Howell v. M.N.R., docket 96-1873-UI

Date: 19980625

Dockets: 96-1873-UI; 96-1874-UI; 96-1875-UI

BETWEEN:

BRIAN HOWELL, CHRISTOPHER HOWELL, CORRADO GIORDANELLA,

Appellants,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent,

Reasons for Judgment

Rowe, D.J.T.C.C.

[1] Counsel for the respondent and Gerald Grupp, agent for all appellants, agreed the appeals could be heard on the basis of common evidence.

[2] The appellant, Brian Howell, appealed from a decision issued by the Minister of National Revenue (the "Minister") on May 28, 1996 concerning a request - by Brian Howell - for a determination on insurability regarding his employment with Ideal Pools Limited during the following periods: July 20 to December 12, 1992; June 7 to September 25, 1993; and June 20 to October 7, 1994. The Minister decided Brian Howell's employment was not insurable because he had not been dealing at arm's length with Ideal Pools Limited nor was he deemed to be dealing at arm's length pursuant to subparagraph 3(2)(c)(ii) of the Unemployment Insurance Act (the "Act").

[3] The appellant, Christopher Howell, appeals from a decision issued by the Minister on May 28, 1996 in which the Minister decided his employment with Ideal Pools Limited - during the period June 6 to September 15, 1994 - was not insurable because he had not been dealing at arm's length with his employer nor was he deemed to be dealing at arm's length.

[4] The appellant, Corrado Giordanella, appeals from a decision issued by the Minister on May 28, 1996 in which the Minister decided his employment with Ideal Pools Limited was not insurable during the following periods: June 1 to October 17, 1992; June 7 to October 23, 1993; and June 20 to October 7, 1994. The Minister based the decision on a finding that the appellant, Giordanella, was not dealing at arm's length with his employer nor was he deemed to be dealing at arm's length.

[5] Gerald Grupp, agent for all appellants, admitted the following facts - pertaining to the appeals of Brian Howell and Corrado Giordanella - as set forth in the Reply to Notice of Appeal of Brian Howell:

"(b) the Payor is a corporation that was duly incorporated under the laws of the Province of Ontario on or about February 2, 1988;

(c) at all material times, a related group composed of the Appellant and the Appellant's brother-in-law, Corrado Giordanella, controlled two thirds of the Payor's outstanding voting shares;

(d) on or about September 28, 1993, 1045592 Ontario Ltd. (the Associated Corporation) was incorporated by the Appellant (39 common shares), the Appellant's son, Christopher Howell (22 common shares), ahd the Appellant's brother-in-law (39 common shares);

(e) the Associated Corporation registered the trade name "Ideal Pools" at or about the time it was incorporated;

(f) the Payor reportedly operated a store in Richmond Hill (closed in May of 1995) and the Associated Corporation reportedly operated a store in Newmarket (closed in June of 1995);

(g) both the Payor and the Associated Corporation were engaged in the swimming pool business;

(l) the Appellant was to have been paid the gross amount of $710.00 per week for 21 weeks in 1992, the gross amount of $744.84 per week for 16 weeks in 1993 and the gross amount of $780.00 per week for 17 weeks in 1994;"

[6] The agent also advised the following facts were admitted, as set forth in the Reply to Notice of Appeal of Christopher Howell:

"(b) the Payor is a corporation that was duly incorporated under the laws of the Province of Ontario on or about February 2, 1988;

(c) at all material times, a related group composed of the Appellant's father, Brian Howell, and the Appellant's uncle, Corrado Giordanella, controlled two thirds of the Payor's outstanding voting shares;

(d) on or about September 28, 1993, 1045592 Ontario Ltd. (the Associated Corporation) was incorporated by the Appellant (22 common shares), the Appellant's father (39 common shares) and the Appellant's uncle (39 common shares);

(e) the Associated Corporation registered the trade name "Ideal Pools" at or about the time it was incorporated;

(f) the Payor reportedly operated a store in Richmond Hill (closed in May of 1995) and the Associated Corporation reportedly operated a store in Newmarket (closed in June of 1995);"

[7] James Lockhart testified he is a self-employed scrap metal dealer and resides in Toronto. He stated he knew all the appellants and had always referred to Corrado Giordanella as Charley Giordanella. Between 1992 and 1995, Lockhart stated he was aware the three appellants owned a company called Ideal Pools Limited. He hired trucks owned by that company - which also operated under the name, Avalon Paving - for purposes of snow removal. He stated either Brian Howell or Charley Giordanella would deliver trucks to a particular location together with four or five drivers. Lockhart explained he worked as a supervisor, co-ordinating as many as 35 different vehicles used to clear snow from parking lots. The usual rates ranged from $42.00 to $49.50 per hour for truck and driver. His rate, as supervisor, was $25.00 per hour and he also owned four trucks used on the clearing jobs. He explained the rate increased with the size of the equipment and the range, stated earlier, applied to Bobcats, and small trucks equipped with plows.

[8] Shawn Bishop testified he is a machinist residing in Collingwood, Ontario and knows all the appellants but spent more time with Brian Howell during the time he worked for Ideal Paving, which he understood to have been a division of Ideal Pools Limited, a corporation involved in the business of building and maintaining swimming pools. He stated he worked from April to the end of June in 1993 on a paving crew on the basis of seven days per week, weather permitting, usually as a labourer but sometimes operating a Bobcat. He stated he earned the sum of $12.50 per hour - set by Brian Howell - and Brian Howell worked with him on the same crew beginning at 7:00 a.m. and ending at 5:00 p.m.

[9] In cross-examination, Bishop stated he is not related to any appellant although his father-in-law had been acquainted with Brian Howell.

[10] Lino Caruso testified he knows all the appellants and worked for Ideal Pools Limited between 1990 and 1994. The work was seasonal and he would begin each year in May or June and finish in August or September, depending on the weather. He worked as a general labourer in the pool business which included installation of new pools and repair and maintenance. He stated he worked every day, weather permitting, and earned about $13.00 per hour. He worked along side Brian Howell and Corrado (Charley) Giordanella who acted as his supervisor. He stated he is not related to any of the appellants.

[11] In cross-examination, Caruso stated he began working, each season, with Charley but Brian and Christopher Howell also worked on the crews.

