Citation: 2003TCC322
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Date: 20030604
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Docket: 2002-2670(EI)
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BETWEEN:
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RICHARD GAUTHIER,
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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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Docket: 2002-2796(EI)
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TRANSPORT RAVE
GAUTHIER INC.,
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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
Deputy Judge Somers, T.C.C.
[1] These appeals
were heard on common evidence on March 10 and 12, 2003, at Québec, Quebec.
[2] The appellants
have appealed the decision of the Minister of National Revenue (the “Minister”)
that the employment held by Richard Gauthier, the worker, during the periods at
issue, namely, from October 15, 1997, to January 2, 1998, from February 3 to
April 22, 1998, from June 1 to November 7, 1998, and from January 4, 1999, to
January 5, 2001, with Transport Rave Gauthier Inc., the payer, is not included
in insurable employment within the meaning of the Employment Insurance Act the
“Act”), because the worker and the payer were not dealing at arm’s
length.
[3] 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;
[...]
4] 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.
[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 appellants. They must establish, on a balance of
probabilities, that the Minister’s decision is wrong in fact and in law. Each
case must be decided on its own merits.
[7] In
making his decision, the Minister relied on the following assumptions of fact
set out in paragraph 5 of the Reply to the Notice of Appeal in the record of
the appellant, Richard Gauthier (2002-2670(EI)), which were admitted or denied:
[Translation]
(a) The payer was incorporated in 1988; (admitted)
(b) The shareholders of the payer are the appellant, Éric, Angelo
and Victorien Gauthier; (admitted)
(c) Victorien Gauthier is the appellant’s father; (admitted)
(d) Éric and Angelo Gauthier are the appellant’s brothers;
(admitted)
(e) The payer operates a trucking business; (admitted)
(f) During the periods at issue, the payer had only one truck;
(admitted)
(g) The appellant’s duties consisted of driving and maintaining the
payer’s vehicle; (admitted)
(h) The appellant received gross weekly remuneration of $600 during
the weeks when he was entered in the payroll journal as a full-time worker;
(denied)
(i) During the weeks when the appellant collected employment
insurance benefits, the payer paid him remuneration in the amount of $80 a
week; (denied)
(j) On May 13, 1998, the payer issued a record of employment in
the appellant’s name for the period from February 3, 1998, to April 22, 1998,
indicating 96 insurable hours and insurable earnings totalling $960;
(admitted)
(k) On May 25, 1998, the payer issued a record of employment in the
appellant’s name for the period from October 15, 1997, to December 29, 1997, indicating
96 insurable hours and insurable earnings totalling $960; (admitted)
(l) On November 10, 1998, the payer issued a record of employment
in the appellant’s name for the period from June 1, 1998, to November 7, 1998,
indicating 1,150 insurable hours and insurable earnings totalling $13,800;
(admitted)
(m) On January 25, 2000, the payer issued a record of employment in
the appellant’s name for the period from January 4, 1999, to January 21, 2000,
indicating 1,557 insurable hours and insurable earnings totalling $17,862;
(admitted)
(n) On January 8, 2001, the payer issued a record of employment in
the appellant’s name for the period from January 3, 2000, to January 5, 2001,
indicating 1,805.5 insurable hours and insurable earnings totalling $21,403;
(admitted)
(o) The records of employment issued by the payer to the appellant
do not reflect the actual periods worked by the appellant; (denied)
(p) During the periods when he collected employment insurance
benefits, he worked more hours than those recorded in the payer’s payroll
journal; (denied)
(q) The appellant and the payer entered into an arrangement to
enable the appellant to collect employment insurance benefits to which he was
not entitled. (denied)
[8] The payer,
Transport Rave Gauthier Inc., was incorporated in 1988, and its shareholders
are Éric, Angelo, Victorien and Richard Gauthier.
[9] Victorien is the
worker’s father, and Éric and Angelo are his brothers; accordingly, they do not
deal at arm’s length.
[10] During the periods
at issue, the payer owned only one truck for the operation of a transportation
business.
[11] According to
Victorien Gauthier, he formed the company to create employment for his sons. He
also owned a farm (Ferme Victorien Gauthier et Fils Inc.) that he managed with
his spouse; she looked after the accounting. He stated that only his son Éric
worked on the farm and added that Richard, the worker, was not the payer’s
principal employee.
[12] Having undergone
surgery between 1993 and 1996, Victorien Gauthier said that his work on
the farm was somewhat limited. However, he admitted that he transported salt
for the payer in winter with his truck.
[13] Angelo Gauthier,
the worker’s brother, stated that he had previously worked for the payer but
could not provide the dates. He added that there were other people who worked
for the payer and that Richard, the worker, worked for the payer as a trucker
and also performed tasks in the garage.
[14] However, Angelo
acknowledged that he was not on the list of employees during the period at
issue and concluded from this that he had not worked for the payer during these
periods. He said that he worked more on the farm than for the payer’s business.
He added that he worked with his father and mother and sometimes with Éric. There
is a contradiction with the testimony of Victorien who stated that Éric was the
only one of his sons who worked on the farm.
[15] Angelo stated that
he may have signed some safety checklists on behalf of the payer (Exhibit I-3),
but on examining them he could not say whether the signature was his or that of
Richard Gauthier, the worker.
[16] In his statutory
declaration (Exhibit I-4) dated November 15, 2001, Éric said that Richard was
the principal driver – 90% - of the payer’s only truck.
[17] The worker
testified that his weekly pay was as alleged in subparagraph 5(h) of the Reply
to the Notice of Appeal, namely, $600 during the weeks that he was entered in
the payroll journal at full time.
[18] The worker further
admitted that he received $80 a week from the payer during the weeks when he
collected employment insurance benefits.
[19] The worker said
that when he worked for the payer he was paid.
[20] He also admitted
the contents of the records of employment for the periods at issue, as alleged
in subparagraphs 5(j) to 5(n) of the Reply to the Notice of Appeal.
[21] On
cross-examination, the worker admitted that he was the principal driver during
his periods of full-time employment but added that, during the periods when he
collected employment insurance benefits, it was his father who was the
principal driver.
[22] As for the
delivery orders (Exhibits I-5 and I-6), the worker acknowledged his signature
on some of them but was not convinced that the signature on other orders was
his.
[23] In his statutory
declaration dated November 1, 2001, (Exhibit I-7), the worker said that he was
the only driver of the payer’s only truck.
[24] Eddy Normand, an
investigator with Human Resources Development Canada, testified at the hearing.
He stated that he had met with Richard and Éric Gauthier and had obtained a
statement from each of them in which the worker, Richard, was acknowledged to
be the principal driver of the payer’s only truck.
[25] Mr. Normand
explained the income of the business for 1998, 1999, 2000 and 2001 and the
hours and dates appearing on the invoices as well as the amounts of the
employment insurance benefits collected by Éric, Richard and Angelo Gauthier.
[26] The worker stated
that the amounts that appeared were all earned when he was employed with the
payer, while Éric and Angelo said that the amounts that appeared had been
earned when they worked for other employers.
[27] As Exhibit I-10,
Mr. Normand tendered in evidence a summary of purchases of diesel in 1998, 1999
and 2000 and a chart reproducing a table showing the “consumption of litres of
diesel vs. salaries paid”. The witness concluded that the business was operated
throughout the year and that the salaries did not represent the weeks worked.
[28] Mr. Normand made a
compilation of the invoices from various diesel distributors (Exhibits A-7,
A-14, I-10) and noted that Transport en vrac Charlevois was the payer’s chief
supplier.
[29] A document
entitled [Translation] “Rave, Business Income” filed as Exhibit I‑8
shows the payer’s monthly income for the years 1998 to 2001.
[30] All of the
evidence tendered shows that the business was operated throughout the year and
that the worker was the principal driver of the payer’s only truck.
[31] At the outset of
the hearing of this appeal, namely, on March 10, 2003, the worker was concerned
by the fact that he had not seen some of the original invoices; the hearing was
therefore adjourned to March 12, 2003, so that the worker and his brothers
could review them. After the worker and his brothers had examined those
invoices, Eddy Normand acknowledged that there were only two discrepancies that
did not tally with his reports.
[32] In Laverdière
v. Canada (Minister of National Revenue – M.N.R.), [1999]
T.C.J. No. 124, Judge Tardif of this Court wrote as follows:
Any agreement or arrangement setting out
terms for the payment of remuneration based not on the time or the period
during which the paid work is performed but on other objectives, such as taking
advantage of the Act's provisions, is not in the nature of a contract of
service.
This assessment applies to all the
periods at issue involving the two appellants. The terms and conditions of a
genuine contract of service must centre on the work to be performed, on the
existence of a mechanism for controlling the performance of the work and,
finally, on the payment of remuneration that basically corresponds to the
quality and quantity of the work done.
…Work
may be performed on a volunteer basis. All kinds of assumptions and scenarios
can be imagined.
Any contract of employment that includes
special terms can generally be set up only against the contracting parties and
is not binding on third parties, including the respondent.
…There
can be no contract of service where there is any planning or agreement that
disguises or distorts the facts concerning remuneration in order to derive the
greatest possible benefit from the Act.
The Act insures only genuine contracts of
service; a contract of employment under which remuneration is not based on the period
during which work is performed cannot be defined as a genuine contract of
service. It is an agreement or arrangement that is inconsistent with the
existence of a genuine contract of service since it includes elements foreign
to the contractual reality required by the Act.
[33] In Tanguay c. Canada (ministre
du Revenu national – M.R.N.), [2002] A.C.I. no 514, Judge Savoie of
this Court wrote
[Translation]
The
onus was on the appellant to prove his case and he was entitled to bring new
evidence to contradict the facts relied on by the Minister, but he did not do
so.
[34] According
to the evidence, the appellants did not rebut the Minister’s allegations.
[35] The worker
admitted all of the assumptions of fact set out in the Reply to the Notice of
Appeal, other than those in subparagraphs 5(o), 5(p) and 5(q).
[36] At the outset of
the hearing of this appeal, the worker denied subparagraphs 5(h) and 5(i) of
the Reply but he admitted them when he testified.
[37] The worker and the
payer were not dealing at arm’s length during the periods at issue.
[38] The worker’s work
as the driver of the payer’s one and only truck was essential to the operations
of the business.
[39] The evidence
showed from the reports prepared by the investigator that the worker continued
to provide services to the payer while he was not entered in the payroll
journal. The evidence also showed that there were transportation operations
when no employee appeared in the payroll journal. In 1998, 1999 and 2000, the
worker was the only driver entered in the payroll journal.
[40] A number of
invoices were signed by a representative of the payer. The worker acknowledged
this fact, but testified that he recognized his signature only on some of the
invoices but did not adduce any evidence to show that it was not his signature
on others, yet he was the only driver or the principal driver for the payer. It
must be noted that a number of the invoices bear the worker’s signature when he
was not entered in the payroll journal.
[41] It must therefore
be concluded that the records of employment issued by the payer to the worker
do not reflect the actual periods worked by him.
[42] During the periods
when he collected employment insurance benefits, the worker worked more hours
than were entered in the payer’s payroll journal.
[43] The payer and the
worker entered into an arrangement to enable the latter to collect employment
insurance benefits to which he was not entitled.
[44] The conditions of
employment would not have been similar if the worker and the payer had been
dealing with each other at arm’s length.
[45] The Minister
submits that the employment held by the worker was not insurable during the
periods at issue because the worker and the payer were not dealing at arm’s
length, pursuant to paragraph 5(2)(i) of the Act and sections 251
and 252 of the Income Tax Act.
[46] The appeals are
dismissed.
Signed at Ottawa, Canada, this 4th day of June
2003.
D.J.T.C.C.
Authorities
consulted
Respondent
Attorney General of Canada v. Jencan Ltd.
Indexed as: Canada (Attorney General) v. Jencan Ltd. (C.A.), [1998] 1 F.C. 187
Tanguay c. Canada (Ministre du Revenu
national – M.R.N.),
[2002] A.C.I. no 514.
Laverdière v. Canada (Minister of National Revenue
– M.N.R.),
[1999] T.C.J. No. 124.
Appellants
Carol
Théberge v. Canada (Minister of National
Revenue),
2002 FCA 123
Légaré
v. M.N.R.,
F.C. A-392-98
Translation certified
true
on this 30th day of
January 2004.
Leslie
Harrar, Translator
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