Part I — Recent Case Law
Principles of Interpretation in
Canadian Bijuralism as Applied in the Tax Context: What is the Current State of Affairs?

Column on Bijuralism and Harmonization

Michelle Desrosiers, Notary, M. Fisc.
Department of Justice Canada

1. APPLICATION OF SECTION 8.1 OF THE INTERPRETATION ACT PRIOR TO 9041-6868 QUÉBEC (continued)

1.2. M.N.R. v. National Bank of Canada et al.[1]

This case involved the recovery of source deductions that had been deducted and not remitted. The record indicated that financial institutions had registered movable hypothecs on property belonging to their respective debtors in the Register of Personal and Movable Real Rights. The debtors had failed to remit to the tax authorities the amounts withheld from the salaries paid to their employees.

Subsections 227(4) I.T.A. and 86(2) E.I.A. provide that every person who deducts or withholds any amount under those Acts is deemed to hold the amount in trust for Her Majesty. Subsections 227(4.1) I.T.A. and 86(2.1) E.I.A. provide that, where the amount is not paid, this trust extends as well to the property of the person, including property held by a secured creditor.

The issue of interest for our purposes was whether provincial private law applied in a suppletive capacity to the federal scheme governing the appropriate procedure to be used by the Crown in asserting its rights under subsections 227(4.1) I.T.A. and 86(2.1) E.I.A.

The Federal Court of Appeal found that, although provincial private law may be referred to as suppletive law where a federal statute is silent as to the mode of recovery, and although this possibility is now provided for in sections 8.1 and 8.2 of the Interpretation Act, such a reference may not be made where the applicable statute sets out specific rules. Noël J.A., writing for the Court, held the following:

33 Thus, if, in interpreting the application of a federal enactment in a province, one is to refer to the province's law of property and civil rights as suppletive law, reference to that law must be necessary and there must be no provision to the contrary in federal law.

34 However, the ITA and EIA deemed trust provisions are complete and explicit as to their effect on property taken in possession by secured creditors in the exercise of their security interest, judging from the Supreme Court's reasons in First Vancouver: the Crown has an absolute priority over the proceeds from the property subject to the deemed trust, which must be paid to the Receiver General.

This judgment provides a perfect example of express dissociation created by a federal statute. One question arises, however: would Noël J.A., who said nothing about the potential application of section 8.1 of the Interpretation Act in Wolf, have applied that provision to this case had it not been for the explicit wording of the applicable provisions of the Income Tax Act and the Employment Insurance Act?

1.3. Vaillancourt v. Canada[2]

Vaillancourt is a case relating to insurable employment in the employment insurance context. For the relevant period (May 27 to December 31, 2002), the appellant considered himself an employee of the Fondation québécoise de la déficience intellectuelle (hereinafter "foundation"), while the Minister of National Revenue considered him a self-employed worker on the basis that the contract between the parties was a contract for services. The issue was therefore the true nature of the relationship between Mr. Vaillancourt and the foundation during the relevant period. Was it a relationship between a client and a service provider, or was it an employer-employee relationship?

Without stating the facts in detail, it should be noted that the parties had signed a one-year agreement in Quebec specifying that the taxpayer was being hired as a self-employed worker. His work involved developing a project to set up clothing collection bins, preparing a promotional document, visiting various businesses, signing agreements with businesspersons to set up collection bins in certain places and providing about 40 hours of services to the payer a week. The evidence showed that the appellant could use the payer's premises and that the payer provided him with some property.

After analysing the facts, Archambault J. found that, based on the applicable rules, Mr. Vaillancourt had been a self-employed worker during the relevant period. It is worth reproducing the passages from the judgment that set out the starting point for the judge's thinking process and show the importance he attached to section 8.1 of the Interpretation Act:

[Translation] 10  This section [s. 5 E.I.A.] defines insurable employment as including employment under any contract of service (a synonym of contract of employment). However, the Act does not define a contract of service. Since Mr. Vaillancourt's contract of May 27, 2002 is governed "by the laws of Quebec" and a contract of service is a civil law concept found in the Civil Code of Québec (Civil Code), the relevant provisions of the Civil Code must be used to determine the nature of the contract. With regard to any period of employment after May 30, 2001, this is the approach the courts must take because of the coming into force on June 1, 2001 of section 8.1 of the Interpretation Act, R.S.C. 1985, c. I-21, as amended. [Notes omitted]

15  In my opinion, the rules governing contracts of employment under Quebec law are not the same as the common law rules, which means that it is not appropriate to apply common law decisions such as Wiebe Door Services Ltd. v. M.N.R., [1986] 3 F.C. 553 (F.C.A.), and 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., [2001] 2 S.C.R. 983, 2001 SCC 59. In Quebec, a court has no choice but to determine whether or not there is a relationship of subordination to be able to decide whether a contract is a contract of employment or a contract for services. [Notes omitted]

Two comments are relevant here. First, Archambault J. suggested that the provisions of section 8.1 of the Interpretation Act are applicable only as of the date they came into force.[3] This seems to run counter to what Décary J.A. stated in Wolf.

