Tax Court of Canada Judgments

Date: 19980728

Docket: 96-672-UI

BETWEEN:

GUY CARRIER,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Judgment

LAMARRE, J.T.C.C.

[1] This is an appeal from a decision by the Minister of National Revenue ("the Minister") that the appellant did not hold insurable employment with Le Pied de Biche Inc. ("the payer") during the period from October 3 to December 30, 1994. In his decision the Minister determined that the employment was not insurable on the ground that it was excepted from insurable employment pursuant to s. 3(2)(c) of the Unemployment Insurance Act ("the Act"). In the Reply to the Notice of Appeal the Minister also argued that there was no contract of service between the appellant and the payer within the meaning of s. 3(1)(a) of the Act, but rather an artificial arrangement to qualify the appellant for unemployment insurance benefits.

FACTS

[2] In arriving at his decision the Minister relied on the facts set out in paragraph 4 of the Reply to the Notice of Appeal. Those facts read as follows:

[TRANSLATION]

(a) the payer operates a dressmaking business which includes a boutique and a dressmaking workshop;

(b) the appellant was hired to do renovation work and remodel the building in which the payer's boutique and workshops were located;

(c) the work the appellant did for the payer was not related to the payer's business activities;

(d) at all times relevant to the case the payer's shareholders were:

percentage of shares

Sylvie Brodeur 33 1/3%

Micheline Brodeur 33 1/3%

Chantal Brodeur 33 1/3%

(e) the three shareholders are sisters;

(f) Sylvie Brodeur is the appellant's de facto spouse;

(g) the appellant, Sylvie Brodeur, Micheline Brodeur and Christian Grenier are the four owners, in equal shares, of the payer's building;

(h) the four persons mentioned in paragraph (g) also own other buildings in St-André Avellin;

(i) since June 2, 1987 the appellant has also been an equal partner with Christian Grenier in a shoe sales business operating as "Moi, mes souliers . . . Enr.";

(j) according to a statutory declaration the appellant looked after his own business on weekends and in the evenings and the rest of the time he received unemployment insurance benefits;

(k) during the period at issue the appellant worked for the payer for only 13 weeks, that is, the minimum number of weeks necessary to qualify for unemployment insurance benefits;

(l) in previous years the appellant had also qualified for unemployment insurance benefits by working the minimum number of weeks required to receive unemployment insurance benefits:

number of weeks number of weeks

worked    required

1993 12 12

1994 13 13

(m) the appellant was paid $800 by the payer every two weeks regardless of the number of hours he worked;

(n) the appellant decided on his work method;

(o) the appellant supplied some of the tools needed to render the services to the payer;

(p) the appellant was hired by the payer to do very specific work;

(q) the other workers who worked on the same project as the appellant were regarded by the payer as self-employed persons, not employees;

(r) the appellant and the payer were not dealing with each other at arm's length; and

(s) 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 not reasonable to conclude that the appellant and the payer would have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length.

[3] The appellant's agent admitted subparagraphs (a), (b), (d), (e), (f), (j) and (r) set out above. She denied all the other facts. I heard testimony from the appellant and Micheline Brodeur.

[4] The payer operates a dressmaking business which hires about three seamstresses for a period of five months during the year (from May to October) in addition to Micheline and Sylvie Brodeur, who look after their business year round. Chantal Brodeur, the payer's third shareholder, does not work in the business. The seamstresses are paid between $7.50 and $8.50 an hour for 40-hour weeks. The two Brodeur sisters each pay themselves a salary of about $10 an hour.

[5] Operations proceed as follows throughout the year. In January and February new models are sampled. In March and April patterns are made and production organized. In May production begins with a view to supplying merchandise to various shops. In November and December the business takes part in various shows. This is also the time when fur coats are sold.

[6] Early in 1994 the Brodeur sisters decided to enlarge their workshop, which was in the basement of their house. The plan conceived by Micheline Brodeur was to build a new workshop and boutique behind the existing house. To obtain a grant for the construction work, the Brodeur sisters had to hire a contractor to do the new foundation, the walls, the exterior finishing and the electricity. The contractor hired its own employees and was to deliver the new building with the exterior finished. The Brodeur sisters were not required to deal with this contractor for the interior finishing. To cut costs, they hired the appellant.

[7] The appellant had worked as a cabinetmaker since 1977. He had had his own workshop for ten years. He made furniture and mouldings and restored buildings. He also renovated small cottages in a hunting and fishing reserve. In 1995 he was hired by T.L.S. Inc. as a survey chainman on a daily basis (see Exhibit A-2).

[8] In 1994, the appellant was unemployed. This was when Micheline Brodeur hired him. He was put in charge of demolishing the workshop at the old house once the contractor's work was complete. He also did all the interior finishing and remodelling of the workshop and the boutique. Although the Brodeur sisters gave him general orders for remodelling the workshop, the appellant then proceeded at his own pace. He also performed various other tasks such as painting, plumbing and carpentry. Micheline Brodeur terminated the work in December 1994 when she had nothing left in her budget with which to continue.

[9] The appellant was paid $10 an hour for 40-hour weeks. The appellant had some tools but most of them were supplied by the Brodeur sisters.

[10] The two Brodeur sisters and their spouses, Christian Grenier and the appellant, were co-owners of the building which was renovated. It can be seen from the evidence that this building was formerly owned by the payer. The payer allegedly ran into financial difficulty and assigned the building to the four co-owners. Micheline Brodeur said it was the shares purchased by the appellant and Christian Grenier (25 percent each) that enabled her to get a hypothec for the financing needed to do the renovations. On October 31, 1994 the building in question was transferred back to the payer (Exhibit A-1) for the value of the hypothec. During the period in which the building was held by the four co-owners the payer leased it in order to use it.

[11] Additionally, the appellant had been a partner with his brother-in-law Christian Grenier in a retail shoe store business since 1987. He worked there in the evenings and on weekends. The appellant said he gave up all activity in that business when it was merged with the payer's business in February 1995. At that point, the business was apparently moved to the same location as the dressmaking workshop. According to the amending declaration of partnership dated March 29, 1995 (Exhibit I-1), however, none of the partners withdrew but partners were added, namely the two Brodeur sisters.

ANALYSIS

[12] The respondent argues that this was an artificial arrangement between the appellant and the payer to qualify the appellant for unemployment insurance benefits. I do not think that the evidence shows this. I found the appellant's testimony and that ofMicheline Brodeur to be entirely credible. I have no hesitation in believing that the appellant did in fact work 40 hours a week for the payer during the period at issue. The respondent's agent did not question the appellant's pay and I have no reason to think he was not paid for the work done. (He reported income from this employment in his 1994 tax return: Exhibit I-2.)

[13] In my opinion the appellant's employment met all the conditions of a contract of service within the meaning of s. 3(1)(a) of the Act.

[14] The respondent also maintains that the employment was excepted from insurable employment under s. 3(2)(c) of the Act.

Section 3(2)(c) of the Act reads as follows:

3. (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 . . . .

[15] It is clear that the appellant and the payer were not dealing with each other at arm's length.[1] The appellant has to show on a balance of probabilities that the Minister exercised his discretion improperly in deciding that, having regard to all the circumstances of the employment, the payer and the appellant would not have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length.[2] To do this he has to show, depending on the circumstances, that the Minister:

(i) acted in bad faith or for an improper purpose or motive;

(ii) failed to take into account all of the relevant circumstances, as expressly required by s. 3(2)(c)(ii); or

(iii) took into account an irrelevant factor.[3]

