Citation: 2008 TCC 543
Date: 20080926
Docket: 2007-2830(EI)
BETWEEN:
JÉRÔME OUELLET,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Favreau J.
[1]
This is an appeal from
a decision of the Canada Revenue Agency (CRA) dated March 27, 2007,
with respect to the insurability of the employment of Jérôme Ouellet ("the Worker")
with Scierie Réjean Ouellet Enr. ("the Payor") from
May 29, 2006, to September 9, 2006 ("the period in
issue"). Under the terms of that decision, the Minister of National
Revenue ("the Minister") determined that the Worker's employment
was not insurable for the period in issue because a similar contract of
employment would not have been entered into if the Worker and the Payor had
been dealing with each other at arm's length. The decision was made under
paragraph 5(2)(i) and subsections 5(3) and 93(3) of the Employment Insurance Act,
S.C. 1996, c. 23, as amended ("the Act").
[2]
The Worker and the Payor
are related persons within the meaning of section 251 of the Income Tax
Act, R.S.C. 1985, c. 1 (5th Supp.) as amended, because the Worker is the son
of the Payor's owner.
[3]
The Minister determined
that the Worker and the Payor were not dealing with each other at arm's length
in connection with the Worker's employment, and the Minister was satisfied that
it was reasonable to conclude that the Worker and the Payor would not have
entered into a substantially similar contract of employment if they had been
dealing with each other at arm's length, having regard to the circumstances
described in subparagraphs 6(a) through 6(u) of the Reply to the Notice of
Appeal.
[TRANSLATION]
(a)
The Payor has been operating a sawmill since
1995. He personally built the mill in 1993‑94 on the Bélanger range road in
St-Gabriel. (admitted).
(b)
The Payor has a 30-by-70-foot building with a
saw, a log carriage, a surface planer, a loader and a tractor. (admitted)
(c)
Before the Appellant was hired, the Payor
operated his sawmill sporadically from May to September. (admitted)
(d)
The Payor obtains contracts for the cutting of timber
from neighbours, and has the timber brought to his mill in accordance with the
orders that he receives. (admitted)
(e)
During the period in issue, the Payor officially
hired the Appellant for the first time because he claimed that he had more
orders. (admitted)
(f)
Prior to 2006, the Payor derived little income
from the mill, and he did not report that income for tax purposes. (denied)
(g)
He hired his son in late May 2006 and entrusted
the following duties to him: he had to get the logs with the loader, prepare
the wood for sawing, and saw the logs brought back to the sawmill. (denied as
worded, because he had other tasks as well)
(h)
The Appellant worked under an oral contract, and
had to work 60 hours per week from Monday to Friday and often on Saturday.
(denied as worded, because he worked every Saturday, for a maximum of 60 hours
per week)
(i)
The Payor compiled the Appellant's working hours
in a log or on a small notepad. (admitted)
(j)
The Payor has no timber-cutting contracts with
his customers that would justify having employed the Appellant during the
period in issue. (denied as worded)
(k)
During the period in issue, the Appellant
apparently received cash advances from the Payor ranging from $200 to $400 per
week. (admitted)
(l)
The Payor apparently advanced a total of $6,300
to the Worker, in irregular amounts, but has not specified the exact dates
on which these advances were made. (denied as worded, because the dates of the
advances were known)
(m)
It was only at the end of his employment that he
received a series of cheques from the Payor for the work done during the period
in issue. (admitted)
(n)
The cheques issued by the Payor were dated from
June 8 to September 21, 2006, and the first cheque was cashed by
the Appellant only on October 12, 2006. (admitted)
(o)
All the cheques issued by the Payor were cashed
by the Appellant between October 12 and October 26, 2006. (admitted)
(p)
The Appellant claims that he cashed the cheques,
and that he remitted to the Payor the advances that he had obtained during the
period in issue. (admitted)
(q)
In 2005, the Payor reported no income from his
sawmill, but paid the Appellant roughly $1,000 for services rendered to the
mill. (denied as worded, because the sawmill income was reported and $2,000 was
paid to the Worker)
(r)
Despite recording the Appellant's hours, the
Payor was unable to specify the hourly wage rate that the Appellant was paid.
(denied as worded because the hourly rate was known)
(s)
The Payor's payroll journal stated that, each
week, the Appellant was paid the regular rate for the first 47 hours and
overtime for 13 subsequent hours. (admitted)
(t)
Moreover, for each statutory holiday, the
Appellant received 10 hours of additional work, for a total of $117.50.
(admitted)
(u)
The parties to the litigation were acting in
concert in order to qualify the Appellant for unemployment insurance benefits.
