Tax Court of Canada Judgments

Date: 20000414

Docket: 98-2047-IT-G; 98-2053-IT-G

BETWEEN:

BRYAN BENN,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Rip, J.T.C.C.

[1] The appellants Bryan Benn and Cheryl Benn have appealed income tax assessments for 1990, 1991 and 1992 on the basis the Minister of National Revenue ("Minister") erred in assessing them on the basis they were employees of Delvee Re-Education Inc. ("Payor"). Mr. Benn has also appealed a similar assessment for 1993. The appellants submit that at all material times they were self-employed independent contractors performing services as persons engaged in business on their own account. The income they received from the Payor was business income to them pursuant to their status as independent contractors.

[2] The appeals were heard on common evidence. Mr. Bryan Benn acted for himself. The appellants agreed that the evidence in the appeals of Bryan Benn would apply to the appeals of Mrs. Benn. Mrs. Benn did not testify.

[3] In her Replies to the Notices of Appeal, the respondent, Her Majesty the Queen, set out facts the Minister relied on in making the assessments. I reviewed these assumptions with Mr. Benn. While he disputed other assumptions of fact, Mr. Benn agreed the following assumptions, some of which he commented on,[1] were correct:

(a) In the taxation years 1990, 1991, 1992 and 1993 (the "Relevant Period"), Delvee Re-Education Inc. (the "Payor") operated a treatment program for learning disabled or developmentally delayed young people (the "clients") with severe behavioral or emotional disorders;

(b) At all material times, the Payor's sole shareholder was Delores V. Williams Morgan;

(c) The Payor operated three residences, on located in Charesholm, one located in Calgary, and one located in Granum, Alberta;

(d) The Payor had approximately 22 clients at the different facilities referred to in paragraph (c) herein, five clients at Granum, five stayed at Calgary, eleven at Claresholm and one stayed with a worker called Alan Williams;

(e) During the Relevant Period the appellant was engaged to help the clients in all activities to daily life including the following tasks: cook and feed clients, dispense medicine to clients, transport clients, perform house and yard work, and to plan recreational activities for the clients. Mr. Benn also testified that in addition to these activities he also performed management and administrative duties;

(f) The appellant received the following amounts from the Payor:

1990 taxation year $37,100.00

1991 taxation year $42,842.00

1992 taxation year $54,078.00

1993 taxation year $ 9,157.00 [2]

Mr. Benn stated that the amounts in 1991, 1992 and 1993 include Goods and Services Tax he charged to the Payor as well as amounts the Payor reimbursed him for out-of-pock expenses;

(g) The appellant was reimbursed by the Payor for any expenses incurred in the performance of his duties;

Mr. Benn explained that he was reimbursed expenses with respect to program activities or for the needs of the client; he was also reimbursed for fuel expenses for long trips.

[4] The Minister also assessed Mr. Benn for filing his income tax returns late. Mr. Benn admitted that he filed his tax returns for the 1987 and 1988 taxation years on June 27, 1989 and his 1989 income tax return was filed on February 19, 1992. Mr. Benn was served with a demand to file his 1990 tax return, pursuant to subsection 150(2) of the Income Tax Act ("Act"). He filed his 1990 tax return on February 19, 1992. He filed his 1991 tax return on November 27, 1992, his 1992 tax return on October 20, 1993 and his 1993 tax return on July 15, 1994. Mr. Benn did not lead any evidence that there were mitigating factors that prevented him from filing the returns on time nor did he cross-examine Mrs. Sandra Little, the appeals officer of Revenue Canada at the time, who confirmed the assessments. She testified as to the dates the returns were filed and the reasons the penalties were assessed.

[5] Ms. Deloris Morgan is president of the Payor. She is the mother of Mrs. Benn and the mother-in-law of Mr. Benn. She describes herself as a retired psychologist. She indicated she received a Masters degree at Wright State University in Ohio but she said that while she completed all the required work and exams as well as the internship and training in clinical psychology, she had not completed her dissertation.

[6] Mr. Benn stated that the Payor was engaged in the business of caring for and training "mainly autistic adults" [3] that existing programs could not or would not wish to deal with. The Payor operated on a ranch in Alberta which was located about 80 miles south of Calgary and also had a restaurant in the Calgary area at which it's clients worked. The Payor attempted to teach basic life skills and vocational type of activities to the individuals.

[7] The Payor was funded by the government of Alberta. The Payor entered into a contract with the government and the parent of each individual, called a "client". The government determined the conditions under which the program would be carried out. Mr. Benn stated that there was a ratio of three or four clients to each worker.

