Date:
20020722
Docket:
2001-2091-IT-I
BETWEEN:
IAN LOUIE,
Appellant,
and
HER MAJESTY THE
QUEEN,
Respondent.
Reasons for
Judgment
O'Connor,
J.T.C.C.
[1] This issue in this appeal is
whether the Appellant, as a director of Tudor Merchandising
Services Leasing Inc. ("Tudor" or
"Corporation") is liable under subsection 227.1(1) of
the Income Tax Act ("Act") for failure by
Tudor to remit federal tax of $10,675.88 in respect of certain
cafeteria workers, and a penalty of $1,845.47 and interest of
$143.44. The years in question are mentioned below.
[2] The Appellant takes the position
that the workers were independent contractors and the Minister
takes the position that they were indeed employees of
Tudor.
[3] In assessing the above amounts the
Minister made the following assumptions of fact:
a) the
Appellant was, at all material times, the sole director of the
Corporation;
b) on
January 31, 1994 the Corporation entered into a contact with
Canada Post, whereby the Corporation would operate a cafeteria at
one of the Canada Post's work sites;
c) in
operating the cafeteria, the Corporation retained the services of
the prior cafeteria operator's workers;
d) the
Corporation supplied all the tools and equipment to the cafeteria
operation;
e) the
Corporation's cafeteria workers had no risk of loss or
opportunity to profit by virtue of their cafeteria
work;
f)
the cafeteria workers were employed by the Corporation as
employees by way of contracts of service;
g) the
Corporation failed to remit to the Receiver General federal
income tax withheld from the wages paid to its cafeteria
employees as follows:
|
YEAR
|
Unremitted Federal Tax
|
|
1995
|
1,940.66
|
|
1996
|
$6,444.22
|
|
1997
|
$1,743.41
|
|
1998
|
$ 547.59
|
h) the
Corporation failed to pay penalties and interest relating to the
unremitted Federal tax as follows:
|
YEAR
|
Unremitted Penalties
|
Unremitted
Interest
|
|
1996
|
$1,162.08
|
nil
|
|
1997
|
$ 499.48
|
$5.44
|
|
1998
|
$ 183.91
|
$138.00
|
i)
the Minister issued a series of Assessments (the
"Assessments") against the Corporation respecting the
unremitted federal tax, interest and penalties;
j)
the Corporation did not object to the Assessments as provided for
under subsection 165(1) of the Income Tax Act (the
"Act");
k)
certificates including the amount of the Corporation's
liability for unremitted Federal income tax, penalties and
interest were registered in the Federal Court of Canada under
subsection 223(2) of the Act on July 19, 1996 and
November 8, 2000, and execution for such amount has
been returned wholly unsatisfied;
l)
the Appellant did not exercise the degree of care, diligence and
skill to prevent the failure to remit the said amount by the
Corporation that a reasonably prudent person would have exercised
in comparable circumstances.
[4] In my opinion all of these
assumptions were established or not proved false except paragraph
(b) (the contract was dated January 17, 1994); paragraph (c)
(only two prior workers were retained); (d) (not all tools were
supplied but substantially all tools were); and (f) and (l) are
questions of law to be analyzed below.
[5] Tudor was incorporated on March 1,
1988. The Appellant became its sole shareholder; chief executive
officer and director in 1988. Tudor, in January, 1994
purchased from the previous operator of the cafeteria, Canadian
National Institute for the Blind ("CNIB") the cafeteria
equipment it was using at a price of approximately $20,000. Tudor
took over the cafeteria operation in the Canada Post building in
Victoria, British Columbia. Tudor retained two of CNIB's
workers and retained approximately eight other workers in the
cafeteria operation. The cafeteria workers did not actually serve
tables but made goods available by way of a cafeteria operation
such as self-serve coffee, cookies, rolls, sandwiches, gum,
fruit, etc.
[6] Tudor's contract with Canada
Post dated January 17, 1994 (Exhibit R-1) obliged Tudor to
provide cafeteria workers and equipment to cook and serve food.
