REASONS FOR JUDGMENT
Masse D.J.
[1]
This is an appeal from a decision by the
Minister of National Revenue (hereinafter the Minister) dated July 28, 2010,
pursuant to the Employment Insurance Act, S.C. 1996 c. 23, as amended
(hereinafter the Act), regarding the insurability of the appellant's employment
with Terrassement Sylvain Doucet (hereinafter Terrassement) for the period from
October 19, 2009, to March 26, 2010 (hereinafter the period).
[2]
It is not disputed that the appellant and the
payer are related persons within the meaning of subsection 251(2) of the Income
Tax Act, R.S.C. (1985), c. 1 (5th Supp.), as amended, because the
appellant is Sylvain Doucet's mother and he is the sole owner of Terrassement.
Therefore, the appellant and Terrassement do not have an arm's length
relationship.
[3]
The Minister found that the appellant's
employment with Terrassement for the period was not insurable employment
because the Minister was convinced that it was not reasonable to conclude that
the appellant and the payer would have entered into a substantially similar
contract if they had been dealing with each other at arm's length, having
regard to all the circumstances.
[4]
The appellant is appealing from this decision by
the Minister.
Factual background
[5]
Lyne Courcy is an appeals officer for the Canada
Revenue Agency. She was responsible for the present case. She prepared the CPT 110
report (Exhibit I-1, tab 2) after receiving information on the phone
from the appellant and Sylvain Doucet on July 13, 2010.
[6]
During her testimony, Ms. Courcy revealed
the facts and assumptions on which the Minister relied when making his
decision. The key facts can be summarized as follows.
[7]
The appellant is Sylvain Doucet's mother; he
operates Terrassement and is the sole owner. Terrassement was registered on
September 17, 1996, as a sole proprietorship. For the past 5 or 6 years,
Terassement's activity has been snow removal. Terrassement did not have a blower-tractor,
so he rented one from Technologies S. M. Doucet Inc. (hereinafter, Technologies);
Sylvain Doucet is a shareholder of this company with Mélanie Ouellet, his
spouse. Sylvain Doucet operated Terrassement and the appellant did the office
work. Sylvain Doucet and his businesses are the only snow removers in the area.
In the past, Terrassement did excavation work but not during the period.
Therefore, there was no commercial activity during the summer season.
Terrassement's office and office equipment are located in a room set up as an
office in the appellant's personal residence. Mr. Doucet paid the
appellant for part of the electricity and phone expenses. Sylvain Doucet lives
in a unit in the same building as the appellant's residence and he does not pay
any rent. As Mr. Doucet built and paid for a garage in the residence, when
he leaves, he will leave it to his parents as compensation. During the winter
of 2009-2010, Sylvain Doucet had financial difficulties. Therefore, the
appellant and her husband Denis Doucet loaned Technologies $5,000. Exhibit A-6,
dated May 19, 2010, is a record of this loan. There are no repayment
conditions or any interest on this loan. The appellant was the sole employee of
Terrassement during the period in question.
[8]
Terrassement had between 80 and 100 residential
clients during the period. Around 80% to 95% of its clients remained the same
from year to year, but there was an increase of around 10 new clients per year.
Terrassement hired the appellant as secretary on October 19, 2009. The
appellant had done this work voluntarily with no compensation during the
previous winters, starting in 1996. The appellant worked until March 26, 2010,
at the end of the snow-removal season.
[9]
The few commercial snow-removal contracts were transferred
by Terrassement to Technologies, and a Technologies employee did the commercial
snow removal.
[10]
Near the end of September or early October, Sylvain
Doucet went to bring the new contracts to these clients himself for the
snow-removal season that was from November 1, 2009, to April 1, 2010. A sample
of this contract was submitted as Exhibit I-1, tab 2-i. This contract
provides clients with two payment options, either one single payment on October
9 or three payments on October 9, December 11 and February 12. Those who chose
to pay in three instalments were to provide three post-dated cheques upon
signing the contract. Usually, these payments were sent by mail. The company
also had a [translation]
"snow-removal box" located inside the glassed-in porch at the appellant's
address, which is also Terrassement's address, in which clients could leave
their cheques. Obviously, certain clients did not respect the payment dates and
sometimes made their payments late.
[11]
The appellant's duties were to answer phone
calls from clients and take care of bookkeeping. Additionally, she served clients
who came to the office in her residence to pay their bills. When the appellant
had to contact her son during snow removals, she called him on his cell phone.
The appellant had to collect unpaid accounts when there were NSF cheques. The
appellant prepared her own paycheque and sent the source deductions to the
federal and provincial governments. The bookkeeping was done by computer. She
had created an Excel page to enter all expenses and income. This document was
given to the accountant to complete the payer's income tax returns.
[12]
The appellant informed Ms. Courcy that she
worked from 9:00 a.m. to 5:00 p.m. and often evenings and weekends to
serve clients who came to pay their bills. The appellant stated she was
available 24 hours a day during storms. The appellant's position is that she
always had enough work to fill at least 40 hours a week or more. She was paid
$11 an hour for 40 hours a week. The appellant is authorized to sign cheques
and only one signature is required. The appellant confirmed to Ms. Courcy
that she continued to do some bookkeeping for Technologies after she was
dismissed.
[13]
Sylvain Doucet informed Ms. Courcy that the
appellant took care of all the paperwork while he took care of the business's
operations. The income from Mr. Doucet's business for the winter of 2009‑2010
totalled around $30,000. Mr. Doucet indicated to Ms. Courcy that the
appellant rendered some services to Technologies, such as paycheques, and she
often did so without being paid. It must be noted that Technologies had only
one employee.
[14]
In her report, Ms. Courcy provided her
analysis. During the period, the appellant allegedly worked 920 hours and
therefore, received compensation of $10,524.80 for 23 weeks (see Exhibit I-1,
tab 1). This compensation comes to $457.60 per week, specifically $11 x
40 hours plus 4%, at 40 hours per week.
[15]
In 2009, the payer issued only two T4 slips—one
for the appellant for $4,576 and one for Sébastien Lalonde for $557.
[16]
Since the appellant did the bookkeeping,
Ms. Courcy reviewed the payer's accounting records and noted that there
were very few data entries. For example, for the month of November, there were
only 13 accounting entries. For the month of December, there were only 31 accounting
entries. When Ms. Courcy asked to see the payer's records, the appellant
only sent her the records for Terrassement and not for Technologies although
she did the bookkeeping for both.
[17]
Ms. Courcy noted that the appellant needed
a minimum of 910 hours to be eligible for employment insurance benefits and she
received a record of employment from the payer for 920 hours (see Exhibit I-1,
tab 1).
[18]
According to Ms. Courcy, the work the
appellant performed could not have accounted for 40 hours a week, considering
there were weeks with only very few accounting entries and there was no snow.
Evidently, Ms. Courcy cannot specify how many hours a week this work might
take. Ms. Courcy drew the conclusion that the appellant only worked enough
to be eligible for benefits.
[19]
Sylvain Doucet and the appellant testified. They
contest Ms. Courcy's analysis and conclusions. The state that the
appellant's volume of work justified at least 40 hours a week and even more
than that. The appellant and Mr. Doucet provided explanations and
clarifications for the facts that are set out in Ms. Courcy's CPT 110
report. They described the appellant's tasks. Mr. Doucet took care of
managing his businesses and the appellant took care of the paperwork; she was
her son's secretary. Her tasks included answering the phone, serving clients
from time to time when they came to deliver their cheques, collect unpaid
accounts when they received NSF cheques, prepare her paycheques and remit the
source deductions and GST-QST returns to the federal and provincial
governments, perform computer data entries for expenses and income. The
accounts receivable were calculated by the accountant, but the appellant
prepared the income and expenses report for the accountant. She was authorized
to sign cheques for Terrassement, and only one signature was required. The
appellant told us that she worked at least 40 hours a week, from 9 a.m. to 5
p.m., Monday to Friday, and often evenings and weekends. The appellant told us
that she was available 24 hours a day during snowstorms and she often worked
until 8 or 9 p.m. and sometimes until 2 or 3 a.m.
[20]
Sylvain Doucet is the owner of Terrassement and
co-owner of Technologies with his spouse. His spouse is the owner of Déneigement
des Prairies (hereinafter Prairies). In the beginning, it was only Terrassement
that paid the appellant, but after the audit, she was also paid by Technologies.
[21]
Mr. Doucet told us that before 2009,
Terrassement had 248 commercial and residential clients. In 2007-2008
Terrassement transferred clients to Technologies. In 2009, Technologies was
almost solely doing commercial snow removal. Commercial clients were easier and
therefore less work, as these clients sent their post-dated cheques by mail.
According to the appellant and Mr. Doucet, the appellant took care of the
bookkeeping for Technologies and for Terrassement.
[22]
In cross-examination, Mr. Doucet confirmed
that Terrassement had 100 residential clients and Technologies had 38 residential
and commercial clients. He agreed that during the period in question, the
companies Terrassement and Technologies had a total of around 195 clients.
[23]
The business income Sylvain Doucet reported for
the taxation years are as follows:
|
|
2007
|
2008
|
2009
|
|
Gross income
|
$33,210
|
$28,894
|
$28,452
|
|
(Net loss)
|
($14,894)
|
($2,673)
|
($2,244)
|
This shows that Sylvain Doucet's sales
figures were always in a deficit.
Appellant's position
[24]
The appellant submits that
during the period, she worked full time for at least 40 hours a week for her
son's companies. She alleges that the respondent did not take into
consideration that she worked for both Terrassement and Technologies even
though she was only paid by Terrassement and not by Technologies. According to
the appellant, her employer was her son Sylvain Doucet, regardless of who paid.
She alleges that the Minister did not consider all of the work she performed.
Although the needs of her son's businesses meant that the work schedule was
difficult to establish, in general, the overall work performed warranted the
salary he paid her.
[25]
Therefore, the appellant
feels that the appeal should be allowed.
Respondent's position
[26]
The respondent submits that the contract of
service between the appellant and the payer is not insurable, since they were
not dealing with each other at arm's length and it is not
reasonable to conclude that the appellant and the payer would have entered into
a substantially similar contract if they had been dealing with each other at
arm's length. The respondent feels that considering all
the circumstances, including the additional clarifications provided by the
appellant during the hearing, the respondent's decision was reasonable. The
respondent alleges that the volume of work performed by the appellant does not
justify 40 hours a week.
[27]
The respondent therefore feels the appeal should
be dismissed.
Legislative
provisions
[28]
The relevant provisions of the Employment
Insurance Act, S.C. 1996 c. 23 amended, are as follows:
5(2) Excluded
employment — Insurable employment does not include
...
(i) employment if the employer and
employee are not dealing with each other at arm's length.
5(3) Arm's
length dealing — 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.
Analysis
[29]
It is undisputed that there was a contract of
employment between the appellant and the payer. Moreover, it is undisputed that
the payer and appellant are not dealing with each other at arm's length. The
respondent did not dispute that the rate of pay of $11 an hour is reasonable
for secretarial work. However, the respondent feels that the time the appellant
spent on the work, 40 hours each week, is not justified considering the
appellant's duties and the business's sales figures.
[30]
In general, when there is no arm's length
relationship between a worker and a payer, the work is not insurable. However,
the worker and the payer are deemed to deal with each other at arm's length if
the Minister is satisfied that, having regard to all the circumstances, the
worker 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.
[31]
In Francine Denis v. Canada (Minister
of National Revenue – MNR), 2004 FCA 26, Federal Court of Appeal Chief
Justice Richard explained that the role of the Tax Court of Canada judge in an
appeal from a determination of the Minister on the exclusion provisions
contained in subsections 5(2) and (3) of the Act as follows:
[5] The function of the Tax Court of Canada
judge in an appeal from a determination by the Minister on the exclusion
provisions contained in subsections 5(2) and (3) of the Act is to inquire into
all the facts with the parties and the witnesses called for the first time to
testify under oath, and to consider whether the Minister's conclusion still
seems reasonable. However, the judge should not substitute his or her own
opinion for that of the Minister when there are no new facts and there is no
basis for thinking that the facts were misunderstood (see Pérusse v. Canada (Minister of National Revenue - M.N.R.), [2000] F.C.J. No. 310, March
10, 2000).
[32]
The burden of proof is on the appellant, who
must establish on a balance of probabilities that the Minister's decision is
unfounded in fact or in law. It goes without saying that each case is unique.
[33]
In this case, although the appellant contests
the Minister's conclusions, she is not challenging the facts the Minister used
to make his decision; she offers explanations and clarifications. The appellant
alleges that although at the time it was only Terrassement that paid her, she
worked for her son. She took care of the bookkeeping and the secretarial work,
not only for Terrassement, but also for Technologies. Therefore, the volume of
her work was at least 40 hours a week and often went beyond 40 hours a week.
[34]
In light of the testimonial and documentary
evidence regarding, in particular, the compensation paid, the employment
conditions and duration, the nature and significance of the work performed
during the period in question, it seems reasonable to me to conclude that the
Minister's determination was reasonable considering all the circumstances.
There is nothing that would lead me to think that the facts the Minister had
were misinterpreted. Even in light of the additional information and
clarifications provided by the appellant, I still feel that the Minister's
decision is reasonable.
[35]
An important element the Minister considered was
the fact the volume of office work was not sufficient. Even if I consider that
the appellant also worked for Technologies, I feel that the commercial clients
require less work than residential clients. I feel that even if the Minister had
taken into consideration the additional work the appellant did for Technologies,
the Minister would have still concluded that the work performed did not justify
40 hours a week.
[36]
The appellant did not convince me that it is
reasonable to conclude, having regard to all the circumstances, that the
appellant and her son would have entered into a substantially similar contract
of employment if they had been dealing with each other at arm's length. In
reaching this conclusion, I considered, among others, the following factors:
(a) At
the time, Sylvain Doucet had financial difficulties to the extent that he
thought it was necessary to borrow $5,000 from his parents. He did not pay rent
for his business office located in the appellant's residence. He himself lived
in the same residence but did not pay his parents any rent. He paid for the
construction of a garage at his parents' residence. Additionally, the sales figures
of his businesses showed a deficit for 2007 to 2009; I do not know the figures
for 2010. Despite Mr. Doucet's financial problems and his business losses,
he paid his mother more than his businesses earned. During the period, Sylvain
Doucet paid the appellant a total compensation of $10,524.80 for less than six
months of work (see Exhibit I-1, tab 1). However, the 2009 sales figures
for Sylvain Doucet's businesses was $28,452 and he had a net loss of $2,244. An
entrepreneur would not use a third of the total business income to pay a
secretary/receptionist's salary, for work done at home, unless the worker was
someone with whom the contractor did not have an arm's length relationship,
such as his mother. The contract of employment that allegedly existed between
the appellant and her son was very beneficial for the appellant and constituted
a huge expense for the payer. The appellant was paid full time to stay at home.
The work performed does not justify the expense related to the appellant's
duties, even if Sylvain Doucet were considered to have 195 clients instead of
80 or 100.
(b) When the
appellant's duties are considered, there is only a small amount of work to be
done for the bookkeeping. Even if the amount of data entries were doubled to
take into consideration the work allegedly done for Technologies, the volume would
still be minimal. She said she served clients at home at any time of day, but
the payment method indicated on the contracts was by mail or using the [translation] "snow-removal
box" located in the glassed-in porch of the residence. She was not able to
state the percentage of clients who used each payment method. I cannot imagine
there were many clients who went to the house, despite what the appellant said.
(c) She
was not able to tell us the average number of phone calls made or the amount of
time spent on the phone. The number of hours the appellant spent performing all
these duties is unknown and difficult to quantify. She merely stated that she
worked more than 40 hours a week. However, she did not fill in any time sheets.
The payer did not keep any record of the appellant's hours of work. A worker
and a payer who have an arm's length relationship would have calculated the
hours of work in the case of an employee paid by the hour.
(d) She worked
at home and could therefore take care of all the other activities in the house.
She did certain tasks for the payer while taking care of personal tasks. Since
the payer's office was located in the appellant's residence, she could attend to
her daily chores while waiting for the few calls from clients. It is the
appellant's responsibility to convince the Minister that she worked the hours
she claimed to have worked.
(e) She told
us she worked 920 hours of work during the period. Coincidentally, she only
needed 910 hours of work to be eligible for employment insurance benefits. Coincidence?
Maybe so, but it is very easy to assume that the parties came to an agreement
that would allow them to take advantage of the Act.
Conclusion
[37]
Having reviewed all the evidence, I come to the
conclusion that the appellant's employment was not insurable employment
considering paragraph 5(2)(i) and subsection 5(3) of the Act, as it
is not reasonable to conclude, having regard to all the circumstances, 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.
[38]
For these reasons, the appeal is dismissed.
Signed at Kingston, Ontario, this 21st day of May 2014.
"Rommel G. Masse"
Translation
certified true
on this 15th day
of July 2014.
Elizabeth Tan,
translator
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