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Citation: 2006TCC39
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Date: 20060130
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Docket: 2005-1065(EI)
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BETWEEN:
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JEAN-GUY GRONDINES,
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Appellant,
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and
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THE MINISTER OF NATIONAL REVENUE,
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Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Savoie D.J.
[1] This appeal was heard at Québec, Quebec, on November 24, 2005.
[2] This is an appeal concerning the insurability of the Appellant's employment while working for Nicole Langlois Grondines, the Payor, from April 18 to August 6, 2004, the period in question.
[3] In a letter dated January 11, 2005, the Minister of National Revenue (the "Minister") informed the Appellant of his decision that the Appellant was not engaged in insurable employment during the period in question.
[4] The Minister determined 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 had an arm's length relationship, considering these presumptions of fact:
[TRANSLATION]
6 (a) the Payor has operated a dairy bar since 1973;
(b) she was the sole owner;
(c) the Payor operated a fixed dairy bar, open from mid-April to mid-September;
(d) as of June 2003, the Payor also operated a mobile dairy bar that travelled to various summer festivals;
(e) the fixed dairy bar is located in a small area of a building that also contains a men's clothing store, the "Boutique le Gentilhomme inc." of which the Appellant is the majority shareholder;
(f) the Payor did not pay any rent for her use of the space for the dairy bar;
(g) in 2003, the Payor had a trailer transformed into a mobile dairy bar; she invested $10,000 in this transformation;
(h) the Payor also bought a truck and carrier camper (camper in the truck bed) for $55,000 to transport the dairy bar;
(i) The Payor had worked for close to 25 years at the clothing store and in 2002 and 2003, did not receive any payment from the Boutique Gentilhomme inc.;
(j) the two parties agree that the Appellant had not worked in the clothing store for a few years, although the boutique's record of wages shows he received pay varying from $18,720 in 2000 to $28,080 in 2003;
(k) the Payor hired around six people, generally students, to work at the fixed dairy bar during the season;
(l) the students were all paid minimum wage and according to the number of hours worked at the dairy bar;
(m) the Payor hired the Appellant in April 2004 because she wanted to cover more festivals with her mobile bar during the summer;
(n) the Appellant oversaw preparations of the dairy bar and went with the Payor to each of the festivals;
(o) he installed the mobile bar in each of the places they visited, took care of repairs to the material and the trailer, and took everything down at the end of each festival;
(p) the Appellant also helped, on occasion, to wash the machines and the equipment at the fixed dairy bar;
(q) the Payor's dairy bar covered seven festivals between June 23 and September 14, 2003, and 14 festivals between June 16 and September 12, 2004;
(r) during the 2004 season, the Appellant was the only person working in the mobile dairy bar;
(s) during the period in question, he worked an average of 60 hours a week (between 40 and 80 hours);
(t) the Appellant received a fixed pay of $600 a week, regardless of the hours actually worked;
(u) the Appellant stopped receiving pay from his clothing store when he was listed on the Payor's record of wages;
(v) for many years, the Appellant rendered services to the Payor without being paid;
(w) in 2003, the Appellant worked at the Payor's dairy bar from April to September, without pay.
[5] The Appellant admitted the Minister's presumptions of fact set out at subparagraphs 6 (a) to (d), (f), (g), (j) to (p) and (s) and denied all the others.
[6] The evidence established that the fixed dairy bar and the store were in separate buildings, around 10 feet apart.
[7] It must be noted that the Appellant did not prove that the Minister's presumptions of fact set out at subparagraphs (h), (i), (t) and (v) were false.
[8] Moreover, it was established that the Payor, with her mobile dairy bar, worked five festivals in 2003 and 13 in 2004, when she worked with her employees.
[9] The evidence showed that the Appellant did not receive wages from the store from the time he started working for the Payor at the dairy bar, but he earned income from the profits of its operation by the Payor, his spouse, who worked without pay.
[10] At the hearing, the Payor categorically denied the Minister's presumptions stated at subparagraph 6(w) of the Reply to Notice of Appeal. However, later, she admitted that the Appellant was at the mobile dairy bar but did not work and that he was not paid in 2003. But, in cross-examination, the Payor did not deny that she told the investigator, Mr. Côté, that the Appellant worked at the mobile dairy bar from April to September 2003. In response to the question of why the Appellant did not receive any wages in 2003 for this work, the Payor responded that this work was not regular, that he worked part time, and that he [translation] "filled in when the girls couldn't work." As for the Appellant, he admits that he was there at the mobile dairy bar in 2003 to help out in case there were problems.
[11] It was established that the Appellant became sick in 1992 with an illness diagnosed as chronic fatigue syndrome. According to the evidence, this illness prevented him from working at the store, but not from working at the Payor's dairy bar. Therefore, according to the evidence, the Appellant could no longer work at the store, but still benefited from it through its profits. On the other hand, the Payor worked at the store without pay for years.
[12] According to the evidence, the Payor operates her mobile dairy bar during the summer, from June to September. The company's operations are housed in a trailer in a truck bed. This same trailer has the camper, where the workers' living area is, including a room with beds and sofa beds where four adults and two children can sleep, and a furnished kitchen. Therefore, the people who work for this company, such as the Appellant, are housed and fed since they travel for many days in various municipalities, following festivals and staying in the trailer. Can we ask if an employee with an arm's length relationship would agree to work in such conditions? The same question could be asked of the Payor, and this is the relevant question the Minister asked.
[13] In this case, the facts established that there was a contract of employment between the Appellant and the Payor and a genuine employer-employee relationship.
[14] The issue concerns the insurability of this employment. The parties to a contract are related in accordance with the definition in the Income Tax Act, at paragraphs 251(1)(a) and 251(2)(a) :
Section 251: Arm's length.
(1) For the purposes of this Act,
(a) related persons shall be deemed not to deal with each other at arm's length;
...
(2) Definition of "related persons"
For the purpose of this Act, "related persons", or persons related to each other, are
(a) individuals connected by blood relationship, marriage or common-law partnership or adoption;
[15] Moreover, the Employment Insurance Act (the "Act") excludes from insurable employment, those in which the employer and employee are not dealing with each other at arm's length. On this, paragraph 5(2)(i) sets out that:
5(2) Insurable employment does not include:
...
(i) employment if the employer and employee are not dealing with each other at arm's length.
[16] In such circumstances, the Act has set out the context in which the Minister is to carry out his discretionary power to determine whether employment is insurable at paragraph 5(3)(b) of the Act, which states:
5(3) For the purposes of paragraph (2)(i),
(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.
[17] In the present case, it is relevant to ask whether an employee dealing at arm's length would have invested $10,000.00 with his or her employer in the employer's company.
[18] Moreover, would a person with an arm's length relationship have worked for no pay for a company whose profits went to the owner? This is the case of the Payor, who worked during all of 2004 at the Appellant's store without receiving a salary.
[19] However, the Payor did not pay any rent for her fixed dairy bar located on the Appellant's property. The only explanation comes from the Payor, who claimed that her fixed dairy bar brought some patrons to the store, but this was in no way quantified or calculated. It can be questioned whether such an arrangement would have existed between people dealing at arm's length.
[20] The Appellant admitted that he was paid regardless of the hours worked. His weekly schedule could vary from 40 to 80 hours, but he was always paid for 60 hours of work per week.
[21] This Court has analyzed the facts of the case in light of the legislative instruments cited above.
[22] This Court also reviewed the exercise carried out by the Minister in accordance with the mandate conferred on him by the legislator.
[23] The Federal Court of Appeal ruled on the mandate given to the Minister and this Court, in the revision of its decision, Légaré v. Canada(Minister of National Revenue-M.N.R.), [1999] F.C.J. No. 878 in which Marceau J. found:
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.
[24] After conducting this exercise, the Court must conclude that the Minister exercised his mandate as prescribed by the Act and the case law.
[25] Moreover, I must find that the facts inferred or relied on by the Minster are real and were correctly assessed having regard to the context in which they occurred, and the conclusion with which the Minister was satisfied still seems reasonable.
[26] As a result, the appeal is dismissed and the decision rendered by the Minister is confirmed.
Signed at Grand-Barachois, New Brunswick, this 30th day of January 2006.
Savoie D.J.
Translation certified true
on this 2nd day of June 2006.
Elizabeth Tan, Translator
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