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

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Column on Bijuralism and Harmonization

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


The principles of complementarity and dissociation,[1] as they apply to the interpretation of property and civil rights concepts found in federal statutes, particularly the Income Tax Act,[2] have already been discussed a few times in this column. Without going into too much detail, we will simply note that complementarity can be defined as the use of rules, principles or concepts from provincial private law for the purpose of applying a federal enactment that refers to those concepts but does not define them. Dissociation, on the other hand, results from Parliament's decision to adopt its own private law rules for the purposes of a federal statute or to adopt the rules of a legal system and apply them to the enactment in question, whether clearly or implicitly.[3]

The principle of complementarity is now codified in section 8.1 of the Interpretation Act,[4] which reads as follows:

Both the common law and the civil law are equally authoritative and recognized sources of the law of property and civil rights in Canada and, unless otherwise provided by law, if in interpreting an enactment it is necessary to refer to a province's rules, principles or concepts forming part of the law of property and civil rights, reference must be made to the rules, principles and concepts in force in the province at the time the enactment is being applied.

However, the principles of interpretation set out in section 8.1 of the Interpretation Act are subject to one express general exception, which is worded as follows: "unless otherwise provided by law" in English or "sauf règle de droit s'y opposant" in French. This means that Parliament can always create dissociation by adopting or referring to private law rules that differ from those applicable in the province of application. Henry Molot explains the scope of this exception as follows:

In the case of cl. 8.1, there appear to be two points in the interpretive process where such a federal enactment could "otherwise provide". Federal legislation may make it "unnecessary to refer" to provincial private law principles, or may express an intention that reference not be made to rules, etc. of the province concerned. For example, such legislation could so comprehensively define its terms as to implicitly exclude any reference to provincial private law as the external source of interpretation and application. Federal legislation could also expressly refer to some other external source of interpretation thereby demonstrating a contrary intent as regards it being "necessary to refer to a province's rules..."[5]

One question arises: does "law" include rules developed by the courts, or does it only include laws passed by Parliament? The courts have not yet considered this issue.[6] However, Professor Duff rejects the idea of applying precedents as an exception to the principle of complementarity: "Moreover, judicial precedents should not be regarded as 'law' within the meaning of the exclusion in new section 8.1 of the federal Interpretation Act, since this would render the provision largely meaningless."[7] On the other hand, Professor Grenon believes that the words "unless otherwise provided by law" should be interpreted broadly to take account of case law.[8]

Some tax judgments by Canadian courts have referred to the general concept of complementarity codified in section 8.1 of the Interpretation Act. The purpose of Part I of this column is therefore to analyse those judgments. Since 2001, when section 8.1 of the Interpretation Act was passed, few tax cases referring to it have come before the courts. This may be because the parties have made few arguments based on this fairly recent provision. Since, until very recently, it was applied only by the Tax Court of Canada in tax cases, the clear application of its principles by the Federal Court of Appeal in 9041-6868 Québec inc. v. M.N.R.[9]last October 17 marked a turning point. We believe that this case will have a ripple effect, since it was heard by a superior court and, unlike in certain judgments that will be analysed in this part, the judges in 9041-6868 Québec could not have been any more explicit in their unanimous view that section 8.1 applies where the principle of complementarity is relied on in interpreting provisions of tax legislation that refer to private law concepts. However, before commenting on this case, we consider it appropriate to analyse the tax cases that have applied or at least referred to section 8.1 of the Interpretation Act.

Strangely enough, in almost all of the cases, the issue that had to be decided was whether an individual was an employee or a self-employed worker for the purpose of determining whether insurable employment was held under the Employment Insurance Act.[10]


1.1. Wolf v. Canada[11]

The facts of this case are relatively simple. The appellant, a resident of the United States, provided services to Canadair Ltd. (hereinafter "Canadair") in Ville Saint-Laurent, Quebec, as an aerospace consultant. He had obtained his contract with Canadair through a corporation called Kirk-Mayer of Canada Ltd. (hereinafter "Kirk-Mayer"), which was located in Alberta. The contract was signed in 1990 and renewed until 1995. Once the work was assigned, the appellant did it alone and without any instructions on how he should do it. He could be asked to work on many projects at a time, but when he did so he had to perform the work as readily as possible so as to meet specific goals. The appellant had access to Canadair's archives and to its specialized computer capable of handling a considerable amount of information. He had no employee benefits or pension plan. For the years at issue, the Minister of National Revenue disallowed the expenses claimed by the appellant on the basis that he had been employed by Kirk-Mayer and was subject to Canadian tax under the applicable tax rules. The appellant argued that, since he was a resident of the United States, since he did not have a fixed base regularly available in Canada and since he had to be considered an independent contractor, his income could be taxed only by the American authorities pursuant to Article XIV of the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital.[12] The case was argued by the parties on the basis that the applicable law was that of Quebec.

The issue was therefore whether, at the relevant time, the appellant was an employee of Kirk-Mayer or an independent contractor. The Federal Court of Appeal unanimously allowed the appeal and thus set aside the decision of the Tax Court of Canada,[13] in which Judge Lamarre had held that the appellant was an employee. The three judges found that the appellant was self-employed, but they relied on different statutory and case law principles to do so.