[8] The workers (or contractors) were people engaged by the Payor to work with the clients. Mr. Benn explained the worker's job was to ensure that all conditions of the contract with the parents and the Alberta government were satisfied. Originally workers were attracted to the Payor by word of mouth. Later on, the Payor advertised for help. A worker was not assigned a particular client on a permanent basis. At the beginning of each day the various workers determined who would work with a client. If a worker wanted to take the client off the Payor's site, the manager on duty was to be informed. If a worker was unable to work on a particular day he or she obtained the services of another worker. At first, the replacement worker was paid at his or her rate of pay by the person replaced. The paying worker would keep the difference between the rate of pay he received from the Payor and what he paid the replacement. Later on the method of pay was changed so that the replacement worker billed the Payor and not the worker he or she replaced.

[9] Mr. Benn stated that when he and Mrs. Benn were first engaged by the Payor, Ms. Morgan advised them that they were independent contractors and were responsible for their own expenses. He explained that it was important that each of the workers be independent contractors because Ms. Morgan did not want to tie people down to any one client and wanted them to "use their own personality to get through to these people". Ms. Morgan confirmed that in her view the workers had to have the freedom to work as they wished with autistic children[4] so as to get the best out of them.

[10] Mr. and Mrs. Benn registered a partnership in Alberta under the name Dalaw Holdings in 1981. They also stated they had a contract with AWW Holdings which acted as a broker for the contractors. It is not clear whether the Payor hired the partnership or the appellants to provide services.

[11] One of Mr. Benn's functions, he stated, was managing and administration. This included setting up schedules for the various workers who worked with the children. Sometimes the workers requested certain days off and it was Mr. Benn's job to set up the schedule to try to accommodate these requests. He said that if he could not fit in a worker for a particular time he would try to negotiate a time for another worker to replace him. Tasks were required to be done on the ranch. A "line contractor" was a worker who worked "hands on", that is, directly with the clients. A line contractor would start work early in the morning or in the afternoon depending on his or her shift. If this worker was unable to work on a scheduled shift, he or she had to obtain another worker to replace him or her.

[12] The tools and equipment were owned by the Payor and were for use by the clients to teach them skills. The clients used the tools, rarely did the contractors. Thus, Mr. Benn explained, he did not use the tools owned by the Payor in the course of his work. The tools he used were "his experience and knowledge".

[13] Apparently, according to Mr. Benn, a management team directed the workers. The management team consisted of managers under contract to the Payor. Decisions were made by a committee of managers. Mr. Benn was answerable to the manager. If there was a therapeutic problem, Ms. Morgan would be responsible. She was the only professional on staff. If there was a question about funding, the worker would approach the person in charge of funding, Mary McNevin. In the case of any dispute, Ms. Morgan was the final arbiter.

[14] Mr. Benn produced the Payor's organizational chart to explain that the various contract managers ran the Payor's operations. In fact, the chart indicates Ms. Morgan controlled the Payor's operations. At the end of the day, all workers and managers were answerable to her.

[15] Mr. Benn explained that because of the nature of the contract he had with the Payor, he had a chance for profit; this depended on how well he could control expenses. With respect to the management of expenses, Mr. Benn explained that if he did not perform management's duties properly, funding would have been withdrawn by the Alberta government. He also acknowledged that if he, himself, was unable to perform the duties, the duties would still be performed by the Payor, either through Ms. Morgan or another person.

[16] The type of expenses claimed by Mr. Benn in the years under appeal included capital cost allowance for his motor vehicle and at-home expenses. He stated he worked at home to prepare schedules for the Payor. He worked at home to be with his family. He was not required to work at home. He also purchased office supplies. Besides working for the Payor, he also started a photography business with his wife.

[17] Mrs. Benn worked primarily from home. She and Mr. Benn had four children at home and, according to Mr. Benn, they wanted her to be at home rather than on the Payor's property. Also, Mr. Benn stated that they would occasionally bring children from the camp to their home if the child needed special attention. Mrs. Benn audited the workers from home by telephone to ensure the required ratio of workers to clients was retained.

[18] According to the facts assumed by the Minister in assessing — there was no contradictory evidence — Mrs. Benn was engaged by the Payor to cook for, and feed, the clients, dispense medicine to the clients, transport clients, perform house and yard work and plan recreational activities for the clients.

[19] Mr. Benn stated that he billed the Payor for his services. No bill was produced in evidence, although Mr. Benn did produce receipts made by the Payor to the various contractors.

[20] Mr. Benn also acknowledged that while he collected tax under Part IX of the Excise Tax Act ("Goods and Services Tax") from the Payor on the basis he was an independent contractor, he did not remit the Goods and Services Tax to Revenue Canada. His reason was: "lack of reorganization on my part".

[21] Mr. Benn suggested that neither Ms. Morgan, the president of the Payor, nor the Payor's directors had management responsibilities. The corporation was run by a group of managers. If a worker were to be disciplined, the manager would decide the discipline, including a possible suspension of the contract with the worker. Other workers would be informed of the decision. Ms. Morgan would be advised as well.

[22] Mr. Clinton Glen Davenport, a former worker for the Payor, also testified. He worked for the Payor for a period of four years ending in February 1993. He was originally hired as "on line staff" and during the summer of 1992 he became a manager.

