Citation: 2013 TCC 214
Date: 20130702
Docket: 2009-2492(EI)
BETWEEN:
JEANNE DUCHARME,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Bédard J.
[1]
The appeal before this
Court concerns the insurability of work performed during the period from May
19, 2008, to October 25, 2008 (the relevant period).
[2]
During the relevant
period, the appellant was employed by the business of Angelo Fortin (of which
he is the sole owner), who is also the appellant’s common‑law partner.
[3]
At the hearing, only
the appellant and Angelo Fortin testified. The appellant and Mr. Fortin
admitted almost all of the facts assumed for the purposes of the decision under
appeal. The facts assumed are paragraphs and subparagraphs 7(a) to (c) and 8(a)
to (ff) of the Reply to the Notice of Appeal.
[Translation]
(7) The appellant and the payer are related persons within
the meaning of the Income Tax Act because
(a)
Angelo Fortin is the sole owner of his business;
(b)
Jeanne Ducharme, the appellant, is Angelo Fortin’s
common-law partner;
(c)
The appellant is related as a common-law partner
to a person who controls the payer;
(8) The Minister found that the appellant and the payer were
not dealing with each other at arm’s length in the context of this employment. The
Minister was satisfied that it was 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, in light of the following circumstances:
(a)
The payer registered a business as a sole
proprietorship on April 9, 2002;
(b)
The payer operated his sole proprietorship under
the name Clôture‑O‑Max Côte‑Nord 2002;
(c)
The payer’s activity is mainly the installation
and repair of fences;
(d)
90% of the payer’s contracts is with individuals
and the rest with industry;
(e)
The payer stated that he had no competitors in
the area he served;
(f)
The payer’s business is seasonal, from thaw to
frost;
(g)
The payer reported the following business
income:
|
Tax Years
|
2005
|
2006
|
2007
|
|
Gross business income
|
$205,946
|
$203,598
|
$251,841
|
|
Net business income
|
$21,722
|
$39,314
|
$6,806
|
(h)
The income statement from January 1, 2008, to
December 31, 2008, indicates the following numbers:
|
Gross business income:
|
$224,599
|
|
Gross profit:
|
$82,094
|
|
Net loss:
|
$22,389
|
(i)
During the period at issue, the payer operated
his business from May 2008 to November 2008;
(j)
The payer’s offices are located in the residence
belonging to the appellant;
(k)
The payer paid no rent to the appellant for the
use of this office space;
(l)
The payer’s business card indicated the payer’s
home telephone number, fax number and cell phone number;
(m)
The payer usually employed two or three men for
the entire season and two others when there was extra work;
(n)
From 2002 to 2007, the payer transferred the
telephone calls received at home to his cell phone;
(o)
Starting on April 1, 2008, the use of a handheld
cell phone while driving was prohibited in Quebec.
(p)
The payer then decided to hire a receptionist;
(q)
Before she was hired by the payer, the appellant
worked as a receptionist in a bowling alley and, in the summer, as a salesclerk
at a golf pro shop;
(r)
The appellant agreed to work for the payer
instead of returning to work at the golf club in 2008;
(s)
The appellant was the only office employee of
the payer;
(t)
The appellant’s duties were to answer the phone,
to take appointments for the payer to make estimates, to do the employees’ pay including
her own, to print out cheques on the computer and to have the payer sign them,
and to go to the payer’s warehouse in order to receive merchandise when
necessary;
(u)
The appellant answered about 20 to 30 calls per
day;
(v)
In the evenings and on weekends, the payer was
present and the answering machine was turned on;
(w)
All salaries were based on 40 hours per week and
did not vary;
(x)
All of these tasks were performed by the payer
before the appellant had been hired;
(y)
The payer also showed her how to do invoicing on
the computer, but in 2008, he did it himself;
(z)
The payer’s bookkeeping was done by a third party;
(aa)
The appellant worked from Monday to Friday, 8
a.m. to 5 p.m.;
(bb)
The appellant was paid $9 per hour for 40 hours
per week;
(cc)
Based on the payroll journal, the appellant
received $8,280 from the payer for the period at issue;
(dd)
A payer at arm’s length would not have hired a
person to do this receptionist’s work at such a high cost, while he could have
continued like in other years at a lower cost, for example, by buying a headset
in order to comply with the new traffic law;
(ee)
The payer did not risk losing clients because
there were no competitors in his area;
(ff)
The income generated by the payer’s business is
the only source of income for the payer’s family.
[4]
Only the fact stated in
subparagraph 8(dd) of the Reply to the Notice of Appeal was denied in the
testimony of the appellant and Mr. Fortin.
[5]
The basis for the
respondent’s finding of exclusion is found in paragraph 5(2)(i) of
the Employment Insurance Act, which reads 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.
[6]
In the same section, however,
Parliament provided that the exclusion could be set aside if parties dealing
with each other at arm’s length would have entered into a substantially similar
contract of employment.
[7]
In other words,
Parliament has granted the respondent discretion to assess all the facts
relevant to the work at issue, including compensation, duration and conditions,
and determine whether or not the employment is insurable. The statutory
provisions in question read as follows:
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.
[8]
The Federal Court of
Appeal has in a number of decisions held that a decision resulting from the
exercise of discretionary power cannot be set aside by the Court unless it is
established on a balance of probabilities that the exercise of the
discretionary power was tainted by errors or flaws, or was simply exercised
unreasonably, either by failing to take into account relevant elements or by
taking into account irrelevant elements.
[9]
In short, if the
Minister properly and reasonably assessed all the relevant facts, this Court
cannot set aside his decision, even if the Court could have arrived at a
different conclusion.
[10]
The analysis must
involve not only the work performed but also all the facts shown at trial;
contrary to the investigation prior to the determination, the hearing before
the court provides a set of generally more complete and nuanced facts;
moreover, witnesses are more prepared to present all facts they deem important
and relevant while allowing for a better assessment of credibility when all
relevant parties are present.
[11]
In that respect, the
two cases most often cited are Légaré v. Canada (Minister of National
Revenue - M.N.R.), [1999] F.C.J. No. 878, 246 N.R. 176, and Pérusse v.
Canada (Minister of National Revenue - M.N.R.), [2000] F.C.J. No. 310, 261
N.R. 150. In Légaré, the Honourable Justice Marceau wrote the
following:
4
The Act requires the Minister to make a determination based on his own
conviction drawn from a review of the file. The wording used introduces a form
of subjective element, and while this has been called a discretionary power of
the Minister, this characterization should not obscure the fact that the
exercise of this power must clearly be completely and exclusively based on an
objective appreciation of known or inferred facts. And the Minister’s
determination is subject to review. In fact, the Act confers the power of
review on the Tax Court of Canada on the basis of what is discovered in an
inquiry carried out in the presence of all interested parties. The Court is not
mandated to make the same kind of determination as the Minister and thus cannot
purely and simply substitute its assessment for that of the Minister: that
falls under the Minister’s so-called discretionary power. However, the Court
must verify whether the facts inferred or relied on by the Minister are real
and were correctly assessed having regard to the context in which they
occurred, and after doing so, it must decide whether the conclusion with which
the Minister was “satisfied” still seems reasonable.
. .
.
12
I have just said that in our view, these facts by themselves do little to
explain and support the response of the Minister or his representative. Under
the Unemployment Insurance Act, excepted employment between related persons is
clearly based on the idea that it is difficult to rely on the statements of
interested parties and that the possibility that jobs may be invented or
established with unreal conditions of employment is too great between people
who can so easily act together. And the purpose of the 1990 exception was
simply to reduce the impact of the presumption of fact by permitting an
exception from the penalty (which is only just) in cases in which the fear of
abuse is no longer justified. From this perspective, after identifying the true
nature of the employment, the importance of the duties and the reasonableness
of the compensation, it is difficult in our view to attach the importance the
Minister did to the facts he relied on to exclude the application of the
exception. It is the essential elements of the employment contract that must be
examined to confirm that the fact the contracting parties were not dealing with
each other at arm’s length did not have undue influence on the determination of
the terms and conditions of employment. From this standpoint, the relevance of
the facts relied on, even without further detail, seems very questionable. And
there is no need to go any further. While the facts relied on might
legitimately leave sufficient doubt with respect to an objective basis for the
conditions of the applicants’ employment contract, placing these facts in the
context of the evidence adduced before the Tax Court of Canada - evidence which
was almost completely accepted by the Tax Court judge - only serves to
highlight the unreasonableness of the Minister’s initial conclusion. It was in
fact clearly explained and established that the applicants’ salary was higher
than the minimum wage the other employees received because of the
responsibility involved in the duties they performed and that that was the
prevailing salary in the industry for similar jobs; it was clearly explained
and established that the shareholders had decided to reduce the salary normally
due to them to provide for the financial support and development of the
business; it was clearly explained and proven that a tornado had destroyed a
large number of the buildings of the business in 1994, which led to a period of
confusion, and then reconstruction and financial difficulties; last, it was
explained and proven that the presence of the children of one of the applicants
on the land around the greenhouses was very unlikely to affect the performance
of her duties and the provision of the services she agreed to provide.
[12]
In Pérusse, the
Honourable Justice Marceau wrote the following:
14
In fact, the judge was acting in the manner apparently prescribed by several
previous decisions. However, in a recent judgment this Court undertook to
reject that approach, and I take the liberty of citing what I then wrote in
this connection in the reasons submitted for the Court:
The
Act requires the Minister to make a determination based on his own conviction
drawn from a review of the file. The wording used introduces a form of
subjective element, and while this has been called a discretionary power of the
Minister, this characterization should not obscure the fact that the exercise
of this power must clearly be completely and exclusively based on an objective
appreciation of known or inferred facts. And the Minister’s determination is
subject to review. In fact, the Act confers the power of review on the Tax
Court of Canada on the basis of what is discovered in an inquiry carried out in
the presence of all interested parties. The Court is not mandated to make the
same kind of determination as the Minister and thus cannot purely and simply
substitute its assessment for that of the Minister: that falls under the
Minister’s so-called discretionary power. However, the Court must verify
whether the facts inferred or relied on by the Minister are real and were
correctly assessed having regard to the context in which they occurred, and
after doing so, it must decide whether the conclusion with which the Minister
was “satisfied” still seems reasonable.
15
The function of an appellate judge is thus not simply to consider whether the
Minister was right in concluding as he did based on the factual information
which Commission inspectors were able to obtain and the interpretation he or
his officers may have given to it. The judge’s function is to investigate all
the facts with the parties and witnesses called to testify under oath for the
first time and to consider whether the Minister’s conclusion, in this new
light, still seems “reasonable” (the word used by Parliament). The Act requires
the judge to show some deference towards the Minister’s initial assessment and,
as I was saying, directs him not simply to substitute his own opinion for that
of the Minister when there are no new facts and there is nothing to indicate
that the known facts were misunderstood. However, simply referring to the
Minister’s discretion is misleading.
[13]
The appellant testified
that her work had essentially consisted in being available (40 hours per week,
Monday to Friday, 8 a.m. to 5 p.m.) to answer calls. Thus, she apparently
answered about 20 calls per day during the relevant period. She also admitted
that her other tasks listed in subparagraph 8(t) of the Reply to the Notice of
Appeal required 2 to 3 hour of work per week at most during the relevant
period. In addition, in cross-examination, the appellant explained that she had
also worked as a receptionist at a bowling alley from 1 to 11 p.m. three days
per week. When confronted with the fact that she could not have been working
for two employers simultaneously, the appellant explained that she had forgotten
to say that the bowling alley was closed in the summer. Unless summer starts
before June 21 and lasts until October 25 in Baie-Comeau, I conclude
that the appellant could not work for Mr. Fortin from 1 to 5 p.m. on three days
of the week during several months of the relevant period. For that reason, I
attribute little probative value to the appellant’s testimony. The appellant
simply did not satisfy me that she had really rendered services to Mr. Fortin.
[14]
In addition, Mr. Fortin
essentially testified that he would have hired another person to complete the
tasks listed in subparagraph 8(t) of the Reply to the Notice of Appeal if the
appellant had not agreed to work for him. Indeed, based on the only true reason
stated by Mr. Fortin to have hired the appellant as a receptionist, as of April 1,
2008, the use of handheld cell phones while driving was prohibited in Quebec,
which prevented him from answering his clients’ calls while on the road. In
addition, Mr. Fortin was unable to explain why he had not used a headset to
answer his clients’ calls while driving.
Conclusion
[15]
In this case, the
appellant did not satisfy me that she had really worked for Mr. Fortin
during the relevant period. In any case, the Minister’s conclusion that an arm’s
length payer would not have hired a person to do essentially reception work,
while he could have continued at a lower cost as in previous years to answer
his clients’ calls while he was driving his vehicle, appears reasonable to me
in light of the evidence. Indeed, Mr. Fortin could have used a headset to
answer his clients’ calls while driving in compliance with the new traffic law
and thus avoided the cost of a receptionist, especially since Mr. Fortin’s
business was running at a loss in 2008. In other words, the conclusion reached
and contested is reasonable and is consistent with all of the facts relevant to
the case. There was no abuse by the Minister of his discretionary power.
[16]
For these reasons, the
appeal is dismissed.
Signed at Ottawa, Canada, this 2nd day of July 2013.
“Paul Bédard”
Translation certified true
on this 16th day of August 2013
Margarita Gorbounova, Translator
Email this Content