Beaton v. M.N.R., docket 2000-459-EI

Date: 20000525

Docket: 2000-459-EI

BETWEEN:

JOAN BEATON,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent,

and

RONALD CARL BEATON,

Intervenor.

Reasons for Judgment

Bowman, A.C.J.

[1] This is an appeal from a determination by the Minister of National Revenue that the appellant was not employed in insurable employment by her brother, the intervenor in the periods from May 5, 1996 to July 31, 1996, May 4, 1997 to July 31, 1997 and June 1, 1998 to July 31, 1998. The basis of the determination is that the appellant and her brother were not dealing at arm's length within the meaning of paragraph 3(1)(a) of the Unemployment Insurance Act or paragraph 5(2)(i) of the Employment Insurance Act. That much is, of course, clear. Subsection 5(3) of the Employment Insurance Act reads

(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.

[2] Paragraph (b) confers, according to the Federal Court of Appeal, an administrative discretion. It is not necessary to repeat the voluminous jurisprudence in this court and in the Federal Court of Appeal on the principles to be followed in an appeal from such an exercise of ministerial discretion. If the Minister, or the person authorized to exercise the discretion, acted capriciously, illegally or in bad faith, or failed to observe the principles of natural justice, or took into account facts that should not have been taken into account, or has ignored facts that should have been considered, or has acted on a wrong principle of law, to mention a few of the factors, the exercise may be set aside and the court may make the determination. If the Minister has not acted in a manner that justifies setting aside the exercise of discretion the court may not substitute its discretion for that of the Minister even if it might have reached a different conclusion.

[3] The facts relied on by the Minister were as follows:

(a) the Payor is the brother of the Appellant;

(b) the Payor purchased rental properties in Port Hawkesbury, Nova Scotia, as follows:

(1) a 6 unit apartment building located at 210 Reynolds Street which was purchased in 1991; and

(2) a duplex located at 8 Tamarac Drive which was purchased in 1992;

(c) the Payor did not reside in Nova Scotia at the time the buildings were purchased or during the periods in question and he currently lives in British Columbia;

(d) the Payor initially hired the Appellant as a property manager in 1994;

(e) prior to 1994, the Payor relied on family members, including the Appellant, and friends to arrange for the maintenance and care of his rental properties which included collecting rents, making bank deposits, advertising, showing and renting vacant apartments, paying bills and keeping the buildings in good repair;

(f) the Payor did not pay anyone to arrange for the maintenance and care of his rental properties prior to 1994;

(g) since 1994, the Payor continued to rely on family members, including the Appellant, and friends to arrange for the maintenance and care of his rental properties at times when the Appellant was not on his payroll;

(h) the Payor has engaged the services of a tenant to vacuum the common areas of his properties, a handyman to do repairs and maintenance work, a plowing service for snow removal and someone to do yard work;

(i) when the Appellant was not on the Payor's payroll, the tenants were instructed to phone the handyman directly should a problem arise which required his attention;

(j) the Appellant resides with her mother in the family home which is located in Mabou, 42 miles from where the properties are located in Port Hawkesbury;

(k) the telephone number of the family home is used year round to advertise vacant apartments in the Payor's buildings;

(l) the Appellant was paid a salary of $1,400 per month in 1996 and 1997 and her salary increased to $1,600 per month in 1998;

(m) the Appellant performed services for approximately 20 hours per week as well as being "on call" which the Payor estimated to be approximately 30 hours per week;

(n) the Appellant was paid for more hours "on call" when she did not perform services than for hours when she actually worked;

(o) the Payor's handyman was not paid for being "on-call" during periods when the Appellant was not on the Payor's payroll and he submitted invoices to the Payor based on his hourly rate of $10 for each hour worked;

(p) the Appellant's wages were excessive;

(q) the Appellant performed services for the Payor both prior and subsequent to the periods in question for which she was not paid;

(r) the Appellant performed services for the Payor as an employee for sufficient weeks each year to enable her to qualify for Employment Insurance benefits and she continued to perform services as a sister doing favours for her brother for the remainder of the year;

(s) the Appellant was related to the Payor within the meaning of the Income Tax Act;

(t) the Appellant was not dealing with the Payor at arm's length;

(u) 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 Payor would have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length.

[4] The facts set out above are basically correct, subject to a number of comments that counsel for the appellant made.

[5] Paragraph (f) is not entirely accurate. The appellant's brother had to spend some money on maintenance.

[6] Paragraph (g) is slightly inaccurate. Mr. Beaton did not use his family members for major maintenance.

[7] Counsel says that paragraph (n) is ambiguous. I agree. It could have been more felicitously expressed. The same comment could be made about paragraph (o).

[8] The appellant's brother hired her to perform services as a manager of two rental properties owned by him during about three months of the year, usually from May to July. This happens to be sufficient for her to qualify for employment insurance benefits. The contention was that the appellant was needed in those months more than in the other months, because there was a greater turnover of tenants.

[9] Exhibit A-7 is a list of the work performed by the appellant. The list covers a wide variety of activities, including stripping wall paper, cleaning apartments, painting, washing windows, keeping the grounds clean, paying bills, advertising vacant apartments, showing the apartments to prospective tenants and being on call for tenants. No doubt she performed many of these duties but her engagement appears to have been sporadic and, compared to a more conventional employer-employee relationship, extremely laissez-faire. She appears to have been free to come and go when she saw fit. She had no fixed hours, which, she testified, varied from 20 to 40 hours per week. She seems to have set her own hours and her own agenda.

[10] I have seen nothing in the evidence that would justify my interfering with the exercise of the Minister's discretion. I do not think he exercised his discretion unreasonably, capriciously or illegally. The slight inaccuracies in the facts on which he relied do not vitiate his decision, nor do they really go to the heart of the matter. I do not think it is unreasonable to conclude that where a brother hires his sister for three months a year, for an unspecified number of hours per week as a building manager, arm's length persons would not have entered into a substantially similar contract of service, having regard to the factors set out in paragraph 3(1)(c) of the Unemployment Insurance Act and paragraph 5(3)(b) of the Employment Insurance Act.

[11] For the period from January 1, 1994 to October 31, 1994 a ruling was obtained that the employment was insurable. The ruling was based upon some correspondence with the Toronto District Office of the Department of National Revenue. It is difficult to say how informed the ruling was, or what facts the official in Toronto, Mr. Bendelac, had before him. It does not, however, give rise to an estoppel with respect to later periods.

[12] The appeal is dismissed.

Signed at Ottawa, Canada, this 25th day of May 2000.

"D.G.H. Bowman"

A.C.J.