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Citation: 2005TCC48
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Date: 20050223
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Docket: 2004-1909(EI)
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BETWEEN:
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SUZANNE POULIN,
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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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and
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L'ÉCHO DE FRONTENAC INC.,
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Intervener.
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[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
BédardJ.
[1] This is an appeal from a determination by the Respondent that the work performed by Suzanne Poulin during the period from January 1, 2002, to May 29, 2003, for Écho de Frontenac Inc (the "Payer") met the requirements of a contract for services, despite the fact that the parties were not dealing at arm's length.
[2] To justify and explain his determination, the Respondent relied on the following presumptions of fact:
[translation]
6. The Minister determined that the Appellant performed employment for the Payer under the terms of a contract for services, and relied on the following presumptions of fact:
(a) the Payer published a regional weekly;
(b) In 2002, the Payer's total sales were close to $860,000;
(c) It has 8 employees including an executive director, an editor in chief and a sales director;
(d) The Appellant is the Payer's executive director and comptroller;
(e) She is responsible for schedules and compensation, she decides on purchases, verifies and authorizes account payments and supervises client billing and past-due accounts; she represents the company with the clients;
(f) She has close to 20 years' experience with the company in various positions;
(g) She generally works Monday to Friday from 9:00 a.m. to 5:00 p.m.;
(h) She works at the Payer's office;
(i) Gaétan Poulin is the sole administrator for the Payer;
(j) Gaétan Poulin goes to the Payer's office every morning;
(k) He prepares and verifies the Payer's monthly financial statements;
(l) Although the Appellant had quite a bit of latitude in her work, she had to turn to Gaétan Poulin for important financial decisions;
(m) The Payer always retained the right to control the Appellant's work;
(n) The Payer provided the Appellant with all the material and equipment required for her work;
(o) During the period in question, the Appellant received a base salary of $605.00 per week;
(p) In addition to her weekly salary, the Appellant also received a monthly bonus calculated based on sales transactions;
(q) She also had the use of a car that belonged to the Payer, which was valued at $8,220 in 2002;
(r) In 2002, her total pay was $49,333;
(s) The Appellant never provided guarantees for the Payer's bank loans or other;
(t) Her work is an integral part of the Payer's company.
7. The appellant and the Payer are related persons within the meaning of the Income Tax Act because:
(a) Gaétan Poulin is the Payer's sole shareholder;
(b) The Appellant is Gaétan Poulin's daughter;
(c) The Appellant is related to Gaétan Poulin, who controls the Payer.
8. The Minister also determined that the Appellant and the Payer were not considered to be dealing at arm's length for the purposes of this job, since he was convinced that it was reasonable to conclude that the Appellant and the Payer would have had a similar contract of employment if they had been dealing at arm's length, considering the following circumstances:
(a) The sales director and the editor in chief also receive monthly bonuses calculated based on sales transactions;
(b) The sales director also had the use of a car belonging to the Payer;
(c) In 2002, the editor in chief's pay was $50,225, and that of the sales director was $47,183;
(d) In 2002, the Appellant's $49,333 pay was reasonable considering the duties she carried out;
(e) The Appellant sets her own work schedules, which vary according to the Payer's needs;
(f) She works evenings or weekends according to the Payer's needs;
(g) The number of hours she works can sometimes vary between 30 and 45 hours per week;
(h) Considering the Appellant's experience and her position, it is normal for her to be able to make everyday decisions on a normal business day without referring to the Payer's administrator;
(i) The Appellant works year-round, in accordance with the company's activities;
(j) The Appellant's duties, as executive director, were necessary for the Payer's company.
[3] All the facts alleged in paragraphs 6, 7 and 8 of the Reply to the Notice of Appeal were admitted, except for those in:
(i) subparagraphs 6(g), 6(l), 6(m), 6(n), 8(d), 8(e), 8(f) and 8(g), which were denied;
(ii) subparagraphs 6(h), 6(k), 6(p), 6(r) and 8(a), which were also denied as written;
(iii) subparagraph 6(e), which was admitted but subject to completion.
[4] It must be noted that at the beginning of the hearing, the Appellant's representative admitted that the Appellant performed employment for the Payer under a contract for services.
[5] It must be stated that the Respondent determined that this was insurable employment because it did not fall under paragraph 5(2)(i) of the Employment Insurance Act (the "Act"). In fact, Ms. Poulin and the Payer were deemed, under paragraph 5(3)(b) of the Act, to be working at arm's length for the purposes of this job since the respondent was convinced that, under the circumstances, it was reasonable to conclude that they would have entered into a similar contract if they had been working at arm's length.
[6] The Federal Court of Appeal has repeatedly defined the role conferred by the Act on a Justice of the Tax Court of Canada. This role does not allow the justice to substitute his or her discretion for that of the Minister of National Revenue (the "Minister"), but it carries an obligation to "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...decide whether the conclusion with which the Minister was "satisfied" still seems reasonable."[1]
[7] In other words, before deciding whether the conclusion with which the Minister was satisfied still seems reasonable to me, I must, in light of the evidence before me, verify whether the Minister's presumptions were well-founded in whole or in part, considering the factors mentioned in paragraph 5(3)(b) of the Act.
[8] The question is, therefore, whether the Appellant and the Payer would have entered into a substantially similar contract of employment if they had been dealing at arm's length.
[9] The Appellant had the burden of showing that the Minister did not exercise his discretionary power in accordance with the relevant principles on the subject, namely showing that he did not review all the relevant elements or that he ignored relevant elements. The evidence submitted by the Appellant targeted the aspects that were genuinely important and relevant to determining whether the arm's length relationship between her and the Payer influenced the contract of employment between them. The Appellant and Gaétan Poulin, the Appellant's father and the Payer's sole administrator and shareholder, testified. Their testimony was clear and seemed very credible to me. I feel that their testimony clearly showed that, during the period in question, the Appellant enjoyed most of the rights and privileges usually reserved for company owners. In this regard, their testimony reavealed that:
(i) The Appellant set her vacation length and dates, which depended only on her personal needs and travel opportunities she had, contrary to the Payer's other employees. In 2002 and 2003 respectively, she had the equivalent of eight and four weeks' paid leave while the Payer's other employees had three weeks' paid vacation for each of these years.
(ii) The Appellant's work hours were not controlled or even accounted for, contrary to the Payer's other employees.
(iii) The Appellant could change her work hours as she pleased. She could leave at any time and plan her work according to her family and personal concerns, independently of the Payer's needs, because during her absences, the Payer was willing to leave the company's operations in the hands of trustworthy employees. The Appellant's weekly hours of work varied between 8 and 75 hours. She worked as she pleased, day, evening, or weekend, and did so from her residence or the Payer's head office, at her choice. She could leave work to take courses at the Université de Sherbrooke, to take care of her rental buildings, to participate in not-for-profit organization's meetings for solely personal reasons, or even to practise her hobbies (sailing and photography). The Appellant did not necessarily make up these hours spent on her personal activities at a later date. In other words, she did not always work extra hard for the work to get done. She could delegate her work to trustworthy employees during her absences. In short, she determined her duties.
(iv) The Appellant's work was not supervised in any way by anyone. In fact, she was the Payer's directing mind, because her father was, in practice, retired.
(v) The Appellant's father would never have given a person with whom he worked at arm's length the same freedom to act.
[10] What about the Appellant's pay? The Respondent claimed, in the Reply to the Notice of Appeal, that the Appellant's pay was reasonable considering the duties carried out. It seems that the Respondent would have difficulty coming to this conclusion unless he had information on comparable salaries or working conditions from the same industry or a related industry. In this case, the Respondent did not have such information. At most, the Respondent reviewed the pay of the editor in chief, and the sales director and concluded that the Appellant's pay was reasonable compared to that of the other executives. How could the Respondent have made such a comparison when the responsibilities and duties of the Appellant were completely different from that of the other two people? Moreover, although the overall pay of the Appellant was essentially the same as that of the two other executives, it must be noted that the terms used to determine the pay of each of the executives were very different from one case to the next. The Appellant's pay was set, whereas the director's was essentially determined based on the Payer's sales (15% of sales). A significant part of the editor in chief's pay was also established based on the Payer's sales. Lastly, it must be noted that the Appellant's father testified that he probably would have given an executive director with whom he was working at arm's length a higher salary. In fact, he found it difficult to believe that an unrelated executive director would accept a salary that was lower than his subordinates' salary.
[11] In this case, the relevant facts presented do not, in any way, support the finding that a third party would have entered into a substantially similar contract of employment. Finding that the Appellant and the Payer would have entered into a substantially similar contract of employment if they had been working at arm's length is simply unreasonable, and completely without basis. The balance of probabilities shows that the Appellant's working conditions were much more comparable to those of an owner than those of an employee.
[12] The Appellant's work is subject to the provisions of paragraph 5(2)(i) of the Act, and must be excluded from insurable employment. Therefore, the finding is that the appeal is allowed.
Signed at Ottawa, Canada, this 23rd day of February, 2005.
Bédard J.
Translation certified true
on this 29th day of July 2005.
Elizabeth Tan, Translator
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