Date: 20010319
Docket: 2000-2873-IT-I
BETWEEN:
JOHANNE MAURICE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor Judgment
Tardif, J.T.C.C.
[1] This is an appeal for the 1998 taxation year. The issue is whether the $31,668 paid for personal home assistance by the Société de l'assurance automobile du Québec ("SAAQ"), which was received by the appellant as the person providing such assistance services, must be included in computing the taxable income of the appellant as a self-employed worker for the 1998 taxation year.
[2] In issuing the notice of assessment, the Minister of National Revenue ("the Minister") assumed the following facts in particular:
[TRANSLATION]
(a) in February 1982, the appellant gave birth to a daughter, Annie;
(b) on January 1, 1983, Annie was in a traffic accident that left her severely disabled for life;
(c) because of the accident's permanent effects on her, Annie is entitled to the reimbursement of expenses for personal home assistance under section 79 of Quebec's Automobile Insurance Act;
(d) in the cases prescribed by regulation, the SAAQ may replace the reimbursement of expenses by an equivalent weekly allowance. Regulation 4.3 of Chapter I of Quebec's Automobile Insurance Act reads as follows: "Except where the Société covers lodging expenses for a victim in an institution, the amount of the reimbursement of personal home assistance expenses may be replaced by an equivalent weekly allowance on condition that the victim provides the Société with documents that identify the person providing the personal home assistance services and attesting to the amounts incurred for such services." The appellant now receives that weekly allowance equivalent to the reimbursement of personal home assistance expenses;
(e) since Annie is mentally and physically disabled, she cannot manage the income from the SAAQ;
(f) section 83.27 of Quebec's Automobile Insurance Act provides that the indemnities obtained under section 79 of that Act may be paid to a tutor or curator where the victim is unable to manage the amounts himself or herself, while section 83.24 provides that the said indemnities may be paid directly to the home assistance worker at the victim's request;
(g) the SAAQ therefore issues cheques made out to the appellant, who is both her daughter Annie's legal tutor and the person providing the personal home assistance services;
(h) the SAAQ pays the appellant, as tutor, $440 every two weeks as a fixed indemnity. That amount cannot be spent and must be set aside for the child until she comes of age;
(i) as the person providing assistance services to Annie, the appellant also receives $614 a week as a personal home assistance allowance. That amount is determined on the basis of a yearly statement sent to the SAAQ by the appellant detailing the services that her daughter requires because of her disability;
(j) the amounts paid as a reimbursement or allowance are intended to defray home assistance expenses incurred for persons whose physical or mental condition, by reason of an accident, renders home assistance necessary for them to perform the essential activities of everyday life;
(k) such personal assistance amounts do not serve to reimburse the cost of goods purchased for the victim's use or for making alterations to adapt the home (costs for which there is additional reimbursement), but is rather compensation for services rendered;
(l) the amounts received from the SAAQ must be distributed to third parties in return for the assistance they provide, and those third parties must pay tax on that income received—as compensation for services rendered—in the form of either employment or business income, and this rule also applies where a parent is the one who provides the assistance services;
(m) the amounts received from the SAAQ by the appellant were also used to pay expenses incurred for services rendered by third parties (camps, day-care centres, caregivers, etc.);
(n) those amounts paid to third parties, where supported by vouchers, were accepted by the Minister as expenses that could be deducted from the appellant's business income.
[3] Did the appellant provide home assistance and support services to her child as a self-employed worker, so that the amounts received under section 79 of the Automobile Insurance Act must be included in her income as business income? The respondent argued that the yearly allowance of over $30,000 could have been granted or allocated to third parties in return for the provision of care, assistance and support to Annie. The Minister argued that, in such a case, the payments would have been income in the form of either employment or business income. Relying on that premise, he concluded that the same reasoning applies where a parent decides to assume responsibility for all the care needed by his or her disabled child.
[4] The appellant received a yearly allowance of $31,668 for the 1998 taxation year to take care of her daughter Annie; she chose to look after her daughter herself. The Minister determined that that allowance was taxable income. In actual fact, the appellant used the indemnity to make certain outlays, which was why the Minister characterized her as a self-employed worker for the purposes of this case; the result was that she was able to subtract from the indemnity an amount of $17,817.92, leaving a taxable balance of $13,850.08. The expenses that were allowed can be itemized as follows (Exhibit A-1, Tab 7):
[TRANSLATION]
. . .
