Date: 19980615
Docket: 98-29-UI; 98-67-UI
BETWEEN:
CLAUDE OUELLET,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
Watson, D.J.T.C.C.
[1] These appeals were heard on common evidence at
Rivière-du-Loup, Quebec on June 5, 1998.
[2] The appellant is appealing from the decisions of the
Minister of National Revenue ("the Minister") dated
October 16, 1997 that the employment held during the periods
in question, from July 3 to August 3, 1995 and
July 22 to September 28, 1996 with Denise Ouellet, and
from October 1 to October 12, 1996 with Nathalie
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 Unemployment Insurance 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 5(2) of the Employment Insurance Act
reads as follows:
5. (2) Insurable employment does not include
(a) employment of a casual nature other than for the
purpose of the employer's trade or business;
(b) the employment of a person by a corporation if the
person controls more than 40% of the voting shares of the
corporation;
(c) employment in Canada by Her Majesty in right of a
province;
(d) employment in Canada by the government of a country
other than Canada or of any political subdivision of the other
country;
(e) employment in Canada by an international
organization;
(f) employment in Canada under an exchange program if
the employment is not remunerated by an employer that is resident
in Canada;
(g) employment that constitutes an exchange of work or
services;
(h) employment excluded by regulations made under
subsection (6); and
(i) employment if the employer and employee are not
dealing with each other at arm's length.
[5] 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 . . . .
[6] 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".
[7] 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.
[8] In arriving at his decisions the Minister relied on the
following facts:
[TRANSLATION]
File No. 98-29(UI)
(a) The payer, the appellant's wife, 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 the appellant.
(c) The appellant alleges that he was not associated with his
wife in operating the business despite the fact that he gave his
house as security.
(d) 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.
(e) The appellant worked sporadically for construction
businesses and rendered services to the payer during the periods
at issue.
(f) The appellant performed the following duties: he prepared
orders, worked at the cash register, washed the floors, stacked
empty bottles, unpacked and shelved goods, and so on.
(g) In 1995 the appellant was on the payer's payroll on
July 3 and ceased work on August 3, when he went to
work on a construction site.
(h) In 1996 the appellant was on the payroll for
10 consecutive weeks, from July 22 to
September 28, which was the minimum number of weeks
necessary to re-qualify him for benefits.
(i) During the weeks he was on the payroll the appellant
received a salary of $720 a week, that is, 60 hours a week
at an hourly rate of $12.
(j) From the time the business opened the appellant was there
every day, even while he was working elsewhere, when he was there
in the evening and on weekends.
(k) Apart from the periods at issue the appellant worked up to
50 hours a week in the payer's business without pay, as
the payer did not have the financial resources to pay him.
(l) When he was on the payer's payroll the appellant
received a salary that was obviously excessive compared to the
salary usually paid to clerks in this type of business (minimum
wage).
(m) In 1996, after receiving unemployment insurance benefits
for 30 weeks (the maximum to which he was entitled) until
July 20, 1996, the appellant was entered on the payer's
payroll on July 22.
(n) The appellant rendered services to the payer without pay
outside the periods at issue when he was receiving unemployment
insurance benefits.
(o) The records of employment submitted by the appellant do
not reflect the actual situation as regards the periods worked
and the earnings indicated on them are clearly excessive in
relation to the services rendered.
File No. 98-67(UI)
(a) From May 1, 1994 to September 30, 1996
Denise Lagacé-Ouellet operated a convenience
store under the trade name "Dépanneur Ouellet
Enr.";
(b) Denise Lagacé-Ouellet is the
appellant's wife;
(c) as of October 1, 1996
Denise Lagacé-Ouellet leased her convenience
store to the payer under a lease with a promise to purchase;
(d) on October 1, 1996 the appellant needed
two weeks to qualify to receive employment insurance
benefits;
(e) one of the conditions on which the lease with promise to
purchase was signed was the undertaking to hire the appellant for
two weeks at a weekly salary of $720;
(f) the payer would never have hired the appellant had it not
been for the signing of the lease between
Denise Lagacé-Ouellet and the payer;
(g) the payer would never have paid the appellant this salary
had it not been for the signing of the lease between
Denise Lagacé-Ouellet and the payer;
(h) the payer and the appellant were related through the
transaction between Denise Lagacé-Ouellet and
the payer;
(i) on October 17, 1996 the payer issued a record of
employment to the appellant for the period from October 1 to
October 12, 1996, that is, for two weeks, at a fixed
weekly salary of $720.
[9] At the hearing the appellant admitted, in file No.
98-29(UI), the allegations made in subparagraphs (a)
to (d) and (i), denied the facts alleged in paragraphs (e)
and (h) and stated that he had no knowledge of the facts alleged
in paragraphs (f) and (g). In file No. 98-67(UI), the
appellant admitted the allegations made in paragraphs (a) to
(k), (m) and (n), and denied the facts alleged in
paragraphs (l) and (o).
[10] The burden of proof is on the appellant. He must show on
a balance of probabilities that the Minister's decisions are
wrong in fact and in law. Each case stands on its own merits.
[11] Having regard to all the circumstances of the case,
including the testimony and admissions, I am satisfied that the
appellant has failed to establish on a balance of probabilities
that the Minister acted wilfully or arbitrarily. The parties were
in a de facto non-arm's-length relationship.
[12] The appellant's employment is accordingly excepted
from insurable employment under s. 3(2)(c) of the
Unemployment Insurance Act and s. 5(2) of the
Employment Insurance Act.
[13] The appeals are accordingly dismissed and the
Minister's decisions dated October 16, 1997
affirmed.
[14] 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 23rd day of November
1998.
Stephen Balogh, Revisor