Citation: 2011TCC529
Date: 20111128
Dockets: 2011-1432(EI)
2011-1433(CPP)
BETWEEN:
LAURA STEPHAN,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
SHARED HOMES INTERNATIONAL INC.,
Intervener.
REASONS FOR JUDGMENT
Webb J.
[1]
The
issue in this appeal is whether the decision of the Respondent that the
employment of the Appellant by Shared Homes International Inc. (the “Company”) during
the period from May 14, 2010
to May 27, 2010 was not insurable employment for purposes of the Employment Insurance
Act (the "EI Act") was reasonable. A file had also been
opened for an appeal under the Canada Pension Plan (the “CPP”). A
ruling had been made that the Appellant was employed in pensionable employment
for the purposes of the CPP. The Appellant did not appeal this Ruling to
the Minister and the Appellant indicated that she did not want to appeal this
Ruling. Therefore there is no appeal of the ruling issued under the CPP
and that appeal is quashed.
[2]
Subsection
5(2) of the EI Act provides in part that:
Insurable employment does not include
...
(i) employment if the employer and employee are not dealing
with each other at arm's length.
[3]
Subsection
5(3) of the EI Act provides that:
(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.
[4]
The
shares of the Company throughout the period in question were held by the
Appellant’s spouse. The Appellant and the Company were therefore related for
the purposes of the Income Tax Act as a result of the provisions of
paragraph 251(2)(b) of that Act and are deemed to not be
dealing with each other at arm’s length under paragraph 251(1)(a) of the
Income Tax Act. As a result the issue in this case is whether the
decision of the Minister of National Revenue that the Appellant and the Company
would not have entered into a substantially similar contract of employment for
the period in question if they would have been dealing with each other at arm’s
length, is reasonable.
[5]
In
the case of Porter v. M.N.R., 2005 TCC 364, Justice Campbell
of this Court reviewed the decisions of this Court and the Federal Court of
Appeal in relation to the role of this Court in appeals of this nature. In
paragraph 13 of this decision Justice Campbell stated as follows:
In summary, the function of this Court is
to verify the existence and accuracy of the facts relied upon by the Minister,
consider all of the facts in evidence before the Court, including any new
facts, and to then assess whether the Minister's decision still seems "reasonable"
in light of findings of fact by this Court. This assessment should accord a
certain measure of deference to the Minister.
[6]
The
Company commenced to carry on business in February 2010 at the National Home
Show in Toronto. The Company assisted
Canadians who wanted to purchase real property in the United States and in particular those
who wanted to purchase a fractional ownership interest. At the home show the
Company received expressions of interest from approximately 70 to 75 people.
Christopher Stephan indicated that around the end of April or early May
2010 he wanted to hire someone to be his assistant. He hired his wife as an
“Accounting Bookkeeper” as described in the employment agreement that
Christopher Stephan had prepared. Christopher Stephan is a lawyer who was
admitted to the Alberta Bar in 2009 and the New York State Bar in 2010.
[7]
In
paragraph 9 of the Reply, the assumptions of fact relied upon by the Minister
are set out. The assumptions include the following:
(g) the Appellant
was hired as an accountant bookkeeper/executive assistant and her duties
included answering inquiries by phone, e-mail and internet, setting up
appointments and setting up the books;
[8]
Since
the Appellant’s duties included answering inquiries by phone, she would have to
be on duty during the normal business hours to answer the phone. Therefore it
seems to me that her hours of work (which corresponded to the office hours for
the Appellant) were reasonable.
[9]
Counsel
for the Respondent in argument raised two main factors that were material in the
Respondent making the determination that the two parties would not have entered
into a substantially similar contract of employment if they would have been
dealing with each other at arm’s length. These were the rate of pay and the
location of the work.
