Citation: 2005TCC562
Date: 20050826
Docket: 2005-366(EI)
BETWEEN:
ZEINA SAATI,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
DussaultJ.
[1] This is an appeal from a decision of the respondent dated November 3, 2004, according to which the appellant did not hold insurable employment with 9082-2453 Québec Inc. (the payer) from February 23, 2002, to February 27, 2004.
[2] Paragraphs 5 and 6 of the Reply to the Notice of Appeal state the reasons for that decision. They read as follows:
[TRANSLATION]
5. The appellant and the payer are related persons within the meaning of the Income Tax Act because:
(a) Fouad Assoum was the sole shareholder of the payer;
(b) the appellant is Mr. Assoum's spouse;
(c) the appellant is related to a person who controls the payer.
6. The Minister determined that the appellant and the payer were not dealing with each other at arm's length in the context of the employment. The Minister was satisfied that it was not reasonable to conclude that they would have entered into a substantially similar contract of employment if they had been dealing with each at arm's length, having regard to the following circumstances:
(a) the payer, which was incorporated on September 28, 1999, operates a cabinet-making business under the trade name Ébénisterie Ébénart;
(b) the payer operates its business year-round and employs between one and five persons depending on its orders;
(c) the appellant began rendering services to the payer in February 2002;
(d) the appellant worked at the payer's place of business;
(e) the appellant's main duties were to:
- prepare the invoices and enter them in the computer;
- enter the addresses of companies and suppliers;
- answer the telephone from time to time;
(f) the appellant had no specific work schedule to meet; she could work Mondays, Tuesdays and Fridays and occasionally Wednesdays;
(g) the appellant's hours were not recorded by the payer;
(h) the appellant claims that she worked 20 hours a week, whereas the work described does not justify 20 hours of work a week;
(i) she received fixed remuneration of $220.00 a week;
(j) since she was hired by the payer, the appellant had always rendered services to the payer, even though she was on the payer's payroll for only 32 out of 40 weeks in 2002 and 25 weeks in 2003;
(k) on February 27, 2004, she stopped working because she was pregnant;
(l) before she was hired, no one held the position of the appellant and no one replaced her after her maternity leave started.
[3] The appellant denied subparagraphs 6(h) and (j). With respect to subparagraphs 6(j), the appellant's agent stated that she had worked 28 weeks in 2003. The appellant admitted the other subparagraphs.
[4] The appellant and her spouse, Fouad Assoum, testified.
[5] In her testimony, the appellant stated that her duties had been to prepare client invoices, enter some 800 stores of the Aldo-Pegabo group in the computer, answer the telephone, take messages and record employees' hours of work. Her spouse set her work schedule based on the work that had to be done, in particular the preparation of invoices. According to the appellant, during the months when there was not much work, Mr. Assoum accumulated the work and assigned it to the appellant when he felt there was enough.
[6] In cross-examination, the appellant said she had started working in March, not February 2002. She confirmed that, before and after the period in which she worked, her spouse had performed the duties assigned to her during that period.
[7] As to the addresses and telephone numbers of the 800 stores of the Aldo-Pegabo group in the computer, she said that this work had taken her a lot of time at first, approximately five minutes per store or per client, since she did not know how to operate a computer. She agreed with counsel for the respondent that this task might have required a total of 30 to 35 hours of work. The appellant stated that the corporation had other clients whose contact information also had to be entered in the computer, although she could not say exactly the overall number or based on the weekly entries required. She also mentioned the names of a few suppliers, of which she said there were approximately 10.
[8] She said there could be 10 to 20 telephone calls a day, but that there had been an average of 10 per day. If Mr. Assoum was on the premises, he answered the calls himself. When the appellant answered the telephone, she transferred the calls to Mr. Assoum or simply took messages.
[9] The appellant stated that there were from two to five employees whose hours of work she had recorded during her period of employment. She said that the task, which consisted in calculating the hours based on the perforated time cards and in making the necessary computer entries, had taken her about one hour. I conclude that this was one hour a week, not one hour a day.
[10] Between the start of her employment in 2002 and its end in 2004, the appellant said that she had not worked during certain periods, in particular because there was not much work. At those times, her spouse performed the duties that otherwise would have been assigned to the appellant.
[11] In his testimony, Fouad Assoum explained that the appellant had taken a great deal of time to perform her duties because she had no computer experience.
[12] He said that the business had some 100 suppliers, but that some were inactive and therefore could not be seen in the computer. As regards the computer entry of client addresses, Mr. Assoum said that follow-up also had to be done since there were often changes in that regard.
[13] As to the wages paid to the appellant, Mr. Assoum stated that he had consulted his former accountant on the subject and that the latter had told him that a rate of $11 an hour was appropriate.
[14] Mr. Assoum also said that he had had turnover of $240,000 to $260,000 at the relevant time, that that figure had since doubled and that he proposed to hire the appellant again. On the matter of recording employees' hours of work, he explained that the appellant had to record the hours based on the perforated time cards, but also had to keep a separate record based on the various projects on which the employees worked every day, since some clients were billed by the hour. That information also had to be entered in the computer.
[15] In addition, the appellant had no responsibility for remittances of goods and services tax ("GST") or Quebec sales tax ("QST"), since Mr. Assoum had hired a specialized business which handled those matters.
