Ouellet v. M.N.R., docket 98-30-UI

Date: 19980615

Docket: 98-30-UI

BETWEEN:

ISABELLE OUELLET,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Judgment

Watson, D.J.T.C.C.

[1] This appeal was heard at Rivière-du-Loup, Quebec on June 5, 1998.

[2] The appellant is appealing form the decision of the Minister of National Revenue ("the Minister") dated October 16, 1997 that the employment held during the period in question, from February 27 to June 23, 1995, while in the service of Denise Ouellet, operating "Dépanneur Ouellet Enr.", the payer, is excepted from insurable employment within the meaning of the Unemployment Insurance Act ("the Act") on the ground that they were not dealing with each other at arm's length.

[3] Section 3(2) of the Act reads in part as follows:

3. (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] Section 251 of the Income Tax Act reads in part as follows:

Section 251: Arm's length.

(1) For the purposes of this Act,

(a) related persons shall be deemed not to deal with each other at arm's length . . . .

(2) Definition of "related persons". For the purpose of this Act, "related persons", or persons related to each other, are

(a) individuals connected by blood relationship, marriage or adoption . . . .

[5] In Ferme Émile Richard et Fils Inc. v. Minister of National Revenue (1994), 178 N.R. 361, Décary J.A. of the Federal Court of Appeal indicated that in applying s. 3(2)(c)(ii) of the Act the Court must consider whether the Minister's decision "resulted from the proper exercise of his discretionary authority". The Court must first require that the appellant "present evidence of wilful or arbitrary conduct by the Minister, evidence which is generally not easy to obtain".

[6] In Bayside Drive-In Ltd. v. Her Majesty the Queen (1997), 218 N.R. 150, signed on July 25, 1997, Chief Justice Isaac of the Federal Court stated the following for the Court of Appeal:

At the threshold stage of the inquiry, review by the Tax Court is confined to ensuring that the Minister has exercised his discretion in a lawful manner. If, and only if, the Minister has exercised his discretion in a manner contrary to law can the Tax Court then proceed to a review of the merits of the determination.

[7] In arriving at his decision the Minister relied on the following facts:

[TRANSLATION]

(a) The payer, the appellant's mother, bought the convenience store in May 1994 and operated it until September 30, 1996.

(b) The payer purchased the business for $85,000 by obtaining two loans: one for $35,000 through small business assistance, giving the stock as security, and the second for $50,000 from the Caisse Populaire, giving as security a hypothec on the house owned by her spouse, Claude Ouellet.

(c) The payer's business was open from 7:30 a.m. to 11:00 p.m. seven days a week; the payer alleges that she was in the business at all times when it was open.

(d) The payer hired her spouse and the appellant regularly, only paying them very sporadically for the services rendered.

(e) The appellant worked as manager of the payer's business: she did the accounting, worked at the cash register, called for orders, stocked the refrigerators and shelves, dealt with suppliers, did the cleaning and so on.

(f) The appellant alleges that she did 45 hours a week on a variable schedule.

(g) On accounting work alone, the appellant spent 20 hours a week.

(h) The appellant admits that she has been doing the accounting since the payer's business opened: she thus did a minimum of 20 hours a week before and after the period at issue, and she did so without pay.

(i) In 1994 and 1995 the appellant received unemployment insurance benefits for 35 weeks, ending on February 18, 1995; she was entered on the payer's payroll on February 27, 1995.

(j) During the weeks in which she was entered on the payer's payroll the appellant received a weekly salary of $540; in all the other weeks she worked free of charge.

(k) The appellant was allegedly laid off on June 23, 1995 for lack of work, whereas the payer hired her spouse, the appellant's father, on July 3, 1995.

(l) The record of employment submitted by the appellant does not reflect the actual situation as regards the period worked.

[8] At the hearing counsel for the appellant admitted the allegations made in paragraphs (a) to (c) and (e) to (j) and denied the facts alleged in paragraphs (d), (k) and (l).

[9] The burden of proof is on the appellant. She must show on a balance of probabilities that the Minister's decision is wrong in fact and in law. Each case stands on its own merits.

[10] Having regard to all the circumstances of the case, including the testimony, admissions and documentary evidence, I am satisfied that the appellant has failed to establish on a balance of probabilities that the Minister acted wilfully or arbitrarily or in a manner contrary to the Act in arriving at his decision.

[11] The appellant's employment is accordingly excepted from insurable employment under s. 3(2)(c) of the Act.

[12] The appeal is therefore dismissed and the Minister's decision dated October 16, 1997 affirmed.

[13] The witnesses testified frankly, honestly and with credibility: they acted in good faith on the basis of information received from officers of the local office of Human Resources Development Canada (unemployment insurance). I must strongly recommend that the Commission review this case in light of s. 60(1)(f) of the Unemployment Insurance Regulations, which reads in part as follows:

60. (1) [A]n amount owing . . . may be written off by the Commission if

. . .

(f) the Commission considers that, having regard to all the circumstances,

. . .

(ii) the repayment of the . . . amount would result in undue hardship to the debtor.

Signed at Ottawa, Canada, June 15, 1998.

"D.R. Watson"

D.J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 24th day of November 1998.

Stephen Balogh, Revisor