Citation: 2011 TCC 97
Date: 20110301
Docket: 2010-179(EI)
BETWEEN:
2536-5412 QUÉBEC INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Bédard J.
[1]
The appellant is
appealing from the decision rendered by the Minister of National Revenue (the
Minister) under the Employment Insurance Act (the Act). The Minister
determined that Paul Séguin Jr. (the worker) did not hold insurable employment
while working for 2536-5412 Québec Inc. (the payor) because he considered it to
be excluded employment since a similar contract for employment would not have
been entered into if the worker and the payor had been dealing with each other
at arm's length.
[2]
The Minister rendered
his decision after determining that the worker and the payor were related
persons within the meaning of the Income Tax Act (the ITA). To reach
this finding, he relied on the following presumptions of fact, which were
admitted:
[translation]
(a)
the sole shareholder of the appellant was Paul
Séguin; (admitted)
(b)
Paul Séguin is the father of Paul Séguin Jr.,
the worker; (admitted)
(c)
the worker is related to a person who controls
the appellant; (admitted)
[3]
In rendering his
decision, the Minister also determined that the worker and the payor [translation] "were not dealing
with each other at arm's length for the purposes of the employment" and it
was not reasonable to conclude that the worker and the payor [translation] "would have entered
into a substantially similar contract of employment if they had been dealing
with each other at arm's length, considering the following circumstances:
(a)
the appellant was incorporated on June 17, 1987;
(b)
the appellant operated a bar known as Bar La
Ronde;
(c)
the shareholder is the sole signer of cheques
issued by the appellant;
(d)
the appellant's shares were sold on July 14,
2009;
(e)
the bar's hours of operation were from 8:00 a.m.
to midnight, Monday to Friday;
(f)
the appellant hired five employees, namely the
shareholder, his wife, the worker and two other persons unrelated to the
appellant;
(g)
the worker worked for the appellant full time
for some twenty years;
(h)
the worker was the bar's manager and as such, he
was responsible for customer service, cleaning and orders and also for
organizing social activities designed to attract clients such as golf and
fishing tournaments, bean bag toss, pool and bowling leagues, and for the video
poker machine;
(i)
the worker's regular hours of work were from
8:00 a.m. to 5:00 p.m., Monday to Friday;
(j)
the social activities took place mainly in the
evening, three times a week;
(k)
the worker was present for a few hours during
the activities;
(l)
the worker and the shareholder were the only
ones authorized to take care of the video poker machine; it had to be emptied
many times a day and the paper changed as often;
(m)
the worker regularly went to the bar in the
evenings and weekends to take care of the video poker machine;
(n)
it took around five minutes to attend to the
machine, and the worker's residence was 2.8 kilometres from the bar;
(o)
the worker was available 24 hours a day, 7 days
a week;
(p)
none of the workers had to write down their
hours worked;
(q)
the worker was paid on a weekly basis;
(r)
the worker received set compensation of $650 per
week for 40 hours of work;
(s)
this compensation was determined by the
appellant;
(t)
the worker kept his tips, which represented 8%
of the sales, estimated at $650 per week;
(u)
the worker was paid by cheque every week, as
were the other workers;
(v)
in addition to his salary, the worker received
the following bonuses:
|
2007:
|
$35,000 paid April 1 and $15,000 paid December 20 for a total
of $50,000
|
|
2008:
|
$15,000 paid June 1, and $2,000 paid December 26 for a total of
$17,000
|
|
2009:
|
$30,000 paid in June during the sale of the appellant's shares;
|
(w)
the appellant confirms that these bonuses were
paid to the worker to reward him for his wide availability to work evenings and
weekends to take care of the video poker machine;
(x)
none of the non-related workers received such
large bonuses or even any bonuses;
(y)
no other worker received a bonus except the wife
of the appellant's shareholder, who received the following amounts:
|
2007:
|
$46,000
|
|
2008:
|
$15,000 paid on December 26
|
|
2009:
|
$30,000 paid in June during the sale of the appellant's
shares;
|
(z)
the shareholder's wife worked between 20 and 25
hours per week and received compensation of $450;
(aa)
the worker was supervised by the appellant's
shareholder;
(bb)
the worker also had to advise the appellant when
he was absent;
(cc)
the worker had two-weeks' vacation per year;
(dd)
the worker was required to personally carry out
the services for which he was hired.
[4]
All the facts (listed
in the preceding paragraph) on which the Minister based his decision were
admitted by the appellant, except for the use of the word "bonus".
The appellant claims that they were not "bonuses" but rather salary
adjustments.
[5]
The role of the Court
is to verify the existence and accuracy of the facts the Minister relied on to
make his decision, to review all the facts submitted before it as evidence, in
particular any new fact, and then decide whether the Minister's decision is
still "reasonable" in light of the Court's findings of fact. While
conducting this exercise, the Court must grant certain deference to the
Minister.
[6]
The worker's testimony
can be summarized as follows:
(i)
In addition to carrying
out the tasks described at paragraph 6(h) of the Reply to the Notice of Appeal,
the worker also took care of the landscaping, filling the fridges, hiring and
replacing servers (and ensuring their presence), repairing the leaseholder
improvements and defective equipment and responding to alarms. The worker added
that he built the outdoor terrace himself and entirely renovated the
appellant's premises. The worker explained that the only tasks the payor did
not give him were the administrative duties. It should be noted that the worker
was unable to provide the number of hours of work he had accumulated outside
his regular work hours, which I recall were from 8:00 a.m. to 5:00 p.m., Monday
to Friday;
(ii)
If not for his constant
contributions, his regular presence, skills as animator and the warm welcome he
gave all the payor's clients, the number of patrons at the payor's bar would
have dropped by at least half;
(iii)
he fully deserved the
bonuses the payor gave him, which he considered more as salary adjustments
considering his participation in the payor's company. It must immediately be
noted that the worker was unable to identify the basis on which the salary
adjustment (or bonuses) had been determined.
[7]
Moreover, the evidence
showed the following in regard to the payor's income and operating costs and
the income of the worker, Marguerite Séguin, Maxim McDonough and Marc
Huard while they worked for the payor in 2007, 2008 and 2009:
|
|
Payor's total income
|
Payor's operating costs (including wages)
|
Payor's annual losses
|
Worker's employment income
(T4)
|
Bonus paid to the worker
|
|
2007
|
$359,552
|
$431,279
|
($71,727)
|
$93,814
|
$50,000
|
|
2008
|
$356,495
|
$364,126
|
($7,631)
|
$60,973
|
$17,000
|
|
2009
|
$434,047
|
$294,524
|
($46,542)
|
$55,536
|
$30,000
|
Comparison of annual salaries of the
payor's employees
|
|
Worker
(excluding the bonuses)
40 hrs per week
|
Marguerite Séguin
(wife of
Paul Séguin Sr.)
20 to 25 hrs per week
|
Maxime
McDonough
(no relationship)
40 hrs per week
|
Marc Huard
(no relationship)
20 to 25 hrs per week
|
|
2007
|
$43,814
|
$0 (bonus was
$46,000)
|
$20,684
|
$10,253
|
|
2008
|
$43,973
|
$22,950 (bonus was $15,000)
|
$21,619
|
$10,704
|
|
2009 (for
6 months)
|
$25,536
|
$42,150 (bonus was $30,000)
|
$24,910
|
$12,357
|
[8]
I retain essentially
the testimony of Paul Séguin Sr., that the duties of Marguerite Séguin (his
wife) at the payor's company during the years in question consisted of cleaning
the payor's premises and she spent around 20 to 25 hours per week on this. Mr.
Séguin added that the payor gave Ms. Séguin a weekly salary of $450 during the
years in question and bonuses of $46,00, $15,000 and $30,000 in 2007,
2008 and 2009, respectively. It is interesting to note that Mr. Séguin stated
that the payor's external accountant had advised him to empty the payor's bank
account before the sale of the payor's shares in June 2009, specifically, by
paying a bonus of $30,000 to Ms. Séguin. This admission merely
strengthened my belief that the decision to pay the worker and Ms. Séguin
bonuses had been made by Mr. Séguin purely arbitrarily and that he determined
the amount of the bonuses also purely arbitrarily. I note that Mr. Séguin was
unable to identify the basis on which the bonuses had been paid during the
years in question.
Analysis and conclusion
[9]
It must be noted that
the issue was solely regarding the worker's compensation. The Minister admitted
that the set compensation of $650 per week (plus tips) for 40 hours of work from
8:00 a.m. to 5:00 p.m., Monday to Friday, was reasonable compensation in the
circumstances. However, the Minister claims that if the payor and the worker
had an arm's length relationship, the worker would never have agreed to take on
so many responsibilities and dedicated so much time and energy to the payor
outside his regular hours of work (being 8:00 a.m. to 5:00 p.m., Monday to
Friday) without being assured in advance that he would be compensated for doing
so, since the decision to give the worker a bonus was made by Mr. Séguin purely
arbitrarily and since he determined the amount of the bonus just as
arbitrarily.
[10]
The evidence showed
very clearly that the decision to pay a bonus to the worker was made by Mr.
Séguin purely arbitrarily and he determined the amount of the bonus just as
arbitrarily. The evidence also showed very clearly in this case that the worker
took on multiple responsibilities and dedicated many hours to meet them, all
outside his regular work week. As a result, the Minister was convinced of his
decision that a third-party dealing with the payor at arm's length would not
have agreed to take on so many responsibilities and spend so much time
fulfilling them outside the regular 40-hour work week, from Monday to Friday,
without being assured in advance that he would be compensated or, at the very
least, without first being aware of the objectives to meet to be paid for doing
so; this decision still seems reasonable to me, considering the evidence
presented.
[11]
For these reasons, the
appeal is dismissed.
Signed at Ottawa, Canada, this 1st day of March 2011.
"Paul Bédard"
Translation
certified true
on this 29th day
of March 2011.
Elizabeth Tan,
Translator
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