Arseneau c. M.R.N.

Arseneau c. M.R.N. Court (s) Database Tax Court of Canada Judgments Date 2004-11-12 Neutral citation 2004 TCC 690 File numbers 2004-1245(EI) Judges and Taxing Officers Paul Bédard Subjects Employment Insurance Act Decision Content Docket: 2004-1245(EI) BETWEEN: STEVE ARSENEAU, Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. [OFFICIAL ENGLISH TRANSLATION] Appeal heard on common evidence with the appeal of 9130-1375 Québec Inc. (2004-1246(EI)) on August 13, 2004, at Hâvre-Aubert, Quebec Before: The Honourable Justice Paul Bédard Appearances: Agent for the Appellant: Monica Poirier Counsel for the Respondent: Agathe Cavanagh ____________________________________________________________________ JUDGMENT The appeal is dismissed and the Minister's decision is affirmed, in accordance with the attached Reasons for Judgment. Signed at Ottawa, Canada, this 12th day of November 2004. "Paul Bédard" Bédard J. Translation certified true on this 31st day of March 2005 Aveta Graham, Translator Citation: 2004TCC690 Date: 20041112 Docket: 2004-1245(EI) BETWEEN: STEVE ARSENEAU, Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent, AND Docket: 2004-1246(EI) 9130-1275 QUÉBEC INC., Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. [OFFICIAL ENGLISH TRANSLATION] REASONS FOR JUDGMENT Bédard J. [1] The Appellants are appealing from the decision of the Minister of National Revenue (the "Minister") that the employment of Steve Arseneau (the "Employee") during the period at issue, specifically from June 16 to August 16, 2003, when he worked for 9130-1275 Québec Inc. (the "Payor") is excluded from insurable employment within the meaning of the Employment Insurance Act (the "Act") because the Payor and the Employee were not dealing with each other at arm's length. [2] Subsection 5(1) of the Act reads in part as follows: 5.(1) Subject to subsection (2), insurable employment is (a) employment in Canada by one or more employers, under any express or implied contract of service or apprenticeship, written or oral, whether the earnings of the employed person are received from the employer or some other person and whether the earnings are calculated by time or by the piece, or partly by time and partly by the piece, or otherwise; . . . [3] Subsections 5(2) and 5(3) of the Act read in part as follows: (2) Insurable employment does not include . . . (i) employment if the employer and employee are not dealing with each other at arm's length. (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. [4] Section 251 of the Income Tax Act reads in part as follows: Section 251: Arm's length (1) For the purposes of this Act, (a) related persons shall be deemed not to deal with each other at arm's length; . . . (2) Definition of "related persons" - For the purpose of this Act, "related persons", or persons related to each other, are (a) individuals connected by blood relationship, marriage or common-law partnership or adoption; . . . [5] The Minister's decision in the Employee's file is based on the assumptions of fact set out in paragraph 6 of the Reply to Notice of Appeal: [translation] (a) the Payor, incorporated on May 26, 2003, organizes adventure packages with accommodation and meals in two hotels or bed and breakfasts on Les Îles de Madeleine; (b) before the incorporation of the Payor, Monica Poirier was the sole owner of the bed and breakfast, La maison d'Eva-Anne, which she had been operating for five years; (c) all of the assets of La maison d'Eva-Anne, including the building, the land and the two horses, were transferred to the Payor when it was incorporated; (d) the Payor also acquired a new building and transformed it into an inn (four rental rooms) which it operated under the name of L'Auberge du Grand Large; (e) although the purchase contract for the second building was not signed until June 21, 2003, the Payor had obtained authorization from the sellers to begin renovations on June 9, 2003; (f) the Appellant had been hired as an assistant manager; he was responsible for the maintenance of the buildings, the horse-drawn wagon tours (sleigh or carriage rides), landscaping and hiring and managing the staff; (g) the Appellant gave sightseeing tours in a carriage and looked after the horses, their food, maintenance and care; (h) the Appellant did not have a specific work schedule to follow; he worked seven days a week and his hours were not recorded by the Payor; (i) during the period at issue, the Appellant received fixed earnings of $499.20 per week regardless of the hours actually worked; (j) during the first six