REASONS
FOR JUDGMENT
V.A. Miller J.
[1]
The Appellant failed to file his income tax
returns for 2005 and 2006 and the Minister of National Revenue (the “Minister”)
assessed him pursuant to subsection 152(7) of the Income Tax Act (“ITA”)
on the basis that he had received employment income of $60,416 and $92,700 in
2005 and 2006 respectively.
[2]
In this appeal, the Appellant took the position
that in 2005 and 2006 he was not an employee but was an independent contractor
and the income he received in these years was business income. He claimed that
he had a net business loss of $67,338 and $61,353 in 2005 and 2006
respectively.
[3]
At the hearing, counsel for the Respondent
stated that the only issue in this appeal was whether the Appellant was
entitled to claim expenses against his employment income. However, the Reply to
Notice of Appeal identifies the issues as follows:
a)
whether the Minister properly determined that
the Appellant was an employee of the Municipality of Meaford in 2005 and 2006;
and,
b) whether the Appellant is entitled to claim expenses against the income
he received from the Municipality of Meaford.
[4]
I will address both issues which were raised by
the pleadings.
Facts
[5]
On March 21, 2005, the Appellant was engaged as
Treasurer/CFO by the Corporation of the Municipality of Meaford (the
“Municipality”). According to the by-law which was passed to effect this
engagement, the Appellant was appointed to this position as an independent
contractor and the Mayor of the Municipality was given the authority to sign a
contract with the Appellant on that basis. His contract (the “Contract”) was
signed by him and the Mayor on March 21, 2005 and included the following:
a)
The contract was for a period of one year and
included the option to renew.
b) The compensation was $70,000 annually plus GST to be paid in equal
twice monthly payments on the 15th and last working day of the month.
c)
Receipted travel expenses associated with
activities and business on behalf of the Municipality would be reimbursed.
d) Computer equipment and software would be supplied by the
Municipality.
[6]
The Appellant took the position at the hearing
of this appeal that his Contract had been revised and a Management Consulting
Agreement (the “Agreement”) was entered into by the parties on March 22, 2005.
The major terms of this Agreement were:
a)
The Agreement was to last for a period not
exceeding three years;
b) The Appellant’s consulting services included the review, analysis
and recommendation of organizational structures, procedures, accounting systems
and processes. He was to prepare reports and present them with his
recommendations to the management and Council of the Municipality and then
manage the implementation of the recommendations which were approved by
Council.
c)
The Fees for services were $70,000 for 2005 and
$100,000 for 2006 plus GST. The fees were to be billed in equal amounts on the
15th and 30th of each month.
d) The Appellant would be reimbursed for the following receipted
expenses; (i) travel at the rate of $0.45/km; (ii) telephone; (iii) office
supplies and other expenses; and (iv) sub-consultants.
[7]
However, the invoices submitted by the Appellant
to the Municipality do not support his position that the Contract was revised
and that the Agreement governed the parties’ relationship. Contrary to the
Appellant’s evidence, he invoiced the Municipality for the period October 2005
to August 30, 2006 on the basis that his compensation was $90,000 annually.
Thereafter in 2006, he invoiced the Municipality on the basis that his
compensation was $92,700 annually. In 2005 and 2006, he invoiced the
Municipality for travel at the rate of $.40/km.
[8]
The Appellant’s Contract with the Municipality
was revised by a Resolution of the Council in October 2005 so that he was
appointed the Chief Administrative Officer (“CAO”) as well as being the
Treasurer of the Municipality. He stated that the terms of his contract
remained the same as those agreed to in March 2005. A copy of this Resolution
was not presented in Court but I note that, from October 2005 until December
2006, a Resolution was referenced on the Appellant’s invoices to the
Municipality. When the Appellant was appointed CAO, his compensation increased
to the amounts noted in the previous paragraph.
[9]
The Appellant stated that, in 2006, the Mayor
raised the issue of the Appellant becoming a full time employee rather than
being an independent contractor. I have inferred that these discussions were
precipitated by the report given to Council by the Municipality’s auditor, BDO
Dunwoody. In his report to Council on June 7, 2006, Al White of BDO Dunwoody
stated:
“Employee/Sub-Contractor
Relationship – Currently one of your senior staff members is paid as a
sub-contractor. As a sub-contractor, there are no withholdings for income tax,
Canada Pension Plan or Employment Insurance. It is a matter of fact whether
this person is an employee or a sub-contractor. If the Canada Revenue Agency
were to determine that the person was actually an employee and not a
sub-contractor, the Municipality could be responsible for remitting CPP and EI
on the payments to this person as well as interest and possible penalties. As
the amount could be significant, we suggest that the Municipality obtain a
ruling from the Canada Revenue Agency to determine their views of the
employment status of this individual.”
[10]
The Canada Revenue Agency (“CRA”) conducted an
Employee Compliance Audit of the Municipality in January 2007 and determined
that the Appellant was an employee of the Municipality in 2005 and 2006. CRA
issued T4s on behalf of the Municipality to the Appellant in the amount of
$60,416.71 for 2005 and $92,700 for 2006.
[11]
The Appellant did not appeal the Minister’s
determination. Instead, he commenced discussions with the Municipality
concerning the terms of his employment contract. In either January or February
2007, the Appellant was advised that he should engage counsel to assist him
with his negotiations with the Municipality.
[12]
In a letter dated May 23, 2007 to the Mayor and
the Director of Human Resources for the Municipality, the Appellant’s counsel
took the position that the Appellant was and had always been an employee of the
Municipality. He wrote that he wished to finalize the Appellant’s “Employment
Agreement” and to resolve the outstanding issues with respect to the Appellant
such as the liability for income taxes owing for 2005 and 2006, enrolment in OMERS
(a pension plan), and compensation for overtime. According to this letter, when
the Appellant became the CAO in October 2005, he was not presented with either
a Consulting Contract or an Employment Contract but his compensation was
increased to $92,700 annually. Counsel wrote that the Municipality continued to
treat the Appellant as an independent contractor when the Appellant
consistently took the position that he was an employee. According to counsel,
the Appellant was clearly employed on a full time basis as Treasurer/CFO and
Acting CAO.
[13]
Shortly after the Municipality received the
letter of May 23, it informed the Appellant that it had decided to end its
relationship with him. In order to settle their disagreement, the Appellant and
the Municipality submitted to mediation and completed Minutes of Settlement on
August 3, 2007.
[14]
David Hunks testified under subpoena on behalf
of the Appellant. Mr. Hunks had been the Deputy Treasurer for the Municipality
from August 2005 until December 2009. He was an employee of the Municipality.
It was his evidence that the Appellant’s name was not on the payroll. The
Appellant was paid according to the invoices he submitted just like any other
contractor. The Appellant did not work from 8:30 to 4:30 as Mr. Hunks did but
was known to send emails at 3:00 in the morning with respect to various
projects which Mr. Hunks worked on. Mr. Hunks then reported to the Appellant,
Council and the Finance Committee concerning his progress on these projects.
According to both the Appellant and Mr. Hunks, the Appellant did not have
authority to sign cheques on behalf of the Municipality but Mr. Hunks was a
signatory. Mr. Hunks supervised the assistants in the Treasury Division of the
Municipality. Mr. Hunks testified that the Appellant was a consultant to the
Municipality.
[15]
Although Mr. Hunks’ evidence was inaccurate
concerning whether the Appellant was reimbursed for cell phone usage, I found
him to be a credible witness.
Employee or
Independent Contractor
[16]
To determine whether the Appellant was an
employee or independent contractor while employed by the Municipality, it is
necessary to determine if he was performing his services as a person in
business on his own account: 671122 Ontario Ltd v Sagaz Industries Canada
Inc, [2001] 2 S.C.R. 983. The intention of the parties is important and I
will use the factors from Wiebe Door Services Ltd v MNR, [1986] 3 FC
553(FCA) to analyze the work relationship between him and the Municipality with
a view to ascertaining whether their working relationship was consistent with
their intention.
[17]
It is clear from Exhibit A-4, tab 1, page 1 that
both the Appellant and the Municipality intended that the Appellant be engaged
as an independent contractor in the position of Treasurer. Further, the Council
Minutes for the meeting on October 17, 2005 (Exhibit A-2) showed that the
parties intended the Appellant to be an independent contractor in his position
as CAO.
[18]
Although the Municipal Act, 2001, S.O.
2001, c. 25 subsection 286(3) does not require the Treasurer of a Municipality
to be an employee, there is no such section with respect to the CAO of a
municipality. Sections 227 and 229 of the Municipal Act provide:
Municipal
administration
227.
It is the role of the officers and employees of the municipality,
(a)
to implement council’s decisions and establish administrative practices and
procedures to carry out council’s decisions;
(b)
to undertake research and provide advice to council on the policies and
programs of the municipality; and
(c)
to carry out other duties required under this or any Act and other duties
assigned by the municipality.
Chief administrative
officer
229.
A municipality may appoint a chief administrative officer who shall be
responsible for,
(a)
exercising general control and management of the affairs of the municipality
for the purpose of ensuring the efficient and effective operation of the
municipality; and
(b)
performing such other duties as are assigned by the municipality.
