Date: 19980313
Dockets: 97-169-IT-I; 97-3299-IT-I
BETWEEN:
JEAN GODIN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
For the Appellant: The Appellant himself
For the Respondent: Shalene Curtis-Micallef
Reasons for Judgment
(Delivered orally from the Bench at Ottawa, Canada, on March 12, 1998)
Mogan, J.T.C.C.
[1] From May 1993 to May 1995, the Appellant was employed in the area of Europe formerly known as Yugoslavia. His work was under the direction of the United Nations. It was connected with border monitoring and other similar services related to peacekeeping. The Appellant was paid a salary for the services he performed in those years. For each of the years under appeal (1993, 1994 and 1995), the Appellant claims either an overseas employment tax credit (“OETC”) under section 122.3 of the Income Tax Act or, alternatively, an exemption from tax with respect to his salary under paragraph 110(1)(f) of the Act. The issue in these appeals is to determine whether, in the circumstances of the Appellant’s employment, he was entitled to the OETC or the exemption.
[2] The relevant provisions of the Income Tax Act are parts of sections 110 and 122.3:
110(1) For the purpose of computing the taxable income of a taxpayer for a taxation year, there may be deducted such of the following amounts as are applicable:
...
(f) ... any amount that is
...
(iii) income from employment with a prescribed international organization, ...
to the extent that it is included in computing the taxpayer’s income for the year;
122.3(1) Where an individual is resident in Canada in a taxation year and, throughout any period of more than 6 consecutive months that commenced before the end of the year and included any part of the year (in this subsection referred to as the “qualifying period”)
(a) was employed by a person who was a specified employer, other than for the performance of services under a prescribed international development assistance program of the Government of Canada, and
(b) performed all or substantially all the duties of the individual’s employment outside Canada
(i) in connection with a contract under which the specified employer carried on business outside Canada with respect to
...
there may be deducted, from the amount that would, but for this section, be the individual’s tax payable under this Part for the year, an amount equal to that proportion of the tax otherwise payable under this Part for the year by the individual that ...
For the purposes of paragraph 110(1)(f), Regulation 8900 identified the United Nations as a prescribed international organization. One of the issues is whether the Appellant was an employee of the U.N.
[3] In order to determine the character of the Appellant’s employment, it is necessary to trace a series of documents which were entered in evidence. Exhibit R-5 is a 30-page contract between the United Nations and Canadian Commercial Corporation (“CCC”) for the provision of services by CCC to the United Nations protection force (“UNPROFOR”). Exhibit R-4 is a contract between CCC and CARE Canada dated May 9, 1994. The first three recitals in Exhibit R-4 demonstrate that CCC subcontracted to CARE Canada the task of providing the service personnel. Those recitals state:
WHEREAS the United Nations Protection Force, Zagreb, Croatia, (UNPROFOR) requires the Personnel as set forth in the Agreement No. 4/FOR/CON/1200 dated 9 May 1994 between UNPROFOR and Canadian Commercial Corporation (CCC), hereinafter called the “U.N. Contract” which U.N. Contract is attached to and forms part of this Domestic Contract between CARE Canada (the “Contractor”) and CCC;
WHEREAS the Contractor has represented to CCC that it has all the necessary skills, personnel, facilities and resources to provide the Services to CCC for UNPROFOR;
WHEREAS the Contractor and CCC jointly participated in the negotiations for a U.N. Contract and the Contractor has represented to CCC that it has received and understood all the terms of the U.N. Contract and is willing to fulfil all such terms in order to fully meet the obligations of CCC to UNPROFOR in the U.N. Contract;
[4] Exhibit A-1, Tab “A” is a letter agreement between CARE Canada and the Appellant dated May 18, 1993. This is an important document and so the entire letter of May 18, 1993 is set out below:
We are pleased to offer you employment through CARE Canada in the service of the United Nations Protection Forces (UNPROFOR). UNPROFOR has entered into an Agreement with the Canadian Commercial Corporation (CCC) for the provision of Services by Personnel. CCC will be subcontracting 100% of the Agreement to CARE Canada.
Your assignment as Associate Officer, Sector Admin. will begin on May 22, 1993, or as close to that date as possible. Employment is subject to a medical clearance, inoculations and vaccinations as required by country health regulations, possession of a valid passport, and foreign government clearance, and to such other matters or conditions as CARE and UNPROFOR may reasonably impose.
This letter of agreement, the appended General Conditions of Employment, and all other appendices or schedules included herewith, confirm our mutual understanding of the terms and conditions of your employment.
