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Citation: 2003TCC503
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Date: 20030721
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Docket: 2003-88(EI)
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BETWEEN:
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MARK TOBIN,
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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
Cain,D.J.
[1] The Appellant appeals the decision
of the Respondent dated October 23, 2002, that the Appellant's
engagement by Spy Glass Ltd. (the "Payor") during the period
August 13, 2001 to October 19, 2001 (the "period in question")
was not insurable employment as the Appellant was not dealing at
arm's length with the Payor and that it was reasonable to
conclude that a substantially similar contract of employment
would not have occurred if the Appellant and the Payor were
dealing at arm's length. The Respondent relied on paragraph
5(2)(i) of the Employment Insurance Act (the
"Act") in support of his decision.
[2] The Respondent based his decision
on the following assumptions of fact:
(a) Stan Tobin is
the Payor's sole shareholder;`
(b) Stan Tobin is
the Appellant's father;
(c) the Payor hired
the Appellant to reduce the size of the stalls in an existing
barn to accommodate calves rather than cows and sheep;
(d) during the
period under appeal the Appellant completed the restoration to
the lower level of the structure;
(e) the Appellant
was not a carpenter;
(f) the
Appellant's wage was calculated based on $12 per hour;
(g) the duties
performed by the Appellant required rough carpentry work and the
wage reported was excessive considering the Payor's
requirements and the Appellant's skills;
(h) the Appellant
had exhausted his previous claim for employment insurance
benefits;
(i) the Payor
provided the Appellant with a Record of Employment which reported
500 insurable hours with insurable earnings of $6,000;
(j) the
Appellant did not receive the wages reported on his Record of
Employment;
(k) the Appellant
was related to the Payor within the meaning of the Income Tax
Act;
(l) the
Appellant was not dealing with the Payor at arm's length;
(m) 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 not reasonable to
conclude that the Appellant and the Payor would have entered into
a substantially similar contract of employment if they had been
dealing with each other at arm's length.
The Appellant admitted assumptions (a) to (d) inclusive, (f),
(h) and (i) and (k) but denied all of the other assumptions
hereinabove set out.
FACTS
[3] The Payor is the owner of a farm
at Ship's Cove, Newfoundland/Labrador. Stan Tobin, the father of
the Appellant is the sole shareholder of the Payor and his family
is the only resident of the community.
[4] In or about 1988, the father built
a barn on the farm which was designed originally to house sheep.
The business of raising sheep was discontinued sometime in the
1990's. The Payor and Stan Tobin experienced financial
difficulties and the business of raising animals for sale was
curtailed and for all intents and purposes discontinued.
[5] In or about 2000, the Appellant
was employed by a dairy and qualified for employment insurance
benefits. His benefits terminated in mid-summer 2001.
APPELLANT'S TESTIMONY
[6] The Appellant testified that he
was employed by the Payor to renovate the stalls in the barn to
accommodate calves to be raised and sold.
[7] He was also to ditch and spread
gravel on a roadway on the farm when weather permitted.
[8] His father Stan Tobin was the sole
shareholder of the Payor.
[9] While his hourly wage was reported
to be $10, that was his net pay per hour after deductions. He
actually received $12 per hour. His work schedule was
8 hours per day, Monday through Friday. On some days he
worked less than 8 hours and would make up the lost time the
following day.
[10] Stan Tobin supervised the work from
time to time but the Appellant kept his own time on scraps of
paper and reported the time worked to the Payor.
[11] He was paid $500.00 a week every Friday
or Saturday. He was paid in cash because his father was in
trouble with his bank and did not want it to know of the
operation. The Appellant never calculated nor did he know his
gross pay. He was issued a T4 slip for the moneys received. The
T4 slip was not tendered in evidence.
[12] The Appellant was hired because of his
familiarity with calves having worked and tended them since he
was a small boy.
[13] He dismantled existing stalls and
constructed approximately 40 smaller stalls, 7 feet long, 3 feet
wide and 4 feet high. It took approximately one-half to a full
day to construct each stall. When weather permitted he ditched
and spread gravel on a short roadway on the farm property.
[14] The Payor required the work to be
completed by October when the calves would be housed. They would
be nurtured and sold in February of the following year. The
calves were purchased for $65, medicine during their nurturing at
the farm would cost $75 per calf and a calf would bring on sale
from $200 to $700.
RESPONDENT'S EVIDENCE
[15] The Respondent called one Scott
Nightingale, an appeals officer with 10 years experience.
[16] He received from Human Resources
Development Canada, the financial records of the Payor and
reviewed them.
[17] He conducted telephone calls with both
Stan Tobin and the Appellant and recorded them with their
knowledge.
[18] He advised both the Appellant and Stan
Tobin that he was unable to find any evidence of activity that
would produce sufficient income to pay the Appellant. Stan Tobin
confirmed that the calves were purchased, nurtured and sold but
he did not report the income to the bank or Revenue Canada.
[19] In addition Nightingale found that the
calf operation had not been viable for several years and there
were only several head of livestock on the farm at the time that
the Appellant was hired.
[20] The Appellant told him he was familiar
with construction and estimated that it would take him about a
day to construct a stall.
[21] The roadway was 250 feet long and the
Appellant was unable to say how long it took him to complete the
spread of gravel. Nightingale concluded that there was not
sufficient work to keep the Appellant employed for the 10 weeks
reported.
DECISION
[22] The Respondent relies on paragraphs
5(2)(i) and 5(3)(b) of
theAct.
5(2)(i)
(2) Insurable employment does not include
(i)
employment if the employer and the employee are not dealing with
each other at arm's length.
5(3)(a) and (b)
(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, with 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, 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.
[23] It follows from the above sections that
a more exhaustive review of the circumstances of the employment
of one relative by another is required than when the employee is
a non-relative.
[24] In making his determination in exercise
of his power under paragraph 5(3)(b) of the
Act, the Respondent is bound by certain criteria. The
Federal Court of Appeal in Canada (Attorney General of
Canada) (Applicant) v. Jencan Ltd.
(Respondent), [1998] 1 F.C. 187 set out the criteria by which
the Tax Court of Canada should exercise its jurisdiction in
dealing with appeals in respect to rejected claims for employment
insurance benefits by the Minister of National Revenue (the
"Minister") where the Payor and the Appellant are
related and the Minister determines that the relationship is one
of non-arm's length. These criteria may be summarized as
follows.
[25] In the exercise of its jurisdiction,
the Tax Court must exhibit a high degree of judicial deference in
reviewing the Minister's determination. While the Court has
authority to decide questions of law and fact, the Court's
jurisdiction is circumscribed.
[26] While the process is called an appeal,
in reality it most resembles a judicial review. The Court does
not have to decide whether the Minister's determination was
correct but whether it resulted from a proper exercise of his
discretionary authority.
[27] Failure to take into account all of the
relevant circumstances required by either the Unemployment
or the Employment Insurance Act or taking into
consideration irrelevant facts would result in an improper
exercise of that jurisdiction. If the Minister acted in bad faith
or for an improper purpose then the same result would
occur.
[28] The Court does not have the right to
substitute its decision for that of the Minister because the
Court would have come to a different conclusion on the facts
relied on by the Minister.
[29] However since the Appellant is not
privy to the Minister's decision and has the onus of proving
his or her case, the Appellant has the right to bring new
evidence to challenge the assumptions of fact relied on by the
Minister. If after considering all of the evidence the Court
finds the facts on which the Minister acted are insufficient in
law to support his determination, the Court is justified in
scrutinizing that determination and if it finds it legally
wanting, of intervening.
[30] An assumption of fact that is disproved
at trial may not necessarily constitute a defect that renders the
Minister's determination contrary to law. It will depend on
the strength and weakness of the remaining evidence. The Court
must go one step further and ask itself whether without the
assumption of fact or facts that has or have been disproved there
is sufficient evidence to support the Minister's
determination.
[31] In summary to find the Minister's
determination insufficient in law, the Appellant must establish
the he acted in bad faith or for an improper motive, that he
failed to take into account all of the relevant circumstances as
required by subparagraph 3(2)(c)(ii) of the
Unemployment Insurance Act or that he took into account an
irrelevant factor.
[32] In Candor Enterprises Ltd. v.
Canada (Minister of National Revenue - M.N.R.), [2000] F.C.J.
No. 2110, a decision of the Federal Court of Appeal delivered
at Ottawa, Ontario on December 15, 2000, Sharlow J.A., who
delivered the judgment for the majority discussed the principles
that emanate from Jencan (supra) and its
predecessors Tignish Auto Parts Inc v. M.N.R. (1994)
185 N.R. 73 (F.C.A.) and Bayside Drive-In Ltd. v.
Minister of National Revenue - M.N.R.) (1997), 218 N.R.
150 (F.C.A.) and in particular the two-step approach that
must be followed by the Tax Court of Canada at page 14 of the
original judgment:
There is some question as to whether a determination by the
Minister under the subparagraph 3(2)(c)(ii) is correctly
described as "discretionary", and whether the two step procedure
suggested in these cases is necessary or helpful. Where a statute
requires the Minister to be "satisfied" on a factual question,
the Minister's deliberations can lead to nothing more than a
factual determination. I refer to the decision of Marceau J.A. in
Légaré v. Minister du Revenue national (1999), 246
NR 176 (F.C.A.) at paragraph 4:
[4] The Act requires the Minister to make a determination
based on his own conviction drawn from a review of the file. The
wording used introduces a form of subjective element, and while
this has been called a discretionary power of the Minister, this
characterization should not obscure the fact that the exercise of
this power must clearly be completely and exclusively based on an
objective appreciation of known or inferred facts. And the
Minister's determination is subject to review. 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"
[37] Marceau J.A. elaborated on this
statement in Pérusse v. Canada (Minister of National
Revenue), [2000] F.C.J. No. 310 (F.C.A.) at paragraph 15 (the
emphasis is mine):
[para 15] The function of an appellate judge is thus not
simply to consider whether the Minister was right in concluding
as he did based on the factual information which Commission
inspectors were able to obtain and the interpretation he or his
officers may have given it. The judge's function is to
investigate all the facts with the parties and witnesses called
to testify under oath for the first time and to consider whether
the Minister's conclusion, in this new light, still seems
"reasonable" (the word used by Parliament). The Act requires
the judge to show some deference towards the Minister's initial
assessment and, as I was saying, directs him not simply to
substitute his own opinion for that of the Minister when there
are no new facts and there is nothing to indicate that the known
facts were misunderstood. However, simply referring to the
Minister's discretion is misleading.
[33] Reference to subparagraph
3(2)(c)(ii) in the above quotes was reference to the
Unemployment Insurance Act and that subparagraph is
identical to paragraph 5(3)(b) in the Act.
[34] The onus of proof is on the Appellant
to lead evidence that destroys the assumptions on which the
Minister made his decision. The rules of evidence are relaxed and
an appellant can produce evidence in a form that might not be
accepted in a court with all the normal trappings. However an
appellant is still required to lead before the Court the best
evidence that is available to him. While his own evidence may be
believable it is self-serving evidence and where corroborating
evidence is available he should call it.
[35] In Hickman Motors Limited v.
Canada, [1997] 2 S.C.R. 336, the Supreme Court of Canada
outlined the principles applicable when a person challenges the
assumptions made by the Minister. In that case the Court was
dealing with assumptions made by the Minister in making an
assessment in a tax matter. The principles apply equally well to
assumptions made by the Minister in a ruling under the
Unemployment Insurance Act. L'Hereux-Dubé,
J.A. said at p. 378:
It is trite law that in taxation the standard of proof is the
civil balance of probabilities and that within balance of
probabilities, there can be varying degrees of proof required in
order to discharge the onus, depending on the subject matter. The
Minister, in making assessments, proceeds on assumptions and the
initial onus is on the taxpayer to "demolish" the
Minister's assumptions in the assessment. The initial burden
is only to "demolish" the exact assumptions made
by the Minister but no more...
This initial onus of "demolishing " the
Minister's assumptions is met where the appellant
makes out at least a prima facie case. The law is settled
that unchallenged and uncontradicted evidence
"demolishes" the Minister's assumptions.
Where the Minister's assumptions have been
"demolished" by the appellant, the "onus...
shifts to the Minister to rebut the prima facie case"
made out by the appellant and to prove the assumptions...
Where the burden has shifted to the Minister, and the Minister
adduces no evidence whatsoever, the taxpayer is entitled to
succeed...
[36] A prima facie case is one
supported by evidence which raises such a degree of probability
in its favour that it must be accepted if believed by the Court
unless it is rebutted or the contrary is proved. It may be
contrasted with conclusive evidence that excludes the possibility
of the truth of any other conclusion than the one established by
that evidence.
[37] To satisfy the obligation of
demolishing the assumptions of the Respondent, the Appelant was
required to call sufficient evidence to establish a prima
facie case. There is a well-recognized rule of evidence that
the failure of a party or witness to give evidence, which was in
the power of the party or witness to give and by which the facts
might have been elucidated, justifies the court in drawing the
inference that the evidence of the party or witness would have
been unfavourable to the party to whom the failure was
attributed. The party against whom the inference operates may
explain it away by showing circumstances that prevented the
production of such a witness. (see Murray v. Saskatchewan,
[1952] 2 D.L.R. 499, at pp. 05-506.
[38] In the case at bar, no documents were
introduced to support either a contract of service or payment of
wages except the viva voce evidence of the Appellant. Stan Tobin
was not called. Notwithstanding that he may have devised a scheme
to prevent the bank and Revenue Canada from knowing of his
calving operation, the Appellant should have called him so the
Court could test his credibility.
[39] The Appellant's evidence lacked
much detail. The Court understands from his evidence that he
worked 8 hours a day, 5 days a week. He apparently worked fewer
than 8 hours a day from time to time and he made up the
deficiency by working in excess of 8 hours the following day. He
testified that while his Record of Employment stated his hourly
rate to be $10, this was his net pay per hour and the difference
was represented by deductions at source made by the Payor. The
period in question was from August 13, 2001 to and including
October 19, 2001, a period of 10 weeks or 400 hours. At $12 an
hour the Appellant should only have received $480 per week. His
gross income during this period would have been $4,800. His
Record indicated that he worked 500 hours and received
$6,000.
[40] The Appellant testified that it would
take one-half day to a full day to construct a stall. While he
failed to detail the actual work performed, it appears that the
barn had stalls and the only requirement was to reduce their size
and create new walls to make the stalls conform to the necessary
requirements. Suggesting that one day would be required to
complete one new stall seems unreasonable. Allocating one-half
day for the forty stalls constructed would consume 20 days
or approximately 3 weeks. That would leave 7 weeks for road
construction for which little or no credible evidence was
led.
[41] The Respondent led evidence to show
that there was no history of recent livestock activity on the
Payor's farm and no financial records of the Payor existed to
support the activity on which the claim for employment was based.
That evidence called into question the evidence of the Appellant
and it was incumbent on him to call evidence to overcome that
question. Stan Tobin was the logical person to support the
evidence of the Appellant. If in fact a viable cash operation of
raising and selling calves was conducted, Stan Tobin could have
given evidence of the numbers involved, the gross returns
realized so that the Court could find that the expenses incurred
in realizing those returns were reasonable. He could have given
that evidence under the protection of the Court if he was
concerned about retaliation by the authorities. The Court can and
does draw the inference that the evidence of Stan Tobin, the
father of the Appellant, would have been unfavourable to the
Appellant. No explanation was offered as to why Stan Tobin was
not called.
[42] The evidence of the Appellant did not
establish a prima facie case. It failed to demolish any of
the Respondent's assumptions.
[43] The Court is satisfied that the
assumptions of the Minister were reasonable under the
circumstances and put the onus directly on the Appellant to show
that, having regard to all the circumstances of the employment,
it was reasonable to conclude that the Payor and the Appellant
would have entered into a substantially similar contract of
employment if they had been dealing with each other at arm's
length. He failed to do that by credible evidence.
[44] The appeal is dismissed and the
decision of the Respondent is confirmed.
Signed at Rothesay, New Brunswick, this 21st day of July
2003.
Cain, D.J.
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