|
Citation: 2004TCC696
|
|
Date: 20041029
|
|
Docket: 2003-3687(GST)I
|
|
BETWEEN:
|
|
RICHARD ESSERY,
|
|
Appellant,
|
|
And
|
|
|
|
HER MAJESTY THE QUEEN,
|
|
Respondent.
|
____________________________________________________________________
For the Appellant: The Appellant himself
Counsel for the Respondent: Nimanthika Kaneira
____________________________________________________________________
REASONS FOR JUDGMENT
(Delivered orally from the Bench at
Toronto, Ontario, on March 30,
2004)
Miller J.
[1] This is an informal procedure
appeal by Mr. Richard Essery in connection with a goods and
services tax (GST) assessment for the period April 1, 1998 to
December 31, 2001. Canada Revenue Agency denied Mr. Essery's
input tax credits of $3,711.57 on the basis that he was not
carrying on a business. Mr. Essery maintains he was in a
computer consulting business, and that the input tax credits
relate primarily to car and home office expenses incurred in that
business. Mr. Essery acknowledged he was bad at keeping
paperwork, as he was unable to provide supporting materials for
his claim. Mr. Essery that may indeed prove your downfall in this
matter. I will have more to say on that.
[2] In 1995, Mr. Essery set up a sole
proprietorship under the name R.Y.E. Enterprises. He was
initially involved with software re-engineering and curiously,
the sale of hovercraft and cottage accessories. By 1997 and 1998,
the re-engineering business was floundering. Mr. Essery
shifted his efforts to obtaining agency agreements with several
software manufacturers on a commission basis. He provided copies
of six contracts with:
- Scarborough
Enterprises, Inc. entered in 1999;
- Windsor Industries
Ltd. which dealt with cottage accessories, also entered in
1999;
- Advance Multimedia IT
Company Ltd. entered in 1999;
- CRT Multimedia Ltd.
in 1999;
- TFPL Multimedia Ltd.
in 1998;
- JR Inkjet Limited in
1997; and
- EuroPress in
1997.
None of these agreements were signed. All were similar.
Arising from these agreements, the only sales that Mr. Essery
could confirm with some confidence, over the four-year period,
were some one hundred inkjet cartridges on behalf of Inkjet. No
business income was reported however in 1999, 2000 and 2001 from
these contracts. Also no supporting bank records, invoices,
ledgers, cancelled cheques or even basic financial statements
were produced in support of carrying on this agency-type
business.
[3] Throughout the years in question,
Mr. Essery also did what he referred to as contract work. A
review of his 1998, 1999, 2000 and 2001 returns reveals he had
employment agreements with the following:
- Shiva Technologies
Inc. both in 1998 and 1999;
- Open Storage
Solutions Inc. in 1998;
- EYA in 1999;
- Clinicare Corporation
in 2001;
- DMR Consulting Inc.
in 2001;
- Computer Associates
Canada Company in 2000 and 2001; and
- OAO Canada Limited in
2000.
[4] Mr. Essery claimed employment
expenses in his 1998, 1999, 2000 and 2001 returns covering
similar items to which he claims his input tax credits, primarily
car and home office related expenses. He also filed T2200 forms
in the relevant years confirming his employer required him to
incur these expenses. Two of those forms he actually signed on
behalf of the employer EYA. All these companies provided T4 slips
to Mr. Essery. Some of the work required that he report to the
employer's place of business, for example, work involved in
computer training. Other duties he indicated he could fulfil from
home.
[5] Mr. Essery maintained he always
felt he was providing a service. He cited two reasons why these
latter agreements were set up as employment agreements: first, so
he could have source deductions made, and therefore not run into
a problem he had previously encountered in getting behind on his
tax payments; and, second, because the companies did not want to
get involved in paying GST to what Mr. Essery called contract
employees. He did not produce any written contracts reflective of
these arrangements, suggesting they were all verbal agreements.
In 2001, Mr. Essery successfully claimed employment
insurance benefits of around $7,400.
[6] The issue is simply Mr.
