Citation: 2007TCC79
Date: 20070209
Docket: 2005-3073(EI)
BETWEEN:
RONALD BONNER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Porter, D.J.
[1] The issue in this
case is whether the Minister of National Revenue (the “Minister”) has correctly
determined that the Appellant was not engaged in insurable employment under the
Employment Insurance Act (the “EI Act”) during the period
of September 15th, 2001 to December 14th, 2002.
[2] It is clear from
the evidence that the Appellant was employed by Hearn Stratton Construction
Ltd. (“Hearn”) under a contract of service. The father of the Appellant, James
Bonner, is the majority shareholder in a numbered company 293594 Alberta Ltd.,
which in turn owns 100% of Hearn. Thus, the Appellant and Hearn, as related
persons, are deemed not to be dealing with each other at arm’s length, pursuant
to paragraph 5(2)(i) of the EI Act and the Minister by
letter dated October 12, 2004, has indicated his decision to this effect. The
Minister has not exercised his discretionary authority under section 5(3)(b)
of the EI Act. The Appellant has appealed that decision to this
Court.
The Law
[3] The relevant
sections of the EI Act read as follows:
5(2) Insurable employment does not include
(a) …
…
i) employment
if the employer and employee are not dealing with each other at arm’s length.
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; 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] In the Federal Court
of Appeal case of Légaré v. Canada, [1998] FCJ No. 878, Marceau J.A.
said:
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.
[5] In another Federal
Court of Appeal case Denis v. Canada (Minister of National
Revenue), [2004] FCA 26, Richard C.J. said :
The function of the Tax Court of Canada
judge in an appeal from a determination by the Minister on the exclusion
provisions contained in subsections 5(2) and (3) of the Act is to inquire into
all the facts with the parties and the witnesses called for the first time to
testify under oath, and to consider whether the Minister's conclusion still
seems reasonable. However, the judge should not substitute his or her own
opinion for that of the Minister when there are no new facts and there is no
basis for thinking that the facts were misunderstood (see Pérusse v. Canada (Minister of National Revenue - M.N.R.), [2000] F.C.J. No.
310 March 10, 2000).
[6] As I see it the
duty of this Court is not to substitute its view of the situation for that of
the Minister but rather to see whether the decision of the Minister, could
reasonably, from an objective point of view, have been arrived at, given any
new facts revealed by the evidence heard during the appeal. It is only if that
is not the case that this Court should review the evidence and make the
decision anew.
The Facts
[7] Evidence in the
appeal was given solely by the father of the Appellant, James Bonner. The
Appellant himself did not appear, despite the hearing having been adjourned
previously. James Bonner indicated that his son was in the United States, dealing with an
immigration situation there, and could not be present. Nonetheless, he wished
to proceed with the hearing.
[8] Accordingly, James
Bonner was the sole witness. I found him quite straightforward, albeit somewhat
frustrated with the officials with whom he had been dealing with, over this
matter. Nonetheless, despite his evidence, being somewhat self serving, I
formed the conclusion that he is a very honest man and I accept his evidence as
being truthful, to the extent that he has any knowledge of the matter.
[9] The Minister in the
Reply to the Notice of Appeal was said to have relied on the following
assumptions of fact, with which James Bonner agreed as indicated.
7.
