2001-203(EI)
BETWEEN:
BARBARA GEORGE,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Appeal heard on October 23, 2001 at Sydney, Nova Scotia, by
the Honourable Deputy Judge Murray F. Cain
Appearances
Agent for the Appellant: Michel Samson
Counsel for the Respondent: Christa MacKinnon
JUDGMENT
The appeal is dismissed and the decision of the Minister is confirmed in accordance with the attached Reasons for Judgment.
Signed at Rothesay, New Brunswick, this 7th day of January 2002.
|
"Murray F. Cain" |
D.J.T.C.C.
Date: 20020107
Docket: 2001-203(EI)
BETWEEN:
BARBARA GEORGE,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Cain, D.J.T.C.C.
[1] This is an appeal by the Appellant from the decision of the Respondent dated November 1, 2000 that the employment of the Appellant by Harold George (the "Payor"), operating as St. Peters Irving, from June 22, 1998 to December 12, 1998 and from January 25, 1999 to December 3, 1999 (the "periods in question") was not insurable employment for the following reasons:
(a) the Appellant was not employed pursuant to a contract of service within the meaning of paragraph 5(1)(a) of the Employment Insurance Act (the "Act");
(b) the Appellant's employment was excepted employment as the Appellant and the Payor were not dealing with each other at arm's length within the meaning of paragraph 5(2)(i).
[2] The Respondent based his decision on the following assumptions of fact:
(a) the Payor began leasing an Irving service station in March, 1998 which sells gas and parts as well as offering the services of a mechanic;
(b) the service station is open for business 12 to 14 hours per day, 7 days per week, 52 weeks per year;
(c) the Appellant is the Payor's spouse;
(d) the Appellant did the Payor's bookkeeping and her duties included payroll and related remittances, HST remittances, accounts receivable and payable and whatever else needed to be done;
(e) the Appellant performed her duties from a spare room in their family home;
(f) the Appellant was not required to report for work at the Payor's business location and he delivered the bookkeeping records to the Appellant at their family home;
(g) the Appellant was not required to work specified hours or days and she determined when and how she would perform her duties;
(h) the Appellant was not subject to review or supervision by the Payor;
(i) prior to the initial payroll period, the Appellant performed bookkeeping duties for the Payor without remuneration;
(j) between payroll periods the Appellant continued to perform the Payor's bookkeeping duties without remuneration;
(k) during the calendar year 1999 the Appellant continued to perform the Payor's bookkeeping duties without remuneration during those weeks where she is not included on the Payor's payroll;
(l) the Appellant performed the Payor's bookkeeping duties year round regardless of whether she was on the payroll or not;
(m) the Payor did not have sufficient funds available to pay the Appellant for all the duties she performed;
(n) the Appellant was in receipt of employment insurance benefits while not on the Payor's payroll;
(o) the Payor subsidized his bookkeeping costs with employment insurance benefits;
(p) the Appellant was included on the Payor's payroll based on the qualifying requirements for employment insurance benefits rather than on the Payor's need for her services;
(q) there was no contract of service between the Appellant and the Payor;
(r) the Appellant was related to the Payor within the meaning of the Income Tax Act;
(s) the Appellant was not dealing with the Payor at arm's length;
(t) 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 Payor 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 admitted assumptions (a) to (c) inclusive, (e), (n) and (r) but denied every other assumption hereinabove set out.
FACTS
[4] From the evidence adduced by the Appellant and the facts set out in the Appellant's Notice of Appeal which were admitted by the Respondent in his Reply, the Court makes the following findings of fact.
[5] In March of 1998, the Payor commenced business as a garage and service station at St. Peters, Nova Scotia.
[6] From March to June of that year, his wife, the Appellant, performed the services of a bookkeeper without remuneration.
[7] In June the Payor engaged her to perform the same services at the rate of $10.00 per hour. Most of her duties were performed at home and the Appellant decided what hours she would work. From time to time during the periods in question she would perform odd tasks for the station without remuneration. She also performed these and other services for the Payor outside of the periods in question without remuneration.
[8] Her duties included posting to the general ledger and payroll ledger; preparing the payroll and cheques; preparing HST remittances and paying bills.
DECISION
[9] The Appellant was represented by a Member of the Legislative Assembly of Nova Scotia (the "Agent") who is also a lawyer by profession. However the Agent advised the Court that there was no solicitor-client relationship between he and the Appellant and he was appearing only in an agency capacity.
[10] The Agent, at the outset of the hearing, objected to the use of an unspecified statutory declaration allegedly made by the Appellant to a representative of Human Resources Development Canada on the basis that the taking of the statement violated the Canadian Charter of Rights and Freedoms. Counsel for the Respondent cited authorities in support of its taking and use at trial. The Agent offered nothing in reply. The Court, familiar with the jurisprudence in support of the Respondent's submission, ruled that the declaration, if made by the Appellant, would be admissible if proposed by the Respondent.
[11] The Appellant called only the Payor in support of her appeal. Generally his evidence supported the facts hereinabove found and in particular he admitted that from time to time both during and outside of the periods in question the Appellant performed services without remuneration. He testified that she had no specific hours of work and that he did not consider work performed, while she was not on the payroll, as employment. He testified that he did not pay her for the period March to June of 1998 as she was doing the work, without remuneration, to help him start up the business.
[12] No documentary evidence or other evidence was introduced by which the Court might have tracked the performance of the Appellant and in particular the amount of work required to perform her duties.
[13] The Payor testified that he kept a record of the Appellant's hours of work on slips of paper, gave that information to the Appellant and then destroyed them. This contradicted the Appellant's admission in her Notice of Appeal that she kept her own hours of work.
[14] The fact found by the Court support assumptions (f), (g), (i), (j), (k), and (l) that were denied by the Appellant.
[15] The Appellant closed her case without calling any additional evidence although she was present in Court.
[16] The Respondent at the opening of his case called the Appellant. The Agent objected on the grounds that she was not compellable. The Court ruled that she was present and compellable. The Respondent withdrew her request and submitted that she would rely on the adverse inference that the Court should draw as a result of her failure to testify. The Respondent closed his case without calling any evidence.
[17] In Hickman Motors Limited v. The Queen, [1997], 2 S.C.R. 336, the Supreme Court of Canada outlined the principles applicable when a person challenges the assumptions made by the Minister of National Revenue. In that case the Court was dealing with assumptions made by the Minister in making an assessment in a tax matter. The principles apply equally well to assumptions made by the Minister in a ruling under the Act. L'Heureux Dubé J. said at p.378:
It is trite law that in taxation the standard of proof is the civil balance of probabilities ... and that within balance of probabilities, there can be varying degrees of proof required in order to discharge the onus, depending on the subject matter ... The Minister, in making assessments, proceeds on assumptions ... and the initial onus is on the taxpayer to "demolish" the Minister's assumptions in the assessment ... The initial burden is only to "demolish" the exact assumptions made by the Minister but no more ...
This initial onus of "demolishing" the Minister's exact assumptions is met where the appellant makes out at least a prima facie case ...The law is settled that unchallenged and uncontradicted evidence "demolishes" the Minister's assumptions...
Where the Minister's assumptions have been "demolished" by the appellant, "the onus ... shifts to the Minister to rebut the prima facie case" made out by the appellant and to prove the assumptions ...
Where the burden has shifted to the Minister, and the Minister adduces no evidence whatsoever, the taxpayer is entitled to succeed ..."
[18] A prima facie case is one supported by evidence which raises such a degree of probability in its favour that it must be accepted if believed by the Court unless it is rebutted or the contrary is proved. It may be contrasted with conclusive evidence that excludes the possibility of the truth of any other conclusion than the one established by that evidence.
[19] To satisfy the obligation of demolishing the assumptions of the Respondent, the Appellant was required to call sufficient evidence to establish a prima facie case. There is a well recognized rule of evidence that the failure of a party or witness to give evidence, which was in the power of the party or witness to give and by which the facts might have been elucidated, justifies the court in drawing the inference that the evidence of the party or witness would have been unfavourable to the party to whom the failure was attributed. The party against whom the inference operates may explain it away by showing circumstances that prevented the production of such a witness. (Murray v. Saskatchewan, [1952] 2 D.L.R. 499, at pp. 505-506)
[20] The Appellant was present in Court and she was a compellable witness. No explanation was offered as to why she was not being called. These two facts justify the Court in inferring that her evidence would have been unfavourable to her appeal. The evidence of the Payor did not demolish the assumptions on which the Minister could reasonably find that that employment of the Appellant was excepted employment within the provisions of the Act. The Appellant failed to establish a prima facie case and her appeal must be dismissed.
[21] The Appellant was not represented by counsel and although her agent was a lawyer she did not have official legal representation. The Court should therefore explain in some detail the reason why her employment was excepted under the Act.
[22] Subsections 5(2) and 5(3) of the Act read as follows:
(2) 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 purpose 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; and
(b) if the employer is, within the meaning of that Act, related to the employee, they are 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."
[23] Section 251 of the Income Tax Act reads in part as follows:
"Section 251. Arm's length.
(1) For the purposes of this Act,
(a) related persons shall be deemed not to deal with each other at arm's length; and
(b) 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.
(2) Definition of "related persons". For the purpose of this Act, "related persons", or persons related to each other, are
(a) individuals connected by blood relationship, marriage or adoption;
...
[24] The application of the jurisprudence in respect to the principles applicable to non-arm's length transactions under the Income Tax Act of Canada were canvassed extensively in a judgment of this Court in Parrill v. Canada (Minister of National Revenue-M.N.R.), [1996] T.C.J. No. 1680, Court files Nos. 95-2644(UI) & 95-2649(UI) inclusive by Cuddihy T.C.J. which judgment was affirmed by the Federal Court of Appeal, [1998] F.C.J. No. 836 DRS 98-16759.
[25] The learned Judge concluded from an examination of the relevant authorities that parties are not dealing with each other at arm's length when the predominate consideration or the overall interest or the method used amount to a process that is not typical of what might be expected of parties who are dealing with each other at arm's length. He further stated that parties are not dealing with each other at arm's length if there is the existence of a common mind that directs the bargaining for both parties to a transaction; or that the parties to a transaction are acting in concert without separate interests; or that either party to a transaction did or had the power to influence or exert control over the other; and that the dealings of the parties are not consistent with the object and the spirit of the provisions of the law and they do not demonstrate a fair participation in the ordinary operation of the economic forces of the market place (See Attorney General of Canada v. Rousselle et al. 124 N.R. 339).
[26] The learned Judge concluded that the existence of a combination of one or several of these initiatives that would be inconsistent or interfere, in due process negotiating between employer and employee and with the intent of the legislation, will not survive the arm's length test. The Court is also bound to insure, in analyzing all the circumstances and the accepted evidence, that the parties are not defeating the purpose of the legislation. (See Tanguay v. Unemployment Insurance Commission (1986) 68 N.R. 154.
[27] The relationship created by the Payor and the Appellant cannot survive the above test. The parties agreed that from March to June the Appellant would work without remuneration, that she would be paid for a period that satisfied the minimum requirements that would qualify her to be entitled to benefits under the Act and she worked without remuneration outside the periods in question. There was present a common mind directing the bargaining between the Appellant and the Payor and they were acting in concert without separate interests.
[28] The process of structuring the salaries in the way described is not in keeping with what might be expected of a true arm's length relationship that should demonstrate the real ordinary operation of the economic forces of the market place unhindered by arrangements or transactions that are not consistent with the object or intent of the law.
[29] The special provisions of the Act, relating to the employment of relatives, are restrictive and the principle of arm's length relationship is difficult to grasp by the majority of law persons.
[30] When the Unemployment Insurance Act (the forerunner of the Act) was enacted, relatives were disqualified from drawing benefits even if the work was at arm's length. Subsequently the Act was amended to permit relatives to receive benefits provided that their employment status could meet the arm's length test.
[31] A relative, who works and is paid during a period in question, like the Appellant did in this case, may not qualify for benefits under the Act. In the case at bar the Appellant did work and was paid. But she also worked both before during and after the periods in question without remuneration. In order to qualify for benefits, the Appellant must have been able to show that the Payor would have been able to employ a stranger for the full term during which she worked, that is, both before during and after the periods in question, under the same terms and for the same remuneration. She failed to establish such a relationship by cogent evidence.
[32] It was reasonable for the Respondent to find that a stranger would not have worked without remuneration from March to June and to continue to work without remuneration during and outside of the periods in question.
[33] The benefits under the Act are designed for those persons who are gainfully employed and become unemployed because of lack of work or for some specific reason permitted by the Act. A person is not permitted by design to create employment for the purpose of ultimately qualifying for benefits. Such a scheme is not consistent with the purposes and aims of the legislation. In Tanguay (supra) Pratte J. quoting Donaldson L.J. in describing the purpose and intent of employment insurance said at p. 157:
In my judgment it is crucial to reaching a decision on this appeal to remember that this is an insurance scheme, however it may be funded, and that it is an insurance against unemployment. It is of the essence of insurance that the assured shall not deliberately create or increase the risk. (the underlining is the Court's)
[34] The Respondent came to the conclusion that the periods in question were created by the Appellant for the sole purpose of permitting her to qualify for benefits under the Act. The Court finds that on the evidence such a conclusion was justified.
[35] The Court finds that during the periods in question there was no contract of service. The relationship between the Payor and the Appellant was more akin to one of partnership.
[36] In the alternative if a contract of employment did exist, the employment created thereunder was not at arm's length and is thereby excepted employment under the Act.
[37] The appeal is dismissed and the decision of the Respondent is confirmed.
Signed at Rothesay, New Brunswick, this 7th day of January 2002.
|
"Murray F. Cain" |
D.J.T.C.C.
COURT FILE NO.: 2001-203(EI)
STYLE OF CAUSE: Barbara George and M.N.R.
PLACE OF HEARING: Sydney, Nova Scotia
DATE OF HEARING: October 23, 2001
REASONS FOR JUDGMENT BY: Honourable Deputy Judge Murray F. Cain
DATE OF JUDGMENT: January 7, 2002
APPEARANCES:
Agent for the Appellant: Michel Samson
Counsel for the Respondent: Christa MacKinnon
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada