Citation: 2006TCC86
Date: 20060224
Docket: 2004-3681(EI)
BETWEEN:
JEAN-PAUL LÉVESQUE,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Angers J.
[1] This is an appeal from a decision of the
Minister of National Revenue ("the Minister") dated
July 19, 2004, in which he determined that the Appellant and Motel Le
Campagnard de Matane Inc. ("the payer") were not dealing with each
other at arm's length and that it was reasonable to believe that, but for this
non‑arm's length dealing within the meaning of paragraph 5(2)(i)
and subsection 5(3) of the Employment Insurance Act ("the
Act"), they would not have entered into a substantially similar employment
contract. The periods in issue are as follows:
-
January
5 to October 31, 1997;
-
November
11, 1997, to February 12, 1998;
-
February
17 to November 27, 1998;
-
March
2 to December 3, 1999;
-
April
25 to October 14, 2000;
-
October 23,
2000, to February 3, 2001;
-
April 27
to October 5, 2001; and
-
November
21, 2001, to November 22, 2002.
[2] It is admitted that
the Appellant and the payer are related persons within the meaning of the Income
Tax Act. Jocelyne Thibault, the sole shareholder and directing mind of the
payer, is the Appellant's spouse. It is also admitted that the payer was
incorporated on May 18, 1985, and operates a 26‑room motel that
includes a restaurant which serves breakfasts only. The Appellant denies, in
whole or in part, the following subparagraphs of the Reply to the Notice of
Appeal, where the assumptions on which the Minister based his decision are
listed:
[TRANSLATION]
. . .
(c) The front desk
was open from 8 a.m. to 10 p.m., 7 days a week, for a total of 98 hours
per week.
(d) Ms. Thibault
was the receptionist.
(e) The restaurant
is operated only during the tourist season, which is from late April to late
October or November.
(f) From May 31,
1997, to May 31, 2003, the payer’s gross revenues were stable, varying from
$220,000 to $230,000 per year.
(g) The Appellant's
principal duties were to maintain the building, including repairs, and work at
the motel's front desk.
(h) During the
years in issue, the Appellant also did renovations: he redid the panelling and
part of the plumbing and electrical wiring, laid tile and painted.
(i) The Appellant
also repaired a few fireplaces.
(j) The Appellant
devoted only 20% of his time to the front desk and spent no time there during
the summer.
(k) Neither the
Appellant nor the payer took account of the hours actually worked by the
Appellant.
(l) In 1997, the
Appellant received no remuneration from the payer for four weeks. This was the
case for 16 weeks in 1998, 11 weeks in 1999, 18 weeks in 2000, 22 weeks in
2001 and 36 weeks in 2002, even though the payer’s business activity was the
same each year.
(m) The number of
hours of work for which the Appellant was paid fell from 1415 hours in 1997 to
640 hours in 2002, even though the Appellant's workload did not diminish.
(n) The payer’s
maintenance, repair and supply expenses were the same from 1997 to 2000 and
then increased considerably in 2001, 2002 and 2003, and yet the number of hours
that the Appellant reported having worked diminished year after year.
(o) During the years in issue, the Appellant
rendered services to the payer, without reported remuneration, outside the
periods in which he was on the payer’s payroll journal.
(p) In a statutory declaration that she signed
on May 22, 2003, Jocelyne Thibault specifically stated that the
Appellant rendered unpaid services to the payer while drawing unemployment
benefits.
(q) Also, in a statutory declaration that he
signed on May 22, 2003, the Appellant stated that he rendered services to the
payer during periods in which he drew unemployment benefits.
(r) The Appellant's purported periods of work
did not correspond to the periods in which he actually worked.
(s) Given the nature of the Appellant's
duties, the payer required his services throughout the year.
[3] All the
circumstances which caused the Minister to conclude that the contract of
employment in the case at bar would not have been substantially similar but for
the non‑arm's length dealing are disputed. Ms. Thibault acknowledges that
the gross revenues during the years in question were stable, standing at
approximately $220,000 per year, but that 50% of her revenues were earned
during the tourist season, which begins in June and runs through September.
During this season, the payer has seven employees. During the rest of the year,
the payer has only four employees. To operate its motel, the payer needs a
night watchman who works 10 hours a day every day of the week; a cook for the
restaurant, who works 4 hours every day of the week; housekeepers and laundry
workers, whose number depends on the time of the year; and a front desk
attendant every day of the week. The only position not filled throughout the
year is that of the Appellant, who works on maintenance and at the front desk
as needed. Certain other employees were hired during the periods in question to
help at the front desk.
[4] The motel was built
in 1967. It needed major repairs, and, from the years following its purchase
until 2002, the payer renovated two or three rooms each year. In the first two
years, Ms. Thibault assigned the renovation work to the night watchman or
to contractors. Thereafter, she gave them to the Appellant, who had just
retired. The Appellant began working for the payer in 1987. The bulk of his
work was done during the tourist season. The Appellant renovated rooms in June
and then worked on lawn maintenance, repairs and regular maintenance.
[5] The Appellant's
hours were Monday to Friday from 8 a.m. to 5 p.m. and he was paid $15
per hour. The Appellant worked full-time during the tourist season and part‑time
the rest of the year. I will explore the details of the Appellant's periods of
work as entered in the payroll journal during the years in question later. For
her part, Ms. Thibault looked after the front desk every day throughout
the year from 8 a.m. to 10 p.m. Her office is located close to
the front desk and restaurant, and a chime notifies her each time the door
opens. She and the Appellant eat their meals in the restaurant throughout the
year.
[6] According to Ms.
Thibault, all the hours that the Appellant worked for the payer were entered in
the payroll journal and reported to the employment insurance authorities.
However, Ms. Thibault does acknowledge that the Appellant might
occasionally have responded to a guest who arrived at the front desk, and might
have done odd jobs outside his period of employment. She says that the
Appellant was on the motel property because he ate his meals at the motel
restaurant. The Appellant was assigned to the front desk for roughly 20%
of his hours and this percentage was lower during the tourist season. The
Appellant, for his part, claimed that he worked at the front desk from 10 to 15
hours per week and that the rest of his time was devoted to renovations and
regular maintenance.
[7] In 1997, the
Appellant worked 40 hours a week for the payer from early April to the first
week of November, except for two weeks when he worked 44 hours, for a
total of 31 weeks. During a total of 17 other weeks, he worked from 5 to 15
hours per week. He did not work for 4 weeks. Thus, he worked 1415 hours in
total, and his hourly rate was $15. His work is described as maintenance and
front desk work. According to the payroll journal for 1997, someone was
assigned to the front desk 40 hours per week from April to August.
[8] According to Ms. Thibault,
the Appellant was hired earlier in 1997 because Ms. Thibault was away for
four months to work as a federal returning officer and census coordinator. This
explains why the Appellant had to work the number of hours reported.
Ms. Thibault decries the fact that, during the investigation, none of
the officers asked her to explain the number of additional hours worked by the
Appellant or the type or nature of the work. The number of additional hours
worked by the Appellant was roughly 400 hours. The Appellant confirmed that
1997 was an election year and that he replaced his spouse at the front desk in
addition to looking after the maintenance of the motel.
[9] In 1998, the
Appellant worked from January to March for a total of 11 weeks. During 2
of these weeks, he worked 6 hours per week, and during the other 9 weeks, he
worked 10 hours per week. He returned to work full‑time in mid‑June
and stayed on until November for a total of 24 weeks at 40 hours per week. He
was paid $15 per hour for a total of 1062 hours. Thus, he went 16 weeks without
pay. Ms. Thibault explained that the Appellant was absent in April and May
because she did not need his services, and that he was hired to work from June
to November because of the work that needed to be completed and because of an
extended tourist season. From January to June, a receptionist worked at
the hotel part‑time for 94.5 hours per month.
[10] In 1999, the
Appellant worked 40 hours per week for 27 weeks, beginning in the second
week of June and ending on the first week of December. He was not paid in the
last three weeks of December and in January and February. From March to
early June, he was paid for 6 or 9 hours of work per week. He worked
a total of 1182 hours at a rate of $15 per hour. According to Ms. Thibault,
the small repairs in January and February were done by the night watchman, and
all the Appellant's hours of work were reported.
[11] In 2000, the
Appellant did not work until the last week of April, when he began working nine
hours per week until late May. From June to mid‑October, he worked
40 hours per week. After that, he worked 18 hours per week, except the
last week of December. Thus, he went 18 weeks without pay, and worked
20 full‑time weeks and 14 part‑time weeks, for a total of
1023 hours at a rate of $15 per hour. This was an election year, and
Ms. Thibault was a returning officer; she carried out her duties in
October and November. Ms. Thibault said that the Appellant worked at the front
desk with the night watchman, who was assigned to the day schedule.
Ms. Thibault was there in the evenings and hired another part‑time
employee for the entire year, except July. This employee staffed the front desk
in October and November and worked 39 to 52 hours per week, except for two 7‑hour
weeks.
[12] In 2001, from
January to April, the Appellant worked part-time for five weeks. During four of
those weeks, he worked 8 hours a week, and for one week, he worked 25 hours. In
May and June, he was paid for 2 eight‑hour weeks, 6 twenty-five hour
weeks, and a single 40‑hour week. From July to the first week of
October, he worked full‑time 40 hours per week. At year's end, he
was paid for only 2 eight-hour weeks. Thus, he was unpaid for 22 weeks, paid
for 15 forty‑hour weeks and 15 part-time (8 to 25‑hour) weeks.
Thus, he worked for 839 hours at a rate of $15. The night watchman worked
all year and another employee worked part‑time all year.
Ms. Thibault explained that the annual room renovations began in May but
that during that year, she had to obtain more materials because of a sewer
backflow and had to do business with private contractors, some of whom supplied
the materials. She acknowledged that in 2001, most of the renovations had been
completed and only regular maintenance remained to be done, except perhaps in
one room. She said that this explains the reduction in the Appellant's hours in
2001 and 2002.
[13] In 2002, the
Appellant worked a total of 640 hours. He worked only 16 forty‑hour
weeks, beginning in mid‑July and ending in late September, plus 2 weeks
in October and 3 weeks in November. His hourly rate remained $15. However,
there were more employees, including one part-time front desk attendant.
According to Ms. Thibault's explanations, the Appellant worked fewer hours
because the renovations were finished.
[14] For 2003, the
payroll journal tendered in evidence ends on May 17 and states that the
Appellant worked two weeks in May: 15 hours during the first week and
18 hours during the second, for $15 per hour.
[15] The Appellant
considers himself the payer’s handyman. He has been working for the payer since
1987 and his employment was always considered insurable until 1997. His home is
five minutes by car from the motel and he goes there every day because his wife
works there from 8 a.m. to 10 p.m. He eats his meals at the
motel and replaces his wife at the front desk when she has to be away.
[16] The annual room
renovations began in June, and once they were done, the Appellant looked after
grounds maintenance, flowers, landscaping, painting and general maintenance. He
says that he worked all the hours stated in the payroll journal throughout the
year. In addition, he claims that he never banked hours in order to qualify for
employment insurance. He says that his hourly rate is consistent with the type
of work that he did and was acceptable to him. He says that his hours declined
because there was less renovation work to do as the years went by, leaving only
maintenance work. He adds that he sometimes performed a few services outside
paid hours, but that this consisted of very light work such as replacing a
light bulb. If a repair was going to take hours to complete, the payer would
enter the hours in the payroll journal.
[17] In a written
declaration dated May 22, 2003, Mr. Lévesque acknowledged performing services
for the payer during the winter, while he was receiving employment insurance
benefits. In the statement, he explained that the expenses during these months
exceeded revenues. At the hearing, he tried to explain what he meant: he could
not be employed full‑time throughout the year because the payer’s income
did not allow for this, and in any event, the work in question was very light.
This issue was raised after one or more employees stated that the Appellant
rendered services during the winter months.
[18] In a written
declaration dated May 23, 2003, Therèse Desrosiers confirmed that the Appellant
worked for the payer on a regular basis throughout the year. She modified
her answer at trial by explaining that she had answered the question without
thinking, because she only saw the Appellant work from time to time in 2002 and
2003, and before those years, she did not work during the winter and was
therefore unable to confirm what she had written in her statement. She said
that she receives instructions from Jocelyne Thibault regarding her work. No
other employee testified to confirm the affirmation that the Appellant worked
full‑time throughout all or some of the years in question.
[19] Denis Hamel is the
appeals officer who made the ministerial recommendations in this matter. In
addition to reviewing the results of the investigation by Daniel Levesque,
regional major investigations specialist, he interviewed the Appellant and
Jocelyne Thibault over the telephone in the presence of their counsel for
approximately two and one‑half hours. He tendered his CPT110 report, in
which he stated the problems that this approach caused him. Despite these
problems, he managed to obtain enough information to make his findings and
report to the Minister on the terms and conditions of the Appellant's
employment with the payer. With regard to the terms and conditions of
employment, Mr. Hamel attempted, for all the periods in issue, to
reconcile the Appellant's work schedules based on the time he spent at the
front desk in relation to the time he spent on maintenance and renovation. He
had to clear up the statutory declarations and the information obtained during
the telephone interview that he felt were inconsistent. He also tried to
clarify the issue of whether the Appellant had indeed rendered services at the
front desk while he was receiving employment insurance benefits. This issue was
raised by Lise Desrosiers, a housekeeping employee, who had stated that the
Appellant worked with her during the winter months. Lise Desrosiers did not,
however, testify at the hearing of this matter, and her declaration is not in
evidence. Based on the foregoing, Mr. Hamel found that it was difficult to
establish the Appellant's work schedule, and that the terms and conditions of
his employment would not have been the same if the parties had been dealing
with each other at arm's length.
[20] Mr. Hamel made
the same finding with respect to the duration of the employment. After
analyzing the maintenance expenses during the periods in question and the
minimum number of hours worked during periods in which the motel was less busy,
he determined that the duration of the Appellant's employment does not reflect
the actual work that he did. He found it strange that, even though the
Appellant's services were needed throughout the year because of the nature of
his duties, he was presumably the only employee with regular duties who was not
remunerated on a regular basis. According to Mr. Hamel, the duration of the
Appellant's work is explained by the fact that the motel could not function
properly without his important maintenance and front desk work year‑round.
[21] On the subject of
remuneration, given the Appellant's dual function, the appeals officer did not
accord much importance to the hourly rate, but he questioned the fact that the
Appellant was not given a raise since the first period, whereas most of the
other employees were given the prescribed increase in the minimum wage.
Lastly, the appeals officer also took account of the fact that the
Appellant borrowed money to help his wife buy the motel, though I must say that
this was a relatively minimal amount in relation to the purchase price.
The Appellant made this loan before he was hired.
[22] During his
testimony, the appeals officer acknowledged that he did a global analysis of
all the periods in question. In fact, as an example of this, he admitted that
while he is convinced that the Appellant's employment was not insurable in
2002, he determined that it was insurable from 1997 to 2001. He claimed that he
did not get all the answers to his questions during the telephone interview,
and that he doubted Jocelyne Thibault's credibility, particularly with regard
to her claim that she worked 14 hours a day, 7 days a week, considering that
she reported income from other sources that same year. However, he admitted
that he was unaware of the fact that, in 2000, a night watchman also worked at
the front desk during the day, thereby freeing Jocelyne Thibault and enabling
her to do something else. The appeals officer ended his testimony by
insisting that all the periods have to be examined globally, but acknowledging
that if the facts that arose in 1997 had been the only facts in issue, we would
not be in court today.
[23] The roles of the
Minister and the Court in cases where the former must determine if an
employment is excluded from insurable employment by reason of non‑arm's
length dealing were defined by the Federal Court of Appeal in Légaré v. Canada,
A-392-98, May 28, 1999, [1999] F.C.J. No. 878 (QL) where
Marceau J.A. summarized in the following terms, at paragraph 4, the
approach that must be adopted:
The Act requires the Minister to
make a determination based on his own conviction drawn from a review of the
file. The wording used introduces a form of subjective element, and while this
has been called a discretionary power of the Minister, this characterization
should not obscure the fact that the exercise of this power must clearly be
completely and exclusively based on an objective appreciation of known or
inferred facts. And the Minister's determination is subject to review. In fact,
the Act confers the power of review on the Tax Court of Canada on the basis of
what is discovered in an inquiry carried out in the presence of all interested
parties. 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.
[24] In fact, the Federal Court of Appeal reiterated its position in Pérusse v. Canada,
A-722-97, March 10, 2000, [2000] F.C.J. No. 310 (QL).
Marceau J.A., referring to the following excerpt from Légaré, added
the following at paragraph 15:
The function of an appellate judge
is thus not simply to consider whether the Minister was right in concluding as
he did based on the factual information which Commission inspectors were able
to obtain and the interpretation he or his officers may have given to it. The
judge's function is to investigate all the facts with the parties and witnesses
called to testify under oath for the first time and to consider whether the
Minister's conclusion, in this new light, still seems "reasonable"
(the word used by Parliament). 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. However, simply referring to the Minister's
discretion is misleading.
[25] The provisions of
the Act under which employment is excluded from insurable employment where the
employer and employee are not dealing with each other at arm's length, and the
provisions that apply to situations where such non‑arm's length dealing
is no longer deemed to exist, are worded as follows:
5. . . .
Excluded employment
(2) Insurable employment does not include
. . .
(i) employment if the employer and
employee are not dealing with each other at arm’s length.
Arm's length dealing
(3) For the purposes of
paragraph (2)(i),
. . .
(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.
[26] In Louis-Paul Bélanger
v. M.N.R., 2005 TCC 36, Archambault J. of this Court analyzed a set of
decisions of both the Federal Court of Appeal and the Tax Court of Canada
on the issue of non arm's length dealing and the process that the Court must
follow in an appeal from a decision of the Minister based on the statutory
provisions quoted above.
[27] This appeal spans
several periods, and the Minister's decision was based on a broad approach that
encompassed all these periods and compared them and analyzed them as a whole.
The evidence clearly shows that these successive periods did not necessarily
resemble each other. It is clear simply from looking at the Appellant's hours
during each period in issue that his workload diminished greatly from year to
year and that there are undoubtedly explanations for this situation. Those
explanations are at the heart of this matter, and the weight that they will be
given depends on the veracity of the testimony and other evidence concerning
the payer’s activities.
[28] The business in question
was operated throughout the year and its activities increased during the
tourist season. According to the evidence, seven employees are needed in order
to operate during the tourist season, and no fewer than four employees are
needed during the low season. The front desk must be staffed at all times, that
is to say, 24 hours a day. Room service must be provided on a regular basis,
and a cook is needed for breakfast. The front desk is staffed by owner
Jocelyne Thibault from 8 a.m. to 10 p.m. and by the night
watchman the rest of the time. The front desk has occasionally been staffed by
students, and the Appellant has worked at the front desk part-time during the
low season and occasionally during the tourist season, contrary to the
Minister's finding on this issue. The Appellant is the employee
responsible for building maintenance, repairs, grounds maintenance and the
front desk. During the earlier periods, he did renovation work in the rooms,
notably replacing walls, plumbing, and electrical equipment, as well as
retiling and repainting.
[29] According to Ms.
Thibault and the Appellant, contrary to the Minister's claims, all the
Appellant's hours were entered in the payroll journal. This statement of
theirs seems credible to me in relation to the earlier periods in issue because
the payroll journal indicates that, in addition to his full‑time work,
the Appellant worked part-time during several periods throughout the year,
resulting in a small number of unpaid weeks at the beginning of the periods — 4, 16
and 11 weeks — a figure that increases to 18, 22 and 36 weeks for the
last three years. As for the hours worked, it decreased from 1415 in 1997 to
640 in 2002. Considering the number of hours that Ms. Thibault worked
at the front desk seven days a week, in relation to the number of employees
listed in the payroll journal, there is reason to believe that the Appellant
worked more hours than were entered in the payroll journal.
[30] The Minister does
not appear to have accepted Ms. Thibault's explanations regarding the reduction
in her hours and weeks of work, or her explanations to the effect that the
Appellant was called upon more often to do replacement work during the election
and census years. Nor does the Minister appear to have accepted Ms. Thibault's
explanations to the effect that she did her work in her own office, close to
the front desk, without calling on the Appellant during these periods.
It appears that the Minister preferred the theory that the Appellant
worked without counting his hours. The Minister did not believe the statement
that an employee named J.F. Audet, not the Appellant, worked at the front
desk when Ms. Thibault needed to be away.
[31] One of the
explanations given for the Appellant's allegedly reduced hours of work was that
the room renovations ended in late 1999 and that certain other work was given
to contactors later on, specifically from 2001 to 2003. All of these
explanations are credible in my view, and account very well for the reduction
in the Appellant's hours of work from year to year. If one believes the
allegation that Ms. Thibault spent a huge amount of time at the front
desk, it is plausible that the Appellant's services were not required as often
as the Minister seems to believe.
[32] However, the
questions that the appeals officer might have had regarding the hours actually
worked by the Appellant appear to have arisen because of the statements that
the Appellant made when he was asked to explain why certain employees of the
payer had stated that the Appellant worked at the motel during the winter while
on unemployment. Without directly answering the question, he said that one
simply needed to look at the revenues: when it costs $16,000 to operate the
motel, and revenues total $10,000 or $11,000, it is difficult. One of the
employees able to report on this subject is Thérèse Desrosiers, who explained
that she could not have seen the Appellant at work during the winter months
because she did not work then. She was only there in the winters of 2002 and
2003, at which time she only saw the Appellant occasionally. The other employee
who might have seen the Appellant work did not testify. As for the Appellant,
he acknowledges that he rendered services while receiving benefits. Based on
all this, it seems clear to me that the terms, conditions and duration of the
Appellant's employment changed over the years to such an extent that the
Minister was justified in concluding that the Appellant's periods of employment
did not correspond to the periods that he actually worked, particularly during
the last periods in question.
[33] It must be
acknowledged that with this type of business, it is difficult to establish a
work schedule for an employee who does maintenance and repair work outside the
tourist season. However, the fact that his services are required by the payer
throughout the year on an as‑needed basis must be taken into account.
The periods when the Appellant was paid for part‑time work during
the years in issue varied from 11 to 18 weeks. However, this part‑time
work was done during the winter months in 1997, 1998 and 1999.
Ms. Thibault explained that the night watchman did repairs during this
period. In 2000, the Appellant worked for only five weeks during the
winter months, and in 2001 and 2002, the Appellant did not work at all during
the winter months. The Appellant provided no explanation for these last three
years.
[34] For these reasons,
the Minister's conclusion regarding the periods of April 25 to
October 14, 2000, October 23, 2000 to
February 3, 2001, April 27, 2001 to
October 5, 2001, and November 21, 2001 to
November 22, 2002, seem reasonable to me. Thus, I find that the
Appellant was not employed in insurable employment within the meaning of the
Act during these periods. The Appellant did not discharge the
burden of proof. With respect to the periods of January 5 to
October 31, 1997, November 11, 1997 to
February 12, 1998, February 17, 1998 to
November 27, 1998, and March 2, 1998 to December 3, 1999,
the Minister's conclusion does not appear reasonable to me under the
circumstances because there is insufficient evidence to support it.
The appeals are therefore dismissed for the 2000, 2001 and 2002 periods,
and allowed for the 1997 to 1999 periods inclusively.
Signed at Ottawa, Canada, this 24th day of
February 2006.
"François
Angers"
Translation certified true
on this 29th day of November 2006.
Monica F.
Chamberlain, Reviser
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