Date: 20020416
Docket: 2001-1678-IT-I,
2001-1681-IT-I
BETWEEN:
REEVES BRADSHAW,
MICHAEL KRAAG
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor Judgment
Bonner, T.C.J.
[1] The Appellants appeal from assessments of Income Tax for the 1992, 1993 and 1994 taxation years.
[2] The issue is who is taxable on salary payments received by the Appellants from their employer Reeves Bradshaw Consultants Inc. (the "Company"). In each case the Minister of National Revenue assessed tax on the basis that salary payments made by cheque payable to the Appellants were the income of the payee named on the cheque.
[3] The Appellants contend that salary cheques which they received from the Company included payments of spousal salary. They say that, in relation to the spousal salary, they served merely as conduit pipes or trustees and that they could not be properly taxed on money which simply passed through their hands en route to their spouses.
[4] I can readily accept the proposition that a person who receives a payment of salary as trustee or agent of the employee who earned it cannot be taxed on the payment. The question here however is whether the Appellants have established on the balance of probabilities that any part of the salary cheques issued to them constituted spousal salary.
[5] The Company was formed in 1986 to carry on the business of a private investigator. The shareholders of the Company during the relevant period were the Appellant Reeves William Bradshaw who owned 70% of the issued shares and the Appellant Michael Kraag who owned the rest of the shares.
[6] During the period the Appellants and their spouses, Marilyn Bradshaw and Cindy Kraag, were directors and officers of the Company. The Appellants worked full time in carrying on the business of the Company.
[7] The spouses, each of whom had a full-time job working for another employer, are said to have worked for the Company on a part-time basis from offices in their homes. The services rendered were of a clerical nature and involved performing tasks assigned to them by the Appellants. They received phone calls, passed messages to their husbands, edited reports prepared by their husbands for clients of the Company and discussed Company business with their husbands.
[8] The Company paid its employees by cheque issued at the middle and end of each month. No cheques were issued to the Appellants' spouses. The cheques issued to the Appellants are said to have included payments of salary made to their spouses but nothing on the face of the salary cheques issued to the Appellants revealed or even hinted at the existence of the arrangement alleged.
[9] In each case the salary cheques issued to the Appellant were deposited in a joint bank account operated by the Appellant and his spouse. Two reasons were given for the existence of this arrangement, convenience and confidentiality. It was said to be convenient to deposit the salary cheques in family accounts at a branch of the Company's bank located near the Company's office. It was said to be undesirable to reveal the level of salary paid to the Appellants' spouses to the Company's ordinary staff who were engaged in doing similar clerical work. No one explained why the Company's objectives would have been thwarted if both spouses had been named as payee on the cheques.
[10] Employment is a relationship founded on contract. The contract may be written or it may be oral, but even in the case of an oral contract some written trace of essential terms such as salary will usually be present. Here there was nothing.
[11] There was no evidence suggesting that payment of salaries to the Appellants' spouses was ever authorized by corporate resolution or called for by written contract of employment. There was no suggestion that salaries alleged to have been paid to the spouses related in any way to time spent by them in working on Company business. No record was kept of time so spent.
[12] Paul Grossi, a chartered accountant who furnished the Company with financial, accounting and tax advice, maintained that it had been decided at the beginning of each year that annual gross salaries of $30,000 would be paid to Mrs. Kraag and to Mrs. Bradshaw. No written record of the decision was produced. Mr. Grossi said that each of the bi-monthly salary cheques issued to the Appellants included a $1,000 payment intended for the payee's spouse. The Appellants did not attempt to confirm the existence of this arrangement by the production of Company payroll records. Source deductions were not remitted on a current basis due, Mr. Grossi said, to cash constraints. Mr. Grossi also indicated that no payroll journal was kept by the Company.
[13] Evidence was given by both Mrs. Bradshaw and Mrs. Kraag indicating that they considered that part of the salary deposits made in the joint bank accounts represented money which was theirs because it had been earned by them. They both expressed the opinion that they had received $2,000 per month.
[14] I do not find the evidence adduced in support of the supposed salary payment arrangement persuasive. The evidence was vague and seems contrived. The payment of salary is an act of the employer. There is no credible evidence that the Company as employer agreed to pay, decided to pay, or did pay any particular amount to the spouses. The salary cheques, which were made payable to the Appellants alone, constitute a contemporaneous corporate act or record which is inconsistent with the version of events advanced by the Appellants. That written evidence is preferable to the unsupported rationalizations advanced by the Appellants. I might add that it is not possible to reconstruct salary payments previously made to the Appellants by the issuing of T4 slips allocating part of the payments to the spouses.
[15] For the forgoing reasons, the appeals will be dismissed.
Signed at Toronto, Ontario, this 16th day of April 2002.
"Michael J. Bonner"
T.C.J.
COURT FILE NO.: 2001-1678(IT)I
STYLE OF CAUSE: Reeves Bradshaw and H.M.Q.
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: February 20, 2002
REASONS FOR JUDGMENT BY: the Honourable Judge M.J. Bonner
DATE OF JUDGMENT: April 16, 2002
APPEARANCES:
Counsel for the Appellant: John David Buote
Counsel for the Respondent: Meghan Castle
COUNSEL OF RECORD:
For the Appellant:
Name: John David Buote
Firm: John David Buote
Brampton, Ontario
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
COURT FILE NO.: 2001-1681(IT)I
STYLE OF CAUSE: Michael Kraag and H.M.Q.
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: February 20, 2002
REASONS FOR JUDGMENT BY: the Honourable Judge M.J. Bonner
DATE OF JUDGMENT: April 16, 2002
APPEARANCES:
Counsel for the Appellant: John David Buote
Counsel for the Respondent: Meghan Castle
COUNSEL OF RECORD:
For the Appellant:
Name: John David Buote
Firm: John David Buote
Brampton, Ontario
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2001-1678(IT)I
BETWEEN:
REEVES BRADSHAW,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on common evidence with the appeals of Michael Kraag (2001-1681(IT)I) on February 20, 2002, at Toronto, Ontario, by
the Honourable Judge Michael J. Bonner
Appearances
Counsel for the Appellant: John David Buote
Counsel for the Respondent: Meghan Castle
___________________________________________________________________
JUDGMENT
The appeals from the assessments made under the Income Tax Act for the 1992, 1993 and 1994 taxation years are dismissed.
Signed at Toronto, Ontario, this 16th day of April 2002.
|
"Michael J. Bonner" |
T.C.J.
2001-1681(IT)I
BETWEEN:
MICHAEL KRAAG,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on common evidence with the appeals of Reeves Bradshaw (2001-1678(IT)I) on February 20, 2002, at Toronto, Ontario, by
the Honourable Judge Michael J. Bonner
Appearances
Counsel for the Appellant: John David Buote
Counsel for the Respondent: Meghan Castle
___________________________________________________________________
JUDGMENT
The appeals from the assessments made under the Income Tax Act for the 1992, 1993 and 1994 taxation years are dismissed.
Signed at Toronto, Ontario, this 16th day of April 2002.
|
"Michael J. Bonner" |
T.C.J.