Cormier v. M.N.R., docket 97-1407-UI

Date: 19990115

Docket: 97-1407-UI

BETWEEN:

LORETTA CORMIER,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Appeal heard on August 25, 1998, at Moncton, New Brunswick, by the Honourable Judge Alain Tardif

Reasons for judgment

Tardif, J.T.C.C.

[1] This is an appeal concerning employment held with Seashore Fisheries Ltd. from August 29, 1994, to May 27, 1995, and from June 19, 1995, to March 30, 1996.

[2] The appellant’s employment was excepted from insurable employment under the provisions of the Unemployment Insurance Act (“the Act”) stating that employment involving persons who are related within the meaning of the Income Tax Act (sections 251 and 252) must be excepted from insurable employment unless the respondent exercises his discretion and concludes that the facts surrounding the performance of the work at issue are such that the non-arm’s-length relationship should not be considered.

[3] In the case at bar, the respondent argued that the facts did not satisfy him that the non-arm’s-length relationship should be ignored.

[4] At the start of the hearing, the Court clearly explained to counsel for the appellant the limits of this Court’s jurisdiction in reviewing an insurability case under paragraph 3(2)(c) of the Act, which reads as follows:

(2) Excepted employment is

. . .

(c) subject to paragraph (d), employment where the employer and employee are not dealing with each other at arm’s length and, for the purposes of this paragraph,

(i) the question of whether persons are not dealing with each other at arm’s length shall be determined in accordance with the provisions of the Income Tax Act, and

(ii) where the employer is, within the meaning of that Act, related to the employee, they shall be 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] This Court’s limited jurisdiction has been defined and clarified, inter alia by the Federal Court of Appeal’s decisions in the following cases:

Tignish Auto Parts Inc. v. Minister of National Revenue (July 25, 1994, 185 N.R. 73)

Ferme Émile Richard et Fils Inc. v. Minister of National Revenue (December 1, 1994, 178 N.R. 361)

Attorney General of Canada v. Jencan Ltd. (June 24, 1997, 215 N.R. 352)

Bayside Drive-In Ltd. v. Her Majesty the Queen (July 25, 1997, 218 N.R. 150)

Attorney General of Canada v. Jolyn Sport Inc. (April 24, 1997, A-96-96, F.C.A.)

[6] The evidence has shown very clearly that the appellant was closely involved in the efficient operation of the company, which was in the herring smoking business.

[7] The appellant’s work included inspecting the quality of the purchased fish used as the raw material for processing; she was also involved in the process of checking the quality of the smoked product before sale or delivery.

[8] In addition to that work, the appellant was responsible for doing the payroll for the employees, of whom there were as many as 20 at some points during the year. She also handled the accounts receivable and payable, made bank deposits and ran errands.

[9] According to the appellant, she was never involved in the so-called physical operations that were necessary and usual in herring smoking. Her work was basically either clerical or related to checking the quality of the products that were used and processed.

[10] She said that her wages were probably lower than those paid to individuals doing the same work in other such businesses. The weight of the evidence is that the appellant was involved in performing work that was absolutely essential to the business; the evidence also showed that the appellant had highly relevant experience and expertise.

[11] As regards the appellant’s wages, again I consider them reasonable, although she herself said that they were probably lower than those she could have gotten for the same type of work in a similar business.

[12] The evidence also showed that the appellant provided services to the business outside the periods when she was being paid and that she did so on an entirely voluntary basis. Although the significance of that work was downplayed in terms of the time it required, the fact remains that the appellant admitted that she filled out the employees’ records of employment and was involved in preparing certain documents, specifically the inspection reports entitled “Incoming Ingredient Inspection Report” and “Raw Product Inspection Report”. Those were specific duties for which she was paid during the periods at issue. In other words, she was paid during certain periods while during others she did some of the same work without being paid.

[13] In light of the evidence, the Court believes that the appellant continued to provide more or less the same services, although perhaps to a lesser extent, outside her work periods.

[14] In making his decision, the respondent relied on the following assumptions of fact:

[TRANSLATION]

(a) the payer is a corporation that was incorporated in the province of New Brunswick in July 1980; during the periods at issue, its shareholders were:

Until April 1995:

Loretta Cormier (the appellant) 32.8%

Roméo Cormier (the appellant’s spouse) 34 %

Alfred LeBlanc 32.8%

From April 1995:

Roméo Cormier (the appellant’s spouse) 100%

(b) the payer operates a commercial fish smokehouse that produces smoked herring;

(c) the payer operates year-round;

(d) the appellant’s spouse is paid $600 a week by the payer year-round;

(e) the payer employs up to 20 people a week, depending on its needs;

