Date: 20130225
Dockets: A-423-11
A-424-11
A-425-11
A-426-11
A-427-11
Citation: 2013 FCA 53
CORAM: NOËL
J.A.
TRUDEL J.A.
MAINVILLE
J.A.
BETWEEN: A-423-11
THE ATTORNEY GENERAL OF
CANADA
Applicant
and
JEAN-PAUL TALBOT
Respondent
BETWEEN: A-424-11
THE ATTORNEY GENERAL OF
CANADA
Applicant
and
JEAN-PAUL TALBOT
Respondent
BETWEEN: A-425-11
THE ATTORNEY GENERAL OF
CANADA
Applicant
and
RICHARD TALBOT
Respondent
BETWEEN: A-426-11
THE ATTORNEY GENERAL OF
CANADA
Applicant
and
RICHARD TALBOT
Respondent
BETWEEN: A-427-11
THE ATTORNEY GENERAL OF
CANADA
Applicant
and
RICHARD TALBOT
Respondent
REASONS FOR JUDGMENT
NOËL J.A.
[1]
These are five
applications for judicial review of decisions (CUB 77803, CUB 77802, CUB 77801,
CUB 77800 and CUB 77799) by Umpire L.-P. Landry (the Umpire) dismissing in
part and for the same reasons the appeals of the Employment Insurance
Commission (the Commission) against the earlier decisions of a Board of
Referees concerning the calculation of the income earned by Jean-Paul Talbot and
Richard Talbot (the respondents) for the purposes of the Employment
Insurance Act, S.C. 1996, c. 23 (the Act).
[2]
More
specifically, the issue pertains to the calculation of the income generated by
the respondents’ snow-clearing business during the period from 2007 to 2010 and
the effect of this calculation on their entitlement to benefits.
[3]
The
five applications were heard during a joint hearing in accordance with an order
issued by Chief Justice Blais on February 20, 2012. The reasons that follow dispose of all five applications.
- Legislative provisions
[4]
The provisions
relevant to the calculation of the income generated by the respondents’
business are sections 35 and 36 of the Employment Insurance Regulations,
SOR/96-332
(the Regulations):
|
35. (1) The definitions in this
subsection apply in this section.
“employment”
“employment” means
. . .
(b) any
self-employment, whether on the claimant's own account or in partnership or
co-adventure; and
. . .
(2) Subject to the other provisions of this section, the earnings to be
taken into account for the purpose of determining whether an interruption of
earnings under section 14 has occurred and the amount to be deducted from
benefits payable under section 19, . . ., are the entire income
of a claimant arising out of any employment, including . . .
(10) For the purposes of subsection
(2), “income” includes
. . .
(c) in the case of a claimant
who is self-employed in employment other than farming, the amount of the gross
income from that employment remaining after deducting the operating expenses,
other than capital expenditures, incurred therein; and
. . .
36. (1) Subject to subsection (2), the earnings of a claimant as
determined under section 35 shall be allocated to weeks in the manner
described in this section and, for the purposes referred to in subsection
35(2), shall be the earnings of the claimant for those weeks.
. . .
(6) The earnings of a claimant who is
self-employed, or the earnings of a claimant that are from participation
in profits or commissions, that arise from the performance of services shall
be allocated to the weeks in which those services are performed.
. . .
|
35. (1) Les définitions qui
suivent s’appliquent au présent article.
« emploi »
« emploi »
[…]
b) tout emploi à titre de
travailleur indépendant, exercé soit à son compte, soit à titre d’associé ou
de coïntéressé;
[…]
(2) Sous réserve des autres dispositions du présent article, la
rémunération qu’il faut prendre en compte pour vérifier s’il y a eu l’arrêt
de rémunération visé à l’article 14 et fixer le montant à déduire des
prestations à payer en vertu de l’article 19, […] est le revenu intégral
du prestataire provenant de tout emploi, notamment […]
(10) Pour l’application du paragraphe (2), « revenu » vise
notamment :
[…]
c) dans le cas
d’un prestataire qui est un travailleur indépendant exerçant un emploi non
relié aux travaux agricoles, le reste du revenu brut qu’il tire de cet
emploi après déduction des dépenses d’exploitation qu’il y a engagées et qui
ne constituent pas des dépenses en immobilisations;
[…]
36. (1) Sous réserve du paragraphe (2), la rémunération du
prestataire, déterminée conformément à l’article 35, est répartie sur un
nombre donné de semaines de la manière prévue au présent article et elle
constitue, aux fins mentionnées au paragraphe 35(2), la rémunération du
prestataire pour ces semaines.
[…]
(6) La rémunération
du prestataire qui est un travailleur indépendant ou la rémunération du
prestataire qui provient de sa participation aux bénéfices ou de
commissions est répartie sur les semaines où ont été fournis les services
qui y ont donné lieu.
[…]
|
[Emphasis added.]
- The facts
[5]
The Commission
reviewed the respondents’ entitlement to benefits. It concluded that the income
they had earned was higher than previously established, which gave rise to a
total overpayment of $11,999.00 for Jean-Paul Talbot and $14,708.00 for Richard
Talbot.
[6]
In this case, the
respondents are equal shareholders in an incorporated business that provides
snow-clearing services (Reasons, p. 2). The business is normally active
from November to April, or 17 to 21 weeks per year. Most of the expenses of
running the business arise during this period, but some are annual in the sense
that they are not related exclusively to that period, and these include such
things as insurance costs, fees for professional services and advertising expenses.
[7]
The Commission, purportedly relying
on section 35 of the Regulations, allocated the total gross income from
the snow-clearing contracts to the weeks in which the snow-clearing services
were rendered (Reasons, p. 2). It did the same for the expenses incurred
for, among other things, fuel and subcontracting (ibid). As for the
so-called annual expenses, it allocated them to a 52‑week period, so that
only those attributable to the weeks of snow-clearing activity were deducted
from the respondents’ gross income (ibid). It was on the basis of this
calculation that the net income of the snow-clearing company was divided
between the two respondents (ibid) and allocated to the weeks in which
the services were performed, in accordance with subsection 36(6).
[8]
The
respondents contested this calculation. The Board of Referees modified the
Commission’s decision by allocating the income as calculated by the Commission to
a 52-week period instead of the period in which the services were performed
(Board of Referees’ Decision, p. 4).
[9]
The
Commission’s appeals to the Umpire ensued. The Umpire disagreed with the
Commission’s calculation of income under paragraph 35(10)(c).
[10]
According
to the Umpire, the first step contemplated by that provision is establishing
the business’s gross income for a 12-month period, since income is calculated on
an annual basis [translation]
“when business income is involved” (Reasons, p. 3). Next, according to
paragraph 35(10)(c), operating expenses, other than capital
expenditures, must be deducted (ibid). In his view, capital cost
allowance is a capital expenditure and therefore may not be deducted (Reasons,
pp. 4 and 5).
[11]
After
making this calculation, the Umpire allocated the income to the weeks in which
the services were performed rather than to a 52-week period, thus overturning
the Board of Referees’ earlier ruling on this point (Reasons, p. 5).
- Alleged errors
[12]
The applicant is of
the opinion that the standard of review is reasonableness (Applicant’s
Memorandum, para. 26). In his view, there is only one reasonable
interpretation of paragraph 35(10)(c) (Applicant’s Memorandum,
para. 43):
[translation]
43. Because the earnings must be allocated to the
weeks in which the services that generated them were performed, it is the
expenses relating to those same weeks that must be deducted from the
self-employed worker’s gross income pursuant to section 35 of the Regulations.
[13]
Therefore, according
to the applicant, only the expenses for those weeks in which the services were performed
may be deducted from the gross income (Applicant’s Memorandum, para. 44). The applicant’s
argument essentially rests on the fact that the employment insurance regime is
based on a week-by-week analysis, as appears from, among other provisions,
section 19 of the Act and section 36 of the Regulations (Applicant’s
Memorandum, paras. 35, 36 and 40).
[14]
This
interpretation would also appear to be supported by the Digest of Benefit
Entitlement Principles, which this Court has recognized as constituting an “important
factor in the interpretation of statutes” (Applicant’s Memorandum,
para. 48, citing Canada v. Greey, 2009 FCA 296, para. 28).
[15]
Furthermore,
the applicant submits that the Umpire erred in applying accounting concepts to
establish a business’s income over a 12-month period. According to the
applicant, these concepts are not applicable in an employment insurance context
(Applicant’s Memorandum, para. 50).
[16]
Finally,
the applicant contends that the Umpire erred in finding that depreciation costs
constituted “capital expenditures” for the purposes of paragraph 35(10)(c).
[17]
The
respondents for their part submit that the only reasonable decision is the one
rendered by the Board of Referees, which chose to allocate the income over 52
weeks (Respondents’ Memorandum, para. 3). Despite this, they are seeking
to have the Umpire’s decision upheld.
- Analysis and decision
[18]
Before proceeding
with the analysis, I note that, in the case of self-employed workers, the
Regulations treat their business activities as employment (subsection 35(1) and
paragraph 35(10)(c)), and in the case of incorporated businesses the
profits generated by them are considered as earnings (subsection 36(6)).
[19]
This
dispute stems from the calculation of income set out in paragraph 35(10)(c)
of the Regulations. The calculation is in itself quite straightforward, but
knowing to which period it should be applied is another matter. According to
the Umpire, it is the income generated during a 12-month period that must be
calculated pursuant to paragraph 35(10)(c) (Reasons, p. 3). Accordingly,
this involves subtracting the operating expenses incurred in the course of the
year from the gross income generated during the year. The income so calculated is
then allocated in accordance with subsection 36(6) over the number of
weeks in which the services were performed (Reasons, p. 6).
[20]
According
to the Commission, what must be calculated pursuant to paragraph 35(10)(c)
is, rather, the income generated during the period in which snow-clearing
services were performed. To that end, the Commission began by identifying the
income generated during that period, which matches the amount appearing in the
financial statements for each of the years at issue, since the sole income from
the respondents’ business was that generated during the snow-clearing season. It
then deducted from this amount the operating expenses incurred during this
period, such as fuel and subcontracting. As for the so-called annual operating expenses,
it divided them by 52 and deducted the portion attributable to the number of
weeks in which the services were performed. The income thus determined was
allocated in accordance with subsection 36(6) over the number of weeks in
which the services were provided (Appeal Book, A‑423-11, p. 71;
A-424-11, p. 107; A-425-11, p. 88; A-426-11, p. 87; A-427-11, p. 77).
[21]
In
my view, the period selected by the Commission is the correct one. The income contemplated
in paragraph 35(10)(c) is not annual income, which is a concept
foreign to the Act. Rather, one must calculate the income generated during the
period in which the services were performed and allocate that amount to the
number of weeks in that period in accordance with subsection 36(6). Under
paragraph 35(10)(c), it is the amount of income that the
respondents earn “from that employment” that must be calculated, and the period
of “that employment” is that during which the services were performed (compare Canada (Attorney General) v. Vernon, [1995] F.C.J. No. 1394 at
paras. 10 and 11).
[22]
Now
what of the expenses that may be deducted from this amount? The deduction of the
operating expenses incurred during the period is obviously permitted. However,
was the Commission correct in reducing the so-called annual expenses according
to the number of weeks of activity? I do not think so.
[23]
According
to the wording of paragraph 35(10)(c), the expenses that the
respondents may deduct in calculating the income from their employment are
those that each of them “incurred therein”. The characterization of the expense
must therefore be based on the object sought in incurring the expense and not
the time at which it is incurred. In this case, all of the so-called annual
expenses were incurred for the purpose of generating income during the
snow-clearing season, since the respondents’ business has no other source of
income. It follows that all of these expenses must be taken into consideration
for the purpose of calculating the income generated during this period.
[24]
It
is the income thus calculated that must be allocated to the weeks in which the
services were performed, in accordance with subsection 36(6) of the
Regulations.
[25]
Finally,
the Umpire erred in excluding depreciation costs from operating expenses under
paragraph 35(10)(c) of the Regulations. Only capital expenditures
are excluded, and depreciation is not a capital expenditure.
[26]
Depreciation,
or, more accurately, capital cost allowance, is an annual deduction that
recognizes as an expense a percentage of the capital cost of capital property
that corresponds approximately to the depreciation of that property during the
year in question. Contrary to the Umpire’s assertion (Reasons, p. 4), the
expense thus recognized is a true expense because it represents a percentage of
a cost that has actually been incurred. The purpose of the deduction is to recognize
the use of property during a given year and the resulting decrease in its
value, which clearly makes this expense an operating expense.
[27]
I
would therefore allow the applications for review, set aside the Umpire’s
decisions and refer these matters back to the Chief Umpire or his designate for
redetermination on the basis that the periods for which the income is to be
calculated under paragraph 35(10)(c) of the Regulations are those in
which the snow-clearing services were performed, but that all of the operating
expenses reflected in the financial statements must be deducted in calculating that
income. With respect to file No. A-425-11, the Commission’s concession
that only the weeks of March 16, 2008, March 23, 2008, and
March 30, 2008, are at issue must also be taken into account.
“Marc Noël”
“I concur.
Johanne Trudel J.A.”
“I concur.
Robert
M. Mainville J.A.”
Certified true translation
Erich Klein
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