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Citation: 2004TCC768
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Date: 20041221
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Docket: 2004-730(EI)
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BETWEEN:
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ISABELLE PAPINEAU,
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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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QUALIFRUIT INC.,
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Intervenor.
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AND
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Docket: 2004-727(EI)
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QUALIFRUIT INC.,
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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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ISABELLE PAPINEAU,
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Intervenor.
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[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Savoie,
D.J.
[1] These
appeals were heard on common evidence in Montreal, Quebec, on October 27, 2004.
[2] The
appeals concern the insurability of the employment of Isabelle Papineau,
the Worker, with the Appellant, Qualifruit Inc., from
May 30, 2002, to May 30, 2003, the period at issue, within the
meaning of the Employment Insurance Act (the “Act”).
[3] On
January 26, 2004, the Minister of National Revenue (the “Minister”) informed
the Appellant of the decision rendered to the effect that the Worker’s
employment with the Appellant was insurable employment during the period at
issue. The Minister also ruled that the Worker had a total of $22,400 in insurable
earnings in the last 14 pay periods, and a total of 1,820 hours of
insurable employment.
[4] The
Minister based the decision that the Worker held insurable employment with the
Appellant under a contract of employment on the following presumptions of fact:
5(a) the Appellant
was incorporated on February 11, 1983; (admitted with explanations)
(b) the Appellant
was running a fruit and vegetable retail sales firm; (admitted with
explanations)
(c) the Appellant
hired about 25 employees, depending on the time of the year, three of which did
administrative work while the others were sales and customer service clerks;
(admitted with explanations)
d) the Appellant
had $2,800,000 in sales in 2002 and $3,000,000 in 2003; (admitted)
e) the Worker
was hired as a bookkeeper; (denied)
f) the Worker’s
duties involved accounting, including accounts payable, paycheques, preparing
documents for the external auditor and occasionally running errands; (denied)
g) the Worker
worked Monday to Friday, from 9:00 a.m. to 4:00 p.m.; (denied)
h) the Worker
worked 35 hours a week for the Appellant; (denied)
i) the Worker
worked on the Appellant’s premises; (admitted)
j) the Worker
received instructions on the duties to be performed from Yvon Laurin or the
external auditor; (denied)
k) the Appellant
had the authority to control the Worker’s work; (denied)
l) the Worker
was paid $800.00 a week; (admitted)
m) the Worker was
paid through direct deposit every two weeks; (admitted)
n) the Appellant
owned all the material and equipment the Worker used; (admitted)
o) the Worker
did not assume any financial risk in performing her duties; (denied)
p) the Worker’s
duties were integrated into the Appellant’s activities; (denied)
q) the Worker
received $1,600 via direct deposit every two weeks; (admitted)
r) the Worker
was paid $22,400 for the last 14 pay periods, that is, $1,600 multiplied by 14
pay periods; (admitted)
s) the
Appellant’s records showed that the Worker worked 70 hours per pay period;
(denied)
t) during the
period at issue, the Worker accumulated a total of 1,820 hours of
insurable employment, that is, 70 hours multiplied by 26 pay periods.
(denied)
6. The Worker
and the Appellant are related within the meaning of the Income Tax Act
because:
a) the
Appellant’s shareholders with voting rights were: (admitted)
Yvon Laurin 75
% of voting rights
Dominic
Laurin 25 % of voting rights
b) the Worker is
Yvon Laurin’s spouse; (admitted with explanations)
c) the Worker is
related to Yvon Laurin, who controls the Appellant. (admitted)
7. The Minister
also found that the Worker and the Appellant were deemed to have an arm’s
length relationship in the case of this employment because the Minister was
convinced that it was reasonable to conclude that the Worker and the Appellant
would have entered into a substantially similar contract of employment if they
had been dealing with each other at arm’s length, given the following
circumstances:
a) the Worker
was always paid; (denied)
b) the Worker’s
remuneration was reasonable considering the tasks carried out and her level of
responsibility in the firm; (denied)
c) the Worker
had regular, not excessive, hours of work; (denied)
d) the Worker’s
terms and conditions of employment were reasonable; (denied)
e) there were no
breaks in the Worker’s employment with the Appellant; (denied)
f) the Worker’s
work met the Appellant’s requirements; (denied)
g) the duration
of the Worker’s employment was reasonable; (denied)
h) the Worker’s
work was key to the smooth running of the Appellant’s business; (denied)
i) the Worker’s
work was important to the Appellant’s business; (admitted)
j) the nature
and importance of the Worker’s work were reasonable. (denied)
[5] The
Appellant has been running his fruit and vegetable retail sales firm since
1979, distributes produce to institutions, and has developed “Les Étales”, a
specialized food group concept.
[6] The
Appellant has about 30 employees, three of whom are administrative. The Worker
has no accounting training. She was a pay clerk at Laval’s Cité de la santé before the Appellant hired her.