[16] The Minister is relying inter alia on the fact that the appellant was an equal co-owner of the building. First, this was true up to October 31, 1994 only. Second, in what way is being a co-owner a factor to be considered in determining the existence of employment when the employment is genuine? In 1994 the building in question was used solely by the payer to carry on its business, from which the appellant received no profits. Until October 31, 1994 the payer paid rent for its use. The payer then became its owner once again. The appellant was hired by the payer to renovate the building. I do not see how the fact that he was a co-owner could affect the circumstances of the employment. There is no indication in the Reply to the Notice of Appeal that the appellant guaranteed the financing of the building in any way, nor were any questions asked about this in cross-examination. OnlyMicheline Brodeur referred to the fact that the building had been transferred to the four co-owners to increase the chances of obtaining a hypothec. The hypothec is a real right to which the building is subject. I cannot infer from the examination in chief or the cross-examination that the appellant personally stood surety for this loan.

[17] As to the work method used, I do not see how this test could have any effect on the circumstances surrounding the employment. Another carpenter would probably also have used his own work method. That does not alter the fact that it was the Brodeur sisters who co-ordinated the work.

[18] As regards the allegation that the appellant was hired to perform a very specific task, that is not what the evidence shows. The appellant performed various tasks at the Brodeur sisters' request.

[19] On the issue of pay, the evidence does not show that the appellant was not paid for his work. After hearing the testimony, I have no reason to think that the appellant did not work 40 hours a week. He was paid accordingly. As to tools, it can be seen from the evidence that apart from a few small tools it was the payer that supplied them.

[20] The evidence does not show that the other workers who worked for the contractor were treated as self-employed persons. What it does show is that the contractor hired its own employees for the work it had to perform. The appellant was hired separately to perform various tasks relating to interior finishing.

[21] As to the minimum number of weeks of work required to qualify for unemployment insurance benefits, this factor is relevant where there is a doubt as to whether an appellant actually worked in this period or continued working afterwards. That is not the case here.

[22] Finally, it can be seen from the evidence that the fact that the appellant owned a shoe store did not affect his availability to the payer during the period at issue. The statutory declaration referred to in paragraph 4(d) of the Reply to the Notice of Appeal was not tendered in evidence. Although this paragraph was admitted by the appellant's agent, it can be seen from the testimony that the appellant worked during the period at issue and was not receiving unemployment insurance benefits at that time. On the contrary, the appellant stated that he had stopped receiving benefits when the payer offered him this employment.

[23] Taking all this into account, it is my view that the appellant has shown on a balance of probabilities that the facts as a whole taken into account by the Minister were incorrect or that the Minister misapprehended them in arriving at the conclusion he reached. As Pratte J.A. said in Louise Larente v. M.N.R.:[4]

In answering the question raised by subparagraph 3(2)(c)(ii) of the Unemployment Insurance Act, the issue is on what conditions would a third party furnishing the same labour as the applicant have been employed.

[24] I consider that the Minister could not legally have concluded that a third party would not have furnished the same labour on the same terms as the appellant in the instant case. According to the evidence, the Minister took irrelevant factors into account and did not take all the relevant circumstances into account in concluding as he did. Additionally, the Federal Court of Appeal said the following in Attorney General of Canada v. Jolyn Sport Inc., [1997] F.C.J. No. 512 (QL), at para. 5:

In every appeal under section 70 the Minister's findings of fact, or "assumptions", will be set out in detail in the reply to the Notice of Appeal. If the Tax Court judge, who, unlike the Minister, is in a privileged position to assess the credibility of the witnesses she has seen and heard, comes to the conclusion that some or all of those assumptions of fact were wrong, she will then be required to determine whether the Minister could legally have concluded as he did on the facts that have been proven.

[25] I feel there is a sufficient basis here for reviewing the Minister's decision. The appeal is accordingly allowed and the Minister's determination reversed.

Signed at Ottawa, Canada, July 28, 1998.

"Lucie Lamarre"

J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 2nd day of November 1998.

Stephen Balogh, Revisor

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