Grupp v. R., [1999] 4 CTC 2022, 99 DTC 1163 (Informal Procedure)

Bowie 1.C.J.:

This appeal was heard in March 1999, by the late Chief Judge Christie of this Court. He reserved judgment at the conclusion of the hearing, and passed away before he was able to deliver judgment. The parties have agreed to have the appeal disposed of by another judge upon the basis of the evidence given, and the exhibits entered, at the hearing before Chief Judge Christie.

The Appellant is an individual who holds a bachelor of laws and a master of laws degree from Osgoode Hall Law School in Toronto. He has taught law from time to time at the community college level, and he acts as a paralegal. His activities as a paralegal are carried out as an employee of a company called Persuader Court Agents Inc. (the company) of which his wife is the sole shareholder and director. He is an employee of that company, and holds the title of manager. The subject matter of this appeal is certain amounts, totalling $10,710.00, which were paid by Ner Israel Yeshiva (the Yeshiva), for services which were rendered by the Appellant. Those services consisted of teaching a course at the Yeshiva, during the year 1994. The issue is a narrow one. It is simply whether the course was taught by the Appellant in his personal capacity, in which case the amount paid by the Yeshiva is income in his hands, or whether he taught the course as an employee of the company, in which case it is the income of the corporation, and the appeal succeeds.

Persuader Court Agents Inc. was incorporated in July 1993, but it does not appear to have done much business, if any, prior to the spring of 1994. The Appellant, in the meantime, had been doing some teaching, and in 1993 he was approached by the Yeshiva to give the course in question. According to his evidence, the school’s approach was made to him personally. He said in his evidence:

The school basically, because it is a OAC course, had to hire me personally as the teacher, although I wanted them to hire my company Persuader Court Agents Inc., which is a company that does paralegal work.

Later in his evidence he said:

So when the job was offered, it was offered to me, Gerald Grupp, because of my qualifications. However, it was required that I perform the services of teaching during the business hours of Persuader Courts Agents. And so, therefore, the income that was earned by me was in fact income that I had to report to and turn over to Persuader Courts Agents because I was doing it while - during their business hours. And it was part of my job as a paralegal to train other paralegals, because 1 have done that for Sheridan College.

In short, then, the Yeshiva wished to hire the Appellant in his personal capacity, and it made an offer of employment to him in that capacity. There is no suggestion in the evidence that any discussions were held with the Yeshiva as to whether its contract would be with the Appellant personally or with the company, although it was apparently the Appellant’s preference that the contract would be with the company, so that the income would be that of the company.

The Appellant argued that since he did the work involved in giving the course during the daytime, when he was, according to his evidence, employed by the company, and since he used the company’s computers to prepare course materials and examinations, and to mark examinations, and he used other company staff for that purpose as well, he must therefore have been working as an employee of the company, and the income therefore must have been that of the company.

Payment was made by the Yeshiva issuing cheques to the Appellant personally. The Appellant endorsed these cheques in favour of his wife, who cashed them. They were accounted for by a debit to her shareholder loan account in the books of the company, thereby with each cheque reducing what appears to have been a fairly substantial loan made by her to the company when it commenced operation.

The company’s accountant, Mr. Sklar, gave evidence. First, he explained that in the years subsequent to 1994 the income from this course has been treated as income of the company, and not of Mr. Grupp personally, and that Revenue Canada has accepted this and assessed the income in the hands of the company. According to the accountant’s evidence, the problem giving rise to this assessment arose with Revenue Canada for two reasons. The first of these was that the Yeshiva issued a T4A form to Mr. Grupp personally, showing the amount of $10,710.00 in question to have been paid to him as salary. Secondly, some sort of error involved in the use of a computer program purchased for the company showed the money paid by the Yeshiva in 1994 on the books of the company as “Fees Partner B”. This seems to have been the result of the bookkeeper’s lack of familiarity with the accounting program purchased by the company for use on its computer system. According to Mr. Sklar’s evidence, it was for these two reasons that Revenue Canada concluded that the income was really the income of the Appellant, and assessed it in his hands. He testified that in subsequent years the form T4A was dealt with by declaring the income on Mr. Grupp’s personal T] income tax return, which, when filed, was accompanied by the form T4A, and then showing it as a deduction from the income of Mr. Grupp. His evidence on this point was as follows:

What we did was we included the T4A in the personal tax return and then we showed a deduction being funds allocated to his employer. So there was a trail of what was done.

The amounts paid by the Yeshiva in the years after 1994 were reported as income by the company.

As the Crown has agreed to have this case decided on the basis of the transcript taken before the late Chief Judge Christie, I conclude that counsel for the Crown accepts the credibility of the witnesses. What is in issue, however, is the proper inferences to be drawn from the evidence of the Appellant and Mr. Sklar. The onus is on the Appellant to displace the assumptions upon which the Minister has based his assessment. Those assumptions are set out in paragraph 6 of the Reply:

6. In so reassessing the Appellant, the Minister made the following assumptions of fact:

(a) during the 1994 taxation year, the Appellant performed services for Ner Israel under a contract of service (the “services rendered”);

(b) for the performance of the services rendered, Ner Israel paid the Appellant an amount of $10,710.00;

(c) Ner Israel prepared and issued a T4A slip to the Appellant for the amount of $10,710.00 paid to the Appellant;

(d) Ner Israel did not deduct or remit tax with respect to the amount of $10,710.00 paid to the Appellant;

(e) the amount of $10,710.00 received by the Appellant from Ner Israel in 1994, was income from an office or employment.

So far as I could ascertain from the transcript, the Appellant’s submission that the income was that of the company, and not of him personally, was based on two facts. One was that the Appellant preferred that the contract be between the company and the Yeshiva. The other is that he did the teaching during the daytime, and that he used some of the company’s resources to fulfil the contract. It is clear however from his own evidence that the contract was offered to him in his personal capacity, and that the Yeshiva’s intention was to contract with him and not with the company. Moreover, Mr. Sklar gave evidence to the effect that the company did not commence operations until the spring of 1994. However, this contract was entered into sometime prior to September 1993, when the academic year began.

The Appellant did not call any witness from the Yeshiva to support his assertion that the contract was between it and his wife’s company, nor did he call his wife to give evidence as to the terms of his employment by her company. During the year 1994 the Appellant worked for the company without payment of any kind. That being so, it would be reasonable to conclude that his relationship with the company would permit him to carry on personal business during the daytime, and to use some of the company’s resources to assist him in doing so. From all these facts, and in the absence of evidence from either the Yeshiva or Mrs. Grupp, I draw the inference that the Yeshiva contracted with the Appellant, as it intended to do, and not with Persuader Court Agents Inc. The income was therefore the Appellant’s, and was properly assessed as such. This conclusion, of course, relates only to 1994, the year under appeal. The contractual arrangement may have been the same, or it may have been different, in later years.

The appeal is dismissed.

Appeal dismissed.