REASONS
FOR JUDGMENT
V.A. Miller J.
[1]
The issue in this appeal is whether the
Appellant was engaged in insurable employment during the period May 25, 2015 to
October 17, 2015 (the “Period”) when he performed services for Randy and Ryder
Construction Ltd. (the “Payer”).
[2]
The Minister of National Revenue (the
“Minister”) determined that the Appellant’s employment was not insurable
because the Appellant and the Payer were not dealing with each other at arm’s
length in accordance with paragraphs 5(2)(i) and 5(3)(b) of the Employment
Insurance Act (the “Act”).
[3]
The only witness at the hearing was the
Appellant. He stated that he did not receive the Reply to Notice of Appeal (the
“Reply”) which had been filed with the Court on June 8, 2016. Counsel for the
Respondent informed the Court that the Reply had been sent to the Appellant by
registered mail on June 8, 2016 and it was not returned to the Canada Revenue
Agency. The Appellant was given an opportunity to read the Reply and he was
asked if he would like to have an adjournment of his hearing so that he could
bring all documents which he thought were relevant for his appeal. The
Appellant did not want an adjournment.
[4]
In his testimony, the Appellant agreed with most
of the assumptions relied on by the Minister and I will summarize the
assumptions and the Appellant’s testimony in the following paragraphs.
[5]
The Appellant has been a bricklayer for
approximately 16 years. He testified that he had the Payer incorporated because
he could not find work. He believed that once he started the Payer, if there
was a shortage of work, he would be able to draw employment insurance (“EI”)
benefits.
[6]
The Payer was incorporated on May 4, 2015 and
its business was masonry bricklaying and landscaping. The shareholders of the
Payer were:
a)
the Appellant who held 20% of the common shares;
b) the Appellant’s spouse who held 40% of the common shares; and,
c)
the Appellant’s father who held 40% of the
common shares.
[7]
According to the Appellant, his father was a
“silent shareholder”. The Appellant stated that he was aware that his
employment would not be insurable if he owned more than 40% of the shares in
the Payer. As a result, his father and his spouse were each given 40% of the
shares. It was the Appellant’s belief that if he owned only 20% of the shares
and work slowed, he would have a “better chance” to receive EI benefits.
[8]
The Appellant was also a Director and the
President of the Payer. His duties included:
i.
answering phone calls;
ii.
providing design ideas and quotes to prospective
clients;
iii.
ordering materials;
iv.
building walkways, planters, retaining walls and
various other brick work;
v.
landscaping and operating equipment.
[9]
The Minister assumed that the Appellant’s duties
also included hiring and supervising casual workers and invoicing the Payer’s
clients. However, the Appellant stated that his spouse hired the labourers and
did all invoicing for the Payer. It was his evidence that both he and his
spouse were involved in the Payer’s business. According to the Appellant, his
spouse went to the job sites; issued quotes on the jobs; managed the job sites
and ordered supplies and tools for the Payer.
[10]
The Appellant’s spouse was present at the
hearing of this appeal but she did not testify. If she had been called as a
witness, counsel for the Respondent would have been able to cross-examine her
with respect to the precise services she rendered for the Payer. Failing this,
I have inferred that the evidence from the Appellant’s spouse would not have
assisted the Appellant.
[11]
The Payer reported that the Appellant was the
only employee during the Period. It issued weekly payroll cheques to the
Appellant for a total of 19 cheques.
[12]
The Minister also assumed the following:
(t) during
the Period, the Appellant used the Payer’s debit card in excess of $11,600 for
cash ABM transactions;
(u) during
the Period, the Appellant used the Payer’s debit card in excess of $6,500 for
other personal transactions;
[13]
The Appellant agreed with these assumptions but
stated that he has repaid the Payer.
Law
[14]
The relevant statutory provisions of the Act
read:
5(2) Insurable
employment does not include
(i) employment if the employer and employee are not dealing with
each other at arm’s length.
5(3) For the
purposes of paragraph (2)(i),
(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.
[15]
In Birkland v Minister of National Revenue,
2005 TCC 291, Bowie J. reviewed the various decisions from the Federal Court of
Appeal that discussed this court’s role in an appeal pursuant to the above
provisions. He stated:
At this point it
is sufficient simply to state my understanding of the present state of the law,
which I derive principally from paragraph 4 of Légaré (reproduced above) and
from the following passage from the judgment of Richard C.J., concurred in by
Létourneau and Noël JJ.A., in Denis c. Ministre du Revenu national
5 The function of
the Tax Court of Canada judge in an appeal from a determination by the Minister
on the exclusion provisions contained in subsections 5(2) and (3) of the Act
is to inquire into all the facts with the parties and the witnesses called for
the first time to testify under oath, and to consider whether the Minister's
conclusion still seems reasonable. However, the judge should not substitute his
or her own opinion for that of the Minister when there are no new facts and
there is no basis for thinking that the facts were misunderstood (see Pérusse
v. Canada (Minister of National Revenue - M.N.R.), [2000] F.C.J. No. 310,
March 10, 2000).
This Court's
role, as I understand it now, following these decisions, is to conduct a trial
at which both parties may adduce evidence as to the terms upon which the
Appellant was employed, evidence as to the terms upon which persons at arm's
length doing similar work were employed by the same employer, and evidence
relevant to the conditions of employment prevailing in the industry for the
same kind of work at the same time and place. Of course, there may also be
evidence as to the relationship between the Appellant and the employer.
In the light of
all that evidence, and the judge's view of the credibility of the witnesses,
this Court must then assess whether the Minister, if he had had the benefit of
all that evidence, could reasonably have failed to conclude that the employer
and a person acting at arm's length would have entered into a substantially similar
contract of employment.
That, as I
understand it, is the degree of judicial deference that Parliament's use of the
expression “... if the Minister of National Revenue is satisfied ...” in
paragraph 5(3)(b) accords to the Minister's opinion.
Analysis
[16]
The Payer was controlled by the Appellant’s
father and the Appellant’s spouse. In accordance with subsection 251(2) of the Income
Tax Act, the Appellant and the Payer are related. They are deemed not to
deal with each other at arm’s length by paragraph 251(1)(a) of the Income
Tax Act.
[17]
The question is whether, in light of the
evidence adduced at court, would the Minister, if he had the benefit of all
this evidence, reasonably have concluded that the Payer and a person acting at
arm’s length would have entered into a substantially similar contract of
employment. It is my opinion that the answer to this question is no.
[18]
I do not believe that the Appellant’s spouse
performed all of the tasks alleged by the Appellant. I believe that her only
duty with the Payer was to maintain its books and records. The Appellant’s
spouse had no training in the Payer’s business; she reported no income from the
Payer; and, during the period, she worked for another payer.
[19]
The Appellant’s testimony was self-serving. He
has not brought any evidence to show that the Minister’s assumptions were
incorrect.
[20]
It is my view that the Appellant made all of the
decisions for the Payer. He decided when he would work; his own rate of pay;
the quotes issued by the Payer; the contracts which the Payer would accept; the
days and hours he would work; and the casual laborers who would be hired and
laid off by the Payer. The Appellant decided the direction of the Payer’s
business. It is my opinion that the Appellant incorporated the Payer to give
the appearance that he was employed by an independent third party.
[21]
There is no basis for me to conclude that the
Minister’s decision would have been different if he had the benefit of the
evidence given before me. The appeal is dismissed.
Signed at Ottawa, Canada, this 2nd
day of September 2016.
“V.A. Miller”
Email this Content