[19]
It was clear from Mr. Hunks evidence that he
thought the Appellant was not an employee with the Municipality because he did
not work a fixed number of hours and his name was not on the payroll. However,
I have concluded that the Appellant was an employee when he performed his
services for the Municipality. My conclusion is based on the Human Resources
Policy for the Municipality (Exhibit R-2, Tab 13) (the “Policy”) and the duties
which the Appellant’s former counsel said the Appellant performed (Exhibit R-2,
Tab 17). These duties were in notes written by the Appellant when he was
attempting to negotiate an employment contract with the Municipality.
The Policy
[20]
According to the Policy, the CAO was not only an
essential member of the Municipality’s staff but he was in charge of the
Municipality’s managers. He was an integral part of the senior management of
the Municipality. He reported only to the Council. The CAO, with others,
ensured the equitable application of the Municipality’s Policies. The CAO
supervised the Department Heads employed by the Municipality (See section 2:03 of
the Policy). He and the appropriate functional committee were responsible for
preparing the performance evaluation for each of the Department Heads.
[21]
The CAO and the Department Heads were
responsible for recommending the hiring of all full time municipal staff.
Temporary, part time and seasonal employees could only be hired, replaced or
dismissed with the approval of the CAO. Full time employees could only be
dismissed with the approval of the CAO and the Council. The CAO could only be
dismissed with the approval of Council.
[22]
The CAO was expected to attend up to two regular
Council or committee meetings per month as part of his regular salary
compensation. For time worked in excess of 80 hours per calendar year, the CAO
was entitled to be paid overtime at his straight time rate or granted straight
time off in lieu.
[23]
The CAO reported to the Council for the
Municipality and it was responsible for ensuring an annual “employee Appraisal
Report” was completed for the CAO (See paragraph 6.01 of the Policy). The Council
clearly had the right to control the CAO: Groupe Desmarais Pinsonneault
& Avard Inc v Canada, [2002] FCA 144 at paragraph 5.
[24]
The CAO had the overall responsibility for
managing the salary and wage administration program for the Municipality. He
was also involved in approving the job descriptions for all positions with the
Municipality. Job descriptions for all positions were prepared by the
appropriate Department Head in consultation with the CAO. The CAO and Council
approved the job descriptions.
[25]
The CAO was responsible for scheduling the hours
of work and approving the vacation schedules for the Department Heads.
[26]
It is my view that the Municipality could not
engage the Appellant as an independent contractor in the CAO position. The
Policy makes it clear that the CAO had to be an employee of the Municipality.
The Appellant’s Records
[27]
The Appellant did not work from 8:30 to 4:30 as
did Mr. Hunks. He also did not work a set number of hours per week when he was
Treasurer or when he became CAO. As senior management he worked as many hours
as were needed to get the job done. This is normal with most management
positions. However, according to the Policy, the Appellant was entitled to
overtime pay. According to the Appellant’s records, he worked a total of 3,491
overtime hours between March 2005 and December 2006.
[28]
His records indicate that while he was
Treasurer, he performed numerous tasks including training staff in corporate
records management; interviewing candidates for the position of Deputy
Treasurer; performing the duties of Deputy Treasurer from July 2005 until
September 2005 and performing the duties for various staff members while they
were on vacation. Some of the Appellant’s accomplishments when he was CAO were:
he performed the duties of various positions when those positions were vacant
or the occupant was on vacation; he developed the management team and handled
many personnel problems; he was involved in the recruitment and hiring of
staff; he developed corporate performance reports; he delivered business plans;
he reengineered corporate websites; and, he dealt with corporate health and
safety concerns. He was instrumental in invoking changes from hourly pay to
salaries for administrative staff and developing a municipal water bylaw.
[29]
The Appellant was paid a fixed salary in 2005
and 2006. It is my view that this method of payment was more like that of an
employee who is part of management than that of an independent contractor. He
worked extra hours without pay.
[30]
The Appellant stated that he used his own
computer. However, according to his Contract, the Municipality provided him
with a computer and an office. It was his choice to use his own computer and it
does not negate the fact that one was made available to him by the
Municipality.
[31]
All of these facts from the Policy and the
Appellant’s records lead me to conclude that the Appellant was an employee
while he performed the duties of Treasurer and CAO for the Municipality.
Expenses
[32]
After the Appellant was assessed pursuant to
subsection 152(7) of the Act, he filed income tax returns for 2005 and 2006.
Even these returns do not support the position he took in this appeal. In those
returns, he reported employment income of $60,416 and $92,700 in 2005 and 2006
and claimed nil business income but business losses of $67,338 and $61,353 in
2005 and 2006.
[33]
There was evidence that the Municipality
reimbursed the Appellant for his mileage and cell phone expense. Other than
this evidence, there was no evidence that the Appellant incurred any other
expenses. He submitted no receipts to the Court.
[34]
The appeal is dismissed with costs to the
Respondent.
Signed at Ottawa, Canada, this 7th day of November 2014.
“V.A. Miller”
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