Date: 19980702
Docket: 96-1815-UI
BETWEEN:
CLAUDE GUAY o/a GARAGE CLAUDE GUAY,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
PRÉVOST, D.J.T.C.C.
[1] This appeal was heard at Québec, Quebec on June 2, 4 and 5, 1998.
[2] It is from a decision by the Minister of National Revenue ("the Minister") dated June 13, 1996 that Marguerite Guay's employment with Claude Guay, owner of Garage Claude Guay, the payer, from January 14, 1993 to February 28, 1995 was not insurable because it was employment in which the employee and employer were not dealing with each other at arm's length.
[3] Paragraphs 5, 6, 8, 9, 10, 11 and 12 of the Reply to the Notice of Appeal read as follows:
[TRANSLATION]
5. In arriving at his decision the respondent Minister of National Revenue relied inter alia on the following facts:
(a) during the period at issue the appellant was operating a business selling and repairing used cars; (A)
(b) the appellant's sales amounted to $233,589.11 in 1993, $207,160.33 in 1994 and $153,134.26 in 1995; (A)
(c) the worker is the appellant's spouse; (A)
(d) the appellant's place of business is 795 Chemin Pintendre in St-Louis de Pintendre; (A)
(e) the worker worked primarily in an office set up in the family home at 878 Rue Robertson in St-Louis de Pintendre; (ASA)
(f) the worker was the appellant's sole employee; (A)
(g) the worker began working for the appellant in the early 1980s but was paid only beginning in 1987; (DAD)
(h) until July 1993 a large share of the appellant's sales were under a contract with the Wawanesa insurance company for the recovery of damaged cars; (A)
(i) the worker's duties consisted primarily of answering the telephone, preparing bids for Wawanesa, keeping the payroll, completing records for the sale and purchase of cars and making remittances to the government; (A)
(j) during the period from January 14, 1993 to January 14, 1994, the worker worked for the appellant full time; (A)
(k) during that period the worker was paid $400 a week; (A)
(l) the worker claims that she worked only one week a month during the period from January 14, 1994 to February 28, 1995, whereas she in fact continued working every week, but for a smaller number of hours; (DAD)
(m) the worker's working hours were neither supervised nor recorded; (DAD)
(n) during this period the worker was paid $400 a month; (A)
(o) since May 1996 the worker has continued to work for the appellant without pay. (ASR)
6. At this stage of the proceedings the respondent admits that the worker held insurable employment in the period from January 14, 1993 to January 14, 1994 when she was working for the appellant full time.
. . .
8. At this stage of the proceedings the respondent contends that the worker held insurable employment from January 14, 1993 to January 14, 1994 pursuant to s. 3(1)(a) of the Act.
9. With respect to the period from January 14, 1994 to February 28, 1995, the respondent maintains that the employment held by the worker was excepted from insurable employment on the ground that the appellant and the worker were not dealing with each other at arm's length within the meaning of s. 3(2)(c) of the Act and ss. 251 and 252 of the Income Tax Act.
10. The respondent maintains that he properly exercised his discretionary authority under s. 3(2)(c) of the Act.
11. The respondent maintains that the worker's working conditions in the period between January 14, 1994 and February 28, 1995 would not have been similar if she and the appellant had been dealing with each other at arm's length.
12. The respondent accordingly maintains that the worker did not hold insurable employment within the meaning of the said Act during the period from January 14, 1994 to February 28, 1995.
[4] In the foregoing text of paragraph 5 of the Reply to the Notice of Appeal the Court has indicated, in parentheses after each subparagraph, the comments made by counsel for the appellant at the start of the hearing:
(A) = admitted
(ASA) = admitted subject to amplification
(DAD) = denied as drafted
(ASR) = admitted subject to relevance
Paragraph 6 is of course also admitted.
Appellant's evidence
According to him:
[5] He has been a garage operator for a long time and is also involved in transportation.
[6] His wife began working for him when he had the Wawanesa contract, which he kept for 13 years.
[7] Under that contract he picked up damaged vehicles at various locations, including places as far away as Gaspé, Baie-Comeau and Sept-Îles.
[8] He absolutely had to have someone to answer the telephone, among other things, and he hired his wife for this.
[9] He might be on the road for two or three days in a given week.
[10] At the time of the contract with Wawanesa he sometimes worked from 60 to 70 hours a week.
[11] In addition to working for Wawanesa he bought cars and resold them.
[12] On July 9, 1993 he lost the contract with Wawanesa: three quarters of his business was lost as a result.
[13] He continued buying and selling cars and also did repair work.
[14] As a result at one point he had to reduce his wife's work to one week a month.
[15] His wife did his accounting and handled billing and bill payment under his supervision and control.
[16] He has only a grade 6 education, cannot write a letter and, as he is uncomfortable with numbers, cannot do his accounting.
[17] In 1994 his sales dropped and he did not make any money.
[18] In 1996 he even lost money.
[19] From 1994 onwards his wife always had one paycheque a month.
[20] He still worked 60 hours a week but no longer went out of town.
[21] The appellant's accountant is Pierre Cantin, C.G.A., and it is Mr. Cantin who prepares his tax returns. It is the appellant's wife, who studied accounting and is accordingly qualified to do accounting work, who communicates with Mr. Cantin.
[22] The appellant can read quite easily, depending on the words that are used.
[23] In 1993, ever after the loss of the Wawanesa contract, his wife continued working for him full time as he was doing more repair work and his outstanding business with the insurer had to be wound up.
[24] Automobile dealers in the area called him and he went to look at used cars they wanted to get rid of, bought some and then resold them to his own customers.
[25] His wife handled the paperwork and, among other things, bank deposits.
[26] She generally worked at home and in the garage from 8:00 a.m. to 5:00 p.m.
[27] In 1994, however, she worked at home and so had greater freedom: she could do housework during the day and did most of her work in her paid week.
[28] She also did some paperwork in the other weeks; with a few rare exceptions, bank deposits could generally wait till the end of the month.
[29] An initial record of employment (Exhibit I-1) gives December 31, 1994 as the [TRANSLATION] "end of the last pay period", indicates that the termination was due to a lack of work and gives January 25, 1994 as the [TRANSLATION] "first day worked". It was signed on February 21, 1995.
[30] A second record (also Exhibit I-1) gives January 1, 1995 as the first day worked and February 28, 1995 as the last day. It gives the same reason, is dated March 2, 1995 and mentions only two weeks of work.
[31] The appellant's wife prepared both these records and submitted them to the unemployment insurance office.
[32] If she had been paid full time from 1994 on the appellant's profits would have been reduced accordingly.
According to Marguerite Guay:
[33] She began working for her husband when the Wawanesa contract started.
[34] She took a bookkeeping course until 1991.
[35] During the term of the Wawanesa contract she took most of the telephone calls and kept a record for each damaged car, indicating the resale price and so on.
[36] She also kept the books for her husband's used car business.
[37] The Wawanesa account took up three quarters of her time and she sometimes even had to do more than her 40 hours' work a week.
[38] She managed the business's bank account, remitted taxes, made deposits, made up cheques and looked after the payroll.
[39] When the Wawanesa contract was lost, she continued working for her husband but her work was reduced by 75 percent.
[40] After January 14, 1994 she only [TRANSLATION] "did" one week a month for 30 hours' work and also worked 10 more hours for her husband when she was not on the payroll.
[41] It can be seen from the 1994 payroll journal (Exhibit A-1) that she was paid for 13 weeks of work in that year.
[42] It was Mrs. Guay who made up the operations ledger (Exhibit A-2) for 1994; she did this during her paid week.
[43] The deposit ledgers (Exhibit A-3) show that it was she who completed them.
[44] On average they indicate three deposits a month, but there were more at the time of the Wawanesa contract.
[45] During the term of that contract, she had to meet with the insurer's claims adjusters, which took up quite a lot of her time.
[46] Ordinary contracts to purchase and sell used cars are easier to complete.
