Jensen Brothers Limited v. M.N.R.

Jensen Brothers Limited v. M.N.R. Court (s) Database Tax Court of Canada Judgments Date 2006-01-18 Neutral citation 2006 TCC 41 File numbers 2005-2354(EI) Judges and Taxing Officers Cameron Hugh McArthur Subjects Employment Insurance Act Decision Content Dockets: 2005-2354(EI) BETWEEN: JENSEN BROTHERS LIMITED, Appellant, and THE MINISTER OF NATIONAL REVENUE Respondent. ____________________________________________________________________ Appeal heard with the appeal of Doreen Jensen (2005-2358(EI)) on November 16, 2005, at Moncton, New Brunswick, By: The Honourable Justice C.H. McArthur Appearances: Counsel for the Appellant: John C. Friel Counsel for the Respondent: Lisa M. Wight ____________________________________________________________________ JUDGMENT The appeal pursuant to subsection 103(1) of the Employment Insurance Act is allowed and the decision of the Minister of National Revenue on the appeal made to him under section 92 of that Act is varied on the basis that Doreen Jensen was employed in insurable employment within the meaning of paragraph 5(3)(b) of the Act, for the period December 1, 2003 to July 16, 2004. Signed at Ottawa, Canada, this 18th day of January, 2006. "C.H. McArthur" McArthur J. Dockets: 2005-2358(EI) BETWEEN: DOREEN JENSEN, Appellant, and THE MINISTER OF NATIONAL REVENUE Respondent. ____________________________________________________________________ Appeal heard with the appeal of Jensen Brothers Limited (2005-2354(EI)) on November 16, 2005, at Moncton, New Brunswick, By: The Honourable Justice C.H. McArthur Appearances: Counsel for the Appellant: John C. Friel Counsel for the Respondent: Lisa M. Wight ____________________________________________________________________ JUDGMENT The appeal pursuant to subsection 103(1) of the Employment Insurance Act is allowed and the decision of the Minister of National Revenue on the appeal made to him under section 91 of that Act is varied on the basis that the Appellant was employed in insurable employment within the meaning of paragraph 5(3)(b) of the Act, for the period December 1, 2003 to July 16, 2004, while employed by Jensen Brothers Limited. Signed at Ottawa, Canada, this 18th day of January, 2006. "C.H. McArthur" McArthur J. Citation: 2006TCC41 Date: 20060118 Docket: 2005-2354(EI) 2005-2358(EI) BETWEEN: JENSEN BROTHERS LIMITED and DOREEN JENSEN, Appellants, And THE MINISTER OF NATIONAL REVENUE, Respondent, REASONS FOR JUDGMENT McArthur J. [1] These are appeals from decisions of the Minister of National Revenue under the Employment Insurance Act that Doreen Jensen ("Doreen"), was not employed in insurable employment during the period December 1, 2003 to July 16, 2004 because it was excluded employment pursuant to paragraph 5(2)(i) of the Act. She contends that she worked during that period for Jensen Brothers Limited (the "corporation") who carried on the business of potato farming and purchasing potatoes for resale, particularly to markets outside of Canada and that she and the corporation are deemed to be dealing with each other at arm's length pursuant to paragraph 5(3)(b). [2] Doreen's testimony was that she worked for the corporation Monday to Friday, exactly 45 hours weekly, throughout the period. Her duties included bookkeeping, invoicing, verifying shipping loads, preparing exporter customs paperwork, preparing payroll and bank deposits, accounts payable, phytosanitary application and preparing Certificates of Origin for Mexican potato shipments. [3] Her spouse, Kevin Jensen ("Kevin"), was the sole shareholder of the corporation. Kevin has been in the business of farming and brokering potatoes for export since 1975. Doreen went to work for the corporation in 1987, replacing Mr. Robert Fournier who had been a fulltime employee. She worked on and off for the corporation almost continuously from 1989 to 2000. She was paid employment insurance (or unemployment insurance, as it then was) benefits on two occasions over a 13 or 14-year period. [4] In the years 2000 to 2003, she suffered emotional stress over one of her teenage daughters and did not work for the corporation. During this period, Kevin did the bookkeeping and general office work together with his own responsibilities. He worked long hours and let much of the office work, particularly the bookkeeping, pile up. [5] The Appellant, Doreen, had difficulty fully expressing herself as a witness. However, she sets out her position in an undated letter to Canada Revenue Agency, contained in the Appellants' Book of Documents as follows:[1] In the past fourteen years I have been employed by Jensen Brothers Limited both part time and fulltime. My job in bookkeeping included all transactions for potato shipments such as purchase confirmations, invoicing, documents for duty and inspection, bill of ladings for freight, payroll, etc. This job was not created for me. The job has been held by persons before me, and would have to be filled by someone else if I were not able to work. In the past year, potato purchases and shipments were near nil. The potato markets in Canada, U.S.A. and Mexico that Jensen Brothers Limited have had in past years were drastically reduced, therefore potatoes that Jensen Brothers Limited would normally be exporting and shipping, were disposed of by giving away for cattle feed or dumping, and as a result my normal job duties as a bookkeeper were not needed My employer feels this decline in potato shipments is temporary and after the harvest of the new potato crop, markets will open up for export and shipment and I will return to my job. I feel your decision in regards to my insurability is discriminating. The job I do holds a great amount of responsibility, and I deserve to have the same benefits as an unrelated person would have. In fourteen years of part time and fulltime employment with Jensen Brothers Limited I have received employment insurance twice. Why would my insurability change? My relationship and job has not. [6] Doreen filed as exhibits 16 tax returns for the years 1987 to 2003, reflecting the inclusion in her income of amounts received from her employment with the Appellant over a 14-year period, except for the period from 2000 to December 2003 referred to earlier. Strangely, she was not on the corporation's payroll documentation prior to December 2003. [7] Both parties relied on a report prepared by the Appeals Officer, E. Whyte, on behalf of the Minister. At Exhibit A-1, Tab 9, the statement in this report that the Appellants' counsel disagreed with most vigorously reads: The payer's warehouse and storage facility burnt down January 18, 2003. This put the payer's potato buying, selling, storing and exporting part of the business out of operation. He will rebuild the facility, but has not yet done and so for now the operation is just a potato farming operation. Referring to the above statement which caused so much controversy, counsel for the Minister asked its witness, Mr. Tim Lawton, a Rulings Officer with CRA, if that formed a major portion of his decision. He replied it formed part of his decision and added: Well, the major part of it was there were indicators there that there had been work for period of time for no pay prior to going into the payroll. ... She went on the payroll full-time at a time of business difficulty, business downturn and then halfway through the season applied for a claim. and she was always paid 45 hours a week, and when I looked at it, I said: "Maybe some weeks, there may be 20 hours and some weeks there may be 50 hours", but it didn't seem like there would be enough work there, in my mind, for 45 hours a week with what they are describing. ... Again, they told me the accountant did the month end and the year end stuff as well. [8] This appears to be the reason for which Doreen was denied employment insurance benefits. I believe the Minister's decision-maker relied on the facts gathered by Mr. Lawton. The relevant and disputed assumptions of fact in paragraph 9 of the Respondent's Reply to the Notice of Appeal are as follows: (d) on January 18, 2003, the Payor's warehouse, storage and packing facility was destroyed in a fire on January 18, 2003 and was not rebuilt; This is partly accurate. One of three of the corporation's warehouses burned, and in recent months, part of it has been rebuilt. (e) subsequent to January 18, 2003, the Payor did not operate the potato buying, selling, storing and exporting part of the business; This is incorrect. In fact, the Payor (corporation) continued with the business of growing, buying, selling, storing and exporting potatoes. (f) subsequent to January 18, 2003, and during the period under appeal, the Payor operated the potato farm only. This is incorrect, as stated above for 9(e). (g) the Payor did not have a market for its crop in 2004 and a lot of it was buried under or given away; This is partly correct, but the corporation did not shut down its operation. There remained office work to keep Doreen busy, including with respect to the sale of the 2003 crop that continued into 2004. (h) the Payor engaged the services of an external accountant to maintain its ledgers and to do the month end and year end accounting; Both Doreen and her husband categorically deny this. (m) prior to the period under appeal the Appellant [Doreen] performed services for the Payor without pay. This is incorrect and I accept Doreen's evidence that she was busy getting caught up with two or three years of neglect of the books and records amongst other duties. [9] I have little doubt that the Minister relied, primarily, on the evidence of Mr. Lawton in his decision. Because of its importance to the decision, I will revisit the most relevant differences between his evidence and that of Doreen and her husband. [10] Doreen agrees, more or less, with all but the following assumptions of fact in the Minister's Reply. With respect to paragraph 9(e), after the January 18, 2003 warehouse fire, I accept her evidence that the corporation continued to operate the buying, selling, storing and exporting part of the business. Mr. Lawton was a credible witness, but I find he was mistaken in this regard. This may be attributed to the fact that Doreen had some difficulty expressing her thoughts and that her trial evidence was given in light of her present-day interests. I do not consider that dishonest. After being prepared for trial by her able lawyer, she was aware of what to focus on. [11] With respect to paragraph 9(f), again, I have no difficulty in accepting Doreen's evidence that the corporation's operation was more than farming. This is also consistent with the questionnaire completed by the Appellants at Tabs 7 and 8 of Exhibit A-1. [12] With respect to 9(g), this statement is accurate. The year 2004 was slow for the corporation, but has little relevance to the issue because Doreen was laid off in July 2004, before the harvest of the 2004 crop. The Minister is inferring that there was not sufficient work for her and ties into, perhaps, what I believe is what the Minister considered his strongest argument. [13] With respect to 9(i) and (j), Doreen's duties included "receptionist and Girl Friday", which are not enumerated by the Minster. The corporation had its own telephone number, its office (after the January 2003 fire) was in a renovated garage attached to the home. I accept also her evidence that she did in fact perform duties related to the buying, selling, storing and exporting of potatoes. [14] With respect to 9(l), Doreen was hired in December 2003 (11 months after the fire) which the Appellants stated was the start of the shipping season which continues until the following summer when a new crop is harvested. Mr. Lawton assumed that the summer season was the time when Doreen's services were primarily needed. From the evidence, this is not factual. The growing season did not require her services for preparing phytosanitary certificates, bills of lading, customs and brokerage documents, bookkeeping, and other work necessitated in the selling season. The fact that she was laid off in July should not be used against her. [15] The evidence of both Doreen and her husband, Kevin, was to the effect that Doreen had sufficient work available to occupy 45 hours per week throughout the relevant period, as opposed to the Minister's assumption 9(l). I accept their evidence. [16] I find also that the Minister's final assumption 9(m) is inconsistent with the evidence. In her questionnaire at Tab 7 of Exhibit A-1, the following was asked and answered by Doreen: Q. Why did you perform work for Jensen Brothers Ltd. when you were not paid for your services? A. In the business of Potato farming, buying/selling and exporting of potatoes, there could be on occasion a telephone call or business related person stop at our home. I do not consider times such as these to be "working" for Jensen Brothers Ltd. Therefore I do not feel that pay was necessary for what may amount to very few minutes a week, I may have answered a work related question. I agree with Doreen that this is insignificant and cannot be considered "work without pay". [17] I believe the Minister drew an inference that the building that burned was key to a business operation. While it was a significant part of the operation, Jensen Brothers Limited had at least two other storage facilities and the business continued. [18] On balance, I find that the Appellant refuted the essential assumptions of fact relied on by the Minister in arriving at its decision. Paragraph 5(3)(b) of the Act reads: 5(3) For the purposes of paragraph (2)(i), (a) ... (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. [20] In considering paragraph 5(3)(b), it was not reasonable for the Minister to conclude that the Appellants would not have entered into a substantial similar contract of employment had they been dealing with each other at arm's length. [21] The appeals are allowed. Signed at Ottawa Canada, this 18th day of January, 2006. "C.H. McArthur" McArthur J. CITATION: 2006TCC41 COURT FILE NO.: 2005-2354(EI) and 2005-2358(EI) STYLE OF CAUSE: Jensen Brothers Limited and Doreen Jensen and The Minister of National Revenue PLACE OF HEARING: Moncton, New Brunswick DATE OF HEARING: November 16, 2005 REASONS FOR JUDGMENT BY: The Honourable Justice C.H. McArthur DATE OF JUDGMENT: January 18, 2006 APPEARANCES: Counsel for the Appellants: John C. Friel Counsel for the Respondent: Lisa M. Wight COUNSEL OF RECORD: For the Appellants: Name: John C. Friel Firm: McInnes Cooper & Robertson For the Respondent: John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Canada [1] Exhibit A-1, Tab 5.