Citation: 2010 TCC 243
Date: 20100504
Dockets: 2009-2877(CPP)
BETWEEN:
SEEISLAM INC. O/P TRUEPATH LOGISTICS,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Boyle J.
[1]
The appellant
corporation has appealed from an assessment of Canada Pension Plan
(“CPP”) contributions in respect of amounts paid by it to Messrs. Mustafa Rahmani‑Kouadri
and Amir Qadeer.
[2]
The appellant was
represented by one of its directors, Messrs. Jutt. Rahmani‑Kouadri and
Qadeer were also directors of the corporation at the relevant times. At some
stage Mr. Jutt’s son also served as director.
[3]
Mr. Jutt testified
on behalf of the appellant. His testimony was clear and well organized. It was
also consistent in cross‑examination, consistent with his earlier
communications with the Canada Revenue Agency (“CRA”), consistent with his
contemporaneous documentation, and largely consistent with the answers written by
Messrs. Rahmani‑Kouadri and Qadeer in their CRA Questionnaires. The
Court accepts Mr. Jutt’s testimony. There was no conflicting testimony
from the respondent’s witness nor was there other material evidence which
conflicted with his testimony.
[4]
The sole question is
whether Messrs. Rahmani‑Kouadri and Qadeer were employees or were
self‑employed truck drivers. Neither of Mr. Rahmani‑Kouadri nor
Mr. Qadeer testified but at this stage neither lives in Windsor. One now lives in western Canada and the other in Quebec.
[5]
Based upon the facts as
set out below, and the reasons set out below, the Court is satisfied that
neither Mr. Rahmani‑Kouadri nor Mr. Qadeer was an employee of the
appellant corporation. They were therefore not in pensionable employment for
CPP purposes and the appeal will be allowed. The Court is satisfied that Messrs. Rahmani‑Kouadri
and Qadeer were not only independent contractors not employees of the business,
but were in fact full and financially equal co‑venturers in the business
with Mr. Jutt. Frankly, given the facts and assumptions set out in the
reply filed by the respondent, I am surprised this proceeded to trial.
[6]
It appears that the
appellant’s problems arose because it issued T4A forms to Messrs. Rahmani‑Kouadri
and Qadeer in respect of their share of the business profits. Mr. Jutt
explained that these were issued in error based upon a misunderstanding of
Canadian filing requirements and because he thought some documentation was
necessary to substantiate their income tax reporting. The business was one of
primarily cross‑border truck transport between Michigan and Ontario. In its reply the respondent expressly agrees that
the T4A forms were filed by mistake.
[7]
Messrs. Jutt and Rahmani‑Kouadri
started to carry on a transport business together under the name Truepath
Logistics. They had the appellant incorporated for this purpose. They were
equal partners throughout. While Mr. Jutt could drive smaller trucks it
was Mr. Rahmani‑Kouadri who had an AZ license. Mr. Jutt was
primarily responsible for administration, regulatory and compliance matters,
and served as primary customer contact and dispatcher. That is, Mr. Jutt
primarily worked in the office while Mr. Rahmani‑Kouadri primarily
drove large trucks. At a later point in the year, Mr. Qadeer joined the business as a driver and third
equal partner. These three operated their business in the corporation as a
partnership in Mr. Jutt’s words. A lawyer might describe the business
structure as a joint venture corporation. Trucks were leased by the appellant
as was office space. Necessary licenses and permits were obtained. A corporate
credit card was arranged and cards were issued bearing the names of each of Messrs. Jutt,
Rahmani‑Kouadri and Qadeer. Each of these three helped finance the
business using their personal credit as the business fortunes declined when
diesel fuel costs spiked. Each of them was on call for work “24/7” as customers
needed and work was available. The business hired two others as employee during
the period. The employees did not provide financing to the business and were
not issued corporate credit cards.
[8]
Mr. Jutt was clear
in cross‑examination that it was their collective intention at the time
that they would not be employees but would be independent contractors and equal
partners. At the outset, each of Messrs. Jutt and Rahmani‑Kouadri were
entitled to one‑half of the net profits of the business. When Mr. Qadeer
joined mid‑year a 50:50 accounting was done for Messrs. Jutt and Rahmani‑Kouadri
and thereafter the three venturers shared net profits in equal thirds. During
the year regular advances were made based upon a percentage of the gross
revenues and these advances were accounted for when net profits were computed
and allocated at the end of the fiscal period. The employees did not
participate at all in profits and were solely paid a percentage of the fee
charged per load driven by them.
[9]
Each of Messrs. Rahmani‑Kouadri,
Qadeer and Jutt bore all of the risk of loss and chance of profit in this
venture. They bore it equally except to the extent that the amounts loaned by
each to the company, when it got into financial difficulty, was different
reflecting their different available credit resources.
[10]
At the end of its
fiscal period, the corporation was virtually flat economically since the net
income was paid out to the three venturers. The income statement for the
relevant period shows a $300 loss on gross revenues of more than $250,000 and
shows almost $100,000 paid out to Messrs. Jutt, Rahmani‑Kouadri and
Qadeer. These amounts are recorded as payable to “Trades and subcontractors”
whereas the amounts paid to the employees are recorded under “Salaries and
wages”.
[11]
All of the shares of
the appellant were registered to Mr. Jutt. He explained this was probably
a mistake. In the circumstances, this is not particularly relevant since the
corporation would never have retained earnings as it distributed 100% to its
three principals.
[12]
In addition to the
evidence summarized above, it should be noted that, amongst the assumptions of
fact set out by the respondent in its reply are that:
(i)
Messrs. Jutt,
Rahmani‑Kouadri and Qadeer controlled the day‑to‑day
operations of the appellant;
(ii)
Messrs. Rahmani‑Kouadri
and Qadeer were responsible for finding loads and estimating costs as well as
their driving responsibilities;
(iii)
Messrs. Rahmani‑Kouadri
and Qadeer were not directly supervised by the appellant; and
(iv)
Messrs. Rahmani‑Kouadri
and Qadeer were not provided with written or oral directions and instructions
on how to complete their work nor were they provided with any training by the
appellant or instructed on the use of tools, equipment or materials in performing
their services.
These assumptions were not contradicted by the
evidence at trial and are in fact consistent with that evidence.
I. Law
[13]
The tests for a
contract of service / employment versus a contract for services / independent
contractor are well settled. The issue of employee versus independent
contractor for purposes of the definitions of pensionable employment and
insurable employment are to be resolved by determining whether the individual
is truly operating a business on his or her own account. This is the question
set out by the British courts in Market Investigations, Ltd. v. Minister of
Social Security, [1968] 3 All E.R. 732 (Q.B.D.), approved by the
Federal Court of Appeal in Wiebe Door Services Ltd. v. M.N.R.,
87 DTC 5025, for purposes of the Canadian definitions of insurable
employment and pensionable employment, and adopted by the Supreme Court of
Canada in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59,
[2001] 2 S.C.R. 983. This question is to be decided having regard to
all of the relevant circumstances and having regard to a number of criteria or
useful guidelines including: 1) the intent of the parties; 2) control over the
work; 3) ownership of tools; 4) chance of profit / risk of loss and 5) what has
been referred to as the business integration, association or entrepreneur
criteria. There is no predetermined way of applying the relevant factors and
their relative importance and their relevance will depend upon the particular
facts and circumstances of each case.
[14]
The decision of the
Federal Court of Appeal in The Royal Winnipeg Ballet v. M.N.R.,
2006 FCA 87, 2006 DTC 6323, highlights the particular
importance of the parties’ intentions and the control criterion in these
determinations. This is consistent with the Federal Court of Appeal’s later
decisions in such cases as National Capital Outaouais Ski Team v. Canada (The
Minister of National Revenue), 2008 FCA 132, Combined
Insurance Company of America v. Canada (The Minister of National Revenue),
2007 FCA 60, and City Water International Inc. v. Canada (The Minister
of National Revenue), 2006 FCA 350. The Reasons of this Court in Vida
Wellness Corporation (Vida Wellness Spa) v. M.N.R., 2006 TCC 534,
also provide a helpful summary of the significance of the Royal Winnipeg Ballet
decision.
II. Analysis
[15]
The principals or co‑venturers
in an incorporated business are generally able to choose how the business
profits are to be distributed. A common choice in owner‑managed
businesses is between salary and dividends. They will also often be free to
choose between an employment contract and independent contractor self‑employed
status given the considerations of intention, control and the risk of profit
and loss.
Truck drivers are commonly employees and are commonly independent contractors.
[16]
The evidence is clear
and uncontradicted that it was intended from the outset that Messrs. Rahmani‑Kouadri
and Qadeer would not be employees. There was no regulatory requirement that
prevented such an arrangement. With the exception of the T4A forms which are
agreed by both sides to have been issued in error, the parties’ behaviour
throughout was consistent with this intention.
[17]
The CRA witness did
testify that in 2007 both Messrs. Rahmani‑Kouadri and Qadeer
reported their share of income as “Other employment income” in their tax
returns. This would be consistent with the mistaken T4As. She further testified
that neither claimed any deductions for such things as business use of their
personally owned automobiles. Such an overlooked possible deduction is not
particularly relevant given that most of their expenses were booked in the
corporation.
[18]
Mr. Jutt testified
that he was familiar with Mr. Qadeer’s 2008 tax return. Since
Mr. Qadeer was his first cousin, he had arranged to have a common accountant
prepare it. Mr. Jutt reviewed it and sent it to Mr. Qadeer once
prepared. According to Mr. Jutt’s testimony, Mr. Qadeer did claim
automobile expenses and meal expenses in his 2008 tax return. The CRA’s witness
did not have any information on the 2008 tax return since the appeal only
involved 2007.
[19]
A consideration of the
parties’ intentions points wholly to independent contractor status.
[20]
Mr. Jutt’s
evidence was clear that the principals and co‑venturers together
controlled the business and that he did not control the work of his partners.
The Crown’s assumptions in its reply were consistent with this. Neither the
corporation nor Mr. Jutt on its behalf exercised the degree of control
over Messrs. Rahmani‑Kouadri and Qadeer that an employer would be
expected to have over the work of its employees.
[21]
Messrs. Rahmani‑Kouadri
and Qadeer fully participated in the upside and downside of the trucking
business. As equal economic partners in the business, it can be said that no
one participated anymore than they did. Further, they provided financing to the
corporation which is something quite unusual for employees to do.
[22]
The trucks and other
equipment were all owned by the appellant corporation. Although for whatever
reason they were not issued shares in the corporation, given the equal sharing
of net profits, they were owners of the business and bore their equal share of
the expenses of acquiring, financing, maintaining, insuring and refuelling the
trucks. This is also unusual for employees.
[23]
In summary, each of Messrs. Rahmani‑Kouadri
and Qadeer are business owners who did not choose to be employees. The appeal
is allowed.
Signed at Ottawa, Canada, this 4th day of May 2010.
"Patrick Boyle"
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