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Citation: 2003TCC450
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Date: 20030626
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Docket: 2002-4054(IT)I
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BETWEEN:
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WALTER SANCLEMENTE,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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____________________________________________________________________
REASONS FOR JUDGMENT
O'Connor, J.T.C.C.
[1] This appeal was heard at Winnipeg,
Manitoba on May 1, 2003.
[2] The only testimony was given by
the Appellant. The issues are whether the Appellant in 1997 and
1998 in carrying out his work as a "supervisor" with
Kelsey Construction ("Kelsey") was, in those years, to
be considered as an employee under a contract of services or as a
contractor carrying on a business, that is to say, a contract for
services; and in the latter case whether all of the expenses
claimed by the Appellant in the years in question were properly
deductible.
FACTS
[3] The Reply to the Notice of Appeal
states essentially as follows:
...
8. In
computing income for the 1997 and 1998 taxation years, the
Appellant reported net business income in the amount of
$17,397.20 for 1997 and $21,826.66 for 1998 as set out in
Schedules "A", "B", "C" and
"D" attached to and forming part of the Reply to the
Notice of Appeal.
9. The
original notices of assessment for the 1997 and 1998 taxation
years were dated and mailed to the Appellant on May 22, 1998 for
1997 and May 13, 1999 for 1998.
10. In reassessing the
Appellant for the 1997 and 1998 taxation years on March 19, 2001,
the Minister of National Revenue (the "Minister"):
(a) deleted net
business income reported for each year;
(b) assessed
employment income ... in the amount of $48,680.14 for 1997
and $46,507.27 for 1998; and
(c) allowed a
deduction for expenses against employment income in the amount of
$500.00 for 1997 and $500.00 for 1998.
11. In so reassessing the
Appellant, the Minister made the following assumptions of
fact:
(a) during the 1997
and 1998 taxation years, the Appellant was employed by the
Employer as a supervisor;
(b) the Employer
paid the Appellant an hourly wage, paid bi-weekly;
(c) the Employer
reimbursed the Appellant for expenses incurred by the Appellant
while working out of town;
(d) the
Appellant's expenses that were reimbursed by the Employer
included, but were not limited to, meals, hotels and gas;
(e) the Employer
supplied materials used by the Appellant in performing his
duties;
(f) the
Appellant was required to incur the cost of getting to the local
work sites where he performed his duties;
(g) the Appellant
supplied his own hand tools that were required to perform his
duties;
(h) the Employer
provided the larger tools specific to the trade that were
required by the Appellant to perform his duties;
(i) the
Employer provided any rented equipment that was required by the
Appellant to perform his duties;
(j) the
Employer guaranteed the quality of the work performed by the
Appellant;
(k) the Employer
required that the Appellant perform his duties personally;
(l) the
Employer paid premiums for workers' compensation in respect
of the Appellant;
(m) the workers supervised
by the Appellant were employees of the Employer;
(n) the Appellant
was required to discuss with the Employer any hiring or laying
off of any of the Employer's employees;
(o) the Appellant
was hired by the Employer on an indeterminate basis;
(p) the Employer was
aware that the circumstances of the Appellant's employment
were such that the Appellant was probably employed under a
contract of service rather than a contract for services;
(q) the duties
performed by the Appellant were the same as other supervisors of
the Employer that were employed under a contract of service;
(r) the Employer
went along with the Appellant's request to be treated as if
he was employed under a contract for services as this is what the
Appellant had wanted and as the Employer did not want to lose a
valuable employee;
(s) the duties
performed by the Appellant were an integral part of the business
of the Employer;
(t) the
Appellant was employed pursuant to a contract of service with the
Employer;
(u) the Appellant
received remuneration in the amount of $48,680.14 in 1997 and
$46,507.27 in 1998 from the Employer in consideration for the
duties performed by him;
(v) other than in
respect of repairs and maintenance expenses incurred on his own
vehicle, the Appellant was not required by the Employer to pay
for any expenses incurred in the performance of his duties;
(w) the Appellant did not
keep track of the kilometres that were travelled by him for the
purpose of earning income from the Employer;
(x) the Appellant
submitted receipts to the Minister in respect of gas, vehicle
repairs and maintenance, meals and entertainment and insurance
for each year as follows:
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Item
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1997
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1998
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Vehicle - Repairs/Maintenance
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$ 2,946.35
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$ 1,577.08
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Vehicle - Gas
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3,229.78
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5,163.00
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Vehicle - Insurance
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0.00
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881.00
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Meals and Entertainment
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0.00
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4,449.29
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Total
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$ 6,176.13
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$12,070.37
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(y) other than in
respect of the receipts submitted as stated in paragraph 11(x)
above, the Appellant did not submitted any other receipts,
vouchers or other documentation in support of the expenses
claimed as set out in Schedules A and B;
(z) other than in
respect of the receipts submitted as stated in paragraph 11(x)
above, the expenses claimed as set out in Schedules A and B were
not proven to have been incurred;
(aa) repairs and maintenance
expenses claimed in excess of $500.00 for each year were not
reasonable in the circumstances; and
(bb) expenses in excess of the
amount allowed, if incurred, were not incurred for the purpose of
earning income from the Employer, rather they were the personal
or living expenses of the Appellant.
