Citation: 2011 TCC 482
Date: 20111017
Docket: 2010‑1464(EI)
BETWEEN:
FRANCE COSSETTE,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Tardif J.
[1]
This is a case
involving the insurability of work. The appeal concerns the Respondent's
decision to the effect the work performed by France Cossette (the
"Appellant") for the company 9190-8582 Québec Inc. during the period
from July 7, 2008, to November 29, 2008, was not insurable under
paragraph 5(2)(i) and subsection 5(3) of the Employment
Insurance Act (the "Act").
[2]
In explaining and
justifying the determination under appeal, the Respondent relied on the
following assumptions of fact:
[translation]
(5) The Appellant and the Payor are related persons within
the meaning of the Income Tax Act because:
(a) the Payor's sole shareholder was Chantal
Cossette;
(b) Chantal Cossette is the Appellant's sister;
(c) the Appellant is related to a person who
controls the Payor.
[3]
The Minister determined
that the Appellant and the Payor were not dealing with each other at arm's
length in the context of this employment. In fact, the Minister was satisfied
that it was not reasonable to conclude that the Appellant and the Payor would
have entered into a substantially similar contract of employment if they had
been dealing with each other at arm's length, in light of the following facts:
[translation]
(a)
the Payor was incorporated on January 4, 2008;
(admitted)
(b)
the Payor operated a business specializing in
the retail sale of stains and caulking; (admitted)
(c)
the Payor's place of business is located in the
garage of the Appellant's personal home, at 231 St-Joseph Boulevard,
St-Tite; (admitted)
(d)
in October 2008, the Payor's shareholder
acquired the property located at 231 St-Joseph Boulevard; (admitted)
(e)
the Payor began operating in January 2008;
(admitted)
(f)
the Payor's sole shareholder is the manager of a
golf course, Club de golf Le St-Rémi; (admitted)
(g)
the Payor's shareholder received monthly updates
from the bookkeeper regarding the Payor's activities and called the Appellant
regularly to enquire about the status of the line of credit and follow up on
the goods; (admitted)
(h)
the Payor's line of credit was guaranteed by the
shareholder when it totalled $20,000, but when it rose to $30,000 in
May 2008, the Appellant became solidarily liable with the shareholder; (admitted)
(i)
the Appellant had experience in the Payor's
activities, since she had been associated with her ex-spouse in a similar
business from 1995 to 2007; (admitted)
(j)
the Appellant could not start up a business
because she was having financial difficulties, so it was her sister, Chantal
Cossette, who became the Payor's sole shareholder; (denied)
(k)
the Appellant owed $13,500 to the main supplier
of her former business, Canadian Log Home Supply, which became the Payor's main
supplier; (admitted)
(l)
in February 2008, the Appellant obtained a
loan for $13,500 and paid back the supplier; (admitted)
(m)
the Appellant used a list of customers from her
other business and visited them all between January and July 2008, leaving
them the new telephone number of the Payor; (admitted)
(n)
the Payor's first purchases were made in
February 2008; (admitted)
(o)
the Payor's first sale was made on March 19, 2008; (admitted)
(p)
from January to July 2008, the Appellant
travelled 19,394 kilometres, for which she was reimbursed at rate of $0.05
per kilometre, plus meal expenses; (admitted)
(q)
driving time was estimated at 1,939 hours,
to which the time of the each customer visit had to be added, for a total of
over 2,000 hours worked; (admitted)
(r)
the Appellant was not compensated for her work
as a travelling representative; (admitted)
(s)
an employee dealing at arm's length would have
required payment for the hours worked; (denied)
(t)
in July 2008, there were a lot of
customers, so someone had to be in the office to prepare the orders and take
care of all of the Payor's activities; (admitted)
(u)
the Appellant started being paid in
July 2008 and continued to be paid until November 2008; (admitted)
(v)
the Appellant's compensation was based on a
40-hour work week although she worked more; (admitted)
(w)
after she was laid off, the Appellant continued
to work for the Payor approximately five hours a week for
three weeks, without pay; (admitted)
(x)
from February 3, 2008, to July 6,
2008, the Payor made $154,000 in sales without paying any wages to the
Appellant; (admitted)
(y)
without the Appellant, the Payor would have been
unable to carry out and maintain its activities and generate revenue; (denied)
(z)
on December 8, 2008, the Payor issued to
the Appellant the Record of Employment No. A85872369 stating July 7,
2008, as the first day worked and November 29, 2008, as the last day
worked; (admitted)
(aa)
the Appellant's Record of Employment did not
reflect the reality of the Payor's activities from January 2008 on; (denied)
(bb)
the Appellant's employment met the entitlement criteria
and was therefore insurable; (admitted)
7. At this stage of the proceedings, the Minister
acknowledges that the Appellant's employment was performed under a contract of
service; (admitted)
[4]
The Appellant made
several admissions, among others, paragraphs 5(a) to (c),
subparagraphs 6(a) to (d), (f), (i), (l), (n) to (q), (t), (u), (w), (x), (z)
and (bb) and paragraph 7. She also admitted subparagraphs (e), (g), (h),
(k), (m), (r) and (v) while reserving the right to supplement and nuance the
contents of these subparagraphs.
[5]
Finally, she denied the
contents of subparagraphs (j), (s) and (y).
[6]
This is a case subject
to special treatment, since the determination was made on the basis of
paragraph 5(2)(i) of the Employment Insurance Act, which
reads as follows:
5(2) Excluded employment − Insurable employment does not
include
. . .
(i) employment if the employer and employee are not dealing
with each other at arm's length.
[Emphasis added]
[7]
So under this
paragraph, this job is not insurable employment, given that the Appellant and
her sister, who held all the shares in the employer corporation, were not
dealing with each other at arm's length.
[8]
In similar situations,
Parliament has provided for and granted a discretionary authority by which the
persons responsible for handling cases subject to this provision must analyze
all the relevant facts. This purpose of this analysis is to decide or determine
whether a contract of service between persons dealing at arm's length would
be comparable, in the same context, where the relevant facts are similar.
In other words, was the contract governing the services at issue shaped or
influenced by the fact that the parties were not dealing with each other at
arm's length?
Arm’s length dealing
(3) For the purposes
of paragraph (2)(i),
(a) the question of whether
persons are not dealing with each other at arm's length shall be determined in
accordance with the Income
Tax Act; and
(b) if the employer is, within
the meaning of that Act, related to the employee, they are deemed to deal with
each other at arm's length if the Minister of National Revenue is satisfied
that, having regard to all the circumstances of the employment, including the
remuneration paid, the terms and conditions, the duration and the nature and
importance of the work performed, it is reasonable to conclude that they would
have entered into a substantially similar contract of employment if they had
been dealing with each other at arm's length.
[9]
One of the particular
features of this case is the jurisdiction of the Court in such a situation. First,
the Court must decide whether the analysis carried out when exercising the
discretion was done in accordance with the applicable rules, having regard to
all the useful and relevant facts. Second, the Court must consider whether the
facts analyzed were complete and correctly interpreted and whether the
assessment overlooked or underestimated the significance of certain facts.
[10]
The Court's analysis
must thoroughly analyze not only the investigation, but also the evidence
adduced in court. This requirement was laid down by the Federal Court of Appeal
in, among other judgments, Pérusse v. Canada (Minister of National Revenue
– M.N.R.) [2000] F.C.J. 310, 261 N.R. 150 and Légaré v. Canada (Minister
of National Revenue – M.N.R.) [1999] F.C.J. No. 878, 246
N.R. 176.
[11]
This requirement is all
the more easy to understand and accept when we consider that interviews are
more often than not conducted through telephone conversations, whereas a trial
allows for a new, less restrictive and more thorough approach and makes it
possible to analyze other significant factors, such as body language, which is
often helpful in assessing credibility.
[12]
Assuming that the
analysis and assessment are appropriate, judicious and reasonable, the Court
essentially must confirm the correctness of the decision.
[13]
On the other hand, if
the evidence shows that the investigation was careless or incomplete, was based
on incomplete, distorted or incorrectly interpreted facts or simply ignored or
failed to weigh certain relevant pieces of evidence, or if the court hearing
brings to light new and relevant evidence, then the Court will have to make a
new assessment.
[14]
Assuming that the
exercise of discretion was beyond reproach and was done judiciously, as
required, the Court cannot intervene, not even if the same facts could have led
the Court to a different conclusion.
[15]
In the present case,
the Appellant testified, as did her sister, in her capacity as representative
of the employer corporation. The Appellant explained that over the years, she
had acquired considerable expertise in a highly specialized field, namely,
sales and consulting in relation to products for staining, preserving and
insulating buildings made of wood, particularly log buildings. These are unique
structures that need special maintenance requiring knowledge and expertise.
[16]
She gained her
experience through her partnership with her spouse in a business that built
this type of building and supplied products for preserving them. At some point,
their relationship deteriorated and finally broke down. When the Appellant left
this business and marital relationship, she was destitute and without means, to
the point where she had to ask her insurer to pay her the cash surrender value
of her life insurance policy.
[17]
Since she was on very
good terms with her sister, her sister offered to start up a new business and
invest $5,000 in it. This new business was essentially of the same nature as
the one she worked in with her spouse, except for the construction part.
[18]
When her relationship
with her spouse started to go sour, her spouse changed the locks on the place
of business and ended all customer service, thereby making it very difficult to
start up the new business.
[19]
When she started up the
new business, the Appellant's sister had no experience in the field in
question. She therefore relied on the Appellant, who at the time had only her
knowledge and list of former customers that she had kept.
[20]
Since the closure of
the business operated by the Appellant and her ex-spouse, their customers had
lost confidence in them, so the Appellant had to travel a lot more and take a
number of other steps to win back former customers and find new ones. In the
beginning, the Appellant did not receive any wages, although she was reimbursed
for her travel and various other expenses, such as meals.
[21]
The Appellant
acknowledged that she was the directing mind of the company and worked without
compensation; she also stated that she had to work long hours and even occasionally
had to meet with customers outside normal business hours.
[22]
The Appellant sold her
house to her sister; the company's offices were located in this house. The
garage and a large portion of the basement was used to store inventory.
[23]
During the period when
she was the owner, the rent was $600 a month, but she did not collect it
regularly; in fact, the rent was paid several months late in one lump sum.
[24]
To obtain the goods she
needed for her new business, the Appellant personally had to repay a significant
debt totalling $13,500 to a supplier who refused to sell any goods to the new
business until the debt owed by the previous business she had operated with her
spouse, from whom she was now separated, was paid back.
[25]
She therefore borrowed
money from a religious community to pay back the debt in question. She stated
that the debt in question had not been paid in full at the time of the hearing.
Why did her sister's business not pay back this debt? No answer was given.
[26]
She also acknowledged
that she had to guarantee a loan to the company by a local organization, adding
that she had no choice, since it was normal practice for that organization to
require the important employees of any business to which it granted a loan to
step in as guarantors. No explanation was given for this alleged practice,
which is rather peculiar and highly surprising.
[27]
She described the
premises used as an office. She stated that the office had separate telephone
services; she had a private line for the residence and a business line for the
office. Her cellular telephone was used for both private and business purposes.
[28]
The Appellant stated
that she worked between 40 and 60 hours a week. She also mentioned that the
business was changing and growing from year to year, to the point that the
company now had five employees and operated on a year-round basis without
interruption.
[29]
The evidence showed
that she had sold her house to her sister to avoid losing it when she had to
declare bankruptcy. She bought it back from her sister when her sister was
having a difficult time with her own spouse. This facet of the case was touched
on only briefly.
[30]
Chantal Cossette
testified as well. The main thrust of her testimony essentially validated or
confirmed the Appellant’s testimony. Throughout her testimony, she made
comparisons with her work as general manager of a golf course.
[31]
She also stated that
the Appellant, like her, had a lot of freedom in performing her duties and had
to work hard to make the business a success, but it was not necessary or
required to keep a record of her hours worked, since she was paid a weekly
salary.
[32]
She admitted not being
knowledgeable about such goods, adding that her sister, the Appellant, had all
the knowledge required to successfully run her business. The testimonies
disclosed nothing new about the factors taken into account when the
determination now under appeal was made.
[33]
The Appellant and her
sister did not raise any new evidence in their testimony that would lead to the
conclusion that the officer who reviewed the file overlooked any significant
evidence. Their testimony essentially dealt with the facts reproduced in the
Notice of Appeal.
