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Citation: 2005TCC41
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Date: 20050121
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Docket: 2004-1897(EI)
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BETWEEN:
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ROSANNA CHIARELLA,
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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
Savoie, D.J.
[1] This appeal was heard at
Montréal, Quebec, on November 24, 2004.
[2] This is an appeal from a decision
of the Minister of National Revenue (the "Minister") wherein he
informed the Appellant that while she was working for
Dr. George Papanastasoulis, the Payer, from November 2, 2002
to July 18, 2003, the period under review, her employment was not
insurable.
[3] The Minister further informed the
Appellant that having regard to all the circumstances, it is not
reasonable to conclude that she and the Payer would have entered
into a substantially similar contract of employment if they had
been dealing with each other at arm's length.
[4] In reaching his decision, the
Minister relied on the following assumptions of fact:
a)
the Payer operates an Orthodontic clinic in Kirkland;
(admitted)
b)
the Payer is the Appellant's husband; (admitted);
c)
the Payer has 6 employees, 4 dental technicians, a secretary and
a bookkeeper-accountant; (admitted)
d)
the Appellant was hired as a bookkeeper; (denied)
e)
the Appellant's tasks included doing the bookkeeping, preparing
the payroll, handling government paperwork and correspondence,
banking transactions and the supervision of the secretary;
(denied)
f)
the dental technicians were under the supervision of the Payer;
(admitted)
g)
the Payer retained the services of an external accountant for the
preparation of the annual statements and the personal tax return
of the Payer; (admitted)
h)
the Appellant performed the majority of her tasks at the clinic;
(admitted)
i)
the Appellant's work schedule was Monday to Friday from
9:00 a.m. to 5:00 p.m.; (admitted)
j)
the Appellant received an annual salary of $70,000.00;
(admitted)
k)
the remuneration received by the Appellant was substantially
higher than the remuneration received by the other workers
performing similar tasks; (denied)
l)
in 2002, according to the "Institut de la statistique du
Québec" employment similar to that of the Appellant ranges
from $33,398 to $43,371 per year; (denied)
m)
on September 4, 2004, the Payer declared to a representative of
the Respondent that an arm's length person would be paid a
maximum of $55,000 per year to do the same work as the Appellant;
(admitted)
n)
the Appellant's remuneration was not reasonable taking into
account the volume of work and the remuneration received by other
workers performing similar functions and responsibilities;
(denied)
o)
the Appellant stopped working for the Payer as she left for a
maternity leave; (admitted)
p)
subsequently to the Appellant's departure, the Payer did not
replace the Appellant, her tasks were performed by the secretary
and the external accountant. (denied)
[5] The Appellant and the Payer
testified that the Appellant was more than just a bookkeeper. She
was the in-house accountant who also coordinated the luncheons
and seminars of the Payer. They described the Appellant's
functions as those of a treatment coordinator. They also both
stated that the salary of the Appellant was determined in
consultation with the Payer's accountant. The Appellant does not
hold a degree in accounting although she took some courses in
accountancy at Concordia Universityand worked for a chartered
accountant for five years.
[6] The Appellant's salary in 2001 was
$47,000 per year prior to her employment with the Payer. In 2002
and 2003, while working for the Payer, her salary was $70,000 per
year. She left her employment with the Payer in July of 2003 on a
maternity leave. The evidence disclosed that when she left her
previous employment with Scania Imports Ltd., her salary was
$47,000 when the company was "in growth mode" which necessitated
the hiring of two people to replace her. Scania Imports Ltd. was
prepared to take her back after her maternity leave at an annual
salary of $65,000. This is documented in Exhibit A-1
filed in evidence at the hearing.
[7] Additional facts gathered by the
investigation leading up to this appeal established that
subsequent to the Appellant's departure from her employment for
the Payer, her tasks and responsibilities were performed by the
secretary, the external accountant and the Payer himself.
Following her maternity leave, the Appellant was rehired by the
Payer and her salary in 2004 was $47,000.
[8] Following the investigation, the
Minister determined that there existed an employer/employee
relationship between the Payer and the Appellant. However,
because the Payer is the Appellant's husband, this is a non-arm's
length relationship, pursuant to section 251 of the Income Tax
Act. The Minister then concluded that the employment of the
Appellant is an excluded employment under paragraph
5(2)(i) of the Employment Insurance Act.
[9] The Appellant is asking the Court
to set aside the decision of the Minister who relied on
paragraphs 5(1)(a) and 5(2)(i), subsections 5(3)
and 93(3) of the Employment Insurance Act as applicable to
the period in question and on sections 251 and 252 of the
Income Tax Act. The Minister concluded 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 not reasonable
to conclude that the Appellant and the Payer would have entered
into a substantially similar contract of employment if they had
been dealing with each other at arm's length.
[10] Having conducted his investigation, the
Minister concluded that under paragraph 5(2)(i) of the
Employment Insurance Act, the Appellant's employment was
not insurable because she and the Payer were not dealing with
each other at arm's length since it was established that the
Payer is the Appellant's husband.
[11] For the purposes of this exercise, it
is useful to refer to the relevant provisions of the Income
Tax Act and the Employment Insurance Act. They are as
follows:
Section 251 of the Income Tax Act reads in part as
follows:
Section 251. Arm's length.
(1) For the purposes of
this Act,
(a) related
persons shall be deemed not to deal with each other at arm's
length; and
(b) it is a
question of fact whether persons not related to each other were
at a particular time dealing with each other at arm's
length.
(2) Definition of
"related persons". For the purpose of this
Act, "related persons", or persons related to each
other, are
(a) individuals
connected by blood relationship, marriage or adoption;
(b) a
corporation and
(i) a person who
controls the corporation, if it is controlled by one person,
(ii) a person who is a
member of a related group that controls the corporation, or
(iii)
ay person related to a person described in subparagraph (i) or
(ii); and
...
Section 5 of the Employment Insurance Act reads in part
as follows:
(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;
...
(2) Insurable
employment does not include:
...
(i)
employment if the employer and employee are not dealing with each
other at arm's length.
(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.
[12] The Federal Court of Appeal has set
down guidelines to follow when dealing with a problem such as the
one in the case at bar. Marceau, J. speaking for the Court,
stated the following in the case of Légaré
v. Canada(Minister of National Revenue -
M.N.R.), [1999] F.C.J. No. 878:
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.
[13] Let us examine the facts before this
Court under the criteria listed in paragraph 5(3)(b)
of the Employment Insurance Act.
[14] In the exercise of his discretion under
paragraph 5(3)(b) of the Employment Insurance Act,
the Minister did not encounter any particular difficulty in
acknowledging one of the listed circumstances as sustaining the
test of similarity with those in an arm's length
relationship.
[15] Indeed, the Minister concluded that
with respect to the nature and importance of the work performed,
he was satisfied that it was important to the proper functioning
of the operations of the Payer, but in his analysis of the terms
and conditions of employment of the Appellant, he discovered that
the Payer did not replace the Appellant when she left on her
maternity leave. Her tasks were assumed by the secretary, the
external accountant and the Payer himself.
[16] In his analysis of the duration of the
work period, the Minister discovered that the Appellant had left
her employment on a maternity leave and determined that this
analysis was no longer relevant nor necessary.
[17] The other circumstance listed in
paragraph 5(3)(b) with which the Minister had some
difficulty is the remuneration paid.
[18] The evidence established that the Payer
himself, in response to a question put to him by the insurability
agent, estimated the maximum salary of an arm's length employee
doing the same work as the Appellant at $55,000 per year.
[19] This response by the Payer greatly
impressed the insurability agent as well as the appeals officer
who both stated that although the Minister did have a discretion
when analyzing the working conditions, such a gap between the
existing salary and the comparable in the industry was simply not
justified.
[20] In response to the Payer's contention
that the Appellant was more than a bookkeeper, the Minister took
into consideration the additional tasks described by the
Appellant and the Payer and the latter went out in the field to
find the equivalent and the closest job description he could come
up with is the one of a "Professionnelle de gestion
financière". The Payer then went to a chart prepared by
the "Institut des statistiques du Québec" and found its
corresponding salary range which at Level I is set between
$33,398 and $43,371 per year. From this, he arrived at an average
of $38,385 which, in his opinion, was the appropriate salary
under that category.
[21] The Minister then compared this figure
with the $70,000 and determined that the Appellant's $70,000
salary was 80% higher than the existing salary in the
industry.
[22] The appeals officer, Paul Hyland,
explained to the Court that in this exercise, the Minister "has
to use what the labour market dictates". He further stated that
in his research for a comparable employment in the labour market,
he came up with a job description matching the one given to him
by the Appellant.
[23] The chart prepared by the "Institut des
statistiques du Québec" was filed in evidence and marked
Exhibit R-3.
[24] The onus is on the Appellant to prove
that the Minister's assumptions of fact are erroneous. This she
has failed to do. Indeed, she admitted most of these assumptions
and the evidence produced did not amount to a significant
challenge with respect to the assumptions of the Minister which
she attempted to clarify.
[25] Earlier this Court cited the decision
of the Federal Court of Appeal in Légaré,
supra, and the guidelines to follow in the determination
of situations such as the one before me.
[26] The Federal Court of Appeal again
offered some guidance in this exercise in the case of
Pérusse v. Canada(Minister of National
Revenue - M.N.R.), [2000] F.C.J. No. 310 when it held as
follows:
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 required 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.
[27] In light of the above, this Court must
conclude that the employment of the Appellant is an excluded
employment under paragraph 5(2)(i) of the Employment
Insurance Act.
[28] Furthermore, this Court concludes that
the Minister correctly exercised his discretion under paragraph
5(3)(b) of the Employment Insurance Act.
[29] Having heard the evidence adduced at
this hearing and having examined the documents produced, this
Court is of the view that the Minister's conclusion, when
considered with the evidence brought before it at this hearing,
still seems reasonable.
[30] Therefore, this Court does not deem
appropriate, in the circumstances, to interfere with the
Minister's determination.
[31] Consequently, the appeal is dismissed
and the Minister's decision is confirmed.
Signed at Grand-Barachois, New Brunswick, this 21st day of
January 2005.
Savoie, D.J.
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