[4] The Appellant disagrees with any
of the foregoing allegations and assumptions that directly or
indirectly point to a conclusion that he was an employee as
opposed to a contractor.
[5] In his Notice of Appeal the
Appellant indicates that he was contracted for his knowledge and
organizational skills, set his own hours of work and did his own
hiring and firing of employees on the job site without discussion
with anyone. He points out moreover in his Notice of Appeal that
not once did Kelsey check to see if the Appellant was on the job
site. He refers in particular to the contract entered into
between himself and Kelsey for the years 1996 and 1997. Exhibit
A-2 reads as follows.
KELSEY CONSTRUCTION (1996) LTD
201-356 Furby Street, Winnipeg, Mb. R38 2V5
tel (204) 786-6557; fax (204) 786-6559
To: Walter Sanclemente
Sanclemente Builders
Box
1243
Date: January 2/1996
Beasejour, Manitoba R0E 0C0
Item Supervision Subcontract
**
to take effect upon individual
contract awards
-----------------------------------------------------------------------------------------
The Sub-Contractor agrees to furnish all material and perform
all work as described in accordance with the general conditions
of the contract between the Owner and the Contractor and in
accordance with the drawings and specifications all of which
general conditions, drawings and specifications form part of a
contract between the Contractor and Owner and are made part of
this contract, including all Provincial and Municipal taxes.
For: Various
Projects
To: Supply
Site Supervision, Rough & Finish Carpentry,
Schedule Co-Ordination, Transportation of Materials
by subcontractor conveyance as required,
$ 22.00 per hour plus GST
No Extra Work shall be paid for without written authorization
from our office.
The Sub-Contractor agrees to complete or deliver the several
portions and the whole of the work herein sublet AS REQUIRED
All installation subcontractors submit Certificate for
insurance prior to first claim.
Payments will be made by the Contractor biweekly (All payments
Canadian funds at par Winnipeg).
Invoice (with job numbers) must be received at above address 2
full business days prior to expected receipt of payment.
Accepted by
Per __________________
Authorized
Signature
KELSEY CONSTRUCTION (1996) Ltd.
Seal Above or Witness Below
__________________
_______________________
Authorized Signature
[6] Exhibit A-3 which relates to the
1997 year is substantially the same as Exhibit A-2 and the
assumption is that a similar arrangement prevailed in 1998. The
Appellant also submitted as Exhibit A-4 an invoice on the
letterhead of "Sanclemente Builders" addressed to
Kelsey, dated August 2, 1997 and invoicing Kelsey for services
rendered during a two-week period ending August 2, 1997 in a
total amount of $1,812.58.
[7] There have been many cases dealing
with the issue of employee v. contractor and the jurisprudence
has developed four tests referred to as (1) control; (2)
ownership of tools; (3) chance of profit; and (4) risk of loss. A
further test, the integration test has also been applied. With
respect to the integration test the question that arises is
"is the person who has engaged himself to perform the
services performing them as a person in business on his own
account?" Put another way, are his services to be considered
as an integral part of a business carried on by the payor. The
Court is to approach the analysis from the perspective of the
alleged employee (see the decision of the Federal Court of Appeal
in Precision Gutters Ltd. v. The Minister of National
Revenue, 2002 F.C.A. 207).
[8] In applying the four tests the
following is noted. With respect to control, there appears to
have been very little control over the services provided by the
Appellant. In his Notice of Appeal the Appellant states "not
once did Kelsey Construction check to see if I was there, or told
me to be there at any set time or date".
