Date: 19980421
Docket: 97-490-UI
BETWEEN:
LILIANE FORTIN,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
ROGER PROVENCHER,
Intervener.
Reasons for Judgment
PIERRE ARCHAMBAULT J.T.C.C.
[1] By a letter dated January 9, 1997 the Minister of
National Revenue ("the Minister") advised
Liliane Fortin of his determination that
Ms. Fortin's employment with Roger Provencher,
operating a business under the trade name
"Débosselage des Pros enr.", for the period from
January 2 to May 31, 1996 ("the relevant
period") was not insurable under the Unemployment
Insurance Act ("the Act"). According to the
Minister, Mr. Provencher and Ms. Fortin were not
dealing with each other at arm's length and
Ms. Fortin's employment was accordingly not insurable
employment under the definition of that phrase given in the
Act.
[2] In making his determination the Minister relied inter
alia on the following facts, as appears in paragraph 5
of the Reply to the Notice of Appeal:
[TRANSLATION]
(a) Since 1993 the payer has operated an automobile body and
paint shop business;
(b) Roger Provencher has been the appellant's de
facto spouse since 1985;
(c) the business operated year-round;
(d) the appellant, Roger Provencher and Mr.
Provencher’s two sons worked in the business;
(e) from time to time the payer also had the services of
another worker;
(f) the payer paid these workers by cheque;
(g) the cheques were issued weekly;
(h) the payer had a credit line of $15,000;
(i) the credit line was secured on the appellant's
residence;
(j) from the inception of the business the appellant's
duties were to do all the payer's accounting;
(k) this work was done by hand;
(l) during the period at issue, in addition to doing
accounting work the appellant received customers, answered the
telephone, calculated taxes, checked bills and prepared
statements of account and sent them out to customers;
(m) the payer did not record the hours worked by the
appellant;
(n) the appellant was not subject to the payer's
control;
(o) the appellant and the payer agreed on gross pay of $200 a
week;
(p) the appellant in fact delayed cashing her pay so the other
cheques issued by the payer could be honoured;
(q) on May 28, 1996 the payer sold his business;
(r) before and after the period at issue the appellant
performed services for the payer without pay;
(s) the appellant and the payer were not dealing with each
other at arm's length within the meaning of the Income Tax
Act;
(t) the payer would never have hired an unrelated person on
terms substantially similar to those offered the appellant, let
alone for such a period.
[3] At the start of the hearing of her appeal Ms. Fortin
admitted all these paragraphs except for paragraphs (j),
(n), (r), (s) and (t). In addition to the facts already admitted,
the evidence disclosed the following. From 1993 to late 1995
Ms. Fortin helped her de facto spouse to do his
accounting without receiving any pay. In her testimony she was
unable to estimate the time she might have spent on this
activity. However, when she met with the investigator from the
Department of Human Resources Development she allegedly said that
it accounted for 75 percent of the time she spent when she
was performing services for Mr. Provencher for pay during
the relevant period. This accounting work was limited to entering
data in the ledger and preparing and filing reports for tax
authorities, including information slips regarding source
deductions and GST returns. She also handled the payroll.
[4] She said she wanted to give up this work at the end of
1995 because she did not like it. However, Mr. Provencher,
who had had a thrombosis, a pulmonary embolism and phlebitis, was
having difficulty looking after the running of his business. He
apparently at this time offered Ms. Fortin a salary of $200
for a 35-hour week, which represented an hourly rate of
$5.71.
[5] Ms. Fortin said she thought it was quite natural for
her residence to be used to secure a $15,000 credit line for
Mr. Provencher, since he had lent her $21,000 to buy a
rental property in 1988.
[6] At her meeting with the Human Resources Development
investigator Ms. Fortin told her that she had delayed
cashing her paycheques so the other cheques issued by
Mr. Provencher could be honoured. She altered this version
of the facts during her testimony in this Court, stating that the
other cheques could have been honoured even if she had not
delayed cashing her cheques. She emphasized instead that she
preferred to accumulate her cheques and cash them at the same
time.
[7] Ms. Fortin's testimony did not seem to me to be
very credible. The copies of cheques issued to Ms. Fortin,
which were filed at the hearing, showed that paycheques for
three weeks in January 1996 were cashed one in
mid-February (a month later) and the other two in March
1996, in two separate weeks, that is nearly two months after
the date indicated on the cheques. There was also some
two months' delay in cashing the paycheques for February
and March 1996. The cheque for the week of March 29, 1996
was cashed on April 22, while those for March 8 and 15
were cashed on May 6 and 29, 1996 respectively.
