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Citation: 2004TCC509
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Date: 20040727
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Docket: 2003-719(EI)
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BETWEEN:
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NAZTRON TECHNOLOGIES INC.,
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Appellant,
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and
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THE MINISTER OF NATIONAL REVENUE,
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Respondent.
[OFFICIAL ENGLISH TRANSLATION]
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REASONS FOR JUDGMENT
Tardif J.
[1] This is an appeal from a
determination, dated December 10, 2002, whereby the Respondent
concluded that, from November 18, 2001, to April 12, 2002, Mr.
Bernard Jules performed work for Naztron Technologies Inc. under
a contract of service.
[2] In making his determination, the
Respondent relied on the following assumptions of fact:
(a) The Appellant has
operated an electronic engineering consulting business since
November 2000.
(b) The Appellant is
held, in equal parts, by Mr. Yves Nazon and Mr. Ron
Rinkembach.
(c) The Appellant
hired the worker to develop a new market in information
technology.
(d) The worker's
main duties were:
- to solicit new clients;
- to define the services the
Appellant could provide to its clients;
- to supervise the Appellant's
salesperson who called clients on the telephone; and
- to develop the Appellant's Web
site.
(e) The worker
performed approximately 50% of his duties at the Appellant's
office, 25% from his home, and 25% on the road, meeting
clients.
(f) The worker
was not required to fill in time sheets, because the Appellant
controlled his workload and assessed his results.
(g) The worker was
required to perform the work himself; he could not have someone
replace him.
(h) Weekly meetings
took place between the worker and the Appellant, during which
time oral reports were exchanged between the parties.
(i) The
worker's work was supervised by any one of the Appellant's
shareholders.
(j) The worker
was remunerated on a monthly basis upon submitting an invoice; he
received $1,280 per week for 37.5 hours of work, which is equal
to $34.13 per hour.
(k) The worker had a
company called "Consultation Multimédia 2000+."
(l) The
Appellant issued the worker's paycheque to "Consultation
Multimédia 2000+."
(m) The Appellant paid GST
and QST on the remuneration paid to the worker.
(n) The Appellant
provided the working tools and reimbursed the worker for all of
the expenses he incurred in the course of his work.
[3] The Appellant admitted the content
of all the paragraphs, except paragraphs (e), (f), (g), (i), (j),
(l), and (n).
[4] The Notice of Appeal summarizes
the evidence filed by the Appellant fairly well. The
following is an excerpt of this document:
[TRANSLATION]
[...]
I would like to appeal from a decision of the Canada Customs
and Revenue Agency. The following is the information
relating to this decision:
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Decision:
Control:
Date of mailing:
Company name:
Address:
Representative:
Telephone:
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CE 0226 2093 8363
0762195
December 10, 2002
Naztron Technologies Inc.
2050 Marlowe, Montréal, Quebec H4A 3L5
Yvon Nazon (President)
514-482-6495 (office), 514-993-8973 (cellular)
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Naztron Technologies is appealing from the decisions on the
following grounds:
1- Naztron Technologies
hired "Multimedia Consulting 2000+," a consulting firm for which
Mr. Bernard Jules was working.
2- The two parties agreed,
in good faith, that Mr. Jules would work as a consultant.
The purpose of the operation was not, for either party, to
disguise regular employment as self-employment.
3- Mr. Jules' work was
invoiced by "Multimedia Consulting 2000+." Naztron was not
ever required to pay fees directly to Mr. Jules.
"Multimedia Consulting 2000+" also charged GST and QST for the
work performed by Mr. Jules.
4- Naztron established a
minimum amount of time that Mr. Jules would spend on Naztron
activities in accordance with the fees paid to "Multimedia
Consulting 2000+" and in relation to market restraints.
Naztron did not require a set schedule or a constant presence in
its offices. Mr. Jules was free to work for any other
company once he had completed the minimum number of hours
required.
5- With respect to
reimbursement for expenses, it is current practice with this type
of contract that the consultant be reimbursed for expenses for
material or hospitality relating directly to the work performed
for his client. That is why we reimbursed some of the
expenses incurred by "Multimedia Consulting 2000+". You will also
note that we reimbursed Mr. Jules for travel expenses incurred to
attend meetings at Naztron's offices. All of the regular
equipment (computers and software) that Mr. Jules used in his
work are the property of "Multimedia Consulting 2000+" and have
not been paid by Naztron as a reimbursement of expenses.
6- The work carried out at
Naztron is performed on a teamwork basis. In order to
coordinate the work of the various team members, we required (for
a short period) that Mr. Jules submit weekly reports. These
reports were required for the purpose of coordination, and not
for the purpose of control.
I believe that the grounds listed above will give you a better
understanding of the reasons for our objection.
Thank you for your cooperation,
[Signature]
Yvon Nazon
[5] In addition to Mr. Nazon, Mr.
Bernard Jules testified. The two testimonies are quite
consistent, and the Court did not note any significant
contradictions in the interpretation of the facts.
[6] Prior to the agreement made at the
outset of the period at issue, Bernard Jules was not working, but
he was the owner of Multimedia Consulting 2000+, a business with
an Internet address.
[7] Yvon Nazon was aware of Multimedia
Consulting 2000+'s skills and expertise, and he knew its owner,
Mr. Bernard Jules. A meeting took place and discussions
were held about the possibility of associating Multimedia
Consulting 2000+ and Bernard Jules in a project to develop a new
market. The parties agreed on a monthly amount and the
potential duration of the agreement.
[8] The work began. Mr. Jules
and Mr. Nazon gave progress reports on a fairly regular
basis. Mr. Jules presented his initiatives and Mr. Nazon
made some suggestions; on occasion, Mr. Nazon provided the names
of some of the clients of the Appellant's business, Naztron
Technologies Inc.
[9] At one point, Mr. Jules hired
Mélanie Guindon to develop a Web site for the
Appellant.
[10] Ms. Guindon was selected, hired, and
paid by Bernard Jules, who passed on the expenses to the
Appellant. The initial agreement was respected. Each
month, Multimedia Consulting 2000+ invoiced the Appellant,
Naztron Technologies Inc., who paid the invoice and the
applicable taxes.
[11] The following is the information
contained in a sample invoice used to pay for the time spent.
[TRANSLATION]
Multimedia Consulting 2000+
4711 Beneche
Pierrefonds, Quebec H9J 3R1
Tel/Fax: 696-2771
GST No.: 872835814
QST No.: 2247383385
Invoice
To: Naztron Technologies
Inc.
2050 Marlowe
Montreal, Quebec H4A 3L5
Invoice number: MC-000001
Date: November 5, 2001
Engineering consulting services rendered between September
30th, 2001, and October 27, 2001.
Fees:
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64.00 hours at $80/hour
GST (7%)
QST (7.5%)
Total (net 7 days)
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$5,120.00
$358.40
$410.88
$5,889.28
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Bernard Jules
[12] All of the expenses were invoiced in
the same manner. The following is a sample invoice used for
the reimbursement of expenses.
Naztron Technologies
Bernard Expenses
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Item
Consulting services
Expense
Consulting services
Expense
Consulting services
Expense
Consulting services
Total paid until today
Consulting services
Expense
Consulting services
Expense
Total due
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Period/Date
05-Nov-01
05-Nov-01
13-Dec-01
20-Dec-01
11-Jan-02
11-Jan-02
11-Feb-02
February
Jan-Feb
March
March
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Amount
$ 5,889.28
693.93
7,361.60
1,856.04
5,889.28
986.18
5,889.28
$28,565.59
$ 5,889.28
984.43
5,889.28
3,000.00
$15,762.99
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Grand total (tax included)
Grand total
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$ 44,328.58
$ 38,538.21
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Total consulting services (tax included)
Total consulting services
Total expenses (tax included)
Total expenses
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$ 36,808.00
$ 32,000.00
$ 7,520.58
$ 6,538.21
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[13] Mr. Bernard Jules testified at the
request of counsel for the Appellant. He acknowledged that
he has always enjoyed considerable freedom in his work. He
described himself as a self-employed professional consultant with
experience and expertise in a specialized field. He was
hired by the Appellant to work in his area of specialization. He
admitted that the purpose of this project was to develop a new
market niche.
[14] This particular project was outside of
the Appellant's regular field of activities. It was made
clear at the outset that this was a trial venture.
[15] Mr. Jules confirmed that the
parties obviously would have renegotiated the agreement, had he
succeeded in opening up this new market. He then added that
a commission-based formula would have been an option.
[16] Bernard Jules used his own technology
tools exclusively to complete his work. He owned everything
that he needed to do his work.
[17] Yvon Nazon indicated that the Appellant
had invested nearly $40,000 in this failed venture and that a
decision had been made to end it.
[18] At the end of the project, Mr. Jules's
company had no other contracts and, consequently, he was out of
work. It appears that he looked into the possibility of receiving
employment-insurance benefits.
[19] In his testimony, Mr. Jules described
himself as a self-employed worker.
[20] Was Bernard Jules' work for
Naztron Technologies Inc. governed by a contract of service or a
contract for services?
[21] The Appellant provided documentary and
testimonial evidence showing that, on the balance of
probabilities, it had dealt with Mr. Jules's company, Multimedia
Consulting 2000+, and not with Bernard Jules himself.
Invoices for services provided by the company were paid to
Multimedia Consulting 2000+, as were the expenses. The
Quebec sales tax (QST) and the Goods and Services Tax (GST) were
added to the invoice and paid by the Appellant.
[22] Multimedia Consulting 2000+ owned the
tools required for Mr. Jules's work. All of the costs
associated with the use and repair of the equipment, as well as
depreciation costs, were the sole responsibility of Bernard
Jules.
[23] None of the expense or work-related
documents refers to Mr. Jules personally. They do,
however, refer to his business, Multimedia Consulting 2000+.
[24] Did Bernard Jules wind up his
business? Did he take possession of Multimedia Consulting
2000+'s equipment? Did he surrender his registration number
to the tax authorities? Did he inform his clients that he was
working on his own behalf? These are some questions that
remain unanswered.
[25] Mr. Jules does not automatically become
an employee of the Appellant because the Appellant was Multimedia
Consulting 2000+'s only client during the period at issue.
[26] The Respondent referred to section 2085
of the Civil Code of Québec which reads as
follows:
2085. A contract of employment is a
contract by which a person, the employee, undertakes for a
limited period to do work for remuneration, according to the
instructions and under the direction or control of another
person, the employer.
[27] This provision cannot be ignored.
However, the evidence has not shown that a direct
employer-employee relationship existed between the Appellant and
Bernard Jules.
[28] The Respondent's reasoning and account
of events completely neglect Multimedia Consulting 2000+ in its
analysis of the facts. Although the burden of proof did not
rest with the Appellant in this matter, nothing in the evidence
leads the Court to conclude that Mr. Bernard Jules, Consultant,
stopped carrying on business, temporarily or permanently, through
Multimedia Consulting 2000+. To the contrary, Mr. Jules
continued to use the same invoices and carefully added the GST
and the QST. At times, he added the notation: "Total (Net
10 days)."
[29] Where the Respondent's argument is
followed to its logical conclusion, it could lead us to determine
that Bernard Jules was employed by Yvon Nazon personally, since
he was the one who talked to him and who requested progress
reports and general information. In fact, Mr. Nazon was
acting on behalf of the Appellant, Naztron Technologies Inc., and
Mr. Jules was acting on behalf of Multimedia Consulting
2000+.
[30] Where two businesses deal with each
other to perform work, the individuals who perform the work on
behalf of the Payor do not become employees subject to the
control of the Payor, unless it can be shown in the particular
situation that a specific agreement and clear facts exist.
[31] In this case, no evidence was presented
to show that Bernard Jules had renounced his business to carry
out the contract at issue. On the contrary, he himself
spoke of flexibility, freedom, non-exclusivity, and the fact that
he was a self-employed worker.