[7] The
Worker has been married to the Appellant’s principal shareholder for ten
years. The Appellant hired her so that she would be closer to her family and
spend more time at home looking after her family, since her eldest daughter was
starting school.
[8] It
was established that the Appellant also wanted to claim a tax benefit for
having the Worker as an employee.
[9] The
Worker therefore left her employment in order to work from her home, where she
could work for the Appellant and look after her children. The Worker held a
management position, meaning that she made a large contribution, which was
deemed essential to the firm. The Worker’s culinary knowledge from her hotel
industry training was a significant contribution to the Appellant’s success.
[10] Although the Worker has no accounting training, she supervised Marie‑Josée
Brunet, who replaced Line Gauthier, the secretary-accountant.
[11] It was established that the Worker was scheduled to work for the
Appellant in such a way that allowed her to look after her children, their
school and extra-curricular activities, and her home because her husband was
often on the road. The Worker looked after the worksite when their house was being
built.
[12] The Worker did not have a fixed work schedule nor was she required to
work a minimum number of hours.
[13] The Worker also worked at home for the Appellant. The external
auditor explained how to do her work, not Yvon Laurin, her husband, who left
every morning to make his purchases and deliveries.
[14] Since the Appellant considered her a manager, she provided the firm
with specific analyses on request.
[15] Yvon Laurin said that the Appellant had found the Worker duties that
would not interfere with her family obligations and allow her to work at home.
The only specific task the Worker was required to perform was to issue the
bi-monthly paycheques, which took three hours, twice a month. When the
secretary‑accountant returned from maternity leave, the Worker worked
only four days a week.
[16] The Worker could do the paycheque work when she wanted, provided that
she met both monthly deadlines. She could carry out all her duties when she was
available.
[17] Mr. Laurin cast doubt on the Minister’s statement to the effect that
the Worker did not assume any risk. He pointed out that the Worker is his wife
and that they own property together. He said that he signed bank loans and
therefore risks losing his property if the firm incurs losses. He said that if
he loses, she loses too.
[18] According to the Appellant, the Worker’s duties involved the firm’s
management. She could miss one day of work without the firm having to replace
her.
[19] According to the Appellant, the Worker was paid on a weekly, not
hourly, basis.
[20] Mr. Laurin testified that the Worker’s 70 bi-monthly hours had
absolutely no connection to her actual hours of work. He said that she worked
far fewer hours.
[21] The Worker became the Appellant’s salaried worker on October 1, 2001.
According to the Appellant, the Worker was paid for her management work for the
firm, which benefited from her research into squash that led to the preparation
of a recipe booklet for customers and the customer reward program.
[22] The Worker does not supervise other employees. Her husband, Yvon
Laurin, does.
[23] Based on the evidence, it was established that the Worker's work hours
were not regular; they varied according to the demands of family life. The
evidence the Appellant provided at the hearing proved that the Minister’s
statements in Paragraph 7 of the Reply to the Notice of Appeal were false. The
Minister had stated that the firm’s basic workforce was comprised of the other
employees and that the Worker had working conditions that the other employees
were never allowed. Mr. Laurin said that the firm was run by three people:
Yvon Laurin, Dominic Laurin and the Worker.
[24] Throughout his testimony, Yvon Laurin maintained that the Worker was
hired when her eldest daughter started school in August 2001. Then, when Line
Gauthier went on maternity leave in January 2002, the Worker was asked to
supervise the replacement, Marie-Josée Brunet. When Ms. Gauthier returned to
work, the Worker assisted her in preparing the annual report because the fiscal
year was drawing to a close. She then assisted during the transitional period
before the accounting software was changed.
[25] It was established that the Worker also carried out duties for her
father and brother’s firm during the period at issue.
[26] The Worker testified that she never had regular hours of work. She
told the investigators that her hours of work varied widely. A typical day for
her began in the Appellant’s office between 9:15 and 9:30, after she had
dropped her children off at school. When she arrived, she looked after the
mail, did some banking and ran some errands. She prepared paycheques for the
employees every two weeks. She ate lunch with her husband at noon, whenever
possible, then worked until 3:15 when she went to pick her children up at
school.
[27] She stated that she never had any fixed work hours. The time she spent
at work was never calculated.
[28] Based on the evidence provided at the hearing, the Worker apparently
worked for the Appellant for four hours and 15 minutes or four hours and 30
minutes, during which time she left the office without permission to look after
all her personal and her family’s needs, such as her and her children’s
appointments at the dentist, the doctor, for manicures, school and
extra-curricular activities, her children’s dance classes, etc.