[12] Joan McMurdo testified she is employed by Revenue Canada as a Rulings Officer for purposes of the Unemployment Insurance Act and the Canada Pension Plan. She stated she was the Rulings Officer with respect to each appellant and had prepared a report - Exhibit A-1 - pertaining to Brian Howell. She stated she has been employed in the Rulings section since 1967 and is familiar with the provisions of the relevant legislation including definitions in the Income Tax Act of related persons. She estmitated she had made hundreds of rulings on insurability for purposes of unemployment insurance and Canada Pension Plan. She had spoken to the appellants on the telephone but had never met any of them personally. She thought she may have explained - to one or more of the appellants - the meaning of the term "arm's length" as well as something about the rulings process undertaken by her. McMurdo explained the next step - after any ruling has been issued by her - was for a person to appeal to the Minister. Any appeal is handled by an Appeals Officer in London, Ontario. While engaged in the process of formulating the ruling, a worker or employer is not invited to attend before her or to make representations prior to, or during the course of, the issuance of the ruling. She stated the request for a ruling originated with Human Resources Development Canada (HRDC), formerly the Unemployment Insurance Commission. The request for rulings concerned a three-year period. The report dated November 16, 1995 - Exhibit A-1 - sets forth the facts on which she relied and the reasons for arriving at the conclusion stated therein. She agreed she had relied only on the information received from HRDC to the effect Brian Howell still enjoyed the use of a company car even after he had been laid off and that she had not contacted him to verify the accuracy of that information. She explained she had received a file from HRDC containing material which had been generated by an investigator who had interviewed Brian Howell, one of the principals of Ideal Pools Limited, and had also obtained cancelled cheques, financial statements, and tax returns relating to that corporation. McMurdo stated she formed the opinion that Brian Howell supervised other shareholders of the corporation and that he and his fellow shareholders made decisions concerning operation of the business. She was aware he held 39% of the common shares of the corporation and was not, by reason of ownership of shares, in excepted employment pursuant to the Act. She stated she was not the person making the decisions appealed from as those decisions had been issued by W.S. McCallum, an Appeals Officer, acting independently on the basis of information gathered by a process which included sending out Questionnaires to the appellants. She identified her report - Exhibit A-2 - as it pertained to Corrado Giordanella and her report - Exhibit A-3 - relating to Christopher Howell. In her opinion, as set forth in the rulings issued by her, none of the appellants was engaged in insurable employment because each worker was a related person to the employer-corporation and would not have been providing services under the same terms and conditions if they had been dealing with a non-related arm's length individual.

[13] Counsel for the respondent did not cross-examine.

[14] Anita Giordanella testified she is an autoworker living in Keswick, Ontario and is married to the appellant, Corrado Giordanella. Between 1992 and 1994 she worked for Ideal Pools Limited performing services of a secretary including handling sales, bookkeeping, payroll, issuing quotations for pool installations and other office duties. She stated Ideal Pools Limited also operated a paving business under the trade name, Ideal Paving. She explained that, after September 28, 1993, a numbered company - 1045592 Ontario Ltd. (1045592) - carried on business using the name, Ideal Pools, without the Limited as part of the name. She stated all the appellants worked in the business every day during the season and she would see them working Monday through Friday and, if necessary, on weekends. She explained she had completed various forms for her husband, Corrado Giordanella, because of his limited ability to read and write in English. She stated she had reported he was not related to the payor, having done so on her understanding of advice received from an accountant due to the fact the payor was a corporation. Even though Brian Howell - her brother - had completed his own application for unemployment insurance benefits in 1994, she had examined it to ensure he had done it correctly as he has some difficulty with reading and writing.

[15] Brian Howell testified he is an appellant, works as a packer and resides in Uxbridge, Ontario. He stated he was the treasurer of Ideal Pools Limited which had been incorporated on February 2, 1988. He became a shareholder in July, 1992 and held one-third of the issued common shares. At that time, Corrado Giordanella had purchased shares (one-third) from his brother, Sam Giordanella, and another shareholder, Corrado DiRosolini held one-third of the shares. Later, 1045592 was incorporated and Brian Howell held 39% of the issued common shares. He explained he had attended school until Grade 10 but had encountered difficulties in reading, spelling and writing and believed his academic abilities were at a Grade 7 level. At the beginning of 1993, Ideal Paving was being used as a trade name and Di Rosalini was in charge. During the winter, trucks owned by the company were leased out for snow removal. In 1992, Brian Howell stated he worked only in the business of constructing pools while, in 1993, he worked in the pool business and did paving until October, after the pool season had ended. In 1994, he worked only in building or maintaining pools. He stated he worked every day and, if it was raining, he did paperwork with the assistance of either his wife or his sister. He had responsibility for supervising the issuing of cheques and payment of bills or collecting accounts receivable. He stated his working day began at 7:30 a.m. and did not end until 4:30 or 5:00 p.m. and that he worked as a labourer. Corrado DiRosolini was in charge of the paving end of the business and between 1992 and 1994 - when working on pools - Corrado Giordanella was in charge. Brian Howell stated he did not cash certain pay cheques issued to him because the corporation did not have sufficient funds in the bank account and he had decided to issue the cheques, in any event, to provide proof of entitlement to those wages at a later date. He stated a problem arose with Corrado DiRosolini over business methods, pricing and other matters and the dispute escalated in September, 1993 to the point Ideal Pools Limited ceased to operate. DiRosolini had signing authority on the corporate account on which pay cheques had been issued up to that point in 1993 and that account was closed together with other accounts on which Di Rosalini could sign cheques. Howell stated DiRosolini took certain equipment with him when he left the company and he and the other shareholder issued legal action in order to recover the value of the appropriated machinery which they believed to be between $15,000 and $20,000. Howell stated it had been important to ensure other employees - not family members - were always paid their wages, in full, along with suppliers. He described having lent money to Ideal Pools Limited for the purchase of a vehicle and explained he had borrowed $50,000 on a personal Line of Credit - secured by his house as collateral - in order to have additional capital available for use in the business. After the incorporation of the numbered company on September 28, 1993, they used that corporation to operate and, by April, 1994, registered the trade name - Ideal Pools - for purposes of Provincial Sales Tax (PST) and Goods and Services Tax (GST). He explained the new corporation - 1045592 -was able to use the same PST and GST numbers that had previously been used by Ideal Pools Limited and there had been a gradual winding down of activity under that name so that by the summer of 1994 no business, at all, was being carried on by that corporation. He stated he held 39% of the shares in the numbered company - as did Corrado Giordanella - and his son, Christopher Howell, held 22% of the shares. Brian Howell explained the shareholders were all paid a salary and the workers were paid by the hour according to time recorded on timesheets. He agreed with the assumption contained at paragraph 7(l) of the Reply to his appeal that he was to have been paid the gross amounts of $710.00 per week for 21 weeks in 1992, $744.84 for 16 weeks in 1993 and $780.00 per week for 17 weeks in 1994. He also agreed he had not been paid for 11 of 21 weeks in 1992, or for 5 of 16 weeks in 1993 or 9 of 17 weeks in 1994. He explained the sales figures set forth in paragraph 7(i) of the Reply to his appeal were actually receipts of income as there were no actual sales in January or February during the winter. He stated his income tax returns and relevant documents for purposes of unemployment insurance and/or Canada Pension Plan had been prepared as though he had received payment for all pay cheques issued to him, even though some of them had never been cashed. He also thought the corporation had deducted the wages as an expense in the relevant year. He stated he always attempted to work no more than 44 hours per week even though some flexibility was required due to the weather. He indicated he was soon able to do work involving the construction, repair or maintenance of pools on his own but had begun working under the supervision of Corrado Giordanella. He described the process of meeting with the other shareholders at the beginning of each season and estimating revenues and the amount each person could take out by way of salary on a weekly basis. It had been decided the pay for all three shareholders would be equal. He used his own personal credit card for purchases and the corporation did not own or use a car. The only company vehicles were Blazers which could be equipped with snow-plow blades during the winter.

[16] In cross-examination, Brian Howell stated he would consider working for an employer under circumstances where he was not getting paid promptly but only for a close friend and certainly, "not for a stranger". He recalled that pay cheques of non-family workers, on occasion, had been held back for about two weeks. In 1992, Howell agreed he had not started working until July 20 and identified the Questionnaire - Exhibit R-1- he had completed by providing answers which were then typed by another person. He agreed he had provided sales figures for each month and the salary to be paid on a weekly basis matched the maximum insurable earnings as set for each year material to his appeal but he did not know why the sum of $744.84 per week had been used as he had believed his salary was $740.00 per week during 1993. He also agreed he provided services to the corporation - without pay - and did not receive any payment by way of Director's fees. After his layoff on December 12, 1992, he worked for a customer - for whom Ideal Pools Limited had installed an indoor pool - and had not been paid, by the corporation, for his time. He did not know where one could locate the amount of revenue flowing to the corporation which was attributable to his unpaid services. He stated his son, Christopher, had become a shareholder in 1045592, holding 22% of the shares and Corrado Giordanella, Christopher's uncle, had experience, since 1968, with various aspects of the pool business. He stated the Appeals Officer, Mr. McCallum had explained the concept of arm's length to him and had proceeded to state, "You are not going to win".

[17] In re-examination, Brian Howell indicated sales for January, 1993 were in the sum of $5,193.63 which was substantially higher than the same month in 1992 and 1994. He stated the increase was due to the work he did after December 12, 1992 and explained some customers pay a month or more after an invoice is issued. He recalled the work done by him was not in relation to a pool but was a renovation to an area, inside a house, which had begun after the pool construction season had ended. The customer had purchased the materials himself and only the labour was billed out by the corporation. Howell referred to some invoices - Exhibit A-4 - which indicated many of them were not paid until 60 or 70 days after issuance which, in his view, accounted for monies coming into the corporate account even after he had been laid off. Howell explained none of the appellants had worked in the snow removal business and revenue was generated by the company renting out various pieces of equipment.

[18] In further cross-examination arising from the re-examination (following a continuation of proceedings after re-scheduling) Brian Howell explained that payment of an amount due on an invoice is entered in the company records under "sales" even though the work giving rise to the invoice was done earlier. He was referred to page 7 of the Report on a Determination or Appeal contained in Exhibit A-1 and to the corporate tax return and the GST return for the same period. Howell was unable to explain why the sales or income figures used in the different returns did not match. He agreed he had signed the corporate return and stated the GST returns had been prepared by Anita Giordanella. In 1994, the figures he provided to William McCallum at Revenue Canada indicated sales were $174,106.33 while the tax return for the same period showed gross revenue of $157,000 and the GST return stated sales had been $124,370.

[19] William McCallum testified he is employed as an Appeals Officer by Revenue Canada and his position requires him to review facts relevant to certain rulings which have been issued by Rulings Officers whether certain persons have been engaged in insurable and pensionable employment. He stated he was the person making the determinations or decisions under appeal by all of the appellants. In the process of arriving at his decision, he reviewed various documents including the report of Joan McMurdo. He indicated he reviewed Questionnaires which had been completed by the appellants and examined GST returns, corporate tax returns and spoke to Brian Howell on the telephone. He did not proceed to hold a hearing nor did he inform any appellant about any right to representation and did not invite any submissions prior to arriving at his decision. McCallum stated he wanted to clarify some matters and called Brian Howell but when speaking to him had not informed him that he had "no chance of winning". He explained the actual decision - or determination as it was previously known - was made by J.M. Cleaver, Chief, Appeals Division for the Minister of National Revenue and a letter to that effect was sent to each appellant. McCallum testified he examined four separate criteria as they applied to each appellant. In his opinion, the payment of remuneration was unique and the duration of employment was also examined. As an example, the periods of employment commenced one or two days after an entitlement to unemployment insurance benefits had expired and he was aware of the seasonal nature of the pool business which would operate only between May and September. He agreed individuals have the right to apply for benefits after they have been laid off and will qualify for same if they have worked the requisite number of weeks and earned sufficient money during the relevant period. He indentified the Questionnaire - Exhibit A-5 - completed in relation to Corrado Giordanella and another - Exhibit A-6 - remitted on behalf of Ideal Pools Limited, both of which were signed by Corrado Giordanella. In Exhibit A-6 - at page 11 - referring to the appellant, Corrado Giordanella, it had been stated, "Since the worker is a shareholder he provided his services before and after the periods in question without pay. Work was carried out just to pay company bills". McCallum stated he confirmed with Brian Howell that the shareholders did provide services to the corporation without pay after they had been laid off. This information was not passed on to the Commission as he is restricted from this type of reporting due to an administrative policy within Revenue Canada. McCallum explained he had examined cancelled cheques and found they did not support the information contained in the various Records of Employment that had been issued pertaining the appellants. Other workers were paid less than the appellants and were paid regularly at an hourly rate rather than on a weekly basis. He stated he was aware all appellants were directors or officers of the relevant corporation during various periods. He explained he was satisfied the terms and conditions of employment and the nature and importance of the work performed were substantially the same for the appellants and unrelated workers. One difference was that the appellants seemed to be supervising each other and he was satisfied no appellant was involved in the business of snowplowing in the sense of actively working as an operator of any piece of equipment. McCallum stated he had received the completed Questionnaires of Christopher Howell - Exhibit A-7 - and Ideal Pools Limited - Exhibit A-8 - pertaining to Christopher Howell as a worker with that company. As a result of a review of payroll records, McCallum stated he could not locate pay cheques which matched the total amount of wages shown on the Record of Employment of Christopher Howell. Even though he worked as a labourer, his salary was paid weekly, not hourly like the rest of the crew. Further, he discovered Christopher Howell had only been issued 8 - out of a total of 16 - pay cheques by Ideal Pools Limited during the period of employment from June 6 to September 15, 1994. In speaking with Brian Howell about this matter, McCallum advised he had been told by him no other cheques had been issued and it had been intended payment of wages for those missing pay periods would be made up at a later date by Ideal Pools Limited. McCallum advised he had been satisfied the terms and conditions of the employment were similar to those of non-arm's length workers but the duration of employment was for the minimum period of eligibility and did not bear a direct relationship to sales figures reported by the payor. In addition, while revenue was still being produced no one was hired to replace Christopher Howell after he had been laid off. McCallum noted he had worked for five years at Revenue Canada in a section where he advised small business owners on compliance with GST requirements and he knows GST is always billed at the time of issuing an invoice so there should be no discrepancy between sales or revenue for GST purposes, income tax or preparation of financial statements. He indicated he could not account for the difference in sales revenue in the T2 return of Ideal Pools Limited compared to the same reporting period for GST and he did not think it was his function to reconcile those differences. The GST returns for Ideal Pools Limited indicated there were sales made during the off-season and the amounts of these sales did not correspond with the numbers provided by the corporation on the income tax return. He stated his procedure is to give individuals an opportunity to provide information by way of completing a questionnaire or otherwise. He agreed Christopher Howell had never been a shareholder or director of Ideal Pools Limited and his appeal concerned only a period during 1994 when the numbered company - 1045592 - was operating under the trade name, Ideal Pools. McCallum referred to the Questionnaire - Exhibit A-9 - completed by Brian Howell relating to his employment with Ideal Pools Limited - the corporation - and 1045592 - the new corporation - operating a swimming pool business under the name, Ideal Pools during the season in 1992, 1993 and 1994. McCallum discovered Brian Howell had not received all the pay to which he was entitled and did not see any reference in the Questionnaire to any paving work done by Brian Howell. He had requested production of the minute book for Ideal Pools Limited but was advised by Brian Howell it was not available so he accessed the T2 corporate tax return information in order to ascertain the shareholding structure. In 1992, Brian Howell's unemployment insurance benefits expired on July 18th and he began working for Ideal Pools Limited on July 20th. As for the terms and conditions of the employment, McCallum indicated he did not find there was any significant difference between Brian Howell and non-related workers.

[20] In cross-examination by counsel for the respondent, McCallum stated he did not rely on the report from Joan McMurdo, Rulings Officer, in order to arrive at the recommendation which he made to the Chief of Appeals. He sent letters to each appellant and to the payor and received a return of completed Questionnaires. No appellant had requested any written reasons be provided subsequent to the rulings having been made by McMurdo. The form of the Questionnaires invites additional information and comments in the space provided. He discovered Brain Howell had signed the corporate income tax return in 1994, and Corrado Giordanella had signed on behalf of the corporation in 1993 and in 1992. McCallum recalled Brian Howell had advised that - in 1996 - there were still outstanding (uncashed) cheques for wages relating to work done by him in 1992, 1993 and 1994. McCallum referred to a chart at page 3 of his report forming part of Exhibit A-1 - showing cheques issued by the payor to Brian Howell and the ones actually negotiated by him.

[21] In re-examination, McCallum identified a letter - Exhibit A-10 - dated April 19, 1996 he had written to Brian Howell following a telephone conversation held on April 17. During the telephone conversation Brian Howell had corrected a couple of matters which McCallum reflected in his report. He also recalled Brian Howell advising 1045592 was going to pay him his back wages as soon as funds were available.

[22] Corrado Giordanella testified he is an appellant, living in Keswick, Ontario where he works as a drywaller. In 1992 and 1993 he worked for Ideal Pools Limited and in 1994 he worked for Ideal Pools Limited and then for 1045592 when it took over operations of the previous company. He recalled that, in 1992, work began in May and, in July, Ideal Pools Limited had three shareholders - himself, Brian Howell and Corrado DiRosolini - each owing one-third of the shares. Giordanella stated he married Howell's sister, Anita, in April, 1992 but neither he nor Howell were related to DiRosolini. He explained Ideal Pools Limited was in the swimming pool business and also did paving work. The paving part of the business was managed by DiRosolini and Brian Howell worked under his supervision on Saturdays or during times when the swimming pool business was slow. Giordanella stated he worked nearly every day from 7:00 a.m. to 6:00 p.m. during the 1992 season. He was President of Ideal Pools Limited and a Director and was aware there was certain work he had to carry out in order to fulfil his role as President and he and the other shareholders, "held a meeting once in a while". In 1994, he stated Corrado DiRosolini was "fired" as a result of certain financial problems having arisen in the paving operation and the paving work was stopped. DiRosolini reacted by taking some company equipment from the yard and then sold the Bobcat and some other vehicles by transferring title into the name of Majestic Paving, a trade name of Corrado DiRosolini. In Giordanella's estimation, the value of this appropriated equipment was nearly $30,000. He and Brian Howell had not signed any documents relating to transfer of title of the equipment and vehicles and they went to the Ministry of Transportation to complain about the situation. He agreed there were several cheques issued to him in 1994 that he did not cash because the company had no money. The new numbered company was not doing any paving work and the assets previously used to do that work had been taken by DiRosolini and could not be sold to raise capital for the company. This left 1045592 short of funds. He stated he relied on Brian Howell to complete the Questionnaire pertaining to himself. The business of Ideal Pools Limited - and then 1045592 operating as Ideal Pools - involved construction of pools, opening and closing them at the beginning and end of the season, installation of liners, filters, pumps, and related equipment. While the pool season might begin at the end of April in a warm year, it was usually mid-May before they began working and the season lasted until late September or early October. During the off-season, money came in to the company when customers paid their invoices. Referring to the table at page 8 of Exhibit A-2 - pertaining to sales for the month of February, 1994 in the sum of $7,829.25 - Giordanella advised that amount was comprised of an account receivable and revenue from leasing out equipment for snow removal. In May, 1993 revenue was in the sum of $51,971.80 and he stated it would not be possible for all that money to have been generated by pool or paving work. He stated he had been a pool installer, since 1968, and had a great deal of experience in all aspects of that business from construction to maintenance and repair but had no experience in the paving business. His wife, Anita, did the books and the payroll and he did not know the level, from year to year, of the maximum insurable earnings. The salaries for each shareholder were established on the basis of what each needed to run their own household. Although he supervised the work of Brian Howell, it would have been difficult to fire him and had any difficulties arisen, Giordanella thought he probably would have left the company and found another job.

[23] In cross-examination, Giordanella agreed he had signing authority on the corporation bank account and was aware Brian Howell had advanced money to the company for use as working capital. Since he felt obligated to ensure that this money was re-paid, he indicated on the Questionnaire that he had also "loaned money" to the corporation. Since the shareholders worked long hours, it would have been too costly to pay themselves on an hourly basis like the other workers. Brian and Christopher Howell worked in the paving business and pool workers earned between $13 and $14 per hour. Christopher Howell, although paid a salary on a weekly basis, earned about $11 per hour. During the winter, Giordanella stated it was more economically sound for the equipment to be leased for use by a snow removal company and for him to look for a steady job rather than working at driving a truck or operating the equipment which would occupy him only time to time, as needed. Even though the revenue coming into the corporation was nearly $52,000 in the month of May, 1993, he did not begin work with the company until June 7, 1993 and he was unable to explain the source of those funds or the reason he did not begin work earlier.

[24] In re-examination, Giordanella advised Ideal Pools Limited had operated a store which sold various pool supplies and accessories.

[25] Christopher Howell testified he is an appellant living in Uxbridge, Ontario and worked for 1045592 - operating as Ideal Pools - in 1994. In 1992, he had worked at a garden centre, in 1993 he was unemployed, and he began working for the numbered company, in 1994, after becoming a shareholder with 22% of the shares together with his father, Brian and uncle, Corrado Giordanella who each held 39% of the shares. He stated he was placed on a salary sufficient to allow him to take home - after deductions - $400 per week. He had no practical experience in the pool business and his uncle, Corrado was his supervisor. He was aware other workers were paid a higher hourly rate. He recalled work coming to an end early that year as people wanted their pools closed up at the beginning of September and his last day of work was September 15. He thought his work was not as important as other workers as he mainly handled the wheelbarrow. He completed the Questionnaire sent to him and was aware of the previous ruling by a Rulings Officer.

[26] In cross-examination, Christopher Howell agreed he was not paid for the first week he worked for the company because there was not sufficient funds in the bank account. He was not paid for work during the week of August 13, 1994 despite revenue in the sum of $29,268.74 having been received by the corporation. As to the reason for not being paid, Howell advised, "I don't know why - I was only a grunt". He agreed non-family workers were paid on a priority basis and stated, "eventually, I did receive some money in cash - much later". He stated that, if desperate, he would work under similar circumstances for a non-related company but would certainly be "harassing" them for back pay and agreed 1045592 only paid him for only 8 out of 16 weeks that he had worked.

[27] The agent for the appellants submitted the Rulings Officer had made a decision that was tantamount to a determination under the Act. While W.S. McCallum, Appeals Officer undertook a review of various matters and made a recommendation to the Chief of Appeals which resulted in the decision appealed from, the agent argued the appellants were given no opportunity to participate in the process or to know the basis upon which the matter was being determined. The agent submitted McCallum should have proceeded on the basis of following the rules of natural justice and afforded the appellants an opportunity to be aware of the evidence relied on and that there is very little point in individuals appealing to the Minister when the report of the Rulings Officer, in all probability, will be confirmed. It would be more appropriate, in the agent's view, for the Minister to follow the same practice as when issuing assessments pursuant to the Income Tax Act where there is supportive detail given for the reasons underlying the proposed assessment and the taxpayer is granted an opportunity to respond within a certain time. The current method of relying on various pieces of information without informing affected persons how they will be used - and to what end - is, in the agent's view, unfair and demonstrates the Minister has a "systemic ace up the sleeve". The agent submitted the evidence disclosed the work was done, the rate of pay was reasonable, the appellants had done their best under difficult circumstances and had paid other workers on a priority basis when the cash flow was insufficient. In his submission, the corporation was a small company engaged in seasonal work and it was obvious the appellants and other workers would be required to draw unemployment insurance benefits during the off-season in accordance with the entire purpose of the national unemployment scheme, as designed by the federal government, which, in reality, was a social assistance mechanism to make funds available so people could survive during the winter months.

[28] Counsel for the respondent submitted there was no breach of natural justice and that not every person has a right to a hearing - in the normal sense - prior to an administrative decision being made pursuant to statute. The appellants returned Questionnaires and otherwise had provided information and explanations relevant to their work and the operation of the corporation-payors. Certain documents and income tax returns and GST returns were reviewed by the Appeals Officer and Brian Howell had spoken directly to W. S. MCallum and had provided information on sales and other relevant financial information. Counsel submitted a review of the evidence would disclose there was no reason to interfere with the decision of the Minister as there was sufficient foundation to support the decision that none of the appellants had been engaged in insurable employment during the relevant periods.

[29] First, I will point out that the reason the evidence of Joan McMurdo, a Rulings Officer employed by Revenue Canada, was heard was that Mr. Grupp, agent for the appellants, assured me he would be able to present - in due course - a decision of a judge of the Tax Court of Canada in which it had been held that a ruling was equivalent to a determination within the meaning of section 70 of the Act. He was unable to provide this supporting jurisprudence and, in any event, I never quite understood the point to be made even had the non-existent decision existed.

[30] The case of Corazzo v. M.N.R., 92 DTC 1554 (T.C.C.) illustrated there is no procedure for filing a notice of objection to an assessment under the Act similar to that pursuant to the Income Tax Act and the method to be followed is that an application is made to the Minister for a reconsideration of the assessment. The Minister then makes a determination which is communicated to the affected party thereby permitting that person to appeal to the Tax Court of Canada. Where there is a question concerning the insurability of a worker during a particular period, Human Resources Development Canada (also known as the Department of Human Resources & Development according to various documents dated in 1995) requests that a ruling on the matter be issued by a designated officer employed in Revenue Canada rather than applying - pursuant to subsection 61(3) of the Act - to the Minister for determination of the question. Then, if the worker and/or employer do not agree with that ruling, either one, or both, may apply - by filing Form CPT 101 - for a determination of the question of insurability and when that determination - or decision - is communicated there is an appeal to the Tax Court of Canada. The methodology for designating a person to act as a Rulings Officer - on request from HRDC - appears to be an adaptation of the "Chinese Wall", recently in vogue as used by large financial institutions, brokerage houses, merchant banks or international accounting firms when working on a deal that involves existing clients whose interests could be subject to conflict should certain information leak from one compartment to another within the same organization. In any event, the decision appealed from in each of the within appeals is the one - dated May 28, 1996 - issued by J.M. Cleaver, Chief, Appeals Division for Revenue Canada to each appellant deciding each appellant was not in insurable employment for the periods stated therein by reason of the Minister having exercised the discretion set forth in paragraph 3(2)(c) of the Act.

[31] The method by which the determination or, in recent language, the decision is issued by the Minister caused concern to The Honourable Judge Bowman, Tax Court of Canada in writing his decision in the case of Donald Persaud v. M.N.R. 96-1987(UI) dated January 7, 1998. After referring to the decision of the Federal Court of Appeal in The Queen v. Bayside Drive-in Ltd. (1997) 218 N.R. 150, at page 11 of his reasons - in the course of commencing a discussion concerning the exercise of ministerial discretion - Judge Bowman went on to state:

"The first branch of the enquiry involves a three part analysis, as follows:

(a) One starts with the so-called “assumptions” as pleaded. The pleading and use of assumptions in appeals from decisions or actions of the Minister of National Revenue in tax or unemployment insurance matters is unique in civil litigation. It stems primarily from two leading cases, Johnston v. M.N.R., [1948] S.C.R. 486 and M.N.R. v. Pillsbury Holdings Ltd., 64 DTC 5184. Assumptions as pleaded are in the nature of particulars of the factual basis of the Minister’s action, whether it be an assessment of tax under the Income Tax Act or the Excise Tax Act or a determination under the Employment Insurance Act. In effect, they define the onus that lies upon the appellant. If unchallenged they must be accepted for the purposes of the litigation as factually correct. For this reason it is of consummate importance that the assumptions pleaded be a full, accurate and honest disclosure of the basis of the Minister’s decision and that they include all findings or conclusions made by the Minister which ever party they may favour.

It is strange that the first time that an appellant is told what these so-called assumptions are is when the Attorney-General files the reply to the notice of appeal. They are not, as I understand it, normally communicated to the appellant prior to the determination nor is the appellant (at that stage the applicant) given any opportunity to rebut them or to state why the determination unfavourable to him or her should not be made. At the risk of stating what I should have thought was obvious, it is patent that this failure constitutes a fundamental breach of one of the most essential tenets of natural justice. Since we have it on high authority that the act of being or not being satisfied involves the exercise of a ministerial discretion it is imperative that the principle of audi alterem partem be honoured. Moreover, the failure to give reasons at the time the discretion is exercised is in itself a breach of another cardinal rule of natural justice.

For the reasons that follow, I do not consider it necessary in this case to take these failures to observe elementary principles of natural justice into account in my decision to set aside the determination. The determination is so patently flawed in a multitude of other respects that it is unnecessary to deal with these points, although in themselves the failure to observe rules of natural justice would justify setting aside the alleged exercise of the Minister’s so-called discretion.

The first step in the analysis is to determine whether the assumptions as pleaded, if unchallenged, support the determination. If they do not the determination cannot stand although the Minister would be entitled to plead and assume the onus of proving further facts in support of the determination. If the pleaded assumptions, if unchallenged, and standing alone justify the determination we move to the second step in the analysis.

(b) The second step involves the appellants’ adducing evidence to establish, if possible, either that some or all of the assumptions are wrong or that there are other material facts that the Minister failed to take into account and that he should have considered in exercising his discretion. In this regard, I am referring to the factors set out by Chief Justice Isaac in the passage quoted above from Bayside. Implicit in that passage is a consideration whether the assumptions are factually correct.

(c) The third step is to determine whether what remains after such of the assumptions as the appellant has challenged have been demolished and such further facts have been established as the appellant or the Minister put before the court warrants the ministerial exercise of discretion. Even at this stage, the court is not entitled to substitute its discretion for that of the Minister. If and only if the answer to that question is in the negative is the court entitled to move to the second stage."

[32] One can see it was not necessary for Judge Bowman to base his decision on the issue of the failure of the Minister to observe "elementary principles of natural justice".

[33] In the case of Attorney General of Canada v. Jencan Ltd., (1997) 215 N.R. 352, a decision of the Federal Court of Appeal, Chief Justice Isaac, writing for the Court, at pages 365-367, stated:

"In my respectful view, the previous decision in Jencan No. 1 was not by itself an "irrevevant factor", as contended for by the respondent. It is necessary to consider how the previous decision was used. The Minister did not attempt to rely on the decision in Jencan No. 1 as a "binding precedent" to dispense with the respondent's application for a determination. Relying upon what he thought was a confirmation by the respondent that nothing had changed in the terms and conditions of the Worker's employment since the previous determination upheld by the Tax Court in Jencan No. 1, the Minister simply adopted the assumptions of fact from the previous determination. It was not unreasonable for the Minister's representative, when dealing with another request for a determination with respect to the same worker and payor corporation, to rely upon the assumptions of fact from the previous determination as the starting point for his examination of the facts.

If the Minister's representative erred in this case, it was in relying exclusively upon the assumptions of fact from Jencan No. 1 without obtaining reliable confirmation that the facts were indeed the same. When the Minister's representative contacted Blaine Jenkins and asked him about the terms and conditions of the Worker's employment, Mr. Jenkins responded that they were "basically the same as previous years". Having received such an equivocal and ambiguous response, the Minister's representative ought to have questioned Mr. Jenkins further to determine whether the Worker's terms and conditions of employment were, in fact, the same as in the periods which were the subject of the previous determination and, if not, how and to what extent they had changed. I agree with the Deputy Tax Court Judge that, when a determination is appealed pursuant to section 70, the Tax Court judge must review the legality of the Minister's determination based upon the facts as particularly established before him or her at trial. Subsection 71(1) of the UI Act makes this clear by providing that the Tax Court has the authority to decide any question of fact or law necessary to dispose of the appeal. As stated by Desjardins J.A. in Sylvie Desroches v. M.N.R.:

...in the final analysis, as this Court held in Attorney-General of Canada v. Jacques Doucet, it is the Minister's determination which is at issue, namely that the employment was not insurable because the applicant and the payor were not bound by a contract of service. The function of the Tax Court of Canada judge extended to considering the record and the evidence in its entirety. Accordingly Marceau J.A., speaking for the Court, said the following in Doucet:

The judge had the power and duty to consider any point of fact or law that had to be decided in order for him to rule on the validity of that determination. This is assumed by s. 70(2) of the Act and s. 71(1) of the Act so provides immediately afterwards ...

An important point needs to be made here. While all interested parties, including the Worker and the respondent, are given the opportunity to make submissions to a Revenue Canada appeals officer prior to a determination by the Minister under subsection 61(3) of the UI Act, there is no opportunity to respond to the evidence collected by the appeals officer or to make submissions directly to the Minister prior to his determination. It was, presumably, in recognition of this fact that Parliament provided claimants with an appeal as of right from a determination by the Minister under section 70. On appeal, the facts relied upon by the Minister in making his determination are treated as assumptions, or allegations, of fact. Although the claimant, who is the party appealing the Minister's determination, has the burden of proving its case, this Court has held unequivocally that the claimant is entitled to bring new evidence at the Tax Court hearing to challenge the assumptions of fact relied upon by the Minister.

Thus, while the Tax Court must exhibit judicial deference with respect to a determination by the Minister under subsection 3(2)(c)(ii) - by restricting the threshold inquiry to a review of the legality of the Minister's determination - this judicial deference does not extend to the Minister's findings of fact. To say that the Deputy Tax Court Judge is not limited to the facts as relied upon by the Minister in making his determination is not to betray the intention of Parliament in vesting a discretionary power in the Minister. In assessing the manner in which the Minister has exercised his statutory discretion, the Tax Court may have regard to the facts that have come to its attention during the hearing of the appeal. As Desjardins J.A. stated in Tignish:

[t]he court is entitled to examine the facts which are shown by the evidence to have been before the Minister when he reached his conclusion so as to determine if these facts are proven. But, if there is sufficient material to support the Minister's conclusion, the court is not at liberty to overrule it merely because it would have come to a different conclusion."

[34] It seems as though the procedure - if all interested parties have an opportunity to make submissions to an appeals officer - has been accepted as adequate notwithstanding the observation by the Chief Justice that "there is no opportunity to respond to the evidence collected by the appeals officer or to make submissions directly to the Minister prior to his determination".

[35] On the matter of the exercise of ministerial discretion pursuant to paragraph 3(2)(c) of the Act, Chief Justice Isaac in Jencan, supra, at p. 363 and continuing, stated:

"The sheer number of appeals from ministerial determinations made pursuant to subparagraph 3(2)(c)(ii) since the Tignish decision suggests that the law requires further clarification. For this reason, I set out below the principles which may fairly be derived from the authorities in this court with respect to subparagraph 3(2)(c)(ii).

The decision of this Court in Tignish, supra, requires that the Tax Court undertake a two-stage inquiry when hearing an appeal from a determination by the Minister under subparagraph 3(2)(c)(ii). At the first stage, the Tax Court must confine the analysis to a determination of the legality of the Minister's decision. If, and only if, the Tax Court finds that one of the grounds for interference are established can it then consider the merits of the Minister's decision. As will be more fully developed below, it is by restricting the threshold inquiry that the Minister is granted judicial deference by the Tax Court when his discretionary determinations under subparagraph 3(2)(c)(ii) are reviewed on appeal. Desjardins, J.A., speaking for this Court in Tignish, supra, described the Tax Court's circumscribed jurisdiction at the first stage of the inquiry as follows:

Subsection 71(1) of the Act provides that the Tax Court has authority to decide questions of fact and law. The applicant, who is the party appealing the determination of the Minister, has the burden of proving its case and is entitled to bring new evidence to contradict the facts relied on by the Minister. The respondent submits, however, that since the present determination is a discretionary one, the jurisdiction of the Tax Court is strictly circumscribed. The Minister is the only one who can satisfy himself, having regard to all the circumstances of the employment, including the remuneration paid, the terms and conditions and importance of the work performed, that the applicant and its employee are to be deemed to deal with each other at arm's length. Under the authority of Minister of National Revenue v. Wrights' Canadian Ropes Ltd., contends the respondent, unless the Minister has not had regard to all the circumstances of the employment (as required by subparagraph 3(2)(c)(ii) of the Act), has considered irrelevant factors, or has acted in contravention of some principle of law, the court may not interfere. Moreover, the court is entitled to examine the facts which are shown by evidence to have been before the Minister when he reached his conclusion so as to determine if these facts are proven. But if there is sufficient material to support the Minister's conclusion, the court is not at liberty to overrule it merely because it would have come to a different conclusion. If, however, those facts are, in the opinion of the court, insufficient in law to support the conclusion arrived at by the Minister, his determination cannot stand and the court is justified in intervening.

In my view, the respondent's position is correct in law...

In Ferme Émile Richard v. M.N.R., this Court confirmed its position. In obiter dictum, Décary J.A. stated the following:

As this court recently noted in Tignish Auto Parts Inc. v. Minister of National Revenue, July 25, 1994, A-555-93, F.C.A., not reported, an appeal to the Tax Court of Canada in a case involving the application of s. 3(2)(c)(ii) is not an appeal in the strict sense of the word and more closely resembles an application for judicial review. In other words, the court does not have to consider whether the Minister's decision was correct: what it must consider is whether the Minister's decision resulted from the proper exercise of his discretionary authority. It is only where the court concludes that the Minister made an improper use of his discretion that the discussion before it is transformed into an appeal de novo and the court is empowered to decide whether, taking all the circumstances into account, such a contract of employment would have been concluded between the employer and employee if they had been dealing at arm's length.

Section 70 provides a statutory right of appeal to the Tax Court from any determination made by the Minister under section 61, including a determination made under subparagraph 3(2)(c)(ii). The jurisdiction of the Tax Court to review a determination by the Minister under subparagraph 3(2)(c)(ii) is circumscribed because Parliament, by the language of this provision, clearly intended to confer upon the Minister a discretionary power to make these determinations. The words "if the Minister of National Revenue is satisfied" contained in subparagraph 3(2)(c)(ii) confer upon the Minister the authority to exercise an administrative discretion to make the type of decision contemplated by the subparagraph. Because it is a decision made pursuant to a discretionary power, as opposed to a quasi-judicial decision, it follows that the Tax Court must show judicial deference to the Minister's determination when he exercises that power. Thus, when Décary J.A. stated in Ferme Émile, supra, that such an appeal to the Tax Court "more closely resembles an application for judicial review", he merely intended, in my respectful view, to emphasize that judicial deference must be accorded to a determination by the Minister under this provision unless and until the Tax Court finds that the Minister has exercised his discretion in a manner contrary to law.

If the Minister's power to deem "related persons" to be at arm's length for the purposes of the UI Act is discretionary, why, one might ask, does the right of appeal to the Tax Court under section 70 apply to subparagraph 3(2)(c)(ii) at all? The answer is that even discretionary powers are subject to review to ensure that they are exercised in a judicial manner or, in other words, in a manner consistent with the law. It is a necessary incident of the rule of law that all powers granted by Parliament are of an inherently limited nature. In D.R. Fraser and Co. Ltd. v. Minister of National Revenue, Lord Macmillan summarized the legal principles which ought to govern such review. He stated:

The criteria by which the exercise of a statutory discretion must be judged have been defined in many authoritative cases, and it is well settled that if the discretion has been exercised bona fide, uninfluenced by irrelevant considerations and not arbitrarily or illegally, no court is entitled to interfere even if the court, had the discretion been theirs, might have exercised it otherwise.

Lord Macmillan's comments were quoted with approval by Abbott J. of the Supreme Court in Boulis v. Minister of Manpower and Immigration. See also Friends of the Oldman River Society v. Canada (Minister of Transport) and Canada v. Purcell.

Thus, by limiting the first stage of the Tax Court's inquiry to a review of the legality of ministerial determinations under subparagraph 3(2)(c)(ii), this Court has merely applied accepted judicial principles in order to strike the proper balance between the claimant's statutory right to have a determination by the Minister reviewed and the need for judicial deference in recognition of the fact that Parliament has entrusted a discretionary authority under this provision to the Minister.

On the basis of the foregoing, the Deputy Tax Court Judge was justified in interfering with the Minister's determination under subparagraph 3(2)(c)(ii) only if it was established that the Minister exercised his discretion in a manner that was contrary to law. And, as I already said, there are specific grounds for interference implied by the requirement to exercise a discretion judicially. The Tax Court is justified in interfering with the Minister's determination under subparagraph 3(2)(c)(ii) - by proceeding to review the merits of the Minister's determination - where it is established that the Minister: (i) acted in bad faith or for an improper purpose or motive; (ii) failed to take into account all of the relevant circumstances, as expressly required by paragraph 3(2)(c)(ii); or (iii) took into account an irrelevant factor."

[36] In the case of Adolfo Elia v. M.N.R. - A-560-97 - a decision of the Federal Court of Appeal dated March 3, 1998, at page 2 of the certified translation - after observing the Tax Court Judge had misunderstood the decisions of the Court - Pratte, J.A. stated:

"Contrary to what the judge thought, it is not necessary, in order for the judge to be able to exercise that power, for it to be established that the Minister's decision was unreasonable or made in bad faith having regard to the evidence before the Minister. What is necessary is that the evidence presented to the judge establish that the Minister acted in bad faith, or capriciously or unlawfully, or based his decision on irrelevant facts or did not have regard to relevant facts. The judge may then substitute his decision for that of the Minister."

[37] Since I am the judge who misunderstood the decisions of the Federal Court of Appeal to that date (Bayside, supra and Jencan, supra were issued after my decision in Elia) I wish to point out the situation in the within appeals is different than the one in Elia. In the Elia decision - 96-1648(UI) issued April 8, 1996 - I was concerned with the situation where an appellant had not informed the Minister of the facts in a proper manner and had only offered up an adequate explanation of various points - used by the Minister to the detriment of the appellant - during the course of presenting evidence before the Tax Court. In such an instance, it would be unfair, in my view, to castigate the Minister for having exercised discretion on the facts as presented to him. On the other hand - in the face of fresh evidence before the Court properly presented with corroborative testimony and documentation - if it is reasonable to conclude that the same decision would probably not now be made because the effect of new evidence negated adverse inferences previously drawn by the Minister, then confirmation of the decision may be inappropriate even if there were other grounds - included in the overall basket of material placed before the Minister - which could be seen as capable of supporting that finding. The difficulty lies in assessing what effect, if any, the fresh face imposed on the overall body of evidence might have had on the Minister. It may be the quality of the evidence before a court during an appeal - had it been presented in a similar fashion to the Minister - may have been sufficient to win the point then and there. However, the process does not permit that to be done effectively as when presenting evidence and argument before a judge. Because the particular provision in the Act does not permit a true appeal, de novo, without qualification or restriction, from the exercise of ministerial discretion - unlike an appeal pursuant to paragraph 3(1)(a) of the Act - there will always be a comparative inability to grant relief after hearing the evidence unless the peculiar threshold demanded by subparagraph 3(2)(c)(ii) of the Act has been crossed. As a result, an examination of "the facts shown by the evidence to have been before the Minister when he reached his decision so as to determine if these facts were proven" as stated by Desjardins, J.A. in Tignish Auto Parts Inc. v. M.N.R. (1994) 185 N.R. 73 (F.C.A.) at p.77 can sometimes reveal a significant variance with the evidence presented to a court on an appeal, even keeping in mind the admonition of Desjardins, J.A. in Tignish, that "... if there is sufficient material to support the Minister's conclusion the court is not at liberty to overrule it merely because it would have come to a different conclusion". In the within appeals, there were not any significant or startling revelations which were at odds with the material placed before the Minister and matters unexplained at that level were not clarified before me.

[38] In the within appeals, I have examined all the evidence in order to ascertain if the Minister has acted in a manner that would justify any intervention by me. There was an abundance of evidence demonstrating the Minister had reviewed a body of material with regard to the relationship between certain relevant facts and the indicia set forth in subparagraph 3(2)(c)(ii) of the Act. The three appellants were shareholders in a corporation and it is clear there are unexplained discrepancies between the sales figures or statement of revenue used for purposes of responding to W.S. McCallum, Appeals Officer and as stated in income tax returns, GST quarterly filings or the information regarding earnings and duration of employment as provided on the Record of Employment for each appellant. It is obvious the commencement of employment did not relate to the needs of the corporation as there were instances when an appellant did not begin work until a couple of months after large amounts of revenue were being produced. On other occasions, an appellant worked without pay after he had been supposedly laid off by the corporation. The renovation work performed by Brian Howell after his layoff had nothing to do with the normal business of the company and certainly did not fall within the ordinary duties of an officer or director pertaining to the keeping of corporate records or attending to requisite registration and filing requirements. The evidence clearly demonstrated each appellant had foregone receiving pay to an extent where it was sometimes 50% of the total as in the case of Christopher Howell where 8 out of 16 pay cheques were never cashed. Brian Howell never did receive a large portion of his pay, for various periods, beginning in 1992. Corrado Giordanella also had to give up cashing pay cheques so that other workers could be paid and suppliers could be satisfied. On the face of it, that may seem commendable but the practical effect is the appellants were using corporate funds to pay premiums for unemployment insurance - while drawing only a portion of their salary or working for no payment - with the expectation they would be eligible to draw unemployment insurance benefits once they had been employed by their own corporation for the minimum period required. In addition, the benefits would be based on the limit for maximum insurable earnings when, in fact, such amount had never been paid by the corporation even though it deducted, as an expense, the full amount as though the wages had been paid. Their own corporation was receiving operating capital - indirectly - through the unemployment insurance system by the appellant's manner of dealing, as individuals, with the corporation - whether Ideal Pools Limited or 1045592 - and, in the case of Brian Howell and Corrado Giordanella, as corporate shareholders and officers, with themselves and Christopher Howell, as workers, in a manner that would not have been the basis of any employment contract between parties who had been dealing with each other at arm's length. I had occasion to observe - in the case of Mark Ostapowich v. M.N.R. - 97-161(UI) - at pages 11 and 12:

"People are free to arrange their business affairs however they choose, by paying wages or salaries to related persons and, provided the work is done and the expense is reasonable, can deduct that cost from income. However, if family members want to enter into contracts of service with each other and establish an employer/employee relationship for the purposes of insurable employment pursuant to the Unemployment Insurance Act then they must take care to ensure the overall working relationship will satisfy the requirements of subparagraph 3(2)(c)(ii). To that end, each party to the working relationship, if related, may have to forego certain attributes of their intended contract of employment which are strongly rooted in familial loyalties, tradition or convenience in order that the contract of employment can be seen, on an objective basis, as being substantially similar to the one which would be entered into by strangers. Depending on the circumstances, a problem with insurability may arise because of delay in receiving pay, exchange of use of assets without compensation, providing services outside the time frame of the relevant period covered by the determination, working exceptional hours for too little pay, or not enough hours for too much pay, and a variety of other factors which may affect the decision the Minister has to make. By the very nature of family, things are done differently. If the family-owned business is large, then a related employee can blend into the overall context of the workforce and punch in and out on the time clock along with the other workers and receive shift assignments from a supervisor who may not even be a family member. However, a farm family, by its very nature, often has difficulty in arranging business affairs between members in a manner which can withstand the type of scrutiny demanded by the legislation. In the within appeal, the arrangement entered into by the appellant and his father was one which made good business sense. That does not automatically mean the contract fell within the definition of insurable employment in light of the legislation, as amended in 1990, by the passage of paragraph 3(2)(c) of the Unemployment Insurance Act.

[39] The situation in the within appeals involved the vehicle of a corporation but the point made in Ostapowich is applicable to the within appeals.

[40] In conclusion, I find I am not justified in intervening in the decisions of the Minister which appears to be reasonable and well-founded on the facts as set forth in the assumptions contained in each Reply to Notice of Appeal filed on behalf of each appellant. The evidence presented on behalf of the appellants was not sufficient to dislodge those assumptions. As a result, the appeal of each appellant is hereby dismissed.

Signed at Toronto, Ontario, this 25th day of June 1998.

"D.W. Rowe"

D.J.T.C.C.