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Citation: 2005TCC59
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Date: 20050126
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Docket: 97-333(UI)
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BETWEEN:
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ÉRIC DUCHESNE,
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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
Tardif J.
[1] This is an appeal from a decision dated December 5, 1996. The decision concerning the work performed by the Appellant during the periods from March 7 to October 1, 1993, from May 22 to November 26, 1994, and, finally, from May 1 to November 17, 1995, for Diane Gaudreault, his mother.
[2] The worked performed by the Appellant was excluded from insurable employment under the provisions of the Employment Insurance Act (the "Act") considering that the Appellant and his mother, owner of the farm business that employed him, were not dealing with each other at arm's length.
[3] During the periods concerned, the provisions relevant to paragraph 3(2)(c) of the Act were as follows:
3.(1) Insurable employment is employment that is not included in excepted employment and is
[...]
(2) Excepted employment is
[...]
(c) subject to paragraph (d), employment where the employer and employee are not dealing with each other at arm's length and, for the purposes of this paragraph,
(i) the question of whether persons are not dealing with each other at arm's length shall be determined in accordance with the provisions of the Income Tax Act, and
(ii) where the employer is, within the meaning of that Act, related to the employee, they shall be 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;
[...]
[4] Although all employment performed by persons who are not dealing with their employer at arm's length (whether persons are not dealing with each other at arm's length is determined in accordance with sections 251 and 252 of the Income Tax Act) is excluded from insurable employment, the legislator provided for an exception; therefore, an employment that is presumptively excluded owing to the fact that persons are not dealing with each other at arm's length may be deemed insurable if, following an investigation and analysis by the Minister of National Revenue (the "Minister"), it is established that the work was performed in circumstances, in accordance with terms and conditions and in a context similar or comparable to those that would have existed had the employer and employee been dealing with each other at arm's length. In other words, employment where the employer and employee are not dealing with each other at arm's lengthmust be considered employment where the employer and employee are dealing with each other at arm's length, if the context and circumstances surrounding the work performed are comparable or similar to a working relationship between two parties.
[5] The legislator also provided that the assessment completed to determine whether the work performed was comparable to that had the employer and employee been dealing with each other at arm's length should be completed in accordance with criteria established by the legislator, the duration, the renumeration, the nature, the importance, and all circumstances that may be relevant.
[6] In this case, in order to justify and explain his decision that not dealing with each other at arm's length shaped the working relationship for the periods at issue, the Respondent listed his assumptions of fact, which are reproduced in paragraph 5 of the Reply to the Notice of Appeal. They read as follows:
(a) Diane Gaudreau has been operating a cattle farm since 1987; (admitted)
(b) She is the Appellant's mother; (admitted)
(c) Diane Gaudreau has three sons, the Appellant, born in June 1975, Phylippe, born in September 1977, and Carl, born in October 1979; (admitted)
(d) Diane Gaudreau purchased the farm of her father-in-law Phylippe Duchesne;(admitted)
(e) The farm is 340 acres in size and includes a herd of more than 110 cattle;(admitted)
(f) Diane Gaudreau also grows hay and oats which she harvests twice a year; (denied)
(g) Diane Gaudreau works for a school board, 35 hours a week, year-round; (denied)
(h) She keeps the farm's records in addition to performing her household duties;(denied)
(i) She also works on the farm; (disregarded)
(j) Her husband Berthold Duchesne works for her part-time; (admitted)
(k) Diane Gaudreau's three sons occasionally worked for her without remuneration;(denied)
(l) In 1993, the Appellant needed twenty weeks of insurable employment to be eligible for unemployment insurance benefits; (denied)
(m) In 1993, Diane Gaudreau paid the Appellant for twenty-two weeks; (denied)
(n) The Appellant needed twelve weeks of insurable employment to be eligible for unemployment insurance in 1994 and 1995; (denied)
(o) Diane Gaudreau paid the Appellant for twelve weeks in 1994 and fourteen weeks in 1995; (denied)
(p) The Appellant carried out a number of tasks required on the farm, such as the following: (denied)
help harvest oats and haying,
keep watch,
repair fences,
make and repair gates,
remove farm manure,
remove the manure "maternity,"
remove manure from the various pens,
clean hay storage facilities,
oversee calving,
goad and handle calves,
transport animals,
tag animals;
(q) During his paid work weeks, the Appellant worked for Diane Gaudreau without remuneration; (denied)
(r) The Appellant was related to the payer under the Income Tax Act; (admitted)
(s) It is not reasonable to conclude in the circumstances that the Appellant's contract of employment would have been substantially similar if he had been dealing with Diane Gaudreau at arm's length. (denied)
[7] The Appellant admitted to the assumptions of fact set out in subparagraphs (a), (b), (c), (d), (e), (j) and (r).
[8] He denied the other allegations or was unaware of them. They are as follows: (f), (g), (h), (k), (l), (m), (n), (o), (p), (q) and (s).
[9] As evidence, the burden of which was on the Appellant, the Appellant submitted mainly in his testimony and that of his mother that he was involved in all work related to the operations of a farm whose purpose was beef cattle breeding.
[10] Except for the period during which the Appellant did not have a driver's licence, his mother would give him responsibility for all work required for the operation of her farm, based on his experience limited by his young age.
[11] The farm's animals were outside year-round. Of course, there were shelters, but generally speaking, the animals were outside permanently. The shelters allowed the animals to take shelter from the wind and weather. There was also an area used as a maternity pen where cows would calve when predictable.
[12] The Appellant's mother explained how she became the owner of the farm, which she acquired from her father-in-law. When she became the farm's owner after having worked there for many years, she was able to make several improvements and corrections while expanding it. In addition to the improvements made, she acquired other land separated from hers by a road.
[13] While she was working as a farm producer, Ms. Gaudreault worked part-time for a school board. At a certain point, a full-time position became available. She applied for the position and got it, thus limiting her availability for farming work.
[14] Considering that her boss was very accommodating, she could count on a certain flexibility to take care of her cattle farm. She spent all her free time and vacation on it; she managed to operate the farm by having improved efficiency so as to reduce her workload while being more effective.
[15] She stated that, in 1995, she hired her son Éric, who returned home after exposure to the army, with the cadets. She offered him $5 an hour, which he accepted.
[16] With respect to the job description, she essentially indicated that he carried out necessary work; he repaired shelters, replaced windows, repaired fences, removed manure, cleaned everything that had to be cleaned and carried out work involving hay, seeds, plowing, picking rocks, etc.
[17] As to whether she hired other employees, she indicated that she did in fact, on occasion, hire some employees; she also provided some names.
[18] She concluded her testimony by indicating that she no longer owned the farm and that her son Éric, the Appellant, acquired it on August 3, 1998, for a consideration substantially inferior to the fair market value (the "FMV").
[19] During his testimony, Éric essentially confirmed that of his mother with respect to the fact that he did in fact work on the farm. He explained that in the beginning, he did not have a driver's licence, which restricted him from performing certain work that required a tractor.
[20] After he got his driver's licence, he stated that he drove the tractor by citing as an example bales of hay that he transported during the night when traffic was less congested on the provincial highway he had to take to transport the hay.
[21] He confirmed his salary and the terms and conditions, that is to say that he was generally paid in cash.
[22] The evidence, the burden of which was on the Appellant, left little room for the fact that his father, also his mother's spouse, also worked on the farm during the three periods at issue.
[23] In order to bear such a burden of proof, the Appellant had to prove that he performed real work, paid as was customary, which took into account his abilities and skills, etc. He also had to show that the work was necessary and that he performed the work in the same manner he would have had he not been working for his mother. He also had to prove that he was subject to her supervisory power at all times and that he was under her authority.
[24] The fact of preparing the fields and seeds, picking hay and feeding the animals are essential duties that would normally be performed at specific times; the work is based on duties, not the other way around.
[25] In the case at bar, the Respondent's evidence revealed very specific aspects whose causes were neither explained nor justified, except by statements that do not have any meaning, such as the following:
· He worked when there was work.
· He worked when I needed him.
· He did not work when there was nothing to do.
[26] The climate and weather conditions are well known to have significant impacts on the workload necessary to the operation of a farm; the same is true for the period during which work may and must be performed. Generally speaking, everything is done to carry out certain work when the temperature is right; however, it is very difficult to reconcile how and why the work is organized. This is shown particularly in the table prepared by Ms. Courcy.
