Date: 20001220
Docket: 1999-4444-IT-I
BETWEEN:
JOSEPH (JOSEF) MARIAN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
O'Connor, J.T.C.C.
[1] This appeal was heard at London, Ontario on November 20, 2000 pursuant to the Informal Procedure of this Court.
[2] Testimony was given by the Appellant, by his daughter, Jana Marmula, and by Lindsay Taylor, the Revenue Canada appeals officer on this matter.
ISSUE
[3] The issue is whether in 1996 and 1997 the Appellant was an employee of Filter Vac Inc. ("Corporation") under a contract of service with the result that amounts of $4,972.00 in 1996 and $12,187.00 in 1997 should have been included as employment income of the Appellant with no deductions for expenses or was the Appellant, in the years in question, an independent contractor under a contract for service with the result that the said amounts were not employment income and the Appellant would be entitled to deduct certain expenses.
FACTS
1. The Appellant in 1996 and 1997 was a full time employee of Cooksville Steel Limited ("Cooksville").
2. The Appellant's regular shifts with Cooksville ended during weekdays at 4:30 p.m.
3. The Appellant also did work for the Corporation under a verbal agreement approximately two to three times per week during weekdays commencing at approximately 5:30 p.m. and on certain occasions on weekends. His main work with the Corporation consisted of fitting and welding on machinery which when manufactured and finished was used in the process of cleaning oil for reuse. The Appellant also provided other services such as cleaning, maintenance and painting.
4. The Appellant was paid $15.00 per hour by the Corporation based on invoices he submitted showing the number of hours worked in a given period of time. There were no deductions for income tax or Canada Pension Plan and unemployment insurance/employment insurance premiums.
5. A payroll audit of the Corporation conducted by Revenue Canada revealed that amounts paid by the Corporation to the Appellant were $4,972.00 in 1996 and $12,187.00 in 1997. The figures for business income reported by the Appellant in his income tax returns do not agree with these figures but I am satisfied from the testimony of the appeals officer and her explanation of Exhibit R-4 that the true amounts were $4,972.00 in 1996 and $12,187.00 in 1997.
6. The Appellant supplied some tools/equipment such as a helmet, shield, gloves, hard boots and some small tools including wrenches. The principal equipment, namely, lathe and welders, involved in the Appellant's work were owned by the Corporation. All work of the Appellant was performed on the Corporation's premises. Some paperwork, such as preparation of invoices, was done at the Appellant's office in his home.
7. The Corporation told the Appellant what to fix, oversaw his hours and inspected his work. If the work was unsatisfactory it had to be done again. However this never happened as the Appellant was very skilled.
8. The Appellant reported on his income tax returns, his income from the Corporation as business income and as a result of various expenses claimed, he sustained business losses in 1995, 1996 and 1997. For 1996 and 1997, the returns were filed on the basis that the Appellant was a fifty-fifty partner with his wife who apparently contributed to the business by doing administrative and bookkeeping work.
9. The Appellant's income tax return for 1996 (Exhibit R-2) claims business income of $4,274.00 and the following expenses:
|
Delivery, freight, and express |
$ 9.64 |
|
Motor vehicle expenses (not including capital cost allowance) |
$2,150.39 |
|
Office expenses |
978.82 |
|
Supplies |
201.85 |
|
Legal, accounting, and other professional fees |
120.00 |
|
Telephone and utilities |
444.87 |
|
Other expenses |
466.54 |
|
Subtotal |
$4,372.11 |
|
Capital cost allowance |
804.09 |
Thus, the total business expense amounted to $5,176.20 which resulted in a loss of $901.83, 50 percent of which was $450.92.
10. The Appellant's income tax return for 1997 (Exhibit R-3) claims business income of $9,487.50 and the following expenses:
|
Business tax, fees, licences, dues, memberships, and subscriptions |
290.50 |
|
Delivery, freight, and express |
48.58 |
|
Meals and entertainment (allowable portion only) |
507.40 |
|
Motor vehicle expenses (not including capital cost allowance) |
$2,837.10 |
|
Supplies |
480.44 |
|
Telephone and utilities |
821.66 |
|
Other expenses |
959.49 |
|
Subtotal |
5,945.17 |
|
Capital cost allowance |
551.95 |
Thus, the total business expenses amounted to $6,497.12 which resulted in a loss of $2,990.38, 50 percent of which was $1,495.19.
11. The Appellant kept no log with respect to the motor vehicle expenses. Further, the Appellant had difficulty with certain of the expenses claimed on his returns. For example, meals and entertainment were claimed in 1997. No such claim was made in 1996 and the Appellant could not explain how the meals and entertainment expenses related to the alleged business activities. He also claimed legal and accounting expenses in 1996 but not in 1997. Further the large amounts for telephone and utilities remain unexplained as relating to the business. The Appellant explained that he is not very good with paper and relied on his accountant to prepare the returns.
12. In 1996 and 1997 the Appellant worked for no one other than the Corporation and Cooksville.
13. The Appellant did not advertise his business and in the years in question had no employees.
14. Revenue Canada had proceeded against the Corporation on the basis that approximately twelve workers, including the Appellant, were actually employees and not independent contractors and obtained a ruling to that effect which the Corporation did not appeal further.
ANALYSIS AND DECISION
[4] It is apparent from the evidence that the Appellant desired its workers from and after 1995 to be independent contractors. This would be desirable in most cases as it relieves the enterprise from obligations to contribute to EI and CPP and make deductions. It is also true that the Appellant went along with this by a verbal agreement. He realized that no deductions were being made. Notwithstanding the intention of the parties to avoid an employer and employee contract, one must look at the entire relationship between the parties to determine its true nature.
[5] The tests of control, ownership of tools, chance of profit and risk of loss and integration are well known and have been well analyzed in Wiebe Door Services Ltd. v. Minister of National Revenue (F.C.A.) 1986 3CF 553.
[6] In this case the degree of control was considerable. The Corporation set the hours, detailed the work to be done and oversaw and inspected the work.
[7] The main tools and the premises belonged to the Corporation and the work was performed on those premises.
[8] The Appellant had no chance of profit and his risk of loss would arise only if his work was unsatisfactory, which never happened.
[9] As to integration the question to be asked is "Whose business was it?" The obvious answer is it was the Corporation's business.
[10] Therefore, based on all the evidence, I find that on a balance of probabilities there was a contract of service. Consequently the appeals are dismissed.
Signed at Ottawa, Canada, this 20th day of December, 2000.
"T. O'Connor"
J.T.C.C.