Boudreau v. M.N.R., docket 97-1726-UI

Date: 20000921

Docket: 97-1726-UI

BETWEEN:

LÉVIS BOUDREAU,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Judgment

Somers, D.J.T.C.C.

[1] This appeal was heard at Bathurst, New Brunswick, on July 25, 2000.

[2] The appellant is appealing from the decision by the Minister of National Revenue (the “Minister”) that the employment held during the periods in question, namely, from September 4 to December 22, 1995, and from May 27 to November 15, 1996, with D.S. Masonry Ltd., the payor, is excepted from insurable employment within the meaning of the Unemployment Insurance Act and the Employment Insurance Act.

[3] Subsection 3(1) of the Unemployment Insurance Act reads in part as follows:

3.(1) Insurable employment is employment that is not included in excepted employment and 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] Subsection 3(2) of the Unemployment Insurance Act reads in part as follows:

(2) Excepted employment is

. . .

(c) subject to paragraph (d), employment where the employer and employee are not dealing with each other at arm's length and, for the purposes of this paragraph,

(i) the question of whether persons are not dealing with each other at arm's length shall be determined in accordance with the provisions of the Income Tax Act, and

(ii) where the employer is, within the meaning of that Act, related to the employee, they shall be 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 adoption;

. . .

[6] Paragraph 5(2)(i) of the Employment Insurance Act is similar in nature to paragraph 3(2)(c) of the Employment Insurance Act.

[7] The burden of proof is on the appellant. He must show on a balance of evidence that the Minister’s decision was without foundation in fact and in law. Each case stands on its own merits.

[8] In reaching his decision, the Minister relied on the following facts, which were either admitted or denied:

(a) the Payor was duly incorporated on or about October 13, 1993; (admitted)

(b) during the periods in question the shareholders of the Payor were as follows : (admitted)

Lévis Boudreau (Appellant) 34%

Réjean Pelletier 33%

Raymond Boudreau (Appellant’s brother) 33%

(c) the Payor’s business consisted of general masonry; (admitted)

(d) the few tools and scaffolding owned by the Payor were stored in a shed at the residence of Raymond Boudreau; (admitted)

(e) the Payor did not have a business phone number and used the Appellant’s personal phone number for business purposes; (denied)

(f) the Payor’s office was located in the Appellant’s basement; (denied)

(g) the Appellant was the only shareholder with signing authority on the Payor’s bank account; (denied)

(h) the Appellant used his personal residence as collateral for a $16,000.00 loan negotiated in the name of the Payor; (denied)

(i) the Appellant used his own credit card for purchases made in the Payor’s name; (denied)

(j) the Payor’s business was seasonal and usually operated from May to November; (admitted)

(k) the Payor used two vehicles belonging to the Appellant for business purposes; (denied)

(l) the insurance cost and the general expense for the vehicles used by the Payor were paid by the Payor if money was available; (admitted)

(m) the Payor did not own any vehicles; (admitted)

(n) in 1996, the Appellant received $14,220.00, recorded in the record of disbursements as “amount due to shareholder”, as well as $1,950.00 paid to his credit card; (admitted)

(o) the Payor paid the Appellant’s entire telephone bill even during months when the Payor was allegedly not in operation; (denied)

(p) the Appellant’s duties consisted of bricklaying and estimating; (denied)

(q) the Appellant’s weekly salary was reported as $786.24; (admitted)

(r) the Appellant was reported in the Payor’s payroll registry for 14 weeks in 1995 and 15 weeks in 1996; (admitted)

(s) the Appellant did not work full time during all the weeks reported as such in the Payor’s payroll registry; (denied)

(t) the Appellant practised “banking of hours”, which consists of adding together the hours worked during different weeks until they make up a full week and reporting this total in the payroll as one week of employment; (denied)

(u) the Appellant also performed work in the name of the Payor without being reported in the Payroll registry and without remuneration during and outside the periods in question; (denied)

(v) the Payor’s payroll registry does not reflect accurately when work was performed by the Appellant; (denied)

(w) the Appellant was not supervised by anyone else in the name of the Payor; (denied)

(x) the Appellant was in control of his own employment with the Payor; (denied)

(y) the Appellant was in a position to control the Payor in its activities; (denied)

(z) there was no contract of service between the Appellant and the Payor during the periods in question; (denied)

(aa) the Appellant is related to the Payor within the meaning of the Income Tax Act; (admitted)

(ab) the Appellant is not dealing with the Payor at arm’s length; (denied)

(ac) 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. (denied)

[9] Although the appellant had denied certain allegations of fact at the outset of this hearing, he admitted some of those allegations in his testimony.

[10] The appellant admitted that he held 34% of the shares of the company, thus he was not dealing at arm’s length with the payor.

[11] The appellant admitted that the payor used his personal telephone for company business. The payor’s office was located in the appellant’s residence.

[12] The appellant was the sole person having authority to sign the payor’s cheques. The appellant used his residence as collateral to negotiate a $16,000 loan for the payor. He also used his credit card to make purchases on the payor’s behalf. The payor used two vehicles belonging to the appellant. Insurance and general repairs on the two vehicles were paid by the payor if the money was available.

[13] The payor paid the appellant’s telephone bill, even during months when the company was not in operation.

[14] The appellant admitted in his testimony that he “banked” hours worked from one week to the next and thus increased his unemployment insurance benefits.

[15] The payroll registers did not accurately reflect the hours worked by the appellant. The appellant worked for the company without pay outside the periods at issue.

[16] Décary J.A. of the Federal Court of Appeal, in Ferme Émile Richard et Fils Inc. v. M.N.R., 178 N.R. 361, made it clear that, in cases involving the application of subparagraph 3(2)(c)(ii) of the Unemployment Insurance Act, the Court must consider whether the Minister’s decision “resulted from the proper exercise of his discretionary authority.” The appellant must first “present evidence of wilful or arbitrary conduct by the Minister.”

[17] Having regard to all the circumstances of the case at bar, including the above-mentioned admissions made by the appellant in his testimony, I am satisfied that he has failed to establish on a balance of probabilities that the Minister acted wilfully or arbitrarily. It is reasonable to conclude that the appellant and the payor would not have entered into a similar contract of employment if they had been dealing with each other at arm’s length.

[18] Accordingly, the appellant’s employment is excepted from insurable employment pursuant to paragraph 3(2)(c) of the Unemployment Insurance Act and paragraph 5(2)(i) of the Employment Insurance Act.

[19] The appeal is dismissed.

Signed at Ottawa, Canada, this 21st day of September 2000.

“J.F. Somers”

D.J.T.C.C.