BETWEEN:
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
____________________________________________________________________
Appeal heard on October 19, 2005 at Montréal, Quebec
Before: The Honourable S.J. Savoie, Deputy Judge
Appearances:
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____________________________________________________________________
JUDGMENT
The appeal is allowed and the Minister's decision is set aside in accordance with the attached Reasons for Judgment.
Signed at Grand-Barachois, New Brunswick, this 9th day of February 2006.
BETWEEN:
HEIDI KIRMAN,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
[1] This appeal was heard in Montréal, Quebec, on October 19, 2005.
[2] The Minister of National Revenue ("the Minister") has admitted that the appellant was employed under a contract of service by the Payer, Steve's Music Store, during the period in issue, which was from March 1, 2003, to April 9, 2004. However, the Minister determined that the appellant's employment was excluded from insurable employment because the appellant and her father Steve Kirman, the Payer's sole shareholder, were not dealing with each other at arm's length within the meaning of subsections 251 and 252 of the Income Tax Act and paragraph 5(2)(i) of the Employment Insurance Act, which reads as follows:
5. (2) Insurable employment does not include
. . .
(i) employment if the employer and employee are not dealing with each other at arm's length.
[3] Paragraph 5(3)(b) of the Act states what the Minister must do when faced with the issue of whether an employment is insurable under such circumstances. The provision reads as follows:
5(3) For the purposes of paragraph (2)(i),
. . .
(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..
[4] In making his decision, the Minister relied on the following assumptions of fact set out in paragraph 15 of the Reply to the Notice of Appeal:
(a) the Payer operated a musical instruments retail store since his incorporation on January 24, 1974;
(b) the head office of the Payer was located in Montreal;
(c) the Payer has around 75 employees in its office in Montreal;
(d) the Payer also operated two other stores located in Ottawa and Toronto;
(e) the Appellant started to work for the Payer in May 1994;
(f) at the beginning, she started to work as an office manager but in the last 3 years, she also worked as a project manager;
(g) as an office manager, the Appellant was in charge of the office staff, around 15 people, who took care of accounts receivable and payable, inventory, purchase orders, etc.;
(h) as a project manager, the Appellant's tasks were:
- conducting research on the possibility of opening new divisions of the store namely studying the marker, the existing stores, the supply and demand of different services and products;
-conducting research on new products to be sold or new services to be offered;
- planning and organizing the opening of new divisions;
- planning the layout and structure of new divisions within existing stores;
(i) she worked as a full-time employee, Monday to Friday, from 10:00 a.m. to 6:00 p.m.;
(j) she worked 35 hours per week;
(k) as per the declaration of the controller of the Payer, the Appellant worked 4 days per week in the office and, a day per week, she was on the road;
(l) as per the Appellant's declaration, she worked 30% of her time in the office and 70% of her time on the road;
(m) in 2003, the Appellant received a salary of $600 per week;
(n) in 2003, she also received a bonus of $40,000;
(o) the payroll records book and the Record of Employment indicate that the Appellant received a total salary of $71,200 whereas the T4 slip indicated a total salary of $73,384 in 2003;
(p) she was the only employee of the Payer who received a bonus in 2003;
(q) the bonus check [sic] was issued on July 25, 2003, but was only cashed on January 15, 2004;
(r) the Appellant stopped, on April 9, 2004, in order to take her maternity leave;
(s) during her maternity leave (anticipated to be for 1 year), nobody was hired by the Payer to replace the Appellant in her tasks;
(t) considering her responsibilities and workload of 35 hours per week, the Appellant's annual salary was not reasonable.
[5] The appellant admitted to the presumptions of fact set out in subparagraphs (a) through (i) and subparagraphs (k), (l), (n), (q) and (r), and denied all the others.
[6] The appellant has been employed by the Payer since 1994. She was hired as an office manager. For the past three years, she has also been a special project manager. She studied communications at Vanier Collegeand has a diploma in interior design from LaSalleCollege. She is employed full-time by the Payer and works from Monday to Friday, 10 a.m. to 6 p.m., for a minimum of 35 hours per week, often more. She is entitled to three weeks of paid vacation per year.
[7] As a special projects manager, the appellant conducts market studies on existing businesses and analyses supply and demand data for various products and services in the context of her research, the objective of which is to launch new sectors of business for the company.
[8] The appellant conducts studies regarding new products to sell or new services to offer. She is also in charge of the structure, placement and shelving of new sectors in existing stores. Since she began in this position, she has implemented studio equipment and brass instrument departments within the company, as well as a repair department. Among other things, she was in charge of the expansion of the books, clothing and gift departments. It has also been established that the appellant, in collaboration with the Payer's accountant, looked after the human resources and finance sector, having received training in this area from the accountant.
[9] Counsel for the appellant submits that the Minister misinterpreted the facts that were obtained, that he made his decision hastily, that his investigation was incomplete and that this Court heard contradictory evidence. In addition, he submits that the facts on which the Minister relied are incorrect.
[10] The evidence establishes that the appellant was nervous at an interview and cried there, and that it was not possible to obtain all the details. Certain information that was being sought was obtained later from the affidavit of Steve Kirman, the appellant's father and the Payer's sole shareholder. The affidavit constitutes the schedule to the Notice of Appeal, Exhibit A-1.
