Docket: 2012-3805(EI)
BETWEEN:
SHELDON WAGG,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent;
Docket: 2012-3827(EI)
AND BETWEEN:
GREAT WHITE LANDSCAPING & SNOW REMOVAL LTD.
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
____________________________________________________________________
Appeals
heard on common evidence on March 10, 2014
at Hamilton, Ontario
By: The Honourable
Justice Judith Woods
Appearances:
|
Counsel for the Appellants:
|
David
Lees
Adam B. Davis, Student-at-Law
|
|
Counsel for the Respondent:
|
Gregory B. King
|
____________________________________________________________________
JUDGMENT
The appeals with
respect to a decision of the Minister of National Revenue that Sheldon Wagg was
not engaged in insurable employment with Great White Landscaping & Snow
Removal Ltd. for the period from January 1, 2011 to December 31, 2011 are
dismissed, and the decision of the Minister is confirmed.
Signed at Toronto, Ontario this 8th day of April 2014.
“J.M. Woods”
Citation: 2014 TCC 109
Date: 20140408
Docket: 2012-3805(EI)
BETWEEN:
SHELDON WAGG,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent;
Docket: 2012-3827(EI)
AND BETWEEN:
GREAT WHITE LANDSCAPING & SNOW REMOVAL LTD.
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1]
Sheldon Wagg and Great White
Landscaping & Snow Removal Ltd. (“Great White”) appeal with respect to a
decision of the Minister of National Revenue that Mr. Wagg was not engaged in
insurable employment with Great White for the period from January 1, 2011 to
December 31, 2011.
[2]
The issue to be determined is
whether Mr. Wagg’s terms of employment were substantially similar to arm’s
length terms. The Minister was not satisfied that the terms were arm’s length,
and he concluded that the employment was not insurable pursuant to s. 5(3)(b)
of the Employment Insurance Act. The test is whether this decision
seems reasonable based on the evidence presented at the hearing (Simms v The
Minister of National Revenue, 2005 TCC 378, para 7).
Background
[3]
Mr. Wagg commenced a landscaping
and snow removal business in 2001 as a sole proprietor. In 2007 the business
continued in corporate form through Great White. At that time, Mr. Wagg was the
sole shareholder of Great White and he worked in the business on a full-time
basis. He also had some part time help.
[4]
Sheldon and Christine Wagg were
married on October 30, 2010. They testified that Mr. Wagg transferred the
shares of Great White to Mrs. Wagg on November 1, 2010. They seemed reluctant
to divulge the reasons for the transfer in their testimony.
[5]
On January 6, 2012, Mr. Wagg
applied for employment insurance benefits for the period from January 1, 2011
to December 31, 2011. He stated that he was laid off from Great White after
that time because there was not enough business, but that he continued to work
for the corporation without remuneration except for the reimbursement of
expenses.
[6]
By way of background, I would
mention that some of the documentary evidence introduced at the hearing tends
to conflict with the Waggs’ testimony that Mr. Wagg transferred his shares on
November 1, 2010. It appears that the Canada Revenue Agency (CRA) was concerned
about this during their review, but the Minister has not put this at issue in
these appeals. Accordingly, I will assume for purposes of these appeals that
the shares of Great White were owned by Mrs. Wagg at the relevant time. This is
significant because, if Mr. Wagg had owned the shares, his employment would
automatically not be insurable under the relevant provisions of the Employment
Insurance Act.
Discussion
[7]
The sole question to be determined
is whether, based on the evidence at the hearing, it is reasonable to conclude
that Mr. Wagg’s employment was not substantially similar to arm’s length
employment “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.”
[8]
The evidence as a whole satisfies
me that it is reasonable to conclude that Mr. Wagg’s employment was not
substantially similar to arm’s length terms.
[9]
I will first consider the
remuneration. Mr. Wagg was employed at a flat bi-weekly salary of $1,560, plus
4 percent for vacation pay, and an additional $4,440 paid in December as a
Christmas bonus.
[10]
At the hearing, Mr. and Mrs. Wagg
testified that the salary was kept the same as in prior years. They submitted
that the salary was within the range of arm’s length hourly rates for a person
working a 40 hour work week. Mr. Wagg testified that these were the hours
worked, on average.
[11]
One of the problems that I have
with this position is that the work hours in a snow removal business must vary
substantially with the weather. I think it is unlikely, therefore, that an
arm’s length employer would provide remuneration to an arm’s length worker
engaged in snow removal based on a fixed salary.
[12]
A second difficulty that I have is
that no records were kept of the hours worked. I can understand how hours for a
landscaping business could be regular, but I do not understand how hours could
be accurately estimated by the appellants for the snow removal business without
some type of records being kept. I am not satisfied based on the evidence presented
that Mr. Wagg worked an average of 40 hours per week.
[13]
Accordingly, the appellants have
not established that the remuneration reflects arm’s length terms.
[14]
I would add that I am also not
satisfied that an arm’s length relationship would pay vacation pay for this
type of work and also a large Christmas bonus. It makes more sense that an
arm’s length relationship in a seasonal business would give days off for
vacation rather than give extra pay. As for the bonus, it far exceeds what one
would expect as a Christmas bonus for this type of work.
[15]
Counsel argued that the
bonus was reasonable in the context of Mr. Wagg being laid off. There is not
sufficient evidence to support the characterization of the bonus as severance.
[16]
For these reasons, I am satisfied
that it is reasonable to conclude that Mr. Wagg’s employment was not
substantially similar to arm’s length terms. My conclusion would not change
even if the other factors mentioned in the legislation were arm’s length terms
(terms and conditions, duration and nature and importance of work).
[17]
Before concluding, I would also
comment that I found much of the testimony of Mr. and Mrs. Wagg to be
far-fetched. They described an employment relationship in which Mr. Wagg’s day
to day activities were directed in detail by Mrs. Wagg and that Mr. Wagg
reported to her throughout the work day. As an example, they testified that
Mrs. Wagg would recommend what type of lawnmower to use for a particular job.
[18]
The circumstances in this case are
that this business had been operated by Mr. Wagg for about 10 years prior to
his marriage to Mrs. Wagg. Mrs. Wagg had a full-time job as an educator. It is
simply not plausible that the business operated on the basis suggested in their
testimony.
[19]
The appeals will be dismissed.
Signed at Toronto, Ontario this 8th day of April
2014.
“J.M. Woods”
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