Date: 19980925
Docket: 97-441-UI
BETWEEN:
LUCIE CORMIER,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
Tardif, J.T.C.C.
[1] This is an appeal from a determination dated November 22, 1996 that the work performed by appellant between May 15 and August 26, 1995 for her son Yves Cormier, operating a restaurant business under the firm name "Restaurant La Grande Cale Enr.", was excepted from insurable employment because she and her son were not dealing at arm's length.
[2] Although the Reply to the Notice of Appeal indicated that the determination was also based on the application of s. 3(1)(a) of the Unemployment Insurance Act ("the Act") — i.e. there was no genuine contract of service —, counsel for the respondent indicated to the Court that the appellant's employment was excepted from insurable employment essentially pursuant to s. 3(2)(c) of the Act, which reads as follows:
(2) Excepted employment is . . .
(c) subject to paragraph (d), employment where the employer and employee are not dealing with each other at arm's length and, for the purposes of this paragraph,
(i) the question of whether persons are not dealing with each other at arm's length shall be determined in accordance with the provisions of the Income Tax Act, and
(ii) where the employer is, within the meaning of that Act, related to the employee, they shall be 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.
[3] The Court explained to the appellant at length that the Tax Court of Canada had very limited jurisdiction to review a decision concerning the insurability of employment when that decision results from the discretionary process set out in the Act. That jurisdiction has been described by the Federal Court of Appeal as a jurisdiction comparable to judicial review.
[4] The limits and extent of this Court's jurisdiction have been defined and described in particular in the following cases:
Tignish Auto Parts Inc. v. The Minister of National Revenue
(July 25, 1994, 185 N.R. 73)
Ferme Émile Richard et Fils Inc. v. Department of National Revenue(December 1, 1994, 178 N.R. 361)
Attorney General of Canada v. Jencan Ltd.
(June 24, 1997, 215 N.R. 352)
Bayside Drive-In Ltd. v. Her Majesty the Queen
(July 25, 1997, 218 N.R. 150)
Attorney General of Canada v. Jolyn Sport Inc.
(April 24, 1997, A-96-96, F.C.A.)
[5] The above-cited precedents, which are binding on this Court, clearly indicate that the Tax Court of Canada, before considering the facts from the standpoint of a trial de novo, must first verify and decide whether the Minister's discretion has been legally exercised.
[6] In other words, the appellant must first present evidence that the respondent acted illegally or wrongfully. Did the respondent exercise his discretion reasonably, in accordance with the rules of objectivity, while at the same time being thorough? Was the discretionary process marked by bad faith?
[7] In the instant case, did the appellant establish on a balance of probabilities that the discretionary process was so improperly exercised as to vitiate the result?
[8] To begin with, the appellant admitted the accuracy of the facts alleged in paragraph 5 of the Reply to the Notice of Appeal, which read as follows:
[TRANSLATION]
(a) since 1992 the payer has operated a restaurant business under the firm name Restaurant La Grande Cale Enr.;
(b) on March 10, 1992 the payer purchased the right to use the firm name of Jean-Louis and Annette Perron for $3,500;
(c) the appellant paid the said sum of $3,500 from her personal bank account;
(d) the payer is the appellant's son;
(e) the business operates during the tourist season, that is from May to September of each year;
(f) each season, from 1992 to 1995, the payer served 105 to 150 meals a day;
(g) from 1992 to 1994 the appellant was the manager of the payer's restaurant;
. . .
(i) the appellant was manager and cook at the restaurant during the period at issue;
(j) the appellant claimed that during the period at issue she was paid $630 a week for about 60 hours' work;
(k) the restaurant was open from 7:00 a.m. to 11:00 p.m. seven days a week;
. . .
(m) during the period at issue some of the appellant's paycheques were deposited directly to the payer's bank account;
(n) the payer's financial statements for the years ending in 1993, 1994 and 1995 showed consecutive business losses of $9,257, $12,774 and $8,845;
. . .
(q) on May 5, 1992 the appellant stood surety for a $6,000 loan granted to the payer by the Caisse Populaire de Lavernière;
(r) in 1993, 1994 and 1995 the appellant worked for the payer for 14, 16 and 15 weeks respectively;
. . .
(t) the appellant and the payer were not dealing with each other at arm's length within the meaning of the Income Tax Act.
[9] Once so many allegations were admitted it became somewhat difficult to discharge the burden of proof which had to be met in order to go on to the second stage, namely that of analysis from the standpoint of a trial de novo.
[10] I believe that the appellant did nonetheless discharge the burden of proof through her own testimony and that of the payer, complemented and corroborated by highly relevant documentary evidence.
[11] I should first like to state that the two witnesses, who testified in each other's absence, seemed very credible to me, and so I have no reason not to accept the whole of their testimony.
[12] That evidence showed that the payer, young Yves Cormier, the appellant's son, was indeed the owner of the restaurant during the period at issue, and that at once refutes the assumption that there was some kind of scheme to disguise the fact that the appellant was actually the owner of the restaurant.
[13] This suspicion on the respondent's part emerges in particular from allegations in subparagraphs (c), (g), (i), (l), (m), (o), (p) and (q).
[14] However, the evidence made it possible to completely alter the perception created by these allegations. Further, highly significant new facts were brought to light.
[15] I refer in particular to the declaration of firm name, to the request for information made to Revenue Canada at the time of the purchase and, above all, to the credit line requested and received from the Caisse Populaire de Lavernière.
[16] In financing matters it is usual for bankers to require all kinds of guarantees, including sureties. Yet here, the appellant's signature was not required for what is an essential part of a restaurant's operations: the line of credit. When seen in the context of a very small community, this fact in my view removes any doubt as to the true ownership of the business. Why then did the respondent make the following allegation in subparagraph (q):
(q) on May 5, 1992 the appellant stood surety for a $6,000 loan granted to the payer by the Caisse Populaire de Lavernière?
And why at the same time did he completely ignore the absence of a surety for the line of credit? It was not possible to determine the reasons for this from the respondent's evidence. However, by this incomplete presentation of the facts the respondent created a kind of false assumption as to the actual role of the appellant's son.
[17] Moreover, the explanations given as to certain facts which were accepted as conclusive not only cast doubt on the respondent's interpretation but also vitiate the objectivity of the decision. I refer in particular to subparagraphs (c), (m) and (q):
(c) the appellant paid the said sum of $3,500 from her personal bank account;
(m) during the period at issue some of the appellant's paycheques were deposited directly to the payer's bank account;
(q) on May 5, 1992 the appellant stood surety for a $6,000 loan granted to the payer by the Caisse Populaire de Lavernière.
[18] To this should be added the fact that the appellant's never having stood surety for the line of credit was ignored. The facts alleged show that the respondent chose to consider only certain incomplete facts, which were moreover given a tendentious interpretation. Consequently, and for these reasons, I find that the Minister's decision is not legal in that his analysis of the facts was incomplete, biased and tendentious.
[19] The appellant has satisfied the Court that it should intervene.
[20] In this connection the weight of the evidence also established that the appellant had performed her work under a genuine contract of service: the non-arm's-length relationship in no way affected or distorted either the work to be performed or the level of remuneration.
[21] The appellant was indeed subject to the owner's authority: certainly, the owner relied on the appellant's experience and expertise, as she had worked in the restaurant business for a very long time. Regardless of that, he did not overpay his mother: in fact he indicated that the salary paid corresponded to the average paid in the restaurant business. He also indicated that he checked with other restaurants in deciding on the salary that would be paid his mother. Moreover, the appellant's current salary is comparable to what she received when she was working for her son.
[22] The legislation gave the respondent a discretion for the obvious purpose of penalizing abuses and fraud. The intent was not to eliminate mutual aid and family cooperation and solidarity in all cases where paid work is performed under an arrangement between members of the same family.
[23] In the circumstances, the appeal is allowed as the employment held during the period at issue was insurable employment within the meaning of the Act.
Signed at Ottawa, Canada, this 25th day of September 1998.
"Alain Tardif"
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 29th day of April 1999.
Erich Klein, Revisor