Date: 20000511
Docket: 97-1776-IT-G
BETWEEN:
AARON BRAUN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
(Delivered orally from the Bench at Toronto, Ontario,
on March 15, 2000)
Hamlyn, J.T.C.C.
[1] In the matter of Aaron Braun and Her Majesty The Queen, an
appeal with respect to an assessment, notice of which is dated
December 29, 1994 and bears number 38854. The Minister
assessed the Appellant as a director for the Fax-It Canada
Corporation pursuant to sections 227 and 227.1 of the
Income Tax Act (the Act) for failure by the
Corporation to remit to the Receiver General an amount of
federal tax with penalties and interest thereon as required by
section 153 of the Act.
[2] The Appellant, in his appeal to this court, filed a notice
of appeal, and at the outset of his evidence he adopted his
notice of appeal as evidence in support of his claim. Therein he
stated:
“At the relevant times I was a partner of a business
carried on in Ontario known as 'Fax-it'. The
business provided certain information retrieval services to its
clients by tele-facsimile response.
As demand for our services grew, the founding partners were
not able to provide all services alone. At the same time, our
capitalization was limited, and we did not have the resources to
hire full time employees to service our growing client demand. In
order to address this demand the business entered into
independent contractor relationships with various parties
('free-lancers') who would provide services
directly to our clients and thus divert some of our volume.
The free-lancers were independent contractors who did
not work full time for Fax-it and who had other businesses.
They worked independently of the taxpayer and were not under
direct supervision.
The Department of Revenue has assessed the appellant on the
basis that these free lancers were employees and has charged me
with CPP, UPI, Taxes, penalties and interest.
The appellant submits that the assessment is not valid in law
or in fact. The free lancers were not under a contract of service
to the Appellant within the meaning of the Canada Pension Plan
Act or the Unemployment Insurance Act. Rather, they were
independent contractors engaged to provide services to the
Appellant's customers."
[3] The Appellant also in his evidence reviewed the
Respondent's reply, and in particular he addressed the issue
of the assumptions. The first assumption of the Respondent was
found in paragraph 3 of the Reply:
a) the Appellant was, at all material times, a director of the
Corporation;
The Appellant accepted that assumption. The next series of
assumptions he did not accept:
(b) at all material times, there were two employees of the
Corporation; source deductions on account of, inter alia, federal
income tax were taken from remuneration paid to these employees
by the Corporation;
The Appellant's response to this assumption was that no
deductions were made for income tax. Deductions were made only at
the request of the employees or the workers and were held on
account of the workers.
c) the Corporation failed to remit to the Receiver General
federal income tax withheld from the wages paid to its
employees;
Once again, the Appellant said he disagreed with that because
he said that there was no federal income tax withheld and because
of the relationship between the Fax-it Corporation and the
individuals, there was no requirement to do so.
d) the Corporation failed to pay penalties and interest
relating to the unremitted federal tax;
He said that he disagreed with that because he believed it was
not applicable.
e) on August 11, 1994, a certificate for the amount
of the Corporation's liability for Federal income tax,
penalties and interest was registered in the Federal Court of
Canada under subsection 223(2) of the Income Tax Act,
R.S.C. 1985, c.1 (5th Supp.), as amended, and
execution for such amount has been returned wholly
unsatisfied;
He agreed with that assumption.
f) 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.
He said because the Corporation was not required to withhold,
he did not believe that that defence was even necessary and it
was not applicable to his case.
Issues
[4] The first issue is whether the individuals to whom the
Corporation paid remuneration were employees of the Corporation
or independent contractors. The second issue is whether the
Appellant is liable under subsection 227.1(1) for the
failure by the Corporation to remit to the Receiver General an
amount of federal income tax, with penalties and interest
thereon, as required by section 153 of the Act.
Evidence
[5] The Appellant's evidence and submissions were quite
focussed and related solely to the question of whether the
workers were employees of the Corporation or independent
contractors, and with that focus I will now review the
evidence.
[6] The Appellant called as his first witness
Mary Elliott, and she stated she worked for the Fax-it
Corporation as an office manager and general worker commencing in
1989. She had no experience beforehand and was simply hired, and
she worked at the premises of the Fax-it Corporation eight
hours per day with some overtime hours. She reported to and
received direction from the Appellant, Aaron Braun, in his
capacity as the person in charge of the Corporation. She had no
signing authority. The work involved, amongst other things,
searches for lawyers, photocopying, running the office, and
generally doing searches on behalf of the Corporation. The
Corporation supplied all the equipment, including a computer, fax
machines and adding machine. On occasion she did work at home for
the Corporation on her own computer. That involved computerizing
customer addresses for use by the witness in her monthly
repetitive reports for the Corporation. The Appellant stopped
working in 1992 when the Corporation was shut down. She stated
she did not receive her T4s, although she asked for them.
[7] The second witness on behalf of the Appellant was the
Appellant himself. He stated that Mary Elliott and
Craig Beaudro were self-employed individuals. They
could and did other work for others on their own; that
Ms. Elliott, when she became pregnant, attempted to claim
unemployment insurance and, as a result of that effort, tried to
change the contractual relationship.
[8] He further stated that the paycheques were issued by one
Charlene Whiteduck, who worked apparently for a Corporation
associated with the Appellant known as Prompt Couriers.
[9] The Respondent called as the first witness the trust
examination officer from Revenue Canada, one Denise Patterson.
