Citation: 2008TCC93
Date: 20080208
Docket: 2005-2522(IT)G
BETWEEN:
1166787 ONTARIO LIMITED,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
V.A. Miller, J.
[1] This is an appeal from reassessments of income
tax for the Appellant’s taxation years ended January 31, 1997, January 31,
1998, January 31, 1999, January 31, 2000, January 31, 2001 and January 31,
2002. At all relevant times the Appellant earned and reported income from
services performed for Signature Vacations Inc. (“Signature”) and in particular
its cruise division known as Encore Cruises (“Encore”). The Minister of
National Revenue (“Minister”) reassessed the Appellant on the basis that it was
a personal services business as defined in subsection 125(7) of the Income
Tax Act (“Act”).The definition reads as follows:
"personal services business"
carried on by a corporation in a taxation year means a business of providing
services where
(a) an
individual who performs services on behalf of the corporation (in this definition
and paragraph 18(1)(p) referred to as an "incorporated employee"), or
(b) any person
related to the incorporated employee
is a specified shareholder of the
corporation and the incorporated employee would reasonably be regarded as an
officer or employee of the person or partnership to whom or to which the
services were provided but for the existence of the corporation, unless
(c) the
corporation employs in the business throughout the year more than five
full-time employees, or
(d) the amount
paid or payable to the corporation in the year for the services is received or
receivable by it from a corporation with which it was associated in the year;
[2] It was agreed by both parties at the hearing that
Vanessa Lee (“Lee”) could properly be regarded as the incorporated employee of
the Appellant. It was also agreed that paragraphs (c) and (d) of the definition
were not applicable in this appeal as the Appellant neither employed more than
five full-time employees throughout any of the years under appeal nor was the
Appellant associated with Signature. The only issue to be decided in relation
to the definition is whether Lee would reasonably be regarded as an officer or
employee of Signature but for the existence of the Appellant. If so, the
Appellant’s income would not qualify as active business income and as such the
Appellant would not qualify for the small business deduction under subsection
125(1) and would only be eligible for limited deductions under paragraph
18(1)(p) of the Act.
FACTS
[3] The Appellant was retained by Signature “to
manage, supervise and direct the business and affairs” of Encore which is a
tour operator selling cruise vacation packages in Canada.
In this regard, the Appellant and Signature entered into a Consulting Agreement
(“the 1996 Agreement”) dated December 1, 1996 which terminated on October 31,
2000. The parties entered into a subsequent Agreement on November 1, 2000 (“the
2000 Agreement”). These Agreements governed the relationship between the
Appellant, Lee and Signature for the periods under appeal.
[4] The events that led up to these Agreements are as
follows. Lee had been involved in the travel industry since 1976. Her
involvement consisted of selling tours to travel agents who in turn sold the
tours to consumers. She worked in Canada, Australia and England. In 1981 she learned about the cruise
business when she became employed by Paramount Holidays which was a Canadian
tour operator. Prior to 1991, Lee’s involvement in the travel industry was that
of an employee and not a consultant. In 1991, Lee and her former spouse came up
with the idea for the business which became Encore. They formed a partnership
known as Apex Travel Associates (“Apex”). They developed the business model,
the business plan, and the name for Encore. However, they did not have the
money necessary to start the business. Lee and her former spouse contacted a long-time
colleague at Akard Enterprises Ltd. (“Akard”) who assisted them. Encore became
an unincorporated division of Akard. (Akard was known by the public trading
name of Adventure Tours. Its trading name was later changed to Signature.) Apex
entered into a Consulting Agreement with Akard on May 1, 1991. This Agreement
endured until 1996 and was similar to the 1996 Agreement and 2000 Agreement.
