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Citation: 2005TCC86
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Date: 20050131
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Docket: 2004-2931(EI)
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BETWEEN:
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DAWN LOCKE,
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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
Rowe, D.J.
[1] The appellant appeals from a
decision of the Minister of National Revenue (the
"Minister") dated April 6, 2004, wherein the Minister
decided the employment of the appellant - Locke - with Top Notch
Diesel Ltd. (payor or Diesel) from January 2, 2003 to August 31,
2003 was not insurable employment pursuant to the relevant
provisions of the Employment Insurance Act (the
"Act") because Locke and the payor were
related and the Minister was not satisfied the contract of
employment would have been substantially similar if the payor and
the appellant had been dealing with each other at arm's
length.
[2] Locke testified she agreed with
certain assumptions of fact set forth in paragraph 7 of the Reply
to Notice of Appeal (Reply), as follows:
(a)
Remy Caron controls 100% of the voting shares of the Payor;
(b)
Remy Caron is the common-law partner of the Appellant within the
meaning of the Income Tax Act, R.S.C. 1985 (5th
Supp.) c. 1, as amended (the "Act");
(c)
the Appellant and the Payor are related to each other within the
meaning of the Act;
(d)
the Payor operates a mobile heavy duty mechanic service;
(e)
Remy Caron performs the duties of heavy duty mechanic for the
Payor;
(f)
At all times, the Appellant was employed under a contract of
service with the Payor;
(h) approximately
35% of the Appellant's time was spent on bookkeeping, 60% of her
time was spent designing the company logo and business cards and
5% of her time was spent on banking and parts running;
(i)
the Appellant was paid a fixed salary of $2,079.00 per month
regardless of the actual number of hours she worked;
(j) Remy Caron
and the Appellant determined the Appellant's work schedule to be
from 12:00 p.m. to 5:00 p.m. and 8:00 p.m. to 12:00 a.m.,
Monday to Friday, being approximately 45 hours per week;
(l) the
Appellant's scheduled hours were flexible and were based on the
needs and availability of both Remy Caron and the Appellant;
(m) the Appellant's hours
and days of work were not recorded;
(o) the Appellant
used her own vehicle when running parts for the Payor;
(p) the Appellant
did not receive a mileage allowance or reimbursement in respect
of the use of her vehicle;
(u) the Appellant
previously worked for the Payor during the period from August 19,
2001 to November 24, 2001 (hereinafter referred to as the "first
period of employment");
(v)
during the first period of employment, the Appellant was hired by
the Payor to do bookkeeping and run parts;
(w)
the Appellant was educated as a biologist;
(x)
the Appellant had no experience as a bookkeeper;
(z) the Appellant
was paid at a rate of $10.00 per hour during the first period of
employment.
[3] The Minister - in subparagraph
7(g) - listed the appellant's duties as follows: occasionally
running parts, bookkeeping, banking, designing a company logo and
designing business cards. The appellant stated she did not
quarrel with that statement except she wished to point out that
her main duty was to design a suitable logo for Diesel that could
be used not only for business cards, letterhead and invoices but
also for advertising display on the corporate van. Locke stated
that because Remy Caron (Caron) was the sole owner of Diesel and
did all the mechanical work himself, he had a few primary
customers that provided most of the revenue although he also
responded to calls from people requiring him to attend with his
mobile service in order to repair a vehicle. Locke stated that a
rental space was located in July, 2003, when work was carried out
in those premises but until that time, the van was the only
workspace used by Caron. His cellular telephone was the primary
contact for customers and the phone number in the Diesel office
located in the basement of the Locke/Caron residence was
forwarded to that cell number. As a result, Locke did not have to
respond to calls from customers. The in-home office telephone
number was also used for the fax machine and for Internet
hook-up. Locke stated her monthly salary of $2,079 was based on
an hourly rate of $12 for a 40-hour week. The appellant's son was
born in December, 2001, and she hired a neighbour to care for the
baby - in said neighbour's adjacent residence - between
2:00 p.m. and 5:00 p.m. while Locke worked in the basement
office. Locke stated that - at night - Caron was home and took
over caring for the child if she needed to do some work. During
the relevant period, Locke and Caron lived in Calgary, Alberta,
near various parts suppliers and the work performed by Caron
involved repairing trucks, backhoes and other equipment, mainly
powered by diesel engines. The appellant stated their residence
was a bungalow with a rear entrance and the basement area was
carpeted and insulated and the office area was equipped with a
desk, computer, printer, scanner, fax, telephone, filing cabinets
as well as the usual office supplies. Customers did not attend at
that office. Locke prepared a sketch - Exhibit A-1 - of the area