[10]
Christopher
Stephan stated during his testimony that he had searched the internet around
the time that the Appellant was hired and that based on this research the
hourly rate of $21 / hour was reasonable. Unfortunately he did not keep a copy
of the information that he had found at that time. The Appellant printed a copy
of job postings that she found on the internet in February 2011. The following
is a summary of these postings:
|
Title:
|
Location:
|
Salary:
|
Experience
Requested:
|
Education
Requested:
|
|
Bookkeeper
|
Calgary
|
$24.09 per hour
|
2 years to less
than 3 years
|
Completion of
University
|
|
Accounting
bookkeeper
|
Fort McMurray / Yellowknife
|
$22.48 per hour
|
1 to less than 7
months
|
Completion of
High School, Completion of college / CEGEP / vocational or technical training
|
|
Bookkeeper /
Payroll Administrator
|
Brooks, AB
|
$20 to $23 per
hour
|
2 years to less
than 3 years
|
Completion of
High School, some college / CEGEP / vocational or technical training
|
|
Office Assistant
(Invoicing and Accounts Payable)
|
Calgary South East
|
$20 to $25 per
hour
|
5 years or more
|
Some college /
CEGEP / vocational or technical training
|
|
Accounting clerk
|
Calgary
|
$20 to $25 per
hour
|
|
|
|
Accountant /
bookkeeper
|
Calgary
|
$25 per hour
|
Quick Book
|
|
[11]
The
Appellant has a business certificate that was awarded to her in December 2005
from the Saskatchewan Institute of Applied Science and Technology. The
Appellant worked for CSIT Consulting Inc. from January 12, 2005 to December 14,
2005 as an accounting clerk and office clerk. Her first child was born in April
2006 and from December 14, 2005 to May 14, 2010 she only worked a few hours
each year for her father’s company. While the period of employment with CSIT
Consulting Inc. was from January 12, 2005 to December 14, 2005, the Appellant
stated that she was away from May to August and the number of insurable hours
(951.85) indicate that the Appellant was not working full time throughout this
period of employment. If the number of hours worked each week was 35 to 40
hours, this would mean that she had worked approximately six months. Her work
experience would therefore be approximately six to seven months, including the
few hours that she worked for her father’s company.
[12]
The
only witness called by the Respondent was an Appeals Officer with the Canada
Revenue Agency (“CRA”) whose only involvement with the file was that she had
read the report prepared by the individual who had concluded that the
Appellant’s employment was excluded employment. The Appeals Officer could not
add anything to what was written in the report as she did not prepare the
report and was not otherwise involved.
[13]
In
the report of the Appeals Officer who was involved with the file, the paragraph
related to “Remuneration” provides as follows:
The rate of pay is not consistent with
the tasks performed. It is not reasonable to believe that the payer would pay
someone $21.00 per hour to learn all of their tasks. The rate paid to the
worker is above what would be paid to an entry-level worker. The rate of
remuneration is not relative to the skills or knowledge of the worker or the
services the worker performed. In addition, the worker was not paid vacation
pay. Her remuneration was issued late and was always transacted late. The worker
was not acting in her own best interest regarding her remuneration.
These indicate that remuneration was not
substantially similar to an arm’s length situation.
[14]
In a
previous section labelled “Analysis of Contradictions and Conflicting
Information”, the Appeals Officer wrote:
The payer states in his letter of appeal
that the worker holds a Business Certificate that included courses in
Accounting and she has previous accounting and bookkeeping experience. As part
of her work experience, she worked with “Simply Accounting” and did some
invoicing. The worker stated she took a basic accounting course, her experience
in invoicing consisted of working a few hours for her father and her past
bookkeeping experience was minimal. The payer confirms the worker did not know
how to operate Simply Accounting.
The worker also was not trained in
payroll or in working with foreign currency. She also had no recent employment
history in property sales. The worker had not yet fully familiarize [sic]
herself with the software.
Based on these it is reasonable to believe
the worker had to learn all job tasks. The worker was paid $21.00 per hour, the
equivalent of $42,000 per annum. This amount of remuneration is not reasonable
given qualifications and experience of the untrained worker.
