http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/97819/index.do 
9016-9202 Québec Inc. v. The Queen (September 25, 2014 – 2015 TCC 281, Favreau J.).
Précis: This case involved 36 garbage collectors who previously worked as employees for EBI Environnement inc. (“EBI”). Commencing in 2004 they all formed corporations which contracted with EBI to provide their services through garbage trucks rented from EBI. They were reassessed as personal services corporations disentitling them to the small business deduction and most other deductions in computing income. The Minister reassessed the 2004 to 2008 taxation years, imposing penalties in 2007 and 2008. The Court held that the corporations essentially operated as their shareholders had operated prior to 2004 and dismissed the appeals for 2004 to 2006, with costs. The Court rejected the imposition of penalties in 2007 and 2008. The appellants were operating with the benefit of competent professional advice and the only purpose for the penalties seemed to be to force them to terminate the system. The 2007 and 2008 appeals were allowed, without costs, for the purposes of deleting the penalties.
Decision: This is an example of what appears to be a fairly aggressive bit of tax planning that sought to treat all of the garbage collectors that were formerly employers of EBI (and before that employees of Services Sanitaires RS inc.) as corporate suppliers. This was challenged on the basis that the individuals involved were operating personal services businesses and therefore not entitled to the small business deduction.
4 EBI operates its business mainly in the areas of Berthierville, Joliette, Repentigny and Sorel-Tracy.
5 EBI bid on contacts with the cities for garbage collection and signed contacts with some municipalities or corporations.
6 The specifications signed by EBI and the municipalities set out the conditions and schedule of collection.
7 Before March 1995, EBI`s employees performed the garbage collection.
8 Since March 1995, EBI has developed a new operating structure under which the collection is done by garbage collectors who are independent contractors.
9 EBI signed about forty contracts with garbage collectors for garbage collection, including the appellants.
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STRUCTURE OF THE COMPANIES
21 During the years at issue, EBI was the appellants’ sole client.
22 During the years at issue, the appellants’ address was 61 Montcalm Street, Berthierville, P.O. Box 120, that is, the same as EBI’s address.
23 During the years at issue, the appellants’ financial statements and tax returns were prepared by Pontbriand, Roy, Éthier, that is, the same firm that prepared them for EBI.
24 During the years at issue, the appellants’ bookkeeping and remittances were done by Monique Grégoire, an employee of Les Services Administratifs PRE inc. (PRE).
25 Ms. Grégoire works in the offices of , at 61 Montcalm Street in Berthierville.
26 Ms. Grégoire was designated as a contact person for the purposes of tax, income tax and source deductions for each of the garbage collector’s companies.
27 During the years at issue, the appellants paid to the corporation and claimed as operation expenses $300 per month in professional fees for the services performed by Monique Grégoire and Pontbriand, Roy, Éthier.
28 EBI assumes the insurance and licensing for its trucks. Part of the insurance expenses is billed to the appellants by EBI based on the truck rental contract.
29 The appellants pay for the fuel and for regular maintenance of the vehicle.
30 The appellants have taken out a health insurance policy provided by the Comité paritaire des boueurs specifically designed for garbage collectors.
31 Time sheets are completed by the garbage collectors.
The operation was very much of a “cookie cutter” variety:
Role of Les Services Administratifs PRE Inc. (PRE)
[16] PRE took care of all of the administrative aspects of the companies belonging to the drivers.
[17] All of the appellants, with a few exceptions, were incorporated under Part 1A of the Quebec Companies Act by the notary Robert Williamson from Boucherville. The authorized share capital included an unlimited number of voting, participating, no par value class A shares redeemable at the option of the company and an unlimited number of non-voting, non-participating, no par value class B shares with a non-preferential and non-cumulative dividend of 10% yearly, redeemable at the option of the company. The share capital issued and paid was at the outset generally comprised of 100 class A shares issued for a consideration of $100. The companies’ fiscal year ended on August 31 of each year. The driver to whom a company belonged was also the sole director of the company. The companies’ incorporation fees were $2,000 payable in 10 monthly instalments of $200.
