Date: 19980925
Docket: 97-441-UI
BETWEEN:
LUCIE CORMIER,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
Tardif, J.T.C.C.
[1] This is an appeal from a determination dated
November 22, 1996 that the work performed by appellant
between May 15 and August 26, 1995 for her son
Yves Cormier, operating a restaurant business under the firm
name "Restaurant La Grande Cale Enr.", was excepted
from insurable employment because she and her son were not
dealing at arm's length.
[2] Although the Reply to the Notice of Appeal indicated that
the determination was also based on the application of
s. 3(1)(a) of the Unemployment Insurance Act
("the Act") — i.e. there was no genuine contract
of service —, counsel for the respondent indicated to the
Court that the appellant's employment was excepted from
insurable employment essentially pursuant to
s. 3(2)(c) of the Act, which reads as follows:
(2) Excepted employment is . . .
(c) subject to paragraph (d), employment
where the employer and employee are not dealing with each other
at arm's length and, for the purposes of this paragraph,
(i) the question of whether persons are not dealing with each
other at arm's length shall be determined in accordance with
the provisions of the Income Tax Act, and
(ii) where the employer is, within the meaning of that Act,
related to the employee, they shall be 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.
[3] The Court explained to the appellant at length that the
Tax Court of Canada had very limited jurisdiction to review a
decision concerning the insurability of employment when that
decision results from the discretionary process set out in the
Act. That jurisdiction has been described by the Federal Court of
Appeal as a jurisdiction comparable to judicial review.
[4] The limits and extent of this Court's jurisdiction
have been defined and described in particular in the following
cases:
Tignish Auto Parts Inc. v. The Minister of National
Revenue
(July 25, 1994, 185 N.R. 73)
Ferme Émile Richard et Fils Inc. v. Department of
National Revenue(December 1, 1994, 178 N.R.
361)
Attorney General of Canada v. Jencan Ltd.
(June 24, 1997, 215 N.R. 352)
Bayside Drive-In Ltd. v. Her Majesty the Queen
(July 25, 1997, 218 N.R. 150)
Attorney General of Canada v. Jolyn Sport Inc.
(April 24, 1997, A-96-96, F.C.A.)
[5] The above-cited precedents, which are binding on this
Court, clearly indicate that the Tax Court of Canada, before
considering the facts from the standpoint of a trial de
novo, must first verify and decide whether the Minister's
discretion has been legally exercised.
[6] In other words, the appellant must first present evidence
that the respondent acted illegally or wrongfully. Did the
respondent exercise his discretion reasonably, in accordance with
the rules of objectivity, while at the same time being thorough?
Was the discretionary process marked by bad faith?
[7] In the instant case, did the appellant establish on a
balance of probabilities that the discretionary process was so
improperly exercised as to vitiate the result?
[8] To begin with, the appellant admitted the accuracy of the
facts alleged in paragraph 5 of the Reply to the Notice of
Appeal, which read as follows:
[TRANSLATION]
(a) since 1992 the payer has operated a restaurant business
under the firm name Restaurant La Grande Cale Enr.;
(b) on March 10, 1992 the payer purchased the right to
use the firm name of Jean-Louis and Annette Perron for
$3,500;
(c) the appellant paid the said sum of $3,500 from her
personal bank account;
(d) the payer is the appellant's son;
(e) the business operates during the tourist season, that is
from May to September of each year;
(f) each season, from 1992 to 1995, the payer served 105 to
150 meals a day;
(g) from 1992 to 1994 the appellant was the manager of the
payer's restaurant;
. . .
(i) the appellant was manager and cook at the restaurant
during the period at issue;
(j) the appellant claimed that during the period at issue she
was paid $630 a week for about 60 hours' work;
(k) the restaurant was open from 7:00 a.m. to
11:00 p.m. seven days a week;
. . .
(m) during the period at issue some of the appellant's
paycheques were deposited directly to the payer's bank
account;
(n) the payer's financial statements for the years ending
in 1993, 1994 and 1995 showed consecutive business losses of
$9,257, $12,774 and $8,845;
. . .
(q) on May 5, 1992 the appellant stood surety for a
$6,000 loan granted to the payer by the Caisse Populaire de
Lavernière;
(r) in 1993, 1994 and 1995 the appellant worked for the payer
for 14, 16 and 15 weeks respectively;
. . .
(t) the appellant and the payer were not dealing with each
other at arm's length within the meaning of the Income Tax
Act.
[9] Once so many allegations were admitted it became somewhat
difficult to discharge the burden of proof which had to be met in
order to go on to the second stage, namely that of analysis from
the standpoint of a trial de novo.
[10] I believe that the appellant did nonetheless discharge
the burden of proof through her own testimony and that of the
payer, complemented and corroborated by highly relevant
documentary evidence.
[11] I should first like to state that the two witnesses, who
testified in each other's absence, seemed very credible to
me, and so I have no reason not to accept the whole of their
testimony.
[12] That evidence showed that the payer, young
Yves Cormier, the appellant's son, was indeed the owner
of the restaurant during the period at issue, and that at once
refutes the assumption that there was some kind of scheme to
disguise the fact that the appellant was actually the owner of
the restaurant.
[13] This suspicion on the respondent's part emerges in
particular from allegations in subparagraphs (c), (g), (i), (l),
(m), (o), (p) and (q).
[14] However, the evidence made it possible to completely
alter the perception created by these allegations. Further,
highly significant new facts were brought to light.
[15] I refer in particular to the declaration of firm name, to
the request for information made to Revenue Canada at the time of
the purchase and, above all, to the credit line requested and
received from the Caisse Populaire de Lavernière.
[16] In financing matters it is usual for bankers to require
all kinds of guarantees, including sureties. Yet here, the
appellant's signature was not required for what is an
essential part of a restaurant's operations: the line of
credit. When seen in the context of a very small community, this
fact in my view removes any doubt as to the true ownership of the
business. Why then did the respondent make the following
allegation in subparagraph (q):
(q) on May 5, 1992 the appellant stood surety for a
$6,000 loan granted to the payer by the Caisse Populaire de
Lavernière?
And why at the same time did he completely ignore the absence
of a surety for the line of credit? It was not possible to
determine the reasons for this from the respondent's
evidence. However, by this incomplete presentation of the facts
the respondent created a kind of false assumption as to the
actual role of the appellant's son.
[17] Moreover, the explanations given as to certain facts
which were accepted as conclusive not only cast doubt on the
respondent's interpretation but also vitiate the objectivity
of the decision. I refer in particular to subparagraphs (c),
(m) and (q):
(c) the appellant paid the said sum of $3,500 from her
personal bank account;
(m) during the period at issue some of the appellant's
paycheques were deposited directly to the payer's bank
account;
(q) on May 5, 1992 the appellant stood surety for a
$6,000 loan granted to the payer by the Caisse Populaire de
Lavernière.
[18] To this should be added the fact that the appellant's
never having stood surety for the line of credit was ignored. The
facts alleged show that the respondent chose to consider only
certain incomplete facts, which were moreover given a tendentious
interpretation. Consequently, and for these reasons, I find that
the Minister's decision is not legal in that his analysis of
the facts was incomplete, biased and tendentious.
[19] The appellant has satisfied the Court that it should
intervene.
[20] In this connection the weight of the evidence also
established that the appellant had performed her work under a
genuine contract of service: the non-arm's-length
relationship in no way affected or distorted either the work to
be performed or the level of remuneration.
[21] The appellant was indeed subject to the owner's
authority: certainly, the owner relied on the appellant's
experience and expertise, as she had worked in the restaurant
business for a very long time. Regardless of that, he did not
overpay his mother: in fact he indicated that the salary paid
corresponded to the average paid in the restaurant business. He
also indicated that he checked with other restaurants in deciding
on the salary that would be paid his mother. Moreover, the
appellant's current salary is comparable to what she received
when she was working for her son.
[22] The legislation gave the respondent a discretion for the
obvious purpose of penalizing abuses and fraud. The intent was
not to eliminate mutual aid and family cooperation and solidarity
in all cases where paid work is performed under an arrangement
between members of the same family.
[23] In the circumstances, the appeal is allowed as the
employment held during the period at issue was insurable
employment within the meaning of the Act.
Signed at Ottawa, Canada, this 25th day of September 1998.
"Alain Tardif"
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 29th day of April
1999.
Erich Klein, Revisor
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