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Citation: 2006TCC547
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Date: 20061024
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Docket: 2005-4323(EI)
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BETWEEN:
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VALÉRIE RODRIGUE,
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Appellant,
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and
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THE MINISTER OF NATIONAL REVENUE,
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Respondent.
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[OFFICIAL
ENGLISH TRANSLATION]
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REASONS FOR JUDGMENT
Savoie D.
J.
[1] This appeal was heard at Québec, Quebec,
on August 24, 2006.
[2] This
is an appeal from a decision by the Minister of National Revenue (the
“Minister”) dated August 16, 2005, according to which the Appellant held
insurable employment during the period from March 16, 2003 to March 13, 2005
(the “period in issue”), while she was working for Jacomau Inc., the payor.
[3] In
rendering his decision that the Appellant’s employment was insurable, the
Minister relied on the following assumptions of fact:
[TRANSLATION]
5.(a) the payor was
incorporated on June, 7, 1995; (admitted)
(b) the payor is
specialized in manufacturing mouldings, door and window components and exterior
coverings; (admitted)
(c) the payor
operates its business year round and has its peak period between March and
October; (admitted)
(d) the payor has
clients in Quebec, Ontario and the United States; (admitted)
(e) in 2004, the
payor had a sales figure of $6,500,000, which was to reach $7,200,000 in 2005;
(admitted)
(f) the payor
employs approximately 30 people, most of whom are day labourers or machine
operators who work at the plant; (admitted)
(g) Jean-Marc
Rodrigue, the Appellant’s father, is the production manager; Gaétane Veilleux,
the Appellant’s mother, is the operations manager; and the Appellant is the
production and quality controller; (admitted)
(h) the Appellant
has been working full-time for the payor since June 2002; (admitted)
(i) as
controller, the Appellant was in charge of:
planning, follow-up,
output and changing of the production
follow-up on
deliveries,
transport,
wood
inventory and purchasing,
shipping and
receiving of merchandise,
quality
control,
the
workplace health and safety committee; (admitted – to be completed)
(j) the
Appellant generally worked from 7:00 a.m. to 6:00 p.m., from Monday to
Thursday, from 7:00 a.m. to 4:00 p.m. on Friday and from 8:00 a.m. to 12:00
p.m. or 1:00 p.m. on Saturday; (denied)
(k) the
Appellant’s work hours were not counted, but she regularly worked 50 to 60
hours per week; (denied)
(l) the
Appellant received compensation of $600 per week gross; (admitted)
(m) the
Appellant’s compensation was paid to her by direct deposit each week;
(admitted)
(n) the Appellant
did not have a single week of vacation since starting work for the payor;
(admitted)
(o) in 2004, the
Appellant received a bonus of $5,000 from the payor in thanks for her good
work; (denied)
(p) if the
Appellant needed to travel for her work, she used her automobile and the payer reimbursed
her $0.35 per kilometre travelled; (denied)
(q) the Appellant
worked almost exclusively at the payor’s place of business and under its
supervision; (denied)
(r) the Appellant
received fixed compensation from the payor and did not incur any expenses in
the course of her work; (denied)
[4] The
Appellant and the payor are related persons within the meaning of the Income
Tax Act because:
[TRANSLATION]
6.(a) Jean-Marc
Rodrigue was the sole shareholder of the payor; (admitted)
(b) the Appellant
is the daughter of Jean-Marc Rodrigue; (admitted)
(c) the Appellant
is related to a person who controls the payor. (admitted)
[5] The
Minister also determined that the Appellant and the payor were dealing with
each other at arms length in the context of this work, since he was satisfied
that it was reasonable to conclude that the Appellant and the payor would have
entered into a substantially similar employment contract if they had been
dealing with each other at arms length, having regard to the following
circumstances:
[TRANSLATION]
7.(a) the Appellant
received a fixed weekly compensation of $600 gross, which, considering her
duties and responsibilities, was reasonable; (denied)
(b) despite a
variable work schedule, the Appellant worked between 50 and 60 hours per week;
(denied)
(c) the duties
carried out by the Appellant were essential to the proper operation of the
payor’s business; (admitted)
(d) the
Appellant, just like the payor’s other workers, was covered by the payor’s
group insurance policy (salary, drug and life) to which she contributed at 50%;
(admitted)
(e) the Appellant
chose not to take her parental leave; her spouse took it. (admitted)
[6] The evidence revealed that the Appellant had
started working at the payor’s business at the age of 12, evenings, after
school and on weekends. She started working full-time in 2002, and between then
and the end of the period in issue, her salary went from $14,104.00 to
$35,473.00 annually.
[7] The Appellant is the production and quality
controller of the payor’s business. During the period in issue, she had the
following duties:
(1) planning, follow-up, output and
changing of the production;
(2) follow-up on deliveries;
(3) transport;
(4) wood inventory and
purchasing;
(5) shipping and receiving
of merchandise;
(6) quality control, and;
(7) the workplace health
and safety committee.
[8] From the start of her full-time employment, the
Appellant took responsibility for solving problems related to production. She
implemented a management system, which, at the beginning, did not please
everyone. She was able to demonstrate to her father that the business, due to
certain shortcomings, was losing money. Since her father was not very
interested in management, the Appellant talked with him and her mother and
then, with the help of a consultant, she set up a system to solve the
production problem, the P.V.A. (“Production en valeur ajoutée” or “production
in value added”). As the system was computerized, the production problem was
solved.
[9] Since being a youngster, she had aspired to the
management of the payor’s business. She learned English to be able to support
the American clientele and develop it more, since her father does not speak
English. Already in 2002, at 18 years of age, her father was showing her the
inner workings of the plant. She is familiar with all components of the
operations and she frequently replaces her father as foreperson, as she has
already worked on the production line.
[10] The Appellant managed to convince her father to
purchase software that was custom-made for the business, which allowed her to
reduce the time spent on her numerous tasks, so that she could better see to
all of the operations. [TRANSLATION] “I took that initiative,” she said. “I
had to do it because my father does not like to look after management.”
[11] The Appellant works 50 to 60 hours per week, but
she is also responsible for the emergencies that frequently come up outside of
work hours and on weekends, and which require ten additional hours of work per
week. She is the one who deals with customs problems and problems associated
with the lumber conflict with the United States.
[12] The Appellant stated that she invested her time
for the future, confident that the business would be hers one day. [TRANSLATION] “Without that,”
she said, “I would not work in such conditions and neither would a
non-related stranger.” The Appellant added that her father would not do her
work. The Appellant’s mother confirmed that it was intended that the Appellant
would take over the business.
[13] In her daily work at the plant, Mr. Rodrigue
does not tell the Appellant what to do. She has every latitude to perform her
duties as she wishes. In fact she is the one who tells her father what orders
have to be filled. She does not answer to anyone.
[14] In a letter dated April 27, 2005, addressed to
the Appeals Division of the Canada Customs and Revenue Agency, Maude Boivin,
consultant, Customer Service, Conseil Taxes Inc., Related Persons Division,
wrote that the Appellant received a salary significantly below that of the
employment market. According to her, the salary of another employee, not
related to the family, doing the same work, would be at least $50,000. It
should also be noted that the company pays its sales representative, Laurent
Lessard, $80,000 per year, a fact that the Minister ignored in his assessment.
In 2004, the payor paid the Appellant a bonus of $5,000 in thanks for her good
work. It must be noted that she was the only employee to receive such treatment,
except for Laurent Lessard, who received a bonus of more than $50,000.
[15] The Appellant did not take any vacation since
starting to work for the payor, i.e. since 2002, except for a few days. She
hardly incurred any expenses in performing her duties. Occasionally she uses
her own vehicle to visit clients, and the payor pays her 35 cents per kilometre
in compensation. The payor supplied the Appellant with a cell phone, which
allows her to communicate with clients and to be available to them, often after
work hours, that is evenings and weekends. When she works from home, she uses a
laptop and a fax machine, which are supplied by the payor.
[16] It was determined that the Appellant gave birth
to her first child on March 29, 2005. She stopped working at the payor’s office
on March 13, 2005, but she worked instead from her residence between 20 and 30
hours per week without compensation. She took three or four days leave after
giving birth and went back to work at the office on April 4, 2005, according to
her regular schedule. However, during these days of leave, she worked for the
company using her laptop, even on the day of the birth, when she worked for the
company until 1 p.m. at the hospital.
[17] The issue is not whether there was an employment
contract between the Appellant and the payor. It must be admitted that the
Appellant received an employment income that was determined and paid by the
payor. The relationship of subordination was established, according to the
evidence, even though the Appellant enjoys a certain independence because of
her ability and her experience with the company. It remains that her father,
Mr. Rodrigue, is the sole shareholder of the company. The issue rather is
whether the Appellant’s employment is excluded from insurable employment, under
the Employment Insurance Act (the “Act”), which stipulates the
following:
INSURABLE EMPLOYMENT
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.(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.
[16] The Minister submits that he properly exercised his discretion under
subsection 5(3) of the Act and that the Appellant’s work conditions would have
been substantially similar if the Appellant and the payor were dealing with
each other at arms length.
[17] In the present case, it was proven that the Appellant grew up in this
business, started by her father a few years earlier. The Appellant took
interest in the business as a youngster, then completed her vocational school
diploma and learned English with the intention of taking over the business.
[18] This Court must now examine all of the circumstances described in
paragraph 5(3)(b) of the Act that came into the Minister’s analysis.
COMPENSATION PAID
[19] The Minister filed as Exhibit I-3 an extract from a document prepared
and published by Human Resources and Skills Development Canada aimed at
supporting the conclusion that the salary paid to the Appellant is comparable
to that of the industry standard for workers in the category identified as
“production clerk.”
[20] Counsel for the Appellant expressed the opinion that the Appellant’s
duties were far from comparable to those of a “clerk.” This Court considers that
this opinion is well founded, since the evidence revealed that the Appellant’s
duties resemble more closely those of a director or manager. Her title,
moreover, is “production and quality controller.”
[21] Furthermore, the Appellant proved her integral role in the business,
the progress she accomplished, and the improved efficiency thanks to her
initiative.
[22] It was established that the Appellant invested time in the business in
consideration of her future, when it is anticipated that she will rise to
ownership of the business.
[23] The work hours, the low salary paid, the level of responsibility she
was given, her experience despite her young age and the skill she brought to
the company’s problem files support her claim that a non-related stranger, with
the same qualifications, would not enter into a substantially similar work
contract, and not for the same salary.
[24] It must be pointed out that Mr. Lessard, the company’s sales
representative, earns an annual salary that, including his bonus, comes to
$80,000. Yet the Minister, in his analysis, did not take this fact into
consideration.
CONDITIONS AND DURATION OF EMPLOYMENT
[25] When the Appellant does work for the payor from her residence, the
payor supplies her with a cell phone. She spends many hours per week taking
care of urgent matters relating to lumber, customs and transport problems. She
only took a few days leave for the birth of her child. On the day of the birth,
she worked with her laptop at the hospital until 1 p.m.
[26] She has worked full-time since 2002, having started to work part-time
in 1986 at the age of 12. She manages the business with her parents because she
has the expertise and experience to do it and she has the full confidence of
her parents.
[27] The balance of evidence has established that the business would not be
where it is without the Appellant’s contribution.
NATURE AND IMPORTANCE OF THE WORK
[28] The payor operates a business that manufactures mouldings, door and
window components and exterior coverings. Forty per cent of its clientele is in
the United States. The Appellant holds a management position. She is the only
one in the company who can communicate with this clientele in English. Since
her childhood, she has learned all the inner workings of the business,
including operations at the plant, where she has herself worked.
[29] She has shown herself to be innovative and informed. She was able to
adapt the business to the modern era and computerize it. Her contribution is
such that she has become the directing mind of this business.
[30] The question that must be asked is this: would a stranger have worked
like the Appellant did for a salary well below the industry average,
considering her schedule? Would this stranger have worked as many overtime
hours without pay, without vacation and without days off? To not repeat all of
the terms and conditions of the Appellant’s employment, it is appropriate to
examine this determination by the Minister and whether it is reasonable to
conclude that the Appellant and the payor would have entered into a
substantially similar employment contract if they had been dealing with each
other at arm’s length.
[31] After closely examining all of the circumstances surrounding the
Appellant’s employment, including the compensation paid, the terms and
conditions as well as the duration, the nature and the importance or the work
performed, this Court is of the opinion that the facts do not support this
conclusion.
[32] The
Federal Court of Appeal has set out the principles of application to resolve
the issue submitted to this Court in Légaré v. Canada (Minister of National Revenue – M.N.R.), [1999] F.C.J. No. 878, in which Marceau J. ruled in
paragraph 4 as follows:
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.
[33] Based on the evidence gathered, this Court must conclude that the
facts inferred or relied on by the Minister are not real and were not correctly
assessed having regard to the context in which they occurred. The evidence
filed at the hearing leads to the determination that the conclusion with which
the Minister was “satisfied” no longer seams reasonable.
[34] Accordingly, the appeal is allowed and the Minister’s decision is
vacated.
Signed at
Grand-Barachois, New Brunswick, this 24th day of October 2006.
Savoie
D.J.
on this 8th day of June 2007.
Gibson Boyd,
Translator
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