[18] With the help of the chartered accountants’ firm Pontbriand, Roy, Ethier s.e.n.c., PRE took care of bookkeeping including records, preparing financial statements, federal and provincial tax returns for the companies and personal returns of their respective shareholders as well as preparing tax reports and T4 and T5 slips, declarations of dividends and share transfers. The chartered accountants’ firm Pontbriand, Roy, Ethier invoiced PRE for the services it provided to it.
[19] PRE paid the accounts payable, cashed and deposited cheques payable to the companies and took care of inter-company billing.
[20] PRE also managed a pool of resource-persons to facilitate the replacement of drivers who were on vacation or sick and to replace employees who worked on rear‑loading trucks when they were absent. PRE paid directly the people whose services were used and billed the companies who used the services of those people.
[21] PRE billed each company $300 per month in management fees.
[22] PRE had only one employee, namely, Monique Grégoire, and she operated from an office located at 61 Montcalm Street in Berthierville, that is, at the same address as EBI. Ms. Grégoire was supervised by Arthur Pontbriand of the chartered accountants’ firm Pontbriand, Roy, Ethier.
The Court applied the well-known tests of supervision and control, chance or profit and risk of loss, and integration and concluded that the corporate shareholders functioned as incorporated employees, particularly so in the cast of the integration test:
[91] An analysis of the facts related to this file reveals a high degree of integration of the appellants into EBI’s activities, which in itself shows the existence of a relationship of subordination.
[92] The most telling indication of the appellant’s integration into EBI is, undoubtedly, the fact that the garbage collectors had been salaried employees of EBI before the appellants were incorporated and became employees of EBI once again after the years at issue. The appellants performed the same tasks as their respective shareholders had performed before using the same methods to perform them.
The Court however rejected the Minister’s imposition of penalties:
[94] Contrary to the claims of the respondent’s counsel, I do not believe that the Minister has discharged his burden of proving that the conduct of the appellants and their shareholders amounts to gross negligence based on wilful blindness.
[95] The appellants were informed that the CRA had rejected their Notices of Objection for the 2004, 2005 and 2006 taxation years only on May 5, 2010, that is, well after the appellants’ tax returns for the 2007 and 2008 taxation years had been filed on the same basis as those for the previous years. In filing their tax returns for the 2007 and 2008 taxation years, the appellants and their shareholders had not been grossly negligent or willfully blind. The appellants and their shareholders had at that time been represented by competent professionals, namely, Jacques Pontbriand of the chartered accountants’ firm Pontbriand, Roy, Ethier, and Isabelle Pipon of Spiegel Sohmer, and they were fully justified in trusting their advice when they filed their tax returns for the 2007 and 2008 taxation years.
[96] At no time had the appellants and their shareholders made false statements to the CRA. The sub-contractor system had lasted from 1995 to 2008, that is, for close to 13 years, for 9 of which the CRA did not dispute the structure in place. The assessments for the 2004, 2005 and 2006 taxation years did not include penalties, and the expenses claimed by the appellants were allowed by the CRA. Only in the assessments for the 2007 and 2008 taxation years were the appellants’ expenses disallowed and penalties imposed. Taking these facts into account, I do not see how the Minister can claim in 2010 that the appellants and their shareholders have made false statements in filing their tax returns for the 2007 and 2008 taxation years.
[97] The only reason why the penalties were imposed seems to me to be to force the parties to terminate the system.
In the result the appeals for 2004, 2005 and 2006 were dismissed; the appeals for 2007 and 2008 were allowed for the purposes of deleting the penalties assessed:
[98] For these reasons, the appeals from reassessments made in respect of the 2004, 2005 and 2006 taxation years are dismissed with costs. The respondent is entitled to one set of costs for all of the files on appeal and another set of costs for files 2010-2396(IT)G and 2010-2369(IT)G, for which discontinuances were filed the day before the trial. The respondent is also entitled to disbursements for all of the files, including those that had been discontinued.
[99] The appeal from the reassessments made in respect of the 2007 and 2008 taxation years are allowed without costs and the reassessments are referred back to the Minister for reconsideration and reassessments in order to cancel the penalties.