Tax Court upholds characterization of instructor as independent contractor

The Tax Court of Canada has upheld the characterization of an instructor as an independent contractor, as commonly intended by the worker and by the institute where he taught.

In Insurance Institute of Ontario v. M.N.R., 2020 TCC 69, Peter Barlow worked for three years at the Insurance Institute of Ontario as an instructor who taught classes to individuals aiming to achieve a Certified Insurance Professional designation. The work was governed by a series of contracts that expressly stated that the Institute and Barlow both intended for the latter to be an independent contractor.

The Minister of National Revenue, however, found that Barlow was an employee, a ruling which the Institute appealed to the Tax Court of Canada. The issue in the appeal was the proper interpretation and application of the test set out in 1392644 Ontario Inc. (Connor Homes) v. Canada (National Revenue), 2013 FCA 85, specifically in a situation where the payor and the worker share a common intention as to the nature of their relationship.

In the Connor Homes test, the first step pertains to the subjective intent of each party as shown by the written contract or by the parties’ behaviour.

For the second step, the court should consider the factors set out in Wiebe Door Services Ltd. v. M.N.R., 1986 CanLII 4771 (FCA), [1986] 3 FC 553, to determine whether the objective reality is consistent with the subjective intent.

The parties agreed that the test found in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59, which asks whether a person performs services “as a person in business on his own account,” should be utilized in determining whether Barlow was an employee or an independent contractor. However, they disagreed regarding the interpretation of the second step in Connor Homes.

Justice David E. Graham, writing for the court, discussed the proper application of the second step in Connor Homes as follows:

“(a) Where the payor and the worker do not share a common intention, their relationship will be the relationship indicated by the Wiebe Door and Sagaz factors.

(b) Where the payor and the worker share a common intention:

i. if the Wiebe Door and Sagaz factors are consistent with that common intention, then their relationship will be the relationship that they intended;

ii. if the Wiebe Door and Sagaz factors are completely inconsistent with that common intention, then their relationship will be the relationship indicated by those factors; and

iii. if the Wiebe Door and Sagaz factors are inconsistent with that common intention but the parties nonetheless act and carry on their relationship in a manner that is similar to what one would expect from their intentions, then their relationship will be the relationship that they intended.”

Justice Graham therefore applied the Connor Homes test to the case, for which he had to go through the Wiebe Door and Sagaz factors to decide whether the factual circumstances were consistent with the characterization of Barlow as an independent contractor, as commonly intended by the parties.

Graham eventually found that the control and ownership of tools factors were neutral, but that the chance of profit and risk of loss factors supported a finding of an independent contractor relationship. Overall, Barlow performed his work obligations in an “entrepreneurial and business-like manner” and should be characterized as an independent contractor and not an employee, Graham said.

For these reasons, the court allowed the appeals and referred the matter back to the Minister of National Revenue.