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Docket: 2002-4054(IT)I |
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BETWEEN: |
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WALTER SANCLEMENTE, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
____________________________________________________________________
Appeal heard on May 1, 2003 at Winnipeg, Manitoba
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Before: The Honourable Judge Terrence O'Connor |
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Appearances: |
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For the Appellant: |
The Appellant himself |
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Counsel for the Respondent: |
Jim Doyle |
____________________________________________________________________
JUDGMENT
The appeals from the reassessments made under the Income Tax Act for the 1997 and 1998 taxation years are allowed, without costs, and the reassessment, dated March 19, 2001 is referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 26th day of June 2003.
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"T. O'Connor" |
J.T.C.C.
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Citation: 2003TCC450 |
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Date: 20030626 |
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Docket: 2002-4054(IT)I |
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BETWEEN: |
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WALTER SANCLEMENTE, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
____________________________________________________________________
REASONS FOR JUDGMENT
O'Connor, J.T.C.C.
[1] This appeal was heard at Winnipeg, Manitoba on May 1, 2003.
[2] The only testimony was given by the Appellant. The issues are whether the Appellant in 1997 and 1998 in carrying out his work as a "supervisor" with Kelsey Construction ("Kelsey") was, in those years, to be considered as an employee under a contract of services or as a contractor carrying on a business, that is to say, a contract for services; and in the latter case whether all of the expenses claimed by the Appellant in the years in question were properly deductible.
FACTS
[3] The Reply to the Notice of Appeal states essentially as follows:
...
8. In computing income for the 1997 and 1998 taxation years, the Appellant reported net business income in the amount of $17,397.20 for 1997 and $21,826.66 for 1998 as set out in Schedules "A", "B", "C" and "D" attached to and forming part of the Reply to the Notice of Appeal.
9. The original notices of assessment for the 1997 and 1998 taxation years were dated and mailed to the Appellant on May 22, 1998 for 1997 and May 13, 1999 for 1998.
10. In reassessing the Appellant for the 1997 and 1998 taxation years on March 19, 2001, the Minister of National Revenue (the "Minister"):
(a) deleted net business income reported for each year;
(b) assessed employment income ... in the amount of $48,680.14 for 1997 and $46,507.27 for 1998; and
(c) allowed a deduction for expenses against employment income in the amount of $500.00 for 1997 and $500.00 for 1998.
11. In so reassessing the Appellant, the Minister made the following assumptions of fact:
(a) during the 1997 and 1998 taxation years, the Appellant was employed by the Employer as a supervisor;
(b) the Employer paid the Appellant an hourly wage, paid bi-weekly;
(c) the Employer reimbursed the Appellant for expenses incurred by the Appellant while working out of town;
(d) the Appellant's expenses that were reimbursed by the Employer included, but were not limited to, meals, hotels and gas;
(e) the Employer supplied materials used by the Appellant in performing his duties;
(f) the Appellant was required to incur the cost of getting to the local work sites where he performed his duties;
(g) the Appellant supplied his own hand tools that were required to perform his duties;
(h) the Employer provided the larger tools specific to the trade that were required by the Appellant to perform his duties;
(i) the Employer provided any rented equipment that was required by the Appellant to perform his duties;
(j) the Employer guaranteed the quality of the work performed by the Appellant;
(k) the Employer required that the Appellant perform his duties personally;
(l) the Employer paid premiums for workers' compensation in respect of the Appellant;
(m) the workers supervised by the Appellant were employees of the Employer;
(n) the Appellant was required to discuss with the Employer any hiring or laying off of any of the Employer's employees;
(o) the Appellant was hired by the Employer on an indeterminate basis;
(p) the Employer was aware that the circumstances of the Appellant's employment were such that the Appellant was probably employed under a contract of service rather than a contract for services;
(q) the duties performed by the Appellant were the same as other supervisors of the Employer that were employed under a contract of service;
(r) the Employer went along with the Appellant's request to be treated as if he was employed under a contract for services as this is what the Appellant had wanted and as the Employer did not want to lose a valuable employee;
(s) the duties performed by the Appellant were an integral part of the business of the Employer;
(t) the Appellant was employed pursuant to a contract of service with the Employer;
(u) the Appellant received remuneration in the amount of $48,680.14 in 1997 and $46,507.27 in 1998 from the Employer in consideration for the duties performed by him;
(v) other than in respect of repairs and maintenance expenses incurred on his own vehicle, the Appellant was not required by the Employer to pay for any expenses incurred in the performance of his duties;
(w) the Appellant did not keep track of the kilometres that were travelled by him for the purpose of earning income from the Employer;
(x) the Appellant submitted receipts to the Minister in respect of gas, vehicle repairs and maintenance, meals and entertainment and insurance for each year as follows:
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Item
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1997 |
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1998 |
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Vehicle - Repairs/Maintenance |
$ 2,946.35 |
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$ 1,577.08
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Vehicle - Gas |
3,229.78 |
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5,163.00
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Vehicle - Insurance |
0.00 |
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881.00
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Meals and Entertainment |
0.00 |
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4,449.29 |
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Total |
$ 6,176.13 |
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$12,070.37 |
(y) other than in respect of the receipts submitted as stated in paragraph 11(x) above, the Appellant did not submitted any other receipts, vouchers or other documentation in support of the expenses claimed as set out in Schedules A and B;
(z) other than in respect of the receipts submitted as stated in paragraph 11(x) above, the expenses claimed as set out in Schedules A and B were not proven to have been incurred;
(aa) repairs and maintenance expenses claimed in excess of $500.00 for each year were not reasonable in the circumstances; and
(bb) expenses in excess of the amount allowed, if incurred, were not incurred for the purpose of earning income from the Employer, rather they were the personal or living expenses of the Appellant.
[4] The Appellant disagrees with any of the foregoing allegations and assumptions that directly or indirectly point to a conclusion that he was an employee as opposed to a contractor.
[5] In his Notice of Appeal the Appellant indicates that he was contracted for his knowledge and organizational skills, set his own hours of work and did his own hiring and firing of employees on the job site without discussion with anyone. He points out moreover in his Notice of Appeal that not once did Kelsey check to see if the Appellant was on the job site. He refers in particular to the contract entered into between himself and Kelsey for the years 1996 and 1997. Exhibit A-2 reads as follows.
KELSEY CONSTRUCTION (1996) LTD
201-356 Furby Street, Winnipeg, Mb. R38 2V5
tel (204) 786-6557; fax (204) 786-6559
To: Walter Sanclemente
Sanclemente Builders
Box 1243 Date: January 2/1996
Beasejour, Manitoba R0E 0C0
Item Supervision Subcontract ** to take effect upon individual
contract awards
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The Sub-Contractor agrees to furnish all material and perform all work as described in accordance with the general conditions of the contract between the Owner and the Contractor and in accordance with the drawings and specifications all of which general conditions, drawings and specifications form part of a contract between the Contractor and Owner and are made part of this contract, including all Provincial and Municipal taxes.
For: Various Projects
To: Supply Site Supervision, Rough & Finish Carpentry,
Schedule Co-Ordination, Transportation of Materials
by subcontractor conveyance as required,
$ 22.00 per hour plus GST
No Extra Work shall be paid for without written authorization from our office.
The Sub-Contractor agrees to complete or deliver the several portions and the whole of the work herein sublet AS REQUIRED
All installation subcontractors submit Certificate for insurance prior to first claim.
Payments will be made by the Contractor biweekly (All payments Canadian funds at par Winnipeg).
Invoice (with job numbers) must be received at above address 2 full business days prior to expected receipt of payment.
Accepted by
Per __________________
Authorized Signature KELSEY CONSTRUCTION (1996) Ltd.
Seal Above or Witness Below
__________________ _______________________
Authorized Signature
[6] Exhibit A-3 which relates to the 1997 year is substantially the same as Exhibit A-2 and the assumption is that a similar arrangement prevailed in 1998. The Appellant also submitted as Exhibit A-4 an invoice on the letterhead of "Sanclemente Builders" addressed to Kelsey, dated August 2, 1997 and invoicing Kelsey for services rendered during a two-week period ending August 2, 1997 in a total amount of $1,812.58.
[7] There have been many cases dealing with the issue of employee v. contractor and the jurisprudence has developed four tests referred to as (1) control; (2) ownership of tools; (3) chance of profit; and (4) risk of loss. A further test, the integration test has also been applied. With respect to the integration test the question that arises is "is the person who has engaged himself to perform the services performing them as a person in business on his own account?" Put another way, are his services to be considered as an integral part of a business carried on by the payor. The Court is to approach the analysis from the perspective of the alleged employee (see the decision of the Federal Court of Appeal in Precision Gutters Ltd. v. The Minister of National Revenue, 2002 F.C.A. 207).
[8] In applying the four tests the following is noted. With respect to control, there appears to have been very little control over the services provided by the Appellant. In his Notice of Appeal the Appellant states "not once did Kelsey Construction check to see if I was there, or told me to be there at any set time or date".
[9] With respect to the ownership of tools it is clear that the Appellant owned his own hand tools and moreover owned forms and scaffolding and according to the Appellant all of the equipment necessary to do various different jobs. The evidence does reveal however that certain heavy tools were either owned by or rented by Kelsey. Further, the Appellant owned his own vehicles, namely a truck and after that vehicle broke down, a Suburban. He used these vehicles in carrying out his work and he paid the expenses relative to those vehicles. This, in my view, is quite important and clearly does not point to a contract of services. Independent contractors, as a rule, doing work of this nature will have their own vehicles and pay their own expenses but this, I suggest, is not the situation when one is simply an employee. Thus, the "tools" owned by the Appellant were fairly substantial.
[10] Moreover, the written contracts entered into between Kelsey and the Appellant clearly contemplate a contract for services. A written contract is not always determinative but when one exists, for one to establish that the written contract is a sham and that an employee relationship exists, it must be demonstrated by the evidence and the entirety of the relationship that the written contract is to be ignored. I do not think that can be done in this case.
[11] With respect to chance of profit, the Appellant appears to have aroused the auditor and any other persons dealing with his reassessment in stating in his Notice of Appeal as follows "My opportunity for profits, was nil, there were never any bonuses or gifts etc". In this connection reference is made to the following exchange which happened to occur in the course of the submissions.
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HIS HONOUR: What did you mean by the statement, "I had no chance of profit"?
MR. SANCLEMENTE: Well, when I wrote that, I wasn't really thinking clearly. I was - - at that time, you know, I just wrote something that come to my head and I was, I guess you could say, angry, shocked, and when I wrote that, I wasn't thinking properly and - -
HIS HONOUR: Because what I cannot understand is if you considered yourself a contractor - -
MR. SANCLEMENTE: Right.
HIS HONOUR: - - an independent contractor, you obviously must have had a chance of profit?
MR. SANCLEMENTE: Well, yes, I do. I don't know why I wrote that and - - but, no, I have made profit and I have lost on jobs. There's people that still owe me money and I'm trying to collect it, but sometimes it's too small to go to court over and you've just got to keep hounding the people for it."
[12] On this issue and on practically all major issues I accept fully the credibility of the Appellant. In making the maligned statement the Appellant refers to bonuses or gifts which in my mind indicates that he was not quite sure what the expression "opportunity for profits" meant. In any event, when he bid on and was granted a particular job site to work on he knew what his rate of remuneration was going to be and thus was in a position to determine whether the particular job would provide a profit or result in a loss. Subject to the foregoing there is very little evidence directly on the issue of risk of loss and the comments with respect to chance of profit are to be considered as embracing both concepts.
[13] Another test developed by the jurisprudence and referred to therein as a test separate from the four tests discussed above is that of integration. The question that the integration test poses is the following: "is the person who has engaged himself to perform the services performing them as a person in business on his own account"? If so, that person was employed under a contract for services and not a contract of services.
[14] To sum up I have been particularly influenced by the following:
1. The wording of the actual contracts between Kelsey and the Appellant;
2. The extent of the ownership by the Appellant of tools (including the vehicles, forms and scaffolding);
3. The limited amount of control and the generally independent relationship between the Appellant and Kelsey;
4. The Minister of National Revenue has focused only on the relationship with Kelsey and has concluded that it was a contract of services with Kelsey. This ignores the fact that, as the Appellant has testified, in years other than those under consideration the Appellant had contracts with parties other than Kelsey;
5. Although the evidence is not absolutely 100 per cent convincing it is clear that the Appellant did pay some salaries to certain persons, a further indication of the limited degree of control exercised by Kelsey;
6. The integration test is hard to apply but in my opinion it favors the conclusion of a contract for services.
[15] Thus, in my opinion the Appellant was engaged under a contract for services and not a contract of services, i.e. not an employer - employee relationship.
[16] As to the amounts of the various expenses claimed the Appellant indicates that the expenses he has claimed were truly incurred and related to the business and were not personal. The jurisprudence has recognized that expenses, in situations of this nature, can be proved by oral testimony. And as I mentioned above, I accept the credibility of the Appellant and accept the expenses he has claimed. Also the details of these expenses are shown in the schedules to the Reply.
[17] For the above reasons the appeals are allowed. There shall be no costs.
Signed at Ottawa, Canada, this 26th day of June 2003.
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"T. O'Connor" |
J.T.C.C.
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CITATION: |
2003TCC450 |
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COURT FILE NO.: |
2002-4054(IT)I |
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STYLE OF CAUSE: |
Walter Sanclemente v. The Queen |
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PLACE OF HEARING: |
Winnipeg, Manitoba |
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DATE OF HEARING: |
May 1, 2003 |
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REASONS FOR JUDGMENT BY: |
The Honourable Judge O'Connor |
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DATE OF JUDGMENT: |
June 26, 2003 |
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APPEARANCES: |
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For the Appellant: |
The Appellant himself |
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Counsel for the Respondent: |
Jim Doyle |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
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Firm: |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |