Independent Contractor Determinations by the Tax Court of Canada under Quebec law
The Tax Court of Canada recently issued a decision in which it had to determine the insurability of the employment of workers in a television production project in Quebec.
A television production company produced the television series Look Kool in 2014 for the broadcasters TVO and TFO in English and French. It set up two production teams for the series and hired 44 workers.
The production company signed a contract of engagement with each of the workers. Some of them were members of the Alliance québécoise des techniciens de l’image et du son (the “AQTIS”). AQTIS represents artists and technicians in certain sectors of the television and film industry. For those workers, the contracts of engagement provided by AQTIS included a rider specifying that the workers were being hired as independent contractors. For the other workers, who were not members of a relevant artists’ or technicians’ association, the production prepared an agreement called a “deal memo”. That agreement set out, among other things, the length of the contract and the remuneration agreed on by the parties for the services rendered. The workers who signed the deal memo considered themselves to be independent contractors.
Following a request for a ruling on the insurability of the 44 workers who worked on the production company’s television show in 2014, the Canada Revenue Agency (the “CRA”) concluded that the 44 workers held insurable employment within the meaning of paragraph 5(1)(a) of the Employment Insurance Act (the “EIA”). To draw this conclusion, the CRA took a sample of 11 workers who had worked on the production during the period between May 13 and September 19, 2014.
The production company appealed the decisions made regarding those 11 workers, as it considered them to be independent contractors.
The production company relied on the Act respecting the professional status and conditions of engagement of performing, recording and film artists (the “APS”). The statute allows artists’ associations to receive recognition and negotiate a collective agreement with a producer or a producers’ association on behalf of the artists on the minimum conditions for the engagement of those artists.
Positions of the Parties
Both the production company and the CRA acknowledged that the characterization of the workers’ contractual relationship should be looked at through the lens of Quebec civil law.
The CRA referred only to the applicable provisions of the Civil Code of Québec (the “CCQ”) with respect to the definition of a contract of employment (art. 2085 CCQ) and a contract of enterprise or for services (art. 2098 and 2099 CCQ). It also argued that the Tax Court of Canada must show deference regarding the assessment of the facts made by the Minister in determining the insurability of the employment at issue.
The production company argued that the issue should be analyzed within the Quebec socio-legal context. It stated that such an analysis should include not only the CCQ, but also specific legislation and the agreements that governed the relationships between producers and artists. It argued that within the socio-legal context surrounding the television production industry, the workers at issue were governed by a special regime that gave them a hybrid status. It submitted that, as a result, the workers had the freedom to offer their services as independent contractors or as employees.
Tax Court of Canada Decision
The court began by rejecting the CRA’s argument that the Tax Court should show deference to its assessment. It stated that the Tax Court of Canada has broad authority to decide any question of fact or law necessary in the course of an appeal and it does not have to show deference to the Minister with respect to the assessment of facts in a case where the Minister determines whether employment is insurable.
Turning to the question on appeal, the court explained that Quebec civil law defines the elements required for a contract of employment (employer/employee) or a contract of enterprise (contractual worker). Under article 2085 CCQ, for a contract of employment to exist, there must be work, remuneration and a relationship of subordination. Under article 2099 CCQ, for a contract of enterprise to exist, there must not be a relationship of subordination between the contractor and the client with respect to the performance of the contract. In addition, a contractor is free to choose the means of performing the contract. The court stated:
“Thus, the concept of control is an essential element of the contract of employment. This concept of subordination or control brings into play indicia of supervision that are called points of reference. These indicia of supervision include the integration of the worker into the business, the chance of profit and risk of loss, as well as ownership of the tools.”
As a result, the first step in the analysis is to determine the subjective intent of each party in the relationship and the second step is to determine whether the objective reality confirms the parties’ subjective intent. In other words, the court must determine whether the terms and conditions of the contract, in light of the various applicable factors, accurately reflect the legal characterization of their relationship by the parties.
With regards to the first step, after reviewing the evidence and testimony, the court found that the behaviour of each party to the contract indicated a subjective intent that their contractual relationship be considered as one in which independent contractors hired themselves out to work in the television production.
Turning to the second step of the analysis, the court found that terms and conditions of the contract, in light of the various applicable factors, accurately reflected the legal characterization of their relationship as independent contractors by the parties.
As a result, the court allowed the appeals for the majority of the workers, finding them to be independent contractors.
Mark Feigenbaum brings together many years of litigation experience with a deep knowledge of tax law, corporate law, accounting, finance, and other related practice areas. Mark can help you avoid the biggest risks that may arise in tax disputes.
Prior to founding his law firm, Mark worked in the cross-border tax department of an international Big 4 firm, and held accounting management positions across a variety of sectors in both Canada and the United States.
With tax legislation in constant flux on both sides of the border, Mark takes great care to stay current on all relevant developments in law and policy. He carefully considers all solutions available to craft a response that proactively considers the policies and best practices of a given tax authority.
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