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Citation: 2003TCC532
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Date: 20030811
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Docket: 2001‑4099(EI)
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BETWEEN:
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FERME LICA 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,
AND
Docket: 2001‑4100(EI)
MICHEL CANUEL,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE
Respondent,
and
FERME LICA INC.,
Intervenor,
AND
Docket: 2001‑4101(EI)
BERTRAND CANUEL,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
FERME LICA INC.,
Intervenor.
[OFFICIAL ENGLISH TRANSLATION]
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REASONS FOR JUDGMENT
Savoie, D.J.
[1] These
appeals were heard on common evidence on May 29, 2003, at Matane,
Quebec.
[2] The
Appellants appealed from the decisions of the Minister of National Revenue (the
"Minister") that the employment held by Appellants Michel Canuel
and Bertrand Canuel was not insurable during the periods at issue. The
periods in question concerning Michel Canuel are from June 2 to
September 6, 1997, from January 2 to July 25, 1998,
from November 9, 1998 to August 20, 1999 and from January 3
to September 8, 2000. As for Bertrand Canuel, his periods in
question are from June 2 to October 17, 1997, from May 11
to October 23, 1998, from May 17 to August 27, 1999
and from May 22 to August 11, 2000.
[3] In
the opinion of the Minister, this employment is not insurable because Ferme
Lica Inc., the Payor, and Appellants Michel and Bertrand Canuel would not
have entered into substantially similar contracts of employment if they were
dealing with each other at arm's length under the provisions of
paragraph 5(2)(a) of the Employment Insurance Act (the
"Act") and sections 251 and 252 of the Income Tax Act.
[4] The
Minister also determined that Appellants Michel and Bertrand Canuel did
not hold insurable employment under the Act during the periods at issue
because they were not bound to the Payor by a genuine contract of service
within the meaning of paragraph 5(1)(a) of the Act.
[5] The
Minister further determined that an arrangement between Appellants Michel and
Bertrand Canuel, the workers, and the Payor existed for the sole purpose
of allowing them to qualify for employment insurance benefits.
[6] The
Minister relied on the following assumptions of fact in making his decision in
these cases:
in the case of Appellant Ferme Lica Inc., number 2001‑4099(EI):
[translation]
(a) The
Appellant, incorporated on September 29, 1993, ran a cattle and grain
farm.
(b) The
Appellant's shareholders were as follows:
Mireille Lizotte,
spouse of Bertrand Canuel and mother of Michel Canuel, with 60% of
the shares.
Bertrand Canuel with 20% of
the shares.
Michel Canuel with 20% of the
shares.
(c) The
Appellant's administrators were as follows:
Mireille Lizotte,
President,
Michel Canuel,
Vice‑President,
Bertrand Canuel,
Secretary‑Treasurer.
(d) During and
between the periods at issue, the Appellant had between 100 and 120 beef
cattle and approximately fifty calves in a feedlot.
(e) The Appellant
owned ten plots of land in the Amqui area; the furthest was
approximately 15 minutes by tractor.
(f) The
Appellant owned a stable that was a five‑minute walk from the
shareholders' residence; the animals were not enclosed; they were free to roam
both inside and outside the stable, regardless of the season.
(g) All loans and
the $50,000 line of credit were in the Appellant's name and were almost all
secured, jointly and severally, by the three shareholders.
(h) The Appellant
is operational year‑round, with peak periods in May and June during the
barley and oat seeding times.
(i) In addition
to the three shareholders, the Appellant hired a few workers, depending on its
busier periods (seeding and harvesting times).
(j) When the
Appellant hired an outside worker (other than a shareholder), the workers would
render services to the Appellant during that same period.
(k) Administration
within the Appellant's business was controlled by Mireille Lizotte with
the help of Bertrand Canuel, day‑to‑day operations were
controlled by Bertrand Canuel and major decisions were made by the three
shareholders.
(1) MICHEL CANUEL
(i) During the
periods at issue, he was in charge of the animals, he looked after the seeding
and the fodder and, began operating the combine harvesters since the
summer of 2000.
(ii) During the
periods of issue, he received a fixed remuneration varying between $440 and
$500, which is allegedly based on an average of 40 to 44 hours a week.
(iii) He had no
specific work schedule but he was required to perform his work based on the
Appellant's requirements.
(iv) During peak
periods, he received a fixed remuneration regardless of the hours actually
worked and during quieter periods, he was paid by the hour.
(v) On
September 12, 1997, the Payor issued a record of employment,
numbered A62780086, in the name of the Appellant, indicating that he had
worked from June 2 to September 6, 1997.
(vi) On
August 21, 1998, the Payor issued a record of employment,
numbered A64874364, in the name of the Appellant, indicating that he had
worked from January 2 to July 25, 1998.
(vii) On
August 24, 1999, the Payor issued a record of employment,
numbered A67443147, in the name of the Appellant, indicating that he had
worked from November 9, 1998 to August 20, 1999.
(viii) On
September 12, 2000, the Payor issued a record of employment,
numbered A70069825, in the name of the Appellant, indicating that he had
worked from January 3 to September 8, 2000.
(ix) In a
statutory declaration made on May 3, 2001, Michel Canuel
correctly declared the following:
‑ I acknowledge that record
of employment A62780086 does not reflect my actual full‑time work
period on the farm.
‑ I acknowledge that record
of employment A64874364 does not reflect my actual full‑time work
period on the farm either because I continued to work after
July 25, 1998.
‑ I acknowledge that record
of employment A67443147 issued in my name on August 24, 1999,
does not reflect my actual full‑time work period at Ferme Lica Inc.
because I continued to work after August 20, 1999.
‑ Record of
employment A70069825 also does not reflect the actual date of end of
employment because I continued to work full‑time after
September 8, 2000.
(m) BERTRAND CANUEL
(i) During the
periods at issue, he was in charge of field and herd management, he looked
after mechanical work, supervised works, maintained the buildings and
represented the Appellant within the Union des producteurs agricoles.
(ii) During the
periods at issue, he received a fixed, gross salary of $620 a week, allegedly
based on a 40‑hour week, regardless of the hours actually worked.
(iii) He had no
set work schedule but he had to perform his work according to the Appellant's
requirements.
(iv) On
October 20, 1997, the Payor issued a record of employment in the name
of the Appellant indicating that he worked from June 2 to
October 17, 1997.
(v) On
October 28, 1998, the Payor issued a record of employment in the name
of the Appellant indicating that he had worked from May 11 to
October 23, 1998.
(vi) On September 10, 1999,
the Payor issued a record of employment in the name of the Appellant indicating
that he had worked from October 12, 1998 to
August 27, 1999.
(vii) On
August 18, 2000, the Payor issued a record of employment in the name
of the Appellant indicating that he had worked from May 22 to
August 11, 2000.
(viii) In a
statutory declaration made on May 3, 2001, Bertrand Canuel
correctly declared the following:
‑ I
acknowledge that the records of employment that I provided with my applications
for benefits dated October 23, 1997, October 29, 1998,
September 10, 1999 and August 22, 2000, are not accurate
with respect to the hours that I actually worked for the business; the number
of hours actually worked as well as the periods of employment set out therein
are false.
(n) The workers
rendered services to the Appellant outside of the periods at issue.
(o) There was an arrangement between
the parties for the sole purpose of allowing the workers to draw employment
insurance benefits.
[7] Counsel
for Appellant Ferme Lica Inc. and Appellants Michel and
Bertrand Canuel provided a common response to the Minister's assumptions
in their respective cases, stipulating the following: she admitted the
assumptions of fact set out in paragraphs (b),
(c), (d), (e), (f), (g), (i), (j), (k), (l)(i), (ii), (iv), (v), (vi), (vii),
(viii), (m)(ii), (iv), (v), (vi) and (vii). However, she denied those set out
in paragraphs (l)(ix), (m)(iii) and (m)(viii) and wished to elaborate on
those set out in paragraphs (a) and (m)(i).
