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Citation: 2004TCC540
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Date: 20041029
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Docket: 2003-3989(EI)
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BETWEEN:
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JULIE PARÉ,
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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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[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Bédard J.
[1] The Appellant is appealing from
the decision of the Minister of National Revenue (the
"Minister") stating that her employment with Toitures
Fix Inc. (the "Payer") during the periods in question,
September 24, 2001, to December 15, 2001, and March 3, 2003, to
April 11, 2003, was not insurable employment within the meaning
of the Employment Insurance Act (the "Act")
because the Payer and the Appellant were not dealing at arm's
length.
[2] Subsection 5(1) of the Act reads,
in part:
5. (1) Subject to subsection (2), insurable employment is
(a) employment in Canada by one or more employers, under any
express or implied contract of service or apprenticeship, written
or oral, whether the earnings of the employed person are received
from the employer or some other person and whether the earnings
are calculated by time or by the piece, or partly by time and
partly by the piece, or otherwise;
...
[3] Subsections 5(2) and 5(3) of the
Act read, in part:
(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 subparagraph (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.
[4] Section 251 of the Income Tax
Act reads, in part:
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 person"
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;
...
[5] The Minister's decision was
based on the following presumptions of fact, as set out in
paragraph 6 of the Reply to the Notice of Appeal:
[translation]
(a) the Payer was
incorporated on March 26, 1999; (admitted)
(b) the Payer
specialized in roof repairs and metal work; (admitted)
(c) the company
employed two to seven people; (admitted)
(d) the Payer ran
the business year-round but the busiest period for the Payer was
from September to January;
(e) the Appellant
was hired as secretary on commission; (admitted)
(f) the
Appellant's duties consisted of setting up computer programs,
taking care of invoices, filing, making bank deposits, and
preparing month-ends for the accountant; (admitted)
(g) the Appellant
had two children, Marie, born in November 1999, and Mathis, born
in June 2003; (admitted)
(h) on September 8,
2003, in a statement to the Respondent's representative,
Danny Mousseau stated that the Appellant worked from home while
taking care of her daughter; (denied)
(i) the
Appellant set her hours and her work schedule for the Payer;
(admitted)
(j) during the
periods in question, the Appellant received a fixed salary
regardless of the number of hours actually worked;
(k) from the
company's beginnings, in 1999, to September 23, 2001, the
Appellant provided her services to the Payer with no declared
salary; (admitted)
(l) from
September 24, 2001, to December 15, 2001, the Appellant was on
the Payer's payroll for 30 hours of work per week;
(admitted)
(m) on September 8, 2003,
in a statement to the Respondent's representative, Danny
Mousseau stated that the Appellant provided her services for
around 10 hours per week without being paid, from December 16,
2001, to March 2, 2003;
(n) in the spring of
2003, the Appellant was informed that she needed 187 more hours
to be eligible for maternity benefits;
(o) from March 3,
2003 to April 11, 2003, the Appellant was on the Payer's
payroll for 190 hours of work; (admitted)
(p) on September 8,
2003, in a statement to the Respondent's representative,
Danny Mousseau stated that the Appellant was hired so she could
qualify for employment insurance; (admitted)
(q) on September 8,
2003, in a statement to the Respondent's representative,
Danny Mousseau stated that he would probably not have hired
someone with whom he was dealing at arm's length to perform
the Appellant's work;
(r) the
Appellant's salary was unreasonable considering the services
provided to the Payer;
(s) the Appellant
provided her services to the Payer outside the periods in
question, with no declared wages;
(t) the
Payer's payroll did not reflect the actual hours the
Appellant worked;
(u) the alleged
periods the Appellant worked did not correspond to the periods
actually worked;
(v) the periods the
Appellant was on the Payer's payroll did not correspond to
the Payer's busiest periods of economic activity;
(w) the Appellant's
terms and length of employment, with no set schedule and work
performed with pay and sometimes without pay are
unreasonable;
(x) on January 3,
2002, the Payer gave the Appellant a record of employment with
September 24, 2001, as the first day of work, and December 15,
2001, as the last day of work, 480 insurable hours, and a total
salary of $3,600.00;
(y) on April 24,
2003, the Payer gave the Appellant a record of employment with
March 3, 2003, as the first day of work, and April 11, 2003, as
the last day of work, 190 insurable hours, and a total salary of
$1,900.00;
(z) the
Appellant's records of employment are not reflective of
reality in terms of either the hours or the periods the Appellant
worked;
(aa) the Appellant continued to
provide her services to the Payer, while receiving employment
insurance benefits;
(bb) the Payer and the Appellant
had an arrangement so that the Appellant could qualify for
employment insurance benefits.
Analysis
[6] The Federal Court of Appeal has
defined the role the Act confers on a justice of the Tax Court of
Canada many times. This role does not permit a justice to
substitute his or her discretion for that of the Minister, but it
does carry with it the obligation to "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...decide whether the conclusion
with which the Minister was "satisfied" still seems
reasonable."[1]
[7] In other words, before deciding
whether the conclusion with which the Minister was satisfied
still seems reasonable, I must, in light of the evidence before
me, verify whether the Minister's allegations are well
founded in whole or in part, considering the factors stated in
paragraph 5(3)(b) of the Act.
[8] The credibility of the Appellant
and Mr. Mousseau is not questioned. They testified honestly,
based on their knowledge, and sometimes very emotionally. They
convinced me that the Appellant did, in fact, work for the Payer
under his supervision during the two periods in question, that
she worked around 30 hours per week (except for the last week of
the second period in question) and that her salary was
established based on this 30-hour average. The Appellant was paid
at an hourly rate of $7.50 and $10.00 for the first and second
periods in question, respectively. Outside the periods in
question, the Appellant had various jobs with various employers
and took a client care attendant course, and also provided her
services to the Payer on a volunteer basis, an average of 10
hours per week, evenings and weekends. These services included
some bookkeeping, preparing submissions, bank deposits, and
filing some documents. During the periods in question, she not
only continued to perform the same duties, but she also had two
special mandates: during the first period in question, she
programmed the new computer the Payer had purchased, and during
the second period in question, she developed a new computer
system for the Payer and also filed all the documents that had
not been filed since the Payer's place of business had moved.
It seems reasonable to me that the Appellant worked so many hours
during the periods in question considering the special mandates
the Payer gave her. This, in my opinion, is conclusive regarding
subparagraphs (e), (f), (j), (l), (t) and (w) of the
Minister's allegations.
[9] The question now is whether the
Payer and the Appellant would have concluded the same contract if
they had been dealing at arm's length. In other words, were
the employment conditions more favourable because the Appellant
is the common-law spouse of the Payer's main shareholder? The
Minister alleged the following regarding the working conditions,
to show that they were unreasonable:
(i) the Appellant's salary
was unreasonable considering the services provided to the
Payer;
(ii) the Appellant set her own
hours and her work schedule for the Payer;
(iii) the Appellant performed her work
at home, while caring for her daughter.
[10] As for the Appellant's wages, I
feel that they were more than reasonable considering the work she
performed. Additionally, the Respondent recognized this at the
hearing. This, in my opinion, is conclusive regarding
subparagraph (r) of the Minister's allegations.
[11] The terms of employment were simple:
the employer gave her duties to carry out during the week and
they were to be completed by the weekend. The Appellant testified
that she was to perform her work during the periods in question
because she was being paid. She stated that she would not have
been paid if the work were not completed. As for her work
schedule, the Appellant explained that she worked during usual
working hours, during the day and this is why she drove her
daughter to a babysitter at the start of the day. However, when
the babysitter was unavailable, she worked in the evening when
her common-law spouse was able to take care of her daughter. I
feel that flexibility in the work schedule alone is not enough to
conclude that the Payer and the Appellant would not have
concluded such a work contract if they had been dealing at
arm's length. The fact that the Appellant benefited from such
working conditions does not seem to be to be relevant and
decisive, especially since the type of work given to the
Appellant (essentially programming and filing) does not
necessarily have to be done at a set place or during set hours.
In my opinion, the type of work during the periods in question
explains the length of the Appellant's period of work and the
reason she did not continue to perform these duties. This, in my
opinion, is conclusive regarding subparagraphs (h) and (i)
of the Minister's allegations.
[12] As for the Minister's allegation
that the Appellant's period of work did not correspond to the
Payer's most active commercial periods, I simply do not see
the relevance considering the type of mandate the Appellant was
given during the periods in question. Why would these special
mandates have to be carried out during the Payer's most
active periods? This, in my opinion, is conclusive regarding
subparagraphs (d) and (v) of the Minister's allegations;
neither of these can lead to the reasonable conclusion that they
were not dealing at arm's length.
[13] I feel that the Minister erred by
placing too much emphasis on the type, duration and importance of
the work done outside the employment periods in question. We
shall therefore review subparagraphs (aa), (m), (s) and (k) of
the Minister's allegations. The evidence did show that the
Appellant worked on a volunteer basis for the Payer outside the
periods in question and that this work might have represented up
to 10 hours per week. However, what the Appellant did outside the
employment periods does not seem very relevant to me, since
nothing in the evidence would show that the salary paid during
the employment periods took into account the work accomplished
outside these periods, or that the Appellant included hours
worked outside the employment periods with the hours worked
during the insurable employment periods, or that the work
accomplished outside these employment periods was included in the
work accomplished during these periods. The fact that the
Appellant worked on a voluntary basis outside the periods in
question shows perhaps that she would not have performed this
work on a volunteer basis had she not been the common-law
spouse of the Payer's main shareholder. This is a typical
situation in small family businesses. They often need their
relatives to volunteer their services in order to survive. As
Décary J.A. stated in the Federal Court of Appeal decision
Théberge v. Canada(Minister of National
Revenue - M.N.R.), [2002] F.C.J. No. 464 (Q.L.), at paragraph
21:
...However, that is not the work we are concerned with, and
the judge erred by taking it into account in the absence of any
indication that the insurable employment at issue was subject to
special terms and conditions that were attributable services
being rendered outside the period of employment.
[14] Moreover, I refuse to find that the
Payer and the Appellant came to a false agreement to allow her to
qualify for employment insurance benefits. Granted, the evidence
showed that the Appellant worked the required number of hours to
qualify for employment insurance; however, the Payer needed an
employee to implement the computer system and file the documents
and the Appellant did, in fact, work for the Payer during the two
periods in question, and was compensated for it. Mr. Mousseau
testified that if the Appellant had not been available and
qualified for this work, he would have had to hire someone else.
In my opinion, it is neither unlawful nor reprehensible to
organize one's business in order to benefit from the social
plan of employment insurance, on condition that the services are
provided and the wages correspond to the economic value of the
services provided. This was shown in a satisfactory way in this
case. This, in my opinion, is conclusive regarding subparagraphs
(bb), (o) and (p) of the Minister's allegations.
[15] This case differs from Boudreau
v. Canada(Minister of National Revenue -
M.N.R.)[2] and
Denis v. Canada(Minister of National Revenue -
M.N.R.),[3] mentioned by counsel for the Respondent. In
those cases, the Appellants essentially continued to perform the
same duties and work the same number of hours while receiving
their employment insurance benefits. Moreover, in
Boudreau, supra, the Appellant's spouse changed
her version of the facts when the Minister refused to recognize
her employment and that of the Appellant (her spouse) as
insurable employment. In Denis, supra, no evidence
was submitted that showed the Appellant received a salary. In
this case, the Appellant was hard to believe. This is not so in
the present case. The Appellant went from 30 hours of work per
week to volunteering more or less 10 hours per week. Moreover,
the Appellant was not performing the same duties since the filing
backlog was finished and the computer system was working. The
facts show that the Appellant was only doing the Payer a favour,
this time as the spouse of the main shareholder instead of as an
employee. The facts in this case do not lead me to find it is
likely that the terms of employment were created to falsely
benefit from the Act.
[16] In light of the evidence before me,
after reviewing the factors stated in paragraph 5(3)(b) of
the Act and after verifying the validity of the Minister's
allegations, the conclusion with which the Minister was satisfied
seems unreasonable to me.
Signed at Ottawa, Canada, this 29th day of October 2004.
Bédard J.
Translation certified true
on this 24th day of January 2005.
Elizabeth Tan, Translator
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