Citation: 2010 TCC 580
Date: 20101109
Docket: 2010-334(EI)
BETWEEN:
MARCEL LAVOIE,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
LES SERVICES VCN LTÉE,
Intervener.
Docket: 2010-526(EI)
BETWEEN:
LES SERVICES VCN LTÉE,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
MARCEL LAVOIE,
Intervener.
[OFFICIAL
ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Bédard J.
[1]
These are appeals heard
on common evidence. The appellants are appealing from the decision rendered by
the Minister of National Revenue (the Minister) under the Employment
Insurance Act (the Act). The Minister determined that appellant Lavoie did
not hold insurable employment while he worked for appellant Services VCN,
finding that his employment was excluded because he and appellant Services VCN
would not have entered into a similar contract of employment if they had been
dealing with each other at arm's length. The relevant periods were
February 28, 2005, to December 9, 2005, and January 30,
2006, to November 3, 2006.
[2]
In rendering his
decisions, the Minister relied on the following assumptions of fact, set out in
paragraph 6.1 of the amended Reply to the Notice of Appeal in each case.
[translation]
i.
the payer was incorporated on June 14,
2000;
ii.
the payer's activities involve operating a
welding and vulcanization workshop;
iii.
appellant Lavoie was hired by the payer as a
manager;
iv.
appellant Lavoie had a great deal of experience
in this type of work, having carried out similar duties from July 30,
1975, to December 31, 2004, for Brémo inc., of which appellant Lavoie,
Marc André Allard and André Morin were shareholders, in the case of
Mr. Allard and Mr. Morin through their respective corporations;
v.
in 2004, following internal and union problems,
all the shareholders decided to transfer appellant Lavoie's position and all
the operations he was responsible for from Brémo inc. to the payer;
vi.
when he was laid off in December 2004
because his position had been abolished, appellant Lavoie received severance
pay of $53,279, disqualifying him from receiving employment insurance benefits
from January 2, 2005, to November 13, 2005;
vii.
in July 2004, appellant Lavoie's spouse,
Ghislaine Lavoie, acquired 20.2% of the shares issued by the payer;
viii.
9152‑2334 Québec inc. was incorporated on
February 9, 2005, its sole shareholder being appellant Lavoie;
ix.
in February 2005, through his company 9152‑2334
Québec inc., appellant Lavoie acquired 19% of the payer's issued shares;
x.
since May 1, 2007, appellant Lavoie has
owned 100% of the payer's shares;
xi.
the minutes of the June 10, 2000, meeting,
include a confirmation of Laurent Lapierre's being employed as welding foreman;
xii.
on May 22, 2005, Mr. Lapierre received
a $1,000 bonus for his five years of service for the payer;
xiii.
appellant Lavoie's primary duties made him responsible
for preparing bids, making expense and purchasing reports, managing and running
errands, making purchases, hiring staff, supervising and training employees,
meeting with clients and checking materials; in short, every decision had to go
through him;
xiv.
appellant Lavoie worked from the payer's place
of business and his home and on vulcanization work sites;
xv.
appellant Lavoie decided which jobs he would bid
for and how much money he would ask for; he also decided on which material and
workers to use and when jobs would be carried out;
xvi.
it was possible for him to accumulate tasks and
to do them when they were ready;
xvii.
appellant Lavoie did not charge for all the
hours he worked; he himself decided which hours he would bill the payer for,
especially during the second period of work, during which he would bill for
four to seven hours a week;
xviii.
the documents on file show that in
May 2006, appellant Lavoie went on holiday to California for the whole
month and billed for 87 hours of work, while during the rest of the year, he
would bill for between 4 and 35 hours a month, except for the last month, where
he billed for 119 hours;
xix.
in the first period of employment, the
employment contract stipulated that appellant Lavoie had to work 40 hours
a week, which is what he billed the payer;
xx.
all the other employees had to complete a time
sheet;
xxi.
in July 2005, after four months' work,
appellant Lavoie received a $10,000 bonus, whereas Mr. Lapierre received
only $1,000 after five years of service;
xxii.
appellant Lavoie used his own laptop computer to
carry out his duties; however, the payer provided him with a cellular
telephone, a computer facsimile machine, a vehicle, and credit cards for the
purchase of materials and gasoline and meal expenses;
xxiii.
an analysis of the documents on file revealed
that appellant Lavoie covered the same distance in 2006 as he did in 2005, even
though he worked full time in 2005;
xxiv.
appellant Lavoie stated in his statutory
declaration dated May 16, 2008, that when he was able to draw employment
insurance benefits, he no longer billed for 40 hours, but only the hours
that would not prevent him from being eligible for employment insurance;
xxv.
in his declaration to Human Resources and Skills
Development Canada (HRSDC) on May 6, 2008, Mario Paquin stated that when
the partied signed the employment contract, he and appellant Lavoie agreed that
this job was to help appellant Lavoie out while he was waiting to qualify for employment
insurance benefits;
xxvi.
the payer's hiring of appellant Lavoie was not
based on the payer's needs but on the weeks for which appellant Lavoie could
not be paid employment insurance benefits;
xxvii.
appellant Lavoie set his own employment
conditions, and he did so in his sole discretion;
xxviii.
appellant Lavoie was the only person with
experience in this type of work;
xxix.
appellant Lavoie himself determined his periods
of employment and his vacation; he was not replaced;
xxx.
according to Mr. Paquin's and appellant
Lavoie's declarations and the documents on file, it has been established that
appellant Lavoie's duration of employment was based on appellant Lavoie's
employment insurance benefit periods and not the payer's needs;
xxxi.
appellant Lavoie and the payer therefore acted
in concert without separate interests;
xxxii.
in July 2005, the payer paid appellant
Lavoie $14,000, that is a salary of $4,000 and a bonus of $10,000, after only
four months of work;
xxxiii.
in 2006, it was appellant Lavoie who decided his
salary by billing only the maximum number of hours necessary to not negatively
affect the total of his employment insurance benefits;
xxxiv.
appellant Lavoie's earnings do not correspond to
what a person dealing at arm's length would have received;
xxxv.
the number of hours billed is less than the work
carried out in 2006;
[3]
The evidence shows,
among other things, that
a.
appellant Lavoie was
appellant Services VCN's key employee during the relevant periods;
b.
in December 2005,
appellant Services VCN laid off appellant Lavoie, its key employee, because of
a shortage of work. It should be noted that appellant Lavoie was the only
employee laid off by appellant Services VCN because of a shortage of work;
c.
in 2005 and 2006,
appellant Services VCN's sales, the salary paid to appellant Lavoie, appellant
Lavoie's hours of employment appearing in appellant Services VCN's payroll
record and appellant Lavoie's mileage during his employment were as follows:
|
Month
|
Sales
|
Salary Paid to Marcel
Lavoie
|
Hours of Employment
|
Mileage for Business
|
|
Welding
|
Vulcanization
|
|
|
|
|
|
|
|
|
January 2005
|
$38,118
|
$88,241
|
None
|
None
|
Not provided
|
|
February
|
$53,880
|
$40,635
|
$1,000
|
40
|
Not provided
|
|
March
|
$31,707
|
$27,436
|
$4,000
|
160
|
467
|
|
April
|
$38,065
|
$23,717
|
$4,000
|
160
|
1,552
|
|
May
|
$31,387
|
$20,318
|
$5,000
|
200
|
591
|
|
June
|
$21,068
|
$20,825
|
$4,000
|
160
|
627
|
|
July
|
$26,982
|
$7,676
|
$14,000
|
160
|
441
|
|
August
|
$54,775
|
$33,587
|
$5,000
|
200
|
2,167
|
|
September
|
$22,754
|
$33,726
|
$4,000
|
160
|
794
|
|
October
|
$29,097
|
$22,816
|
$5,000
|
200
|
1,189
|
|
November
|
$58,920
|
$13,871
|
$4,000
|
160
|
617
|
|
December
|
$28,882
|
$4,877
|
$6,121
|
40
|
1,264
|
|
|
|
|
|
|
|
|
Total
|
$56,121
|
1,640
|
9,709
|
|
Continuation
of monthly sales:
|
|
|
|
|
|
|
|
|
|
|
|
January 2006
|
$32,469
|
$814
|
$100
|
4
|
Not provided
|
|
February
|
$18,053
|
$1,585
|
$650
|
26
|
1,098
|
|
March
|
$17,441
|
$1,588
|
$700
|
28
|
1,065
|
|
April
|
$6,365
|
None
|
$1,062
|
45.5
|
1,281
|
|
May
|
$19,510
|
$34,106
|
$2,175
|
87
|
686
|
|
June
|
$27,081
|
None
|
$700
|
28
|
514
|
|
July
|
$33,733
|
None
|
$875
|
35
|
410
|
|
August
|
$27,059
|
$12,639
|
$700
|
28
|
633
|
|
September
|
$33,640
|
$871
|
$700
|
28
|
627
|
|
October
|
$34,080
|
$18,038
|
$2,975
|
119
|
937
|
|
|
|
|
|
|
|
|
Total
|
$10,637
|
428.5
|
7,251
|
d.
throughout 2006,
appellant Lavoie received employment insurance benefits;
e.
in May 2006, while
appellant Lavoie was on vacation in California, appellant Services VCN's
payroll record indicated that appellant Lavoie worked 87 hours;
f.
in his statutory
declaration (see Exhibit I‑1, Tab 7, page 3), appellant
Lavoie stated, among other things, as follows:
[translation]
Then, while I was on unemployment, I simply had to report less than
40 hours a week to continue to receive unemployment.
g.
moreover, in his
statutory declaration (see Exhibit I‑1, Tab 8, page 2),
Mr. Paquin, an officer of appellant Services VCN, stated as follows:
[translation]
When I signed the two terminations of employment, it was kind of a
work shortage, but I understand that it was planned when the work would reduce
and based on when Mr. Lavoie was planning to go on vacation. (Emphasis
added.)
