Date: 20000511
Docket: 97-1776-IT-G
BETWEEN:
AARON BRAUN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
(Delivered orally from the Bench at Toronto, Ontario, on March 15, 2000)
Hamlyn, J.T.C.C.
[1] In the matter of Aaron Braun and Her Majesty The Queen, an appeal with respect to an assessment, notice of which is dated December 29, 1994 and bears number 38854. The Minister assessed the Appellant as a director for the Fax-It Canada Corporation pursuant to sections 227 and 227.1 of the Income Tax Act (the Act) for failure by the Corporation to remit to the Receiver General an amount of federal tax with penalties and interest thereon as required by section 153 of the Act.
[2] The Appellant, in his appeal to this court, filed a notice of appeal, and at the outset of his evidence he adopted his notice of appeal as evidence in support of his claim. Therein he stated:
“At the relevant times I was a partner of a business carried on in Ontario known as 'Fax-it'. The business provided certain information retrieval services to its clients by tele-facsimile response.
As demand for our services grew, the founding partners were not able to provide all services alone. At the same time, our capitalization was limited, and we did not have the resources to hire full time employees to service our growing client demand. In order to address this demand the business entered into independent contractor relationships with various parties ('free-lancers') who would provide services directly to our clients and thus divert some of our volume.
The free-lancers were independent contractors who did not work full time for Fax-it and who had other businesses. They worked independently of the taxpayer and were not under direct supervision.
The Department of Revenue has assessed the appellant on the basis that these free lancers were employees and has charged me with CPP, UPI, Taxes, penalties and interest.
The appellant submits that the assessment is not valid in law or in fact. The free lancers were not under a contract of service to the Appellant within the meaning of the Canada Pension Plan Act or the Unemployment Insurance Act. Rather, they were independent contractors engaged to provide services to the Appellant's customers."
[3] The Appellant also in his evidence reviewed the Respondent's reply, and in particular he addressed the issue of the assumptions. The first assumption of the Respondent was found in paragraph 3 of the Reply:
a) the Appellant was, at all material times, a director of the Corporation;
The Appellant accepted that assumption. The next series of assumptions he did not accept:
(b) at all material times, there were two employees of the Corporation; source deductions on account of, inter alia, federal income tax were taken from remuneration paid to these employees by the Corporation;
The Appellant's response to this assumption was that no deductions were made for income tax. Deductions were made only at the request of the employees or the workers and were held on account of the workers.
c) the Corporation failed to remit to the Receiver General federal income tax withheld from the wages paid to its employees;
Once again, the Appellant said he disagreed with that because he said that there was no federal income tax withheld and because of the relationship between the Fax-it Corporation and the individuals, there was no requirement to do so.
d) the Corporation failed to pay penalties and interest relating to the unremitted federal tax;
He said that he disagreed with that because he believed it was not applicable.
e) on August 11, 1994, a certificate for the amount of the Corporation's liability for Federal income tax, penalties and interest was registered in the Federal Court of Canada under subsection 223(2) of the Income Tax Act, R.S.C. 1985, c.1 (5th Supp.), as amended, and execution for such amount has been returned wholly unsatisfied;
He agreed with that assumption.
f) 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.
He said because the Corporation was not required to withhold, he did not believe that that defence was even necessary and it was not applicable to his case.
Issues
[4] The first issue is whether the individuals to whom the Corporation paid remuneration were employees of the Corporation or independent contractors. The second issue is whether the Appellant is liable under subsection 227.1(1) for the failure by the Corporation to remit to the Receiver General an amount of federal income tax, with penalties and interest thereon, as required by section 153 of the Act.
Evidence
[5] The Appellant's evidence and submissions were quite focussed and related solely to the question of whether the workers were employees of the Corporation or independent contractors, and with that focus I will now review the evidence.
[6] The Appellant called as his first witness Mary Elliott, and she stated she worked for the Fax-it Corporation as an office manager and general worker commencing in 1989. She had no experience beforehand and was simply hired, and she worked at the premises of the Fax-it Corporation eight hours per day with some overtime hours. She reported to and received direction from the Appellant, Aaron Braun, in his capacity as the person in charge of the Corporation. She had no signing authority. The work involved, amongst other things, searches for lawyers, photocopying, running the office, and generally doing searches on behalf of the Corporation. The Corporation supplied all the equipment, including a computer, fax machines and adding machine. On occasion she did work at home for the Corporation on her own computer. That involved computerizing customer addresses for use by the witness in her monthly repetitive reports for the Corporation. The Appellant stopped working in 1992 when the Corporation was shut down. She stated she did not receive her T4s, although she asked for them.
[7] The second witness on behalf of the Appellant was the Appellant himself. He stated that Mary Elliott and Craig Beaudro were self-employed individuals. They could and did other work for others on their own; that Ms. Elliott, when she became pregnant, attempted to claim unemployment insurance and, as a result of that effort, tried to change the contractual relationship.
[8] He further stated that the paycheques were issued by one Charlene Whiteduck, who worked apparently for a Corporation associated with the Appellant known as Prompt Couriers.
