Couture v. M.N.R., docket 97-120-UI

Date: 19980609

Docket: 97-120-UI

BETWEEN:

JOHANNE COUTURE,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent,

and

172899 CANADA INC.,

Intervener.

Reasons for Judgment

PORTER, D.J.T.C.C.

[1] This appeal was heard at Winnipeg, Manitoba on March 20, 1998. The intervener was not represented and so did not participate in the hearing of the appeal.

[2] The appellant is appealing a decision by the Minister of National Revenue ("the Minister") dated October 28, 1996 that her employment with 172899 Canada Inc., operating as "Résidence Catherine Aurélie", the payer, during the period at issue from March 23, 1995 to March 23, 1996 was excepted from insurable employment within the meaning of s. 3(2)(c) of the Unemployment Insurance Act ("the Act") on the ground that she and the payer were not dealing with each other at arm's length. Further, in the Minister's submission 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.

[3] It is clear that at all relevant times the appellant lived with Serge Bibeau in a conjugal relationship and Mr. Bibeau was the payer's sole shareholder. Under s. 3 of the Act and s. 251(1) of the Income Tax Act, related persons are deemed not to be dealing with each other at arm's length. The question the Court must answer is, first, whether the Minister acted properly in exercising the discretionary power conferred on him by s. 3(2)(c)(ii) of the Act.

[4] The appellant must show on a balance of probabilities that the Minister exercised his discretion improperly in deciding that, having regard to all the circumstances, she and the payer would not have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length.

[5] Section 3 of the Act reads in part as follows:

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

(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 . . . .

[6] The legal principles governing the power to review a decision made in the exercise of a statutory discretion (such as that conferred on the Minister by s. 3(2)(c) of the Act) were restated in Her Majesty the Queen v. Bayside Drive-In Ltd. et al. (A-626-96), in which the Chief Justice of the Federal Court said the following at p. 8:

The specific grounds which justify interfering with the exercise of a statutory discretion, including the discretion given to the Minister by subparagraph 3(2)(c)(ii) of the Act, are well known. The Tax Court Judge was justified in interfering with the determination made by the Minister under subparagraph 3(2)(c)(ii) only if he was satisfied that the Minister made one or more of the following reviewable errors: (i) the Minister acted in bad faith or for an improper purpose or motive; (ii) the Minister failed to take into account all of the relevant circumstances, as expressly required by paragraph 3(2)(c)(ii); or (iii) the Minister took into account an irrelevant factor. It is only if the Minister made one or more of these reviewable errors that it can be said that his discretion was exercised in a manner contrary to law, and hence that the Tax Court Judge would be justified in conducting his own assessment of the balance of probabilities as to whether the respondents would have entered into substantially similar contracts of service if they had been at arm's length.

[7] In arriving at his decision the Minister relied on the following facts set out in paragraph 4 of the Reply to the Notice of Appeal:

[TRANSLATION]

(a) the payer was incorporated at all times relevant to the case;

(b) the payer operates an apartment complex for the elderly which operates as "Résidence Catherine Aurélie";

(c) at all times relevant to the case Serge Bibeau was the payer's sole shareholder;

(d) at all times relevant to the case Serge Bibeau lived with the appellant in a conjugal relationship;

(e) the appellant was hired by the payer as a bookkeeper for the business;

(f) the appellant and the payer are related persons within the meaning of the Income Tax Act;

(g) the appellant and the payer were not dealing with each other at arm's length;

(h) the appellant rendered services to the payer at various times without pay;

(i) the appellant received almost no pay during 1994 and the amount she received at the end of the year was based on what the payer was able to give her, not the amount the appellant had actually earned;

(j) the appellant's salary was loaned to the payer and no record was kept of the amounts repaid to the appellant;

(k) in 1995 the appellant received no pay from January until August, when she received a salary increase from $1,000 every two weeks to $1,490 every two weeks; and

(l) 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 payer would have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length.

[8] There is nothing in the evidence submitted to show that the Minister had made such an error. In my opinion, there was no suggestion of bad faith. I do not see how the Minister failed to take all the relevant circumstances into account, or how he took any irrelevant fact into account. The facts on which the Minister relied in arriving at his decision included the remuneration paid, the terms and conditions, the duration and the nature and importance of the work performed.

[9] From an objective standpoint it was reasonable for him to conclude that the appellant and the payer would not have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length. There was abundant evidence on which the Minister relied in arriving at this decision.

[10] In particular, the Court noted that the appellant did not receive a regular salary. During 1994, before the period at issue, she received almost no pay. At the end of the year, she received approximately $30,000 in a lump sum which she loaned directly to the payer. In 1995 she received no pay from January to August because the payer lacked sufficient funds: she always maintained that this was a loan. The Court further noted that in August 1995, after she had become pregnant, she received a significant salary increase from $1,000 to $1,490, paid every two weeks. From that time onward she was paid regularly. In my view the appellant and the payer would not have acted as they did if they had been dealing with each other at arm's length.

[11] In light of the foregoing, it is my opinion that the appellant has not shown on a balance of probabilities that the facts taken into account by the Minister were as a whole incorrect or that the Minister misapprehended them in concluding as he did. The Court accordingly does not have the power to intervene to quash the Minister's decision: thus, I can only affirm it.

[12] The appeal is accordingly dismissed and the Minister's decision affirmed.

Signed at Calgary, Alberta, June 9, 1998.

"Michael H. Porter"

D.J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 28th day of October 1998.

Stephen Balogh, Revisor