Category Archives: Canada Pension Plan

Employment Income or Student Financial Assistance – Sas Ansari

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Employment Income or Student Financial Assistance

Russell v MNR, 2016 TCC 142

This was a question of “insurable employment” under the Employment Insurance Act.  At issue was whether the taxpayer (an undergraduate honours student) who performed research in a lab at a University and who was issued T4 slips was an employee or a student receiving financial assistance.  The amounts received were funded in part by the Natural Science and Engineering Research Council of Canada.


The Court began the analysis by looking at the statutory definitions in the Employment Insurance Act and the Canada Pension Plan Act: 5(1) – insurable employment (EIA); 2(1) – “Employment” (CPPA); 6(1) pensionable employment (CPPA).

The Court reviewed the decisions dealing with the characterization of amounts paid by universities to students.  Most dealt with Masters, Doctoral, or Post-Doctoral students.

Rizak v Minister of National Revenue, 2013 TCC 273, [Summary Here] was a case where a doctoral student was paid annual stipends of $21,000 as a graduate research assistant and was not considered an employee by the University. In that case, the TCC held that the student as an employee and stated, in reference to the test applicable to doctoral students:

25 In Caropreso v. R., 2012 TCC 212 (T.C.C. [Informal Procedure]), Justice Woods was also asked to consider whether a postdoctoral fellow was an employee. She acknowledged that the case law on the issue was divided. She then set out what she believed was the appropriate test that should be applied in determining whether a taxpayer has received funding as a student or been compensated as an employee. At paragraph 20 she stated:

The root of the difficulty is that payments to postdoctoral research fellows often have dual elements. The payments further the education of research fellows and they also provide compensation for work performed. If the payments are received by virtue of employment, this takes precedence. However, in making this determination, it is relevant to consider the dominant characteristic of the payments, whether it is compensation for work or student assistance.

Other cases considered in Rizak are:

28 Graduate students are in a very different situation than postdoctoral fellows. Graduate students have not yet obtained their degrees. Their primary reason for being at a university is to obtain their degrees. For those graduate students who choose to work as graduate research assistants, their work is geared, at least in part, towards that end. Therefore, it is important to review how the Court has dealt with cases involving graduate students.

29 In Hammell v. Minister of National Revenue, [1994] T.C.J. No. 921 (T.C.C.), a masters student was interested in researching fish epidemiology. The university did not have a professor who specialized in fish epidemiology but it did have a professor who specialized in fish pathology and one who specialized in epidemiology (though not of fish). Those professors agreed to jointly supervise the student’s research. The research was not connected to any research that the professors were doing. The student applied to the university for an annual stipend of $20,000. He was granted the stipend based on the fact that what he was hoping to achieve in his studies in general meshed with the university’s goals. Not all masters students received stipends. While the student did a lot of work in the department’s laboratories to assist with other people’s studies, that work was done on a voluntary basis. He was not required to do the work. He did it purely to gain experience in his field and to advance his prospects of ultimately being asked to join the faculty at the university. The Court held that the student was not engaged in insurable employment.

30 A similar result occurred in Hospital for Sick Children v. Minister of National Revenue, [1993] T.C.J. No. 388 (T.C.C.), a case involving a masters student. At paragraph 65 of that decision, Justice Christie stated:

The evidence shows that it was accepted by Dr. Riordan and the [student] that the former was not vested with any real authority to specify the work to be done by her. This was decided by arriving at a consensus. He said that there was no instruction or direction involved. It is an academic process whereby some agreement is reached on the subject of the research. The [student] specifically stated that Dr. Riordan could not obligate her with reference to areas in which to do research. Changes that occurred in the focus of the [student]’s research came about at her instigation. Nor did Dr. Riordan have control over the manner in which the [student] conducted her research. When asked if he could tell her what techniques to use, she replied, no he could only make suggestions in that regard. His evidence is to the same effect. In contrast he said with reference to the technicians that he designed the experiments and he analyzed the results. . . .

31 That decision was followed in Nabet c. Ministre du Revenu national, [1999] T.C.J. No. 79 (T.C.C.), a case involving a doctoral student, where Justice Lamarre Proulx found the student not to be an employee. She stated at paragraph 13:

The case at bar is similar to The Hospital for Sick Children case, supra, and it is my view that that decision properly sets out the law regarding the legal status of a student paid out of research funds: there is no insurable employment if the student is paid for research done as part of a work program the student has drawn up himself or herself; although a professor may have helped the student establish the work program, that program remains the student’s program and serves the student’s purposes; the student controls the use of his or her time; the professor is there to give advice; the work is done for the student’s benefit; no services are provided to an employer.

