Docket: 2006-1311(EI)
BETWEEN:
PAUL E. HAMON,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
____________________________________________________________________
Appeal
heard on January 26, 2007, at Ottawa, Ontario.
Before: The Honourable
Associate Chief Justice Gerald J. Rip
Appearances:
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Agent for the Appellant:
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Jean Maisonneuve
|
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Counsel for the Respondent:
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Frédéric Morand
|
____________________________________________________________________
JUDGMENT
The appeal pursuant to subsection 103(1) of the Employment
Insurance Act is allowed and the decision of the Minister of National
Revenue dated December 19, 2005, involving the period from January
1, 2005, to January 28, 2005, is vacated.
Signed at Ottawa, Canada, this 16th day
of April 2007.
“Gerald J. Rip”
Translation certified true
on this 17th day of September 2007.
Daniela Possamai,
Translator
Citation: 2007TCC220
Date: 20070416
Docket: 2006-1311(EI)
BETWEEN:
PAUL E. HAMON,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Rip A.C.J.
[1] Paul Hamon is
appealing from the decision of the Minister of
National Revenue (the “Minister”) that he was employed in insurable
employment within the meaning of subsection 5(1) of the Employment Insurance Act (the “EIA”) during the period from January 1, 2005, to January
28, 2005, whereas he was working for the Groupe Financier
Hamon Financial Group Inc. (the “Payor”).
[2] The Payor was
incorporated on August 9, 2004, under the name
Gestion Hamon Inc. to acquire André Hamon Agence
d'Assurance Ltée, a life insurance and investment agency, of which the
sole shareholder was André Hamon, the Appellant’s father.
[3] Throughout the
relevant period, the Payor’s shareholders were as follows:
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André Hamon Agence d'Assurance Ltée
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1 Class B Ordinary Share
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Suzanne Hamon (mother)
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50 Class A shares
|
|
Appellant
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50 Class C Shares
|
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André Hamon (father)
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200 Class D Special Shares
|
[4] The parties are not
contesting the fact that the Appellant and the Payor are related persons and
that they are not dealing with each other at arm’s length. Nevertheless, the
Minister decided that, in accordance with subsection 5(3) of the EIA,
the Appellant and the Payor were deemed to deal with each other at arm’s length
because he was satisfied that it was 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, having regard to the following circumstances:
(a) the Appellant rendered services to the
Payor as a director;
(b) As a director and shareholder of the
Payor, the Appellant’s responsibilities included but were not limited to
- hiring and firing employees,
- managing the company’s daily operations,
- managing revenues and expenses,
- participating in decision-making processes relating to the
purchase of capital items.
(c) the Appellant worked at the Payor’s place
of business;
(d) the Appellant had to be present and
available during the Payor’s regular business hours, 8:30 a.m. to 4 p.m.,
Monday to Friday;
(e) despite his authority within the Payor, he
had to comply with the Payor’s instructions and directives;
(f) the Appellant’s work was supervised and
his deadlines were set by the Payor;
(g) as part of his job, the Appellant used
materials and equipment made available to him by the Payor;
(h) the Appellant occasionally used his
automobile and was reimbursed for his long-distance travel expenses by the
Payor;
(i) despite a variable work schedule and as a
result of his responsibilities, the Appellant generally worked between 60 and
65 hours per week;
(j) the Appellant received an annual salary
of $55,000.00, payable twice a month by cheque;
(k) the Appellant rendered services to the
Payor under a contract of service;
(l) the Payor hired a sales director whose
annual salary was $50,000;
(m) the salary paid to the Appellant was
reasonable considering his duties and responsibilities;
(n) the Appellant was responsible for
reporting to the Payor and his work was supervised by the Payor;
(o) the Appellant rendered full-time services
to the Payor;
(p) the Appellant rendered services to the
Payor as a director and his work was essential to and directly linked to the
Payor’s activities.
