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Citation: 2008TCC123
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Date: 20080305
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Dockets: 2007-2412(EI)
2007-2414(EI)
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BETWEEN:
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JEAN-ROCK GAGNON,
CHARLES GAGNON,
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Appellants,
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and
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THE MINISTER OF NATIONAL REVENUE,
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Respondent.
[OFFICIAL
ENGLISH TRANSLATION]
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REASONS FOR JUDGMENT
Tardif J.
[1] These are appeals from a decision about
the insurability of Charles Gagnon's employment with his father Jean‑Rock Gagnon,
the sole shareholder of Gîte de la Montagne Enchantée.
[2] The
employment period commenced on September 22, 2006,
and ended on October 25, 2006.
[3] It
was determined that the employment in question was not insurable,
by reason of paragraph 5(2)(i) of the Employment Insurance Act ("the
Act") which states that any employment between parties that are not
dealing with each other at arm's
length is excluded from insurable employment.
[4] Paragraph 5(2)(i) reads:
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] Thus,
the principle is outright exclusion. However, Parliament has provided for an
exception, which is worded as follows:
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.
[6] Upon
reading this section, one can see that an employment that is not insurable
under the Act can become insurable if, following an investigation and analysis
of the facts related to the terms and conditions of the employment and the
duration and remuneration, it appears that the employment in question was
similar to one in which the parties are dealing with each other at arm's
length.
[7] What
must first be verified is whether the file was
analysed correctly. If so, I must simply confirm that the
determination is well-founded.
[8] Otherwise,
I will have to re-analyse the relevant facts and determine whether the
Appellant is eligible for the exception contemplated in the Act on the basis
that the employment was under an insurable contract of service.
[9] The
parties agreed to proceed on common evidence.
[10] Jean‑Rock Gagnon testified. He began by trying to explain why he
gave two different and sometimes contradictory accounts at interviews
concerning the terms and conditions of the work done by his son.
[11] First of all, he said that, during his first telephone interview, he
was tired, sick and very concerned about a possible labour dispute at the
business where he worked. This, he said, caused him to make a mistake about the
way in which he remunerated his son for the work that he entrusted to him, but
also about the number of hours, and when those hours were worked.
[12] He said that he changed his account after checking things with his
accountant, and that the second interview was conducted under more propitious
and serene circumstances.
[13] After providing these explanations, he said that he invested in a
business in order to create a retirement fund for himself, because the employer
pension fund to which he was contributing was unsatisfactory due to the little
seniority that he had accrued.
[14] His business was a special kind of lodge because it was located in the
middle of a natural setting and was intended for prospective guests who were
interested in the outdoors. The site offered remoteness, nature, isolation, and
the opportunity for hikes in the forest.
[15] His son's work consisted primarily in laying and clearing various
trails on the site in question. He also had various duties at the lodge itself.
[16] For a few years, Jean‑Rock Gagnon's business made a total of roughly
$5,000 annually, an amount exceeded substantially by the expenses. In other
words, he had to run major operating deficits, which he said were necessary to
develop the infrastructure that would eventually enable him to get a larger and
more constant flow of customers and thereby achieve profitability in time for
him to operate the lodge to supplement his pension benefits.
[17] When called upon to explain why his income tax return did not include
the wage expenses paid to his son, the Appellant said that the accountant had
stated that he could not deduct them because they were debatable and perhaps
even unreasonable.
[18] In order to justify the work entrusted to his son and the remuneration
paid, he said that he hired someone other than his son to do essentially the
same work; however, he paid this third party $18 an hour over a period of
roughly 15 weeks.
[19] When he was asked why he paid the third party $18 per hour when he had
just explained that he paid his son only $10 per hour, he spontaneously said that
nobody else would have agreed to do the same work for $10 per hour.
[20] He also said that he had a very good and well-paid job that enabled
him to retain the services of people to help him set up the infrastructure for
his lodge. In this regard, he said that he would have lost in the balance
by doing the work himself because his own hourly wage was $30.
[21] Charles Gagnon also testified. He explained that he worked for a
reforestation cooperative at the time, but did not work long enough to collect
employment insurance benefits. Since he had not accrued enough hours of work, it
was very attractive to obtain another job that would get him the number of
hours needed to become eligible for benefits.
Analysis
[22] Jean‑Rock Gagnon admitted unequivocally that a third party would
never have agreed to perform similar work for a salary of $10 per hour. Such an
admission is sufficient in and of itself to conclude that the decision under
appeal is well-founded.
[23] Indeed, Jean‑Rock Gagnon's admission that a third party would
not have done the work for the same remuneration that his son received is the
very reason for the existence of paragraph 5(2)(i) of the Act.
[24] For this reason alone, it would be inappropriate to intervene, and I
must confirm that the decision of the Minister of National Revenue was
well-founded.
[25] However, I would add that my finding would have been the same even if
this decisive admission had not been made.
[26] Indeed, all of Jean‑Rock Gagnon's
explanations struck me as implausible for the following reasons:
·
Jean‑Rock
Gagnon is not someone who is so nervous that he would completely distort the
facts during two interviews concerning the same subject; mistakes concerning
nuances or oversights concerning secondary details would be understandable, but
differences concerning elements such as the number of hours, the method of
payment and the time that the work was performed are another matter altogether,
especially if the statement is about the work itself, or the worker.
·
Moreover, although
Jean‑Rock Gagnon's job paid very well, and gave him an annual salary of
approximately $80,000, it is completely implausible for someone reasonably well-counselled
by an accountant to fail to take into account an expense that is entirely warranted
as part of the operation of a business, especially since the deduction of such
an expense would have a major impact on his tax burden.
·
The contradictions between
the statements made during the interviews, notably with respect to the way that
his son was remunerated and the number of hours that his son worked, show that
this was clearly a job of convenience, the sole purpose of which was to enable
his son to receive employment insurance benefits.
[27] This is my assessment of the evidence in this matter, where the
Appellants bore the burden of proof. I therefore repeat that the appeals are
dismissed on the ground that the Appellant Jean‑Rock Gagnon admitted that
a third party would never have agreed to do similar work for a wage of $10 per
hour, the wage that his son was allegedly paid.
[28] For these reasons, the appeals are dismissed.
Signed at Ottawa, Canada, this 5th day of March 2008.
Tardif
J.
Translation
certified true
on this 18th day of
April 2008.
Brian McCordick,
Translator
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