Date: 19971106
Dockets: 97-275-UI; 97-276-UI
BETWEEN:
ANDRÉ GOSSELIN, GUYLAINE GAUDREAULT,
Appellants,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
Prévost, D.J.T.C.C.
[1] These appeals were heard on common evidence at Roberval, Quebec on October 10, 1997.
[2] The first case is an appeal from a decision by the Minister of National Revenue ("the Minister") dated December 13, 1996 that the male appellant's employment with Guylaine Gaudreault, the payer, from April 15 to September 27, 1996 was not insurable as it was employment in which the employee and employer were not dealing with each other at arm's length.
[3] The second case is an appeal by the payer from the same decision.
[4] In the first case, paragraph 5 of the Reply to the Notice of Appeal reads as follows:
[TRANSLATION]
5. In arriving at his decision the respondent relied inter alia on the following facts:
(a) on March 21, 1996 Guylaine Gaudreault registered the trade name "Récupération G.G."; (A)
(b) Ms. Gaudreault is the appellant's wife; (A)
(c) the business operated in the field of iron, copper and aluminum salvage; (A)
(d) at the time the trade name was registered Ms. Gaudreault had no experience in this field of activity; (A)
(e) the appellant, on the other hand, already had work experience in this area; (A)
(f) Guylaine Gaudreault had no financial resources; (A)
(g) the appellant and his wife allege that the business was registered in her name to give the appellant work; (D)
(h) the office of the business was located in the couple's home; (A)
(i) the business had a credit line of $10,000; (A)
(j) Aliette Dubois, the appellant's mother, stood surety for this credit line; (A)
(k) the appellant stood surety for the purchase of a tractor-loader for the sum of $8,000; (A)
(l) the business used a truck placed at its disposal by the appellant; (A)
(m) the business paid all the costs of fuel for and repairs to the said truck; (A)
(n) the appellant supplied his own tools; (ASA)
(o) the business used land owned by Clermont Gaudreault; (A)
(p) Clermont Gaudreault is the appellant's brother-in-law; (A)
(q) the business paid Mr. Gaudreault no rent for the use of his land; (A)
(r) in 1996 the business paid salaries to two people, the appellant and Clermont Gaudreault; (D)
(s) between April and September 1996 the business generated receipts of $42,426; (A)
(t) the appellant's duties consisted of going to pick up metal from customers, unloading, sorting and cutting it, reloading it into a trailer and delivering it to Québec; (A)
(u) he worked 40 hours a week, from 8:00 a.m. to 5:00 p.m. Monday to Friday; (A)
(v) the appellant received a weekly salary of $670; (A)
(w) Mr. Gaudreault could replace the appellant; (A)
(x) Mr. Gaudreault received a weekly salary of $450 from the business; (A)
(y) before the period at issue the appellant was a labourer in the construction industry; (A)
(z) the appellant and the payer were not dealing at arm's length within the meaning of the Income Tax Act; (A)
(aa) the payer would never have hired an unrelated person on terms substantially similar to those offered the appellant, still less for such a salary. (D)
[5] This same paragraph was used in the second case, although of course mutatis mutandis.
[6] In the preceding extract from the Reply to the Notice of Appeal the Court has indicated, in parentheses after each subparagraph, the comments made by counsel for the appellants at the start of the hearing.
(A) = admitted
(D) = denied
(ASA) = admitted subject to amplification
Appellants’ evidence
According to the female appellant:
[7] The reason she wanted to [TRANSLATION] "start up" this business was that she had nothing to do and wanted to eventually have [TRANSLATION] "something" for herself.
[8] André Gosselin has no interest in the business and was really only an employee.
[9] The business is an [TRANSLATION] "official carrier" that delivers its metal to Québec.
[10] The female appellant’s function is primarily to find customers and then take their calls so someone can be sent to pick up the metal to be salvaged.
[11] Some people give her their metal to get rid of it and others sell it to her.
[12] Apart from his truck, André Gosselin supplied only a few tools.
[13] The reason she decided to hire him at the start of the period at issue was that he had been working in construction and work was slow at that time.
[14] She was indeed the person who determined his salary.
[15] She and Clermont Gaudreault are unrelated.
[16] The reason the latter earned less than the female appellant’s husband was of course because he had less experience.
[17] She does not receive a salary and lives on the income from the business.
[18] She has had as many as five employees at the same time, as is clearly indicated by the payroll (Exhibit A-1).
[19] The reason she was interested in salvage was that she had friends who worked in that field and starting such a business did not require a large investment.
[20] The reason that in 1997, according to the payroll (Exhibit A-2), her husband worked for her only from mid-July was that he had [TRANSLATION] "gone back" to construction in the meantime.
[21] At the time of the hearing he was still employed by her, as was Ghyslain Fortin.
[22] In addition to going to pick up the metal her employees must separate it into three categories, namely iron, copper and aluminum, before loading it in the trailer to be transported to Québec.
[23] Although her husband had some experience in the area she could still have [TRANSLATION] "started up" her business without him.
[24] She had previously tried her hand at sewing but did not really like it.
[25] In salvage, metal is always sold by weight.
[26] The record of employment and its correction (Exhibit I-1) indicate that the male appellant worked during the period at issue.
According to the male appellant:
[27] He is a labourer by trade and as work was slow in construction in April 1996 his wife hired him to work in salvage, where he had previously acquired a little experience.
[28] However, he is not entirely familiar with the administration of his wife's business.
[29] In performing his work, he called her from time to time during the day to find out if there were other metal pick-ups to be made in addition to those which he had been told of in the morning, and if so, of course, he took care of it.
[30] Is was mainly from small garages that he collected metal, in the form of engines, radiators and so on.
[31] The reason he [TRANSLATION] "lent" his truck to his wife was that at the start she did not have the financial resources to buy one.
[32] However, he receives no money in exchange for the use of this vehicle.
[33] If he had not been there his wife could certainly have [TRANSLATION] "started up" the business even though she had no experience in the area.
[34] In 1997 he worked in construction from March to July, when he was [TRANSLATION] "let go".
[35] If he had not been let go he would have continued working in construction.
[36] When he works in construction another of his wife's employees drives the truck he places at her disposal.
[37] The respondent called no witnesses.
Argument
According to counsel for the appellants:
[38] The respondent relied, in the Replies to the Notices of Appeal inter alia, on ss. 3(1)(a) and (2)(c) of the Unemployment Insurance Act ("the UIA") and ss. 5(1)(a) and (2)(i) of the Employment Insurance Act ("the EIA").
[39] The Minister accordingly had to take all the circumstances into account, and if he had done this he would quickly have realized that it was reasonable to conclude that the payer and the male appellant would have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length.
[40] If the payer had [TRANSLATION] "started up" a jewellery store or a clothing shop there would certainly have been no problem.
[41] The reason there was a problem was that the respondent had difficulty with the idea of a woman in a metal salvage business.
[42] Although it was to her advantage that her husband had some experience, she could still have managed without him, with her friends' help.
[43] The male appellant worked more weeks during the period at issue than he needed to qualify for unemployment insurance benefits.
[44] When the male appellant works in construction, the payer simply replaces him with another employee.
[45] It is definitely the payer and she alone who runs the business.
[46] It was she who paid the expenses for the truck, and someone who rents such a vehicle does not maintain it.
[47] This was how she compensated her husband for the use of his truck.
[48] It is true that the appellants admitted several facts mentioned in the Replies to the Notice of Appeal, but the fact remains that the Minister failed to consider inter alia that the salary was reasonable and that the payer really needed the services of employees such as her husband to conduct her business successfully.
[49] If her husband had not stood surety for her the payer would certainly have been able to make other arrangements.
[50] It is true that someone off the street, for example, would not have stood surety for the payer in this way.
[51] All the tests contained in ss. 3(1)(a) and 5(1)(a) of the applicable legislation were met, with the possible exception of the fact that the male appellant provided his truck as a working tool.
[52] Not every business necessarily has sureties.
[53] The male appellant wore two hats when he worked for his wife, that of husband and that of employee.
According to counsel for the respondent:
[54] The evidence discloses an important relationship between the payer and her husband: the latter's mother stood surety for the $10,000 credit line and he himself stood surety for the purchase of an $8,000 tractor-loader, in addition to providing the use of his truck without consideration.
[55] But for that relationship, rent would certainly have been paid for such use.
[56] The payer had no experience in the field and consequently benefited from her husband's experience.
[57] She did not have the financial resources necessary to start up a business in this way.
[58] She used land owned by the male appellant's brother-in-law free of charge.
[59] Subparagraph (r) above was denied, but in his decision of December 13, 1996 the Minister did not have to take into account the other employees hired by the payer in December 1996.
[60] In Attorney General of Canada v. Jencan Ltd. (A-599-96) the Chief Justice of the Federal Court wrote, for the Court of Appeal (at p. 18):
On the basis of the foregoing, the Deputy Tax Court Judge was justified in interfering with the Minister's determination under subparagraph 3(2)(c)(ii) only if it was established that the Minister exercised his discretion in a manner that was contrary to law. And, as I already said, there are specific grounds for interference implied by the requirement to exercise a discretion judicially. The Tax Court is justified in interfering with the Minister's determination under subparagraph 3(2)(c)(ii) - by proceeding to review the merits of the Minister's determination - where it is established 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 paragraph [sic] 3(2)(c)(ii); or (iii) took into account an irrelevant factor.
He added the following at p. 25:
Having found that certain assumptions relied upon by the Minister were disproved at trial, the Deputy Tax Court Judge should have then asked whether the remaining facts which were proved at trial were sufficient in law to support the Minister's determination that the parties would not have entered into a substantially similar contract of service if they had been at arm's length. If there is sufficient material to support the Minister's determination, the Deputy Tax Court Judge is not at liberty to overrule the Minister merely because one or more of the Minister's assumptions were disproved at trial and the judge would have come to a different conclusion on the balance of probabilities.
[61] In Her Majesty the Queen v. Bayside Drive-In Ltd. et al. (A-626-96), the Chief Justice of the Federal Court wrote, for the Court of Appeal (at pp. 9-10):
In this case, the Tax Court Judge concluded that his interference on appeal was justified because, in his opinion, the Minister had not given "sufficient importance to the work put in by the workers and their contribution to the Payor's success". The view that a failure by the Minister to give "sufficient importance" (i.e. weight) to specific facts is a ground for reversible error is not supported by the jurisprudence of this Court and, in my respectful view, is wrong in principle. By questioning not the relevance or truth of the facts relied upon by the Minister but simply the weight to be attached to the various facts otherwise properly considered, the Tax Court Judge, in effect, overruled the Minister's discretionary determination without first having concluded that the determination had been made in a manner contrary to law. In doing so, he improperly substituted his own independent assessment of the evidence for that of the Minister, thereby usurping the discretionary authority which Parliament clearly and unambiguously entrusted to the Minister.
[62] The case law based on s. 3(2)(c) of the U.I.A. can also be applied to s. 5(2)(i) of the E.I.A., as the differences between the provisions in question are minimal.
[63] The appellants had the burden of proof and have not discharged it.
[64] The subject decision was reasonable and the appeals should be dismissed.
Analysis
[65] It is true that the payer had no experience in salvage at the outset, though her husband did, but there is uncontradicted evidence that she could have founded the business even without such experience.
[66] It is clear that the payer had no financial resources, that her mother-in-law stood surety for her credit line, that the male appellant stood surety for her purchase of a tractor-loader for $8,000 in addition to placing his truck at her disposal without charge, and that she used land belonging to the male appellant's brother-in-law without paying rent.
[67] In arriving at his decision the Minister could not have known that the payer had hired other employees in December 1996 and so no conclusion can be drawn from that.
[68] It is clear that the male appellant worked for the payer, but this employment was excepted and the Minister did not see fit to include it: all that the Court may therefore do is decide whether it should intervene.
[69] The payer wanted to get into business: that was her right and there is no conclusion to be drawn from that or from the general operation of her business.
[70] Apart from the fact that the payer could have started up this business without the benefit of her husband's experience, the Minister did take all the circumstances into account in deciding not to include the employment.
[71] Counsel for the appellants was very skilful but she was really speculating when she suggested that the Minister would have reacted differently if the female appellant had opened a jewellery store or a clothing shop.
[72] The fact that during the period at issue the male appellant worked more weeks than the minimum needed to qualify for unemployment insurance benefits clearly does not suffice for the employment to be included.
[73] In hiring a truck there is always a charge for the use of the truck itself, and counsel for the appellants' argument on this point must be dismissed outright.
[74] If the payer had not made use of financial assistance from her husband and family the situation might have been different, but that was not the case.
[75] The male appellant may have worn two hats when he worked for his wife but as an employee he stood surety for her, had his mother stand surety for her, provided her with a truck free of charge and had his brother-in-law provide her with the use of land free of charge.
[76] There is no basis for interference pursuant to the rule in Jencan as the Minister did not exercise his discretion in a manner contrary to law.
[77] Even if he considered that the payer would have needed experience in order to get into this business, that she had none and that she benefited from her husband's experience, the other facts on which he relied were amply sufficient to support his determination.
[78] According to Bayside, the Court does not have to decide on the importance or weight of specific facts which were properly considered by the Minister, as in doing so it would be usurping his discretionary authority.
[79] It is true that the case law based on the old Act can also be applied to the new one.
[80] The appellants had the burden of proof and have not discharged it.
[81] Jencan and Bayside are very recent, are quite clear and do not really permit the Court to intervene.
[82] The appeals are accordingly dismissed and the subject decision affirmed.
“A. Prévost”
D.J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 2nd day of September 1998.
Stephen Balogh, Revisor