Purves v. The Queen

Purves v. The Queen Court (s) Database Tax Court of Canada Judgments Date 2005-04-25 Neutral citation 2005 TCC 290 File numbers 2004-2012(IT)I Judges and Taxing Officers Eric A. Bowie Subjects Income Tax Act Decision Content 2004-2012(IT)I BETWEEN: ALAN PURVES, Appellant, and HER MAJESTY THE QUEEN, Respondent. ____________________________________________________________________ Appeal heard on December 8, 2004, at Windsor, Ontario, By: The Honourable Justice E.A. Bowie Appearances: Counsel for the Appellant: John R. Mill Counsel for the Respondent: Gatien Fournier and Marie Eve Aubry ____________________________________________________________________ JUDGMENT The appeal from the reassessment of tax made under the Income Tax Act for 2002 taxation year is allowed, with costs to the Appellant, and the reassessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the Appellant is entitled to the credit claimed pursuant to section 122.3 of the Act. Signed at Ottawa, Canada, this 25th of April, 2005. "E.A. Bowie" Bowie J. Citation: 2005TCC290 Date: 20050425 Docket: 2004-2012(IT)I BETWEEN: ALAN PURVES, Appellant, and HER MAJESTY THE QUEEN, Respondent. REASONS FOR JUDGMENT BowieJ. [1] This appeal was heard at Windsor, Ontario under the Court's informal procedure. It raises a question as to the precise meaning of certain words in subsection 122.3(1) of the Income Tax Act (the Act). Facts [2] Mr. Purves, although he does not have a university degree in engineering, does have equivalent qualifications and is therefore able to work as an engineer in the automotive industry. Some years ago, while working for the Ford Motor Company, he met Mr. Gary Claxton, who is the general manager of Comtech International Design Group Inc. (Comtech). Comtech is a Canadian resident firm that carries on the business of supplying engineering services of various kinds. Mr. Purves applied for a job with Comtech, and he was hired. He has worked for Comtech ever since. Specifically, it is his employment by Comtech throughout the year 2002 that gives rise to this appeal. [3] In January 2002, Comtech entered into a contract with Kelly Services Inc. (Kelly). Kelly is a United States resident corporation, and has its principal place of business in Troy, Michigan. I reproduce here the preamble to that contract, as well as the terms of it that are most significant for purposes of this appeal. Comtech is referred to in the contract as a "tiered supplier", and its type of business as "Provider of Technical Employees". This Tiered Supplier agreement (the "Agreement") as dated above is between Kelly Services, Inc. ("Kelly"), a Delaware corporation, with its principal place of business located at 999 West Big Beaver Road, Troy, Michigan 48084 and the vendor named above. this Agreement concerns referrals Kelly may make to Tiered Supplier for contract labour requirements Kelly received from General Motors under the Agreement between the customer and Kelly (date above). Through this Agreement Kelly and the Tiered Supplier establish a relationship to supply contract labour personnel to the customer. Therefore, in consideration of the mutual covenants and agreements between Kelly and the Tiered Supplier, it is agreed that: 1. SCOPE OF WORK AND PRICING. Tiered Supplier will assign its employees to the customer as requested by Kelly to perform work under the pricing and pricing terms and conditions set forth in Exhibit A which is attached and made part of this Agreement. This Agreement in no way obligates Kelly to refer customer requirements for contract labour to Tiered Supplier. ... 3. TIERED SUPPLIER OBLIGATIONS. In addition to assigning employees to perform the contract labour work contemplated by this Agreement, Tiered Supplier will recruit, interview, select and hire applicants best qualified to perform such work. Tiered Supplier will: (a) maintain all necessary personnel and payroll records for their employees assigned to Customer locations; (b) upon request, provide historical files in electronic format of contract labour assigned to Customer; (c) calculate their wages and withhold applicable Federal, State and local taxes and Federal Social Security payments; (d) pay net wages and fringe benefits, if any, directly to their employees; (e) provide for liability, fidelity and workers' compensation insurance coverage in the amounts as hereinafter set forth; and (f) at the request of Kelly for any valid legal reason, remove any of their employees assigned to Customer; provided, that this arrangement shall in no way affect the right of Tiered Supplier, in their sole discretion as employer, to hire, assign, reassign and/or terminate their own employees. Tiered Supplier guarantees that the employees assigned to Customer under this Agreement shall satisfactorily perform the work to which they are assigned. If such work is not performed satisfactorily, Tiered Supplier will upon reasonable notice from Kelly, cancel all charges for unsatisfactory work. GM purchase order terms and conditions state that individuals found unsatisfactory to Buyer (GM) within the first five (5) working days will be removed at no charge to Buyer for the time the individual spent on the job. ... 