[OFFICIAL ENGLISH TRANSLATION
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Citation: 2004TCCI62
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Date: 20040203
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Docket: 2003-869(EI)
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BETWEEN:
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RÉGINALD DUCLOS,
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Appellant,
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and
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THE MINISTER OF NATIONAL REVENUE,
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Respondent,
and
R. DUCLOS ENTREPRISES LTÉE,
Intervener.
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AND
Docket: 2003-872(EI)
R. DUCLOS ENTREPRISES LTÉE,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
RÉGINALD DUCLOS,
Intervener.
REASONS FOR
JUDGMENT
Deputy Judge Savoie
[1] These
appeals were heard on common evidence at Bathurst, New Brunswick, on September
30, 2003.
[2] The
appeals concern the insurability of the employment of Réginald Duclos, the
Appellant, with R. Duclos Entreprises Ltée, the Payer, during the periods at issue,
from April 13, 2000, to April 14, 2001, and from April 15, 2001, to April 21,
2002, within the meaning of the Employment Insurance Act (the "Act").
[3] The
Minister of National Revenue (the "Minister") informed the Appellant
and the Payer of his decision, according to which the employment held by the
Appellant with the Payer was not insurable employment within the meaning of
paragraph 5(2)(i) of the Act, during the periods at issue, since the Appellant
and the Payer were not dealing with each other at arm's length.
[4] The
Minister based his decision on the following presumptions of fact, which were
admitted or denied:
a) the Payer is a legal entity incorporated in
March 1993, the sole shareholder of which is Andrée Chiasson Duclos,
the wife of the Appellant; (admitted)
b) the Payer operates a snow removal and
trucking business; (admitted)
c) the Payer operates from the residence of
the Appellant and his wife; (admitted)
d) the Payer operates year-round but is busier
in autumn and winter; (admitted with clarifications)
e) the Appellant is the main employee of the
Payer and his duties consist of operating the heavy machinery and maintaining
the Payer's equipment; he also does the purchasing required to maintain the
equipment; (admitted)
f) the Appellant also cultivates blueberries
on a commercial basis; (admitted)
g) the Appellant received a weekly salary of
$500.00 during the years 2000 and 2001 and $600.00 during 2002, for 50- to
80-hour weeks; (admitted)
h) if the Appellant worked fewer than 50 hours
a week, he was paid at a rate of $10 an hour in 2000 and $8 an hour in 2001;
(admitted, but $8 to $10 in 2001)
i) the Appellant did not always receive his
pay every week; (denied)
j) the Appellant used one of the Payer's
vehicles for his personal use; (on several occasions)
k) the Appellant and the Payer exchanged
services for their individual operations; (admitted)
l) the duration of the Appellant's employment
did not reflect the actual needs of the Payer; (denied)
m) the Appellant also did work for the Payer
for which he received no remuneration; (denied)
n) the Appellant and the Payer are related
persons within the meaning of the Income Tax Act; (admitted)
o) the Appellant and the Payer do not deal
with each other at arm's length; (admitted)
p) 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 not
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. (denied)
[5] The
Appellant accordingly admitted the assumptions set out at paragraphs a) to g),
k), n) and o), and denied those set out at paragraphs i), l), m) and p) and
wished to add clarification to those set out at paragraphs h) and j).
[6] The
Appellant wished to clarify that he received $8 to $10 an hour compensation in
2001 if he worked fewer than 50 hours a week. He also stated that during the
periods at issue, he used one of the Payer's vehicles for his personal use.
[7] After
reviewing the file, the Minister concluded that there was a contract of service
between the parties concerned. It was established that the Appellant was under
the control of the Payer, that all the equipment was provided by the Payer and
that the Appellant was not in a situation where he had opportunities for profit
and ran the risk of loss. The Minister further decided that the work of the
Appellant was essential for the Payer's company.
[8] Having
concluded that a contract of service existed between the parties, the Minister
continued his investigation with the aim of determining whether the Appellant's
employment was excluded within the meaning of paragraph 5(2)(i) of the Act,
since the parties are related within the meaning of paragraph 251(2)(a) of the
Income Tax Act, as the Appellant is the husband of Andrée Chiasson-Duclos, who
is the sole shareholder of the Payer, R. Duclos Entreprises Ltée.
