Woessner v. R., [1999] 4 CTC 2337, 99 DTC 1039

Beaubier T.C.J.:

These appeals pursuant to the General Procedure were heard together on common evidence at Calgary, Alberta on June 10, 1999. The Appellants called Ralph Woessner, son of Adolf and Helena, and Adolf Woessner to testify. The Respondent did not call any witnesses.

The issue is whether or not in 1986 and 1987 A. Woessner Construction Company Ltd. (the “Corporation”) was carrying on a specified investment business within the meaning of paragraph 125(7)(e) of the Income Tax Act in that its principal purpose was to derive income from property and that it did not meet the exceptions in subparagraphs 125(7)(^)(i) and (ii) that:

(i) the Corporation employs in the business throughout the year more than five full-time employees, or

(ii) in the course of carrying on an active business, an associated corporation provides service to the Appellant and the Appellant could reasonably be expected to require more than five full-time employees in lieu of those services.

On the evidence the only question to be decided is whether the Appellant employed more than five full-time employees in the business throughout 1986 and 1987.

The parties filed a Partial Agreed Statement of Facts (the “Facts”) which reads:

Partial Agreed Statement of Facts

The Appellants and the Respondent in the above captioned matters agree, for the purposes of these appeals only and without excluding proof of additional facts, to the existence of the following facts:

1. That A. Woessner Construction Company Ltd. (hereinafter the “Corporation”) is a body corporate registered pursuant to the laws of the Province of Alberta, with a registered office in the City of Calgary, in the Province of Alberta,

2. That the fiscal year end of the Corporation is November 30:

3. That during the 1986 and 1987 taxation years, the Corporation was the owner of commercial and residential rental properties located at the following addresses and described as follows:

a. 1830-18A Street SW, Calgary, Alberta, comprising a 12 suite residential apartment building;

b. 1005 Cameron Avenue SW, Calgary, Alberta, comprising a 20 suite residential apartment building;

C. 1212-14th Avenue SW, Calgary, Alberta, comprising a 30 suite residential apartment building;

d. 4202-17th Avenue SE, Calgary, Alberta, comprising a 18,000 square foot retail and office building;

e. 2525-16th Street SE, Calgary, Alberta, comprising a 13,440 square foot light industrial office and warehouse building;

f. 2530 Alyth Road SE, Calgary, Alberta, comprising a 11,480 square foot light industrial office and warehouse building;

g. 3530-11A Street NE, Calgary, Alberta, comprising a 27,000 square foot commercial office and warehouse building;

h. 1904-13th Avenue North, Lethbridge, Alberta, comprising a 28,000 square foot enclosed shopping and office building;

i. 1820-14th Avenue NE, Calgary, Alberta, comprising a 65 unit residential town-home complex.

4. That the commercial property owned by the Corporation at 3530-11A Street NE, Calgary, Alberta was purchased by the Corporation in the 1987 tax year.

5. That the Corporation employed Ralph Woessner during the 1986 taxation year and that he received a total of $33,000.00 in employment income from the Corporation in the 1986 taxation year.

6. That the Corporation employed Adolf Woessner during the 1986 taxation year and that he received a total of $29,340.00 in employment income from the Corporation in the 1986 taxation year. Adolf Woessner was also employed by Blue Horizon Properties Ltd. and Cedar Court Gardens Ltd. during the 1986 taxation year and received $18,656 and $41,996 in employment income from those corporations, respectively, in the 1986 taxation year.

7. That the Corporation employed Helena Woessner during the 1986 taxation year and that she received a total of $29,341.00 in employment income from the Corporation in the 1986 taxation year. Helena Woessner was also employed by Blue Horizon Properties Ltd. and Cedar Court Gardens Ltd. during the 1986 taxation year and received $18,656 and $41,996 in employment income from those corporations, respectively, in the 1986 taxation year.

8. That the Corporation employed Ralph Woessner in the 1987 taxation year and that he received a total of $36,000.00 in employment income from the Corporation in the 1987 taxation year.

9. That the Corporation employed Adolf Woessner in the 1987 taxation year and that he received a total of $12,700.50 in employment income from the Corporation in the 1987 taxation year. Adolf Woessner was also employed by Blue Horizon Properties Ltd. and Cedar Court Gardens Ltd., during the 1987 taxation year and received $24,681 and $42,652 in employment income from those corporations, respectively, in the 1987 taxation year.

