Bentwater Creative Services Inc v. M.N.R.

Bentwater Creative Services Inc v. M.N.R. Court (s) Database Tax Court of Canada Judgments Date 2007-11-03 Neutral citation 2007 TCC 631 File numbers 2006-3300(CPP) Judges and Taxing Officers Norris Weisman Subjects Canada Pension Plan Decision Content Citation: 2007TCC631 Docket: 2006-3300(CPP) BETWEEN: BENTWATER CREATIVE SERVICES INC., Appellants, and THE MINISTER OF NATIONAL REVENUE, Respondent. CERTIFICATION OF TRANSCRIPT OF REASONS FOR JUDGMENT Let the attached certified transcript of my Reasons for Judgment delivered orally from the Bench at Toronto, Ontario, on September 27, 2007, be filed. “N. Weisman” Weisman D.J. Signed in Toronto, Ontario, this 3rd day of November, 2007. Citation: 2007TCC631 Court File No. 2006-3300(CPP) TAX COURT OF CANADA IN RE: the Canada Pension Plan BETWEEN: BENTWATER CREATIVE SERVICES INC. Appellant - and - THE MINISTER OF NATIONAL REVENUE Respondent HEARD BEFORE MR. JUSTICE WEISMAN in the Courts Administration Service, Federal Judicial Centre, 180 Queen Street West, Toronto, Ontario on Thursday, September 27, 2007 at 4:05 p.m. APPEARANCES: Mr. Laurent Bartleman for the Appellant Ms Kathy Hollett for the Respondent Also Present: Ms. Roberta Colombo Court Registrar A.S.A.P. Reporting Services Inc. 8 2007 200 Elgin Street, Suite 1004 130 King Street West, Suite 1800 Ottawa, Ontario K2P 1L5 Toronto, Ontario M5X 1E3 (613) 564-2727 (416) 861-8720 (ii) INDEX PAGE Oral Reasons for Judgment 1 ************* Toronto, Ontario --- Upon commencing the Oral Reasons on Thursday, September 27, 2007 at 4:05 p.m. JUSTICE WEISMAN: This afternoon I have entertained an appeal by Bentwater Creative Services Incorporated against a decision by the respondent that the worker, Ms. Kate Hollett, was engaged as an employee under a contract of service during the years 2002 and 2003; and that, therefore, the appellant is responsible for Canada Pension contributions during that period. The appellant appeals on the grounds that Ms. Hollett is not an employee but was an independent contractor in her capacity as the manager of Bentwater's business. In order to resolve the issue before the Court, I am obligated to look at the entire relationship between the parties, and there are guidelines as to how I go about doing that. There is a series of cases called Wiebe Door Services, Sagaz Industries and Precision Gutters. And basically they set out a series of guidelines wherein I am assisted in solving the puzzle. The nature of the exercise is to try to understand that if, indeed, Ms. Hollett was an independent contractor, what business was she in. There are four guidelines namely: Control, ownership of tools, chance of profit and risk of loss. Before I embark upon the evidence with respect to those four, I might say that these proceedings are under the Canada Pension Plan. Were they under the Employment Insurance Act, there are provisions in the Employment Insurance Act that people who are not dealing with their payers at arm's length are not in insurable employment and, therefore, are not entitled to Employment Insurance Benefits. That is surely, Ms. Hollett's position, being the sole shareholder and director of the appellant, but there is no comparable provision in the Canada Pension Plan. There is a provision defining "officer". And the Plan says that officers include directors, and officers are employees. Now, that could have presented a problem for the appellant. But as Mr. Bartleman candidly acknowledged, that was not pleaded by the Minister, has not been relied upon to this date by the Minister, and the law is that the Minister is not allowed to surprise people by pleading arguments at the eleventh hour at trial. And so that will not be taken into consideration in this reasoning. So far as control is concerned, we get into this corporate veil issue, which is trite law. For instance, in Income Tax matters there is a clear distinction between the company and its shareholders. But in this case we are talking about control, and the question is: Could Bentwater control Ms. Hollett. It is very difficult to say how the conclusion can be otherwise than it certainly had the right to control her, particularly since she was its sole shareholder and director. So we are looking at a situation where the question is: Could Ms. Hollett control herself, or could Ms. Hollett in her capacity as the sole shareholder and director of Bentwater control herself? And Ms. Hollett did not use the word, but her argument was that it was almost like she had a personality such that she did not always do what she thought she should do. She was not always able to control herself or her emotions. I think in law it is very hard to argue that one does not have the right to control themselves. I think the control factor really has to indicate that Ms. Hollett was an employee. Ownership of tools: There was evidence going both ways. The evidence was that the owner of the one premises on Dundas Street was Ms Hollett; that Bentwater leased it from her, and it was then was given rent free to Ms. Hollett for her graphic design work; on the other hand, she had both at home and on Dundas Street her own computer and the software and the printer and the paper. The Minister has pointed out that in her Income Tax returns she did not claim those as expenses, but I do not draw an inference against her. I accept her sworn testimony that she provided those necessary tools of the graphic designer trade. I do see a problem though because it became clear after a while that she was not claiming to be an independent graphic designer, but an independent manager. The income paid to her in 2002 in the amount of $21,000.00, and $25,000.00 paid to her in 2003, were management revenues. Again, I draw no adverse inference that the statements refer to them as “salaries”. It is up to me as to whether they were salaries or payment to an independent contractor. But nevertheless, they were for management services, not graphic design services, not artistic services. And so the focus of my inquiry is the tools relative to the management enterprise. As I understand it, the computer with specialized software was for graphic design purposes. I am left with the conclusion that in her capacity as manager that Ms. Hollett really did not need to supply any materials. The main thing she needed was the office premises, which were given to her free of charge by Bentwater; and therefore, the tools factor also indicates that she was an employee. I have to canvass whether there was a chance of profit in her dealings with Bentwater, and I can not say that there was. She was paid whatever the corporation could afford to pay her, but in order for her to profit by being a manager, her business income would have to exceed her business expenses. I can not see that there was any business income. She was paid annually by the corporation or in some periods of time that the corporation could afford to pay her, but so far as that being a profit is concerned, you would have to compare it with any number of independent contractors who have a financial investment in their trade. I understand that Ms. Hollett had financial investment in Bentwater, but the question is: Did she have financial investment in being a manager? She was not hiring employees as a manager. She did not invest monies as a manager. Those people who take risks and hope that the rewards, namely the profits, will exceed the risks, those are entrepreneurs. I can not see that there is any chance of profit in the relationship that Ms. Hollett had with the appellant, Bentwater. The risk of loss is even clearer because her evidence was that she did expend monies on behalf of Bentwater, but she was reimbursed for those expenditures; therefore, I can not see any risk of loss. So both the chance of profit and the risk of loss factors indicate that she was an employee. All these guidelines are only in service of trying to understand the total relationship between the parties. If Ms. Hollett could establish that she managed not only Bentwater's business but several other businesses and was paid in each case, then I could see that she was possibly in the business of being a manager. But when one is managing only for one client and that client is your own company, it is difficult to find that you were in the business of managing. Ms. Hollett put her finger on the problem here. She said, "I do my best to make Bentwater work, and that's not the job of an employee". Well, that is exactly right. That is the job of an owner. We have to segregate what Ms. Hollett, and I hear this in many cases, what people do because they are shareholders and owners of the company and what they do because they are workers for the company -- the most common example are seasonal businesses -- and you will find that the owners of the company for no pay, off- season, will perform services for the company because they own it. The question is: Are they doing that qua shareholder/director or qua employee? That is a differentiation you must make. The differentiation I am drawing in this case is that when someone says, as Ms. Hollett has said, that she does whatever it takes to make Bentwater work, that is qua owner/director not as qua employee. The question is: Does she do everything that she can to make her business as a manager work, and I do not see that there was any business as a manager. That is what the law obligates me to do. I must ask what, if any, business do I find that this person is in, and I can not see that Ms. Hollett was in business on her own account at all. There is a burden upon her to rebut -- or "demolish" is the technical word -- the assumptions set out in paragraph 8 of the Minister's Reply to the Notice of Appeal, and she did not demolish any of them except that when we got down to e) and f), the one says that she provided graphic designing services. But it was not as a graphic designer that she was claiming this income but as an independent contractor, it was as a manager. When we get to f), the worker also provided consulting and management services to the appellant, upon closer inquiry, it turned out that it was not so much management services that she was providing. She was the jack of all trades because it was her company. When the company could not afford to hire anybody to do anything, she did it, including the plumbing. That was the new evidence that came out with reference to f). It was not so much management services she was providing as whatever was necessary to help the company. There also was an allegation in sub paragraph g) that she got her rent free, but there was this computer and software and printer. And the only evidence I heard is that the computer and the software and the printer were required for the graphic design business. I am sure that there was times when the computer and the printer were used for Bentwater's business, but the evidence is pretty clear from Ms. Hollett that that was not why she bought them. That was not the main thrust of them, and they certainly were not necessary for a jack of all trades especially in the plumbing end. It is true that g) is basically established, that the work was provided free of charge and the place of work and that ownership of the tools factor tends to indicate also that she was an employee. She agreed with each. And i), where the Minister pointed to the two income tax returns saying that she got management salaries -- it was her position that they were not salaries but payments to an independent contractor -- and she acknowledged that j) was indeed true because she was reimbursed her expenses. That was done by including it in the $21,000.00 she got in 2002 and the $24,000.00 she got in 2003. Basically, I find that the appellant has not demolished the assumptions set out in the Minister's Reply and, to the extent that she was the main witness for Bentwater, she failed to cast doubt on the remaining assumptions which were more than sufficient to support the Minister's determination. I do not find that there was any new evidence that would cast doubt upon the Minister's decision or that the Minister misconstrued any of the evidence; and therefore, I find the Minister's determination objectively reasonable. That being my conclusion, I have no alternative but to conclude that I can see no business that Ms. Hollett was in on her own behalf; and therefore, the appeal has to be dismissed and the decision of the Minister confirmed. I am sorry. MS. HOLLETT: Is there anything that I can do about this, or is that it? JUSTICE WEISMAN: I'm sorry, I can't hear you. MS. HOLLETT: Sorry, is there anything else that I can do about this? JUSTICE WEISMAN: Yes, you can appeal my decision. MS. HOLLETT: Okay. JUSTICE WEISMAN: By all means. If you go down to the third floor, there is a person who will tell you how to go about doing that. MS. HOLLETT: Okay. Thank you. I HEREBY CERTIFY THAT I have, to the best of my skill and ability, accurately recorded by shorthand and transcribed therefrom the foregoing proceeding. Alex Walker CITATION: 2007TCC631 COURT FILE NOS.: 2006-3300(CPP) STYLE OF CAUSE: Bentwater Creative Services Inc. and The Minister of National Revenue PLACE OF HEARING Toronto, Ontario DATE OF HEARING September 27, 2007 REASONS FOR JUDGMENT BY: The Honourable N. Weisman, Deputy Judge DATE OF ORAL JUDGMENT November 3, 2007 APPEARANCES: Agent for the Appellant: Kathy Hollett Counsel for the Respondent: Laurent Bartleman COUNSEL OF RECORD: For the Appellant: Name: Firm: For the Respondent: John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Canada