Date: 20020722
Docket: 2001-2091-IT-I
BETWEEN:
IAN LOUIE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
O'Connor, J.T.C.C.
[1] This issue in this appeal is whether the Appellant, as a director of Tudor Merchandising Services Leasing Inc. ("Tudor" or "Corporation") is liable under subsection 227.1(1) of the Income Tax Act ("Act") for failure by Tudor to remit federal tax of $10,675.88 in respect of certain cafeteria workers, and a penalty of $1,845.47 and interest of $143.44. The years in question are mentioned below.
[2] The Appellant takes the position that the workers were independent contractors and the Minister takes the position that they were indeed employees of Tudor.
[3] In assessing the above amounts the Minister made the following assumptions of fact:
a) the Appellant was, at all material times, the sole director of the Corporation;
b) on January 31, 1994 the Corporation entered into a contact with Canada Post, whereby the Corporation would operate a cafeteria at one of the Canada Post's work sites;
c) in operating the cafeteria, the Corporation retained the services of the prior cafeteria operator's workers;
d) the Corporation supplied all the tools and equipment to the cafeteria operation;
e) the Corporation's cafeteria workers had no risk of loss or opportunity to profit by virtue of their cafeteria work;
f) the cafeteria workers were employed by the Corporation as employees by way of contracts of service;
g) the Corporation failed to remit to the Receiver General federal income tax withheld from the wages paid to its cafeteria employees as follows:
|
YEAR |
Unremitted Federal Tax |
|
1995 |
1,940.66 |
|
1996 |
$6,444.22 |
|
1997 |
$1,743.41 |
|
1998 |
$ 547.59 |
h) the Corporation failed to pay penalties and interest relating to the unremitted Federal tax as follows:
|
YEAR |
Unremitted Penalties |
Unremitted Interest |
|
1996 |
$1,162.08 |
nil |
|
1997 |
$ 499.48 |
$5.44 |
|
1998 |
$ 183.91 |
$138.00 |
i) the Minister issued a series of Assessments (the "Assessments") against the Corporation respecting the unremitted federal tax, interest and penalties;
j) the Corporation did not object to the Assessments as provided for under subsection 165(1) of the Income Tax Act (the "Act");
k) certificates including the amount of the Corporation's liability for unremitted Federal income tax, penalties and interest were registered in the Federal Court of Canada under subsection 223(2) of the Act on July 19, 1996 and November 8, 2000, and execution for such amount has been returned wholly unsatisfied;
l) the Appellant did not exercise the degree of care, diligence and skill to prevent the failure to remit the said amount by the Corporation that a reasonably prudent person would have exercised in comparable circumstances.
[4] In my opinion all of these assumptions were established or not proved false except paragraph (b) (the contract was dated January 17, 1994); paragraph (c) (only two prior workers were retained); (d) (not all tools were supplied but substantially all tools were); and (f) and (l) are questions of law to be analyzed below.
[5] Tudor was incorporated on March 1, 1988. The Appellant became its sole shareholder; chief executive officer and director in 1988. Tudor, in January, 1994 purchased from the previous operator of the cafeteria, Canadian National Institute for the Blind ("CNIB") the cafeteria equipment it was using at a price of approximately $20,000. Tudor took over the cafeteria operation in the Canada Post building in Victoria, British Columbia. Tudor retained two of CNIB's workers and retained approximately eight other workers in the cafeteria operation. The cafeteria workers did not actually serve tables but made goods available by way of a cafeteria operation such as self-serve coffee, cookies, rolls, sandwiches, gum, fruit, etc.
[6] Tudor's contract with Canada Post dated January 17, 1994 (Exhibit R-1) obliged Tudor to provide cafeteria workers and equipment to cook and serve food. The two former CNIB workers taken on by Tudor had been considered as employees by CNIB. The 1994 contract was extended to January 31, 1996 (Exhibit R-2). Further Exhibit R-3 indicates that Tudor's cafeteria contract was only terminated in 1998. Tudor's sole shareholder, director, chief executive officer, operator and man-in-charge was the Appellant.
[7] AMAR Investments Limited ("AMAR") was incorporated on November 20, 1989. AMAR operated a general grocery store and had its own set of employees including cashiers, stockers and cleaners. Some of these employees would work from time to time in the cafeteria operation. The principal supplies sold in the cafeteria operation were furnished by AMAR by being delivered there, firstly by the Appellant himself and later by another person. Tudor also owned the main equipment in the grocery store which Tudor leased to AMAR. AMAR's sole director was the Appellant.
ANALYSIS
[8] In applying the standard tests of control, ownership of tools, chance for profit and risk of loss and the integration test, it would appear that the cafeteria workers were employees of Tudor during the relevant times. As a general rule the cafeteria workers would not be required to have a heavy degree of control but to the extent that there was any control it was exercised by Tudor and certainly Tudor had the ability to control. Tudor paid the wages of the cafeteria workers at the rates of either $10 per hour or minimum wage. Tudor, through its employees, would pay the grocery store for supplies on a cash basis, operating an account with the grocery store of AMAR.
[9] On the issue of tools, it is clear that the cafeteria cooking equipment and the cafeteria licence were owned by Tudor. To a small degree cafeteria workers could have some personal gains by bringing their own baked goods or other foods to the cafeteria and selling same for their own account but it appears that the main goods sold were those purchased from the grocery store. There would be no risk of loss for the cafeteria workers. The workers were an integral part of the cafeteria operation. I conclude therefore that the cafeteria workers were employees of Tudor and it is clear that although the Appellant was not too active with the operations of Tudor from and after 1995 nevertheless the Appellant never resigned as a director of Tudor. It also appears for a certain period of time after 1995 he relied on his bookkeeper and on one former employee of CNIB named Fred Voks who became the manager of the cafeteria but the fact remains the Appellant never resigned as director and was not prevented from closing the cafeteria in 1995 when certain assets of AMAR and of the Appellant were apparently seized and Tudor's contract was only terminated by Canada Post in 1998.
[10] Further, the actions of the Appellant, in my opinion, did not constitute due diligence and consequently that defence is not available to him as director.
[11] For all of the above reasons the appeal is dismissed.
Signed at Ottawa, Canada, this 22nd day of July, 2002.
|
"T. O'Connor" |
J.T.C.C.
COURT FILE NO.: 2001-2091(IT)I
STYLE OF CAUSE: Ian Louie v. Her Majesty the Queen
PLACE OF HEARING: Vancouver, British Columbia
DATE OF HEARING: June 4, 2002
REASONS FOR JUDGMENT BY: The Honourable Judge Terrence O'Connor
DATE OF JUDGMENT: July 22, 2002
APPEARANCES:
For the Appellant: The Appellant himself
Counsel for the Respondent: Johanna Russell
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2001-2091(IT)I
BETWEEN:
IAN LOUIE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on June 4, 2002 at Vancouver, British Columbia, by
the Honourable Judge Terrence O'Connor
Appearances
For the Appellant: The Appellant himself
Counsel for the Respondent: Johanna Russell
JUDGMENT
The appeal from the assessment made under the Income Tax Act, notice of which is dated January 26, 2001 and bears number 17556 is dismissed in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada this 22nd day of July, 2002.
|
"T. O'Connor" |
J.T.C.C.