Stewart v. M.N.R., docket 1999-1467-EI

Date: 20000128

Docket: 1999-1467-EI

BETWEEN:

TERRY STEWART,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Judgment

Cain, D.J.T.C.C.

[1] This is an appeal by Terry Stewart, hereinafter referred to as the "Appellant", from a determination of the Minister of National Revenue, hereinafter referred to as the "Respondent", dated November 18, 1998 that the employment of the Appellant with D.L. Holdings, hereinafter referred to as the "Payor" from April 15, 1996 to September 29, 1996 and from May 2, 1997 to September 29, 1997, hereinafter referred to as "the period in question" was not insurable employment under the Unemployment Insurance Act and the Employment Insurance Act as there was no employer-employee relationship and therefore no contract of service.

Facts

[2] The Respondent based his determination upon the following assumptions of fact set out in the Reply to the Notice of Appeal:

"(a) The reported Payor was not a registered company;

the Payor was registered with Revenue Canada as Richard Chandler o/a D.L. Holdings for the remittance of employee deductions and issuance of T4’s;

the Appellant had an agreement with the owner of Boardwalk Driving Range at Magic Mountain, in Moncton, to operate the driving range and to offer golf lessons;

the fee for the Appellant’s services was paid by cheques issued in the name of Don Lynn Holdings Limited;

Don Lynn Holdings Limited is a duly registered corporation whose directors were the Appellant and his spouse Elizabeth Stewart;

the Payor used the bank account in the name of Don Lynn Holdings Limited for all its transactions;

Carol Chandler, Richard Chandler’s mother, had signing authority to the bank account mentioned in subparagraph f) above during the periods in question;

for the period in question as it relates to 1996, the Appellant signed all the cheques except for those issued to the Receiver General, which were signed by Carol Chandler;

for the period in question as it related to 1997, Carol Chandler signed most of the cheques issued;

in addition to his responsibilities at the Boardwalk Driving Range, the Appellant gave private golf lessons at various golf courses;

all of the fees for the golf lessons were paid directly to the Appellant by his clients;

the Appellant hired another worker to see to the Boardwalk Driving Range, while he gave the golf lessons elsewhere;

for the periods in question, the Appellant received 2 Records of Employment signed by Richard Chandler in 1996 reporting 24 weeks at $500.00 each and by Carol Chandler in 1997 reporting 20 weeks at $1,500.00 each;

there is no material evidence to show the amount of wages actually received by the Appellant during the periods in question;

after the periods in question, the Appellant officially established himself as a self-employed Golf pro and retained Carol Chandler as his bookkeeper;

during the periods in question, the Appellant was not employed by the Payor;

use of the Payor was devised to manipulate the process to qualify the Appellant for Unemployment/Employment Insurance benefits;

there was no contract of service between the Appellant and the Payor."

[3] The Appellant admitted assumptions (b), (e), (f), (g), (i), (j), (k) and (n) set out but denied all of the others assumptions set out in the said Reply including (p), (q) and (r) which are really in the nature of submissions.

[4] In respect to (a) the Appellant testified that he intended and did use a company that he and his wife had incorporated in the early 1980’s, but no corporate documents or minutes were introduced in support of that testimony and in 1996 remittances to government agencies were paid through an account registered as Richard Chandler o/a D.L. Holdings.

[5] In respect to (d) the Respondent led evidence to show that the fee for the Appellant’s services was paid by cheques issued by Don Lynn Holdings and not Don Lynn Holdings Limited.

[6] In respect to assumption (h) the Respondent filed with the Court Exhibit R-1 being the 45 cheques issued by Don Lynn Holdings for the year 1996, 43 of which were signed by the Appellant and 2 by Carol Chandler which confirms the assumption.

[7] In respect to (l) the Appellant testified that one Douglas Geldart was hired to assist in the operation of the driving range and he would have been the person in charge while the Appellant was elsewhere giving golf lessons.

[8] In respect to (m) the Appellant led no evidence to demolish that assumption.

[9] In respect to assumption (o) the Appellant admitted the facts therein contained but the assumption is irrelevant since its reference is to a time outside the periods in question.

[10] The Court must now deal with the assumptions (p), (q) and (r), which were denied by the Appellant.

Appellant's Evidence

[11] The Appellant testified that he and his ex-wife incorporated a company called D.L. Holdings Ltd. or Don Lynn Holdings Ltd. in the early 1980’s. The company operated a coffee shop and his ex-wife managed the shop and looked after all its management and financial administration. The Appellant and his wife were divorced some 4 or 5 years later and the Company became dormant.

[12] In 1995 one Carol Chandler, a personal friend of the Appellant, was interested in setting her son up in business and was interested in incorporating a company for that purpose. The Appellant offered to sell her his dormant company for $300 to save her the costs of incorporating a new company under terms that he would retain 20% of the issued capital stock. He assumed that Carol Chandler and her son held the balance of the capital stock. He made no inquiries and knew nothing of the procedure taken or the business done by the company or who managed it.

[13] In the winter of 1996 the Appellant was an assistant golf pro and was apprenticed to one Douglas Sullivan, an established golf pro in Moncton, New Brunswick. He was approached by the owners of Boardwalk Driving Range of Moncton to manage its operation during the spring, summer and fall for $15,000. The operation consisted of maintaining the driving range, dealing with customers and accounting to the owners of the revenue received. He accepted the offer but no written confirmation of the terms were reduced to writing.

[14] He wished to also give golf lessons and sought and obtained permission from Pro Sullivan to continue his apprenticeship at the driving range. Since as an apprentice he was prohibited by the by-laws of the Royal Canadian Professional Golf Association from accepting funds directly in respect to golf lessons, he approached Carol Chandler for the use of his old Company which was then dormant. As long as the money from golf lessons was received by someone other than himself, the Appellant testified that he would be in compliance with the by-laws. He testified that the company could then pay the lesson money to him.

[15] The Appellant testified that the negotiations between himself and Carol Chandler were, to use his own expression, "a kitchen table affair." She would have control of the whole operation and nothing could be done without her consent. No documentary evidence was introduced to show the arrangement between the Appellant and the Payor.

[16] The Appellant testified that he contacted the Department of National Revenue to determine that this system of operation was legal or proper and he was informed that it was. He could not remember who he spoke to at the Departmental office and did not obtain written confirmation of the opinion received.

[17] The Appellant worked at the driving range during the seasons 1996 and 1997. One Doug Geldart was hired as an employee who worked shifts with the Appellant but was not involved in golf lessons.

[18] The Appellant was unable to say how much his remuneration was for the driving range operation on a weekly basis but that he was paid by cheque.

[19] He thought the first year he was paid between $400 and $600 a week and during the second year $1,000 a week. The Appellant testified he gave lessons at the driving range and also at several golf courses around the Moncton area. The revenue received for all golf lessons was received by the Appellant in cash and placed in a box at the driving range. He pocketed that portion of the money weekly not required for the operation the following week.

[20] He was not aware whether Carol Chandler received remuneration for her services as general manager of the total operation.

[21] Carol Chandler confirmed the arrangement described by the Appellant but she was not able to give much information about the financial operation for those years since she had just been approached the day before to give evidence. She testified that she was consulted about decisions taken by the Company but that she depended on the Appellant because of his golf and business experience.

Decision

[22] In Hickman Motors Limited vs. The Queen [1997] 2 S.C.R. 336, the Supreme Court of Canada outlined the principles applicable when a person challenges the assumptions made by the Respondent. In that case the Court was dealing with assumptions made by the Respondent in making an assessment in a tax matter. The principles apply equally well to assumptions made by the Respondent in a ruling under the Unemployment Insurance Act. L’Heureux-Dubé J. said at p. 378:

"It is trite law that in taxation the standard of proof is the civil balance of probabilities ... and that within balance of probabilities, there can be varying degrees of proof required in order to discharge the onus, depending on the subject matter: ... The Minister, in making assessments, proceeds on assumptions... and the initial onus is on the taxpayer to "demolish" the Minister’s assumptions in the assessment ... The initial burden is only to "demolish" the exact assumptions made by the Minister but no more: ...

This initial onus of "demolishing" the Minister’s exact assumptions is met where the appellant makes out at least a prima facie case: ... The law is settled that unchallenged and uncontradicted evidence "demolishes" the Minister’s assumptions: ...

Where the Minister’s assumptions have been "demolished" by the appellant, "the onus ... shifts to the Minister to rebut the prima facie case" made out by the appellant and to prove the assumptions: ...

Where the burden has shifted to the Minister, and the Minister adduces no evidence whatsoever, the taxpayer is entitled to succeed: ..."

[23] A prima facie case is one supported by evidence which raises such a degree of probability in its favour that it must be accepted if believed by the Court unless it is rebutted or the contrary is proved. It may be contrasted with conclusive evidence which excludes the possibility of the truth of any other conclusion than the one established by that evidence.

[24] To satisfy the obligation of demolishing the assumptions of the Respondent was required to call sufficient evidence to establish a prima facie case. There is a well-recognized rule of evidence that the failure of a party or witness to give evidence, which was in the power of the party or witness to give or lead evidence by which the facts might have been elucidated, justifies the Court in drawing the inference that the evidence of the party or witness would have been unfavourable to the party to whom the failure was attributed. The party against whom the inference operates may explain it away by showing circumstances which prevented the production of such a witness (see Murray v. Saskatchewan [1952] 2 D.L.R. 499, at pp 505-506).

[25] At the outset the Court will deal with the confusion surrounding the entity through which the Appellant allegedly operated the business. In 1996 the business was registered as Richard Chandler o/a D. L. Holdings for purposes of remitting income tax deductions and Canada Pension Plan. The cheques used in 1996 for the business were issued in the name of "Don Lynn Holdings". The fact assumed by the Respondent is there is a corporation with the name Don Lynn Holdings Limited of which the Appellant and his ex-wife Lynn were at one time the directors and that assumption was not demolished by the evidence. It is impossible to be certain from the evidence which entity was used to operated the Payor’s business but in my view it makes little difference. The issue to be decided is whether the Appellant was an employee, that is, he was engaged by whatever entity under a contract of service.

[26] I was not impressed with the evidence of the Appellant chiefly because he did not appear to be very well prepared for the hearing or to demolish the assumptions of the Respondent, the onus being on him to do so.

[27] He was unable to tell the Court what his remuneration was during the periods in question, even though assumption (m), which was not demolished by the evidence of the Appellant, stated that Richard Chandler signed the record of employment for the Appellant in 1996 and reported employment for 24 weeks at $500.00 each and Carol Chandler signed the record of employment for 1997 reporting 20 weeks at $1,500.00 each. Exhibit R-1 were the cheques of Don Lynn Holdings for 1996 during the period in question for that year and the Appellant was paid only $3,829.00 by cheque. Since the Appellant testified that he pocketed the lesson money, presumably the balance of his income for that year was from that source. This is in direct conflict with the evidence of Carol Chandler who testified that all moneys from lessons were processed through the books of the Payor and the Appellant was in turn paid by cheque. No such cheques or records in support were produced.

[28] No evidence or revenue receipts were introduced. Revenues were not accounted for in the usual way. Entries were made on sheets of paper which have apparently now been lost.

[29] Carol Chandler who allegedly had the responsibility of operating the entity through which the Appellant claimed his eligibility, testified that she had not had an opportunity to review the financial affairs of the business because she had only been advised the day before that she would be required to give evidence at this hearing. The Notice of Appeal in this matter was filed on February 15, 1999 and a copy of the Notice of Appeal was forwarded to Carol Chandler giving her an opportunity to intervene in the appeal. As the person who allegedly ran this business, she chose not to intervene. At this time she was the bookkeeper of the Appellant in a new venture and presumably would have had the books in her possession or access thereto.

[30] In the final analysis, her evidence did little to corroborate the evidence of the Appellant because it failed to fill in the many gaps that exist. In the end the Court is left with the evidence of the Appellant which can be treated as being self-serving.

[31] The Appellant testified that Carol Chandler was in complete charge of the business, that she made all the decisions and he busied himself looking after the range and teaching golf. But during 1996 she signed only two cheques, those issued to the Receiver General of Canada and no evidence was led to show what those cheques were for. The rest of the cheques were written by the Appellant. Carol Chandler testified that while she made decisions for the business she depended upon the Appellant "100%" to advise her since he had experience in the golf operations.

[32] It would appear that the only reason for the Appellant’s association with Carol Chandler’s company was to comply with the by-laws of the Royal Canadian Golf Association. No copy of the by-laws was presented in evidence and the Court is left only with the explanation of the Appellant. If the Appellant was qualified to teach and charge for such teaching why was he not entitled to receive and account for the money paid for such lessons?

[33] The evidence of the Appellant has failed to demolish assumptions (p) (q) and (r). From the evidence led by the Appellant there should have been other oral and documentary evidence available to support his appeal. He has failed to lead that evidence and the Court draws an adverse inference as a result of that failure. I find that he operated the business as a sole proprietor with an accounting assist from Carol Chandler and/or the Payor whoever the Payor was.

[34] The Appellant’s appeal is dismissed.

Signed at Rothesay, New Brunswick, this 28^th day of January 2000.

"M.F. Cain"

D.J.T.C.C.