[8] The first cheque for April was cashed on May 31,
1996, the second on June 3, 1996 and the other two
simultaneously on June 10, 1996. The first cheque for May
was cashed on June 10, 1996 and the other three were cashed
together on June 13, 1996.
[9] Strangely, three cheques issued on May 31, 1996 were
not cashed at the same time: one was cashed on June 13 and
the other two on June 26, 1996. Ms. Fortin confirmed
that she was paid for the work period ending May 31, a few
days after the sale of Mr. Provencher's business. She
completed the bookkeeping at that time and so was paid for this
service.
[10] When I questioned Ms. Fortin about cashing the rent
cheques for apartments she rented to students, she confirmed that
she generally cashed most of the rent cheques within a week after
receiving them.
[11] Ms. Sauvageau, the Human Resources Development
investigator, confirmed in her testimony that the minimum wage
for the period from October 1, 1995 to September 1996 was
$6.45 an hour.
Analysis
[12] The Minister argued that Ms. Fortin's employment
was excepted from insurable employment pursuant to
s. 3(2)(c) of the Act, which reads 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;
. . .
[13] The first point to be resolved is whether Ms. Fortin
and Mr. Provencher were dealing with each other at arm's
length. Ms. Fortin admitted that Mr. Provencher had
been her de facto spouse since 1985 and that they lived
together at her home. Under s. 252(4) of the Income Tax
Act the conjugal relationship between Ms. Fortin and
Mr. Provencher is treated as a marriage for the purposes of
that Act. As a result, Ms. Fortin and Mr. Provencher
were "related persons" within the meaning of
s. 242(2) of that Act. Section 252(2) and (4)
provides:
(2) In this Act, words referring to
(a) a parent of a taxpayer include a person
(i) whose child the taxpayer is,
(ii) whose child the taxpayer had previously been within the
meaning of paragraph (1)(b), or
(iii) who is a parent of the taxpayer's spouse;
(b) a brother of a taxpayer include a person who is
(i) the brother of the taxpayer's spouse; or
(ii) the spouse of the taxpayer's sister;
(c) a sister of a taxpayer include a person who is
(i) the sister of the taxpayer's spouse, or
(ii) the spouse of the taxpayer's brother;
(d) a grandparent of a taxpayer include a person who
is
(i) the grandfather or grandmother of the taxpayer's
spouse, or
(ii) the spouse of the taxpayer's grandfather or
grandmother;
(e) an aunt or great-aunt of a taxpayer include the
spouse of the taxpayer's uncle or great-uncle, as the case
may be;
(f) an uncle or great-uncle of a taxpayer include the
spouse of the taxpayer's aunt or great-aunt, as the case may
be; and
(g) a niece or nephew of a taxpayer include the niece
or nephew, as the case may be, of the taxpayer's spouse.
. . .
(4) In this Act,
(a) words referring to a spouse at any time of a
taxpayer include the person of the opposite sex who
cohabits at that time with the taxpayer in a conjugal
relationship and
(i) has so cohabited with the taxpayer throughout a
12-month period ending before that time, or
(ii) is a parent of a child of whom the taxpayer is a parent
(otherwise than the cause of the application of
subparagraph (2)(a)(iii))
and, for the purposes of this paragraph, where at any time the
taxpayer and the person cohabit in a conjugal relationship, they
shall, at any particular time after that time, be deemed to be
cohabiting in a conjugal relationship unless they were not
cohabiting at the particular time for a period of at least
90 days that includes the particular time because of the
breakdown of their conjugal relationship;
(b) references to marriage shall be read as if a
conjugal relationship between two individuals who are, because of
paragraph (a), spouses of each other were a
marriage;
(c) provisions that apply to a person who is married
apply to a person who is, because of paragraph (a), a
spouse of a taxpayer; and
(d) provisions that apply to a person who is unmarried
do not apply to a person who is, because of
paragraph (a), a spouse of a taxpayer.
[My emphasis.]
[14] Under s. 251(1)(a) of the Tax Act, related
persons are deemed not to deal with each other "at arm's
length". That paragraph states the following:
(1) For the purposes of this Act,
(a) related persons shall be deemed not to deal with each
other at arm's length; . . .
[15] Accordingly, as Ms. Fortin and Mr. Provencher
were not dealing with each other at arm's length, her
employment with Mr. Provencher was excepted employment
unless the Minister was 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 was 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.
[16] As Isaac C.J. of the Federal Court of Appeal wrote
in Attorney General of Canada v. Jencan Ltd.,[1] it is the Minister who
must take this decision:
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 . . . it follows that the Tax Court
must show judicial deference to the Minister's determination
when he exercises that power.
This Court can only justifiably intervene in a decision by the
Minister under s. 3(2)(c)(ii) of the Act if it is
shown that the Minister exercised his discretionary authority in
a manner contrary to the Act. Such a situation exists when the
Minister has (i) acted in bad faith or for an improper purpose or
motive; (ii) failed to have regard to all of the relevant
circumstances, as expressly required by
s. 3(2)(c)(ii) of the Act; and (iii) had regard to an
irrelevant factor.
[17] According to the case law, this Court must try the
question before it in two stages. First, it must determine the
legality of the Minister's decision. It is only where the
Minister has exercised his discretion in a manner contrary to the
Act that this Court can go on to the second stage and determine,
on a balance of probabilities, whether the terms and conditions
of employment would have been substantially the same if the
parties had been dealing with each other at arm's length.
[18] The first stage thus entails determining whether the
facts established at the hearing were sufficient in law to
justify the Minister's conclusion that the parties would not
have entered into a substantially similar contract of employment
if they had been dealing with each other at arm's length.
[19] In the instant case I was not persuaded that the Minister
exercised his discretion in a manner contrary to the Act. The
main facts which in my view can justify the Minister's
decision are those set out in subparagraphs (p) and (r) of
paragraph 5 of the Reply to the Notice of Appeal. On the
first point, I was not persuaded by Ms. Fortin's
testimony that she did not delay cashing her paycheques to allow
other cheques issued by Mr. Provencher to be honoured. Her
explanation, that she preferred to wait and accumulate a number
of cheques and then cash them later, was not persuasive. As I
mentioned above, the first cheques for the first
three months were cashed one to two months after the
date of the cheque. These cheques were cashed at different times
and not together, as Ms. Fortin suggested. Only certain
cheques for May and April were cashed simultaneously. Strangely,
certain cheques issued on the same day were not even cashed
simultaneously. I am therefore inclined to attach more
credibility to the reply given by Ms. Fortin in the
investigation than to the one she gave at the hearing.
[20] At the same time, the evidence showed that
Ms. Fortin had not performed services without pay after the
relevant period. Counsel for the Minister tried to present
evidence that this was a fact the Minister knew about when he
determined whether Ms. Fortin’s employment was
insurable. I do not think she succeeded in this attempt.
Ms. Sauvageau was not the appeals officer who did the
analysis for the Minister. She was employed by the Department of
Human Resources Development and had nothing to do with the
Minister's decision. If counsel for the Minister wanted to
present evidence that the Minister knew that Ms. Fortin had
performed services for pay after the period at issue, and that
there was a mistake by the person who prepared the Reply to the
Notice of Appeal, she should have called the appeals officer who
analysed the file on the Minister's behalf, or at least filed
her written report.
[21] However, the fact that one of the assumptions of fact on
which the Minister relied in making his determination was refuted
at the trial does not mean that the Minister's determination
was made in a manner contrary to the Act. This Court must
consider whether the other assumptions of fact were sufficient to
justify the Minister's decision. In Jencan,
supra, the Federal Court of Appeal concluded that the
Deputy Judge of this Court had made an error of law in finding
that he automatically had the right to review the validity of the
Minister's determination because some of the assumptions of
fact on which the Minister relied had been refuted. The following
is what Isaac C.J. said on this point, at p. 205,
para. 50:
... If there is sufficient material to support the
Minister's determination, the Deputy Tax Court judge is not
at liberty to overrule the Minister merely because one or more of
the Minister's assumptions were disproved at trial and the
judge would have come to a different conclusion on the balance of
probabilities. . . . An assumption of fact that is
disproved at trial may, but does not necessarily, constitute a
defect which renders a determination by the Minister contrary to
law. It will depend on the strength or weakness of the remaining
evidence. The Tax Court must, therefore, go one step further and
ask itself whether, without the assumptions of fact which have
been disproved, there is sufficient evidence remaining to support
the determination made by the Minister. If that question is
answered in the affirmative, the inquiry ends. But, if answered
in the negative, the determination is contrary to law, and only
then is the Tax Court justified in engaging in its own assessment
of the balance of probabilities.
[22] In the instant case, the fact that Ms. Fortin
delayed cashing her paycheques so that Mr. Provencher could
honour his other cheques and the fact that she worked before the
relevant period without pay could have justified the
Minister's determination.[2]
[23] As the Minister's determination was not made in a
manner contrary to the Act, this Court cannot go on to the second
stage and consider whether it would have found as the Minister
did.
[24] For all these reasons, Ms. Fortin's appeal is
dismissed.
Signed at Ottawa, Canada, April 21, 1998.
“Pierre Archambault”
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 14th day of December
1998.
Kathryn Barnard, Revisor
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