After setting out the applicable provisions of articles 2085 et seq. of the Civil Code of Québec[14] that define and distinguish between contracts of employment and contracts for services and finding that these provisions do not substantially alter the previous state of the law in Quebec, Desjardins J.A. concluded that the contract in this case was a contract for services. She based this on the finding by the Quebec courts that the key distinction between a contract of employment and a contract for services is the element of subordination or control. However, without referring to section 8.1 of the Interpretation Act, Desjardins J.A. held, as MacGuigan J.A. had in Wiebe Door Services Ltd. v. Canada,[15] that civil law and common law rules on contracts of employment are identical. Desjardins J.A. stated the following:

48  In Hôpital Notre-Dame de l'Espérance and Théoret v. Laurent, [1978] 1 S.C.R. 605, a case in tort, the Supreme Court of Canada was called upon to determine whether a medical doctor was an employee of the hospital where the claiming party had been treated. Pigeon J., for the Court, cited with approval André Nadeau, Traité pratique de la responsabilité civile délictuelle (Montréal: Wilson & Lafleur, 1971), page 387, who had observed that [translation] "the essential criterion in employer-employee relations is the right to give orders and instructions to the employee regarding the manner in which to carry out his work" (page 613). Pigeon J. then cited the famous case of Curley v. Latreille (1920), 60 S.C.R. 131, where it was noted that the rule was identical on this point to the common law (ibid., at pages 613-614).

49  Consequently, the distinction between a contract of employment and a contract for services under the Civil Code of Québec can be examined in light of the tests developed through the years both in the civil and in the common law.

78  The Tax Court Judge, in my view, gave too much weight to the element of control. I find such factor to be neutral in the circumstances since it was compatible with either status. The level of control is not an adequate indicator of the nature of the parties' relationship and does not compel an employee's status.

Décary J.A. also concluded that the contract was a contract for services based both on the facts and on the approach he applied, namely not using common law tests to determine whether a contract is a contract of employment or contract for services where the situation is governed by Quebec law. In such circumstances, only the concepts set out in the Civil Code of Québec are relevant. He concluded as follows:

102  Turning now to the interpretation of the concepts of "independent contractors" and "employees" in regard to a contract executed in Canada, one is to be reminded that common law rules will apply if the contract at issue is to be interpreted in accordance with the laws of a province other than Quebec and that the Civil Code of Québec will apply if the contract at issue is to be interpreted in accordance with the laws of the Province of Quebec (see St-Hilaire v. Canada (Attorney General), [2001] 4 F.C. 289 (C.A.), at paragraph 38ff; the Federal Law-Civil Law Harmonization Act, No. 1, S.C. 2001, c. 4; the Interpretation Act [R.S.C., 1985, c. I-21], sections 8.1 and 8.2, as enacted by section 8 of the Federal Law-Civil Law Harmonization Act, No. 1).

It should be noted that, even though the relevant period for the case began in the early 1990s and extended over a period of six years, mention was nonetheless made of the provisions of the Federal Law-Civil Law Harmonization Act, No. 1,[16] which was assented to on June 1, 2001. Section 8.1 of the Interpretation Act has codified the principle of complementarity developed by the courts, but are the provisions of the Interpretation Act that came into force on June 1, 2001 applicable in interpreting a legislative provision in relation to events that occurred prior to that time?[17]

Where a worker's status must be determined as in Wolf, a reference to section 8.1 of the Interpretation Act in the reasons for judgment should mean that the court will apply the tests set out in article 2085 C.C.Q. and find that, apart from work and remuneration, the relationship of subordination is the only decisive test for determining a person's status.

However, although he referred to section 8.1 of the Interpretation Act in Wolf, Décary J.A. nevertheless concluded that the appellant was an independent contractor not by relying on the subordination test but rather by determining what the parties had intended when they entered into their contract. It is well recognized that determining whether there is a relationship of subordination is difficult, since the tests or indicia to be used are not very well known and may differ depending on whether or not the person is a specialized worker. This is what Décary J.A. suggested in paragraph 114 of Wolf:

114  I appreciate that, in Sagaz, Major J. stated that "the level of control the employer has over the worker's activities will always be a factor" (at paragraph 47), but his further statement, at paragraph 48, that

It bears repeating that the above factors constitute a non-exhaustive list, and there is no set formula as to their application. The relative weight of each will depend on the particular facts and circumstances of the case.

evidences his disinclination to set out in absolute terms specific requirements that may not be tailored to fit all circumstances. There may well be cases where looking at the parts rather than at the whole will distort reality. This case may indeed be one of them, the control factor having been found by Madam Justice Desjardins, and rightly so, to be neutral. I may add that I find it somehow puzzling that "control" is listed amongst the factors to be considered in an exercise the purpose of which is precisely, under the Civil Code of Québec, to determine whether or not there is control.

It is interesting to note that, at the end of this statement, Décary J.A. nonetheless suggested, and rightly so, that it is surprising that the concept of control is considered one factor among others when it should be central to the analysis done by the courts where the province in which the enactment is being applied is Quebec.

Finally, Noël J.A. does not appear to have said anything about the relevance of referring to Quebec civil law to determine the worker's status in this case. He simply relied on the parties' intent to make his decision, finding that the assessment of the control test, the integration test and the ownership of tools tests was not conclusive.

Thus, in this case, the fact that section 8.1 of the Interpretation Act was referred to is not really conclusive, since only one of the three judges took account of it in his reasons, and only in a subsidiary manner. Décary J.A. mentioned it when discussing how the concepts of "independent contractors" and "employees" should be interpreted, but he instead based his decision on the intention of the parties.


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