The law
[4]
Paragraph 5(2)(i)
of the Act provides that insurable employment does not include employment if
the employer and employee are not dealing with each other at arm’s length
unless it is established that non-related persons would have entered into a
substantially similar contract of employment (see paragraph 5(3)(b)
of the Act). The question of whether or not persons are dealing with each other
at arm’s length shall be determined in accordance with the Income Tax Act
(the ITA) (see paragraph 5(3)(a) of the Act).
[5]
Paragraph 251(1)(c)
of the ITA provides that persons not related to each other may not be dealing
with other at arm's length at a particular time if particular facts demonstrate
such a relationship. The essence of Parrill v. Canada (Minister of National
Revenue - M.N.R.), [1996] T.C.J. No. 1680 (QL), is that "[p]arties will not be dealing with each other
at arm's length if there is the existence of a common mind which directs the
bargaining for both parties to a transaction or that the parties to a
transaction are acting in concert without separate interests or that either
party to a transaction did or had the power to influence or exert control over
the other and that the dealings of the parties are not consistent with the
object and spirit of the provisions of the law and they do not demonstrate a
fair participation in the ordinary operation of the economic forces of the
market place".
Analysis and conclusion
[6]
It should be recalled
that the respondent has determined that this employment was not insurable under
paragraph 5(2)(i) and subsection 5(3) of the Act because he was
satisfied that it was not reasonable to conclude, having regard to all the
circumstances, that appellant Lavoie and the payer would have entered into a
substantially similar contract of employment if they had been dealing with each
other at arm's length.
[7]
The Federal Court of
Appeal has repeatedly defined the role conferred on Tax Court of Canada judges
by the Act. That role does not permit the judge to substitute his or her
discretion for the Minister's, but does involve an obligation to "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, . . . decide whether the conclusion with which the
Minister was "satisfied" still seems reasonable" (see Légaré
v. Canada (Minister of National Revenue - M.N.R.), [1999] F.C.J. No. 878
(QL), at paragraph 4).
[8]
In other words, before
deciding whether the Minister's conclusion still seems reasonable to me, I must
verify, in light of the evidence before me, whether the Minister's allegations
are in fact correct, having regard to the factors set out in paragraph 5(3)(b)
of the Act. At issue, then, is whether appellant Lavoie and the payer would
have entered into a substantially similar contract of employment if they had
been dealing with each other at arm's length.
[9]
Appellant Lavoie had
the burden of proving that the Minister did not exercise his discretion in
accordance with the principles that apply in this regard, essentially, that the
Minister did not examine all of the relevant facts or failed to have regard to
all of the facts that were relevant.
[10]
In this case, appellant
Services VCN's payroll records indicate that appellant Lavoie worked
428.5 hours in 2006. In my opinion, the number of hours worked by
appellant Lavoie in 2006 is much higher than that indicated in appellant Services
VCN's payroll records. In fact, presuming that appellant Lavoie drove an
average 100 kilometres an hour in his vehicle, his travel in 2006 would
have required 725 hours alone (7,250 kilometres ÷ 100). To these
725 hours spent on travel, one must add the hours spent on meetings with
the clients to whom he travelled and the time he spent on the other tasks he
was responsible for, namely, taking inventory, supervising other employees and
preparing bids. In that respect, I note that the evidence clearly establishes
that appellant Lavoie was appellant Services VCN's key employee during the
relevant periods. In other words, I am satisfied that appellant Lavoie simply
continued working full-time for appellant Services VCN in 2006 and that the
reason given by appellant Services VCN to lay off appellant Lavoie in
December 2006 (namely, a work shortage) was false. These factors indicate
that the two appellants acted in concert to falsify appellant Lavoie's length
of employment. Appellant Lavoie and appellant Services VCN (of which appellant
Lavoie and his spouse were shareholders during the relevant periods) simply
cooked up an arrangement the goal of which was to have the government pay part
of appellant Lavoie's salary. In other words, I am satisfied that appellant
Lavoie and appellant Services VCN cheated by colluding to have the employment
insurance program bear the cost of the services performed by appellant Lavoie for
appellant Services VCN at no charge.
[11]
In my opinion, there is
no need to analyze the other evidence submitted since the evidence that I have analyzed
easily supports my finding that appellant Lavoie and appellant Services VCN
were related persons under paragraph 251(1)(c) of the ITA, in that
they acted in concert without separate interests.
[12]
Further, in my view, no
person unrelated to appellant Services VCN would have agreed to have worked so
many hours unpaid. On that basis alone, the respondent's decision seems
reasonable.
[13]
For these reasons, the
appeal is dismissed.
Signed at Ottawa,
Canada, this 9th day of November 2010.
"Paul Bédard"
Translation
certified true
on this 30th day
of December 2010
Johanna Kratz,
Translator
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