Corbin v. M.N.R., docket 96-1733-UI

Date: 19971003

Docket: 96-1733-UI

BETWEEN:

ÉMILIEN CORBIN,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Judgment

Prévost, D.J.T.C.C.

[1]            This appeal was heard at Rivière-du-Loup, Quebec, on September 15, 1997.

[2]            It is an appeal from a determination by the Minister of National Revenue ("the Minister") dated July 23, 1996, that the appellant's employment with the payer, Johanne Rioux, from May 25 to September 22, 1995, was not insurable because the employee and employer were not dealing with each other at arm's length.

[3]            Paragraph 5 of the Reply to the Notice of Appeal reads as follows:

[TRANSLATION]

5.              In making his determination, the respondent Minister of National Revenue relied, inter alia, on the following facts:

(a)            The appellant ran a dairy farm on 62 hectares of land; he married Johanne Rioux in October 1991 and continued to run his farm. (A)

(b)            On February 4, 1994, an agreement was registered by which the spouses formed a partnership to run the farm. (A)

(c)            When the partnership was registered, the partners made the following contributions: (A)

The appellant: the land, residence and farm buildings, all the equipment, machinery and agricultural implements used in the farm operation, the entire herd and the dairy production quota. The tax value of this contribution was $195,000.

Johanne Rioux: monetary contribution of $100.

(d)            The partnership's income and losses were shared in the following proportions: (A)

                - The appellant:                     80%

                - Johanne Rioux:                    20%

(e)            On June 12, 1995, the partners signed a contract of dissolution of partnership and gift that included a clause making the contract retroactive to May 1, 1995 (shortly before the start of the period at issue). (A)

(f)             By this contract, the appellant gave the payer 80% of the movable and immovable property used for the farm. (A)

(g)            The payer promised the appellant that if she wished to sell or assign the property of the business, she would reassign it to him on the same terms (at no cost). (A)

(h)            The payer continued to run the farm — a dairy operation with a herd of about 25 cows — as its sole owner. (A)

(i)             During the period at issue, the appellant continued to do the same work he had done previously on the farm: he did all of the work in the field, namely sowing, removing rocks, making hay, looking after the grain (barley), ploughing and spreading manure. (ASA)

(j)             The appellant claims that he was paid $240 a week for 40 hours of work, whereas the average agricultural wage was $382.50 in 1993-94. (FPABNKOTR)

(k)            The appellant claims that he did not milk the cows. (A)

(l)             The payer allegedly looked after the cows, occasionally transported bales of hay, worked in the barn and handled the accounting and bookkeeping. (A)

(m)           The appellant did the same work as in previous years and did not have to be supervised or controlled in performing his duties. (DAW)

(n)            In 1993, the payer was the only one on the payroll and she was on it for a total of 10 weeks. (A)

(o)            In 1994, the payer was allegedly on the payroll for six weeks and the appellant for only one week. (A)

(p)            The appellant claims that he worked for the payer for 18 weeks in 1995. (A)

(q)            The appellant had obtained a record of employment for three weeks of work at a nursery in May 1995; with his record of employment from the payer, he had a total of 21 weeks, and he needed 20 weeks to qualify for unemployment insurance benefits. (A)

(r)             The appellant is the payer's spouse and they are thus related within the meaning of section 251 of the Income Tax Act. (A)

(s)            The payer would never have hired an unrelated person on terms substantially similar to those offered the appellant. (D)

[4]            Following each subparagraph in the above passage from the Reply to the Notice of Appeal, the Court has indicated in parentheses, as follows, the comments made by counsel for the appellant at the start of the hearing:

                (A) =                                        admitted

                (ASA) =                                  admitted subject to amplification

                (FPABNKOTR) = first part admitted but no knowledge of the rest

                (D) =                                        denied

                (DAW) =                                                denied as written

Appellant's Evidence

According to the payer, Johanne Rioux:

[5]            She was born on a farm, and she really wanted the appellant's farm to at least break even.

[6]            That is why she became first a partner in the farm and later its sole owner.

[7]            At some point prior to that she had taken over the accounting, since the appellant's farm was losing money and better control was needed.

[8]            Before becoming a partner in or the co-owner of the farm, she had been on the farm's payroll for three years and had collected unemployment insurance benefits when she was laid off each year.

[9]            The appellant always had money problems with his farm and became discouraged over time: that is what led him to make her his partner and later to make her a gift of the farm, as referred to above.

[10]          She was not yet discouraged and she felt fully capable of taking over.

[11]          When she became the owner of the farm, the appellant, now just an employee, no longer had any decision-making power, and she was the one who determined his duties, his work schedule and "everything".

[12]          The appellant had earlier been influenced by other persons and "that was not good".

[13]          It is true that the appellant worked at a nursery for a few weeks in May 1995, and she hired other persons on contract to work on the farm during that time because "it was more profitable that way".

[14]          The appellant is a very good employee, since he is able to do everything, both in the fields and in the barn.

[15]          She herself prefers working in the barn, but the appellant is also perfectly capable of doing that work.

[16]          Before becoming the sole owner of the farm in question she discussed the matter with the appellant and other persons, and it was agreed that under the circumstances it was the best solution.

[17]          She watches over the cows in the pasture and that is about all she does there.

[18]          She is mainly responsible for milking the cows and transporting sacks of barley and bags of fertilizer.

[19]          The appellant's wages were negotiated with him and he was in complete agreement about them.

[20]          They were the same as the wages requested by young people for such work.

[21]          If the appellant had not agreed to such wages, she would have tried to hire another employee for the same pay.

[22]          The appellant worked "40 hours a week" and his wages made sense.

[23]          They were "a couple" but were nevertheless very different people.

[24]          They still loved each other, but in business it was obviously "every man for himself".

[25]          She very much likes "having the appellant on the farm, although he's not irreplaceable".

[26]          They were married in 1991, and the farm had been owned by her husband and his ancestors for a very long time.

[27]          The purpose of the partnership agreement (Exhibit I-1) was to make the farm profitable and avoid losses.

[28]          The appellant still incurred losses, however, and that is why she became the sole owner pursuant to a contract of dissolution of partnership and gift between Émilien Corbin and Johanne Rioux (Exhibit I-2), which was signed before a notary on June 12, 1995.

[29]          When she laid the appellant off after 18 weeks of work, she did give him a record of employment (Exhibit I-3).

[30]          She has never taken a salary since becoming the sole owner, but she is able to live on the income from the farm.

[31]          The appellant worked from 8:00 a.m. to 5:00 p.m. and the other farm employees were on contract.

[32]          At this point in the hearing, counsel for the respondent admitted that if the appellant testified, his testimony would be the same as his wife's.

[33]          Counsel for the respondent then acknowledged that the appellant's employment was insurable from June 12 to September 22, 1995.

[34]          The minutes of the hearing show this, and counsel for the respondent accordingly initialled them.

[35]          Counsel for the appellant then recalled Johanne Rioux to testify concerning the circumstances surrounding the retroactive application of Exhibit I-2.

According to Johanne Rioux:

[36]          Discussions on this subject began in November 1994, when they agreed to end their partnership.

[37]          For income tax purposes, they initially wanted it to happen at the very beginning of January 1995.

[38]          They went to see a notary and at first he agreed to prepare the documents they wanted, but later, just before the Christmas holidays, he refused to do so, fearing that he would have someone in the family "coming after him".

[39]          They then met with a notary named Michaud in January 1995.

[40]          The consent of the Caisse populaire de St-Jean-de-Dieu and of the Société de financement agricole had to be obtained, which took some time.

[41]          There was also a delay at the registry office.

[42]          She would have liked the contract to be retroactive to January 1, 1995, but the appellant would not agree to it.

[43]          It was the notary who suggested May 1, 1995.

[44]          She actually took possession well before that date, namely in January 1995.

[45]          The respondent did not call any witnesses.

Argument

According to counsel for the appellant:

[46]          The plan to dissolve the partnership had been in the works since November 1994 and Johanne Rioux took possession well before May 25, 1995.

[47]          Under the civil law, an agreement of wills is equivalent to a contract.

[48]          In Exhibit I-2, the appellant's spouse officially declared that she had been in possession since May 1, 1995, but she in fact took possession well before that date.

According to counsel for the respondent:

[49]          The date mentioned in Exhibit I-2 is May 1, 1995, not an earlier date.

[50]          It is also stated, on page 6 of that document, that: "... the parties declare that the above gift of assets constitutes, for all purposes, the dissolution of their said partnership as of the first of May nineteen hundred and ninety-five (1995)."

[51]          An agreement can be made retroactive as between the parties thereto, but not in respect of third parties such as the Minister of National Revenue.

Analysis

[52]          Since counsel for the respondent has acknowledged that the appellant's employment was insurable from June 12 to September 22, 1995, the only issue that must be dealt with in order to reach a conclusion in this case is that of retroactivity. The evidence adduced regarding the employment itself need not be considered.

[53]          There may be a number of reasons why the discussions that led to the signing of Exhibit I-2 were lengthy and difficult, but what counts as far as third parties are concerned is the notarial act, which is conclusive as to its date, and it is dated June 12, 1995.

[54]          Johanne Rioux admitted that she would have liked the act in question to be retroactive to January 1, 1995, but that the appellant would not agree to it.

[55]          It is true that under the civil law an agreement of wills can be equivalent to a contract, but this is true only as between the parties and not in respect of third parties such as the Minister of National Revenue.

[56]          It is impossible to make uninsurable employment insurable by means of a retroactive clause.

[57]          The determination under appeal must therefore be varied so that the appellant's employment is not insurable only from May 25 to June 11, 1995, and is insurable from June 12 to September 22, 1995.

"A. Prévost"

D.J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 4th day of May 1998.

Erich Klein, Revisor