Citation: 2006TCC52
Date: 20060125
Docket: 2005-714(IT)I
BETWEEN:
ARIF KHAN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Sheridan, J.
[1] The Appellant, Arif Khan, is appealing the reassessments of his 2001 and 2002 taxation years. The Minister of National Revenue disallowed the business expenses claimed by Mr. Khan on the ground that his income in those years was from employment rather than business.
Background
[2] In 1997, Mr. Khan began work as general manager of Amstar Service Ltd., a commercial cleaning services company. The issue in this appeal is whether he carried out his general manager duties in 2001 and 2002 as an employee or an independent contractor.
[3] Mr. Khan was self-represented and the only witness to give evidence on his behalf. He had the onus of proving wrong the assumptions upon which the Minister based his reassessments.
[4] Mr. J. Derrick, Appeals Officer, was called for the Crown. He has 11 years experience in the appeals division and a particular expertise in employment insurance and Canada Pension Plan matters, including the determination of a worker's status as an employee or independent contractor.
Analysis
[5] To determine whether Mr. Khan provided his services as an employee or an independent contractor, the Court must be guided by the criteria in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., [2001] 4 C.T.C. 139 (S.C.C.) at page 154:
47 ... 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.
And earlier in the decision at page 152:
40 As MacGuigan J.A. notes, a similar general test, known as the "organization test" or "integration test" was used by Denning L.J. (as he then was) in Stephenson, Jordan & Harrison Ltd. v. MacDonald & Evans, [1952] 1 T.L.R. 101 (Eng. C.A.), at p. 111:
One feature which seems to run through the instances is that, under a contract of service, a man is employed as part of the business, and his work is done as an integral part of the business; whereas, under a contract for services, his work, although done for the business, is not integrated into it but is only accessory to it.
[6] Considered in light of the Sagaz factors, the evidence does not support the conclusion urged by the Appellant that he was an independent contractor; for the reasons set out below, I am satisfied that he performed his general manager duties as an employee.
Control
[7] As acknowledged by counsel for the Respondent, analyzing Mr. Khan's situation is made a little more difficult by the fact of his general manager status. Inherent in such a position is a certain degree of autonomy, but that ought not to be confused with having "control" of the business "on his own account" within the meaning of Sagaz. Although expected to perform his management duties with some independence, Mr. Khan was not the ultimate decision-maker. Major decisions remained the exclusive domain of the principal of Amstar, Mr. Lawrie. For example, while it was Mr. Khan's job to put together the information for customer contract pricing, it was Mr. Lawrie who gave the final approval. Similarly, although Mr. Khan made recommendations to Mr. Lawrie on the hiring and firing of workers, Mr. Khan testified that he had no authority to increase the salaries paid to the workers; nor could he assign new workers to a customer site without Mr. Lawrie's approval. Their contracts[1], like those of the customers, were with Amstar, not Mr. Khan. In all matters, Mr. Khan was operating under Mr. Lawrie's direction on Amstar's behalf: he recounted how at one point, when the Agency requested Amstar workers' contracts for review, he faxed the contracts to the department, explaining "when my boss called me and said to do it, I did it".
Tools
[8] This aspect of the evidence was not determinative. I accept the submission of counsel for the Respondent that it is, at best, neutral. It seems that Mr. Khan provided some portion of the equipment used by Amstar but on what basis and to what extent is not clear.
Chance of Profit / Risk of Loss
[9] Mr. Khan's remuneration for his general manager services was set on a per annum basis and paid to him in equal monthly amounts from Amstar's bank account. In addition to his regular salary, he also received $400 per month as a "loyalty" bonus, to keep him at Amstar. Mr. Khan explained that when he started at Amstar, he was also working at another job making early morning paper deliveries. When this began to interfere with his increasing duties at Amstar, Mr. Lawrie came up with the $400 incentive, geared as well towards helping to defray Mr. Khan's vehicle expenses. Whatever its purpose, like his monthly salary, the $400 payment was fixed; regardless of how well or how poorly either he or Amstar performed, his remuneration did not change. Mr. Khan testified to there having been some sort of possibility of his earning a bonus on school construction site clean-up projects but I did not find his evidence in this regard clear or convincing. Further, he described one occasion on which he was unable to perform his general manager duties and paid another person to stand in for him; but, in addition to having no supporting evidence for this assertion, this one event is not sufficient to establish a general right to substitute others for the performance of his duties. On the contrary, the evidence shows that Mr. Khan's unique qualities of reliability and loyalty were what made him a valuable employee at Amstar.
Integration
[10] As its general manager, Mr. Khan was a key component of Amstar's business success. He performed his duties thoroughly and kept Mr. Lawrie informed so that proper decisions could be made by the company. As such, Mr. Khan was fully integrated into the business of Amstar. He testified that his business cards showed him to be the company's "General Manager". He wrote letters on the company's behalf on Amstar letterhead[2],bolstering the authority of his signature with the words "General Manager", as befitted his management position. He abandoned early on the practice of submitting invoices to Amstar as the amount was always the same. Taken as a whole, the evidence does not support the conclusion that Mr. Khan's efforts were in aid of his own enterprise; rather, they were integral to the operation of Amstar.
Conclusion
[11] I accept Mr. Derrick's evidence that he carefully and thoughtfully reviewed the information on Mr. Khan's file to ensure that the reassessments had been properly calculated and adjusted to reflect Mr. Khan's status as an employee. Mr. Khan was similarly straight-forward in the presentation of his evidence. He had done his best to inform himself of the department's position regarding the criteria required to establish independent contractor status and formulated his argument within that framework. His difficulty lay in the interpretation of the tests established in the case law.
[12] For all of these reasons, I am not satisfied that Mr. Khan met the evidentiary burden of proving wrong the Minister's assumption that he was an employee; accordingly, the appeals are dismissed.
Signed at Ottawa, Canada, this 25th day of January, 2006.
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