Citation: 2011 TCC 487
Date: 20111018
Docket: 2010‑1263(EI)
BETWEEN:
DIANE LAMY GAUTHIER,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
9146-9379 QUÉBEC INC.,
Intervener.
REASONS FOR JUDGMENT
Tardif J.
[1]
The issue to be decided
is whether the Appellant, Diane Lamy Gauthier, was engaged in
insurable employment from April 3, 2009, to September 14, 2009, for 9146-9379
Québec Inc. (the "Payor"), a corporation whose sole director and shareholder
was her spouse, Louis Gauthier.
[2]
Upon investigation, the
respondent found that the employment in question was not insurable because of
the exclusion provided for under the Employment Insurance Act (the
"Act").
[3]
In rendering his
decision, the respondent relied on the assumptions of fact set out at subparagraphs 5(a),
(b) and (c) and 6(a) through (y) inclusively of the Reply to the Notice of
Appeal and the Reply to the Notice of Intervention:
[translation]
5. The Appellant and the Payor are related
persons with the meaning of the Income Tax Act because
(a)
the Payor's sole shareholder was Louis Gauthier;
(b)
the Appellant has for the last 32 years
been the lawful spouse of the Payor's sole shareholder;
(c)
the Appellant is related by marriage to a person
who controls the Payor;
6. 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. 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:
(a)
the Payor was incorporated on September 22, 1994;
(b)
the Payor specializes in the sharpening and sale
of blades of all types;
(c)
the Payor's activities are carried out year
round;
(d)
the Payor is known by the name of Centre d'aiguisage
professionnel;
(e)
the Payor's clientele consists of regular
customers, such as woodworkers or door and window companies, who require the
Payor's services on a weekly basis, and customers who stop by the shop to have
their tools or skates sharpened;
(f)
the Payor has nearly a hundred regular customers
and does business with five or six suppliers;
(g)
the Payor's income for the fiscal year ending
December 31, 2008, totalled $231,506;
(h)
the Payor hired five employees during the
period at issue, namely, the shareholder, the Appellant, their son and two
other employees at arm's length from the Payor;
(i)
the Appellant had a banking power of attorney
requiring only one signature to act on behalf of the Payor;
(j)
the Appellant had been taking care of the
Payor's bookkeeping since the Payor was incorporated in 1994 and had not
received any compensation for doing so;
(k)
the Appellant has been working for the
Shawinigan Tax Centre on a casual basis for several years and therefore
qualifies for Employment Insurance benefits each year;
(l)
the year of the period at issue, the Appellant
had not accumulated enough hours to qualify for Employment Insurance benefits;
(m) the Appellant therefore asked the Payor to compensate her, starting April 3, 2009, for the bookkeeping work she
had been doing for the company since 1994 without compensation;
(n)
the Appellant took care of the accounts payable
and receivable, the general ledger, the cash receipts and disbursements
journal, bank deposits, invoicing, goods and services price checks and the
documentation for the accountant who prepares the annual financial statements;
(o)
the Appellant did not have a set work schedule;
(p)
the Appellant did not keep track of the hours
she worked;
(q)
the Appellant was paid an hourly wage of $20;
(r)
according to the payroll records, the Appellant
worked four hours a week the first three weeks of the month and six hours a
week the last week of the month;
(s)
the Appellant was paid in cash;
(t)
on September 14, 2009, the Appellant asked
the Payor to give her a Record of Employment so that she could make a claim for
Employment Insurance benefits, having accumulated enough hours of work;
(u)
the Payor did not pay the Appellant her 4% when
it issued the Record of Employment;
(v)
a worker at arm's length would not have agreed
to work for free;
(w) on September 15, 2009, the Payor gave the Appellant a Record of
Employment stating April 3, 2009, as first day worked and
September 14, 2009, as last day of work;
(x)
the Appellant's period of employment does not
correspond to the Payor's real needs, since her bookkeeping work is essential
to the smooth operation of Payor;
(y)
both before and after she was hired, the
Appellant performed bookkeeping work for the Payor, without compensation;
[4]
The facts at
subparagraphs 5(a), (b) and (c) and 6(b), (c), (d), (f), (g), (h) (i), (j), (q),
(r), (t), (u) and (w) are admitted. As regards the facts at subparagraphs 6(a),
(e), (k), (n), (o), (p) and (s), they are also admitted; however, the Appellant
and the Intervener reserve the right to add clarifications. As regards the
remaining subparagraphs, namely, 6(l), (m), (v), (x) and (y), the facts set out
therein are denied.
[5]
The exclusion relied on
by the Respondent in his decision is provided for at paragraph 5(2)(i)
of the 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.
[6]
However, in this same
section, Parliament provided that the exclusion could be set aside if parties
dealing with each other at arm's length would have entered into a substantially
similar contract of employment.
[7]
In other words,
Parliament has granted the Respondent discretion to assess all the facts
relevant to the work at issue, including compensation, duration and conditions,
and determine whether or not the employment is insurable. The statutory
provisions in question read as follows:
5(3) Arm's length dealing – 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;
(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.
[8]
A number of Federal
Court of Appeal decisions have noted that the Court cannot quash a
discretionary decision unless it is proved on a balance of probabilities that the
exercise of discretion was tainted by an error or a breach, or that it was
simply unreasonable because the decision maker either failed to consider
relevant evidence or considered evidence that was not relevant.
[9]
If the Minister
correctly and reasonably assessed all the relevant facts, the Court cannot
quash his decision, even if the Court could have arrived at a different
conclusion. The analysis must concern not only the work having led to the
determination under appeal, but also all the facts brought to light at trial; unlike
the investigation that preceded the determination, a court hearing provides a
body of a more comprehensive and nuanced body of evidence, the witness having
prepared themselves to present all of the facts they deem to be significant.
[10]
On this point, the two
judgements most often cited, namely, 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. No. 310,
261 N.R. 150, have the following to say. In Légaré, Justice Marceau
wrote the following:
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, [sic]
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.
[11]
In Pérusse,
Justice Marceau wrote the following:
14 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.
[12]
At the trial, the key figures,
namely, the employee and the employer's agent, were present and testified. They
validate the vast majority, if not all, of the assumptions of fact.
[13]
In essence, the question
that the Court must ask is the following: Were the facts that were taken into
account and relied upon in the decision under appeal real, correctly analyzed
and judiciously considered, such that it could be concluded that, in the
circumstances, the decision was appropriate and reasonable in light of the
assessment of the evidence submitted to the Court? If so, this Court has no
jurisdiction to vary the determination under appeal.
[14]
The evidence showed
that the Appellant had worked for her spouse's sharpening business on a
volunteer basis since the 1990s.
[15]
In addition to her volunteer
work for her spouse's business, the Appellant worked each year at the Taxation
Data Centre for periods varying from one year to the next. She generally worked
there long enough to be entitled to receive Employment Insurance benefits.
[16]
The Appellant stated
that the work performed on a volunteer basis for her spouse's business was
insignificant, usually four hours per week or six hours in the last week of the
month when closing the entries. The Appellant stated that her spouse had
previously hired someone to look after the administration and bookkeeping but
had concluded that there was not enough work to justify it.
[17]
The Appellant explained
that she performed all of the administrative and bookkeeping duties. He spouse
stated that he knew nothing about these duties, did not like doing them, hated
anything to do with paperwork and trusted his spouse completely, thus
confirming the important role she played.
[18]
The Appellant, her
spouse and Ms. Patry, the appeals officer, gave very different estimates
of the number of hours worked per week. The Appellant reported four hours
worked per week, except for the last week of the month, when she instead worked
six hours.
[19]
On this point, Mr. Gauthier
stated that he found that his spouse's estimates were often too low, given that
she did all of the administrative and bookkeeping work, and he repeated that he
took no interest in this aspect of his business. The appeals officer, however, held
that the Appellant must have been working a minimum of 10 hours per week.
[20]
As regards
compensation, the work was always done on a volunteer basis until the Appellant
expressed her frustration and dissatisfaction. Having been deeply affected by
the death of her mother, whom she supported for a long time before her death,
she allegedly became aware of how important her contribution to her spouse's
business was. She then began to feel increasingly uncomfortable with the fact
that she was not being compensated and decided that this was unfair. This
allegedly put considerable strain on the couple's relationship.
[21]
All of these events
caused her a variety of problems, among others, a certain degree of frustration
regarding the recognition of her work for her spouse. She submitted that from
that moment on, she had insisted on being compensated.
[22]
She therefore began
being paid for the work she had previously always done for free.
[23]
She stated that her
hourly wage, set at $20 an hour, was paid to her in cash for a certain period,
then by cheque, after an audit was done.
[24]
The Appellant also stated
that Employment Insurance benefits was an ongoing topic of discussion with
colleagues at the Taxation Data Centre who were in the same situation. She
added that many of them also had two jobs.
[25]
In 2009, for reasons
unknown, the Appellant was laid off by the Taxation Data Centre. The Record of
Employment issued to her reported 489 hours worked. However, this was not
enough to entitle her to Employment Insurance benefits.
[26]
She therefore acted
very quickly to obtain a second Record of Employment, this one attesting to
110 paid hours worked for her spouse's business, thus entitling her to
benefits. The total number of hours worked barely exceeded the minimum required
to be entitled to Employment Insurance benefits.
[27]
According to the
Appellant, the second Record of Employment reflected the hours she had already
worked and been paid for, given that the change in her work relationship had
already taken place. In other words, the Appellant had already worked these
hours and had been paid for them in cash.
Ms. Patry
[28]
Ms. Patry, the
appeals officer responsible for handling the Appellant's appeal, explained that
she carried out her investigation through telephone conversations with the
Appellant and her spouse. She went over the usual questions and at the end of
the conversations asked if there was anything to add. The Appellant never
mentioned the reasons behind the change regarding compensation. Only her spouse
referred to this issue, albeit vaguely.
[29]
Among other things,
Ms. Patry discovered discrepancies in the number of hours worked, first on
a volunteer basis and then for cash. She also considered the number of hours
and the importance of the duties performed.
[30]
She also noted in her
report that, coincidently, the Appellant started being paid in cash for her
work around the very same time the second Record of Employment was filed, in
the days following the response to the effect that the Appellant had not worked
enough hours at the Taxation Data Center
to be entitled to Employment Insurance benefits.
Analysis
[31]
The Appellant is a
well-organized and disciplined person who clearly has above-average knowledge
of the qualification requirements for Employment Insurance benefits.
[32]
She worked in the
Taxation Data Centre, a place where there seems to be a keen interest in the
question of the insurability of jobs performed by casual workers.
[33]
Surprisingly, when she
was asked specific questions about essential facts regarding such important
subjects as her duties and the number of hours worked, the Appellant became
extremely vague and evasive. Her hesitations stand in stark contrast to other
portions of her testimony, which were very specific.
[34]
I attach very little
credibility to the Appellant's explanations regarding the importance of her
duties to her spouse's business and find her not to be credible on the number
of hours worked to carry out the duties she was responsible for. The number of
hours worked is a very important issue in this case, since the Act allows
individuals to work a certain number of hours without this affecting their
Employment Insurance benefits. However, the Appellant has been working at the
Taxation Data Centre for many years, on and off, on a casual basis, which no
doubt allowed her to receive Employment Insurance benefits.
[35]
For this reason, the
Appellant deliberately tried to play down the importance of her work, since she
appears to have received Employment Insurance benefits during the years prior
to the period at issue and no doubt expects to be entitled to them again in the
future.
[36]
Clearly, the reason
given to explain why she started being paid, on the advice of an expert, to
smooth over her business relationship with her spouse, elicits sympathy.
[37]
This is the Appellant's
basic argument, with her counsel even referring to this explanation as the [translation] "heart of the
matter". However, I find it totally implausible that the Appellant failed
to raise this in her conversation with the appeals officer, particularly since
the Appellant had specialized knowledge of the conditions to be met to receive
Employment Insurance benefits.
[38]
The appeals officer did
indeed note this fact, the information coming however not from the Appellant,
but from her spouse. The officer made specific mention of this in her
investigation report.
[39]
The Appellant
emphasizes this aspect, concluding that this is a significant and determinative
error in the handling of her appeal. She states that the appeals officer's
finding is essentially based on errors and wholly invalid speculation.
[40]
The appeals officer's testimony
demonstrated showed that she had uncovered a certain number of inconsistencies
in the explanations, particularly regarding the number of hours worked on a
volunteer basis for a very long period, then paid in cash at the time of the
period audited and by cheque after the audit.
[41]
Apart from the changes
in how the work was compensated, she also noted discrepancies between the
number of hours reported by the Appellant and her spouse's estimate. The
difference between the two estimates may seem marginal, but there is
nevertheless a difference, up to double the amount.
[42]
If the work performed
by the Appellant on a volunteer basis was really so insignificant, then why did
she have to seek the help of a psychologist to deal with the deep frustration
that was jeopardizing her relationship with her spouse? It would be a
completely different situation if the Appellant was working much more, to the
point of actually being responsible for the company's administration and
bookkeeping, an important, even essential, responsibility in the management of
a company. It is easy to imagine that such a contribution could lead to deep
frustration if everything were done for free. Thus, everything turns on the
importance of the work.
[43]
The company operated
year round and engaged in a wide variety of activities clearly requiring more
than four hours of bookkeeping and administrative work a week.
[44]
The appeals officer
also expressed some scepticism regarding the importance of the Appellant's
work. This scepticism is completely legitimate and appropriate, not to mention
justified by the explanation of the Appellant herself and validated by the
testimony of spouse.
[45]
Indeed, the appeals
officer's impression was confirmed by the Appellant herself when she stated
that the company had hired a secretary for a time but had to let her go because
there was not enough work.
[46]
This alone illustrates
rather eloquently that the administrative work and bookkeeping work evidently
took more than four hours a week. Why would a company hire a secretary for a
task requiring only four hours of work a week? Granted, the Appellant might be
efficient and highly experienced, but to go from this to concluding that hiring
someone was justified is quite a stretch. There is a major difference between
four hours of work and a full-time workload of 30 hours a week; the truth
probably lies somewhere in between.
[47]
Moreover, the evidence
showed that the Appellant could be expected to take calls, help customers at
the counter, make bookkeeping entries, write up monthly reports, prepare all
the documentation and year-end information so that the accountant could close
the accounts, look after the debts, do the accounts, handle the payroll, check
invoices against orders, make sure administrative documents were in order, pay
certain employees in cash, including her son and herself for a certain period,
and so on.
[48]
The Appellant stated
that Ms. Patry made a fundamental error because she did not expressly
mention that she began being compensated for the work previously done on a
volunteer basis after she started seeing a psychologist.
[49]
However, the Appellant
never gave this explanation at the interview, whereas it was given a great deal
of attention in her testimony. Furthermore, the appeals officer did in fact
state that Mr. Gauthier had mentioned this explanation but had not given
it the same significance as the Appellant did at the hearing.
[50]
The Appellant tried to
put the blame on the appeals officer, stating that the question had not been
raised. This is a fair observation, since the appeals officer is in fact
supposed to ask all relevant questions in order to make an accurate analysis.
However, this factor is a highly individual and personal one.
[51]
Moreover, the Appellant
became withdrawn several times, indicating her unease with personal questions, while
other times she jumped at the chance to level some very harsh criticism against
her spouse.
[52]
To conclude on this
issue, I find that the criticism of the appeals officer is baseless,
particularly since the Appellant has and had a solid knowledge of the
conditions that had to be met to be entitled to Employment Insurance benefits. She
could have given a full, highly detailed explanation in confidence, a telephone
conversation obviously being a more appropriate forum than a public trial,
where certain unflattering details regarding her spouse were brought out.
[53]
The Appellant also
placed a lot of emphasis on consistency, arguing that the appeals officer was
unable to cast doubts on certain written documents prepared by the employer.
[54]
The Appellant's
argument could have succeeded if the documents had been prepared by a
disinterested third party. However, the Appellant herself had clearly prepared
the documents in question, so her argument does not have the weight she ascribes
to it.
[55]
In light of the
evidence, I have found nothing that might discredit the Respondent's
investigation and analysis, which were validated by the evidence submitted in
court. I therefore find the Respondent's determination to be entirely reasonable
and consistent with the facts and explanations compiled in the course of the
investigation.
[56]
For all these reasons,
the appeal is dismissed.
Signed at Ottawa, Canada,
on this 18th day of October 2011.
"Alain Tardif"
Translation certified true
on this 25th day of November 2011.
Michael Palles, Translator / Language Adviser
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