Gaumond v. M.N.R., docket 97-1707-UI

Date: 19980818

Docket: 97-1707-UI

BETWEEN:

NICOLE GAUMOND,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent,

and

TRANSPORT CLAUDE DESMEULES INC.,

Intervener.

Reasons for Judgment

Alain Tardif, J.T.C.C.

[1] This is an appeal from a determination dated September 18, 1997.

[2] In that determination, the respondent found that the work done by the appellant for the intervener, Service de Transport Claude Desmeules Inc., during the periods from October 26, 1992, to July 16, 1993, January 17 to December 30, 1994, and August 7, 1995, to February 16, 1996, did not constitute insurable employment.

[3] The legal basis for the determination was paragraph 3(2)(c) of the Unemployment Insurance Act (“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 . . . .

[4] Under this provision, the employment of persons who are related within the meaning of the Income Tax Act is excepted from insurable employment unless the respondent, exercising the discretion conferred on him by Parliament, concludes that the person in question is dealing with his or her employer at arm’s length.

[5] The exercise of that discretion and the resulting determination cannot be challenged unless the persons to whom the determination applies prove that the exercise of the discretion was seriously flawed. To prove this, which must be done on a balance of evidence, it must be established that the discretion was exercised arbitrarily.

[6] In other words, the only jurisdiction this Court has is similar to the jurisdiction that exists on judicial review.

[7] The limits of this Court’s jurisdiction to review a determination under paragraph 3(2)(c) of the Act have been set out, defined and explained in a number of decisions by the Federal Court of Appeal, including the following:

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);

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

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

[8] The appellant’s evidence consisted of her own testimony and the testimony of Claude Desmeules, her spouse, Pierre Boillart, the company’s accountant, and Roger Bergeron, a former employee of Donohue.

[9] The appellant said that she began working in 1989 after being trained at CEGEP. She also learned to use the Fortune 1000 software. She worked as a dispatcher, did the accounting, paid the accounts, handled billing and the payroll, completed various reports, did the shopping, ran errands and made deposits. She had to be fully available at all times, which was a key condition of her work. She laid great stress on the fact that she had to be fully available, which she said was essential to the smooth operation of the business.

[10] She stated unambiguously and categorically that she did no work while she was receiving unemployment insurance benefits. I must admit that this part of her testimony raised very serious doubts in my mind about the value of her testimony. I will comment on this aspect of the evidence in greater detail below.

[11] The appellant’s testimony made it clear that she played an active role in the affairs of the company, which was owned by her spouse; her explanations left no doubt as to her knowledge, involvement and participation.

[12] However, the fact that it has been shown that the work done by the appellant was absolutely indispensable raises a serious question. How could the business operate without such indispensable work being done during the long periods when the appellant was not available and did no work at all?

[13] This question is all the more significant given that, according to the accountant, the company operated year-round and its sales were constant, except in 1992; the accountant also said that Claude Desmeules had no interest in or knowledge of administrative matters. Claude Desmeules himself clearly stated that the company’s income was more or less the same every month; there was therefore no significant decrease in income, even when the appellant was not working.

[14] If availability were such a significant factor in the appellant’s wages, it is hard to explain how it could then have been of secondary importance during the long periods when she was receiving unemployment insurance benefits, especially since the business operated year-round.

[15] Mr. Desmeules’s explanation that he did not make any entries and that everything was written down in draft form and then copied out neatly when the appellant came back to work strikes me as implausible.

[16] Has the appellant discharged her burden of proof such that this Court can analyse all the evidence from the standpoint of a trial de novo?

[17] To discharge this burden, it is not enough to state vague grievances against the respondent and criticize the investigation work done during the process leading up to the determination.

[18] The Federal Court of Appeal’s decisions have clearly set out the parameters of the Tax Court of Canada’s jurisdiction when it comes to insurability arising from the discretion set out in paragraph 3(2)(c) of the Act.

[19] I consider it important to reproduce some passages from Attorney General of Canada v. Jencan Ltd. (A-599-96) in particular. The Honourable Julius A. Isaac stated the following at page 16 of that case:

. . . The jurisdiction of the Tax Court to review a determination by the Minister under subparagraph 3(2)(c)(ii) is circumscribed because Parliament, by the language of this provision, clearly intended to confer upon the Minister a discretionary power to make these determinations. The words “if the Minister of National Revenue is satisfied” contained in subparagraph 3(2)(c)(ii) confer upon the Minister the authority to exercise an administrative discretion to make the type of decision contemplated by the subparagraph. Because it is a decision made pursuant to a discretionary power, as opposed to a quasi-judicial decision, it follows that the Tax Court must show judicial deference to the Minister’s determination when he exercises that power. . . .

He added the following at page 18:

. . . The Tax Court is justified in interfering with the Minister’s determination under subparagraph 3(2)(c)(ii) — by proceeding to review the merits of the Minister’s determination — where it is established that the Minister: (i) acted in bad faith or for an improper purpose or motive; (ii) failed to take into account all of the relevant circumstances, as expressly required by paragraph 3(2)(c)(ii); or (iii) took into account an irrelevant factor.

[20] In the case at bar, the evidence related primarily to the work done by the appellant. It showed that the appellant’s work was regular, constant, useful and necessary.

[21] However, the quality of the evidence raised a number of questions to which the answers given were much less obvious; what is more, the answers raised serious doubts about the significance of the work done during the periods at issue, given that there were times when no one was doing it.

[22] I refer in particular to the fact that the appellant’s husband stated categorically that he did not record any information; he handled everything by writing the information down in draft form and keeping it all so that the appellant could fix it up when she came back to work.

[23] This answer means that information was kept in draft form for months. I neither believe nor accept this explanation; the comments and observations made by Mr. Boillart, the accountant who looks after the company’s affairs, indicate that Claude Desmeules had neither the skills nor the qualifications to handle accounting and administrative matters and also had very little interest in them.

[24] The very brief testimony given by Roger Bergeron, a former employee of the Donohue company, is also revealing and significant, indeed even determinative. He totally contradicted the claim by the appellant and her spouse that she was not involved in the company’s business outside the periods at issue. He is a witness whose credibility cannot be impeached, and it should be added that he was testifying at the request of the appellant, who wanted to show how important her work was; she ensnared herself in a way by trying to show that her work was essential. Mr. Bergeron was categorical: the appellant was always available when he contacted the company. At no time did he draw a distinction or say that during certain long periods every year (when the appellant was receiving unemployment insurance benefits) he had to either talk directly to the truck drivers on their cellular telephones or talk to the appellant’s spouse or someone else; according to his testimony, the appellant was always on the job.

[25] What components and aspects of the available evidence might discredit the respondent’s exercise of his discretion? The appellant claimed to have been harassed but did not explain how she was harassed.

[26] Being questioned, having one’s insurability file investigated and being the subject of an investigation in no way constitute harassment; they are a normal occurrence under any program that is subject to many types of abuse.

[27] The appellant also criticized the respondent for not going to the company’s place of business, not questioning certain individuals and not going over all the files stored in a cardboard box.

[28] The respondent was also criticized for dealing with the appellant’s file without taking account of certain specific characteristics of the business. However, the Court did not understand how the business was so different or why a personalized approach was necessary. The facts were simple, revealing and above all determinative.

[29] None of the stated grievances is determinative, even if the company’s accounting could perhaps have been audited more thoroughly to confirm the conclusion that was, in the circumstances, appropriate and justified.

[30] The respondent alleged the following facts in support of the determination:

[TRANSLATION]

(a) the payer, which was incorporated in 1986, operates a gravel and lumber transportation business;

(b) Claude Desmeules, the appellant’s husband, was the payer’s sole shareholder;

(c) the payer has two trucks to transport gravel and one to transport lumber;

(d) the two gravel trucks are used from May to November to do work for Donohue Inc.;

(e) Donohue Inc. looks after all administrative matters involving the trucks, including hiring drivers, paying wages and controlling expenditures;

(f) the truck used to transport lumber is used 12 months a year to do work for Donohue Inc.;

(g) however, the payer looks after all administrative matters involving that truck;

(h) the payer normally has two employees: a driver to transport lumber and the appellant;

(i) the payer’s office was in the appellant’s home;

(j) Claude Desmeules drove one of the gravel trucks;

(k) the appellant had three children, who were 13, 18 and 20 years old in 1996;

(l) the appellant answered the telephone, called Québec once a day, ran errands (bank deposits, purchases of parts), looked after the mail and kept the books;

(m) the bookkeeping has been done by computer since 1994;

(n) the appellant has been working fewer hours since 1994;

(o) the appellant was paid $450 a week from 1992 to 1996;

(p) the appellant did not have a work schedule that was set ahead of time;

(q) she could do housework during the day and still be available to answer the telephone;

(r) she occasionally worked in the evening;

(s) the appellant’s wages were too high for the amount of work she did;

(t) Claude Desmeules claims that when he laid off the appellant, he took over for her since he had himself been laid off from his job as a driver, but this argument does not stand up to a review of each of their periods of employment and unemployment . . . . (Emphasis added.)

[31] The content of paragraphs 5(a) to (d), (f) to (k), (m) and (o) was admitted. The evidence further showed the facts alleged in paragraphs 5(l), (n), (p), (q) and (r) to be true. Paragraph 5(s), which concerns the level of the appellant’s wages, remains quite vague; finally, paragraph 5(t) is, beyond the shadow of a doubt, the fundamental allegation that in itself justifies the determination under appeal.

[32] The evidence showed that the payer company operated year-round. The appellant described her work as absolutely essential during the times when she did it, yet the same work suddenly became unnecessary. How can such a change in the company’s operations be explained? According to the appellant, her work was no longer required for a number of reasons, including the use of a cellular telephone, the fact that the truck had been damaged in an accident and the fact that her spouse had a great deal of free time at certain times of the year. I do not believe these explanations.

[33] The evidence showed that the company’s income was uniform throughout the year.

[34] These facts are indisputable and emerge from both the testimonial and the documentary evidence.

[35] They supported, and continue support, the allegation in paragraph 5(t). The evidence directly impugned the validity of the allegation concerning the appellant’s wages.

[36] If the position required such high wages, that necessarily raises the following question: how could the company operate without that work being done outside the periods at issue, given that Mr. Desmeules did not have the necessary skills or interest, according to the accountant, and was hardly ever available? This is an absolutely fundamental question to which the evidence did not provide an answer.

[37] Although it is not my role to draw conclusions, I am totally convinced that the work, although useful, necessary and real, was much less demanding than the evidence was intended to show; it also had to be done without interruptions — this emerged from the testimony given by the accountant and Mr. Bergeron and from the company’s books, which clearly showed that the company’s operations never slowed down.

[38] The story that Mr. Desmeules took over some of the appellant’s responsibilities while she was on unemployment insurance struck me as simply bizarre.

[39] I therefore conclude that the evidence in no way makes it possible to discredit the work done and method used by the respondent during the investigation process leading up to the determination.

[40] The work of the person in charge of the investigation was done both correctly and in a very satisfactory manner.

[41] Moreover, even if the evidence had shown that the discretion was improperly exercised, the facts adduced in evidence would have required me to find that the determination is correct.

[42] For these reasons, the appeal is dismissed and the Minister’s determination is affirmed.

Signed at Ottawa, Canada, this 18th day of August 1998.

“Alain Tardif”

J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 17th day of February 1999.

Stephen Balogh, Revisor