Citation: 2006TCC307
Date: 20060531
Docket: 2005-3433(EI)
BETWEEN:
GUYLAINE OUELLET,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Lamarre Proulx J.
[1] The issue is whether the Appellant held
insurable employment for the periods from April 14 to September 12, 2003, and
from March 29 to August 20, 2004, with Groupe Rénovatech Inc., the Payor or the
Company, within the meaning of paragraph 5(2)(i) and
subsection 5(3) of the Employment Insurance Act (the “Act”).
[2] These provisions read as follows:
5(2) Insurable employment
does not include:
...
(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.
[3] Paragraphs 5 and 6 of the Reply to the
Notice of Appeal (the “Reply”) read as follows:
[TRANSLATION]
5. The Appellant and the Payor are related
persons within the meaning of the Income Tax Act because:
(a) during the periods in issue, the voting
shares of the Payor were held by:
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Gaétan
Lévesque, with 65% of the shares
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the Appellant,
with 35% of the shares;
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(b) the Appellant is the spouse of Gaétan Lévesque;
(c) the Appellant was related to a person who
controlled the Payor.
6. The Minister determined that the Appellant
and the Payor were not at arm’s length in the employment relationship. Indeed,
the Minister was satisfied that it was not reasonable to conclude that the
Appellant and the Payor would have entered into a substantially similar contract of employment if
they had been dealing with each other at arm's length,
considering the following circumstances:
(a) the Payor was incorporated on February 20,
2002;
(b) the Payor offered various renovation and
roof repair services;
(c) the Payor operated its business
seasonally, generally from April until the beginning of October;
(d) the Payor employed 5 to 6 employees,
including the shareholders;
(e) the Payor had a sales figure of $86,000
for the fiscal year ending October 31, 2003, and $156,000 for the period from
January to August, 2004;
(f) the Payor stopped its operations in 2004
and made an assignment of property on January 5, 2005;
(g) the Appellant performed secretarial
services for the Payor, and her main duties were:
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writing
letters and submissions,
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preparing
invoicing and payroll (5 or 6 per week),
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answering the
telephone and setting appointments,
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making bank
deposits,
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looking after
Payor’s accounting;
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(h) as shareholder of the Payor, the Appellant
could perform the following tasks:
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visiting
clients to prepare submissions,
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hiring and
dismissing employees,
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checking on
work on job sites when her spouse could not,
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meeting
clients to find out their level of satisfaction during and after work,
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travelling to
pick up cheques from clients;
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(i) during the periods in issue, the
Appellant worked 40 hours per week and received gross weekly compensation of
$624;
(j) the Appellant claimed that all employees
were laid off at the same time as her, while the Payor’s payroll shows the
opposite on several occasions during the periods in issue;
(k) in 2003, from the end of June to
mid-September, there were three workers on the payroll at the same time as the
Appellant, while from mid-November on, there were three workers on the payroll,
but the Appellant was no longer on it;
(l) in 2004, there were five workers on the
payroll at the same time as the Appellant, three workers were on it, yet the
Appellant was no longer on it;
(m) In 2004, during the two months where the
Payor’s revenues were the highest (June and July), the Appellant received no
compensation for six weeks;
(n) Before returning to work on March 29,
2004, the Appellant received employment insurance benefits for 26 weeks,
i.e. the maximum she was entitled to;
(o) the periods where the Appellant was on the
Payor’s payroll did not correspond with the Payor’s real needs.
[4] The Appellant admitted paragraph 5, as
well as subparagraphs 6 (a) to 6 (i) and 6 (n) of the Reply.
[5] It should be noted from the start that the
Appellant received the employment insurance benefits mentioned in sub-paragraph
6( n) of the Reply following the period from April 14 to September 12,
2003.
[6] The Appellant
believes she mentioned, in her benefit application, that she was related to the
Payor.
[7] Under subsections
5(2) and 5(3) of the Act, this is excluded employment unless the Minister is
satisfied that it is reasonable to conclude that substantially similar that
employment would have taken place between unrelated parties. This provision therefore appears to
require a prior determination by the Minister.
[8] This begs the
question whether the Minister can appeal his own determination. However, as
this point has not been the subject of judicial debate and since I know of no
decision on this subject, I simply bring it up.
[9] On another level,
it must be noted that it is not doing any favours to a worker to accept his or
her application for benefits and ask for justification two years later. If the
worker knew from start that the insurable employment was being challenged, he
or she would have made arrangements accordingly.
[10] With regard to the
allegations in subparagraphs 6(j) to 6 (m), the Appellant states that these
were uncommon events and that normally she worked at the same time as the other
workers. She explained that she went without a salary for six weeks in July and
August 2004, because the Company was out of cash assets. She could not even do
what she usually did, i.e. take out her salary and put it back into the
Company’s assets. She insisted on paying the salaries of the few foreign
workers that the business had hired. She now works as a secretary for an
unrelated business and does not believe that she would work for six weeks
without salary.
[11] The job description found in subparagraphs
6(g) and 6(h) of the Reply comes from the Appellant. She is the one who divided
her work between that of secretary and that of shareholder. She stated that the
shareholder duties were not performed during the hours dedicated to secretarial
work.
[12] Gaétan Lévesque explained that he had
already owned other companies and that he had always required a secretary.
However, there is no evidence of the compensation paid to this person.
[13] Nathalie Bédard, appeals officer,
explained why she considered that this employment should remain excluded.
[14] She used records of payment of salaries for
2003 and 2004, (Exhibits I-2 and I-3) to plot a descriptive table of the
employment periods for each worker in 2003 and 2004 (Exhibit I‑4).
[15] It shows that for 2003, of the 23 weeks worked by the
Appellant, there were 15 weeks where the Appellant and Gaétan Lévesque
were the only employees. There were seven weeks where there was one additional
employee. There was one week where there were four. Except for one employee,
they all completed 40 hours in their week. The Appellant did not work in a
month where the business received $6,630 in gross revenue and started in a
month where the revenue was less.
[16] In 2004, the Appellant started to work
immediately after her employment insurance benefits ran out. For the first two
weeks of work, there were no other employees. Even then, there were very few
employees. Over this period, the Appellant was not paid for seven weeks of
work.
Analysis and conclusion
[17] Concerning the
compensation paid, the Payor did not have the financial means to truly pay the
Appellant’s salary. She immediately put it back into the assets of the
business. At a certain point, this was no longer even possible and the
Appellant still continued to work for the Payor.
[18] A business does not
employ a secretary full-time for long periods when the only other employee is the
owner of the business. The analysis made by the appeals officer of each
worker’s employment periods reveals circumstances that suggest that the
Appellant would not have been employed if she had not been a person related to
the Payor.
[19] I am therefore of
the opinion, considering the compensation paid and the work conditions of the
Appellant, that the Minister’s decision under paragraph 5(3)(b) of the
Act was reasonable. Accordingly, the appeal must be dismissed.
Signed at Ottawa, Canada, this 31st day of May 2006.
“Louise Lamarre Proulx”
on this 27th day
of April 2007.
Gibson Boyd, Translator
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