[9] With respect to the ownership of
tools it is clear that the Appellant owned his own hand tools and
moreover owned forms and scaffolding and according to the
Appellant all of the equipment necessary to do various different
jobs. The evidence does reveal however that certain heavy tools
were either owned by or rented by Kelsey. Further, the Appellant
owned his own vehicles, namely a truck and after that vehicle
broke down, a Suburban. He used these vehicles in carrying out
his work and he paid the expenses relative to those vehicles.
This, in my view, is quite important and clearly does not point
to a contract of services. Independent contractors, as a rule,
doing work of this nature will have their own vehicles and pay
their own expenses but this, I suggest, is not the situation when
one is simply an employee. Thus, the "tools" owned by
the Appellant were fairly substantial.
[10] Moreover, the written contracts entered
into between Kelsey and the Appellant clearly contemplate a
contract for services. A written contract is not always
determinative but when one exists, for one to establish that the
written contract is a sham and that an employee relationship
exists, it must be demonstrated by the evidence and the entirety
of the relationship that the written contract is to be ignored. I
do not think that can be done in this case.
[11] With respect to chance of profit, the
Appellant appears to have aroused the auditor and any other
persons dealing with his reassessment in stating in his Notice of
Appeal as follows "My opportunity for profits, was nil,
there were never any bonuses or gifts etc". In this
connection reference is made to the following exchange which
happened to occur in the course of the submissions.
...
HIS
HONOUR:
What did you mean by the statement, "I had no chance of
profit"?
MR.
SANCLEMENTE:
Well, when I wrote that, I wasn't really thinking clearly. I
was - - at that time, you know, I just wrote something that come
to my head and I was, I guess you could say, angry, shocked, and
when I wrote that, I wasn't thinking properly and - -
HIS
HONOUR:
Because what I cannot understand is if you considered yourself a
contractor - -
MR.
SANCLEMENTE:
Right.
HIS
HONOUR:
- - an independent contractor, you obviously must have had a
chance of profit?
MR.
SANCLEMENTE:
Well, yes, I do. I don't know why I wrote that and - - but,
no, I have made profit and I have lost on jobs. There's
people that still owe me money and I'm trying to collect it,
but sometimes it's too small to go to court over and
you've just got to keep hounding the people for it."
[12] On this issue and on practically all
major issues I accept fully the credibility of the Appellant. In
making the maligned statement the Appellant refers to bonuses or
gifts which in my mind indicates that he was not quite sure what
the expression "opportunity for profits" meant. In any
event, when he bid on and was granted a particular job site to
work on he knew what his rate of remuneration was going to be and
thus was in a position to determine whether the particular job
would provide a profit or result in a loss. Subject to the
foregoing there is very little evidence directly on the issue of
risk of loss and the comments with respect to chance of profit
are to be considered as embracing both concepts.
[13] Another test developed by the
jurisprudence and referred to therein as a test separate from the
four tests discussed above is that of integration. The question
that the integration test poses is the following: "is the
person who has engaged himself to perform the services performing
them as a person in business on his own account"? If so,
that person was employed under a contract for services and not a
contract of services.
[14] To sum up I have been particularly
influenced by the following:
1. The wording of the
actual contracts between Kelsey and the Appellant;
2. The extent of the
ownership by the Appellant of tools (including the vehicles,
forms and scaffolding);
3. The limited amount of
control and the generally independent relationship between the
Appellant and Kelsey;
4. The Minister of
National Revenue has focused only on the relationship with Kelsey
and has concluded that it was a contract of services with Kelsey.
This ignores the fact that, as the Appellant has testified, in
years other than those under consideration the Appellant had
contracts with parties other than Kelsey;
5. Although the evidence
is not absolutely 100 per cent convincing it is clear that the
Appellant did pay some salaries to certain persons, a further
indication of the limited degree of control exercised by
Kelsey;
6. The integration test is
hard to apply but in my opinion it favors the conclusion of a
contract for services.
[15] Thus, in my opinion the Appellant was
engaged under a contract for services and not a contract of
services, i.e. not an employer - employee relationship.
[16] As to the amounts of the various
expenses claimed the Appellant indicates that the expenses he has
claimed were truly incurred and related to the business and were
not personal. The jurisprudence has recognized that expenses, in
situations of this nature, can be proved by oral testimony. And
as I mentioned above, I accept the credibility of the Appellant
and accept the expenses he has claimed. Also the details of these
expenses are shown in the schedules to the Reply.
[17] For the above reasons the appeals are
allowed. There shall be no costs.
Signed at Ottawa, Canada, this 26th day of June 2003.
J.T.C.C.
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