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[OFFICIAL ENGLISH
TRANSLATION]
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Citation: 2003TCC539
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Date: 20030812
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Docket: 2001-2354(EI)
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BETWEEN:
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BENOÎT LIZOTTE,
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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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REASONS
FOR JUDGMENT
Somers,
D.J.T.C.C.
[1] This
appeal was heard at Jonquière, Quebec, on June 19, 2003.
[2] The
appellant institutes an appeal from the decision of the Minister of National
Revenue (the "Minister") according to which the appellant did not
hold insurable employment during the period in issue, from June 19 to
September 30, 2000, because he held de facto control of more than
40 percent of the voting shares of the payer, Chez Pâtisserie Diane III
Inc. Furthermore, as a result of the terms and conditions, the employment was
not insurable because the appellant and the payer would not have entered into a
similar contract if they had been dealing with each other at arm's length.
[3] Subsection 5(1)
of the Employment Insurance Act (the "Act") reads in
part as follows:
(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;
[. . .]
[4] Subsections 5(2)
and (3) of the Act read in part as follows:
(2) Insurable employment does not include
[. . .]
(b) the
employment of a person by a corporation if the person controls more than 40% of
the voting shares of the corporation;
[. . .]
(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;
[. . .]
[5] Section 251
of the Income Tax Act reads in part as follows:
Arm's length
(1) For
the purposes of this Act,
(a) related persons shall be deemed not to deal
with each other at arm's length;
[. . .]
(2) Relationship
defined. For the purpose of this Act "related
persons", or persons related to each other, are
(a) individuals connected by blood relationship,
marriage or adoption;
[. . .]
[6] The
burden of proof is on the appellant. He has to show on a balance of
probabilities that the Minister's decision is unfounded in fact and in law.
Each case stands on its own merits.
[7] In
making his decision, the Minister relied on the following assumptions of fact,
which the appellant admitted or denied:
[TRANSLATION]
(a) the payer was incorporated in May
2000; (admitted)
(b) the payer's activities consisted in
operating a restaurant which sold prepared dishes, meals and buffets and in
operating a french fry stand adjacent to the restaurant; (admitted)
(c) the payer operated year-round;
(admitted)
(d) according to the share ledger, the
shareholders of the payer were purportedly: (admitted)
the appellant 100
voting shares
Denise Langlais 100
voting shares
Ginette Bonneau 100
voting shares
(e) Denise Langlais is the
appellant's spouse; (admitted)
(f) before the period in issue, the
appellant's son, Pierre Lizotte, was the owner of the business and
intended to close it because it was operating at a loss; (admitted)
(g) the appellant, an unemployed forestry
technician, asked his son to entrust the management of the business to him;
(denied)
(h) from December 1999 to June 2000,
while receiving employment insurance benefits, the appellant rendered services
to the business 40 hours a week without any remuneration reported during
that period; (denied)
(i) on May 2, 2001, the Employment
Insurance Board of Referees rendered the decision that the appellant was not
unemployed but was operating his business on a full-time basis; (admitted)
(j) in June 2000, the payer purportedly
purchased the business of Pierre Lizotte for $106,000; (denied)
(k) the payer refused to provide the
respondent with documents; (denied)
(l) an amount of $11,000 was deducted
from the amount owed on the purchase of the business, that amount representing
the consideration to the appellant for the services rendered without
remuneration from December 1999 to June 2000; (denied)
(m) the $11,000 was converted into a
capital payment for the shares of the appellant and his spouse
Denise Langlais amounting to $5,500 each; (admitted)
(n) Denise Langlais paid nothing for
her purported shares; (admitted)
(o) Denise Langlais signed nothing
in the company's book; (admitted)
(p) Denise Langlais knew nothing of
the payer's financial activities; (admitted)
(q) Ginette Bonneau told the
respondent that she did not know the purchase price of the business, whether
there were any loans or the appellant's conditions of employment; (admitted)
(r) Ginette Bonneau declared that
she did not manage the business; she had merely made an investment; (admitted)
(s) the minutes of the payer's
incorporation were not signed by Denise Langlais or Ginette Bonneau;
(admitted)
(t) Denise Langlais and
Ginette Bonneau never signed the payer's share purchase warrants;
(admitted)
(u) there were no minutes after of the
corporation was formed; (admitted)
(v) the payer had no corporate life;
(denied)
(w) the appellant alone made all the
decisions for the payer without consulting the other two shareholders; (denied)
(x) the appellant was the only
shareholder who lent money ($10,000) to the payer at the time the french fry
stand was built by personally repaying some of the payer's suppliers;
(admitted)
(y) the appellant and the payer provided
no proof of payment of the appellant's wages; (denied)
(z) on October 9, 2000, the payer
issued the appellant a record of employment for the period commencing on
June 19, 2000, and ending on September 30, 2000, stating a shortage
of work as the reason for the layoff; (admitted)
(aa) after he was laid off, the appellant
continued to render services to the payer without any reported remuneration;
(admitted)
(bb) the appellant's purported periods
worked did not coincide with the periods actually worked. (denied)
[8] The
payer was incorporated in May 2000. The payer's activities consisted in
operating a restaurant which sold prepared dishes, meals and buffets and
operating a french fry stand adjacent to the restaurant. That business was
operated year-round.
[9] According
to the share ledger, the shareholders were the appellant, Denise Langlais,
the appellant's spouse, and Ginette Bonneau, each of whom held
100 voting shares.
[10] Before
the period in issue, the appellant's son was the owner of the business and
intended to close it because it was operating at a loss. The appellant asked
his son if he could try to make the business profitable. From December 19,
1999 until June 8, 2000, the appellant, a forestry technician, rendered
services to the business at a rate of approximately five hours a week
without being paid.
[11] In June
2000, the appellant purchased the business from Pierre Lizotte for
$106,000.
[12] An
amount of $11,000 was converted into a capital payment for the shares of the
appellant and his spouse Denise Langlais, each receiving $5,500.
[13] Denise Langlais
paid nothing for his shares and signed nothing in the company's book. She knew
nothing about the financial activities of the business.
[14] Ginette Bonneau,
a shareholder, told the respondent that she did not know the purchase price of
the business. Nor did she know whether there were any loans or the appellant's
conditions of employment. She declared that she had not managed the business
and that she had merely made an investment.
[15] The
minutes of the payer's incorporation were not signed by Denise Langlais or
Ginette Bonneau. They never signed the payer's share purchase warrants,
and there were no minutes after those of the payer was formed.
[16] The
appellant testified that the shareholders had met without having a minute book.
However, he admitted that the other two shareholders were not involved in the
operations of the business.
[17] The
appellant was the only shareholder who lent the payer money ($10,000) at the
time the french fry stand was built by personally repaying some of the payer's
suppliers.
[18] The appellant
stated in his testimony that he had worked at the pastry shop on weekends for a
total of approximately 20 hours for wages of $250 a week and that he had
worked at the Ministère des ressources naturelles the rest of the time.
[19] The
appellant did not provide any proof of payment of wages. On October 9,
2002, the payer issued the appellant a record of employment for the period in
issue stating "shortage of work" as the reason for the layoff.
[20] The
appellant filed the decision of the Employment Insurance Board of Referees as
Exhibit A‑1.
[21] The
appellant acknowledged his signature on the resolutions of the payer's board of
directors (Exhibit I‑1); it should be noted that only the signature
of the appellant appears on the said Resolutions.
[22] The
appellant also acknowledged his signature on the documents entitled
"Purchase Warrant" (Exhibit I‑2) and on the share
certificates (Exhibit I‑3).
[23] In
cross-examination, the appellant admitted that he had been unemployed from
December 1999 until June 2000. During that period, he was at the business 40 to
50 hours a week, running errands and delivering buffets.
[24] He
testified that he had taken a week's vacation in June 2000 and admitted that he
had worked at the Ministère des ressources naturelles three days a week.
[25] Sylvie Lavoie,
a kitchen steward and witness of the respondent, declared that she had worked
at the business with the appellant from December 1999 until June 2000. The
appellant was at the business every day performing supervision and making
deliveries. She terminated her employment at the end of October 2000.
[26] During
the period in issue, the business sold meals and buffets; there was goodwill.
[27] Mona Jean,
an investigator, conducted an investigation in this case; she communicated with
the appellant, Sylvie Lavoie and Diane Rivard of the Ministère des
ressources naturelles.
[28] According
to Mona Jean, Sylvie Lavoie told her that the appellant had worked
approximately 40 hours a week at the business during the period in issue.
Ms. Rivard told her that the appellant had worked three days a week at the
Ministère.
[29] The
appellant told the investigator that he had rendered services to the payer
during the period in issue.
[30] In
support of his decision, the Minister claims that the employment held by the
appellant was not insurable because he had controlled more than 40 percent
of the payer's voting shares within the meaning of paragraph 5(2)(b)
of the Act.
[31] The
appellant was the only shareholder who signed the share certificates, share
purchase warrants and resolutions of the board of directors. There is no
evidence that the other two shareholders signed any documents whatever.
[32] The
evidence showed that the other two shareholders, who did not testify, were not
involved in the payer's administration or operations. The payer moreover had no
corporate life.
[33] The
evidence also showed that the appellant held effective control of more than
40 percent of the payer's voting shares. In the circumstances, under paragraph 5(2)(b)
of the Act, the employment held by the payer during the period in issue
was not insurable.
[34] The
Minister claims in the alternative that the employment held by the appellant
during the period in issue should be excluded under paragraphs 5(2)(i)
and 5(3)(a) of the Act because the appellant and the payer were
not dealing with each at arm's length.
[35] In Ferme
Émile Richard et Fils Inc. v. The Minister of National Revenue, [1994]
F.C.J. No. 1859, the Federal Court of Appeal held that, in determining
whether subparagraph 3(2)(c)(ii) of the Unemployment Insurance
Act, now paragraph 5(3)(b) of the Employment Insurance Act,
applies, the Court must consider whether the Minister's decision resulted from
a proper exercise of his discretion. The Court must first require that the
appellant "present evidence of wilful or arbitrary conduct by the
Minister".
[36] The
evidence showed that the appellant and the payer were not dealing with each
other at arm's length.
[37] There
is no doubt that the appellant worked 40 hours or more a week for the
payer without remuneration during the period in issue. The appellant brought no
evidence that he was remunerated during the period in issue.
[38] The
appellant admitted that he had continued rendering services to the payer
without remuneration after he was laid off.
[39] There
is no evidence that an amount of $11,000 was deducted from the amount owed on
the purchase of the business, that amount representing the consideration to the
appellant for the services rendered without remuneration during the period in
issue.
[40] The
conditions of employment would not have been similar if the appellant and the
payer had been dealing with each other at arm's length.
[41] The
appellant did not show on a balance of probabilities that the Minister's
conduct was wilful or arbitrary.
[42] Accordingly,
the employment held by the appellant during the period in issue is excluded
from insurable employment under paragraphs 5(2)(i) and 5(3)(a)
of the Act.
[43] The
appeal is dismissed and the Minister's decision is confirmed.
Signed at Ottawa, Canada, this 12th day
of August 2003.
D.J.T.C.C.
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