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Citation: 2004TCC810
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Date: 20041230
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Docket: 2003-3623(EI)
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BETWEEN:
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JULIA BOUDREAU,
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Appellant,
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and
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THE MINISTER OF NATIONAL REVENUE,
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Respondent.
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REASONS FOR JUDGMENT
Paris, J.
[1] This
is an appeal of a determination by the Minister of National Revenue (the
"Minister") that Julia Boudreau's employment with G.B. Roofing Ltd.
(the Payor) was not insurable under the Employment Insurance Act because she and
the Payor were not dealing at arm's length. The appeal covers two periods of
employment: from December 15, 2000 to December 14, 2001, and from June 17,
2002 to January 17, 2003.
[2] Where
an employer and an employee are related according to the provisions of the Income
Tax Act, they will be deemed to act at arm’s length if the Minister, after
considering all of the circumstances of the employment, determines that it is
reasonable to conclude that the parties would have entered into a substantially
similar contract of employment if they had been dealing at arm's length. The
relevant provisions of the Employment Insurance Act read as
follows:
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5(2) Insurable employment does not include
...
(i) employment if the employer and employee
are not dealing with each other at arm's length.
(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.
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5(2) N'est pas un emploi assurable :
...
i)
l'emploi dans le cadre duquel l'employeur et l'employé ont entre eux un lien
de dépendance.
(3) Pour l'application de l'alinéa (2)i)
:
a)
la question de savoir si des personnes ont entre elles un lien de dépendance
est déterminée conformément à la Loi de l'impôt sur le revenu;
b)
l'employeur et l'employé, lorsqu'ils sont des personnes liées au sens de
cette loi, sont réputés ne pas avoir de lien de dépendance si le ministre du
Revenu national est convaincu qu'il est raisonnable de conclure, compte tenu
de toutes les circonstances, notamment la rétribution versée, les modalités
d'emploi ainsi que la durée, la nature et l'importance du travail accompli,
qu'ils auraient conclu entre eux un contrat de travail à peu près semblable
s'ils n'avaient pas eu de lien de dépendance.
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[3] In this
case the Minister decided 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 at arm’s length. The facts
relied upon by the Minister in reaching that conclusion are set out in
paragraph 13 of the Reply to Notice of Appeal, as follows:
[TRANSLATION]
a) the payor was incorporated
in 1996;
b) the Appellant’s spouse
is the sole shareholder of the payor;
c) the payor is in the
roofing business;
d) payor’s business is not
entirely seasonal, but has a busy season between May and October;
e) the Appellant’s duties
consisted of helping out in the office by answering the phone, taking care of
the mail, completing estimates, making deposits, doing some bookkeeping and
running errands;
f) the Appellant’s salary
was $780.00 per week which equaled $19.50 an hour based on a 40 hour week;
g) the payor employed
another office worker all year round;
h) the other office worker
employed by the payor was paid $10.37 an hour and worked about 30 hours per
week;
i) the Appellant’s salary
was excessive for the work she did;
j) the Appellant did not
have enough work to do to keep her occupied for 40 hours per week;
k) the payor’s payroll
records indicated that the Appellant worked 50 hours per week;
l) the number of hours
shown in the payroll records was excessive;
m) during the periods under
appeal the payor issued two records of employment to the Appellant :
i) the first for the period
from December 27, 1999 to December 14, 2001 with 1650 hours; and
ii) the second for the
period from June 17, 2002 to January 17, 2003 with 800 hours;
n) the Appellant was not listed
in the payor’s payroll register during the year 2000;
o) during the periods under
appeal the Appellant was listed in the payor’s payroll register for the weeks
ending on the following dates :
2001
April 7, 14, 21, and 28
May 5, 12, 19 and 26
June 2, 9, 16, 23 and 30
July 7, 14, 21 and 28
September 22 and 29
October 6, 13, 20 and 27
November 3, 10, 17 and 24; and
December 8, 15 and 22;
2002
June 22;
October 19 and 26;
November 2, 9, 16, 23 and 30; and
December 7, 14, 21 and 28;
2003
January 4, 11 and 18;
p) the periods of the
appellant’s employment did not coincide with the needs of the payor;
q) the Appellant worked the
periods that suited her;
r) the Appellant and the
payor were related within the meaning of the Income Tax Act;
s) the Appellant and the
payor were not acting at arm’s length;
t) Having regard to all of
the circumstances, including the remuneration paid, the terms and conditions,
the duration and the nature and importance of the work performed, it is 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.
Were the Appellant and Payor dealing at arm’s
length?
[4] It was
admitted by the Appellant that her spouse, Gilles Boudreau, owned all of the
shares of the Payor. However, the Appellant's counsel argued that the question
of whether the Payor and the Appellant were dealing at arm’s length should not
be determined by reference to the Income Tax Act, as otherwise would be
the case under paragraph 5(3)(a) of the Employment Insurance Act.
In his submission, paragraph 5(3)(a) is only applicable where the
employer is a natural person and not a corporation. He pointed out that the
word “person” is not defined in the Employment Insurance Act and
said that the word should be given its ordinary meaning.
[5] However,
although the word person is not defined in the Employment Insurance Act,
the Interpretation Act provides that:
“[i]n every enactment …
"person", or any word or expression descriptive of a person, includes
a corporation”.
[6] Given that
there is no indication in the wording of the Employment Insurance Act of
an intention to oust the application of this provision, the Appellant's first
argument cannot succeed. The Appellant and the Payor are related pursuant to
subparagraph 251(2)(b)(iii) of the Income Tax Act, and are
therefore deemed not to deal with each other by virtue of paragraph 251(1)(a)
of that Act.
Was it unreasonable for the Minister to conclude that the Appellant and
the Payor would not have entered into a substantially similar contract of
employment if they had not been related?
[7] The
Appellant’s counsel further argues that the evidence before the Court in this
case shows that the Minister's conclusion regarding the terms and conditions of
employment was not reasonable. The Appellant bears the onus of proving that the
the Minister erred in arriving at this conclusion. I am not satisfied that she
has satisfied that burden.
[8] Both the
Appellant and her spouse were reluctant to admit in their testimony in Court
that the Payor's roofing business had busy and slow periods during the year. The
Appellant said that it was not possible to predict when the Payor's busy season
during any year would occur, and Gilles Boudreau said that it was hard to give
an exact time when the Payor would be busy. However, this contradicted
information they provided initially to the Canadian Revenue Agency
("CRA") relating to the Appellant's work for the Payor. Both the
Appellant and her spouse responded to questions put to them in questionnaires
from the Agency that the Payor's busy season was usually from April to December
each year.
They had also stated that the Appellant worked for the Payor during the “busy
season” and that her job was intended to last “for the season”.
[9] I find that
the Payor’s business did, in fact, have a busy period from April to December
each year as originally indicated by the Appellant and her spouse. This being
the case, I find that no satisfactory explanation was provided by the Appellant
or by her spouse why she worked 50 hours per week through the Payor's slow
season during her first period of employment, and why her services were not
required during a significant part of the busy season in her second period of
employment. (She worked only one week between April and mid‑October
2002).
[10] It also
appears that, prior to the Appellant commencing work for the Payor, the Payor
did not employ anyone to do the tasks purportedly done by the Appellant during
her periods of employment. On the questionnaires completed by the Appellant and
her spouse for the CRA they both stated that before the Appellant was hired,
her tasks were performed by "office admin" and Christina Leblanc.
However, evidence led at the hearing showed that before the Appellant started working
for the Payor, Christina Leblanc was the Payor’s only office worker and the
work she did was distinct from that which was done by the Appellant. The
reference to “office admin” was not explained. It seems incongruous that the
Payor would have hired the Appellant during its low season to work 50 hours
each week to perform tasks that it had not hired anyone for previously. Also,
despite Mr. Boudreau's testimony that it would have been necessary to hire
another worker (and possibly two) if the Appellant had not worked for the
Payor, he confirmed that no one else was hired to replace her during the many weeks
she did not work during the Payor's busy season in 2002, or after she stopped
working for the Payor in January 2003.
[11] After
hearing the Appellant's evidence with respect to her work hours I am left with
the impression that she has exaggerated the hours and nature of the work. The
Appellant also said that the 50 hours she worked each week for the Payor
included 10 hours overtime and that the overtime was consistent through the
busy and the slow periods of the Payor's business. In addition to working from
7:00 a.m. to 5:00 p.m. every week-day she said that in the evenings she
answered the phone, prepared quotes and discussed business with her spouse, and
on weekends she answered the phone and arranged for emergency roofing repairs
when her spouse was away.
[12] She said doing
the roofing quotes took a great deal of time and that the Payor gave at least
50 quotes per month and up to 100 quotes during the busy season. Gilles
Boudreau said that he would do about half of them himself, and that he and the
Appellant would prepare the other half together in the evenings, spending about
two hours on each quote. This would mean that the Appellant spent between 50
and 100 hours per month in the evenings just on the quotes (or 10 to 20 hours
per week).
[13] Using the
figures provided by the Appellant in her testimony it would appear that she
worked closer to 70 hours per week for the Payor. If this were true, it would
seem even more unlikely that the Payor could have done without a worker to
perform those services prior to hiring the Appellant and during the busy season
in 2002, when she was not working for the Payor. It also is unlikely that the
Appellant's schedule would involve the excessive amount of overtime she
describe while the Payor’s other office worker put in only six hours per day
five days a week with no overtime. In light of these apparent inconsistencies I
do not accept the Appellant's evidence regarding the hours she worked.
[14] Furthermore,
it has not been shown that the Minister erred in assuming that the tasks
assigned to the Appellant by the Payor would have occupied the Appellant for
the number of hours she claimed she worked. The Appellant said that from Monday
to Friday she took phone calls between 7 and 9:00 a.m. and between 3 and 5:00 p.m.
when Christina Leblanc was not in the office, she made two bank deposits per
week, opened 10 to 15 pieces of mail received each day, delivered some quotes
to customers, cleaned the office, cleaned the walkway of ice and snow and ran
errands such as picking up parts for Gilles Boudreau's truck if it broke down. She
estimated that she spent 75% of her time outside of the office but no other
details of how much time she spent on these tasks were provided. The Appellant
statements were not corroborated by any objective evidence, and I note that
Christina Leblanc, who would have had first hand knowledge of much of what the
Appellant did for the Payor, was not called as a witness.
[15] Also, it has
not been shown that the Minister erred in assuming that the Appellant's rate of
pay was excessive. Based on a 50-hour work week, Ms. Boudreau was paid $15
per hour. (She also received $30 per week of holiday pay). This is compared
with the hourly rate of $10.37 paid to Miss Leblanc whose computer and
bookkeeping work was more specialized than the work done by the Appellant. The
Appellant’s counsel argued that the Appellant’s work was akin to that of an
administrative or executive assistant and provided information obtained from
the Internet showing a median salary for this occupational group as $14.30 per
hour. I do not agree that the Appellant’s duties of employment could be
compared to an executive assistant in that she did not require any special
training or skill to carry them out. Her counsel suggested that her most
important duty was to prepare quotes, but this was done with the assistance of
Mr. Boudreau. It does not appear that any effort was made by the Payor to
determine the appropriate wage for the Appellant when she started.
[16] Finally,
although copies of the Appellant’s pay slips for the period starting on March
30, 2001 were introduced into evidence, there was no explanation given for the
fact that the Appellant was not listed in the payroll records prior to that
date or why no earlier pay stubs were available. I infer that the records kept
by the Payor for the payment of the Appellant’s wages prior to April 2001were
not consistent with the records kept for arm’s length employees.
[17] For all of
these reasons I conclude that the Appellant has not shown that it was
unreasonable for the Minister to conclude that she and the Payor would not have
entered into a substantially similar contract of employment had they been
dealing at arm’s length, and the appeal is, therefore, dismissed.
Signed at Ottawa,
Canada, this 30th day of December 2004.
Paris,
J.
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