Breau c. M.R.N.

Breau c. M.R.N. Court (s) Database Tax Court of Canada Judgments Date 2005-01-31 Neutral citation 2005 TCC 63 File numbers 2003-4191(EI) Judges and Taxing Officers François M. Angers Subjects Employment Insurance Act Decision Content Docket: 2003-4191(EI) BETWEEN: RITA BREAU, Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. [OFFICIAL ENGLISH TRANSLATION] ____________________________________________________________________ Appeal heard on January 10, 2005, at Bathurst, New Brunswick. Before: The Honourable Justice François Angers Appearances: Counsel for the Appellant: Euclide LeBouthillier Counsel for the Respondent: Stéphanie Côté ____________________________________________________________________ JUDGMENT The appeal is dismissed and the Minister's decision is confirmed in accordance with the attached Reasons for Judgment. Signed at Ottawa, Canada, this 31st day of January 2005. "François Angers" Angers J. Translation certified true on this 7th day of September 2005. Julie Poirier, Translator Citation: 2005TCC63 Date: 20050131 Docket: 2003-4191(EI) BETWEEN: RITA BREAU, Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. [OFFICIAL ENGLISH TRANSLATION] REASONS FOR JUDGMENT Angers J. [1] This is an appeal from a decision of the Minister of National Revenue ("the Minister") that the Appellant's employment with Jules J. Breau Survey Ltd. ("the Employer") from September 30, 2002, to February 7, 2003, was not insurable because the Employer and the Appellant were not dealing with each other at arm's length within the meaning of paragraph 5(2)(i) of the Employment Insurance Act ("the Act"). [2] The Minister's decision was based on the following assumptions of fact, which were either admitted or denied as indicated below: (a) the payor is a legal person incorporated in 1981 and Jules Breau, its sole shareholder, is the Appellant's husband; (admitted) (b) Jules Breau is a land surveyor and the payor offers surveying services; (admitted) (c) the payor's business is seasonal and generally runs from April 1 to December 15 depending on the weather and the contracts; (admitted) (d) in 2002, the company had 3 technicians working for it from May 11 to December 6; (admitted) (e) during the period in issue, the Appellant was employed as a secretary-clerk and her duties were filing, deposits, payroll journal entries, mail, account collections, delivering survey plans and conducting land title searches; (admitted) (f) outside the relevant period, the Appellant carried out many of her regular tasks for the payor, including bills, employee payroll and deposits, on an unpaid basis while receiving employment insurance benefits; (denied) (g) during the period in issue, the Appellant received weekly pay of $400 until late December and $775.00 for the six weeks in January and February; (admitted) (h) the Appellant's increase in pay was retroactive and resulted in an effective weekly pay of $518.40 for the 19 weeks that constitute the period in issue; (admitted) (i) throughout 2002, Jules Breau received weekly pay of $550.00; (denied) and (j) during the time that the Appellant's pay was being increased retroactively, Jules Breau was paid only twice in January 2003 ($175 each time) and not at all in February 2003 instead of his regular pay, which he began to receive only in March 2003. (admitted). [3] Unquestionably, the Employer and the Appellant are not dealing with each other at arm's length, and, as a general rule, the employment is not insurable within the meaning of the Act. However, the employment can become insurable if the Minister, having regard to the factors associated with the employment contract under paragraph 5(3)(b) of the Act, determines that a substantially similar contract would have made with third party. In such a case, the parties are deemed to be dealing with each other at arm's length. [4] As stated, the Appellant is the wife of the Employer's sole shareholder. She worked for the Employer on a volunteer basis for 10 to 12 years. She also worked for Statistics Canada a few times; on one occasion in 2001, she did so for three months. [5] The Employer's office area is in the basement of his home and the Appellant uses space in that area when she works. Her duties are as described in paragraph 7(a) of the Reply to the Notice of Appeal and she worked full-time for the employer during the entire period in issue. The Employer also employs three technicians. They are generally hired in May when the busy period begins and then laid off in November. Two of them travel with the Appellant's husband outside the office and the third prepares the survey plans at the office. [6] The Appellant admits that she worked for the Employer throughout the year for two hours a month. She makes the deposits, draws up certain invoices and looks after the employees' pay. During the period of full-time employment, she carries out the duties discussed above. She does accounting on a computer, for which she has been trained, and she opens files for each client. Certain invoices with handwritten annotations by the Appellant, and certain deposit slips, were tendered in evidence. The dates on those documents fall outside the period of employment, which confirms that the Appellant did carry out tasks for the Employer on an unpaid basis during periods when she received employment insurance benefits. [7] In May 2002, the technicians and the Appellant met with the Employer to discuss a pay increase. All the employees, including the Appellant, received a pay increase, but the Appellant only began to receive the benefit of that increase in January 2003. This is when she was paid the raise retroactively by means of six weekly gross wage payments of $775, after which her wage payments corresponded to her increased pay of $520 per week gross. In 2002, she had been paid $400 a week gross. The Appellant did not receive her increase at the same time as the others because the Employer did not have the funds to pay it. The Appellant had signing authority for the Employer's cheques and was available throughout the year whenever her employer needed her. [8] The Appellant's husband testified that he was away from the office most of the time during the busy season, which runs from May to November. During the winter months, he manages his office. He is primarily the liaison between his technician, his wife and his clients. His wife does land title searches for him because it would cost $25 an hour to hire someone to do this. His justification for hiring the Appellant in January and February 2003 is that he tried to do the work himself and was unable to, so things needed to be put in order. He added that he did not hire his wife earlier in 2002 or 2003 because of the uncertainty about the consequences of the emergence of land title insurance and the reduced need for the location certificates that surveyors provided mortgage creditors and debtors. This, he says, explains why the Appellant's work began in late September in 2002. In 2003, she worked alternate weeks starting in April. It should be noted that the Appellant used up all her employment insurance benefits before she was hired in late September 2002. Moreover, the husband, who was on the payroll throughout 2002, was only on the payroll journal for two weeks in January 2003 at a rate of $175 per week, and was not on the payroll at all in February 2003. The payroll journal also states that the Appellant's husband was paid a $550 a week throughout the year 2002. [9] The respondent called appeals officer Louise Gauthier-Boudreau to the witness box. Ms. Gauthier-Boudreau tendered her examination report regarding the employment in question and summarized her investigation method. She met with the Employer and the Appellant and examined the documentation she was given. Her report concludes that the Appellant's employment was governed by an employment contract. Consequently, that point is not in issue. She recommended that the Appellant's employment be excluded based on non-arm's-length dealings because her analysis of the circumstances, including those set out in the Act, do not enable the Minister to conclude that the Employer would have entered into a substantially similar contract with a third party. [10] The predominant factor in analysing these circumstances is remuneration, and, in particular, the fact that the Appellant is the only employee who did not receive her increase in May when the decision to increase the salaries was made. The Appellant was paid her raise retroactively in January 2003, at which point she had been working for the employer since late September 2002. At the hearing, the employer's representative added that this situation arose because the Employer did not know whether he would be able to afford to pay the Appellant's increase. During the same period, that is to say in January 2003, the Appellant's husband reduced his own salary (usually $550 a week) to $175 a week and paid himself for only two weeks. In February 2003, he drew no salary, in contrast to the previous year, when he paid himself a salary throughout. No explanations were provided for this, except the fact that had he tried to do the office work, which he described as [TRANSLATION] "a mess", in January and February 2003. He said that he asked his wife to do the work because she had the skills, and that this explains why she hired to work until February. But his wife had been working at the office since late September 2002 on a full-time basis. It is difficult to believe that the office was as much of as a mess as he described it. [11] The other factors that the appeals officer considered can be summarized as follows: [TRANSLATION] The Appellant was hired on September 7, 2002, when her employment insurance benefits had run out. Although the parties explained to us that the payor wanted to do the work himself but realized this was impossible and therefore had to hire the Appellant, the fact remains that the duration of the work is questionable. After considering the payor's documents, such as bank deposit books, the payroll journal and the invoices issued to clients, we noticed that almost all the bank deposits were done by Rita Breau, whether she was on the payroll or not. The facts also disclose that Rita Breau did the employees' pay even though she was not on the payroll herself. In our opinion, Rita Breau also prepared the bills for clients even though she was not on the payroll. It should be recalled that Rita Breau was not employed by the payor, meaning that she was not on its payroll, during the busiest months of 2002. Although the payor may have fallen behind in its office filing, we believe that with all the tasks that Rita Breau was already carrying out on an unpaid basis, the rest of the office work cannot possibly have continued for 10 additional weeks after all the other employees had been laid off. We also notice a contradiction here: Jules J. Breau told us he realized he could not do all the work himself (i.e. the office work and the surveying work). Yet he allegedly had the time to do that work in January 2003 when all the other employees had been laid off and the period was no longer a busy one for the payor. But there is little reference to the payor on the payroll in January and February 2003 and he pays the Appellant $775.00 a week to catch up on filing at the office. We have determined that all these work arrangements show that the parties were not dealing with each other at arm's length and that similar work arrangements would not have been made with an unrelated person. [12] The Appellant's task in the case at bar is to establish, on a balance of probabilities, that the Minister exercised his discretion inappropriately in deciding, having regard to all the circumstances, that the Employer and the Appellant would not have entered into a substantially similar contract if they had been dealing with each other at arm's length. [13] The Minister's function, and the function that the Court must exercise, were established by the Federal Court of Appeal in Légaré v. M.N.R., A-392-98, May 25, 1999, [1999] F.C.J. No. 878 (QL). At paragraph 4 of the decision, Marceau J.A. summarized these functions as follows: 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. [14] In fact, the Federal Court of Appeal reiterated its position in Pérusse v. Canada, A-722-97, March 10, 2000, [2000] F.C.J. 31 (QL). Marceau J.A., referring to the excerpt cited from Légaré, supra, added the following at paragraph 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. [15] In the case at bar, the Appellant's evidence contains nothing new, except perhaps the fact that the Employer explained that he deferred hiring the Appellant to late September 2003 because of the uncertainty about the effect of New Brunswick's new land titles insurance program on his revenues. And yet the business income information tendered in evidence shows not only that the busy period of May to September is the most active time of the year, but also that the annual income of the business that year was similar, in the Employer's opinion, to the income in other years. This explanation was not provided to the officers who conducted the investigation and, while it might add a new element to the determination of this appeal, it is not sufficient to erase the coincidence that the Appellant resumed activities with the Employer at the very moment that she ceased to be paid employment insurance benefits. It is difficult to believe that the Employer would have deprived himself of the Appellant's services during his busy period, when he was out of this office with his two technicians, and the third one, who was at the office, was doing technical work only. [16] It is perhaps credible that the Appellant works only two hours a month outside her periods of employment to do the invoicing, payroll and deposits during the slower period. However, the same proposition becomes difficult to believe during the busy period of May to October, when the Employer is opening new files, needs title searches done and has more office administration work. [17] It is true, as counsel for the Appellant noted, that the Employer is the one who makes the decisions, that his decisions are business decisions, and that the Appellant's working periods are determined by the Employer. However, these decisions must be justified and supported by plausible evidence where, as here, they raise the question as to whether the employment is insurable. [18] The fact that an employee who is not dealing with her employee at arm's length has exhausted all her employment insurance benefits before being rehired requires the employer to provide credible and documented explanations. The same explanations are needed when the employer reduces or cuts his pay just as he is increasing his wife's pay, and is making that increase retroactive so that she can benefit from higher employment insurance benefits. [19] It would be rare, in the context of an arm's length employment relationship, for an employee to accept a raise subject to his employer's ability to pay him. The Appellant even added that the raise in the case at bar was warranted in light of all the years that she worked for her husband on an unpaid basis. This, too, is unusual. [20] In light of all these facts, I find that the Minister's decision was reasonable under the circumstances and that the facts he relied on were correctly assessed. Signed at Ottawa, Canada, this 31st day of January 2005. "François Angers" Angers J. Translation certified true on this 7th day of September 2005. Julie Poirier, Translator CITATION: 2005TCC63 COURT FILE NO.: 2003-4191(EI) STYLE OF CAUSE: Rita Breau and the Minister of National Revenue PLACE OF HEARING: Bathurst, New Brunswick DATE OF HEARING: January 10, 2005 REASONS FOR JUDGMENT BY: The Honourable Justice François Angers DATE OF JUGEMENT: January 31, 2005 APPEARANCES: For the Appellant: Euclide LeBouthillier For the Respondent: Stéphanie Côté COUNSEL OF RECORD: For the Appellant: Name: Euclide LeBouthillier Firm: Doiron LeBouthillier Boudreau Allain Avocats Notaires Tracadie-Sheila, New Brunswick For the Respondent: John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Canada