Mason-Wall v. M.N.R., docket 96-2169-UI

Date: 19980604

Docket: 96-2169-UI

BETWEEN:

DOREEN MASON-WALL,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent,

and

GERARD'S MUFFLER AND BRAKE SHOP LTD.,

Intervenor.

Reasons for Judgment

Somers, D.J.T.C.C.

[1] This appeal was heard, in St. John's, Newfoundland, on May 13, 1998.

[2] The Appellant is appealing from a decision made by the Minister of National Revenue (the "Minister"), that the employment held with Gerard's Muffler and Brake Shop Ltd., the Payor, for the period at issue, from May 13 to December 30, 1994, is excepted from insurable employment within the meaning of the Unemployment Insurance Act since she and the Payor were not dealing at arm's length. Furthermore, according to the Minister, the Appellant and the Payor were not bound by a contract of service during the period at issue.

[3] Subsection 3(1) of the Unemployment Insurance Act reads in part as follows:

"3.(1) Insurable employment is employment that is not included in excepted employment and is

a) employment in Canada by one or more employers, under any express or implied contract of service or apprenticeship, written or oral, whether the earnings of the employed person are received from the employer or some other person and whether the earnings are calculated by time or by the piece, or partly by time and partly by the piece, or otherwise;

. . ."

[4] Subsection 3(2) of the Unemployment Insurance Act reads in part 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;

. . ."

[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; and

(b) it is a question of fact whether persons not related to each other were at a particular time dealing 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;

(b) a corporation and

(i) a person who controls the corporation, if it is controlled by one person,

(ii) a person who is a member of a related group that controls the corporation, or

(iii) any person related to a person described in subparagraph (i) or (ii) . . ."

[6] The burden of proof is on the Appellant. She must show on a balance of probabilities that the Minister erred in fact and in law in his decision. Each case stands on its own merits.

[7] In arriving at his decision, the Minister relied on the following allegations of facts, which the Appellant admitted or denied:

"(a) the Payor is a corporation, duly incorporated under the laws of the Province of Newfoundland; (admitted)

(b) at all material times, all of the Payor's outstanding shares were owned by Gerard Wall; (admitted)

(c) Gerard Wall is the Appellant's spouse; (admitted)

(d) the Payor operates year-round, offering its services for muffler and brake repairs; (admitted)

(e) the Payor's monthly income and the Appellant's hours and weeks worked for the calendar year 1994 are as follows: (admitted)

MONTH	PAYOR'S MONTHLY INCOME	TOTAL HOURS WORKED BY APPELLANT	FULL TIME WEEKS WORKED BY APPELLANT
Jan	$16,184	25.5	0
Feb	$13,488	24	0
Mar	$21,049	117	2
Apr	$19,212	152	3
May	$14,964	26	0
Jun	$20,200	48	1
Jul	$21,090	116	2
Aug	$20,976	104	2
Sep	$17,021	106	2
Oct	$18,575	50	1
Nov	$15,388	86	2
Dec	$11,752	84	2

(f) there is no correlation between the Payor's income and the Appellant's work schedule; (denied)

(g) the Payor did not hire anyone to replace the Appellant for the weeks or months that she is not on the payroll; (denied)

(h) the Appellant continued to perform services for the Payor while not on the payroll by assisting Gerard Wall with the bookkeeping duties without remuneration; (denied)

(i) Gerard Wall performs full-time services year-round for the Payor, controlling the day-to-day operations of the company, hiring and supervising employees, and making all company decisions; (admitted)

(j) the Appellant was hired by the Payor to do bookkeeping which included accounts receivable, accounts payable, bank deposits, weekly payroll and monthly remittances, as well as filing, booking customers in and out, moving vehicles in and out of the garage, and ordering and picking up parts and supplies; (admitted)

(k) the Appellant and Gerard Wall received remuneration from the Payor as follows: (admitted)

