Autobus Hélie Inc. c. M.R.N.

Autobus Hélie Inc. c. M.R.N. Court (s) Database Tax Court of Canada Judgments Date 2004-07-22 Neutral citation 2004 TCC 512 File numbers 2004-376(EI) Judges and Taxing Officers Louise Lamarre Proulx Subjects Canada Pension Plan Decision Content [OFFICIAL ENGLISH TRANSLATION] Docket: 2004-376(EI) BETWEEN: AUTOBUS HÉLIE INC., Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. ____________________________________________________________________ Appeal heard on July 13, 2004, at Montreal, Quebec. Before: The Honourable Justice Louise Lamarre Proulx Appearances: For the Appellant: Alain Savoie Counsel for the Respondent: Me Simon Petit ____________________________________________________________________ JUDGMENT The appeal under subsection 103(1) of the Employment Insurance Act from the decisions of the Minister of National Revenue dated October 30, 2003, is allowed and the decisions overturned, pursuant to the attached Reasons for Judgment. Signed at Ottawa, Canada, this 22nd day of July, 2004. "Louise Lamarre Proulx" Lamarre Proulx, J. Certified true translation Colette Beaulne [OFFICIAL ENGLISH TRANSLATION] Citation: 2004TCC512 Date: 20040722 Docket: 2004-376(EI) BETWEEN: AUTOBUS HÉLIE INC., Appellant, And THE MINISTER OF NATIONAL REVENUE, Respondent. REASONS FOR JUDGMENT Lamarre Proulx, J. [1] These are appeals from three decisions of the Minister of National Revenue (the "Minister") dated October 30, 2003, to the effect that Messrs. Pierre, Normand and Jocelyn Hélie held insurable employment from January 1, 2002, to April 24, 2003. [2] The Minister's decision was rendered pursuant to paragraph 5(3)(b) of the Employment Insurance Act (the "Act"). [3] The Minister based the decision on the facts set out in paragraphs 6 and 7 of the Reply to the Notice of Appeal (the "Reply") as follows: 6. The Minister concluded that the workers were employed by the Appellant under a contract of employment based on the following presumed facts: a) the Appellant, which was incorporated in 1975, runs a bus transportation firm; b) the Appellant's various transportation activities can be broken down as follows: - chartered transportation (about 59% of activities); - school transportation (about 39% of activities); - public transportation (about 1% of activities); - mechanical and body and repair work (about 1% of activities); c) the Appellant operates in Quebec, Ontario, the Maritime provinces and the United States; d) in 2001 and 2002, the Appellant generated approximately $5 million in sales per year; e) in addition to the 3 workers involved, the Appellant usually hires 2 office employees, 10 vehicle mechanic and maintenance employees, and 60 drivers; f) Normand Hélie headed the sales and various modes of transportation and charters division; he supervised the employees in this sector (the drivers) and negotiated contracts in conjunction with the firm's president; g) Jocelyn Hélie headed the mechanical division (the garage); he supervised the employees in this sector and managed inventories, verifications and ordered parts; h) Pierre Hélie headed the administrative division; he managed the firm, analyzed financial statements, supervised employees in this sector, hired staff and looked after the day-to-day accounting at the Appellant's firm; i) the workers' schedule could be flexible, but each worked about 60 hours a week in 2002; j) each of the workers was on call every third weekend to attend to drivers as required; k) the workers jointly made all key decisions involving the Appellant's activities; l) each of the workers made day-to-day operational decisions in their jurisdiction (division); m) each of the workers used an automobile provided by the Appellant, which covered all related expenses; n) the Appellant paid for life insurance coverage for each worker; o) the work tools each of the workers used as part of their work belonged to the Appellant; p) the compensation each worker received was determined by the Appellant and was paid through direct deposit on a weekly basis; q) in 2002, each worker received a fixed amount of $1,200 a week; this amount increased to $1,500 a week on January 1, 2003; r) during the period at issue, the Appellant paid each worker a $15,000 bonus; s) each worker received fixed weekly compensation and did not run any risk of financial losses or chances of financial profit as an employee of the Appellant. 7. The worker and the Appellant are related within the meaning of the Income Tax Act because: a) during the period at issue, the Appellant's voting shares were distributed as follows: Normand Hélie had 33 1/3 %; Jocelyn Hélie had 33 1/3 %; Pierre Hélie had 33 1/3 %. b) the Appellant's shareholders (the workers) are brothers; c) each of the workers belongs to a related group that controls the Appellant. [4] The grounds upon which the Minister based the decision that the employments were insurable employment are provided in paragraph 8 of the Reply: 8. The Minister also found that each of the workers and the Appellant were deemed to be dealing at arm's length in this employment because the Minister felt that having regard to all the circumstances of the employment, it was reasonable to conclude that each of the workers and the Appellant would have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length: a) each of the workers received, for the approximately 60 hours of work, reasonable weekly compensation given their duties and responsibilities; b) despite the fact that each of the workers had extensive experience in their respective areas of activities, they could not act alone and the Appellant had the right to control their duties; c) each worker provided the Appellant with services on a continuous and annual basis which corresponded to the period during which the Appellant carried out activities; d) the services provided by each of the workers were an integral part of the Appellant's activities and were essential to it running properly. [5] The following conclusion was provided in the Notice of Appeal: Given all the above-mentioned information, we therefore conclude that the employments held by Messrs. Pierre, Jocelyn and Normand Hélie was not insurable employment pursuant to paragraphs 5(2)(i) and 5(3)(b) of the Employment Insurance Act for the following reasons: a) Messrs. Pierre, Jocelyn and Normand Hélie deal at non-arm's length with one another as well as with the Appellant; b) a contract of employment substantially similar to theirs would not have been entered into or would not have been entered into with a person not related to the firm because: - if one of the three workers stopped working for the firm, he would not be replaced; - the firm would not offer an unrelated person the same salary; - the firm would not offer an unrelated person the same conditions of employment; - among other things, the three workers concerned set their own hours of work and are not controlled; - they decide how to use their time and are free to delegate their work; - when they delegate their work, duties or responsibilities, they dictate how and when the work must be performed; - they are not paid for any overtime worked; - all three workers have more paid vacation than the firm's other workers and can also miss work for personal reasons if they wish; - their duties include taking turns being "on call" evenings, nights and weekends for 15 days and an unrelated person would not necessarily accept these additional responsibilities and if he or she did, it would definitely not be without pay. c) On the contrary, an unrelated person hired to replace one of the three workers concerned would not have received the same salary treatment. Instead, he or she would have: been paid a considerably smaller salary without a bonus; been paid for the number of hours actually worked; had a set work schedule; had a specific number of weeks of vacation paid for by the firm; and not have been able to take more. This unrelated person would not have had: a luxury car provided by the firm; the authority to sign company cheques; and not have had access to the firm's bank accounts. The series of relevant factors concerning the employments in question therefore demonstrates that the employments of Messrs. Pierre, Jocelyn and Normand Hélie with Autobus Hélie Inc. must be deemed excepted employment because they deal at non-arm's length with one another and with the Appellant and a similar contract of employment would not have been entered into by the Payer and a person not related to the firm. [6] The three Hélie brothers testified that they had purchased equal shares of the firm from their father in 1979. The duties were divided up and that same distribution has continued with the brothers working autonomously and harmoniously. [7] Profits have always been shared equally and they have decided on them themselves. The profits are shared in the form of salaries and dividends. Thus, toward the end of the years at issue, the weekly salaries doubled for several weeks. Substantial dividends are paid. Exhibit A-1 contains the statement of employment income earned between 1991 and 2003 which shows that income quadrupled between 1991 and 2003. [8] Each brother sets his own schedule, and the timing and length of his vacation. The Appellant sets the schedule for the other employees and they are entitled to only two or three weeks of vacation a year. [9] Each brother has cheque signing authority. All three were entitled to use a luxury automobile. [10] The Appellant purchased two or three other bus firms. It had retained the services of two key employees from these firms. Messrs. Hélie stated that the salaries of these excellent managers cannot be compared with what they as manager owners earn. [11] The Appellant took out a death and disability insurance policy on the workers. If one of the brothers died or became disabled, the insurance will pay his share which will return to the surviving brothers. According to the brothers, no one would be replaced in order to perform the same duties and obtain the same rights and privileges. The administrative and operational structures would be modified accordingly. [12] Mr. Normand Hélie was the first to testify. His title on the Board of Directors is Vice-Chairman. He usually works from 8:00 a.m. to 5:30 p.m. He can, however, arrive whenever he wants. He is not accountable to anyone for his schedule. During a short week, he can work between 25 and 30 hours, and 60 hours during long weeks. The number of hours has no impact on his compensation. He has six to eight weeks of vacation. [13] Mr. Jocelyn Hélie is the Secretary-Treasurer of the Board of Directors. His work schedule is flexible. He usually arrives at about 8:00 a.m. and leaves when he wants. He sets his own schedule. In 2002, he took a flying course during the week because it was easier to obtain hours that suited him. He has 12 to 14 weeks of vacation a year. [14] Mr. Pierre Hélie is the Chairman of the Board of Directors. He arrives at the office early, at 7:00 a.m. and usually leaves at about 3:00 p.m. He explained that there is one official board of directors' meeting a year. During the year, the three brothers meet at least once a month and sometimes more often at breakfast or over a business lunch. They also see each other regularly either at the firm's offices or at social or sporting events. [15] He stated that each brother is autonomous in his area of activity. The employees who are not related to the Appellant are supervised although the extent of the supervision can vary from one to another. Analysis [16] The Appellant's counsel cited the following decisions: Putter v. Canada (Minister of National Revenue - M.N.R.), [2000] T.C.J No 92 (Q.L.); Crawford & Co. Ltd. v. Canada (Minister of National Revenue - M.N.R.), [1999] T.C.J. No 850 (Q.L.); Bayside Drive-In Ltd. v. Canada (Minister of National Revenue - M.N.R.), [1997] T.C.J. No 1212 (Q.L.); Bergen v. Canada (Minister of National Revenue - M.N.R.), [2002] T.C.J. No 73 (Q.L.); and St-Pierre v. Canada (Minister of National Revenue - M.N.R.), [2003] T.C.J. No 156 (Q.L.) [17] The Respondent's counsel cited: Roxboro Excavation Inc. v. Canada, [1999] T.C.J. No 32 (Q.L.); [2000] T.C.J. No 799 (Q.L.); Groupe Desmarais Pinsonneault & Avard Inc. v. Canada, [2002] T.C.J. No 572 (Q.L.); Canada v. Jencan, [1998] 1 F.C. 187; Légaré v. Canada, [1999] T.C.J. No 878 (Q.L.); Pérusse v. Canada, [2000] T.C.J. No 310 (Q.L.); Miller v. Canada, [2002] T.C.J. No 1498 (Q.L.); Quigley Electric Ltd. v. Canada, [2003] T.C.J. No 1789 (Q.L.); Feader v. Canada, [2004] T.C.J. No 236 (Q.L.) and Quincaillerie Beaubien Inc. v. Canada, [2002] T.C.J. No 428 (Q.L.). [18] Paragraph 5(2)(i) and subsection 5(3) of the Act read as follows: 5(2) Insurable employment does not include ... (i) employment if the employer and employee are not dealing with each other at arm's length. Arm's length dealing 5(3) For the purposes of paragraph (2)(i), (a) the question of whether persons are not dealing with each other at arm's length shall be determined in accordance with the Income Tax Act; and (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. [19] The issue is not whether the workers are employees or self-employed workers. The income is employment income. They are paid salaries by the Appellant. The issue is whether the workers' conditions of employment would be the same or similar to the employees who deal with the employer at arm's length. [20] The evidence clearly showed that the workers' salary is not based on the work performed, but on their being owners of the firm. The workers set their salaries themselves. If one of the workers in question leaves the firm, he will not be replaced by a person who will be entitled to the same privileges. They are definitely very responsible people, but they would obviously not receive the same salary if they were not related to the Appellant. They are excellent employees and their salary is what people doing the same work receive. But it is not what the Hélie brothers receive. [21] The evidence also showed that the Appellant does not hold the Hélie brothers accountable for their hours of work. They use their discretion in choosing their hours and days of work. [22] I refer to a decision cited by counsel for the Respondent, a decision where the facts are similar to those in the case at hand, that is, in Roxboro Excavation Inc. (supra). This decision was, however, based on subsection 5(1) of the Act. The issue was whether the workers were employees or self-employed workers and it was decided that they were employees. It is not the disposition that is examined in the case at hand. [23] I nonetheless find it interesting to cite Mr. Justice Marceau in Scalia v. Canada (Minister of National Revenue - M.N.R.) (F.C.A.), [1994] T.C.J. No 798 (Q.L.) concerning the independent relationship that is necessary to the creation of a true subordinate relationship and the consequence of the lack of this independence provided for in paragraph 5(2)(i) and subsection 5(3) of the Act: 4 On analysing the evidence, however, we find that the applicant had such ascendancy over the company, its activities and the decisions of its board of directors, which was composed of himself, his nephew and his sister-in-law, that there could not have been the independent relationship between himself and the company that is necessary to the creation of a true subordinate relationship. It would perhaps have been easier for the judge to refer, as did the Minister, to the exception that was in force at the relevant time under paragraph 14(a) of the Regulations, as interpreted and applied by the courts, but ultimately the judge's approach was not in error, since the control that a corporation which is an employer may exercise over the person who completely dominates it is more fictitious than real (as Parliament confirmed in 1990 when it enacted the new paragraphs 3(2)(c) and (d) of the Act). The judge's reasoning is therefore not in error and we would be wrong to reject his conclusion solely on the ground that his reasoning was unclear or equivocal. [24] I also cite Mr. Justice Marceau in paragraph 4 of the Federal Court of Appeal decision in Légaré (supra): 4 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. [25] He reiterated in paragraphs 13 to 15 of Pérusse (supra): 13 It is clear from reading the reasons for the decision that, for the presiding judge, the purpose of his hearing was to determine whether the Minister, in the well-known expression, had exercised "properly" the discretion conferred on him by the Act to "recognize the non-exception" of a contract between related persons. He therefore had to consider whether the decision was made in good faith, based on the relevant facts disclosed by a proper hearing, not under the influence of extraneous considerations. Accordingly, at the outset, at p. 2 of his reasons, the judge wrote: The determination at issue in the instant appeal results from the discretionary authority provided for by the provisions of s. 3(2)(c) of the Act, which reads as follows: ... . . The appellant was required to discharge the burden of proof, on the balance of probabilities, that the respondent in assessing the matter had not observed the rules applicable to ministerial discretion, and if this could not be done this Court would not have no basis for intervening. And finally, his conclusion at p. 14: So far as the appeal is concerned, I cannot allow it as the appellant has not proven that the respondent exercised his discretion improperly. ¶ 14 In fact, the judge was acting in the manner apparently prescribed by several previous decisions. However, in a recent judgment this Court undertook to reject that approach, and I take the liberty of citing what I then wrote in this connection in the reasons submitted for the Court: Francine Légaré v. M.N.R., case No. A-392-98, and Johanne Morin v. M.N.R., case No. A-393-98, dated May 28, 1999, not reported, at para. 4. 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. ¶ 15 The function of an appellate judge is thus not simply to consider whether the Minister was right in concluding as he did based on the factual information which Commission inspectors were able to obtain and the interpretation he or his officers may have given to it. The judge's function is to investigate all the facts with the parties and witnesses called to testify under oath for the first time and to consider whether the Minister's conclusion, in this new light, still seems "reasonable" (the word used by Parliament). The Act requires the judge to show some deference towards the Minister's initial assessment and, as I was saying, directs him not simply to substitute his own opinion for that of the Minister when there are no new facts and there is nothing to indicate that the known facts were misunderstood. However, simply referring to the Minister's discretion is misleading. [26] This Court must therefore ensure that the facts the Minister used were accurate, and whether or not they were accurate, that they were correctly assessed given the context in which they occurred. Based on paragraph 4 of the Reply, the Minister deemed that each of the workers received reasonable compensation for approximately 60 hours of work. However, the evidence showed that the hours of work varied and were at the workers' discretion. The number of days of vacation was also at the worker's discretion. These are not normal conditions of employment. [27] The workers' compensation was increased or decreased based on the firm's profits or based on the Appellant's capital requirements. The compensation was not based on the work performed, which was not the case of the non-owner employees working in the same areas as the workers concerned. For example, the salary of these employees was never doubled for a number of weeks at the end of the fiscal year. [28] Mention is made in paragraph 4(b) of the Reply of the Appellant's right to control the workers. This is not a relevant criterion within the context of the analysis of paragraph 5(3)(b). This is what Mr. Justice Dussault of this Court wrote in Marché du Faubourg Ste-Julie Inc. v. Canada (Minister of National Revenue - M.N.R.) [2003] T.C.J. No 513 (Q.L.). Control is a relevant criterion for subsection 5(1) of the Act. The evidence nevertheless showed that the workers were extremely autonomous, but one would nonetheless think that the Hélie brothers had to work together to ensure that their firm was run properly. [29] In short and in conclusion, in my opinion, it was not reasonable to conclude, having regard to all the circumstances of the employment, including the remuneration paid and the terms and conditions of the employment, that the Appellant would have entered into a substantially similar contract of employment with the Hélie brothers if there had not been a non-arm's length relationship between it and the brothers or, in other words, if the latter had not owned the Appellant. [30] The appeal is allowed and the Minister's decisions overturned. Signed at Ottawa, Canada, this 22nd day of July, 2004. "Louise Lamarre Proulx" Lamarre Proulx, J. Certified true translation Colette Beaulne CITATION: 2004TCC512 COURT DOCKET NO: 2004-376(EI) STYLE OF CAUSE: Autobus Hélie Inc. and the Minister of National Revenue PLACE OF HEARING: Montreal, Quebec DATE OF HEARING: July 13, 2004 REASONS FOR JUDGMENT BY: The Honourable Justice Louise Lamarre Proulx DATE OF JUDGMENT: July 22, 2004 APPEARANCES: For the Appellant: Alain Savoie Counsel for the Respondent: Me Simon Petit SOLICITOR OF RECORD: For the Appellant: Name: Firm: For the Respondent: Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada