Citation: 2007TCC101
Date: 20070216
Dockets: 2005-3792(EI)
2005-3793(CPP)
2005-3801(CPP)
BETWEEN:
6236251 CANADA INC. AND BEVERLY WILLIAMSON,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Porter D.J.
[1] These appeals were
heard on common evidence by consent of all parties.
[2] Beverly Williamson
(“B.W.”) is the sole shareholder officer and director of 6236251 Canada Inc.
(“623”).
[3] B.W. operated her
own business offering bookkeeping payroll services. A former client, one Mark
Henry, (“Henry”) approached her in May 2006, to see if she would provide a
banking service for him, as due to his poor credit rating he was unable to open
a bank account at any bank or credit union. He wished to incorporate a new
business with the trade name, “Digital Documents” for which he had incorporated
a corporation 6225471 Canada Corporation (“622”).
[4] Beverly Williamson
agreed and promptly incorporated 623. The agreement between 623 and 622 was
that 623 would provide banking services to 622 as a Trustee, that all funds
would be deposited in trust for 622 and all disbursements would be advanced on
behalf of 622; that 623 would register the brand name, “Digital Documents” with
the Alberta Registrar of Corporations and the agreement would endure for one
year. Beverly Williamson was to be paid $800 for this service and was so paid.
[5] All these
arrangements were duly put in place. A new bank account was opened by 623,
guaranteed by B.W. and deposits were made over the next three months by Henry.
He was provided with a bank debit card relating to the account, by virtue of
which he could make deposits at an ATM and also make withdrawals up to $500 or
$1,000. Any larger amounts were to be disbursed from the account by way of
cheques, signed by B.W., who kept the cheque book.
[6] 622 duly made
deposits to the account over the next three months and there were a number of
withdrawals and disbursements, including debit card payments and cash
withdrawals from an ATM.
[7] 622 obviously did
not succeed in its business venture and ceased business, by August 31st,
2004, when the closing balance of the bank account was in the negative to the
tune of $2,871.83.
[8] It is common ground
that 622 had a number of employees, some of whom were known to B.W. A number of
cheques were written by B.W. in favour of these employees over the three month
period. These cheques were delivered to Henry. The amounts of the cheques
represented the net pay due to these employees after statutory deductions.
Henry apparently delivered the cheques to his employees. Neither Henry nor 622 nor
623 remitted any of these deductions to the Canada Revenue Agency.
[9] By Notice of
Assessment dated February 28, 2005, 623 was assessed for Canada Pension Plan
contributions in respect of the Appellant in the amount of $2,738.99 for the
2004 taxation year, plus related penalty and interest. Canada Pension Plan
contributions in the amount of $2,738.99 were assessed as the Minister
determined the contributory salary and wages from pensionable employment of the
Appellant with 623 to be $28,834.01. This amount was reduced upon appeal to the
Minister to $2,374.86, but otherwise the assessment was confirmed.
[10] The basis on which
the assessment (and reassessment) was made was that the personal expenses and
funds withdrawn from the bank account of 623 were income in the hands of B.W.,
in the sense of being received by her as an employee of 623, as remuneration.
[11] In actual fact the
evidence revealed and I am absolutely satisfied, that she did not receive one
penny in cash or benefit from this bank account. All monies went directly to or
for the benefit of Henry or his corporation 622. There was no mixing of monies
and no benefit ensued to B.W.
[12] By Notice of
Assessment dated November 25, 2004, 623 was assessed for EI premiums and CPP
contributions in respect of the four employees of 622, plus penalties and
interest. The amounts in question were reduced on appeal to the Minister, but
otherwise the assessment was confirmed on the following basis:
(i) that
the employment of the Workers was insurable/pensionable during the 2004
taxation year as the Workers were employed under contracts of service with
6225471 and were, therefore, employees of 6225471; and
(ii) that
the Appellant was the deemed employer of the Workers and was responsible for
deducting and remitting Employment Insurance premiums as it paid the wages of
the Workers.
[13] In confirming the
assessment the Minister relied upon s. 10(1) of the Insurable Earnings and
Collection of Premium Regulations none under the Employment Insurance Act
(“EI Regulations”) and 8.1(1) of the Canada Pension Plan Regulations (“CPP
Regulations”) which respectively are as follows:
10.(1) Where, in any case not coming
within any other provision of these Regulations, an insured person works
(a) under the general control or direct
supervision of, or is paid by, a person other than the insured person’s actual
employer or
(b) with the concurrence of a person
other than the insured person’s actual employer, on premises or property with
respect to which that other person has any rights or privileges under a
licence, permit or agreement,
that other person shall, for the purposes
of maintaining records, calculating the insurable earnings of the insured
person and paying, deducting and remitting the premiums payable on those
insurable earnings under the Act and these Regulations, be deemed to be the
employer of the insured person in addition to the actual employer.
8.1(1) Every person by whom the
remuneration of an employee for services performed in pensionable employment is
paid either wholly or in part is, for the purpose of calculating the employee’s
contributory salary and wages, maintaining records and filing returns, and
paying, deducting and remitting the contributions payable thereon under the Act
and these Regulations, deemed to be an employer of that employee in addition to
the actual employer of that employee.
[14] It is from these
various assessments, that the Appellants B.W. and 623 have appealed to this
Court.
Conclusion
Appeal by B.W.
[15] With respect to
B.W.’s appeal, her evidence and the evidence of Henry was perfectly clear that
no money or benefit whatsoever flowed to B.W. from the bank account in
question. I am quite confident that B.W. is as honest as the day is long, and I
have no hesitation in accepting her evidence on this point.
[16] K. Storrier, did the
work on behalf of the Minister in deciding the appeal to the Minister. To her
credit she was honest and straight forward enough to say, when she gave
evidence, that she attributed this income to B.W., simply because the account
was opened in the name of 623 and operated and controlled by B.W. Quite clearly
however, none of this was income in the hands of B.W.
[17] Accordingly the
appeal of B.W. is allowed and the assessments in respect of EI premiums and CPP
contributions are vacated.
Appeal by 623
[17] The assessments in
relation to the 623 with respect to EI premiums and CPP contributions relative
to the employees of 622 are somewhat more complicated to deal with.
[18] Clearly the four employees
in question were employed by 622. Nobody is disputing that fact. Rather the
question is whether or not 623 is the “deemed” employer under the respective
Regulations and if so, what amounts it “paid” to the employees.
[19] In order to be
caught by the Regulations, the “employee” has to be paid by someone other than
his/her actual employer. In such case, the person doing the paying is deemed to
be an employer of the employee in addition to the actual employer and therefore
that deemed employer is responsible to deduct and remit premiums and
contributions.
[20] Two cases were cited
before me. The first, a decision of the Federal Court of Appeal, Insurance
Corp. of British Columbia v. Canada (Minister of National Revenue), [2002] F.C.J. No. 380 where Strayer JA. said this :
The purpose of the Regulations and the
statute which authorizes them is in part to facilitate collection of employment
insurance premiums, an activity which is essential to the scheme as it now
exists. The Act clearly authorizes the kind of provision which has been adopted
by the Governor in Council in section 10 of the Regulations. In examining
section 10 one sees that it is to apply inter alia where an employed insured
person is being “paid by a person other than [his or her] actual employer”. In
such case that “other person” must maintain records of employment and
calculate, deduct, and remit the appropriate premiums. The proposition is
simple enough and its purpose clear: premiums are to be deducted at the source
where salary or wages are calculated and administered, and where checks or
pay-packets are issued. The term “paid” ought to be interpreted in context,
and it is not necessary to examine technical sources in order to attribute to
it a meaning that would defeat the clear purpose of the section. It would be
equally possible, if one were to dwell on abstract legal concepts, to hold that
a person can be an “actual employer” only if that person is paying the
“employee” from his or her own resources and not at the expense of another. But
that would also defeat the purpose of the section by precluding its application
to any situation where a third party was actually providing and administering
the wages or salary.
[21] This decision was
followed by Lamarre, TCJ in the case of Union of Saskatchewan
Gaming Employees Local 40005 v. Minister of National Revenue, [2004] T.C.J. No. 608.
[22] I have considered
the one difference in the case at hand from the two cited cases. In each of
these cited cases the employees in question were paid directly by the third
party, the Insurer and the Union respectively. In the case at hand Henry requested cheques
from B.W., to be drawn on the 623 account, and these were delivered to him for
distribution to the employees. It is a fine point but I have had to consider
whether this makes a difference and whether the action of writing the cheques
can be categorized as “paying” the employees.
[23] To be fair B.W.,
said she was not concerned as to what the payments were for. She had no
knowledge whether they were wages for an employee, payments to subcontractor or
reimbursement of expenses. She did know the people in question worked for Henry
and 622. As a bookkeeper and handler of payrolls should she have been on notice
to enquire?
[24] Strayer JA. In the Insurance
Corp case (above) was clearly of the view that the purpose of these
Regulations was to facilitate the collection of EI premiums and CPP
contributions and went so far as to say that premiums (and by analogy CPP
contributions) should be deducted “where salary or wages are calculated and
administered and where cheques or pay packets are issued”. He was
of the view that one should not attribute to the word “paid”, such a narrow
definition that would defeat the clear purpose of the section. I find that by
using such language he has clearly put on notice those persons who, for one
reason or another, whether they be trustees, insurers, unions or others, who
administer funds for payrolls on behalf of other people, that they being the
source of the funds have a legal obligation to deduct and remit these premiums
and contributions and that if they do not they are on the hook personally.
[25] Thus, I am of the
view that B.W., acting on behalf of 623, had such an obligation when writing
cheques made out to specific employees and delivering them to Henry, for
payment of these wages to his employees. She controlled the funds and she had
the obligation to deduct and remit, making the appropriate enquiries if
necessary, to enable her to do this. It is unfortunate for her but that is the
law and she has been caught, burned, by the unscrupulous behaviour of Henry,
who had the primary duty to remit these amounts.
[26] However, I am also
of the view that if she simply handed a cheque for cash to Henry, she was not
paying the employees but simply returning his money to him, albeit a notation
or something on a cheque stub which might have been referred to certain
employees. This was after all Henry’s money and if she gave him the cash or
access to the cash, she was not in my view paying the employees. What
ultimately he did with that cash was a matter between him and his employees
over which she did not have control, and she cannot be said to have paid those
employees in such circumstances. That is a different situation. In the one case
she writes the cheque to the employee and it is a simple matter of delivery of
the cheque to the employee that follows. In the other case she simply provides
the cash to the person who owns it and has no responsibility for what he does
with his money.
[27] There thus remains
the question as to whether the amount of the assessment(s) is correct. I was
assured by counsel for the Minister that all amounts included in the revised
assessment, prepared by Ms. Storrier, namely Exhibit R11, were substantiated by
cheques, cheque stubs or bank statements, copies of which were before me. I
have been able to verify the following amounts marked “approved” and have been
unable to find cheques or stubs for the amounts marked “not approved”:
LYLE KUEFLER
May 21st cheque #901 $1,132.00 approved
May 31st cheque #0001 $1,148.62 approved
July 15th cheque #0006 $1,148.62 approved
June 30th - $1,135.07 no
cheque or not approved
stub
available
- - $1,132.00 "
" " " not approved
- cheque #0016 $1,200.00 made
out to cash not approved
- cheque #0018 $1,400.00 "
" " " not approved
- cheque #0023 $1,445.62 cheque
marked void not approved
TAN QING
May 21st cheque #903 $1,500.00 approved
June 15 cheque #0009 $1,515.91 approved
July 28 cheque #0020 $1,515.91 approved
July 28 cheque #0021 $1,515.91 cash
on Aug 3 approved
May 31st cheque #0002 $1,515.91 marked
void not approved
August 3rd cheque #0026 $1,515.91 no
cheque or sub not approved
with
QT name
cleared
bank
August 3rd cheque #0029 $1,515.91 no
cheque or stub not approved
with
QT name
August 20th cheque #0034 $1,515.91 " " " " not approved
DENISE BATIUK
May 21st cheque #902 $1,000.00 approved
May 31st cheque #0004 $1,500.00 approved
June 15th cheque #0007 $
668.75 approved
July 31st cheque #0024 $1,812.38 approved
July 12th cheque #0014 $1,000.00 made
out to cash not approved
July 15th - $1,500.00 no
cheque or stub not approved
available
August 13th - $
615.99 " " " " not
approved
July 15th cheque #0007 $1,200.00 made
out to cash not approved
- cheque #0018 $1,925.00 made
out to cash not approved
CONRAD GOTZMAN
May 21st cheque #904 $1,800.00 approved
June 15th cheque #0008 $1,825.29 approved
July 12th cheque #0014 $1,825.29 made
out to cash not approved
June 30th cheque #0027 $1,825.29 no
cheque or stub available not approved
no
evidence who cashed
cheque
July 15th - $1,900.00 no
cheque or sub available not approved
- cheque #0016 ? made
out to cash not approved
- cheque #0018 ? made
out to cash not approved
[28] In my view the
Regulations should only apply to B.W. where there is clear evidence that she
wrote cheques in favour of the employees or otherwise delivered or paid the
cash to them for their net amount of pay. Where she simply wrote cheques out to
cash, this does not meet the terms of the Regulations. In other cases where no
cheques or stubs exist it cannot simply be assumed that she wrote cheques in
favour of employees simply from the fact that certain amounts passed from the
bank account to unknown persons. These Regulations are a catchall and B.W. should
not be in the net, so to speak, without clear evidence that she took some
active step that can be classified as paying the employee, in accordance with
the definition of that word as set out by the Federal Court of Appeal in the
case of Insurance Corp. of British Columbia.
[29] I therefore allow
the appeals of 623 in part and vary the assessment so that the amounts shown
above as not approved are deleted and I direct that the matter be returned back
to the Minister for reassessment in accordance with the amounts I have shown
above as being approved, those being the amounts that are substantiated by the
evidence.
Signed at Calgary, Alberta, this 16th day of February 2007.
"Michael H. Porter"
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