Citation: 2009 TCC 339
Date: 20090623
Docket: 2008-2955(CPP)
2008-2956(CPP)
BETWEEN:
6005021 CANADA INC. OP BRAUN & ASSOCIATES,
and DARWIN BRAUN,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Miller J.
[1]
Mr. Braun and his company,
6005021 Canada Inc. (the Company), operating as Braun & Associates,
appeal the Minister’s August 27, 2007 assessments concerning CPP contributions.
The Minister claims the Company failed to remit amounts of $3,663, $3,722 and
$3,821 for the 2004, 2005 and 2006 taxation years in connection with Mr.
Braun’s employment. Mr. Braun objects for two reasons: first, that the Minister
did not comply with the requirement of section 26.1 of the Canada Pension
Plan and therefore had no legislative authority to make the assessments;
second, that Mr. Braun was not an employee of the Company, but was an
independent contractor and not subject to the Canada Pension Plan.
[2]
In his
evidence-in-chief, Mr. Braun told me nothing more than the Company did not
control his time or hours, nor make any source deductions. He was on a pure
commission basis. That was the extent of his evidence.
[3]
In cross-examination,
Mr. Braun expanded on the working arrangement between himself and his Company.
The Company sold a variety of insurance products on behalf of a number of different
insurance providers. The Company would receive commissions for those sales. The
Company would also receive ongoing fees or trailer fees from existing policies,
in accordance with agreements between the Company and the insurance provider.
In the years in question, the Company had offices in Kamloops and Langley, for which the Company paid rent and supplied some
minimal furnishings. Mr. Braun, however, did most of the sales on the road
using his wife’s car. The Company paid him mileage of 41 cents per kilometre
though the rate would have changed over the three-year period in question. It was
clear from the Company’s tax returns that it incurred a number of expenses in
operating its insurance business: salary for Mr. Braun’s wife and children,
advertising and promotion, taxes, offices expenses, training, phone, fax,
vehicle expenses (the reimbursement to Mr. Braun on a per kilometre basis),
travel, etc. The returns also showed sub-contractor fees of $98,000, $90,245
and $62,500 for 2004, 2005 and 2006 respectively. Mr. Braun testified that
these included his commission and maybe others too, though the Canada Revenue
Agency (CRA) officer who testified confirmed that the vast majority was traced
to Mr. Braun.
[4]
Mr. Braun presented a
form entitled “Contract for Hire – Private (Free Agent) Agreement”,
purportedly entered the 31st of July, 2003.
The last page is a schedule of compensation listing the 12 months of 2004,
showing payments to Mr. Braun of $5,000 every month, with one extra payment in
July of $10,000, for a total of $70,000. The entries are uniform in their
style, suggesting they were written at the same time. The trial was the first
time this agreement was shown to CRA or the Department of Justice. At trial,
Mr. Braun also presented 13 “Independent Agent Invoices” corresponding to
the 12 $5,000 payments and the one $10,000 payment just mentioned. It is
interesting to note that the invoice states:
For Services Rendered under a Private Contract for Hire by Darwin
Braun, a “natural person”, without a reasonable expectation of profit.
The invoice also stated:
GST non applicable, as per subsection 240.(1) of Part IX of the
Excise Act.
[5]
In his 2004, 2005 and
2006 income tax returns, Mr. Braun showed commission income of $1 in 2004 and
nothing in 2005 and 2006. There was no schedule of income or expenses.
[6]
The trust examiner from
CRA, Mr. Prygiel, also testified. He received the Company file from the Penticton office. After reviewing the books provided by
Mr. Braun’s accountant, he concluded that because Mr. Braun was conducting
business for the Company, and there was no GST registration for Mr. Braun,
Mr. Braun’s remuneration was employment income. He therefore issued T4s
for the income and assessed the maximum CPP, given the amount of that income.
[7]
As indicated at the
outset, Mr. Braun raises two arguments:
(i) Section 26.1 of the Canada Pension Plan; and
(ii) Independent contractor versus
employee.
Section 26.1 – Canada Pension Plan
[8]
Section 26.1 of the Canada
Pension Plan reads:
26.1 (1) The
Minister of Social Development, an employer, an employee or a person claiming
to be an employer or an employee may request an officer of the Canada Revenue
Agency authorized by the Minister of National Revenue to make a ruling on any
of the following questions:
(a)
whether an employment is pensionable;
(b) how
long an employment lasts, including the dates on which it begins and ends;
(c) what
is the amount of any earnings from pensionable employment;
(d) whether
a contribution is payable;
(e) what
is the amount of a contribution that is payable; and
(f) who
is the employer of a person in pensionable employment.
(2) The Minister of Social Development may
request a ruling at any time, but a request by any other person must be made
before June 30 of the year after the year in respect of which the question
relates.
(3) The authorized officer shall make the
ruling within a reasonable time after receiving the request.
(4) Unless a ruling has been requested with
respect to a person in pensionable employment,
(a) an
amount deducted from the remuneration of the person or paid by an employer as a
contribution for the person is deemed to have been deducted or paid in
accordance with this Act; or
(b) an amount that has not been so deducted
or paid is deemed not to have been required to be deducted or paid in
accordance with this Act.
[9]
Mr. Braun argues that
as the Minister did not follow this procedure, there is no authority to assess
as he did. However, section 27.3 of the Canada Pension Plan reads:
27.3 Nothing
in sections 26.1 to 27.2 restricts the authority of the Minister to make a
decision under this Part on the Minister’s own initiative or to make an
assessment after the date mentioned in subsection 26.1(2).