[23] Mr. Davenport stated that work was assigned to him by the various managers or Ms. Morgan. All daily assignments, he recalled, were discussed with Ms. Morgan. She determined what she wanted done that day. He said that he and the other workers were supervised by the other managers and Ms. Morgan. His recollection was that "she was running the ranch".

[24] If there was a discipline problem Ms. Morgan would telephone the managers to determine any punishment, declared Mr. Davenport.

[25] Mr. Davenport stated that when he started to work for the Payor he was told what his pay would be. He asked for a raise six months later and he received the raise a year after he started work. He was informed how much he would be paid; there was no negotiation. He was also told that if he did not sign the usual contract others signed with the Payor, there would be no job.

[26] According to Mr. Davenport one of the managers was appointed manager for the day. The appointment was on a rotation basis or as assigned by Ms. Morgan.

[27] The managers assigned the workers tasks for the day. Ms. Morgan regularly telephoned the workers or the manager to discuss the worker's tasks. Basically, Mr. Davenport said, the worker was told what to do. "It was not a situation (where) I could pick and choose." If a worker wanted a day off, the worker was required to inform management that a replacement worker would take that worker's place.

[28] In cross-examination by Mr. Benn, Mr. Davenport stated that he remembered "Ms. Morgan telling us she expected a guy to be suspended for five days". At other times she would suggest various punishments. Ms. Morgan would also telephone the manager for the day advising who should work with which clients.

[29] Eventually the corporation lost its contracts with the Alberta government and was forced to cease carrying on business in 1993.

[30] I do not agree with the appellants that they were independent contractors and that they were engaged by the Payor under contracts of service. Mr. Benn attempted to paint a picture of a Payor without employees, only independent contractors, and that the Payor permitted its business to be carried on by the independent contractors. Not only did the independent contractors carry on the Payor's business but also, according to Mr. Benn's picture, they managed and administered the Payor. I do not buy this!

[31] I have no doubt that Ms. Morgan unilaterally managed and controlled the Payor and all its activities. Ms. Morgan impressed me as a "no-nonsense" individual who owned the Payor and would not delegate authority to anyone to manage the Payor nor would she share any real management functions with anyone. She controlled all aspects of the Payor's activities and all the so-called contractors (workers) and managers were ultimately answerable to her. Ms. Morgan ultimately decided which worker would work with a particular client. She decided any disciplinary measures. Although she may have manipulated managers to believe they may have made the decision, the managers would not have done anything against Ms. Morgan's wishes. This was Mr. Davenport's evidence and I agree with it.

[32] The business in issue was the Payor's business. Neither of the appellants had risk of loss. They had no chance of profit. Their opportunity to earn income was as employees. Mr. Benn seemed to believe that by the nature of his contract his chance for profits depended on how he controlled his expenses. But the Payor reimbursed him for expenses he incurred on behalf of the Payor.

[33] The Payor provided all equipment and tools necessary to carry on its business. The ranch and restaurant were either owned or leased by the Payor.[5] The workers, including the Benns, provided nothing. Mr. Benn's "experience and knowledge" is not a tool. All employees provide experience and a degree of knowledge to do a job; that is the reason a particular person gains employment.

[34] Neither of the appellants could have survived economically independent from the Payor. The Payor's business required workers to perform services in order to carry on its business. The appellants did not engage themselves to perform the services they performed for the Payor as persons in business on their own accounts.

[35] None of the traditional tests, that is, control, ownership of tools, chance of profit or risk of loss, integration, favour the appellants. The "four-in-one" test referred to by MacGuigan J.A.[6] and the combined force of the whole scheme of the Payor's operations favour the respondent's position and assessments. The total relationship of the Payor to each of the appellants was that of employer and employee.[7] The fact that the appellants and the Payor referred to the appellants as independent contractors is irrelevant to my conclusion.[8]

[36] No evidence was presented by Mr. Benn that he is entitled to capital cost allowance for his motor vehicle and expenses incurred with respect to his office at home. There is no evidence that he was ordinarily required to carry out his duties of employment away from the Payor's place of business or in different places or that he was required under his contract of employment to pay travel expenses (paragraph 8(1)(h.1) of the Act) or that his contract of employment required him to incur expenses in the performance of his duties (subparagraph 8(1)(i)(iii)). Any expense incurred for travel between his home and the Payor's place of business is not deductible in computing his income.[9]

[37] Mr. Benn stated that of the amounts paid to him by the Payor in the years under appeal, a portion represented reimbursement to him for out-of-pocket expenses. His income for each year, therefore, should be reduced to the extent that he can prove the amounts so reimbursed. The same applies to Mrs. Benn.

[38] Therefore the appeals will be allowed, but only for the Minister to determine what portion of the amounts the appellants received represented reimbursements for any money expended by them for the benefit of the Payor. The appellants' incomes would be reduced accordingly. The respondent is entitled to costs.

Signed at Ottawa, Canada, this 14th day of April 2000.

"Gerald J. Rip"

J.T.C.C.

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