The two former CNIB workers taken on by Tudor had been considered
as employees by CNIB. The 1994 contract was extended to
January 31, 1996 (Exhibit R-2). Further Exhibit R-3
indicates that Tudor's cafeteria contract was only terminated
in 1998. Tudor's sole shareholder, director, chief executive
officer, operator and man-in-charge was the
Appellant.
[7] AMAR Investments Limited
("AMAR") was incorporated on November 20, 1989.
AMAR operated a general grocery store and had its own set of
employees including cashiers, stockers and cleaners. Some of
these employees would work from time to time in the cafeteria
operation. The principal supplies sold in the cafeteria operation
were furnished by AMAR by being delivered there, firstly by the
Appellant himself and later by another person. Tudor also owned
the main equipment in the grocery store which Tudor leased to
AMAR. AMAR's sole director was the Appellant.
ANALYSIS
[8] In applying the standard tests of
control, ownership of tools, chance for profit and risk of loss
and the integration test, it would appear that the cafeteria
workers were employees of Tudor during the relevant times. As a
general rule the cafeteria workers would not be required to have
a heavy degree of control but to the extent that there was any
control it was exercised by Tudor and certainly Tudor had the
ability to control. Tudor paid the wages of the cafeteria workers
at the rates of either $10 per hour or minimum wage. Tudor,
through its employees, would pay the grocery store for supplies
on a cash basis, operating an account with the grocery store of
AMAR.
[9] On the issue of tools, it is clear
that the cafeteria cooking equipment and the cafeteria licence
were owned by Tudor. To a small degree cafeteria workers could
have some personal gains by bringing their own baked goods or
other foods to the cafeteria and selling same for their own
account but it appears that the main goods sold were those
purchased from the grocery store. There would be no risk of loss
for the cafeteria workers. The workers were an integral part of
the cafeteria operation. I conclude therefore that the cafeteria
workers were employees of Tudor and it is clear that although the
Appellant was not too active with the operations of Tudor from
and after 1995 nevertheless the Appellant never resigned as a
director of Tudor. It also appears for a certain period of time
after 1995 he relied on his bookkeeper and on one former employee
of CNIB named Fred Voks who became the manager of the cafeteria
but the fact remains the Appellant never resigned as director and
was not prevented from closing the cafeteria in 1995 when certain
assets of AMAR and of the Appellant were apparently seized and
Tudor's contract was only terminated by Canada Post in
1998.
[10]
Further, the actions of the Appellant, in my opinion, did not
constitute due diligence and consequently that defence is not
available to him as director.
[11]
For all of the above reasons the appeal is dismissed.
Signed at Ottawa, Canada, this 22nd day of
July, 2002.
J.T.C.C.
COURT FILE
NO.:
2001-2091(IT)I
STYLE OF
CAUSE:
Ian Louie v. Her Majesty the Queen
PLACE OF
HEARING:
Vancouver, British Columbia
DATE OF
HEARING:
June 4, 2002
REASONS FOR JUDGMENT
BY: The Honourable Judge Terrence
O'Connor
DATE OF
JUDGMENT:
July 22, 2002
APPEARANCES:
For the
Appellant:
The Appellant himself
Counsel for the
Respondent: Johanna Russell
COUNSEL OF
RECORD:
For the
Appellant:
Name:
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2001-2091(IT)I
BETWEEN:
IAN LOUIE,
Appellant,
and
HER MAJESTY THE
QUEEN,
Respondent.
Appeal heard on June 4,
2002 at Vancouver, British Columbia, by
the Honourable Judge
Terrence O'Connor
Appearances
For the
Appellant:
The Appellant himself
Counsel for the
Respondent:
Johanna Russell
JUDGMENT
The appeal from the assessment made under the Income Tax
Act, notice of which is dated January 26, 2001 and bears
number 17556 is dismissed in accordance with the attached Reasons
for Judgment.
Signed at Ottawa,
Canada this 22nd day of July, 2002.
J.T.C.C.
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