Citation: 2007TCC734
Date: 20071214
Docket: 2007-1769(EI)
2007-1770(CPP)
BETWEEN:
TRUNG THANH MAI op TTT TRANSPORTATION,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Webb, J.
[1]
The issue in this case is
whether Dung Le was employed by the Appellant in pensionable employment for the
purposes of the Canada Pension Plan ("CPP") and in insurable
employment for the purposes of the Employment Insurance Act ("EI")
during the period from March 1, 2004 to February 28, 2005 and whether Hai Son
Le was employed by the Appellant in pensionable employment for the purposes of
the CPP and in insurable employment for the purposes of the EI during the
period from February 1, 2005 to February 28, 2006. The Respondent had
determined that Dung Le and Hai Son Le were not employed by the Appellant in
pensionable employment for the purposes of the CPP and were not employed in
insurable employment for the purposes of the EI during the periods referred to
above.
[2]
Dung Le is the Appellant’s aunt.
She is a sister of Hai Son Le who, therefore, is the Appellant's uncle.
[3]
The Appellant operated a simple trucking
business. He operated one truck which he would use to transport mushrooms for Champs
Mushrooms Inc. from Abbotsford, British
Columbia to its customers in the states
of Washington and Oregon. Occasionally on some trips he would pick up loads in
the United States that were to be delivered to Champs Mushrooms Inc. in Abbotsford, British
Columbia.
[4]
Only the Appellant testified
during the hearing. Neither one of the alleged workers testified. The Appellant's
testimony was that Dung Le would look after the paperwork for his business. He
also testified that she would take information to the accountant to have the GST
returns prepared. She would also collect all the receipts from the trips.
However, the receipts would be minimal, as the only items that would be
purchased would be gas, meals and occasionally repairs to the vehicle.
[5]
The Appellant indicated that he
paid Dung Le $1,250 per month for her services. He indicated that, in his
estimation, it would take her approximately one to two hours per day to
complete the paperwork or approximately 5 to 10 hours per week, which would be
approximately 20 to 40 hours per month.
[6]
Counsel for the Respondent introduced,
as an exhibit, copies of two invoices rendered by the Appellant to Champs Mushrooms
Inc. One invoice, which was invoice number 73, shows a billing date of November
23 to December 6, 2005. This invoice shows a trip on November 25, 2005, a trip
on November 26, 2005, a trip on November 11, 2005 and two items identified as
back hauled. For each trip, other than the back hauled, there are two amounts
shown. No explanation was provided with respect to why there were two separate dollar
amounts for each trip. For invoice number 73, there are 12 line items, not
including the total at the bottom and not including the GST and PST lines both
of which showed “0”.
[7]
Invoice number 74 (which presumably
was the next one issued) shows a billing date of December 28, 2005 to January
3, 2006. Two trips are shown on this invoice. One on December 28, 2005 and
another on January 2, 2006. There is also an item identified as back hauled 21 pallets
- terminal freezer. There are also two dollar amounts for each trip (other than
the back haul) and no explanation was provided to explain why there were two dollar
amounts for each trip. The total number of line items in this invoice is eight,
not including the line for the total amount and not including the lines for GST
and PST for which the amounts were shown as “0”.
[8]
The Appellant also referred to
trip records that were prepared by Dung Le but no copies of any trip records
were introduced.
[9]
It does not seem reasonable that
the completion of these items of paperwork would take 20 to 40 hours per month.
[10] The Appellant indicated that Hai Son Le was a
co-driver. He indicated that they would go together on the trips, and that Hai
Son Le would drive the truck back to Abbotsford, British Columbia. The Appellant also indicated that
Hai Son Le would clean the truck inside and out. The Appellant indicated that
it would take Hai Son Le about two and a half hours to wash the truck and about
30 to 45 minutes for him to clean the trailer. This would be done a couple of
times each week. Hai Son Le was paid $3,000 per month, regardless of the number
of trips that the Appellant completed.
[11] The Appellant testified that Hai Son Le and Dung Le
were paid in cash, because he did not want to incur the service charges that
would have been imposed by the bank if he would have paid them by cheque.
[12] For the purposes of the CPP, pensionable employment
is defined as follows:
6. (1)
Pensionable employment is
(a) employment
in Canada that is not excepted employment;
(b) employment
in Canada under Her Majesty in right of Canada that is not excepted employment;
or
(c)
employment included in pensionable employment by a regulation made under
section 7.
6. (2)
Excepted employment is
(a) employment in agriculture or an agricultural enterprise,
horticulture, fishing, hunting, trapping, forestry, logging or lumbering by an
employer who either pays the employee less than two hundred and fifty dollars
in cash remuneration in a year or employs the employee, on terms providing for
payment of cash remuneration, for a period of less than twenty-five working
days in a year;
(b) employment of a casual nature otherwise than for the purpose of
the employer's trade or business;
(c) employment as a teacher on exchange from a country other than Canada;
(d) employment of a person by the person's spouse or common-law
partner, unless the remuneration paid to the person may be deducted under the
Income Tax Act in computing the income of the spouse or common-law partner;
(e) employment of a member of a religious order who has taken a vow
of perpetual poverty and whose remuneration is paid either directly or by the
member to the order;
(f) employment for which no cash remuneration is paid where the
person employed is the child of, or is maintained by, the employer;
(g) employment as a member of the Canadian Forces or the Royal
Canadian Mounted Police, except as provided by any other Act of Parliament;
(h) employment in Canada by an employer who employs persons in Canada
but under the terms of a reciprocal agreement between the Government of Canada
and the government of another country is exempt from liability to make the
contribution imposed on an employer by this Act;
(i) employment by Her Majesty in right of a province or by an agent
of Her Majesty in right of a province;
(j) employment
in Canada by the government of a country other than Canada or by an
international organization;
(j.1) employment of an Indian, as defined in the Indian Act, in respect
of which the earnings are not included in computing income for purposes of the
Income Tax Act; or
(k) employment excepted from pensionable employment by a regulation
made under section 7.
[13] The definition of excepted employment in subsection
6(2) of the CPP does not include employment by a person with whom the worker is
not dealing at arm’s length. This exception is present in the EI, but not in
the CPP.
[14] In Gill v. The Minister of National
Revenue, 2004 CarswellNat 4067; 2004 TCC 744 Campbell Miller, J. made the following comments:
19
The Respondent relied on the cases of Klein v. M.N.R.,[1] Castonguay v. M.N.R.[2] and Polusny v. M.N.R.[3] as authority for the proposition that if the
relationship was artificial, there is no contract of service. None of these
cases however are on all fours with the situation before me. In Klein,
the issue was whether the Appellant actually worked at all - clearly there
would be no contract if there was no work. With respect to Ms. Gill, I am
satisfied she did in fact work for Mr. Gill throughout the summer of 2003.
20
All the Federal Court of Appeal said in the Castonguay case
was:
...
That question was not, as he assumed, whether the contract concluded between
the applicant and her alleged employer was a contract of service or a contract
for services; rather, it was as to whether the contract of employment which had
allegedly existed between the parties was real or artificial.
It
does not explore the issue of whether a discrepancy between hours actually
worked and hours reported for employment insurance benefits purposes renders a
contract of employment artificial. The Polusny case dealt with a total lack of
records to support the period of employment, an entirely separate issue.
21
I am unconvinced that an exaggeration of hours by an employee
renders a contract of employment artificial to the point that there is no
contract of employment, except in cases where such exaggeration goes to the
fundamental core of the contract; for example, if a claim to have worked is not
supportable at all, that is, the employee simply did not work. In such a
situation there would be no consideration for a contract to exist.
[15] The Appellant has satisfied the onus of proof that
is upon him in establishing that, on the balance of probabilities, both Hai Son
Le and Dung Le performed some services that were directly related to his
business for the purpose of the CPP and that they were paid. The reasonableness
of the amount paid by the Appellant to each of these individuals is not
relevant for the purposes of the CPP nor is the issue of whether the Appellant
was dealing with these individuals at arm’s length. All that is relevant is
that some services were provided for consideration. Therefore I find that both Hai
Son Le and Dung Le were employed by the Appellant in pensionable employment for
the purpose of the CPP during the periods in question.
[16] In the EI, paragraph 5 provides in part as follows:
5.