Second, Archambault J. specified that, in analysing the facts needed to determine the nature of the contract, the parties' written agreement is an important factor, especially where their intention is clearly expressed in that agreement. However, there is one caveat: [translation] "the courts have refused to rely solely on the way the parties have characterized or named their contract. The agreement's consistency with the provisions of the Civil Code must be determined by looking carefully at how the contract has been performed."[4]

1.4. Hôpital juif de réadaptation v. Canada[5]

Archambault J. distinguished himself in Hôpital, which is another case relating to a worker's status under the Employment Insurance Act. Basically, the issue was the nature of the contractual relationship between the intervener and the appellant during the relevant period. It had to be determined whether the intervener was bound by a contract of employment or a contract for services. Archambault J. provided detailed instructions on how to determine a worker's status and on the approach that will allow this issue to be resolved. Moreover, showing consistency in his approach, he repeated what he had said in Vaillancourt to some extent, but in greater detail. It was admitted into evidence that the intervener and the appellant had entered into an agreement in Quebec and that, as a speech therapist, the intervener was engaged in a highly specialized activity. The Court found that the intervener had been an employee of the appellant during the period at issue.[6] Noting that the Employment Insurance Act defines insurable employment as including employment under a contract of service but does not provide a definition of that contract, the Court held that the relevant provisions of the Civil Code of Québec must be used to determine the nature of that contract, since the agreement had been entered into in Quebec and a contract of service is a civil law concept found in that Code. Archambault J. then referred to the principle of complementarity codified in section 8.1 of the Interpretation Act in support of his approach.

Referring to the relevant provisions of the Civil Code of Québec, he continued as follows:

[Translation] 24  When these provisions of the Civil Code are analysed, it becomes clear that there are three essential conditions for the existence of a contract of employment: (i) work performed by the employee; (ii) remuneration for that work paid by the employer; and (iii) a relationship of subordination. What clearly distinguishes a contract for services from a contract of employment is the existence of the relationship of subordination, that is, the employer's power of direction or control over the worker.

26  In addition, the distinguishing feature of a contract of employment is not the fact that direction or control was actually exercised by the employer, but the fact that the employer had the power to do so.[7]

28  In my opinion, the rules governing contracts of employment under Quebec law are not the same as the common law rules, which means that it is not appropriate to apply common law decisions such as Wiebe Door Services Ltd. v. Minister of National Revenue, [1986] 3 F.C. 553 (F.C.A.), and 671122 Ontario Ltd. v. Sagaz Industries Canada Inc.,[2001] 2 S.C.R. 983, 2001 SCC 59. In Quebec, a court has no choice but to determine whether or not there is a relationship of subordination to be able to decide whether a contract is a contract of employment or a contract for services. This is what Létourneau J.A. of the Federal Court of Appeal did in D & J Driveway, in which he determined that there was no contract of employment by relying on the provisions of the Civil Code and, in particular, by finding that there was no relationship of subordination, which he described as "the essential feature of the contract of employment". [Notes omitted]

Accordingly, even though the work done by the intervener was specialized and it was therefore unlikely that the employer could control how she did it, the Court found that the control test was still crucial. Thus, as noted by Archambault J., the important thing is not that direction or control was actually exercised by the employer, but the fact that the employer had the power to do so.

1.5. Lévesque v. Canada[8]

Once again, the issue in this case was the nature of the work performed by the intervener, who had been hired as a caregiver for the children of the appellant, whose wife was deceased. The intervener worked in Quebec. The appellant never considered himself an employer, with the result that no employment insurance premiums were paid. The Minister of National Revenue assessed the appellant on the basis that the intervener was performing her work under a contract of employment.

Dussault J. began by acknowledging how difficult it is to clearly distinguish a contract of employment from a contract of enterprise in situations where services are provided in the home and are unconnected with the payer's activities. He noted that this exercise is even more difficult when the payer is not even present, as in the case of child care.

However, before even attempting to characterize the contract in question, he stated that [translation] "since June 1, 2001, Parliament has specifically provided in section 8.1 of the Interpretation Act that reference must be made to the private law of the province in which the case originates where it is necessary to refer to concepts forming part of the law of civil rights". He thus recognized the importance of that provision, which required him to refer to the relevant articles of the Civil Code of Québec setting out the tests for distinguishing between a contract of employment and a contract of enterprise.

To ascertain whether there was a relationship of subordination between the intervener and [9] heard by the Court of Québec in which Judge Fradette provided a series of indicia for determining whether subordination exists. The Court also found that some importance had to be attached to the parties' intention, as Décary J.A. had in Wolf.

