Dodds Bros Auction Ltd. v. M.N.R.

Dodds Bros Auction Ltd. v. M.N.R. Court (s) Database Tax Court of Canada Judgments Date 2004-02-18 Neutral citation 2004 TCC 150 File numbers 2003-1764(EI) Judges and Taxing Officers David W. Beaubier Subjects Employment Insurance Act Decision Content Docket: 2003-1764(EI) BETWEEN: DODDS BROS. AUCTION LTD., Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. ____________________________________________________________________ Appeal heard on February 9, 2004 at Kelowna, British Columbia By: The Honourable Justice D.W. Beaubier Appearances: Counsel for the Appellant: Kenneth R. Hauser Counsel for the Respondent: Gavin Laird ____________________________________________________________________ JUDGMENT The appeal is allowed and the determination of the Minister is vacated in accordance with the attached Reasons for Judgment. The Appellant is awarded all costs and all disbursements permissible under the Employment Insurance Act Signed at Saskatoon, Saskatchewan this 18th day of February, 2004. "D.W. Beaubier" Beaubier, J. Docket: 2003-1765(CPP) BETWEEN: DODDS BROS. AUCTION LTD., Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. ____________________________________________________________________ Appeal heard on February 9, 2004 at Kelowna, British Columbia By: The Honourable Justice D.W. Beaubier Appearances: Counsel for the Appellant: Kenneth R. Hauser Counsel for the Respondent: Gavin Laird ____________________________________________________________________ JUDGMENT The appeal is allowed and the determination of the Minister is vacated in accordance with the attached Reasons for Judgment. Signed at Saskatoon, Saskatchewan this 18th day of February, 2004. "D.W. Beaubier" Beaubier, J. Citation: 2004TCC150 Date: 20040218 Docket: 2003-1764(EI) BETWEEN: DODDS BROS. AUCTION LTD., Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent, Docket: 2003-1765(CPP) AND BETWEEN: DODDS BROS. AUCTION LTD., Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. REASONS FOR JUDGMENT Beaubier, J. [1] These appeals were heard together on common evidence at Kelowna, British Columbia on February 9, 10 and 11, 2004. The Appellant's counsel called Robert ("Bob") Woodman, an operating officer and shareholder of the Appellant, his father, a co-operator and shareholder of the Appellant, Alan David "Woody" Woodman, and Douglas Sinclair who, in 2003, entered into a car-buying enterprise with Danny Saunders similar to that alleged by the Appellant. Respondent's counsel called Danny Saunders, the alleged employee; (or the operator of Danny's Used Cars - "DUC"), his wife, Karin; and Valerie Gwen Dahm, an employee of the Appellant from January, 1999 until July, 2000 where, among other things, she answered the telephone and did the payroll accounting. [2] These hearings turn on the credibility of the witnesses. The Appellant pleads that Danny Saunders was not its employee for the period from September, 1999 until he quit on September 23, 2002. Rather, the Appellant states that Danny operated a used car sales lot ("DUC") situated on its property, with money supplied by Bob and Woody Woodman, and services by Danny for purchasing low-end used cars and selling them. Profits were to be split 50-50 between Danny and Bob. The Appellant also supplied forfeited pawned used cars to the lot for sale. The Respondent claims that Danny was an employee of the Appellant at first for $10 per hour in cash, and then for $2,500 per month for the last year or year and one-half. [3] Valerie ("Val") Dahm's testimony was broad ranging, but was based largely upon what she "thought", and not what she knew. DUC operated in a small part of the Appellant's very large, equipment-filled, 15,000 square foot fenced yard and Val was seated at a desk in the Appellant's office to one side of the yard. She could not see the yard from her desk. She went into the yard to eat her lunch and was in the yard from time to time for a total of about an hour a working day. She said she used Danny to value pawned cars when Bob wasn't there. She did not say that Danny was on the Appellant's payroll, although she did that payroll. Rather she did say that Danny and Bob were the only ones who took money from the DUC cash envelope in the Appellant's safekeeping; Val recorded the entries into it for Danny when Bob wasn't there. She also confirmed the fact that any pawned cars sold by DUC for the Appellant were accounted for through the Appellant's books and not in the DUC envelope. Sales proceeds of DUC's used cars went into the envelope. In other words where Val was not stating what she "thinks", or "believes", her testimony largely confirmed Bob's testimony. [4] Karin is not believed and where her testimony conflicts with any of the Appellant's witnesses, it is not accepted. There are a number of reasons for this. They include: 1. Karin testified that for Danny's last year or year and one-half at the Appellant's the Appellant paid Danny a salary of $2,500 per month. But this is not mentioned in Karin's letter (Exhibit A-14) which she wrote to Bob in the seven months or so before September 23, 2002 asking for $3,000 per month for Danny. 