[47] Mrs. Guay submitted both her records of employment to the unemployment insurance office at the same time.
[48] In 1994 the business did not run at a loss, but after that business dropped off each year and she could easily do the work at home.
[49] When she went to the unemployment insurance office for the first time, she was told she was two weeks short, and when she went back there again she had her two records of employment.
[50] It is true that the payroll journal (Exhibit A-1) does not give a breakdown of her hours worked each day: she [TRANSLATION] "did" hours depending on the work to be done, but generally from 8:00 a.m. to 5:00 p.m.
[51] She owned the house where the office was located, but the garage did not pay her rent.
[52] She made two claims for unemployment insurance benefits (Exhibits I-2 and I-3), one on January 24, 1994 and another on January 5, 1995: both indicated that she stopped working for lack of work.
[53] Folio number 852, which is that of her husband's bank account, appears after her signature on the back of all but one of her paycheques (Exhibit I-4). The number of her personal account appears on the other.
[54] In the course of the hearing there was an admission that if the manager of the Caisse populaire where the payer did business were to testify, she would say that to her knowledge Marguerite Guay's paycheques were not redeposited in folio number 852.
Also according to Marguerite Guay:
[55] After the summer of 1993, her husband's garage no longer had to process the files opened for the Wawanesa account.
[56] The reason she was still receiving her full salary from August to December was that she still had enough work to do, as sales did not start to fall off until 1994.
According to Pierre Cantin:
[57] He has now been the appellant's accountant for over 20 years.
[58] Until the Wawanesa contract was lost he went to the appellant's premises four times a year, but he subsequently went there only twice a year.
[59] If there were problems, it was the appellant's wife who communicated with him.
[60] The income statement (Exhibit A-4) indicates a net profit of $21,165.75 at December 31, 1993, with $23,143.58 under the heading [TRANSLATION] "salaries and fringe benefits". At December 31, 1994 it shows a net profit of $19,070.54 with $5,712.70 under the same heading, while at December 31, 1995 it shows a net profit of $1,788.03 with $5,322 under the same heading.
[61] The loss of the contract with Wawanesa was a turning point for the business, as that contract generated the most accounting entries and papers, to meet the insurer's requirements.
[62] Mr. Cantin even had to approach Wawanesa on the payer's behalf to try to simplify the paperwork it required of his client.
[63] In 1994 all that Marguerite Guay had left to do was to process contracts for the sale and purchase of cars, but it was still impossible for the payer to operate without his wife's help as comptroller.
[64] Mrs. Guay had the necessary qualifications and one week a month was sufficient to do the work required.
[65] Moreover, the appellant could not have done the paperwork himself.
[66] There was considerable competition in this business and the area was full of small garages like his.
[67] The reason the payer lost Wawanesa was that the insurer wanted to have a single entity for all of Quebec.
[68] Marguerite Guay told Mr. Cantin that Wawanesa had offered her husband an extended contract such as this but that it was really too big for such a small business.
[69] Paycheques (Exhibit I-4) were not redeposited in the payer's account as Mr. Cantin checked all the transactions and would soon have seen if this was the case.
[70] In the book of account (Exhibit A-5) for 1993 there are three pages of entries in January 1993, while the same journal (Exhibit A-2) for 1994 has only a page and a quarter of such entries.
[71] The book of account for 1995 (Exhibit A-6) does not even have a full page of entries for January of that year.
[72] The Wawanesa contract [TRANSLATION] "brought with it" something else, namely the opportunity to buy vehicles more easily than in the open market.
According to the payer, heard again:
[73] The population of Pintendre is 6,000, and there are about 10 small garages like his own.
[74] The respondent did not call any witnesses.
Argument
According to counsel for the appellant:
[75] Marguerite Guay is qualified as an accounting clerk and was paid for her work and her qualifications.
[76] After the end of the Wawanesa contract, she had to wind up all outstanding business.
[77] Her weeks of employment were then reduced, which was also true of the business's activities.
[78] The Wawanesa contract generated considerable paperwork.
