUTY OFFICERS

Except when otherwise directed by the chief of police, requests for police officers to perform special pay duties may be approved by the unit commander, provided that the nature of the employment or business activity is not incompatible or inconsistent with the duties of a police officer, the policies of the Board or this By-law.

Police officers shall only perform special pay duties which have been approved by a unit commander.

6.6.2 REQUESTS TO BE IN WRITING

Requests for special pay duty officers shall be submitted in writing. Such requests shall include the nature of the duties to be performed, the number of hours involved, the specific hours for which the service is requested and the reason for requiring special pay duty officers.

6.6.3 ALLOTTING AND RECORDING OF PAY DUTIES

Officers in charge shall ensure that special pay duties:

- are allotted to members of their unit in a fair and impartial manner;

- do not interfere with regular police duties.

The recording and processing of special pay duties shall be in accordance with the established practice.

6.6.4 PAY DUTY HOURS LIMITED

Police officers shall not perform a special pay duty, or any number of special pay duties, exceeding twelve hours in a twenty-four hour period. The time worked on a special pay duty shall not exceed five hours if immediately preceded, or followed, by a normal tour of duty.

6.6.5 UNABLE TO FULFILL PAY DUTY ASSIGNMENT

When police officers become aware that they will be unable to perform an assigned special pay duty, they shall immediately notify the officer in charge of their unit who shall be responsible for assigning a replacement.

Police officers shall not be excused from special pay duty assignments, unless they have a bona fide reason for not attending.

6.6.6 REMUNERATION

Remuneration for special pay duties shall be the responsibility of the party requesting such duties. Police officers who perform special pay duties shall not receive remuneration greater than the hourly rate provided for in accordance with the terms of the Uniform Collective Agreement between the Board and the Metropolitan Toronto Police Association.

6.6.7 DUTIES TO BE PERFORMED BY OFF-DUTY POLICE OFFICERS

Police officers shall not accept a special pay duty when any portion of such assignment will overlap with their regular duty.

Supervisory officers shall not perform special pay duties which could be performed by members of a subordinate rank.

6.6.8 TRAFFIC CONTROL DUTIES

Police officers performing pay duties involving traffic control on public streets shall facilitate the orderly movement of traffic and shall not unnecessarily delay the flow of vehicular and pedestrian traffic on public thoroughfares.

6.6.9 REPORTING ON AND OFF DUTY

Unless otherwise instructed, police officers assigned to special pay duties shall report on and off duty, in person, to the officer in charge of their unit. Officers in charge shall ensure that such police officers:

- are properly attired, equipped, and fit for duty;

- report on and off duty in compliance with this section.

Such officers in charge shall record the commencement and completion times of the special pay duties on the appropriate form.

6.6.10 POLICE OFFICERS TO BE VISITED

When practicable, police officers performing special pay duties shall be visited by a supervisory officer from their unit and both members shall record the visit in their memorandum book.

[11] SPD is performed under a contract between the client and the police force. The individual police officer is not a party to that contract. The contract is made and terms are fixed by a process in which the individual police officer does not participate. It is only after the contract is made under sections 6.6.1 and 6.6.2 of the Rules that the allotment process under 6.6.3 takes place. The reference in 6.6.1 to a unit commander is to the commander of the unit which would have jurisdiction over the area or subject-matter if the police service were to be furnished in the ordinary way at public expense. In the Toronto force the unit may be a geographic division such as 53 Division commanded by the witness Selwyn Fernandez or a functional division such as the Traffic Division commanded by the witness Gary Grant. In short, the division of administrative authority and responsibility which governs the ordinary operations of the Police Department, also governs all facets of SPD.

[12] Further, with respect to Rule 6.6.1, it should be noted that it is not the individual officer but rather the police force which determines the criteria by which the suitability of a request for SPD must be judged. Thus, for example, Policy Directive 20-01 of the police force provides in part:

PROHIBITED FUNCTIONS

Pursuant to the rule entitled 'Authorization for Pay Duty Officers' (6.6.1), pay duties will NOT be performed

- on behalf of an employer or union that is related to a labour dispute

- at a function likely to promote a confrontation between participating groups

- as a bodyguard service

- for a money escort

[13] Police Force Policy Directive 20-01 expands on Rule 6.6.2 as follows:

All requests for a special pay duty must be made on a Pay Duty Request (TPS 784) and signed by the requester prior to approving the request. The TPS 784 may be submitted by the requester in either hard copy or forwarded through a facsimile transmission (FAX).

