Citation: 2008TCC291
Date: 20080512
Docket: 2007-1292(EI)
BETWEEN:
GUEST VIDEO INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
MARCELLA RODINGER MORCOS,
Intervenor.
REASONS FOR JUDGMENT
O'Connor, J.
ISSUE:
[1] This appeal was heard
at Toronto,
Ontario on
April 28, 2008. The issue is whether Marcella Morcos (“Marcella” or “Worker”),
the daughter-in-law of Peter Morcos, sole shareholder of Guest Video Inc.
(“Appellant”), was, during the period December 12, 2005 to June 30, 2006
(“Period”), employed in insurable employment by the Appellant yet was
nevertheless excluded from qualifying as being in insurable employment because
she was not at arm’s length with the Appellant.
FACTS:
[2] The following
extracts from the Notice of Appeal signed by Peter Morcos outline the facts
giving rise to this issue and express the contentions of the Appellant:
The reason for this appeal is to
prove that a non-arm’s length relation was transacted when I employed Marcella Rodinger Morcos.
Before becoming my daughter in law, she worked for me between the years 1999
and 2005 in “Giant Video Sale” store in Aurora where she was analyzing,
organizing, pricing and listing on the E-Bay all movies that have good sale
value.
I bought the inventory of the Brock
Video Store in [sic] June 9, 05 to start a wholesale business.
Then, I decided to expand the business to include retail. I needed a person
with the right qualifications to scrutinize, analyze, organize and promote sale
at the store and on the E-bay with the intention to turn the store into a
profitable business within the coming three years.
Having worked with Marcella during
the past years and knowing her capabilities I decided to use her services to
reach my objective. The purpose of including the E-Bay sale is to promote the
business over the Canadian border attracting foreign sale thus generating
higher revenue.
I used her services starting from
December 09, 2005 to lay down the basis for the E-Bay, analyze and organize the
store inventory to promote sale locally and on the E-bay with the objective to
increase sale.
Our sales increased and
continuously kept improving day by day.
Marcella set up the rules of sale
on the e-bay and trained an employee who was paid $1,000.00 a month. During the
course of his employment his salary was increased to $1,500.00 a month with
promise to increase his salary to $2,000.00 in case the sale increased.
Marcella was receiving $2,000.00 a
month for her services from which the CPP, EI and tax were deducted and paid on
a monthly basis along with the employer contribution while in my employment
until she delivered her Baby in the beginning of July 2006. She had to go
on maternity leave. The Record of employment was submitted and she was denied
her EI payment claiming an arm’s length dealing. I reiterate that Marcella
worked for me in the past and I used her services based on the knowledge of her
capabilities to perform well in the type of work she best excels at and promote
the business.
[3] The following
extracts from the Reply to the Notice of Appeal further explain the facts
giving rise to this issue and express the contentions of the Respondent:
…
6. By letter dated November
23, 2006, the Respondent informed the Worker and the Appellant that it had been
determined that the Worker was not employed in insurable employment, for the
period referred to herein, for the reason that the Worker and the Appellant
were not dealing with each other at arm’s length, pursuant to paragraph 5(2)(i)
of the EIA.
7. The Appellant disagreed
with the Minister’s decision and filed an appeal to the Tax Court of Canada on
February 21, 2007.
8. In making his decision,
the Respondent relied on the following assumptions of facts:
(a) the Appellant operates a
retail video outlet;
(b) the
Appellant’s sole shareholder is Butros (Peter) Morcos;
(c) the Worker is
related to the Appellant’s shareholder as being her daughter-in-law;
(d)
the
Worker was hired under a verbal agreement;
(e) the Worker’s duties were
as followed:
-
research
movies to determine their value
-
list
movies for sale on E-bay
-
package
and ship movies sold on E-bay
-
follow
up with Canada Post with regard to claims associated with shipping
(f) the Worker
performed her duties from her personal residence;
(g) the Worker
worked 7.5 hours a day, 5 days a week;
(h) the Worker’s
hours of work were not recorded;
(i) the Worker
was paid a fixed monthly salary of $2,000.00, by cheque, on a monthly basis;
(j) the Worker’s
duties were distributed to another employee and to her husband who has a
business of video wholesale;
(k) the non
related worker worked at the Appellant’s place of business and was paid on an
hourly basis;
(l) the Worker
is related to the Appellant within the meaning of the Income Tax Act; (the “ITA”);
(m) the Worker is
not dealing with the Appellant at arm’s length.
8. [sic] The Respondent
exercised his discretion under paragraph 5(3)(b) of the EIA and decided
that the contract of employment would not be deemed to be at arm’s length.
B. ISSUES TO BE DECIDED
9. The issue is whether the
Worker was employed under a contract of service during the period referred to
herein, within the meaning of paragraph 5(1)(a) of the EIA, and if the
Worker was dealing at arm’s length with the Appellant within the meaning of
paragraph 5(2)(i) of the EIA.
C. STATUTORY
PROVISIONS, GROUNDS RELIED ON AND RELIEF SOUGHT
10. He relies on paragraphs
5(2)(i) and 5(3)(b) of the EIA and on sections 251 and 252 of the ITA.
11. The Respondent’s decision
resulted from the proper exercise of his discretionary authority.
12. He submits that the
Appellant did not engage the Worker in insurable employment within the meaning
of paragraph 5(2)(i) of the EIA, for the period referred to herein,
since the Worker and the Appellant were not dealing with each other at arm’s
length.
13. Considering all the
facts, he submits that it was reasonable for the Respondent to conclude that
the Worker and the Appellant would not have entered into a substantially
similar contract of employment, if they had been dealing with each other at
arm’s length.
14. He requests that the
appeal be dismissed.
ANALYSIS AND DECISION:
[4] I accept fully the
credibility of Peter Morcos. His reasons for hiring Marcella were for business
purposes and are understandable. The fact that she worked at home is not
determinative. Given her experience and expertise, her salary and other terms
of work were reasonable. She was not hired under conditions designed to favour
a non-arm’s length person.
[5] Considering all the
facts, I am satisfied that the Appellant would have entered into a contract
similar to Marcella’s with a non-arm’s length person.
[6] Consequently, the
appeal is allowed and the decision of the
Minister is reversed.
Signed at Ottawa,
Canada this 12th day of May, 2008.
"T. O'Connor"
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