When we wrote about our client a few days ago, we decried the WSIB’s rush to judgment in declaring this Independent Owner/Operator (IO/O) to have employees when, in fact, he does not. We’ve now learned the confusion might have arisen because of the tax receipts the corporation issued to acknowledge income splitting. But that won’t excuse the WSIB from exercising poor judgment.
WSIB matches up records with Canada Revenue Agency and they received a report that this IO/O had issued T4 slips to his children. From the WSIB perspective, that appears like there are employees in this corporation. The IO/O, on the other hand, does not have a WSIB account because he is entirely self-employed and has his own private disability insurance. Like many independent operators, though, he does exercise his right under CRA rules to split income with family members.
So WSIB sent him a letter on September 30, 2010 demanding that he register an account. When he didn’t reply by October 13th, they called him and were advised that both he and his accountant were on vacation when the letter arrived, and were still away. WSIB was apparently unwilling to wait a short while for their return.
For their part, WSIB defends their action by saying they did write to the IO/O for clarification. But they waited two weeks for an answer and, even knowing he wasn’t available to answer, went ahead without hearing from him. They waited two weeks! When is the last time WSIB made a decision within two weeks?
Here’s the problem – issuing the tax forms appears to be an accounting matter. We’re told the T4 may not be the best way to share profits (note: we are not taxation experts); but it was the issuing of those forms that got WSIB excited in the first place. So you would think a reasonable and sensible solution would be a discussion with the IO/O and an inquiry into whether or not there are any ‘employees’ under a contract of service with the corporation. Nope. Rather than a discussion, or to await the IO/O’s return from vacation, WSIB arbitrarily registered an account, listing the two children as employees, and demanded two years of retroactive premiums. [It isn’t hard to tell WSIB is getting desperate for money these days.]
These kids are NOT employees. No documentation filed, correctly or incorrectly, with any agency changes that fact. It cannot create an employee where none exists. Both WSIB and the Workplace Safety and Insurance Appeals Tribunal tell us this regularly, when ruling on the ’employee versus independent operator’ issue. You cannot create an ‘independent operator’ simply by completing enough documentation (or even forming a Corporation) to generate the appearance of independent status as a way of avoiding the ball-and-chain that an employer/employee relationship involves. In the same way, WSIB shouldn’t be permitted to create an ’employee’ out of thin air, or thin paper, as it were, simply by completing their own forms.
CRA permits the splitting of income and that does NOT create an employer/employee relationship. There is no contract of service, no service performed, and hence no need for premiums and no ’employer’ as defined by WSIB’s own governing legislation. To see just how little sense this makes, we can ask: “who would these premiums be protecting?” and “who could possibly file a WSIB claim”? The director who drives the truck has valid private disability insurance and absolutely no need for WSIB protection. There is no one else to protect.
In a subsequent discussion with the manager in charge at WSIB, she refuses to even consider that this decision was simply wrong and offers the appeal process instead. There is no reason this IO/O should need to go through the expense of an appeal over a situation so inane. Far too often, adjudicators and managers who do not want to be held accountable for objective, legal, and evidenced-based decisions just pass the buck to Appeals, having no regard for the cost and the valuable resources being wasted.
It is quite clear that the WSIB rushed to judgment and has an incomplete understanding of the concept of income splitting, and even their own legal definition of an ’employer’. That is scary. We wonder how many ‘documentary’ deemed employers have been created in Ontario? As we pointed out in our last blog, there is not a lot of value to WSIB connecting and sharing information with CRA if they can’t grasp how to properly use the information the taxman gives them.
Posted by Paul Harris/Cézanne Charlebois