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Citation:2004TCC181 |
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Date: 20040330 |
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Docket: 2003-549(IT)I |
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BETWEEN: |
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CALVIN K. PREDDIE, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
____________________________________________________________________
For the Appellant: The Appellant himself
Counsel for the Respondent: Bonnie Boucher
____________________________________________________________________
REASONS FOR JUDGMENT
(Delivered orally from the Bench at
Toronto, Ontario, on September 18, 2003)
McArthur J.
[1] The issue in this appeal is whether Calvin K. Preddie, a tutor, was engaged by Kids Count Consultants Corp. Limited, operating as Sylvan Learning Centre ("Sylvan") as an independent contractor or as an employee during the 2000 taxation year. The Appellant received the amount of $5,246 from Sylvan for tutoring services from which he seeks to deduct motor vehicle expenses of almost the same amount, $5,239. The Respondent submits that the Appellant was an employee of Sylvan and there is no provision for this deduction in section 8 of the Income Tax Act. The Appellant's position is that he was in the business of tutoring on his own account.
[2] The Appellant is a highly educated professional engineer, with an honorary Ph.D. from World University, and he has been teaching mathematics and other subjects primarily at St. Lawrence College in Cornwall, Ontario. He retired after 30 years at St. Lawrence College and commenced a second career that included writing and publishing a book, which I believe deals with managing stress in the workplace, and carrying on a tutoring business under the name of Calpre CE Enterprises. The Appellant impressed me as being honourable and having integrity. He had the incorrect impression that he was being "accused" (and perhaps "accused" is too strong a word) of scheming with Sylvan to avoid or evade income tax. I have no doubt that he acted in good faith.
[3] There is not a simple answer to the issue before me. Much of the Appellant's submissions did not deal with the issue. The following are the issues he set out in his Notice of Appeal and they include:
1. Did I enter into a legal contract with Sylvan Learning Centre?
2. Was that contract voidable?
3. Was the contract voided?
4. Was I in a position as a Service Provider (see copy of Master Business Licence attached), to enter into a contract with Sylvan Learning Centre, which is a "for profit", franchise type operation and not part of any school system?
5. Was Sylvan Learning Centre as a hiring employer being a small business operation permitted to contract out (outsource) work even, if it had, previously been performed by an employee?
6. Operating under my Business License, was I permitted to claim my automobile expenses incurred in travelling from my home to Sylvan Learning Centre in Brampton to provide the contracted services?
7. Does the Income Tax Act allow false information (about CPP and EI deductions) to be placed on my file and utilized to calculate my taxes owing?
8. Can someone, who knows that CPP and EI deductions were never made, put that false information on my file?
9. Was there an oversight when the first re-assessment was done, and if so, why was the fact that I had declared the income as Professional Income not addressed?
10. Why was CCRA not forthcoming, or withholding the truth about the origin of the T4 statement on my file? In one conversation with a CCRA employee or contract worker, who gave the name of Kerry McKeskey (spelling uncertain) at 416-973-3392 on June 18, 2002, I was told that the Auditor was the one who would have filed the T4 statement under his authority as an Auditor.
11. While I do not question the authority of the Auditor under the Income Tax Act, I believe that the Act requires that information submitted be true, and the statements about CPP and EI were definitely untrue.
12. Is the Income Tax Act in conflict with accepted practice of the day by both the Public and Private Sectors that permits contracting out of work that was formerly carried out by employees? If it is, shouldn't the Act be updated to reflect current realities?
[4] Sylvan carries on the business of promoting a learning centre and Mr. Goran Skalin is a part owner and executive director. In an affidavit sworn by Mr. Skalin on September 12, 2003, he described Sylvan Brampton as a supplemental education service where students normally attend for no more than an hour twice weekly, and for a period of 4½ months. There is no fixed semester and students can, therefore, start and discontinue at any time. Students range from kindergarten age through adults and from those with severe learning disabilities that require remediation and to those who are extremely gifted and require enhancement. Subjects range from beginning reading to advanced mathematics and science. On this basis, each student requires teaching expertise in specific areas of education. Some students attend for only a few hours for help with specific problems. The student mixture is constantly changing and so are the requirements for teachers who have expertise in practically every area of education. It is not possible for Sylvan to have all the required teacher expertise available on staff and requirements are changing continuously, sometimes on a day-to-day basis.
[5] Teachers normally work three to eight hours per week. These teachers are dedicated professionals who teach in order to make a contribution to the education of children with special needs who may otherwise not be able to become productive and successful citizens. Many of the teachers are retired or semi-retired and wish to control their own time. Others have various reasons for not being interested in making staff employment commitments. All of them are available on an 'as and when required' and 'when available' basis as self-employed consultants and are selected by Sylvan based upon their specialized qualifications.
[6] The Appellant is an example of a retiree who is not interested in making a staff commitment. In fact, he terminated his contract with Sylvan in 2001 as a result of the audit decisions of Canada Customs and Revenue Agency. Dr. Preddie, the Appellant, was a valued resource to Sylvan as an instructor of Senior, Intermediate and Applied Mathematics. He was engaged under contract to provide his services to Sylvan on an 'as and when required' and 'when available' basis. Sylvan provided a Blanket Purchase Order to the Appellant specifying details including quoted rate of payment and the requirement of invoicing.
[7] The Contract and the Purchase Order specify that, as self-employed educational contractors, instructors are responsible to pay all applicable federal and provincial taxes and Canada Pension Plan contributions. No payroll tax, Canada Pension Plan or Employment Insurance premiums were ever made by Sylvan on behalf of the self-employed educational consultants, including Dr. Preddie. No T4 slips were ever issued and submitted by Kids Count Consultants Corporation Ltd. or Sylvan Learning Centre Brampton for any of the self-employed educational consultants, including Dr. Preddie.
[8] I accepted the affidavit of Mr. Skalin, conscious that he was not present to be cross-examined which is reflected negatively in the weight this affidavit is given. Mr. Skalin has a personal interest in establishing an independent contractor relationship with his workers and his affidavit is certainly weighted in that direction. Schedule "A" to his affidavit is his analysis, which consists of eight pages of the relationship between Sylvan and the workers. Four pages are devoted to control. This form was provided to him by CCRA. Very briefly, he sets out the following: Who is responsible for planning the work to be done? Who decides how and how much the worker is to be paid? Who decides on the time frames? Who decides how the work is to be done? Who decides on the hours of work? Who decides on the work location? Who assigns the individual tasks? Who supervises the tasks? Who sets the standards to be met? Who decides whether the work must be redone? Who covers the related costs? Who is responsible for training? Who is responsible for related costs? Who decides on the territory to be covered? Who decides on periodic activity reporting? Who decides if the work is to be done by the worker himself? Who hires helpers?
Analysis
[9] I find that the Appellant was a highly skilled teacher and tutor when he entered into an oral agreement with Sylvan. He has found teaching a rewarding experience and was well set in his manner of teaching. When asked by Mr. Skalin to use the Sylvan method, he refused, at least in part, and he agreed to tutor the Sylvan students in math only on the condition that he use his methods. He taught with a different approach although he did take a one hour Sylvan course and spent three hours observing other tutors. He had 30 years' previous experience. He decided what the students should be taught and how. He spoke with the parents with respect to their children's needs and progress. Over the year of teaching and longer, he received no complaints. He used his own calculator and prepared his classes at home. He had not signed or seen many of the documents presented to him by Respondent's counsel prepared by Sylvan until after he terminated his association with Sylvan.
[10] Counsel for the Respondent relied on a guarantee wherein a student could have free tutoring if not satisfied. The Appellant did not know anything about this. He was not restricted. Also, he was not restricted from tutoring elsewhere while engaged by Sylvan. He considered himself an independent contractor as did Sylvan. He stated he would not have driven his car 50 kilometres round trip from Mississauga to Brampton for $15 an hour had he not depended on a non-employee relationship. He stated he took the work because he had the freedom to do it his way. He also needed the money to publish his book. If he could not make a session, he had the responsibility of finding a replacement suitable to Sylvan. This never happened, however, and this point was somewhat contradicted by the affidavit of Goran Skalin.
[11] The Appellant taught at Sylvan's premises and went whenever he was called and had no input into who his students were. He was paid, as I stated, $15 an hour regardless of whether Sylvan was paid by the parents or students. He used some of his textbooks and the students were supplied with pen, paper and other material by Sylvan. Now, with respect to documents:
(a) The Respondent relied on a written contract that gave Sylvan the right to control yet the Appellant did not sign this contract until after he left Sylvan in 2002.
(b) The questionnaires which are filed as Exhibits R-1 and R-2.
(c) Evidence filed as Exhibits R-8, R-9, R-12 and R-14 include Sylvan literature which lean towards the tutors being employees.
The Appellant did not know anything about these documents. He taught in the manner he had for 30 previous years. Exhibit R-14 is a non-disclosure agreement. He never signed one and saw this document for the first time during this hearing. These type of cases rely on their own individual merits.
[12] Mr. Hugh Cullaton gave evidence on the Respondent's behalf. He is an experienced appeals officer who spent a long time examining the relationship between Sylvan and its workers and he concluded it was one of employee/employer. He received 13 "Contracts of Service Workers Questionnaires" which he had sent out for completion by the Sylvan workers. He carefully reviewed the answers and completed a master copy. The same Questionnaire referred to their combined answers and it was filed as Exhibit R-10. He looked at control and concluded that, if Sylvan did not exercise control, it had a right to do so given the documents including the contract that the worker signed. Mr. Cullaton was very thorough and dedicated to his position. I believe in the 2000 taxation year, there were 23 workers. These answers were given considering all workers collectively, yet, each case has to be considered on its own merits.
