Tax Court of Canada Judgments

Date: 19971110

Dockets: 96-1888-UI; 96-1889-UI; 96-1890-UI

BETWEEN:

JOSÉE GASSE, MADONE GASSE, HÉLÈNE GASSE,

Appellants,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent,

And

2537-5361 QUÉBEC INC. (HÔTEL MARSOUI),

Intervener.

Reasons for Judgment

Lamarre, J.T.C.C.

[1] These appeals are from three determinations by the Minister of National Revenue (“the Minister”) that the appellants did not hold insurable employment with 2537-5361 Québec Inc. (“the company”) during the following periods:

in the case of Josée Gasse:

from February 7 to August 27, 1993;

from June 13 to September 1, 1994;

from May 1 to August 19, 1995.

in the case of Madone Gasse:

from July 4 to September 10, 1993;

from June 26 to September 14, 1994;

from May 28 to September 2, 1995.

in the case of Hélène Gasse:

from August 1 to October 9, 1993;

from July 24 to October 15, 1994;

from June 25 to July 1, 1995;

from September 10 to October 7, 1995.

[2] These appeals were heard on common evidence, and testimony was given by Renée Gasse, Josée Gasse, Madone Gasse, Hélène Gasse, Louise Dessureault (an insurability officer for the respondent) and Jocelyne Rioux (an appeals officer for the respondent).

[3] In his determinations, the Minister found that in each instance the employment was not insurable because it was excepted from insurable employment under paragraph 3(2)(c) of the Unemployment Insurance Act (“the Act”).

[4] In making his determinations, the Minister relied on the facts set out in paragraph 8 of each Reply to the Notice of Appeal. Those facts are as follows:

Appeal 96-1888(UI) (Josée Gasse)

[TRANSLATION]

(a) The payer,[1] which was incorporated on or about August 1, 1987, operates the Hôtel Marsoui, which is located in Marsoui on the Gaspé Peninsula.

(b) The payer’s business has seven rooms that are rented out to workers on a “room and board” basis from April to September of each year.

(c) The business also has a dining room that seats about 20 people and is open from the end of April until September and a bar that seats 80 people and is operated year-round.

(d) The dining room offers morning, noon and evening menus, and bands play at the bar throughout the year.

(e) During the periods at issue, the payer’s shareholders were:

- the appellant

- Madone Gasse, the appellant’s sister

- Jovette Gasse, the appellant’s sister

- Renée Gasse, Madone Gasse’s second cousin

* They each owned 25 percent of the issued shares.

(f) The appellant and Madone Gasse are the only shareholders who were paid by the payer.

(g) Renée Gasse does the payer’s accounting year-round without being paid; she has a full-time job at the post office.

(h) Jovette Gasse works at the payer’s bar whenever she is free, and she is not paid for that work.

(i) In addition to the appellant and Madone Gasse, the payer occasionally hired three other workers during the periods at issue.

(j) The appellant was the manager of the payer’s business; she ordered supplies for the dining room, the hotel and the bar; she drew up and planned the employees’ schedules; she did the payroll along with Renée Gasse; she made bank deposits and she saw to it that the business ran smoothly, and she did so year-round.

(k) The appellant claims that she received fixed wages of $360 a week (40 hours at $9 an hour) during the weeks she allegedly worked.

(l) The appellant was paid by cheque, but all of her cheques were cashed directly out of the payer’s till.

(m) The appellant claims that she worked full-time for 10 weeks in 1993, 12 weeks in 1994 and 13 weeks in 1995, that is, the minimum number of weeks needed for her to qualify for unemployment insurance benefits.

(n) There is no correlation between the weeks allegedly worked by the appellant, the monthly income reported by the payer and the periods allegedly worked by the payer’s other employees.

(o) The appellant’s work was essential to the payer’s activities and the periods she allegedly worked do not correspond to those she actually worked.

