Citation: 2010 TCC 282
Date: June , 2010
Docket: 2009-2088(EI)
BETWEEN:
ABSOLUTE LEADERSHIP DEVELOPMENT INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Weisman, D.J.
[1]
The Appellant, Absolute
Leadership Development Inc. (“Absolute”) is a registered non-profit organization
with charitable objects and unusual employment practices. It has two operating
divisions: “Think Day” and “Hero Holiday”. The former consists of employee and
volunteer travellers who form road teams that visit participating schools to
give motivational youth empowerment seminars to assembled students. Topics
include self-worth, bullying, and making a difference in the world. The schools
pay for these seminars, and such payments constitute a large part of Absolute’s
modest income. “Hero Holiday” is a humanitarian program whereby student
volunteers travel to developing countries to help build homes and schools,
after raising the cost of travel themselves.
[2]
Michelle Wood
(“Michelle”) was a Road Team Leader, a role she performed on a voluntary basis
from September 2004 to June of 2007. Her husband Ryan, who was previously a
pastor in Saskatchewan, worked on the road with her, driving
buses and speaking in schools. He, however, was an employee of Absolute’s,
earning $40,000.00 per annum, payable in $1,538.46 bi-weekly instalments.
[3]
In June of 2007,
Michelle, being three months pregnant, started to find road travel too arduous.
She and Ryan therefore met with Vaden Earle, the Appellant’s Chief Executive Officer,
and a non-voting member of the Board, at its Hamilton, Ontario head office.
Together they agreed upon the following solution: Michelle would be promoted to
the newly-created position of Bookings Manager of the “Think Day” program, and
employed at $40,000.00 per annum, payable in $1,538.46 bi-weekly instalments,
while Ryan would join Vaden Earle in senior management. Together they controlled
the day-to-day operations of the Appellant and made all the major decisions,
including hiring and firing workers. Because the organization could not afford
to pay both Michelle and Ryan, his remuneration became a bookkeeping entry
only, whereby for accounting purposes, it was shown as a loan from him to
Absolute, which loan, minus deductions for Canada Pension Plan contributions
and Employment Insurance premiums, was repaid by cheque at year’s end. Ryan
duly cashed the cheque, and gave the proceeds to his parents on the
understanding that they would donate the full amount back to the Appellant. In
this manner, Michelle ostensibly became eligible under the Employment Insurance
Act
(“the Act”) for maternity benefits in the amount of $21,750.00; Ryan
could claim employment insurance benefits under the same Act, and his parents
could deduct a large charitable donation from their taxable income.
[4]
Ryan testified that
Absolute often put volunteers on the payroll, or varied their remuneration,
depending on their personal financial situation. For example, Charles Roberts,
who managed the “Hero Holiday” program, was given a pay increase to $50,000.00
per annum because he had three young boys to raise and debts to pay. It was
alleged that his remuneration was close to, but still less than, fair market
value for his position; that this was the sum required for him to survive, and
for the Appellant to retain an “invaluable person”.
[5]
So far as Michelle is
concerned, Ryan advised that her job was very demanding; she was now not only a
booking agent, but she had to learn how to plan and co-ordinate travel
schedules, organize school assemblies, send out contracts and receive payments,
communicate with road team leaders and schools, supervise the booking
department and oversee the other booking agents. Thanks to her diligence and
prior experience as a Road Team Leader, school bookings increased dramatically
from June of 2007, when she started, to December 21, 2007, when she left to
have her baby. According to Ryan, her $40,000.00 per annum was fair market value.
Prior to Michelle assuming this position, no-one managed the operational side
of the program. When she left, she was not replaced, and school bookings
dropped dramatically. The persons that preceded and succeeded her received
$18,000.00 and $27,675.44 annually, though both were booking agents only, and unlike
Michelle, neither was responsible for the onerous operational side of the program.
[6]
Both Michelle and Ryan
were open and candid in their testimony. For example, when asked why Michelle
received his pay while he essentially worked without remuneration, Ryan
volunteered: “We didn’t need more money, we needed maternity benefits”, to which
Michelle added that she knew the new arrangement was for the purpose of her
qualifying for maternity benefits. Ryan also explained that the loan repayment
/ charitable donation scheme was devised to create a “paper trail” for the
benefit of the Labour Board in the event they queried his apparent shift in
status from employee to volunteer.
[7]
In this context, the
Minister decided that Michelle was not in insurable employment because she and
Absolute were not dealing with each other at arm’s length within the meaning of
paragraphs 5(2)(i) and 5(3)(a) of the Act which provide as follows:
Excluded Employment
5. (2) Insurable employment does not include
…
(i) employment if the employer and employee are not dealing with
each other at arm’s length.
…
Arm’s Length Dealing
5. (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 …
[8]
Paragraph 251(1)(c) of
the Income Tax Act
says:
Arm’s Length
251. (1) For the purposes of this Act,
…
251. (1)(c) … it is a question of fact whether persons not related
to each other are at a particular time dealing with each other at arm’s length.
[9]
Accordingly, the
determining factor in these situations is whether or not parties who are not
related to each other are dealing with each other at arm’s length. They
can be in a non-arm’s length relationship yet deal with each other at arm’s
length, and conversely, they can be in an arm’s length relationship yet not
deal with each other at arm’s length.
[10]
In seeking guidance
from the jurisprudence as to the just determination of this matter, I have been
referred to the case of Canada (Attorney General) v. Rousselle which deals with a similar fact situation.
The Court says:
Clearly the Rousselle brothers were unemployed, and
for them to be eligible for unemployment insurance benefits they needed ten
weeks of insurable employment in the cases of Placide and Ludger and seven
weeks in Jean-Claude’s case.
Mr. Didier Chiasson, a timber-cutting contractor, agreed
to hire these three individuals so that they could qualify for unemployment
insurance benefits. He had no immediate need for wood, he was not even in any
hurry to get wood …..
I do not think it is an exaggeration to say, in light of
these facts, that if the respondents did hold employment this was clearly
“convenience” employment, the sole purpose of which was to enable them to
qualify for unemployment insurance benefits. These circumstances do not necessarily
prevent the employment from being insurable, but they imposed on the Tax Court
of Canada a duty to look at the contracts in question with particular care; it
is apparent that the motivation of the respondents was the desire to take
advantage of the provisions of social legislation rather than to participate in
the ordinary operations of the economic forces of the market place.
[11]
Since the Court found
the three workers in question to be independent contractors, it did not determine
when a contract of convenience will prevent employment from being insurable. Rousselle
was followed in Charbonneau v. M.N.R.,
in which the respondent Charbonneau was also found to be an independent contractor.
Unfortunately the Court’s position on contracts of convenience remains unclear:
The observations we have made had already been made by this Court,
with variations, in Rousselle. While that case involved a contract of
convenience, the Court could not have decided it based on that aspect alone and
was required to examine the relations between the parties in detail, which it
did. The respondent has not satisfied us that it was open to it, in the instant
case, to disregard the conclusions of this Court in Rousselle.
[12]
The matter before me
involves a contract of convenience between parties who are in an arm’s length
relationship. There is no common mind directing the bargaining for both
Absolute and Michelle;
the parties to the contract of employment were not acting in concert without
separate interests;
and neither of the parties to the transaction had de facto control of the
other.
[13]
As directed by the
Court in Rousselle, I have looked at the contract in question with
particular care, and while I have no doubt that Michelle performed services for
her remuneration, as did the loggers in Rousselle, I find that the
motivation of the parties was the desire to take advantage of the provisions of
social legislation rather than to participate in the ordinary operation of the
economic forces of the marketplace. I am brought to this conclusion by the
clear admissions in this regard by both Michelle and Ryan, and by the fact that
no one occupied Michelle’s supposedly important managerial position either
before or after she did.
[14]
In these matters, the
burden is upon the Appellant to refute or demolish the assumptions set out in
paragraph 8 of the Minister’s Reply to its Notice of Appeal. I note that the
evidence established that (c) and (u) were true only after November of 2007,
when Ryan joined Vaden Earle in management; that (v) wrongly identifies
Michelle as the Appellant, and assumes that her starting base salary was
$32,000 annually, when the evidence established that this sum was an
approximation only, based on a theoretical pay scale; (x) was established,
though qualified by the evidence that Michelle’s $40,000.00 annual remuneration
was fair market value; and (z) was refuted since Ryan’s pay was not reduced to
zero, but was ultimately received by him and made its way back to Absolute by
the loan / charitable donation scheme as aforesaid. The remaining assumptions
are more than sufficient to support the Minister’s determination.
[15]
I have investigated all
the facts with the parties and the witnesses called on behalf of the Appellant
to testify under oath for the first time, and while new facts were found, such
as Michelle and Ryan’s admissions that this was a contract of convenience, they
supported the Minister’s decision. In addition, there was nothing to indicate
that the facts inferred or relied upon by the Minister were unreal or
incorrectly assessed or misunderstood, having regard to the context in which
they occurred. The Minister’s conclusion is objectively reasonable. Absolute
and Michelle were not dealing with each other at arm’s length during the period
under review.
[16]
In the result, the
determination of the Minister will be confirmed and the appeal dismissed.
Signed at Toronto, Canada, this
2nd day of June 2010.
"N. Weisman"
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