(denied)
[4]
In order to clarify the
facts on which the Respondent relied, and gain a proper understanding of the
reasons why the Respondent determined that the Appellant's employment during
the period in issue was excluded employment, it would be helpful to
reproduce Parts (V) and (VI) of the appeal report prepared by the Canada
Revenue Agency on March 27, 2007, and filed at the hearing as
Exhibit I‑9:
[TRANSLATION]
(V) FACTS
The following documents are included in the file
of decision CE0631 1084 3041
Statutory declaration of Jérôme Ouellet___________________ _TAB A
(1)
From May 29 to September 9, 2006, he was
employed as a sawmill labourer, but he had previously helped out at the mill.
In 2006, he was hired on a full-time basis for 60 hours per week from Monday to
Saturday.
(2)
I [sic] was the only employee. The Worker
was laid off on September 9, 2006, because it had become less busy.
(3)
The sawmill is located on the Bélanger range road
and was built by my [sic] father roughly ten years ago. Initially, my [sic]
father went there from time to time because he worked for a railway company in Sept-Îles.
(4)
From May 29 to September 9, 2006, he received weekly
advances ranging from $200 to $400, depending on what he needed.
(5)
At the end of his employment, he received
cheques that he cashed using his account at the caisse populaire in St-Gabriel.
(6)
On October 12, 2006, he cashed the cheques dated
June 8, 2006, and June 15, 2006.
(7)
On October 26, 2006, he cashed the cheques dated
August 31, September 7, September 14 and September 21, 2006. The value of those
cheques had to be remitted to his father, because the pay to which he was
entitled had been taken.
(8)
He appears to have received advances totalling
$5,000 during his employment period, and to have kept roughly $2,000
thereafter.
Additional information concerning the benefit
claim TAB B
(9)
Réjean Ouellet provided HRDC investigator Alain
D'Amours with some information, including the following:
·
He owns a sawmill and woodlots in St-Gabriel.
·
He waited a few years before hiring someone on a
full-time basis.
·
He hired his son Jérôme and paid him by cheque.
Details of hours worked ________________________ _ ____ _TAB
C
According to these documents, the Worker worked exactly 60 hours per
week, from Monday to Saturday.
Advances to Jérôme Ouellet________________________ _ _TAB
C1
|
Period
|
Amount
|
|
|
|
|
23
|
$250.00
|
|
24
|
$350.00
|
|
25
|
$375.00
|
|
26
|
$425.00
|
|
27
|
$425.00
|
|
28
|
$500.00
|
|
29
|
$400.00
|
|
30
|
$400.00
|
|
31
|
$450.00
|
|
32
|
$400.00
|
|
33
|
$400.00
|
|
34
|
$400.00
|
|
35
|
$400.00
|
|
36
|
$375.00
|
|
37
|
$375.00
|
|
38
|
$375.00
|
|
|
|
|
Total
|
$6,300.00
|
This document was faxed by Chantal Dufour (the Payor's wife) to
the HRDC investigator. The $2,635.77 balance owing was regularized by cheques
#34 through #38.
The following documents were obtained from the
Payor by the appeals officer
Payroll Journal ______________________________________
TAB D
Reproduced in table format for easier reading.
|
Week
|
Hours
|
Salary
|
Stat. holiday
|
Total
|
|
|
|
|
|
|
|
June 3, 2006
|
60
|
$781.38
|
|
$781.38
|
|
June 10, 2006
|
60
|
$781.38
|
|
$731.38
|
|
June 17, 2006
|
60
|
$781.38
|
|
$781.38
|
|
June 24, 2006
|
70
|
$781.38
|
$117.50
|
$898.88
|
|
July 1, 2006
|
70
|
$781.38
|
$117.50
|
$898.88
|
|
July 8, 2006
|
60
|
$781.38
|
|
$781.38
|
|
July 15, 2006
|
60
|
$781.38
|
|
$781.38
|
|
July 22, 2006
|
60
|
$781.38
|
|
$781.38
|
|
July 29, 2006
|
60
|
$781.38
|
|
$781.38
|
|
August 5, 2006
|
60
|
$781.38
|
|
$781.38
|
|
August 12, 2006
|
60
|
$781.38
|
|
$781.38
|
|
August 19, 2006
|
60
|
$781.38
|
|
$781.38
|
|
August 26, 2006
|
60
|
$781.38
|
|
$781.38
|
|
Sept. 2, 2006
|
70
|
$781.38
|
$117.50
|
$898.88
|
|
Sept. 9, 2006
|
60
|
$781.38
|
|
$781.38
|
|
Sept. 16, 2006
|
|
|
$451.74 vacation
|
$451.74
|
|
|
|
|
|
|
|
Total
|
930
|
$11,720.70
|
$804.24
|
$12,524.94
|
Payor's monthly income, 2006___________________ ____ TAB
E
|
Month
|
Income
|
|
|
|
|
June
|
$5,706.00
|
|
July
|
$8,328.00
|
|
August
|
$4,422.00
|
|
September
|
$2,460.00
|
|
October
|
$3,821.00
|
|
|
|
|
Total
|
$24,587.00
|
Copies of paycheques (both sides)______________
________ _TAB F
|
Cheque no.
|
Date of cheque
|
Amount
|
Date cashed
|
|
|
|
|
|
|
6
|
June 8, 2006
|
$558.95
|
October 12, 2006
|
|
7
|
June 15, 2006
|
$558.95
|
October 12, 2006
|
|
8
|
June 22, 2006
|
$558.95
|
October 13, 2006
|
|
9
|
June 29, 2006
|
$623.52
|
October 13, 2006
|
|
10
|
July 6, 2006
|
$623.52
|
October 16, 2006
|
|
11
|
July 13, 2006
|
$558.95
|
October 16, 2006
|
|
12
|
July 20, 2006
|
$558.95
|
October 17, 2006
|
|
13
|
July 27, 2006
|
$558.95
|
October 17, 2006
|
|
14
|
August 3, 2006
|
$558.95
|
October 26, 2006
|
|
15
|
August 10, 2006
|
$558.95
|
October 26, 2006
|
|
16
|
August 17, 2006
|
$558.95
|
October 26, 2006
|
|
17
|
August 24, 2006
|
$558.95
|
October 26, 2006
|
|
18
|
August 31, 2006
|
$558.95
|
October 26, 2006
|
|
19
|
Sept. 7, 2006
|
$558.95
|
October 26, 2006
|
|
20
|
Sept. 14, 2006
|
$623.52
|
October 26, 2006
|
|
21
|
Sept. 21, 2006
|
$357.81
|
October 26, 2006
|
The following documents were obtained from the CRA computer system
by the appeals officer
Réjean Ouellet's federal income tax returns _______________
_TAB G
The Payor's 2004 and 2005 federal income tax returns report no
business income.
Jérôme Ouellet's federal income tax returns________ ________TAB
H
Jérôme Ouellet's 2005 tax return reports $7,500 in employment income,
without identifying it.
The 2004 return reports a total of $549 in employment income.
The following facts were obtained from Jérôme Ouellet during a
telephone interview on March 8, 2007
(10)
Jérôme Ouellet confirmed the statement that he
made to the HRDC investigator.
(11)
Since 1995, his father Réjean Ouellet has owned a
sawmill on Bélanger range road in St-Gabriel. The building is roughly 70 feet
by 30 feet in size, and the equipment consists of a saw, a log carriage, a
surface planer, a loader and a tractor.
(12)
In previous years, the Worker went to help out
his father when needed. In fact, he says that part of the $7,500 reported in
his income tax return was paid by his father. He believes that roughly
$1,000 is from his father, and that the rest is from a variety of sources that
he does not specify further.
(13)
However, in 2006, his father told him:
[TRANSLATION] "If you want to come, we will operate it more." His
work consisted of sawing the timber, making planks, operating the planer, and
occasionally fetching the timber.
(14)
He worked from morning to evening, 6-7 days a
week. He worked with his father at the sawmill.
(15)
Throughout the summer, the Worker received
advances based on his needs. He received advances because his father was not
sure what his total salary would be.
(16)
The Worker received all his cheques at once, at
the end. He said that his father had decided to do this even though he had
already been paid. After receiving the cheques, the Worker cashed two or
three at a time.
The following facts were obtained from Réjean Ouellet during a
telephone interview on March 9, 2007
(17)
Réjean Ouellet was very reluctant to provide us
with the details of his son's employment. In fact, the appeals officer
asked him to stop swearing.
(18)
For the past five or six years, he has been the
owner of a sawmill containing all the necessary equipment.
(19)
In 2005, the Payor earned income (a small
amount) from his sawmill, and, since Jérôme Ouellet went to help him, he gave
him roughly $1,000. This money was given to him for helping out, and there
were no calculations involved.
(20)
In 2006, the demand for timber cutting was
steadily increasing, so he decided to hire his son.
(21)
The Payor does not know the basis on which he
paid his son, or what his son's wage was. His hours were from 7 a.m. to the
evening, and he worked Monday to Saturday.
(22)
The Payor advanced money to him based on the
hourly pay. It was the Payor who calculated how many hours he worked.
(23)
Réjean Ouellet says that it was his wife who
decided to write the paycheques.
The following facts were obtained from Nicole Leblanc during a
telephone interview on March 8, 2007
(24)
Nicole Leblanc works for the municipality of St-Gabriel. She provided me
with the following information: Based on municipal records, Réjean Ouellet has been
the owner of a sawmill on the Bélanger range road since 1995.
(VII) SUMMARY
The Payor, Réjean Ouellet, operates a sawmill.
The Worker, Jérôme Ouellet, was hired as a sawmill
labourer from May 29, 2006, to September 9, 2006.
Non-arm's-length relationship between the parties
to the appeal
Réjean Ouellet is Jérôme Ouellet's father. The two individuals
are related persons within the meaning of paragraph 251(2)(a) of the Income
Tax Act. Under paragraph 251(1)(a) of the same Act, related
persons are deemed not to be dealing with each other at arm's length.
Analysis of Jérôme Ouellet's employment under
paragraph 5(3)(b) of the Employment Insurance Act
Remuneration paid
According to its own documents, the Payor advanced
$6,300 to the Worker between periods 23 and 38; there are no specifics regarding
the actual dates on which the advances were made. Moreover, the cheques
themselves were cashed more than four months after the employment period.
These accounting documents show that the parties acted in a manner
that was very much out of the ordinary and was contrary to the rules of the
labour market.
Moreover, based on the payroll journal, the Worker benefited from
overtime pay every week, along with statutory holiday pay that yielded 10 hours
of additional employment.
These documents, combined with the parties' accounts which assert that
the Payor did not know what wage the Worker was paid, clearly show that the
remuneration was simply based on the non-arm's-length relationship.
Terms and conditions of employment
The Worker and the Payor claim that Jérôme Ouellet worked from
morning to evening. This assertion would suggest that there was no work
schedule. However, the time log submitted by the Payor points to a
different conclusion, because arrival times, meal times and departure times are
recorded therein. The time log constitutes inconsistent evidence because the
accounts that have been cited are based on a fixed salary unrelated to the
number of hours worked, whereas the time log shows the contrary.
This inconsistency shows that the terms and conditions of this
Worker's employment were based on the non-arm's-length relationship.
Moreover, the payroll journal states that, each week, payment was
made for 60 hours in the following manner: the regular rate was paid for
the first 47 hours, and the overtime rate was applied to the subsequent 13
hours. In addition, on statutory holidays, $117.50 and 10 more hours were
added. It can be seen that these terms and conditions of employment are not
reasonable, and that they demonstrate that the parties acted as related persons.
In fact, during the summer of 2005, Jérôme Ouellet rendered services
to his father, and his father paid him sums of money without recording them in
a payroll journal. The Payor was not reporting any business income at that
time.
Under these circumstances, it is our opinion that those terms and
conditions of employment were not reasonable, and that persons who were at
arm's length from each other would not have stipulated such terms and
conditions.
Duration
It is difficult for us to ascertain the true duration of this
employment in this case because the documents provided by the Payor point to something
different: an arrangement to submit a Record of Employment that reports such
hours as would enable Jérôme Ouellet to obtain employment insurance
benefits. In addition, there is a certain degree of contradiction between the variation
in the Payor's monthly income and the fact that the Worker worked the same
number of hours every week
Based on this, we have concluded that the duration of this
employment was based on the non-arm's-length relationship.
Nature
The Worker sawed wood for a sawmill. At first blush, it can be concluded
that these duties are necessary for the Payor's operations. However, the
appeals officer is of a different view: he found that the Worker's duties were
established by agreement between related persons. His view is that the parties
to the appeal acted with a common purpose in mind, namely, to qualify Jérôme
Ouellet for employment insurance benefits. In fact, the Payor and the
Worker said that Jérôme Ouellet received sums of money from the Payor in 2005 even
though the Payor was not reporting any business income at that time.
We concur in the decision-making officer's finding that people
dealing with each other at arm's length would not have entered into such an
employment contract.
Conclusion under paragraph 5(3)(b) with
respect to Jérôme Ouellet's employment
In light of the facts obtained, and our analysis of the
documents, we find that the Worker had terms and conditions of employment that
no outsider would have obtained.
In the alternative, if this matter were referred to the
TCC, we could also argue that this employment contract does not meet the
requirements of a contract of service.
[5]
The facts set out in
the appeal report and reproduced in the preceding paragraph were not
contradicted or questioned at the hearing. However, certain additional
information was provided. In her testimony, accounting technician Louiselle Pineault
explained that she had suggested to Réjean Ouellet, the Appellant's
father, that he register his business, and pay advances to the Appellant,
pending receipt of the source deductions and registration numbers from
authorities such as the Commission de la santé et de la sécurité du travail.
Once the business was registered, the paycheques owed to the Appellant were
remitted to him. Ms. Pineault also specified that the 2005 federal tax files of
the Payor and the Worker were essentially settled once amended income tax
returns were filed. According to Ms. Pineault, the Payor's hiring of the
Worker for up to 60 hours a week was justified in May 2006 based on
the Payor's income. Ms. Pineault also asserted that she prepared the
Worker's Record of Employment (ROE) based on the Payor's payroll journal as at
September 9, 2006. Based on her calculations, the Worker had accrued 930
insurable hours, which corresponds to 15 sixty-hour work weeks, to
which 30 hours were added in order to take the three statutory holidays
during the period in issue into account, to the extent of 10 hours per day.
[6]
Réjean Ouellet, the
Worker's father, also testified. He said that he used a notepad to record the
Worker's hours every day. According to him, the Worker's hours always totalled
at least 60 hours per week. He also said that he hired the Worker in the
summer of 2007 to do the same work under the same wage and schedule conditions,
and that the Worker's employment for 2007 had been determined insurable. That
year, the Worker received a weekly paycheque, not advances like he received in
2006.
[7]
Chantal Dufour, the
Worker's mother, testified as well. She confirmed that she made the cash
advances to the Worker based on his needs, and that she prepared and signed the
16 paycheques, which were handed to the Worker, and bore the dates
corresponding to the pay periods, but were cashed based on how much money was
available in the Payor's bank account. The Worker endorsed the cheques and gave
them to his mother to repay the advances. The Worker kept the last five
cheques because the amount of the advances was lower than the net salary earned
by the Worker.
[8]
The dispute in the case
at bar pertains to the application of paragraph 5(2)(i) and
subsection 5(3) of the Act, which read as follows:
5. (2) Insurable employment does not include
. . .
(i)
employment if the employer and employee are not
dealing with each other at arm's length.
(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.
[9]
The Court's role in
interpreting the provisions cited above has been the subject of several
decisions, and has been summarized very clearly in the following excerpt from Légaré
v. Canada (Minister of National Revenue), [1999] F.C.A. No. 878, at paragraph
4:
. . .
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.
[10]
Counsel for the
Appellant noted the context — a
business that had just started up —
to justify the unusual terms and conditions of the Appellant's work.
[11]
Unfortunately for the
Appellant, I cannot subscribe to that argument. I do not believe that the status
of the business as a start-up can be relied upon to justify the fact that
Worker received his first pay nearly four months after his employment began, the fact
that he had earned more than $12,000 in gross salary, and the fact that he was
effectively paid after his employment period ended. It normally takes only a
few days or weeks to obtain business registration numbers and employer source
deduction numbers, rarely months.
[12]
Some of the terms and
conditions of the Worker's employment can only be explained by the
non-arm's-length relationship between him and the Payor. The most noteworthy
ones in this regard are that the advances were made in cash, not by cheque, and
that the amount of the advances was lower than the net salary payable to the
Worker. In an arm's-length context, the amount of the advances would normally
have matched the net salary payable to the Worker. It would have been easy for
the Payor to obtain the exact amounts from the accounting technician, who was,
in fact, consulted in the determination of the Worker's wage of $11.75 per
hour.
[13]
As Marceau J.A. held in
Pérusse v. Canada (Minister of National Revenue), [2000] F.C.J. No. 310 (C.A), at
paragraph 15:
. . . 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. . . .
[14]
That is precisely the situation
in the instant appeal. There are no new facts, and there is nothing to indicate
that the Minister misunderstood the facts.
[15]
The fact that the
Worker obtained employment insurance benefits in respect of his 2007 period of
employment with the Payor is not relevant to the instant appeal, since the
terms and conditions of his employment were not identical to the ones that
prevailed in 2006. The fact that the Minister did not exercise his discretion
in respect of the Worker's employment in 2007 cannot invalidate the exercise of
that discretion in respect of a prior period of employment.
[16]
Having carried out its
analysis, this Court is of the opinion that the facts inferred or relied on by
the Minister were correctly assessed, and that the finding with which the
Minister was satisfied seems reasonable having regard to the circumstances.
[17]
Consequently, the
appeal is dismissed and the decision made by the Minister is confirmed.
Signed at Ottawa, Canada, this 26th
day of September 2008.
"Réal Favreau"
Translation certified true
on this 17th day of November
2008.
Susan Deichert, Reviser
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