Gélinas v. M.N.R., docket 2000-1800-EI

Date: 20010419

Docket: 2000-1800-EI

BETWEEN:

ANDRÉ GÉLINAS,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Judgment

Somers, D.J.T.C.C.

[1]            This appeal was heard at Montréal, Quebec, on March 8, 2001.

[2]            The appellant is appealing the decision of the Minister of National Revenue ("the Minister") finding that his employment with the payer, 9068-8458 Québec Inc., during the period from April 12 to July 8, 1999, was not insurable because there was no employer-employee relationship between the payer and the appellant.

[3]            Subsection 5(1) of the Employment Insurance 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 the piece, or partly by time and partly by the piece, or otherwise . . . .

[4]            The burden of proof is on the appellant, who must show on the balance of evidence that the Minister's decision is unfounded in fact and in law. Each case stands on its own merits.

[5]            In making his decision, the Minister relied on the following facts, which were either admitted or denied:

[TRANSLATION]

(a)            The payer was incorporated on September 29, 1998. (admitted)

(b)            The payer was in the business of purchasing, renovating and renting out immovable property. (admitted)

(c)            On September 29, 1998, the appellant acquired 100 class A voting shares from the payer and became its sole shareholder and director. (admitted)

(d)            On November 18, 1998, a resolution that the payer purchase a vacant lot for $3,750 was passed. (admitted)

(e)            On January 5, 1999, Éric Gélinas and Karine Gélinas each acquired 100 class A voting shares from the payer. (admitted)

(f)             Éric Gélinas and Karine Gélinas are the appellant's children. (admitted)

(g)            On January 5, 1999, the appellant resigned from his position as sole director. (admitted)

(h)            On January 5, 1999, Éric Gélinas and Karine Gélinas became directors of the payer along with the appellant. (admitted)

(i)             The appellant and Karine Gélinas, his daughter, signed the payer's cheques. (admitted)

(j)             The appellant used his personal line of credit to meet the needs of the payer. (admitted)

(k)            The payer purchased two properties each containing four dwelling units. (denied)

(l)             The appellant purchased and then sold to the payer two "block-type" [monobloc] houses each containing two dwelling units. (denied)

(m)           The appellant was the only shareholder in charge of renovating, hiring workers and purchasing materials. (admitted)

(n)            The appellant was in charge of the rental of the dwelling units. (admitted)

(o)            The appellant was paid $800 a week by the payer. (admitted)

(p)            Éric and Karine Gélinas were not employed by the payer and did not receive any salary. (admitted)

(q)            Éric and Karine Gélinas did not know: (denied)

·          how many properties the payer owned;

·          that the appellant had used his personal line of credit to meet the payer's needs;

·          how many hours a week the appellant worked; or

·          the appellant's weekly salary.

(r)             The appellant was not controlled by Éric and Karine Gélinas. (denied)

(s)            The appellant decided what his period of employment would be and when he would be laid off. (denied)

(t)             The appellant decided how much he would earn. (denied)

[6]            The payer was incorporated on September 29, 1998, and was in the business of purchasing, renovating and renting out immovable property. The payer's head office was in Launay in the Abitibi region of Quebec.

[7]            On September 29, 1998, the appellant acquired 100 class A voting shares from the payer and became its sole director.

[8]            On November 18, 1998, a resolution that the payer purchase a vacant lot for $3,750 was passed. On January 5, 1999, Éric Gélinas and Karine Gélinas, the appellant's children, each acquired 100 class A voting shares from the payer. That same day, the appellant resigned from his position as sole director and was replaced by his two children. Those changes in the corporate structure were approved by resolutions that were filed in evidence.

[9]            The share certificates of the following persons were filed in evidence: André Gélinas, 100 shares issued on September 29, 1998; Éric Gélinas, 100 shares issued on January 5, 1999; and Karine Gélinas, 100 shares issued on January 5, 1999. A company resolution that came into effect on January 5, 1999, appointed the directors to the following positions: Éric Gélinas, director and president of the company; André Gélinas, director and vice-president; and Karine Gélinas, director and secretary-treasurer.

[10]          The appellant explained why his children had become shareholders: in 1996, after inheriting $70,000 from his father, he wanted to start a business venture. He asked his children to join him in the venture at that time. He decided to give $25,000 to each of his children: Éric Gélinas and Karine Gélinas (a pastry cook), his children from his first marriage, and Guillaume, his 12-year-old son from his second marriage. The appellant said that he represented Guillaume in the company until this year.

[11]          The appellant said that he invested $10,000 and $9,000 in the company at the time of its incorporation in 1998 by purchasing two houses.

