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Docket: 2002-1609(EI)
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BETWEEN:
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NICOLE TREMBLAY,
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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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Appeal heard on common evidence with the appeal of Artisan
en tuyauterie et spécialités en plomberie ATS inc. (2002-1608(EI)) on
June 16, 2003,
at Jonquière, Quebec
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Before: The
Honourable Deputy Judge J. F. Somers
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Appearances:
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Agent for the
Appellant:
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Lyne Poirier
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Counsel for the
Respondent:
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Marie-Claude Landry
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____________________________________________________________________
JUDGMENT
The appeal is dismissed and the Minister's
decision is upheld in accordance with the attached reasons for judgment.
Signed at Ottawa, Canada, this 11th day
of September 2003.
Somers, D.J.
on this 22nd day
of March 2004.
Sharon Moren, Translator
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Citation: 2003TCC605
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Date: 20030911
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Docket: 2002-1608(EI)
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BETWEEN:
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ARTISAN EN TUYAUTERIE ET SPÉCIALITÉS EN PLOMBERIE
ATS 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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2002-1609(EI)
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NICOLE TREMBLAY,
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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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[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Somers, D.J.
[1] These
appeals were heard on common evidence at Jonquière, Quebec, on
June 16, 2003.
[2] The Appellants filed an appeal from
the decision of the Minister of National Revenue (the "Minister")
that the work performed by Nicole Tremblay, the worker, during the periods in
dispute, April 6 to June 26, 1998, from September 7 to
October 16, 1998, from May 31 to November 5, 1999, from
June 5 to October 6, 2000, from October 23 to October 27,
2000, from April 2 to August 10, 2001 and from August 27 to
August 31, 2001, at Artisan en tuyauterie et spécialités en plomberie
ATS Inc, the Payor, is excluded from insurable employment under the Employment
Insurance Act (the "Act"), on the ground that they were not dealing
with each at arm's length.
[3] Subsection 5(1)
of the Act reads in part as follows:
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 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
. . .
(i) employment if the employer and
the 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.
[5] Section 251 of the Income Tax Act
reads in part as follows:
Section 251: 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; and
. . .
Definition of "related persons"
(2) For the purpose of this Act, "related
persons", or persons related to each other, are:
(a)
individuals connected by blood relationship, marriage or adoption;
(b) a corporation and
(i) a person who
controls the corporation, if it is controlled by one person,
(ii) a person who is
a member of a related group that controls the corporation, or
(iii) any person
related to a person described in subparagraph 251(2)(b)(i) or
251(2)(b)(ii); and
. . .
[6] The
burden of proof is on the Appellants to establish according to the
preponderance of evidence that the Minister erred in fact and in law. Each case
turns on its own facts.
[7] In
making his decision, the Minister relied on the following presumptions of fact
which were admitted or denied:
(a) The Appellant
was incorporated on September 1, 1978; (admitted)
(b) The Appellant
operated a plumbing and heating business primarily in the commercial and
industrial sectors; (admitted)
(c) The Appellant
employed up to seven employees in his busiest periods; (admitted)
(d) The
Appellant's financial statements show the following information: (admitted)
Fiscal year Gross
income Net profit
1998 $439,249 $45,967
1999 $158,340 ($12,996)
2000 $171,556 ($6,922)
2001 $240,175 ($16,417)
(e) The Appellant
was in operation year round but the Appellant’s monthly income could vary
considerably for the same month from one year to another; (admitted)
(f) During the
periods at issue, the Appellant's shareholders were (admitted)
Claude Lapointe 9,990
shares
The worker 10
shares
(g) The worker is
Claude Lapointe's wife; (admitted)
(h) The
Appellant's office is located in the home of the worker and
Claude Lapointe and also included a garage and work storage area over the
garage; (denied)
(i) The worker
was an office clerk; (denied)
(j) During the
periods at issue, records maintenance, keeping the payroll journal, clients'
invoices, the monthly reports to the Commission de Construction du Québec
were done by Claude Lapointe; (admitted)
(k) The worker's
duties were to answer the telephone, receive sales representatives, maintain
the premises and the two trucks, paint the premises, engrave the Appellant's
tools; (admitted, subject to amplification)
(l) In 1998, the
worker was paid at the hourly rate of $13.32; (denied)
(m) In 1999, the
worker was paid at the hourly rate of $14.42; (denied)
(n) In 2000, the
worker was paid at the hourly rate of $15.81 (denied)
(o) In 2001, the
worker was paid at the hourly rate of $16.65; (denied)
(p) The Worker's
salary was unreasonable, considering her duties; (denied)
(q) Claude Lapointe
received no salary during the periods in which the worker was on the payroll;
(denied)
(r) On
January 31, 2002, Claude Lapointe acknowledged to an agent of the
Respondent that he took no salary when the worker was on the payroll to keep
the Appellant's expenses to a minimum; (denied)
(s) The worker
appeared in the payroll journal for 40-hour weeks; (admitted)
(t) The worker's
volume of work could not justify 40 hours of work per week; (denied)
(u) The worker
and the Appellant could not determine actual number of hours worked by the
worker; (denied)
(v) The payroll
journal did not reflect the actual situation regarding the hours actually
worked by the worker. (denied)
[8] The
Payor was incorporated in 1978 and operated a plumbing and heating business
primarily in the commercial and industrial sectors.
[9] The
shareholders of the business are Claude Lapointe and his wife, the worker,
Nicole Tremblay, holding 9,900 shares and 10 shares
respectively.
[10] The company employed up to seven employees during the busiest periods
and had sub-contractors.
[11] The company's financial statements show the following information:
Fiscal
year Gross income Net profit
1998 $439,249
$45,967
1999 $158,340
($12,996)
2000 $171,556
($6,922)
2001 $240,175
($16,417)
[12] The Company was in
operation year round but the Appellant’s monthly income could vary considerably
from one year to another.
[13] According to Claude Lapointe, the company had Abitibi Consolidated
Inc., Alcan and the school board as clients and work was done mainly outside
the region.
[14] The Payor's business office was located in the family home and
included a garage above which there was a work storage area. Photos showing the
residence in 1982 are filed as Exhibit A-1.
[15] The worker was an office clerk during the period at issue and began
her employment with the company in 1979.
[16] During the periods at issue, the worker kept the books, the payroll
journal and client invoices. The monthly reports to the Commission de
construction du Québec were completed by Claude Lapointe.
[17] Claude Lapointe stated that he hired his wife as needed especially
when he had large bids because she calculated the bids while he was away. She
maintained the office, the garage, the workshop and equipment. She also painted
the pipes, the premises and engraved identification on the tools, the estimated
value of which is roughly $100,000.00.
[18] A document (Exhibit A-2) prepared by Claude Lapointe shows
business income for the years 1993 to 2003.
[19] According to Claude Lapointe, his wife started to work for the company
in 1979 according to the needs of the company and the family. Her salary was
paid by weekly cheque for 40 hours of work, as indicated by Exhibit A-3.
Her salary varied between $10.00 and $15.00 per hour but he adds that she
received up to $18.28 per hour.
[20] Claude Lapointe did not always receive his salary. He was paid
according to the company's financial ability. The hourly rate paid to plumbers,
including Claude Lapointe, was from $23.78 to $27.84, according to decree.
[21] Claude Lapointe explained that his wife could work from two to
three days on some bids. Between May and June 2001, there were
approximately 20 bids.
[22] The worker had to take inventory before July 31, 2001. Accounting
was done manually.
[23] In cross-examination, Claude Lapointe stated that the bids are
prepared before the contracts are signed. He added that he is the one who
prepared the bids according to the drawings and specifications and that his
wife did the calculations and addition of the amounts.
[24] Claude Lapointe acknowledged that he prepared 90% of the invoices
filed as Exhibit I-2. On the other hand, he stated that 95% of the handwriting
appearing in Exhibit I-4 was the worker’s.
[25] The worker testified that she worked for the Payor from 1979 until the
end of September 2002 and that she did has not worked for him since.
[26] She acknowledged that she did not have experience in this field before
1979 and that it was her husband who taught her.
[27] According to her testimony, her duties, in addition to those listed in
paragraph 5(k) of the Reply to the Notice of Appeal, consisted of
preparing invoices and pay, making the entries in the books and making bank
deposits, including those filed as Exhibit A-6 with the exception of three
of them. Furthermore, she calculated the bids, prepared the photocopies and the
envelopes addressed to the individuals involved.
[28] During the periods at issue, she added that she painted the premises
and approximately 3,000 feet of pipes, maintained the company's premises,
did inventories, made deliveries and engraved the tools.
[29] In cross-examination, she stated that she did a major cleanup in the
interior of the trucks once a year and that she washed the trucks every
15 days and that inventory was done once a year.
[30] Louise Dessureault, appeals officer and witness for the Respondent,
stated that she met with Claude Lapointe, the business's accountant, Gabriel
Lapointe, and the worker in the appeals office on January 31, 2002.
[31] According to the table prepared by the appeals officer and filed as
Exhibit I-7, the Worker worked for the Payor for different periods and
continued during the years at issue.
[32] In her appeal report (Exhibit I-6), Louise Dessureault
noted, among other things, the following information:
[translation]
Remuneration paid
In 1998: the Appellant was paid
at the hourly rate of $13.32 for 40 hours of work.
In 1999: the Appellant's hourly
rate rose to $14.42, an 8.25% increase, despite a drastic decrease in contracts
and a $12,000 loss for the fiscal year. No increase was given to other workers
except for one who received a $0.24 per hour raise.
In 2000: the Appellant's hourly
rate rose to $15.81, an 8.7% increase. The salary increases given to the other
workers ranged from 4% to 20% (rates set by the CCQ)
In 2001: despite a decrease in
contracts, sales figures and a net loss, the Appellant's salary was raised to
$16.65, a 5.37% increase while the other workers received increases of 2.98%
and 3.18%.
The Payor's financial statements
report the following information:
FISCAL YEAR ENDED INCOME FROM
CONTRACTS NET PROFIT
07-31-1997 $439,670.00 $27,920.00
07-31-1998 $439,249.00 $45,967.00
07-31-1999 $158,340.00 $(12,996.00)
07-31-2000 $171,556.00 $(6,922.00)
07-31-2001 $240,175.00 $(16,417.00)
[33] The Appellant received salary increases for the years 1999, 2000 and
2001 while the Payor sustained
losses. The other employees received smaller salary increases than those given
to the worker.
[34] From 1998 to 2000 a salary is paid to Claude Lapointe only when the worker does not appear in the payroll
journal. In 2001, no salary was paid to Claude Lapointe from January to August.
It must be noted that the business is in operation year round.
[35] In her report (Exhibit I-6), the appeals officer prepared the
following chart:
[translation]
The entries in the Payor's various
registers are primarily done by Claude Lapointe, assisted by the Appellant
[the worker] during her periods of employment:
Joint responsibilities
of Claude Lapointe and Nicole Tremblay:
Month DOCUMENTS
COMPLETED BY
CLAUDE
LAPOINTE NICOLE TREMBLAY
Register of the suppliers' inputs
completes totals
the amounts
GST and QST Reports
completes totals
the amounts
Monthly invoicing to clients (jobs
in progress) . . .
Completes and totals during
time of employment, finds unit prices for materials in catalogues
Monthly report of
accounts receivable (prepared for the bank) . . .
2001 January, February, March and September
April 30, May 30, June 30, July 31, August 31,
October 31 and December 31
March and September
2000 MONTHLY
CHEQUE REGISTER . . .
August 7
entries 46
entries
Sept.
9
41
Oct. 8
35
Nov.
43 14
Dec. 41
0
2001
Jan. 19
0
Feb. 34
0
March 40
0
April
35
0
May
42
0
June
22
6
July
33
0
Aug.
42
0
Sept.
43
0
Oct.
35
15
Nov.
23
27
Dec.
23
30
[36] This is a matter of comparing the information in Exhibits I-4
and I-6, the entries made in the Payor's various registers and the worker's periods of work.
[37] In cross-examination, the appeals officer explained that
Claude Lapointe received cheques (salary) rather than the worker because she was in a period of
unemployment. She acknowledged that when Claude Lapointe was not receiving
a salary when he was not working.
[38] This witness acknowledged that the salary increases to employees other
than the worker were granted
by decree, including Claude Lapointe's salary.
[39] According to the audit of the Payor's records, the bids were made when
the worker was in a period
of unemployment.
[40] According to information provided in a document prepared by the
Payor's accountant, the appeals officer described, in her report, the worker's
and Claude Lapointe's duties for the year 2001:
[translation]
1) General office work:
·
She answers the
telephone, (during period of unemployment, Claude Lapointe uses the
answering machine when he is absent);
·
She completes different
documents (24 done)
·
She receives various
construction materials sales representatives who give her product catalogues;
2) Maintenance of premises,
·
Major cleaning of the
office in May 2001, and upkeep of the filing cabinets
·
Regular cleaning of the
office . . .
·
June 2001, painting the shop walls and floor and moving and
putting stock back . . .
·
July and August, taking the annual inventory of
parts and materials (stock), take a count of each case for compilation by
Mr. Lapointe: 40 sheets completed by Mr. Lapointe . . .
3) Wash trucks and stock
·
Wash 2 trucks
inside and out, clean the equipment and reclassify them May 2001 . . .
·
Jobs specific to 2001:
engraving of all tools and equipment (900 tools) to reduce the deductible
for company insurance (the rider on the company insurance specifies that the
reduction of the deductible to $1,000 becomes effective on
April 3, 2001, following the engraving of the tools, beginning of the
Appellant’s employment, April 2, 2001. . .
·
In April 2001, the
Appellant painted the tools green (Index Tab Plan 3 and photos)
·
It should be noted that
in 2000, the Appellant painted 3,000 feet of pipe requiring 70 hours
of work.
4) Assistance in preparing bids
·
In 2001, the Payor made
44 bids, examples provided: February 1, March 1, April 2,
May 3, June 2, July 1, August 3, October 4,
November 1 . . .
·
The bids can require
from 30 to 90 hours of work, and the Appellant's duties are to add up
the surfaces to be covered
for piping system jobs in order to determine the material required for each
bid. She works with Claude Lapointe who gives her the number of feet to
total.
·
She makes photocopies
and sends the documents by fax in the last week of August 2001, 1 bid
required photocopies of 8 files (1 inch thick, 31 chapters,
100 pages);
Some tasks are the sole
responsibility of Claude Lapointe:
·
The construction
workers' salaries follow the standards of the Commission de Construction du
Québec which dictates the rates and annual increases;
·
He determines the
amount of the source deductions and makes the majority of entries in the
payroll journal;
·
He completes the source
deduction reports;
·
He completes the
monthly CCQ reports for his construction workers;
·
He hires workers and
prepares the records of employment;
·
Bank deposits are
mostly done by Claude Lapointe;
·
He makes purchases:
materials, etc.;
·
He signs the vast
majority of cheques and Nicole Tremblay signs the cheques to suppliers and
others when he is absent. . .
·
He works on job sites
·
He prepares bids
according to drawings and specifications.
[41] The Federal Court of Appeal in Ferme Émile Richard et Fils and the
Minister of National Revenue, [1994] F.C.J. No. 1859, indicated that when
subparagraph 3(2)(c)(ii) of the Unemployment Insurance Act is
applied, now paragraph 5(3)(b) of the Employment Insurance Act, the
Court must ask if the Minister's decision "resulted from the proper
exercise of his discretionary authority". The Court must require first
that the Appellant "present
evidence of wilful or arbitrary conduct by the Minister".
[42] In Bérard v. Canada (Minister of National Revenue – M.N.R.)
[1997] F.C.J. No. 88 Hugessen, J. stated as follows:
. . . 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.
[43] In Légaré v. Canada (Minister of National Revenue – M.N.R.),
[1999] F.C.J. No. 878, Marceau, J. stated:
. . . 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 Minster 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.
[44] The three decisions cited above refer to the principles that this
Court must apply in analysing the evidence in appeals.
[45] The evidence has shown that the Payor and the worker are not dealing
at arm's length.
[46] The Court must ascertain if the facts on which the Minister based his
ruling are erroneous or if the Minister acted in bad faith.
[47] The main facts accepted by the Minister are: the worker's hourly rate
of pay, her salary increases, the Payor's financial ability, the worker's
actual number of hours of work and the fact that the main shareholder of the
company was receiving no salary when the worker was on the payroll.
[48] It was established that Claude Lapointe was receiving no salary
when the worker was on the payroll. The purpose of this arrangement was to keep
expenses to a minimum in order to satisfy the bank. This requirement by the
bank could explain the company's financial situation; however, even in this
financial situation, the worker received pay increases.
[49] The payer has admitted that the company was in deficit during the
years 1999, 2000 and 2001.
[50] These facts were proved before this Court; accordingly, these facts
accepted by the Minister are not erroneous.
[51] The worker's duties consisted primarily in answering the telephone,
receiving sales representatives, maintenance of the premises and the two
trucks, painting the premises and engraving the tools.
[52] Claude Lapointe explained that his wife filled out bids and
issued the paycheques. Claude Lapointe and Nicole Tremblay both had
signing authority for cheques. Claude Lapointe and Nicole Tremblay
shared the signing of a series of cheques filed as Exhibit A-5.
[53] It is on the record that the worker performed certain calculations on
the bids but Claude Lapointe wrote in the appropriate figures based on the
drawings and specifications. The worker explained that she totalled the
figures, prepared the photocopies and placed the tenders in envelopes;
therefore, her participation in preparing bids is limited. Moreover, the bids
are prepared before the contracts are obtained.
[54] Claude Lapointe has acknowledged that the documents filed as Exhibit I-4
(invoicing) were prepared by the worker and that he simply calculated the
amounts.
[55] The worker did not perform physical labour every week; spring cleaning
was done once a year, the trucks were washed every 15 days, the tools were
painted on a few occasions and inventory was taken once a year in June and
July; therefore, manual labour did not occupy many of her work hours.
[56] On the whole, Nicole Tremblay's duties do not realistically
reflect the hours actually worked.
[57] The worker received 11% of her pay as vacation pay; that is, the same
percentage received by Claude Lapointe. The explanation given to the Court
is that this percentage was established by decree while the worker's salary is
not governed by decree. Was it necessary then to establish even the percentage
of the worker's remuneration?
[58] The other employees received lower pay increases than the worker. The
decree set the minimum increase for the employees subject to the decree but not
the maximum.
[59] The worker's salary increases are more generous than those given to
the other employees; these increases are unreasonable, considering her
responsibilities and the company's financial capacity.
[60] Jurisprudence has established that the Court may not substitute its discretion
for that of the Minister if the facts on which it is based are not erroneous or
if he has not acted in bad faith.
[61] In consideration of all the circumstances in the matter, the
Appellants have not established on a balance of probabilities that the Minister
acted in a wilful or arbitrary fashion.
[62] The working conditions would not have been similar if the worker and
the Payor had been dealing with each other at arm's length.
[63] The Appellant Nicole Tremblay's employment is not insurable by
virtue of subsection 5(2)(i) and paragraph 5(3) of the Act.
[64] The appeals are dismissed.
Signed at Ottawa,
Canada, this 11th day of September 2003.
Somers, D.J.
on this 22nd day
of March 2004.
Sharon Moren,
Translator
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