Citation: 2007TCC587
Date: 20071022
Docket: 2007-1611(EI)
BETWEEN:
MICHELINE BERNARD,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
REASONS FOR JUDGMENT
[TRANSLATION]
Tardif J.
[1] This is an appeal
dealing with the insurability of work performed during the period from April 10 to May 19, 2006, for Micheline Bernard.
[2] The Respondent
relied on the following assumptions of fact to arrive at his decision as to the
insurability of the work:
[translation]
5. (a) The
Appellant operates a 32-seat diner, registered on November 24, 1994 1988, under the corporate name “Restaurant Cantine
Mimi”;
b) The Appellant is the
owner of the business, but it is managed by Réal Bernard, her spouse;
(c) Only the Appellant
and her spouse work at the business with their daughter working there on
occasion;
d) Réal Bernard also
operates a “card lock,” a service station for heavy vehicles, on a lot that he
rents;
(e) Réal Bernard is
responsible for the upkeep of the land and the garage, and he bought a “loader”
to do perform snow-removal on all of the lots (restaurant, “card lock,”
residences and other buildings);
(f) The Appellant’s
restaurant is located at 560 Highway 108, the residence of the Appellant and
Réal Bernard at 570 Highway 108, and the worker, Réal’s brother, lives at 580, Highway
108;
(g) These are 3 buildings
located side by side, and the garage is located behind the residence of the
Appellant and Réal Bernard;
(h) The buildings at 560
and 570 Highway 108 belonged to Réal [sic] Bernard, while the one at 580
Highway 108 belonged to the Appellant;
(i) In addition to his
other activities, Réal Bernard accepted and new contract in 2006 for building
skids out of pieces of melamine;
(j) More specifically,
Réal Bernard cut 3-inch by 3-inch pieces of melamine, 61‑inches in length,
into lengths of 48 inches; he lashed them and put caps on them to prevent water
from damaging the melamine, then wrapped them in plastic for delivery;
(k) Réal Bernard did not
wish to obtain an employer number for his other activities unrelated to the
restaurant, and all business transactions went through the Appellant’s
business;
(l) Income from the
melamine cutting were reported in the Appellant’s income tax return;
(m) Réal Bernard made no
real distinction between their respective businesses and we can consider that
the Appellant is the employer;
(n) The worker has never
performed services for the Appellant’s diner;
(o) The worker was
apparently hired by his brother, Réal, to perform tasks pertaining to the
melamine cutting;
(p) The worker claims
that, during the period at issue, he worked 40 hours per week and his hours
were not accounted for, neither by the Appellant nor by Réal Bernard;
(q) The worker was
apparently hired by his brother, Réal, to look after work pertaining to the
melamine cutting;
(r) The worker claims
that, during the period at issue, he worked 40 hours per week and his hours
were not accounted for, neither by the Appellant nor by Réal Bernard;
(s) The worker obtained a record of
employment from the Appellant, while working at the garage at 570 Highway 108
belonging to Réal Bernard;
(t) The worker generally
worked alone at the garage and no one kept track of his work hours;
(u) During the period at
issue, he allegedly received $12 per hour, for 40 hours per week ($480 gross)
while, in reality, he was paid a cash amount after an amount was deducted for
his rent;
(v) Réal Bernard decided
on the amount given to the worker out of his pay and the amount kept supposedly
for the rent;
(w) There is no evidence
of the amounts paid to the worker for his alleged work performed for the
Appellant or Réal Bernard;
(x) The record of
employment issued by the Appellant in the name of the worker does not reflect
reality as concerns the work period or with regard the number of hours actually
worked or with regard to the remuneration paid to the worker;
(y) The worker’s alleged
work ended after 6 weeks, at 40 hours per week, i.e. after he had accumulated
enough hours to qualify for unemployment benefits;
6. The Appellant and the
worker are related persons within the meaning of the Income Tax Act because:
(a) The Appellant is the
sole owner of the diner operated under the corporate name “ Restaurant
Cantine Mimi”;
(b) The Appellant is considered the
worker’s payor;
(c) The worker is the appellant’s
brother-in-law;
(d) The worker is related to a person who
controls the payor;
7. Furthermore,
the Minister determined that the Appellant and the worker had a non-arm’s
length relationship within the context of the employment. Indeed, the Minister
was satisfied that it was reasonable to conclude that the worker would not have
entered into a substantially similar agreement had they been dealing with one
another at arm’s length, given the following circumstances:
(a) The worker claims
that he worked for $12 per hour for 40 hours of work per week, yet no one can
specify his actual work hours;
(b) The worker received
remuneration in cash after Réal Bernard had deducted an amount for payment of
rent on the house he rented, which belonged to the Appellant;
c) There is no evidence
of the amount paid to the worker for the alleged work performed for the
Appellant;
(d) The worker was not
controlled for the alleged work performed for the Appellant;
(e) The worker obtained a
record of employment indicating 6 weeks of work, or 240 hours, i.e. enough
hours for him to qualify to receive unemployment benefits;
[3] Only the
Appellant’s spouse, Réal Bernard, testified in support of the appeal. The
Respondent called the worker, brother of the Appellant’s agent. The Appellant’s
agent admitted paragraphs 5(a) through 5(o), paragraphs (q),
(s) and (t), as well as paragraphs 6(a) through 6(d).
[4] Réal Bernard
described the places of performance of the work. He explained that he
frequently went to the workshop located very close to the place where the work
was performed; he would then help the worker, who could not do certain tasks
alone.
[5] He also explained
that due to the proximity of the workshop and the place where the work was
performed, he had very quick and easy access to the places of work.
[6] Réal Bernard stated
that the beginning and the end of the work period were determined by factors
beyond his control. Before the work period could start, the employer had to
wait for authorization from the raw material supplier; he indicated that the
work had ended due to a dispute with the supplier of the raw material.
[7] As concerns the
salary, the agent for the Appellant explained that it seemed reasonable to him
and comparable to what he would have to pay any person with whom he were to
deal at arm’s length.
[8] The remuneration of
$12 per hour was paid in cash based on a 40-hour work week. Upon the
worker’s request, the employer deducted certain amounts from the salary for
reimbursement of advances, or even annuities or rent; indeed, the worker
resided in a house that was the property of his brother and his brother’s
spouse, and which was located a few dozen feet from the workshop where the work
was performed.
[9] He provided several
explanations to justify the payment of the salary in cash, in short, a question
of cost, efficiency and advantages as much for the payor as for the worker.
[10] However, he put a
lot of emphasis on the fact that everything was clearly and explicitly
indicated in the company’s payroll, which was kept by an independent firm of
payroll experts. He even filed a copy of the accounting documents validating
his claims to this effect.
[11] The worker testified
upon the Respondent’s request. He basically confirmed his brother’s testimony,
although certain aspects of his testimony were rather vague or unclear, in
particular as concerns the source deductions pertaining to his debts to his
brother.
[12] Sylvie Bourque
also testified as investigator on the case. She indicated that she had
investigated the facts at the origin of the decision that is here under appeal.
[13] She noted a series
of elements that, evidently, strongly influenced her recommendation to the
authorities making the final decision.
[14] She noted the
following facts:
·
The
worker was paid in cash.
·
There
was often a debt reimbursement or an amount for rent deducted from the amount
paid.
·
There
was confusion surrounding the activities attributed to the restaurant.
·
The
record of employment did not indicate the non-arm’s length relationship between
the worker and his employer.
·
There
was no control of the number of hours worked.
·
The
employer was consistently absent from the places of work.
·
There
was one coincidence between the duration of the work and the number of weeks of
work required to be eligible for employment insurance.
·
The
worker was late in filing his application for benefits.
[15] However, the Court
learned from Ms. Bourque’s testimony that she had communicated with the
person from the accounting firm responsible for the entries pertaining to the
worker’s salary. Because of this information, the fact that the salary was paid
in cash lost all relevance.
[16] The record of
employment used to determine the number of hours missing also revealed that the
worker’s salary for cutting Christmas trees corresponded substantially with the
one received for the performance of the work in question.
[17] In essence, the
grounds of the determination are in no way conclusive when put into their true
context. In other words, the analyst interpreted most of the facts out of
context.
[18] As for the
Appellant, she claims that a true contract for services was entered into and
that all conditions necessary for the existence of such a contract were
present.
[19] Beyond concluding
that the non-arm’s length relationship forged or influenced the work
relationship, the Respondent argued that this was an arrangement between
brothers designed to help Lawrence Bernard to become eligible for
employment insurance benefits.
Analysis
[20] The outcome of this
case essentially rests on the credibility of the parties.
[21] First of all, I
acknowledge that certain elements were clearly identified by the investigator
in this case, in particular: (1) payment in cash, (2) deductions for
various debts and (3) the period of work corresponding with the hours
required by the worker to be eligible for employment insurance benefits.
[22] These elements
support the recommendation of the investigator, who, moreover, concluded that
the employer exercised little or no control and that the activities were
attributed to the diner, the normal activities of which had nothing to do with
the activities performed by the worker.
[23] The evidence brought
light to the facts discrediting the evaluation upon which the decision under
appeal was founded.
[24] Indeed, the
Respondent claimed that there is no evidence of remuneration payments, given
that the payments were made in cash. Yet, the accounting records of the company
do indeed indicate payments due and made for remuneration. The fact that
someone is paid in cash may complicate things in terms of the evidence, but it
is certainly not in itself proof of non-payment.
[25] In this case, the
Appellant’s agent explained why the payments were made in cash. The explanation
that the employer did not have to make a deposit to cover cheques, a practical
consideration for both the debtor and the creditor, is plausible and
reasonable.
[26] As for the
administration integrated with the restaurant activities, this was not the
ideal way of doing things, but it certainly was not acceptable.
[27] As for the duration
of the employment, the Appellant’s representative provided valid explanations,
namely that the start of the work coincided with the green light given by the company
that owned the pieces of melamine to be used for the work. As for the end of
the work, Mr. Bernard stated that the agreement was unsatisfactory and that
without an increase in the consideration, he had concluded that the activity
was not profitable; he therefore abandoned the activity and returned the raw
material to the company. Documentary evidence was provided in support of this
evidence.
[28] As for the salary,
it was reasonable and corresponded with the regular salary he received for
cutting Christmas trees.
[29] Finally, as to the
control, I find the explanations submitted easily suffice to conclude that
there was such a control, which is the foundation of a true relationship of
subordination.
[30] Indeed, the
proximity of the places of work, the nature of the work and the frequent visits
of the agent for the Appellant easily suffice to conclude that there was a true
relationship of subordination.
[31] These are elements
that constitute the foundations of the evidence submitted by the Appellant.
This is proof on a balance of evidence, the components of which were available
at the time of the investigation.
[32] Analysis of these
elements, an in particular and the conclusions arrived at are not reasonable;
they are even unreasonable since they mainly rest on the fact that the
declarations of the worker and the payor are not credible; in other words, to
justify his decision, the Respondent made the assumption that the worker and
his brother, agent for the Appellant, lied on all accounts. This would require
demonstrating facts warranting such a severe appreciation.
[33] I admit that I have
reserves with regard to the veracity of some of their statements. However, I do
not believe that the totality of their evidence should be set aside on the ground
that they are not trustworthy.
[34] Balance of
probabilities calls for a review of the decision under appeal by the Appellant.
[35] I find that the
appeal has merit on the ground that the work performed between April 10 and May
19, 2006, was performed under a true contract for services similar to one that
a third party would have entered into in a comparable situation.
[36] Therefore, the
appeal is allowed.
Signed at Ottawa, Canada, this 22nd day of October 2007.
“Alain Tardif”
Translation
certified true
on this 6th day of
December 2007
Gibson Boyd,
translator
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