Caregiver (19 Saturdays x 12 hours x $3) $684.00
Caregiver's meals $190.00
Caregiver's transportation (19 x 12 km x $3) $54.72
Maison Caméléon de l'Estrie Inc. (21 weeks) $2,258.00
Transportation for Maison Caméléon (42 x 86 km x $0.24) $866.68
Holidays (2 weeks) $745.00
Transportation (400 km x $0.24) $96.00
Meals $40.00
Caregiver (24 hours x 52 weeks) $3,744.00
Caregiver's transportation (12 km x 52 weeks x $0.24) $149.76
Caregiver's meals $520.00
Caregiver (260 days x $25) $6,500.00
Caregiver's transportation $149.76
Caregiver's meals ($7 x 260 days) $1,820.00
Total expenses deductible from taxable allowance $17,817.92
[5] The Minister thus determined that the balance of $13,850 was taxable income in the hands of the appellant, who chose to completely devote herself to and involve herself in looking after her disabled child.
[6] The appellant testified that the physical and mental condition of her child, who turned 18 in February 2000, was such that she was like a five-year-old, requiring attention and supervision 24 hours a day, seven days a week.
[7] She described all the demands imposed on her by her choice to care for and look after her child. She said that she refused to entrust her daughter to third parties and explained that she loved her and wanted to devote herself totally to her, which she did to the detriment of her own life given the many constraints and obligations involved. She also said that she put her daughter's interests and greater well-being above everything else, including her relationship with her spouse and her own life.
[8] The appellant also called as witnesses two other mothers who had the same concerns about their children, who were also severely disabled and required considerable care 24 hours a day, seven days a week.
[9] In both cases, the women received the same indemnity as the appellant, and they each received a letter from Revenue Canada stating that the amounts they received for taking caring of and looking after their children were not taxable. It is appropriate to reproduce those two letters here:
(Exhibit A-8)
[TRANSLATION]
April 12, 1996
Jacqueline Shea Account number
478 McManamy 261 130 371
SHERBROOKE QC J1H 2M5
Dear Ms. Shea:
Subject: Benefits received from the SAAQ
Further to your letter of April 3, 1996, we hereby confirm that the benefits received from the SAAQ for taking care of your child are not taxable pursuant to paragraph 81(1)(g.1) of the Income Tax Act.
Moreover, those amounts are not taken into account in computing net income for the purposes of the GST credit and the child tax benefit. No information slip is issued for such payments.
Finally, under paragraph 81(1)(g.2) of the Income Tax Act, interest income from the SAAQ benefits is taxable only from the time the beneficiary attains the age of 21 years. Further details are provided in Interpretation Bulletin 365R2, a copy of which is enclosed.
We trust that this information will be satisfactory.
(Exhibit A-9)
[TRANSLATION]
April 12, 1996
Huguette Joly Account number
105-944 RUE THIBAULT 234 295 681
ASCOT QC J1H 5Z4
Dear Ms. Joly:
Subject: Benefits received from the SAAQ
Further to your letter of April 3, 1996, and our telephone conversation of April 9, 1996, we hereby confirm that the benefits received from the SAAQ for taking care of your son are not taxable pursuant to paragraph 81(1)(g.1) of the Income Tax Act.
Moreover, those amounts are not taken into account in computing net income for the purposes of the GST credit and the child tax benefit. No information slip is issued for such payments.
Finally, under paragraph 81(1)(g.2) of the Income Tax Act, interest income from the SAAQ benefits is taxable only from the time the beneficiary attains the age of 21 years. Further details are provided in Interpretation Bulletin 365R2, a copy of which is enclosed.
We trust that this information will be satisfactory.
. . .
[10] There is no doubt that, if a third party had received the indemnity from the SAAQ, it would have been a taxable amount like any income.
[11] Can the fact that the indemnity was paid to the mother, who chose to look after her very seriously disabled child herself, transform the indemnity into taxable income?
[12] To justify the assessment, the respondent described the appellant, as regards her schedule in caring for and looking after her child, as a self-employed worker or even—which scandalized counsel for the appellant, and with good reason—as a contractor.
[13] Counsel for the appellant also argued that the appellant never chose the situation imposed on her by a dreadful traffic accident; he said that she had legal obligations to her child, as set out in the Civil Code of Québec.
[14] On the other hand, counsel for the appellant drew a parallel between the appellant and a contractor to show that it was totally unacceptable to consider her a self-employed worker or a contractor. To illustrate this fact, he argued that the appellant had no expectation of profit and no risk of loss or chance of profit in devoting time to her child.