The TPS 784 form sets out the terms of the agreement under which the SPD is performed. Those terms include the time, the place and the particulars of the specific duty which the client has requested, the number of officers and the police equipment requested and finally, the following standard terms:

1. Payment in full for the officer's services is to be made to each officer upon completion of the pay duty.

2. Where the event is of significant size and it would be impractical to pay each officer individually, an all inclusive deposit may be made to the Police Credit Union for subsequent distribution to the participating members. This option is available only with prior approval of the unit commander involved and the Police Credit Union. When this option is utilized, full payment must be deposited prior to the scheduled event, unless other contractual agreements have been completed in advance.

3. The current rate of pay is:

Constable $43.00 (per officer with a three hour minimum

Sergeant $48.00 (per officer with a three hour minimum)

Staff Sergeant (when in

charge of 14 or less officers) $53.00 (per officer with a three hour minimum)

Staff Sergeant (when in

charge of 15 or more officers) $54.00 (per officer with a three hour minimum)

4. Police officers are prohibited from working more than 12 hours in a 24 hour period on pay duties. It may be necessary to make several bookings when the maximum period may be exceeded.

5. The current hourly rate for police equipment is:

motor vehicles/motorcycle $ 35.00 per hour (minimum three hours)

motorized boat $330.00 per boat (for first three hours)

$100.00 per boat (for each subsequent hour)

rowboat $ 50.00 per assignment

trailer or bicycle $ 20.00 per assignment

horse or dog $ 50.00 per assignment

6. Where a scheduled event extends beyond the original time period listed, the hourly rate will apply to each officer participating and/or the use of any police equipment.

7. An administrative fee (15%) will be charged on the total amount of each pay duty. In addition, the 7% GST rate will be applied to the administrative fee and the use of police equipment.

8. Generally, the administrative fee, police equipment rates, and GST will be invoiced separately at a later date. These fees are not to be paid to the officers or deposited to the Police Credit Union. NOTE: For major events, where the Police Credit Union option is used – all fees, including the administrative and equipment, etc. will be deposited in advance.

9. Failure to meet the financial obligations in relation to the officer, use of police equipment or the administrative fee may result in suspension of further pay duty provisions.

10. The number of police officers required (all ranks) is open to discussion with the unit commander involved.

11. A pay duty may be cancelled by the unit commander or the officer in charge of a unit where climatic conditions deteriorate to a state which would be unsafe or hazardous.

12. The minimum cancellation time that is allowed is eight (8) hours prior to the scheduled start time. In the event that notice for cancellation is not received before this period, a minimum payment of three (3) hours per officer will be charged, along with associated fees and taxes. Fees for the use of police equipment will not be charged.

The individual officer who is to perform the SPD assignment does not sign the contract. The form contains nothing which would indicate that the officer is intended to be a party to the contract.

[14] SPD is much sought after as a means of supplementing the income of members of the police force. It is therefore necessary to ensure that opportunities to perform SPD be fairly allocated among those who wish to undertake the work. It is not necessary to describe details of the allocation system. What is significant for present purposes is that the system is operated by the police force itself and that the force reserves the right to deny SPD to individual officers. The evidence of Superintendent Fernandez indicates that an officer's opportunity to perform SPD may be withheld by the commanding officer as a disciplinary measure. Nothing in the evidence supports the notion advanced in argument that the police force acts as agent of the individual officer to effect a contract between that officer and the client. The evidence does not suggest that the force purports to do so or intends to do so.

[15] The administrative fee (paragraph 7 of the TPS 784 form) is intended to recover salaries paid to police personnel engaged in the administration of the SPD system. The time spent by employees of the police department in administering SPD is substantial. During the early 1990s the total annual direct cost to the force of employee time so spent was about $700,000.00. The total paid duty income to police officers in 1992 was in excess of $8,800,000.00.

[16] When performing SPD police officers remain under the control of the force which not only decides whether the task will be undertaken at all but also supervises and directs the manner in which the officer will do his or her work. One example of such control is Rule 6.6.8 reproduced above. Another example is the detailed safety equipment direction found in the policy and procedure manual:

Use of Appropriate Safety Equipment

Officers shall wear a "blaze" orange safety vest or an outer garment with high visibility, reflective material attached, while performing traffic or pedestrian control duties. When these duties are performed during hours of darkness, a flashlight must also be used. If the duty involves overhead construction, officers shall wear an approved safety hat.

When practicable, officers shall be equipped with a portable radio while performing a pay duty.