[9] Paragraph
5(2)(i) of the Act reads as follows:
5.(2) Insurable employment does not include
[...]
i) employment if the employer and employee are not
dealing with each other at arm's length.
[10] Based
on the foregoing, the Minister continued his analysis in order to make the
determination required by paragraph 5(3)(b) of the Act. This paragraph reads as
follows:
(3) For
the purposes 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.
[11] It
was established that the Appellant's remuneration was low; it amounted to an
hourly rate of $7.05 for a total of $600 a week and $5.88 for a total of $500 a
week.
[12] Since
the Payer had provided certain documents at the request of the Minister, the
latter, after reviewing the Appellant's paycheques for the periods at issue,
asked for an explanation when it was discovered that, on several occasions,
these cheques were numbered consecutively and had all been cashed on the same
day. The sole shareholder of the Payer and the wife of the Appellant, whose job
it was to prepare the paycheques, explained that she paid the bills once a
month and that was why the cheques often had consecutive numbers. When asked as
to why the Appellant cashed the cheques on the same date, she stated that the
Appellant would supply the explanation therefor. At the hearing of these
appeals, the Appellant explained that he was saving his money "in a
sock", while he explained to the investigators that he had not had time to
cash them because he was working up to 85 hours a week.
[13] The
explanations given to the investigators by the Appellant led the investigators
to wonder what the Appellant was living off, since his blueberry growing
business recorded losses on the order of $20,239.95 in $2000 and $15,699.37 in
2001. The Appellant further explained that he derived income from the sale of
wood cut on his land. According to the Minister, however, this income did not
appear anywhere in the documentation provided, leading to the conclusion that
the explanations given by the Appellant were lacking in plausibility.
[14] The
evidence revealed that the Appellant was the only employee to receive a fixed
salary. He was, moreover, the only one to receive a pay increase in 2002.
[15] According
to the Minister, after reviewing the documents supplied by the Payer, which
bear the signature of the Appellant, the latter worked for free outside the
periods at issue. A vain attempt was made to explain the fact that the date of
the Appellant's signature on some of the documents did not correspond to that
of the service he had provided, which led to the comment by the representative
of the Minister that, in the absence of such evidence, the dates appearing on
the documents had to be recognized as accurate, and the same was true for the
Minister's presumptions. Furthermore, Ms. Andrée Chiasson-Duclos, the sole
shareholder of the Payer, told the investigators that the Appellant was never
paid when he was on "standby" and, since he was not entered in the
pay register, he performed certain services for the business, such as picking
up parts, signing invoices and making repairs to equipment, on a voluntary basis.
[16] The
Appellant denied the Minister’s presumption to the effect that the duration of
his employment, during the periods at issue, did not correspond to the actual
needs of the Payer. While it is true that his record of employment attributed
his layoff to a lack of work, the Appellant in fact continued to work after he
was laid off, for no pay.
[17] For
his part, the Appellant explained that, when he was doing errands, outside the
periods at issue, he would also run errands for the Payer, since "it was
on his route" and that he "signed for orders delivered to the
house". It must be noted, however, that several delivery chits bearing the
signature of the Appellant did not reveal the location at which the signature
was obtained.
[18] Under
the provisions of paragraph 5(3)(b) of the Act, the Minister exercised his
discretion by examining the circumstances surrounding the Appellant's
employment. The evidence thus revealed that the Payer managed her company from
her office located in the residence where she lived with the Appellant, her
husband. The Payer paid no rent for her office. It was further established that
the Appellant and the Payer exchanged services; for example, some of the bills
sent to one of them were paid by the other and vice versa. The parties explained
these circumstances in their own way, albeit with difficulty in some instances.
They thus attempted to attribute certain rental costs to the Appellant, which
had been billed to the Payer by mistake, but after checking, the supplier
clearly stated that the bill made out to the Payer exactly represented the
transaction as concluded and that there had been no need to change it. The
question might be asked which party could benefit from the Appellant's
assertion.
[19] In circumstances
similar to those in the file under review, the Appellant frequently resorted to
the argument that the services rendered by him, outside the period of
employment, were so minimal that little importance should be ascribed to them.