[9] The Respondent called as the first witness the trust examination officer from Revenue Canada, one Denise Patterson. She stated she contacted Aaron Braun, reviewed the Corporation records and found the source deductions were being withheld in 1990 and 1991 but were not being withheld in 1992. The Respondent also called Craig Beaudro, who worked with the Fax-it Corporation in 1990. He stated his work was directed by the Corporation through Mary Elliott. He also did corporate searches and, as he said, stood in line for the Corporation, paid money for searches on behalf of the Corporation, and ran back and forth on behalf of the Corporation. During his tenure with the company he stated he did not work for anyone else and he was paid approximately the same amount each week and he had no investment whatsoever in the Fax-it Corporation.
Legislation and Jurisprudence
[10] In terms of legislation and jurisprudence, if a Corporation has failed to deduct, withhold, remit or pay as required certain provisions of the Act, directors of the Corporations are jointly and severally liable with the Corporation to pay the amount owed by the Corporation under the Act. Because the liability is joint and several, each director is liable for the full amount of the liability. There are limitations on the liability of directors; however, none of these were pleaded or addressed in this appeal.
[11] Also in terms of jurisprudence and legislation and in terms of how it was dealt with in this appeal, the focus of the Appellant's appeal was that the workers were independent contractors and not employees. It is necessary to analyze and determine if a contract of service or a contract for service exists. In this analysis there are four basic headings. The first is control and supervision. Who has the right to control the worker and the right to direct the worker; did the right exist even though it may not have been exercised; and who had the right to suspend or dismiss the worker? The second heading: profit and loss. The opportunity of profit and risk of loss is based on the notion that in an employer/employee relationship an employee does not generally incur expenses and does not bear any financial risk and has no chance of profit. Third heading, ownership of tools. Generally, if the employer supplies the tools it indicates control over the worker, although there are exceptions. And the fourth heading, organization or integration test -- the analysis to determine the ultimate question whose business is it. It is necessary to look at more than the surface relationship; that is, to look at the intrinsic relationship.
[12] In general, no single test is conclusive. All the evidence must be looked at. All tests must be applied in each case, both to the worker and the one engaging the worker. All this leads to a determination of how the work performed fits in with the combined force of the whole scheme of operations.
[13] I have been referred by Crown counsel to the Wiebe Door citation. Mr. Justice MacGuigan reviewed the various tests applied by the courts in distinguishing an entrepreneur from an employee. In Wiebe Door Services v. Minister of National Revenue, 87 D.T.C., at 5025, in his reasons for judgment, Mr. Justice MacGuigan referred to the comments in Market Investigations v. Minister of Social Security, 1968, 3 All E.R., at 732, at pages 738 and 739, Justice Cooke stated:
...the fundamental test to be applied is this: “Is the person who has engaged himself to perform these services performing them as a person in business on his own account?” If the answer to that question is ‘yes,’ then the contract is a contract for services. If the answer is ‘no’ then the contract is a contract of service.
Analysis
[14] The control and the supervision over Ms. Elliott in the performance of her duties was exercised on behalf of the Corporation by the Appellant, Mr. Braun. The control and supervision of Mr. Beaudro in the performance of his duties was exercised on behalf of the Corporation by Ms. Elliott. I conclude the right to engage or disengage both Mr. Beaudro and Ms. Elliott lay with Mr. Braun on behalf of the Corporation. Ms. Elliott and Mr. Beaudro worked fixed hours over a period of years with no investment in the Corporation and were paid on an eight o'clock to five o'clock day with the possibility of some overtime. Ms. Elliott and Mr. Braun, I conclude, did not have the opportunity of profit or the risk of loss in the performance of their duties. The tools were supplied by the Corporation; however, on occasion, Ms. Elliott used her own computer at her home to facilitate address lists for monthly reports to customers at the workplace.
[15] The analysis to determine whose business is it, I conclude, looking at the totality of the relationship, the work performed by the workers was fully integrated, repetitive and organized as the business of the Corporation. I conclude the workers were employed under a contract of service.
Conclusion
[16] In conclusion, the individuals to whom the Corporation paid remuneration were at all times employees of the Corporation and not independent contractors. The Minister properly assessed the Appellant as a director for the Fax-it Canada Corporation pursuant to sections 227 and 227.1 of the Act for failure by the Corporation to remit to the Receiver General an amount of federal income tax with penalties and interest, as required by section 153 of the Act.
Decision
The appeal is dismissed and costs are awarded to the Respondent.
Edited and signed at Ottawa, Canada,
this 11th day of May 2000
|
"D. Hamlyn" |
J.T.C.C.
COURT FILE NO.: 97-1776(IT)G
STYLE OF CAUSE: AARON BRAUN
and Her Majesty The Queen
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: March 15, 2000
REASONS FOR JUDGMENT BY: The Honourable D. Hamlyn
DATE OF JUDGMENT: March 15, 2000
APPEARANCES:
For the Appellant: The Appellant himself
Counsel for the Respondent: Annette H. Evans
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
97-1776(IT)G
BETWEEN:
AARON BRAUN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
CERTIFICATION OF TRANSCRIPT OF
REASONS FOR JUDGMENT
Let the attached certified transcript of my Reasons for Judgment delivered orally from the Bench at the Tax Court of Canada, Courtroom No.2, Merrill Lynch Canada Tower, 200 King Street West, Toronto, Ontario, on March 15, 2000, be filed.
"D. Hamlyn"
J.T.C.C.
Edited and signed at Ottawa, Canada,this 11th day of May 2000.