2002-787(EI)
BETWEEN:
RON THOMPSON,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Appeals heard on common evidence with the appeals of Robert Boose (2002-788(EI)) and Michael Young (2002-789(EI)) on June 13, 2002, at Kamloops, British Columbia, by
the Honourable Judge L.M. Little
Appearances
Counsel for the Appellant: Kenneth R. Hauser
Counsel for the Respondent: Jasmine Sidhu
JUDGMENT
The appeal is allowed and the decision of the Minister is vacated in accordance with the attached Reasons for Judgment.
Signed at Vancouver, British Columbia, this 7th day of August 2002.
|
"L.M. Little" |
J.T.C.C.
2002-788(EI)
BETWEEN:
ROBERT BOOSE,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Appeals heard on common evidence with the appeals of Ron Thompson (2002-787(EI)) and Michael Young (2002-789(EI)) on June 13, 2002, at Kamloops, British Columbia, by
the Honourable Judge L.M. Little
Appearances
Counsel for the Appellant: Kenneth R. Hauser
Counsel for the Respondent: Jasmine Sidhu
JUDGMENT
The appeal is allowed and the decision of the Minister is vacated in accordance with the attached Reasons for Judgment.
Signed at Vancouver, British Columbia, this 7th day of August 2002.
|
"L.M. Little" |
J.T.C.C.
2002-789(EI)
BETWEEN:
MICHAEL YOUNG,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Appeals heard on common evidence with the appeals of Ron Thompson (2002-787(EI)) and Robert Boose (2002-788(EI)) on June 13, 2002, at Kamloops, British Columbia, by
the Honourable Judge L.M. Little
Appearances
Counsel for the Appellant: Kenneth R. Hauser
Counsel for the Respondent: Jasmine Sidhu
JUDGMENT
The appeal is allowed and the decision of the Minister is vacated in accordance with the attached Reasons for Judgment.
Signed at Vancouver, British Columbia, this 7th day of August 2002.
|
"L.M. Little" |
J.T.C.C
Date: 20020807
Dockets: 2002-787(EI)
2002-788(EI)
2002-789(EI)
BETWEEN:
RON THOMPSON,
ROBERT BOOSE,
MICHAEL YOUNG,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Little, J.
FACTS
[1] The appeals of Ron Thompson v. The Queen, Robert Boose v. The Queen and Michael Young v. The Queen were heard together on common evidence.
[2] Okanagan Truck Centres Inc. ("Okanagan") is a company incorporated under the British Columbia Company Act. In the relevant period the shares of Okanagan were owned as follows:
Mactom Investments Ltd. ("Mactom") 1/3
Runciman Enterprises Ltd. ("Runciman") 1/3
KMA Ventures Ltd. ("KMA") 1/3
[3] The shares of Mactom were owned as follows:
Ron Thompson 51%
His spouse 49%
[4] The shares of Runciman were owned as follows:
Robert Boose 51%
His spouse 49%
[5] The shares of KMA were owned as follows:
Michael Young 51%
His spouse 49%
[6] Okanagan is a holding company which owns all of the issued shares of Kamloops Freightliner Ltd. and Kelowna Freightliner Ltd. Kamloops Freightliner Ltd. and Kelowna Freightliner Ltd. distribute trucks manufactured by Freightliner Inc.
[7] Mr. Thompson was the manager of finance for Okanagan.
[8] Mr. Boose was the manager of service for Okanagan.
[9] Mr. Young was the manager of sales for Okanagan.
[10] Each of the Appellants requested a ruling from the Canada Customs and Revenue Agency ("CCRA"). In this ruling request, the Appellants maintained that the amounts paid to them by Okanagan were not insurable earnings within the meaning of paragraph 5(1)(a) of the Employment Insurance Act ("Act").
[11] By letter dated the 16th day of November 2001, an official of the CCRA stated that the employment is insurable under the Act.
[12] Each of the Appellants disagreed with the decision of the CCRA and filed an appeal to the Tax Court.
ISSUE
[13] The issue is whether each of the Appellants were employed by Okanagan in insurable employment in 1999 and 2000. If the Appellant and Messrs. Boose and Young are exempted from the employment insurance premiums, they wish to have all of the premiums that they paid under the Act in 1999 and 2000 reimbursed to them and they wish to have the relevant employment insurance premiums paid by Okanagan in 1999 and 2000 reimbursed.