[15] Finally, he argued that the amounts in question were in no way income within the meaning of the Income Tax Act ("the Act"), since they were not employment or business income, much less income from property.
[16] The respondent acknowledged the compassionate aspect of the case, which necessarily inspires deep sympathy. Looking beyond the compassionate approach, the respondent argued that the appellant freely chose to take care of her child and that the result of her decision was that she became a self-employed worker in terms of providing the care required for her child.
Relevant legislative provisions
[17] Section 79 of the Automobile Insurance Act provides as follows:
79. Where, by reason of the accident, a victim's physical or mental condition warrants the continual attendance of another person or renders him unable to care for himself or perform, without assistance, the essential activities or everyday life, he is entitled to the reimbursement of expenses incurred for personal home assistance.
Expenses are reimbursed on presentation of vouchers and according to the standards, conditions and maximum amounts prescribed by regulation. However, no reimbursement may exceed $555 per week.
In the cases prescribed by regulation, the Société may replace the reimbursement of expenses by an equivalent weekly allowance.
[18] Sections 83.24 and 83.27 specify the cases in which the indemnity under section 79 may be paid directly to a third party:
83.24 The expenses referred to in sections 79, 83, 83.1, 83.2 and 83.7 and the cost of the medical report referred to in section 83.31 may, at the request of the victim, be paid directly to the suppliers.
83.27 Where a person entitled to compensation is under legal incapacity, the Société shall pay the indemnity to his tutor or curator, as the case may be, or, if none, to the person it designates; the designated person has the powers and duties of a tutor or of a curator, as the case may be.
[19] Moreover, paragraph 81(1)(q) of the Act provides as follows:
81(1) Amounts not included in income — There shall not be included in computing the income of a taxpayer for a taxation year,
. . .
(q) Provincial indemnities — an amount paid to an individual as an indemnity under a prescribed provision of the law of a province.
[20] This provision refers to section 6501 of the Income Tax Regulations:
6501. For the purposes of paragraph 81(1)(q) of the Act, "prescribed provision of the law of a province" means
. . .
(j) in respect of the Province of Quebec
(i) sections 5, 5b and 14 of the Crime Victims Compensation Act, S.Q. 1971, c. 18, and
(ii) sections 13 and 26, subsection 37(1) and sections 44 and 54 of the Automobile Insurance Act, S.Q. 1977, c. 68.
[21] What is to be determined is the extent to which the amounts paid to the appellant under section 79 of the Automobile Insurance Act must be included in her income for the 1998 taxation year. Paragraph 3(a) of the Act describes the amounts to be included in a taxpayer's income as follows:
3. Income for taxation year — The income of a taxpayer for a taxation year for the purposes of this Part is the taxpayer's income for the year determined by the following rules:
(a) determine the total of all amounts each of which is the taxpayer's income for the year (other than a taxable capital gain from the disposition of a property) from a source inside or outside Canada, including, without restricting the generality of the foregoing, the taxpayer's income for the year from each office, employment, business and property. [Emphasis added.]
[22] In addition, section 56 of the Act refers to amounts that, although not part of those expressly covered by paragraph 3(a), must nevertheless be taken into account in determining a taxpayer's income. For example, there are amounts received as employment insurance benefits (paragraph 56(1)(a)) or as scholarships and bursaries (paragraph 56(1)(n)).
[23] Amounts paid for the benefit of a motor vehicle accident victim under section 79 of the Automobile Insurance Act are paid as compensation for personal injury. As such, although they are not covered by the exemption in paragraph 81(1)(q) of the Act, they do not have to be included in the beneficiary's income, since there is no provision—and that includes both paragraph 3(a) and section 56—specifically requiring their inclusion. Moreover, the income generated by those amounts before the beneficiary attains the age of 21 years is also tax-exempt pursuant to paragraphs 81(1)(g) and (g.1).
[24] The question that arises here is whether the amounts paid by the SAAQ, although not taxable for the beneficiary, must be included in the income of the parent or tutor who receives them as compensation for the care provided on a daily basis. The Minister's argument is that the appellant received the amounts paid under section 79 of the Automobile Insurance Act as business income and that as such they must be included in her income. With respect, that interpretation cannot be accepted.
[25] The Act does not specifically define the concept of business. However, subsection 248(1) of the Act specifies various activities that are included in that concept:
248(1) Definitions ¾ In this Act,
"business" includes a profession, calling, trade, manufacture or undertaking of any kind whatever and, except for the purposes of paragraph 18(2)(c), section 54.2, subsection 95(1) and paragraph 110.6(14)(f), an adventure or concern in the nature of trade but does not include an office or employment. [Emphasis added.]
[26] The courts generally define the concept of business by contrasting it with the concept of employment. The leading case on this point is the Federal Court of Appeal's decision in Wiebe Door Services Ltd. v. Minister of National Revenue, [1986] 3 F.C. 553. According to MacGuigan J.A.'s reasons, the applicable test is a four-in-one test—the four components thereof being (1) control, (2) ownership of the tools, (3) chance of profit, and (4) risk of loss—so that account is taken of the whole of the elements which constitute the relationship between the parties (at pages 559-60). The Court also accepted the organization or integration test—which involves determining whether a person and his or her work are an integral part of the employer's business—insofar as it is approached from the persona of the employee and not from that of the employer (at page 563).
[27] Based on those reasons, it will generally be concluded that those who act under an employer's control in terms of their work schedule and the way they do their work, who generally do not own the tools used for their work, who receive set wages—as opposed to an uncertain profit—and who are an integral part of their employer's activities are employees. Conversely, those who do their work according to their own rules, without being accountable either for the way the work is done or with respect to their schedule, who incur a risk as regards the profit or loss that might result from their work and who are not an integral part of their employer's business will generally be considered independent contractors.
[28] Based on the test set out in Wiebe Door Services, supra, the appellant was not an employee, since she was completely independent in the way she did her work, worked in her own environment with her own tools and was not in any way part of a third party's business. Nor was the appellant an independent contractor within the meaning of the case law, mainly because, although she acted independently in performing her work, she was not free to organize her time as she saw fit due to her daughter's specific and continuous needs and because her alleged potential profit was fixed in advance and in no way depended on her own efforts.
[29] Absent a legal relationship that may be established on the basis of the case law, the Court is not at liberty to find that such a relationship exists based on what might be inferred from economic reality alone. In Shell Canada Ltd. v. Canada, [1999] 3 S.C.R. 622, the Supreme Court ruled that, "absent a specific provision of the Act to the contrary or a finding that they are a sham, the taxpayer's legal relationships must be respected in tax cases" (at page 641, emphasis added).
[30] There are also numerous cases that distinguish on the basis of profit-seeking between carrying on a business and engaging in a personal activity. As the Federal Court of Appeal put it in Tonn v. Canada, [1996] 2 F.C. 73, such a situation arises where, from the activity, the taxpayer "derives personal satisfaction or psychological benefit. . . . Though these activities may in some ways be operated as businesses, the cases have generally found the main goal to be personal. Any desire for profit in such contexts is no more than a 'pious wish' or 'fanciful dream'. It is only a secondary motive for having set out on the venture" (at page 97, emphasis added). Major J. of the Supreme Court of Canada referred to this same distinction in Schwartz v. Canada, [1996] 1 S.C.R. 254, in stating the following at pages 300-301:
It has long been recognized that not all "accretions to wealth" are included as income. Inheritances and gifts are "accretions to wealth" but are nevertheless not taxed because they are not income from employment, property, or business. Profits from hobbies are accretions to wealth, but they, too, are not taxed for the same reason. [Emphasis added.]
[31] In the case at bar, the appellant chose to assume responsibility for her daughter herself, not for the pecuniary benefits she could derive therefrom but rather to fulfil her obligation of support, rightly considering that she was the person best qualified to look after her child. The monetary benefits resulting from that maternal family activity are no more taxable than profits from hobbies or simply amounts that some people give to their non-working spouses to attend to their family's various needs.
[32] For these reasons, I allow the appeal, without costs.
Signed at Ottawa, Canada, this 19th day of March 2001.
"Alain Tardif"
J.T.C.C.
Translation certified true on this 2nd day of November 2001.
[OFFICIAL ENGLISH TRANSLATION]
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
2000-2873(IT)I
BETWEEN:
JOHANNE MAURICE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on October 26, 2000, at Sherbrooke, Quebec, by
the Honourable Judge Alain Tardif
Appearances
Counsel for the Appellant: Ghislain Richer and Francine Émond
Counsel for the Respondent: Valérie Tardif
JUDGMENT
The appeal from the assessment made under the Income Tax Act for the 1998 taxation year is allowed without costs, in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 19th day of March 2001.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 2nd day of November 2001.
Erich Klein, Revisor