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Citation: 2012 TCC 15
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Date: 20120313
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Docket: 2009-2782(CPP)
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BETWEEN:
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ANMAR MANAGEMENT INC.,
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Appellant,
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and
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THE MINISTER OF NATIONAL REVENUE,
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Respondent,
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and
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TONY PARROTTINO,
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Intervener.
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AMENDED REASONS FOR JUDGMENT
(Edited from the transcript of Reasons for Judgment
delivered orally from the Bench on February 25, 2010
at Calgary, Alberta)
Campbell J.
[1]
Let the record show
that I’m delivering oral reasons in the matter of AnMar Management Inc., which
I heard on Tuesday. This is an appeal under the Canada Pension Plan. I’m
going to reference it as “CPP” throughout my reasons.
[2]
In respect to the
Appellant’s 2006 and 2007 taxation years, the Minister determined that Tony
Parrottino, referred to as the “worker” throughout, was employed by the
Appellant under a contract of service, and consequently assessed the Appellant
for CPP contributions in respect of the worker for both of these taxation years.
[3]
The Appellant is in the
business of management consulting. The worker stated that the Appellant
corporation signed all of the business contracts with the third parties and that
those clients belonged to the Appellant. The worker was the sole shareholder,
director and also president of the Appellant. The
Appellant’s business premises are located in the worker’s residence, although
the majority of the services are performed at the client’s premises.
[4]
The worker testified
that he incorporated because many of his clients will deal only with a
corporation. The worker has performed services solely for the Appellant since
its incorporation.
[5]
The worker’s earnings
were based on the year-end net profits of the Appellant. Based on accounting
advice, the worker testified that he took net profits as a shareholder to
lessen his tax burden. He did not invoice the Appellant but took draws as
needed throughout the year. He worked whatever hours were required to complete
the Appellant’s contracts based on the clients’ needs. The worker’s tasks
included delivery of services, acquiring contracts, administration, marketing
and bookkeeping. Although he did not keep a record of his
hours worked, a ledger was maintained that recorded hours worked and the rate
to be charged in respect to clients’ invoices. Otherwise, he stated, there was
no value in recording this information.
[6]
The worker never
replaced himself as he stated there would be no one else that could do his job.
He was the “face” of the Appellant’s business and stated that AnMar would not
exist without him and his expertise.
[7]
The worker supplied the
necessary tools and equipment to complete the services, including the office
space and equipment plus a vehicle. The Appellant paid all of the operating
expenses, including the proportionate amount for office and vehicle expenses
and reimbursed the worker when he incurred business expenses personally.
[8]
The Minister believes
that the worker was not in business for himself when performing services for
the Appellant. The Appellant’s position is that the worker is not an employee
of the corporation, but an independent contractor and, therefore, not
responsible to pay CPP contributions.
[9]
In 2005, being the
Appellant’s first year of business, the Canada Revenue Agency (the “CRA”)
completed an audit and required that the worker receive a T-4 and submit CPP
contributions. The Appellant provided a T-4 in 2005 based on the CRA’s recommendation
but did not do so in 2006 and 2007. However, according to the worker and Ms.
Duncan, the accountant, the Appellant paid its CPP and taxes on time for 2006
and 2007.
[10]
In addition to the assessment
for CPP contributions, penalties were also levied pursuant to paragraph 21(7)
of the Canada Pension Plan (which charges ten percent of the amount that
a tax payer is liable to remit) as well as penalties pursuant to subsection 162(7)
of the Income Tax Act. The Appellant submits that these penalties, which
amount to approximately $5,800, are excessive.
[11]
The issue in this
Appeal is whether the worker was employed with the Appellant under a contract
of service or, in other words, as an employee or under a contract for services
as an independent contractor. A decision on this issue will determine whether
the employment was insurable and, consequently, whether CPP contributions as
assessed by the Minister are owing.
[12]
The tests or factors to
be referenced in deciding whether an individual is an employee or not were set
forth in Wiebe Door Services Ltd. v M.N.R. (1986), 87 D.T.C. 5025 (F.C.A.). The Supreme Court of Canada in 671122 Ontario Ltd. v Sagaz
Industries Canada Inc., 2001 SCC 59, [2001] S.C.J. No. 61, at paragraphs 46 and 47, discussed the Wiebe
Door factors and stated that 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.
[13]
The Respondent referred
me to several cases, which held that a sole shareholder/director of a
corporation was an employee and not an independent contractor. In Meredith v
The Queen, 2002 FCA 258, the Federal Court of Appeal reviewed the Wiebe
Door factors and discussed the corporate concept of “piercing the corporate
veil”. The Court stated that a court cannot pierce the corporate veil to “recharacterize
the bona fide relationships on the basis of what it deems to be the
economic realities underlying those relationships.”
[14]
The Respondent also
referred me to several cases, including Desmarais v Minister of National
Revenue, 2006 TCC 329, MacMillan Properties Inc. v Minister of National
Revenue, 2005 TCC 654, and Pro‑Style Stucco & Plastering Ltd.
v The Queen (M.N.R.), 2004 TCC 32. In all of these cases, the Court held
that the sole shareholder/director was an employee of the corporation. However,
Respondent Counsel did not refer me to any other cases, which supported the
opposite view that a sole shareholder/director of a corporation may also be an
independent contractor. I would have expected counsel to do so if, in fact,
such case law existed and it surely does.
[15]
Justice Miller in Kewcorp
Financial Inc. v The Queen, 2008 TCC 598, Associate Chief Justice Bowman
(as he was then) in Zupet v The Queen (M.N.R.), 2005 TCC 89, and Justice
Sheridan in 765750 Alberta Ltd. v. The Queen (M.N.R.), 2007 TCC 149, to
name a few, all concluded that the taxpayers there were independent contractors
even though they were sole shareholders/directors.
[16]
There was no written
agreement or contract between the Appellant and the worker respecting their
relationship but one thing is clear. The worker intended his relationship with
AnMar to be that of an independent contractor. I
believe his evidence established that he was sufficiently sophisticated
generally in business to appreciate the difference between an employee and an
independent contractor status.
[17]
Intention, as a factor,
was not mentioned by the Respondent, but in addition to the Wiebe Door
factors, it has gained importance in jurisprudence in the last number of years.
[18]
The whole concept of
the shareholder/director of a corporation, which he or she owns and controls, also
being an employee is a difficult, although not impossible, reality that may
exist. The question is: Who is controlling things in those circumstances?
[19]
Justice Bowman in the
case of Zupet, which I referenced above, put it succinctly at paragraphs
11 and 12 where he stated, and I quote from that case:
[11] I should think that even lawyers who
are accustomed to juggling in their heads a variety of inconsistent legal
fictions that bear no resemblance to reality might have some philosophical
difficulty with the idea that an artificial person of which the only mind is
the mind of an individual that owns it exercises a degree of control over that
individual sufficient to establish a master-servant relationship.
[12] Yet that is exactly what the
Courts have done.
[20]
Justice Bowman again,
at paragraph 13 of Zupet, went on to point out the inherent difficulties
with this concept, and I quote:
[13] … This is an accepted fact of commercial reality (or, if
you will, commercial unreality). One can sell to one’s company, buy from one’s
company, and lease to or from one’s company. And one can be an employee of
one’s own company. I understand it to be generally accepted that a meeting of
the minds is an essential ingredient in a contract. One might wonder how there
can be a meeting of the minds when we have only one mind - in essence, an
identity or fusion of minds. This seems, however, to bother no one.”
[21]
So in the final analysis,
what do we have in this appeal? The starting place is the existence, or not,
of a written or oral agreement between the parties. There is no written
agreement in this appeal although that, on its own, may not be determinative of
the relationship. From here, there are a number of questions which must be
addressed. Again, Justice Bowman in Zupet, at paragraph 17, stated that
the other questions to be answered are: Whether the stated legal relationships
are genuine and binding and not a sham. Secondly, what in fact did the parties
do? With what type of relationship is their behaviour more consistent? Thirdly
and finally, what type of relationships did the parties intend? All of these questions
merge and overlap and must, in the majority of cases, be considered and
answered together against the backdrop of all of the facts of the case. In most
cases, it is important to step back and look at the “big picture”.
[22]
Since there is no
suggestion of sham here, the issue involved the nature of the contract,
although not written, between the parties, the Appellant, AnMar Management and
the worker.
[23]
I conclude that the
contract was a contract for services or that of an independent contractor to
the corporation. The worker supplied all the tools, the office space, the
office equipment and the vehicle. The worker also had a chance of profit and
risk of loss. The worker’s income was directly dependent upon profit or loss,
as the case may be, of the corporation. In fact, the worker generated the
profit/loss of the corporation by obtaining and completing third-party
contracts. I do not believe the remuneration is ascertainable here. Yes, the
formula was that the worker received the net profits of the corporation, but
the worker was free to contract on his own in the absence of a written contract
and the corporation would, in that year, potentially have no profit or loss.
[24]
In respect to control,
the worker determined his own hours of work. The only reason he
maintained a ledger of hours and rates was for invoicing clients but, otherwise,
he stated that there was no value in these recordings. He established his own
schedule based on clients’ needs. He did not receive wages and instead received
draws. Although he did not work for others besides the corporation, there was
nothing in the facts to indicate that he could not have done so if he chose.
[25]
The application of the Wiebe
Door test points more in the direction of a contract for services,
although, admittedly, there is overlapping here. It is not a clear-cut case. The
importance of intent in this case cannot be overstated and I refer here to the
cases of Poulin v The Queen, 2010 TCC 313, and Wolf v The
Queen, [2000] T.C.J. No. 696. Clearly, according to the worker’s evidence,
he intended to be an independent contractor from the outset, both from his
personal perspective and also from the perspective of his position as
controlling mind of AnMar Management. His testimony is
corroborated by Ms. Duncan and by the conduct of the parties.
[26]
The Respondent also
argued that according to the definitions of “employee”, “employment” and “office”,
contained in subsection 2(1) of the Plan, the worker is within those
definitions because he is an officer of AnMar and the term “employee” includes
an “officer”. Since I have determined that the worker is not an employee, these
definitions do not apply. He is an officer but I have determined he is not an
employee and because he is not performing services under an express or implied contract
of service, he is not within the definition of “employment”. The definition of “office”
references all of those positions entitling individuals to a “fixed or
ascertainable remuneration” but I have determined otherwise based on the facts
of this appeal. The definition ends by stating, “…and “officer”
means a person holding such an office” or, in other words, such an office that
entitles him to fixed or ascertainable remuneration.
[27]
For these reasons, the
appeal is allowed and the decision of the Minister that the worker was employed
in pensionable employment is vacated.
Signed at Ottawa, Ontario, this 13th day of March 2012.
“Diane Campbell”
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