[8] It
was established at the hearing that Ferme Lica Inc. was incorporated on
September 29, 1993. The Appellant, the Payor, has operated a cattle
farm since the beginning and a grain farm since 1998.
[9] Worker
Michel Canuel is related by birth with his father, Worker
Bertrand Canuel and his mother, Mireille Lizotte, spouse of
Bertrand Canuel and majority shareholder of the Payor. Consequently, as
shareholders of the Payor, these persons are related to one another under
subparagraph 251(2)(b)(ii) of the Income Tax Act.
[10] Upon an analysis of the workers' employment in light of
paragraph 5(2)(i) of the Act, we find that Michel Canuel was
in charge of looking after the animals. He looked after the seeding, the fodder
and has operated the threshers since the summer of 2000. As for
Bertrand Canuel, he was in charge of field and herd management. He also
took care of the mechanical work, supervised the farm work, maintained the
buildings and occasionally operated machinery. Furthermore, he represented the
business within the Union des producteurs agricoles.
[11] Michel Canuel received a fixed, gross salary of $440 to $500 for
a workweek of approximately 40 to 44 hours during the periods at issue.
During peak periods, he was paid a weekly amount, regardless of the number of
hours worked and during quieter periods, he was paid by the hour.
[12] Bertrand Canuel received a fixed, gross salary of $620 for a 40‑hour
workweek during the periods at issue. He was paid a weekly amount regardless of
the number of hours worked and regardless of the weather.
[13] It was established that both workers worked numerous unpaid work hours
and the evidence revealed that the hours worked were not all paid owing to a
lack of corporate liquidity. It must be concluded that an unrelated person with
the same responsibilities as the workers would not have worked under the same
conditions because the Payor had work year‑round.
[14] In continuing the analysis of the workers' employment in light of
paragraph 5(2)(i) of the Act, we note that the evidence at the
hearing revealed that none of the workers had a fixed work schedule but that
each had to perform his work according to the Payor's requirements. There was
no control over the hours worked, which was explained by their responsibilities
within the business. However, this was not the case for outside workers, who
were supervised by the two workers.
[15] While Mireille Lizotte took care of the books,
Bertrand Canuel managed the fields and herds and supervised the farm work,
while Michel Canuel looked after the animals, the seeding and the fodder.
He operated the thresher as of the summer of 2000. All major decisions, such as
the purchase of land or heavy machinery, were made by the Board of Directors.
[16] Michel Canuel worked seven days a week in order to perform all of
the work required during the peak period, such as the seeding and fodder work,
but he looked after the animals throughout the year.
[17] The payroll journal indicates several weeks when workers Bertrand and
Michel Canuel are without work while outside workers are with work.
However, given that for safety reasons, they should not work by themselves, the
two workers, the Appellants, were required to work several weeks without pay.
[18] It was demonstrated that the Payor did not have the liquidity required
to pay the actual hours worked. There are grounds to doubt that an unrelated
person would have agreed to such conditions of employment.
[19] Bertrand and Michel Canuel worked for the Payor during the
periods at issue. They held permanent employment for a business that is
operational year‑round, and has peak periods during the seeding and
harvesting times.
[20] It is impossible to determine the actual number of hours worked by the
workers since the Payor kept no log of those hours. Both workers admitted
having worked without pay after the dates indicated on all of the records of
employment issued by the Payor for an indeterminate period.
[21] It is appropriate to conclude that an unrelated person would certainly
have ceased from working on the date indicated on his or her record of
employment and would not have continued working without pay. Therefore, it must
be concluded that the work stoppage is not determined by a lack of work but by
a lack of corporate liquidity.