In this context, it is appropriate to quote from Théberge v. Canada (Minister
of National Revenue - M.N.R.), [2002] F.C.J. No. 464, where the Federal Court
of Appeal, under Décary J., said the following, at paragraph 19:
What
a claimant does outside the period during which he or she is employed in what
the Minister considers to be insurable employment can be relevant, for example,
to verify that the claimant is unemployed, to determine the amount of his or
her benefits, or to establish his or her period of unemployment. However, for
the purposes of the exception provided in paragraph 3(2)(c) of the Act, what a
claimant does outside of his or her period of employment will be of little
relevance when, as in this case, it is not alleged that the salary paid during
the period of employment took into account the work performed outside of that
period, that the applicant had included, in the hours spent on his or her
insurable employment, hours worked outside of the period, or that work
performed outside of his or her period of employment had been included in the
work performed during his or her period of employment. It seems to me to be
self-evident, and this is confirmed by the evidence, that in the case of family
businesses engaged in seasonal work, the minimal amount of work that remains to
be done outside the active season is usually performed by family members,
without pay. Excepting seasonal employment, in a family farm business, on the
grounds that cows are milked year-round amounts, for all practical purposes, to
depriving family members who qualify by working during the active season of
unemployment insurance and to overlooking the two main characteristics of such
a business: that it is a family business and a seasonal business.
[20] The Appellant is
asking this Court to reversing the Minister's determination under paragraph
5(3)(b) of the Act.
[21] It is appropriate to
specify that the authority of this Court, its scope and its limits, has been
studied by the Federal Court of Appeal of Canada in Canada (Attorney General)
v. Jencan Ltd., [1998] 1 F.C. 187. It is appropriate to reproduce these
relevant excerpts by Isaac C.J., who put it in the following terms:
The decision of this Court in Tignish, supra, requires that the Tax Court
undertake a two-stage inquiry when hearing an appeal from a determination by
the Minister under subparagraph 3(2)c)(ii). At the first stage, the Tax Court
must confine the analysis to a determination of the legality of the Minister's
decision. If, and only if, the Tax Court finds that one of the grounds for interference
are established can it then consider the merits of the Minister's decision. As
will be more fully developed below, it is by restricting the threshold inquiry
that the Minister is granted judicial deference by the Tax Court when his
discretionary determinations under subparagraph 3(2)c)(ii) are reviewed on
appeal.
[...]
[...] Because it is a discretion made pursuant to a
discretionary power, as opposed to a quasi-judicial decision, it follows that
the Tax Court must show judicial deference to the Minister's determination when
he exercises that power. Thus, when Décary J.A stated in Ferme Émile, supra,
[...] that such an appeal to the Tax Court "more closely resembles an
application for judicial review", he merely intended, in my respectful
view, to emphasize that judicial deference must be accorded to a determination
by the Minister under this provision unless and until the Tax Court finds that
the Minister has exercised this discretion in a manner contrary to law.
[...]
Thus, by limiting the first stage of the Tax Court's
enquiry to a review of the legality of Ministerial determinations under
subparagraph 3(2)c)(ii), this Court has merely applied accepted judicial
principles in order to strike the proper balance between the claimant's
statutory right to have a determination by the Minister reviewed and the need
for judicial deference in recognition of the fact that Parliament has entrusted
a discretionary authority under this provision to the Minister.
On the basis of the foregoing, the Deputy Tax Court
Judge was justified in interfering with the Minister's determination under
subparagraph 3(2)c)(ii) only if it was established that the Minister exercised
his discretion in a manner that was contrary to law. And, as I already said,
there are specific grounds for the interference implied by the requirement to
exercise a discretion judicially. The Tax Court is justified in interfering
with the Minister's determination under subparagraph 3(2)c)(ii) "by
proceeding to review the merits of the Minister's determination” - where it is
established that the Minister: (i) acted in bad faith or for an improper
purpose or motive, (ii) failed to take into account all of the relevant
circumstances, as expressly required by paragraph 3(2)c)(ii); or (iii) took
into account an irrelevant factor.