1.6. Letarte v. Canada[10]

In this case, the Court had to determine whether the appellant's life income fund (hereinafter "LIF") was a registered retirement income fund (hereinafter "RRIF") as alleged by the Minister of National Revenue or another type of "life annuity out of or under a superannuation or pension plan" under the definition of "pension income" in subsection 118(7) I.T.A., as alleged by the taxpayer. If the LIF was an RRIF, the taxpayer was not entitled to the pension credit, but if it fell within the definition of "pension income", the taxpayer could claim that credit.

Since the LIF concept had never been defined by the courts and was not defined in the Income Tax Act, the Court turned to other sources of interpretation and, in the end, found that the pension credit could not be claimed for an LIF. What is interesting about this case is the fact that the Court referred to section 8.1 of the Interpretation Act in a context that involved not a concept forming part of the law of property and civil rights governed by the Civil Code of Québec but rather the definition of a financial product found in the Regulation respecting supplemental pension plans.[11] According to the Court, where a concept has not been defined by the courts or by legislation, it becomes helpful to consider the law of the province involved, in this case Quebec (it was at this point that the Court referred to section 8.1 of the Interpretation Act), the grammatical meaning of the term in question and, finally, any other source of interpretation.

If the courts had defined LIFs, would the Tax Court nonetheless have considered the potential application of section 8.1 of the Interpretation Act? In our opinion, such a definition could have come from common law cases without Parliament having any implied or express intent to exclude reliance on the suppletive civil law of the province in which the transaction in question occurred. In these circumstances, it is our view that the courts should nevertheless rely on section 8.1 of the Interpretation Act in such a situation, since LIFs are a private law concept.

1.7. Combined Insurance Co. of America v. Canada[12]

This is another decision concerning the nature of the work performed by a worker and whether it constituted insurable employment under the Employment Insurance Act. The appellant was hired for the period of August 18, 2003 to January 16, 2004 to sell insurance policies in Quebec to existing and potential customers of the insurance companies involved. Based on the indicia listed and applied in the case, the Court found that, by virtue of the degree of control involved in the parties' relationship, that relationship was sufficiently subordinate to constitute a contract of employment rather than a contract of enterprise. In the course of his analysis, McArthur J. described the applicable law as follows:

11  Thus, subordination, or the exercise of a power of control, is a more important, if not determinative, factor in Quebec law. The Employment Insurance Act, which applies to the present dispute, is a Federal statute. As of June 1, 2001, if concepts of private law are involved, section 8.1 of the Interpretation Act, R.S.C. 1985, c. I-21, has required the application of the private law of the province in which the dispute arose. . . .

12  In light of these enactments, there is no sense debating whether the common law, multiple-factor approach propounded in Wiebe Door and Sagaz is a preferable one. The Quebec legislature has expressly stated that the existence of a relationship of subordination between the parties is what distinguishes an employment contract from a contract of enterprise or for services.

Although section 8.1 of the Interpretation Act was applied tentatively shortly after its enactment, it is clear that judges are increasingly referring to it as a rule to be applied in circumstances in which private law concepts come into play but are not defined by the Income Tax Act or the Employment Insurance Act. This is shown all the more convincingly by the decision of the Federal Court of Appeal in 9041-6868 Québec.

Footnotes

  • [1] 2004 FCA 92.

  • [2] 2005 CCI 328 (hereinafter "Vaillancourt").

  • [3] He also referred readers to the article he wrote, cited in note 6 of this article, for further explanations.

  • [4] Vaillancourt, supra, note 19, para. 18.

  • [5] 2005 CCI 260 (hereinafter "Hôpital").

  • [6] Archambault J. justified this finding by referring to some of the reasons set out in P. ARCHAMBAULT, loc. cit., note 6, paras. 64 to 73. Paragraph 73 of that article reads as follows:

    In conclusion, since the coming into force of the Civil Code in 1994 and section 8.1 IA in 2001, it is no longer appropriate to apply common law decisions such as Sagaz and Wiebe Door to determine the essential components of a Quebec contract of employment. Instead, the relevant provisions of the Civil Code must be applied. These clearly and specifically define a "contract of employment". . . .

  • [7] The Court was thus referring to Gallant v. M.N.R., [1986] F.C.J. No. 330 (Quicklaw), in which Pratte J.A. of the Federal Court of Appeal stated: "The distinguishing feature of a contract of service is not the control actually exercised by the employer over his employee but the power the employer has to control the way the employee performs his duties."

  • [8] 2005 CCI 248.

  • [9] Seitz v. Entraide populaire de Lanaudière inc., C.Q. Joliette (Civil Division), no. 705-22-002935-003, November 16, 2001; [2001] J.Q. No. 7635 (Quicklaw).

  • [10] 2005 CCI 420.

  • [11] R.Q. c. R-15.1, r.1.

  • [12] 2005 TCC 478.

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