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Citation: 2003TCC641
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Date: 20030916
Docket: 2002-4710(EI)
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BETWEEN:
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MARCHÉ DU FAUBOURG STE-JULIE 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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[OFFICIAL ENGLISH
TRANSLATION]
______________________________________________________
Reasons delivered orally from the Bench at
the Tax Court of Canada,
500 Place d'Armes, Montreal, Quebec,
on August 12, 2003, and edited on
September 16, 2003
REASONS FOR JUDGMENT
P. R. Dussault, J.
[1] I will begin by
giving you my decision and I will then explain it because I think that there is
a great deal of rather significant fine-tuning to be done.
[2] So, my decision is to allow the appeal. The
reasons are essentially those that were set out by Mr. Savoie; I am not
going to repeat everything that he said. But I think it is important to place
things in their proper perspective. So, I will first of all take the Employment
Insurance Act. Paragraph 5(1)(a) tells us:
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;
[3] Paragraph 5(1)(a)
deals with employment that is performed under the terms of a contract of
service.
[4] That is acknowledged
in this case. Therefore, I do not see any way the criteria set out by
Ms. Landry concern control or the power of control, ownership of tools,
chance of profit, risks of loss and integration into the business; I absolutely do not see how this
can be relevant for the purposes of the dispute that I had to rule on.
[5] These four criteria or four main criteria or the whole of the various elements as was said in Wiebe Door, and
reiterated afterward in a number of other decisions, these criteria are
intended to establish whether we are faced with a contract of service or if we
are dealing with a contract for service, that is, an individual who is
self-employed.
[6] This has nothing to
do with our context, since it was acknowledged from the outset that there is a
contract of service. Éric and
Richard Raymond are employees; there is no one who has contested that to date. Therefore,
the criteria set out by Ms. Landry are absolutely irrelevant, as is
jurisprudence concerning the power of control. This has nothing to do with our
topic.
[7] I turn to
subsection (2), paragraph (i) of the Employment Insurance
Act. Paragraph 5(2)(i)
tells us:
Insurable employment does not include. . .
(i) employment if the employer and
employee are not dealing with each other at arm's length.
[8] Therefore, from the
outset, even if it was a question of a contract of service at the outset, there
is exclusion of employment when the employer and employee are not dealing with
each other at arm's length. I
turn to subsection 5(3) :
For the purposes of paragraph (2)(i)(a). . .
5(3)(a) therefore :
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;
[9] In the Income Tax
Act for those who know it, it is section 251. And section 251 includes,
subsection (1) includes the following paragraphs. It says at the outset:
related persons shall be deemed not to
deal with each other at arm's length;
[10] It is a question of
knowing if the individuals are related. I am giving you the line of thought, because I find
that there is so much confusion that I want to clarify things.
[11] And it says, the
question now in (c), but it is a recent amendment:
. . . it is a question of. . .
[12] that is, there is
another provision, which is not applicable here:
. . . it is a question of fact whether
persons not related to each other are at a particular time dealing with each
other at arm's length.
[13] Therefore, there is an
absolute assumption that related persons have a non arm's length relationship,
that is what is important.
[14] Mr. Roger Raymond
is not the employer here. It is Marché du Faubourg Ste‑Julie Inc. That said, if we consider the Income Tax Act
following 251(1), in what situation are individuals related? Well, the
individuals are firstly related, if one person controls a corporation with
share capital, the individuals are related. Therefore, Roger Raymond is
related to Marché du Faubourg Ste‑Julie Inc. His two sons are
related to him by blood. As Roger Raymond is related to the corporation,
obviously, the two sons are also related to the corporation by the same token,
the corporation that is the employer. At this moment, we have a situation with
individuals who have a non-arm's length relationship because they are related
to each other, that is, the two sons and Marché du Faubourg Ste‑Julie
Inc., which is the employer. I hope that that, that is clear for everyone.
I think that it was on the one hand, but not completely on the other.
[15] From there, I turn to (3)(b), 5(3)(b) then, which
tells us:
if the employer is, within the meaning of
that Act, related to the employee, . . .
[16] Therefore, as per the Income
Tax Act, what we have just
observed,
. . . 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.
[17] So, this is what the
exercise of ministerial discretion must rest upon, essentially. That is where
it should have rested. As that involved other things, the four criteria, as you
have told me, Ms. Landry, clearly the Minister or the officer is not well
acquainted with the Act.
[18] With regard to this paragraph, there is nothing,
absolutely nothing in the Reply to the Notice of Appeal, in the facts assumed
by the Minister, that indicated what elements really were taken into account in
order to arrive at the conclusion that Éric and
Richard Raymond would
have entered into a roughly similar contract with Marché
du Faubourg Ste‑Julie inc. had there not been
a non-arm's length relationship with this company. The Reply to the Notice of
Appeal, as I have said from the outset, absolutely does not indicate what the
Minister went on, such that it seemed totally inappropriate to me to place the
onus on the Appellant's shoulders to show that the Minister did not exercise
his discretion in accordance with the principles applicable in the matter. That
is, to show that he has not examined all the relevant elements or that he was
unaware of some relevant elements. But even if we wanted to place the onus
there, on the Appellant's shoulders, I believe that the evidence has shown that
clearly a number of things were not taken into account because it is obvious
that it is the relationship of these two employees, the fact that they are
related to the company, which makes their conditions so different from those of
the other employees, particularly the other managers. It is precisely due to
this non-arm's length relationship, which arises from the fact that they are
related, that the work conditions are different.
[19] Whether talking about
the tasks or the responsibilities that are given to them, the remuneration, the
salary and bonus, (both items must be taken into account) the work timetable,
sick leaves, the advantages they enjoyed, courses, conventions, trips, use of
credit cards, all these conditions, I have seen almost nothing in the evidence
that I have heard today that makes the work conditions of these two individuals
similar to those of the other managers in the same store.
[20] We could also discuss
the guarantees that were given by these individuals, of life insurance, all in
all, I am not going to repeat all the evidence that I heard today. In my
opinion, there is almost nothing similar.
[21] So, why do they have
these conditions that are very different from those of the other employees?
Well, it is by virtue of the non-arm's length relationship, obviously, this
non-arm's length relationship coming from the fact that they are related to the
company.
[22] As for the rest, as I
have said, there is absolutely no relevance since it was established from the
outset that these individuals were employees, that is, that they were under a
contract of service.
[23] So, I think I have
more or less summarized the reasons for my decision.
Signed at Ottawa, Canada, this 16th
day of September 2003.
Dussault,
J.
on this 22nd day
of March 2004.
Sharon Moren, Translator
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