[34]
In light of the
evidence, the assumption that the Appellant was in fact the true owner of the
business could have been substantiated. In light of certain facts, I will limit
myself to this observation.
[35]
First of all, the
Appellant admitted most of the assumptions of fact. She also admitted other
assumptions of fact while reserving the right to add certain elements. These
assumptions are in subparagraphs (e), (g), (h), (k), (m), (r) and (v), which
again read as follows:
[translation]
(e)
the Payor began operating in January 2008;
(admitted)
. . .
(g) the Payor's shareholder received monthly
updates from the bookkeeper regarding the Payor's activities and called the
Appellant regularly to enquire about the status of the line of credit and
follow up on the goods; (admitted)
(h)
the Payor's line of credit was guaranteed by the
shareholder when it totalled $20,000, but when it rose to $30,000 in
May 2008, the Appellant became solidarily liable with the shareholder;
(admitted)
. . .
(k)
the Appellant owed $13,500 to the main supplier
of her former business, Canadian Log Home Supply, which became the Payor's main
supplier; (admitted)
. . .
(m)
the Appellant used a customer list from her
other business and visited them all between January and July 2008, leaving
them the new telephone number of the Payor; (admitted)
. . .
(r)
the Appellant was not compensated for her work
as a travelling representative; (admitted)
. . .
(v)
the Appellant's compensation was based on a
40-hour work week although she worked more; (admitted)
[36]
The evidence showed
that all the facts considered and assumed to be true were entirely well
founded. In other words, the evidence did not introduce or reveal anything that
would discredit the quality of the investigation or the analysis of the facts.
[37]
The parties referred inter
alia to the judgments of the Federal Court of Appeal in Légaré v. Canada
(Minister of National Revenue – M.N.R.), [1999] F.C.J. No. 878, 246
N.R. 176, and Pérusse v. Canada (Minister of National Revenue –
M.N.R.), [2000] F.C.J. 310, 261 N.R. 150.
[38]
I note for example the
following excerpts, first from Légaré, in which Justice Marseau
wrote as follows:
4. The Act requires the Minister to make a determination based on
his own conviction drawn from a review of the file. The wording used introduces
a form of subjective element, and while this has been called a discretionary
power of the Minister, this characterization should not obscure the fact that
the exercise of this power must clearly be completely and exclusively based on
an objective appreciation of known or inferred facts. And the Minister's
determination is subject to review. In fact, the Act confers the power of
review on the Tax Court of Canada on the basis of what is discovered in an
inquiry carried out in the presence of all interested parties. The Court is not
mandated to make the same kind of determination as the Minister and thus cannot
purely and simply substitute its assessment for that of the Minister: that
falls under the Minister's so-called discretionary power. However, the Court
must verify whether the facts inferred or relied on by the Minister are real
and were correctly assessed having regard to the context in which they
occurred, and after doing so, it must decide whether the conclusion with which
the Minister was "satisfied" still seems reasonable.
12 I have just said that in our view, these
facts by themselves do little to explain and support the response of the
Minister or his representative. Under the Unemployment Insurance Act, excepted
employment between related persons is clearly based on the idea that it is
difficult to rely on the statements of interested parties and that the
possibility that jobs may be invented or established with unreal conditions of
employment is too great between people who can so easily act together. And the
purpose of the 1990 exception was simply to reduce the impact of the
presumption of fact by permitting an exception from the penalty (which is only
just) in cases in which the fear of abuse is no longer justified. From this
perspective, after identifying the true nature of the employment, the
importance of the duties and the reasonableness of the compensation, it is
difficult in our view to attach the importance the Minister did to the facts he
relied on to exclude the application of the exception. It is the essential
elements of the employment contract that must be examined to confirm that the
fact the contracting parties were not dealing with each other at arm's length
did not have undue influence on the determination of the terms and conditions
of employment. From this standpoint, the relevance of the facts relied on, even
without further detail, seems very questionable. And there is no need to go any
further. While the facts relied on might legitimately leave sufficient doubt
with respect to an objective basis for the conditions of the applicants'
employment contract, placing these facts in the context of the evidence adduced
before the Tax Court of Canada—evidence which was almost completely accepted by
the Tax Court judge—only serves to highlight the unreasonableness of the
Minister's initial conclusion. It was in fact clearly explained and established
that the applicants' salary was higher than the minimum wage the other
employees received because of the responsibility involved in the duties they
performed and that that was the prevailing salary in the industry for similar
jobs; it was clearly explained and established that the shareholders had
decided to reduce the salary normally due to them to provide for the financial
support and development of the business; it was clearly explained and proven
that a tornado had destroyed a large number of the buildings of the business in
1994, which led to a period of confusion, and then reconstruction and financial
difficulties; last, it was explained and proven that the presence of the
children of one of the applicants on the land around the greenhouses was very
unlikely to affect the performance of her duties and the provision of the
services she agreed to provide.
[39]
In Pérusse, Justice
Marceau wrote the following:
In fact, the judge was acting in the
manner apparently prescribed by several previous decisions. However, in a
recent judgment this Court undertook to reject that approach, and I take the
liberty of citing what I then wrote in this connection in the reasons submitted
for the Court:
·
The
Act requires the Minister to make a determination based on his own conviction
drawn from a review of the file. The wording used introduces a form of
subjective element, and while this has been called a discretionary power of the
Minister, this characterization should not obscure the fact that the exercise
of this power must clearly be completely and exclusively based on an objective
appreciation of known or inferred facts. And the Minister's determination is
subject to review. In fact, the Act confers the power of review on the Tax
Court of Canada on the basis of what is discovered in an inquiry carried out in
the presence of all interested parties. The Court is not mandated to make the
same kind of determination as the Minister and thus cannot purely and simply
substitute its assessment for that of the Minister: that falls under the
Minister's so-called discretionary power. However, the Court must verify
whether the facts inferred or relied on by the Minister are real and were
correctly assessed having regard to the context in which they occurred, and
after doing so, it must decide whether the conclusion with which the Minister
was "satisfied" still seems reasonable.
15 The function of an appellate
judge is thus not simply to consider whether the Minister was right in
concluding as he did based on the factual information which Commission
inspectors were able to obtain and the interpretation he or his officers may
have given to it. The
judge's function is to investigate all the facts with the parties and witnesses
called to testify under oath for the first time and to consider whether the
Minister's conclusion, in this new light, still seems "reasonable"
(the word used by Parliament). The Act requires the judge to show some
deference towards the Minister's initial assessment and, as I was saying,
directs him not simply to substitute his own opinion for that of the Minister
when there are no new facts and there is nothing to indicate that the known
facts were misunderstood. However, simply referring to the Minister's
discretion is misleading.
[40]
The case concerns a
period during which a new business was founded. The key persons responsible for
starting up this new business are the Appellant, who did the work, and her
sister, who was the sole shareholder of the new company. One had the knowledge,
expertise and skill in the relevant business field; the other, despite her
limitations, was more able to pay and was in a better financial situation. To
this point, there is not much that is unusual about this scenario, which seems
to be an entirely reasonable and plausible arm’s length relationship.
[41]
It is in the business’s
operations that things start to look odd. In this regard, it is clear that the
business would have been run in a totally different manner if the Appellant and
her sister had been dealing at arm’s length.
[42]
Indeed, a third party
would never have agreed to work such long and irregular hours without
compensation, act as guarantor, take on full and sole responsibility for a
large loan, rent out offices and cover the rent for a long period while she was
in a difficult financial situation and so without means that she had to cash in
her life insurance policy.
[43]
The court hearing, in
which all parties had an opportunity to speak and thoroughly explain the facts,
conditions and circumstances surrounding the dispute, did not disclose any new
evidence or discredit the facts on which the impugned determination was based.
[44]
Considering the new
light shed on this case by the trial, I hold that the Minister’s determination
is still reasonable. The burden of proof was on the Appellant, who failed to produce
any evidence discrediting the quality of the investigation and analysis work
and the reasonable determination resulting from that work. The appeal is
therefore dismissed.
[45]
For these reasons, the
appeal must be dismissed.
Signed at Ottawa,
Canada, on this 17th day of October 2011.
"Alain Tardif"
Translation certified true
on this 28th day of November 2011.
Michael Palles, Translator / Language Adviser
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