You will be assigned to UNPROFOR’s operations in the project area for a period of one year. However, without an express reduction or extension of your length of service, nothing in this letter or in the General Conditions of Employment or in any other CARE, CCC or UN publication of any kind may be construed as offering employment for any period different from that stated herein.
You will receive a compensation package, applicable to this assignment only, which includes meals, lodgings, and group insurance coverage to provide for life and medical insurance, and an annual salary of $42,500.
In addition to the above, please make note of the following:
Your home of record is: Ottawa, Ontario
Your employee number is: 10,010
Please review the attached General Conditions of Employment, appendices and schedules carefully and signed two (2) copies of the letter. It is important to note that you are required to sign risk waivers in accepting this assignment. The CARE Canada waiver is included as a schedule to this contract, and the UN waivers are being furnished separately. Your signature indicates that you have agreed to all terms set forth in this Letter of Agreement, General conditions of Employment, and all accompanying appendices and schedules. Return the full original, and retain the copy for your records.
We look forward to having you on our staff.
[5] Paragraph 3 of the above letter refers to “the appended General Conditions of Employment”. Exhibit R-6 is a five-page document setting out those general conditions of employment; it is signed by the Appellant on page 5 and dated May 19, 1993. It is useful to set out the short preamble plus paragraph number 2 plus the concluding words of Exhibit R-6:
These General Conditions apply to overseas contract personnel in CARE Canada’s employ for a special assignment with the United Nations Protection Forces. As stated in the cover letter, UNPROFOR has entered into a Contract for Services with the Canadian Commercial Corporation (CCC). CCC has subcontracted 100% to CARE Canada.
...
2. Duties
The duties of the employee under the above-referenced Contract for Services will be assigned by the United Nations Protection Forces (UNPROFOR). The employer of record is CARE Canada, but the employee is under the management of, and responds to direction from UNPROFOR for the duration of this assignment.
The employee shall be provided with a complete and current statement of the duties and responsibilities of his/her position. Such duties and responsibilities are subject to modification by UNPROFOR. Any revision shall be provided to the Employee and, if required, annual salary will be adjusted accordingly.
...
THE EMPLOYEE HAS THOROUGHLY READ AND UNDERSTOOD THE TERMS OF THIS EMPLOYMENT CONTRACT AND ACKNOWLEDGES THAT THIS EMPLOYMENT CONTRACT CONTAINS UNUSUAL CLAUSES AND A COMPLETE RELEASE AND WAIVER OF CERTAIN CLAIMS.
[6] With respect to paragraph 110(1)(f) of the Act, the Appellant argued that he was an employee of the U.N. In support of that argument, the Appellant stated that his duties were reassigned from time to time by U.N. personnel in the work area; his contract was renewed after one year by the U.N. personnel; and he actually supervised some individuals who were full-time employees of the U.N. That evidence was not contradicted subject to the terms of his renewal. The Appellant seems to take the position that the letter agreement between him and CARE Canada was a mere formality because all of his day-to-day working conditions and operations were connected directly with U.N. personnel in the former Yugoslavia.
[7] The Respondent called as a witness Maria Catana who is a program officer with CARE Canada and is familiar with its operations. She stated that the mandate of CARE Canada was to provide emergency and long-term relief to war-torn areas. CARE Canada is a non-profit registered charity. In 1993, she was project co-ordinator for UNPROFOR in Zagreb and acted as a liaison between CARE Canada and CCC. CARE Canada was approached by CCC because of CARE Canada’s experience in recruiting personnel. It is important to note that CARE Canada was the organization which procured personnel for the whole U.N. operation in former Yugoslavia. Ms. Catana stated that CARE Canada had about 200 personnel in the former Yugoslavia throughout this period of whom approximately 60 individuals were from Canada.
[8] CARE Canada was responsible for the salary of the Appellant and all other persons hired by CARE Canada until those persons were brought back to Canada or to their respective countries of origin. CARE Canada was also responsible for seeing that each individual had the appropriate visa, medical examination and other documents required to travel from a country of origin to the former Yugoslavia. CARE Canada provided the transportation costs for travelling both from the country of origin to the work site and back home again. The funds for all these costs came from the U.N. through CCC to CARE Canada. The Appellant acknowledged that he knew the U.N. was paying CARE Canada indirectly and that he was paid by CARE Canada. His salary was deposited in his designated bank account in Canada but his day-to-day living expenses in the work area were provided directly by the U.N. to the Appellant on site.