6. PAYMENT FOR SERVICES. In consideration of Tiered Supplier's performance hereunder, Kelly agreed to pay Tiered Supplier in accordance with the pricing guidelines set forth in Exhibit A. Tiered Supplier will be paid on a monthly basis, 30days after the last week ending date of the previous month. Tiered Supplier has 60 days from receipt of payment to bring to the attention of Kelly any errors or omissions relating to the payment. Kelly has 60 days from notice from Customer to bring to the attention of Tiered Supplier any errors or omissions relating to billing customer for Tiered Supplier contract labour personnel. Losses occurring as the result of fraud which are brought to the attention of Kelly or Tiered Supplier will be resolved upon discovery, without a time limitation. Resolutions to make Kelly or Customer whole will be agreed to by all parties involved at the time of discovery. In the event of termination of this Agreement, Kelly shall be obligated to pay Tiered Supplier for satisfactory services performed up to the time of termination. Kelly, in turn, had entered into an agreement with General Motors Corporation (GMC) whereby it supplied personnel, including those qualified to work as engineers in the automotive industry, to GMC. The contract between Kelly and GMC was not put into evidence, but it was not disputed that it was under this contract that Mr. Purves worked for GMC. [4] The evidence as to the assignment of the duties Mr. Purves was required to perform and the oversight of his performance was sparse, but it is common ground that he performed those duties in the United States, and it seems that he was assigned to do work, or "projects", by supervisory staff at GMC for whom the work was done, and that day-to-day supervision of his work lay with GMC staff. Mr. Claxton did say that he visited the worksite "to see how things were going", but I took this to mean that he had an occasional discussion with GMC supervisory staff as to their level of satisfaction, and not that he personally inspected the work product to satisfy himself as to its quality. [5] Mr. Purves was employed by Comtech, and it supplied his services to GMC in satisfaction of its obligation to Kelly and Kelly's obligation to GMC. GMC had engineering work for Mr. Purves to do in connection with its design and manufacturing operations, and it assigned that work to Mr. Purves, it exercised control over him in the performance of it, and it used the work product for its purposes. Comtech had no contract with GMC or anyone else whereby it was responsible for delivering a work product, as opposed to the labour of Mr. Purves. Mr. Purves had no contract with either GMC or Kelly. Comtech was his employer. It paid him, it had the right to fire him, and it was reimbursed for his salary by Kelly, which in turn was reimbursed by GMC. [6] The credit that Mr. Purves claimed when he filed his income tax returns for 2000 is commonly called the overseas employment tax credit. This is, of course, a misnomer as there is no requirement to work "overseas" in order to qualify; only to work outside Canada. I was told by counsel at the beginning of the hearing of this appeal that thousands of people commute daily from Ontario to Michigan to work. Certainly the Act does not require that a person live overseas during the period of the work in order to qualify, and counsel for the Respondent did not suggest that it does. [7] Subsection 122.3 of the Act reads: 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 (A) the exploration for or exploitation of petroleum, natural gas, minerals or other similar resources, (B) any construction, installation, agricultural or engineering activity, or (C) any prescribed activity, or (ii) for the purpose of obtaining, on behalf of the specified employer, a contract to undertake any of the activities referred to in clause (i)(A), (B) or (C), 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 ... 122.3. (1) Lorsqu'un particulier réside au Canada au cours d'une année d'imposition et que, tout au long d'une période de plus de 6 mois consécutifs ayant commencé avant la fin de l'année et comprenant une fraction de l'année (appelée la « période admissible » au présent paragraphe) : a) d'une part, il a été employé par une personne qui était un employeur déterminé, dans un but autre que celui de fournir des services en vertu d'un programme, visé par règlement, d'aide au développement international du gouvernement du Canada; b) d'autre part, il a exercé la totalité, ou presque, des fonctions de son emploi à l'étranger : (i) dans le cadre d'un contrat en vertu duquel l'employeur déterminé exploitait une entreprise à l'étranger se rapportant à, selon le cas : (A) l'exploration pour la découverte ou l'exploitation de pétrole, de gaz naturel, de minéraux ou d'autres ressources semblables, (B) un projet de construction ou d'installation, ou un projet agricole ou d'ingénierie, (C) toute activité visée par règlement, (ii) dans le but d'obtenir, pour le compte de l'employeur déterminé, un contrat pour la réalisation des activités visées à la division (i)(A), (B) ou (C), peut être déduite du montant qui serait, sans le présent article, l'impôt à payer par le contribuable pour l'année en vertu de la présente partie une somme égale à ... [8] At the outset the parties agreed that Comtech employed Mr. Purves, that Comtech is a specified employer as the expression is defined in subsection 122.3(2), that Mr. Purves performed all or substantially all of the duties of his employment outside Canada during 2002, and that he was engaged in that employment for the entire year 2002. As a result, the dispute is narrowed to this: did Mr. Purves perform those duties in connection with a contract under which Comtech carried on business outside Canada with respect to any engineering activity? [9] Counsel for the Appellant argues that since Mr. Purves is a person who does engineering work, and since it is his services that the Appellant is providing under its contract with Kelly, then it must follow that his duties were performed in connection with a contract under which Comtech carried on business with respect to engineering activity. An engineer, he says, necessarily performs engineering services, so if you provide an engineer then you are providing engineering services. [10] Counsel for the Respondent argues that while Comtech may provide engineering services in other contexts to other customers, what it provides under its contract with Kelly is not engineering services, and it is therefore not carrying on business with respect to engineering activity. What GMC requires is the services of an engineer; Kelly is in the personnel business, and it provides personnel services to GMC. Comtech provides to Kelly exactly what Kelly provides to GMC. The business that Comtech is carrying on under its contract with Kelly is therefore not engineering, but the supply of personnel. Support for this view is found in the decision of this Court in Fonta v. The Queen,[1] but the opposite result was recently reached in Claveri v. Canada.[2] Both of these cases were decided on facts very similar to the present case. Counsel for the Appellant relied on the decision of the Federal Court of Appeal in Timmins v. Canada,[3] but I do not find that it is helpful. Timmins dealt with the meaning of the word "business", a matter that is not in issue here. [11] When subsection 122.3(1) is reduced to the elements that are in dispute in this case, without the unnecessary verbiage, it requires the Appellant to show that he ... performed ... the duties of [his] employment outside Canada in connection with a contract under which [Comtech] carried on business outside Canada with respect to ... any ... engineering activity. So far as it is relevant to this appeal, the business of Comtech was supplying the Appellant's services to GMC through the intermediary, Kelly; those services were supplied by Comtech under its contract with Kelly, and they were supplied in Detroit at the premises of GMC, where he performed his duties. The only question that remains, then, is whether Comtech's business of supplying engineers to Kelly's clients can be said to be "with respect to any engineering activity". In my view this question must be answered in the affirmative. In Nowegijick v. The Queen[4] Dickson J., as he then was, said: The words "in respect of" are, in my opinion, words of the widest possible scope. They import such meanings as "in relation to", 'with reference to" or "in connection with". The phrase "in respect of" is probably the widest of any expression intended to convey some connection between two related subject matters. [12] It is beyond dispute that the element of its business that caused Comtech to assign the Appellant to do work for GMC is a subject matter that is related to the work that GMC needed to have done, which is certainly engineering work − or "engineering activity", to use the statutory language. It follows that the Appellant's employment falls within section 122.3, and that he is entitled to the credit that it confers. [13] It may well be that Parliament did not have fact situations like the present one in mind when it enacted section 122.3. It does appear to be unfair that Mr. Purves, who works in Detroit but sleeps at home in Windsor every night, should be favoured with the tax credit while his neighbours who work in Detroit but are employed directly by GMC, or those who work for automobile manufacturers situated in Windsor, are not. Counsel for the Respondent referred me to Interpretation Bulletin IT-497R4, and to the Department of Finance Technical Notes issued on the enactment of section 122.3. They do not seem to contemplate arrangements such as the one in issue here. However, the law is clear. If the provisions of the Act are not ambiguous then I must apply them as they are written.[5] Whether the language chosen by the drafter has left a loophole that was not intended is a matter for Parliament to decide, and to remedy if it sees fit. [14] The appeal is allowed. The assessment is referred back to the Minister for reconsideration and reassessment on the basis that the Appellant is entitled to the credit claimed under section 122.3. The Appellant is entitled to his costs. Signed at Ottawa, Canada, this 25th day of April, 2005. "E.A. Bowie" Bowie J. CITATION: 2005TCC290 COURT FILE NO.: 2004-2012(IT)I STYLE OF CAUSE: Alan Purves and Her Majesty the Queen PLACE OF HEARING: Windsor, Ontario DATE OF HEARING: December 8, 2004 REASONS FOR JUDGMENT BY: The Honourable Justice E.A. Bowie DATE OF JUDGMENT: April 25, 2005 APPEARANCES: Counsel for the Appellant: John R. Mill Counsel for the Respondent: Gatien Fournier and Marie Eve Aubry COUNSEL OF RECORD: For the Appellant: Name: John R. Mill Firm: Mill Professional Corporation For the Respondent: John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Canada [1] [2002] 3 C.T.C. 2177. [2] 2005CCI192. [3] [1999] 2 F.C. 563. [4] [1983] 1 S.C.R. 29 at p. 39 [5] Canadav. Antosko, [1994] 2 S.C.R. 312 at pp. 326-327 and Shell Canada Limited v. The Queen, [1999] 3 S.C.R. 622 at paras. 43-48.