(p) The appellant is related to the payer within the meaning of section 251 of the Income Tax Act.

(q) The payer would never have hired an unrelated person on terms substantially similar to those given to the appellant.

[5] Counsel for the appellant admitted subparagraphs 8(a), (d) to (i) and (l). He denied the other subparagraphs set out above.

Appeal 96-1889(UI) (Madone Gasse)[2]

[TRANSLATION]

(j) The appellant was the payer’s regular cook; she had to prepare from 20 to 25 meals per day in addition to the meals served to the residents.

(k) The appellant claims that she received fixed wages of $360 a week (40 hours at $9 an hour) during the weeks she allegedly worked.

(l) The appellant was paid by cheque, but all of her cheques were cashed directly out of the payer’s till.

(m) The appellant claims that she worked full-time for 10 weeks in 1993, 12 weeks in 1994 and 14 weeks in 1995, that is, the minimum number of weeks needed for her to qualify for unemployment insurance benefits.

(n) The appellant’s work was essential to the payer and, even though the restaurant was open from the end of April until September, the appellant claims that she worked full-time only during the above-mentioned weeks.

(o) There is no correlation between the weeks allegedly worked by the appellant, the monthly income reported by the payer and the periods allegedly worked by the payer’s other employees.

(p) The appellant continued to provide services to the payer while she was collecting unemployment insurance benefits; no one filled her position.

(q) The appellant is related to the payer within the meaning of section 251 of the Income Tax Act.

(r) The payer would never have hired an unrelated person on terms substantially similar to those given to the appellant.

Appeal 96-1990(UI) (Hélène Gasse)[3]

[TRANSLATION]

(j) The appellant is the sister of Madone, Josée and Jovette Gasse.

(k) The appellant was hired by the payer as an assistant cook; her duties were to prepare vegetables and help the cook, Madone Gasse, prepare meals.

(l) The appellant claims, inter alia, that she worked at the restaurant three days a week and did not wait tables, since Marie-France Sohier had been hired to do so; she claims that, in the fall, she worked at the bar.

(m) The appellant claims that she was paid $5.73 an hour during the weeks she allegedly worked.

(n) The appellant was paid by cheque, but all of her cheques were cashed directly out of the payer’s till.

(o) The appellant claims that she worked full-time for 10 weeks in 1993, 12 weeks in 1994 and 13 weeks in 1995, that is, the minimum number of weeks needed for her to qualify for unemployment insurance benefits.

(p) In 1995, the appellant obtained a record of employment indicating that she had worked for the Hôtel des Vagues du Mont-St-Pierre for eight weeks; she had just one week of alleged work for the payer and, since she needed four more weeks to qualify for unemployment insurance benefits, she allegedly worked for four weeks at the payer’s bar.

(q) The appellant allegedly worked for the payer from September 10 to October 7, 1995 (four weeks) even though her two sisters, Madone and Josée, were allegedly no longer working there because there was less business and even though the payer had hired Michelle Côté to work at the bar to replace Linda Therrien.

(r) The appellant’s work was essential to the payer and, although the restaurant was open from the end of April until September, the appellant claims that she worked full-time only during the above-mentioned weeks.

(s) There is no correlation between the weeks allegedly worked by the appellant, the monthly income reported by the payer and the periods allegedly worked by the payer’s other employees.

(t) The appellant is related to the payer within the meaning of section 251 of the Income Tax Act.

(u) The payer would never have hired an unrelated person on terms substantially similar to those given to the appellant.

[6] Paragraph 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.

[7] It is clear that the appellants and the company are not dealing with each other at arm’s length.[4] The issue that I must first resolve is whether the Minister acted properly in exercising the discretion conferred on him by subparagraph 3(2)(c)(ii) of the Act.[5]

[8] The appellants must prove on a balance of probabilities that the Minister exercised his discretion improperly in determining that, having regard to all the circumstances of the employment, the company would not have entered into a substantially similar contract of employment if it had been dealing with the appellants at arm’s length.

[9] In my opinion, the appellants have not proved this.

[10] It is clear that, for the purpose of determining whether the Minister properly exercised his discretion, I can consider facts that came out at the hearing.[6] On this point, Desjardins J.A. stated the following in Tignish Auto Parts Inc.:[7]

[T]he court is entitled to examine the facts which are shown by evidence to have been before the Minister when he reached his conclusion so as to determine if these facts are proven. But if there is sufficient material to support the Minister’s conclusion, the court is not at liberty to overrule it merely because it would have come to a different conclusion.

[11] The legal principles governing the power to review a decision made in the exercise of a statutory discretion (such as that conferred on the Minister by paragraph 3(2)(c) of the Act) were restated in Jencan, supra, where the Chief Justice of the Federal Court, at paragraph 34, quoted the comments made by Lord Macmillan of the Privy Council in D.R. Fraser and Co. Ltd. v. Minister of National Revenue, [1949] A.C. 24, at page 36 (P.C.):

The criteria by which the exercise of a statutory discretion must be judged have been defined in many authoritative cases, and it is well settled that if the discretion has been exercised bona fide, uninfluenced by irrelevant considerations and not arbitrarily or illegally, no court is entitled to interfere even if the court, had the discretion been theirs, might have exercised it otherwise.

[12] Thus, a court’s power to interfere on judicial review, as in the case at bar, will be justified only if it is shown 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 subparagraph 3(2)(c)(ii); or (iii) took into account irrelevant factors in making his determination (see Jencan, supra, paragraph 37).

[13] The appellants argued that the Minister violated a fundamental rule of natural justice by not meeting with them personally, as they say they requested, but relying solely on an investigation conducted by means of telephone interviews with each of them and with Renée Gasse and Jovette Gasse, both of whom are representatives of the company.

[14] The appellants' files were dealt with by Louise Dessureault, an insurability officer for the respondent, and Jocelyne Rioux, an appeals officer for the respondent. According to the correspondence filed in evidence as Exhibit I-3, at the very outset of her investigation, Ms. Rioux contacted the appellants’ counsel of record at that time, Denis Paradis, who told her to speak to the appellants directly and to begin the usual review procedures with respect to their files.

[15] Ms. Rioux thus contacted the appellants on May 1, 1996, to set a date to question them about their employment. On May 7, 1996, Ms. Rioux conducted those interviews by telephone. The telephone conversation with each appellant apparently lasted about 30 minutes and, at the same time, the appellants were apparently asked to provide certain documents.

[16] On June 7, 1996, Ms. Rioux contacted Renée Gasse and Jovette Gasse. Her interviews with each of them apparently also lasted 30 minutes. On June 26, 1996, having read the various documents requested, Ms. Rioux sent the Minister’s determination to each of the appellants.

[17] The evidence shows that only Jovette Gasse asked Ms. Rioux to meet with her personally and that Ms. Rioux said that it was not possible because of the distance involved (Ms. Rioux’s office is in Laval and the appellants live in Marsoui on the Gaspé Peninsula).

[18] The appellants’ current counsel apparently contacted Ms. Rioux on July 29, 1996, to request a meeting with her. Ms. Rioux answered by letter, saying that the determination was final.

[19] In my opinion, the Minister’s representative acted in compliance with the Act and the appellants were not prejudiced in any way. Their own counsel at the time had advised Ms. Rioux to contact them directly. Ms. Rioux spent enough time with the appellants and had enough documentation to put together sufficient information to decide the matter. On the evidence I have before me, I certainly cannot conclude that the Minister acted in bad faith toward the appellants. Given the distance factor, Ms. Rioux carried out her job with the means at her disposal and did not take advantage of the situation. I would add that she seems to have had the appellants’ full co-operation.

[20] As regards the issue of whether the Minister, in making his determination, considered facts that were wrong or incorrectly assessed the other facts he had before him by failing to take all the relevant circumstances into account, I would note here that it is not sufficient in order to overturn the Minister's determination that the appellants merely disprove some of the facts taken into account by the Minister. They must show that the facts relied on by the Minister that were wrong or misinterpreted carry such weight that his determination can no longer stand (see Attorney General of Canada v. Jolyn Sports Inc., [1997] F.C.J. No. 512 (Q.L.) (C.A.)). If the facts proved at trial are sufficient in law to support the Minister’s conclusion that the parties would not have entered into a substantially similar contract of service if they had been at arm’s length, then the Minister’s determination must be upheld (see Jencan, supra, paragraph 50).

[21] One of the facts relied on by the Minister is that the company operated a business renting out rooms (seven) and providing board and a dining room service from April to September of each year. The appellants established that the rooms might sometimes be rented outside that period if there was a demand for them. Such was allegedly the case in February 1993, when Josée Gasse looked after the rooms and the dining room alone (except for one week when Madone Gasse helped her out on a part-time basis).

[22] The Minister also relied on the fact that the bar could seat 80 people and was operated year-round. Although counsel for the appellants denied that fact at the start of the hearing, the testimony did not contradict it. Moreover, counsel for the appellants admitted that the dining room provided three meals a day and that bands played at the bar throughout the year.

[23] It was also admitted that Josée Gasse had a full-time job at the post office and that she did the company’s accounting year-round without being paid by the company. As well, the appellants admitted that Jovette Gasse worked at the bar when she was free and that she was not paid for that work.

[24] Although it was denied at the start of the hearing, the evidence clearly showed that Josée Gasse’s main duties were those of a manager. Renée Gasse said that the employees reported to Josée Gasse when Josée was on the payroll. Josée Gasse was the one who checked the employees’ schedules and made sure they were paid. However, it seems that Josée Gasse was versatile and could just as easily handle cleaning the rooms, cooking, waiting tables and running the bar. Josée Gasse also admitted that she sometimes ordered inventory for the bar outside the periods she worked. She said that all it took was a telephone call lasting just a few minutes. It also took her just a few minutes to make bank deposits.

[25] Josée Gasse said that she was paid fixed weekly wages of $360 (40 hours at $9 an hour) for her work. According to her testimony, she shared her hours with Madone Gasse, who was paid the same wages. Madone Gasse had been hired as a cook to prepare three meals a day for 10 or so residents (about six hours a day, according to her). She also sometimes cleaned the rooms.

[26] Madone Gasse said that she usually worked only from Monday to Thursday and that, in addition to the weekday meals, she prepared the weekend meals. It was Hélène Gasse who, as the assistant cook, warmed up the meals for customers on the days Madone Gasse was not working. However, Madone Gasse admitted that she went in to help Hélène Gasse whenever Hélène asked her to. Hélène Gasse also looked after the bar. She was paid $5.73 an hour.

[27] Another fact on which the Minister relied, and no doubt the most important one in this case, is that there was no correlation between the work weeks shown on the payroll for each appellant and the monthly income reported by the company. The Minister concluded from this that each appellant’s work was essential to the business’s activities and that the work periods shown for each appellant did not correspond to the periods they actually worked.

[28] Counsel for the respondent summarized the respondent’s analytical process as follows:[8]

[TRANSLATION]

The appeals officer also did a comparative study of the appellants’ periods of employment and unemployment and the business’s monthly income. She noted several irregularities: the appellants were sometimes laid off because of a “shortage of work” even though the business’s income was higher at those times; there were months when no one was on the payroll and yet the business’s income was substantial.[9]

From her investigation at the Department of Human Resources Development, the appeals officer found that the appellants were on the payroll for only the number of weeks they needed to again become eligible for unemployment insurance benefits (with few exceptions).

The appellants made some revealing statements to the appeals officer:

The following passage from Madone Gasse’s statutory declaration[10] was read to her by the officer: “. . . I work my weeks in order to qualify, and apart from that I’m not paid; I work without pay. . . .”

[29] On this point, the appellants said that they worked when Renée Gasse told them to come to work. Renée Gasse said that Marsoui is a small, very remote village and that she wanted to give everyone work so as to make sure that all her employees kept their jobs. She referred to this as rotating the employees. In an attempt to explain the months in which the business earned income but had no employees on the payroll, Renée Gasse said that she, Jovette Gasse and Jovette’s husband looked after the bar at such times. They did so without pay, since it was their business.

[30] Counsel for the appellants argued as follows on this point:

[TRANSLATION]

The employer’s representatives, and in particular Renée Gasse, clearly explained to the Court that their involvement in the business as employees, and that of Jovette Gasse and Mr. Berthol (Jovette Gasse’s spouse), was not paid employment, which accounts for the fact that there was no one on the payroll during certain months when the bar was open. It also explains where the income came from even though there were no paid employees. The Minister’s representatives did not take that evidence into account in any way.

The employer’s representative, Renée Gasse, explained to the Court that the directors sometimes had “blitzes” at the bar to help bring in money. For those blitzes, there were not necessarily any employees on the payroll other than the barmaid. The blitzes account for certain periods during which the business’s income could be quite high without there being many employees at work.

It can be seen that the Minister’s representatives never took into account this way of operating (page 3 of Ms. Boutin’s factum).[11]

[31] I am not persuaded by the explanation put forward by the appellants and Renée Gasse, or by that given by their counsel, that the Minister was wrong to believe that the work periods shown on the payroll for each appellant did not correspond to the periods they actually worked. It is my view that the Minister had enough relevant facts to reach the conclusion that he reached.

[32] I have trouble understanding how there could be no employees during periods when the business had good income. For example, in May 1993, when there was $3,429 in income, Josée Gasse was hired. In May 1994, with $8,784 in income — almost three times more than during the same period in 1993 — there were no employees. Renée (who already had a full-time job at the post office), Jovette Gasse (who worked at the Caisse Populaire de Tourelle[12]) and Jovette’s husband (who had no share in the company and thus had no interest in it) testified that they were the ones who looked after the entire business, without being paid. Moreover, although income fell from $8,784 in May 1994 to $3,977 in June 1994, the company allegedly hired the three appellants as paid employees as of June 1994.

[33] In my opinion, these facts alone, and the other examples than can be found in the table showing each employee’s work periods (Exhibit A-1) and that showing monthly sales (Exhibit A-2) carry enough weight to demonstrate that it is virtually impossible to believe (or at least one can have serious doubts in that regard) that none of the appellants worked during the months when they said they were not working. In my view, the respondent’s version, which is that the appellants worked for longer periods than are indicated on their records of employment (while they were collecting unemployment insurance benefits), is not without merit.

[34] If I were to believe the appellants’ version, namely that Renée Gasse, Jovette Gasse and her husband were capable of looking after the business alone during periods when income was higher, I would have to conclude that the appellants’ work was not justified during the periods at issue because the company was able to manage quite well without their services when the business was earning substantial income.

[35] These are all relevant factors on which the Minister’s representative relied in concluding, after looking at all the circumstances,[13] that a substantially similar contract of employment would not have been entered into if the parties had been dealing with each other at arm’s length.

[36] In light of the foregoing, it is my view that the appellants have not shown on a balance of probabilities that all the facts the Minister considered were wrong or that the Minister incorrectly assessed them in concluding as he did. Accordingly, I have no power to interfere by reversing the Minister’s determinations. I can only affirm them.[14]

[37] In conclusion, I feel that I do not have a sufficient basis for revising the Minister’s determinations. The appeals are therefore dismissed and the Minister’s determination of the question in each appeal is affirmed.

“Lucie Lamarre”

J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 27th day of May 1999.

Erich Klein, Revisor

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