Tax Court of Canada Judgments

Decision Information

Decision Content

Date: 19991203

Docket: 97-2109-UI

BETWEEN:

STÉPHANE SAVOIE,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Judgment

Tardif, J.T.C.C.

[1] This is an appeal from a determination which excluded from insurable employment work performed by the Appellant for Friendly Auto Salvage Ltd., for the following three periods: July 17 to October 13, 1995; January 1 to December 31, 1996; and March 3 to June 7, 1997.

[2] To support his determination, the Respondent assumed the following facts:

[TRANSLATION]

(a) the Payor is a corporation duly incorporated in the Province of New Brunswick of which François Savoie is the sole shareholder;

(b) François Savoie is the Appellant's father;

(c) the Payor's business consists of the repair of automobile bodies or, more specifically, body work and painting;

(d) the Appellant's father works for the Payor's business all year long;

(e) the Appellant has a diploma in body work and the Payor hires him to do that kind of work;

(f) during the periods in issue, the Appellant was on the Payor's payroll for exactly the number of weeks necessary in order to be eligible for unemployment insurance benefits :

July 17 to October 13, 1995 13 weeks

April 29 to July 27, 1996 13 weeks

March 3 to June 7, 1997 14 weeks

(g) the start of the Appellant's periods of employment coincided with the end of his unemployment insurance benefits and not with the Payor's needs;

(h) the Payor alleged that he accumulated the work to be done in order to be able to accommodate the Appellant when his unemployment insurance benefits ceased;

(i) in addition to the Appellant, the Payor had 2 non-related workers on his payroll in 1995 and 1 in 1996 and 1997;

(j) the Appellant's weekly salary recorded in the Payor's payroll book was $650.00 based on 50 hours per week at $13.00 per hour;

(k) the non-related workers' weekly salary was $600.00 for one, from 1995 to 1997 inclusive, and $475.00 for the other, who worked only in 1995;

(l) the Appellant performed jobs for the Payor outside the periods recorded in the Payor's payroll book without remuneration;

(m) for the periods not recorded in the Payor's payroll book, the Appellant occasionally received from $20 to $40 without these amounts being compiled by either the Appellant or the Payor;

(n) the Appellant's salary as reported in the payroll book was higher than the prevailing salary in the industry;

(o) the Appellant did not work during all the weeks reported in the Payor's payroll book;

(p) the Appellant and the Payor are related persons within the meaning of the Income Tax Act;

(q) the Appellant and the Payor are not dealing with each other at arm's length;

(r) having regard to all the circumstances, including the remuneration paid, the terms and conditions, the duration and the nature and importance of the work performed, it is unreasonable to conclude that the Appellant and the Payor would have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length.

[3] After having been sworn, the Appellant admitted the content of paragraphs (a) to (g), (j), (l) and (m).

[4] The Appellant and his father, proprietor of the company Friendly Auto Salvage Ltd., both testified. They spoke and testified in a candid and honest manner. They clearly did not understand the meaning or the significance of the determination concerning the work in issue. Their testimony essentially confirmed the vast majority of the facts assumed in support of the determination. However, they repeatedly stated that even if they were related, the Appellant had definitely done the work and earned the salary he received.

[5] The witnesses' evidence did not reveal any new facts despite numerous questions that the Court addressed to the Appellant and his father.

[6] Parliament decided to exclude from insurable employment all employment existing between those who are related persons within the meaning of the Income Tax Act (the "Act"). That is the rule.

[7] However, the Act sets out an exception under which those who analyse such cases can determine work that is in theory not insurable to be insurable employment. In other words, the Respondent may, at the time of his investigation, analysis and study conclude that the work was carried out in such a way that the non-arm's length relationship should not be taken into consideration.

[8] Thus, employment excluded from insurable employment due to a family relationship may become insurable if the person responsible for studying the file, after analysing all the circumstances, including the remuneration paid, the terms and conditions, the duration and the nature and importance of the work performed, arrives at the conclusion that the relationship in no way shaped or influenced the contract of employment.

[9] When an appeal relates to a decision resulting from the discretion under subparagraph 3(2)(c)(ii) of the Unemployment Insurance Act, the Appellant must first of all prove that the discretion was improperly exercised. To do so, it must be shown on a preponderance of evidence that the Respondent committed one or more serious errors in failing to take into account one or more fundamental facts of the case or in giving excessive importance to certain marginal facts.

[10] In this regard, it seems pertinent to me to reproduce the following excerpt from the judgment of the Honourable Chief Justice Julius A. Isaac of the Federal Court of Appeal in Attorney General of Canada v. Jencan Ltd., A-599-96 :

The Deputy Tax Court Judge, however, erred in law in concluding that, because some of the assumptions of fact relied upon by the Minister had been disproved at trial, he was automatically entitled to review the merits of the determination made by the Minister. 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 trail 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. In other words, it is only where the Minister’s determination lacks a reasonable evidentiary foundation that the Tax Court’s intervention is warranted. An assumption of fact that is disproved at trial may, but does not necessarily, constitute a defect which renders a determination by the Minister contrary to law. It will depend on the strength or weakness of the remaining evidence. The Tax Court must, therefore, go one step further and ask itself whether, without the assumptions of fact which have been disproved, there is sufficient evidence remaining to support the determination made by the Minister. If that question is answered in the affirmative, the inquiry ends.

[11] To succeed, the Appellant had to show obvious errors in the handling of his case; he had to establish on a preponderance of evidence that the determination was the result of a biased, unreasonable or illegal exercise of discretion. Not only did the evidence submitted by the Appellant not demonstrate this, but rather it confirmed the correctness of the facts assumed in support of the determination contested in this appeal.

[12] When employment is not held at arm's length, it must be analysed and assessed to ensure that the performance of the contested employment has not involved advantages or disadvantages.

[13] This analysis turns on all the circumstances of the employment, including in particular the salary paid, the terms and conditions of the employment and its duration, nature and importance. If the person responsible for analysing the file or the investigator considers all the relevant facts and evaluates them objectively in good faith, and if his or her conclusions are consistent with and reasonable in light of the analysis, the Tax Court of Canada cannot interfere and modify the decision.

[14] In other words, in order to succeed, an appellant whose employment has been excluded from insurable employment due to a non-arm’s length relationship following an exercise of discretion must establish on a preponderance of evidence that the analysis contained errors or serious errors.

[15] If an appellant does not demonstrate in his appeal that the Minister of National Revenue failed to be objective or took irrelevant factors into account, or that his analysis was incomplete or unreasonable, this Court does not have the authority to modify the decision.

[16] In the case at bar, the evidence showed that the assumptions of fact were sufficient to support the Respondent's conclusion. These facts include the following:

[TRANSLATION]

(f) during the periods in issue, the Appellant was on the Payor's payroll for exactly the number of weeks necessary to be eligible for unemployment insurance benefits:

July 17 to October 13, 1995 13 weeks

April 29 to July 27, 1996 13 weeks

March 3 to June 7, 1997 14 weeks

(g) the start of the Appellant's periods of employment coincided with the end of his unemployment insurance benefits and not with the Payor's need;

(h) the Payor alleged that he accumulated the work to be done in order to be able to accommodate the Appellant when his unemployment insurance benefits ceased;

. . .

(k) the non-related workers' weekly salary was $600.00 for one, from 1995 to 1997 inclusive, and $475.00 for the other, who worked only in 1995;

(l) the Appellant would perform jobs for the Payor outside the periods recorded in the Payor's payroll book without remuneration;

(m) for the periods not recorded in the Payor's payroll book, the Appellant occasionally received from $20 to $40 without these amounts being compiled by either the Appellant or the Payor;

[17] Given that the Appellant has failed to prove that his case was assessed in an arbitrary or unreasonable manner, I must dismiss the appeal.

Signed at Ottawa, Canada, this 3rd day of December 1999

"Alain Tardif"

J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 14th day of December 2000.

Stephen Balogh, Revisor

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