|
Citation: 2005TCC445
|
|
Date: 20050715
|
|
Docket: 2004-3105(EI)
|
|
BETWEEN:
|
|
GESTION RÉJEAN MASSON INC.,
|
|
Appellant,
|
|
and
|
|
|
|
THE MINISTER OF NATIONAL REVENUE,
|
|
Respondent,
|
|
and
|
|
|
|
CHANTAL MASSON,
JACINTHE MASSON,
ANDRÉ ST-PIERRE,
|
|
Interveners.
[OFFICIAL
ENGLISH TRANSLATION]
|
REASONS FOR JUDGMENT
Lamarre Proulx J.
[1] The Appellant is appealing from decisions in
which the Minister of National Revenue ("the Minister") determined
that André St‑Pierre, Chantal Masson and Jacinthe Masson
were employed in insurable employment from January 1, 2002, to June 6,
2003.
[2] The facts on which the Minister relied in
making these decisions are set out in paragraphs 5, 6 and 7 of the Reply to the
Notice of Appeal ("the Reply"):
[TRANSLATION]
(a) The Appellant was incorporated on January 31, 1980.
(b) The Appellant operated a Métro grocery store in Cap‑de‑la‑Madeleine.
(c) The Appellant employed approximately 80 employees.
(d) In 2002, the Appellant's revenues were approximately
$11 million.
(e) The Appellant employed three managers: grocery department
manager Philippe H. Lambert; meat department manager
François Charel; and produce department manager André Beaudoin.
(f) On March 26, 2004, in a statement to a representative of the
Respondent, Jacinthe Masson said that the department managers were
responsible for hiring and firing the employees in their department.
(g) The workers rendered services to the Appellant throughout the
year.
(h) Each worker had defined duties.
(i) Chantal Masson's duties can be summarized as follows:
— looking after payroll
— looking after group insurance
— filling out managers' analysis forms
— taking telephone orders
(j) Jacinthe Masson's duties can be summarized as follows:
— looking after billing, accounts payable and accounts receivable
— entering the Appellant's sales on the computer
— making deposits
— doing the banking reconciliations
(k) André St‑Pierre's duties can be summarized as
follows:
— managing the staff
— preparing the budgets
— changing the computer software
— purchasing the equipment
— looking after the training
(l) The workers had a variable schedule during the week.
(m) On June 4, 2003, in a statement to a representative of the Respondent,
Jacinthe Masson said that her workload easily kept her busy for 40 hours a
week.
(n) The Appellant's payroll journal entries state that the workers
worked 40‑hour weeks, but they actually worked up to 60 hours a week.
(o) The workers worked on the Appellant's premises.
(p) The workers were paid a fixed salary of $675 per week.
(q) The workers were paid by direct deposit.
(r) The Appellant had the power to control the workers' hours.
(s) The Appellant controlled the workers' conditions of employment.
(t) All the equipment and supplies that the workers used belonged
to the Appellant.
(u) If the worker André St‑Pierre used his car to
perform his duties, the Appellant reimbursed him for his expenses.
(v) The workers bore no financial risk in the performance of their
duties for the Appellant.
(w) The workers' duties were integrated into the Appellant's
activities.
6. The Appellant and the workers are related persons within the
meaning of the Income Tax Act because
(a) the Appellant's voting shareholders were
|
Réjean Masson
|
51% of shares
|
|
Jacinthe Masson
|
25% of shares
|
|
Chantal Masson
|
19% of shares
|
|
André St-Pierre
|
5% of shares
|
(b) Réjean Masson is Jacinthe Masson and Chantal Masson's
father;
(c) André St‑Pierre is Chantal Masson's husband;
and
(d) the workers are part of a related group that controls the
Appellant.
7. The Minister also determined that the Appellant and the workers
were deemed to deal with each other at arm's length in the context of this
employment because he was satisfied, having regard to the following
circumstances, that it was reasonable to conclude that the workers would have
entered into a substantially similar contract of employment if they had been
dealing with each other at arm's length:
(a) the workers did not pay money for the Appellant's shares;
(b) in 1991, Réjean Masson gave part of his shares to the two
workers as a gift;
(c) the workers' remuneration was set by the Appellant;
(d) grocery department manager Philippe H. Lambert's
salary, $802 per week gross, was higher than that of the workers;
(e) the workers' schedules were variable and took the nature of the
Appellant's business into account;
(f) Réjean Masson went go to the store daily examined the
financial reports regularly;
(g) the workers had to account to the Appellant with regard to the
results obtained;
(h) the workers worked for the Appellant all year long; and
(i) the Appellant's important decisions were made by all the
shareholders.
[3] At the beginning of the hearing, the Appellant's
agent admitted to subparagraphs 5(a) to 5(l), 5(p), 5(q), 5(t), 5(u) and
5(w). He denied subparagraphs 5(m) to 5(o), 5(r) and 5(s). He
admitted to paragraph 6 in its entirety. He admitted to subparagraphs 7(a),
7(b), 7(d) and 7(h) and denied subparagraphs 7(c), 7(e), 7(f), 7(g) and 7(i).
[4] André St‑Pierre and
Jacinthe Masson testified for the Appellant.
[5] André St‑Pierre and
Chantal Masson have been married since 1979. In 1987, they began
working for the grocery store of Réjean Masson, Ms. Masson's father.
[6] In 1990, Réjean Masson more or less retired
from the management of the store, and Mr. St‑Pierre became its chief
executive officer. In 1995, Mr. St‑Pierre decided to expand the
store without really consulting with Mr. Masson. Since February 1,
2004, he and his wife have owned 75.1% of the Appellant's shares through
Gestion Chambray Inc., whose shares they hold.
[7] Mr. St-Pierre and Chantal Masson secured a
$480,000 loan taken out by the Appellant, and a $225,000 line of credit, with
their private home.
[8] Mr. St-Pierre explained that his work schedule
varies. He usually works 80‑hour weeks, but he sometimes works 30‑hour
weeks. Unlike the employees, who punch in and out, he does not have to adhere
to a set schedule.
[9] In 2001, he had to undergo heart surgery. His
wife took over at that time. Since he was not being paid his full salary, he
got the difference from a private salary insurance policy.
[10] He, his wife Chantal and his sister-in-law
Jacinthe determined the salaries collectively. With respect to salaries, I
quote the relevant excerpts of the appeals officer's report, which was tendered
as Exhibit A‑3:
[TRANSLATION]
Compensation
André St-Pierre's salary
was $744 per week gross in the year 2002. It was later revised downward by 9%
to $675 gross in order to avoid arguments with Chantal and Jacinthe Masson, the
other shareholders, who got $675 per week gross. As for majority shareholder
Réjean Masson, his salary was $480 per week gross.
Furthermore, by way of
comparison, a sampling of the salary journal for the year 2003 shows that
grocery department manager Philippe H. Lambert's salary was $802 per week gross
for 40 hours; meat department manager François Charel's salary was $630
per week gross, and produce department manager André Beaudoin's salary was
$602 per week gross.
Being shareholders, they
were responsible for determining their own salaries, which were determined
based on the company's ability to pay. Salaries were paid by direct deposit.
André St-Pierre was
always paid the same salary, regardless of the number of hours worked (always
more than 40 hours, and up to 75 hours a week, despite the fact that the
payroll journal says 40 hours). This is common practice when a worker is also a
shareholder: to ensure the success of the business, hours worked are not
counted.
Thus, André St-Pierre's
salary is reasonable having regard to the facts stated above.
Compensation
Chantal Masson's salary
was $675 per week gross, for a work week that ranged from 40 to 45 hours
depending on the payer’s needs, despite the fact that the payroll journal says
she worked 40 hours a week. Shareholder Jacinthe Masson was paid $675 per week
gross, as was shareholder André St-Pierre (following a cut in 2002 to avoid
arguments). As for majority shareholder Réjean Masson, his salary was $480 per
week gross.
Furthermore, by way of
comparison, a sampling of the payroll journal for the year 2003 shows that
grocery department manager Philippe H. Lambert's salary was $802 per week gross
for 40 hours; meat department manager François Charel's salary was $630 per
week gross; and produce department manager André Beaudoin's salary was
$602 per week gross.
Being shareholders, they
were responsible for determining their own salaries, which were determined
based on the company's ability to pay. Salaries were paid by direct
deposit.
Thus, Chantal Masson's
salary is reasonable having regard to the facts stated above.
. . .
Compensation
Jacinthe Masson's salary
was $675 per week gross, for a work week which ranged from 15 to 20 hours
depending on the payer’s needs, despite the fact that the payroll journal says
she worked 40 hours a week. Shareholder Chantal Masson was paid $675 per week
gross, as was shareholder André St-Pierre (following a cut in 2002 to avoid
arguments). As for majority shareholder Réjean Masson, his salary was $480 per
week gross.
Furthermore, by way of
comparison, a sampling of the payroll journal for the year 2003 shows that
grocery department manager Philippe H. Lambert's salary was $802 per week gross
for 40 hours; meat department manager François Charel's salary was $630 per
week gross; and produce department manager André Beaudoin's salary was
$602 per week gross.
Being shareholders, they
were responsible for determining their own salaries, which were determined
based on the company's ability to pay. Salaries were paid by direct
deposit.
Thus, Jacinthe Masson's
salary is reasonable having regard to the facts stated above.
[11] Mr. St‑Pierre said that he gave himself a
bonus of approximately $10,000 in 2004.
[12] He usually takes one or two weeks off, as does
Chantal Masson, though managerial employees are entitled to four weeks'
vacation.
[13] He brings office work home regularly. For
example, he prepares budgets at home. He has a notebook computer, which he
brings home and connects to his store computer. This enables him to control
refrigerator fluctuations and everything else that is essential to a grocery
store.
[14] Unlike the other employees, such as the grocery,
meat and produce department managers, the Interveners did not record their
overtime.
[15] Jacinthe Masson sometimes works two days a
week and sometimes works five. There is no control over her hours. She works
roughly 15 to 20 hours a week.
[16] Chantal Masson describes herself as the
deputy CEO. She looks after workers' compensation claims and the inventory
analyses for each department. Her work schedule is set at her convenience.
She is autonomous. She can work 20, 45 or 60 hours a week. No week is the
same. The hours are based on her own needs and the needs of the business. For
example, if there is a collective agreement to negotiate, she works longer
hours.
[17] She plays sports like golf, and has taken
courses. She has three children who are currently 21, 17 and 13 years old. She
signs the cheques for the business. Only one person needs to sign such
cheques.
[18] She confirmed that André St‑Pierre is
the one who makes the important decisions.
[19] She stated that if she stopped working for the
Appellant, she would not be replaced, and André would assume all the duties.
[20] The interveners' agent argued that this is a
family business and that the various working conditions do not conform to the
rules of the normal labour market as far as salary amounts, security for
potential business debts, and reduced vacations are concerned. Remuneration is
based on the workers' personal decisions. The workers' conditions of employment
are determined by the workers themselves.
[21] Counsel for the Respondent referred to the case
law regarding the respect that must accorded the Minister's exercise of
discretion under paragraph 5(3)(b) of the Act and, inter alia,
the decision of the Federal Court of Appeal in Miller v. Canada,
[2002] F.C.J. No. 1498 (QL), at paragraphs 3-4:
At the first stage of
the inquiry, the Tax Court Judge must assess the legality of the Minister's
determination. In doing so, the Tax Court Judge must accord judicial deference
to the Minister's discretionary decision unless the Tax Court Judge finds that
the Minister has exercised his discretion in a manner contrary to law. In
assessing whether the Minister has exercised his discretion properly, the Tax
Court Judge need not defer to the Minister's findings of fact, but have regard
to the facts raised before the Court during the hearing of the appeal.
The Tax Court Judge may only proceed to the
second stage and consider the merits of the Minister’s decision if one of the
following grounds for interference is established: (i) the Minister acted in
bad faith or for an improper purpose or motive; (ii) the Minister failed to
take into account all of the relevant circumstances, as expressly required by
subparagraph 3(2)(c)(ii); or (iii) the Minister took into account an irrelevant
factor. [See Note 1 below.] Therefore, it "is only where the Minister's
determination lacks a reasonable evidentiary foundation that the Tax Court's
intervention is warranted." [See Note 2 below.]
Conclusion
[22] In my view, the message that must be drawn from
the above statements of the Federal Court of Appeal is that that when the
Minister's decision is not reasonably based on the evidence, the Court is
justified in intervening.
[23] With respect, and for the following reasons, I
find that it is not reasonable to conclude, based on the evidence, that the
Interveners’ terms and conditions of employment would have been substantially
similar if they had been dealing with each other and the employer at arm's
length.
[24] The fact that three workers are paid the same
salary for very dissimilar duties is not in line with labour market standards.
These duties differ in terms of the number of hours worked, the importance of
the work and the guarantees assumed.
[25] Moreover, I do not believe that it is normal for
the workers themselves to determine their remuneration and hours of work.
[26] Consequently, the appeal is allowed.
Signed at Ottawa, Canada, this 15th day of
July 2005.
Lamarre
Proulx J.
Translation certified true
on this 3rd day of November 2006.
Monica F. Chamberlain, Reviser
Email this Content