Yet another example is the police department requirement that the police officer parade before the officer in charge at least 15 minutes before the scheduled start time of pay duty and, after completing pay duty, report off-duty to the officer in charge of his or her unit and turn in his or her memorandum book to the officer. The purpose of the parade is to ensure that the officer is properly equipped and fit for duty. Still another example of control by the force over the manner in which SPD is performed is the detailed set of directions which governs the conduct of motorcycle officers who escort funeral processions.

[17] Section 20.01 of the Police Force Policy and Procedure Manual provides in part:

Police Officer ...

3. While performing a pay duty shall not

search any member of the public, except where authorized by statute or in compliance with the directive entitled 'Search of persons' (01-02)

use their personal vehicle to transport persons and/or cash for the requester

4. After the completion of a pay duty shall

unless otherwise instructed , report off duty to the officer in charge at the unit

submit the memorandum book to the officer in charge.

The evidence of Superintendents Grant and Fernandez makes it clear that the rules and policies of the Toronto police force must be followed by officers under their command. My clear impression is that neither of these senior officers will tolerate any departure from the rules of the force whether the officers under their command are on regular duty or on SPD.

[18] The disciplinary regime to which police officers are subject is the same whether the officer is on regular duty or on SPD. Superintendent Fernandez indicated in his testimony that he has disciplined officers who have been late for SPD and for being improperly equipped while on SPD.

[19] The Appellant, in her testimony, suggested that she was under the control of the client while on SPD. She said that while at a baseball game on SPD she received directions from employees of the team or stadium. I do not accept that testimony. I formed the impression that the Appellant, when testifying, was more concerned with advocacy than with accuracy. It is clear that supervisory officers were present at major events in accordance with the requirements established by the Police Force Policy and Procedure Manual, namely:

Supervisory Requirements

Based on the Uniform Collective Agreement provisions for officers, the standards established are

I. at least one (1) sergeant/detective is required for a group of four (4) or more police constables

II. when ten (10) or more police officers are assigned to a pay duty, such officers shall, in addition to a sergeant/detective be supervised by a staff sergeant/detective sergeant.

NOTE: Where the number of police officers being supervised exceeds 15, staff/detective sergeants are entitled to an increased rate of salary in accordance with the Uniform Collective Agreement.

[20] The Appellant testified that she rarely encountered supervisors while on SPD. The witness Sylvie Guay, a police officer of 12 years' standing, testified that she had never been visited by a supervisor while on SPD except by a supervisor on general patrol. She acknowledged, however, that she would be obliged to respect the orders of a sergeant while on SPD. Although supervision by the police force of officers on SPD may not be continuous I prefer the more objective evidence of Superintendents Grant and Fernandez that supervisors do, at least occasionally, attend where SPD is performed in order to ensure that the work is done properly. Moreover it is the right to control and not the exercise of it which is of significance.

[21] Police officers performing SPD wear their uniforms in most instances. Those uniforms are the property of the police force. The other equipment carried and used by officers while on duty such as weapons, radios and cell phones also belong to the force. Vehicles such as motorcycles and police cruisers sometimes used on SPD are the property of the force. Virtually nothing used in carrying out SPD belongs to the individual officer.

[22] The Appellant testified that she maintained an in-home office equipped with a desk, telephone and a bookshelf for purposes of making and keeping records of SPD. Here again, I believe that the Appellant's evidence is disingenuous. I am not convinced that either the office or its furnishings play any realistic role in the income earning process. The police force keeps a complete record of each officer's SPD time and earnings and supplies a copy of it to the officer. There is no real need for anything else.

[23] The police department issued T4 slips to its officers in respect of SPD earnings of some years but not in respect of others. My impression is that variations in T4 slip reporting practices were more representative of the relative strength from time to time of, on the one hand, Revenue Canada demands for the issuance of the slips and, on the other hand, police association resistance to the issuance of them. I am sure that each organization was sincere in the views implicit in its stance with respect to T4s but I do not find that the reporting practices are of any assistance in deciding the issue now before the Court.

[24] As indicated by Rule 6.6.6 and paragraph 1 of the standard terms of the TPS 784 contract, the officer's remuneration for SPD is paid to him or her directly by the client (or by deposit in the officer's police credit union account). The officer bears the risk of non-payment and is reminded of this fact by signs posted in police stations which bluntly indicate that the police force is not a collection agency. In the relatively rare cases where clients do fail to pay for SPD, senior officers will, sometimes, on an unofficial basis, write dunning letters on police department letterhead to the delinquent client.

[25] In Wiebe Door Services Ltd. v. M.N.R.,[3] the Federal Court of Appeal ruled that the test for distinguishing between a contract of service and a contract for services is a "... four-in-one test, with emphasis always retained on what Lord Wright, supra, calls 'the combined force of the whole scheme of operations' even while the usefulness of the four subordinate criteria is acknowledged." [4] The four elements of the approved test are control, ownership of tools, chance of profit and risk of loss and, finally, the integration or organization test. In Wiebe Door the Court of Appeal described as "the best synthesis found in the authorities"[5] the following passage from the reasons of Cooke J. in Market Investigations Ltd. v. Minister of Social Security:[6]

The observations of Lord Wright, of Denning L.J., and of the judges of the Supreme Court in the U.S.A. suggest that the fundamental test to be applied is this: "Is the person who has engaged himself to perform these services performing them as a person in business on his own account?" If the answer to that question is "yes", then the contract is a contract for services. If the answer is "no" then the contract is a contract of service. No exhaustive list has been compiled and perhaps no exhaustive list can be compiled of considerations which are relevant in determining that question, nor can strict rules be laid down as to the relative weight which the various considerations should carry in particular cases. The most that can be said is that control will no doubt always have to be considered, although it can no longer be regarded as the sole determining factor; and that factors, which may be of importance, are such matters as whether the man performing the services provides his own equipment, whether he hires his own helpers, what degree of financial risk be taken, what degree of responsibility for investment and management he has, and whether and how far he has an opportunity of profiting from sound management in the performance of his task. The application of the general test may be easier in a case where the person who engages himself to perform the services does so in the course of an already established business of his own; but this factor is not decisive, and a person who engages himself to perform services for another may well be an independent contractor even though he has not entered into the contract in the course of an existing business carried on by him.

[26] In my view the evidence in this case does not support a conclusion that the Appellant when performing SPD is doing so as a person carrying on business on her own account. As I see it, she puts her services at the disposal of the police force and not at the disposal of the client. It is the police force which has entered into the contract with the client to provide police services. It has done so in a process in which the individual police officer does not participate. The officer is not selected until after the contract with the client has been made. It is the police force, not the Appellant, which is carrying on the business of furnishing the service.

[27] The Appellant, in accepting an assignment of SPD, does not, as is common in the case of an independent contractor, agree to accomplish a defined objective. Her agreement, as section 6.6.5 of the Rules makes evident, is to personally work for a period of time. The Appellant has no right to fulfil her obligation by sending in a substitute. It is the police force which possesses that right.

[28] The Appellant, in performing SPD, does not have any opportunity to exercise entrepreneurial judgment. She can do nothing to maximize revenues except, of course, to work a greater number of hours and even that is a matter largely beyond her control. She can do virtually nothing to minimize expense; SPD involves little in the way of expense and in this respect resembles ordinary employment.

[29] In paragraph 4 of these reasons I have referred to the four principal features of SPD which distinguish it from ordinary duty. Employment undertaken voluntarily is nonetheless employment. Work done for an employer during what would otherwise be the employee's time off may, nevertheless, be governed by the contract of employment as in the case of voluntary overtime. Payment by the client is without doubt an unusual feature of the SPD scheme. It might in some circumstances suggest the existence of some kind of contract between the individual officer and the client for whom SPD is to be performed. It does not suggest that in the present context. It must be remembered that income from employment does not always come from the employer. For example, persons employed in the hospitality industry often earn very substantial portions of their income from gratuities. Finally, the role of the police association in unilaterally fixing the hourly rate of pay pursuant to a right under the collective agreement between the association and the police force, does not help the Appellant. The fact that the right exists as a term of a collective agreement tends to suggest that SPD may be regarded as a part of the master-servant relationship governed by the collective agreement.

[30] All elements of the four-in-one test point to a conclusion that the Appellant, in performing SPD, does so as an employee of the police force. She has no independent business of her own. She does work which the police force has been engaged to do under a contract between force and client to which she is a stranger. The force has and exercises the right to control the manner in which the work is done. That right is not illusory. The Appellant's SPD work is in fact controlled by the force. Moreover, it is performed with the use of equipment supplied by the force.

[31] Clause 49(1)(d) of the Police Services Act has no application. Obviously that provision is not intended to prohibit a member of the police force from serving as an employee of the force and that, in my view, is exactly what police officers do when they work on SPD.

[32] I recognize that my decision is inconsistent with Gordon v. The Queen,[7] a decision of this Court given under the informal procedure. It would seem that the Court did not, in that case, have the benefit of the evidence which was put before me.

[33] For the foregoing reasons the appeal will be dismissed, with costs.

Signed at Ottawa, Canada, this 11th day of April 2000.

"Michael J. Bonner"

J.T.C.C.

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