[27] In the case at bar, she prepared the following tables:
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Berthold Duchesne
1993
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Éric Duchesne
1993
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weeks of
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salary
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# of weeks
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weeks of
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salary
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# of weeks
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February 14 to 20
February 21 to 27
March 14 to 20
April 25 to May 1
May 9 to 15
June 20 to 26
June 27 to July 3
July 25 to 31
August 8 to 14
August 22 to 28
September 5 to 11
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$720
720
720
720
720
720
744
720
720
732
720
$7,956
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(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(11)
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March 7 to 13
April 4 to 24
April 25 to May 1
May 2 to 8
May 16 to June 19
July 4 to 24
July 25 to 31
August 1 to 7
August 15 to 21
August 29 to Sept. 4
September 5 to 11
Sept. 12 to Oct. 2
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$150
150
150
150
150
150
150
150
150
150
150
150
$3,300
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(1)
(3)
(1)
(1)
(5)
(3)
(1)
(1)
(1)
(1)
(1)
(3)
(22)
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1994
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1994
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weeks of
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salary
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# of weeks
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weeks of
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salary
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# of weeks
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February 14 to 20
February 21 to 27
April 11 to 17
May 8 to 14
June 5 to 11
June 26 to July 2
July 10 to 16
July 31 to August 6
August 14 to 20
August 21 to 27
September 4 to 10
October 2 to 8
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720
720
720
720
720
720
720
720
720
720
720
720
$8,640
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(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(12)
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May 22 to June 4
June 19 to 25
June 26 to July 2
July 3 to 9
July 31 to August 6
August 21 to 27
August 28 to Sept. 3
September 4 to 10
September 18 to 24
October 2 to 8
November 20 to 26
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$240
240
240
240
240
240
240
240
240
240
240
$2,880
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(2)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(12)
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1995
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1995
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weeks of
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salary
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# of weeks
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weeks of
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salary
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# of weeks
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June 14 to 10
June11 to 17
June 18 to July 1
July 2 to 15
July 16 to 22
July 23 to 29
August 13 to 26
September 10 to 16
September 17 to 23
October 1 to 7
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$720
720
720
720
720
720
720
720
720
720
$9,360
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(1)
(1)
(2)
(2)
(1)
(1)
(2)
(1)
(1)
(1)
(13)
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April 30 to May 6
May 28 to June 3
June 4 to 10
June 18 to July 2
July 16 to 22
September 17 to 23
September 24 to 30
October 1 to 7
October8 to 28
November 5 to 18
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(1)
(1)
(1)
(2)
(1)
(1)
(1)
(1)
(3)
(2)
(14)
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[28] On the one hand, the table reveals that the Appellant and his father alternated their work shifts; on the other, it reveals that the Appellant's father earnings were much higher than those of the Appellant. Consequently, there is reason to believe that he was a more seasoned employee having responsibilities and carrying out more important work, if not more demanding, with respect to the difference in salary.
[29] In a usual context, based on the wage situation, it would have been normal that the two work together, the Appellant being the assistant, the second in command; the wage discrepancy could not only have been explained, but also understood.
[30] Must we understand that the work performed during certain weeks was more important, more essential? If not, why did the Appellant not perform the work without interruption, considering that his salary was far lower, resulting in a strong interest in the company?
[31] These factors were not explained; had it not been for the Respondent's, the Appellant's evidence would have essentially very lightly touched upon the fact that Berthold Duchesne, the Appelant's father and his mother's spouse, worked on the farm.
[32] The Appellant submitted that the Respondent's determination mainly ensued from the taking into account of one factor.
[33] According to him, during an investigation involving the insurable nature of the employment of his father, Berthold Duchesne, the latter stated that his sons, including the Appellant, worked on the farm but were never paid.
[34] On the basis that this fact was obtained from a statement by the Appellant's father, the Minister, according to the Appellant and his mother, allegedly concluded that the Appellant's work was essentially an employment of convenience which did not in any way meet the requirements of a genuine contract of service, because an important element was missing, pay.
[35] Subsequently, that proved to be false information due mainly to a misunderstanding or misinterpretation of the words of the Appellant's father.
[36] The Respondent's representative admitted that that element was in the file and that she was made aware of it; she added that she was aware of the corrections made, adding that this aspect of the case did not in any way influence or shape the end result of her analysis. She indicated that the determining factors of her recommendations were as follows:
· the alternating work schedule neither explained nor justified;
· the number of weeks worked coincided with the number of weeks required to be entitled to unemployment insurance benefits;
· significant increase in salary;
· the terms and conditions of payment of wages remained vague.
[37] The burden of proof was on the Appellant. In order to bear such a burden, it was certainly important to attack the quality of the analysis work so as to be able to prove that the conclusions reached were unreasonable and inappropriate. However, it was also important to specifically prove the nature of the work performed, to explain and to justify the various factors and, above all, to clearly prove that there was a genuine employer-employee relationship.
[38] However, the Appellant and his mother essentially proved that the Appellant was associated with the work of the family farm, that he was occasionally paid by cheque, but generally in cash.
[39] At the beginning, his salary was $5 an hour and then increased to $8, without any reason other than the fact that he gained experience.
[40] With respect to the elements recorded by the Respondent, a special effort was required to explain and justify in a reasonable and convincing manner why the Appellant had an alternating work schedule with his father and why the hours of work are substantially proportionate to the number of weeks he needed to be entitled to unemployment insurance benefits.
[41] Considering that the employer and employee were not dealing with each other at arm's length, it appears useful, and even essential, to provide more convincing proof than that indicating that the work was performed for wages paid sometimes in cash, sometimes by cheque, and for which the hours were essentially justified by the statement that at a given point there was work that needed to be done and that the employee stopped working when the payer decided there was no more work to be done.
[42] In the case where an employer and employee are not dealing with each other at arm's length, the person assessing whether or not the work is insurable must be able to analyze many specific facts in order to be able to conclude whether the work at issue was performed in a similar manner as a third party would have in a similar context.
[43] The same goes for the Court that must review such a decision in the event that the first process is found to have some flaw.
[44] Ms. Courcy recognized the rationale for the concerns of the Appellant and his mother about the supposed revelations of the father concerning the unpaid work. She admitted that the fact was recorded but corrected in the file. She testified that the recommendation she originally submitted concerning the determination did not take into account this fact which was subsequently categorically denied by the interested parties.
[45] The Respondent's study and analysis raise several questions to which there were no answers. I am referring specifically to the following:
· Why did the Appellant receive a substantial wage increase the second and third years compared to the first year?
· Why the alternating work schedule?
· Why did the work periods coincide with the number of weeks necessary to be entitled to unemployment insurance benefits?
[46] For unspecified reasons, when it came to the work of the Appellant, his mother would testify in a defensive manner and on occasion was aggressive, as if she did not like the fact of having to provide certain explanations.
[47] As for the long opening statement on the matter, she flawlessly explained what she had to do to become the owner of the farm she subsequently developed while holding down an outside job.
[48] When posed the fundamental question of describing, explaining and justifying the parameters of the Appellant's work, her testimony became more confusing, more evasive, to the point where had it not been for the questions raised by the Respondent's counsel, the Court could have concluded that almost all of the work performed on the farm was done so by the Appellant and his mother, who worked outside for a school board.
[49] The Appellant's work, according to the records of employment, was performed for the benefit of the family farm. It was a small business in which very few people were involved. Therefore, it was not very difficult to submit clear, complete and convincing evidence to dispel the many vague aspects.
[50] In other words, the Appellant should have concentrated his energies on proving that the work performed was done so in a similar context to that in which he would have performed it for a third party. Such evidence would have discredited the quality of the analysis work.
[51] On the contrary, the balance of evidence showed that the Appellant benefited from work conditions greatly shaped or influenced by the nature of the family relationship that bound him to his mother.
[52] The balance of evidence showed that the decision resulted from a serious analysis and that the conclusions reached are reasonable considering the facts available.
[53] For these reasons, the appeal must be dismissed.
Signed at Ottawa, Canada, this 26th day of January 2005.
Tardif J.
Translation certified true
on this 13th day of June 2005.
Daniela Possamai, Translator
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