[16] Lastly, Mr. Assoum said that, when there was not much work, the appellant had stayed at home for a week because he did not want to pay her to do nothing.
[17] Counsel for the respondent contends that the Minister was satisfied that it was 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, mainly because there were not enough duties to perform to warrant a work schedule of 20 hours a week. On this point, he emphasized that Mr. Assoum himself had performed the appellant's duties when she was not working.
[18] According to counsel for the respondent, the appellant had little knowledge of the business, did not know the number of clients and could not remember the name of four or five suppliers. As to the entering of addresses of the some 800 clients of the Aldo-Pegabo group, he felt that this task did not require more than a total of 30 to 35 hours of work. He also contended that, even though the appellant had entered the invoices in the computer and recorded the number of hours worked by the employees, the number of which varied from two to five during her period of employment, those tasks, on the whole, had not taken 20 hours a week. He also emphasized the fact that an outside business had performed the work involving the GST and QST remittances.
[19] Ultimately, counsel for the respondent concluded that the relevant facts had been correctly analyzed and that the existence of other relevant facts had not been proven, as a result of which the decision rendered by the Minister was reasonable in the circumstances.
[20] In support of his arguments, counsel for the respondent referred to the decisions of the Federal Court of Appeal in Légaré v. Canada (Minister of National Revenue - M.N.R.), [1999] F.C.J. No. 878, and Pérusse v. Canada (Minister of National Revenue - M.N.R.), [2000] F.C.J. No. 310.
[21] The appellant's agent emphasized that Mr. Assoum had described the appellant's duties in a context in which his presence on site was necessary. As regards the entry of the addresses of the Aldo-Pegabo group's 800 clients, he recalled that Mr. Assoum had said that follow-up was necessary. According to the agent, the appellant's work was determined by Mr. Assoum based on the needs of the business, and the appellant had an obligation to perform it. He further stated that the appellant's terms and conditions had been the same as those of the other employees.
[22] Paragraph 5(2)(i) of the Employment Insurance Act (the "Act") provides that "employment if the employer and employee are not dealing with each other at arm's length" is not insurable employment.
[23] In addition, subsection 5(3) of the Act provides as follows:
(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.
[24] In the instant case, there is no doubt that the appellant and the payer are related persons within the meaning of paragraphs 251(2)(a) and (b) and subparagraph 251(2)(a)(iii) of the Income Tax Act. Under paragraph 251(1)(a) of that act, they are deemed not to deal with each other at arm's length. That being the case, there was thus reason for the Minister to rule as to the application of paragraph 5(3)(b) of the Act, which he did. Upon his analysis of the situation, he "was satisfied that it was 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."
[25] In Légaré v. Canada, supra, Marceau J.A. of the Federal Court of Appeal described the role of the Tax Court of Canada, in paragraph 4 of the Reasons for Judgment, as follows:
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.
[26] In Pérusse v. Canada, supra, Marceau J.A. conducted the same analysis. Furthermore, in paragraph 15 of the Reasons for Judgment, he added:
15 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 requires 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...
[27] These remarks were referred to more recently by Richard C.J. of the Federal Court of Appeal in Denis v. Canada (Minister of National Revenue - M.N.R.), [2004] F.C.J. No. 400, in paragraph 5 of the Reasons for Judgment.
[28] The main reason in support of the Minister's finding in the instant case is that, based on the information obtained, the appellant's duties did not warrant 20 hours of work a week. However, it is true that the appellant did not work all the weeks between February 22, 2002, and February 24, 2004, and that fact was taken into consideration. At the hearing, the appellant stated that she had not started working until March 2002. Her agent pointed out that she had worked 28 weeks in 2003, not 25.
[29] As for the rest, and apart from the fairly brief description, by the appellant herself and by her spouse, of the duties she had had to perform for the payer, little quantitative evidence was brought in support of the argument that the duties to be performed warranted employing a person 20 hours a week. It is simply known that the number of employees varied from two to five, that there was not much work to do during certain weeks and that the appellant did not work all the weeks of the period in issue. No documents were filed in evidence. The payroll would definitely have enabled the Court to assess the situation a little more clearly.
[30] On the question of the time necessary to perform certain duties, not much is known either, except that the time required to enter the 800 names and the contact information of the Aldo-Pegabo group was purported to be approximately 30 to 35 hours. Even if the time required to perform that work had been 60 to 70 hours, since the appellant stated that, at the outset, this work had taken her about five minutes per client, that would not have justified the equivalent of three to four weeks of work either.
[31] As for the time required by the appellant to perform certain duties, it appears from her testimony and that of Mr. Assoum that she did not know how to operate a computer and that she consequently took a great deal of time, especially at the start, to perform the work using the computer. This factor in a way supports the Minister's view that the duties did not justify 20 hours of work per week.
[32] On that basis, it can reasonably be considered that the payer would not have hired a person who did not know how to operate a computer on conditions similar to those granted to the appellant.
[33] In conclusion, I find that the evidence brought by the appellant and her spouse, Mr. Assoum, is distinctly insufficient for me to conclude that the Minister's decision was unreasonable in the circumstances.
[34] Consequently, the appeal is dismissed.
Signed at Ottawa, this 26th day of August 2005.
"P.R. Dussault"
Translation certified true
on this 30th day of November 2005.
John March, Translator
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