[11]Certain facts were brought to light at the hearing that not been brought to the Minister's attention. These include the $40,000 bonus that the appellant received in 2003. The Minister claimed the appellant was the only person who received a bonus in 2003. However, at the hearing, the Payer's accountant revealed that 19 employees were given bonuses in 2003. According to the accountant, the bonuses were the Payer's recognition of the company and employee's performance. Bonuses are not automatic, and are not in the order of $40,000 each time.
[12]The Minister attached a great deal of importance to the fact that the appellant's remuneration was higher than the accountant's once her bonus was included. However, the evidence discloses that 13 of the Payer's employees earned more than the accountant. In addition, the appellant noted that she joined the Payer in 1994, whereas the accountant was hired in 1999.
[13]The evidence shows that the appellant's salary of $600 per week was her base salary, to which other forms of compensation, including the bonus, were added.
[14]With respect to the discrepancies pertaining to her salary, based on the payroll journal and her Record of Employment, these discrepancies were clearly explained in Exhibit A-3, which was produced at the hearing.
[15]Contrary to the information collected by the investigators, the evidence discloses that the Payer did indeed hire other people during the appellant's leave, but admits that it was difficult to find replacements with the appellant's qualifications. Accordingly, the Payer distributed the appellant's duties to other employees, with the accountant assuming any duties that involved confidential and special matters.
[16]The Payer had determined that the temporary replacements should not have to be given training.
[17]Danielle Lacoste, the eligibility officer with the Canada Customs and Revenue Agency, testified at the hearing and submitted the computerized version of her decision as Exhibit R-6. In her report, she states, among other things, as follows:
[TRANSLATION]
I do not believe that the worker's duties warrant such a salary. In fact, she had trouble providing me with specifics regarding her exact duties. The controller confirmed that he would not pay the same salary to an unrelated person. In addition, the worker will not be replaced for the duration of her leave.
[18]I have already dealt with the second assertion in this statement. With regard to the first one, Ms. Lacoste was asked during her cross-examination whether she had consulted other people in the industry to reach such a conclusion. She replied that she had not. Obviously, her opinion would have had much more probative value if it had been the product of research or if she had cited provincial or federal statistics, which do exist.
[19]The Minister concluded that there was a contract of service between the Payer and the appellant, but he determined that since the parties were not dealing with each other at arm's length (as the appellant is the daughter of the Payer's sole shareholder) the appellant's employment was excluded from insurable employment by virtue of paragraph 5(2)(i) of the Act. In circumstances of this kind, it is the Minister's responsibility to analyse the worker's employment based on the mandate conferred to him by paragraph 5(3)(b) of the Act, which reads as follows:
(3) For the purposes of paragraph (2)(i),
. . .
(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.
[20]Consequently, the appellant asks that this Court reverse the Minister's decision.
[21]The Federal Court of Appeal prescribed the parameters of this Court's jurisdiction and power in Légaré v. Canada(Minister of National Revenue -M.N.R.), [1999] F.C.J. No. 878, where Marceau J.A. stated as follows:
The Act requires the Minister to make a determination based on his own conviction drawn from a review of the file. The wording used introduces a form of subjective element, and while this has been called a discretionary power of the Minister, this characterization should not obscure the fact that the exercise of this power must clearly be completely and exclusively based on an objective appreciation of known or inferred facts. And the Minister's determination is subject to review. In fact, the Act confers the power of review on the Tax Court of Canada on the basis of what is discovered in an inquiry carried out in the presence of all interested parties. The Court is not mandated to make the same kind of determination as the Minister and thus cannot purely and simply substitute its assessment for that of the Minister: that falls under the Minister's so-called discretionary power. However, the Court must verify whether the facts inferred or relied on by the Minister are real and were correctly assessed having regard to the context in which they occurred, and after doing so, it must decide whether the conclusion with which the Minister was "satisfied" still seems reasonable.
[22]The appellant had the burden of proving that the facts on which the Minister relied in making his decision were not real. In my opinion, she has discharged this burden.
[23]According to Marceau J.A. in Légaré, supra, this Court "must verify whether the facts inferred or relied on by the Minister are real and were correctly assessed having regard to the context in which they occurred, and after doing so, it must decide whether the conclusion with which the Minister was "satisfied" still seems reasonable."
[24]Based on this analysis, and by reason of the evidence obtained at the hearing, this Court must find that the conclusion with which the Minister was satisfied no longer seems reasonable.
[25]Thus, the appellant was employed in insurable employment with the Payer because it is reasonable to conclude, 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, that the appellant and the Payer would have entered into a substantially similar employment contract if they had been dealing with each other at arm's length.
[26]Consequently, the appeal is allowed and the Minister's decision is set aside.
Signed at Grand-Barachois, New Brunswick, this 9th day of February 2006.
"S.J. Savoie"
Savoie, D.J.
STYLE OF CAUSE: Heidi Kirman and M.N.R.
PLACE OF HEARING: Montréal, Quebec
DATE OF HEARING: October 19, 2005
REASONS FOR JUDGMENT BY: The Honourable S.J. Savoie, Deputy Judge
DATE OF JUDGMENT: February 9, 2006
APPEARANCES:
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Counsel for the Appellant: |
Alfredo Mancini
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Counsel for the Respondent: |
Marie-Aimée Cantin |
COUNSEL OF RECORD:
For the Appellant:
Firm: Kaufman Laramée
Montréal, Quebec
For the Respondent: John H. Sims, Q.C.
Deputy Attorney General of Canada
Ottawa, Ontario