[32] The Respondent developed a number of
theories on the basis of the various exchanges, follow-ups,
updates, etc. that took place in the course of fulfilling the
contract.
[33] On this point, I feel it is relevant to
cite an excerpt from a recent decision in Le livreur plus Inc.
v. M.N.R., [2004] F.C.J. No. 267 (Q.L.), whereby the
Honourable Judge Létourneau of the Federal Court of Appeal
reiterated the various aspects of the issue. He said the
following:
[17] What the parties stipulate as to the
nature of their contractual relations is not necessarily
conclusive, and the Court may arrive at a different conclusion
based on the evidence before it: D & J Driveway Inc. v. The
Minister of National Revenue, 2003 FCA 453. However, if there
is no unambiguous evidence to the contrary, the Court should duly
take the parties' stated intention into account: Mayne
Nickless Transport Inc. v. The Minister of National Revenue,
97-1416-UI, February 26, 1999 (T.C.C.). Essentially, the question
is as to the true nature of the relations between the parties.
Thus, their sincerely expressed intention is still an important
point to consider in determining the actual overall relationship
the parties have had between themselves in a constantly changing
working world: see Wolf v. Canada, [2002] 4 F.C. 396
(F.C.A.); Attorney General of Canada v. Les Productions Bibi
et Zoé Inc., 2004 FCA 54.
[18] In these
circumstances, the tests mentioned in Wiebe Door Services Ltd.
v. M.N.R., 87 D.T.C. 5025, namely the degree of control,
ownership of the work tools, the chance of profit and risk of
loss, and finally integration, are only points of reference:
Charbonneau v. Canada(Minister of National
Revenue - M.N.R.)(1996), 207 N.R. 299, paragraph 3. Where a
real contract exists, the Court must determine whether there is
between the parties a relationship of subordination which is
characteristic of a contract of employment, or whether there is
instead a degree of independence which indicates a contract of
enterprise: ibid.
[19] Having said that, in terms
of control the Court should not confuse control over the result
or quality of the work with control over its performance by the
worker responsible for doing it: Vulcain Alarme Inc. v. The
Minister of National Revenue, A-376-98, May 11, 1999,
paragraph 10, (F.C.A.); D & J Driveway Inc. v. The Minister
of National Revenue, supra, at paragraph 9. As our colleague
Décary J.A. said in Charbonneau v. Canada
(Minister of National Revenue - M.N.R.), supra, followed
in Jaillet v. Canada (Minister of National Revenue -
M.N.R.), 2002 FCA 394, "It is indeed rare for a person
to give out work and not to ensure that the work is performed in
accordance with his or her requirements and at the locations
agreed upon. Monitoring the result must not be confused with
controlling the worker".
[20] I agree with the
applicant's arguments. A subcontractor is not a person who is
free from all restraint, working as he likes, doing as he
pleases, without the slightest concern for his fellow contractors
and third parties. He is not a dilettante with a cavalier, or
even disrespectful, whimsical or irresponsible, attitude. He
works within a defined framework but does so independently and
outside of the business of the general contractor. The
subcontract often assumes a rigid stance dictated by the general
contractor's obligations: a person has to take it or leave
it. However, its nature is not thereby altered, and the general
contractor does not lose his right of monitoring the results and
the quality of the work, since he is wholly and solely
responsible to his customers.
[34] On the balance of probabilities, Mr.
Bernard Jules was not, at any time, employed by the Appellant; it
had business dealings with the corporation owned by Bernard
Jules. The work performed by Bernard Jules was carried out
in accordance with a contract concluded between his corporation
and the Appellant.
[35] For all of these reasons, the appeal is
allowed and the decision of the Minister is amended to take into
consideration the fact that Mr. Bernard Jules, whose services
were retained by the Appellant, performed his work during the two
years at issue under a contract for services concluded between
Multimedia Consulting 2000+ and the Appellant, not under a
contract of service.
Signed at Ottawa, Canada, this 27th day of July
2004.
Tardif J.
Translation certified true
on this 5th day of January 2005.
Colette Dupuis-Beaulne, Translator
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