BETWEEN:
and
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Appeal heard on February 20, 2007 at Edmonton, Alberta
Before: The Honourable Justice G. Sheridan
Appearances:
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JUDGMENT
The appeal from the assessments made under the Income Tax Act for the 2000 and 2001 taxation years is allowed and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the Appellant is entitled to claim an Overseas Employment Tax Credit in the 2000 and 2001 taxation years, in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 15th day of March, 2007.
BETWEEN:
ANDREW PERRIN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
[1] The Appellant, Andrew Perrin, is appealing the assessment of the Minister of National Revenue of his 2000 and 2001 taxation years disallowing his claim for an Overseas Employment Tax Credit. In 2000 and 2001, Mr. Perrin was an employee of Perrin Communications Consultants Inc. ("PCCI"), an Alberta company in which he and his wife each owned 50% of the issued shares.
[2] At the commencement of the hearing, counsel for the Respondent advised the Court that, following his discussions with counsel for the Appellant, the Respondent was conceding that Mr. Perrin had satisfied the criteria for the Overseas Employment Tax Credit under subsection 122.3(1) of the Income Tax Act. The only issue remaining in dispute was whether Mr. Perrin was precluded from claiming the Overseas Employment Tax Credit by the exclusionary provision in paragraph 122.3(1.1)(c):
Excluded Income. No amount may be included under paragraph (1)(d) in respect of an individual's income for a taxation year from the individual's employment by an employer where ....
...
(c) but for the existence of the employer, the individual would reasonably be regarded as an employee of a person or partnership that is not a specified employer.
[3] The Respondent's position is that "but for" the existence of PCCI, Mr. Perrin would reasonably have been regarded as the employee of TRM or alternatively, Nortel Networks[1] and accordingly, pursuant to paragraph 122.3(1.1)(c), he is not eligible for an Overseas Employment Tax Credit. It is common ground that TRM is not a "specified employer" within the meaning of paragraph 122.3(1.1)(c). As counsel for the Respondent quite rightly submitted, the onus is on Mr. Perrin to establish his entitlement to the Overseas Employment Tax Credit.
[4] Mr. Perrin was the only witness to testify. I found his evidence entirely credible. For the reasons set out below, I am satisfied that he has shown that the exclusionary provision under paragraph 122.3(1.1)(c) is not applicable to his particular circumstances.
[5] By way of background, Mr. Perrin had been working for several years as an employee of Telus when he was seconded by his employer to work for another telecommunications company in Europe. In 1999, Telus decided to terminate Mr. Perrin's secondment and return him to Alberta. By that time, however, Mr. Perrin had become aware of other opportunities to work in Europe; in particular, his business contacts advised him that Nortel Networks needed people with his expertise to install ("commission") the software needed to run their telecommunications equipment. He had learned that there was more money to be earned working as an independent contractor than as an employee and also, that Nortel Networks contracted with placement agencies to find independent contractors to work on its projects. Through his contact at Nortel Networks he obtained a list of such placement agencies.
[6] Having thus done his research, he returned to Alberta and terminated his employment with Telus. He incorporated PCCI, investing $25,000 of his own money to cover the company's start-up costs, including employee transportation and accommodation expenses. As director and shareholder of PCCI, he caused PCCI to enter into an agreement with Telecom Resource Management Ltd. ("TRM"), a placement agency in London, England. Nortel Networks was one of its clients. By January 2000, he was back in Europe employed by PCCI to work on Nortel Networks projects that PCCI had acquired through its agreement with TRM. He remained there until the end of 2001 by which time, the work that had once been so plentiful had virtually dried up.
[7] To determine whether Mr. Perrin is caught by the exclusionary provisions of paragraph 122.3(1.1)(c), it is first necessary to determine the nature of the relationship between PCCI and TRM. In doing so, the Court must be guided by the four-fold test in Wiebe Door Services Ltd. v. Minister of National Revenue[2]. It is well settled that the importance and applicability of each factor will vary according to the facts of each case. Regard must also be had to the developing case law with respect to the intention of the parties[3].
[8] Starting with the latter point first, what were the intentions of TRM and PCCI? Pursuant to their agreement, PCCI was to provide to TRM, among other things, installation and commissioning services for its (TRM's) client, Nortel Networks. Their agreement stated that "nothing in this agreement shall be deemed to imply that the relationship between [TRM] and [PCCI] is that of employer and employee"[4]. Clause 3.1 also provided that, subject to certain confidentiality and non-competition clauses, PCCI was free "to pursue for its own account other business activities". Finally, the agreement contemplated that PCCI would hire and be responsible for its own "personnel" to perform its services; Mr. Perrin was the named "personnel" in Schedule 1 of the agreement.
[9] In my view, it was the intention of PCCI and TRM to establish an independent contractor relationship. As a long-time employee of Telus and as a result of his research into European job opportunities, Mr. Perrin was well aware of the difference between an employee and a contractor. He had, in his personal capacity, already considered and rejected the idea of becoming an employee of Nortel Networks, preferring instead to set up a company to provide services as an independent contractor for TRM and to work as an employee for his company. Thus informed, as the directing mind of PCCI, he agreed to the terms clearly expressing the intentions of PCCI and TRM to enter a contract for services.
[10] Applying to these facts the four-fold test in Wiebe Door, TRM exercised no control over PCCI: the company had the right to determine the availability of its employee for work and to dedicate as many hours of Mr. Perrin's time as it wished on whatever projects it chose to accept. PCCI received no pension benefits, vacation pay or sick leave from TRM. Its remuneration from TRM was based on the number of hours of service provided; Mr. Perrin, as PCCI's employee, was required to complete time sheets for his work on the Nortel Networks projects which PCCI, in turn, used to invoice TRM. TRM did not supervise PCCI or its employee in the performance of its services. Indeed, PCCI's involvement with TRM was limited to a few phone calls and emails: initially, for the purpose of executing their agreement; later (and then only from time to time) to discuss invoicing matters. TRM provided no tools to PCCI; PCCI purchased a laptop computer and sundry equipment and supplies for the use of its employee, Mr. Perrin. As expressly provided in its agreement with TRM, PCCI was in business on its own account; it had the right to seek other clients. It was responsible for paying the transportation and accommodation expenses of its employee, Mr. Perrin. It also had the obligation of making any deductions required in respect of Mr. Perrin's employment and assisting him to obtain any necessary work permits. Although in these circumstances it is difficult to imagine how it might have come about, only PCCI had the legal power to terminate Mr. Perrin's employment.
[11] As can be seen from the above, in cases where the individual who is the directing mind of a corporation is also its employee, a certain discipline is required to maintain a clear line between the various capacities in which an individual may be acting at any given moment[5]. Absent evidence of a sham, the Court must not pierce the corporate veil, even where the corporation's directing mind and its worker (whether an employee or independent contractor) are one and the same[6].
[12] For the reasons set out above, I am satisfied on a balance of probabilities that the agreement between TRM and PCCI was a contract for services. Mr. Perrin has successfully challenged the Minister's assumption that but for PCCI, Mr. Perrin would have been the employee of TRM. It simply does not make sense that TRM, a placement agency, would have wanted either PCCI or Mr. Perrin as its "employee". For his part, Mr. Perrin had no interest in working as TRM's employee; he left secure employment with his long-time employer, Telus, to pursue new opportunities with PCCI in Europe. If it is presumed under paragraph 122.3(1.1)(c) that PCCI did not exist, the evidence supports the conclusion that Mr. Perrin would have been in a contract for services with TRM and thus, not its employee.
[13] The appeal is allowed and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the Appellant is entitled to claim an Overseas Employment Tax Credit in the 2000 and 2001 taxation years.
Signed at Ottawa, Canada, this 15th day of March, 2007.
"G. Sheridan"
Sheridan, J.
COURT FILE NO.: 2006-1909(IT)I
STYLE OF CAUSE: ANDREW PERRIN AND HER MAJESTY THE QUEEN
PLACE OF HEARING: Edmonton, Alberta
DATE OF HEARING: February 20, 2007
REASONS FOR JUDGMENT: The Honourable Justice G. Sheridan
DATE OF JUDGMENT: March 15, 2007
APPEARANCES:
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Counsel for the Appellant: |
Alann J. Nazarevich |
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Counsel for the Respondent: |
Julian Malone |
COUNSEL OF RECORD:
Firm: Alann J. Nazarevich
Edmonton, Alberta
For the Respondent: John H. Sims, Q.C.
Deputy Attorney General of Canada
Ottawa, Canada
[1] As there was never any contractual relationship between PCCI (or, for that matter, Mr. Perrin) and Nortel Networks, I reject the Respondent's alternative as being without merit.
[2] 87 DTC 5025 (F.C.A.); 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., [2001] 4 C.T.C. 139 (S.C.C.).
[3] Wolf v. Canada, 2002 DTC 6853 (F.C.A.) and ensuing case up to the more recent decision of Royal Winnipeg Ballet v. Canada (M.N.R.), [2004] T.C.J. No. 291.
[5] Groupe Desmarais Pinsonneault & Avard Inc. v. Canada (M.N.R.), 2002 F.C.A. 144.