Trew Security & Communication Ltd. v. M.N.R., docket 97-1887-UI

Date: 19991026

Dockets: 97-1887-UI; 97-195-CPP; 97-2084-UI; 97-218-CPP; 97-2085-UI; 97-219-CPP;

BETWEEN:

TREW SECURITY AND COMMUNICATIONS LTD., PATRICIA WALLACE, DOUGLAS WALLACE,

Appellants,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent,

Reasons for Judgment

MacLatchy, D.J.T.C.C.

[1] These appeals were heard on common evidence at Toronto, Ontario on July 8, 1999.

[2] The opening statements of these appeals clarified the positions of the parties.

[3] The Respondent conceded that the appeals filed by Douglas Wallace and Patricia Wallace for unemployment insurance purposes should be allowed as both Douglas and Patricia Wallace were at all relevant times owners and each controlled more than 40% of the voting shares of Trew Security and Communications Ltd., the Payor. The Appellants were not engaged in insurable employment within the meaning of the Unemployment Insurance Act (the "Act") and Employment Insurance Act (the "Amended Act") for the 1995 taxation year as each Appellant controlled more than 40% of the voting shares of the Payor with the result that the employment was excepted by paragraph 3(2)(d) of the Act and paragraph 5(2)(b) of the Amended Act.

[4] No amount of the unemployment insurance premiums or employment insurance premiums assessed the Payor relate to the employment of either Patricia or Douglas Wallace as it was determined above that their employment with the Payor during both 1995 and 1996 taxation years was not insurable employment.

[5] The Payor applied to the Respondent for reconsideration of the assessments of October 16, 1996.

[6] By letter dated September 10, 1997, the Respondent informed the Payor that it had been determined that the Payor's workers (Robbie Robert Wallace and Wayne Hilts) were employed pursuant to a contract of service and, accordingly, the Respondent confirmed the assessments of October 16, 1996.

[7] In making his decision, the Respondent relied on the following facts set out in paragraph 11 of the Amended Reply to the Notice of Appeal in the case of Trew Security and Communications Ltd. (97-1887(UI)):

"(a) the Appellant is an incorporated business of which, at all material times, Douglas Wallace and Patricia Wallace were shareholders;

(b) Patricia and Douglas Wallace are married to each other;

(c) the Appellant operates a small service business involved in the installation of burglar and fire alarms, central vac, television and telephone systems and intercoms in personal residences;

(d) during the 1995 taxation year, Patricia and Douglas Wallace were severally paid by cheque the amount of $36,000.00 as management fees;

(e) at all relevant times, Douglas Wallace owned and controlled more than 40% of the voting shares of the Appellant;

(f) the Appellant engaged Robbie Wallace and Wayne Hilts as workers (the "Workers");

(g) the Workers were employed by the Appellant pursuant to contracts of service."

[8] The Respondent further stated in paragraph 12 of the said Reply:

(a) the Appellant's business is jointly managed by Patricia and Douglas Wallace;

(b) Robbie Wallace is the son of Patricia and Douglas Wallace;

(c) during the 1995 and 1996 taxation years, both Patricia and Douglas Wallace were engaged by the Appellant in management roles and paid management fees for their services;

(d) Patricia and Douglas Wallace had no set hours of work and required little, if any, direct supervision;

(e) at all relevant times, Patricia and Douglas Wallace severally owned and controlled more than 40% of the voting shares of the Appellant;

(f) the Appellant sought and obtained various installation jobs as an integral part of its business operation and engaged the Workers as installers to do the actual work at the various work sites;

(g) any arrangements between the Appellant and Patricia and Douglas Wallace as managers and the Workers engaged as installers were verbal and the Appellant did not have a written contract with them;

(h) the installers engaged by the Appellant required little, if any, direct supervision;

(i) the Appellant was fully responsible for any unsatisfactory work or damage done by the installers with respect to all installation contracting jobs;

(j) the Appellant provided all the materials and the equipment needed to complete each installation contracting job;

(k) the installers provided their own small tools and paid for their own transportation to and from the various work sites but did not incur any major or unusual expenses with respect to their work for the Appellant;

(l) the Appellant controlled when each installation contracting job was to be completed, which installer would do the actual work, where the work was to be performed and established the rate of pay for the various installers;

(m) the Appellant retained the right to dismiss any installer for unsatisfactory work;

(n) the tasks which the installers performed constituted an integral part of the Appellant's business;

(o) any profits or losses from the business operation accrued to the Appellant and not to the installers."

[9] Evidence for the Appellants was given by Douglas Wallace who essentially ran the day-to-day business carried on by the Payor along with the assistance of his wife, Patricia Wallace, who did the bookkeeping for the Payor. Douglas Wallace agreed with the facts relied on by the Respondent as set forth in paragraphs [7 and 8] above, except in the following areas. The question of a management fee paid to the two shareholders of the Payor (Patricia and Douglas Wallace) was arranged by the Payor's accountant and were loans to shareholders until the end of the financial year when the loans were changed to the "management fees". The amount of such fees is not important but the naming of it was significant. Although called a "management fee", such payment really constituted pensionable employment and within the meaning of subsection 27(5) and paragraph 6(1)(a) of the Canada Pension Plan (the "Plan") as amended. Neither Patricia nor Douglas Wallace were in the business of managing other operating firms. This was not their line of endeavour; both were in the day-to-day operation of the Payor and did nothing else. There were no others involved in the operation of the Payor as they were the only shareholders and directors. The Appellants owned the business and were responsible for the work performed by its employees. Although, Douglas Wallace would remedy any deficiencies on work performed and would attend to any servicing or repairs to the equipment installed, it was the responsibility of the Payor and not that of Patricia or Douglas Wallace. The profits of the business accrued to the Payor and any risk of loss was suffered by the Payor; all tools and equipment were owned or leased by the Payor not by the Wallaces' personally. The work performed by both persons for the Payor was an integral part of the business. Douglas Wallace prepared the estimates for the work to be performed, designed the system to be installed and attended to all the other day-to-day matters performed in the business operation of the Payor. Patricia Wallace attended to the invoicing for the Payor, the preparation of monthly statements, bank reconciliations and performed other bookkeeping functions. All of these activities were an integral part of the business of the Payor.

[10] Both Patricia and Douglas Wallace were employed by the Payor pursuant to contracts of service and were engaged by the Payor in pensionable employment within the meaning of paragraph 6(1)(a) of the Plan for the 1995 taxation year.

[11] The appeals of the Payor, Douglas and Patricia Wallace for failure to remit Canada Pension Plan contributions are dismissed.

[12] Both Robbie (Robert) Wallace and Wayne Hilts, the Workers, were hired by the Payor to install the equipment of the company where instructed. Douglas Wallace argued that these two installers were independent contractors and should not be included as employees of the company for unemployment insurance, employment insurance or Canada Pension Plan purposes.

[13] The evidence given by Douglas Wallace indicated that these workers were hired on an "as needed" basis. The equipment to be installed was provided to them by the Payor along with exact instructions as to when and where such installations were to be made. The Workers used vehicles owned, insured and fuelled at the Payor's expense and used special tools where necessary provided by the Payor, although, they had their own hand tools. The Workers were not responsible for any errors in installation or in the operation of the equipment nor did they handle any other complaints. Any complaints by customers and/or guarantee matters were all attended to by the Payor. The Workers worked for no one else but the Payor and did not carry on any separate business. Their work was controlled by and supervised by the Payor, although little supervision was needed as Robbie Wallace had learned the methods of installation of the equipment from his father, Douglas Wallace, by assisting him while he was a student at school. The Workers were paid by the Payor for each installation on a time basis. Each Worker submitted invoices or slips of paper and did not charge Goods and Services Tax on their accounts. Their work was an integral part of the Payor's business.

[14] Based on this evidence, this Court has reached the conclusion that the Workers were in an employer/employee relationship with the Payor as they operated under contracts of service and were in insurable employment under the Unemployment Insurance Act, Employment Insurance Act as well as the Canada Pension Plan.

[15] However, it was clear and conceded by all parties that Robbie (Robert) Wallace was the son of Patricia and Douglas Wallace and as far as the Unemployment Insurance Act and Employment Insurance Act were concerned he was in excepted employment and not in insurable employment for unemployment insurance purposes and to that extent that portion of the appeal is allowed. For Canada Pension Plan purposes both workers are in pensionable employment.

[16] With respect to Wayne Hilts, however, he was at all times employed by the Payor pursuant to a contract of service and engaged in both insurable and pensionable employment. That portion of the Appellant's appeal is therefore dismissed and the assessment of the Minister of National Revenue is confirmed.

Signed at Toronto, Ontario, this 26th day of October 1999.

"W.E. MacLatchy"

D.J.T.C.C.