Citation: 2012 TCC 44
Date: 20120206
Docket: 2010-391(EI)
BETWEEN:
SYNER/PLUS INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Jorré J.
[1]
The respondent
determined that, during the periods from December 30, 2006, to April 19,
2008, and from October 26, 2008, to June 10, 2009, Jonathan Martel
(the worker) did not hold insurable employment with the appellant (the payer).
[2]
The respondent admitted
that the worker was an employee of the appellant. However, he concluded that
the worker's employment was excluded because the appellant and the worker would
not have entered into a similar contract of employment if they had been dealing
with each other at arm's length.
[3]
The appellant appealed
the Minister's decision.
[4]
Yoland Martel
(Mr. Martel) is the father of Jonathan Martel.
[5]
The appellant's
majority shareholder was 9159‑0125 Québec inc. Mr. Martel was the
appellant's second shareholder.
[6]
Mr. Martel was the sole
shareholder of 9159-0125 Québec inc.
[7]
The appellant did not
dispute the non-arm's length relationship.
[8]
The relevant provisions
of the Employment Insurance Act are the following paragraphs of section
5:
(2) Insurable employment does not include
. . .
(i) employment if the employer and employee are not dealing
with each other at arm’s length.
(3) For the purposes of paragraph (2)(i),
(a) the question of whether persons are not dealing with each
other at arm’s length shall be determined in accordance with the Income Tax
Act; and
(b) if the employer is, within the meaning of that Act,
related to the employee, they are 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.
[9]
The appellant did not
dispute that it was related to the worker within the meaning of the Income
Tax Act.
[10]
With respect to the
role of the Court in applying paragraph 5(3)(b), the principles are
summarized well by Justice Bédard in Lavoie v. M.N.R. at paragraphs 7
to 9:
7 The Federal Court of Appeal has repeatedly defined the
role conferred on Tax Court of Canada judges by the Act. That role does not
permit the judge to substitute his or her discretion for the Minister's, but
does involve an obligation to "verify whether the facts inferred or relied
on by the Minister are real and were correctly assessed having regard to the
context in which they occurred, and after doing so, . . . decide
whether the conclusion with which the Minister was "satisfied" still
seems reasonable" (see Légaré v. Canada (Minister of National Revenue -
M.N.R.), [1999] F.C.J. No. 878 (QL), at paragraph 4).
8 In other words, before deciding whether the Minister's
conclusion still seems reasonable to me, I must verify, in light of the
evidence before me, whether the Minister's allegations are in fact correct,
having regard to the factors set out in paragraph 5(3)(b) of the Act. At
issue, then, is whether appellant Lavoie 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.
9 Appellant Lavoie had the burden of proving that the
Minister did not exercise his discretion in accordance with the principles that
apply in this regard, essentially, that the Minister did not examine all of the
relevant facts or failed to have regard to all of the facts that were relevant.
[11]
Accordingly, having
heard all of the evidence, I must decide if the Minister's conclusion that the
payer and an arm's length person would not have entered into a substantially
similar contract of employment still seems reasonable to me.
[12]
In making his decision,
the Minister relied on the following assumptions of fact:
[TRANSLATION]
(a) The payer was incorporated on February 1, 1999;
(b) The appellant operated a business that
specialized in manufacturing parts for heat exchangers, in heat exchanger
maintenance, cleaning and repair, as well as in the manufacture of
biodegradable products used for heat exchanger maintenance;
(c) The appellant operated year-round;
(d) The appellant's clients were mainly Abitibi
Consolidated, Alcan and Louisiana Pacific;
(e) The appellant's sales figures for the periods at
issue were as follows:
|
Fiscal year
ending on January 31
|
2007
|
2008
|
2009
|
|
|
|
|
|
|
Sales figures
|
$168,084
|
$124,129
|
$79,715
|
|
Gross profit
|
$74,081
|
$53,733
|
$33,650
|
|
Net profit
|
$36,174
|
$13,880
|
$17,416
|
(f) The appellant's administrative office was
located in St-Bruno, at the shareholder's parents' house, and the workshop for
the cleaning and manufacture of products was in Hébertville;
(g) The workshop is a 50- by 50-foot garage and is
located 15 km from the office;
(h) The appellant employed only the shareholder and
the worker full time; the other workers were on call;
(i) These other workers worked mainly at the plant,
during machinery stoppages;
(j) The worker was born on March 2, 1990; he was
therefore 16 during the first period at issue;
(k) The appellant's busiest time is from March to
November, but the worker was hired on December 30, 2006, and laid off between
April 20 and October 25, 2008;
(l) The worker worked mostly at the workshop cleaning
small heat exchangers with the cleaning products because he had to be 18 years
old to work at the plant;
(m) The worker stated that he had not done solid
state welding, while the appellant's shareholder stated that he had taught the
worker to do this type of work and that he had been welding since he was 14
years old;
(n) The worker also produced cleaning products
because he knew the manufacturing secret;
(o) Making 20 45-gallon drums of the cleaning
product can take a whole day, and for some exchangers 1 or 2 drums are
required; for others, 8;
(p) The worker estimates that he worked alone in the
workshop 60% of the time and the rest of the time with the appellant's
shareholder, while the shareholder estimates that it was fifty-fifty;
(q) The appellant cannot estimate the number of plant
stoppages during the periods at issue;
(r) The worker indicated that he had worked 20 to 40
hours per week, but, according to the appellant, he worked 40 hours per week on
average;
(s) The worker was paid for the hours worked;
(t) During the first work period, the worker was
paid $25 per hour, since he had more responsibilities as the appellant's
shareholder was in the midst of divorce proceedings and his mind was not on
work, and the on-call employees were paid between $16 and $18 per hour;
(u) During the second work period, the worker was
paid $16.50 per hour;
(v) Neither party was able to explain why the
worker's pay for February 17, 2007, was for 50 hours at $8 per hour;
(w) Once, the worker was paid for 13 pay periods at
the same time, and another time, for 10 pay periods, because the appellant's
shareholder did not do the accounting, while the other workers were paid
normally;
(x) A gross bonus of $7,000 was paid to the worker
for the work performed while the appellant's shareholder was in the midst of
divorce proceedings, but the worker supposedly owed the net amount, $4,927.97,
to his father, the appellant's shareholder; the worker thus handed his bonus over
to his father, and it was ultimately used to pay the appellant's accountant;
(y) All of the appellant's employees were laid off
at the end of March 2009, while the worker continued to work until June 10,
2009;
(z) The appellant stated that it did not rehire the
worker; however, the file contains a product sale invoice dated August 5, 2009,
that is, after the periods at issue, on which it is indicated that the sale was
made by the worker.
[13]
Mr. Martel testified as
did Lyne Courcy, an appeals officer at the Canada Revenue Agency. The worker
did not testify.
[14]
At the start of the
periods at issue, the worker was 16 year old, and at the end he was 19 year
old.
[15]
The appellant is Mr.
Martel's company. Mr. Martel founded it, runs it and is the person who
works there most regularly. Apart from Mr. Martel's son, who is the worker, all employees work there irregularly,
when the company needs their services. This is due to the fact that the
company's activity varies a great deal depending on its clients’ needs.
[16]
Mr. Martel explained
that, after his separation from his spouse in December 2006, he went
through a very difficult time during which he was unable to work normally and
relied a great deal on his son, the worker.
[17]
I do not doubt that the
worker helped his father a great deal and that he worked hard when there was
work to do.
[18]
However, while the
other, unrelated, employees were paid regularly, the worker was paid very late
twice.
[19]
Although Mr. Martel
testified that he had no recollection of any such belated payments, the
appellant did not satisfy me that the Minister was wrong in his assumption
that, on two occasions, the worker's salary was paid very late.
[20]
The first time, on
March 30, 2007, the worker was paid for 13 weeks at the same time; the second
time, on June 28, 2007, he received his salary for 10 weeks at the same time.
[21]
An arm's length
employee would not accept such delays when the other employees are paid in a
normal fashion.
[22]
In addition, the other
employees were paid by the hour, but the worker was paid a fixed salary for the
weeks he worked despite the fact that his hours of work varied a great deal.
[23]
While the Court
recognizes that the worker was a great help to Mr. Martel during a difficult
time, an arm's length third party and the payer would not have negotiated such a
contract providing for a fixed salary regardless of any such variation in
hours.
[24]
These two factors alone
are sufficient for me to come to the conclusion that the Minister's decision still
seems reasonable to me.
[25]
Accordingly, I must
dismiss the appeal.
Signed at Ottawa, Ontario, this 6th day of
February 2012.
"Gaston Jorré"
on this 4th day of April 2012.
Erich Klein, Revisor
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