[22] Owing to the positions held and the duties performed, the workers'
contribution to the Payor's business was essential to its smooth operation.
Without their services, the Payor would have been required to hire outside
personnel.
[23] In concluding this analysis on paragraph 5(2)(i) of the
Act, it is reasonable to conclude that the contract of employment of the
two workers would not have been similar if they and the Payor were dealing with
each other at arm's length. Analyzed in this way, it must be concluded that
this employment is not insurable.
[24] As for the Minister's assumptions that the Appellants denied or stated
having no knowledge of and which they had the burden of disproving, the
Appellants did not succeed in discharging this burden under the Act. Instead,
all of the evidence supported and corroborated these allegations.
[25] The evidence submitted by the Appellants sought to demonstrate the
falseness of the statutory declarations of the workers and of
Mireille Lizotte. They stated in their testimony that these statutory
declarations had been made under pressure. They affirmed having felt pushed and
intimidated by investigators who told them that the Minister would be able to
prove his case in court and that it would be published in the newspapers.
[26] It must be noted, however, that it was demonstrated that the
declarations—once gathered by the investigators—were reread to the persons who
had made them and that prior to signing them, they could have made whatever
corrections they wished to them. The Appellants did not contradict the
declarations.
[27] It is important to add that the evidence demonstrated that the workers
as well as Mireille Lizotte confirmed and validated their statutory
declaration before the appeals officer. They refused, nonetheless, to confirm
that they worked gratuitously for the Payor, accepting nonetheless to
acknowledge that they had provided services without pay.
[28] It must be noted that the Minister's decisions do not solely rest on
the statutory declarations. He also relied on documents submitted to him by the
Appellants, including several that were submitted at the hearing, namely
cheques and pay registers, the investigators' analysis, financial statements,
records of employment and tables showing the work periods and workers'
unemployment in relation to business activities.
[29] The Minister argues that the Appellant and the workers had an
arrangement for the sole purpose of allowing the latter to be able to qualify
for employment insurance benefits.
[30] The Appellants submitted that while unemployed, the Payor did not hire
the workers; the Respondent, however, replied to this and proved that when the
workers were receiving benefits, they were indeed working for the Payor at
certain times, even if they did not appear on the payroll or records of
employment. This situation is well documented in the tables entered into
evidence by the Minister.
[31] The workers attempted to justify their employment outside the periods
at issue by explaining that working with animals on a farm does not end on a
certain date. Bertrand Canuel affirms the following:
[translation]
. . . a cow calves, we
cannot leave her alone, regardless of what time of the year it is.
[32] However, while the Minister acknowledges that animal care requires a
year‑round presence, he argues that it is inappropriate to leave one's
employment, as the workers claim, and continue to work for the business without
pay and receiving employment insurance benefits, as the evidence established.
[33] Furthermore, it was proven that during the workers' lengthy periods of
unemployment, the Payor's business was in full activity and was employing
outside workers, but the latter could not work unsupervised.
[34] Moreover, the evidence revealed that the workers did not stop working
for the Payor but that it did not appear on the documentation provided to the
Minister by the Payor. The Payor was therefore benefiting from the workers'
services at the government's expense.
[35] This situation is all the more reprehensible because of the non‑arm's
length relationship between the workers and the Payor within the meaning of the
Income Tax Act, since both parties misused the employment insurance
system, which the Minister described in his Replies to the Notices of Appeal as
an "arrangement" between the Payor and the workers.
[36] It was demonstrated that the end of employment periods did not
coincide with the lack of work. In Lelièvre c. Canada (ministre du
Revenue national – M.R.N.), [2003] A.C.I. no 125, the Tax Court
of Canada was confronted by a situation similar to the case at bar and in his
reasons, Somers J. of that Court cited the following passage from Noël J. in Théberge v.
Canada (Minister of National Revenue – M.N.R.), [2002] F.C.J.
