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Citation: 2003TCC304
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Date: 20030502
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Dockets: 2002-1180(EI)
2002-1341(EI)
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BETWEEN:
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FRANCINE DENIS,
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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
Deputy Judge Somers, T.C.C.
[1] These appeals
were heard on common evidence on March 11, 2003, at Québec, Quebec.
[2] The appellant
appeals from the decisions of the Minister of National Revenue (the “Minister”)
according to which the employment held during the periods at issue, namely,
from February 22 to September 17, 1999, from May 22 to September 22, 2000, and
from June 25 to September 28, 2001, with Gérard Lapointe, who incorporated
himself in 1999 under the name of Gérard F. Lapointe Inc., the payer, was not
insurable on the ground that she and the payer did not deal at arm’s length.
[3] Subsection 5(1)
of the Employment Insurance Act (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;
[...]
[4] Subsections 5(2)
and (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.
[5] 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; and
[...]
(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;
(b) a
corporation, and
(i)
a person who controls the corporation, if it is controlled by one person,
(ii)
a person who is a member of a related group that controls the corporation; or
(iii)
any person related to a person described in subparagraph (i) or (ii); and
[...]
[6] The burden of proof lies with the appellant. She must
establish on a balance of probabilities that the Minister’s decisions are
unfounded in fact and in law. Each case must be decided on its own merits.
[7] In making his decisions, the Minister relied on the
following assumptions of fact set out in paragraph 5 of the Reply to the Notice
of Appeal in docket 2002-1180(EI), which were admitted or denied:
[Translation]
(a) The payer, the appellant’s common-law spouse,
operated a business offering plastering and house painting services. (admitted)
(b) During the period at issue, the payer was the
sole owner of the business; he incorporated himself in September 1999 under the
name of “Gérard F. Lapointe Inc.” (admitted)
(c) The payer hired only two people as a rule,
including the appellant and her brother (S. Denis). Occasionally, the payer
hired additional employees for short periods. (admitted)
(d) The appellant worked for the payer for 14 years.
(admitted)
(e) The appellant owned the building where the
payer’s office and warehouse were situated; she received no compensation from
the payer for the use of these premises. (denied)
(f) The main duties of the appellant consisted of
·
Answering the telephone.
·
Billing customers.
·
Preparing the payroll.
·
Handling the accounts receivable, accounts payable and
trade accounts payable.
·
Making bank deposits.
·
Doing the errands required. (admitted)
(g) The payer hired an outside accountant, paid at
$100 a month, to review the appellant’s work, enter the data in the computer
that the appellant had compiled manually, calculate source deductions and
prepare the various government returns. (admitted)
(h) The appellant had no work schedule to follow and
her hours were not recorded by the payer. (denied)
(i) During the period at issue, the appellant was
allegedly paid in cash while the other employees were paid by cheque. (denied)
(j) During the period at issue, there is no
evidence of the remuneration allegedly paid to the appellant. (denied)
(k) The appellant allegedly received a fixed
remuneration of $450 a week, regardless of the hours actually worked. (denied)
(l) According to the payer’s 1999 payroll journal,
the appellant allegedly worked during the weeks of February 21 to February 27,
May 2 to May 7, May 23 to May 29 and continuously thereafter from June 14 to
September 17, whereas she provided services to the payer during weeks when she
was not entered in the payroll journal. (denied)
(m) The alleged period of employment of the appellant
does not coincide with the business’ period of activities. (denied)
[8] The assumptions
of fact set out in paragraph 5 of the Reply to the Notice of Appeal in docket
2002-1341(EI) are substantially similar to those listed above.
[9] The appellant was
the common-law spouse of Gérard Lapointe, the payer, when he operated a
business offering plastering and house painting services. In September 1999, the
payer set up a company, of which he was the sole shareholder, under the name of
Gérard F. Lapointe Inc.
[10] According to the
payer’s payroll journal (Exhibit A-4), the appellant worked in 1999 during the
weeks of February 21 to February 27, May 2 to May 7, May 23 to May 29 and June
14 to September 17, 1999. According to the records of employment filed in
evidence, the appellant worked for the payer from February 22 to September 17,
1999, (Exhibit A-1), from May 22 to September 22, 2000, (Exhibit A-2), and from
June 25 to September 28, 2001, (Exhibit A-3).
[11] The appellant
worked for the payer for 14 years. Her main duties consisted of answering the
telephone, invoicing customers, preparing the payroll, handling the accounts
payable and the trade accounts payable, making bank deposits and doing errands.
In addition, according to the payer, the appellant cleaned the office.
[12] The payer hired an
accountant for $100 a month to review the appellant’s work, enter the data
compiled manually by the appellant in the computer, calculate source deductions
and prepare the various government returns.
[13] The appellant was
the owner of the building in which the office and warehouse for the payer’s
business were situated. Gérard Lapointe confirmed that he did not pay rent to
the appellant but in lieu of compensation he took care of the heating,
electricity and maintenance expenses.
[14] According to the
payer, the appellant worked from 42 to 43 hours a week; if she worked fewer
hours in one week, she made up for it the following week.
[15] The office
occupied by the appellant was equipped with a computer, a telephone, a
calculator and a filing cabinet, all belonging to the payer. The office
furnishings, however, belonged to the appellant.
[16] Gérard Lapointe
stated that he paid the appellant in cash if he could not use his line of
credit and that he did the same for the other employees. He added that he
advanced money to the appellant during and outside the periods at issue, that
he deducted these advances from her salary and that she was always remunerated
for her work for the payer.
[17] The appellant on
occasion used her own car to run errands but, according to the payer, he paid
for the gas.
[18] On
cross-examination, Gérard Lapointe stated that the appellant cleaned the
office: she vacuumed it once a day. He said that the office furnishings
belonged to the appellant as did the typewriter, the shelving and the desk, but
the computer was his.
[19] The payer stated
that he did not know whether the appellant had done work for him outside the
periods at issue. He added that she had run errands as needed but could not
give details.
[20] In the register of
disbursements, filed as Exhibit I-1, it is indicated that the payer paid
“office rent” on November 1, 1999, in the amount of $500.00, on November 25,
1999, in the amount of $200.00 and on March 6, 2000, in the amount of $400.00.
According to the register prepared by the appellant, the rent was not paid on a
regular basis nor was it the same amount every time.
[21] Gérard Lapointe
acknowledged that the writing appearing on a number of invoices and tenders
filed as Exhibits I-2 and I-3 was definitely that of the appellant. It should
be noted that a number of these invoices were prepared by the appellant outside
the periods at issue. He also acknowledged that the appellant had prepared the
register of disbursements (Exhibit I-1), and that a number of entries had been
made outside the said periods.
[22] Lyne Courcy, an
appeals officer with the Canada Customs and Revenue Agency, contacted the
appellant by telephone on January 23, 2002, and after the telephone
conversation completed two reports, one for the period of 1999 and the other
for the periods of 2000 and 2001. In her report for the periods of 2000 and 2001,
the appeals officer included the additional information taken from one of the
two statutory declarations, namely, that of October 30, 2001, made by the
appellant to France L. Beaulieu, a Human Resources Development Canada officer
(Exhibit I‑9). In her testimony, the appellant acknowledged that the
facts described in these reports reflected the reality.
[23] In her statutory
declarations, the appellant stated that the business on average hired two
employees, including herself and the brother of Gérard Lapointe but from
time to time other employees were hired as required.
[24] She explained that
her duties consisted of answering the telephone, doing the invoicing, paying
the trade accounts payable, making bank deposits, writing cheques and making
clean copies of the tenders.
[25] According to her
statements, she worked 40 hours a week and did not record the number of hours
worked because she was paid a fixed salary of $450.00 a week. She added that
she may have worked less than 40 hours in some weeks but made up the time the
following week and said she was paid by cheque or in cash.
[26] She admitted that
she might have worked for the payer outside the periods at issue. In her
statement of October 30, 2001, she acknowledged that the pay cheques were not consistent
with the salary journal and explained that the payer had lent her money in
February or March 2001 and by agreement the loan was to be deducted from her
pay in the summer of 2001. However, the appellant stated that she did not know
the exact amount of the loan.
[27] On
cross-examination, the appellant admitted that she had prepared the register of
disbursements (Exhibit I-1), the invoices (Exhibit I-2), the customer invoices
(Exhibit I-4), the statement of taxes paid to the suppliers (Exhibit I-5) and
the deposit slips (Exhibit I-7). Impressive numbers of those documents were
prepared by the appellant outside the periods at issue.
[28] Only four pay
cheques (Exhibit I-8), in the amounts of $225, $300, $340 and $715.12, were
filed in evidence and, on this subject, the appellant explained that her other
pay had been given to her in cash.
[29] According to the
reports of the appeals officer (Exhibit I-9), the appellant worked outside the
periods at issue without remuneration. The appellant prepared an impressive
number of documents for purposes of the business while she was not on the
payroll.
[30] In Attorney
General of Canada v. Jencan Ltd., [1998] 1 F.C. 187, Isaac, C.A. of the
Federal Court of Appeal stated:
…And, as I already said,
there are specific grounds for interference implied by the requirement to
exercise a discretion judicially. The Tax Court is justified in interfering
with the Minister's determination under subparagraph 3(2)(c)(ii)-by proceeding
to review the merits of the Minister's determination-where it is established
that the Minister: (i) acted in bad faith or for an improper purpose or motive;
(ii) failed to take into account all of the relevant circumstances, as
expressly required by paragraph 3(2)(c)(ii); or (iii) took into account an
irrelevant factor.
[31] In Légaré v.
Canada (Minister of National Revenue - M.N.R.), [1999] F.C.J. No. 878,
Marceau J. of the Federal Court of Appeal stated:
…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.
[32] According to the
principles established by the authorities cited above, this Court must ask
itself whether the Minister’s decisions result from the proper exercise of his
discretionary power. The Court must first require that that appellant present
evidence of wilful or arbitrary conduct by the Minister.
[33] No evidence was
adduced to show that the appellant had received a salary, with the exception of
a few cheques written during the periods at issue. The appellant explained that
her remuneration was paid to her in cash or by cheque and that the payer had
given her a loan that was deducted from her salary. The appellant was unable to
tell the Court the amount of the loan and there was no reference to it in the
book of disbursements. The appellant is not credible on this point.
[34] According to the
documentary evidence, the appellant throughout the year completed the
bookkeeping manually; she therefore worked for the payer for no remuneration
outside the periods at issue. The appellant also did errands for the payer,
outside the periods at issue, without being remunerated.
[35] The payer used the
appellant’s property during the periods at issue without paying rent on a
regular basis for the space occupied for the purposes of the business. The
explanation given by Gérard Lapointe on this subject is that he paid the bills
for heating and electricity and maintenance expenses for the property but he
did not adduce any accounting records to that effect.
[36] In contrast to the
other employees, the appellant received advances on her salary. Furthermore,
there is no record of the amounts advanced or of the amounts deducted from her
pay.
[37] The working
conditions would not have been similar if the appellant and the payer had been
dealing with each other at arm’s length.
[38] In the
circumstances, the Court is satisfied that the appellant was not able to show,
on a balance of probabilities, that the Minister acted wilfully or arbitrarily.
[39] The appellant’s
employment is not included in insurable employment within the meaning of
paragraph 5(2)(i) and subsection 5(3) of the Act.
[40] Consequently, the
appeals are dismissed and the decisions of the Minister are confirmed.
Signed
at Ottawa, Canada, this 2nd day of May 2003.
D.J.T.C.C.
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