Tax Court of Canada Judgments

 

 

 

 

Docket: 2010-391(EI)

BETWEEN:

SYNER/PLUS INC.,

Appellant,

and

 

THE MINISTER OF NATIONAL REVENUE,

Respondent.

[OFFICIAL ENGLISH TRANSLATION]

____________________________________________________________________

Appeal heard on April 6, 2011, at Chicoutimi, Quebec.

 

Before: The Honourable Justice Gaston Jorré

 

Appearances:

 

Agent for the appellant:	Yoland Martel
Counsel for the respondent:	Simon Vincent

____________________________________________________________________

 

JUDGMENT

 

        In accordance with the attached Reasons for Judgment, the appeal is dismissed and the decision of the Minister of National Revenue dated December 9, 2009, made under the Employment Insurance Act is confirmed.

 

Signed at Ottawa, Ontario, this 6th day of February 2012.

 

 

 

"Gaston Jorré"

 

 

 

 

 

 

Translation certified true

on this 4th day of April 2012.

 

 

 

 

Erich Klein, Revisor

 

 

 

Citation: 2012 TCC 44

Date: 20120206

Docket: 2010-391(EI)

BETWEEN:

SYNER/PLUS INC.,

Appellant,

and

 

THE MINISTER OF NATIONAL REVENUE,

Respondent.

[OFFICIAL ENGLISH TRANSLATION]

 

REASONS FOR JUDGMENT

 

Jorré J.

 

[1]              The respondent determined that, during the periods from December 30, 2006, to April 19, 2008, and from October 26, 2008, to June 10, 2009, Jonathan Martel (the worker) did not hold insurable employment with the appellant (the payer).

 

[2]              The respondent admitted that the worker was an employee of the appellant. However, he concluded that the worker's employment was excluded because the appellant and the worker would not have entered into a similar contract of employment if they had been dealing with each other at arm's length.

 

[3]              The appellant appealed the Minister's decision.

 

[4]              Yoland Martel (Mr. Martel) is the father of Jonathan Martel.

 

[5]              The appellant's majority shareholder was 9159‑0125 Québec inc. Mr. Martel was the appellant's second shareholder.[1]

 

[6]              Mr. Martel was the sole shareholder of 9159-0125 Québec inc.

 

[7]              The appellant did not dispute the non-arm's length relationship.

 

[8]              The relevant provisions of the Employment Insurance Act are the following paragraphs of section 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) 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; 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.

 

[9]              The appellant did not dispute that it was related to the worker within the meaning of the Income Tax Act.

 

[10]         With respect to the role of the Court in applying paragraph 5(3)(b), the principles are summarized well by Justice Bédard in Lavoie v. M.N.R.[2] at paragraphs 7 to 9:

 

7          The Federal Court of Appeal has repeatedly defined the role conferred on Tax Court of Canada judges by the Act. That role does not permit the judge to substitute his or her discretion for the Minister's, but does involve an obligation to "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, . . . decide whether the conclusion with which the Minister was "satisfied" still seems reasonable" (see Légaré v. Canada (Minister of National Revenue - M.N.R.), [1999] F.C.J. No. 878 (QL), at paragraph  4).

 

8          In other words, before deciding whether the Minister's conclusion still seems reasonable to me, I must verify, in light of the evidence before me, whether the Minister's allegations are in fact correct, having regard to the factors set out in paragraph 5(3)(b) of the Act. At issue, then, is whether appellant Lavoie and the payer would have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length.

 

9          Appellant Lavoie had the burden of proving that the Minister did not exercise his discretion in accordance with the principles that apply in this regard, essentially, that the Minister did not examine all of the relevant facts or failed to have regard to all of the facts that were relevant.

 

[11]         Accordingly, having heard all of the evidence, I must decide if the Minister's conclusion that the payer and an arm's length person would not have entered into a substantially similar contract of employment still seems reasonable to me.

 

[12]         In making his decision, the Minister relied on the following assumptions of fact:[3] 

            [TRANSLATION]

(a) The payer was incorporated on February 1, 1999;

(b) The appellant operated a business that specialized in manufacturing parts for heat exchangers, in heat exchanger maintenance, cleaning and repair, as well as in the manufacture of biodegradable products used for heat exchanger maintenance;

(c) The appellant operated year-round;

(d) The appellant's clients were mainly Abitibi Consolidated, Alcan and Louisiana Pacific;

(e) The appellant's sales figures for the periods at issue were as follows:

 

Fiscal year ending on January 31	2007	2008	2009
Sales figures	$168,084	$124,129	$79,715
Gross profit	$74,081	$53,733	$33,650
Net profit	$36,174	$13,880	$17,416

 

(f)   The appellant's administrative office was located in St-Bruno, at the shareholder's parents' house, and the workshop for the cleaning and manufacture of products was in Hébertville;

(g) The workshop is a 50- by 50-foot garage and is located 15 km from the office;

(h) The appellant employed only the shareholder and the worker full time; the other workers were on call;

(i)   These other workers worked mainly at the plant, during machinery stoppages;

(j)   The worker was born on March 2, 1990; he was therefore 16 during the first period at issue;

(k) The appellant's busiest time is from March to November, but the worker was hired on December 30, 2006, and laid off between April 20 and October 25, 2008;

(l)   The worker worked mostly at the workshop cleaning small heat exchangers with the cleaning products because he had to be 18 years old to work at the plant;

(m) The worker stated that he had not done solid state welding, while the appellant's shareholder stated that he had taught the worker to do this type of work and that he had been welding since he was 14 years old;

(n)  The worker also produced cleaning products because he knew the manufacturing secret;

(o)  Making 20 45-gallon drums of the cleaning product can take a whole day, and for some exchangers 1 or 2 drums are required; for others, 8;

(p)  The worker estimates that he worked alone in the workshop 60% of the time and the rest of the time with the appellant's shareholder, while the shareholder estimates that it was fifty-fifty;

(q)  The appellant cannot estimate the number of plant stoppages during the periods at issue;

(r)  The worker indicated that he had worked 20 to 40 hours per week, but, according to the appellant, he worked 40 hours per week on average;

(s)  The worker was paid for the hours worked;

(t)   During the first work period, the worker was paid $25 per hour, since he had more responsibilities as the appellant's shareholder was in the midst of divorce proceedings and his mind was not on work, and the on-call employees were paid between $16 and $18 per hour;

(u)  During the second work period, the worker was paid $16.50 per hour;

(v)  Neither party was able to explain why the worker's pay for February 17, 2007, was for 50 hours at $8 per hour;

(w) Once, the worker was paid for 13 pay periods at the same time, and another time, for 10 pay periods, because the appellant's shareholder did not do the accounting, while the other workers were paid normally;

(x)  A gross bonus of $7,000 was paid to the worker for the work performed while the appellant's shareholder was in the midst of divorce proceedings, but the worker supposedly owed the net amount, $4,927.97, to his father, the appellant's shareholder; the worker thus handed his bonus over to his father, and it was ultimately used to pay the appellant's accountant;

(y)  All of the appellant's employees were laid off at the end of March 2009, while the worker continued to work until June 10, 2009;

(z)  The appellant stated that it did not rehire the worker; however, the file contains a product sale invoice dated August 5, 2009, that is, after the periods at issue, on which it is indicated that the sale was made by the worker.

 

[13]         Mr. Martel testified as did Lyne Courcy, an appeals officer at the Canada Revenue Agency. The worker did not testify.

 

[14]         At the start of the periods at issue, the worker was 16 year old, and at the end he was 19 year old.[4]

 

[15]         The appellant is Mr. Martel's company. Mr. Martel founded it, runs it and is the person who works there most regularly. Apart from Mr. Martel's son, who is the worker, all employees work there irregularly, when the company needs their services. This is due to the fact that the company's activity varies a great deal depending on its clients’ needs.[5]

 

[16]         Mr. Martel explained that, after his separation from his spouse in December 2006, he went through a very difficult time during which he was unable to work normally and relied a great deal on his son, the worker.

 

[17]         I do not doubt that the worker helped his father a great deal and that he worked hard when there was work to do.

 

[18]         However, while the other, unrelated, employees were paid regularly, the worker was paid very late twice.

 

[19]         Although Mr. Martel testified that he had no recollection of any such belated payments, the appellant did not satisfy me that the Minister was wrong in his assumption that, on two occasions, the worker's salary was paid very late.

 

[20]         The first time, on March 30, 2007, the worker was paid for 13 weeks at the same time; the second time, on June 28, 2007, he received his salary for 10 weeks at the same time.[6]

 

[21]         An arm's length employee would not accept such delays when the other employees are paid in a normal fashion. 

 

[22]         In addition, the other employees were paid by the hour, but the worker was paid a fixed salary for the weeks he worked despite the fact that his hours of work varied a great deal.[7]

 

[23]         While the Court recognizes that the worker was a great help to Mr. Martel during a difficult time, an arm's length third party and the payer would not have negotiated such a contract providing for a fixed salary regardless of any such variation in hours. 

 

[24]         These two factors alone are sufficient for me to come to the conclusion that the Minister's decision still seems reasonable to me.[8]

 

[25]         Accordingly, I must dismiss the appeal.

 

Signed at Ottawa, Ontario, this 6th day of February 2012.

 

 

 

"Gaston Jorré"

 

 

 

 

 

 

Translation certified true

on this 4th day of April 2012.

 

 

 

 

Erich Klein, Revisor

CITATION:                                       2012 TCC 44

 

COURT FILE NO.:                            2010-391(EI)

 

STYLE OF CAUSE:                          SYNER/PLUS INC. v. M.N.R.

 

PLACE OF HEARING:                     Chicoutimi, Quebec

 

DATE OF HEARING:                       April 6, 2011

 

REASONS FOR JUDGMENT BY:    The Honourable Justice Gaston Jorré

 

DATE OF JUDGMENT:                    February 6, 2012

 

APPEARANCES:

 

Agent for the appellant:	Yoland Martel
Counsel for the respondent:	Simon Vincent

 

COUNSEL OF RECORD:

 

       For the appellant:

 

                     Name:                          

 

                    Firm:

 

       For the respondent:                     Myles J. Kirvan

                                                          Deputy Attorney General of Canada

                                                          Ottawa, Ontario