[15]
In
the first paragraph referred to in the section labelled “Analysis of
Contradictions and Conflicting Information”, the author noted that the
Appellant had worked with “Simply Accounting” but in the last sentence he
states that “the payer confirms the worker did not know how to operate “Simply
Accounting”. If she worked with Simply Accounting then presumably she would
know how to operate Simply Accounting. Also since the last sentence starts with
“the payer confirms”
it would be expected that what would follow would be a confirmation of what had
preceded this sentence in the report, not a contradiction. This last sentence
is inconsistent with the previous part of the same paragraph. The author of the
report was not called as a witness nor was any explanation provided with
respect to why the author of the report was not called as a witness. One
explanation for the inconsistent statement in the last sentence is that there
is a typographical error and either the word “confirms” or the word “not” is
not correct. Since the author was not called to explain the report and address
this issue, I draw an adverse inference and assume that the word “not” is
incorrect and therefore the Appeals Officer was acknowledging that the
Appellant did know how to operate Simply Accounting.
[16]
In
any event, the Appellant testified that she did have previous experience with
Simply Accounting and I accept her testimony and I find that she did know how
to operate Simply Accounting. Therefore the conclusions in the report that “the
worker had to learn all job tasks” and that she was an “untrained worker” are
not reasonable.
[17]
The
author of the report also noted that the amount of pay, in his opinion, was not
reasonable. However, there is no analysis of the job market in Red Deer in 2010
in the report nor was there any evidence presented by the Respondent that any
analysis of the job market in Red Deer in 2010 had been completed by the
Appeals Officer for the CRA. His conclusion that the amount of pay was not
reasonable seems to be based only on his personal opinion.
[18]
I
accept Christopher Stephan’s testimony that he did investigate the job market
in the area before settling upon the hourly rate of $21 per hour and that this
amount was within a reasonable range of pay for a person who would have been
performing the services of the Appellant in 2010 in Red Deer. The amount is
also reasonable when compared to the amounts that the Appellant had found in
2011. The Appellant did have some work experience, a business certificate and knew
how to operate “Simply Accounting”. It seems to me that the hourly rate that
should be used as a comparison is the lowest of the hourly rates from the job
postings for February 2011, which was $20 per hour. The Appellant’s hourly rate
of $21 per hour was therefore 5% more than the comparative rate of $20 per
hour.
[19]
In
interpreting the phrase “all or substantially all” for the purposes of the Income
Tax Act, the CRA has consistently maintained the position that this phrase
means 90% or more. This is reflected in several Technical Interpretations of
the CRA and in paragraphs 18 and 24 of Interpretation Bulletin IT-151R5 and
paragraph 1 of Interpretation Bulletin IT-507R. When the Minister is evaluating
whether the terms and conditions of an employment arrangement are
“substantially similar” to those that would have been entered into if the
parties had been dealing at arm’s length, it seems to me that the Minister
should not adopt a more restrictive meaning of “substantially” than the CRA has
adopted in interpreting “all or substantially all”. Since the substantially
part of the phrase would accommodate a shortfall of up to 10%, it seems
reasonable to me that in situations where an amount could be greater or less
than another amount (and be substantially similar) that the range of 90% to
110% should be used as a guide to assist in determining if one amount is
substantially similar to another amount.
[20]
Therefore
it seems to me that the Respondent in considering whether the amount of pay was
“substantially similar” to what would have been paid if they would have been
dealing with each other at arm’s length, the Respondent should have completed
an analysis of the job market in Red Deer in 2010 and based his determination
on whether the amount paid was substantially similar to what
arm’s length persons would be paid in that job market for the same work. In
light of the absence of any analysis of the job market in Red Deer that was
completed by the Appeals Officer or anyone else with the CRA and the testimony
of Christopher Stephan and the Appellant and their analysis in 2010 and 2011
(which indicate that the Appellant was only paid 5% more than the lowest rate
of pay for a bookkeeper in February 2011), it seems to me that the decision of
the Minister that the amount paid to the Appellant was not substantially similar
to the amount that would have been paid if they would have been dealing with
each other at arm’s length, is not reasonable.
[21]
With
respect to the timing of the cashing of the cheques by the Appellant, the
Appellant testified that this was simply how she operated and that she would
wait until she had a few cheques before going to the bank. I accept her
testimony and I find that the timing of the cashing of her cheques was not
related to any term or condition of her employment and would not support a finding
that she would not have entered into a substantially similar contract of
employment with the Company if she would have been dealing at arm’s length with
the Company.
[22]
Counsel
for the Respondent also raised the issue of the location of the work. The Appellant
and Christopher Stephan and their children were living with Christopher
Stephan’s parents in 2010. A room was set up in this house as an office. The
position of the Respondent is that Christopher Stephan would not have hired an
arm’s length person to work in the office located at his parent’s house. It
seems to me that it is important to remember that the provisions of paragraph
5(3)(b) of the Employment Insurance Act do not require that the
terms and conditions must be exactly the same as they would have been if they
would have been dealing with each other at arm’s length but whether:
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.
[23]
In
making this determination it is necessary to have regard to all of the
circumstances of the employment. It is clear that the office was not used as a
place to meet clients. It is also clear that Christopher Stephan could arrange
to have the telephone calls transferred to any phone. With respect to e-mail
messages, one would simply need a computer and access to the internet. There
was also a reference to regular mail but no indication of how often regular mail
would be received. In any event if a person were to work from their own home they
could arrange to pick up mail from another location. The accounting work could
also be done at another location. There does not appear to be any reason why it
would be necessary for an arm’s length person to work at the office located in
Christopher Stephan’s parent’s house.
[24]
As a
result it seems to me that the comparison that should be made is whether the
terms and conditions would be substantially similar if an arm’s length employee
were to work at his or her own home. To simply make a determination (as counsel
for the Respondent was suggesting) that the terms and conditions would not be
substantially similar because Christopher Stephan (as the officer and director
of the Company) would not hire an arm’s length person to work in his parent’s
house is not reasonable having regard to all of the circumstances. It seems to
me that the terms and conditions related to the employment of the Appellant
would be substantially similar to those that would have been entered into between
the Company and an arm’s length employee working from his or her own home.
[25]
The
report of the Appeals Officer in relation to the duration of employment refers
to the “payer” having opened another business. The other business would be the
law practice that was started by Christopher Stephan not the payer. Christopher
Stephan stated that the business of the Company continued at the same level
throughout the fall of 2010, even though he was running for election as a
municipal councillor. Both Christopher Stephan and the Appellant testified that
this was a very busy time for Christopher Stephan and I accept their testimony
and find that the business of the Company continued at the same level
throughout the fall of 2010.
[26]
The
report of the Appeals Officer also stated that the phone for the Company had
been transferred to a new location in November 2010. The parties submitted
phone records to establish that the phone for the Company was not rerouted to
Christopher Stephan’s law office until after the Appellant ceased working.
There is nothing to suggest that any of the Appellant’s tasks were transferred
to Christopher Stephan’s law office staff until after the Appellant ceased
working.
[27]
The
report also indicates that “[t]he job appears to have been created for the
worker”. However, there is no analysis of the income of the Company. If the Company
did not have any income or had very little income, this could suggest that it may
not have been reasonable to hire an arm’s length person to work 40 hours per
week at $21 per hour. However, without any analysis of the income of the Company
(which is information that the Minister of National Revenue could presumably
have obtained), it seems to me that the best person to determine whether a
worker is required is the person who is operating the business. I accept the
testimony of Christopher Stephan that the Company needed to hire someone.
Although the period under appeal is only the two week period from May 14, 2010 to May 27, 2010, Counsel
for the Respondent indicated that the decision for this period would be applied
to the remaining period. Several of the facts referred to were related to
events that occurred after the period in question. Two such events were the
start of the law practice by Christopher Stephan and his running for election
as a municipal councillor. It seems clear that someone else would certainly
have been required to answer the phone and e-mails for the Company during that
time.
[28]
As a
result I am unable to conclude that the Minister’s decision still seems
reasonable in light of the evidence that was presented and therefore the appeal
under the EI Act is allowed and the
decision of the Minister of National Revenue made under the EI Act
is varied on the basis that the Appellant was engaged in insurable employment for
the purposes of the EI Act for the period from May 14, 2010 to May 27,
2010.
Signed at Ottawa, Canada this 28th day of November 2011.
“Wyman W. Webb”
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