(a)
the Payor operated a
business in the construction industry; (agreed)
(b)
the share structure
of the Payor was as follows:
293594
Alberta Ltd. 100% (agreed)
(c)
James Bonner
(hereinafter “the Shareholder”) was the major shareholder of 293594 Alberta
Ltd.; (agreed)
(d)
the Appellant is the
son of the Shareholder; (agreed)
(e)
the Appellant and the
Payor were related to each other within the meaning of the Income Tax Act,
R.S.C. 1985 (5th Supp.) c.1, as amended (the “Act”); (agreed)
(f)
the Appellant was
hired as a labourer/manager; (disagreed)
(g)
the Appellant’s
duties included manual labour, operating equipment, picking up supplies,
preparing bids, getting mail, calculating payroll, distributing paycheques and
paying bills; (agreed)
(h)
the Shareholder was
out of the country for a portion of the Period; (agreed)
(i)
the Appellant earned
a set wage of $15.00 per hour which was eventually increased to $20.00 per
hour; (agreed)
(j)
the Payor determined
the Appellant’s wage rate; (disagreed)
(k)
the Payor did not pay
the Appellant on a regular basis; (agreed with explanation)
(l)
the Payor did not
remunerate the Appellant in the same manner as the Payor’s other employees; (disagreed)
(m)
the Payor provided
the Appellant with company funds to distribute wages to other employees and pay
company bills; (agreed)
(n)
the Payor issued the
following cheques to the Appellant: (agreed)
Date Date
Issued Amount Cashed
Nov 20, 2001 $1,084.30 Nov
23, 2001
Dec 10, 2001 $
861.40 Dec 11, 2001
Jan 2, 2002 $
876.00 Jan 25, 2002
May 27, 2002 $1,000.00 Jun
6, 2002 (loan)
Jun 14, 2002 $1,049.65 Jun
20, 2002
Jul 2, 2002 $1,082.82 Jul
4, 2002
Jul 12, 2002 $
575.00 Jul 16, 2002
Jul 16, 2002 $
523.08 Jul 16, 2002
Jul 26, 2002 $1,044.69 Jul
26, 2002
Jul 31, 2002 $1,044.69 Aug
2, 2002
Nov 14, 2002 $9,141.62 Nov
14, 2002 (included other workers’
pay)
Jan 2, 2003 $2,871.51 Jan
7, 2003 (included expenses)
Jan 2, 2003 $1,123.99 Jan
7, 2003
(expenses)
(o)
the Appellant also
received advances;
(agreed with explanation)
(p)
the Payor also made a
couple of direct transfers to the Appellant’s bank account;
(agreed
with explanation)
(q)
the Appellant
provided unpaid services to the Payor;
(disagreed)
(r)
the Payor issued a
Record of Employment to the Appellant on December 16, 2002 which contained the
following information:
First day worked September
15, 2001
Last day worked December
14, 2002
Occupation Manager
Total insurable hours 2103
hours
Total insurable hours $39,660
(agreed with explanation)
(s)
the Appellant filed
an Application for Benefits on February 24, 2003 which contained the following
information:
Job title Manager
First day worked October
15, 2001
Last day worked December
14, 2002
Normal earnings $20/hour
Normal hours 40
hours/week, 5 days/week
(agreed with
explanation)
(t)
the Payor issued T4s
to the Appellant which contained the following income:
2001
$ 4,446
2002
$15,920 (agreed)
(u)
the Payor’s payroll
records indicated the following:
Appellant’s first day of work November
8, 2001
Appellant did not work Jan,
Feb, Mar,
Apr,
and Aug 2002
Total hours worked 1290
hours
(agreed)
(v) when the
Appellant worked at the Payor’s job site, he normally worked from sunrise to
sunset, 6 or 7 days a week; (agreed)
(w) the Appellant
only worked part-time for the Payor in January, February, March, April and
August 2002; (agreed)
(x) the Payor
supervised the Appellant; (disagreed)
(y) the Payor
provided the tools and equipment required including a truck, compaction
equipment, survey, generators, welders, scaffolding, pumps, heaters and a
loader; (agreed)
(z) the Appellant
provided his own vehicle; (agreed)
(aa)
the Payor reimbursed
the Appellant for business expenses incurred;
(agreed)
(bb)
the Payor paid all
operating expenses included meals and accommodations for its employees; (agreed)
(cc)
the Appellant did not
replace anyone when he was hired and he was not replaced when he left; (agreed
with explanation)
(dd)
the Appellant was
employed under a contract of service by the Payor; (agreed)
(ee)
the Minister
considered all of the relevant facts that were made available to the Minister,
including the remuneration paid, the terms and conditions, the duration and the
nature and importance of the work performed, and
(ff)
the Minister was
satisfied that it was reasonable to conclude that the Appellant and the Payor
would not have entered into a substantially similar contract of employment if
they had been dealing with each other at arm’s length.
(ee) and (ff) – not statements of fact
[10] James Bonner explained to the Court, that his
company during the time in question entered into two joint venture agreements
with one Robert Archibald (“Archibald”). Archibald operated his own company
R.A. Enterprises. The arrangement was not reduced to writing but was verbal
only. These two men had worked together in similar ways over a period of more
than 20 years.
[11] The business was one
of excavation. One project was at Waskesieu Prince Albert National Park in Saskatchewan and the other at Carrot
Creek. Hearn funded the projects and Archibald set up and supervised the work,
seeing it to compaction. James Bonner had nothing to do with the actual work
being carried out and visited each project on one occasion. Much of the time he
was absent from Canada, as set out by the Minister.
[12] At the end of each project
James Bonner described how they would just split the profit fifty-fifty. Thus,
Archibald, who did all the hiring and firing of employees, obtaining equipment
and operating the projects, had a vested interest, in keeping costs as low as
he could.
[13] As the funding of
the project was done by Hearn, the contracts were entered into with that
company, and the workers were employed by that company. Archibald himself was
appointed as manager and agent of Hearn for these purposes, although he was not
himself on the payroll. However, it was Archibald who hired workers and could
fire them if he thought necessary.
[14] James Bonner when
asked by counsel for the Minister, if he felt that his son was hired only
because he was his father’s son, vehemently denied that suggestion. He said
that Archibald had approached the Appellant directly and the latter had asked
him, if he should take on the work or not. James Bonner said that he told his
son that it was up to him to make his own decision. Obviously he decided to
take on the work.
[15] It was clear to me
from the evidence of James Bonner that he had absolutely nothing to do with his
son’s employment, how he worked, when he worked or how much he was to be paid.
This was totally in the realm of Archibald. It also seems clear to me that the
Minister has completely overlooked this aspect of the matter, in making his
decision.
[16] There has been a
great deal of confusion in this case about when the Appellant started work,
when he finished and pay advances. I will deal with all of these issues
shortly. They frankly have more to do with how his time might be calculated for
the purpose of obtaining EI benefits than whether or not he was at arm’s length
with his father’s corporation. The fundamental fact that the Minister seems to
have overlooked is that Archibald had a different economic interest to Hearn. Archibald
and Hearn were clearly working at arm’s length. The cost of the Appellant’s pay
and benefits was clearly a cost to Archibald, who was in full control of the
situation.
[17] According to James
Bonner assumption (f) was incorrect as he said that in all the years he had
known Archibald, the latter never put a label on anyone he hired. A person just
came and worked for him and did what work was needed. Nothing particular turns
on this.
[18] James Bonner said
that it was Archibald who set the Appellants wage rate. Strictly speaking it
was Hearn, as all the workers including the Appellant were employed by the
company and Archibald acted on behalf of the company in hiring them, but the
company had no involvement in setting the amount, nor did James Bonner.
Archibald did that.
[19] With respect to
assumption (k), James Bonner said none of the workers worked regularly.
Sometimes they worked two or three weeks straight. Other times they took a week
or so off. The projects were shut down in December when the ground froze and
they could no longer work. That is why they were paid irregularly.
[20] Clearly this was not
the common situation seen in these types of cases where an employer does not
pay for members of his own family when funds are short. All the workers were
paid in the same way including the Appellant, so there is nothing irregular or
particular with respect to the way the Appellant was paid.
[21] Assumption (l)
according to James Bonner was effectively incorrect. The only difference
between the way the Appellant was paid and the other workers, was that towards
the latter part of 2002, the Appellant took on the work of doing the payroll.
Also, funds from Hearn were provided to him so he could through is Bank of Nova
Scotia account pay the other workers. It was easy to transfer funds to his
account and he then paid the other workers their due amounts. This was done for
convenience only and was of no advantage to the Appellant.
[22] Assumption (o) dealt
with advances. Before going to Saskatchewan to work James Bonner loaned $300.00 to the Appellant to
buy gas to get out to the worksite. That amount was taken off his pay cheque and
paid back to James Bonner. Similarly on one other occasion James Bonner’s
wife had bought something on behalf of the Appellant and she was repaid
directly out of his pay before he received it.
[23] James Bonner said
that all the other workers would have had advances from time to time from
Archibald and this was perfectly normal in the industry. I accept that
evidence.
[24] With respect to
assumption (q): James Bonner said that the family members all did things for
each other for which they were not paid. These things as I understood him had
nothing to do with the Appellant’s work on the projects for which he was paid,
as dictated by Archibald, in the usual way, similar to other employees. There
is absolutely no evidence of the Appellant working on the projects for nothing
or providing additional unpaid services; the evidence seemed quite to the
contrary.
[25] The Minister was
correct with respect to the Record of Employment, assumption (r) and the
Application for Benefits, assumption (s). Dates, times and amounts are totally
incorrect in these documents. The Minister seems to have ignored the fact that
amended documents were filed showing more correct dates, times and amounts. Nonetheless,
it is a disturbing feature of this case. James Bonner could not explain how the
mistakes came to be made. They were so glaring that I cannot think they were
intentional and he said they were changed before anything went anywhere.
[26] James Bonner sought
to impute some bad faith to the officials making the decision on the part of
the Minister. He considered that the decision on the appeal to the Minister was
made prior to the facts being provided. I see no bad faith. I find James
Bonner is just confused about the process which was followed. A decision
was made initially by a rulings officer. That decision was appealed to the
Minister. One Diane Burton did work on behalf of the Minister. She received a
fax setting out the CPP/EI rulings decision in October 2003. In March 2004, Ms.
Burton indicated in correspondence that she was conducting her enquiries. In
October 2004 the decision was forthcoming. Mr. Bonner seemed to think that the
October 2003 fax was from Ms. Burton, and that someone already decided the case
before conducting her enquiries. I am absolutely satisfied that this was not
the case. The fax is simply a record of the decision of the Rulings Officer,
the decision being appealed to the Minister.
[27] Those are the
salient facts.
Conclusion
[28] I cannot but think
that, if the Minister had had before him evidence of the intermediary standing between
Hearn and the father, James Bonner, on the one hand and the Appellant on
the other, in the form of Archibald, he could only reasonably have come to a
different conclusion. It is clear from the evidence before me, which was not
before the Minister for some obscure reason, as otherwise it would have been
set out in the assumptions of fact, that the working conditions, the
remuneration paid, the duration of the work, its nature and importance were all
set and directly under the control of Archibald. Hearn and the father, had
nothing to do with all of that but simply provided funding. All the evidence
from the payroll records shows that the Appellant worked the same kind of hours
as the other workers. It is clear from the evidence of James Bonner that no
favourable treatment was being given to the Appellant by Archibald. He was not
that kind of supervisor. He had an arm’s length economic interest from Hearn
albeit they were in a joint venture and he was in charge of the working
conditions; he controlled the “circumstances of the employment” of the
Appellant, not Hearn and not James Bonner.
[29] The Minister has
understandably been put off by the errors in the records, i.e., the records of
employment and the application for benefits. When these things are wrong it is
disturbing and the Minister was rightfully suspicious. It is clear from close
examination they are so glaringly wrong, that they can only be very bad
mistakes, as pointed out by James Bonner and they were not done fraudulently.
[30] I am not of the
view, that if the Minister had the same evidence before him, as the Court has
had at the hearing of this appeal, that he could reasonably and objectively
have come to the conclusion that the circumstances of the employment, including
the matters referred to in section 5(3)(b) of the EI Act,
were such that the parties would not have entered into a substantially similar
contract if they had been dealing with each other at arm’s length. This
situation was just about as arm’s length as it could possibly be.
[31] For those reasons
the appeal is allowed, in part, the decision of the Minister is varied, on the
basis that the employment of the Appellant by Hearn Construction between
November 8, 2001 and December 8, 2001, and between May 1st 2002
and December 14, 2002, was insurable employment under the EI Act.
Signed at Edmonton, Alberta, this 9th day of February 2007.
“ M.H. Porter ”
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