Citation: 2007TCC519
Date: 20070831
Docket: 2006-3238(IT)I
BETWEEN:
SUSPENDED POWER LIFT SERVICE INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Docket: 2006-3247(CPP)
AND BETWEEN:
SUSPENDED POWER LIFT SERVICE INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Webb, J.
[1] The Appellant was assessed for unremitted income tax
and Canada Pension Plan contributions deducted from the amounts paid to certain
individuals in 2004 and also for unpaid employer premiums under the Canada
Pension Plan in relation to the services provided by these individuals in
2004. The Appellant has appealed this assessment in relation to the remittance
of the amounts deducted from the amounts paid to Catherine Luke in 2004 and in
relation to the requirement to pay the employer premiums under the Canada
Pension Plan in relation to the services rendered by Catherine Luke during
the 2004 taxation year.
[2] The first issue in this case is whether Catherine Luke
was an employee or an independent contractor. If she was an independent
contractor in 2004 then the issue would be whether this would affect the
assessment against the Appellant for the unremitted source deductions for
income tax and the employee portion of the Canada Pension Plan premiums.
If she was an independent contractor then the Appellant would not have been
liable for the employer portion of the Canada Pension Plan contributions.
[3] The Appellant is a small family owned company. In
1999, the Appellant retained the services of Catherine Luke as a bookkeeper.
Her duties included contacting customers with outstanding accounts receivable,
ensuring that the accounts payable were paid, preparing monthly financial
statements, and preparing the year end statements for the accountant. Catherine
Luke provided bookkeeping services not only to the Appellant but to other
clients as well. She initially sent invoices to the Appellant for services
rendered as an independent contractor and charged GST for her services.
[4] In the summer of 2004, the Appellant was audited by
the Canada Revenue Agency. At that time, the Appellant was reassessed for
unremitted source deductions for certain family members who were not considered
to be employees but whom the Canada Revenue Agency determined were employees.
Catherine Luke then spoke to the president of the Appellant, indicating that
she felt that she should be on the payroll as well as the others. The president
testified that he did not agree with this determination and could not
understand how she could be on the payroll if she was an independent
contractor. Catherine Luke was the person who was looking after the filings
with the Canada Revenue Agency. She treated herself as an employee of the
company and completed a T4 for herself showing an employment income of $31,249.95,
income tax deductions of $8,055., employee’s CPP contributions of $1,144.65 and
employee’s EI premiums of $586.80. The unremitted source deductions in this
appeal, as stated in the Reply, total $6,694.26 and therefore a portion of the
amounts deducted must have been remitted. Since the alleged period of
employment was for 4 to 5 months in 2004 and there were other employees, it is
not clear how much of the $6,694.26 actually relate to amounts deducted from
the amount paid to Catherine Luke. The amounts deducted in relation to the EI
premiums are not the subject of this appeal.
[5] Catherine Luke testified that during the period that
she was on the payroll for the company, she also had retained other clients for
whom she was providing bookkeeping services and to whom she was sending invoices
as an independent contractor. She indicated that the only difference between
the services that she was providing to the Appellant and to her other clients
was that she was doing more consulting work for the Appellant than she was for
her other clients. She confirmed that she did not have any decision making
authority but that the officers of the Appellant were consulting her on
financial matters.
[6] The first issue is whether Catherine Luke was an
employee or an independent contractor of the Appellant in 2004.
[7] The question of whether an
individual is an employee or an independent contractor has been the subject of
several cases. In 671122 Ontario Ltd. v. Sagaz Industries Canada Inc.,
[2001] S.C.J. 61, 2001 S.C.C. 59, Major J. of the Supreme Court of Canada
stated as follows:
46 In my
opinion, there is no one conclusive test which can be universally applied to
determine whether a person is an employee or an independent contractor. Lord
Denning stated in Stevenson Jordan, supra, that it may be impossible to give a
precise definition of the distinction (p. 111) and, similarly, Fleming observed
that "no single test seems to yield an invariably clear and acceptable
answer to the many variables of ever changing employment relations ..."
(p. 416). Further, I agree with MacGuigan J.A. in Wiebe Door, at p. 563,
citing Atiyah, supra, at p. 38, that what must always occur is a search for the
total relationship of the parties:
[I]t is exceedingly doubtful whether the search for a
formula in the nature of a single test for identifying a contract of service
any longer serves a useful purpose.... The most that can profitably be done is
to examine all the possible factors which have been referred to in these cases
as bearing on the nature of the relationship between the parties concerned.
Clearly not all of these factors will be relevant in all cases, or have the
same weight in all cases. Equally clearly no magic formula can be propounded
for determining which factors should, in any given case, be treated as the
determining ones.
47 Although
there is no universal test to determine whether a person is an employee or an
independent contractor, I agree with MacGuigan J.A. that a persuasive approach
to the issue is that taken by Cooke J. in Market Investigations, supra. The
central question is whether the person who has been engaged to perform the services
is performing them as a person in business on his own account. In making this
determination, the level of control the employer has over the worker's
activities will always be a factor. However, other factors to consider include
whether the worker provides his or her own equipment, whether the worker hires
his or her own helpers, the degree of financial risk taken by the worker, the
degree of responsibility for investment and management held by the worker, and
the worker's opportunity for profit in the performance of his or her tasks.
48 It bears
repeating that the above factors constitute a non-exhaustive list, and there is
no set formula as to their application. The relative weight of each will depend
on the particular facts and circumstances of the case.
[8] In recent decisions of
the Federal Court of Appeal the issue of the intent of the parties has been
addressed. In the recent decision of the Federal Court of Appeal in Combined
Insurance Co. of America v. M.N.R., 2007 FCA 60, Nadon J.A. of the
Federal Court of Appeal stated as follows:
35. In my view, the
following principles emerge from these decisions:
1. The relevant facts, including the
parties’ intent regarding the nature of their contractual relationship, must be
looked at in the light of the factors in Wiebe Door, supra, and in the
light of any factor which may prove to be relevant in the particular
circumstances of the case;
2. There is no predetermined way of
applying the relevant factors and their importance will depend on the circumstances
and the particular facts of the case.
Although as a general rule the
control test is of special importance, the tests developed in Wiebe Door
and Sagaz, supra, will nevertheless be useful in determining the real
nature of his contract.
[9] In this
case, there is no agreement between the Appellant and Catherine Luke with
respect to whether she was an employee or an independent contractor in 2004.
The president of the company was adamant that he could not understand how she
could be an employee when she had been sending invoices for several years as a
contractor. As a result, the intent of the parties does not support either an
employee or an independent contractor relationship.
Control
[10] In this
case, it was clear that the Appellant had very little control over the work
performed by Catherine Luke. She would set her own hours and there was no time when
she was ever called in by anyone on behalf of the Appellant to do extra work.
There was a significant discrepancy between the testimony of the president of
the Appellant and Catherine Luke with respect to the number of hours that she
would spend at the premises of the Appellant. The president testified that she
would spend perhaps one to four hours per week. Catherine Luke testified that
she would spend 15 to 20 hours per week. In any event, it was obviously not a
full-time position and it was Catherine Luke who would determine what hours
would be spent working on the bookkeeping matters for the Appellant.
[11] It also
appeared, in this case, that Catherine Luke was engaged to perform certain
tasks - to prepare monthly statements, to ensure that the accounts payable were
paid, to collect old outstanding accounts receivable and to prepare information
for the year end statements.
[12] In
the case of Direct Care in-Home Health Services Inc. v. The Minister of
National Revenue, 2005 TCC 173, Justice Hershfield made the following
comments in relation to control:
11 Analysis of this
factor involves a determination of who controls the work and how, when and
where it is to be performed. If control over work once assigned is found to
reside with the worker, then this factor points in the direction of a finding
of independent contractor; if control over performance of the worker is found
to reside with the employer, then it points towards a finding of an
employer-employee relationship. However, in times of increased
specialization this test may be seen as less reliable, so more emphasis seems
to be placed on whether the service engaged is simply "results"
oriented; i.e. "here is a specific task -- you are engaged to do it".
In such case there is no relationship of subordination which is a fundamental
requirement of an employee-employer relationship. Further, monitoring
the results, which every engagement of services may require, should not be
confused with control or subordination of a worker.
12 In the
case at bar, the Worker was free to decline an engagement for any reason, or
indeed, for no reason at all. …
(emphasis added)
[13] The
arrangement with Catherine Luke appears to be very similar to the arrangement
described by Justice Hershfield in that she was assigned specific tasks and
engaged to do them. As a result, the control factor would indicate that of an
independent contractor rather than an employer-employee relationship.
