|
Citation: 2004TCC690
|
|
Date: 20041112
|
|
Docket: 2004-1245(EI)
|
|
BETWEEN:
|
|
STEVE ARSENEAU,
|
|
Appellant,
|
|
and
|
|
|
|
THE MINISTER OF NATIONAL REVENUE,
|
|
Respondent,
|
|
|
|
AND
|
|
|
|
Docket: 2004-1246(EI)
|
|
9130-1275 QUÉBEC INC.,
|
|
Appellant,
|
|
and
|
|
|
|
THE MINISTER OF NATIONAL REVENUE,
|
|
Respondent.
|
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Bédard J.
[1] The Appellants are appealing from
the decision of the Minister of National Revenue (the
"Minister") that the employment of Steve Arseneau
(the "Employee") during the period at issue,
specifically from June 16 to August 16, 2003, when he worked for
9130-1275 Québec Inc. (the "Payor") is excluded
from insurable employment within the meaning of the Employment
Insurance Act (the "Act") because the Payor and the
Employee were not dealing with each other at arm's
length.
[2] Subsection 5(1) of the Act reads
in part as follows:
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 as follows:
(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.
[4] Section 251 of the Income Tax
Act reads in part as follows:
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;
. . .
[5] The Minister's decision in the
Employee's file is based on the assumptions of fact set out
in paragraph 6 of the Reply to Notice of Appeal:
[translation]
(a) the Payor,
incorporated on May 26, 2003, organizes adventure packages with
accommodation and meals in two hotels or bed and breakfasts on
Les Îles de Madeleine;
(b) before the
incorporation of the Payor, Monica Poirier was the sole owner of
the bed and breakfast, La maison d'Eva-Anne, which she had
been operating for five years;
(c) all of the
assets of La maison d'Eva-Anne, including the building, the
land and the two horses, were transferred to the Payor when it
was incorporated;
(d) the Payor also
acquired a new building and transformed it into an inn (four
rental rooms) which it operated under the name of L'Auberge
du Grand Large;
(e) although the
purchase contract for the second building was not signed until
June 21, 2003, the Payor had obtained authorization from the
sellers to begin renovations on June 9, 2003;
(f) the
Appellant had been hired as an assistant manager; he was
responsible for the maintenance of the buildings, the horse-drawn
wagon tours (sleigh or carriage rides), landscaping and hiring
and managing the staff;
(g) the Appellant
gave sightseeing tours in a carriage and looked after the horses,
their food, maintenance and care;
(h) the Appellant
did not have a specific work schedule to follow; he worked seven
days a week and his hours were not recorded by the Payor;
(i) during the
period at issue, the Appellant received fixed earnings of $499.20
per week regardless of the hours actually worked;
(j) during the
first six weeks of the period at issue, the Payor claims that the
Appellant worked 100 hours per week while he was only paid for 40
hours and while, during the first two weeks, the Appellant worked
for Construction G.A. Tech Inc. as a labourer for 40 hours per
week;
(k) the renovations
of the second bed and breakfast began on June 9, 2003, and the
official opening, when the first guests were welcomed, took place
on July 16, 2003;
(l) from the
opening of the inn, the Appellant also had to maintain the
grounds, mow the lawn, tend to the flowers, take out the trash,
repair the equipment and pick up guests at the airport or
boat;
(m) the Appellant was only
paid up to August 16, 2003, although the Payor received guests
until October 4, 2003;
(n) the Appellant
allegedly stopped working on August 16, 2003, although it was the
busiest week for room rentals for the Payor's two inns;
(o) the Appellant
performed services for the Payor before and after the period
during which he was on the Payor's payroll;
(p) the duration of
the Appellant's employment does not correspond with the
Payor's period of activity or with the period that he
actually worked for the Payor.
[6] The Minister's decision in the
Payor's file is based on essentially the same assumptions of
fact as those set out in the preceding paragraph.
[7] The Federal Court of Appeal has
defined the role that the Act confers on a justice of the Tax
Court of Canada many times. This role does not permit the justice
to substitute his or her discretion for that of the Minister, but
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]
[8] 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
nevertheless well-founded, in whole or in part, having
regard to the factors set out in paragraph 5(3)(b) of the
Act.
[9] The question now is whether the
Payor and the Employee would have concluded the same work
contract if they had been dealing with each other at arm's
length. In other words, were the employment conditions more
favourable because the Payor and the Employee were not dealing
with each other at arm's length?
Analysis
[10] The Appellant had been hired as an
assistant manager; he was responsible for the maintenance of the
buildings, the horse-drawn wagon tours (sleigh or carriage
rides), landscaping and hiring and managing the staff that
reported to him.
[11] In the document (Exhibit I-2) provided
by Monica Poirier (Employee's spouse and principal
shareholder of the Payor) to Louise Dessurault, Appeals Officer,
Employment Insurance Section, Canada Customs and Revenue Agency,
the Employee's usual duties were described as follows:
Maison d'Eva-Anne / Auberge du Grand Large
•
Garbage (everyday)
•
Servicing and maintenance (cleaning window screens and windows /
once per week, door handles, change bulbs, creaking doors, leaky
sinks . . .)
•
Commissionaire
•
Lawn (tractor, mower, mini-mower, trees and plants) 1 1/2 days
per week until mid-August
•
Customer service (airport / boat shuttle, luggage, storing bikes,
information . . .)
Horse-drawn wagon / horses (in season)
•
Tours, by reservation (1 hr 30 mins each time)
•
Feed the horses (three times a day / when at work)
•
Clean and bush the horses (one hour a day)
•
Harnessing (one hour of preparation)
•
Unharnessing (one hour: clean the stalls; put away the wagon)
•
Service the wagon (clean, oil, touch up the paint / three hours
per week)
Wagon / horses (off season)
•
Lightly feed (once per day / during morning break / Mario once
per day in the evening)
•
Clean and brush the horses (once per week)
[12] The Employee testified[2] that he spent about four hours
per week on grounds keeping (cutting the grass, tending to the
flowers and plants) whereas, according to Exhibit I-2, that
activity represented 12 hours of work per week. It should also be
pointed out that the Employee testified[3] that the maintenance work took 10 and
20 hours of work per week. The Appellant did not testify as to
the number of hours that he had to spend per week on running
errands for the Payor, performing services for the Payor's
guests and taking out the garbage. However, he testified that he
spent about one hour per week providing shuttle services for the
Payor's guests. He also testified that he had spent 15 to 25
hours per week on the usual activities. That was in addition to
the hours spent on activities related to the horse-drawn wagon
tours and maintaining the horses and carriages.
Exhibit I-2 revealed that, during the period at issue,
the Employee fed the horses daily, without specifying the number
of hours the Employee spent on that activity. Exhibit I-2 also
indicated that the Employee brushed and cleaned the horses every
day and that this activity took him one hour. Lastly, according
to Exhibit I-2, the maintenance of the carriages and sleighs
required about three hours of work per week. Consequently,
according to Exhibit I-2, during the period at issue, the
Employee spent around 10 hours per week on the maintenance of the
horses and carriages. Furthermore, according to the same document
and the Appellants' testimony, each horse-drawn wagon tour
represented approximately three hours and a half of work. It can
therefore be inferred that the Employee worked from 25 to 35
hours per week for the Payor performing the usual tasks. That
number of hours does not include the hours spent on the
horse-drawn wagon tours.
[13] The Minister alleged in paragraph 6(j)
of the Reply to Notice of Appeal in the Employee's file that,
during the period at issue, the Employee received fixed earnings
of $499.20 per week regardless of the hours actually worked. In
my view, it is necessary to first determine, from the evidence,
the hours actually worked by the Employee.
[14] I should first point out that, from the
evidence submitted, I was not able to specifically determine the
number of hours actually worked by the Employee during the period
at issue. Not only did the Payor fail to record the hours worked
by the Employee, but the evidence in that regard was also vague
and contradictory on a number of points.
[15] For the first two weeks of the period
at issue, the evidence[4] clearly established that the Employee had worked 60
hours per week for the Payor even though he had only been paid
for 40 hours per week by the Payor.
[16] During the three weeks following that
first period of two weeks, the evidence clearly establishes[5] that the Employee
had worked 100 hours per week for the Payor even though he had
only been paid for 40 hours per week.
[17] During the week that began on July 14,
2003, the date on which the Auberge du Grand Large opened, the
Employee allegedly worked around 40 hours per week for the Payor
according to Ms. Poirier's testimony and
Exhibit I-2. However, Ms. Poirier's statutory
declaration (Exhibit I-1) indicates that the Employee allegedly
worked 100 hours during that week. In fact, in that statutory
declaration, did Ms. Poirier not state that the Employee had
worked 100 hours per week for the Payor during the first six
weeks?
[18] During the week that began on July 21,
2003, had the Employee worked 40 hours? My analysis of the
evidence does not support that conclusion. According to Exhibit
I-2, the Employee, in addition to performing his usual tasks that
took him from 25 to 35 hours per week,[6] had given four horse-drawn wagon
tours. However, the Respondent demonstrated[7] that the Employee had only given two
tours that week. Since each tour represented about three hours of
work, I find that the employee had worked from 32 to 42 hours
during that week.
[19] During the week that began on July 28,
2003, had the Employee worked 40 hours for the Payor? According
to Exhibit I-2, the Employee, in addition to performing his usual
tasks that took him from 25 to 35 hours per week, had given seven
horse-drawn wagon tours. However, the Respondent demonstrated
that the Employee had only given five horse-drawn wagon tours.[8] Since each tour
represented about three hours of work, I find that the employee
had worked from 40 to 50 hours during that week.
[20] During the week that began on August 4,
2003, had the Employee worked 40 hours for the Payor? According
to Exhibit I-2 and Ms. Poirier's testimony, the Employee, in
addition to performing his usual tasks that took him from 25 to
35 hours per week, had given five horse-drawn wagon tours.
However, the Respondent demonstrated[9] that the Employee had only given two
tours during that period. Since each tour represented about three
hours of work, It follows that the employee had worked from 31 to
41 hours during that week. Furthermore, according to Exhibit I-2
and Ms. Poirier's testimony, the Employee apparently painted
the exterior siding (cedar shingles) of the Auberge du Grand
Large during that week and the week beginning on August 11, 2003.
Although the evidence is silent in regard to the number of hours
the Employee spent on that activity, I find that the Employee had
worked more than 40 hours during that week.
[21] During the week that began on August
11, 2003, had the Employee worked 40 hours for the Payor?
According to Exhibit I-2 and Ms. Poirier's testimony, the
Employee, in addition to performing his usual tasks that took him
from 25 to 35 hours per week, had given six horse-drawn wagon
tours and painted the exterior siding of the Auberge du Grand
Large. It therefore follows that the Employee had worked from 43
to 53 hours during that week. That is in addition to, as I
mentioned in the preceding paragraph, a significant number of
hours of work spent on painting the exterior siding of the
Auberge du Grand Large.
[22] Although the evidence submitted by the
Appellants was vague and contradictory in some regards, I find
that the average hours worked per week by the Employee during the
period at issue was significantly more than 40 hours.
Furthermore, had Ms. Poirier not stated the following in her
statutory declaration:[10]
[translation]
. . . Steve is paid weekly for a total of 40 hours per week.
He may work many more hours in a week but I cannot pay him for
more than 40 hours.
[23] Thus, the following question arises:
Would an employee and an employer who were not related have
concluded the same work contract? In my view, it is unreasonable
to believe that such work arrangements would have been offered to
and accepted by a worker who was not related. A worker who was
not related would have required that he be paid for all of the
hours of work performed. In my view, a worker would not have
accepted set weekly earnings of $499.20 in compensation for that
number of hours of work.
[24] I will now examine the Minister's
allegations in paragraphs 6(1)(n), 6(1)(o) and 6(1)(p) of
the Reply to Notice of Appeal in the Employee's file, which
the Appellants are challenging. The allegations read as
follows:
[translation]
the Appellant allegedly stopped working on August 16, 2003,
although it was the busiest week for room rentals for the
Payor's two inns;
the Appellant performed services for the Payor before and
after the period during which he was on the Payor's
payroll;
the duration of the Appellant's employment does not
correspond with the Payor's period of activity or with the
period that he actually worked for the Payor.
[25] There is no doubt that the Payor's
room occupancy rate remained high during the weeks following the
Employee's dismissal. In fact, a review of Exhibit I-4
submitted by the Respondent convinced me of that fact.
[26] Now, the following questions must be
asked: Why did the Payor dismiss the Employee? Did the Employee
perform services for the Payor outside the period at issue? What
was the nature, duration and importance of the services rendered
outside the period at issue?
[27] Normally, what an employee does outside
of his or her periods of employment is relevant if the evidence
establishes that the wages paid during the periods of employment
take into account the work performed outside those periods, or
that the employee included in the hours spent on his or her
insurable employment the hours of work performed outside the
periods of employment or that the work performed outside those
periods of employment were included in the work performed during
those periods. That was not the situation in this case. However,
in the case at bar, it is still necessary to examine the nature,
duration and importance of the work performed by the Employee
outside the period at issue. In fact, If I accepted that an
employee who is related to his or her employer can continue to
perform more or less the same services for the employer outside
the periods of employment on a voluntary basis, that would equal,
in my view, interpreting the Act, although it is a social Act, as
allowing small businesses to indirectly subsidize themselves from
the benefits set out in that Act.
[28] The question now is why the Payor
dismissed the Employee on August 16, 2003, particularly
during a period where the Payor's room occupancy rate was
very high. Ms. Poirier testified that the Payor dismissed the
Employee because the horse-drawn wagon tours were not profitable
enough to allow the Payor to keep the Employee in his employment.
Also, Ms. Poirier added that at the time when the Employee had
been dismissed, the Payor had very few room reservations booked
and the Payor could not at that time foresee that such a large
number of visitors would rent rooms after the Employee's
dismissal.
[29] The Payor's argument that it had
dismissed the Employee because the horse-drawn wagon tours were
not profitable enough to allow the Payor to keep the Employee
longer was unpersuasive. In fact, the evidence very clearly
establishes that the activities related to the horse-drawn wagon
tours only represented a small percentage (4.66%) of the
Payor's sales and that the time spent by the Employee during
the period at issue on horse-drawn wagon tours and the
maintenance of the horses and equipment represented only a small
percentage of the hours worked during that same period.
[30] The Payor's argument that it could
not have foreseen, given the few reservations booked at the time
of the Employee's dismissal, that it would rent so many rooms
after the dismissal was unpersuasive. The evidence established
that the number of rooms rented by the Payor after the
Employee's dismissal represented about 36% of the room
rentals for the period from June to October 2003. It should
be noted that Ms. Poirier had been operating a bed and breakfast
for five years. She may have been able to convince me if she had
demonstrated, based on her experience and statistics on the
industry in Les Îles de la Madeleine in that regard, that
there were usually very few room rentals in bed and breakfasts
after August 16, 2003. In other words, she may have been able to
persuade me if she had demonstrated that, in the case at bar, it
was merely an exceptional year in that regard. Moreover, did the
Payor not announce on its Internet site that the period from June
15 to September 15 was the high season?
[31] Ms. Poirier testified that the Employee
had performed very few services for the Payor after the
dismissal. With respect to five horse-drawn wagon tours that had
taken place after the dismissal, she testified that three of them
had been given by the Employee's brother and the others by
the Employee. With respect to tending to the lawn and flowers,
she testified that the grass had only been cut three times after
the Employee's dismissal and that she herself had cut the
grass on one or two occasions. Furthermore, she explained that
she herself and the Payor's housekeeping attendant had shared
the other tasks usually performed by the Employee since the large
jobs related to maintaining and repairing the inns had at that
time been done.
[32] It should be pointed out that neither
the Payor's housekeeping attendant or the Employee's
brother testified to confirm Ms. Poirier's allegations. It is
also notable that, from 1999 until the Payor's incorporation,
the Employee had been responsible for maintenance work on the
Auberge d'Eva-Anne, which belonged to Ms. Poirier, the
horse-drawn wagon tours and the care of the horses, without pay.
Were the Employee's unpaid efforts not rewarded upon the
creation of the Payor in May 2003? In fact, the Employee
testified that he had obtained 40% of the Payor's shares not
only because he had invested $25,000 in the Payor's
capital-stock but also because Ms. Poirier, his spouse, wanted to
reward him for his unpaid efforts. With regard to the period
after the dismissal, the Appellants simply did not convince me
that the Employee had remained as inactive as Ms. Poirier
would have me believe.
[33] In light of the evidence before me,
after considering the factors set out in paragraph 5(3)(b)
and verifying whether the Minister's allegations are
well-founded, I find that the conclusion with which the
Minister was satisfied is reasonable.
[34] For those reasons, the appeals are
dismissed and the Minister's decision is affirmed.
Signed at Ottawa, Canada, this 12th day of November 2004.
Bédard J.
Certified true translation
on this 31st day of March 2005
Aveta Graham, Translator
Email this Content