Independent Contractor Status v. Employee Status #227
CATEGORY: Legally Speaking
TAGS: Income Tax Act Real Estate Act
By Gerry Neely
As most licensees must be aware, while the Supreme Court of British Columbia has held in three cases that under the Real Estate Act a salesperson can only be an employee of an agent, the policy of Revenue Canada under the Income Tax Act, is to recognize the independent contract status of a salesperson. That this seeming conflict is a matter of concern to licensees and their tax advisers is evident from a recent notice sent to CGA's by their organization.
They were advised that if Revenue Canada changed its policy because of these cases the deductibility of certain expenses by licensees might be disallowed. In addition, agents as employers may be required to pay the CPP and UIC premiums that should have been deducted had the licensees been employees.
Revenue Canada was asked in 1992 after the decision in the Homelife/Victoria case, and again recently how these decisions may affect Revenue Canada's assessment of a licensee's independent contractor status claimed for purposes of income tax, CPP and UIC. Probably not at all has been the response. The reason, as given by the Assistant Director - Revenue Collections for Vancouver island, one o three Revenue Canada districts within the province, is that the decisions in these three cases were not based upon an interpretation of the Acts governing Canada Pension, Unemployment Insurance and Income Tax. (This column, as well as column #228 which follows, has been examined by the other two districts, Penticton and Vancouver, and no objections have been taken to the contents by them.)
However, policy can change and the question is what can be done to resolve this conflict. The Homelife/Victoria case, and the two which followed it, involved insolvent agencies which held commission monies in trust, and the courts had to decide how these monies should be distributed among competing parties, including the licensees whose efforts had earned the commissions.
The Homelife/Victoria salesperson's arguments for priority over other creditors were that they were independent contractors and their contract created a commission trust in their favour. "Salesperson" under the Real Estate Act, "means a person, other than a nominee, employed by an agent...".
The court refused to interpret this as if the word "includes" had replaced the word "means", an interpretation necessary to give it a wider meaning than employee. it was a breach of the Act to contract as an independent contractor, and this breach led the judge to decide that the trust they claimed could not be enforced and they were unsecured creditors.
A solution to the potential conflict concerning independent contractor status is to persuade the provincial cabinet to set aside legislative time to amend the definition of salesperson, which has remained essentially the same since the first Real Estate Act became law in 1920. It is not apparent that the amendments which will be required will impair the responsibility, accountability and supervision among agents, nominees and salespersons which now exist.
One reason for recommending amendments is to ensure that Revenue Canada's policy, which now allows licensees claiming independent contractor status to obtain the tax advantage enjoyed by self-employed persons, is not lost because of the current definition of a salesperson. A second reason is that a court may declare a contract to be void entirely, or in part, which may result in it being unenforceable by an agent or salesperson.
The amendment could be specific, i.e. - a salesperson includes a person employed by an agent or a person who has contracted with an agent as an independent contractor....or we could broaden the definition and follow the examples of Alberta and Ontario for example, a salesperson includes a individual employed, appointed or authorized by an agent.
The judge in the Homelife/Victoria case thought that a contract, which stated that the agent received monies on account of commissions in trust for salespersons, was a breach of sections 15 and 16 of the Act. If the contract language makes it clear that monies are received in trust for the parties until closing, and that thereafter the agent is a stakeholder holding commission monies in trust for licensees, then the amendments may enable independent contractors to create a commission trust.
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