[79] The Minister changed his mind when he admitted in paragraph 6 of the Reply, reproduced above, that the worker held insurable employment from January 14, 1993 to January 14, 1994 when she was working for the appellant full time, despite the fact that they were not dealing with each other at arm's length.
[80] In paragraph 9 thereof, however, he relied on this same fact for the subsequent period.
[81] What is the reason for this change of attitude by the Minister?
[82] Even after January 14, 1994 Marguerite Guay did her work: she was paid her salary, which was not redeposited in the payer's account.
[83] Her experience was proven, according to Pierre Cantin she did good work, and her work was necessary to the business.
[84] If her salary had been $23,143.58 in 1994 as in 1993, the net profit of $19,070.54 would have been reduced almost to nothing.
[85] Her weekly earnings were not excessive, and there was control.
[86] As to the work tools, these were only pencils, so this test is not relevant.
[87] There was no participation in profits and losses, as Marguerite Guay was paid only a salary.
[88] There was integration.
[89] In her first claim for benefits she indicated that the payer was her husband, but she received benefits anyway.
[90] During the only period now at issue she [TRANSLATION] "did" 30 hours in her paid week and 10 hours in the rest of the month.
[91] These people are not specialists in industrial management, but they worked out this arrangement and there is nothing wrong with it.
[92] She did the same thing in 1994 as in 1993, but the volume of business had dropped off considerably.
[93] She had been working like this for her husband for 13 years; he worked 60 hours a week, and her job was necessary.
[94] The Minister changed his mind for the first year and should have done the same for the second.
[95] In 1993 the Wawanesa contract had to be terminated, and when business drops off expenses are usually not cut back at once, as there is always hope of recovery, through repair work in the instant case.
[96] In unemployment insurance matters decisions must always be made on a case-by-case basis.
[97] In Johanne Caron v. M.N.R. (92-1056(UI)), Judge Tremblay of this Court wrote (at p. 4):
[TRANSLATION]
The appellant, who has been helping her spouse in this work since 1981, is familiar with this activity and is in a position to deal effectively with customers.
The same is true in the instant case.
[98] He also wrote (at p. 5):
[TRANSLATION]
Mr. Caron said that he has no talent for figures. If his wife was ill, he absolutely had to have another secretary at least to answer the telephone, receive customers and keep the books.
Here again, the same is true in the instant case.
[99] He also wrote (at p. 7):
[TRANSLATION]
It can be seen from the evidence as a whole that the appellant's work was not fictitious but real. The detailed description she gave of it leaves no doubt as to the work done. Further, the good faith and credibility of the witnesses have not been questioned by anyone, including counsel for the respondent.
Moreover, the work done was absolutely necessary to the payer in light of its four competitors . . . and the fact that the president of the payer worked from 8:00 a.m. to 8:00 p.m.
The same is true in the instant case.
[100] In Charlene Derkson v. M.N.R. (93-438(UI)), Judge Kempo of this Court wrote (at p. 7):
Based on the evidence, and having due regard to all of the aforenoted circumstances of the employment including the remuneration paid, the terms and conditions of the employment and the duration and nature and importance of the work performed, the Court finds that it is reasonable to conclude that the Appellant, and her husband operating through his sole proprietorship, would have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length.
The same conclusion applies here.
[101] In Barbara Cockwill v. M.N.R. (91-317(UI)), Judge Beaubier of this Court wrote (at p. 4):
The result is that the Court finds that Barbara Cockwill was engaged in insurable employment . . . .
Before this, his had written (at p. 2):
Barbara Cockwill's salary is determined by the accountant of the corporation based upon the profits of the corporation . . . .
[102] In the instant case the salary of the appellant's wife was fixed and was the same for all the weeks.
[103] In Linda Grégoire v. M.N.R. (87-728(UI)), Judge Lamarre Proulx of this Court wrote (at p. 6):
It is true that the appellant's schedule was flexible. What mattered was the performance of services such as bookkeeping, preparing payrolls, running errands for the office and the truck and telephone communications. She completed all the forms required by the . . . governments and made entries in the books as required and this took time and effort. Running errands to do with banking, the accountant and purchasing also took up a lot of her time.
Before this, she had written (at p. 3):
This is a case of employment where the employer and employee are spouses.
[104] The respondent had determined that the employment was not insurable, and Judge Lamarre Proulx reversed this decision.
[105] Marguerite Guay's schedule in the instant case was also flexible, as she worked 30 hours in her paid week and 10 hours in the rest of the month.
[106] In Oneita Simmonds v. M.N.R. (92-444(UI)), Judge Mogan of this Court wrote (at p. 3):
The Appellant is not experienced in office work. She had worked before as a housekeeper and chambermaid and she does not have any bookkeeping skills.
He nevertheless varied the subject decision, taking into account the fact that the appellant had insurable employment from June 5 to August 16, 1991, and not thereafter, after writing (at p. 5):
Having regard to remuneration, the Appellant has failed to prove that she was paid any remuneration after August 16, 1991.
[107] In the instant case Marguerite Guay's qualifications were fully established.
[108] There is nothing outrageous about the fact that she mostly worked one week a month.
[109] After so many years the payer did not have to follow her step by step: she knew what she had to do, she did it well and he saw the result.
[110] What happened after May 1996 is not relevant to the outcome of the case.
According to counsel for the respondent:
[111] All the decisions cited by the opposing party preceded the Federal Court of Appeal's judgments in Minister of National Revenue v. Jencan Ltd., 215 N.R. 352, and Minister of National Revenue v. Bayside Drive-In Ltd., 218 N.R. 150.
[112] In Derkson, supra, the Court wrote that it was reasonable to conclude that the parties would have entered into a similar contract if they had been dealing with each other at arm's length, but the same is not true in the instant case.
[113] In Jencan, supra, the Chief Justice of the Federal Court wrote for the Court of Appeal (at p. 365) that the Tax Court is justified in interfering with the determination where it is established 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 s. 3(2)(c)(ii); or (iii) took into account an irrelevant factor. Here again this is not true in the instant case.
[114] In unemployment insurance matters each case stands on its own merits: it is true that the Minister was more generous in 1993, but he is not bound by his prior decisions.
[115] There was almost no control.
[116] After the loss of the Wawanesa contract Marguerite Guay continued to work full time even though sales had dropped beginning in August.
[117] She admitted she had distributed 10 hours' work over the three weeks when she was not paid.
[118] Her husband said she worked at home and in the garage, whereas she said she worked at home.
[119] She did not charge him rent for the office set up in the house.
[120] She did not appear to make any distinction between her husband's bank account and her own.
[121] On the first record of employment she indicated that she stopped work on December 31, 1994 for lack of work, and on the second she stated that she resumed work on January 1, 1995: it was when she realized that she was short two weeks to be eligible for benefits that she completed the second record of employment.
[122] The Minister considered all the facts and exercised his discretion judicially.
[123] The appellant did not discharge his burden of proof.
[124] The respondent admits that the appellant's wife worked, but the Court must consider all the circumstances of her work from January 14, 1994 onwards.
[125] The following was written in Bayside, supra (at p. 153):
In [his] reasons for judgment . . . the . . . judge held that he was entitled to conduct the appeals as "trials de novo" because, in his view, the Minister had failed to give sufficient weight to the facts before him . . . .
The following was then added (at p. 155):
The view that a failure by the Minister to give "sufficient importance" (i.e., weight) to specific facts is a ground for reversible error is not supported by the jurisprudence of this court and, in my respectful view, is wrong in principle.
[126] The Court therefore does not have to give special weight to the facts or evidence considered by the Minister.
[127] There are many admissions in paragraph 5 of the Reply to the Notice of Appeal, and, it should be added, the words "inter alia" are used at the beginning.
According to counsel for the appellant in reply:
[128] If the Minister had taken the trouble to have all the evidence in his possession his decision would have been different.
[129] In his Reply to the Notice of Appeal he did not even mention the paycheques which his counsel made such a point of discussing at the outset.
[130] Marguerite Guay also worked at the appellant's garage during the term of the contract with Wawanesa.
[131] Deciding on unemployment insurance benefit claims is not up to the Court, but to the board of referees.
Analysis
[132] The Minister found the entire period at issue uninsurable at the outset. He later changed his mind and found the period from January 14, 1993 to January 14, 1994 insurable because the worker was working for the payer full time, but maintained his original decision for the subsequent period when she no longer held full-time employment.
[133] The Minister did not act for an improper purpose or motive: it remains to be decided whether he failed to take all the relevant circumstances into account or took into account an irrelevant factor.
[134] It is not important that the worker was the payer's sole employee.
[135] Nor does it matter that she was paid only beginning in 1987, in view of the legislative change that occurred at that time.
[136] It is clear that it was the loss of the contract with Wawanesa which caused the reduction in the payer's sales.
[137] It is true that the worker continued to work full time until January 14, 1994, but there is uncontradicted evidence that the payer then had to turn more to repair work in the hope that this would make the business profitable once again, which did not actually happen, and that he also had to wind up matters begun when the contract was in effect.
[138] The worker's duties were fully described and her salary was reasonable; she was qualified to hold this position and her employment was necessary, as was confirmed by the accountant Pierre Poulin.
[139] There is uncontradicted evidence that in the only period now at issue she worked 30 hours in her paid week and 10 hours in the rest of the month: this was the arrangement the Guays worked out and was the one which best met the reduced requirements of the business.
[140] Part-time work is not prohibited.
[141] The worker had worked for the payer for a long time, and she did her work well and did not have to be supervised step by step: her husband saw her work and had full powers of control.
[142] It is not relevant for the respondent to rely on the fact that the worker worked for the payer without pay beginning in May 1996, especially as in the year ending December 31, 1995 the net profit was only $1,788.03 and in 1996 there was a loss.
[143] Mr. and Mrs. Guay appeared to the Court to be honest people who were always anxious to tell the truth, and the Court fully believed them.
[144] There were no contradictions in their testimony: in the Court's view the worker worked at home and in the garage when the large contract was in effect and subsequently worked only at home.
[145] The following was written in Jencan, supra (at p. 369):
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 trial were sufficient in law to support the Minister's determination . . . . 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.
[146] In the instant case, in view of the evidence as a whole, the question of the records of employment is not sufficient to support the Minister's determination and the Court accordingly will not discuss it further.
[147] The same is true of the question of the premises the worker provided to her husband as an office in her house, since this is a service spouses may render each other that does not necessarily lead to legal consequences.
[148] In view of the admission mentioned above, there is no need to consider the folio numbers written on the backs of the worker's paycheques.
[149] The accountant's testimony speaks for itself and enables the Court to conclude as it does below.
[150] He said that a week's work per month was sufficient after January 14, 1994.
[151] It is true that Caron, Derkson, Cockwill, Grégoire and Simmonds, supra, were decided before Jencan and Bayside, supra, but the rules stated in those cases still apply when there is insufficient evidence to support the Minister's conclusion.
[152] Caron, supra, is very similar to the instant case and the Court's conclusion must be similar.
[153] The reasoning followed in Derkson, supra, can also be followed in the instant case.
[154] In Cockwill, supra, the employment was held to be insurable even though there was no fixed salary.
[155] In Grégoire, supra, the schedule was also flexible and the decision was reversed.
[156] In Simmonds, supra, the appellant's appeal was allowed for the time during which she was paid even though she was not experienced in office work.
[157] To arrive at the following conclusion it is not necessary to give special weight to the evidence considered by the Minister: it will suffice to note that he failed to take all the relevant circumstances into account and also that the took into account irrelevant factors.
[158] The appeal is therefore allowed and the subject decision reversed.
Signed at Laval, Quebec, July 2, 1998.
"A. Prévost"
D.J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 11th day of December 1998.
Stephen Balogh, Revisor