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Citation: 2005TCC107
Date: 20050208
Docket: 2004-2328(EI)
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BETWEEN:
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PARIS LADOUCEUR & ASSOCIÉS INC.,
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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]
REASONS FOR JUDGMENT
Lamarre Proulx J.
[1] This is an appeal from an assessment made under the Employment Insurance Act (the “Act”) on the ground that Vincent Ladouceur and Réjean Paris were in
insurable employment with the Appellant.
[2] The main issue is whether each of the workers
controlled more than 40% of the voting
shares of the Appellant within the meaning of paragraph
5(2)(b) of the Act. A subsidiary issue is whether the workers were in
insurable employment within the meaning of paragraphs 5(1)(a) and 5(2)(i)
of the Act.
[3] To make his decision concerning the main issue,
the Minister of National Revenue (the “Minister”) relied on the facts
described in paragraph 6 of the Reply to Notice of
Appeal (the “Reply”) as
follows:
(a) During the year at issue, Vincent Ladouceur and Réjean Paris
were employed by the Appellant;
(b) Gestion Paris Ladouceur Inc. was the Appellant’s only
shareholder;
(c) The shareholders of Gestion Paris Ladouceur Inc. were as
follows:
Gestion Réjean Paris Inc. with 50% of the shares,
Gestion Vincent Ladouceur Inc. with 50% of the shares;
(d) Réjean Paris was the only shareholder of Gestion
Réjean Paris Inc.;
(e) Vincent Ladouceur was the only shareholder of Gestion Vincent
Ladouceur Inc.;
(f) Réjean Paris controlled Gestion Réjean Paris Inc.;
(g) Vincent Ladouceur controlled Gestion Vincent Ladouceur Inc.
(h) Neither Vincent Ladouceur nor Réjean Paris controlled Gestion
Paris Ladouceur Inc.
(i) Neither Vincent Ladouceur nor Réjean Paris controlled the
voting shares held by Gestion Paris Ladouceur Inc.;
(j) Neither Vincent Ladouceur nor Réjean Paris controlled the voting
shares of the Appellant.
[4] To make his decision concerning the finding
that the workers’ employment was employment under a contract of service for the
purposes of paragraph 5(1)(a) of the Act, the Minister relied on
the facts described in paragraph 7 of the Reply:
(a) The
Appellant operated a business specializing in the appraisal of real estate;
(b) The business was operated
year-round;
(c) In
2002, the Appellant generated about $850,000 in sales;
(d) The
company’s business hours were 9 a.m. to 5 p.m., Monday to Friday;
(e) Réjean
Paris and Vincent Ladouceur are both chartered appraisers;
(f) Both workers were employed by
the Appellant;
(g) The main duties of Réjean Paris
were to
— handle the records of financial
institutions;
— supervise current operations;
— verify
and approve the appraisers’ records, occasionally assist Vincent Ladouceur and
testify in court;
(h) The
main duties of Vincent Ladouceur were to
— handle the records of cities and
municipalities,
— supervise current operations;
— verify
and approve the appraisers’ files, occasionally assist Réjean Paris and testify
in court;
(i) They
worked on the Appellant’s premises;
(j) They
worked more than 40 hours per week; their hours were not accounted for by the
Appellant;
(k) Each
of the workers received $1,000 per week plus two bonuses including one for RRSP
purchases;
(l) The
workers’ wages were established based on the number of hours worked by each of
them as well as the company’s financial performance.
[5] Vincent Ladouceur admitted to
subparagraphs 6(a) to 6(g) of the Reply and denied subparagraphs 6(h) to
6(j) of the Reply. He admitted to subparagraphs 7(a) to 7(j) of the Reply
and denied subparagraphs 7(k) and 7(l) of the Reply.
[6] The assessment is for 2002. Messrs. Ladouceur
and Paris are chartered appraisers.
[7] Mr. Ladouceur stated that he began to work for
Mr. Paris in 1977. In 1987, he became Mr. Paris’ partner. He held 42% of the
shares and Mr. Paris held 58%. In 2002, they each held 50% of the shares. In
2003, Mr. Ladouceur became the holder of 100% of the shares and Mr. Paris
became an employee of the corporate Appellant.
[8] With respect to subparagraph 7(d) of the Reply,
Mr. Ladouceur stated that the company’s business hours were those mentioned in
subparagraph (d) but that he and Mr. Paris exceeded those hours on evenings and
weekends. He mentioned that the company had 18 employees and that the employees
generally worked during the company’s business hours although on occasion some
exceeded those hours.
[9] With respect to subparagraph 7(k), he
explained that his and his partner’s weekly wages were $1,000. The bonuses were
paid in the form of dividends and were based on the company’s financial
performance. Occasionally, the two shareholders did not claim a pay depending
on the company’s cash flows. He denied that their wages were established based
on the number of hours worked.
[10] With respect to the description of Mr. Paris’s
and Mr. Ladouceur’s duties in subparagraphs (g) and (h), he said they each
had their niche but that they would often go beyond that niche. It can be said
that 80% of their duties were performed within the niches mentioned in
subparagraphs (g) and (h).
[11] The witness added that he and Mr. Paris were
compatible partners. They never had any decision-making problems. He also
explained that the premises where the Appellant operated were 50% owned by the
two shareholders’ collective societies. They hired employees together. Cheques
were signed either by one or the other or by both. The line of credit
endorsement was carried out by the two shareholders themselves. Neither
directed the other one’s work. The amount of the salary was mutually agreed
upon.
Analysis and conclusion
[12] Paragraphs 5(2)(b), 5(2)(i)
and 5(1)(a) of the Act read as follows:
5(2) Insurable employment
does not include
...
(b) the employment of a person by a
corporation if the person controls more than 40% of the voting shares of the
corporation;
(i) employment if the employer and
employee are not dealing with each other at arm's length.
5(1) Subject to subsection (2), insurable
employment is
(a) employment in Canada by one or
more employers, under any express or implied contract of service or
apprenticeship, written or oral, whether the earnings of the employed person
are received from the employer or some other person and whether the earnings
are calculated by time or by the piece, or partly by time and partly by the
piece, or otherwise;
[13] The Appellants’ agent relied on the decision of
the Federal Court of Appeal in Canada v. Dupuis, [1988] F.C.J. no. 556 (Q.L.). This decision
was rendered in accordance with paragraph 14(a) of the Unemployment
Insurance Regulations which reads as follows:
The following employments are excepted from
insurable employment:
(a) employment of a person by a corporation if he or
his spouse, individually or in combination, controls more than 40% of the
voting shares of that corporation . . .
[14] The Federal Court of Appeal ruled as follows:
As this Court pointed out in Cloutier
(1987), 74 N.R. 396, this provision does not speak of control of a corporation
but of control of shares: it might now be added that it also does not speak of
ownership, but of control. It is quite clear that a person who controls 100% of
the shares of a corporation which, in its turn, controls over 40% of the shares
of a second corporation controls over 40% of the latter's shares.
[15] The Federal Court of Appeal noted this does not
involve the de jure or de facto control of a
corporation but the control of more than 40% of the
voting shares.
[16] Counsel for the Respondent relied on two
decisions of the Court, Boughen v. Canada, [1996] T.C.J.
no. 757 (Q.L.) and Highland Roofing Ltd. v. Canada, [1998]
T.C.J. no. 922 (Q.L.).
[17] She cited paragraph 7 in Boughen:
Neither Ron nor Chris controlled more than
40% of the shares of Opco. Because Holdco owned 100% of the shares
of Opco, it controlled Opco. Each of Ron and Chris needed the other
of them or his father to vote Holdco shares in the same fashion as he did in
order to control Opco. As I explained at the hearing, Opco was
simply an asset of Holdco. Holdco's decisions directed
Opco. The ability to vote more than 50% of the shares of Holdco,
whether through ownership or some voting arrangement, was necessary for a
shareholder of that company to be able to control Opco and, accordingly, more
than 40% of the shares of Opco. There was no evidence that this was
the case.
[18] She cited paragraph 12 in Highland Roofing
Ltd.:
However, the Court is reluctant to accept
this argument. Wentland only owned 50% of the shares in Lorna. Hence, he was
not in a majority position and therefore, could not single-handedly determine
how the company would vote the shares it held in the Appellant. In other words,
Wentland lacked de jure control. Consequently, it would be erroneous to
conclude that Wentland indirectly controlled 25% of the Appellant by virtue of
his shareholdings in Lorna. Given this fact, the Court must conclude that the
Appellant only controlled 20% of the shares of the Appellant and therefore does
not fall within paragraph 5(2)(b) of the EI Act.
[19] The reasons for these two decisions are not on
their face easy to decipher. However, I need to understand that there was no
confusion between the control of a corporation and the control of more than 40%
of the voting shares. The employment exempt is that of a worker employed by a
corporation of which the worker holds more than 40% of the voting shares and
not employed by a corporation of which the worker has de jure or de facto
doctor. The Act does not require a control of this nature to exempt the
employment. It is well known that de jure control is exercised with
more than 50% of the voting shares. The holding of more than 40% of the
voting shares does not equal de jure control of the corporation.
[20] In this appeal, each worker controlled 100% of
the shares of a corporation that controlled 50% of the shares of another
corporation which in turn controlled 100% of the Appellant’s shares. It seems
obvious to me that in keeping with the reasoning of the Federal Court of Appeal
in Dupuis, supra, each of the workers in question controlled more
than 40% of the Appellant’s voting shares. The fact that it goes a step further
than the decision of the Federal Court of Appeal in Dupuis cannot change
the reasoning.
[21] Furthermore, with respect to the insurable
employment under paragraph 5(1)(a), it is difficult to understand the
relationship of subordination necessary for insurable employment between the
two workers and the Appellant. The two workers set the amount of their own
salary, their workload, their working hours as well as the dividends they
granted themselves to increase their pay. They owned the Appellant.
[22] In addition, the two workers and the Appellant
were clearly not dealing with each other at arm’s
length within the meaning of
tax law. Their employment is therefore necessarily excepted under paragraph
5(2)(i) of the Act. In order for the employment not to be excepted, a
determination by the Minister is required. This determination was not made.
[23] The appeal is allowed.
Signed at Ottawa, Canada, this 8th day of February 2005.
Lamarre
Proulx J.
Translation
certified true
on this 13th day of
July 2005.
Daniela Possamai,
Translator
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