Problem 29 The taxpayer, Mr. Jayem Gee, a lawyer, had agreed to the following yearly contract in the three years at issue: The contract is between the firm of Perry and Mason hereinafter called "the firm" and Mr. Jayem Gee hereinafter called "the lawyer". . The firm retains the services of the lawyer for the year from January 1 to December 31, and the lawyer agrees to provide his services exclusively to the firm for the aforementioned period. The lawyer will receive, for his services, fees representing 2.1% of the gross income of the firm, excluding work in progress, all as established by the firm's accountants. . The firm remitted CPP and El for payments to Gee. This percentage has been set with reference to the number of lawyers practicing in the firm as of January 1. . Any change in the number of professionals practising in the firm will give rise to a revision in the fee percentage. The lawyer will receive, as an advance on fees, the sum of $1,450 in each two-week period and any adjustment will be made at the conclusion of the firm's fiscal year. . In consideration of the fact that the lawyer is receiving fees, no withholdings of income tax, or deductions in respect of pension plans, health insurance, or others will be made by the firm, and the lawyer will be personally responsible for making any payments required by the government authority in respect of these items. There were seven or eight other lawyers in the same position with the firm as Mr. Gee, and there were about nine other lawyers who were senior. Mr. Gee had no capital investment in the firm and had no ownership claim to client accounts. All expenditures necessary for the proper operation of the firm such as support staff wages and office expenses were borne by the firm. The firm was responsible for billing clients for services that had been provided and for the collection of the billings for all lawyers including the senior lawyers. 13,850 In Mr. Gee's opinion, his relations with clients, his work habits and how he organized his work, whether with respect to keeping track of files or the place or method chosen for carrying out his responsibilities were similar to those of the senior lawyers. On the other hand, he indicated that there were differences in responsibilities in that, for example, the senior lawyers periodically examined his work. The senior lawyers, both individually and as a group, exercised greater control of the conduct of business in the firm. The lawyers in the firm were largely specialized in various areas of law, and as far as possible, every lawyer was free to follow his own direction, as long as he adhered to the general policy of the firm and his work appeared to be to the benefit of the firm. There was no evidence that the senior lawyers assigned legal files to the junior lawyers more than to themselves, or that the clientele or account books of the two groups were differently constituted. Mr. Gee did not pay personally for any insurance premium or expenses relating to his professional responsibility, being covered by liability insurance taken out by the firm. Mr. Gee further submitted that he did not receive orders or instructions from the firm on how to carry out his duties. He decided on his own the number of hours he would devote to his profession and no set timetable was imposed on him. He was in charge of the steps to be taken to carry out instructions from his clients. If for any reason Mr. Gee could not carry out a particular task, the firm selected someone to replace him according to which of the other lawyers in the firm were available and what their areas of expertise were. The selection also took into account the client's preference. Mr. Gee considered himself to be a partner of the firm, earning income from the business of the firm, while the CRA considered him to be an employee of the firm. At issue was the deductibility of about $20,000 of expenses over the three years in question. Is Mr. Gee, in this situation, an employee or a partner (i.e., self-employed)? In presenting your answer, discuss the tests that are applied by the courts in this type of situation and consider how the facts relate to these tests by discussing both points of view on each issue. Be sure to state a conclusion based on your evaluation of the facts in this manner. (Do not reach a conclusion first and use only those facts or arguments which support your conclusion.) Problem 29 The taxpayer, Mr. Jayem Gee, a lawyer, had agreed to the following yearly contract in the three years at issue: The contract is between the firm of Perry and Mason hereinafter called "the firm" and Mr. Jayem Gee hereinafter called "the lawyer". . The firm retains the services of the lawyer for the year from January 1 to December 31, and the lawyer agrees to provide his services exclusively to the firm for the aforementioned period. The lawyer will receive, for his services, fees representing 2.1% of the gross income of the firm, excluding work in progress, all as established by the firm's accountants. . The firm remitted CPP and El for payments to Gee. This percentage has been set with reference to the number of lawyers practicing in the firm as of January 1. . Any change in the number of professionals practising in the firm will give rise to a revision in the fee percentage. The lawyer will receive, as an advance on fees, the sum of $1,450 in each two-week period and any adjustment will be made at the conclusion of the firm's fiscal year. . In consideration of the fact that the lawyer is receiving fees, no withholdings of income tax, or deductions in respect of pension plans, health insurance, or others will be made by the firm, and the lawyer will be personally responsible for making any payments required by the government authority in respect of these items. There were seven or eight other lawyers in the same position with the firm as Mr. Gee, and there were about nine other lawyers who were senior. Mr. Gee had no capital investment in the firm and had no ownership claim to client accounts. All expenditures necessary for the proper operation of the firm such as support staff wages and office expenses were borne by the firm. The firm was responsible for billing clients for services that had been provided and for the collection of the billings for all lawyers including the senior lawyers. 13,850 In Mr. Gee's opinion, his relations with clients, his work habits and how he organized his work, whether with respect to keeping track of files or the place or method chosen for carrying out his responsibilities were similar to those of the senior lawyers. On the other hand, he indicated that there were differences in responsibilities in that, for example, the senior lawyers periodically examined his work. The senior lawyers, both individually and as a group, exercised greater control of the conduct of business in the firm. The lawyers in the firm were largely specialized in various areas of law, and as far as possible, every lawyer was free to follow his own direction, as long as he adhered to the general policy of the firm and his work appeared to be to the benefit of the firm. There was no evidence that the senior lawyers assigned legal files to the junior lawyers more than to themselves, or that the clientele or account books of the two groups were differently constituted. Mr. Gee did not pay personally for any insurance premium or expenses relating to his professional responsibility, being covered by liability insurance taken out by the firm. Mr. Gee further submitted that he did not receive orders or instructions from the firm on how to carry out his duties. He decided on his own the number of hours he would devote to his profession and no set timetable was imposed on him. He was in charge of the steps to be taken to carry out instructions from his clients. If for any reason Mr. Gee could not carry out a particular task, the firm selected someone to replace him according to which of the other lawyers in the firm were available and what their areas of expertise were. The selection also took into account the client's preference. Mr. Gee considered himself to be a partner of the firm, earning income from the business of the firm, while the CRA considered him to be an employee of the firm. At issue was the deductibility of about $20,000 of expenses over the three years in question. Is Mr. Gee, in this situation, an employee or a partner (i.e., self-employed)? In presenting your answer, discuss the tests that are applied by the courts in this type of situation and consider how the facts relate to these tests by discussing both points of view on each issue. Be sure to state a conclusion based on your evaluation of the facts in this manner. (Do not reach a conclusion first and use only those facts or arguments which support your conclusion.)