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Citation: 2003TCC55
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Date: 20030304
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Docket: 2002‑2561(EI)
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BETWEEN:
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GASTON LELIÈVRE AND
DIANE FALARDEAU,
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Appellants,
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and
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THE MINISTER OF
NATIONAL REVENUE
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Respondent,
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AND
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Docket: 2002‑2562(EI)
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ANDRÉ LELIÈVRE,
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Appellant,
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and
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THE MINISTER OF
NATIONAL REVENUE,
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Respondent,
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and
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GASTON LELIÈVRE AND
DIANE FALARDEAU,
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Interveners,
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AND
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Docket: 2002‑2563(EI)
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NICOLE CÔTÉ,
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Appellant,
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and
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THE MINISTER OF
NATIONAL REVENUE,
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Respondent,
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and
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GASTON LELIÈVRE AND
DIANE FALARDEAU,
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Interveners.
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[OFFICIAL ENGLISH
TRANSLATION]
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REASONS FOR JUDGMENT
Somers, D.J.T.C.C.
[1] These appeals
were heard on common evidence at Québec, Quebec, on January 28, 2003.
[2] The appellants
instituted appeals from the decisions of the Minister of National Revenue (the
"Minister") according to which the employment held by the worker
André Lelièvre during the periods in issue, that is from August 28 to
November 7, 1997, from July 27 to October 30, 1998, from
July 5 to October 15, 1999, from July 3 to October 20,
2000, and from July 2 to October 19, 2001, and by the worker
Nicole Côté during the periods in issue, that is from July 6 to
November 27, 1998, from July 5 to October 15, 1999, from
July 3 to October 20, 2000, and from July 2 to October 19,
2001, with Gaston Lelièvre and Diane Falardeau, the payers, are
excluded from insurable employment within the meaning of the Employment
Insurance Act on the ground that the workers and the payers were not
dealing with each other at arm's length.
[3] Subsection 5(1) of the Employment Insurance Act
(the "Act") reads in part as follows:
5.(1) Subject to subsection (2), insurable employment
is
(a) employment in Canada by one or more employers, under any express or
implied contract of service or apprenticeship, written or oral, whether the
earnings of the employed person are received from the employer or some other
person and whether the earnings are calculated by time or by the piece, or
partly by time and partly by the piece, or otherwise;
[…]
[4] Subsections 5(2) and 5(3) of the Employment
Insurance Act read in part as follows:
(2) Insurable employment does not include
[...]
(i) employment if the employer and employee are not dealing with each other at
arm's length.
(3) For
the purposes of paragraph (2)(i),
(a) the
question of whether persons are not dealing with each other at arm's length
shall be determined in accordance with the Income Tax Act;
(b) if
the employer is, within the meaning of that Act, related to the employee, they
are deemed to deal with each other at arm's length if the Minister of National
Revenue is satisfied that, having regard to all the circumstances of the
employment, including the remuneration paid, the terms and conditions, the
duration and the nature and importance of the work performed, it is reasonable
to conclude that they would have entered into a substantially similar contract
of employment if they had been dealing with each other at arm's length.
[5] Section 251 of the Income Tax Act reads in
part as follows:
Section
251: Arm's length
(1) For the purposes of this Act,
(a) related
persons shall be deemed not to deal with each other at arm's length;
[…]
(2) Relationship
defined.
For the purpose of this Act "related persons", or persons related to
each other, are
(a) individuals
connected by blood relationship, marriage or adoption;
[...]
[6] The burden of
proof is on the appellants. They have to show on a preponderance of proof that
the Minister's decisions are ill-founded in fact and in law. Each case stands
on its own merits.
[7] In making his
decisions, the Minister relied on the following assumptions of fact stated in
paragraph 14 of the Reply to the Notice of Appeal in docket 2002‑2561(EI),
which were admitted or denied:
[TRANSLATION]
(a) The
appellants acquired a farm in Saint‑Michel‑de‑Bellechasse in
1996; (admitted)
(b) In
1996, the appellants began to breed rabbits and started producing vegetables and
small fruits the following year; (admitted)
(c) The
appellants did business under the style and trade name "Ferme de
Fadi"; (admitted)
(d) Production
was sold at the farm and at a public market; (admitted)
(e) The
appellants' only employees were Nicole Côté and her spouse,
André Lelièvre; (admitted)
(f) André Lelièvre
is the appellants' son; (admitted)
(g) For
the years in issue, the reported turnover of the business and the wages paid by
the appellants to their son and his spouse were: (denied)
Turnover Wages
1997 $22,996 $ 7,920
(all to André Lelièvre)
1998 $14,326 $14,388
1999 $15,331 $12,540
2000 $22,811 $13,376
2001 $37,909 $13,376
(h) Nicole Côté's
work was to pick the fruits and vegetables and sell them at the Montmagny
stall; (admitted)
(i) André Lelièvre's
work was to do the planting, harvesting, ploughing and watering; (denied)
(j) Nicole Côté
had worked for the appellants since 1996 but was put on the payroll in 1998;
(denied)
(k) During
the periods in issue, Nicole Côté received gross weekly remuneration of
$328; (denied)
(l) During
the periods in issue, André Lelièvre received gross weekly remuneration of
$508; (denied)
(m) The
appellants did not keep a record of the hours of work of Nicole Côté and
André Lelièvre; (denied)
(n) On
November 30, 1998, the appellants issued a record of employment in
Nicole Côté's name for the period from July 6 to November 27,
1998, showing 924 insurable hours and insurable earnings totalling $6,468;
(denied)
(o) On
November 30, 1998, Nicole Côté needed 910 insurable hours to
qualify for employment insurance benefits; (denied)
(p) On
October 18, 1999, the appellants issued a record of employment in
Nicole Côté's name for the period from July 5 to October 15,
1999, showing 660 insurable hours and insurable earnings totalling $4,620;
(denied)
(q) On
October 18, 1999, Nicole Côté needed 630 insurable hours to
qualify for employment insurance benefits; (denied)
(r) On
October 28, 2000, the appellants issued a record of employment in
Nicole Côté's name for the period from July 3 to October 20,
2000, showing 704 insurable hours and insurable earnings totalling $4,928;
(denied)
(s) On
October 28, 2000, Nicole Côté needed 700 insurable hours to
qualify for employment insurance benefits; (denied)
(t) On
October 22, 2001, the appellants issued a record of employment in
Nicole Côté's name for the period from July 2 to October 29,
2001, showing 672 insurable hours and insurable earnings totalling $4,928;
(denied)
(u) On
October 22, 2001, Nicole Côté needed 704 insurable hours to
qualify for employment insurance benefits; (denied)
(v) On
November 7, 1997, the appellants issued a record of employment in
André Lelièvre's name for the period from July 28 to November 7,
1997, showing 660 insurable hours and insurable earnings totalling $7,920;
(denied)
(w) On
November 7, 1997, André Lelièvre needed 630 insurable hours to
qualify for employment insurance benefits; (denied)
(x) On
November 6, 1998, the appellants issued a record of employment in
André Lelièvre's name for the period from July 27 to October 30,
1998, showing 616 insurable hours and insurable earnings totalling $7,392;
(denied)
(y) On
November 6, 1998, André Lelièvre needed 595 insurable hours to
qualify for employment insurance benefits; (denied)
(z) On
October 18, 1999, the appellants issued a record of employment in
André Lelièvre's name for the period from July 5 to October 15,
1999, showing 660 insurable hours and insurable earnings totalling $7,920;
(denied)
(aa) On
October 18, 1999, André Lelièvre needed 630 insurable hours to
qualify for employment insurance benefits; (denied)
(bb) On
October 28, 2000, the appellants issued a record of employment in
André Lelièvre's name for the period from July 3 to October 20,
2000, showing 704 insurable hours and insurable earnings totalling $8,448;
(denied)
(cc) On
October 28, 2000, André Lelièvre needed 700 insurable hours to
qualify for employment insurance benefits; (denied)
(dd) On
October 22, 2001, the appellants issued a record of employment in
André Lelièvre's name for the period from July 2 to October 19,
2001, showing 672 insurable hours and insurable earnings totalling $8,448;
(denied)
(ee) On
October 22, 2001, André Lelièvre needed 700 insurable hours to
qualify for employment insurance benefits; (denied)
(ff) On
November 5, 2001, the appellants corrected the record of employment of
October 22, 2001, to increase the number of insurable hours to 704;
(denied)
(gg) The
records of employment issued by the appellants to Nicole Côté and André Lelièvre
do not reflect the actual periods worked by them; (denied)
(hh) Nicole Côté
and André Lelièvre rendered services to the appellants between the periods
covered by the records of employment while receiving employment insurance
benefits. (denied)
[8] The payers
acquired a farm in Saint‑Michel‑de‑Bellechasse, Quebec, in
1996.
[9] The payers began
breeding rabbits in 1996 and producing vegetables and small fruits the
following year. The production was sold at the farm and at a public market.
[10] The only two
employees and the payers did not deal with each other at arm's length:
Nicole Côté is the spouse of André Lelièvre, who is the son of
Gaston Lelièvre and Diane Falardeau, the payers.
[11] Nicole Côté's
work was to pick the fruits and vegetables and to sell them at the Montmagny
stall. According to Gaston Lelièvre's submission, André Lelièvre's
work was to do a single planting of two or three days in the spring and do the
harvesting, distribution to the two stalls, ploughing and watering.
[12] Gaston Lelièvre
said that Nicole Côté had not worked for the payers in 1996, that she
started in 1998, when his spouse Diane Falardeau was ill, and that she had
received gross weekly remuneration of $328 for 44 hours of work.
[13] André Lelièvre
received gross weekly remuneration of $508 for 44 hours of work.
[14] According to
Gaston Lelièvre's submission, a record was kept of the employees' hours of
work starting in 2001.
[15] In
cross-examination, Gaston Lelièvre stated that the number of hours of work
unrecorded until 2001 was 44, but that they had worked more than 44 hours.
[16] André Lelièvre
worked seven days a week, while Nicole Côté worked six days a
week. Gaston Lelièvre stated that the employees did not work outside the
periods in issue, but he admitted that they might have signed invoices.
[17] The planting was
done in the spring by Gaston Lelièvre, his spouse and his grandchildren.
According to Gaston Lelièvre's submission, the farm expanded after 1997,
but the business has operated at a loss since that time.
[18] Diane Falardeau
corroborated the testimony of her spouse Gaston Lelièvre. She said that
she had done the planting for two days with her spouse and family, including
André Lelièvre and Nicole Côté.
[19] The workers,
André Lelièvre and Nicole Côté, corroborated the preceding testimony.
[20] Yvon Comtois,
an appeals officer with the Canada Customs and Revenue Agency, was the
respondent's only witness. He filed his report on an appeal dated
March 26, 2000, in evidence (Exhibit I‑1).
[21] His investigation
consisted in meeting the payers and the workers and examining the documents,
financial statements, invoices and pay records.
[22] In his report,
Yvon Comtois prepared the following table of income and expenditure based
on the payers' 1997 to 2000 returns of income:
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Year
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Income
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Expenditures
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Net
income (loss)
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Wages
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12/31/2000
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$22,811
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$54,521
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($31,710)
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$13,376
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12/31/1999
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$15,332
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$56,483
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($41,151)
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$14,406
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12/31/1998
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$14,327
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$62,574
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($46,974)
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$16,705
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12/31/1997
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$22,996
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$50,069
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($27,072)
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$ 8,204
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[23] A table prepared
by Mr. Comtois filed as Exhibit I‑2 shows that the worker
Nicole Côté received no wages in 1997. According to that same table, the
worker André Lelièvre received weekly wages of $528 from July to November
1997. It should be noted that sales are recorded in the table from July 6
to 26, 1997, whereas no amounts of money appear in the "Wages"
column. Furthermore, for the period from October 5 to November 8,
1997, the worker purportedly received wages without there being any sales.
[24] Invoices filed as
Exhibit I‑7 were signed by the worker André Lelièvre between
January 5 and July 12, 1997, when he was not on the payroll. The
worker Nicole Côté occasionally signed invoices when she was not on the
payroll. Roughly the same situation occurred from 1998 to 2001.
[25] The appeals
officer found during his investigation that there were no documents proving
that wages had been paid because, according to the payers, the workers had been
paid cash out of amounts received from sales. Wages appear only on the payroll.
[26] During the periods
in issue, the workers worked a few hours more than the number of hours required
to qualify for employment insurance benefits. According to Exhibits I‑1
to I‑6, the workers worked weeks during which there were no sales.
[27] The payers told
the investigators that the workers had not been paid for certain hours when
they were not on the payroll. The payers further admitted to the investigators
that the workers had sometimes worked on a volunteer basis and that they would
not hire other employees on the same terms and conditions.
[28] The workers lived
free of charge in the residence located on the payers' farm in 1996 and 1997.
The payers lived elsewhere, approximately 20 minutes away from the farm by
car.
[29] It was not until
1998 that the workers paid rent of $600 a month, including heat and light. The
workers were entitled to consume products from the farm at no charge.
[30] The payers
submitted for the Court's assessment the decision of the Federal Court of
Appeal in Théberge v. Canada (Minister of National Revenue ‑
M.N.R.), [2002] F.C.J. No. 464, per Décary J.A. (dissenting
reasons by Noël J.A.), who wrote as follows at paragraph 19:
What a
claimant does outside the period during which he or she is employed in what the
Minister considers to be insurable employment can be relevant, for example, to
verify that the claimant is unemployed, to determine the amount of his or her
benefits, or to establish his or her period of unemployment. However, for the
purposes of the exception provided in paragraph 3(2)(c) of the Act, what a
claimant does outside of his or her period of employment will be of little
relevance when, as in this case, it is not alleged that the salary paid during
the period of employment took into account the work performed outside of that
period, that the applicant had included, in the hours spent on his or her
insurable employment, hours worked outside of the period, or that work
performed outside of his or her period of employment had been included in the
work performed during his or her period of employment. It seems to me to be
self-evident, and this is confirmed by the evidence, that in the case of family
businesses engaged in seasonal work, the minimal amount of work that remains to
be done outside the active season is usually performed by family members,
without pay. Excepting seasonal employment, in a family farm business, on the
ground that cows are milked year-round amounts, for all practical purposes, to
depriving family members who qualify by working during the active season of
unemployment insurance and to overlooking the two main characteristics of such
a business: that it is a family business and a seasonal business.
[31] That judgment of
the Federal Court of Appeal cannot apply in the instant case. Each case stands
on its own merits.
[32] The evidence
showed that the worker Nicole Côté worked in the years prior to 1998
without remuneration. Nicole Côté's wages were paid out of sales. However,
the pay records show that she received wages during the periods in issue, when
there were no longer any sales. Sales represented 90 percent of
Nicole Côté's work.
[33] The same is true
of the worker André Lelièvre. That worker signed invoices while he was an
employment insurance claimant. Nicole Côté occasionally signed invoices.
[34] The payers
admitted that the workers had worked more hours than the number entered in the
records of employment. André Lelièvre and Nicole Côté worked seven
and six days a week respectively during the periods in issue.
[35] There are no
documents proving that wages were paid or any bank statements for the periods
in issue. The fact that the business operated at a loss is significant. Why pay
wages to workers when there were no sales? I do not believe that the payers
would have paid wages for a number of weeks when there were no longer any sales
and especially when the business was operating at a loss.
[36] The whole of the
evidence, the remuneration, the terms and conditions and the duration of the
employment must be considered. The evidence tended to show that there was an
arrangement to supplement wages paid.
[37] In Théberge v.
Canada, supra, Noël J.A. writes as follows at paragraph 61
of the decision:
Moreover, a
person who receives unemployment insurance benefits and continues to work,
without remuneration, after his or her termination of employment enables the
employer to benefit from labour that is paid for not by the employer, but by
the government. However, unemployment insurance is not a business support
program; it is essentially a social measure that protects people who were
genuinely employed and have lost their job.
[38] The terms and
conditions would not have been similar if Nicole Côté, André Lelièvre
and the payers had been dealing with each other at arm's length.
[39] Having regard to
all the circumstances of the instant case, I am satisfied that the appellants
were unable to show on a preponderance of proof that the Minister acted in a
wilful or arbitrary manner.
[40] Accordingly, the
employment held by the appellant workers during the periods in issue was not
insurable within the meaning of paragraph 5(2)(i) and
subsection 5(3) of the Employment Insurance Act.
[41] The appeals are
dismissed.
Signed at Ottawa, Canada, this 4th day of
March 2003.
D.J.T.C.C.
Cases considered
Théberge v.
Canada (Minister of National Revenue ‑ M.N.R.), [2002]
F.C.J. No. 464
Dubé v.
Canada (Minister of National Revenue – M.N.R.), [2001] F.C.J.
No. 874
Gray v.
Canada (Minister of National Revenue – M.N.R.), [2002] F.C.J.
No. 158
Canada (Attorney General) v.
Jencan Ltd. (C.A.), [1998]
1 F.C. 187
Cantin v.
Canada (Minister of National Revenue – M.N.R.), [2002] T.C.J.
No. 495
2759‑4605
Québec Inc. v. Canada (Minister of National Revenue – M.N.R.), [2002]
T.C.J. No. 566
Bérubé v.
Canada (Employment and Immigration) (F.C.A.), [1990] F.C.J.
No. 137
Translation certified true
on this 3rd day of February 2004.
John March,
Translator
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