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.