[5] In 1994, Lee and her spouse separated and in 1996
her spouse decided to leave the Apex partnership. On January 31, 1996, Lee had
the Appellant incorporated and it entered into the 1996 Agreement with
Signature. In each of the Agreements, Signature is referred to as “the
Corporation”. The 1996 Agreement provided for the following:
(a) The preamble reads as follows:
WHEREAS the Corporation carries on the
business of marketing and selling cruise vacation packages in an unincorporated
division operating under the name and style Encore Cruises (the “Cruise
Division”);
AND WHEREAS Vanessa Lee (“Lee”) has
extensive experience in the business of cruise wholesaling and tour operating
(the “Cruise Business”) and 1166787 has agreed to provide the services of Lee
to the Corporation in accordance with the terms and conditions hereof;
AND WHEREAS in reliance on such agreement
by 1166787, the Corporation has agreed to retain 1166787 to provide services to
the Corporation: …
(b) The Appellant was engaged by Signature to
manage, supervise and direct the business and affairs of Encore for the period
from December 1, 1996 to October 31, 2000. There was a provision for automatic
renewal of the 1996 Agreement for three years as long as one of the parties to
the Agreement had not given written notice to terminate the Agreement and had
not committed a material breach of the Agreement. The Agreement also provided
that if Lee died, the 1996 Agreement automatically terminated and the Appellant
was not entitled to renew it. As well, the Appellant agreed to enter into a
contract with Lee, imposing duties and obligations substantially similar to
those imposed on the Appellant, and Signature was entitled to the benefit of
such contract. These provisions demonstrate just how integral Lee was to
Signature’s cruise business.
(c) According to the 1996 Agreement, Lee had to
devote substantially all of her time and energy to the performance of the
Appellant’s duties to Encore. The Appellant had to supply information and
reports to Signature as and when requested. The remuneration for the services
was based on an annual base fee which was paid in advance in equal monthly
instalments. There were provisions for annual raises and annual cost of living
increases to the base fee. As well, the Appellant was entitled to receive an
annual bonus which was calculated as a percentage of the net profits of Encore.
Signature paid the Appellant GST on all fees, bonuses and reimbursements of
expenses.
(d) Lee was entitled to receive her base fee
during a period of disability as defined in the 1996 Agreement. There was no
reduction in the Appellant’s bonus if Lee was prevented by illness from
performing her duties. Article 2.3 provided the following:
2.3 Death or Disability:
(1) If, after Lee has been prevented by illness or physical or mental
disability or otherwise from performing her duties to 1166787 for a period of
two (2) consecutive months or periods aggregating four (4) months in any twelve
(12) month period (the “first disability period”), she is then within the 36
months following the commencement of the first disability period, again
prevented by illness or physical or mental disability or otherwise from
performing her duties to 1166787 for a period of two (2) consecutive months or
periods aggregating four (4) months in any twelve (12) month period (the
“second disability period”) the then current base fee pursuant to this Article 2
shall thereafter be retroactively reduced by fifty percent (50%) for the actual
periods in which she was prevented from performing her duties comprised in the
second disability period but there shall be no reduction in participation by
1166787 in net profits pursuant to Section 2.1 hereof, unless there has been a
material breach by 1166787 which has not been waived or cured as provided in
Section 4.3. If, after the second disability period, Lee is prevented by
illness or physical or mental disability or otherwise from performing her
duties to 1166787 for a period of two (2) consecutive months or periods
aggregating a further four (4) months in any subsequent twelve (12) month
period (the “third disability period”), the then current base fee shall be
retroactively reduced to zero for the actual periods in which she was prevented
from performing her duties comprised in the third disability period, but there
shall be no reduction in participation by 1166787 in net profits pursuant to
Section 2.1 hereof. The parties acknowledge and agree that the reduction in
base fee provided for hereunder may result in an obligation on 1166787 to
return funds to the Corporation and, for greater certainty, the parties agree
that any such amounts owing may be withheld from subsequent payments to
1166787, whether for base fee or profit payments.
(e) The Appellant had to prepare an annual budget
with respect to the performance of its obligations under the Agreement. It was
entitled to receive reimbursement for all travelling, entertainment and other
expenses actually and properly incurred on behalf of Encore up to the maximum
amount provided for in the budget and for which receipts were presented.
(f) The Appellant and Signature intended an independent
contractor relationship and there was a provision to that effect in the
Agreement.
(g) Article 6 of the Agreement contained
non-competition covenants. Two of those convenants are as follows:
6.2 Non-Competition: During
the term of this Agreement and (i) for fifteen months following the Trigger
Date in the case of a voluntary termination by 1166787 of its engagement under subsection
4.1 and an election under (ii) of that subsection to cease its duties prior to
the expiry of the one year’s notice period; or (ii) in the case of a Sale
Notice, the period set out in Section 6.5; and (iii) in all other cases for one
year following the Trigger Date, 1166787, Lee and all other employees of
1166787 shall not engage, directly or indirectly, in any line of business that
competes, directly or indirectly, with the business that is carried on by the
Cruise Division during the period up to the termination of this Agreement at
any time during the term of this Agreement, or become engaged or employed by
any person, firm or corporation that competes, directly or indirectly, with the
business carried on by the Cruise Division at any time during the term of this
Agreement within Canada and any other jurisdiction where the Corporation is
carrying on Cruise Division business, except such activities as are
specifically approved in writing in advance by the Corporation, acting
reasonably.
…
6.6 Directorships:
Notwithstanding Sections 6.2 and 6.3 hereof, Lee or other employees of 1166787
may serve as directors of other companies which may compete with the business
of the Cruise Division provided that such Lee or such other employees have
obtained the prior written consent of the Board of Directors of the
Corporation, which consent is not to be unreasonably withheld.
[6] The 2000 Agreement was substantially the same as
the 1996 Agreement except that it stipulated that the Agreement was between
Signature, the Appellant and Lee. As well, it contained a non-delegation clause
whereby the Appellant could not delegate the performance of its duties and
obligations under the 2000 Agreement to anyone except Lee without the prior
written consent of Signature. There was evidence that only Lee performed the
Appellant’s duties and obligations. During the period under appeal the Appellant
had only one employee and that was Lee. There was no longer a provision for an
annual cost of living increase but the Appellant was entitled to receive an
annual increase of $5,000 during the initial term of the 2000 Agreement to a
maximum annual base fee of $210,000. The initial term of the 2000 Agreement was
three years. Subject to the same conditions as were contained in the 1996
Agreement, the 2000 Agreement was automatically renewed for a further three
years. The 2000 Agreement also provided for the following:
(a) Under Article 4, entitled “TERMINATION AND
PAYMENTS FOLLOWING TERMINATION”, one of the material breaches is as follows:
4.1(b)(iii) Termination by the Corporation for
Material Breach:
... For purposes hereof “material breach”
shall be limited to:
(iii) Lee having excessively
absented herself from her duties of employment without leave of the
Corporation, other than by reason of illness or disability, provided that the
Corporation shall give Lee a period of ten (10) days to rectify any such absenteeism;
or
(b) Under Article 9 the parties agreed that the
Appellant was an independent contractor and the Appellant would indemnify
Signature against any and all liabilities arising out of any act on its part or
that of Lee. However, the Appellant did not buy any insurance policies to
protect itself in the event that it was called upon to indemnify Signature.
[7] Lee is the sole officer, director and shareholder
of the Appellant. Lee was the only witness called on behalf of the Appellant.
In direct examination she tried to minimize the time she spent in the office at
Encore, the work performed and her interactions with the employees of Encore
and Signature. When she was questioned by the Respondent’s counsel, Lee was
evasive and at times gave answers contrary to those given at the discovery held
prior to the hearing of this appeal. I accept the evidence read in from the
discovery transcript as representing the true state of affairs. One matter Lee
did not want to admit at the hearing was that in accordance with the 1996
Agreement and the 2000 Agreement, she spent substantially all of her time and
energy in fulfilling the Appellant’s obligations under the Agreements. At the
discovery she had confirmed that she had worked in accordance with the provisions
of the Agreements. When Respondent’s counsel asked Lee about her duties with
Encore, Lee offered no details except that her “responsibilities were to
manage, supervise and direct the Cruise Division and make it successful and
profitable”. In response to questions concerning the disability and the
remuneration provisions, Lee stated that “whatever is in the Agreement is the
fact”. I infer from the fact that the 2000 Agreement could only be amended in
writing, and no amendment to the Agreement was entered in evidence, and the
fact that the Appellant’s revenues increased substantially during the relevant
time, that for the periods under appeal, Signature was satisfied with Lee’s
performance of her duties and that Lee performed the duties in accordance with
the Agreements. The Appellant’s revenues from Signature increased from $21,667
in 1997 to $600,297 in 2002.
[8] Encore represented a number of cruise lines such
as Royal Caribbean, Celebrity Cruises and Cunard Lines in Canada. It was Encore’s responsibility to increase the sales
for these cruise lines by working with retail travel agencies. It assisted with
advertising, marketing and promotion of these cruise lines. Lee negotiated with
the key executives in the cruise lines and the retail travel agencies to
promote the marketing concepts of Encore. She travelled extensively and some
years she spent an average of three to four months travelling. Her evidence was
that she did site inspections on ships and that she, along with some people
from Encore, met with the retailers.
[9] Lee stated that within Encore, she managed,
supervised and directed the course of its day-to-day business. She stated that
there were senior directors that formed a strong management team at Encore. The
management team ran the day-to-day business. She stated that the management
team was composed of four senior directors in the following areas: finance,
sales and marketing, a reservations call center and operations. Lee was the
managing director at Encore and as such it was her responsibility to meet with
the management team and “help direct the business”. It is my opinion that Lee
was also part of the management team of Encore. In fact, she was the Managing
Director of Encore. Lee’s business card identified her as being the “Managing
Director” of Encore with a telephone number, a fax number and an email address
at Signature. There were no other business cards presented into evidence. Lee
also had an email address at Encore Cruises.
[10] Lee, in conjunction with the Chief Financial Officer
(CFO) of Encore, provided an annual budget to Signature for approval. As well,
Lee provided monthly written reports to Signature on the state of the business
of Encore. She also had meetings with the officers of Signature but there was
no set timetable for these meetings.
[11] The Appellant was paid in accordance with the 1996
Agreement and the 2000 Agreement. Lee stated that the Appellant invoiced Encore
monthly in advance for its compensation. In addition to the annual base fee,
the Appellant also received a bonus which was calculated as a percentage of the
net operating profits of Encore. For the year ended October 31, 2000 the
Appellant received the amount of $381,480 as its bonus.
[12] Lee had cheque signing authority on Encore’s bank
account. Each cheque required two signatures. Lee had authority to sign
contracts on behalf of Encore. She had the use of an office at Encore but this
office was also used for meetings when she was away. The Appellant did not have
an office. Lee stated that she had home offices in both her city and country
homes. These offices contained a desktop computer, a printer, fax machine and
telephone. She stated that she used her own car and cell phone in the
performance of her duties.
[13] Some of the answers to the undertakings given on
the discovery of Lee were as follows:
Undertaking:
To provide a description of the business
activities of 1166787 Ontario Limited other than with respect to Encore Cruises
and amounts received in respect of same.
Answer:
Other business activities included
consulting and mentoring with individuals on entrepreneurship and how to start
and manage a business. Ms. Lee, on behalf of 1166787 Ontario Limited made
numerous appearances at trade shows, seminars and conferences in order to promote
the business of 1166787 Ontario Limited and, in particular, advised female
entrepreneurs on how to manage and grow a business. Unfortunately, we do not
have the records which would reflect the amounts received in respect of these
activities.
Undertaking:
To advise of the specific provision in the
December 1996 Consulting Agreement which creates a liability on the part of
1166787 Ontario Limited to Encore.
Answer:
There is no specific provision akin to
Section 9.2 of November 1, 2000 Consulting Agreement; however, the liability in
the December 1996 Agreement is implicit in the setoff contained in Section 4.5
of the Agreement and the other provisions of this Agreement.
Undertaking:
To advise as to any limitations on Ms.
Lee’s cheque signing authority.
Answer:
Ms. Lee cannot sign any cheques on her own
as all cheques require two signatures.
Undertaking:
To provide a breakdown of the promotion
expenses for the 2001 and 2002 taxation years.
Answer:
We are still attempting to get this
information from the accountant and will provide it as soon as it is available.
Undertaking:
To attempt to find out the names of any
employees who previously worked for 1166787 Ontario Limited other than Ms. Lee.
Answer:
Unfortunately, we were not able to find
this information in the Appellant’s records.
No other answers were provided by the Appellant prior
to the hearing of this appeal.
[14] As a result of the answers to the undertakings and
the evidence presented at the hearing, I find that during the periods under
appeal, Lee was the only employee of the Appellant. It hired individuals on a
contract basis to complete its GST returns and its income tax returns. I also
find that during the relevant times, neither the Appellant nor Lee performed
services for remuneration other than those services performed in accordance
with the 1996 Agreement and the 2000 Agreement. I find also that the Appellant
earned all of its revenues from its Agreements with Signature.
[15] There was evidence from the portion of the discovery
transcript that was read into evidence that the Appellant is not a recognized
name in the cruise business. Lee’s name is recognized in Canada as being an expert in the cruise industry. Many
cruise lines have sought to associate with Encore in order to benefit from
Lee’s expertise.
LAW
[16] The definition of “personal services business” in
paragraph 125(7)(b) of the Act poses a hypothetical question in that it
requires one to ignore the existence of a corporation and to examine the work
relationship of the person and the party for whom the services were provided.
In this appeal the hypothetical question is whether Lee would reasonably be
regarded as an officer or employee of Signature but for the existence of the
Appellant.
[17] The test to be used in making a determination
under paragraph 125(7)(b) of the Act was succinctly stated by Sharlow
J.A. in Dynamic Industries Ltd. v. Canada, [2005] 3 C.T.C. 225 (F.C.A.) at paragraph 50 as follows:
This case
requires consideration of Wiebe Door Services Ltd. v. Minister of National
Revenue, [1986] 3 F.C. 553, [1986] 2 C.T.C. 200, 87 D.T.C. 5025 (Fed. C.A.)
and 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., [2001] 2 S.C.R.
983 (S.C.C.), the leading cases in which the central question is whether an
individual is providing services to another person as an employee, or as a
person in business on his or her own account. I refer to this as the "Sagaz
question" (Sagaz, paragraph 47). The factors to be taken into
account in determining the Sagaz question will depend upon the
particular case, but normally they will include the level of control the
employer has over the worker's activities, 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 undertaken by the worker, and the worker's
opportunity for profit in the performance of his or her tasks.
ANALYSIS
[18] In order to perform
the required analysis and to consider the hypothetical question posed by
paragraph 125(7) of the Act, I am mindful of the following comments from
Associate Chief Justice Bowman (as he then was) in Page v. M.N.R., 2004
TCC 211:
[26]
Before dealing with the letter, however, I should preface my
comments with a couple of observations. We are all familiar with the
four-in-one test expressed by MacGuigan, J. in Wiebe Door Services Ltd. v.
M.N.R., [1986] 3 F.C. 553 - ownership of tools, control, chance of profit
and risk of loss.
[27] There is also the "organization" or
"integration test". In the multitude of cases that have come before
this Court and the Federal Court of Appeal, to the extent that the integration
test is comprehensible at all, I have yet to see it applied as a decision or
even a helpful factor. One must also be careful about mechanically applying the
other factors. A skilled senior employee, particularly a professional, may well
be subject to no control by the employer, supply his or her own tools and may
well be paid an incentive that will determine how much money he or she makes.
The existence of these factors will not prevent the person from being an
employee if the overall picture that emerges is that of employment.
…
[37] In deciding cases of this type a trial judge must
endeavour to steer a course between Scylla and Charybdis. The judge must avoid
the slavish and mechanical application of the four elements in the Wiebe
Door test without standing back and looking at the overall picture that
emerges. On the other hand, the judge must look at the relationship as a whole
but nonetheless keep an eye on the elements in the Wiebe Door test. It
is a fine balancing act.