MONTH	THE APPELLANT	GERARD WALL
January	$ 306.00	$1,500.00
February	$ 284.00	$1,000.00
March	$1,330.08	$ 600.00
April	$2,013.12	$1,100.00
May	$ 312.00	$1,200.00
June	$ 599.04	$1,200.00
July	$1,438.08	$1,200.00
August	$1,294.08	$1,200.00
September	$1,318.08	$1,200.00
October	$ 619.20	$1,200.00
November	$1,073.28	$1,200.00
December	$1,048.32	$1,200.00
TOTAL EARNINGS	$11,635.28	$13,800.00

(l) the Appellant's wages were based on $12 per hour plus vacation pay for full-time weeks and Gerard Wall's wages equate to approximately $6 per hour; (admitted)

(m) the Appellant's wages were excessive when compared to Gerard Wall's rate of pay; (denied)

(n) the wages paid to the Appellant for performing services for 17 full-time weeks and 19 part-time weeks were excessive when compared to the wages paid to Gerard Wall for performing services for the entire calendar year 1994; (denied)

(o) the Appellant is related to the Payor within the meaning of the Income Tax Act; (admitted)

(p) the Appellant is not dealing with the Payor at arm's length; (denied)

(q) 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 not reasonable to conclude that the Appellant and the Payor would have entered into a substantially similar contract of employment if they had been dealing with each other at arm’s length. (denied)

In addition, the Minister submits the following assumptions of fact:

(a) the Appellant's part-time hours worked did not exceed 12 hours in any week and her part-time earnings did not exceed $140 in any week; (denied)

(b) the Appellant worked a minimum of 40 hours in each full-time week; (admitted)

(c) the Appellant and the Payor conspired to ensure the Appellant's insurable earnings would include only weeks with full-time earnings which, in turn, would qualify her for elevated unemployment insurance benefits;" (denied)

[8] The Payor, incorporated in January 1993, operates year-round, offering services for muffler and brake repairs. The Payor's revenue in 1994 exceeded $200,000.

[9] The Appellant, wife of Gerard Wall, the sole owner of the shares in the Company, worked part time and full time for the Payor during the period in question, doing bookkeeping, payrolls, accounts receivable and payable, banking and other duties as stated in subparagraph 10(j) of the Reply to Notice of Appeal. The Appellant was paid $12 an hour while her husband was paid $6 an hour. The Appellant had previous experience, having had the same duties at another garage. The Appellant continued working for the Payor until September 21, 1995, when she became ill with cancer.

[10] The Appellant, represented by her husband, admitted certain subparagraphs of paragraph 10 of the Reply to the Notice of Appeal and denied other subparagraphs.

[11] Taking the subparagraphs as denied by the Appellant Gerard Wall, the evidence has shown:

- 10(k) Gerard Wall admitted that his yearly personal revenue was $13,800 while the Appellant's was $11,635.28. He maintained that the Appellant worked full time and part time throughout 1994. Sometimes when there was a backlog, she worked full time putting in 40 to 48 hours a week. In November and December, 1994, she had to work full time preparing the books for the accountant.

According to Gerard Wall correlation that appears in subparagraph 10(e) does not represent the reality as to the Appellant's usefulness at the business. With the backlog and the accumulation of work, her time was well spent at the garage.

- 10(g) The Payor did hire a person by the name of Shawn Greensleeves to replace the Appellant when she was not working. This person performed the same duties as the Appellant when working full time in 1995. Gerard Wall stated that this person made $20,000 last year. This employee is still working for the Payor full time, because the Appellant discontinued working in November 1995 due to her illness, of which she has not yet recovered.

- 10(h) The Appellant continued to work full time and part time under the same terms and conditions until November 1995.

- 10(m) Gerard Wall stated that the Appellant's wages were excessive compared to his own. He admitted that his rate of pay was $6 an hour, while the Appellant's was $12 an hour. He said all the other employees were paid more than him: Bill Haines, an apprentice mechanic was paid $10 an hour and another employee made more than $6 an hour. Gerard Wall said he had to take a lesser salary in order for the Payor to make ends meet. The employees agreed to wait for their salary because the Payor's resources were limited.

- 10(n) Gerard Wall said the employees were making more but was forced to do so due to financial considerations. He said he took from the Company enough to survive.

- 11(a) The Payor recognized the Appellant's payroll summary for the year 1994 (Exhibit R-1). As it appears on the payroll summary her part-time work varied mostly between 8 and 11 hours per week while her full-time schedule varied from 40 to 48 hours per week. He did not consider the hours worked were excessive. The person who replaced the Appellant is now working full time, making up to $20,000 per year.

- 11(c) Gerard Wall denies there was a conspiracy between the Appellant and the Payor in order to qualify her for elevated unemployment insurance benefits.

[12] The Appeals' Officer related to the Court the result of her investigation after speaking with the Appellant, Gerard Wall and the accountant. The main issue in her investigation was the fact that Gerard Wall's rate of pay was lower than the Appellant's. She estimated that there was no correlation between the Payor's revenue and the Appellant's work schedule. She stated as well that a bookkeeper's rate of pay should be $6 an hour. She raised the fact that the Appellant worked two full weeks in November and December 1995.

[13] As set out by a decision of the Federal Court of Appeal in the case of Ferme Émile Richard et Fils Inc. v. M.N.R (178 N.R. 361), signed on December 1, 1994, in cases involving subparagraph 3(2)(c)(ii) of the Unemployment Insurance Act, the Court should ask itself if the Minister’s decision "resulted from the proper exercise of his discretionary authority". The Court should require the Appellant "to present evidence of wilful or arbitrary conduct by the Minister".

[14] The Appellant was not present in Court, due to her illness, suffering from a brain tumor. It would have been preferable for her to be present, being the interested person in the outcome of this appeal. However, her absence in the circumstances should not be interpreted against her. Her husband Gerard Wall appeared to be a credible person. His explanations given as to the work performed by the Appellant are reasonable and reliable. Therefore his testimony should not be set aside.

[15] Gerard Wall admitted that his rate of pay was lower than the Appellant's rate of pay. He stated that other unrelated employees less qualified than him had a higher rate of pay. According to him his business was not profitable enough to give himself a higher wage. Evidence was not shown by the Appellant or the Respondent that Gerard Wall received any dividends. He added that the financial situation of the Payor is improving and he was ready to do some sacrifices. He concludes that his business is viable.

[16] It was pointed out that the Appellant's salary should be set at a rate of $6 an hour. Maybe that is the case, but the Court cannot rely on this figure. The Appellant had previously worked as a bookkeeper at another garage. Due to her experience and the workload, bearing in mind the Payor's revenue of over $200,000 a year, the rate of pay seems reasonable in the circumstances. Furthermore another person hired to replace the Appellant was receiving approximately $20,000 a year.

[17] The Respondent stated that there is no correlation between the Payor's revenue and the Appellant's work schedule. Gerard Wall stated that the Appellant worked periods on a part-time and full-time basis. Gerard Wall explained that when the Appellant was not working the work was accumulating, therefore she had to work longer hours in order to catch up on her bookkeeping.

[18] The explanations given by Gerard Wall cannot be ignored, they seem reasonable and credible. Had the Minister heard all the explanations, he would have arrived at a different determination. He therefore did not exercise his discretion properly, not having a clear picture of the work performed by the Appellant.

[19] The Minister determined that the Appellant was not employed pursuant to a contract of service. There is no need to analyze the various tests that should apply in determining the aspect of a contract of service. The evidence has shown that there is a contract of service and furthermore the Minister relied mainly on paragraph 3(2)(c) than paragraph 3(1)(a) of the Act. The evidence has shown that the determination should be reversed.

The appeal is allowed and the decision of the Minister is vacated.

Signed at Ottawa, Canada, this 4th day of June 1998.

"J.F. Somers"

D.J.T.C.C.