Citation: 2007TCC538
Date: 20071004
Docket: 2006-2372(EI)
BETWEEN:
ERNESTINE MORAIS,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Savoie D.J.
[1] This appeal was heard at Moncton, New Brunswick, on
July 11, 2007.
[2] At the hearing, the parties agreed that the evidence
gathered and the Reasons for Judgment would be produced in French even
if the Reply to the Notice of Appeal and other documents produced at the
hearing were written in English.
[3] This is an appeal
from a decision of the
Minister of National Revenue (the Minister) to the effect that the
employment held by the Appellant with Fox Island Yachts Inc.
(the payor), during the period from June 1, 2004, to June 10, 2005
(the period in question), was not insurable. After reviewing the Appellant’s
file, the Minister decided that the employment was excluded for employment
insurance purposes, pursuant to paragraphs 5(2)(i) and 5(3)(b)
of the Employment Insurance Act (the Act) and section 251 of the Income
Tax Act.
[4] In
rendering his decision, the Minister relied on the following assumptions of
fact:
[TRANSLATION]
a) the facts stated and admitted above;
(admitted)
b)
Richard Thériault was the Appellant’s
husband; (admitted)
c)
the payor’s sole shareholder was
Richard Thériault; (admitted)
d)
the payor operated as Lynx Management Group Inc.
prior to changing its business name; (admitted)
e)
Richard Thériault was also a shareholder of
Magna/Marine Inc. (hereinafter “Magna”), which operated in the same place of
business and in the same field as the payor; (admitted)
f)
the payor manufactured fibreglass boats in
workshops situated in Bain-Saint-Anne; (admitted)
g)
Magna ceased its activities in
December 2004 and declared bankruptcy in June 2005; (admitted)
h)
the Appellant worked for Magna before taking
maternity leave in 2003; (admitted)
i)
the Appellant was paid $525 per week by Magna
prior to her maternity leave ($15 per hour x 35 hours per week);
(admitted)
j)
after her maternity leave ended, the Appellant
returned to work for the payor during the period in issue; the Appellant also
continued to provide services to Magna; (admitted)
k)
during the period in issue, the Appellant’s
wages increased to $800 per week; (admitted)
l)
the Appellant worked in an office located above
her garage at her family residence, in Moncton; (admitted)
m)
the duties performed by the Appellant for the
payor during the period in issue included office work consisting in typing
texts, preparing bank deposits, ordering supplies, filing documents, answering
the telephone and making arrangements for the payor’s participation in weekend
trade shows during and after the event; (admitted)
n)
the payor participated in 4 or 5 trade shows per
year, mainly in Moncton and Halifax; a trade show required 10 to 15 hours of
work during the trade show weekend; (denied)
o)
the Appellant worked at weekend trade shows
after Daniel Thériault was dismissed; (admitted)
p)
Daniel Thériault worked for Magna from April
30, 2004, to September 2, 2004, and his duties involved
procurement and working at weekend trade shows; (admitted)
q)
Daniel Thériault was paid $630 per week;
(admitted)
r)
from June 25, 2004, to
August 27, 2004, the Appellant’s wages were paid to her by cheques
issued to Lynx Management Group Inc.; (admitted)
s)
from August 28, 2004, to
November 11, 2004, the Appellant did not receive her wages; (no
knowledge thereof)
t)
from May 28, 2005, to June 3, 2005,
the Appellant was paid twice; (admitted)
u)
the Appellant received a cheque from the payor
for $4,000 on April 1, 2005; that payment came from the loan account
of the payor’s shareholder; (denied)
v)
the Appellant was not a shareholder of the
payor; (admitted)
w)
the Appellant received an additional payment for
$1,000 from the payor on May 1, 2005; (admitted)
x)
the Appellant did not lend the payor any money.
(admitted)
y)
the Appellant received an additional payment for
$1,000 from the payor on May 1, 2005; (admitted)
z)
the Appellant did not lend the payor any money.
(admitted)
[5] The Appellant admitted all of the Minister’s
assumptions except those set out in subparagraphs n) and u).
[6] The evidence revealed that the Appellant and Daniel Thériault
were in charge of exhibiting the payor’s products at trade shows. The trade
shows were held four to five times per year, mainly on weekends during the
summer, in Moncton, Halifax or the United States.
[7] However, evidence
of the Appellant’s employment in that activity, during the period in question,
was not convincing.
[8] In her testimony, the Appellant stated as follows
[TRANSLATION]: “. . . ‘trade shows’, I think I did one, in summer 2004 . . .
Daniel also, I believe . . . maybe it was Daniel? . . . I am not sure anymore .
. . in fall 2004, I did one . . . but I can longer recall the year . . . .” As
for Daniel Thériault, other employee of the payor, he stated as follows at the
hearing [TRANSLATION]: “I do not think that Ernestine Morais did ‘trade shows’
in summer 2004. Besides, I do not believe the payor was involved that year.”
[9] At the hearing, the Appellant stated that she did not
submit any time sheets. She stated as follows [TRANSLATION]: “why times sheets,
I lived in the same house. I knew I was paid for my hours. I worked beyond 35
hours per week. My husband was in charge of the technical aspect but there was
no record of hours worked.” As for Richard Thériault, he stated as follows in
his testimony [TRANSLATION]: “we did not have employee time sheets. It is a
family business.” Twice, the Minister’s officers made a written request to the
payor that it submit, inter alia, time sheets and other documents. The payor
did not submit them and at the hearing he stated as follows [TRANSLATION]: “ I
thought I submitted them and I submitted everything I had. What was requested
of me by letter—Exhibit I-4—I did not have that.” He added [TRANSLATION]: “I do
not recall that letter.”
[10] After reviewing the documents gathered, the Minister
determined that the Appellant did not receive any paycheques during the period
from August 28 to November 11, 2004. The Appellant explained in her testimony
that it was owing to liquidity constraints. She added [TRANSLATION]: “I was
always paid, except for when the payor did not have the means.” When questioned
on that point at the hearing, Richard Thériault stated that [TRANSLATION]
“. . . the ‘cash’ register could answer that.” He added that during that
period, it was hell. He also stated that he did not realize that cheques were
missing for that extended period. The evidence revealed that the payor did not
have any payroll record.
[11] Exhibit I-6, which
bears the payor’s letterhead, shows that the Appellant only began to receive
paycheques on June 25, 2004. No evidence of the Appellant’s employment was
produced to support that she worked prior to that date. When questioned on that
point, Richard Thériault was incapable of providing an explanation. He was also
questioned about the increase in the wages of the Appellant, his wife, from
$573 to $800 per week. He explained that owing to the financial difficulties
his company was experiencing, seven to eight employees were dismissed and that
the remaining employees had a greater workload. He added that the Appellant had
20 years’ experience. However, Daniel Thériault, the other remaining employee,
did not receive a wage increase.
Richard Thériault explained that he had learned that he was leaving soon.
[12] The Minister’s
assumption, set out at paragraph 5. u) was initially denied by the Appellant,
but during her testimony, she admitted that she received the amount of $4,000
from the payor on April 1, 2005. According to her, it was a partial
reimbursement of a loan to the payor’s sole shareholder, her husband. When he
testified, he confirmed that fact by adding that he had poured everything (his
money) into that company. Furthermore, it was established that the $1,000
payment the payor made to the Appellant was an allowance.
Richard Thériault was incapable of explaining its validity within the
meaning of the Act in this context.
[13] Exhibits I-2 and I-6
support the Minister’s conclusion that the Appellant was not paid for the first
two weeks of June 2004, or, if she did work, she was not paid. In that regard,
the Appellant explained that she trusted the payor; she added that she was
always paid, except for when the payor did not have the means. She stated that
it is possible that she worked without pay and that it is because the company
was experiencing financial difficulties.
[14] The issue concerns
the insurability of the
employment. The parties to the contract are related in accordance with the
definition of that expression in the Income Tax Act, paragraphs
251(1)(a) and 251(2)(a):
Section 251: Arm’s length.
(1) For the purposes of this Act,
(a) related persons shall be deemed
not to deal with each other at arm's length;
(2)
Definition
of “related persons”. For the purpose of this Act, "related persons", or
persons related to each other, are
(a) individuals connected by blood
relationship, marriage or
common-law partnership or adoption;
[15] Moreover, the Employment
Insurance Act (the Act) excludes from insurable employment that in which
the employer and employee are not dealing with each other at arm’s length. On
this, paragraph 5(2)(i) sets out that
5.(2) Insurable employment does not include
. . .
(i) employment
if the employer and employee are not dealing with each other at arm's length.
[16] In such circumstances,
the Act has set out the context in which the Minister is to carry out his
discretionary power to determine whether employment is insurable at
paragraph 5(3)(b) of the Act, which states 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.
[17] In the instant case,
it is pertinent to ask whether
1. Richard
Thériault would have paid to an unrelated employee the amount owed to her as
reimbursement of a shareholder loan to the payor’s company;
2. the
Appellant would have worked for an employer without remuneration for a period
of three months had she not been related to him;
3. an
unrelated employee would have received from her employer a $1,000 payment as an allowance;
4. the payor
would have increased the wages of an unrelated employee from $573.60 to
$800 per week at a time when the financial health of his company was poor and
the company was headed toward bankruptcy;
5. an
unrelated employee would have worked without wages for two weeks in June 2004.
[18] In the context of
paragraph 5(3)(b) of the Act, all these pertinent questions were posed
to the Appellant and her husband Richard Thériault, the payor’s sole
shareholder, but they did not yield meaningful answers.
[19] It is important to
note that the Appellant did not succeed in refuting any of the Minister’s
assumptions. On the contrary, the evidence gathered at the hearing convincingly
established all of his
assumptions.
[20] It should be added
that the evidence, oral and documentary, produced by the Minister was used to
establish that the evidence provided by the Appellant and her husband, to the
investigating officers and at the hearing, was contradictory. It was inaccurate
and was neither sincere nor credible.
[21] In a similar case,
Tardif J. of this Court, in Duplin v. Canada (Minister of
National Revenue – M.N.R.), [2001] T.C.J. No. 136, at paragraph 31,
stated as follows:
The fundamental components of a contract of service
are essentially economic in nature. The records kept, such as payroll journals
and records concerning the mode of remuneration, must be genuine and must also
correspond to reality. For example, the payroll journal must record hours
worked corresponding with the wages paid. Where a payroll journal records hours
that were not worked or fails to record hours that were worked during the
period shown, that is a serious indication of falsification. Such is the case
where pay does not correspond with the hours worked. Both situations create a
very strong presumption that the parties have agreed on a false scenario in
order to derive various benefits therefrom, including benefits with respect to
taxes and employment insurance.
[22] The Court analyzed the facts of this case in
light of the legislative provisions reproduced above.
[23] The Court also
examined the Minister’s actions in exercising the discretionary power
conferred upon him by Parliament.
[24] In Légaré v. Canada (Minister of
National Revenue – M.N.R.), [1999] F.C.J. No. 878, the Federal Court of
Appeal ruled on the power conferred upon the Minister and on the jurisdiction of the Tax Court of
Canada to review its decisions. At paragraph 4 of that decision, Marceau J. wrote as
follows:
The Act requires
the Minister to make a determination based on his own conviction drawn from a
review of the file. The wording used introduces a form of subjective
element, and while this has been called a discretionary power of the Minister,
this characterization should not obscure the fact that the exercise of this
power must clearly be completely and exclusively based on an objective
appreciation of known or inferred facts. And the Minister's determination
is subject to review. In fact, the Act confers the power of review on the
Tax Court of Canada on the basis of what is discovered in an inquiry carried
out in the presence of all interested parties. The Court is not mandated
to make the same kind of determination as the Minister and thus cannot purely
and simply substitute its assessment for that of the Minister: that falls under
the Minister's so-called discretionary power. However, the Court must
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, it must decide whether the conclusion with which the
Minister was "satisfied" still seems reasonable.
[25] It is clear, considering the foregoing, that the
Appellant did not succeed in shifting the burden of proof placed upon her.
Furthermore, it should be added that the Appellant admitted most of the
assumptions of fact the Minister relied on in rendering his decision. It is pertinent
to recall in this regard the rule set out by the Federal Court of Appeal in Elia
v. Canada (Minister of National Revenue – M.N.R.), [1998] F.C.J. No. 316,
where Pratte J. stated as follows:
. . . the
allegations in the reply to the notice of appeal, in which the Minister states
the facts on which he based his decision, must be assumed to be true as long as
the appellant has not proved them false.
[37] Accordingly, the appeal is dismissed and the Minister’s decision is
confirmed.
Signed at Grand-Barachois, New Brunswick, this 4th day
of October 2007.
“S.J. Savoie”
Translation certified true
on this 14th day of November 2007.
Daniela Possamai, Translator
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