[19] When I consider all
of the evidence that was presented in this appeal, the overall picture that emerges
is one of employment. The payment of an annual base fee, paid monthly in
advance and the payment of a bonus are more indicative of a contract of
employment for an executive than for an independent contractor who has her own
business. If Lee died while the Agreements were still in effect, the Appellant
was still entitled to receive a portion of the net profits of Encore. The
allowance for an annual increase and an annual adjustment for inflation are
exactly the type of incentives that one would pay to an employee.
[20] In the event of the
sale of Signature or of Encore the Appellant could not terminate the Agreements
until after the sale date and then it had to give three months notice of its
intent to terminate. As well if the Appellant did give notice to terminate the
Agreement after the sale date, the Appellant was entitled to receive a lump sum
amount.
[21] The Appellant was entitled to receive its base fee or a percentage
of it during a period that Lee was disabled and could not perform her duties
with the Appellant. Lee paid Signature to be covered under its Health Plan. All
of these provisions are indicative of an employee relationship.
[22] In Alexander v.
M.N.R., 70 DTC 6006, Jackett, P. stated this at page 6011:
... On the one hand, a contract of service is a contract under which
one party, the servant or employee, agrees, for either a period of time or
indefinitely, and either full time or part time, to work for the other party,
the master or the employer. On the other hand, a contract for services is a
contract under which the one party agrees that certain specified work will be
done for the other. A contract of service does not normally envisage the
accomplishment of a specified amount of work but does normally contemplate the
servant putting his personal services at the disposal of the master during some
period of time. A contract for services does normally envisage the
accomplishment of a specified job or task and normally does not require that
the contractor do anything personally.
[23] That Lee had to spend
“substantially all of her time and energy” in the performance of the
Appellant’s obligations under the Agreements; that the Appellant could not
delegate the performance of its duties under the Agreements to anyone but Lee;
that neither the Appellant nor Lee could engage in any line of business that
competed with Encore either during the Agreements or for a period of time after
the termination of the Agreements; and that Lee could not serve as a director
or officer of any corporation that competed with Encore unless Lee had received
the written consent of Signature, clearly indicate a contract of service.
[24] The only evidence
that indicated that the Appellant was in business on its own account was that
it collected GST and invoiced Encore. In fact, there was evidence that the
Appellant was not known in the tourist industry and that people did business
with Encore so that they could benefit from Lee’s expertise. I view this as a
statement that the people in the tourist industry thought of Lee as being
employed by Encore.
[25] When I examine the
evidence with the factors from Wiebe Door Services Ltd. v. Minister of
National Revenue (1986), 87 D.T.C. 5025 (FCA) in mind, I also conclude that
Lee can reasonably be considered to be an employee of Signature.
[26] In the present case, the control factor relates to the
right that Signature had to direct the manner in which Lee performed her duties
as opposed to whether that right was exercised by Signature. See Gagnon v.
The Minister of National Revenue, 2007 FCA 33 at paragraph 7. In
her testimony Lee stated that she decided how, when and what to do in the
performance of her duties. When asked if anyone at Signature told her what to
do, her answer was: “Not essentially, no.” Lee’s response does not address
whether Signature had the right to direct the manner in which she performed her
duties. Interestingly, the 1996 Agreement addresses Signature’s right to
control the manner in which Lee or the Appellant performed the services as
follows:
As an independent contractor, 1166787 shall be solely responsible for
determining the means and methods of performing the Services within the overall
schedule and standards established by the Corporation and subject to the terms
and conditions of this Agreement.
[27] Lee was hired for her
expertise in the travel industry and in particular for her knowledge of the
cruise business. The business plan, the business model and the strategy for the
cruise business were hers. She was hired as the Managing Director of Encore. It
was only because of Lee and her former spouse that Encore was established. All
this considered, one would not expect that Signature would dictate the manner
in which Lee had to perform her duties. Lee was engaged to manage, supervise
and direct the business of Encore for and on behalf of Signature. The
independence Lee had with respect to how she did her work is no different from
the independence that competent professional employees are granted by their
employers.
[28] The Appellant had no
risk of loss in the performance of its duties under the Agreements. Signature
agreed to reimburse the Appellant all expenses incurred in the performance of
its duties and obligations under the Agreements. The Appellant received a
monthly fee paid in advance of Lee performing any duties. Lee had an incentive
to work harder and make Encore successful as the Appellant’s bonus was based on
a percentage of the net profits of Encore. This is not the commercial risk or
chance of profit that a proprietor has for running her own business.
[29] Signature provided
the tools that Lee needed to perform the duties under the Agreements. The only
tool that Lee provided that did not duplicate tools supplied by Signature was a
car. The evidence failed to establish that Lee needed a car to perform the
duties.
[30] The Supreme Court of
Canada in Sagaz made it clear that the factors from Wiebe Door
are not exclusive tests but are to be given weight according to the
circumstances. The main question is to determine if Lee can reasonably be
considered to be an employee of Signature or if she is in business on her own
account. I have very little difficulty in concluding that Lee was not in
business on her own account and that she could reasonably be considered to be
an employee of Signature.
[31] Although I do not
think that intention is relevant to the test under subsection 125(7) out of an
abundance of caution I will discuss it. See Lang v. Canada
(Minister of National Revenue - M.N.R.),
2007 TCC 547. In the Agreements the Appellant and Signature provided that the
Appellant was an independent contractor. However, I think that the Wiebe
Door factors show the true intentions of the parties. This is not a close
case where the stated intention of the parties can determine the status of the
engagement (Robert Dempsey v. Canada (Minister of National Revenue -M.N.R.), 2007 TCC 362).
[32] At the conclusion of
the hearing the Appellant’s counsel raised the issue of the award of costs.
Prior to the hearing of this appeal the Appellant made a motion to this Court
to strike some of the paragraphs pled as assumptions of fact. This motion was
denied and the motions judge left the matter of costs to the trial judge. In
this appeal the Appellant has asked for costs in any event of the cause on the following
basis:
a) Most
of the assumptions of fact made by the Minister of National Revenue
(“Minister”) were derived from the 1996 Agreement and the 2000 Agreement and
consequently they were not facts but were conclusions of law;
b) The
auditor who was assigned this file did little work as he spoke to no one except
Lee and her counsel;
c) The
Appellant had made an offer to settle this appeal. It would agree that the
Appellant was a personal service business if the Respondent would allow the
Appellant to deduct certain expenses under paragraph 18(1)(a) instead of
paragraph 18(1)(p) of the Act.
[33] With respect to the
assumptions of fact, the Appellant made the same argument to Justice Campbell
at the hearing of the motion and the motion was dismissed. I take it that
Justice Campbell disagreed with counsel. He cannot retry the motion before me.
[34] Terri Costantino, an
appeals officer with the Canada Revenue Agency (“CRA”), appeared as a witness
on behalf of the Respondent. When questioned by Mr. Schnier, counsel for the
Appellant, she stated that the assumptions of fact in the Reply to Notice of
Appeal were taken from the provisions in the 1996 Agreement, the 2000 Agreement
and statements made by Lee and her counsel. She was also asked questions about the
auditor’s handling of the file. She stated that according to the auditor he
visited the offices of Signature and tried to speak to “individuals” at
Signature. She also stated that: “In the times that he tried to speak to those
individuals, he was redirected to speak to Vanessa Lee”.
[35] The auditor did as
much as he could to audit the tax returns of the Appellant. It was not
incumbent on the auditor or the appeals officer to try to speak to everyone
with whom Lee worked. It was incumbent on Lee to give the information to the
employees of CRA. It must be remembered that in Canada we have a self-assessing
and self-reporting system of taxation. As Justice Rip (as he then was) stated
in McVey v. Canada., [1996] 2 C.T.C. 2157, 96 DTC 1225 at paragraph 53:
53 Our
tax system is a self-assessing one. It is the taxpayer, who,
almost to exclusivity, has personal knowledge of the facts. The Minister must
rely on the representations of taxpayers and it is reasonable for the taxing
authority to prepare assessments in accordance with information given to her by
taxpayers.
[36] In conclusion, the appeal is dismissed
and the Respondent is awarded its costs in both the motion and this appeal.
Signed
at Ottawa, Canada this 8th day of February, 2008.
V.A.
Miller, J.
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