weeks of the period at issue, the Payor claims that the Appellant worked 100 hours per week while he was only paid for 40 hours and while, during the first two weeks, the Appellant worked for Construction G.A. Tech Inc. as a labourer for 40 hours per week; (k) the renovations of the second bed and breakfast began on June 9, 2003, and the official opening, when the first guests were welcomed, took place on July 16, 2003; (l) from the opening of the inn, the Appellant also had to maintain the grounds, mow the lawn, tend to the flowers, take out the trash, repair the equipment and pick up guests at the airport or boat; (m) the Appellant was only paid up to August 16, 2003, although the Payor received guests until October 4, 2003; (n) the Appellant allegedly stopped working on August 16, 2003, although it was the busiest week for room rentals for the Payor's two inns; (o) the Appellant performed services for the Payor before and after the period during which he was on the Payor's payroll; (p) the duration of the Appellant's employment does not correspond with the Payor's period of activity or with the period that he actually worked for the Payor. [6] The Minister's decision in the Payor's file is based on essentially the same assumptions of fact as those set out in the preceding paragraph. [7] The Federal Court of Appeal has defined the role that the Act confers on a justice of the Tax Court of Canada many times. This role does not permit the justice to substitute his or her discretion for that of the Minister, but does carry with it the obligation to "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 . . . decide whether the conclusion with which the Minister was "satisfied" still seems reasonable."[1] [8] In other words, before deciding whether the conclusion with which the Minister was satisfied still seems reasonable, I must, in light of the evidence before me, verify whether the Minister's allegations are nevertheless well-founded, in whole or in part, having regard to the factors set out in paragraph 5(3)(b) of the Act. [9] The question now is whether the Payor and the Employee would have concluded the same work contract if they had been dealing with each other at arm's length. In other words, were the employment conditions more favourable because the Payor and the Employee were not dealing with each other at arm's length? Analysis [10] The Appellant had been hired as an assistant manager; he was responsible for the maintenance of the buildings, the horse-drawn wagon tours (sleigh or carriage rides), landscaping and hiring and managing the staff that reported to him. [11] In the document (Exhibit I-2) provided by Monica Poirier (Employee's spouse and principal shareholder of the Payor) to Louise Dessurault, Appeals Officer, Employment Insurance Section, Canada Customs and Revenue Agency, the Employee's usual duties were described as follows: Maison d'Eva-Anne / Auberge du Grand Large • Garbage (everyday) • Servicing and maintenance (cleaning window screens and windows / once per week, door handles, change bulbs, creaking doors, leaky sinks . . .) • Commissionaire • Lawn (tractor, mower, mini-mower, trees and plants) 1 1/2 days per week until mid-August • Customer service (airport / boat shuttle, luggage, storing bikes, information . . .) Horse-drawn wagon / horses (in season) • Tours, by reservation (1 hr 30 mins each time) • Feed the horses (three times a day / when at work) • Clean and bush the horses (one hour a day) • Harnessing (one hour of preparation) • Unharnessing (one hour: clean the stalls; put away the wagon) • Service the wagon (clean, oil, touch up the paint / three hours per week) Wagon / horses (off season) • Lightly feed (once per day / during morning break / Mario once per day in the evening) • Clean and brush the horses (once per week) [12] The Employee testified[2] that he spent about four hours per week on grounds keeping (cutting the grass, tending to the flowers and plants) whereas, according to Exhibit I-2, that activity represented 12 hours of work per week. It should also be pointed out that the Employee testified[3] that the maintenance work took 10 and 20 hours of work per week. The Appellant did not testify as to the number of hours that he had to spend per week on running errands for the Payor, performing services for the Payor's guests and taking out the garbage. However, he testified that he spent about one hour per week providing shuttle services for the Payor's guests. He also testified that he had spent 15 to 25 hours per week on the usual activities. That was in addition to the hours spent on activities related to the horse-drawn wagon tours and maintaining the horses and carriages. Exhibit I-2 revealed that, during the period at issue, the Employee fed the horses daily, without specifying the number of hours the Employee spent on that activity. Exhibit I-2 also indicated that the Employee brushed and cleaned the horses every day and that this activity took him one hour. Lastly, according to Exhibit I-2, the maintenance of the carriages and sleighs required about three hours of work per week. Consequently, according to Exhibit I-2, during the period at issue, the Employee spent around 10 hours per week on the maintenance of the horses and carriages. Furthermore, according to the same document and the Appellants' testimony, each horse-drawn wagon tour represented approximately three hours and a half of work. It can therefore be inferred that the Employee worked from 25 to 35 hours per week for the Payor performing the usual tasks. That number of hours does not include the hours spent on the horse-drawn wagon tours. [13] The Minister alleged in paragraph 6(j) of the Reply to Notice of Appeal in the Employee's file that, during the period at issue, the Employee received fixed earnings of $499.20 per week regardless of the hours actually worked. In my view, it is necessary to first determine, from the evidence, the hours actually worked by the Employee. [14] I should first point out that, from the evidence submitted, I was not able to specifically determine the number of hours actually worked by the Employee during the period at issue. Not only did the Payor fail to record the hours worked by the Employee, but the evidence in that regard was also vague and contradictory on a number of points. [15] For the first two weeks of the period at issue, the evidence[4] clearly established that the Employee had worked 60 hours per week for the Payor even though he had only been paid for 40 hours per week by the Payor. [16] During the three weeks following that first period of two weeks, the evidence clearly establishes[5] that the Employee had worked 100 hours per week for the Payor even though he had only been paid for 40 hours per week. [17] During the week that began on July 14, 2003, the date on which the Auberge du Grand Large opened, the Employee allegedly worked around 40 hours per week for the Payor according to Ms. Poirier's testimony and Exhibit I-2. However, Ms. Poirier's statutory declaration (Exhibit I-1) indicates that the Employee allegedly worked 100 hours during that week. In fact, in that statutory declaration, did Ms. Poirier not state that the Employee had worked 100 hours per week for the Payor during the first six weeks? [18] During the week that began on July 21, 2003, had the Employee worked 40 hours? My analysis of the evidence does not support that conclusion. According to Exhibit I-2, the Employee, in addition to performing his usual tasks that took him from 25 to 35 hours per week,[6] had given four horse-drawn wagon tours. However, the Respondent demonstrated[7] that the Employee had only given two tours that week. Since each tour represented about three hours of work, I find that the employee had worked from 32 to 42 hours during that week. [19] During the week that began on July 28, 2003, had the Employee worked 40 hours for the Payor? According to Exhibit I-2, the Employee, in addition to performing his usual tasks that took him from 25 to 35 hours per week, had given seven horse-drawn wagon tours. However, the Respondent demonstrated that the Employee had only given five horse-drawn wagon tours.[8] Since each tour represented about three hours of work, I find that the employee had worked from 40 to 50 hours during that week. [20] During the week that began on August 4, 2003, had the Employee worked 40 hours for the Payor? According to Exhibit I-2 and Ms. Poirier's testimony, the Employee, in addition to performing his usual tasks that took him from 25 to 35 hours per week, had given five horse-drawn wagon tours. However, the Respondent demonstrated[9] that the Employee had only given two tours during that period. Since each tour represented about three hours of work, It follows that the employee had worked from 31 to 41 hours during that week. Furthermore, according to Exhibit I-2 and Ms. Poirier's testimony, the Employee apparently painted the exterior siding (cedar shingles) of the Auberge du Grand Large during that week and the week beginning on August 11, 2003. Although the evidence is silent in regard to the number of hours the Employee spent on that activity, I