Chapter3Solutions

Chapter3Solutions - Chapter 3 Solution 1 [Reference: Wiebe...

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Chapter 3 Solution 1 [Reference: Wiebe Door Services Ltd. v. M.N.R., 87 DTC 5025 (F.C.A.)] In the court case on which these facts were based, the company had been treating the workers as self-employed contractors. The CRA believed the workers to be employees and assessed the company for failure to withhold employment source deductions. The Tax Court of Canada agreed with the CRA and the company appealed. The case was decided on the basis of the economic reality test. The Federal Court of Appeal held that the economic reality test really encompasses the control test and the integration or organization test. As well, ownership of tools and the chance of profit or risk of loss must be considered. It is not necessary that all four tests be independently satisfied. The economic reality test is decided on the basis of the overall scheme and the relative importance of each of these factors. (1) Economic Reality or Entrepreneur Test (a) Control Test Taken in isolation, the control test is indecisive on these facts. The workers had a fair degree of autonomy in that they could accept or refuse specific assignments, could choose when and how to do the jobs they accepted, within reason, and were not required to report to a specific workplace. This is indicative of self-employment. On the other hand, the company assigned the jobs to the installers and had the right to require defective work to be fixed by the workers and the workers were required to comply with this. This aspect of control is more indicative of an employer relationship. As a result, the control test does not distinguish the case of employed versus self-employed very well. (b) Ownership of Tools The ownership of tools test is indicative of self-employed status. Each worker supplied the majority of the required tools, including the truck to transport the doors. Although the company would supply certain specialized equipment on request, this was considered ancillary to the basic ownership responsibility. Interestingly, the Court did not address the ownership of the doors and component parts, either under this or any of the other tests. The rationale for this exclusion may be that the supply of such parts was unique to the company’s business, while the tools necessary to install or repair such parts could be used by the workers for any other assignments they undertook. (c) Chance of Profit, Risk of Loss The chance of profit, risk of loss test would also indicate self-employed status. Although the fee provided for each job was decided primarily by the company, the worker had some control over whether he or she would make a profit or incur a loss. If the worker was efficient and accepted more jobs, his or her chance for profit increased. Adversely, if the worker was careless and was required to redo much of his or her work, the risk of loss increased. (2)
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This note was uploaded on 09/30/2008 for the course ACCT 360 taught by Professor Jones during the Summer '08 term at Windsor.

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Chapter3Solutions - Chapter 3 Solution 1 [Reference: Wiebe...

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