Primo Trailer Sales Ltd. v. M.N.R.

Primo Trailer Sales Ltd. v. M.N.R. Court (s) Database Tax Court of Canada Judgments Date 2005-06-10 Neutral citation 2005 TCC 382 File numbers 2004-3345(EI) Judges and Taxing Officers Lucie Lamarre Subjects Employment Insurance Act Decision Content Dockets: 2004-3345(EI) 2004-3346(EI) BETWEEN: PRIMO TRAILER SALES LTD. Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. ____________________________________________________________________ Appeals heard on May 31, 2005, at Ottawa, Ontario. Before: The Honourable Justice Lucie Lamarre Appearances: Counsel for the Appellant: Deryk W. Coward Counsel for the Respondent: Geneviève Léveillé ____________________________________________________________________ JUDGMENT The appeals pursuant to subsection 103(1) of the Employment Insurance Act are allowed and the decisions by the Minister of National Revenue dated May 20, 2004, for the period from January 1, 2003, to January 28, 2004 (file number 2004-3345(EI)) and for the period from January 1, 2003 to January 8, 2004 (file number 2004-3346(EI)) are varied in accordance with the attached Reasons for Judgment. Signed at Ottawa, Canada, this 10th day of June 2005. "Lucie Lamarre" Lamarre, J. Citation: 2005TCC382 Date: 20050610 Docket: 2004-3345(EI) 2004-3346(EI) BETWEEN: PRIMO TRAILER SALES LTD., Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. REASONS FOR JUDGMENT (Delivered orally on June 1, 2005, at Ottawa, Ontario.) Lamarre, J. [1] These are appeals from decisions by which the Minister of National Revenue ("Minister") determined that Chris Milosek and Michel Mirabelli were employed in insurable employment with the appellant for the period from January 1, 2003, to January 28, 2004, in one case, and from January 1, 2003, to January 8, 2004, in the other case. The basis of the determination was that they were both dealing with the appellant at arm's length within the meaning of paragraph 5(2)(i) of the Employment Insurance Act ("EI Act"). [2] The appellant's controlling shareholder was Alex Milosek until his death in September 2003. At that time, the controlling shares were transferred to Alex Milosek's wife, Norma Milosek. Chris Milosek is Alex and Norma's son and Michel Mirabelli has been married to their daughter, Alison, since August 2002. [3] Alex Milosek incorporated in 1989 a corporation which operated a self-storage and real estate business. In 1991, the corporation started in addition a trailer sales and service business. In 2001, the corporation was split into two corporate entities, Primo Development (carrying on the self-storage and real estate business) and Primo Trailer Sales Ltd. [4] It was mainly Alex Milosek who ran both businesses until he became ill with cancer in August 2002. At that time, his son Chris Milosek became acting president and he was appointed president of the appellant when his father died in September 2003. Chris was 29 years old at that time and had been working for his father's business since the age of 14 or 15. He had at first done various odd jobs on Saturdays and during the summer. He graduated from university in 1996 with a degree in economics and psychology. Afterwards, he started to work full time for his father's business. He began in the trailer sales division. In particular, he was in charge of retail sales of Bombardier products. In 2001, after the split of the two corporations, he was paid by Primo Trailer Sales Ltd. In 2002, he began doing some work for Primo Development. There was someone acting as manager for that company but Chris was made aware of the company's financial picture by his father. In August 2002, when his father became ill, he started to take care of the day-to-day operations of Primo Trailer Sales Ltd. He made the decision to stop selling the Bombardier line of snowmobiles. He became totally responsible for Primo Trailer Sales Ltd. He became involved in accounting, the payment of accounts and the collection of receivables. He looked after the advertising from home. He dealt with suppliers, and generally handled the management aspect of the business. He organized trade shows, which took up much of his time. He also started to do more work for Primo Development. He took care of the management of the real estate business, renegotiating mortgages and renewing rentals. He was also responsible for the businesses' future direction and handled legal, financial and banking matters. He also occasionally did manual types of work. [5] Chris had signing authority. During the period from August 2002, although his responsibilities were significantly increased, he did not ask for or give himself any substantial increase in the salary he received from Primo Trailer Sales. He felt that it was not appropriate to do so during his father's sickness or even after his death in September 2003. That decision was taken in the company's best interest. [6] During the same period period, he said, he worked 60-70 hours a week. His salary went from $900 per week to $1,000 per week for his work for Primo Trailer Sales Ltd. He also started receiving a salary at the end of 2002 for his work for Primo Development. When his father died in September 2003, he was receiving $1,400 biweekly for his work for that corporation. He was paid his entire salary through Primo Trailer Sales Ltd.'s account, as this was more convenient from an accounting point of view, and reconciliation of the accounts of Primo Trailer Sales Ltd. and Primo Development would subsequently be performed. Chris Milosek said that he was underpaid by approximately $1,000 a week for the work he did. But he said that he wanted to keep his salary lower because the corporations could not afford to pay more. [7] In a questionnaire that he filled in for the Minister, he indicated that some weeks he worked 40 hours, others 70 hours (Exhibit R-2, question 18.a.). In his testimony, he said that his average number of hours worked well exceeded 40. He said that he never really quantified his hours. [8] In the questionnaire, he indicated that he was paid $6,800 per month without specifying that his salary was split between the two corporations. He also mentioned there that his pay rate was determined by him, his mother and another individual, whose name was Santiago Rios. [9] It appears that Santiago Rios was working for Primo Trailer Sales Ltd. only and that he did approximately the same work as Chris. Santiago concentrated more on the day-to-day operations. He also had signing authority. Santiago was paid, like Chris, a salary of $1,000 per week for the work he did for Primo Trailer Sales. Both Santiago and Chris were covered by a medical plan with the appellant. They both had flexible hours. Ultimately however, Chris said, he himself was responsible for both corporations as he had a commitment to his mother and sister. Indeed, his mother, who was a dietician and the principal shareholder of the corporations following her husband's death, did not want to be involved in the business. Chris kept her aware of major decisions, and may even have made them in consultation with her, but she was not directly involved. Santiago did not take part in decisions relating to the future of Primo Trailer Sales. Although in 2003 Chris had no personal liability with respect to the businesses, this changed in 2004 when he formed a new corporation, a corporation of his own, into which the businesses' assets and liabilities were transferred. [10] With respect to Michel Mirabelli, he has been working for the appellant since 1998 as a sales representative. He married Chris's sister, Alison, in August 2002. After he became a member of the family, he was given the keys to the business, was put on call for the alarm system, received signing authority, made purchases, ordered products, set prices, received payments, did banking, was given a credit card for the corporation, had access to the corporation's vehicles, was privy to the cost of units and incurred some expenses without reimbursement. There were two other sales representatives working with him. None of them had the same rights. They were not in the same position of trust as Michel Mirabelli. [11] Michel Mirabelli also worked longer hours after becoming a member of the family. He said he worked an average of 55-60 hours per week while the other salespersons worked 40 hours per week. In the questionnaire he filled in for the Minister, he said that he worked every day except Thursdays and Sundays. He explained that he very often worked on his days off. The time sheets filed in evidence (Exhibit R-4) indicate fewer hours. He testified that he did not indicate all the hours he worked since he now had a vested interest in the corporation. He also said that the time sheets were completed once every two weeks and were not completely accurate. He testified as well that he was paid $15-$16 per hour, while he indicated $13.50 per hour in the questionnaire. He explained that he took only a few minutes to fill in that questionnaire and understood that he had to indicate the salary of a regular salesperson. In his case, he was paid more for his additional responsibilities. He was also covered by a medical plan, as were the other two salespersons. [12] In the respondent's view, Chris and Michel were in a position to give full information to the appeals officer when filling in the questionnaires. They did not do so and provided information that they now say is not accurate. The respondent says that there are differences in terms of hours worked between the testimony and the documents filed. As for Chris, he did not think it necessary to clarify the ambiguity created in the questionnaire by his not mentioning the existence of two different corporate entities. In the respondent's view, this goes to the credibility of the witnesses. The respondent argues that Chris was entitled to the same benefits as others in the corporation. He was appointed president not because he was the son of the former president but because of his qualifications. Chris's work is as essential to the business as Santiago's. They shared similar duties. Chris was remunerated for his additional duties (see Exhibit R-5). [13] With respect to Michel Mirabelli, the respondent says that his remuneration reflects the standard for his position. The respondent does not believe that Michel Mirabelli worked more hours than are indicated on his time sheets (Exhibit R-4). Analysis [14] According to the case law (Légaré v. Canada, [1999] F.C.J. No. 878 (Q.L.), Pérusse v. Canada, [2000] F.C.J. No. 310 (Q.L.) and Denis v. Canada, [2004] F.C.J. No. 400 (Q.L.), for example), this Court must verify whether the facts relied on by the Minister are real and whether they were correctly assessed having regard to the context in which they occurred, that is, it must investigate all the facts put in evidence and consider whether the Minister's conclusion still seems reasonable. [15] Under paragraph 5(3)(b) of the EI Act, related persons will be deemed to deal with each other at arm's length if, having regard to all the circumstances of the employment, including the elements analysed by the Minister - that is, 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. [16] In the present case, it is obvious in my view that had Chris Milosek and Michel Mirabelli not been related to the employer, they would not have entered into a substantially similar contract of employment. It was because of his status as member of the family that Chris Milosek became acting president and subsequently president of the appellant, ultimately with sole responsibility for the business, the weight of which he carried on his shoulders. It was also because of his status as member of the family that Michel Mirabelli came to hold a position of trust with significantly more responsibilities than the other salespersons. [17] Although Chris Milosek worked in close relationship with Santiago Rios, in the end it was Chris who had the last word, after discussion with his mother (the principal shareholder), on the future of the business. It was he who ended the deal with Bombardier and it was he who negotiated the loans, to give just two examples, and although he was not yet personally liable in 2003, he realized that that was temporary, for he knew perfectly well that his father had indicated that he wanted Chris to assume control of the business. Chris had been trained with that goal in mind. In fact, all liabilities were transferred to Chris Milosek in 2004, after his father's death. [18] As for Michel Mirabelli, he was treated exactly like the other employees until he entered into the family by marrying the owner's daughter. As soon as this happened, his responsibilities increased significantly because he was in a position of trust. [19] Although the elements analysed by the Minister are relevant, they are only indicators that help in determining whether individuals related to the employer may qualify for employment insurance. All the circumstances must be scrutinized. [20] Here, the Minister tried to attack the credibility of the witnesses by showing differences between answers in the questionnaires and the explanations given at trial. The respondent also tried to interpret the time sheets in a fashion that would support his decision. [21] I do not share the respondent's view. I find that both witnesses were credible. At trial, they explained the real factual situation. I agree with the appellant that the questionnaires are not always clear, that they are vague and that when people fill them in, they do not attach all that much importance to it, as they consent to fill them in while they are busy with their own work. I do not find that it is their responsibility to call the agents of the Minister to obtain clarification on the questionnaires. In my view, their responsibility does not extend beyond answering those questionnaires to the best of their understanding and knowledge. [22] I accept the explanations given at trial by Chris Milosek and Michel Mirabelli. I find these witnesses reliable. I did not perceive any bad faith in their testimony. They both testified in a straightforward manner and I believe them. [23] For all these reasons, having regard to the context in which the facts put in evidence occurred, I conclude that the Minister's conclusion is not reasonable in the circumstances. [24] The appeals are allowed. Signed at Ottawa, Canada, this 10th day of June 2005. "Lucie Lamarre" Lamarre, J. CITATION: 2005TCC382 COURT FILE NO.: 2004-3345(EI) and 2004-3346(EI) STYLE OF CAUSE: Primo Trailer Sales Ltd. v. M.N.R. PLACE OF HEARING: Ottawa, Ontario DATE OF HEARING: May 31, 2005 REASONS FOR JUDGMENT BY: The Honourable Justice Lucie Lamarre DATE OF JUDGMENT: June 10, 2005 APPEARANCES: Counsel for the Appellant: Deryk W. Coward Counsel for the Respondent: Geneviève Léveillé COUNSEL OF RECORD: For the Appellant: Name: Deryk W. Coward Firm: D'Arcy & Deacon For the Respondent: John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Canada