(f) during the periods at issue, the appellant’s work involved doing the payroll, preparing invoices, paying accounts, answering the telephone, making bank deposits, doing quality control of incoming shipments and production, running errands and occasionally making a few entries in the payer’s books;

(g) the payer’s accounting is normally done by an outside accountant;

(h) the appellant’s wages were $500 a week;

(i) during each of the periods at issue, the appellant was on the payer’s payroll for 14 weeks, that is, the number of insurable weeks she needed to be eligible for unemployment insurance benefits;

(j) the appellant did the payroll for 1 to 15 employees during the weeks when she was not on the payer’s payroll and for 7 to 21 employees, including her and her spouse, during the other weeks;

(k) the appellant’s weeks of employment as shown in the payer’s payroll are not consistent with the payer’s activities at various times of the year;

(l) the appellant did the same work for the payer without pay during the weeks when she was not on the payroll;

(m) the appellant did not have to account for her hours of work during the weeks when she was on the payer’s payroll;

(n) the appellant’s wages are excessive;

(o) the appellant transferred her shares to her spouse without compensation;

(p) the appellant co-signed a mortgage on the family home that was taken out to finance the payer;

(q) the terms and conditions of employment constitute an artificial arrangement to qualify the appellant for unemployment insurance benefits;

(r) the appellant and the payer are related persons within the meaning of the Income Tax Act;

(s) the appellant and the payer are not dealing with each other at arm’s length;

(t) 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 not reasonable to conclude that the appellant and the payer would have entered into a substantially similar contract of employment if they had been dealing with each other at arm’s length.

[15] Although some of the allegations, and in particular subparagraphs (k), (l), (m), (n) and (t), were denied, the evidence showed that the interpretation and assessment of the facts were not unreasonable. The evidence did not show that the respondent failed to assess some important factors; as for the facts he assumed, they were analysed, interpreted and understood correctly and objectively.

[16] While the Court may not agree with subparagraph (n) alleging that the appellant’s wages were excessive, that allegation must be assessed in overall terms. Seen in that light, it does not constitute a fundamental or decisive error, especially since the interpretation is a reasonable one given that the appellant did some of the same work outside the periods at issue without being paid.

[17] Has the appellant shown on a balance of evidence that the respondent did not exercise his discretion judiciously? Has the evidence established that there was gross negligence in the discretionary process? Has it been demonstrated by the facts that the discretion was exercised unlawfully and/or arbitrarily?

[18] In the Court’s view, the answer to all of these questions must be negative. The appellant complained that the respondent did not hold a hearing during the assessment process. She also pointed to the fact that few or no reasons were given for the decision on insurability, which led her to conclude that there was a denial of justice. I do not consider these to be factors that can taint or invalidate the quality of the exercise of discretion.

[19] When the respondent has to rule on the insurability of employment, he generally makes an initial assessment that, unfortunately, does not always involve the participation of the person concerned. However, during the review prior to the hearing before this Court, the person whose insurability status is in question is brought into the process in various ways, ranging from a telephone interview to the exchange of written information through questionnaires; there is also often an interview. Whatever the method chosen at that stage, an appellant always has an opportunity to file or provide all the documentary evidence he or she considers relevant.

[20] Generally speaking, no decision is made without the person concerned being asked to provide his or her version and the documentary evidence he or she considers useful.

[21] In the case at bar, the appellant was represented by counsel and was given just such an opportunity to provide all the explanations she may have considered relevant and appropriate. There is no evidence that she was deprived of her fundamental rights or prevented from making her arguments. The investigation that led to the determination that is now under appeal took into account all the significant facts and documents that were available, since the hearing did not bring to light any new information.

[22] In the circumstances, it is my opinion that there are no grounds for complaint about how the procedure that led to the determination unfolded.

[23] Another question is whether the letter informing the appellant of the decision was explicit enough about the reasons for that decision and whether that is a valid reason for discrediting the quality of the decision itself.

[24] I understand and agree that it is preferable to inform and advise a taxpayer clearly and in detail of the reasons justifying any decision that has an impact on and consequences for that taxpayer. However, in my view, telling the appellant the legal basis for the decision was an adequate and satisfactory justification, and I therefore do not see either of the complaints in question as justifying the Court’s interference.

[25] With regard to the process itself, I am of the opinion that the respondent assessed all the available relevant facts in a reasonable manner that does not

justify or authorize this Court’s interference. In the circumstances, I must accordingly dismiss the appeal and confirm the soundness of the determination.

Signed at Ottawa, Canada, this 15th day of January 1999.

“Alain Tardif”

J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 20th day of August 1999.

Erich Klein, Revisor