2. Exhibit A-14 does refer to money owed to Bob, Woody and DUC. She did not acknowledge "DUC" as being in her writing or any debt to DUC. However the Court finds that, given the letter's spacing and Bob's testimony that the DUC was there. Karin wrote "DUC" and used that term. The reference to a debt to DUC also confirms the tenor of the letter and the Appellant's case that Danny did not receive a salary, but operated on Bob's and Woody's loans and advances from the DUC envelope. This is also confirmed by Exhibit A-8. 3. The $3,000 per month proposal does not refer to income taxes or withholdings on a salary. This confirms the fact that Danny was borrowing from Bob, Woody and DUC and that it was not making income for Danny. It also confirms Karin's and Danny's testimony that Danny has not filed income tax returns for six or seven years. If he was not making an income, he would not have to file an income tax return for tax purposes. This fact also puts the lie to Karin's and Danny's allegation that initially in the period Danny was paid a salary of $10 per hour by the Appellant. 4. Finally, the letter (A-14) refers to a quota. The Court interprets this phrase to refer to the amount of profit DUC has to generate for Danny's share of 50 percent of DUC's profits to equal $3,000 proposed by Karin. Karin also made self-assured statements about car sales in which she failed to distinguish between pawned car transactions assigned from the Appellant and ordinary used car transactions and she alleged cash "under the table" sales on which GST was not recorded. The Court finds that she did this to hurt the Appellant and because, despite her self-alleged knowledge, she did not understand the differences between the Appellant's consigned pawned cars and DUC's own cars and the tax matters relating to the sales of used vehicles by a dealer. [5] Danny's testimony is not believed for reasons which include parts of these already recited respecting Karin where they may apply to Danny's own testimony. In addition: 1. Doug Sinclair testified about a similar car sales financing experience for a return of 50 percent of the profits on sales that he had with Danny in which he, like Bob and Woody, kept paying in money. Doug paid about $4,400 and recovered about $900. Danny admitted to Doug and in Court that he used drugs; percocets while operating DUC (at 40 tablets a day in 2003) and, to Doug, marijuana. 2. Danny operated two other body shops for a few months each while operating DUC. He also towed vehicles under Karin's trade name "Hotrod Vehicle Delivery Service" which she licenced in May, 2002, and in the summer of 2002 set up a seal coating and asphalt business. He was absent from DUC for two months in about June or July, 2002 when he claims he was working at Dodd's for a salary of $2,500 per month. None of this would be permitted by an employee who was employed to be a used car purchaser and salesman. 3. Danny admitted that he has filed no income tax returns for six or seven years. Nothing is alleged to have been withheld from his purported salaries for any government body and it is all alleged to be in cash. Dodds paid its regular, permanent employees by cheque. Bob and Woody testified that DUC's purchases and sales were for low-end cars for cash. These cars were planned to sell on the DUC lot for about $2,000 or less, and permit DUC to double its cost of those cars. All the cash came in and out of an envelope which Bob kept or stored with Dodds' accountant except on occasion (usually on week-ends) when Danny was given $1,000 or so to go out and scout residential areas and buy old cars. Danny and Karin admitted Bob and Woody's allegations that Danny borrowed cash from them and the envelope continuously in amounts of plus or minus $100. There is no written record of withholdings, cheques or income tax returns by Danny to support any alleged salary. Dodds' regular employees received cheques and presumably Danny would file an income tax return reporting his income. Karin filed income tax returns, Danny did not. In other words, Danny presented no objective documentary evidence relating to third parties which indicate that he was an employee of Dodds during the period. [6] The matters in dispute are set out in paragraphs 4 to 10 inclusive of appeal 2003-1764(EI). They read: 4. On November 15, 2002, the Minister of National Revenue (the "Minister") issued a ruling determining that Danny Saunders ("Saunders") was employed in insurable employment under a contract of service during the period from September 19, 1999 to September 23, 2002 (the "Period"). 5. The Appellant appealed the ruling by letter dated December 19, 2002. 6. In response to the Appellant's appeal of a ruling under section 91 of the Employment Insurance Act, S.C. 1996 c.23 (the "Act"), the Minister confirmed that Saunders was employed by the Appellant in insurable employment during the Period. 7. In determining that Saunders was employed in insurable employment with the Appellant during the Period, the Minister relied on the following assumptions of fact: a) the Appellant's business was an auction house, pawn shop and car dealership; b) the business was owned by Dave Woodman, Roxanne Woodman and Robert Woodman; c) Saunders' duties were to take care of the yard, buying and selling vehicles, controlling ingoing and outgoing pawns, estimating the value of estate vehicles sold at auction, estimating the value of repossessed vehicles from the bailiff and in one case the tearing down of a restaurant; d) the Appellant provided the office from which Saunders performed his duties; e) there was no written agreement in place between the Appellant and Saunders; f) the Appellant required Saunders to work from 8:30 a.m. to 5:30 p.m. Monday to Friday and Saturday from 8:30 a.m. to 12:00 noon; g) the Appellant recorded Saunders hours of work; h) the Appellant did not provide a benefits plan however Bob Woodman paid Saunders' dental bills in cash; i) the Appellant supervised Saunders; j) the Appellant paid Saunders $10.00 per hour plus 50% commission for the first two years of his employment which was then changed to $2,500 per month plus 50% of the profits; k) the Appellant paid Saunders in cash; l) the Appellant provided most of the tools and equipment used in the business including a flat deck trailer used to haul vehicles, dealer plates, a gas card, the automobile dealership license and the ADESA (Vancouver Car Auction) pass card required when purchasing vehicles at auction; m) Saunders provided his own vehicle when he picked up or looked for vehicles to purchase for the Appellant; n) the Appellant paid Saunders' expenses when he was required to travel including meals, hotel and gas expenses; o) customers who purchased vehicles made payment to the Appellant, not to Saunders; p) the vehicles sold by Saunders were owned by the Appellant until they were transferred to customers; q) the Appellant had the final say in determining the selling price of a vehicle; r) Saunders' wife Karin also worked at the Appellant's business; s) Saunders did not share in the potential for profits or the risk of losses in the business; t) the Appellant terminated Saunders; and u) at no time during the Period was Saunders the proprietor of a used car dealership. B. ISSUES TO BE DECIDED 8. The issue is whether Saunders was employed in insurable employment with the Appellant during the Period. C. STATUTORY PROVISIONS RELIED ON 9. He relies on paragraph 5(1)(a) and subsection 2(1) of the Act. D. GROUNDS RELIED ON AND RELIEF SOUGHT 10. He respectfully submits that Saunders was employed in insurable employment with the Appellant during the Period under a contract of service within the meaning of paragraph 5(1)(a) of the Act as he was not operating his own used car dealership during the Period. [7] Assumptions 7(a), (d), (e) and (m) are correct. [8] Respecting the remaining assumptions, by paragraph letter, the Court finds as follows: (b) It appears that shares in the Appellant corporation were owned by the Woodmans. Robert is Dave and Roxanne's son. (c) Is False. Danny Saunders owned Danny's Used Cars ("DUC") which operated from a portion of the Appellant's fenced-in 15,000 square foot pawn and auction yard in Vernon, B.C. throughout the period. On occasion Danny valued a vehicle for pawn purposes when Robert was not in the yard, but he did not do any of the other alleged duties. Bob loaned money to DUC, in return for which his "interest" on his loans was to be 50 percent of the profit on the sales. From the evidence, it appears that there were no profits and that DUC seldom sold a car for double its cost (as was initially expected). (f) Robert wanted Danny to put in these kinds of hours, since he was financing DUC for a 50 percent share of the profits. But Danny didn't do this. Moreover, Danny frequently and at will, substituted Karin for himself on the used car sales lot. Karin was not paid by Dodds. None of this would have occurred had Danny been an employee of Dodds. (g) Is false. But the Appellant did record its regular full-time employees' hours of work. They were paid on an hourly basis by cheque. The Appellant also employed one or two part-time employees to help out on its regular Wednesday night auction who were paid by the hour in cash. (h) The $300 was loaned to Danny to fix his broken false tooth plate. (i) Is false. Danny ran his own business at DUC. Danny also had other businesses during the period including two auto body businesses in separate partnerships with two other men, operated Karin's towing business "Hot Rod Vehicle Delivery Service", and took two allegedly "salaried" months off in 2002 to operate an asphalt business. The evidence is that Danny was trying to operate several businesses when he couldn't even go to work and run one business. Danny Saunders wandered freely among his various enterprises and activities. (j) Is false. DUC was set up by Danny at the beginning of the period on the basis that Bob would and did supply an envelope of cash, Danny would supply his services free and DUC would operate out of the Appellant's yard. DUC would buy old cars, fix them up if necessary, and sell them. Bob and Danny would split the profits 50-50. This happened and Danny took "advances" on account of his 50 percent and borrowed more from Bob and Woody. Bob's alleged profits were spent acquiring more inventory for DUC. Danny Saunders was never paid $10 per hour or $2,500 per month, nor was there ever any such agreement or contract with Bob, the Appellant or Dave Woodman. Danny was at all times an independent entrepreneur who operated on other people's money. (k) Is true in that all of Bob and Danny's dealings were in cash. The Appellant's business dealings with its customers were usually in cash. Bob's and Woody's loans to Danny were in cash. DUC operated in cash sales except that Visa sales were put through Dodd's Visa account since DUC did not have a Visa account or an auto dealer's licence. DUC operated on Dodd's licence. (l) This is not true. The Appellant provided the licence at all times. It provided the plates and the ADESA card twice and provided a gas card once; these were provided for two individual purchasing expeditions. (n) Is not true at all times but Bob may have supplied such funds on occasion. (o), (p) and (q) Are only true respecting the Appellant's pawned cars which were sold by DUC on consignment, and credit card sales by DUC. (r) Is not true. Karin Saunders worked at DUC from time to time during the period in substitution for Danny. She never received any employment or income from Dodds. Rather any work she did was for Danny. (s) Is not true. The profits from DUC were to be split 50-50 between Bob and Danny. Danny proposed and commenced the same deal with Doug Sinclair in August and September, 2003 with almost identical consequences; that is, Danny took the money and Doug lost most of his money as had Bob. It appears that Danny took money, profits or not, and Bob (not the Appellant) suffered a loss on his loans. To the question: "Whose business was it?", the answer is "It was Danny's. And Danny blew it away". It was Danny's opportunity of a lifetime and he couldn't cut the mustard. He couldn't go to work every day for long hours and do the little deals and jobs that had to be done at DUC to make a profit. Rather he had to get out and into other businesses, cruise around to allegedly buy cars, do drugs, and simply avoid going to work every day. (t) Is false. Danny quit operating DUC when the Appellant's new accountant began asking him questions to distinguish DUC's operations from those of the Appellant in the Appellant's fenced enclosure in Vernon, B.C. (u) Is false. Danny Saunders was the owner of DUC which was a used car dealership using the Appellant's car dealership licence and yard from which to operate. [9] Saunders was not employed by or with the Appellant during the period. Rather, Saunders was an entrepreneur operating DUC during the period. [10] The appeals are allowed. The Appellant is awarded all costs and all disbursements permissible under the Employment Insurance Act respecting the Employment Insurance appeal. Signed at Saskatoon, Saskatchewan this 18th day of February, 2004. "D.W. Beaubier" Beaubier, J. CITATION: COURT FILE NO.: 2003-1764(EI) and 2003-1765(CPP) STYLE OF CAUSE: Dodds Bros. Auction Ltd. v. The Queen PLACE OF HEARING: Kelowna, British Columbia DATE OF HEARING: February 9, 2004 REASONS FOR JUDGMENT BY: The Honourable Justice D.W. Beaubier DATE OF JUDGMENT: February 18, 2004 APPEARANCES: Counsel for the Appellant: Kenneth R. Hauser Counsel for the Respondent: Gavin Laird COUNSEL OF RECORD: For the Appellant: Name: Kenneth R. Hauser Firm: Kenneth R. Hauser Law Corporation Kamloops, British Columbia For the Respondent: Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada