Date: 20020416
Docket: 2001-1678-IT-I,
2001-1681-IT-I
BETWEEN:
REEVES BRADSHAW,
MICHAEL KRAAG
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor
Judgment
Bonner, T.C.J.
[1]
The Appellants appeal from assessments of Income Tax for
the 1992, 1993 and 1994 taxation years.
[2]
The issue is who is taxable on salary payments received by the
Appellants from their employer Reeves Bradshaw Consultants Inc.
(the "Company"). In each case the Minister of National
Revenue assessed tax on the basis that salary payments made by
cheque payable to the Appellants were the income of the payee
named on the cheque.
[3]
The Appellants contend that salary cheques which they received
from the Company included payments of spousal salary. They say
that, in relation to the spousal salary, they served merely as
conduit pipes or trustees and that they could not be properly
taxed on money which simply passed through their hands en route
to their spouses.
[4] I
can readily accept the proposition that a person who receives a
payment of salary as trustee or agent of the employee who earned
it cannot be taxed on the payment. The question here however is
whether the Appellants have established on the balance of
probabilities that any part of the salary cheques issued to them
constituted spousal salary.
[5]
The Company was formed in 1986 to carry on the business of a
private investigator. The shareholders of the Company during the
relevant period were the Appellant
Reeves William Bradshaw who owned 70% of the issued
shares and the Appellant Michael Kraag who owned the rest of
the shares.
[6]
During the period the Appellants and their spouses,
Marilyn Bradshaw and Cindy Kraag, were directors and
officers of the Company. The Appellants worked full time in
carrying on the business of the Company.
[7]
The spouses, each of whom had a full-time job working for
another employer, are said to have worked for the Company on a
part-time basis from offices in their homes. The services
rendered were of a clerical nature and involved performing tasks
assigned to them by the Appellants. They received phone calls,
passed messages to their husbands, edited reports prepared by
their husbands for clients of the Company and discussed Company
business with their husbands.
[8]
The Company paid its employees by cheque issued at the middle and
end of each month. No cheques were issued to the Appellants'
spouses. The cheques issued to the Appellants are said to have
included payments of salary made to their spouses but nothing on
the face of the salary cheques issued to the Appellants revealed
or even hinted at the existence of the arrangement alleged.
[9]
In each case the salary cheques issued to the Appellant were
deposited in a joint bank account operated by the Appellant and
his spouse. Two reasons were given for the existence of this
arrangement, convenience and confidentiality. It was said to be
convenient to deposit the salary cheques in family accounts at a
branch of the Company's bank located near the Company's
office. It was said to be undesirable to reveal the level of
salary paid to the Appellants' spouses to the Company's
ordinary staff who were engaged in doing similar clerical work.
No one explained why the Company's objectives would have been
thwarted if both spouses had been named as payee on the
cheques.
[10]
Employment is a relationship founded on contract. The contract
may be written or it may be oral, but even in the case of an oral
contract some written trace of essential terms such as salary
will usually be present. Here there was nothing.
[11] There was
no evidence suggesting that payment of salaries to the
Appellants' spouses was ever authorized by corporate
resolution or called for by written contract of employment. There
was no suggestion that salaries alleged to have been paid to the
spouses related in any way to time spent by them in working on
Company business. No record was kept of time so spent.
[12] Paul
Grossi, a chartered accountant who furnished the Company with
financial, accounting and tax advice, maintained that it had been
decided at the beginning of each year that annual gross salaries
of $30,000 would be paid to Mrs. Kraag and to
Mrs. Bradshaw. No written record of the decision was
produced. Mr. Grossi said that each of the bi-monthly salary
cheques issued to the Appellants included a $1,000 payment
intended for the payee's spouse. The Appellants did not
attempt to confirm the existence of this arrangement by the
production of Company payroll records. Source deductions were not
remitted on a current basis due, Mr. Grossi said, to cash
constraints. Mr. Grossi also indicated that no payroll
journal was kept by the Company.
[13] Evidence
was given by both Mrs. Bradshaw and Mrs. Kraag indicating that
they considered that part of the salary deposits made in the
joint bank accounts represented money which was theirs because it
had been earned by them. They both expressed the opinion that
they had received $2,000 per month.
[14] I do not
find the evidence adduced in support of the supposed salary
payment arrangement persuasive. The evidence was vague and seems
contrived. The payment of salary is an act of the employer. There
is no credible evidence that the Company as employer agreed to
pay, decided to pay, or did pay any particular amount to the
spouses. The salary cheques, which were made payable to the
Appellants alone, constitute a contemporaneous corporate act or
record which is inconsistent with the version of events advanced
by the Appellants. That written evidence is preferable to the
unsupported rationalizations advanced by the Appellants. I might
add that it is not possible to reconstruct salary payments
previously made to the Appellants by the issuing of T4 slips
allocating part of the payments to the spouses.
[15] For the
forgoing reasons, the appeals will be dismissed.
Signed at Toronto, Ontario, this 16th day of April 2002.
"Michael J. Bonner"
T.C.J.
COURT FILE
NO.:
2001-1678(IT)I
STYLE OF
CAUSE:
Reeves Bradshaw and H.M.Q.
PLACE OF
HEARING:
Toronto, Ontario
DATE OF
HEARING:
February 20, 2002
REASONS FOR JUDGMENT BY: the
Honourable Judge M.J. Bonner
DATE OF
JUDGMENT:
April 16, 2002
APPEARANCES:
Counsel for the Appellant: John David Buote
Counsel for the
Respondent:
Meghan Castle
COUNSEL OF RECORD:
For the
Appellant:
Name:
John David Buote
Firm:
John David Buote
Brampton, Ontario
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
COURT FILE
NO.:
2001-1681(IT)I
STYLE OF
CAUSE:
Michael Kraag and H.M.Q.
PLACE OF
HEARING:
Toronto, Ontario
DATE OF
HEARING:
February 20, 2002
REASONS FOR JUDGMENT BY: the
Honourable Judge M.J. Bonner
DATE OF
JUDGMENT:
April 16, 2002
APPEARANCES:
Counsel for the Appellant: John David Buote
Counsel for the
Respondent:
Meghan Castle
COUNSEL OF RECORD:
For the
Appellant:
Name:
John David Buote
Firm:
John David Buote
Brampton, Ontario
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2001-1678(IT)I
BETWEEN:
REEVES BRADSHAW,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on common evidence with the
appeals of Michael Kraag (2001-1681(IT)I) on
February 20, 2002, at Toronto, Ontario, by
the Honourable Judge Michael J. Bonner
Appearances
Counsel for the
Appellant:
John David Buote
Counsel for the
Respondent:
Meghan Castle
___________________________________________________________________
JUDGMENT
The
appeals from the assessments made under the Income Tax Act
for the 1992, 1993 and 1994 taxation years are
dismissed.
Signed at Toronto, Ontario, this 16th day of April 2002.
T.C.J.
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