Citation: 2008 TCC 620
Date: 20081124
Docket: 2007-656(IT)I
BETWEEN:
GARY K. O'HARA,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
For the Appellant: The Appellant himself
Counsel for the Respondent: Devon Peavoy
REASONS FOR JUDGMENT
(Delivered
orally from the bench
on September 26, 2007, at Halifax, Nova Scotia.)
McArthur J.
[1] These are appeals
from reassessments by the Minister of National Revenue for the Appellant's
taxation years 1999 through 2004 inclusive. The issue is whether the Appellant
was an employee of the Carlow Group of companies. The facts relied on by the
Minister in paragraph 12 of the Reply to the Notice of Appeal are accurate, but
the first six have very little effect in determining the issue in these
appeals. Those facts are:
(a) during the years under appeal, the Appellant was the sole
shareholder of 3022327 Nova Scotia Limited (3022327);
(b) 3022327 operates under the business names “Watchdog
Communications”, “Watchdog Security” and “Auto King Sales”;
(c) 3022327
is involved in the sales and service of computers;
(d) 3022327
had no employees during the years under appeal;
(e) during the years under appeal, 3022327 performed services
for one or more of Pajeck Management Limited, Bromwick Holdings Limited, ADCO
Holdings, Alder Communications Limited or 2034405 Nova Scotia Ltd. (collectively
referred to as the “Carlow Group”);
(f) the Appellant did not have a contract with the Carlow
Group to perform services;
(g) the Appellant's brother, Gerald O'Hara, was the majority
shareholder of the corporations comprising the Carlow Group;
(h) during the years under appeal, the Appellant was paid by
the Carlow Group in the amount of $500 per week;
(i) there
were no deductions taken from the Appellant's pay received from the Carlow
Group;
(j) the Appellant worked 44 weeks in 1999 and 52 weeks in each
of 2000, 2001, 2002, 2003 and 2004;
(k) the Appellant's gross and net incomes were not less than
the amounts described in the income contained in paragraph 11.above;
(l) during the years under appeal, none of the Carlow Group of
Companies deducted or remitted EI premiums, CPP contributions or income tax at
source on behalf of the Appellant; and
(m) during the years under the appeal, the Appellant did not
receive T4 statements or any other statement with respect to earnings,
including pay stubs, from the Carlow Group.
While
I have said that these assumptions are accurate, the Appellant states that
subparagraph (k) is incorrect.
[2] To summarize, the facts
as I find them from the evidence include that from at least 1991 to 1994, the
Appellant was employed as a service manager for Suzuki Motors. In 1994, his
brother Gerald hired him as a sales manager for the Carlow Group at the same annual
salary of approximately $39,000 that he was receiving from Suzuki. I have no
doubt that Gerald was the boss and the business belonged to Gerald. This was
confirmed by three witnesses, two of whom worked for the Carlow Group during
some of the years in question, and one of whom was the Appellant’s son Jordan. The
third witness was a close personal friend of the Appellant with whom the
Appellant shared his working situation from time to time over the years.
[3] Gerald and his
companies and various entities had the control and they owned all the
equipment, including the offices and tools necessary to monitor and maintain
security installations. There was no contradictory evidence to the statement of
the Appellant to the effect that he was paid $500 per week throughout the
period, but for a deviation in 1999.
[4] It remains a
mystery why after receiving pay cheques with stubs setting out a breakdown,
including gross salary, usual deductions and net pay in 1999, thereafter, the
Appellant received simply a cheque of $500 weekly from different Carlow Group entities
with no breakdown and no annual T4s. This leaves me somewhat skeptical, yet
there was no explanation other than that of the Appellant that Gerald appears
to have been mysterious in his business affairs. The Appellant explained that
Gerald was going through financial difficulties and repeatedly promised to
regularize the Appellant's situation, but never did.
[5] In 2000, Carlow Group
and Gerald were vigorously audited by Canada Revenue Agency. The Appellant
called it “raided” because there were approximately 13 members of the audit
team in attendance along with the RCMP. The Carlow Group and Gerald were
charged under criminal legislation I believe, for non-remittance of employee
deductions. The corporation pled guilty and was fined, and the charges against
Gerald were dropped.
[6] At some point in
early 2000, Gerald had serious heart problems. The Appellant remained at the Carlow
Group, despite not receiving T4s and being at a loss to file income tax
returns, which he finally did file in a late manner. He believed the $500
weekly was net of EI premiums, CPP contributions and income tax deductions. Although
with some reservations, I accept his evidence in this regard.
[7] During the most
difficult financial period for the Carlow Group , a major supplier of security
equipment ceased its dealings with the companies, and I presume Carlow Group was
in serious debt. At times, Gerald sent employees home because there was no
equipment to install. To alleviate the problem, the Appellant, through his
company 3022327, purchased products immediately necessary, on a cash basis,
after assuring himself that the Carlow Group would reimburse his company
without delay. Obviously, this is not the usual act of an employee, yet I
accept the Appellant's explanation. Gerald was in a very difficult situation,
with serious financial problems, with the forces of CRA investigating his
companies and his financial maneuvering. Through all this, and not
surprisingly, he had health problems.
[8] The Appellant
was in a managerial position and he felt the responsibility to keep the Carlow Group
operating and the employees working. I do not believe his company’s financial
advances were more than $2,000 at any one time. I accept this as an act of a
responsible employee taking into consideration his brother's dire straits and
the need to keep the employees working, including his son Jordan.
[9] The decision of
the Supreme Court of Canada in 671122
Ontario Ltd. v. Sagaz Industries Canada Inc. places
emphasis on the question and subsequent answer to “whose business was it”. Going
back to subparagraphs 12(a) to (f) in the Reply, the Minister emphasizes that
the Appellant had his own corporation 3022327, operating under the names
Watchdog Communications, Watchdog Security and Auto King Sales. Although the
name Watchdog relates more to the Carlow Group type of activities, the Minister
accepts that 3022327 “is involved in the sales and service of computers".
[10] I accept the
Appellant's evidence that 3022327 did very little work for the Carlow Group and
he referred to the fact that only one invoice was found and filed in evidence, which was to Alder
Communications for three hours of work at $15 per hour. I find the operation of
3022327 was insignificant, when considered to the overall situation. I have no
doubt that considering all the facts, the Appellant was an employee of the
Carlow Group. It is unfortunate that Gerald or his daughter did not testify. Gerald's
daughter worked in a senior managerial position for the Carlow Group, yet I
know of no adverse inference, excepting that Gerald would have been quite
hostile.
[11] I will review
again the criteria set out in Wiebe
Door Services Ltd. v. M.N.R. and Sagaz. Under control, Gerald as owner of the
Carlow Group had final control of the Appellant. The only evidence we had in
this regard was that of the Appellant, supported by two former employees and a
personal friend. They all testified that the Appellant was an employee and not
an independent contractor. Also, overwhelmingly, the tools used by the
Appellant such as office building, supplies and all that was necessary to
install security systems, were owned and controlled by the Carlow Group.
[12] With respect to
profit and loss, the Appellant had a fixed salary and did not share in profits
or losses of the Carlow Group. This is dramatically supported by the fact that during
the intense investigations of the Carlow Group by CRA, the Appellant was not
brought into the investigations, which would have been expected if there was
even a hint that he was something more than an employee. But the Appellant had
no shares in the Carlow Group.
[13] While it is
unusual that no deductions were made for EI premiums , CPP contributions and income
tax, the Carlow Group and Gerald were mysterious and surreptitiously operating
through many names, paying all employees through a variety of bank accounts and
not remitting deductions to the Minister. No wonder they were audited
vigorously. I have no doubt that the Carlow Group was not the Appellant's business
and the indicia referred to earlier heavily supports the Appellant's position
that he was an employee.
[14] Where does that
leave us? Counsel for the Minister fairly concludes that if the Appellant is
found to be an employee, he is entitled to claim tax credits on account of EI
and CPP, pursuant to section 118.7 of the Income Tax Act, which reads in
part:
118.7 For the purpose of computing the tax payable under this Part
by an individual for a taxation year, there may be deducted an amount determined
by formula
A x B,
where
A is the appropriate percentage for
the year; and
B is the total of
(a) the total of all
amounts each of which is an amount payable by the individual as an employee’s
premium for the year under the Employment Insurance Act, not exceeding
the maximum amount of such premiums payable by the individual for the year
under that Act,
(b) the total of all
amounts each of which is an amount payable by the individual for the year as an
employee’s contribution under the Canada Pension Plan or under a
provincial pension plan defined in section 3 of that Act, not exceeding
the maximum amount of such contributions payable by the individual for the year
under the plan, …
The
employee shares responsibility equal with the employer for the amount of the
payment of premiums. Being an employee of the Carlow Group, if the corporation
became liable for the payment of EI premiums and CPP contributions, then the
Appellant is therefore entitled to a credit.
[15] Unfortunately for
the Appellant, there is no corresponding provision in the Income Tax Act.
As stated by Noel J. in Neuhaus v. The Queen in circumstances that could
be compared to the present Appellant:
5 The problem raised by
the applicant is a collection problem. In this regard, section 222 assigns
jurisdiction to the Federal Court in these words:
|
All taxes, interest, penalties, costs and other
amounts payable under this Act are debts due to Her Majesty and
recoverable as such in the Federal Court ...
|
Tous les impôts, intérêts, pénalités,
frais et autres montants payables en vertu de la présente loi sont des dettes
envers Sa Majesté et recouvrables comme telles devant la Cour fédérale [...]
|
6 Insofar as the
applicant claims to have already paid the taxes being claimed from her, she may
assert her rights in the Federal Court when the Minister attempts to recover
the sums he considers payable. …
[16] In conclusion,
the appeal is allowed only to permit the Appellant to claim appropriate tax credits
on account of EI premiums and CPP contributions during the years under appeal. A
determination as to whether amounts on account of income tax having been
withheld at source is not within the jurisdiction of this Court, pursuant to section
222 of the Income Tax Act. No credit for income tax should be applied
against the Appellant's income tax liability for the relevant years.
Signed at Ottawa, Canada,
this 24th day of November, 2008.
“C.H. McArthur”
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