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Citation: 2005TCC291
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Date: 20050425
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Docket: 2004-2683(EI)
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BETWEEN:
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RICHARD BIRKLAND,
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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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REASONS FOR JUDGMENT
BowieJ.
[1] This appeal is brought from a
decision of the Minister of National Revenue, by his delegate,
dismissing the Appellant's appeal under section 91 of the
Employment Insurance Act (the Act)[1] from a ruling made under section
90 of that Act whereby the Appellant's employment by
Parallel Medical Services Limited (Parallel) during the period
between January 19, 2002 and May 25, 2002 was found not to be
insurable employment. That decision was based on paragraphs
5(2)(i) and 5(3)(b) of the Act. They
read:
5(2) Insurable employment does
not include
(a)
...
(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),
(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.
It is not disputed that Mr. Birkland and Parallel are related;
Mr. Birkland's mother owned all the shares of Parallel. What
is attacked in this appeal is the Minister's decision that he
was not 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 would have been 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.
[2] During the hearing before me there
was some discussion as to the role of this Court in cases arising
under paragraph 5(3)(b) of the Act. This question
has been the subject of a number of decisions of the Federal
Court of Appeal during the past decade or so. The earlier
cases,[2] decided
under paragraphs 3(1)(a) and 3(2)(c) of the
Unemployment Insurance Act,[3] held that the Minister's opinion
was insulated from appeal in this Court, unless it could be shown
that in the course of forming that opinion he had committed what
might be termed an administrative law error. As the words of
subparagraph 3(2)(c)(ii) conferred a discretion on the
Minister, this Court had no mandate to simply substitute its
opinion for that of the Minister. However, if in the course of
the hearing of an appeal the Appellant were able to show that the
Minister had erred in law in forming his opinion, then this
Court's function was to proceed to a de novo determination
of the paragraph 3(2)(c)(ii) (now 5(3)(b)) question
whether the terms of the employment contract could reasonably be
considered to be those that arm's length parties would have
arrived at. In other words, after finding that the Minister's
decision was vitiated by an administrative law error, and only
then, could this Court substitute its opinion for that of the
Minister as to the paragraph 3(2)(c) question.
[3] In 1999 the Federal Court of
Appeal revisited the matter in Légaré v.
Canada.[4] Marceau J.A.,
speaking for himself and Desjardins and Noël JJ.A., said
there at paragraph 4:
4
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.
That judgment has spawned some debate as to whether it
represents a new point of departure in the jurisprudence, or
simply a gloss on the law as established in the earlier cases.
Support for the former view may be found in some decisions of the
Federal Court of Appeal,[5] and for the latter view in some others.[6] Still others are
consistent with either view.[7] My colleague Archambault J. has recently
discussed the subject quite fully in Bélanger v.
M.N.R.[8] I do not propose to add to that debate,
except to point out that Marceau J.A. himself seems to have been
of the view that Légaré had overruled the
earlier cases when ten months later, in Pérusse, he
wrote the following two paragraphs, concurred in by Décary
J.A., who had delivered the judgment in Ferme Émile
Richard:
13 It is clear from
reading the reasons for the decision that, for the presiding
judge, the purpose of his hearing was to determine whether the
Minister, in the well-known expression, had exercised
"properly" the discretion conferred on him by the Act
to "recognize the non-exception" of a contract between
related persons. He therefore had to consider whether the
decision was made in good faith, based on the relevant facts
disclosed by a proper hearing, not under the influence of
extraneous considerations. Accordingly, at the outset, at p. 2 of
his reasons, the judge wrote:
The determination at issue in the instant appeal results from
the discretionary authority provided for by the provisions of s.
3(2)(c) of the Act, which reads as follows:
. . . . .
The appellant was required to discharge the burden of proof,
on the balance of probabilities, that the respondent in assessing
the matter had not observed the rules applicable to ministerial
discretion, and if this could not be done this Court would not
have no basis for intervening.
And finally, his conclusion at p. 14:
So far as the appeal is concerned, I cannot allow it as the
appellant has not proven that the respondent exercised his
discretion improperly.
14
In fact, the judge was acting in the manner apparently
prescribed by several previous decisions. However, in a recent
judgment this Court undertook to reject that approach, and I
take the liberty of citing what I then wrote in this connection
in the reasons submitted for the Court.
(emphasis added)
Marceau J.A. then quoted paragraph 4 of his reasons for
judgment in Légaré.
[4] At this point it is sufficient
simply to state my understanding of the present state of the law,
which I derive principally from paragraph 4 of
Légaré (reproduced above) and from the
following passage from the judgment of Richard C.J.,
concurred in by Létourneau and Noël JJ.A., in
Denis v. Canada.[9]
5 The
function of the Tax Court of Canada judge in an appeal from a
determination by the Minister on the exclusion provisions
contained in subsections 5(2) and (3) of the Act is to inquire
into all the facts with the parties and the witnesses called for
the first time to testify under oath, and to consider whether the
Minister's conclusion still seems reasonable. However, the
judge should not substitute his or her own opinion for that of
the Minister when there are no new facts and there is no basis
for thinking that the facts were misunderstood (see
Pérusse v. Canada (Minister of National Revenue
- M.N.R.), [2000] F.C.J. No. 310, March 10, 2000).
This Court's role, as I understand it now, following these
decisions, is to conduct a trial at which both parties may adduce
evidence as to the terms upon which the Appellant was employed,
evidence as to the terms upon which persons at arm's length doing
similar work were employed by the same employer, and evidence
relevant to the conditions of employment prevailing in the
industry for the same kind of work at the same time and place. Of
course, there may also be evidence as to the relationship between
the Appellant and the employer.[10] In the light of all that evidence, and the
judge's view of the credibility of the witnesses, this Court must
then assess whether the Minister, if he had had the benefit of
all that evidence, could reasonably have failed to conclude that
the employer and a person acting at arm's length would have
entered into a substantially similar contract of employment.[11] That, as I
understand it, is the degree of judicial deference that
Parliament's use of the expression "... if the
Minister of National Revenue is satisfied ..." in
paragraph 5(3)(b) accords to the Minister's opinion.[12]
[5] With these considerations in mind
I now turn to the evidence in this case. The assumptions of fact
are found in paragraph 5 of the Reply to the Notice of Appeal.
They are:
(a) The Payor was a
business involved in providing independent medical evaluations to
the insurance industry, rehabilitation industry and to various
private referrals;
(b)
The Payor's business ceased operation in July 2002;
(c)
The Payor had offices in Mississauga, North York, Oshawa, London,
Sudbury and Guelph;
(d)
The sole shareholder of the Payor was Michelle Birkland;
(e)
Michelle Birkland is the Appellant's mother;
(f)
The Appellant was reportedly hired by the Payor and his duties
included writing reports, fielding questions from referral
sources, patients and doctors, reviewing reports and preparing
addendums, and suggesting specialists required to provide
opinions on injury;
(g)
The Appellant performed the services for a period of only 15
weeks, prior to the close of the Payor's business;
(h)
The Appellant performed the services for the Payor, from his
personal residence which is located in Verner, Ontario, yet other
employees performed their duties from the Payor's
establishment;
(i)
Chantal Sands, who was the Payor's Office Manager, was unaware
that the Appellant worked for the Payor;
(j)
The Appellant's Record of Employment for Employment Insurance
purposes was signed by Michelle Birkland;
(k)
No T4 was issued to the Appellant by the Payor for the year 2002,
to indicate the Appellant was in fact employed by the Payor and
that deductions were remitted on behalf of the Appellant for
Canada Pension Plan contributions, Employment Insurance premiums
and for income taxes;
(l)
the Appellant is not dealing with the Payor at arm's length.
[6] The last of these assumptions is,
of course, a matter of law that flows from the relationship
between the Appellant and his mother, who owns all the shares of
Parallel. It should not have been pleaded as an assumed fact. The
other assumptions are, for the most part, supported by the
evidence given before me by the Appellant. His home, he said, was
in Redbridge rather than Verner, and he took issue with the
statement that the office manager did not know that he worked for
Parallel. The former error is immaterial. Since there is no
dispute that he did in fact work for Parallel, it is not really
material whether the office manager knew that fact or not.
Assumption (k) is clearly in error, as a copy of the T4 form was
made an exhibit. Again it is not material, as there is no dispute
about the fact of his employment, as opposed to the terms of
it.
[7] What is material for the purposes
of this appeal is the terms of the employment of the Appellant by
Parallel, and the terms upon which Parallel could have been
expected to employ someone at arm's length to do the same job.
Mr. Birkland testified that he worked from a home-based office
almost all the time, and that he was paid $400.00 per week to do
so. This salary, he said was fixed by his mother on a take it or
leave it basis. He also said that it was less than two other
employees in Toronto were paid for similar work. Towards the end
of his evidence he said for the first time that he was going to
college while working for Parallel. He did apparently work
frequently in the evenings, and the nature of the work was such
that much of it could be done at his convenience, so long as it
got done within appropriate time limits. After a careful review
of his evidence, and it was the only evidence before me other
than the documents I have referred to and the record generated by
the Minister's delegates, I can only conclude that there is no
basis upon which I could determine with any certainty at all the
terms upon which a stranger would have been engaged by Parallel
to do the work that the Appellant did. The Appellant's bald
assertion that the terms of his employment were arm's length
terms, totally unsubstantiated as it was, simply does not
suffice. It follows that there is no basis upon which I could
conclude that the Minister would, or should, have decided the
matter differently if he had had the benefit of the evidence
given before me. I must therefore dismiss the appeal.
Signed at Ottawa, Canada, this 25th day of April, 2005.
Bowie J.
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