Section 5

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."

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."

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.

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).)

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.

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).

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.

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.

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.

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.

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".

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."

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.

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".

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.

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".

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.

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.

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.

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.

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.

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.

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.

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.

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).

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.

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.

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 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.

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.

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).

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).

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 ..."

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".

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.

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.

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.

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".

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.

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.

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."

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".