(1) Subject to subsection (2), insurable employment is
(a)
employment in Canada by one or more employers, under any express or
implied contract of service or apprenticeship, written or oral, whether the
earnings of the employed person are received from the employer or some other
person and whether the earnings are calculated by time or by the piece, or
partly by time and partly by the piece, or otherwise;
. . .
5. (2) Insurable employment does not include
…
(i) employment if the employer and employee are not dealing with each
other at arm's length.
5. (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.
[17] Since Hai Son Le is the Appellant’s uncle and Dung
Le is the Appellant’s aunt, neither of these two individuals are related to the
Appellant for the purposes of the Income Tax Act. Section 251 of the Income
Tax Act provides in part as follows:
251 (2) Definition of “related persons” — For the purpose of this Act,
“related persons”, or persons related to each other, are
(a) individuals connected by blood relationship, marriage or
common-law partnership or adoption;
251 (6) Blood relationship, etc. — For the purposes of this Act, persons
are connected by
(a) blood relationship if one is the child or other descendant of the
other or one is the brother or sister of the other;
(b) marriage if one is married to the other or to a person who is so
connected by blood relationship to the other; and
(b.1) common-law partnership if one is in a common-law partnership with
the other or with a person who is connected by blood relationship to the other;
and
(c) adoption if one has been adopted, either legally or in fact, as
the child of the other or as the child of a person who is so connected by blood
relationship (otherwise than as a brother or sister) to the other.
[18] Since neither Hai Son Le nor Dung Le is related to
the Appellant for the purposes of the Income Tax Act, the provisions of
paragraph 5 (3) (b) of the EI are not applicable.
[19] However for the purpose of the EI, insurable
employment does not include employment if the employer and employee are not
dealing with each other at arm’s length.
[20] In Parill v. The Minister of National Revenue [1998]
F.C.J. No. 836, the Federal Court of Appeal made the following comments with
respect to the onus of proof in an appeal dealing with the issue of whether a
worker was dealing at arm’s length with his employer for the purposes of
determining whether the employment was insurable employment:
4 … At the same time, it must be remembered that the onus rested on
the applicant to establish on a balance of probabilities that he and his
employer did in fact deal at arm's length and therefore that he qualifies to
receive benefits under the Act in respect of the disputed employment.
[21] Although it was the worker who was appealing the
determination in Parill and in this case it is the employer, the same
principle will apply. The onus of proof is on the Appellant to establish, on a
balance of probabilities, that he was dealing at arm’s length with Dung Le and
Hai Son Le.
[22] In the decision of this Court in Parill v. The
Minister of National Revenue [1996] T.C.J. No. 1680 (which was affirmed by
the Federal Court of Appeal), Cuddihy, J. stated that:
20 From these cases parties are not dealing at arm's length when the
predominant consideration or the overall interest or the method used amount to
a process that is not typical of what might be expected of parties that are
dealing with each other at arm's length.
21 Parties 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 place1.
22 Therefore the existence of a combination of one or several of
these initiatives that would be inconsistent or interfere, in due process
negotiating between employer and employee and with the object and intent of the
legislation, will not survive the arm's length test.
[23] In this case the Appellant has failed to satisfy the
onus of proof that is upon him to establish that he was dealing with Hai Son Le
at arm’s length and that he was dealing with Dung Le at arm’s length. As noted
above, neither Hai Son Le nor Dung Le testified during the hearing. I am not
satisfied, in the absence of their testimony, that the Appellant was dealing
with Hai Son Le and Dung Le at arm’s length. The evidence, as presented, raises
serious concerns with respect to the amounts paid to Dung Le in relation to the
services that she was providing. With respect to Hai Son Le, the fact that Hai
Son Le was paid the same amount per month regardless of the number of trips
made in any particular month and in particular that he was paid $3,000 for the
month of November 2005 (when three trips were made) and $3,000 for the month of
December 2005 (when one trip was made) raise questions about the reasonableness
of the amount paid to him and whether the Appellant was dealing with him at arm’s
length.
[24] As a result the appeal under the EI is dismissed.
[25] The appeal under the CPP is allowed and the matter
is referred back to the Minister of National Revenue for reconsideration and reassessment
on the basis that Hai Son Le and Dung Le were employed by the Appellant in
pensionable employment for the purposes of the CPP during the periods in
question.
Signed at Ottawa, Canada this 14th day of December, 2007.
“Wyman W. Webb”
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