Citation: 2009TCC 393
Date: 20090805
Docket: 2008-175(EI)
BETWEEN:
GEORGE LOVELESS,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Paris, J.
[1]
This is an appeal from
a determination by the Minister of National Revenue that the Appellant’s
employment with South Coast Snow Removal Ltd. (“South Coast”) during the following periods was not insurable under the Employment
Insurance Act (the Act): December 22, 2009 to May 1, 2004, January
17, 2005 to April 15, 2005, November 28, 2005 to March 4, 2006.
[2]
The Minister held that
the Appellant and South Coast were not dealing with each other at arm’s length,
and that the employment was therefore excluded from insurable employment
pursuant to paragraph 5(2)(i) of the Act, which provides:
5(2) Insurable employment does not include
(i) employment
if the employer and employee are not dealing with each other at arm’s length.
Also, subsection 5(3) of the Act
provides further:
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.
[3]
The Appellant and South Coast were not dealing at arm’s length because the
Appellant and his common law spouse Shirley Engram each owned 33% of the
shares of South Coast. As common law
spouses, the Appellant and Ms. Engram formed a related group as defined in
section 251 of the Income Tax Act. Given that together they owned
over 50% of the shares of South Coast, they controlled South
Coast, and therefore did not deal at arm’s length with it. (The remaining
shares were held by a friend of the Appellant and Ms. Engram.)
[4]
The only issue in
appeal is the Minister’s conclusion that, taking into account all of the
circumstances of the Appellant’s employment, the Appellant and South Coast would not have entered into a substantially
similar contract of employment if they had been dealing at arm’s length. I must
decide, in light of all the evidence, whether that conclusion is reasonable (Porter
v. The Minister of National Revenue, 2005 TCC 364).
[5]
The facts relied upon
by the Minister in making the determination are set out in paragraph 7 of
the Reply to Notice of Appeal and read as follows:
a) the Appellant, Shirley Engram, and Don
Sutton each held 33.3% of the shares of the Payor;
b) the Appellant and Shirley Engram were common-law
partners;
c) during the periods under appeal, Shirley
Engram and Don Sutton worked full time jobs elsewhere and were not employed by
the Payor;
d) the Payor’s business was snow clearing,
salting, and sanding which was achieved using a front-end loader and a 4
wheel-drive pick-up truck with a plough (the “Equipment”);
e) the Payor was the registered owner of the front-end
loader;
f) the Appellant was the registered owner of the pick-up
truck and plough;
g) the Appellant was responsible for the
maintenance and operation of the Equipment used in the Payor’s business;
h) the Appellant solely managed the day to day operations of
the business;
i) Shirley Engram and Don Sutton were not
involved in the day to day operations of the Payor;
j) the Appellant was the Payor’s only
employee in the 2003 and 2004 taxation years;
k) during the 2005 taxation year, the Payor
had one other employee who earning from the Payor were $1,025.00 that year;
l) the Appellant was the Payor’s only
employee again in the 2006 taxation year;
m) the Appellant was paid $12.00 per hour
based on a 60 hour work week regardless of the number of hours that he actually
worked;
n) the Payor’s work and the Appellant’s hours
were dependant on the weather;
o) the Appellant was often paid for weeks
when there was no work to be done by the Payor;
p) the Appellant worked for the Payor outside the periods
under appeal;
q) during the periods under appeal, the Payor
purportedly paid the Appellant for 24 biweekly pay periods;
r) during the periods under appeal the
Appellant received 15 paycheques from the Payor;
s) the Appellant often waited weeks or months
before cashing his paycheques; and
t) the frequency of the Appellant’s pay was
based on the cash flow of the Payor.
[6]
The Appellant admitted subparagraphs
(a) to (n) of the Reply.
[7]
With respect to the
assumption in subparagraph (o), the Appellant said that he could not
recall any week during the period under appeal in which he did not do any work.
He said that there was always something to be done for the job. If there was no
snow to clear, he would do maintenance on the equipment.
[8]
With respect to
subparagraph 7(p) the Appellant testified that he worked for South Coast from November 1 to March 31 each winter. Only
on rare occasions would there be any snow to clear after March 31, but if there
was, he was obliged to plough it without being paid.
[9]
The Appellant submitted
that the terms of his contract with South Coast were similar to the arrangements made by
the provincial Department of Transport for road snow clearing and sanding. He
testified that those contracts ran from November 1 to March 31 each winter, and
that the contractors were paid $15 per hour. He also said that he was paid for
the work he did, and did not work at any time without pay. The Appellant felt
therefore that his employment terms and conditions were similar in nature to
those found in arm’s length relationships.
[10]
On all of the evidence,
the Appellant has not persuaded me that the Minister’s decision was not
reasonable. The fact that the Appellant was paid for 60 hours of work per
week throughout the periods under review regardless of the actual hours worked,
does not appear to be similar to what would be expected in an arm’s length
employment relationship. While the Appellant said that his hourly rate and the duration
of his employment was in line with the Department of Transport practices, there
was no evidence that contractors for the Department of Transport were paid for
60 hours per week for the entire season regardless of the hours they
worked. Furthermore, there was no corroboration of the rate paid by the
Department of Transport for snow clearing and sanding.
[11]
The Appellant did not
present any evidence to show that the number of hours for which he was paid reflected
the needs of South Coast for his services, or that any
similar snow-clearing business paid its workers in the same manner. Neither was
there any evidence that South Coast’s business was economically viable using this method
of remuneration.
[12]
The Appellant’s
evidence that he worked at least three days a week in the relevant periods was
not corroborated in any manner. He did not keep a log of his hours and no
independent means of verifying his hours was available. The Appellant’s
testimony regarding the number of days worked per week was inconsistent with an
answer given on a questionnaire from the CRA filled out on his behalf by his
accountant and certified by him to be correct. That answer indicated that the
Appellant worked between one and seven days a week. I would also note that the
Appellant’s recollection of the details of his work for South Coast was often quite poor, and he stated that he had
memory problems. Overall, I am unable to say with any certainty how many hours
the Appellant in fact worked for South Coast each week, and as a result, the
Appellant has not shown that the amount he was paid for that work was similar
to what an arm’s length employee would have received.
[13]
In reaching his
decision regarding the Appellant’s employment, the Minister also considered the
fact that the Appellant would have to wait weeks or months to cash his
paycheque based on the cash flow of South Coast. The Appellant admitted that this was the
case and said that he was only paid after all of South
Coast’s other bills had been paid. In my view, this is different from what
would normally be the case in an arm’s length employment relationship.
[14]
In light of the above
findings, I am satisfied that the Minister’s conclusion that the Appellant and South Coast
would not have entered into a substantially similar contract of employment if
they had been dealing at arm’s length was reasonable.
[15]
The appeal is therefore
dismissed.
Signed at Vancouver, British
Columbia, this 5th day of August, 2009.
“B. Paris”
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