and disagreed with the Minister's assumption - in
subparagraph 7(t) of the Reply - that the room was merely "a
large open area with no room dividers". Locke stated she was not
merely self-trained - as assumed by the Minister in subparagraph
7(y) of the Reply - but had completed a 20-hour course provided
by a training company in order to become competent in using
Quickbooks software to perform bookkeeping and accounting
functions for Diesel. Her Certificate of Completion was filed as
Exhibit A-2. Locke stated she was accustomed to using computers
for other purposes including while studying biology at Malaspina
University in Nanaimo, British Columbia - in 2000 - and found
Quickbooks to be user-friendly. Locke agreed she had no
experience in graphic design when hired by the payor for the
relevant period but stated she had worked at a multi-media
organization on a volunteer basis in order to acquire some
knowledge in that field. Further, while in university, she had
created her own graphics, as required, for her own research
projects. With respect to the assumptions of the Minister with
respect to the graphic design aspect of her employment, and
pertaining to the provision of bookkeeping services, Locke stated
she agreed with these further assumptions as set forth in
paragraph 7 of the Reply:
(bb) the Payor obtained bids for
logo design work in the amount of between $3,000.00 to
$4,000.00;
(cc) as Remy Caron performed his
duties as a heavy duty mechanic away from his home and office,
the Appellant was not supervised in the performance of her
duties;
(dd) correspondence received by
the CCRA from the Payor did not contain any company logo;
(ee) the Payor did not replace
the Appellant with another employee when the Appellant ceased
working for the Payor after the first period of employment and
after the period in issue;
(ff) on or about
September 1, 2003, the Payor engaged the services of US
Multiservices Ltd. to do its bookkeeping on a regular basis;
(gg) the Payor paid US
Multiservices Ltd. the amount of $1,605.00 per month for its
services;
(hh) prior to August 31, 2003,
US Multiservices Ltd. invoiced the Payor in the amount of
$1,070.00 on June 13, 2002 and $384.20 on August 31, 2003 for its
services;
(ii) Remy Caron
could be called on to work at 3:00 a.m. or could work until 12:00
a.m. as the business of the Payor did not have fixed operating
hours as it was an "on call" operation;
(jj) the Payor's
clients did not attend the office of the Payor;
(kk) the Appellant was able to
care for her child during working hours when he was ill;
(ll) the Appellant
was able to make up the time spent caring for her child at a
later date;
(mm) the Payor rented a shop from July, 2003
to January, 2004 in order to enable it to perform bigger jobs as
well as vehicle inspections;
(nn) the business of the Payor
experiences a slow down during the winter months;
(pp)
the home telephone number was used by the business of the Payor
up until February, 2004 at which time the telephone number was
cancelled;
(qq) Remy Caron was the sole
signing officer for the business bank account of the Payor.
[4] The appellant stated she spent
about 35% of her time on bookkeeping and - therefore -
if that percentage was applied to her total monthly salary -
$2,079 - she was paid approximately $730 for that aspect of her
employment while Diesel was charged by US Multiservices Ltd.
(Multiservices) $1,605 per month - after September 1, 2003 - for
bookkeeping on a regular basis. Locke stated the volume of
business done by Diesel in 2003 increased substantially in
comparison with the previous year and required more bookkeeping
which occupied a greater amount of time even though the Goods and
Services Tax (GST) returns and corporate income tax returns were
filed by the accounting service that billed $25 per hour. The
appellant produced two telephone bills - Exhibits A-3 and A-4 -
in order to demonstrate that the account - Exhibit A-3 - was for
the office business telephone - in the name of Remy
Caron - and was not their residential number - a 235 prefix
instead of 248 - and that Exhibit A-4 - was issued by Telus
mobile phone division in respect of a cellular phone account in
the name of Diesel. In February, 2004, the business phone in the
Locke/Caron residence was cancelled when Diesel ceased
operations. The appellant stated that even though Diesel rented
business space in July, 2003, that area was for mechanical work
and the basement office in their home continued to function as
before. With respect to the ability to care for her child even
while working, Locke agreed that had occurred - once - for a
two-day period when her son was ill with flu but otherwise the
neighbour took the child next door in the afternoon. The
appellant stated she has worked as a waitress, and as an
assistant researcher for the University of Calgary, as well as in
retail, at veterinary clinics and as a labourer in the Calgary
zoo. She stated she had applied for 11 jobs in an attempt to
utilize her biology degree but was unsuccessful since nearly
every project required government funding and the appropriate
level of financial support was not forthcoming. The appellant
stated that during her working career she had many jobs that did
not require any supervision including when she was a food
researcher and had been required only to file reports every three
months or when assigned sole responsibility for opening and
closing retail outlets.
[5] The appellant - Dawn Locke - was
cross-examined by counsel for the respondent. Locke stated that
60% of her duties involved the design of a logo for Diesel,
including the business cards. She estimated that about $9,600 of
the total salary earned from Diesel during the relevant period
was attributable to that task. Earlier, she had obtained a quote
- $4,000 - from a design company that covered only the work to
produce a design but did not include printing or installation of
the appropriate program in the payor's computer. The appellant
stated she took the Quickbooks course while working for a
placement agency. Prior to the first period of employment -
August 19 to November 24, 2001 - the appellant had not worked for
Diesel and stated she had sufficient insurable hours from
previous employment in order to qualify for Employment Insurance
(EI) maternity benefits prior to her child being born in the
latter part of December, 2001, after which date she no longer
worked outside the home. The appellant conceded that work during
the winter months was slow and that she received the same monthly
salary during this period. Locke stated Caron was called out
about twice a year to perform work at night and that Diesel's
customer profile changed so that even though Caron serviced fewer
customers, the jobs lasted longer. Locke stated the number for
the telephone in the basement office was displayed on Diesel's
business cards. The company grossed approximately $95,000 in
2003. The appellant stated she prepared the Record of Employment
(ROE) - Exhibit R-1 - and Caron signed it. After terminating her
employment on August 31, 2003, the appellant applied for
maternity benefits and Diesel retained the services of an
accounting firm to handle the ongoing paperwork.
[6] The appellant submitted that she
had performed necessary work for the benefit of Diesel and that
if she had been able to find employment as a biologist, Caron
would have needed to hire someone to perform her duties and would
have paid the same reasonable hourly rate - $12 - to that
individual for a 40-hour week.
[7] Counsel for the respondent
submitted the remuneration overall was excessive in the context
of the work performed and that the bookkeeping company also
prepared tax returns for Diesel and also handled the regular flow
of paperwork on a monthly basis. When comparing the appellant's
employment situation to that of an arm's length employee, counsel
submitted it is doubtful a stranger would be working - at night -
in the basement of the employer's home and would not have the
flexible schedule enjoyed by the appellant. In relation to
running errands for Diesel, counsel pointed out the appellant was
not reimbursed for travel expenses and the physical set-up of the
payor's office was not consistent with a business operation
employing a worker on an ordinary commercial basis.
[8] The relevant provision of the
Act is paragraph 5(3)(b) which reads as
follows:
(3) For the purpose of paragraph
(2)(i),
...
(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.
[9] In the case of Adolfo Elia
v.Canada (Minister of National Revenue - M.N.R.),
[1998] F.C.J. No. 316 - a decision of the Federal Court of Appeal
dated March 3, 1998, at page 2 of the certified translation
Pratte, J.A. stated:
Contrary to what the judge thought, it is not necessary, in
order for the judge to be able to exercise that power, for it to
be established that the Minister's decision was unreasonable
or made in bad faith having regard to the evidence before the
Minister. What is necessary is that the evidence presented to the
judge establish that the Minister acted in bad faith, or
capriciously or unlawfully, or based his decision on irrelevant
facts or did not have regard to relevant facts. The judge may
then substitute his decision for that of the Minister.
[10] In Légaré v. Canada
(Minister of National Revenue - M.N.R.), [1999] F.C.J. No.
878 - another decision of the Federal Court of Appeal - Marceau,
J.A. speaking for the Court stated at page 2 of the judgment:
In this matter, the Court has before it two applications for
judicial review against two judgments by a judge of the Tax Court
of Canada in related cases heard on the basis of common evidence
which raise yet again the problems of interpretation and
application of the saving provision, subparagraph
3(2)(c)(ii). I say yet again because since its passage in
1990, several decisions of the Tax Court of Canada and several
judgments of this Court have already considered what workable
meaning could be given to subparagraph 3(2)(c)(ii).
In reading the text, the problems it poses beyond its deficient
wording are immediately obvious, problems which essentially
involve the nature of the role conferred on the Minister, the
scope of the Minister's determination and, by extension, the
extent of the Tax Court of Canada's general power of review
in the context of an appeal under section 70 et seq. of the
Act.
While the applicable principles for resolving these problems have
frequently been discussed, judging by the number of disputes
raised and opinions expressed, the statement of these principles
has apparently not always been completely understood. For the
purposes of the applications before us, we wish to restate the
guidelines which can be drawn from this long line of authority,
in terms which may perhaps make our findings more meaningful.
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.
[11] In terms of remuneration paid to the
appellant, the amount of $12 per hour is not unreasonable.
However, it is apparent the Minister was troubled by the amount
of time required to perform the available work and the fact that
no workable logo was produced by the appellant during her
employment. The appellant supplied the Minister with the estimate
that she spent about 35% of her time on bookkeeping and that was
adopted as an assumption of fact. After the appellant went on
maternity leave, the payor retained the services of a
bookkeeping/accounting entity at a cost of $1,605 per month.