[10]
I dealt with these
provisions in the case of Zazai Enterprises Inc. v. Canada (Minister of National Revenue – M.N.R.),
and stated as follows:
17 Looking at these provisions as a whole,
the Minister is unrestricted in assessing as he did in this case. To put the
interpretation on subsection 26.1(4) that Mr. Sarmiento seeks, would be to
completely fetter the Minister's authority; indeed, it would render section
27.3 useless (a result that could not have been intended by the legislators),
as it would allow the Minister to assess but with no ability to hold that
non-payment was not in accordance with the Act. Excuse the triple
negative but the result is nothing to assess. I grant that the wording of these
provisions is not a clarion of clarity, but they must be interpreted to make some
sense. And the sense I make of them is that the lack of a ruling request in no
way handcuffs the Minister. This interpretation is supported further by
subsection 26.1(2) of the CPP which allows the Minister of Human
Resources and Development to request a ruling at any time; all to say
the Government can always overcome Mr. Sarmiento's hurdle by simply making the
request. My view of this matter appears to be borne out by the Federal Court of
Appeal's comments in Care Nursing Agency Ltd. cited earlier.
[11]
This view has been
confirmed by the Federal Court of Appeal (for example, see the cases of Care
Nursing Agency Ltd. v. Canada (Minister of National Revenue – M.N.R.) and Drosdovech v. Canada (Minister of National Revenue – M.N.R.).
[12]
The Appellant cannot succeed
on this point.
Employment versus Independent Contractor
[13]
The jurisprudence is
extensive in this area, with some differing views in certain aspects of the
proper test (for example, the role of intention), but there is consensus that
the Supreme Court of Canada’s comments in 671122 Ontario Ltd. v.
Sagaz Industries Canada Inc.
remain the highest authority for explaining the current approach,
particularly paragraph 47 of Major J.’s ruling:
47 Although there is no universal test to
determine whether a person is an employee or an independent contractor, I agree
with MacGuigan J.A. that a persuasive approach to the issue is that taken by
Cooke J. in Market Investigations, supra. 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. In making this determination,
the level of control the employer has over the worker's activities will always
be a factor. However, other factors to consider include whether the worker
provides his or her own equipment, whether the worker hires his or her own
helpers, the degree of financial risk taken by the worker, the degree of
responsibility for investment and management held by the worker, and the
worker's opportunity for profit in the performance of his or her tasks.
[14]
Was Mr. Braun
performing the sale of insurance in business on his own account? No, there is
nothing to suggest it was Mr. Braun’s business and everything to suggest it was
the Company’s business. Mr. Braun argues there was a clear intent that both
parties consider this an independent contractor arrangement. As was clear from
former Chief Justice Bowman’s comments in the case of Lang v. Canada
(Minister of National Revenue – M.N.R.),
the role of intention can vary, notwithstanding the Supreme Court of Canada made no mention of it in Sagaz. It has
never been elevated to the level of significance of the control factor however.
Further, in a situation such as this where the two sides of the agreement are
directed by the same mind (Mr. Braun’s), one must be wary in assigning much
significance to a “mutual” intention. I add to this a concern I have with the
timing of the production of the written “Contract for Hire – Private (Free
Agent) Agreement” and I place little reliance on the parties’ intention.
[15]
Before addressing the
more traditional factors suggested by the Supreme Court of Canada, I note that
even in his own invoices Mr. Braun writes “for services rendered without a
reasonable expectation of profit”. What is to be taken from that other than an
acknowledgment that whatever he was earning he was not intending to earn a
profit from it? Without turning a clock back to revisit the role of the
reasonable expectation of profit, I simply conclude that this is some evidence
that even Mr. Braun did not fully intend that he was in a business.
[16]
With respect to
control, it is always difficult to address in a situation where the worker is
also the controlling mind of the corporate employer. I believe comments from
the Federal Court of Appeal in the case of Groupe Desmarais Pinsonneault
& Avard Inc. v. Canada (Minister of National Revenue – M.N.R.) are helpful in this regard. Noel J. wrote:
5 The question the trial judge should have
asked was whether the company had the power to control the way the workers did
their work, not whether the company actually exercised such control. The fact
that the company did not exercise the control or that the workers did not feel
subject to it in doing their work did not have the effect of removing, reducing
or limiting the power the company had to intervene through its board of
directors.
[17]
In the case before me,
the control factor cannot be determinative, in deciding whose business is
operating. Too many other factors point conclusively to it being the Company’s
business. The Company had the contracts with the insurance companies. It was
the Company that was paid by them. The Company rented the premises and owned
the office equipment.
[18]
With respect to risk of
loss and chance of profit, the form of Mr. Braun’s remuneration is very
telling. He received regular monthly identical payments, with no year-end
adjustment to reflect a true sales commission basis of remuneration. I heard
no evidence of his risk. If he was on commission (I am not convinced), this
method of remuneration is not in and of itself sufficient to support a finding
that he could increase profit as an independent contractor. He certainly
provided no evidence of increasing profit by reducing expenses, as he gave no
evidence of any expenses other than expenses incurred by the Company. I simply
cannot conclude he was in business on his own account: he was a salesman for
the Company, and, as an employee, subject to the Canada Pension Plan.
The appeals are dismissed.
Signed at Vancouver, British Columbia, this 23rd day of June, 2009.
“Campbell J. Miller”
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