Citation: 2006TCC40
Date: 20060130
Docket: 2005-1773(EI)
BETWEEN:
BOUTIQUE MILITAIRE QUÉBEC INC.,
Appellant,
and
MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Savoie D.J.
[1] This appeal was heard on November 24, 2005, at Québec, Quebec.
[2] This is an appeal
regarding the insurability of the employment of Pascal Lemieux, the
Worker, when employed by the Appellant, from January 1 to September 30, 2004.
[3] The Minister of National Revenue (the Minister) informed
the Appellant and the Worker of his decision that the Worker’s employment was
insurable.
[4] The Minister based
his decision on the following presumptions of fact:
[translation]
5 (a) the Appellant, incorporated on April 1,
1993, runs a business that sells new and used military clothing, work clothes,
outdoor clothing and camping equipment;
(b) in 2003 and 2004, the Appellant grossed
approximately $500,000 and declared a net profit of approximately $50,000;
(c) the Appellant employs 4 persons, Maurice
Lemieux, father of the Worker, Lisette Gamache, mother of the Worker and
Sophie Beaupré, friend of the Worker;
(d) Maurice Lemieux is responsible for
purchases, sales, administration, accounting and any other tasks at the
Appellant;
(e) the Worker is responsible for all of
Maurice Lemieux’s tasks when he is absent; when his father is there, he does
the work with him and is advised by him so that he will be able to replace him;
(f) there is no written employment contract
between the Worker and the Appellant;
(g) Maurice Lemieux and the Worker have the
authority to sign cheques for the Appellant, only one signature is required;
(h) the Worker is given considerable latitude
with respect to the day-to-day operations of the Appellant but he must consult
his father about hiring and other important decisions;
(i) the Appellant’s computer file indicates
that the Worker worked 40 hours per week whereas Maurice Lemieux specified
that the Worker worked more hours each week;
(j) the Worker had a set schedule established
by the Appellant, he worked one 6-day week, Monday, Tuesday, Thursday, Friday,
Saturday and Sunday, and one 4-day week, Monday, Tuesday, Thursday and Friday;
(k) the Worker’s hours were not written down
in any log or on any time sheet;
(l) the Worker carried out his tasks on the
Appellant’s premises, except for accounting, which he did on a computer at the
home of Maurice Lemieux and he used the Appellant’s materials and equipment;
(m) when he met with suppliers in the Québec
region, he used his own vehicle and when he met with suppliers in Montréal, he
used Maurice Lemieux’s vehicle;
(n) his fuel costs were not reimbursed when he
worked in Québec but he claimed his travel, meal and lodging costs when he had
to go to Montréal;
(o) for the weeks from January 10 to August
28, 2004, the Worker was paid $625 a week ($15.63 an hour) whereas for the
weeks from September 4 to 30, 2004, he was paid $650 a week gross
($16.25 an hour);
(p) the Worker was covered by CSST accident
insurance paid for by the Appellant.
6 (a) 9071-3033 Québec Inc. was the sole
shareholder of the Appellant;
(b) Maurice Lemieux was the sole shareholder
of 9071‑3033 Québec Inc.
(c) Pascal Lemieux is the son of Maurice
Lemieux;
(d) the Worker was related to a person who
controlled the Appellant.
7 (a) given his tasks and responsibilities, the
Worker’s salary was reasonable;
(b) the Worker had a permanent position at a
company that operated year-round;
(c) the Worker’s work was essential to the
operations of the Appellant’s business.
[5] The Appellant
admitted to all the Minister’s presumptions set out in paragraphs 5 and 6 in
the Reply to the Notice of Appeal.
[6] The Appellant
denied the Minister’s claims in paragraph 7, but they are the Minister’s
findings from his analysis.
[7] It should be noted
that the facts in this case are almost uncontested, but Maurice Lemieux, sole
shareholder of 9071‑3033 Québec Inc., and of the Appellant, while
admitting the facts set out in paragraph 5(h), rejected this idea somewhat in
his testimony.
[8] This is where the
matter stands in the instant case. Although the parties agree that they are
bound by a contract of employment under the Civil Code of Québec, they
do not agree that it is insurable employment.
[9] Since the Worker
was related to a person who controlled the Appellant, the Minister determined
that these people were not at arm’s length as set out in the Income Tax Act,
at subparagraph 251(2)(b)(iii) reproduced below:
(2) Definition of “related persons”. For the purpose of this Act, "related
persons", or persons related to each other, are:
...
(b) a
corporation:
...
(iii) any person
related to a person described in subparagraph 251(2)(b)(i) or 251(2)(b)(ii);
[10] In light of the
preceding, the Minister maintains that the Worker’s employment is excluded
under paragraph 5(2)(i) of the Employment Insurance Act (the
Act), reproduced below:
(2) Excluded
employment - Insurable employment does not include
...
(i) employment if the employer and employee are not dealing with
each other at arm's length.
[11] Thus the Minister
has the discretion to determine whether the Worker’s employment is insurable in
accordance with the mandate conferred by the legislation under paragraph 5(3)(b)
which sets out the following:
(3) Arm's
length dealing - For the purposes of paragraph
(2)(i),
…
(b) if the employer is, within the meaning of [the Income Tax 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.
[12] The Minister then
proceeded to analyze the Worker’s employment in relation to paragraph 5(2)(i)
of the Act.
REMUNERATION
[13] The Worker, Pascal
Lemieux, received a fixed salary of $625.00 gross per week from January 4 to
August 28, 2004; from August 29 to September 30, 2004, his salary was
set at $650.00 gross per week. He was paid weekly by cheque, for an
approximately 45 hours of work per week. The Minister determined that the
Worker’s salary seemed adequate given his responsibilities and the fact that
the Appellant wanted him to eventually take over the business. Exhibit I-1,
presented at the hearing, contains statistics from Emploi Québec for work
similar to the Worker’s employment. This document confirms that the Worker’s
salary, although slightly higher than the statistics, supports the idea
examined under this test, that a Worker at arm’s length would have accepted a
similar salary.
TERMS AND CONDITIONS OF EMPLOYMENT
[14] Pascal Lemieux had a
set work schedule that was established based on the Appellant’s business hours.
He worked one six-day week, specifically Monday, Tuesday, Thursday, Friday,
Saturday and Sunday; the following week he worked Monday, Tuesday, Thursday and
Friday. He alternated in this way, according to this schedule, with Maurice
Lemieux so that they both could have a weekend off every two weeks. It is true
that the Worker was not subject to any control of the time worked but this
situation was not unreasonable given his responsibilities in the business where
he was a manager. The concept of control is practically inexistent in the
business with respect to day-to-day decisions. The Worker informed Maurice
Lemieux regarding any important decisions; however, he did not wait for
approval for transactions. It was established that the Worker was covered by
Worker’s accident insurance from the Commission de la santé et de la sécurité du
travail, paid by the Appellant. Furthermore, the Worker was authorized to use
the Appellant’s debit card to pay suppliers.
[15] Based on this test,
it can be concluded that a person at arm’s length would have accepted these
terms and conditions of employment for a similar position.
DURATION OF THE WORK
PERFORMED
[16] The Worker was hired by the Appellant in
1993 and he has worked for this business since that date. Thus, it was a
permanent position at a company that operated year-round.
NATURE AND IMPORTANCE OF THE WORK PERFORMED
[17] It was determined
that Pascal Lemieux’s work was essential to the operations of the business
since he shared the administrative work of the Appellant by taking care of the
purchases and sales. Furthermore, it should be noted that without the services
rendered by the Worker, the Appellant would have been obliged to find another
person to do these tasks.
[18] The Appellant is
asking this Court to overturn the Minister’s decision. In reviewing this file,
the Court’s attention was directed to Industrie J.S.P. Inc. v. Canada
(Minister of National Revenue – M.N.R.), [1999] T.C.J. No. 423, in which
Judge Tardif of this Court summarized the facts, similar to those of the case at
issue, in this way:
Marie-Claude Perreault testified
and gave a number of examples to describe and explain her interest, enthusiasm
and fervour and that of her brothers with respect to the interests of the
appellant company, which operates in the difficult and highly competitive field
of furniture building.
Sharing major strategic
responsibilities in the company controlled by Jacques Perreault, who holds
1,000 voting but non-participating shares, Marie-Claude Perreault and her
brothers left nothing to chance in ensuring the company's well-being and development.
Each family member was paid more
than a reasonable salary and, at year end, received a bonus that varied
depending on the economic performance of the company and the quality of the
work performed.
Major decisions were made
jointly and by consensus. The family members each devoted at least 60 hours
[per week] to their respective duties for the company.
The balance
of evidence, therefore, was that the Perreault family members dedicated
themselves totally and entirely to the company's business. They invested in it
most of their available time (at least 60 hours [per week]) to ensure that the
company could succeed in a difficult market where competition is stiff.
Following this analysis, Judge Tardif stated the
following:
Contributing to and being a partner
in the management, administration or development of a business, particularly a
small business, means that a person's job description is strongly marked by
responsibilities characteristic of those often fulfilled by actual business
owners or persons holding more than 40 per cent of the voting shares in the
company employing them. In other words, in assessing remuneration, at this
level of responsibility, caution must be exercised when a comparison is made
with the salaries of third parties; often there are advantages that offset the
lower salaries.
and concluded that the employment of these members of
the same family, although not at arm’s length, was not excluded from
insurable employment.
[19] It has been
established that the sole shareholder of the Appellant never relinquished
control of the company. The Worker testified that [translation] “my father has the last word… I did not have
signing authority…”.
[20] According to the
case law, the power to control is important to the analysis of the facts under
this test, not the actual exercise of control. In this matter, the power to control was demonstrated by ownership of shares in
the business. In fact, the Worker’s father continues to hold all the shares.
[21] This Court analyzed
the facts, in the instant case, in light of the legislation cited above. This
Court also examined how the Minister carried out his mandate under the
legislation. The Federal Court of Appeal has described the mandate of the
Minister and this Court in Légaré v. Canada (Minister of National
Revenue–M.N.R.) [1999] F.C.J. No. 878, reviewing the Minister’s decision,
in which Marceau J.A. held the following at paragraph 4:
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.
[22] At the end of this
process, this Court must decide whether the Minister exercised his mandate in
accordance with the legislation and case law.
[23] Moreover, I must
find that the facts inferred
or relied on by the Minister are real and were correctly assessed having regard
to the context in which they occurred. In my opinion, the conclusion with which
the Minister was "satisfied" still seems reasonable to me.
[24] Consequently, the
appeal is dismissed and the Minister’s decision is confirmed.
Signed at Grand-Barachois (New Brunswick), this 30th
day of January 2006.
“S.J. Savoie”
on this 21st day
of June 2006.
Monica F. Chamberlain, Translator
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