find that the Employee had worked more than 40 hours during that week. [21] During the week that began on August 11, 2003, had the Employee worked 40 hours for the Payor? According to Exhibit I-2 and Ms. Poirier's testimony, the Employee, in addition to performing his usual tasks that took him from 25 to 35 hours per week, had given six horse-drawn wagon tours and painted the exterior siding of the Auberge du Grand Large. It therefore follows that the Employee had worked from 43 to 53 hours during that week. That is in addition to, as I mentioned in the preceding paragraph, a significant number of hours of work spent on painting the exterior siding of the Auberge du Grand Large. [22] Although the evidence submitted by the Appellants was vague and contradictory in some regards, I find that the average hours worked per week by the Employee during the period at issue was significantly more than 40 hours. Furthermore, had Ms. Poirier not stated the following in her statutory declaration:[10] [translation] . . . Steve is paid weekly for a total of 40 hours per week. He may work many more hours in a week but I cannot pay him for more than 40 hours. [23] Thus, the following question arises: Would an employee and an employer who were not related have concluded the same work contract? In my view, it is unreasonable to believe that such work arrangements would have been offered to and accepted by a worker who was not related. A worker who was not related would have required that he be paid for all of the hours of work performed. In my view, a worker would not have accepted set weekly earnings of $499.20 in compensation for that number of hours of work. [24] I will now examine the Minister's allegations in paragraphs 6(1)(n), 6(1)(o) and 6(1)(p) of the Reply to Notice of Appeal in the Employee's file, which the Appellants are challenging. The allegations read as follows: [translation] the Appellant allegedly stopped working on August 16, 2003, although it was the busiest week for room rentals for the Payor's two inns; the Appellant performed services for the Payor before and after the period during which he was on the Payor's payroll; the duration of the Appellant's employment does not correspond with the Payor's period of activity or with the period that he actually worked for the Payor. [25] There is no doubt that the Payor's room occupancy rate remained high during the weeks following the Employee's dismissal. In fact, a review of Exhibit I-4 submitted by the Respondent convinced me of that fact. [26] Now, the following questions must be asked: Why did the Payor dismiss the Employee? Did the Employee perform services for the Payor outside the period at issue? What was the nature, duration and importance of the services rendered outside the period at issue? [27] Normally, what an employee does outside of his or her periods of employment is relevant if the evidence establishes that the wages paid during the periods of employment take into account the work performed outside those periods, or that the employee included in the hours spent on his or her insurable employment the hours of work performed outside the periods of employment or that the work performed outside those periods of employment were included in the work performed during those periods. That was not the situation in this case. However, in the case at bar, it is still necessary to examine the nature, duration and importance of the work performed by the Employee outside the period at issue. In fact, If I accepted that an employee who is related to his or her employer can continue to perform more or less the same services for the employer outside the periods of employment on a voluntary basis, that would equal, in my view, interpreting the Act, although it is a social Act, as allowing small businesses to indirectly subsidize themselves from the benefits set out in that Act. [28] The question now is why the Payor dismissed the Employee on August 16, 2003, particularly during a period where the Payor's room occupancy rate was very high. Ms. Poirier testified that the Payor dismissed the Employee because the horse-drawn wagon tours were not profitable enough to allow the Payor to keep the Employee in his employment. Also, Ms. Poirier added that at the time when the Employee had been dismissed, the Payor had very few room reservations booked and the Payor could not at that time foresee that such a large number of visitors would rent rooms after the Employee's dismissal. [29] The Payor's argument that it had dismissed the Employee because the horse-drawn wagon tours were not profitable enough to allow the Payor to keep the Employee longer was unpersuasive. In fact, the evidence very clearly establishes that the activities related to the horse-drawn wagon tours only represented a small percentage (4.66%) of the Payor's sales and that the time spent by the Employee during the period at issue on horse-drawn wagon tours and the maintenance of the horses and equipment represented only a small percentage of the hours worked during that same period. [30] The Payor's argument that it could not have foreseen, given the few reservations booked at the time of the Employee's dismissal, that it would rent so many rooms after the dismissal was unpersuasive. The evidence established that the number of rooms rented by the Payor after the Employee's dismissal represented about 36% of the room rentals for the period from June to October 2003. It should be noted that Ms. Poirier had been operating a bed and breakfast for five years. She may have been able to convince me if she had demonstrated, based on her experience and statistics on the industry in Les Îles de la Madeleine in that regard, that there were usually very few room rentals in bed and breakfasts after August 16, 2003. In other words, she may have been able to persuade me if she had demonstrated that, in the case at bar, it was merely an exceptional year in that regard. Moreover, did the Payor not announce on its Internet site that the period from June 15 to September 15 was the high season? [31] Ms. Poirier testified that the Employee had performed very few services for the Payor after the dismissal. With respect to five horse-drawn wagon tours that had taken place after the dismissal, she testified that three of them had been given by the Employee's brother and the others by the Employee. With respect to tending to the lawn and flowers, she testified that the grass had only been cut three times after the Employee's dismissal and that she herself had cut the grass on one or two occasions. Furthermore, she explained that she herself and the Payor's housekeeping attendant had shared the other tasks usually performed by the Employee since the large jobs related to maintaining and repairing the inns had at that time been done. [32] It should be pointed out that neither the Payor's housekeeping attendant or the Employee's brother testified to confirm Ms. Poirier's allegations. It is also notable that, from 1999 until the Payor's incorporation, the Employee had been responsible for maintenance work on the Auberge d'Eva-Anne, which belonged to Ms. Poirier, the horse-drawn wagon tours and the care of the horses, without pay. Were the Employee's unpaid efforts not rewarded upon the creation of the Payor in May 2003? In fact, the Employee testified that he had obtained 40% of the Payor's shares not only because he had invested $25,000 in the Payor's capital-stock but also because Ms. Poirier, his spouse, wanted to reward him for his unpaid efforts. With regard to the period after the dismissal, the Appellants simply did not convince me that the Employee had remained as inactive as Ms. Poirier would have me believe. [33] In light of the evidence before me, after considering the factors set out in paragraph 5(3)(b) and verifying whether the Minister's allegations are well-founded, I find that the conclusion with which the Minister was satisfied is reasonable. [34] For those reasons, the appeals are dismissed and the Minister's decision is affirmed. Signed at Ottawa, Canada, this 12th day of November 2004. "Paul Bédard" Bédard J. Certified true translation on this 31st day of March 2005 Aveta Graham, Translator CITATION: 2004TCC690 COURT FILE NOS.: 2004-1245(EI) and 2004-1246(EI) STYLE OF CAUSE: Steve Arseneau v. M.N.R. and 9130-1275 Québec Inc. v. M.N.R. PLACE OF HEARING: Hâvre-Aubert, Quebec DATE OF HEARING: August 13, 2004 REASONS FOR JUDGMENT BY: The Honourable Justice Paul Bédard DATE OF JUDGMENT November 12, 2004 APPEARANCES: Agent for the Appellants: Monica Poirier Counsel for the Respondent: Agathe Cavanagh COUNSEL OF RECORD: For the Appellants: Name: Firm: For the Respondent: Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada [1] Légaré v. Canada(Minister of National Revenue - M.N.R.), [1999] F.C.J. No. 878 (Q.L.), paragraph 4. [2] Page 55 of transcript No. 172. [3] Page 53 of transcript No. 166. [4] See Ms. Poirier's statutory declaration (Exhibit I-1). [5] See Ms. Poirier's statutory declaration (Exhibit I-1). [6] See my analysis at paragraph 12. [7] See Exhibit I-4. [8] See Exhibit I-4. [9] See Exhibit I-4. [10] See Exhibit I-1.