Louis Sutton and Art Designs Inc. Contract with UTM: Personal Services Business Determination and In

Louis Sutton, a well-known Montreal artist, owns all of the shares of Art Designs Inc. (“ADI”).  Louis is the only employee of ADI.     ADI recently signed a contract with the University of Toronto Mississauga (“UTM”) to beautify the campus.The contract refers to ADI as an independent contractor.  Louis spent the entire year completing the beautification.  During that time, he enhanced the campus with his own artwork and pieces bought at local auctions.UTM restricted the choice of art to Canadian artists.  As well, UTM controlled the colour schemes and the types of art selected (e.g., paintings, sculptures, or murals) for the various locations on campus.  However, within these requirements, Louis was permitted to exercise artistic discretion over the actual pieces chosen.  This gave him a great degree of latitude over the beautification of the campus.Louis could produce the art, purchase another artist’s work and focus on any theme desired.  Louis worked at his own Montrealstudio and used his own tools for his own productions.  If UTM did not like the art he produced or purchased, ADI was not reimbursed costs and had to sell the art on the open market.  Over the year, Louis focused all of hisenergy into the beautification of UTM and did not produce art for otherclients.Required:1.Determine whether the courts would consider ADI to be carrying on a “personal services business” (“PSB”) based on the followingcases:a.W.B. Pletch Company Limited v The Queen, [2006] 1 CTC 2582(TCC)b.Gomez Consulting Ltd. v The Queen, [2013] 2013 DTC 1125 (TCC)c.Galaxy Management Ltd. v The Queen, [2006] 1 CTC 2052 (TCC)d.Robertson et al v The Queen, [2009] 2009 DTC 1128 (TCC)e.Criterion Capital Corp. v The Queen, [2001] 4 CTC 2844 (TCC)f.Peter Cedar Products et al v The Queen, [2009] 2009 DTC 1314 (TCC)
2.Describe the income tax implications applicable to ADI if it is considered to be earning PSB income.3.The definition of “personal services business” in subsection 125(7) of the Income Tax Act(Canada) provides an exception where “the corporation employs in the business throughout the year more than five full-time employees...”.  What is meant by the term “more than five full-time employees”?  Provide appropriate references.