[5] The Appellant
stated in his testimony that the Payor was incorporated for financial planning
purposes. In 1995, at the age of 21, the Appellant began working for his
father’s company, helping him manage the business with the expectation that he
would one day take over the company. As I have already mentioned, the Payor was
incorporated to that end and, on December 1, 2004, it changed its name to
Groupe Financier Hamon Financial Group Inc. The Payor began its business
activities on January 1, 2005.
[6] On January
10, 2005, the Appellant’s parents went to Florida on vacation. Before
leaving for Florida, the Appellant’s parents and the Appellant signed a
temporary agreement whereby in the event of the father’s death, the deceased’s
shares would be transferred to his wife, and that upon his mother’s death, or
if both parents were to die together, the shares would be sold to the
Appellant. Payment of the purchase price for the shares would have to be funded
out of the insurance policy in effect at the time.
[7] One factor that had
a major influence on the Minister’s decision was the fact that in 2005, the
Payor paid the Appellant a salary of $57,200. During that same time period,
the Payor agreed to pay Gilles Carrière, his sales director, an annual
salary of $50,000. I presume the Minister considered that a related person, the
Appellant, and an unrelated person, Mr. Carrière, received the same salary
for the same work.
[8] The Appellant
indicated in his testimony that, even if he and Mr. Carrière shared
certain duties, the nature of the overall duties he performed for the Payor and
responsibilities they had was very different. They both recruited employees,
conducted interviews with prospective employees and were responsible for the
training of new employees. Premiums could be added to Mr. Carrière’s
salary. Mr. Carrière worked 35 to 45 hours per week and was entitled to
additional remuneration if he worked on a holiday. He did not receive telephone
calls from representatives at home. Mr. Carrière was only in charge of
sales; the Appellant did not get involved in sales.
[9] The Appellant
testified that he worked 60 to 65 hours per week and that he received
telephone calls at all hours. He did not receive any vacation pay nor was he
entitled to additional remuneration if he worked on a holiday. He was the one
who ultimately decided whether to hire an employee. He paid the invoices. He
negotiated contracts with representatives. He determined the employees’ salary.
He was the one who decided whether the business should expand and it was also
he who prepared the annual budget.
[10] When the Appellant’s
father vacationed in Florida for three or four months, the Appellant ran the
business. His father, who suffered a heart attack in 1999, was semi‑retired.
When he went to the Payor’s offices, he only worked
10 to 20 hours per week and did not manage any files or deal
with the Payor’s representatives. The Appellant’s father spent summer months at
the family cottage. The Appellant held the requisite life insurance licences
for Quebec and Ontario; his father only held the licence for Ontario. It was
the Appellant who dealt with the insurers and made investments.
[11] The Appellant
testified that he set his own working hours and that he was only accountable to
himself. Prior to 2005, he answered to his father.
[12] When he took over
from his father in January 2005, recalled the Appellant, he had to obtain
approval from the life insurance companies to ensure they would deal with him.
[13] In 2005, the Payor
paid the Appellant’s father and mother a salary. In fact, the Payor paid the
directors salaries totalling $199,000, of which $57,200 went to the Appellant
and the remainder to his parents. The Appellant explained that he never paid
for the business and that the salaries were a way to compensate them.
[14] According to the
evidence, when he exercised his discretionary power, the Minister did not take
into account the importance of the Appellant’s role to the business carried on
by the Payor. The Minister was content simply to compare the Appellant’s salary
to that of Mr. Carrière. He did not take into account the fact that the
Appellant worked longer hours, that the Appellant carried a high degree of
responsibility in terms of running the Payor’s businesss and that the Appellant
would one day own the Payor’s shares. A person dealing at arm’s length with the
Payor would not have devoted to the Payor’s business all the hours the
Appellant devoted to it nor would he or she have accepted to assume all
responsibility for running the business in consideration of a salary similar to
that of a person who worked almost half the hours he or she did and had no additional
responsibilities after hours.
[15] The appeal is
allowed.
Signed at Ottawa, Canada, this 16th April
2007.
“Gerald J. Rip”
Translation certified true
on this 17th day of September 2007.
Daniela Possamai,
Translator
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