No. 464, at paragraph 61:
Moreover, a person who receives
unemployment insurance benefits and continues to work, without remuneration,
after his or her termination of employment enables the employer to benefit from
labour that is paid for not by the employer, but by the government. However,
unemployment insurance is not a business support program; it is essentially a
social measure that protects people who were genuinely employed and have lost
their job.
[37] The Appellants asked that Court to reverse the Minister's decision. It
is appropriate to recall the circumstances justifying the intervention of this
Court, especially the known limits of this power of review and of intervention.
[38] In this regard, the words of Marceau J. of the Federal Court of Appeal
are useful. They are set out below as they appear at paragraph 4 of Légaré
v. Canada (Minister of National Revenue – M.N.R.), [1999] F.C.J.
No. 878:
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.
[39] The Federal Court of Appeal revisited the same idea in Gray v.
Canada (Minister of National Revenue – M.N.R.), [2002] F.C.J. No. 158,
per Desjardins J., who wrote the following:
The applicant submits with the assumptions
on which the Minister relied on in his reply to the notice of appeal were
largely irrelevant . . . The applicant also submits that
the fact that the applicant worked for the payor outside of his remuneration
period did not amount, in the circumstances of the case at bar, to an important
factor to be relied on.
. . .
With regard to the applicant's second
argument, the weight to be given to relevant factors is for the Tax Court judge
to assess and not a matter for this Court to reassess.
[40] Upon reviewing the Appellants' case, the Minister concluded that a
genuine contract of service did not exist between the workers and the Payor.
He further concluded that the Payor and the workers had an arrangement for
the sole purpose of allowing the workers to collect employment insurance
benefits.
[41] Tardif J. of that Court, in Thibeault v. Canada (Minister of
National Revenue – M.N.R.), [1998] T.C.J. No. 690, described
the circumstances that invalidate the contract of service in the following
terms:
Genuine employment is employment remunerated according to market
conditions, which contributes in a real and positive way to the advancement and
development of the business paying the salary in consideration of work
performed. These are basically economic factors that leave little, if any, room
for generosity or compassion.
. . .
Of course, it is neither illegal nor reprehensible to organize one's
affairs so as to profit from the social program that is the unemployment
insurance scheme, subject to the express condition that nothing be
misrepresented, disguised or contrived and that the payment of benefits occur
as a result of events over which the beneficiary has no control. Where the size
of the salary bears no relation to the economic value of the services rendered,
where the beginning and end of word periods coincide with the end and the
beginning of the payment period and where the length of the work period also
coincides with the number of weeks required to requalify, very serious doubts
arise as to the legitimacy of the employment contract. Where the
coincidences are numerous and improbable, there is a risk of giving rise to an
inference that the parties agreed to an artificial arrangement to enable them
to profit from the benefits.
[42] It is appropriate to add that the Federal Court of Appeal confirmed
this decision on June 15, 2000, where it dismissed the applications
for judicial review with costs.
[43] Parties who agree on a set compensation based on criteria other than
the time or period of the work performed in order to take advantage of the
provisions of the Act, introduce factors foreign to a genuine contract of
service, thereby casting doubt on its validity.
[44] I therefore conclude that the employment exercised by the workers was
not insurable because the Payor and the workers were not dealing with each
other at arm's length.
[45] Furthermore, the workers did not hold insurable employment within the
meaning of the Act during the periods at issue because the Payor and the
workers were not bound by a genuine contract of service within the meaning of
paragraph 5(1)(a) of the Act.
[46] Lastly, it must be concluded that, in light of all the evidence
submitted at the hearing, the Payor and the workers had an arrangement for the
sole purpose of allowing the latter to qualify for employment insurance
benefits.
[47] For these reasons, the appeals are dismissed and the Minister's
decisions are confirmed.
Signed at Grand‑Barachois,
New Brunswick, this 11th day of August 2003.
Savoie,
D.J.
on this 23rd day of
March 2004.
Maria Fernandes, Translator
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