[13] The assumptions of fact in the Reply to the Notice of Appeal are of little assistance. Paragraph 11(a) of the Reply reads: "during the 2000 taxation year, the Appellant was an employee of the Employer, employed pursuant to a contract of service". This is the issue that I must decide. Paragraph 11(b) states: "during the 2000 taxation year, the Appellant was not employed as an independent contractor with the Employer". Paragraph 11(c) states: "during the 2000 taxation year, the Appellant was issued a T4 slip from the employer in the amount of $5,246". This statement is incorrect and a source of great distress for the Appellant. Paragraph 11(d) states: "with letter dated May 9, 2002, the Minister requested the Appellant to provide contract of employment, (Form T2200, Declaration of Employment) and documentation to support his professional income and expenses"; and paragraph 11(e) stated that the Appellant failed to produce the documentation required in paragraph 11(d). The Appellant explained he did not provide the requested documentation because he thought it was Sylvan being investigated and he had no involvement. I do not see what any of these assumptions of fact have to do with assisting in determining the issues.
[14] Counsel presented several cases and referred to the Supreme Court of Canada decision in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., [2001] 2 S.C.R. 983, which case is cited frequently when dealing with this type of issue. Sagaz is a vicarious liability torts case that deals extensively with employee and independent contractor questions. The remarks of the Supreme Court of Canada apply equally to the present situation. From the headnote to this case, the Court was of the following opinion:
... There is no one conclusive test which can be universally applied to determine whether a person is an employee or independent contractor. What must always occur is a search for the total relationship of the parties. 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. ...
At page 1001, in referring to control, Major J. stated: "The test has been broken down completely in relation to highly skilled and professional workers, who possess skills far beyond the ability of their employers to direct".
[15] I believe this sentence applies to Dr. Preddie. Obviously, he was highly skilled at tutoring mathematics, a professional engineer with over 30 years' teaching experience, and he was well-respected in his profession having been invited to speak and give seminars at universities and colleges in Canada. His evidence, combined with the affidavit of Mr. Skalin with respect to control, tilts the scale in favour of his being an independent contractor. The Respondent's argument that the Appellant must have used Sylvan's methodology because it paid tens of thousands of dollars for it[1] falls short of the direct evidence of the Appellant which I accept. The Respondent adds that Exhibit R-14 and the other documents indicate control, yet the Appellant did not see many of these documents, if any, until after he left Sylvan. He first saw the non-disclosure agreement at this hearing.
[16] The Respondent states that I should not consider only the control exercised by Sylvan over the Appellant but also the control it could have exercised according to the contract. I find in this instance, it is more important to look at what actually transpired rather than what Sylvan could have done. This principle is stated in income tax cases frequently. The control test favours the Appellant.
[17] With respect to who provided the tools, the facts are that Sylvan provided the premises and some books, supplies, liability insurance, and the Appellant provided his own calculator, some books, his own home office to prepare his lectures and also his car to travel. This test is inconclusive.
[18] With respect to chance of profit or risk of loss, the Appellant did not share in Sylvan's profit or loss. Clearly, this test favours an employer-employee relationship. Responsibility for management: Sylvan provided the students, set the lesson rate, collected from parents. If this is a test, this evidence favours the employer and employee relationship but I give little weight to it. It is my understanding that Sagaz does not apply the integration test, formerly included as one of the four tests set out in Montreal v. Montreal Locomotive Works Ltd., [1947] 1 D.L.R. 161 and adopted by MacGuigan J. in Wiebe Door Services Ltd. v. M.N.R., 87 DTC 5025. To do so is to answer the question of whose business was it and that is the primary question before me. The tests referred to are simply to be used as evidence in deciding whose business it was. As stated, Sylvan's business was to attract the students, provide a premise and promote a learning environment, the Appellant's business was to tutor independently.
[19] In conclusion, considering all the evidence as a whole, and on the balance of probabilities, I find the Appellant was in the business of tutoring on his own account. He was so highly skilled, he needed no control. His fee of $15 an hour was a bargained amount. Both parties referred to the relationship as one of independent contractor. The business of Sylvan was to get the students and tutor together. The Appellant was in the business of tutoring. For these reasons, the appeal is allowed with costs, if any.
Signed at Ottawa, Canada, this 30th day of March, 2004.
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"C.H. McArthur" |
McArthur J.
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CITATION: |
2004TCC181 |
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COURT FILE NO.: |
2003-549(IT)I |
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STYLE OF CAUSE: |
Calvin K. Preddie and Her Majesty the Queen |
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PLACE OF HEARING: |
Toronto, Ontario |
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DATE OF HEARING: |
September 15, 2003 |
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REASONS FOR JUDGMENT BY: |
The Honourable Justice C.H. McArthur |
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DATE OF JUDGMENT: |
September 24, 2003 |
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APPEARANCES: |
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For the Appellant: |
The Appellant himself |
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Counsel for the Respondent: |
Bonnie Boucher |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
N/A |
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Firm: |
N/A |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |