Valente v. M.N.R.

Valente v. M.N.R. Court (s) Database Tax Court of Canada Judgments Date 2003-09-10 Neutral citation 2003 TCC 606 File numbers 2001-3131(EI) Judges and Taxing Officers Terrence O'Connor Subjects Employment Insurance Act Decision Content Docket: 2001-3131(EI) BETWEEN: VANESSA HEATHER VALENTE, Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. ____________________________________________________________________ Appeal heard on August 8, 2003 at Toronto, Ontario Before: The Honourable Justice Terrence O'Connor Appearances: Counsel for the Appellant: Domenic Marciano Counsel for the Respondent: Eric Sherbert ____________________________________________________________________ JUDGMENT The appeal is allowed and the decision rendered by the Minister is vacated in accordance with the attached Reasons for Judgment. Signed at Ottawa, Canada, this 10th day of September 2003. "T. O'Connor" O'Connor, J. Citation: 2003TCC606 Date: 20030910 Docket: 2001-3131(EI) BETWEEN: VANESSA HEATHER VALENTE, Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. ____________________________________________________________________ REASONS FOR JUDGMENT O'Connor, J. [1] The issue in this appeal is whether the Appellant ("Worker") was, in respect of the period July 7, 1999 to January 31, 2001, engaged in insurable employment with Profile Tile Inc. ("Payor") a Toronto based company, the sole shareholder of which was the Worker's father, Carmen Valente ("Carmen"), thus resulting in the Worker and the Payor being not at arm's length.. [2] The applicable provisions of the Employment Insurance Act S.C. 1996 c. 23 are: 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; ... (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 purpose 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. Background [3] The issue in this appeal was first heard by MacLatchy D.T.C.J., - Valente v. Canada [2002] T.C.J. No. 287. Deputy Judge MacLatchy in dismissing the appeal concluded as follows: 15. It is incumbent on the Payor to convince this court that one of the enumerated errors was committed by the Minister in reaching his decision. The Payor has not done so. There did not appear any substantial evidence ... to support a claim that in exercising his discretion the Minister took into account an irrelevant factor or that he failed to take into account all of the relevant circumstances ... In the circumstances, it was reasonable for the Minister to conclude that the Payor and the Worker would not have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length. 16. As there is no reviewable error provided by the Payor and the Worker, this Court must accord due deference to the Minister's decision. In overturning this decision of MacLatchy D.T.C.J. the Federal Court of Appeal at [2003] FCA 132 stated: Having carefully considered the submissions of counsel and the reasons for the decision of the Tax Court Judge, we are all of the view that the Tax Court Judge erred in law in reaching his conclusion. In particular, he failed to consider the directions of this Court in Légaré v. Ministre du Revenue National (1999), 246 N.R. 176, [1999] F.C.J. No. 878 (QL) (F.C.A.) and Pérusse v. Canada (Minister of National Revenue) (2000), 261 N.R. 150, [2000] F.C.J. No. 310 (QL) (F.C.A.). These cases mark a departure from earlier decisions in defining the role of the Tax Court in considering appeals from Ministerial determinations under paragraph 5(3)(b) of the Employment Insurance Act, S.C. 1996, c. 23. This application will be allowed with costs. The decision of the Tax Court will be set aside, and the matter will be referred back for a new hearing before a different Tax Court Judge. [4] Thus the Federal Court of Appeal has delineated a new judicial approach towards appeals of such Ministerial determinations. The earlier approach and the one that guided MacLatchy D.T.C.J. was analyzed in Canada (A.G.) v. Jencan Ltd. [1998] 1 F.C. 187 and The Queen v. Bayside Drive-In Ltd. (1997) 218 N.R. 150, both decisions of the Federal Court of Appeal. [5] According to those decisions, the Minister had a quasi-judicial discretion in determining whether "it is reasonable to conclude that ... a substantially similar contract of employment" would have resulted between the non-arm's length parties had they been arm's length. As such, the Court must respect and defer to, and not interfere with, the Minister's decision unless arrived at in an unlawful manner - e.g. 1) if the Minister acted in bad faith or for an improper motive, 2) if the Minister failed to take into account all of the relevant circumstances as expressly required by the provision, or 3) if the Minister took into account an irrelevant factor. [6] The new judicial approach is summarized by Marceau J.A. in Légaré as follows [paragraph 4]: The Act requires the Minister to make a decision 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. [7] After quoting the above, Marceau elaborates in Pérusse 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. [8] The "New Hearing" ordered by the Federal Court of Appeal was held before me at Toronto, Ontario on August 8, 2003. Counsel for the parties submitted a Partial Statement of Agreed Facts and this was supplemented by the testimony of the Worker and Carmen. [9] The said Partial Statement reads as follows: The Appellant and the Respondent admit the truth of the following facts for the purposes of the within appeal: 1. Profile Tile Inc. (hereinafter "Profile") is a Toronto based company that has been operating for more than 25 years in the retail tile and carpeting business and the custom interior renovation business. 2. All of the issued and outstanding shares in the capital of Profile are owned by Carmen Valente. 3. Carmen Valente is the Appellant's father. 4. At the relevant time, the day-to-day operations at Profile were managed by Carmen Valente and Silvio Quattrociocchi. 5. During the period beginning on or around July 7, 1999 and ending on or around January 31, 2001 (the "relevant period"), the Appellant was employed by Profile in, without limitation, a customer service, sales and marketing, design and display, and bookkeeping and administrative capacity. 6. From the commencement of the "relevant period" to approximately February 3, 2000, the Appellant earned and was paid approximately $575 per week ($450 per week (payable bi-weekly by cheque) and $500 per month (payable monthly by direct deposit)). 7. From February 3, 2000 to approximately the third or fourth week of June, 2000 (the "Non-Pay Period"), the Appellant agreed to defer the receipt of her salary in an effort to assist and ameliorate Profile's short term cash flow problems during said period. 8. From approximately the third or fourth week of June, 2000 to January 31, 2001, the payment of the Appellant's salary resumed and the Appellant earned and was paid approximately $750 per week, payable bi-weekly, during said period. 9. On or about the beginning of February, 2001, the Appellant left her employment with Profile on account of maternity leave. 10. On April 15, 2001, the Appellant appealed to the Respondent to determine whether her employment with Profile from July 8, 1999 to January 31, 2001 was "insurable" for employment insurance purposes. 11. On May 30, 2001, the Respondent advised the Appellant that he had determined that the Appellant's employment with Profile from July 8, 1999 to January 31, 2001 was not "insurable" for employment insurance purposes for the reason that the Appellant and Profile were not dealing with each other at arm's length, within the meaning of paragraph 5(2)(i) of the Employment Insurance Act (Canada). 12. In making his determination, the Respondent "assumed" (as set out in paragraph 6(f) of the "Reply") that "the Appellant's remuneration was excessive, compared to other employees with more responsibilities". The Respondent admits that his assumption in paragraph 6(f) of the "Reply" is incorrect. Save and except for during the "Non-Pay Period", the Appellant's remuneration was, at all times, commensurate with the remuneration received by other arm's length employees at Profile with similar responsibilities. 13. In making his determination, the Respondent "assumed" (as set out in paragraph 6(i) of the "Reply") that "the Appellant received a bonus from [Profile], yet other employees dealing at arm's length with [Profile] did not receive a similar bonus". The Respondent admits that his assumption in paragraph 6(i) of the "Reply" is incorrect. The Appellant did not receive any form of "bonus" dissimilar to bonuses that may have been received by other arm's length employees at Profile with similar responsibilities. 14. In making his determination, the Respondent "assumed" (as set out in paragraph 6(j) of the "Reply"), that "the Appellant's hours of work were not recorded, which is not common when parties are dealing at arm's length". The Appellant admits that she did not record her hours of work while working at Profile. However, the Respondent admits that the Appellant was a salaried employee and was not required to record her hours, and that the overwhelming majority of employees working at Profile were not required to record their hours of work. The Respondent admits, therefore, that his assumption in paragraph 6(j) is partially incorrect (as it relates to other arm's length employees). 15. The Appellant admits that she is "related" to Profile within the meaning of the Income Tax Act (Canada). 16. The Appellant admits that she did not always cash her pay cheques on a timely basis as assumed by the Respondent in paragraph 6(h) of the "Reply". 17. The Respondent admits that, save and except for the Appellant not getting paid during the "Non-Pay Period" and save and except for the Appellant not always cashing her pay cheques on a timely basis, there was nothing untoward or unusual about the Appellant's employment with Profile during the "relevant period". [10] As indicated above, the Minister in exercising his jurisdiction under paragraph 5(3)(b) of the Act, was not satisfied that it was reasonable to conclude that the parties would have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length. The Minister thus decided that the work was not insurable and as mentioned above Deputy Judge MacLatchy accepted that determination. [11] I have considered the facts set forth in the "Partial Statement of Agreed Facts" as well as the following facts or clarifications of those in the said Statement, namely: (a) There was a valid reason for the Worker being employed, namely an employment gap resulted when the Worker's mother left her position with the Payor. (b) When the Worker left her work she was approximately eight and a half months pregnant. (c) In addition to general office duties the Worker was engaged in customer service, drafting, dealing with cheques, the safe, mail, invoices, quotations for work, drafting, dealing with ads and providing customer assistance. The Worker had not only general office skills but also skills particular to the work performed by Profile, having obtained some of these work skills as a result of her years at Humber College, experience on the job and training by co-employees. (d) The Worker worked 5 days a week from 9:00 a.m. to 5:00 p.m. and it was admitted by both the Worker and Carmen that the Worker was occasionally late but not excessively and on most occasions made up for time missed. (e) The Worker was aged about 20 when work commenced and 22 when work terminated. (f) The only persons who submitted hours or kept track of hours were the workers in the workshop, not those in the office. [12] On the threshold question and applying the criteria of the new approach analyzed above I am satisfied that I am entitled to review the Minister's decision and make my own. [13] Having considered all the facts established in the Partial Statement of Agreed Facts and revealed by the testimony I conclude as follows: 1. The factor of not being paid for 5 months is not, when considered in the light of all the other factors (the whole picture) sufficient to lead to a conclusion that the employment relationship was unreasonable. I am partially influenced in this conclusion by the fact that the unpaid amounts were later paid to the Worker either wholly or substantially by the raise in salary from $575 per week to $750 per week. 2. The non-cashing of cheques similarly is not sufficient. Actually that factor results in a benefit flowing from the Worker to the Payor, not the opposite and the jurisprudence has analyzed this factor in that context. Although, the non cashing extended over a lengthy period of time, that is not so unusual in a non-arm's length situation, especially given the particular facts in this case of the financial difficulties that the business was going through. 3. The main factors, in my opinion are the skills of the Worker, the hours worked, the need for her employment in the business when her mother left leaving a gap, the reason for her termination, i.e. pregnancy and moreover as stated in paragraph 17 of the Partial Statement of Appeal Facts, the fact that with the exceptions noted, there was nothing untoward or unusual about the Worker's employment. [14] In conclusion for all of the foregoing reasons, in my opinion on a balance of probabilities, having regard to all of 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 the parties would have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length. [15] Consequently, the appeal is allowed and the decision of the Minister is vacated. Signed at Ottawa, Canada, this 10th day of September 2003. "T. O'Connor" O'Connor, J. CITATION: 2003TCC606 COURT FILE NO.: 2001-3131(EI) STYLE OF CAUSE: Venessa Heather Valente v. The Minister of National Revenue PLACE OF HEARING: Toronto, Ontario DATE OF HEARING: August 8, 2003 REASONS FOR JUDGMENT BY: The Honourable Justice O'Connor DATE OF JUDGMENT: September 10, 2003 APPEARANCES: Counsel for the Appellant: Domenic Marciano Counsel for the Respondent: Eric Sherbert COUNSEL OF RECORD: For the Appellant: Name: Domenic Marciano Firm: Marciano Beckenstein LLP For the Respondent: Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada