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Citation: 2004TCC163
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Date: 20040305
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Docket: 2003-1808(EI)
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BETWEEN:
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CHRISTINA XUDOU,
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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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and
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SAFE-TECH SECURITY INC.,
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Intervenor.
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[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Tardif J.
[1] This
is an appeal from a determination dated February 11, 2003, concerning the
period from September 2 to November 4, 2002, while the Appellant was
working for Safe-Tech Security Inc., a company managed and controlled by her
spouse, the sole shareholder. The work done by the Appellant was excluded from
insurable employment because she and the payor were not dealing with each other
at arm's length.
[2] In
making his decision, the Respondent relied on the following presumptions of
fact:
[translation]
(a) The payor, Safe-Tech Security Inc., specializes in the sale and
installation of alarm systems and surveillance cameras;
(b) The sole
shareholder of the payor is Dimistrios Alexiou, the spouse of the
Appellant;
(c) The payor
deals with about 200 customers and has annual sales in the range of $200,000;
(d) The only
workers considered to be employees of the payor are the shareholder and the
Appellant;
(e) The payor
also employs a number of technicians whom it considers to be subcontractors;
(f) The
shareholder's role consists primarily in handling the sale and installation of
alarm systems or cameras, collecting accounts and monitoring customer
satisfaction;
(g) The
Appellant, who has training in administration and finance, has provided
secretarial and reception services for the payor since 1996;
(h) Her duties
include entering data and preparing files for each customer, preparing
estimates, receiving service calls and reminding customers when necessary,
making bank deposits, printing the monthly reports, handling collections,
keeping the books and other duties relating to the office work;
(i) The payor
also uses the services of a chartered accountant, who prepares the tax returns
and T-4 information slips;
(j) The
Appellant works in the family home;
(k) Neither the
payor nor the Appellant records the hours worked by the Appellant;
(l) During the
period in issue, the Appellant had no fixed hours of work. She had to be
available seven days a week to deal with any unforeseen situation;
(m) During the
years prior to the period in issue, the Appellant worked an average of 40 hours
per week;
(n) The record of
employment submitted by the payor for the period in issue shows that the
Appellant worked 60 hours per week;
(o) Her weekly
remuneration was $600, regardless of the number of hours actually worked;
(p) Prior to the
period in issue, the Appellant worked for the payor for 40 hours per week,
for weekly remuneration of $600, while during the period in issue she performed
the same services, for the same weekly remuneration, but worked 60 hours per
week, and this represented a 33 percent salary reduction;
(q) On
November 29, 2002, the Appellant cashed six cheques that applied to the
weeks from October 4 to November 8, 2002;
(r) The Appellant
has four children, born on December 18, 1997, July 27, 1999, September 21,
2001, and October 22, 2002;
(s) During 2001,
the Appellant was off work for seven months;
(t) During 2002,
the Appellant was off work for 10 months;
(u) Because of
the confidential nature of the sale of alarm systems, the payer did not replace
the Appellant during the periods she was off work;
(v) The Appellant
stated that during the periods she was off work, the shareholder performed the
most urgent tasks;
(w) Between the
periods when she was on the payor's payroll, the Appellant continued to perform
services for it, without remuneration, while she was off work and was receiving
unemployment benefits.
[3] The
Appellant admits subparagraphs 5(a), (b), (e), (f), (g), (h), (i), (j), (k),
(n), (r), (s), (t), (u) and (v). She denies subparagraphs (c), (d), (l), (m),
(o), (p), (q) and (w).
[4] The
Appellant based her appeal on the grounds stated by her counsel in a letter
dated April 30, 2003. The following excerpts are important to note:
[translation]
...
It is our submission that the Tax
Court of Canada is justified in intervening in this case for the following
reasons:
(a) In his
determination, the Minister failed to have regard to all the circumstances as
required by the Act, and considered certain factors that are of no relevance,
and violated a principle of law;
(b) The
Minister's determination is the result of an inappropriate use of his
discretion;
...
In his determination, the Minister
had regard to the following irrelevant factors:
(a) The late
cashing of the paycheques by the Appellant is of no relevance to the
remuneration paid, the terms and conditions of employment and the duration,
nature and importance of the work performed;
The
Appellant was free to cash her paycheques when she wished and that has nothing
to do with her contract of employment with Safe‑Tech Security Inc. It is
an entirely irrelevant factor to which the Minister gave considerable
consideration in his determination;
(b) The
Appellant's latitude in her work hours and the manner in which she managed her
work is an entirely irrelevant factor, once the Minister had concluded in his
determination that the payor was able to exercise its power to control and
supervise the Appellant;
(c) The erroneous
fact that the Appellant banked the necessary number of hours at work before the
births of her children is an erroneous and incorrect factor. In addition, that
factor is entirely irrelevant and has nothing to do with the Appellant's
contract of employment;
In his
determination, the Minister failed to have regard to the following relevant
factors:
(d) The payor's
use of subcontractors during the period the Appellant was absent, to make up
for her absence during her maternity leave;
(e) The
Appellant's statement concerning her work week varying between 40 and 60 hours
per week. The Minister incorrectly established the Appellant's salary on a
fixed basis of 60 hours per week;
(f) That the
Appellant received paid vacation days as vacation pay and simply stated in his
determination, incorrectly, that the Appellant received no vacation pay;
...
[5] The
Appellant is the wife of Dimistrios Alexiou, the sole shareholder of Safe-Tech
Security Inc., a company incorporated in the early 1990s. She has worked for
the company controlled by her spouse since 1996. In her application for review
dated January 14, 2003, the Appellant summarized her job description with the
company as follows:
...
The following letter is
an objection to ruling # CEO0300 9111 5110.
I, Christine Xudou have been
employed by Safe-Tech Security Since 1996 to do the following duties:
- data entry
- Receptionist
- Scheduling installations/service
calls
- Preparing files for new customers
- Downloading
- Filing
- Updating file information (new
codes, cancelled codes, changes...)
- Payroll
- Accounts receivable
- Accounts payable
- GST-TVQ etc...
...
[6] The
evidence is that the Appellant undeniably performed work that was very
important, if not essential, for the company controlled by her spouse. The work
needed for the proper operation of the company was performed from an office in
the family home.
[7] The
Appellant therefore did in fact work, and her work was essential for the proper
operation of the company. In fact, Alain Lacoste, the person responsible
for the Appellant's case, recognized the contribution made by the Appellant to
the Intervenor company.
[8] However,
there is one unique aspect to this case. While the Appellant was such an
essential employee, the evidence is that the remuneration she was paid for her
work amounted to barely one full year in a five-year period. In other years, in
five years, the Appellant received a salary for various periods, interspersed
with periods when she received employment insurance and maternity benefits; the
total of the periods of remunerated work amount to barely one year.
[9] Who
replaced the Appellant during periods when she was not receiving remuneration?
[10] Her spouse worked more hours and used the services of subcontractors
for certain work.
[11] Did the Appellant do work during the periods she was off?
[12] She and her spouse said no; the Appellant stated that she did not
perform any work during the periods when she was not on the payroll. According
to her, the work simply piled up or was done by her spouse in addition to his
regular duties.
[13] Why did the company not hire someone else during the periods when the
Appellant had to be off work for the birth of one of her children or for other
reasons? The only explanation was that the business was confidential.
[14] The company's representative, the Appellant's spouse, placed great
emphasis on the fact that this is a very specialized kind of business, in that
it has to collect some extremely confidential information at its office. His
position was that the presence of a third party could have harmful consequences
for the proper operation of his business, if a third party or parties had had
access to such information, suggesting that all third parties were unreliable
or irresponsible.
[15] No evidence other than the testimony was presented to show that the
company had spent more on subcontractors during the periods when the Appellant
was not on the payroll.
[16] Dimistrios Alexiou placed great emphasis
on the unique aspects of the business; on that point, one thing he said was
that the company had to be available to listen to its customers' needs seven
days a week, 24 hours a day. On that point, he gave the example of a
restaurant that was full to bursting when the alarm went off, and an extremely
rapid response was needed.
[17] He also said that with his commercial and corporate customers the work
often had to be done outside business hours, or in fact at night.
[18] All of the facts submitted by both the Appellant and the Respondent
raise a very important question. How do we imagine that this company, with the
number of customers growing year by year, could do without the Appellant's
services, which were unanimously recognized to be essential, for the equivalent
of four years out of five?
[19] To say, essentially, that the work that was not done by the Appellant
during periods when she was receiving employment insurance or maternity
benefits was done by her spouse, who was partially available because he made
more frequent use of subcontractors, is an entirely implausible and even far-fetched
explanation.
[20] In addition to the ground on which the determination was based, the
Respondent also took into consideration other less conclusive but certainly
relevant facts. I am referring, in particular, to the following excerpts from
the report prepared after the Appellant's case had been analyzed:
Exhibit I‑1,
tab 9, p. 5
[TRANSLATION]
Remuneration paid
The worker received weekly
remuneration of $600 ($10/hour) with a 60‑hour work week during the
period in issue (September 2, 2002, to November 9, 2002). During the
previous period of employment (March 5, 2001, to July 20, 2001), the Appellant
received the same salary, but for shorter work weeks—40 hours ($15/hour); this
represents a salary reduction from the period in issue. Who would agree to a 33
percent salary reduction for longer work weeks? A person dealing with the payor
at arm's length would certainly not enter into this kind of agreement.
In addition, we simply cannot
believe that a person dealing with the payor at arm's length would have waited
so long to cash her paycheques (see item 23, section 5, of this report).
Item 23 of section 5
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Paycheques for
September 6, 2002
September 13, 2002
September 20, 2002
September 27, 2002
October 4, 2002
October 11, 2002
October 18, 2002
October 25, 2002
November 1, 2002
November 8, 2002
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Cashed on
September 30, 2002
September 30, 2002
October 18, 2002
illegible
November 29, 2002
November 29, 2002
November 29, 2002
November 29, 2002
November 29, 2002
November 29, 2002
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Terms and conditions of
employment
The payor has an opportunity to
exercise its power of control and supervision of the Appellant, having regard
to the relationship between the two parties; it is obvious that Dimitrios Alexiou
of Safe‑Tech Security Inc. has complete confidence in the Appellant and
allows her considerable latitude in her work hours and the manner in which she
manages her work.
It is clear, however, that a person
dealing with the payor at arm's length would never have waited so long to cash
his or her paycheques.
Duration of the work
Having regard to the importance of
the duties performed by Christina Xudou (see item 13(a) to (u) of
section 5 of this report) and the time required to perform them
(60 hours per week), it seems improbable that when she was off work, the
president would be capable of performing his duties and the worker's duties,
because from that perspective we would be looking at 100‑hour work weeks
for the payor, for nearly four non-consecutive years (1998 to 2002).
We might therefore think that the
worker reconciled her household duties and her duties for the payor year round
(with the exception of the weeks of her children's births, obviously), and she
was never completely off work, particularly given that she lives at the place
of business. It is unimaginable that a business would employ someone with a 60‑hour
work week and specify that her position is vital to the company, and at the
same time do without her for nearly four non-consecutive years!
In addition, the Appellant's
employment history over five years demonstrates that she stated that she
returned to work for the payor for enough weeks of employment before her
children were born to be able to claim employment insurance maternity benefits.
Nature and importance of
the work
The work performed by the Appellant
is real, important and entirely justified in terms of the needs of the
business. We cannot believe that the company could have done without the
Appellant's services for four non-consecutive years, even though she told us
that the payor replaced her and at the same time performed his own duties as
president of the company.
[21] The explanation offered by the Appellant and her spouse, Dimistrios Alexiou, the representative of Safe-Tech Security
Inc., are quite simply implausible. It is unimaginable that such an important
person, who held a position so strategic for the employer, would be called on
in the course of the company's business for only the equivalent of one year out
of a five-year period.
[22] I am entirely persuaded that the Appellant worked without
interruption, other than for very short periods when her children were born.
[23] In fact, I noted that one of the parts of the period in issue, the
portion from September 2 to November 9, 2002, included a period when
she plainly did not work: the days before and after October 22, 2002, the
date on which she gave birth to one of her children. That was admitted by the
Appellant, in paragraph (r).
[24] Where the parties to a contract of employment are not dealing with
each other at arm's length, the analysis must take into account periods that
are often longer than the periods described in the records of employment, given
that the costs and benefits may be discernable outside the period when the
person was on the payroll and was remunerated.
[25] For example, because of the person's proximity to the payor, a person
who is not dealing with the payor at arm's length may do all or part of the
same work without remuneration, after receiving a separation slip. In that
case, it is obvious that the length of the period of paid work was not
established based on the needs of the business or determined by essentially
economic factors.
[26] In this case, the evidence submitted by the Appellant and the
Intervenor to discredit the exercise of discretion is based on implausible
explanations and grounds.
[27] Where parties not dealing with each other at arm's length collaborate,
help each other and support each other, this will not necessarily have
consequences for the contract of employment there may be or have been between
them; where things are completely different, however, is when remuneration was
paid for the same duties during one period according to a certain work
schedule, while during another period, or outside that work schedule, no remuneration
was paid. In other words, the same duties were performed, but on a volunteer
basis or free of charge. Sometimes remuneration is paid, sometimes it is not.
[28] This case is also an excellent example of the need to have regard to
certain facts that may have taken place outside a period in issue. In this
case, the Appellant and the payor allegedly agreed to two different work
schedules for the performance of work of the same quality and quantity. At one
point, the Appellant was working 40 hours and at another point she was
working 60 hours, for the same remuneration. That is possible and
plausible between people not dealing with each other at arm's length, but not
between unrelated parties.
[29] In this case, the Respondent did an exhaustive analysis of all the
relevant facts; he did not ignore or forget anything that could have justified
a conclusion other than the one reached. The determination resulted from a
judicious analysis of the relevant facts. The various factors taken into
consideration were assessed fairly and reasonably and the conclusion reached is
also entirely logical and appropriate.
[30] Contrary to the unsupported assertions by the Appellant, who had the
burden of proof, the Respondent did not assign extreme or excessive weight to certain
facts and did not exclude any factor that could have called for a different
conclusion from his analysis.
[31] I therefore conclude that the Appellant and the Intervenor have not
discharged their burden of proof by establishing, on a balance of probabilities,
that the conclusions reached by the Respondent were unreasonable, having regard
to the facts analyzed. Rather, the evidence established that the discretion was
exercised in a judicious and irreproachable manner, by taking into
consideration all of the relevant evidence, with discernment and on a fair
balance.
[32] The evidence is that the Appellant performed work that was essential
to the company managed by her spouse. At the same time as she was performing
her essential work, the Appellant gave birth to a fourth child. I do not doubt
for an instant what the Appellant and her husband had to do to get through that.
[33] The insurability of employment must be determined on the basis of
rational criteria associated with a business relationship in which decisive
weight should not be placed on compassionate family considerations. In this
case, there is no doubt that there was an agreement under which the Appellant
did everything she could to assist her spouse. The extent to which she was
available, and the work she did, are reflected in the payroll and on the books,
under an apparent contract of service.
[34] However, the evidence submitted failed to demonstrate that the work
was done on terms and conditions that were comparable or similar to what a
third party would have been given.
[35] The analysis of the various factors considered justified the
determination that the work performed by the Appellant was excluded from
insurable employment.
[36] I did not note or notice anything that would discredit the quality of
the work in terms of the exercise of discretion. The conclusion reached, to
which the appeal relates, is logical and reasonable. The facts relied on leave
no doubt that a third party would never have agreed to a substantially similar
contract of employment.
[37] Accordingly, the appeal is dismissed.
Signed at Ottawa, Canada, this
5th day of March 2004.
Tardif
J.
Translation certified true
On this 30th day of March 2009
Monica Chamberlain, Translator
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