[9] The Appellant emphasized the fact that the U.N. could terminate him for cause. He referred to Exhibit A-1, Tab “T” which is a document dated November 21, 1997 on U.N. stationery and signed by Alastair Livingston as “Chief Border Monitor”. That documents is addressed TO WHOM IT MAY CONCERN and states:
During the period 1 Jan 1993 - 30 Oct 1995 while serving as Chief Administrator of the UN Logistics base for UNPROFOR I was directly involved in all aspects of the support functions of the Mission. As result I certify that Mr. Jean Godin, while working as a contract staff member of UNPROFOR was selected by and, worked specifically under the direction of United Nations staff who had the ultimate authority to either reassign him, renew or terminate his contract at any time.
I note that the document is dated less than four months ago and assume that it was obtained to support the Appellant’s position.
[10] Ms. Catana’s evidence was in conflict with Exhibit A-1, Tab “T” with respect to whether the U.N. could terminate the Appellant’s employment. She stated that if the U.N. expressed dissatisfaction with the performance of a CARE Canada employee, there would be serious discussions to determine whether the matter was simply a clash of personalities (in which case the employee could be reassigned to a different area) or whether the competence of the employee was in fact the issue. I take from the evidence of Ms. Catana that if the U.N. wanted to terminate for cause the Appellant or some similar individual employed by CARE Canada, the particular cause sited by the U.N. if proven would probably be accepted as cause for CARE Canada to terminate such employment.
[11] This is not the first case to come before the Courts in Canada concerning an individual employed abroad in a U.N. operation. In Creagh v. M.N.R., [1997] 1 C.T.C. 2392, certain pilots and aircraft maintenance engineers had been involved in a United Nations peacekeeping mission in Cambodia. Specifically, they were employed by Canadian Helicopters which had contracted to provide certain air transportation services to the United Nations. In the Creagh appeal, the taxpayers argued for relief under both paragraph 110(1)(f) and section 122.3 which are the same provisions under which the Appellant herein seeks relief. In dismissing the appeals of James Creagh and his associates, my colleague, Lamarre Proulx J. summarized the facts of their employment in the following words at page 2398:
They received their instructions as to flight routes from the UN air operations officer. The Appellants were issued UN identification cards on the back of which appeared the following:
The bearer of this card is a member of the United Nations Transitional Authority in Cambodia. All civilian and military personnel are requested to extend him/her free passage and afford him/her all privileges necessary in the execution of his/her duties.
They were taken to the UN field hospital where they received the required vaccinations. The meals were served in a common mess area and they ate with UN personnel. The communications equipment at the base was supplied by the UN. Some of the pilots were issued a UN driver’s licence to operate UN vehicles. Room and board was provided by the UN.
Mr. Creagh stated that he did not have a contract of employment in writing with Canadian Helicopters. He believed that the other Appellants did not have one either.
Notwithstanding the close connection between James Creagh and his associates on one hand and the UN personnel on the other hand, Lamarre Proulx J. found that Mr. Creagh and his associates were employees of Canadian Helicopters and not employees of the UN. She stated at page 2401:
The term “employment” is used several times in the Act, and when it is used, it always means the contractual relationship of an employer and an employee as is the case when this term is used in any legal text. It does not mean an activity in which a person engages. The preposition “with” cannot change the meaning of the word “employment” in the Act. If the legislator had wanted to provide for the case of work activity and not for the case of employment, it would have used the former expression and not the latter. ...
[12] Exhibit R-2 is a letter dated January 8, 1997 from the U.N. to the Appellant. The Appellant objected to its introduction on the grounds of relevance but I held that it was relevant to compare or contrast the Appellant’s position as a direct employee of the U.N. with his position in 1993 to 1995 when he was recruited by CARE Canada.
[13] In order for the Appellant to obtain an exemption under paragraph 110(1)(f), I would have to conclude that the Appellant was employed by the U.N. I cannot reach that conclusion in the face of the documents before me. Clearly, there was a contract between the U.N. and CCC; and then a contract between CCC and CARE Canada to recruit appropriate personnel. CARE Canada recruited the Appellant in accordance with the terms of Exhibit A-1, Tab “A” which can be contrasted with Exhibit R-2. The Appellant at all relevant times remained an employee of CARE Canada notwithstanding the fact that he was seconded to the U.N. administration in the former Yugoslavia and was subject to their direction on a day-to-day basis while he carried out his duties. The seconding of the Appellant to the U.N. supervisory team in the former Yugoslavia did not cause the Appellant to become an employee of the U.N. The Appellant remained an employee of CARE Canada. Therefore, the Appellant is not entitled to an exemption under paragraph 110(1)(f).
[14] If the Appellant is to obtain any relief under subsection 122.3(1) of the Act, he must establish that CARE Canada carried on business outside Canada within the meaning of subparagraph 122.3(1)(b)(i). Exhibit R-3 is the Letters Patent issued by the Government of Canada incorporating CARE Canada on April 12, 1977. The objects of CARE Canada are stated in Exhibit R-3 as follows:
1. To furnish and support a service of relief, rehabilitation and reconstruction.
2. To apply for, secure, acquire by grant, legislative enactment, assignment, transfer, purchase or otherwise, and to exercise, carry out and enjoy any charter, licence, power, authority, franchise, concession, right or privilege, that any government or authority or any corporation or other public body may be empowered to grant, and to pay for, aid in and contribute toward carrying the same into effect.
Toward the end of Exhibit R-3, the Letters Patent contain the following specific statement:
... The corporation is to be carried on without pecuniary gain to its members and any profits or other accretions to the corporation are to be used in promoting its objects. ...
[15] I am satisfied from examining the Letters Patent of CARE Canada that it is a “not for profit” corporation. That fact alone does not mean that CARE Canada could not or would not carry on a business but it is a starting point. From there I turn to the service which CARE Canada provided to CCC and, through CCC, to the U.N. It was simply a service of providing personnel to work in the area of former Yugoslavia. CARE Canada was paid in Canada for providing that personnel and in turn paid those personnel at their respective bank accounts outside the former Yugoslavia. As I understand the evidence of Ms. Catana, there were very few administrative functions performed by senior officers of CARE Canada in the former Yugoslavia. In other words, once the personnel recruited by CARE Canada were seconded to the U.N., the senior administrative staff of CARE Canada was no longer connected with the day-to-day duties of such personnel.
[16] In Timmins v. M.N.R., [1996] 3 C.T.C. 175, the taxpayer was employed in Malawi, Africa by the Province of New Brunswick in its Department of Agriculture. Apparently, there was a contract between the province and the Canadian International Development Agency (CIDA). Under that contract, the provincial department of agriculture provided services for the purpose of establishing and administering dairy farms in Malawi in return for a fee and reimbursements of certain expenses by CIDA. The question was whether the New Brunswick Department of Agriculture carried on business in Malawi within the meaning of subsection 122.3(1) of the Income Tax Act. The Federal Court Trial Division dismissed Mr. Timmins’ appeal and, in delivering judgment, Wetston J. made the following statement at page 185:
I find that the phrase “carried on business”, in subsection 8(10) and subsection 122.3(1) of the Act, means those activities of an employer which are carried on for profit. The provisions in question were intended to assist specified employers in competing for foreign contracts, by reducing their overall costs and, therefore, their contract bids. Because the costs of competing for a contract are influenced by the operation of the provisions, the deduction or credit was obviously intended to improve the financial positions of specified employers. The notions of decreasing costs and increasing competitiveness, envisaged by these provisions, suggest that employers who are fulfilling contracts in foreign countries must be involved in commercial activity, for the purpose of earning a profit. ...
After reviewing certain authorities concerning the “preponderant purpose test”, Wetston J. continued at page 190:
In conclusion, the preponderant purpose test, as described in Hearst, supra, is appropriate for determining whether or not a specified employer is carrying on business under a contract, in the context of subsections 8(10) and 122.3(1) of the Act. ...
[17] On the basis of the Timmins case, I conclude that CARE Canada was not carrying on business outside Canada with respect to the activities of the Appellant in former Yugoslavia. In particular, CARE Canada was not engaged in any commercial activity for profit. Therefore, it did not have a reasonable expectation of profit and, on that basis, I find it impossible to conclude that CARE Canada was carrying on business at all with respect to its activities in recruiting personnel for the U.N. operation in former Yugoslavia. In my opinion, the Appellant has failed to prove that CARE Canada “carried on business outside Canada” within the meaning of subparagraph 122.3(1)(b)(i).
[18] I conclude that the Appellant is not entitled to any relief under section 122.3 of the Income Tax Act. I do not have any doubt concerning my conclusion but, if I did have such doubt, it would be resolved in favour of the Respondent in accordance with the decision of my colleague, Teskey J., in the appeal of Clark v. M.N.R. [1996] 3 C.T.C. 2727. Mr. Clark was employed by CARE Canada but assigned to work in the former Yugoslavia. Teskey J. found that CARE Canada was not carrying on business in the former Yugoslavia. The appeals for the taxation years 1993, 1994 and 1995 are dismissed.
Signed at Ottawa, Canada, this 13th day of March, 1998.
"M.A. Mogan"
J.T.C.C.