REASONS
FOR JUDGMENT
Paris J.
[1]
Under subsection 125(1) of the Income Tax Act
(the “Act”), a Canadian‑controlled private corporation is entitled to
claim the small business deduction in relation to active business income earned
in Canada. The small business deduction is not available on income from a
specified investment business carried on by a corporation.
[2]
A specified investment business does not include
a business that has more than five full-time employees or could, without the services
of associated corporations, reasonably be expected to require more than five
full-time employees.
[3]
The issue in this appeal is whether the
Appellant carried on a specified investment business during its 2010, 2011 and
2012 taxation years. Those taxation years cover the period from September 1,
2009 to August 31, 2012.
[4]
Since the Appellant employed fewer than five
full-time employees in the years in issue, the case turns on whether it could
reasonably have been expected to require more than five full-time employees, if
not for the services that were provided to it by its associated corporations.
Facts
The Appellant’s Operations
[5]
During the period in issue, the Appellant’s
business primarily consisted of owning and renting real estate in downtown Vancouver.
[6]
Its rental property portfolio was made up of
five buildings. One, the “Beaconsfield”, had 40 units and was located at 884
Bute Street. The remaining four buildings were adjacent to one another and
contained 40 units in all. Those buildings consisted of a six storey apartment
building at 601 Bute Street, another small apartment building at 1218 Melville
Street, a house at 649 Bute Street, and a rooming house at 1222 Melville
Street. This group of buildings was collectively referred to by the Appellant
as the “Stadacona”, the name of the largest building of the four. In these reasons, I
will refer to the group as the “Stadacona” as well.
[7]
Brent Wolverton is the president and a director
of the Appellant and has been in charge of its operations since the early
1990s.
Associated Corporations
[8]
The two associated corporations that provided
services to the Appellant during the years in issue were Pacific Investment
Corporation Limited (“PIC”) and Wolverton Securities Ltd (“WSL”).
[9]
PIC was in the business of developing, building
and holding real estate in the Vancouver area. It owned two residential
apartment buildings, the “Holly
Lodge”, with 84 suites and “Caroline Court” with 75 suites, and a commercial building. It also
owned a number of restaurants and breweries and brew pubs, either directly or
through subsidiaries.
[10]
WSL was a securities brokerage business with offices
across Western Canada. It had between 25,000 and 35,000 customers and revenues
in the tens of millions of dollars. It had between 125 and 150 employees,
including about 25 accountants, and a payroll of around $3 million.
[11]
The Appellant, PIC and WSL were associated with
each other for the purposes of subsection 256(1) of the Act, because
members of the Wolverton family directly or indirectly controlled all three
corporations.
[12]
Brent Wolverton is also the president and a
director of PIC, and was the CEO of WSL until WSL sold its business in 2016.
Overview of the Appellant’s Operations
[13]
During the years in issue, Brent Wolverton was
active in managing the Appellant’s business. The Appellant also used an arm’s
length property management company, Dorset Realty Group Canada Limited
(“Dorset”), and employed an operations manager and resident managers for its
buildings.
[14]
In addition, certain management, accounting and
administrative services were performed for the Appellant by employees of PIC
and WSL.
Dorset’s Role
[15]
Dorset provided property management services to
the Appellant under a contract entered into in 2004. Although the testimony of
Brent Wolverton and Kim Schuss, the owner of Dorset, did not fully align with
respect to the work done by Dorset for the Appellant, I am satisfied that
Dorset:
-accounted for
the rent and deposited it after it was collected by the building managers,
-renewed leases
and assisted the Appellant in setting rent increases,
-approved new
tenants after conducting credit checks and speaking to references and prepared
eviction notices and dealt with tenant disputes and proceedings before the
Residential Tenancy Board,
-provided payroll
services for the Appellant’s employees, issued T4 slips and made remittances,
-did some
supervision of the building managers and hired new building managers with the
approval of Brent Wolverton,
-tracked income
and expenses for the buildings and maintained most of the paperwork pertaining
to its operations, including the rental roll, contracts, tenancy agreements,
rent increases, eviction notices and invoices,
-kept track of
property assessments and property taxes and filed property tax appeals,
-arranged for
ongoing services for the buildings, such as garbage removal and negotiated some
contracts for materials and supplies,
-arranged for
some incidental repairs, and on larger repair projects found tradespeople and
obtained quotes for Brent Wolverton and the operations manager, and
-conducted
inspections of the buildings and helped with planning and budgeting repairs.
[16]
Huntly agreed to pay Dorset a fee equal to 2.75%
of the rents from the properties. The evidence showed that the Appellant in
fact paid Dorset close to 3% of rent collected, which was approximately $30,000
annually.
The Appellant’s Employees
i) Building
Managers
[17]
For all of the years in issue, the Appellant
employed a number of building managers who generally lived on site. For part of
the period in issue, PIC provided building managers for the Stadacona.
[18]
The building managers’ duties included
collecting rent, showing suites to prospective tenants, dealing with tenant
complaints, doing general maintenance and minor repairs, scheduling tenant moves
and doing suite inspections. Building managers also dealt with tenants who did
not pay and served eviction notices. Often, the Appellant hired a couple to
fill a building manager position, and the couple performed the duties as a
team.
[19]
Building managers were paid a salary calculated
on a 40 hour week at minimum wage. The couples who worked as building managers
split the pay for the position and were each issued a T4 by the Appellant,
generally for equal amounts.
[20]
It appears that there were no set work hours for
the building managers and they did not have to track their hours. They were not
required to be in the building during fixed hours but they did have to be
available when calls came in. Brent Wolverton said that the resident managers
were required to put in 40 hours a week, but were permitted to work those hours
when they wanted. He also said that resident managers were on call 24 hours a
day in case of emergency.
[21]
The building managers employed by the Appellant
were Jennifer Wells, Bradley and Jeeyoon Bennett, Stephen Hubley, Wendy Moore
and Murray Miller.
[22]
Jennifer Wells managed the Beaconsfield from May
15, 2010 to April 30, 2011 and the Stadacona for most of this period, from June
1, 2010 to April 30, 2011.
[23]
Bradley and Jeeyoon Bennett, a couple, worked as
Beaconsfield resident manager from May 1, 2011 until June 30, 2012.
[24]
Stephen Hubley was Beaconsfield’s
resident manager from July 1, 2012 until past the end of the period in appeal.
[25]
Wendy Moore and Murray Miller, a couple, were
the building managers of the Stadacona from September 1, 2009 to May 31, 2010.
[26]
On May 1, 2011, Jennifer Wells, ceased to be the
building manager of the Beaconsfield and ceased to be employed by the
Appellant. She was then hired by PIC as the building manager at the Holly
Lodge. However, while she was managing the Holly Lodge, she still continued to manage
the Stadacona and did so at least until the end of 2012. She was not paid by
the Appellant for her work at the Stadacona and was only paid by PIC during
that period.
[27]
Jennifer Wells’ husband, Paul Wells, assisted
her in managing the Holly Lodge and the Stadacona. He may also have assisted
her with the Beaconsfield, but the evidence is not clear on this point. He was
paid $11,000 and $23,350 by PIC in the 2011 and 2012 calendar years,
respectively.
ii) Operations
manager
[28]
Boz Najdovski was employed by both the Appellant
and PIC simultaneously as operations manager for their properties up until the
end of its 2010 taxation year. Brent Wolverton testified that Najdovski was a
long-time employee of the Wolverton group of companies and worked full-time for
the group.
[29]
Najdovski coordinated and supervised major
maintenance and repair projects, performed repairs and maintenance and
supervised the building managers for both the Appellant and PIC.
[30]
Najdovski had T4 income of $54,487.50 from the
Appellant in 2010. His T4 income from PIC that year was $36,144. Brent
Wolverton said that Najdovski’s salary from each company was based on the work
he did for them. Najdovski did not have set hours for either company but Brent
Wolverton testified that he was available full-time to the Appellant if needed.
[31]
Najdovski became ill and stopped working near
the end of the Appellant’s 2010 taxation year. He passed away in December 2010.
After Najdovski‘s death, the Appellant did not employ anyone in the operations
manager position again.
[32]
After Najdovski stopped working, and up to
December 2011, some of the operations manager duties had been performed for the
Appellant by Dorset, Brent Wolverton and Jennifer Wells and some of the major
repairs and maintenance work was put off.
[33]
In December 2011 WSL hired Togie Moyes to work
as the operations manager for both the Appellant and PIC. Moyes was an old
friend of Brent Wolverton’s and had previously worked for the Wolverton group
doing small jobs as an independent contractor.
iii) Other
Employees
[34]
Brent Wolverton received employment income of
$60,000 from the Appellant in its 2011 taxation year. He was not paid by the
Appellant in the other years in issue. He said that he provided high level
management services to the Appellant throughout the years in issue. No record
was kept of the hours he worked for the Appellant.
[35]
Linda Wolverton, Brent Wolverton’s spouse, was
paid wages of $35,000 by the Appellant in its 2010 taxation year. According to
Brent Wolverton, she was a “designated
backup” for the company, and was mainly there to
be available in emergencies and to collect some of the laundry money. He said
that the amount she was paid was fair compensation for making herself available
on a standby basis. She was not paid by the Appellant in the other years under
appeal.
[36]
In both 2010 and 2011, the Appellant paid wages
of $3,000 to Ellen Paterson, the Chief Financial Officer of WSL. According to Brent
Wolverton, she did some strategic accounting work for the Appellant in those
years.
[37]
The Appellant also had two part-time employees
in 2012, Xavier “Paco” Besne and Timothy Street, who did repairs and odd jobs.
Services Provided by WSL
[38]
As previously indicated, Togie Moyes, was hired
by WSL on a full-time basis in December 2011 to carry out the duties of
operations manager for the Appellant and PIC. Brent Wolverton said that Moyes
was available to both PIC and the Appellant on an as needed basis and that
Moyes did not perform any work for WSL. No explanation was given why he was
hired by WSL.
[39]
Moyes did not receive any remuneration from the
Appellant, and WSL did not bill the Appellant for his services. No record was
kept of the hours he worked for the Appellant.
[40]
Brent Wolverton said that other WSL employees
performed work for the Appellant.
[41]
He, himself, provided high level management
services to the Appellant throughout the period in question and his executive
assistant at WSL, Margaret Ferguson, assisted him in carrying out that work.
Her tasks included running his calendar, managing calls and taking notes at
meetings.
[42]
Brent Wolverton also said that WSL’s manager of
corporate finance, Rose Zanic, and WSL’s accounting staff were made available
to PIC and the Appellant as required. He testified that Zanic assisted with the
preparation of the Appellant’s financial statements, and worked on some
valuations and financial studies that related to the Appellant. However, at
discovery, he indicated that Zanic had not provided any services to the Appellant
during the period.
[43]
Brent Wolverton also said that one of the
accounting staff, Shelly Cheung assisted the Appellant by providing
bookkeeping, payables and other related services.
[44]
Brent Wolverton also testified that the services
provided by Ellen Paterson to the Appellant were more extensive than what she
was paid for by the Appellant and that she provided “strategic accounting” advice, but no specific evidence of those services was provided.
[45]
Brent Wolverton testified that part of the
services he and other WSL staff provided to the Appellant related to
redevelopment plans that were drawn up for the Stadacona site.
[46]
Wolverton said that the value of the Stadacona
had increased to about $50 million by 2009 and therefore that the Appellant was
unable to earn a satisfactory return from the existing rental units. There was
limited potential for rent increases because of rent controls, and the
buildings were old and in need of constant repair. Given the age and condition
of the Stadacona buildings, and given their prime downtown location, Wolverton
said that the Appellant felt that its best option would be to pursue
redevelopment of the Stadacona site.
[47]
In early 2009, the Appellant began to explore
the possibility of building new rental housing, and hired an architect to
outline some options. The Appellant also began discussions with the City of
Vancouver to find out what incentives were being offered for the construction
of new rental stock. Preliminary plans for a 47 storey tower with 368 rental
units were drawn up in April 2009. Wolverton said though, that this proposal
was never shown to the City and was simply part of the envisioning stage of the
planning process.
[48]
Brent Wolverton acknowledged that after the
preliminary plans were drawn up, work proceeded slowly due to the financial
crisis. Wolverton said that during and after the financial crisis he had to
focus on WSL’s securities business and did not have much time to spend on the
Stadacona redevelopment plans. He admitted that the planning process was stalled
for a few years and was not restarted again until 2013 and 2014. By 2016,
Huntly had settled on a redevelopment plan based on the initial options
outlined in 2009 and a revised plan was prepared by a new architect.
Services provided by PIC
[49]
As set out above, Jennifer Wells and her husband
worked as building managers of the Stadacona from May 1, 2011 through to the
end of the appeal period while they were employees of PIC. They also worked as
resident managers of the Holly Lodge, owned by PIC. Holly Lodge had 84 rental
units. The Stadacona had 79.
Appellant’s Position
[50]
The Appellant argues that the “but for” test
in paragraph (b) of the definition of “specified investment business” requires
one to count the actual full and part-time employees employed directly by the
Appellant and then add to that total the number of full and part-time employees
that could reasonably be expected to be required (or that might be required) if
the associated corporations had not provided any services.
[51]
The Appellant says that the test in paragraph
(b) is not applied on an employee-by-employee basis from the standpoint of the
corporation providing the services, but instead asks how many employees the
Appellant could reasonably be expected to require on its own. The Appellant says
that one must look at the services that are provided, whether there is overlap
between positions that could reasonably be merged into a single position and
then determine how many full‑time employees would reasonably be required
by the Appellant.
[52]
Also, the Appellant says that the test does not
contemplate the contracting out of the services provided by the associated
corporations, even where that might be more economical. The test requires a
determination of how many full‑time employees would be required by the
Appellant to perform those services.
[53]
The Appellant maintains that the phrase “could reasonably be expected to require”, means that they must show more than a mere possibility that the
Appellant would require more than five full-time employees, absent the services
provided by associated corporations. The theoretical employment of these
individuals must be likely, but the test does not require a standard as high as
on a balance of probabilities.
[54]
According to the Appellant, the Appellant’s
business during the relevant taxation years was comprised of the operation and
management of the Beaconsfield and the Stadacona plus the planning and
execution of a major construction project.
[55]
By the Appellant’s count, it employed at least
two full-time and two part‑time employees in its 2010 taxation year, one full-time
employee and two part‑time employees in 2011 and one full-time and two
part-time employees in 2012.
[56]
The full-time employees in the 2010 year were
the operations manager, Boz Najdovski, and one full-time building manager for
the Beaconsfield (Wendy Moore until May 2010 and then Jennifer Wells until the
end of the year.)
[57]
For the 2011 year, the full-time employee was
the Beaconsfield building manager (Jennifer Wells until May 2011 and Bradley
Bennett thereafter.)
[58]
For the 2012 year, the Appellant says its
full-time employees were the building manager of the Beaconsfield (Bradley
Bennett until July 2012 and Stephen Hubley until the end of the year.)
[59]
In order to replace the services provided by WSL
and PIC, the Appellant maintains it would have required four full-time
employees in its 2010 year: a CEO, and executive assistant to the CEO, a
chartered accountant, certified general accountant or equivalent and a staff
accountant or clerk. In addition to those positions, the Appellant says that it
would have required a full-time building manager to perform the services
provided by Jennifer and Paul Wells in respect of the Stadacona in its 2011 and
2012 taxation years, and finally, a full‑time operations manager to replace
Togie Moyes in the 2012 year.
[60]
In total, then, the Appellant says that it would
have required at least six full-time employees in its 2010 and 2011 taxation
years, and at least seven in its 2012 taxation year.
Statutory
Provisions
[61]
Subsection 125(1) sets out the small business
deduction, as follows:
:
Small business deduction
125 (1) There may be deducted from
the tax otherwise payable under this Part for a taxation year by a corporation
that was, throughout the taxation year, a Canadian-controlled private
corporation, an amount equal to the corporation’s small business deduction rate
for the taxation year multiplied by the least of
(a) the amount,
if any, by which the total of
(i) the total of
all amounts each of which is the amount of income of the corporation for the
year from an active business carried on in Canada, other than an amount that is
(Emphasis
added)
[62]
The small business deduction rate can only apply to income earned
by a corporation from an “active
business” and the definition of “active business” excludes a corporation that carries on a specified
investment business. As a result, if it is determined that the Appellant is
carrying on a specified investment business then it will not be able to access
the small business deduction.
[63]
The terms “active
business” and “specified investment business” are
defined in subsection 125(7), as follows:
active business carried on by a corporation means any business carried on by the corporation other than a
specified investment business or a personal services business and includes
an adventure or concern in the nature of trade;
(Emphasis added)
specified investment business, carried on by a corporation in a taxation year, means a business
(other than a business carried on by a credit union or a business of leasing
property other than real or immovable property) the principal purpose of which
is to derive income (including interest, dividends, rents and royalties) from
property but, except where the corporation was a prescribed labour-sponsored
venture capital corporation at any time in the year, does not include a
business carried on by the corporation in the year where
(a) the corporation employs in the business throughout the year more
than 5 full-time employees, or
(b) any other corporation associated with the corporation provides,
in the course of carrying on an active business, managerial, administrative,
financial, maintenance or other similar services to the corporation in the year
and the corporation could reasonably be expected to require more than 5
full-time employees if those services had not been provided;
(Emphasis
added)
[64]
In earlier jurisprudence there had been a
dispute over whether “more than 5 full-time employees” indicated that six
full-time employees were required. This argument was put to rest by this Court in
489599 B.C. Ltd. v. The Queen, 2008 TCC 332, where it was determined that
“more than 5 full-time employees” could be satisfied by five full-time
employees plus any part-time employees. However, it is clear that in reaching
five full-time employees, part-time employees could not be counted or added up
to constitute full-time Lerric Investments Corp v. The Queen, [1999] 2
CTC 2714.
[65]
The meaning of “full-time” employee in the
context of the definition of specified investment business has been examined by
the Federal Court in The Queen v. Hughes & Co. Holdings Ltd., 94 DTC
6511.The Court in Hughes focused on a regular work schedule and normal
working hours as key considerations in determining if an employee is full-time.
In finding that the employee in that case was not full-time, the Court said:
He was employed to work “for irregular
hours of duty”: his services were “not required for the normal work day, week,
month or year”: he was regularly employed to work fewer than the regular
working hours of each working day, if indeed his services were performed each
and every day. Parliament expressed the term “full-time employee” in the ordinarily
understood use of the words.
[66]
This approach was adopted by the Federal Court
of Appeal in Baker v. The Queen, 2005 FCA 185 at paras 14-15:
In my view, the conclusion by
Muldoon J. in Hughes and Co.,
supra, at page 6517, that the term “full-time” employment in the
definition of “specified investment business” is used in contra-distinction
with “part-time” employment, is correct. This distinction reflects the broad
consideration which Parliament had in mind when it provided for a minimum of
five full-time employment throughout the year. Only full-time employment, as
opposed to part-time employment, qualifies.
While
Town Properties employees worked five days a week, and to that extent were
regularly employed, they did not work the normal working hours of each day,
week and month. Indeed, their schedule of four hours per day allowed them to
pursue more than one job with relative ease.
[67]
Following the Federal Court of Appeal’s decision
in Baker, the test to determine whether an employee is full-time involves
examining whether the employees worked normal working hours each day, week and
month.
Analysis
[68]
In these appeals, the Appellant’s principal
purpose was to derive rental income from residential properties. Therefore, its
business would be considered a specified investment business, unless one of the
exceptions in the definition of that term applies.
[69]
Since the Appellant did not directly employ more
than five full-time employees in any of the relevant taxation years, the only
exception that could apply is found in paragraph (b) of the definition of
“specified investment business”. The exception in paragraph (b) posits a
hypothetical “but for” test to determine whether a corporation can avoid
classification as a specified investment business: but for the services
provided by associated corporations, could the Appellant reasonably be expected
to require more than five full-time employees.
[70]
The Appellant correctly states that, in order to
apply the test, it is first necessary to know how many full-time employees the
Appellant in fact employed in the years in issue.
[71]
The next step is to determine how many full-time
employees would be required in respect of the services performed by the
associated corporations.
[72]
I agree with the Appellant’s submission that the
test only contemplates the use of employees by the Appellant to perform the
relevant services, and not outside contractors, since the language of the
provision only refers to the use of employees. Otherwise, it seems to me that
it could be argued that all of the services provided by the associated
corporations could be performed by independent contractors and therefore the
exception in paragraph (b) might never apply.
[73]
I do not agree, however, that the test excludes
consideration of replacing the services of the associated corporations with
part-time employees. The use of the phrase “could reasonably be expected” must
be given its ordinary meaning, and clearly it would not be reasonable to expect
a corporation to hire a full-time employee where there would only be enough
work to occupy an employee part‑time. The text of the provision is, in my
opinion, clear and unambiguous in this respect.
[74]
In addition, the Appellant also submitted that
the phrase “could reasonably be expected to require” imposed a lower burden of
proof on the Appellant than a balance of probabilities. Given my conclusions
below, it is not necessary to deal with this point.
[75]
I will turn first to the question of how many
full-time employees the Appellant had during the period in question.
[76]
According to the evidence, the Appellant mostly
employed couples as building managers, and in each case it appears that the
couples split a full-time position between them. Since each person in the
couple was paid for his or her portion of the work, I conclude that each person
in the couple was in fact employed part-time by the Appellant. This conclusion
is supported by the separate T4 slips issued to Wendy Moore and Murray Miller,
and Bradley and Jeeyoon Bennett.
[77]
Only Jennifer Wells was employed full-time, from
May 1, 2010 until April 30, 2011. That period spanned a portion of each of
the Appellant’s 2010 and 2011 taxation years. Therefore, Wells was not employed
full-time throughout either of those years.
[78]
It follows that the Appellant did not employ any
building managers full‑time throughout any of the years in issue.
[79]
The Appellant also says that Boz Najdovski was a
full-time employee in its 2010 taxation year. However, Najdovski worked for
both the Appellant and PIC during that time, and Brent Wolverton testified that
Najdovski’s salary from each corporation was based on the work he performed for
them. According to the amounts he was paid in 2010, he worked 60.1% of his time
for the Appellant. In light of the apportionment of Najdovski’s salary between
the Appellant and PIC, I do not accept that he was made available to the
Appellant full-time, as Wolverton said he was. It makes no sense to say that
Najdovski was made available to the Appellant while he was in fact performing
work for PIC.
[80]
I find that Najdovski was not a full-time
employee of the Appellant in its 2010 taxation year.
[81]
Therefore, based on the evidence produced at the
hearing, I conclude that the Appellant had no full-time employees throughout
any of the years in appeal.
[82]
Next, I must determine how many full-time
employees the Appellant would have required to replace the services provided by
WSL and PIC.
[83]
The Appellant maintains that, to replace those
services, it would have required four full-time employees in its 2010 year: a
CEO, an executive assistant to the CEO, a chartered accountant or certified
general accountant or equivalent, and a staff accountant or clerk.
[84]
In addition to those positions, the Appellant
says that it would have also required a full-time building manager to perform
the services provided by Jennifer and Paul Wells in respect of the Stadacona in
its 2011 and 2012 taxation years, and finally, a full-time operations manager
to replace the services of Togie Moyes in the 2012 year.
[85]
The Appellant’s contention that it would have
required a full‑time CEO, executive assistant, accountant or CFO and
accounting clerk is in large part predicated on the proposition that it was
actively pursuing a redevelopment proposal in respect of its Stadacona site
during its 2010 to 2012 taxation years. I find that the evidence does not
support a finding that the Appellant was actively pursuing redevelopment during
the years in issue. The only documents relating to the redevelopment activity
submitted at the hearing were the architectural plans from 2009 and 2016. In
light of Brent Wolverton’s admission that the redevelopment activity was at a
standstill for a number of years after the 2009 plans were drawn up, and given
the lack of any evidence of any steps taken in furtherance of the redevelopment
in the years in issue, I infer that little, if anything was done in that
regard. Also, had any work been undertaken on the redevelopment proposal during
the years in issue, I would have expected that work to have been reflected in
contemporaneous documentation or records. The failure of the Appellant to
produce such material at the hearing also supports the inference that the
project was at a standstill.
[86]
I also find that the services performed by Brent
Wolverton for the Appellant consisted mainly of providing direction to and
supervision of the operations manager and Dorset and certain employees of WSL.
He also assisted on occasion with tasks such as the redrafting of the rental
agreement used by the Appellant. By his own admission, he spent the majority of
his time during the relevant period on WSL business and also managed the
affairs of PIC. I note that PIC’s rental portfolio was almost double the size
of the Appellant’s and that PIC was also involved in a number of active
business ventures. I therefore find it likely that Wolverton would have had to
spend more time on the management of PIC’s affairs than on those of the
Appellant, and that in light of Wolverton’s other duties (for both WSL and PIC),
it is more likely than not that the services he performed for the Appellant
would only have taken up a minor part of his time. This conclusion would also
be supported by the fact that WSL did not charge the Appellant for the services
provided by Brent Wolverton or attempt to track his time or apportion his
salary to account for work done for the Appellant and PIC.
[87]
For these reasons, I am not satisfied that the
Appellant has met the burden of showing that in the absence of Wolverton’s
services, it would have required a full-time CEO. It follows from this
conclusion that a full-time executive assistant would not have been required by
the Appellant to replace the services of Margaret Ferguson, Wolverton’s
executive assistant at WSL.
[88]
The Appellant has also failed to convince me
that it would have required a full-time accountant and accounting clerk but for
the services provided by Rose Zanic and the accounting staff at WSL. Zanic was
not called to testify, nor was any other employee of WSL’s accounting
department. It is difficult to assess the extent of the services they performed
for the Appellant in the absence of such testimony. Wolverton, himself, said
that he could not determine how many hours any of these WSL employees spent
working on the Appellant’s matters and that WSL did not bill the Appellant for
any of their work. Furthermore, I question the reliability of Wolverton’s
testimony concerning the extent of the services provided by Rose Zanic’s, in
light of his statement on discovery that he did not recall her doing any work
for the Appellant. His explanation that he had since seen material that allowed
him to recall what she did was not corroborated by reference to any document
put in evidence.
[89]
On the other hand, I accept the testimony of Kim
Schuss that the day‑to‑day accounting for the Appellant was done by
Dorset under the Property Management Agreement. His evidence is consistent with
Wolverton’s testimony that most of the accounting services provided to the
Appellant by WSL staff were performed around the Appellant’s year end and
related to the preparation of the financial statements.
[90]
With regard to the services provided by Ellen Paterson,
I note that she received wages from the Appellant of only $3,000 in 2010 and
2011, which tends to show that she provided a very modest level of support to
the Appellant during those periods. Brent Wolverton’s testimony about her role vis-à-vis
the Appellant lacked detail and, in the absence of testimony from Ms. Paterson
or records of time spent by her on the Appellant’s business, I am not convinced
that she spent much time providing services to the Appellant.
[91]
The Appellant also maintains that without the
services provided by PIC employees Jennifer and Paul Wells from May 1, 2011
through to the end of August 2012, the Appellant would have required a
full-time building manager for the Stadacona. I accept that this was the case.
All of the evidence suggests that the building manager position was a full-time
position for one person. The salary of the building managers was set on the
basis of 40 hours of work per week at minimum wage, and while the hours were
flexible, where the job was performed by one individual, the manager was
required to work the regular number of working hours each week that is
considered full-time. However, Paul and Jennifer Wells only became employees of
PIC in May 2011 and therefore PIC only provided their services to the Appellant
for a portion of the Appellant’s 2011 taxation year and the whole of its 2012
taxation year. Accordingly, the Appellant would have required a full-time
employee to replace the Wells’ services throughout the Appellant’s 2012
taxation year only.
[92]
Lastly, the Appellant submitted that without the
services of Togie Moyes, who was employed by WSL, it would have required a
full-time operations manager. The difficulty with this position is that Moyes
acted as operations manager for both the Appellant and PIC, and PIC’s rental
portfolio was roughly double the size of the Appellant’s. Therefore, it would
seem implausible that the Appellant would have required a full-time operations
manager to replace Moyes’ services in its 2012 taxation year. In any event, in
the absence of any precise evidence of how much time Moyes spent on each
corporation’s business, it is impossible for me to determine the extent of the
work he did for the Appellant. The lack of evidence leads me to conclude that
the Appellant has not met the onus on it regarding Moyes’ services.
Conclusion
[93]
In summary, the Appellant has only been able to
convince me that it would have required one full-time employee in its 2012
taxation year in the absence of the services that were provided to it by WSL
and PIC. Since it has not shown that, in the absence of the services provided
by WSL and PIC, it would have required more than five full-time employees throughout
the years in issue, I find that it carried on a specified investment business
in those years.
[94]
The appeals are dismissed, with costs to the
Respondent.
Signed at Vancouver, British Columbia this 21st
day of December 2017.
“B.Paris”
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