32 A different conclusion was reached in Charron v. Minister of National Revenue, [1994] T.C.J. No. 47 (T.C.C.). In that case Justice Archambault found that a masters student was an employee. Like Mr. Rizak, the appellant in Charron began work before her period of studies began. At paragraph 10, Justice Archambault stated:

. . . The evidence established that the appellant provided her services to the payer and that, in providing her services, she received instructions on the work to be done and the way in which it was to be done. She was not free to choose which experiments to do: it was Dr. Moss who decided on the procedure to be followed. . . .

[see also Bekhor v Minister of National Revenue, 2005 T.C.J. No. 314, and HERE]

The TCC held that the same test should be applied to undergraduate students – look at what the dominant characteristic of the payments is (para 16), whether it was compensation for work or student assistance (para 19).  The court considered the following factors:

  • The legal form used by the parties
  • Whether the party was treated the same or different from others treated as employees;
  • Source of the funding out of which amounts are paid;
  • Whether there is a material difference between the work undertaken by those the university considers employees and those it considers award recipients;
  • Whether the research relates to the work of the supervisor or not;
  •  Whether the research was undertaken under the professor’s direction or instruction;
  • Whether the student had to submit progress reports, meet deadlines, discuss research methods and results with the professor, and how regularly they were required to work in a week or day;
  • Whether when absent had to let the professor know and make up for lost time;
  • Whether the student applied for and received funding in his/her own name or whether the grant from which amounts were paid was issued to the professor;
  • Whether informed that employment was not insurable.

Here, the court held that the dominant character was financial assistance to a student working on an honours thesis, with only a secondary benefit to the university and the professor (para 22).

Sas Ansari, BSc BEd PC JD LLM PhD (exp) CPA In-Depth Tax 1, 2 &3

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Director Liability Standard – “care, diligence and skill”

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Director Liability Standard – “care, diligence and skill

Maddin v The Queen 2014 TCC 277

The facts in this case are all too common – a business transitions from one company to another in paper only, and fails to do that properly – the business is carried on without due regard to regulatory obligations and controls.  Finally, the chickens come home to roost and the CRA assessed directors for failure to deduct and/or remit.

Justice Bocock reviews the law as to the standard of “care, diligence, and skill” expected of a corporate director under the Income Tax Act and its director liability provisions (s 227.1), as well as similar provisions in the Canada Pension Plan (s 21.1) and the Employment Insurance Act (s 83) that incorporate the ITA due diligence defense by reference.

The decision in Buckingham v R, 2011 FCA 142, settled the debate as to the appropriate standard to be applied to directors – the objective standard is what is applicable.  The standard was summarized in Balthazard v R, 2011 FCA 331 at paragraph 32:

In Buckingham, this Court recently summarized the legal framework applicable to the care, diligence and skill defence under subsection 323(3), as follows:

a. The standard of care, skill and diligence required under subsection 323(3) of the Excise Tax Act is an objective standard as set out by the Supreme Court of Canada in Peoples Department Stores Inc.(Trustee of) v. Wise, 2004 SCC 68, [2004] 3 S.C.R. 461. This objective standard has set aside the common law principle that a director’s management of a corporation is to be judged according to his or her own personal skills, knowledge, abilities and capacities. However, an objective standard does not mean that a director’s particular circumstances are to be ignored. These circumstances must be taken into account, but must be considered against an objective “reasonably prudent person” standard.

b. The assessment of the director’s conduct, for the purposes of this objective standard, begins when it becomes apparent to the director, acting reasonably and with due care, diligence and skill, that the corporation is entering a period of financial difficulties.

c. In circumstances where a corporation is facing financial difficulties, it may be tempting to divert these Crown remittances in order to pay other creditors and thus ensure the continuity of the operations of the corporation. That is precisely the situation which section 323 of the Excise Tax Act seeks to avoid. The defence Page: 14 under subsection 323(3) of the Excise Tax Act must not be used to encourage such failures by allowing a care, diligence and skill defence for directors who finance the activities of their corporation with Crown monies, whether or not they expect to make good on these failures to remit at a later date.

d. Since the liability of directors in these respects is not absolute, it is possible for a corporation to fail to make remissions to the Crown without the joint and several, or solidary, liability of its directors being engaged.

e. What is required is that the directors establish that they were specifically concerned with the tax remittances and that they exercised their duty of care, diligence and skill with a view to preventing a failure by the corporation to remit the amounts at issue.

In short, directors have a dual obligation: (1) turn their minds to the issue of source deduction and their withholding, and (2) exercise due diligence to prevent the failure to remit the source deductions.  The TCC said that “the dual obligations are to be consistent, omnipresent and invariable; a creative or alternative business plan, no matter how plausibly economic or lucrative, which diverts or attempts to divert resources away from remitting Source Deductions to the Crown will end availability of the due diligence.” (Para 24).

– Sas Ansari, JD LLM PhD (exp)

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