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Citation: 2004TCC467
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Date: 20040629
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Dockets: 2003-2796(EI)
2003-2797(CPP)
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BETWEEN:
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BARRIE MACHINE TOOL MANUFACTURING 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,
and
MIRCEA ANDREI URSU,
Intervenor.
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REASONS FOR JUDGMENT
O'Connor, J.
[1] In these appeals the issue is
whether, as between Barrie Machine Tool Manufacturing Inc.
("Payor") and the general partnership named Behr
Solutions ("Worker") during the period May 27, 2002 to
November 20, 2002, there existed a contract for services or an
independent contract arrangement. In the former case the Worker
would be entitled to employment insurance under paragraph
5(1)(a) of the Employment Insurance Act
("EIA") and Canada pension benefits under
paragraph 6(1)(a) of the Canada Pension Plan
("CPP").
[2] The general partnership comprised
the Intervenor Mircea Andrei Ursu and his wife. The Intervenor
did the work consisting of completing design concepts and full
designs for various customers. The wife was a silent partner.
[3] As was mentioned by counsel for
the Respondent the whole relationship must be looked at bearing
in mind the well-known tests of control, ownership of tools,
chance of profit, risk of loss, the integration test (whose
business was it) and any other relevant factors
[4] In deciding the issue I am not
simply to substitute my opinion for that of the Minister of
National Revenue ("Minister") and I am to give some
deference to the decision of the Minister. These principles have
been developed by the Federal Court of Canada in the following
cases. In Légaré v. Canada (Minister of National
Revenue - M.N.R.), [1999] F.C.J. No. 878, the Court had
occasion to review the issue in question. Paragraph 4 of that
decision by Marceau, Desjardins and Noël, J.J. stated as
follows:
The Act requires the Minister to make a determination
based on his own conviction drawn from a review of the file. The
wording used introduces a form of subjective element, and while
this has been called a discretionary power of the Minister, this
characterization should not obscure the fact that the exercise of
this power must clearly be completely and exclusively based on an
objective appreciation of known or inferred facts. And the
Minister's determination is subject to review. In fact, the
Act confers the power of review on the Tax Court of Canada
on the basis of what is discovered in an inquiry carried out in
the presence of all interested parties. The Court is not mandated
to make the same kind of determination as the Minister and thus
cannot purely and simply substitute its assessment for that of
the Minister: that falls under the Minister's so-called
discretionary power. However, the court must verify whether the
facts inferred or relied on by the Minister are real and were
correctly assessed having regard to the context in which they
occurred, and after doing so, it must decide whether the
conclusion with which the Minister was "satisfied"
still seems reasonable.
[5] Also in the case of
Pérusse v. Canada (Minister of National Revenue -
M.N.R.) [2000] F.C.J. No. 310, Marceau, J. at paragraph 14
said:
In fact, the judge was acting in the manner apparently
prescribed by several previous decisions. However, in a recent
judgment this court undertook to reject that approach, and I take
the liberty of citing what I then wrote in this connection in the
reasons submitted for the court.
Then at paragraph 15 he said:
The function of an appellate judge is thus not simply to
consider whether the Minister was right in concluding as he did
based on the factual information which Commission inspectors were
able to obtain and the interpretation he or his officers may have
given to it. The judge's function is to investigate all the
facts with the parties and witnesses called to testify under oath
for the first time and to consider whether the Minister's
conclusion, in this new light, still seems "reasonable"
(the word used by Parliament). The Act requires the judge
to show some deference towards the Minister's initial
assessment and, as I was saying, directs him not simply to
substitute his own opinion for that of the Minister when there
are no new facts and there is nothing to indicate that the known
facts were misunderstood. However, simply referring to the
Minister's discretion is misleading.
[6] I have concluded that the
following facts are most important in the determination of the
issue.
1. Mr. Hough, testifying for the Payor, confirmed that the
Intervenor had been a regular employee of the Payor for the
period October 2, 2000 to November 2001 with all deductions being
made for employment insurance premiums, CPP premiums,
workers' compensation and income tax. This was the situation
until the intervenor was laid off for lack of work.
2. Mr. Hough testified further that the intervenor had set-up
a "company" in early 2002 called Behr Solutions and
that he agreed with the Intervenor to retain that company, which
in fact was a partnership.
3. Mr. Hough stated further that he had a meeting with the
Intervenor and agreed to hire his "company" on a
subcontract basis effective immediately and based on the jobs in
hand Mr. Hough stated that the Payor had enough work for the
"company" for at least three months. The Intervenor
quoted a fee of $35 per hour. Mr. Hough agreed that the Worker
could work either from his home office or at the office of the
Payor. Mr. Hough informed the Intervenor that his invoices would
be paid like any other invoice i.e. net 30 days and Mr.
Hough suggested that the Intervenor invoice on a weekly basis.
Further, although Mr. Hough only intended to use the services of
Behr Solutions for a period of three months because more projects
were obtained the arrangement lasted for a longer period than
originally planned.
4. Behr Solutions invoiced the Payor for services rendered for
the period between January 23, 2002 and November 20, 2002. At no
point did Mr. Hough stop Behr Solutions from working for
other clients. Mr. Hough concluded by indicating that as far as
the Payor was concerned "this was a very simple, clear-cut
subcontract undertaking with another "company" and Mr.
Hough strongly disagreed with Canada Customs and Revenue
Agency's (CCRA) ruling that the Intervenor should be
considered as an employee during the period in question.
[7] The Intervenor testified that at
first it was to be an independent contract basis but that this
changed over time although details of how and when it changed
were not made clear.
Analysis
[8] I find firstly that the Minister
did not consider all the factors or did not give sufficient
importance to certain factors. With respect to control, there
were certain elements of control but Mr. Hough made it clear that
the Intervenor could work either at the office of the Payor or at
his home office. With respect to ownership of tools the
Intervenor had his own computer which was better than the
computer at the office of the Payor.
[9] The Intervenor paid his own
automobile expenses; the aspect of risk of loss and chance for
profit consideration points to a contract of service in that the
Worker had no risk of loss and was paid a flat rate of $35 per
hour for his work.
[10] Although the integration test is not
conclusive, the Worker worked at two locations and we know
that he had at least one other customer, Holga Star Inc. Also
important are the following factors:
- it is very unusual for a partnership to be an employee
- the Intervenor did considerable work away from the
Payor's premises
[11] The Worker sent the invoices and
payment was made against same; that is unusual in an
employer/employee relationship.
[12] The basic arrangement between the
parties is a prime consideration. However it does not necessarily
establish a presumption nor does it definitely determine the
issue. As stated in the jurisprudence, the entire relationship
between the parties must be examined. Note however in Wolfe v.
Canada, [2002] 4 F.C. 396, (FCA) per Noël, J.
stated as follows:
...This was a case where the characterization placed by the
parties on their relationship ought to be given great weight. In
a close case such as the present one, where the relevant factors
point in both directions with equal force, the parties'
contractual intent, and in particular their mutual understanding
of the relationship could not be disregarded. As the parties
considered that they were engaged in an independent contractor
relationship and as they acted in a manner consistent with this
relationship, it was not open to the Tax Court Judge to disregard
their understanding.
Also in Bradford v. M.N.R., 88 DTC 1661 Taylor, T.C.J.
stated at page 11 of the decision:
The general principle that commends itself to me arising out of
this appeal and the recent jurisprudence noted is that under a
given set of circumstances within which there are certain aspects
of 'employee', some others of 'independent
contractor', and even others that are somewhat ambiguous,
that the intentions and objectives of the parties, if clearly and
unequivocally stated and agreed upon, should be a prime factor in
the determination of the Court ...
[13] In conclusion, as mentioned, some of
the test point one way and some of the test point another, but in
my opinion on a balance of probabilities I find that the Worker
was engaged under a contract for services, namely, an independent
contract.
[14] Consequently, the appeals are allowed
and the decisions of the Minister are vacated.
Signed at Ottawa, Canada, this 29th day of June 2004.
O'Connor, J.
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