Opportunity for Profit/Risk of Loss
[14] There is
a disagreement between the president of the company and the Appellant with
respect to the amount to which she was entitled. Catherine Luke testified that the
agreement that was reached was that she would be entitled to be paid $6,000 per
month. If the Appellant worked 15 hours per week (the low end of the number of
hours based on her testimony), then she would work approximately 65 hours per
month (based on an average of 4.3 weeks per month (52/12)), which would result
in an hourly rate of approximately $92 per hour for bookkeeping services. If
she worked 20 hours per month (the high end of the number of hours based on her
testimony), then the hourly rate would have been approximately $70. per hour.
If she only worked the number of hours as indicated by the president of the
company, then her hourly rate of pay would have been approximately $350 to $1,400
per hour. The president of the Appellant also stated that as the Appellant was
a small company, there were only a few invoices generated on a weekly basis
(approximately 15 – 20) for Catherine Luke to process and that there were usually
only 6 or 7 clients to call in relation to the collection of overdue accounts
receivable. In relation to the test of opportunity for profit/risk of loss, since
she was paid a fixed amount per month, her revenue from the tasks performed for
the Appellant was fixed and there was little, if any, risk of loss. Her
expenses would be the same as would be incurred by an employee, i.e. traveling
to and from the Appellant’s office. As a result, this would indicate an
employer / employee relationship. The fact that she had, during this period,
other clients for whom she was rendering substantially the same services as an
independent contractor would indicate an independent contractor relationship
rather than an employee relationship.
Ownership of Tools
[15] She
required minimal tools to perform her tasks. She would use the desk of the
president who would often be out of the office on jobs. She would use the
computer of the Appellant because she was inputting data. She would also use
the Appellant’s telephone to call clients who were behind in paying their bills
to try to collect outstanding receivables. However, this would not have been
any different than in the preceding years when she was sending invoices as an
independent contractor. As well, it would not be any different than other
individuals who provide bookkeeping services to various clients when they
attend at the client’s premises to input data from time to time or to help with
the collection of accounts receivable.
Hiring of Helpers
[16] There was no indication whether she could have hired
any helpers.
Degree of Responsibility for Investment and Management
[17] As
Catherine Luke had noted, she was consulted from time to time by officers of
the Appellant on financial matters but she had no authority to make any
decisions for the Appellant and therefore did not have any responsibility for
investment and management of the Appellant.
[18] As a
result, I find that in this case, Catherine Luke was an independent contractor
of the Appellant throughout 2004. As a result, the Appellant is not obligated
to pay the employer premiums under the Canada Pension Plan in relation
to the services provided by Catherine Luke.
[19] However,
as noted above, the T4 slip for Catherine Luke indicates that $8,055. was
deducted in relation to income tax and $1,144.65 was deducted in relation to Canada
Pension Plan contributions for her as an employee. In the Reply, it is
stated that the amount of Canada Pension Plan contributions that was
deducted at source from the amount paid to Catherine Luke was $1,373.58. No
explanation was provided as to why the amount in the Reply was different from
the amount on the T4 slip and therefore I find that the amount that was
actually deducted was $1,144.65.
[20] In this
particular case, because Catherine Luke was an independent contractor and not
an employee, the Appellant was not obligated to deduct income tax under section
153(1) of the Income Tax Act (the “Act”). Subsection 153(1) of
the Act provides in part as follows:
153. (1) Every person paying at any
time in a taxation year
(a) salary, wages or other remuneration, other than amounts
described in subsection 212(5.1),
…
(g) fees, commissions or other amounts for services, other
than amounts described in subsection 212(5.1),
…
shall deduct or withhold from the payment the amount determined in
accordance with prescribed rules and shall, at the prescribed time, remit that
amount to the Receiver General on account of the payee’s tax for the year under
this Part or Part XI.3, as the case may be, and, where at that prescribed time
the person is a prescribed person, the remittance shall be made to the account
of the Receiver General at a designated financial institution.
[21] Subsection 153(3) of the Act provides as
follows:
153. (3) When an amount has been deducted or withheld under
subsection 153(1), it shall, for all the purposes of this Act, be deemed to
have been received at that time by the person to whom the remuneration,
benefit, payment, fees, commissions or other amounts were paid.
[22] Subsection
227(1) of the Act provides as follows:
227. (1) No action lies against any person
for deducting or withholding any sum of money in compliance or intended
compliance with this Act.
[23] Under subsection 153(1) of the Act the
Appellant was not obligated to deduct any amount from the amounts paid to
Catherine Luke as the prescribed rules would not require any income tax to be
deducted from payments made to independent contractors in this situation.
However, having deducted the amount, the issue becomes whether the Appellant is
now obligated to remit it. A strict interpretation of subsection 153(1) of the Act would suggest that a payor is only obligated to remit
those amounts that the payor is required to deduct under subsection 153(1) of
the Act.
[24] The Supreme Court of Canada
in Stubart Investments Limited v. Her Majesty The Queen 1984
CarswellNat 222, [1984] C.T.C. 294, 53 N.R. 241, [1984] 1 S.C.R. 536, 10 D.L.R.
(4th) 1, 84 D.T.C. 6305 made the following comments on the interpretation of
taxing statutes:
60 Professor Willis, in his article,
supra, accurately forecast the demise of the strict interpretation rule for the
construction of taxing statutes. Gradually, the role of the tax statute in the
community changed, as we have seen, and the application of strict construction
to it receded. Courts today apply to this statute the plain meaning rule, but
in a substantive sense so that if a taxpayer is within the spirit of the
charge, he may be held liable. See Whiteman and Wheatcroft, supra, at 37.
61 While not directing his observations
exclusively to taxing statutes, the learned author of Construction of Statutes,
2nd ed, (1983), at 87, E A Dreidger, put the modern rule succinctly:
Today
there is only one principle or approach, namely, the words of an Act are to be
read in their entire context and in their grammatical and ordinary sense
harmoniously with the scheme of the Act, the object of the Act, and the
intention of Parliament.
62 The question comes back to a
determination of the proper role of the court in construing the Income Tax Act
in circumstances such as these where the Crown relies on the general pattern of
the Act and not upon any specific taxing provision. The Act is to be construed,
of course, as a whole, including section 137 but, for reasons already noted,
without applying that section specifically to these assessments.
[25] Subsection 153(3) of the Act would deem the
amount of $8,055 to have been received by Catherine Luke if it has been
deducted or withheld under subsection (1) of the Act.
One interpretation could be that this subsection only applies to amounts that
the payor is obligated to deduct under 153(1). However, in my opinion, the
provisions of subsection 227(1) must also be taken into account in determining
the intention of parliament in drafting subsections 153(1) and (3) of the Income
Tax Act.
[26] If the interpretation of subsection 153(3) of the Act
is that only amounts that are required to be deducted under subsection 153(1) of the Act are deemed to have been received, then this could
result in an anomalous situation. Assume, for example, that a particular
employer is required to deduct $4,000 from the amount to be paid to an
employee. However, the employer makes an error in calculating the amount and
actually deducts $5,000 from the amount paid to the employee. If the correct
interpretation of 153(1) is that the employer is only obligated to remit $4,000
(as this is the amount that is required to be deducted under 153(1)), then on
what basis can the employee recover the extra $1,000? Under subsection 227(1)
of the Act, the employee would not have any action against the payor
because the $5,000 was deducted in intended compliance with the Act.
As long as the payor intends to comply with the Act, the payee would not
have any recourse against the payor for deducting this amount. If the employee
only receives credit for $4,000 under subsection 153(3), the employee loses the
$1,000 because the employer inadvertently deducted the extra $1,000. This could
not have been the intended result of subsection 153(3). The result must be that
any amounts that are deducted under 153(1), whether the payor is obligated to
deduct such amounts or not, are to be remitted under the Act and are
deemed to have been received by the payee.
[27] Therefore, in my opinion, because a payee will lose
any right to bring any action against any person who deducts or withholds, from
any amount that is payable to such payee, any amount in intended compliance
with the Act:
(a) the
payee, under subsection 153(3) must receive credit for any amounts that were
deducted in intended compliance with the Act; and
(b) the payor
must remit any amounts deducted in intended compliance with the Act.
[28] If this interpretation is not correct then the Appellant would receive
a windfall. If the Appellant is only required under the Act to remit the
amount as determined in accordance with the Income Tax Regulations, since
subsection 227(1) of the Act provides that the payee has no action
against the Appellant where the amounts were deducted in intended compliance
with the Act, then neither the Appellant nor the government will be able
to recover this money as the amounts were deducted in intended compliance with
the Act. This would not be the intended result of the remittance
requirements under the Act and therefore the Appellant must be required
to remit all amounts that were deducted in intended compliance with the Act
as this would be within the spirit of the remittance requirements of subsection
153(1) of the Act.
[29] As Justice Lamarre-Proulx stated in McLeod Masonry
[1979] Limited v. Canada, [2000] T.C.J. No. 290:
Counsel for the Respondent is right in her interpretation that once
the deductions are made on an amount that has been paid as a remuneration they
have to be remitted to the Receiver General. The wording and the economy of the
Act necessarily ask for this interpretation.
Once the amounts were deducted from the amounts
payable to Catherine Luke, they were to be remitted.
[30] The
president of the Appellant had raised the issue of whether Catherine Luke was
entitled to $31,249.95 and also stated that he had not signed certain cheques
that were payable to Catherine Luke. Catherine Luke denied signing any cheques.
The president of the Appellant also indicated that the Appellant has not taken
any action against Catherine Luke in relation to these matters and as a result,
the Appellant has acquiesced in these payments being made to Catherine Luke. If
the Appellant decides to dispute the amount payable to Catherine Luke, this is
a matter that would have to be resolved between the Appellant and Catherine
Luke either by agreement or litigation in the courts of the Province of Ontario
and can not be resolved by this Court.
[31] With
respect to the provisions of the Canada Pension Plan, sections 27.1 and
28 of the Canada Pension Plan provide that:
27.1 Appeal of assessments — An employer who has been assessed under
section 22 may appeal to the Minister for a reconsideration of the assessment,
either as to whether an amount should be assessed as payable or as to the
amount assessed, within 90 days after being notified of the assessment.
28. (1) Appeal to Tax Court of Canada — A person affected by a
decision on an appeal to the Minister under section 27 or 27.1, or the person's
representative, may, within 90 days after the decision is communicated to the
person, or within any longer time that the Tax Court of Canada on application
made to it within 90 days after the expiration of those 90 days allows, appeal
from the decision to that Court in accordance with the Tax Court of Canada Act
and the applicable rules of court made thereunder.
Therefore the amount assessed under the Canada Pension Plan is a
matter that can be appealed to this Court and the Appellant has appealed the
amount assessed under the Canada Pension Plan to the Minister and to
this Court.
[32] Subsections
21(1), (2), (5), and 26(1) of the Canada Pension Plan provide as
follows:
21. (1) Every employer paying
remuneration to an employee employed by the employer at any time in pensionable
employment shall deduct from that remuneration as or on account of the
employee’s contribution for the year in which the remuneration for the
pensionable employment is paid to the employee such amount as is determined in
accordance with prescribed rules and shall remit that amount, together with
such amount as is prescribed with respect to the contribution required to be
made by the employer under this Act, to the Receiver General at such time as is
prescribed and, where at that prescribed time the employer is a prescribed
person, the remittance shall be made to the account of the Receiver General at
a financial institution (within the meaning that would be assigned by the definition
“financial institution” in subsection 190(1) of the Income Tax Act if that
definition were read without reference to paragraphs (d) and (e)
thereof).
(2) Subject to subsection (3), every employer who fails to deduct
and remit an amount from the remuneration of an employee as and when required
under subsection (1) is liable to pay to Her Majesty the whole amount that
should have been deducted and remitted from the time it should have been
deducted.
…
(5) Where an amount has been deducted under subsection (1), it shall
be deemed for all purposes to have been received at that time by the employee
to whom the remuneration was payable.
…
26. (1) No action lies against any
person for deducting any sum of money in compliance or intended compliance with
this Act.
[33] Because the provisions of the Canada Pension Plan
are similar and also include the provision that no action lies against any
person for deducting any sum of money in compliance or intended compliance of
the Canada Pension Plan, then, for the reasons outlined above, once an
amount has been deducted as the employee’s premium under the Canada Pension
Plan, it has to be remitted. The intention of the Appellant in making the
deduction was to comply with the Canada Pension Plan and, since the
payee has no action for this intended compliance by the Appellant, the action
must lie with the government to recover this amount.
[34] As a result, the appeal from the assessment under the Income
Tax Act is dismissed and the appeal under the Canada Pension Plan is
allowed, in part, to reduce the employee portion under the Canada Pension
Plan from $1,372.58 to $1,144.65, and to reduce the assessment to the
extent that it relates to the employer’s premium under the Canada Pension
Plan.
Signed at Halifax, Nova Scotia this 31st day of August 2007.
“Wyman W. Webb”
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