[12]          An asset transfer agreement (Exhibit I-5) under which André Gélinas transferred two residential buildings to 9068-8458 Québec Inc. for $10,000 was signed on November 22, 1998. The terms of payment were as follows:

[TRANSLATION]

                This sale is thereby made for ten thousand dollars ($10,000), payable by the purchaser by issuing a bill payable to the shareholder for ten thousand dollars ($10,000), which shall be payable on demand by the shareholder;

The agreement was signed by André Gélinas as the vendor and the president of the company.

[13]          In addition to the houses purchased in 1998, six trailers were purchased in 1999; the appellant had to renovate them before renting them. He used his line of credit to purchase the materials. He said that he advanced $28,000. No invoice was filed in evidence to confirm the purchase of the materials.

[14]          A letter (Exhibit I-7) dated February 1, 2000, from Omer Pruneau, a chartered accountant, to the Customs and Revenue Agency states the following:

[TRANSLATION]

The shareholder advances are distributed as follows:

Éric Gélinas:                           May 11, 1999             $1,000.00

                                                May 25, 1999              3,000.00

                                                June 22, 1999              3,000.00

                                                July 5, 1999                 1,800.00    8,800.00

Karine Gélinas:      April 5, 1999                2,300.00

                                                June 4, 1999                 2,100.00    4,400.00

André Gélinas:       Nov. 22, 1998

bill receivable (sale of buildings)           10,000.00

Installation and renovation

expenses for two houses paid

by André Gélinas in 1998 and 1999       32,031.93 42,031.93

                                                                                                     $55,231.93

[15]          Two of the payer's annual financial statements were filed as Exhibits I-8 and A-3, respectively. It should be noted that the operating expenses do not include an item for salaries. However, the payroll record, filed as Exhibit I-6, shows that salaries were paid to André Gélinas and Marc Lemay during the period at issue. Those salaries were apparently paid by the payroll services of Société Desjardins and deposited in the employees' bank accounts. The payroll record shows periodic advances of $1,000 to André Gélinas and $600 to Marc Lemay. The appellant admitted that he was paid $800 a week by the payer.

[16]          The appellant admitted that he was the only shareholder in charge of renovating, hiring workers, purchasing houses and renting the dwelling units.

[17]          Karine Gélinas, a pastry cook by trade who was 19 in 1998, told the Court that she left her father's home when she was a year and a half old to live in Shawinigan, Quebec. She corroborated the appellant's assertion that the money invested in the company came from an amount inherited from her grandfather. She said that she invested a total of $14,000, but that all of the money came from the appellant.

[18]          She said that as secretary-treasurer, she handled the paperwork. She was authorized to sign cheques but did not know who prepared them. The Royal Bank was located in La Sarre in the Abitibi region of Quebec, while she lived in Shawinigan-Sud, Quebec, which was an eight- to nine-hour drive from La Sarre. She said that she did not have access to the bank account in question.

[19]          Karine Gélinas did not know at what point she became a shareholder and said that her father was the one who looked after that. Prior to the hearing in this case, she had never seen the payroll record. She did not know that the Caisse Desjardins paid the salaries through bank deposits. She said that she spoke to the accountant once or twice but does not remember for what reason. She said that she was not the one who gave information to the accountant who prepared the 1998 and 1999 tax returns.

[20]          It seems that Karine had little contact with her father before 1999; they spoke on the telephone three or four times a year. However, the telephone bills (Exhibit A-2) show that they spoke 49 times between January and December 1999, including 12 times in March and 14 times in August. It should be noted that the period at issue is from April 12 to July 9, 1999. She knew that houses had been purchased and renovated. The evidence does not show that she was aware of the expenses incurred to purchase materials, since her father was the one in charge of that. She saw the houses for the first time in April 1999.

[21]          Éric Gélinas, a witness for the respondent, has been a truck driver by trade since 1994. He said that he lives in Gatineau, Quebec. He is on the road from Sunday to Friday and covers the Chicago area. He left his father's home in 1993 when he was 16 or 17. He speaks to his father five or six times a year, especially at Christmas.

[22]          He said that he did not personally receive money from his father but that his father invested $8,000 in the company on his behalf. He does not know when he signed the various resolutions dated January 5, 1999. Since becoming a shareholder, he has not received any salary or dividends. He acknowledged that he does not know the company's income or expenses. He did not negotiate his father's salary of $800 a week since his father was the one who determined what salary he would be making.

[23]          The courts have consistently held that there are four basic elements that distinguish a contract of service from a contract for services. Those four elements were identified as follows by the Federal Court of Appeal in Wiebe Door Services Ltd. v. M.N.R., 87 DTC 5025:

                (a)            extent of control exerted by the employer;

                (b)            extent of integration;

                (c)            ownership of tools required for work; and

                (d)            chance of profit and risk of loss.

[24]          A number of decisions were cited for my guidance. They are cases that turn on their own facts, and it is not necessary to review them all. However, Scalia v. Canada (Minister of National Revenue - M.N.R.), [1993] T.C.J. No. 33, and Dalcourt v. Canada (Minister of National Revenue - M.N.R.), [1995] T.C.J. No. 1271, are decisions in which the facts were similar to those in the instant case.

[25]          The following passage from Scalia is relevant:

. . . The management and operations of the company were handled by the appellant the rest of the time, for all practical purposes. The appellant stated that he set his schedule and his working hours and negotiated contracts for the company. He hired employees when he considered it necessary and set their wages. . . .

An important fact revealed by the evidence was that the appellant guaranteed a $5,000 line of credit granted by the Caisse Populaire de Jean-Talon.

[26]          The above-mentioned decision in Scalia was affirmed by the Federal Court of Appeal on May 19, 1994 (A-222-93). I quote the following passage:

On analysing the evidence, however, we find that the applicant had such ascendancy over the company, its activities and the decisions of its board of directors, which was composed of himself, his nephew and his sister-in-law, that there could not have been the independent relationship between himself and the company that is necessary to the creation of a true subordinate relationship. . . .

[27]          In Dalcourt, supra, the Court pointed out certain salient facts as follows:

- The facts alleged in the Reply to the Notice of Appeal remain true even after the testimony in the Court.

- The appellant determined his own hours and days of work; Brisebois knew nothing about this, nor did he wish to know.

- Brisebois's role with the payer was limited to the protection of his personal liability as a director.

- He met with the appellant mainly on social occasions.

- The appellant made all the decisions and had carte blanche to manage the payer.

- He guaranteed the payer's lease and was responsible for its line of credit.

[28]          The judge found that there was no relationship of subordination in that case. The decision was affirmed by Marceau J.A. of the Federal Court of Appeal ([1996] F.C.J. No. 882), who stated the following:

But we do not think that in the case at bar the judge confused the two notions in any way. He correctly concluded that, as in Scalia, the applicant had "such influence [over the payer] that there could not exist between him and the company that relation of independence that is necessary to create a true relationship of subordination."

[29]          The evidence showed that the appellant was the company's directing mind. He was the one who incorporated it, made purchases and hired the only other employee. He determined his own salary. The appellant used his personal line of credit to meet the payer's needs.

[30]          The children of the appellant had left his home-in Karine's case, when she was a year and a half old and, in Éric's case, when he was 16 or 17; they lived elsewhere, some distance away, and had no contact with their father other than for a few meetings after the major decisions were made.

[31]          The telephone bills filed as Exhibit A-2 indicate that there was greater contact between the appellant and Karine. The months in which more calls were made were March and August, which were not within the period at issue.

[32]          The money invested by the other two shareholders came from the appellant. Karine Gélinas did not know that the employees were paid by the Caisse Populaire Desjardins. She was not aware that it advanced funds to the appellant and that the appellant used his line of credit to make purchases. She does not know the total amount spent. She visited the houses for the first time in April 1999. It is odd that as secretary-treasurer, she spoke to the accountant just once or twice and that she does not remember the reason for those calls. She signed the appellant's record of employment, which was prepared by the accountant.

[33]          Éric Gélinas was in contact with his father five or six times a year. He was always on the road. He does not know when he signed the resolutions filed as Exhibit I-4. He did not invest any money and did not receive any salary or dividends. He saw the houses for the first time in 2000. He did not hire the employees or negotiate their salaries. He does not know the company's income or expenses for 1999.

[34]          Based on the principles set out in the above-mentioned decisions, it appears that there was no relationship of subordination. Moreover, the appellant used his personal line of credit and assumed risks of loss.

[35]          The appellant's authority over the payer and its board of directors was such that there could not have been a genuine contract of service.

[36]          The appeal is dismissed.

Signed at Ottawa, Canada, this 19th day of April 2001.

"J. F. Somers"

D.J.T.C.C.

Translation certified true on this 8^th day of November 2002.

Sophie Debbané, Revisor

[OFFICIAL ENGLISH TRANSLATION]

2000-1800(EI)

BETWEEN:

ANDRÉ GÉLINAS,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Appeal heard on March 8, 2001, at Montréal, Quebec, by

the Honourable Deputy Judge J. F. Somers

Appearances

Counsel for the Appellant:                  Gilbert Nadon

Counsel for the Respondent:                              Anne Poirier

JUDGMENT

                The appeal is dismissed and the Minister's decision is confirmed in accordance with the attached Reasons for Judgment.

Signed at Ottawa, Canada, this 19th day of April 2001.

"J. F. Somers"

D.J.T.C.C.

Translation certified true on this 8^th day of November 2002.

Sophie Debbané, Revisor

[OFFICIAL ENGLISH TRANSLATION]