Citation: 2007TCC251
Date: 20070430
Docket: 2006-1847(EI)
BETWEEN:
NELLIE PARSONS,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Docket: 2006-1865(EI)
AND BETWEEN:
SPRUCE GROVE COTTAGES INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Webb J.
[1] The appeals of
Spruce Grove Cottages Inc. and Nellie Parsons under the Employment Insurance
Act ("Act") were heard together on common evidence. The
issue in each appeal was whether the decision of the Respondent that the
employment of Nellie Parsons by Spruce Grove Cottages Inc. during the period of
June 12, 2005 to September 24, 2005 was not insurable employment for
purposes of the Act was reasonable.
[2] Subsection 5(2) of
the 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 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] In this case James
Parsons was the sole shareholder of Spruce Grove Cottages Inc. Nellie Parsons
is the spouse of James Parsons. As a result, Nellie Parsons and Spruce
Grove Cottages Inc. were related for the purposes of the Income Tax Act
and are therefore deemed to not be dealing with each other at arm's length
under the Income Tax Act. As a result, the issue in this case is whether
the decision of the Minister of National Revenue that Nellie Parsons and Spruce
Grove Cottages Inc. would not have entered into a substantially similar contract
of employment during 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 the Tax 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] Spruce Grove
Cottages Inc. is a small cottage operation operating in Gros Morne National Park. The company has, and
during the period in question had, four two-bedroom cottages and one
three-bedroom cottage. This is a total of five cottages available for rent.
While there were 11 rooms in total, there were only five cottages. It was
a seasonal business operating from mid-June to late September in each year. Nellie
Parsons' duties for the company included the daily cleaning of the cottages,
checking guests in and out, making bookings and recording of purchases. As part
of her duties of cleaning the cottages she would do the laundry and take out
the garbage. When time permitted she would also do a thorough cleaning of each
cottage. As well, Nellie Parsons was very knowledgeable about the local area
and about southern Labrador and could provide information to the guests who
were planning to visit these areas.
[7] Nellie Parsons did
have some cheque signing authority. This was confirmed by both Nellie Parsons and
James Parsons. She would not, however, sign cheques without his permission and she
did not sign many cheques.
[8] Nellie Parsons
testified that she had worked in a similar position for approximately five to
six years before she started to work for her husband. Prior to the
incorporation of Spruce Grove Cottages Inc., James Parson had operated the
cottage business as a sole proprietorship. When Nellie Parsons was working
for her other employer she was making close to $10 per hour. During the period
in question she was paid $10.50 per hour.
[9] When Nellie Parsons
was describing her daily routine most of her time spent during the day would be
related to the housekeeping duties. She would spend time in the morning dealing
with those guests who were ready to check out and then proceed to clean the
cottages that had been vacated. The cleaning of the cottages would include
doing the laundry, taking out the garbage, washing dishes, wiping out the
fridge and stove and mopping the floors. This would take approximately one to
one and a half hours per cottage. Since there were five cottages available for
rent it was clear that the majority of her duties were related
to the housekeeping function. Her
hours of work for each day were from 8:00 a.m. to 4:00 p.m., Monday to
Saturday. She did not work on Sundays.
[10] James Parsons
indicated that on Sundays when Nellie Parsons did not work, it was he and his
sister who would look after the cottages. His mother‑in‑law would
also help on occasion. It was also evident that the level of cleaning would not
be the same on Sundays as it was during the other days of the week.
[11] James Parsons indicated
that he had made inquiries in the local area with respect to rates of pay. He
determined that an assistant manager at another motel in the area was making
more than $10.50 per hour. He had also determined that the owners of a new inn were
proposing to pay waitresses $10 per hour.
[12] The appeals officer for
the Canada Revenue Agency testified that in making a determination that the
employment was not insurable, she considered that the wages paid to Nellie
Parsons were less than the amount that would have been paid in an arm's length
relationship. Two Exhibits were introduced as R-3 and R-4 which are print-outs
of labour market information for Prince Edward Island and Nova Scotia from the Service Canada
website. It should be noted that the appeals officer indicated that similar
information could not be located for Newfoundland and Labrador. The occupation that was listed
was "Accommodation Service Managers". The information for Prince Edward Island was for the year 2003
and indicated that the low wage per hour in that year was $7 per hour. The high
wage per hour was $13.22 and the average wage was $10.19.
[13] The information
produced for Nova Scotia was for the same period that is in issue in this case, i.e. 2005, and was
broken down into different areas. In my opinion it would not be reasonable to
use data from a metropolitan area such as Halifax to determine the appropriate
rates that would have been paid in an arm's length relationship in a rural
area such as Gros Morne National Park, Newfoundland and Labrador. In the other areas of Nova Scotia the following amounts
were listed in this table:
|
Area
|
Average Wage
($ / hour)
|
High Wage
($ / hour)
|
Low Wage
($ / hour)
|
|
Annapolis Valley
|
10.50
|
22.25
|
7.75
|
|
Cape Breton Network
|
13.11
|
22.19
|
9.50
|
|
Northern Nova Scotia
|
11.67
|
24.10
|
7.50
|
|
South Shore
|
10.50
|
22.25
|
7.75
|
|
Southwest Nova Scotia
|
10.50
|
22.25
|
7.75
|
[14] In three of the
areas in the province of Nova Scotia the average wage for an accommodation service manager was $10.50. There
is no indication in this table of the size of the various operations and it
would seem reasonable to conclude that the smaller operations would pay arm's
length employees less than the amount that large operations would pay an arm’s
length employee who held an accommodation service manager position.
[15] However, the
evidence in this case supports a finding that the duties of Nellie Parsons
were not only that of a service manager responsible for booking guests, checking
guests in and checking guests out, but also included, and were predominantly,
housekeeping duties. The evidence clearly revealed that the majority of her
time was spent on the housekeeping functions not the manager functions.
[16] Counsel for the
Respondent had also submitted that Nellie Parsons was underpaid and would have
been paid more than $10.50 per hour if she would have been an arm's length
employee based on certain statements of James Parsons. James Parsons, on
behalf of Spruce Grove Cottages Inc., had stated in the fact finding
questionnaire for the payor that "I could not get another comparable
worker to do the work she does for the same rate of pay especially after a 10-year
work period".
[17] However, the data
gathered by the Respondent indicates that the average hourly wage for
accommodation service managers in three of the areas of Nova Scotia for 2005 was $10.50 -
the amount that Nellie Parsons was being paid. It seems difficult to
accept that an arm's length accommodation service manager who is being paid
more than the average of $10.50 would be required to do the laundry and take
out the garbage. The cleaning, laundry and removal of garbage were a
significant part of the duties of Nellie Parsons and these would not
normally be duties of accommodation service managers in a management position.
As a result, the presence of these duties would suggest that the average
amount for accommodation service managers ought to have been used as a
comparable salary comparison. The position that Nellie Parsons had with
the company could best be described, based on her evidence and that of
James Parsons, as a housekeeper/accommodation service manager with greater
emphasis on the housekeeping part of her duties.
[18] Therefore, in my
opinion, the evidence would not support a reasonable conclusion that she was
overpaid.
[19] The appeals officer
also indicated that the expenses (as stated by Spruce Grove Cottages Inc.)
exceeded its revenues for the year in question. This would suggest that the
company could not afford to pay her any more than it did. Counsel for the
Respondent argued that the employment position itself should dictate the amount
that would be paid in an arm's length situation, regardless of the ability of
the employer to pay. I do not agree. There are examples in industry, especially
in one‑industry towns, where companies that are in financial trouble have
had to seek wage concessions from arm’s length employees based on the ability
of the company to pay. Therefore the ability of the company to pay, in my
opinion, is a relevant factor that would be taken into account in an arm's
length relationship when there are limited options for the employees to seek
employment from other employers. Since Gros Morne National Park is located in a
rural area of the province of Newfoundland and Labrador and it is not near any
large metropolitan area, the options for any person to seek alternate
employment would be limited and in these circumstances the financial ability of
an employer is a factor that would be taken into account in setting the amount
to be paid to an arm's length employee.
[20] The appeals officer
had also indicated that a factor that had been taken into account was the
number of weeks that she worked versus the number of weeks that she had to work
in order to claim employment insurance benefits. The evidence indicated that
this operation was only a seasonal operation operating from mid-June to late
September and therefore her hours would have been determined by the nature of
the business. There was nothing to indicate that an arm's length person would
have worked for any fewer weeks in this situation.
[21] Counsel for the
Respondent had also argued that Nellie Parsons had performed other duties after
her employment was terminated. However the evidence that was presented was that
any duties that she did perform after her
employment was terminated were minimal and limited to answering a few telephone
calls or perhaps taking information on a particular booking. The evidence also
was that there were very few bookings during the off‑season. It should be
noted that there were only five cottages available for bookings.
[22] Counsel for the Respondent
had also argued that there were delays by Nellie Parsons in cashing her
paycheques. However the delays in cashing the paycheques were not significant
(the longest delay was less than 30 days) and were explained by Nellie Parsons
who indicated that she did her banking in Deer Lake, which was
approximately a one hour drive from her home, and she would wait until she
travelled to Deer Lake to cash her cheques.
[23] 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 appeals of Spruce Grove Cottages Inc. and Nellie Parsons
under the Act are allowed.
Signed at Halifax, Nova Scotia,
this 30th day of April 2007.
"Wyman W. Webb"
Email this Content