Demers v. Agence du revenu du Québec, 2020 QCCA 681

The individual appellant (“Demers”) was a director at all relevant times of a corporation that owned and operated a minor professional hockey team that played in the Ligue Nord-Americaine de Hockey from 2004 to 2008. It had been treating its players (and other staff) as employees rather than independent contractors for Quebec health tax purposes in accordance with the views of the ARQ which had been expressed to the League. However, in 2006, it commenced to treat them as independent contractors in order to reduce operational costs. The players did not register for GST/QST purposes or invoice for their services, and refused to sign a written contract (which did not reflect the realities of how the team continued to be operated), and the only substantive change made was that the team manager was incorporated. The ARQ assessed Demers under the relevant Quebec equivalent of s. 227.1 given that the team owner had been wound up without remitting source deductions.

After finding that the players in fact were still employees, so that the ARQ assessments of the team owner for failure to remit were well founded, Cotnam JCQ next dealt with the due diligence defence of Demers under the equivalent of ITA s. 227.1(3), which was based on the proposition that he had been advised by his tax advisor, Ms. Rochette (who was also his wife and a director of the team owner) that the players were independent contractors. In rejecting this defence, Cotnam JCQ noted that the views of Ms Rochette were based on factually incorrect matters that could have been readily checked by her, including that the players could play for other teams, that they had their own tools and that the team did not reimburse the players for their expenses, and also noted that Ms. Rochette had not consulted the jurisprudence. Cotnam JCQ also rejected the supposed reliance of Demers on a CRA finding that the players were independent contractors, as this CRA view had been taken after the decision was made to cease withholding and remitting source deductions.

Bouchard JCA found no reviewable error in these findings.

The individual taxpayer (Demers) was a director of the owner of the RadioX team, which was a minor professional hockey team. The corporation had been treating its players (and other staff) as employees rather than independent contractors for Quebec health tax purposes in accordance with the known views of the ARQ, but then commenced to treat them as independent contractors. The players did not register for GST/QST purposes or invoice for their services, and declined to sign a written contract (which did not reflect the realities of how the team continued to be operated), and the only substantive change made was that the team manager was incorporated.

After finding that the players continued to be employees, the Court of Quebec next dealt with the due diligence defence of Demers under the equivalent of ITA s. 227.1(3) (the corporation having since been wound up without paying any of the source deductions), which was based on the proposition that he had been advised by his tax advisor, Ms. Rochette (who was also his wife and a co-director of the corporation) that the players were now independent contractors. In rejecting this defence, the Court of Quebec noted that the views of Ms Rochette were based on factually incorrect matters that could have been readily checked by her, including that the players could play for other teams, that they had their own tools and that the team did not reimburse them for their expenses, and also noted that Ms. Rochette had not consulted the jurisprudence.

However, the assessment of the Corporation for its 2006 year had been found by the Court of Quebec to be statute-barred as having been made beyond the four-year prescription period, based on the ARQ not having established carelessness of Demers or the Corporation. In reversing this finding (and before going on to direct that the assessments of the Corporation and of Demers for their 2006 years be affirmed), Bouchard JCA stated (paras. 92-94, TaxInterpretations translation):

In accordance with Regina Shoppers Mall … a taxpayer does not make a misrepresentation where he or she thoughtfully, deliberately and carefully assesses the situation and files on what he or she believes bona fide to be the proper method.

… Mr. Demers' position reflected his desire to save money by no longer making deductions at source. The position of the Corporation, which is virtually identical and which emanates from the same director, could not be different.

Moreover, the judge pointed out on several occasions that the change in the status of the players did not in any way materialize at the operational level and was strictly motivated by the Corporation’s desire to no longer pay deductions at source.

With respect, to the extent that she concluded in this way in the first part of her judgment, she could not, in my opinion, conclude a few paragraphs later that the ARQ had not succeeded in demonstrating the carelessness or wilful omission of the Corporation when it was clearly trying to avoid its tax obligations.