MacKinnon v. M.N.R., docket 1999-3315-EI

Date: 20000525

Dockets: 1999-3315-EI; 1999-3326-CPP

BETWEEN:

DUNCAN MacKINNON,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Bowman, A.C.J.

[1] These appeals are from determinations by the Minister of National Revenue that the appellant was not engaged in insurable employment by T-Mac Auto Service for the periods from August 3, 1993 to October 20, 1993, from January 1, 1994 to August 26, 1994 and from June 5, 1995 to September 22, 1995 within the meaning of the Unemployment Insurance Act and the Canada Pension Plan.

[2] The basis of the determinations was the same in both cases, i.e., that the appellant was not engaged in insurable employment because there was no contract of service between the appellant and the payor, T-Mac Auto Service. The nub of the problem is this: the Minister of National Revenue examined a number of documents and concluded that Mr. MacKinnon was not an employee at all, but was a partner in T-Mac Auto Service, with Wilson Timmons. Essentially, the Minister concluded that the appellant and Timmons entered into a scheme in which they disguised their partnership relationship as an employment arrangement in order to claim unemployment insurance benefits.

[3] The position that the appellant was a partner of Wilson Timmons is not a frivolous one. In 1993 the appellant and Timmons registered with the Provincial Tax Commission as co-owners of a partnership D & W Auto Service. Presumably D & W refers to Duncan and Wilson.

[4] Further assumptions were the following.

(d) by letter dated November 4, 1994, and addressed to the Partners, the Toronto Dominion Bank offered to include the Partnership in a Direct Payment Shopping (Debit Card) Program which was available to all Greg's Fuels Service Stations.

The respondent endeavoured to put this letter in evidence, but since the author was not called I excluded it. The pleading of assumptions cannot be used to circumvent the hearsay rule.

(e) in the calendar year 1993, the Appellant made a charitable donation in the amount of $20 to the IWK Children's Hospital Foundation which was deducted as a business expense by the Partnership in calculating its 1993 income for income tax purposes.

The donation was in fact made by T-Mac Auto Service. The cheque drawn on the account of T-Mac was signed by the appellant.

(f) on August 4, 1994, the Municipality of the County of Inverness issued a Notice of Assessment to the Partnership in care of the Partners.

The notice of assessment was sent to T-Mac Auto, c/o W. Timmons and D. MacKinnon.

(g) on January 20, 1995, the Provincial Tax Commission for the Province of Nova Scotia issued a Vendors/Purchasers Return to the Partnership to the attention of the Partners.

A number of documents were sent to T-Mac Auto Service by the Provincial Tax Commission, to the attention of the appellant and Timmons.

(h) the Partnership's financial statements for the fiscal period ending March 31, 1997, include a drawing account for each of the Partners.

The only drawings shown in favour of the appellant were $27.36 for five months to Great-West Life for an insurance policy on the appellant's life.

(i) the Partnership maintains a $100,000 term life insurance policy through Great West Life on each of the Partners.

The appellant stated that he knew nothing of this policy, and he did not know who the beneficiary was.

(j) the Partners represented themselves as a partnership during the periods in question.

This assumption is questionable. It is quite true that some people, such as the provincial or municipal tax authorities, sent bills to both of them but this in itself is not conclusive.

(k) the Appellant's primary duty was to do the Partnership's bookkeeping which did not include the payroll, or reconciling the bank account, or posting to the Partnership's ledgers, or month end entries or the PST/GST returns or the income tax returns.

He had other duties such as working in the garage or pumping gas or operating the tow truck. However, whatever he may have been doing, the issue is whether he was an employee or a partner.

(l) the Partnership secured the services of a bookkeeper for the bookkeeping duties not performed by the appellant with the exception of the payroll which was maintained by Wilson Timmons.

(m) the Appellant was included on the Partnership's payroll for sufficient weeks to qualify for Unemployment Insurance benefits during each of the years included in the periods in question;

(n) the Appellant continued to perform substantially similar services outside the periods in question and he was paid the equivalent of one week's pay per month;

(o) the Partners have entered into a scheme whereby they subsidize their cost of wages through the Unemployment Insurance benefits program;

(p) there was no contract of service between the Appellant and the Partnership.

[5] These assumptions really do not go to the essence of the question. Many unemployment insurance cases involve the question whether someone is an employee or an independent contractor, or whether a purported employment arrangement is merely a sham designed to create an illusion of employment. The question here is whether the appellant was a partner in T-Mac Auto Service, or an employee of Mr. Timmons who carried on business as T-Mac Auto Service. For the purpose of making this determination, the principles stated in Wiebe Door Services Ltd. v. M.N.R., 87 DTC 5025, are of no assistance. The tests (or single test) enunciated there are useful in determining whether someone is engaged under a contract for service or a contract of service. That is not the issue here. If the appellant is not a partner he is an employee. The two relationships are mutually exclusive.

[6] The facts upon which the respondent relied in deciding that the appellant was a partner and not an employee clearly are prima facie supportive of the Crown's position. Nonetheless, other facts were established in evidence that weigh against the theory that he was a partner. These are the following.

(a) He was fired by Timmons after a dispute over some missing cash. One does not fire a partner.

(b) He had no access to the financial statements of T-Mac and knew nothing about what profit or loss the business had.

(c) He apparently had no personal responsibility for the payment of the bills of the business.

(d) He was paid an hourly rate that was not dependent on the profits of the business.

(e) He made no financial contribution to the business.

[7] A number of other points were emphasized by counsel for the respondent. For example, there were a number of discrepancies between the appellant's periods of employment and the days upon which he actually performed services, such as signing cheques or ordering supplies. Many invoices that he signed were dated outside the periods in which he alleges he was working. The inference that I am asked to draw is that given the somewhat informal arrangement he was not really an employee at all, but the relationship was more in the nature of a partnership, and that the wages he received were really disguised draws. Moreover, he appears to have had full signing authority both before and after the periods in which he claims he was employed and he signed a very large number of invoices and cheques during the periods in which the records indicate he was not working.

[8] I am thus faced with the necessity of extracting from the mass of contradictory evidence and mismatched records an answer to the question "Is the appellant an employee of Timmons, a partner with him, or neither?" The third hypothesis can be rejected. Obviously a relationship existed. I do not think he was an independent contractor, nor can it be said that the activity was a subterfuge or sham designed to create an entitlement to unemployment insurance benefits. This leaves only a choice between employment and partnership. While some of the factors that I mentioned above militate against employment they do not point unambiguously toward partnership. The apparent absence of any financial risk, the appellant's lack of access to the financial records of the business and the absence of any sharing of profits are among the more significant factors that lead me to believe that, on balance, he was an employee rather than a partner.

[9] The appeals are allowed and the determinations are varied on the basis that the appellant was engaged in insurable employment in the periods in question.

Signed at Ottawa, Canada, this 25th day of May 2000.

"D.G.H. Bowman"

A.C.J.