[e-drive][EQUIFLASH: APPEAL SOUGHT ON TAX RULING]

[Patricia Joyce]

~~~~~~~~~~ equiflash ~~~~~~~~~~

APPEAL SOUGHT ON TAX RULING

A recent ruling by the Canada Customs and Revenue Agency (CCRA) on
dancers with the Royal Winnipeg (RWB) raises questions for the future
tax status of performing artists in Canada. The ruling with respect to
several of the dancers at the RWB judges the status of the dancers to be
employees for the purpose of CPP and EI eligibility. Canadian Actors'
Equity Association executive director Susan Wallace explained,

"The CCRA's ruling is a serious concern for Equity. The judgment negates
arguments we have made that these dancers run their affairs as
independent contractors and illustrates the ill-fit between existing tax
law, which has been designed for traditional working situations, and the
working reality of artists in Canada. We are working with the dancers
and the ballet on an appeal strategy to have this order reversed."

Three artists, representing three classes of dancers, are covered in the
ruling: corps de ballet, soloist and principal. All three have been
found to be employees. The ruling, although made with respect to three
artists only, will result in an audit of the RWB's practices for other
similarly employed artists, and will require the RWB to make deductions
for all other artists in the company as they are similarly engaged.

The dancers covered under the ruling together with the ballet made a
request to the CCRA for a determination in 1999 following a number of
controversial and financially disastrous decisions by the CCRA that
musicians within major Canadian symphonies should have been engaged as
employees. In the symphony cases, debilitating retroactive tax
remittances were demanded and there were implications on the contractual
arrangements for the artists. 

The sudden surge of tax rulings against performing arts companies has
sent shock waves through the cultural sector. A group of orchestras,
theatres, arts labour organizations and arts service associations was
convened by the Canadian Conference of the Arts this spring to respond
the CCRA's new application of traditional tax law on the cultural
sector. Equity has participated in efforts by the coalition to draft an
economic impact study through the Department of Heritage in order to
communicate the potential ramifications of future assessments. Susan
Wallace said,

"While the CCRA has had tax law on its books for nearly 30 years that
could realign many independent contractors in the arts as employees,
historically the law has rarely been applied, as it has long been
understood as poorly designed to deal with our unique contractual
arrangements. The financial impact of defining artists as employees
would be destabilizing for our sector: artists would pay into programs
they would largely not qualify to receive any benefit from; tax credits
for necessary and legitimate expenses would be in question and the tax
burden on companies would erode already stretched budgets. If the CCRA
intends to wedge its peg into our world, we believe it is now time for a
new law that more appropriately fits the live performing arts."

The apprehension over the misapplication of tax law within performing
arts groups is shared with the growing body of independent contractors
and seasonal workers in Canada who face the threat of having their tax
status reassessed based on mainstream working conditions. The cultural
sector has addressed the misconception that artists are looking for
special tax-treatment by pointing to fishers, hair dressers and others
who have been recognized by the CCRA as having unique contractual
arrangements which are not contemplated within traditional tax law.

Already Equity is aware of two recent rulings similar to the RWB ruling,
one in Dawson City, Yukon and one in Calgary, Alberta.  Members who are
similarly affected by such rulings or who hear of other like rulings
should immediately contact Equity's controller Doug Irons, so that
Equity can pursue appeals on its member's behalf.  Members will be kept
apprised of this urgent situation through bulletins on e-drive and
through the Equity newsletter.

Equity members concerned about their tax status and deductions should
consult with their accountant and refer to the CCRA's interpretation
bulletins with regards to the performing arts, such as IT 525R-Income
Tax Performing Artists, located on the CCRA's web-site: www.rc.gc.ca  or
call to request a copy: 1-800-959-5525. Members wishing to voice their
opinions on the employment status of artists can write to their MPs,
visit www.parl.gc.ca/information/about/people/house/PostalCode.asp to
locate your MP by postal code.

~~~~~~~~~~~~~~~~~~~~~~~~~
CCA BULLETIN / BULLETIN DE LA CCA 31/02
ALL NOT QUIET ON THE STATUS FRONT

Ottawa, October 2, 2002 - There is much movement around issues relating
to artists employment status, and as two particular issues are moving
into the public eye, CCA members will require the following update

Notable happenings this year include:
* Passage of enabling legislation for an artists' equity act in the
Province of Saskatchewan 
* Review of the federal Status of the Artist Act as required by the
legislation. 
* A move within the Canada Customs and Revenue Agency (CCRA) to
re-examine the self-employment status of many of Canada's artists 

To begin with the last bullet, CCRA is not going on a witch hunt but has
responded to claims for Employment Insurance by individual artists
(mainly musicians) which automatically sets off an audit process.  There
was also a request from the arts community for clarity about the
position of artists who work for performing arts companies. 

In 1999,the Royal Winnipeg Ballet requested a determination from the EI
eligibility section of CCRA concerning the status of the dancers they
engaged.  CCRA agreed to the request and examined the situations of
three dancers in the company (who volunteered to participate as examples
of the different circumstances of the corps de ballet, soloists and
principal dancers.  CCRA has now provided its assessment - and has ruled
that all three are in fact employees of the company, rather than
independent contractors.  Extrapolating from this ruling would lead to
the conclusion that the other dancers are also employees, and the same
might apply to other dance companies.   The main reason for this
decision, as outlined in the CCRA ruling, is that the RWB exercised
control over the dancers and their work by:

* Determining which ballets were performed, and establishing the
schedules for rehearsals and performances 
* Determining which roles would be performed by whom 
* Providing access to coverage for the dancers through various benefit
plans 

A further reason given was that the dancers cannot accept other
engagements without the written consent of the company.  Canadian
Actors' Equity Association (which represents the RWB dancers) is
contemplating an appeal of the decision on behalf of its members.

This clash between the cultural community and CCRA has been brewing for
some time.  The Canadian Conference of the Arts has brought together a
working group of representatives of these organizations, and has been
convening discussions among officials from CCRA and DCH, and leaders of
arts organizations representing both performing arts companies and
labour groups.  There is no unified position on the issue and, in fact,
many organizations have internal conflicts as some of their members
value independent status while others would prefer to be employees.  One
thing is clear, there is a spectrum of relationships between artists and
companies ranging from symphony musicians and dancers employed by large
companies who are frequently in employee relationships, right across to
actors hired on short term contracts for specific roles. 

Earlier this year the CCA commissioned an examination by the firm of
Sack, Goldblatt and Mitchell into the case law surrounding the tests of
control.  One of the conclusions reached is that "the discussion of how
the CCRA applies those criteria to the arts community ... is much more
contentious .... [T]he significance of any one of these factors, such as
the existence of a collective agreement, for example, depends on the
context in which it appears, and the presence or absence of other
factors.... Different constituencies served by the Canadian Conference
of the Arts, may present very different contexts which may necessitate
different legal conclusions from one sector to another.  For example,
the context and practices of a small modern dance company may be very
different from a large symphony or a rock music tour, or the provision
of graphic arts services.  Each sector may need to be examined
individually to determine the similarities and differences."  

It comes as no surprise to learn that the four tests of control used by
CCRA to determine employment status do not work well in the context of
the cultural sector.  To quote from a CCRA document: "... even if the
employee provides her own musical instrument, clothing, make-up and
other items, these elements alone are not decisive in order to assert
that the employee is self-employed".  Collective agreements are seen by
CCRA as an indicator of an employer/employee relationship, and duration
of a contract is not necessarily seen as a determinant. However, the
federal Status of the Artist Act establishes that artists' organizations
can be certified to bargain on their behalf even though they are
independent  contractors. 

Nearly all arts organizations have Boards of Directors whose members
could be held personally responsible for EI and CPP liabilities should
the organizations have to change their relationship with the artists and
not have sufficient funds to cover back contributions.  However, CCRA
only seems to resort to such extreme measures in circumstances where
fraud or serious negligence are found, rather than in instances where a
board and management honestly believed they were contracting artists
appropriately.

So where do things stand?  

* CCA continues its dialogue with the arts organizations, CCRA , DCH and
HRDC in order to find some solution.  

* The working group convened by the CCA is looking into possible models
of self-employment in other sectors of the economy (ie: taxi drivers and
hairdressers are considered to be employees for the purposes of EI and
CPP but independent contractors 	for the purposes of income tax).


* Performing arts groups across the country are conducting internal
audits to determine whether they could be viewed as employers or not.
Other groups of people which have traditionally been deemed to be
self-employed are being examined: designers (costume and lighting);
stage managers and assistants; props, make-up and wig specialists;
accompanists; etc. 

* Some large companies whose boards know that they will be liable for
the employer's share of EI and CPP deductions should CCRA rule that they
are in an employer-	employee relationship with the artists, are
moving towards "voluntary compliance" (to use CCRA terminology). 

* At DCH, Arts Policy officials together with a steering committee from
the Canada Council and the CCA, have commissioned a study by Ernst and
Young into the economic impact should a large number of arts
organizations be deemed employers. The survey is still in the field -
anticipated completion date is mid-October. 

* The evaluative review of the Status of the Artist Act by Prairie
Research Associates has been delivered to the Arts Policy unit and must
now work its way through government to cabinet.  Officials at DCH are
responsible for co-ordinating the release of the review and its
recommendations. The proper procedure for this is being discussed. 
  
* Equity is proceeding with its challenge of the CCRA ruling on the
Royal Winnipeg Ballet. 

* Senator Tommy Banks is calling a group of arts labour organization to
a meeting to discuss possible political action on the issue of
self-employed status. 

The above list sets out the several inter-related issues and the work
that's going ahead, but the solutions are not obvious yet.  At the 2000
Chalmers conference, Arthur Drache, the lawyer with the longest memory
of these issues, proposed a simple system whereby artists could either
opt into an employee benefit plan, or opt for independent status (see
Bulletin 44/00, dated December 1, 2000).  Although there are reasons why
arts companies, labour organizations, and tax collectors find this idea
problematic, it would be a neat and elegant solution.  CCA will keep its
members informed on all fronts as things progress.