[22] The Federal Court of
Appeal considered a similar situation in Rockwood v. Canada (Minister of
National Revenue – M.N.R.), [2001] F.C.J. No. 948, where Sexton J.A. wrote as
follows:
The Tax Court Judge held that the onus was on the
Applicant to establish that the Minister acted capriciously or arbitrarily and
that the Applicant had failed to discharge this onus. He relied on the
decisions of the Court being Tignish Auto Parts Inc. v. Minister of National
Revenue (1994), 185 N.R. 73 (F.C.A.) and Ferme Émile Richard et Fils
v. Minister of National Revenue (1994), 178 N.R. 361 (F.C.A.).
[...]
In the absence of the record before the Tax Court, we
are unable to disagree with the conclusion of the Tax Court Judge. He could
only substitute his decision for that of the Minister where it is established
that the Minister acted in bad faith or for an improper purpose or failed to
take into account all of the relevant circumstances: Canada (Attorney General)
v. Jencan, [1998] 1 F.C. 187 (C.A.). None of these were established in this
case.
[23] The
relevance of the legislation and the case law in respect of employment
contracts between related persons was commented on by Hugessen J. in Bérard v.
Canada (Minister of National Revenue – M.N.R.), [1997] F.C.J. No. 88, who
wrote, inter alia:
[...] The clear purpose of the legislation is to
except contracts of employment between related persons that are not similar in nature to a normal contract
between persons dealing with each other at arm's length. It is in
our view clear that this abnormality can just as well take the form of
conditions unfavourable to the employee as of favourable conditions. In either
case, the employer-employee relationship is abnormal and can be suspected of
having been influenced by factors other than economic forces in the labour
market.
[24] In summary,
therefore, it must be said that this Court is justified in interfering with the
Minister’s determination, by proceeding to review the merits of the Minister’s
determination, where it is established that the Minister acted in bad faith or
for an improper purpose or failed to take into account all of the relevant
circumstances or took into account an irrelevant factor.
[25] It must be noted
that, in exercising his discretion, the Minister considered a number of
factors, some of which are:
1. the
work performed without pay outside the periods;
2. the
worker who does not cash his cheques regularly;
3. the worker, who is related to
the Payer, who is the only person to receive a fixed salary and the only one to
receive a pay increase;
4. the
exchange of services between the worker and the Payer.
[26] A case similar to the
instant case was dealt with by Rowe J. of this Court in Ostapowich v. Canada
(Minister of National Revenue - M.N.R.), [1997] T.C.J. No. 592. The following
is a relevant excerpt:
People are free to arrange their business affairs
however they choose, by paying wages or salaries to related persons and, provided
the work is done and the expense is reasonable, can deduct that cost from
income. However, if family members want to enter into contracts of service with
each other and establish an employer/employee relationship for the purposes of
insurable employment pursuant to the Unemployment Insurance Act then they must
take care to ensure the overall working relationship will satisfy the
requirements of subparagraph 3(2)(c)(ii). To that end, each party to the
working relationship, if related, may have to forego certain attributes of
their intended contract of employment which are strongly rooted in familial
loyalties, tradition or convenience in order that the contract of employment
can be seen, on an objective basis, as being substantially similar to the one which
would be entered into by strangers. Depending on the circumstances, a problem
with insurability may arise because of delay in receiving pay, exchange of use
of assets without compensation, providing services outside the time frame of
the relevant period covered by the determination, working exceptional hours for
too little pay, or not enough hours for too much pay, and a variety of other
factors which may affect the decision the Minister has to make.. [...]
[27] The onus was on the
Appellant to prove that the Minister erred in his presumptions and that he did
not act in accordance with the principles established in Jencan, supra. This
he did not do.
[28] Since the Appellant
has admitted virtually all the Minister’s presumptions, we must bear in mind
the Federal Court of Appeal decision in Elia v. Canada (Minister of National
Revenue – M.N.R.), [1998] F.C.J. No. 316, where the Court held that the
Minister’s presumptions must be taken to be admitted unless they have been
specifically disproved by the Appellant.
[29] The Appellant failed
to discharge that duty.
[30] This Court is of the
opinion that the Appellants have not succeeded in proving the grounds for
interference as is required by the principle established in Jencan, supra.
Under these circumstances, this Court must conclude that the Appellants have
not established that the Court’s interference would be justified. Accordingly,
the appeals are dismissed and the decisions of the Minister are affirmed.
Signed at Grand-Barachois, New Brunswick, this 3rd day of
February, 2004.
D.J.T.C.C.
Certified true translation
Colette Beaulne
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