Docket: 2007-4271(EI)
BETWEEN:
MICHAEL D. ELMER,
Appellant,
and
MINISTER OF NATIONAL REVENUE,
Respondent.
____________________________________________________________________
Appeal
heard on May 27, 2008, at Sudbury,
Ontario.
Before: The Honourable
Justice Patrick Boyle
Appearances:
|
Counsel for the Appellant:
|
Craig W. Fleming
|
|
Counsel for the Respondent:
|
Suzanie Chua
|
____________________________________________________________________
JUDGMENT
The appeal is allowed and the Minister’s
decision is varied to reflect that the Appellant was dealing at arm’s length
with Ms. Crinnion during the period in question.
Signed at Ottawa, Canada, this 20th day of June 2008.
"Patrick Boyle"
Citation: 2008 TCC 388
Date: 20080620
Docket: 2007-4271(EI)
BETWEEN:
MICHAEL D. ELMER,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
(Delivered
orally from the Bench on May 27, 2008, in
Sudbury, Ontario.)
Boyle, J.
[1]
I am reading these
Reasons on Wednesday, May 28th in Sudbury
involving yesterday’s appeal by Mr. Elmer. As per our discussion with
Mr. Fleming, I would ask the Registrar to order a transcript of these to
be sent to Mr. Fleming.
[2]
The sole issue in this
appeal is whether Mr. Elmer’s employment as general manager of the Avalon
Eco Resort, owned and operated by Ms. Crinnion, was excluded from the
definition of insurable employment because Mr. Elmer and his employer were
not dealing at arm’s length during the relevant period of his employment in
2005 and 2006.
[3]
Mr. Elmer and
Ms. Crinnion had been living together in a conjugal common-law partner relationship
in 2003 and 2004. They continued to have a joint personal bank account through
at least 2005. Mr. Elmer continues to this day to live primarily at
Ms. Crinnion’s principal home, which is used as a bed and breakfast in her
business, and at one of the five housekeeping units comprising the resort. The business
operates in a wilderness area in Ontario’s Near North about an hour from the
nearest town.
[4]
In the years in question
and until quite recently Mr. Elmer was a signing officer on the business
bank account, and in the years in question, in addition to paying business
related expenses from it, was able to use it to pay his twenty dollar daily
golf fees on his days off. There was no evidence of how this was otherwise
accounted for by the business or the employee for tax or accounting purposes.
[5]
While Mr. Elmer’s
employment was, like the business, seasonal in nature, he continued after the
end of the season to do some off-season site work for the benefit of Ms. Crinnion’s
business and property without pay. There was no evidence of how this was
accounted for either, except that it did not form part of his paid employment.
[6]
In its first season in
2004 and while they were living together as common‑law partners,
Mr. Elmer had loaned a modest amount of money to Ms. Crinnion and had
worked in the business as an unpaid joint venturer in the business. In 2005
Mr. Elmer’s salary was not paid currently, but its payment was largely
deferred without interest until early 2006.
[7]
The Crown does not
dispute that Mr. Elmer worked as the employed general manager of the
business, nor does it suggest that his approximately fifteen dollar hourly wage
was unreasonably high.
[8]
For these reasons, I am
referring largely only to the facts that could be relevant to whether
Mr. Elmer and Ms. Crinnion dealt at arm’s length during his 2005 and
2006 periods of employment.
[9]
At the beginning of the
hearing, the Crown announced it was dropping its primary position set out in
the Amended Reply that Mr. Elmer and Ms. Crinnion were related in
2005 and 2006 by virtue of any continuing common-law partner relationship
between them. The Crown said it was only pursuing the position that these two
unrelated persons did not deal with each other at arm’s length as a matter of
fact in 2005 and 2006. Consistent with this, the Crown did not cross-examine
either Mr. Elmer or Ms. Crinnion on their evidence that they ceased
to be living in a conjugal relationship by Thanksgiving 2004. The wisdom of this
step is not obvious to me. The Crown is instead relying on its alternative
argument that Mr. Elmer and his employer were not, in fact, dealing with
each other at arm’s length, notwithstanding that they were not related.
[10]
The onus to satisfy me
that the CRA decisions appealed from and its supporting assumptions are not
correct remains as a technical matter with the Appellant, Mr. Elmer. However,
as a practical matter, the Crown has taken on a burden of some requisite degree
of persuasion that two unrelated persons are nonetheless de facto
non-arm’s length since there is not always a lot an Appellant can do to
disprove a negative.
[11]
The meaning of the term
persons not dealing at arm’s length for Employment Insurance purposes is
defined by reference to the meaning of that phrase in the Income Tax Act.
The concept of de facto non-arm’s length is addressed in such income tax
cases as Swiss Bank Corp. and Sheldon’s Engineering. CRA has published
IT-419 which addresses its views on when persons are not dealing at arm’s
length as a question of fact for purposes of the Income Tax Act.
[12]
There are a number of
very significant consequences that result under the Income Tax Act from
a finding that persons do not deal at arm’s length. It is fair to say as a
general proposition that neither the courts nor even CRA’s Bulletin is quick to
find de facto non-arm’s length relationships.
[13]
The Crown said there
were three key factual indicators of Mr. Elmer not dealing with his
employer on an arm’s length basis:
(1)
Mr. Elmer provided
financial support to Ms. Crinnion in the form of the deferred payment of
much of his 2005 salary and his modest 2004 loan;
(2)
he had some access to
the joint personal bank account and some access to the business bank account
for personal expenses; and
(3)
he did some work in
exchange for lodging benefits throughout the year. None of these three facts,
taken separately or together, leads me to the conclusion that Mr. Elmer
and his employer would be considered de facto non-arm’s length for
purposes of the Income Tax Act.
[14]
Mr. Elmer clearly
enjoyed this particular but unusual job and wanted to continue to make a modest
living working as close to the land as possible, notwithstanding the end of his
common-law relationship and notwithstanding his continuing friendship with the
business owner. This, combined with his minimal needs and somewhat nomadic
lifestyle, explain his forbearance from prompt payment of wages and his
agreement from the outset to be paid after the end of the season. His 2004 loan
was made when they were a related couple not dealing at arm’s length and does
not contribute to continuing non-arm’s length status after 2004 when their
relationship ended.
[15]
The only evidence of
Mr. Elmer using money from the joint account or the business account for
personal expenses in the years in question was to pay green fees on his days
off. A business owner may well extend such a limited benefit to an arm’s length
employee as part of an arm’s length employment package. Given the history and
reason at the outset for the joint personal account, such limited continued use
in 2005, though questionable, does not attain the threshold heights of de
facto non-arm’s length.
[16]
The fact that Mr. Elmer
did off-season work on an unpaid basis for the business and received lodging
benefits year round raises concerns about such things as what were the complete
terms of his employment, whether barter transactions and benefits were properly
reported, and whether he was receiving EI in the off‑season when he was
not available for work or was already working. It does not, however, lead me to
conclude they did not deal with each other at arm’s length as a de facto
matter for purposes of the Income Tax Act. I do not think that if this
were an income tax case these facts would cause a court to conclude that
Mr. Elmer and Ms. Crinnion did not deal at arm’s length unless they
were related.
[17]
I am allowing
Mr. Elmer’s appeal. We stand adjourned.
Signed at Ottawa, Canada, this 20th day of June 2008.
"Patrick Boyle"
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