Essery's entitlement to input tax credits. To receive such
entitlement he must have engaged in commercial activity. If he
can get past that hurdle, then he must prove the amount of his
actual claim. In that regard, I refer you to subsections 169(4)
and 286(1).
[7] I turn then to the first question
of whether Mr. Essery was engaged in commercial activity in the
relevant years. The definition of "commercial activity"
is found in section 123 and reads:
123(1) In section 121, this Part and Schedules V to
X,
...
"commercial activity" of a person means
(a) a
business carried on by the person (other than a business carried
on without a reasonable expectation of profit by an individual,
... except to the extent to which the business involves the
making of exempt supplies by the person,
There are two areas of possible activity: the agency
relationships that Mr. Essery claimed he entered into; and
the employment arrangements or contract work, as he calls it.
First, with respect to the agency agreements, Mr. Essery had no
income from such work in 1999, 2000 and 2001. He thought he might
have made some inkjet sales in 1999 but his return indicated he
did not. He characterized this branch of work as an attempt to
earn a little extra cash. The attempt failed. He earned no
income. He presented no plan. I find he was not carrying on
business in that regard and, even if he was, he did not have any
reasonable expectation of profit, a term that might have been
diminished in the income tax arena but is certainly alive and
well in the very definition of "commercial activity"
which I have just read.
[8] With respect to the contract work,
from which Mr. Essery did generate income, it is clear that he
and the payor companies agreed to structure this as an employment
arrangement. T4s were issued and deductions were made. It
certainly had the trappings and form of an employment agreement,
and the Crown assumed as much in its Reply. It is up to Mr.
Essery to satisfy me that the arrangements were something other
than short-term employment arrangements. He has not done so. With
respect, Mr. Essery, you are attempting to have it both ways.
Employment from an income tax perspective and an independent
contract from a GST perspective. It simply cannot work that way,
although I accept that you believed it could.
[9] The Supreme Court of Canada
recently clarified the test with respect to this issue of
employee versus independent contractor. The probing question is
whether Mr. Essery was in business for himself on his own
account. The factors to consider are the control factor, the
chance of profit in each contract, the risk of loss, the
ownership of tools, the ability to put forward someone else to do
the work, and any other factors the Court might consider
relevant.
[10] Mr. Essery, you gave little evidence on
these factors that might help me, nor did you call any
representative of the companies with whom you contracted that
might have helped. The only evidence I have is that this was akin
to project work. You had to report at times to the company. No
one else could do the work but you, and both sides treated it as
an employment arrangement. You have not satisfied me on a balance
of probabilities that these were contracts of an independent
contractor nature. I find, therefore, you were not engaged in
commercial activity entitling you to input tax credits.
[11] Had you provided stronger evidence of
the nature of the relationship and swayed me that indeed you were
an independent contractor, you would still have to face the
hurdle of producing sufficient evidence as to the quantum of your
claim. You provided no supporting documents at all, other than
your own summary of your calculation of the input tax credits.
That is not enough. The Act is clear that the onus is on
you to maintain appropriate records so that these amounts can be
verified.
[12] Mr. Essery, our tax system is mostly a
self-assessment system. It would break down completely if
everyone was as poor a recordkeeper as you admit to have been.
While I have some sympathy that a computer expert might rely
extensively on the computer, in this regard your statement that a
virus wiped out your records highlights the very real inherent
danger on that sort of reliance. Mr. Essery, you told me
that your wife, who is a certified management accountant, gave up
on your books as they were so inadequate. I strongly recommend
you talk her into putting your records into some semblance of
order so you do not get caught in this dilemma in the future.
[13] You made one curious comment, several
times actually, that you would not be at this point had you
received a T4E instead of a T4. A T4E, for your information, is a
T4 that shows employment insurance benefits. There is no form of
T4 that would reflect an independent contractor arrangement. My
only comment is that I do not know where you are getting your
advice, but if your spouse is reluctant to help you out you may
want to spend that extra money to obtain qualified professional
advice in the future.
[14] Mr. Essery, I am dismissing your
appeal.
Signed at Ottawa, Canada, this 29th day of October, 2004.
Miller J.
Email this Content