ANALYSIS
[14] Paragraph 5(1)(a) of the Act reads as follows:
5. (1) Types of insurable employment - Subject to subsection (2), insurable employment is
(a) employment in Canada by one or more employers, under any express or implied contract of service or apprenticeship, written or oral, whether the earnings of the employed person are received from the employer or some other person and whether the earnings are calculated by time or by the piece, or partly by time and partly by the piece, or otherwise.
[15] Subsections 5(2) and (3) of the Act read in part as follows:
5. (2) Excluded employment - Insurable employment does not include
(i) employment if the employer and employee are not dealing with each other at arm's length;
(3) For the purposes of paragraph (2)(i)
(a) the question of whether persons are not dealing with each other at arm's length shall be determined in accordance with the Income Tax Act.
[16] Paragraph 5(3)(b) of the Act deals with related parties. This paragraph does not apply in this appeal since Messrs. Thompson, Boose and Young were not related parties as defined.
[17] Paragraph 251(1)(b) of the Income Tax Act reads as follows:
... it is a question of fact whether persons not related to each other were at a particular time dealing with each other at arm's length.
[18] In essence, the Act appears to be structured in this manner so that the Minister must be satisfied that the individual is dealing with the employer similar to the way an outside employee or arm's length employee would deal.
[19] In considering the meaning of "arm's length" in section 251 of the Income Tax Act I have considered the comments of His Honour Judge Bonner in William J. McNichol et al. v. Her Majesty the Queen, 97 DTC 1111. In that case Bonner J. said at page 117:
Three criteria or tests are commonly used to determine whether the parties to a transaction are dealing at arm's length. They are:
(a) the existence of a common mind which directs the bargaining for both parties to the transaction;
(b) parties to a transaction acting in concert without separate interests, and
(c) "de facto control".
[20] After examining the testimony of Mr. Thompson I have concluded that Messrs. Thompson, Boose and Young had a "common mind" in their business dealings with Okanagan. I have also concluded that the evidence provided by Mr. Thompson indicates that he and his associates were dealing "in concert without separate interests" in their business dealings with Okanagan. It is also apparent that Messrs. Thompson, Boose and Young had "de facto control" of Okanagan.
[21] I have also compared the relevant facts in this appeal with the relevant facts in the Tax Court decision in Crawford and Co. v. Canada (Minister of National Revenue), [1999] T.C.J. No. 85. I have noted the following similar facts:
(a) Level of salaries
In Crawford, the Court looked at the level of salaries that the principals received as well as the relationship of those salaries to what would be paid in the marketplace and to other employees.
Mr. Thompson testified that he and Messrs. Boose and Young set their own salaries. His Honour Judge Porter referred to the setting of salaries by employees in Crawford and said: "This is not a hallmark of economic separation."
(b) Comparison of the salaries paid to the
employees to salaries paid in the marketplace
Mr. Thompson testified that the salaries which he and Messrs. Boose and Young were paid by Okanagan were well below what might be expected to be paid to a person employed by a similar truck dealership.
In Crawford, Porter J. referred to the fact that the employees received lower salaries than similar employees in the marketplace and said that this is another test of the non-arm's length status between the employees and the employer.
(c) Entrepreneurial desires
Mr. Thompson testified that he and Messrs. Boose and Young worked for Okanagan for the salaries that they received because they had the opportunity to run their own business.
Mr. Thompson said in his evidence:
We wanted to guide our own ship. We wanted to be the ones who had control. (Transcript, p. 24, lines 12-13.)
In Crawford, Porter J. said that entrepreneurial desires were an indication that the relationship between the employer and employees was not at arm's length.
(d) The salaries depended on business profitability
Mr. Thompson testified that when he and his associates set their salary they took into consideration the profitability of Okanagan.
In Crawford, Porter J. referred to the situation where the employee's salary depended on the profitability of the employer and said that this factor points to a non-arm's length arrangement between the employer and the employees.
(d) Vacation time
Mr. Thompson testified that he and Messrs. Boose and Young were able to arrange vacations as they wished but they were too busy to take a vacation. Mr. Thompson said that the other employees of Okanagan took their vacation on a regular basis.
Mr. Thompson testified that in the year 2000 he went to work for Okanagan on 339 days and in the 1999 year he worked a similar number of days for Okanagan. (Transcript, p. 35, lines 6-11.)
Porter J. noted in Crawford that the employees' work habits were not of the type that one would expect in an arm's length situation. I believe that a similar finding could be made with respect to the work habits of Messrs. Thompson, Boose and Young.
(e) Signing authority
In the present situation Messrs. Thompson, Boose and Young each had signing authority over the various bank accounts of Okanagan and could withdraw whatever funds they wanted at any time.
In Crawford, Porter J. referred to the fact that the employees had signing authority for the employer and said that persons operating at arm's length are generally unable to do this.
(f) Guarantees
Mr. Thompson testified that he and Messrs. Boose and Young had provided personal guarantees for any financial transactions with Freightliner. Mr. Thompson also testified that in 1999 the extent of the guarantees would be between three to five million dollars.
In Crawford, Porter J. referred to guarantees provided by the employees and said at paragraph 51:
It is doubtful in my view that employees dealing with the Corporation at arm's length would sign guarantees of this magnitude, or quite frankly, any guarantees at all.
At paragraph 57 of the Crawford judgment, Judge Porter said:
When I look at the evidence as it relates to Leslie Anderson, there clearly does not exist the type of adverse economic interest between him and the Appellant Corporation that would lead me to the conclusion that they were dealing at arm's length. There was an economic interdependence between him (and his partners, the Sharp brothers) and the Corporation. ...
In Crawford, Porter J. concluded his decision with the following words:
I am of the view that there did not exist between each of the workers in these appeals and the Appellant Corporation, the degree of adverse economic interest such that one could say that they were separate interests. Their economic interests were clearly linked so closely with those of the Corporation, that the latter could not be said to be acting with a separate mind. The same kind of bona fide negotiating that would take place between those traders, strangers in the marketplace, to which I referred above, was not present in these arrangements. There was not the kind of independence of thought or purpose between the Corporation and the three individuals that one could say that they were dealing with each other at arm's length. Accordingly, I hold that none of them were employed in insurable employment.
[22] In my opinion the facts in the Crawford case and the facts in the present appeal are virtually identical.
[23] I have carefully considered the sworn testimony of Mr. Thompson and the relevant documents. In my opinion it is clear that there was such a close interdependence between the Appellants and Okanagan that it cannot be said that they were dealing with each other on an arm's length basis in the years 1999 and 2000. It therefore follows that in 1999 and 2000 (the years subject to the ruling) the arrangement between the Appellants and Okanagan was not insurable employment within the meaning of subsection 5(1)(a) of the Employment Insurance Act because they were exempt by virtue of the wording contained in paragraph 5(2)(i) of the Act.
[24] The appeals are allowed and the decision of the Minister with respect to Ron Thompson, Robert Boose and Michael Young is vacated.
Signed at Vancouver, British Columbia, this 7th day of August 2002.
|
"L.M. Little" |
J.T.C.C.
COURT FILE NO.: 2002-787(EI)
STYLE OF CAUSE: Ron Thompson and
The Minister of National Revenue
PLACE OF HEARING: Kamloops, British Columbia
DATE OF HEARING: June 13, 2002
REASONS FOR JUDGMENT BY: The Honourable Judge L.M. Little
DATE OF JUDGMENT: August 7, 2002
APPEARANCES:
Counsel for the Appellant: Kenneth R. Hauser
Counsel for the Respondent: Jasmine Sidhu
COUNSEL OF RECORD:
For the Appellant:
Name: Kenneth R. Hauser
Firm: Hauser Law Corp.
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
COURT FILE NO.: 2002-788(EI)
STYLE OF CAUSE: Robert Boose and
The Minister of National Revenue
PLACE OF HEARING: Kamloops, British Columbia
DATE OF HEARING: June 13, 2002
REASONS FOR JUDGMENT BY: The Honourable Judge L.M. Little
DATE OF JUDGMENT: August 7, 2002
APPEARANCES:
Counsel for the Appellant: Kenneth R. Hauser
Counsel for the Respondent: Jasmine Sidhu
COUNSEL OF RECORD:
For the Appellant:
Name: Kenneth R. Hauser
Firm: Hauser Law Corp.
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
COURT FILE NO.: 2002-789(EI)
STYLE OF CAUSE: Michael Young and
The Minister of National Revenue
PLACE OF HEARING: Kamloops, British Columbia
DATE OF HEARING: June 13, 2002
REASONS FOR JUDGMENT BY: The Honourable Judge L.M. Little
DATE OF JUDGMENT: August 7, 2002
APPEARANCES:
Counsel for the Appellant: Kenneth R. Hauser
Counsel for the Respondent: Jasmine Sidhu
COUNSEL OF RECORD:
For the Appellant:
Name: Kenneth R. Hauser
Firm: Hauser Law Corp.
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada