Date: 20121116
Dockets: A-219-11
A-331-11
Citation: 2012 FCA 295
CORAM: NOËL
J.A.
TRUDEL
J.A.
WEBB
J.A.
Docket: A-219-11
BETWEEN:
PLURI VOX MEDIA CORP.
Appellant
and
HER MAJESTY THE QUEEN
Respondent
Docket: A-331-11
BETWEEN:
PLURI VOX MEDIA CORP.
Appellant
and
MINISTER OF NATIONAL REVENUE
Respondent
REASONS FOR JUDGMENT
WEBB J.A.
[1]
These
are appeals from two decisions of the Tax Court of Canada (2011 TCC 237)
rendered by Rip C.J. (the Tax Court judge) based on a common set of reasons.
[2]
The
appeals were consolidated by order of this Court dated October 7, 2012, the
appeal in Court file A-219-11 being designated as the lead appeal. In
conformity with that order the reasons which follow will be filed in Court file
A-219-11 and a copy thereof will be filed as reasons for judgment in Court file
A-331-11.
[3]
The
issue in theses appeals is whether the Tax Court judge made a reviewable error
in holding that Martin Reesink was an employee and not an independent
contractor in 2008 in relation to the services that he was providing to Pluri
Vox Media Corp. (the “Appellant”) and for which he was paid approximately
$3,000 to $8,000 per month. Martin Reesink was the sole shareholder of the
Appellant. The Tax Court judge held that Martin Reesink was an employee in
providing these services and the Appellant has appealed that decision. Martin
Reesink is a lawyer and he represented the Appellant during the hearing before
the Tax Court and before us.
[4]
One
of the issues raised in the Notice of Appeal is whether the Tax Court judge
could amend his reasons for judgment. In his reasons the Tax Court judge stated
that Martin Reesink was a de jure director but his reasons were
subsequently amended to state that he was a de facto director. At the hearing
of the appeal, Martin Reesink indicated that he was no longer pursuing this
issue.
[5]
The
main position of the Appellant during the hearing before us was simply that
Martin Reesink was an independent contractor because this was the intention of
the Appellant and Martin Reesink. This is different from the main argument that
was presented by the Appellant before the Tax Court as identified by the Tax
Court judge in paragraph 24 of his reasons:
24 To put the situation in
blunt terms, Mr. Reesink's main argument that he is not an employee is that nobody
at Pluri Vox directs his functions in the company…
[6]
The
Tax Court judge does not address the issue of the stated intention of the
Appellant and Martin Reesink that his services would be provided as an
independent contractor. However the Tax Court judge did note in his reasons
that Martin Reesink was registered for the purposes of the Excise Tax Act.
It is also clear from the Tax Court hearing (and not disputed by the Appellant)
that Martin Reesink did not report any GST in relation to the amounts that he
was paid by the Appellant for the services that he rendered. Had he been an
independent contractor then GST would have been payable by the Appellant in
relation to these amounts. In contrast, if his services were provided as an
employee, no GST would have been payable by the Appellant. Given that the GST
treatment is inconsistent with the alleged common intent that Martin Reesink’s
services were to be provided as an independent contractor, I would give no
weight to this argument.
[7]
While
the Appellant also submitted that there were various findings of fact made by
the Tax Court judge that were palpably wrong, the Appellant has failed to
demonstrate any such error.
[8]
There
are, however, some issues that arise from the hearing that should be addressed.
Although the Tax Court judge does not say so explicitly in his reasons, his
remarks during the hearing suggest that in his view Martin Reesink could not be
both a director of the Appellant and an independent contractor providing other
services to the Appellant.
[9]
In
Zupet v. The Queen, 2005 TCC 89, Bowman A.C.J. (as he then was) found
that a person, who was the sole director of her company, also provided services
to her company as an independent contractor. Bowman A.C.J., after quoting
extensively from Lord Borth-Y-Gest in Lee v. Lee’s Air Farming Ltd.,
[1961] A.C. 12, made the following comments:
16 If the courts are to use a
willing suspension of disbelief to hold that an individual can enter into a
contract of service with that individual's own company, there is no reason why
the same willing suspension of disbelief cannot allow the court to find that
the same individual can enter into a contract for services with his or her
company. Indeed the portion of Lord Borth-Y-Gest's speech in Lee that I
have italicized recognizes that very possibility.
[10]
I
agree with these comments. It would also seem to me that, while this would be
unusual, an individual could enter into more than one contract with his or her
own company and therefore could provide services in different capacities. It
follows that the simple fact that an individual is a director or an officer of
a company does not, in and of itself, exclude the possibility that other
services may be provided by that individual as an independent contractor. When
that occurs, it will be necessary, for the purposes of the Income Tax Act,
R.S.C. 1985, c. 1 (5th Supp.), as amended, and the Canada Pension Plan,
R.S.C. 1985, c. C-8, to apportion the amounts paid between the services
performed in one capacity and the other.
[11]
Another
matter that can be usefully commented on is how the control factor is to be
applied when, as is the case here, the issue is whether an individual is an
employee or an independent contractor of his or her own company. As noted by
the Supreme Court of Canada in 671122 Ontario Ltd. v. Sagaz Industries
Canada Inc., 2001 SCC 59 (“Sagaz”), in paragraph 47, control is one
of the factors to be considered in making this determination. In assessing this
factor in circumstances where the individual concerned is providing services to
his or her own corporation, it must be remembered that the corporation is a
separate person and the corporate veil is not to be pierced, except in limited
situations. The Respondent submitted in her written argument that the Tax Court
judge had properly applied the decisions of this court in Meredith v. The
Queen, 2002 FCA 258, 2002 D.T.C. 7190 and Groupe Desmarais Pinsonneault
& Avard Inc. v. Canada (MNR), 2002 FCA 144.
[12]
In
Meredith v. The Queen, above, Malone J.A. stated at paragraphs 11, 12
and 15:
11. In my analysis, the
Judge committed several errors in the disposition of this case. First of all,
the Judge “pierced the corporate veil” insofar as he looked beyond the
corporate entity itself to assess the applicant's actions. Examples are
sprinkled [sic] thought the reasons for judgment. For instance, he held
that, notwithstanding the contractual relationship between the third parties
and Stem, that it was “obvious that Roeslein and Ball were hiring [Meredith's]
expertise and not retaining the Company as such in that it had no other
workers.” He also stated that “it is apparent that [Meredith] controls the
Company and uses it for his own benefit from time to time when it is
convenient. The Company does not use him.” Further, he also made reference to
the methods by which Meredith was paid by Stem, as well as arrangements Stem
had with its bank, including personal guarantees provided by Meredith.
12. Lifting the corporate
veil is contrary to long-established principles of corporate law. Absent an
allegation that the corporation constitutes a “sham” or a vehicle for
wrongdoing on the part of putative shareholders, or statutory authorisation to
do so, a court must respect the legal relationships created by a taxpayer (see Salomon
v. Salomon & Co., [1897] A.C. 22; Kosmopoulos v. Constitution
Insurance Co. of Canada, [1987] 1 S.C.R. 2). A court cannot re-characterize
the bona fide relationships on the basis of what it deems to be the economic
realities underlying those relationships (see Continental Bank Leasing Corp.
v. The Queen, [1998] 2 S.C.R. 298; Shell Canada Ltd. v. The Queen,
[1999] 3 S.C.R. 622; Ludco Enterprises Limited v. The Queen, 2001 SCC
62at para. 51). It follows, therefore, that the Judge erred in law by inquiring
into the economic realities of the relationship as between Stem and Meredith,
when he was not authorised by statute or common law to do so.
…
15. The recent decision of
this Court in Groupe Desmarais Pinsonneault & Avard Inc. v. Canada (MNR),
2002 FCA 144 is instructive on the issue of control. There, Noël J.A. writing
for the Court indicated that the question is not whether the corporation did or
did not exercise control, but whether it was in a position to do so. The
importance lies in the corporation's legal power to control the employees, not
whether the employees feel subject to that control. That is the case here,
where Stem has contracted with arms-length third parties. It is Stem, not the
applicant, with whom the third parties contracted for Meredith's expertise, and
it is within Stem's legal power, as a corporation, to control Meredith.
Therefore, given the corporate structure in place, it is irrelevant that
Meredith is the sole shareholder and director. Based on the above authority,
the Judge erred in finding that control lay in the hands of the applicant in
his personal capacity.
[13]
In
relation to the issue of control in this case, the Tax Court judge, in
paragraph 22 of his reasons, stated that:
22 Mr. Reesink was not
engaged by Pluri Vox to perform services as a person in business on his
account. He was not engaged as Pluri Vox's lawyer. The question of who
controlled whom has no answer: could the corporation control Mr. Reesink since
he was its sole shareholder? Obviously not, qua shareholder. But Mr. Reesink's
work at Pluri Vox had nothing to do with being a shareholder. Except where
there is a unanimous shareholders agreement, shareholders do not meddle in the
management of the business and affairs of a corporation. It is Mr. Reesink's
functions other than as a shareholder that are relevant in my view.
[14]
It
seems to me that in reaching the conclusions that the Appellant could not
control Martin Reesink since he was the sole shareholder of the Appellant and
that “[t]he question of who controlled whom has no answer”, the Tax Court judge
in effect pierced the corporate veil. He was also only considering whether the
Appellant actually controlled Martin Reesink not whether the Appellant, as a
separate legal entity, was in a position to control Martin Reesink. As noted in
Groupe Desmarais Pinsonneault & Avard Inc. above, “[t]he importance
lies in the corporation's legal power to control the employees, not whether the
employees feel subject to that control”. However, in my opinion, these
conclusions of the Tax Court judge would not affect the outcome in this case.
[15]
As
noted by the Supreme Court of Canada in Sagaz in paragraph 47:
47 …The central question
is whether the person who has been engaged to perform the services is
performing them as a person in business on his own account.
[16]
In
the present case, the evidence shows that the Appellant retained the services
of an individual by the name of Andrew Baldwin as an independent contractor.
Andrew Baldwin’s status as an independent contractor is not in dispute. The Tax
Court judge found that Martin Reesink was supervising Andrew Baldwin and the
Appellant did not challenge this finding by the Tax Court judge. It follows
that if one accepts the Appellant’s contention that Martin Reesink was acting
as an independent contractor, the result is that one independent contractor
(Andrew Baldwin) was being supervised by another (Martin Reesink) in
circumstances where no contractual relationship existed between the two. The
better view is that Martin Reesink was an employee (and not carrying on his own
business) while supervising Andrew Baldwin.
[17]
As
a result I would dismiss the appeals, with one set of costs in the lead appeal.
“Wyman W. Webb”
“I
agree
Marc
Noël J.A.”
“I
agree
Johanne
Trudel J.A.”
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