[29] The appeals officer seemed to be surprised by the Worker’s description
of her typical day of work and the officer testified that if she had known what
she knew after the hearing, she would have investigated more extensively. She
was unable to contradict the facts provided by the Worker and Yvon Laurin to
prove that the Minister’s assumptions were incorrect. The appeals officer
testified that she did not ask the Worker how she used her time or obtain
details on the distribution of her duties. She said that she did not obtain
details on the Worker’s day-to-day work.
[30] However, the appeals officer said she knew that the Worker could leave
to look after her and her children’s needs, their school activities, etc.,
which was not at all in keeping with her conclusion of fixed hours and rates
and does not support many of her conclusions concerning the nature of the
Worker’s work.
[31] The appeals officer admitted that her investigation did not extend to
discovering how the Worker used her time. In many ways, the evidence provided
by the Appellant and the Worker was not contradicted by the Minister’s.
[32] The Appellant proved, among other things, that:
1. the Worker was hired with a view
to bringing her closer to her home and children;
2. the Worker was hired because of
the tax benefit the Appellant, and particularly her husband, received;
3. the Worker’s only mandatory duty
consisted in issuing employees’ paycheques, which took three hours, twice a
month;
4. the Worker came and went as she
pleased while the other employees were monitored and supervised;
5. the Appellant maintained that
the Worker’s employment depended on her family obligations and her children;
6. the Worker’s husband, Mr. Yvon
Laurin, stated that no other employee would have had similar working
conditions;
7. the Worker was hired because her
eldest daughter was starting school;
8. the Worker had no accounting
training, but she supervised the secretary-accountant;
9. the Appellant did not supervise
the Worker or her work;
10. Mr. Laurin said that there was no
connection between the record of the Worker’s 70 hours of work and her actual
hours of work;
11. the evidence heard at the hearing
contradicted the information in the Appellant’s records concerning the Worker’s
number of hours;
12. Mr. Laurin said that there was no
connection between the Worker’s remuneration and her duties.
[33] The Appellant’s majority shareholder, Mr. Yvon Laurin, and the Worker,
are related within the meanings of sections 251 and 252 of the Income Tax
Act, because they are married.
[34] In rendering the decision, the Minister found that the Worker and the
Appellant were deemed to be dealing with each other at arm’s length in the case
of this employment, because having regard to all the circumstances, it was
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.
[35] The Minister reached this conclusion by fulfilling the mandate
conferred under paragraph 5(3)(b) of the Act, excerpts of which follow:
5. (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;
[...]
5. (2)
Insurable employment does not include
[...]
(i)
employment if the employer and employee are not dealing with each other at
arm's length.
[...]
5. (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.
[36] The Appellant and the Worker were asking the Court to vacate the
Minister’s decision.
[37] The Federal Court of Appeal set out the application principles for
resolving the issue before this Court in Légaré v. Canada (Minister of National Revenue – M.N.R.), [1999] F.C.J. No. 878, of which the
following is an excerpt:
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"
[38] It is doubtful whether the Appellant would have entered into a
contract of employment substantially similar to that in the case at hand with
an unrelated person. Would this person have had the same benefits as those
enjoyed by the Worker in the case at hand? Would he or she have been hired to
bring him or her closer to his or her home or that of the principal shareholder
or to ensure that the firm and its principal shareholder obtained a tax
benefit? Would his or her schedule have been as flexible, and would he or she
have had unrestricted freedom to leave the workplace to look after his or her personal
affairs, those of his or her children and the home? Would the employer have
given him or her working conditions to which the other employees were in no way
entitled? Would he or she been paid full time when his or her only mandatory
task took six hours of work a month? Would he or she have been hired because
his or her daughter was starting school? Would he or she have been able to work
without supervision? Would he or she have been entitled to remuneration
regardless of his or her work hours or duties? Based on the evidence heard at
the hearing, we are forced to respond in the negative to all these questions.
[39] Mr. Laurin, the principal shareholder, testified that there is no
question that an unrelated employee would not have been given such benefits.
Further, the most important thing was that the Worker could look after the
family home and her children. His testimony was corroborated by the Worker’s.
[40] After reading the evidence provided at the hearing and listening to
the arguments, based on the applicable legislation and jurisprudence cited,
this Court feels that in carrying out the exercise in paragraph 5(3)(b)
of the Act, the Minister did not correctly assess the facts, and consequently,
the conclusion no longer seems reasonable.
[41] Therefore, since the Worker’s employment came under paragraph 5(2)(i)
of the Act, it is not insurable employment, because this Court is convinced
that having regard to all the circumstances, it is unreasonable to conclude
that the Appellant and the Worker would have entered into a substantially
similar contract of employment if they had been dealing with each other at
arm’s length.
[42] Consequently, the appeals are allowed and the Minister’s decision
vacated.
Signed at Grand
Barachois, New Brunswick, this 21st day of December
2004.
Savoie
D.J.
Translation
certified true
on
this 30th day of March 2005.
Colette
Dupuis-Beaulne, Translator
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