Date: 20010119
Docket: 2000-2373-EI
BETWEEN:
JASON MILLER,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
AND
Docket: 2000-2374-EI
JAMES MILLER,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
AND
Docket: 2000-2375-EI
JONATHAN MILLER,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
ROWE, D.J.T.C.C.
[1]
The Minister of National Revenue (the "Minister") - by
letters dated February 24, 2000 - decided the employment of each
appellant with Milbrandt Homes Ltd. (MHL) during the period from
January 1, 1999 to October 1, 1999 was insurable employment
pursuant to a contract of service and the Minister was satisfied
each appellant would have entered into a substantially similar
contract of employment had they been dealing with MHL - the payor
- at arm's length. Counsel for all appellants and counsel for
the respondent agreed the appeals could be heard on common
evidence.
[2]
Doreen Miller testified she resides in Saskatoon, Saskatchewan
and that - on October 31, 1973 - she and her husband - Edward
Miller - incorporated Milbrandt Homes Ltd., details of which were
set forth on the document - Exhibit A-1 - obtained from the
Corporate Registry of the Province of Saskatchewan. She stated
she and Edward Miller continued to operate MHL - a construction
company engaged in residential housing - and used space in their
own residence as a business office. Doreen Miller confirmed that
at all material times, the common voting shares of MHL were owned
as follows: Jason Miller - 16%; James Miller - 16%;
Jonathan Miller - 16% and Golden Key Estates Ltd. (Golden
Key) owned the remaining 52%. In turn, Doreen Miller and Edward
Miller together - in equal proportion - owned 100% of the voting
shares of Golden Key. All the appellants are brothers and Doreen
Miller and Edward Miller are their mother and father. At all
times, the directors of MHL were Jason Miller, James Miller,
Jonathan Miller, Edward Miller, Doreen Miller, Lisa Miller,
Anna Marie Miller and Semyra Miller. Doreen Miller
stated she handled the banking and bookkeeping duties for MHL and
on September 30, 1999 additional corporate profit was divided
among shareholders and cheques were issued in the amounts shown
in the photocopies filed as Exhibit A-2. Doreen Miller and
her husband, Edward Miller, each received the sum of $6,401.75.
Anna Marie Miller received a cheque in the sum of $18,776.25 and
her husband - James Miller - was paid the sum of $26,387.80.
Jason Miller received the sum of $26,387.80 and his wife -
Lisa Miller - received a cheque in the amount of $18,776.25. The
cheque from MHL to Jonathan Miller was in the sum of $26,387.80
and the amount of $18,776.25 was paid to his wife
-Semyra Miller. The notation on all of the cheques -
each dated March 27, 2000 - indicated the payment was by way of
bonus. Attached to the list of photocopied cheques - Exhibit A-2
- was a sheet upon which a deposit slip had been reproduced
indicating each cheque - issued as a bonus to each recipient as
noted above - formed part of the total deposit - dated April 3,
2000 - into the corporate bank account of MHL at the National
Bank of Canada in Saskatoon. The amounts paid out as bonuses were
included in the deposit of the sum of $148,552.78. Doreen Miller
stated she and her husband - Edward Miller - were the major
shareholders in MHL through their ownership of Golden Key but her
sons - the appellants - made all the major decisions and operated
MHL in the course of carrying out the construction business as
though they were the majority owners. Doreen Miller stated that
bonus cheques would not have been issued to shareholders had they
not been related to the Miller family. Similar bonuses had been
paid out to the same individuals by MHL cheques dated
December 28, 1999 as set forth on a sheet - Exhibit A-3 -
and all of these cheques - except the one payable to
Jonathan Miller - were also deposited on December 30, 1999
into the MHL business bank account. The bonuses comprising the
list set forth in Exhibit A-3 - were paid out prior to the
year end and the wives of the appellants were all Directors of
MHL although none of them held any shares in that corporation.
However, Doreen Miller stated she regarded the return of the
bonus cheques by Anna Marie Miller, Lisa Miller and Semyra Miller
- for purposes of deposit in the payor's bank account - as
shareholder's loans and recorded them, as such, in the
company books.
[3]
In cross-examination, Doreen Miller stated MHL is supported by
Golden Key - the corporation owned equally by herself and
her husband - and if it "pulled out" of MHL, then it
would be difficult for MHL to continue operations. All of the
tools, equipment and vehicles needed to carry on the construction
business are owned by MHL while Golden Key is involved in the
rental business and owns two apartments.
[4]
Jason Miller - age 30 - testified he is an appellant in the
within appeal and is President of MHL. His duties include the
financing, pricing and tendering on bids. He makes decisions
concerning day-to-day operations of the company and is paid a
salary of $3,000.00 per month together with bonuses in amounts
which are not based on his personal performance but are
calculated by the corporate accountant, based on the annual
profitability of the corporation. Jason Miller stated that in the
event he required money he merely withdrew it from the MHL
business account and charged the amount against the balance of
his shareholder's loan. He would discuss with his two
brothers any withdrawal from the MHL bank account. Each brother -
together with their mother, Doreen Miller - had signing authority
and the banking authorization required any two of their
signatures to issue a cheque on the MHL account. Jason Miller
stated he had placed a mortgage - in the sum of $110,000.00 - on
his personal residence in order to secure a loan for business
purposes - to MHL - from a financial institution. Filed as
Exhibit A-4, was a copy of a caveat filed by the lender against
the property of Jason Miller claiming an interest therein, as
mortgagor. Jason Miller stated that if one of the appellants were
to leave the company, the remaining two would merely take over
the duties of the departing family member until another person
was hired. In his opinion, it would cost MHL additional money
because a new person - not related to the Miller family - would
require overtime and holiday pay and, even though this individual
would not receive as much by way of bonuses as members of the
Miller family, neither would that person be willing to merely
have that bonus cheque deposited into the coffers of MHL. He
stated it was difficult to take holidays during the summer months
but if any of the brothers did so they would still receive their
normal monthly pay cheque from MHL. The busy construction season
extended from April through December and while there was often
some work to do after that, it was during this slow period the
appellants took time off.
[5]
In cross-examination, Jason Miller stated that although he and
his two brothers each owned 16% of the shares of MHL for a
total of 48% between them, they regarded themselves as the actual
owners of the corporation. The intention of the Miller family is
that when Golden Key withdraws from the shareholding of MHL, he
and his two brothers will then each own 33 1/3% of the shares.
MHL purchases the tools, equipment and vehicles required to carry
on the construction business and the MHL logo is displayed on the
vehicles. All costs related to the construction business are paid
directly by MHL. Jason Miller stated he and his brothers discuss
business matters but - as President of MHL - he is required to
perform many tasks and it would be difficult to train someone
else to undertake those duties. From time to time, he relies on
advice from his father but the actual operation of MHL is carried
on by him and his brothers. In addition to receiving a regular
monthly salary, each brother withdraws the sum of $800 per month
from their shareholder's loan account. He stated he could not
imagine a situation where his parents - as majority owners of MHL
through their corporate vehicle, Golden Key - would ever fire
him. He stated he had applied for employment insurance benefits
in 1997.
[6]
James Miller - age 27 - testified he is an appellant and held the
position of Vice-President in MHL. He is in charge of on-site
construction and supervises tradesmen, hires workers and deals
with customers who purchase the homes built by the company. In
the event corporate profit exceeds the sum of $200,000.00, then
he - along with other family members - receives a bonus and the
cheque is then endorsed by him and deposited into the MHL bank
account. He referred to Exhibit A-4 and indicated the caveat
also applied to land owned by him and was filed as security for a
term loan to MHL by National Bank. Originally, he had a mortgage
on his house in the sum of $50,000.00 but increased it to
$110,000.00 in order to provide adequate security for the loan to
MHL. He stated each brother performed two or three jobs at the
same time, including physical work on site as well as ongoing
management decisions which commenced with the purchase - by MHL -
of a piece of land which they determined was suitable for
purposes of development. In his opinion, a non-related person
would be entitled to receive overtime pay and would - obviously -
retain any bonuses paid to him by the corporation and would not
be likely to allow any amount so paid to be returned to the
company. The method of operation followed by the appellants in
the course of operating the construction business is to locate a
suitable piece of land, arrange financing for the purchase,
retain an architect and then carry on the process of obtaining
approval from the appropriate regulatory authority. Following the
issuance of the relevant permit, the actual construction is
commenced and the most recent MHL project was a 100-unit
condominium. In terms of the ultimate withdrawal of Golden Key
from MHL, he believed there were documents setting forth that
understanding. Major corporate decisions are made in consultation
with his brothers and MHL reimburses him for any expenditures
made by him on behalf of the company. On occasion, the monthly
payment of $800.00 received by him and usually attributable to a
reduction in his own shareholder's loan balance will be
recorded as applying to the shareholder's loan account in the
name of his wife, Anna Marie Miller.
[7]
Counsel for the respondent did not cross-examine.
[8]
Jonathan Miller - age 23 - testified he is an appellant and held
the office of Secretary-Treasurer in MHL. He attends at the
company business office once or twice a week and looks after the
bookkeeping and records. The remainder of the time he works on
site. Although he only has owned his own home since last year, he
stated he is prepared to mortgage it in order to secure any
necessary financing to MHL. In 1999, over a period of 2 1/2
months, he built his own home and during this time he received
his regular monthly salary - $2,500.00 - from MHL. He stated he
receives this same amount whether he works more or less hours
within any given pay period. His mother - Doreen Miller - for the
past 25 years had done the company administrative duties for
which he is now responsible and if he were not available to do
the actual construction work on MHL projects then someone else
would have to be hired but would not be paid for not working and
would also be laid off during the slow period.
[9]
In cross-examination, Jonathan Miller stated he has worked for
MHL for seven years and received employment insurance
benefits in 1997. He stated he had applied for benefits on
another occasion but was refused on the basis he was still
performing services for MHL.
[10] Stan
Morin testified that for the past one and one-half years he has
been a Canada Pension Plan/Employment Insurance Rulings Officer
with Canada Customs and Revenue Agency (CCRA) and had been
employed with Revenue Canada - the predecessor - in Saskatoon for
six years. In reviewing the matter concerning the appellants, he
found them to have been employed by MHL pursuant to a contract of
service. In his opinion, any risk they incurred was in the
context of being shareholders of MHL and did not arise from their
working relationship. He regarded the remuneration as reasonable
within the standards of the construction industry and the work
performed by the appellants was required by the payor. The
bonuses paid to the appellants were on the basis of them being
shareholders and/or directors of the company and not as
workers.
[11] In
cross-examination, Stan Morin agreed a salaried employee is often
not bound by hourly time restraints in the same way as an hourly
worker.
[12] Counsel
for the appellants submitted the evidence disclosed the majority
shareholders - Doreen Miller and Edward Miller - received a small
proportion - between 8% and 21% - of the bonuses issued by MHL
even though they were entitled to 52% via their holdings in
Golden Key. In his view, the evidence had established that the
disproportionate payments to their sons - the appellants - and to
their wives were undertaken only because they were related to the
payor. In addition, counsel pointed out the appellants received
regular pay whether more or less hours were worked within a
particular period and could even continue to receive a normal pay
cheque when not working for the company. In his submission, it is
not possible to separate the appellants' identity as
shareholders in MHL from their employment as is it all based on
the family relationship.
[13] Counsel
for the respondent countered by submitting the decisions of the
Minister were well within the bounds permitted by the relevant
jurisprudence and there was no need for any intervention by the
Court.
[14] The
Minister decided the appellants were related to the payor within
the meaning of section 251 of the Income Tax Act, the
provision utilized by paragraph 5(3)(a) of the
Employment Insurance Act (the "Act") as
the mechanism for determing the question whether persons are
dealing with each other at arm's length. There is no dispute
arising from this finding. Similarly, there is no doubt the
appellants were employed by the payor pursuant to a contract of
service.
[15] Pursuant
to paragraph 5(2)(i) of the Act, insurable
employment does not include "employment if the employer and
employee are not dealing with each other at arm's
length". At this point - without more - the appellants - all
brothers - employed by a corporation controlled by their parents
would fall into the category of excluded employment or - more
precisely - employment that was not included in the category of
insurable employment. However, that is not the end of the process
and the Minister is required by paragraph (3)(b) of
Section 5 of the Act to examine certain indicia of the
said employment in accordance with the language of the provision
as follows:
"(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."
[16] The first
matter to be decided is whether or not there is any basis
disclosed by the evidence for me to intervene in the decision of
the Minister.
[17] In the
case of Crawford and Company Ltd. and M.N.R., reported,
[1999] T.C.J. No. 850 (QL), a decision of Porter, D.J.T.C.C.
issued December 8, 1999, Judge Porter considered the appeals of
three employees of the corporation, of whom two were brothers,
falling into the category of related persons within the meaning
of the Income Tax Act. The remaining appellant was not a
related person to the corporation and this required a separate
examination of the facts as no discretion had been exercised by
the Minister pursuant to paragraph 5(3)(b) of the
Employment Insurance Act. The analysis undertaken by Judge
Porter, as it pertained to the two brothers is extensive, and is
relevant to the requisite analysis undertaken in the within
appeal. For that reason, I am quoting extensively from the
Crawford judgment because it accords with my understanding of the
law and the facts in that case are substantially similar to the
within appeal. At page 21, commencing at paragraph 58, Judge
Porter stated:
[58] In the
scheme established under the EI Act, Parliament has made
provision for certain employment to be insurable, leading to the
payment of benefits upon termination, and other employment which
is "not included" and thus carrying no benefits upon
termination. Employment arrangements made between persons, who
are not dealing with each other at arm's length, are
categorized as not included. Brothers and corporations controlled
by them are deemed not to be dealing with each other at arm's
length pursuant to subsection 251(1) of the Income Tax
Act, which governs the situation. Quite clearly the original
purpose of this legislation was to safeguard the system from
having to pay out a multitude of benefits based on artificial or
fictitious employment arrangements, see the comments of the
Federal Court of Appeal in Paul v. The Minister of National
Revenue, (A-223-86) unreported, where Hugessen J.
said:
We are all prepared to assume, as invited by appellant's
counsel, that paragraph 3(2)(c) of the
Unemployment Insurance Act, 1971, and
subsection 14(a) of the Unemployment Insurance
Regulations have for at least one of their purposes the
prevention of abuse of the Unemployment Insurance Fund through
the creation of so-called
"employer-employee" relationships between persons
whose relationship is, in fact, quite different. That purpose
finds obvious relevance and rational justification in the case of
spouses who are living together in a marital relationship. But
even if, as appellant would have us do, we must look only at
spouses who are legally separated and may be dealing at arm's
length with one another, the nature of their relationship as
spouses is such as, in our view, to justify excluding from the
scheme of the Act the employment of one by the other.
...
We do not exclude the possibility that the provisions may have
other purposes, such as a social policy decision to remove all
employment within the family unit from the operation of the
Unemployment Insurance Act, 1971, as was suggested by
respondent's counsel.
[59] The
harshness of this situation has however been tempered by
paragraph 5(3)(b) of the EI Act, which
provides for such employment between related persons to be deemed
to be at arm's length and thus in turn to be treated as
insurable employment, if it meets all the other provisions, where
the Minister is satisfied having regard to all the circumstances
of the employment, including the remuneration paid,
theterms and conditions, the duration and the
nature and importance of the work performed, that it is
reasonable to conclude that they would have entered into a
substantially similar contract if they had (in fact) been dealing
with each other at arm's length.
[60] It may be
helpful to reframe my understanding of this section. For people
related to each other the gate is closed by the statute to any
claim for insurance benefits unless the Minister can be satisfied
that in effect the employment arrangement is the same as that
which unrelated persons, that is persons who are clearly at
arm's length, would have made. If it is a substantially
similar contract of employment, Parliament has deemed it to be
only fair that it should be included in the scheme. However, the
Minister is the gatekeeper. Unless he is so satisfied the gate
remains closed, the employment remains excepted and the employee
is not eligible for benefits.
[61]
Subsection 93(3) of the EI Act deals with appeals to and
the determination of questions by the Minister. It requires that
"the Minister shall decide the appeal within a reasonable
time after receiving it and shall notify the affected persons of
the decision".
[62] Thus, the
Minister has no discretion whether or not to decide the question.
He is required by law to do so. If he is not satisfied, the gate
remains closed and the employee is not eligible. If however he is
satisfied, without more ado or any action on the part of the
Minister (other than notification of the decision) the employee
becomes eligible for benefits, provided he is otherwise
qualified. It is not a discretionary power in the sense that if
the Minister is satisfied he may then deem
the employment to be insurable. He must "determine the
question" and depending on that determination the law deems
the employment to be either at arm's length or not at
arm's length. In this sense the Minister has no discretion
to exercise in the true sense of the word, for in making his
decision he must act quasi-judicially and is not free to choose
as he pleases. The various decisions of the Federal Court of
Appeal on this issue reveal that the same test applies as to a
myriad of other officials making quasi-judicial decisions in many
different fields. See Tignish Auto Parts Inc. v. M.N.R.,
185 N.R. 73, Ferme Émile Richard et Fils Inc. v.
M.N.R., 178 N.R. 361, Attorney General of Canada and
Jencan Ltd., (1997) 215 N.R. 352 and Her Majesty the Queen
and Bayside Drive-in Ltd., (1997) 218 N.R. 150."
[18] In the
case of Adolfo Elia v. M.N.R., [1997] F.C.J. No. 316 (QL),
a decision of the Federal Court of Appeal dated March 3, 1998, at
page 2 of the certified translation Pratte, J.A. stated:
"Contrary to what the judge thought, it is not necessary,
in order for the judge to be able to exercise that power, for it
to be established that the Minister's decision was
unreasonable or made in bad faith having regard to the evidence
before the Minister. What is necessary is that the evidence
presented to the judge establish that the Minister acted in bad
faith, or capriciously or unlawfully, or based his decision on
irrelevant facts or did not have regard to relevant facts. The
judge may then substitute his decision for that of the
Minister."
[19] In
Légaré v. Canada (Minister of National
Revenue), [1999] F.C.J. No. 878 - another decision of the
Federal Court of Appeal - Marceau, J.A. speaking for the
Court stated at page 2 of the judgment:
"In this matter, the Court has before it
two applications for judicial review against two judgments
by a judge of the Tax Court of Canada in related cases heard on
the basis of common evidence which raise yet again the problems
of interpretation and application of the saving provision,
subparagraph 3(2)(c)(ii). I say yet again because since
its passage in 1990, several decisions of the Tax Court of Canada
and several judgments of this Court have already considered what
workable meaning could be given to
subparagraph 3(2)(c)(ii). In reading the text, the
problems it poses beyond its deficient wording are immediately
obvious, problems which essentially involve the nature of the
role conferred on the Minister, the scope of the Minister's
determination and, by extension, the extent of the Tax Court of
Canada's general power of review in the context of an appeal
under section 70 et seq. of the Act.
While the applicable principles for resolving these problems have
frequently been discussed, judging by the number of disputes
raised and opinions expressed, the statement of these principles
has apparently not always been completely understood. For the
purposes of the applications before us, we wish to restate the
guidelines which can be drawn from this long line of authority,
in terms which may perhaps make our findings more meaningful.
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."
[20] The
assumptions of fact relied on by the Minister are set forth in
paragraph 3 of each Reply to Notice of Appeal and - with
minor adaptations - are the same with respect to each appellant.
The assumptions contained in subparagraphs (a) through to (l)
recited the structure of the payor corporation, set forth the
positions held by the appellants and stated the banking
authorization concerning the corporate bank account. During the
period in question - January 1 to October 1, 1999 -
Jason Miller and James Miller each earned a salary in the
sum of $2,500.00 per month - paid every 2 weeks - and each
received a bonus in the sum of $19,510.00 on December 28, 1999.
Jonathan Miller received a salary of $2,500.00 per month and was
issued a bonus cheque on December 28, 1999 in the sum of
$23,134.50. The Minister assumed the bonuses of Jason Miller and
James Miller to have been in the sum of $25,500.00 and the bonus
to Jonathan to have been in the sum of $36,000.00. The difference
is probably due to the amount of income tax withheld in each
instance by the payor. The bonus system was designed on the basis
MHL had to earn a profit of more than $200,000.00 per year prior
to any distribution to directors or shareholders. The Minister
also considered that each appellant was covered under a
disability insurance plan in case he was unable to perform
services for the payor. The Minister also relied on the fact that
at no time during the relevant period did any appellant not
receive his regular pay. The hours of work of each appellant were
not recorded and the work week varied between 30 and
60 hours during the summer and about 30 hours a week during
the winter, depending on the amount of work required to be done.
Jonathan Miller - during 2 1/2 months in the summer of
1999 - worked at building his own personal residence and was
still paid his regular salary and the Minister acknowledged he
had taken a holiday in the summer and was also able to take extra
days off on long weekends. The Minister also assumed that none of
the appellants made any major decisions - including matters of
finance - without discussion with the others and that decisions
were taken only if the parties were unanimous. With respect to
Jason Miller, the Minister assumed the corporation had paid
him wages in the sum of $68,748.00 in 1996, then reduced payment
in the form of wages to the sum of $32,243.00 in 1998 together
with a bonus in the amount of $9,300.00. In addition,
Jason Miller collected employment insurance benefits in
those years in the amounts of $6,768.00 and $3,668.00,
respectively. At paragraph 3(hh) of the Reply to
Jason Miller's appeal, the Minister relied on the
assumption that - in 1999 - the wages for senior managers in the
construction industry in Saskatoon ranged from $37,000.00 to
$78,000.00 per year. The Minister - at paragraph 3(ii) of the
same Reply - acknowledged that the appellant had stated he and
his brothers, James Miller and Jonathan Miller, operated MHL
- the corporation - with a single mind in a similar fashion to a
company owned 100% by one person and that each of them enjoy the
benefits and responsibilities of an owner rather than an
employee. In considering whether the wages paid to James Miller
were reasonable, the Minister relied on the fact that - in 1996 -
he had been paid wages in the amount of $68,854.00 and - in 1998
- had received the sum of $32,243.00 in wages together with a
bonus in the amount of $9,300.00. In 1996 and 1998, James Miller
received employment insurance benefits in the amounts of
$6,768.00 and $4,032.00, respectively. In 1999, the Minister
assumed that wages for construction managers in the construction
industry - in Saskatoon - earned between $31,000.00 and
$67,000.00 per year. With respect to Jonathan Miller, the
Minister considered that MHL had paid him wages - in 1998 - in
the sum of $25,883.00 together with a bonus in the amount of
$36,000.00. In that year, he also collected employment insurance
benefits in the sum of $3,064.00. The Minister assumed that - in
1999 - wages for a bookkeeper in Saskatoon ranged between
$12,000.00 and $34,000.00 per year. The Minister took into
account the fact Jonathan Miller also performed services on the
job site and that if he were unavailable to perform those duties
another person would have to be hired but his mother - Doreen
Miller - could take over his bookkeeping duties. Similarly, if
either James Miller or Jason Miller were to leave employment at
MHL, the remaining brothers could assume those responsibilities
in the interim but another person would be required to fulfil the
duties previously carried out by the departing member. The facts
relating to risk incurred by James Miller and Jason Miller in
pledging their personal residences to a lender in order to secure
a loan to MHL were regarded by Stan Morin - of CCRA - as an
obligation arising out of their identity as shareholders of the
corporation. In addition, he regarded payment of the bonuses, not
as being connected to work performance, but rather having been
paid solely on the basis of them being directors and/or
shareholders in MHL. At the conclusion of the examination of the
circumstances surrounding the employment of each appellant with
the payor, the Minister - in each instance - decided their
employment was insurable because of being satisfied that each
appellant would have entered into a substantially similar
contract of employment with the payor if they had been dealing
with each other at arm's length.
[21] A
peculiar aspect of the within appeals is that payments -
described on the cheques as bonuses - were paid in 1999 and 2000
to the wives of the appellants. Since they were not employees or
shareholders of the corporation, the bonuses must have been based
on their capacity as Directors of MHL. A strange accounting
concept was disclosed by the evidence when James Miller stated
that, although he usually drew the sum of $800.00 per month out
of his shareholder's loan account - on occasion - the same
amount was paid to him by MHL, not from that account but from his
wife's "shareholder's loan account". Anna Marie
Miller was not a shareholder in MHL or in Golden Key, the
corporation that held 52% of the outstanding shares in MHL.
According to the bonus cheques forming part of Exhibit A-3,
on December 28, 1999, Doreen Miller and Edward Miller each
received a net bonus - from MHL - in the sum of $18,591.50.
Neither of them were direct shareholders in MHL and their
influence on that corporation arose from each owning 50% of
Golden Key. However, according to the deposit slip forming part
of said exhibit, those cheques were part of the deposit - on
December 30, 1999 - into National Bank for the benefit of MHL.
The notation on the said deposit slip was that the contribution
from Doreen Miller and Edward Miller was also attributable to a
shareholder's loan. In using the method of paying money to
the Directors of MHL - once the $200,000.00 profit limit had been
attained - it is apparent the controlling shareholders - through
Golden Key - elected this particular method for the benefit of
the corporation, probably in relation to certain higher rates
being payable by corporations past that amount. In paying bonuses
to the wife of each appellant, there was a recognition that these
persons - not being employees of MHL - would participate in a
process of receiving funds from the corporation in accordance
with accounting decisions required as a matter of corporate
policy, including the return of the cheques to Doreen Miller for
deposit - three days later - into the payor's bank
account.
[22] In
Craig Brothers Limited et al. v. M.N.R. - 95-991(UI) - I
heard the appeal of a corporation and family members who,
although not related to the corporation in accordance with the
Income Tax Act, were considered to be in insurable
employment by the Minister because they were dealing at arm's
length with the corporation, as a matter of fact. The evidence in
that case disclosed the two Craig brothers and the other family
members treated the corporation like a family bank and each
appellant who was the manager of one of the corporation's
stores could take out money at will from the corporation account.
I found the managers - as members of the extended Craig family -
and the corporation to have been inextricably intertwined so that
the business was carried out in accordance with family values
rather than adhering to procedures demanded even by a flexible
corporate structure. Business policy was set by virtue of being
members of the family rather than on the basis of being directors
of the corporation. I concluded the individual appellants to have
been in excluded employment by virtue of not dealing at arm's
length with the corporation.
[23] In the
case of David Putter v. M.N.R. - 1999-457(EI) - heard
together with the appeals of Daniel Putter v. M.N.R. -
1999-456(EI) - and Equinox Industries Ltd. v. M.N.R. -
1999-458(EI) - I considered the situation of two brothers working
over an extended period of time in a family business and
concluded that they were not employed in insurable employment. At
page 16 - paragraph 18 - I wrote the following:
"I do not intend to reiterate the evidence in the within
appeals because I have examined it in the course of the process
leading up to my decision to intervene. It is reasonable to
conclude that after 21 years and 15 years with the corporation,
David and Daniel Putter, respectively, were not employed under
circumstances - including consideration of their payment of
salary (below industry standard), the amount of work performed,
lack of holiday time, the ability to control their remuneration,
the absence of any need to follow dictates of corporate structure
in accordance with majority shareholding by others and, over the
course of many years, putting themselves at personal risk for
company debt, clearly established they would not have entered
into a similar contract of employment with Equinox if they had
been dealing with the corporation at arm's length. It strikes
me it is difficult - on an objective basis - to assess whether it
is reasonable to conclude that the parties would have entered
into a substantially similar contract of employment unless there
is some evidence before the Minister as to comparable salaries or
working conditions within the same - or related - industry. There
is obviously room for using a yardstick against which a
particular employment is to be measured because the alternative
would be to permit the parties themselves to put forward the
proposition that, notwithstanding the deviation from normal
business practices in a similar marketplace, they still would
have entered into the contract of employment on a purely
subjective basis. Certainly, that is how the process works when
the shoe is on the other foot and benefits have been denied to
claimants because their conditions of work for a related employer
do not - when all the facts have been considered - measure up to
the usual or normal conditions that applied - or could be
expected to apply - to non-related workers under a substantially
similar contract of employment."
[24] In the
within appeals, the Minister did have reference to the yardstick
referred to above and the assumptions in that regard were not
challenged. Unlike the fact situation in Craig Brothers,
supra, there was adherence to corporate structure and
while there were some peculiarities in the method of labelling
and recording payments as some sort of bonuses and then noting -
on deposits to MHL with regard to the cheques issued to the wives
of the appellants - that the transaction was to form part of a
shareholder's loan account, there was not a concerted effort
to ignore the legal or practical effect of operating a business
through a corporation. In the within appeals, 52% of the shares
of MHL were held by another corporation - Golden Key - which was
owned by the appellants' parents. There was no solid evidence
of any agreement in place concerning the effect of the withdrawal
of Golden Key from its participation in MHL and it was conceded
Golden Key's involvement was vital to the continuation
of the construction business. Unless and until it could be proven
that Doreen and Edward Miller were holding those shares merely as
trustees for the benefit of their sons, then the normal
interpretation of corporate structure and the ensuing effect on
various parties must be observed. While there may be occasions in
which it is not possible to characterize the conduct of an
individual as to whether it was attributable to being an employee
or a director/shareholder of the payor corporation, in this
instance, the Minister considered the matter and concluded the
risk of James Miller and Jason Miller arose as a consequence
of being shareholders in the corporation and was not directly
related to their employment. Jonathan Miller - not being the
owner of real property until mid-1999 - had not been called upon
to pledge any personal assets as security for the MHL loan.
[25] The fact
that employment insurance benefits had been paid in earlier years
to the appellants is not particularly significant, except it does
indicate the concept of collectiveness - to the point of near
total unity with MHL - the corporation - as opposed to regarding
it as a separate legal entity fulfilling the role of an ordinary
employer paying the required premiums pursuant to the
Employment Insurance Act - is relatively new to the Miller
family. In the case of The Minister of National Revenue v.
Emily Standing, 147 N.R. 238, Stone J.A. at pp. 239-240
stated:
"...There is no foundation in the case law for the
proposition that such a relationship may exist merely because the
parties choose to describe it to be so regardless of the
surrounding circumstances when weighed in the light of the
Wiebe Door test." (87 DTC 5025)
[26] In the
within appeals, there remained independence of thought and
purpose between the appellants and the corporation and each of
them owned only 16% of the shares in MHL. As a matter of law,
each one was subject to discharge and all three could have been
ousted by virtue of their parents - through Golden Key -
exercising their rights flowing from ownership of 52% of the
shares in MHL. Protection against involuntary withdrawal from the
workplace - and the ability to provide benefits to laid-off
workers - has always been the raison d'être of the
national unemployment/employment insurance scheme. I cannot find
on the evidence that the Minister ignored any facts which could
lead to the conclusion that there was no adverse economic
interest between each appellant and the payor. Certainly,
Jonathan Miller - being the youngest and least experienced worker
- received a lesser salary than his brothers. He was also in the
process of completely taking over the administrative duties
associated with the business that had been performed by Doreen
Miller for 25 years and performed some duties on the job
site.
[27] I point
out that in considering this matter, it is not my function to
substitute my opinion for that of the Minister. Whether or not I
would have arrived at the same conclusion in the first instance
is irrelevant. The relevant jurisprudence requires the threshold
for any intervention to be established as a consequence of
finding the Minister acted in bad faith, capriciously or
unlawfully, or based the decision on irrelevant facts or ignored
relevant facts.
[28] Having
considered the evidence as a whole, I cannot find the Minister to
have been in error in concluding the appellants were employed in
insurable employment with the payor during the relevant period
and the decisions dated February 24, 2000 are confirmed. The
appeal of each appellant is hereby dismissed.
Signed at Sidney, British Columbia, this 19th day of January
2001.
"D.W. Rowe"
D.J.T.C.C.
COURT FILE
NO.:
2000-2373(EI)
STYLE OF
CAUSE:
Jason Miller and M.N.R.
PLACE OF
HEARING:
Saskatoon, Saskatchewan
DATE OF
HEARING:
November 21, 2000
REASONS FOR JUDGMENT BY: The
Honourable Deputy Judge D.W. Rowe
DATE OF
JUDGMENT:
January 19, 2001
APPEARANCES:
Counsel for the Appellant: Brent R. Hillestad
Counsel for the
Respondent:
Suzanne Lalonde
COUNSEL OF RECORD:
For the
Appellant:
Name:
Brent R. Hillestad
Firm:
Leland Kimpinski
Saskatoon, Saskatchewan
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
COURT FILE
NO.:
2000-2374(EI)
STYLE OF
CAUSE:
James Miller and M.N.R.
PLACE OF
HEARING:
Saskatoon, Saskatchewan
DATE OF
HEARING:
November 21, 2000
REASONS FOR JUDGMENT BY: The
Honourable Deputy Judge D.W. Rowe
DATE OF
JUDGMENT:
January 19, 2001
APPEARANCES:
Counsel for the Appellant: Brent R. Hillestad
Counsel for the
Respondent:
Suzanne Lalonde
COUNSEL OF RECORD:
For the
Appellant:
Name:
Brent R. Hillestad
Firm:
Leland Kimpinski
Saskatoon, Saskatchewan
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, CanadaCOURT FILE
NO.:
2000-2375(EI)
STYLE OF
CAUSE:
Jonathan Miller and M.N.R.
PLACE OF
HEARING:
Saskatoon, Saskatchewan
DATE OF
HEARING:
November 21, 2000
REASONS FOR JUDGMENT BY: The
Honourable Deputy Judge D.W. Rowe
DATE OF
JUDGMENT:
January 19, 2001
APPEARANCES:
Counsel for the Appellant: Brent R. Hillestad
Counsel for the
Respondent:
Suzanne Lalonde
COUNSEL OF RECORD:
For the
Appellant:
Name:
Brent R. Hillestad
Firm:
Leland Kimpinski
Saskatoon, Saskatchewan
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2000-2373(EI)
BETWEEN:
JASON MILLER,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Appeal heard on common evidence with the
appeals of James Miller (2000-2374(EI)) and
Jonathan Miller (2000-2375(EI)) on November 21, 2000, at
Saskatoon, Saskatchewan, by
the Honourable Deputy Judge D.W. Rowe
Appearances
Counsel for the
Appellant:
Brent R. Hillestad
Counsel for the
Respondent:
Suzanne Lalonde
JUDGMENT
The
appeal is dismissed and the decision of the Minister is confirmed
in accordance with the attached Reasons for Judgment.
Signed at Sidney, British Columbia, this 19th day of January
2001.
D.J.T.C.C.
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