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Citation: 2006TCC97
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Date: 20060215
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Docket: 2003-781(IT)G
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BETWEEN:
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ROBERT J. BATEMAN,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
BowieJ.
[1] These appeals were called for hearing under the Court's general procedure at Sudbury, Ontario on January 27, 2005. The hearing was expected to last two days. Mr. Bateman appeared on the first day, without counsel. On the second morning he appeared with counsel, who explained that he had been retained the previous evening, and that his retainer was conditional upon my granting an adjournment to enable him to prepare. It had become evident the previous day that the Appellant was not capable of presenting his case himself, and so I granted the adjournment. After some months, however, Mr. Bateman's counsel took steps to remove himself from the record, and no other counsel was retained. The matter was then scheduled to be completed at Sudbury on November 22 and 23, 2005. Mr. Bateman did not appear at that time, nor did any witnesses on his behalf attend, although he had previously expressed the intention to call a number of witnesses that day. Both the Court's trial coordinator and counsel for the Respondent have left messages on Mr. Bateman's telephone answering machine. Those messages have gone unanswered to this date.
[2] When Mr. Bateman failed to appear on November 22, and failed to answer telephone messages, I adjourned the matter until 2:30 that afternoon and invited counsel for the Respondent to either lead evidence, or move for non-suit. He chose the latter course, and after hearing argument I reserved judgment.
[3] The appeals are from assessments of the Appellant for income tax for 1999 and 2000. The assumptions of fact on which the assessments depend are set out in the Respondent's Reply to the Notice of Appeal at paragraph 11.
a) The Appellant's wife was the sole shareholder of Patricia Holdings Inc. in 1999 and 2000;
b) The Appellant did not deal at arm's length with Patricia Holdings Inc.;
c) The Appellant supplied consulting services to several businesses in 1999 and 2000; in some cases the consulting services were supplied by the Appellant operating as "R. Bateman Financial Strategies";
d) The Appellant's Gross and Net Income from his consulting work was as follows:
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YEAR
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REVENUE
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EXPENSES
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NET INCOME
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1999
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$70,494
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$7,442
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$63,052
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2000
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95,352
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19,745
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75,607
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TOTAL
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$165,846
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$27,187
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$138,659
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e) The income set out above was earned by the Appellant personally and not by Patricia Holdings Inc. or any other person;
f) The income set out above was payable to the Appellant and deposited by him into his personal bank account; the Appellant expressly asked his clients to make their cheques for consulting services payable to him;
g) None of the revenue set out above was paid or payable to Patricia Holdings Inc.;
h) The Appellant did not perform consulting services on behalf, or as the agent, of Patricia Holdings Inc.;
i) The Appellant did not hold himself out to his clients as an employee or agent for Patricia Holdings Inc.;
j) the income earned by the Appellant for his consulting services belonged to him and was taxable in his hands and not in the hands of Patricia Holdings Inc.;
k) The Appellant failed to file tax returns for his 1999 and 2000 taxation years as and when required under the Income Tax Act; as a result the Minister issued a demand to have those returns filed;
l) In filing his tax returns the Appellant failed to include the income received by him for his consulting services; as a result he underreported his income by not less than $63,052 in 1999 and $75,607 in 2000.
It is trite that the Appellant has the onus of showing that these assumptions of fact are incorrect.
[4] The evidence that I heard during the one day of trial tends to support the assumptions of the Minister of National Revenue rather than to refute them. The evidence showed that Patricia Holdings Inc. was indeed a corporation wholly owned by the Appellant's spouse, Patricia Bateman. Patricia Holdings had suffered some very substantial losses in the years prior to 1999, and as a result of this, and its indebtedness to its bank, any funds deposited to its existing account were immediately applied to its bank loan. Mr. Bateman did not give evidence himself, but his position is that he was employed by Patricia Holdings to provide consulting services to customers on its behalf, and that any fees he received for those services he held as a bare trustee for Patricia Holdings. In support of this theory he relied on a one-page document that purported to be an employment contract.[1] It is best if I set out its provisions in full.
Patricia Holdings Inc.
655 Kirkwood Drive
S.S. 1, Site 6, Box 18
Sudbury, Ontario P3E 1X2
(705) 674-6326 or 674-2022
We confirm your continued arrangement with your firm as our consultant. We will reimburse your approved travelling and other costs.
You agree that if our clients pay you directly, these monies are the property of the company. You will be entitled to compensation as agreed upon from time to time.
If you absent yourself extensively from your work as our consultant without our consent or misconduct yourself, your consulting services may be terminated without notice.
If you leave our company as our consultant, you will only receive your expenses, bonuses and agreed upon compensation up to that time.
Our company may, at any time, terminate your consulting agreement upon giving six (6) months' notice or paying six (6) months' salary, if in fact, the parties agree to a regular salary schedule, in lieu of notice, in addition to expenses and bonuses that arrive after termination but for contracts obtained by your compensation will be given on their individually negotiated terms and payments will be made on a pro-rata basis as our company receives payment.
By offering your signature you are agreeing to all the terms and conditions outlined herein and is an acknowledgement that you have sought independent legal advice.
Date: March 31/86
"Laura Dixon___________ "Robert Bateman_________
Witness
[5] It is crucial to the Appellant's case that he show an employment relationship between himself and Patricia Holdings, and that he show that the consulting contracts that gave rise to the income in question were entered into not by him personally, but by Patricia Holdings. In addition to tendering the document I have referred to, the Appellant called several witnesses.
[6] Mr. Mastin is a lawyer who practices in Sudbury. He has been a friend and a business associate of the Appellant for many years. He was solicitor to the William Day group of companies before, during and after the years under appeal. He testified that Patricia Holdings was retained as a consultant by the Day group. Two things became clear during Mr. Mastin's evidence. The first is that he had no actual knowledge of the relationship, if any, that existed between Mr. Bateman and Patricia Holdings. The second is that he was intent upon giving evidence as favourable as possible to Mr. Bateman, to the point that he made assertions that went beyond his knowledge. On the crucial issue whether there was a contract of employment, his evidence is of no assistance because he simply had no firsthand knowledge of the facts. His information came largely from what he had been told by Mr. Bateman, and by a mutual client, Mr. William Day.
[7] Grace Johnston is a senior executive of William Day Construction. Like Mr. Mastin, she clearly came determined to give evidence that it was Patricia Holdings and not the Appellant who was engaged as a financial consultant by the companies in the Day group. She testified that payment for those services was made by the companies in the group directly to Mr. Bateman, by cheque, rather than to Patricia Holdings, because he requested that it be done that way. It emerged in cross-examination, however, that Ms. Johnston had no personal knowledge as to the matters about which she had given her evidence in-chief. It was not she, but William Day, who had negotiated the various consulting contracts with Mr. Bateman, so her only knowledge about the matters she had testified to came from her discussions with Mr. Day. So far as she knew there was never a written contract. Nor did she have any direct knowledge about the relationship between Mr. Bateman and his wife's company, Patricia Holdings. Based as it is entirely on hearsay, Ms. Johnston's evidence has no probative value at all in respect of the issue that I have to decide.
[8] Mr. Lilly is a chartered accountant. He was retained by Patricia Holdings at the end of 1998 or the beginning of 1999 to prepare financial statements. The last financial statements that had been prepared were for the year 1995. Mr. Lilly produced statements for the years 1996 to 2002. He was also retained to prepare income tax returns for Mr. Bateman, Mrs. Bateman, and for Patricia Holdings. His evidence amounted to no more than a summary of the contents of the statements that he had prepared, which are themselves part of the record before me. Evidently he included the proceeds of the various consulting contracts carried out by Mr. Bateman during the period in question in the income of Patricia Holdings rather than that of Robert Bateman, even though he knew that the funds had been made payable to Robert Bateman. He said that he did this in reliance on the "agreement" that I have set out at paragraph 4 above. He, of course, had no personal knowledge about either the consulting contracts or any employment contract between Mr. Bateman and Patricia Holdings. All that he knew came to him from the Batemans. The probative value of Mr. Lilly's evidence is well encapsulated by the Notice to Reader that appears on each set of financial statements prepared by him for Patricia Holdings for the years from 1995 to 2002:
NOTICE TO READER
We have compiled the balance sheet of Patricia Holdings Inc. as at January 31, [___] and the statement of income and retained earnings (deficit) and schedule of capital assets and amortization for the year then ended from information provided by management. We have not audited, reviewed or otherwise attempted to verify the accuracy or completeness of such information. Readers are cautioned that these statements may not be appropriate for their purposes.
sostarich, ross, wright & cecutti, llp
Per: "C. J. Lilly"
Chartered Accountants
Once again, the evidence is nothing but a recital of what the witness had previously been told by Mr. and Mrs. Bateman, and not probative of the issues. Mr. Lilly's evidence did make it clear, however, that according to the statements and the income tax returns he prepared, Patricia Holdings had very substantial losses to carry forward from prior years which it purported apply to eliminate the consulting income that it declared in the years under appeal, leaving it with no taxable income. Those statement also showed very large loan balances owing to the shareholder, Mrs. Bateman.
[9] The other witness for the Appellant was Mr. Reid, a business development officer for the City of Sudbury. He referred to certain invoices that had been submitted by "R. Bateman Financial Strategies" to the Sudbury Regional Development Corporation. His evidence was to the effect that "he knew" that it was really Patricia Holdings that had been contracted to do this work. Again, the source of his knowledge turned out to be the Appellant. It also was revealed in cross-examination that Mr. Reid and Mr. Bateman had been very close personal friends for many years, and that Mr. and Mrs. Bateman had recently conveyed their residence to Mr. Reid, in trust, apparently with a view to avoiding creditors. I do not consider Mr. Reid's evidence to be at all reliable or probative.
[10] The only evidence that I have before me of a contract of employment, then, is the document signed by Mr. Bateman, but not signed at all on behalf of Patricia Holdings Inc. Signed as it is by only one party, it does not have any effect. There could, of course, have been an oral contract entered into. The two people who would be in a position to give first hand evidence of any such oral contract of employment are the Appellant and Mrs. Bateman. Neither of them testified. The result is that there is no probative evidence before me to negative the Minister's assumptions; in fact such evidence as there is tends to confirm that the income in question was the Appellant's. Mr. Mastin and Ms. Johnston both admitted that Patricia Holdings could offer nothing of value for the consulting fees - it was Mr. Bateman who had the marketable skill.
[11] In view of my conclusion as to the facts, I do not propose to comment upon the result that might prevail if a contract of employment had been established by the evidence. None was, and so the appeals must be dismissed. The Respondent is entitled to her costs, including a counsel fee for two days of trial in addition to the $750 that I ordered when adjourning the matter on January 28, 2005.
Signed at Ottawa, Canada, this 15th day of February, 2006.
Bowie J.
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