INCOME TAX |
Income Calculation |
Deductions |
Meredith v. Canada (Attorney General)
A-443-01
2002 FCA 258, Malone J.A.
3/7/02
8 pp.
Application for judicial review of Tax Court of Canada decision upholding Minister's refusal to grant applicant overseas employment tax credit (OETC) in 1997 taxation year--Minister's refusal based on determination applicant did not comply with Income Tax Act, s. 122.3 as being independent contractor, not employee of Stem Applications Inc.--Applicant highly specialized engineer having expertise in installation, maintenance of computers, related machinery used in manufacture of cans--In 1997, Stem bid to perform services for two American companies, entered into contracts with both--Applicant performed services, lived outside Canada for more than six months--Residents of Canada generally taxed on world-wide income--OETC available to reduce Canadian tax liability of individuals who perform work duties as employee of Canadian corporation in foreign country--Tax Court Judge committed several errors in disposition of case--First, Judge "pierced corporate veil" by looking beyond corporate entity itself to assess applicant's actions--Lifting corporate veil contrary to long-established principles of corporate law--Absent allegation corporation constitutes "sham", vehicle for wrongdoing on part of putative shareholders, statutory authorization to do so, court must respect legal relationships created by taxpayer--Tax Court Judge erred in law by inquiring into economic realities of relationship as between Stem and applicant, when not authorized by statute, common law to do so--Judge committed further error in concluding applicant not employee of Stem--Did not take into account well-established principle corporation has own juridical identity distinct from shareholders--Judge correct to conclude tools, equipment held by Stem, indicating employment relationship--However, findings regarding control, chance of profit, risk of loss erroneous--Stem, not applicant, with whom third parties contracted for latter's expertise; within Stem's legal power, as corporation, to control applicant--Judge erred in finding control lay in hands of applicant in personal capacity--With respect to chance of profit, risk of loss, profits, loss accrue to Stem, not to applicant--Minister has not met evidentiary burden placed upon him in application--Application allowed--Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, s. 122.3 (as enacted by S.C. 1994, c. 7, Sch. II, s. 99; c. 21, s. 56; 1997, c. 25, s. 31).