[OFFICIAL ENGLISH
TRANSLATION]
|
Citation: 2003TCC864
|
|
Date: 20031209
|
|
File: 2002-3405(EI)
|
|
BETWEEN:
|
|
MURIELLE GIRARD,
|
|
Appellant,
|
|
And
|
|
|
|
THE MINISTER OF NATIONAL REVENUE,
|
|
Respondent,
and
MATÉRIAUX ST-FÉLICIEN INC.,
Intervener.
|
REASONS FOR
JUDGMENT
Deputy Tax Court Judge
Savoie
[1] This appeal
was heard at Roberval, Quebec, on
August 21, 2003.
[2] This is an
appeal regarding the insurability of the appellant's employment with Matériaux
St-Félicien Inc., the payer, during the period at issue, from March 25,
2001 to February 9, 2002.
[3] On July 4,
2002, the Minister of National Revenue (the "Minister") informed the
appellant of his decision to the effect that this employment was not insurable
on the grounds that they would not have entered into a substantially similar
contract of employment if they had been dealing with each other at arm’s
length.
[4] In reaching
his decision, the Minister based his argument on the following assumptions of
fact set out in paragraph 5 of the Reply to the Notice of Appeal, which have
been either admitted or denied by the appellant.
a) The payer, who was
incorporated on September 27, 1996, operated a hardware store under the Home
Hardware name. (Admitted)
b) Mr. Guy Bonneau, the
husband of the appellant, holds 85% of the shares in the payer and the
appellant holds 15% of the shares. (Admitted)
c) The payer operates his
business on a year-round basis, from Monday to Saturday, and employs between 6
and 10 people, depending on the season. (Admitted)
d) The appellant has been
working for the payer only since 1998, and previously worked for a law office.
(Admitted)
e) All the payer's
accounting is computerized and the appellant primarily looked after checking
all the entries in the accounting records and keeping the payer's standing
inventory up-to-date. (Admitted)
f) Specifically, the
appellant was responsible for the following tasks:
- She checked the
inventory purchase orders, the outstanding receiving slips and the slips in the
system with the invoices for merchandise received during the month.
- She looked after the
aggregate sales record, the reconciliation of bank statements, quarterly
reports, and paying invoices.
- She prepared the
payer's monthly statements of results. (Admitted)
g) The appellant generally
worked two weeks a month and received employment insurance benefits during the
weeks when she was not entered on the payer's pay ledger. (Admitted)
h) When she was not at
work, the purchase orders and the daily sales records were deposited in her
office on a daily basis by the cashiers and sales staff. (Admitted)
i) The appellant herself
estimated the work to be done and came in only when there was enough work to
keep her occupied during an entire week, amounting to some 30 hours of work.
(Denied)
j) During the 2002, the
appellant accumulated 23 weeks of work with the payer. (Admitted)
k) During the weeks when
she was entered on the payer's pay ledger, the appellant received a fixed
salary of $600 a week, regardless of how many hours she had actually worked.
(Denied)
l) During the same period,
Mr. Dominique Turcotte, the manager of the hardware store, earned $616 per week
for 40 hours work. (Admitted)
m) The number of weeks
worked by the appellant is not influenced by the amount of sales, or by the
volume of purchases or by the number of employees working for the payer.
(Denied)
n) The appellant issued
herself a record of employment showing February 9, 2002, as her last day of
work and giving as the reason: "lack of work", whereas in fact there
was no lack of work and she was the one who decided on her work weeks. (Denied)
o) The organization of the
appellant's periods of work was based on the appellant's needs and on the needs
of the payer. (Denied)
[5] Sub-section
5(1) of the Employment Insurance Act (the "Act") reads
in part as follows:
Subject to sub-section (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;
[…]
[6] Sub-section 5(2) and (3) of the Act read in
part 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
[...]
(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.
[7] Section 251 of the Income Tax Act reads as
follows:
251. Arm's length relationship
(1) For the purposes of this Act:
a) related persons shall be deemed not to deal with each other
at arm's length;
[...]
(2) For the purposes of this Act, "related
persons", or persons related to each other, are:
a)
individuals connected by blood
relationship, marriage or adoption;
[...]
[8] The burden
of proof lies with the appellant. She must establish, according to the balance
of the evidence, that the Minister's decision is not well founded in fact and
in law. Each case is specific.
[9] With regard
to sub-section 5 i) of the Reply to the Notice of Appeal, the evidence revealed
that Guy Bonneau, the main shareholder of the payer, had stated to
investigators from the Minister that the appellant "would return to work
depending on the amount of work to be done; she had the experience and knew
when to come in". He also added: "she checks that the discounts have
been properly applied to the sales and corrects mistakes".
[10] The
appellant told the investigators that she had "sufficient work experience
to know when to come in". She accordingly let the work accumulate and,
when she thought that the volume was sufficient to keep her busy for an entire
week, she would come in to work. She knew, for example, that they received the
Home Hardware invoices every 7 days.
[11] The
appellant denied that she received a fixed remuneration of $600 per week
regardless of the hours actually worked. However, the payer's pay ledger indicates
that she received a set remuneration of $600 per week when she was registered.
It has been established, moreover, that she worked between 30 and 35 hours per
week.
[12] The
documents provided by the payer enabled the investigators to collate, in a
descriptive table for 2000, 2001 and 2002, the monthly data from the sales
record, the record of receiving slips and the pay ledger.
[13] In 2001,
sales declined by approximately $300,000 compared to 2000. From January to
November 2001, the turnover fluctuated from $118,000 to $200,000, and amounted
to $58,403 in December 2001. Purchases fluctuated between $80,000 and $100,000
between March and December, dropping to $35,000 in December.
[14] The number
of weeks worked by the appellant during a month varies from one to four weeks
and does not appear to be influenced either by the amount of sales or by the
volume of purchases.
[15] Thus, the
appellant worked only one week in January 2001, where sales were $171,309 and
purchases were $68,508.46 and also one week in November 2001, during which
sales were $135,910 and purchases were $101,000, while she appears in the pay
ledger for two weeks in February 2001, at which time sales were $178,155 and
purchases were $17,577, and for three weeks in March during which sales were
$122,000 and purchases $88,000.
[16] The
appellant is the wife of Guy Bonneau, the majority shareholder of the payer. In
accordance with sub-paragraph 251(2)b)(ii) of the Income Tax Act, this
means that the appellant and the payer do not deal with each other at arm's
length.
[17] The
appellant is asking the Court to set aside the decision of the Minister.
However, the powers of this Court in a case such as the one before us have been
circumscribed by the case law.
[18] In this
instance, the Minister cited Canada (Attorney General) v. Jencan Ltd. (C.A.),
[1998] 1 F.C. 187 and, in particular, the following excerpts from that
decision, as handed down by the Federal Court of Appeal:
The decision of this
Court in Tignish, supra, required that the Tax Court undertake a
two-stage enquiry when hearing an appeal from a determination by the Minister
under sub-paragraph 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 enquiry that the Minister is granted judicial deference by the Tax
Court when his discretionary determinations under sub-paragraph 3(2)c)(ii)
are reviewed on appeal ...
[...]
...Because it is a decision 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 resemble 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 his 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 sub-paragraph 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 sub-paragraph 3(2)c)(ii) only if it was
established that the Minister exercises his discretion in a manner that was
contrary to law. And, as I already said, there are specific grounds for
interference implied by the requirement to exercise a discretion judicially.
The Tax Court is justified in interfering with the Minister's determination
under sub-paragraph 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.
[19] The
evidence supplied by the appellant was not successful in proving that the
assumptions stated by the Minister in his response to the Notice of Appeal was
not well founded.
[20] It is true,
however, that the evidence revealed that the duties performed by the appellant
since 1998 were previously performed by Jacques Leclair, an individual who had
an arms' length relationship, under the same conditions. This is the argument
put forward by the appellant against the Minister’s assertion that
substantially similar conditions would not exist in a contract of employment
between parties dealing with each other at arms' length. Undoubtedly, this
evidence supports the appellant's position, but it remains to be seen whether
it alone is sufficient to establish that in making his determination the
Minister, first, acted in bad faith or for an improper motive; second, failed
to take into account all the relevant circumstances, as specifically required
by sub-paragraph 3(2)c)(ii) of the Unemployment Insurance Act, now
paragraph 5(3)b) of the Employment Insurance Act; or lastly, took
into account an irrelevant factor, under the terms used by the Federal Court of
Appeal in Jencan, supra.
[21] In a case
where the circumstances are similar, Tardif J. of this Court, in Huard v. Canada (Minister of National Revenue - M.N.R.), [2003] T.C.J. no. 435, wrote as follows:
[unofficial translation]
There must be
considerations of economic nature at work when a worker is laid off, such as
surplus inventory, economic slowdown, mechanical breakdown, a drop in demand,
the impact of competition, plan closure, bankruptcy, etc. The same holds true
for the return to work [increased demand, economic upturn, increased demand,
etc.].
[...]
It is not a matter of
fraud. The legislator has excluded from insurable employment the work of
persons who are not dealing at arm’s length, but has nonetheless made provision
for work initially excluded to become insurable, if the work is performed under
conditions and methods comparable to those that would have prevailed in the
same circumstances between third parties.
Such provisions are not
elastic to the point of conferring eligibility upon employment that is excluded
from insurable employment, solely because it is an appealing case. The
legislator has provided specific criteria for determining whether the contract
of employment has been shaped or affected by the fact that the parties to the
contract are not dealing with each other at arm’s length.
[22] In order to
justify her part-time job, the appellant pointed to the installation of a
highly specialized computer system which resulted in a substantial reduction in
her duties. However, if it is true that her duties were reduced, her salary
remained high, the highest in the entire company, even higher than that of the
manager who had a comparable salary but worked full time.
[23] Since the
appellant and the payer are not at arms' length, according to the Income Tax
Act, the exercise of the Minister provided for in subsection 5(3) of the Act
must be assessed in accordance with the established criteria.
[24] The data
obtained by the investigators and the documents provided by the payer have
established the following facts.
1) The
conditions of employment
[25] The weekly
pay of the payer and the SD are recorded in a pay system; the manager of the
hardware store adds up the number of hours worked by the employees and forwards
them to the appellant, who in turn forwards them to the bank, i.e., to the pay
system. Since the pay is weekly and the number of hours worked by some workers
varies from week to week, the report of hours to the pay system must be
prepared weekly.
[26] Since 1998,
the appellant has generally worked one or two weeks a month and between her
weeks listed in the payer's pay register, she receives insurance benefits. The
number of weeks worked is influenced neither by the amount of sales, nor by the
volume of purchases, nor by the number of employees. When she is not at work,
the inventory coupons and the daily sales records are placed on her desk every
day and accumulate.
[27] However, in
view of the computerized operations, if the system "goes down" or the
employees have problems with the computer system, no operations are possible.
The appellant is then recalled and returns to work.
[28] It is
appropriate to note that, with regard to one week of work in July 2001 and four
weeks of work in August 2001, the appellant explained that her husband closes
his construction company and that she coordinates her work weeks so as also to
be able to take her vacation starting in July.
[29] The
conditions set out above have led the Minister to conclude that they would not
be offered to a worker at arm's length, since they are more advantageous to the
appellant's personal needs and interests than to those of the payer.
2) Compensation paid
[30] According to the pay ledger, the manager of the hardware store, who
works full time for the payer, is paid at a rate of $15.40 an hour, which
amounts to a weekly salary of $616 for 60 hours of work. The appellant,
however, has a salary of $600 a week for 34 to 35 hours of work, i.e., a rate
of $17.14 an hour. This is the highest hourly rate paid by the payer, and it is
paid to a part time worker. The Minister accordingly concluded that it is
unreasonable to believe that such a salary, under such conditions, would be
paid to a person at arms' length.
3) Duration
of employment
[31] The
appellant worked one to two weeks a month. During 2001, she accordingly worked
23 weeks; she prepared her own record of employment, showing February 9, 2002
as her last day of work. The reason given for the layoff was lack of work.
[32] The facts
have, however, shown that there was no lack of work, since the appellant was
herself the one who decided the time, length and organization of her work
weeks. Furthermore, the appellant received employment insurance benefits
between February 18, 2001, and February 17, 2002 and in order to receive new
benefits, she was obliged to submit a new record of employment and a new claim
for benefits. She returned to work, moreover, two weeks after her layoff,
thereby complying with her weeks of waiting for benefits and worked three weeks
subsequently, since the work had accumulated during her absence. The result was
that the accumulation of work had enabled the worker, in other words the
appellant, to work full weeks, thereby allowing her to qualify for employment
insurance benefits for the weeks that were not paid by the payer.
[33] In light of
these facts, the Minister concluded that it was not reasonable to believe that
such consideration would be granted to an employee dealing at arms' length.
4) Nature and scope of the work
[34] It was established that the services performed by the appellant were
essential to the smooth conduct of the payer's business. She detected errors,
balanced the results, and made sure that the discounts on purchases were
correctly applied.
[35] The payer
could have benefited from the worker's presence for one or two days a week, but
by working only a few hours each week, the appellant would not have been
affected by a stoppage of work and consequently would not have been able to
claim employment insurance benefits.
[36] The
circumstances described above are clearly more advantageous to the appellant
than to the payer.
[37] The
Minister accordingly concluded that it was unreasonable to believe, in light of
the volume of work and the payer's turnover, that the payer would have hired a
stranger under those conditions and at that salary.
[38] This Court
is of the opinion that the Minister exercised his discretionary power as
required by the Act and the case law, specifically the principles set
out in Jencan, supra, by concluding that it was not reasonable to
believe, in light of all the circumstances, specifically the compensation paid,
the conditions of employment and its duration, the nature and scope of the work
performed, that the appellant and the payer would have concluded a
substantially similar contract of work between themselves if they had been
dealing at arms' length.
[39] The
appellant accordingly has not succeeded in proving that this Court would be
justified in intervening in the Minister's decision under the circumstances.
[40] The appeal
is therefore dismissed and the Minister's decision is affirmed.
Signed at Grand-Barachois, New
Brunswick, this
Deputy
Tax Court Judge Savoie
Certified
true translation
Colette
Beaulne
Email this Content