She stated she contacted Aaron Braun, reviewed the Corporation
records and found the source deductions were being withheld in
1990 and 1991 but were not being withheld in 1992. The Respondent
also called Craig Beaudro, who worked with the Fax-it
Corporation in 1990. He stated his work was directed by the
Corporation through Mary Elliott. He also did corporate searches
and, as he said, stood in line for the Corporation, paid money
for searches on behalf of the Corporation, and ran back and forth
on behalf of the Corporation. During his tenure with the company
he stated he did not work for anyone else and he was paid
approximately the same amount each week and he had no investment
whatsoever in the Fax-it Corporation.
Legislation and Jurisprudence
[10] In terms of legislation and jurisprudence, if a
Corporation has failed to deduct, withhold, remit or pay as
required certain provisions of the Act, directors of the
Corporations are jointly and severally liable with the
Corporation to pay the amount owed by the Corporation under the
Act. Because the liability is joint and several, each
director is liable for the full amount of the liability. There
are limitations on the liability of directors; however, none of
these were pleaded or addressed in this appeal.
[11] Also in terms of jurisprudence and legislation and in
terms of how it was dealt with in this appeal, the focus of the
Appellant's appeal was that the workers were independent
contractors and not employees. It is necessary to analyze and
determine if a contract of service or a contract for service
exists. In this analysis there are four basic headings. The first
is control and supervision. Who has the right to control the
worker and the right to direct the worker; did the right exist
even though it may not have been exercised; and who had the right
to suspend or dismiss the worker? The second heading: profit and
loss. The opportunity of profit and risk of loss is based on the
notion that in an employer/employee relationship an employee does
not generally incur expenses and does not bear any financial risk
and has no chance of profit. Third heading, ownership of tools.
Generally, if the employer supplies the tools it indicates
control over the worker, although there are exceptions. And the
fourth heading, organization or integration
test -- the analysis to determine the ultimate
question whose business is it. It is necessary to look at more
than the surface relationship; that is, to look at the intrinsic
relationship.
[12] In general, no single test is conclusive. All the
evidence must be looked at. All tests must be applied in each
case, both to the worker and the one engaging the worker. All
this leads to a determination of how the work performed fits in
with the combined force of the whole scheme of operations.
[13] I have been referred by Crown counsel to the Wiebe
Door citation. Mr. Justice MacGuigan reviewed the
various tests applied by the courts in distinguishing an
entrepreneur from an employee. In Wiebe Door Services v.
Minister of National Revenue, 87 D.T.C., at 5025, in his
reasons for judgment, Mr. Justice MacGuigan referred to the
comments in Market Investigations v. Minister of Social
Security, 1968, 3 All E.R., at 732, at pages 738 and 739,
Justice Cooke stated:
...the fundamental test to be applied is this: “Is the
person who has engaged himself to perform these services
performing them as a person in business on his own
account?” If the answer to that question is
‘yes,’ then the contract is a contract for services.
If the answer is ‘no’ then the contract is a contract
of service.
Analysis
[14] The control and the supervision over Ms. Elliott in
the performance of her duties was exercised on behalf of the
Corporation by the Appellant, Mr. Braun. The control and
supervision of Mr. Beaudro in the performance of his duties
was exercised on behalf of the Corporation by Ms. Elliott. I
conclude the right to engage or disengage both Mr. Beaudro
and Ms. Elliott lay with Mr. Braun on behalf of the
Corporation. Ms. Elliott and Mr. Beaudro worked fixed
hours over a period of years with no investment in the
Corporation and were paid on an eight o'clock to five
o'clock day with the possibility of some overtime.
Ms. Elliott and Mr. Braun, I conclude, did not have the
opportunity of profit or the risk of loss in the performance of
their duties. The tools were supplied by the Corporation;
however, on occasion, Ms. Elliott used her own computer at
her home to facilitate address lists for monthly reports to
customers at the workplace.
[15] The analysis to determine whose business is it, I
conclude, looking at the totality of the relationship, the work
performed by the workers was fully integrated, repetitive and
organized as the business of the Corporation. I conclude the
workers were employed under a contract of service.
Conclusion
[16] In conclusion, the individuals to whom the Corporation
paid remuneration were at all times employees of the Corporation
and not independent contractors. The Minister properly assessed
the Appellant as a director for the Fax-it Canada
Corporation pursuant to sections 227 and 227.1 of the
Act for failure by the Corporation to remit to the
Receiver General an amount of federal income tax with penalties
and interest, as required by section 153 of the Act.
Decision
The appeal is dismissed and costs are awarded to the
Respondent.
Edited and signed at Ottawa, Canada,
this 11th day of May 2000
J.T.C.C.
COURT FILE NO.: 97-1776(IT)G
STYLE OF CAUSE: AARON BRAUN
and Her Majesty The Queen
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: March 15, 2000
REASONS FOR JUDGMENT BY: The Honourable D. Hamlyn
DATE OF JUDGMENT: March 15, 2000
APPEARANCES:
For the Appellant: The Appellant himself
Counsel for the Respondent: Annette H. Evans
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
97-1776(IT)G
BETWEEN:
AARON BRAUN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
CERTIFICATION OF TRANSCRIPT OF
REASONS FOR JUDGMENT
Let the attached certified transcript of my Reasons for
Judgment delivered orally from the Bench at the Tax Court of
Canada, Courtroom No.2, Merrill Lynch Canada Tower, 200 King
Street West, Toronto, Ontario, on March 15, 2000, be filed.
"D. Hamlyn"
J.T.C.C.
Edited and signed at Ottawa, Canada,this 11th day
of May 2000.
Email this Content