Date: 19981027

Docket: 97-854-UI

BETWEEN:

CATHERINE ANN STROUD,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Judgment

(delivered orally from the Bench on July 2, 1998 at New Glasgow, Nova Scotia)

Margeson, J.T.C.C.

[1] The matter before the Court for decision at this time is that of Catherine Ann Stroud v. Minister of National Revenue. The sole question in the appeal is whether or not the Appellant was engaged in insurable employment for the periods from May 15, 1995 to September 29, 1995 and from May 13, 1996 to September 27, 1996, the periods in question, while allegedly employed by Allan Stroud's Landscaping and Services, the payor.

[2] There can be no doubt that the Minister of National Revenue (the "Minister") was right in concluding that this was ab initio a non-arm's length situation, that is, that the parties were related under the Income Tax Act. The Minister concluded on the basis of the information before him or her that this was not a contract of service which would have been entered into with parties that were unrelated.

[3] Catherine Stroud, I must say, was a very honest witness but was very nervous and consequently had difficulty grasping the intrinsic meaning of words, phrases and questions. She was inarticulate and the Court takes that into account in considering what she said here and in what she said in her statements to the Minister.

[4] The Appellant in essence said that she went to work for this business, Allan Stroud's Landscaping and Services, doing gravel work, driveways, topsoiling, sodding and spreading gravel in driveways. Her husband dumped the gravel down and she spread it. She did sodding when she was called upon to do so, when somebody called. She cut grass routinely when it was not raining

[5] The very nature of the type of business would indicate to any reasonable observer that there are going to be times when the Appellant would not be able to work due to the weather and that she might have to make up time otherwise. That being said, it does not follow that an employer on that basis alone can justify a set salary rather than an hourly wage.

[6] The Court rejects that idea altogether. Even when one receives a salary there has to be reasonable work for reasonable pay. Likewise the payment of a salary rather than an hourly range does not justify the failure to keep a record of the hours worked. That has to be taken into account and it was taken into account by the Minister.

[7] The Appellant said that she worked 30 to 40 hours a week. Then she said that sometimes she did not work 30-40 hours every week but would do the missing hours later on. Then she said that she was not able to make up all of the hours. So she was completely inconsistent in some ways in what she said. The Court does not put this down to her being dishonest at all but to her being unable to appreciate completely the questions that were being asked of her, even though she tried as best she could. But she did say: "He would not pay me unless I worked. I did the work."

[8] There can be no doubt, in looking at the evidence in toto, that the Appellant did the type of work that she described and that the payor was satisfied in the end result that she had performed the amount of work that he reasonably expected of her based upon the considerations that he used in deciding what she was to be paid and how she was to be paid.

[9] The Appellant identified Exhibits R-1 and R-2, her ROEs. There did not seem to be anything untoward about those. She said that she was paid a salary, not a wage. The Court does not put any stock in someone saying that it is a salary and not a wage. It does not really make any difference what it is called. What is important is what one is paid and what one does for their pay that is important to this Court. She said that she worked 30 hours a week approximately.

[10] Exhibit R-3 was admitted by consent. It was the Application for Benefits for 1995, which seemed to indicate 8 hours a day, 5 days a week, for 40 hours a week, which again is a bit inconsistent.

[11] Exhibit R-4 admitted by consent was the Application for Benefits for 1996. It showed 20 hours a week, $200. But her evidence was, when she was shown that, was that she could have worked more hours than 20 and she might have worked less hours than 20 adding to the inconsistency of some of her evidence.

[12] Exhibit R-5 was a statement given to H.R.D.C. There did not seem to be much untoward about that. Nothing in particular was made of it. She was referred to page 4 of the statement and the indication that she had been there since 1992. But she said: "I answered the telephone for the business. I made the deposits." That was part of her job apparently. In 1995, she answered the telephone. She did not record the hours. "He was away working at times." She thought that her husband worked away two weeks or 10 days. It turned out that she was probably correct on that issue.

[13] Exhibit R-6 was a questionnaire completed for the appeals officer. The Appellant was directed to Question 4. Nothing really turns on that. She said that she received cash once, "But it was marked in his book," Exhibit R-7 meaning that it was for work that she had done. She may have received cash but no more than twice. She did not write any cheques for the business. She had no part in the business.

[14] Exhibit R-8 was the payroll records from 1995. She did not know why she had cashed the cheques on the same day, but this was explained by Mr. Stroud when he gave testimony.

[15] Mr. Theodore Stroud testified that he was the owner of the business. He hired the Appellant on May 15th, 1994, "Since I was getting so many calls" (calls with respect to doing landscaping). He had a backhoe business and he had another business where he went overseas and did subcontracting work. He was receiving so many calls that he believed that he had to start a landscaping and grass cutting business to supplement his backhoe business. Presumably what he was getting at was that his backhoe business led customers to call upon him to do the landscaping type of work. He asked his wife if she wanted to start grass cutting. He “broke her in slowly”, is what he said. Giving her a salary was the best for him. He did not have to keep hours of work, he thought, but she would have to do a minimum of 20 hours a week. That was the basis upon which he started her off right from the beginning. The nature of the jobs that he had would require her to put in a minimum of 20 hours a week immaterial of when she did the work.

[16] Whether she did it three days a week, because of the rain, or five days a week, she would have to do that amount of work in order to get the jobs done which he had obtained. She did the work. He was asked why she received an increase in salary and he said that she was earning what the industry average was during the periods in question. He was not away in 1995 during the season.

[17] He said to her when she started, "You are going to do the work. You're not getting paid for something you are not doing." She agreed. "She did an excellent job for me," he said, meaning for the business.

[18] In cross-examination it was pointed out that in Exhibit R-5 there was a mistake. One of the figures should have been $7 rather the figure that was there, eight dollars. He said that her salary at that time was based upon a minimum of 25 hours.

[19] Exhibit R-9 was the Income Tax Return for the “payor”, which was put in by consent. Page 4 of the Reply was referred to and he said that he assumed that that was the right information, being the revenue from the business from '92 to '96. His statement was that he included all of his income and that the information on page 4 of the Reply included the income that his business received from all sources, including the overseas income, which he said that he took as the business and was not in his own name. He received his T4s in the business name. Landscaping was only part of his business.

[20] He did agree finally that he had probably worked 10 days out of the country between August and September of 1995. But the business kept running. The Appellant had her duties in cutting grass. “She had the jobs. She knew what she had to do.” She had been trained by him and she was expected to continue performing her work.

[21] There was some question about the term "continuous overseas employment" in the Tax Credit Certificate but that is not really relevant here. It is obvious that he was not continuously out of the country for that period of time.

[22] Exhibit R-10, information which was given by the owner and the payroll record for '96 were put in by consent as Exhibits R-10 and R-11. He said that it was just a mistake that he had made in the book, that it was nothing untoward or extraordinary and he just scratched it out and put in another entry, the correct entry. In 1995 he did not have enough money when he was starting up the business, so he asked the appellant to take two cheques at the same time. That explained why there were two cheques being cashed the same date. “This was the only time it happened”, he said. “It was not normal. It was the only time it took place.” Sometimes when he needed some casual help he would hire somebody from another employer and even though he had 30 days to pay that account, he paid immediately because “he wanted to clear up the books”.

Argument on behalf of the Respondent

[23] In argument, counsel for the Respondent said that the Minister was right in making the decision that she did or at least that it was reasonable to decide that this was not insurable employment because it was excepted employment. The Minister had sufficient information before her to decide as she did. There was conflicting information in the Minister's hands, the number of hours worked, how the worker was paid, two of the cheques had the same cashing date on them. In light of the information the Minister had, the Minister's decision should not be overturned.

Argument on behalf of the Appellant

[24] The Appellant's agent said that the wage was reasonable. It was Allan Stroud's Landscaping and Services. It was not just Allan Stroud's Landscaping. You cannot just consider part of the income and not the other part. The income was the worldwide income that the business had. The Appellant established that the Minister's decision should be overturned and the Court should find that this was insurable employment, not excepted employment.

Analysis and Decision

[25] The Appellant's task is to satisfy the Court on a balance of probabilities that this was insurable employment. There is no duty on the Minister. This is a case where sections 3(2)(c) and 3(2)(c)(ii) are brought into question. Consequently the Court has to approach it from the two “stage” point of view. The Court must look at the Minister's decision in light of the information before the Minister, it also has to look at the Minister's decision in light of all the evidence that was tendered before the Court and draw from the evidence any reasonable inferences that the Court is entitled to draw.

[26] I note that the Minister in his Reply, as a matter of fact, said that:

"The payor operated a landscaping and yard maintenance business year-round."

[27] That was a presumption that the Minister made, although it was shown that the landscaping part of the business was not operated all year-round. It is clear that the “payor” had a business operating all year-round. The Minister’s inference was obviously incorrect.

"The Appellant had been performing substantially similar duties for the payor since he began his business in 1992."

[28] That was not completely correct. There was a similarity in the work that she did. It was not exactly the same although it was close to what she had been doing before. The Minister considered that the Appellant had received unreasonable increases of 9% in 1995 and 14% in 1996. That may sound like a lot but when one looks at the wage that was paid, it was a wage of $160 dollars per week, $175 dollars per week and $200 per week. Some evidence was given as to the basis for the increases and overall the Court is satisfied that the increases were not unreasonable.

[29] There was no basis for the Minister’s conclusion that the salary was excessive. No evidence was given on that point. The Appellant did not receive vacation pay and that is something that the Court takes into account. The Minister had concluded that:

"The payor did not record the actual hours worked by the Appellant."

[30] That was not completely accurate in the sense that the evidence before the Court indicated that the Appellant's employer kept track of the hours and knew what the worker was doing by the number of jobs that had to be completed. She had to work the minimum number of hours to complete those jobs and she did. This is not the best way to record time but under the circumstances described here the Court is satisfied that the Appellant worked the minimum number of hours that the payor required and upon which he based the worker’s renumeration.

[31] The Court finds that the information before the Minister that “the Appellant was paid the same amount each week and was not required to work a minimum number of hours”, was not correct. This was certainly of significance to the Minister. The Court finds that was not a correct conclusion. The evidence to the contrary, given by the “worker” and the “payor” is accepted.

[32] Paragraph (k):

"The business operated from the payor's and the Appellant's residence."

[33] That is only true in the sense that the Appellant and the payor lived there. The evidence made it clear that this was not the Appellant's residence. She lived there but she was not the owner of the residence. For it to be of any significance at all, one would have to conclude that the Appellant was working for the payor and she was helping to pay part of the expenses because the home belonged partly to her, whereas no reasonable employee pays any of the expenses of the employer. It is clear here that the Appellant did not contribute anything to the business by way of expenses. She did not provide any services for which she was not paid. She did not provide an office for her employer. The business telephone was in the residence but the residence belonged to the payor. The only untoward feature was that the Appellant did use the telephone for her own personal purposes.

[34] With respect to paragraph (m), the business losses, the Court finds that the Minister placed too much emphasis upon that aspect of it. Considering the explanations given in Court, it does appear that it would have been reasonable to conclude that in '94 and '95 there was a profit. There was a loss in 1996. In all the years the payor seemed to be taking into account all of his business income. Here the Court considers that the business of the payor was not just the landscaping business. It would be unfair to isolate the landscaping business for which the payor retained the Appellant and not to include the income from all the employer’s business. The Minister obviously considered that it was not reasonable to retain the worker during the periods in issue because the landscaping part of the business was not profitable.

[35] It was not reasonable for the Minister to so conclude. The Minister should have taken the whole operation into account, not just part of it.

[36] In paragraph (n), the Minister considered, unfavorably to the Appellant, that the payor included income that he received when overseas. But that was part of the business income. Yet the Minister deducted that from the business income when she should not have done so, consequently the picture that the Minister had before her was distorted.

[37] The Court finds that it would not be reasonable for the Minister to conclude as she did in paragraph (o) that there was a net loss because the Minister did not consider all of the income of the business.

[38] In paragraph (p):

"The earnings paid to the Appellant by the payor remained in the payor's household."

[39] That was completely contradictory to what the evidence showed. It may have remained in the household in the sense that the Appellant was a part of the household and she was paid. But it is like any other job were both spouses work. There was no evidence that the worker put her salary into a common account. There was no evidence that she did anything with it except to use it for her own purposes.

[40] The Minister could not have reasonably concluded as she did. The Court finds that both the Appellant and the payor were credible witnesses.

[41] The payor was a very articulate person and the Court is satisfied that it can rely upon what he had to say. He did have a reasonable basis for calculating the salary that he paid. The Court is satisfied that the Appellant worked the time that she said that she did. Even though her hours were somewhat sporadic, that was the nature of the business that they were involved in and it was not unreasonable for her to work the way that she did under the circumstances.

[42] If there had been other evidence to show that the Appellant put the income back into the business, if the Court was satisfied that she worked when she was not paid, that she was paid for hours that she did not work or if other evidence had called into question the credibility of her testimony, it might have been different. Such evidence was not given. The evidence that the worker and the payor gave was consistent with a finding that the Appellant was engaged in an insurable type of employment. The Appellant was not hired or employed because they were related and that is not why she received increases in salary.

[43] The Court is satisfied there was a reasonable basis for the increase in salary. In spite of the fact that the method that the payor used for determining the wage was a bit unorthodox, the Court is satisfied that, in his meticulous way, the “payor” had in mind a reasonable basis for determining what a reasonable wage was and he stuck to that wage throughout the years, even though he did increase her wages in '94, '95 and '96. The payor increased those wages based upon his knowledge of what a competent and comparable person would be receiving for doing the same job. His evidence was that he would have hired somebody else to do the same job under the same circumstances for the same rate of pay. Apart from some of the evidence which might have made the situation suspicious ab initio, the Court is satisfied that a similar contract of service would have been entered into between parties that were unrelated. This was insurable employment. It was not excepted employment. It was employment under a contract of service.

[44] The Court will allow the appeal and reverse the Minister's determination.

Signed at Ottawa, Canada, this 27th day of October 1998.

"T.E. Margeson"

J.T.C.C.