However, prior to the appellant's last day of employment - August
31, 2003 - Multiservices had billed Diesel the sum of $1,454.20
between June 13 and August 31, 2003 for its services even though
the appellant was still performing her share of the bookkeeping
requirements. During the appellant's first period of employment
with Diesel, she was paid the sum of $10 per hour.
[12] With regard to the terms and conditions
of the appellant's employment, the Minister's position was that
the appellant was paid a monthly salary even though there were
periods when the amount of work to be done was slight. The
Minister also considered that the appellant was able to work on
weekends or at night according to her own needs and those of her
spouse who was the sole owner of the payor. The Minister regarded
the office in the basement of the Locke/Caron home as one more
appropriate for use as a supplemental business space rather than
as the primary office for an enterprise. The Minister took into
account that the appellant had no experience in graphic design
and had not demonstrated the existence of any finished product
flowing from her efforts. The Minister also assumed that the work
could have been done at less cost by a professional firm engaged
in that sort of business. The appellant testified she was
familiar with the use of graphics as a result of her university
studies and had some experience in that area while working - as
volunteer - for a multi-media company. The Minister also
considered that the appellant had not been replaced when her
first period of employment ended on November 24, 2001 prior to
the birth of her son the following month. The Minister also
considered that the home office was not visited by clients of
Diesel and that a shop was rented in July, 2003 to enable the
company to perform bigger jobs as well as vehicle inspections.
The appellant successfully rebutted the assumption that the
Locke/Caron residential home telephone number was the one used by
the payor until February, 2004 by establishing there was another
line used in the basement office for telephone, fax and Internet
connection as well as a cellular telephone that had calls
forwarded to it from the office number. The appellant testified
that the use of her vehicle to run errands for Diesel was not
significant and that she considered the resulting cost to have
been included in her monthly salary.
[13] Concerning the duration and nature and
importance of the work performed, the Minister took into account
that prior to starting work for Diesel during both periods of
employment, the appellant had been pregnant and that her only
source of income since 2001 - apart from EI benefits - had been
Diesel. The appellant stated she had not been aware she was
pregnant when commencing work for Diesel on January 2, 2003 and
that her baby was born on September 12, more than 8 months later.
The overall thrust of several of the assumptions of fact relied
on the Minister seemed to advance the position that the nature of
the work performed was more suitable to a part-time employee or
to having it done by an independent entity such as
Multiservices.
[14] Certainly, there are many businesses
that employ related workers, as they are entitled to do, provided
the circumstances of the employment satisfy the test imposed by
paragraph 5(3)(b) of the Act. The language utilized
in that provision recognizes that while persons may not be at
arm's length, they are able to deal with each other in the
course of their contract of employment as though they had been
persons at arm's length. The match does not have to be perfect
because the words "substantially similar" are used to
modify the nature of the contract of employment under analysis.
One analytical device is to consider whether it is reasonable to
conclude that strangers would have entered into a similar
arrangement as the one between the appellant and her spouse's
corporation under the circumstances disclosed by the
evidence.
[15] In my view, taking into account all the
relevant facts, it is doubtful that any similar working
relationship would have resulted from entering into a similar
contract of service with any arm's length employee. It was not
unreasonable to regard the amount of remuneration as excessive in
relation to the amount of work required to be done and/or
actually accomplished during the relevant period. The nature of
the work performed was not particularly conducive to remuneration
on the basis of a monthly, fixed, salary and no time records were
maintained to indicate the time spent on various tasks. It is not
unreasonable to have difficulty accepting that Diesel would have
paid an arm's length employee the same monthly salary - based on
a 40-hour week - without having that person account for time
spent on designing the logo and to provide progress reports from
time to time. Based on the evidence, the tasks of billing
customers and discharging related bookkeeping duties and/or
accounting functions were not onerous bearing in mind that the
appellant used Quickbooks software, Diesel did not have a lot of
clients in 2003 and Multiservices prepared the required tax
returns. Although some of the assumptions relied on by the
Minister were rebutted or modified or explained to some degree,
overall, the core assumptions - when viewed in total - remain
sufficiently intact to support the conclusion arrived at by the
Minister. It is not my function to substitute my opinion for that
of the Minister. Upon analyzing the evidence before me, I cannot
find that the Minister acted in bad faith or based the decision
on irrelevant facts or that said decision was arrived at without
proper regard to relevant facts. I find the facts relied on by
the Minister were correctly assessed and conclude the decision
that the appellant was not engaged in insurable employment with
the payor was reasonable. Despite that finding, I wish to make it
clear that in my view the appellant acted in good faith
throughout and assumed her legitimate employment with Diesel
would constitute insurable employment within the meaning of the
Act..
[16] The decision of the Minister is
confirmed and the appeal is dismissed.
Signed at Sidney, British Columbia, this 31st day of January
2005.
Rowe, D.J.
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