10. That the Corporation employed Helena Woessner in the 1987 taxation year and that she received a total of $12,700.50 in employment income from the Corporation in the 1987 taxation year. Helena Woessner was also employed by Blue Horizon Properties Ltd. and Cedar Court Gardens Ltd. during the 1987 taxation year and received $24,681 and $42,652 in employment income from those corporations, respectively, in the 1987 taxation year.

11. That the duties of Ralph Woessner throughout his period of employment with the Corporation during the 1986 and 1987 taxation years included, but were not limited to, the following:

a. general accounting duties;

b. purchasing of supplies, equipment, material, and the procuring of wholesale and trade contracts;

C. general property management, including lease negotiation, advertising and promotion, market analysis, minor repairs and maintenance, with respect to both the commercial and residential properties owned by the Corporation; and

d. banking.

12. The duties of Adolf Woessner throughout his period of employment with the Corporation during the 1986 and 1987 taxation years included, but were not limited to, the following:

a. corporate planning and direction;

b. market and investment analysis respecting prospective property purchases;

C. overall supervision and management of administrative and op- erational activities;

d. construction and contracting supervision;

e. banking; and

e. general repairs and maintenance.

13. The duties of Helena Woessner throughout her period of employment with the Corporation during the 1986 and 1987 taxation years included, but were not limited to, the following:

a. general secretarial duties, including issuance of accounts and collection of accounts receivable, typing and filing of all documentation, preparation of lease documentation, preparation of correspondence, and attending to incoming correspondence and telephone calls;

b. corporate planning and direction, and

c. providing of interior and exterior design respecting the properties owned by the Corporation.

14. That on December 1, 1987, Adolf Woessner transferred 6,900 Class “A” Shares in the Corporation to his three children at a fair market value of $243,777 resulting in a capital gain of $199,962.

15. That on July 20, 1988, Adolf Woessner filed a Form T221 1, dated May 31, 1988, pursuant to the provisions of subsection 73(5) of the Income Tax Act deferring the capital gain referred to in Paragraph 14, above.

16. That on October, 11, 1989, the Minister of National Revenue (hereinafter the “Minister”) reassessed Adolph Woessner to deny the deferral of the capital gain mentioned in Paragraph 14, above, and to include into income a taxable capital gain in the amount of $99,981 for the 1987 taxation year.

17. That by Notice of Objection dated November 7, 1989, Adolph Woessner objected to the reassessment noted in Paragraph 16, above.

18. That by Notice of Confirmation dated February 29, 1996, the Minister confirmed the reassessment noted in Paragraph 16, above, on the basis that it had not been shown that the shares of the Corporation transferred as stated above were not shares of a “specified investment business” as such is defined in paragraph 127(7)(e) of the Income Tax Act.

19, That on December 1, 1987, Helena Woessner transferred 6,900 Class

“A” Shares in the Corporation to her three children at a fair market value of $243,777 resulting in a capital gain of $199,962.

20. That on July 20, 1988, Helena Woessner filed a Form T2211, dated May 31, 1988, pursuant to the provisions of subsection 73(5) of the Income Tax Act deferring the capital gain referred to in Paragraph 19, above.

21. That on October, 1 1, 1989, the Minister reassessed Helena Woessner to deny the deferral of the capital gain mentioned in Paragraph 19, above, and to include into income a taxable capital gain in the amount of $99,981 for the 1987 taxation year.

22. That by Notice of Objection dated November 7, 1989, Helena Woessner objected to the reassessment noted in Paragraph 21, above.

23. That by Notice of Confirmation dated March 1, 1996, the Minister confirmed the reassessment noted in Paragraph 21, above, on the basis that it had not been shown that the shares of the Corporation transferred as stated above were not shares of a “specified investment business” as such is defined in paragraph 127(7)(e) of the Income Tax Act.

24. That the Corporation claimed small business deductions for the 1986 and 1987 taxation years in the amounts of $21,000 and $42,000 respectively.

25. That on November 24, 1989, the Minister reassessed the Corporation to disallow the small business deductions mentioned in Paragraph 24, above, on the grounds that the Corporation was carrying on a “specified investment business” as defined in paragraph 125(7)(e) of the Income Tax Act.

26. That the Corporation objected to the reassessment mentioned in Paragraph 25, above, by Notice of Objection dated January 15, 1990. By Notice of Confirmation dated February 29, 1996 the Respondent confirmed the reassessment.

Ralph testified that both Cedar Court Gardens Ltd. (“Cedar Court”) and Blue Horizon Properties Ltd. (“Blue Horizon”) paid Adolf and Helena by simply bonusing out surplus money each year and that these salaries were not based on work done. Rather, they were financially determined. Blue Horizon’s properties were all in Vernon, British Columbia whereas Cedar Court owned 65 residential premises in Calgary. Adolf and Helena each owned one-half of both the Corporation and Cedar Court. Adolf owned 60% of Blue Horizon and Helena and their three children each owned 10% of it.

At one point in his testimony, Ralph estimated that the weekly hours of his parents in 1986 and 1987 were divided as follows:

This estimate accords with the location and nature (commercial or residential) of the properties of the Corporation. Ralph appears to have worked about the same hours per week (60 - 70) but to have spent them on Corporation’s work.

The Corporation operated its office in Adolf and Helena’s home and Helena answered its phone and did the duties described. The Corporation obtained its own tenants, wrote its own leases, did its own repairs, renova tions and maintenance, collected its own rent and arrears, and was a hands- on operation of the Woessners. Adolf appears to be in his 60’s or 70’s and Ralph appears to be in his late 30’s. Ralph left his job in accounting with a national telephone company to join the Corporation in 1985 when Adolf and Helena realized that they could no longer handle all of the work. Adolf built most of the properties described in paragraph 3 of the Facts and he did the repairs and tenant improvements himself as did Ralph once he became employed. They also did the routine inspections and maintenance of the buildings other than the apartment buildings. If the managers of the apartment buildings could not do maintenance and repairs, then they did those as well. Generally speaking, the Corporation only hired carpet layers and painters for this work.

Turnover in the residential buildings was 100% per year. Vacancies in apartment buildings and strip malls in Calgary in 1986 and 1987 were as high as 40% and the rental market was very competitive. In essence the Corporation’s non-residential buildings in Calgary can be described as strip malls of various types. The Lethbridge building was a shopping mall complex.

Because the Corporation was a hands-on operation of the three Woessners which required Adolf and Ralph to be out doing their sales, administration and repair duties everyday and also required someone knowledgeable like Helena to be at the office answering the phone and doing routine office work every day, the Court finds as a fact that during 1986 and 1987 Ralph, Adolf and Helena were full time employees of the Corporation.

The question remaining to be answered is whether there were more than two other full time employees of the Corporation in 1986 and 1987. The answer to this question turns on the residential building managers and their employment by the Corporation.

The Corporation hired one of a couple as residential building manager of each apartment building. The criteria for hiring were:

I. That the manager be available 24 hours per day.

2. That the manager has handyman skills.

3. That the manager is presentable.

The managers were paid approximately $20.00 per month per suite in the building managed, which was the going rate at the time in Calgary. The choice of which member of the couple received the T-4 slip was left to the couple as was the choice for the payee of the Corporation’s monthly cheques.

The Corporation hired a couple to manage each apartment building so that one of the couple would always be at the building over the 24 hour day while the other worked at another job. The payees for each apartment building for 1986 and 1987, their terms of employment and wages for each year were:

Based on Ralph’s testimony and Exhibit A-1, Tabs 3 and 6.

In contrast to the evidence presented in Ben Raedarc Holdings Ltd. v. R., (1997), 98 D.T.C. 1218 (T.C.C.), there is no evidence before the Court as to what were the normally scheduled hours of work established for building managers in the Calgary area during the periods in question and whether or not the workers worked all or substantially all of those hours (see page 1224). Rather, the evidence is that a monthly rate of pay of $20.00 per suite was the industry standard of pay, that the managers cleaned, did the maintenance, showed the suites to prospective tenants, were on call 24 hours per day and that a greater number of suites in a building required more work from a manager.

The expression “full-time employees” used in subparagraph 125(7)(e)(i) is not defined in the Income Tax Act. “Full-time” is used as an adjective. The Canadian Oxford Dictionary defines the word, using the hyphen, as follows:

full-time adj., adv. & n. ° adj. occupying or using the whole of the available working time (a full time job). • adv. on a full-time basis (works full time). • n. (full time) 1 the total normal duration of work etc. 2 the end of a soccer etc. game

Ralph and Adolf were clear in their testimony: the Corporation did not intend to pay the managers a living wage. $20.00 per suite would supplement most managers’ incomes and enable them to save to buy a home. Similarly, couples were hired so that while one was working at another job, the second person could be on call at the building. In other words, managing the building would not occupy or use the whole of the manager’s (or the couple’s) available working time unless a building had a very large number of apartment suites. In the Appellant’s case, the maximum number of suites was 30 at 1212-14 Ave. S.W. for which the manager was paid approximately $600.00 per month.

In À. v. Hughes & Co. Holdings Ltd., [1994] 2 C.T.C. 170 (Fed. T.D.) at 178, Muldoon J. contrasted the meanings of “full-time” and “part-time”. He said:

Mr. Hughes was at the material times a “workaholic” barrister and solicitor — an undoubtedly full-time practising lawyer or perhaps a more-than-full-time practising lawyer. The other services which he rendered to the taxpayer were not such as one pursues as full-time employment either in terms of time invested or remuneration received.

The plaintiff also resorts to the definition of the expression “full-time”, found in three other sources of authoritative dictionaries:

The Oxford English Dictionary, 2nd ed. 1989, Clarendon:

Full time. The total number of hours normally allotted to daily or weekly work, etc. Chiefly attrib. (hyphened) and advb., esp. in sense that occupies all one’s time, that engages one to the exclusion of other activities.

Webster’s Ninth New Collegiate Dictionary:

Full-time: employed for or involving full time ( - employees) ( — work)

Full time: the amount of time considered the normal or standard amount for working during a given period.

Dictionary of Canadian Law, Dukelow & Nuse, Carswell:

FULL-TIME BASIS. In relation to an employee of a particular class, means engaged to work, throughout the year, all or substantially all of the normally scheduled hours of work established for persons in that class of employees.

FULL-TIME EMPLOYEE. An employee whose regular work week exceeds thirty hours.

FULL TIME EMPLOYMENT. var. FULL-TIME EMPLOYMENT. I. Employment requiring continuous service in an office or position, where the employee is normally required to work the minimum number of hours prescribed by the person having authority to establish the hours of such employment. 2. ... [public service]....

The Court finds that Mr. Hughes’ employment with the taxpayer corporation was not full-time within the meaning of that adjectival phrase revealed in the above cited reasonable and authoritative sources. The defendant’s assertion of the meaning of full-time usurps the meaning of “part-time”. Dukelow & Nuse, in their cited work, give full meaning to the adjectival expression part-time employee:

l. A person employed for irregular hours of duty or for specific intermittent periods, or both, during a day, week, month or year and whose services are not required for the normal work day, week, month or year, as the case may be. 2. A person who is regularly employed to work less than the full number of working hours in each working day or less than the full number of regular working days in each month.

That is just what describes Mr. Hughes’ employment with the defendant corporation. 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.

That is the case here. The managers had irregular hours of duty. They were not required to work a normal work day, week or month. They were regularly employed to work fewer than the regular working hours of each working day. The manager’s spouse could, and did, do the work on occasion or frequently. Except for being on call, there may have been days when no work had to be done. The managers may not even have been employees, since their spouses sometimes did the work, were sometimes paid for the work and were sometimes the recipients of the T-4 slips for income tax purposes. However, that question was not put in issue by the assumptions in the Amended Reply to the Corporation’s Notice of Appeal. But it specifically denied that the Corporation employed more than five full-time employees in 1986 or 1987.

For the foregoing reasons the Court finds that the residential building managers were not full-time employees of the Corporation in 1986 and 1987. The Corporation did not have more than five full-time employees in either 1986 or 1987.

The appeals are dismissed.

The Respondent is awarded party and party costs in respect to each appeal, but only one set of costs is awarded for the hearing itself.

Appeal dismissed.