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Docket: 2000-3009(IT)G |
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BETWEEN: |
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STEFAN SIMEK, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN,
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Respondent. |
____________________________________________________________________
Appeal heard on January 13, 2004 at Edmonton, Alberta,
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Before: The Honourable Justice Brent Paris |
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Appearances: |
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Counsel for the Appellant: |
Douglas J. Forer |
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Counsel for the Respondent: |
Louis A.T. Williams |
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JUDGMENT
The appeal in respect of the assessment made under the Income Tax Act for the 1995 taxation year is dismissed, with costs.
Signed at Ottawa, Canada, on this 19th day of March 2004.
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"Brent Paris" |
Paris, J.
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Citation: 2004TCC119 |
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Date: 20040319 |
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Docket: 2000-3009(IT)G |
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BETWEEN: |
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STEFAN SIMEK, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN,
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Respondent. |
REASONS FOR JUDGMENT
Paris, J.
[1] Mr. Simek is appealing the disallowance of his claim for what is commonly referred to as the "Overseas Employment Tax Credit" ("OETC"), found in subsection 122.3(1) of the Income Tax Act (the "Act") for his 1995 taxation year.
[2] Mr. Simek is a professional engineer. He is the president and a shareholder and employee of 831594 N.W.T. Ltd. which carried on business in Yellowknife under the name Ferguson Simek Clark, Engineers and Architects ("FSC"). FSC specializes in building technology and design for Arctic climates.
[3] Since the early 1980's FSC has sought out engineering and construction work overseas. Starting in 1990, it designed and constructed buildings in Yakutsk in Siberia. Mr. Simek has been responsible for this facet of FSC's operations because of his fluency in Russian.
[4] In 1994 FSC obtained a contract worth $17.5 million U.S. to design and build an airport terminal in Yakutsk. Construction took place in 1994 and 1995. In mid-1995 FSC was awarded another contract worth $12 million U.S. for the design and construction of 504 housing units in Yakutsk, and building began in the fall of that year. These projects employed up to 60 Canadians and 200 Russians in 1995.
[5] As a result of these contracts, Mr. Simek was required to work for extended periods outside Canada. On this basis he claimed the Overseas Employment Tax Credit. One of the conditions for eligibility for the tax credit is that "... throughout any period of more than 6 consecutive months ... [the taxpayer] ... performed all or substantially all the duties of (his) employment outside Canada". The Minister of National Revenue denied the claim because in his view Mr. Simek did not perform all or substantially all of the duties of his employment outside of Canada during 1995.
[6] The only issue before the Court is whether Mr. Simek met this test. There is no dispute by the Respondent that the Appellant has met the other conditions for the tax credit.
[7] According to admissions made by the Respondent, the duties carried out by Mr. Simek outside Canada in connection with the Yakutsk airport terminal project included negotiating the contract, purchasing materials from Russian and Slovak suppliers, making design changes, assisting the Yakutian government in obtaining funding for the project, attending conferences and collecting payments. The Respondent admitted as well that Mr. Simek's duties outside Canada relating to the housing unit contract included preparing drawings, setting up a Cypriot corporation, on-site supervision, frequent meetings with the client and collection of payments. Mr. Simek also carried out the negotiations for the contract.
[8] Mr. Simek was the only witness at the hearing. His evidence showed that he traveled extensively in connection with the two Yakutsk contracts in 1995, not only to that city, but to places in Europe, Asia and North America as well. He presented a summary of this travel that he had prepared after reviewing a business diary that he kept, his passport and certain travel receipts. This document along with his testimony indicated that he worked 210 days outside Canada and worked 93 days in Canada in 1995.
[9] Although Mr. Simek was the president of the company, he did not have any day-to-day management responsibilities in Canada. Another employee, whom he referred to as the "managing partner", handled these duties. Mr. Simek testified that for the periods he was in Canada in February and March 1995 he worked about three hours a day "on the overseas project", although he initially said it was hard to say how much time he had worked. He said that he went into the office every day of the week during that time. From April 27 to May 8 he was back in Yellowknife and according to his evidence "didn't do much". He said he worked three hours a day on those dates. For the period May 25 to June 6 he said he worked one day in Toronto and more than seven and a half hours a day from May 28 to 30. During the time he was home in July and August he said he worked twelve to fifteen hours a week. He did not give a specific number of hours worked for the other days he worked in Canada.
[10] When he was in Yakutsk he worked seven days a week, generally for ten hours a day. From January 14 to 28 and from July 6 to 11 he said he worked between ten and twelve hours a day there. The schedule prepared by Mr. Simek appears to show that he was in Yakutsk for 97 days on seven separate occasions in 1995. He also said that travel between Yellowknife and Yakutsk could take between 48 and 64 hours depending on flight connections.
[11] The only other evidence of actual hours worked outside Canada related to a trip Mr. Simek made from Hawaii, where he was vacationing with his family, to China for some urgent business meetings. He spent six days there and worked from ten to fourteen hours a day.
[12] There was no evidence of how many hours Mr. Simek spent performing the duties of his employment on the rest of the days he worked outside Canada.
[13] In cross-examination Mr. Simek was shown copies of time sheets that he admitted he had filled in for FSC showing hours he worked each week for almost all of 1995. The sheets showed substantially more hours worked in Canada than he said he had in his evidence-in-chief. The time sheets showed that Mr. Simek worked about 40% of his total hours in 1995 inside Canada. He explained that the time sheets were inaccurate, and that he had overstated the hours worked in Canada and generally understated the hours worked on days he was out of the country. He said that he exaggerated his hours in Canada because his employer required all employees to work 37 1/2 hours a week and he wanted his timesheets to show he was complying with this requirement for internal accounting purposes. However, since the company was being paid a fixed price for its work on the two Yakutsk contracts he knew that the time sheets were not being used for billing purposes and he did not feel it was a problem to inflate the hours he worked. Furthermore, since he was not paid overtime he did not feel there was a point to recording all the hours he worked while he was out of the country. He also added that his "partners" in the company would not have been concerned with the number of hours he was working on the Yakutsk projects.
[14] The Appellant's counsel submitted that the evidence of Mr. Simek clearly showed that he performed substantially all of his duties of employment outside Canada in 1995. By his estimate Mr. Simek worked 200 to 210 days outside Canada for an average of ten hours a day, and approximately 80 days in Canada at a rate of three hours a day. He calculated that Mr. Simek therefore performed 89.75% of his duties outside of Canada.
[15] He went on to argue that, in any event, the determination of whether all or substantially all of the duties of employment were performed outside Canada was not simply a mathematical exercise of comparing the amount of time worked inside and outside Canada but that there should also be a subjective component to the test. He suggested that the Court should consider the relative importance of the duties performed in each location and not only the time taken to perform them in deciding whether substantially all of the duties were performed outside Canada. In other words, duties of greater significance to an employer should be weighted more heavily in the assessment of where substantially all the duties were performed. Counsel referred to this as a "contextual approach" involving a qualitative as well as quantitative assessment of the duties performed. He submitted that the duties performed in Canada in this case were less important than those he performed abroad and therefore the time spent in Canada should be discounted for the purpose of deciding whether Mr. Simek met the "all or substantially all" test.
[16] I am not satisfied that the Appellant has met the onus of showing that the Minister erred in reassessing to disallow the OETC. Mr. Simek's evidence did not provide me with any specific amounts of time worked for over 100 days outside Canada and on many days inside Canada as well. Furthermore, I am not convinced that Mr. Simek's estimates of the hours he worked are reliable. For the dates that he did give hours worked in Canada, it was almost invariably three hours a day or very close to it despite changes in what was taking place on the construction site in Yakutsk. For example, in February 1995 the construction of the airport terminal was in full swing, while by summer it appears to have been substantially completed. The construction on the housing units started in October. By Mr. Simek's own account he did not have a lot of work to do in July and August in Canada because FSC was waiting for funding for the housing unit project. However, his estimate of time worked in the summer was roughly equivalent to what he said he worked in February. I also note that Mr. Simek himself admitted it was difficult to say how much time he worked when back in Canada in February. I attribute this difficulty to the fact that he did not keep any record of his hours worked, apart from his time sheets which he now says are inaccurate.
[17] I have the same concerns about the days worked by Mr. Simek outside Canada. The evidence is clear with respect to days spent in Yakutsk, where it appears that he had a relatively stable work routine, but I do not accept a blanket figure of ten hours a day for the remaining days. Mr. Simek's work duties varied enormously on those days, as did the locations in which he performed them. Overall, I did not find Mr. Simek's evidence relating to the number of hours worked to be persuasive.
[18] I also find Mr. Simek's evidence relating to the accuracy of his time sheets to be self-serving and of little weight. I note that the time sheets contain breakdowns of the work down by Mr. Simek for many days, and show time being allocated to different tasks. I am left with the impression that more care was taken in completing them than Mr. Simek would have one believe. In addition, the time sheets do not uniformly show only thirty-seven and a half hours of time worked per week; overtime is shown in many instances, despite Mr. Simek's position that it did not matter if he recorded it or not. Finally, no witnesses from FSC were called to corroborate his statements that others in the company would not have been concerned about the accuracy of the time sheets or about the hours of work he put in.
[19] Given the uncertainty concerning the hours Mr. Simek worked inside and outside Canada, I am unable to compare those two quantities as would be required in order to make a finding on whether he performed all or substantially all of his duties of employment outside the country.
[20] Furthermore, I am not persuaded that factors other than time should be taken into account in this case in considering whether all or substantially all of the duties of employment were performed outside Canada. The phrase "substantially all" is intended to convey "the idea of some ascertainable proportion of the whole" (Ruh v. The Queen, [1998] G.S.T.C. 4 (T.C.C.). In my view this means that I am required to measure the work done by Mr. Simek inside and outside Canada in some fashion. The relative importance of tasks carried out by Mr. Simek is not a useful basis for comparison because "importance" cannot be quantified with any certainty. On the other hand, the amount of time spent working is an accepted measure of work and provides an objective means of comparison.
[21] In conclusion, as the Appellant has not shown on the balance of probabilities that the Minister erred in assuming that Mr. Simek did not perform all or substantially all of the duties of his employment outside Canada in 1995, he is not entitled to the overseas employment tax credit for that year. The appeal is therefore dismissed, with costs.
Signed at Ottawa, Canada, on this 19th day of March 2004
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"Brent Paris" |
Paris, J.
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CITATION: |
2004TCC119 |
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COURT FILE NO.: |
2000-3009(IT)I |
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STYLE OF CAUSE: |
Stefan Simek v. The Queen |
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PLACE OF HEARING |
Edmonton, Alberta |
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DATE OF HEARING |
January 13, 2004 |
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REASONS FOR JUDGMENT BY: |
The Honourable Justice B. Paris |
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DATE OF JUDGMENT |
March 19, 2004 |
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APPEARANCES: |
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Counsel for the Appellant: |
Douglas J. Forer |
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Counsel for the Respondent: |
Louis A.T. Williams |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
Douglas J. Forer |
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Firm: |
Felesky Flynn |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |