Date: 19980904
Docket: 97-1278-UI
BETWEEN:
RAYMOND TREMBLAY,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
Prévost, D.J.T.C.C.
[1] This appeal was heard at La Malbaie, Quebec, on August 7, 1998.
[2] It is an appeal from a determination by the Minister of National Revenue ("the Minister") dated March 27, 1997, that the appellant's employment with Lucien Tremblay, the payer, from July 10 to October 20, 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] Paragraph 5 of the Reply to the Notice of Appeal reads as follows:
[TRANSLATION]
5. In arriving at his decision the respondent relied inter alia on the following facts:
(a) the payer owned a farm; (A)
(b) in 1995 he had about 24 animals, including 10 or 11 cows, 10 or 11 calves, one steer and some heifers; (A)
(c) in 1995 the payer's gross farm income was $4,480 and his net loss for the year was $10,185; (A)
(d) the farm income was derived solely from the sale of slaughter animals to the payer's children; (A)
(e) the appellant is the payer's son; (A)
(f) the appellant, his wife and his children lived with the payer year-round; (A)
(g) the appellant paid the payer no rent; (A)
(h) he had only to pay for food for himself and his wife and children; (A)
(i) the appellant's duties involved making hay, repairing fences and machinery and spreading manure; (ASA)
(j) he received gross weekly pay of $520; (A)
(k) he paid the employer's portion of unemployment insurance premiums out of his salary; (D)
(l) the payer would not have paid such a salary to a person with whom he was dealing at arm's length; (DAW)
(m) the payer paid such a salary to the appellant only in order to enable him to receive unemployment insurance benefits; (D)
(n) before and after the period at issue the appellant provided services to the payer without pay; (ASA)
(o) the appellant and the payer were not at arm's length within the meaning of the Income Tax Act; (A)
(p) but for the relationship between him and the payer the appellant would not have been hired to do such work; (D)
(q) further, the payer would never have hired an unrelated person on terms substantially similar to those offered the appellant. (D)
[4] In the preceding passage from the Reply to the Notice of Appeal the Court has indicated in parentheses after each subparagraph the comments made by the appellant at the start of the hearing, as follows:
(A) admitted
(ASA) admitted subject to amplification
(D) denied
(DAW) denied as written
Hearing
Appellant's evidence
According to his testimony
Regarding subparagraph (i)
[5] His duties also included removing stones, cleaning up around the fences and moving the animals from one pasture to another.
Regarding subparagraph (k)
[6] His salary was paid to him by cheque and it was an accounting clerk paid by his father who prepared the source deductions: he did not pay his father the employer's portion of the unemployment insurance premiums.
Regarding subparagraph (l)
[7] He had 15 years' experience and he was fully deserving of his salary; he is now working as a farm labourer for the Coopérative de Charlevoix and earns $540 gross weekly.
Regarding subparagraph (m)
[8] He cannot believe that his father paid him such a salary solely in order to enable him to receive unemployment insurance benefits: his father had him work longer than the minimum required for that purpose.
Regarding subparagraph (n)
[9] His father is no longer young (he was 81 in 1995) and it is normal that he help his father out by occasionally rendering him small services for 10 or 15 minutes once or twice a day, without pay, looking after the animals, which his brothers also did. When he was being paid by his father he was also doing some sowing in August, but his brothers now handle that; they work elsewhere but they help out on the farm on weekends.
[10] When he received unemployment insurance benefits he usually did not help out on the farm.
[11] In 1989 he bought a four-wheel all-terrain vehicle and used it on the farm rather than using his father's large machinery, though this was available, with his father paying all expenses relating to it.
[12] As he did not do his father's accounting he did not want to lie, and although he did not know for sure how many slaughter animals his father sold in 1995 a figure between five and eight seemed reasonable to him.
[13] He recalled for example having bought a calf worth between $300 and $350.
[14] In 1996 the appellant's brothers took over from him, working without pay, but his father gave them slaughter animals in return.
[15] By 1996 his father had only 13 or 14 animals on the farm.
[16] He gave the hay to others so that they could harvest it.
[17] In winter the appellant still sometimes goes to help his father a bit
mornings and evenings.
[18] Out of his "net" paycheque he received $368 or $371 each week.
[19] When he went to cash his cheque at the Caisse Populaire he paid the source deductions, kept his net pay and gave his father the remainder.
[20] The bookkeeper had said that this did not create any problems.
[21] The appellant always had the same salary while on the farm but he did not always work during the same periods, as it was his father who alone decided when he would be hired and laid off.
[22] It was in order to improve the soil that in his spare time he removed stones from the land in question, which has belonged to his father for about 60 years.
[23] In August 1995 the appellant sowed a green fodder crop for the animals. This also helped maintain the soil.
[24] He received from Revenue Canada's director of taxation services for Quebec a letter (Exhibit A-1) of November 29, 1995 reading as follows:
[TRANSLATION]
We have received from the Department of Human Resources Development in La Malbaie a request for a decision on the insurability of your employment with Lucien Tremblay for the period(s) from July 10 to October 20, 1995.
This is to inform you that it has been decided that your employment for the aforementioned period(s) is not insurable pursuant to s. 3(1)(a) of the Unemployment Insurance Act, as your employment was not held under a contract of service.
[25] The appellant subsequently received the above-mentioned determination of March 27, 1997 (Exhibit A-2) stating rather that there was a non-arm's-length relationship.
[26] He had previously had a favourable decision (95-1479(UI)) by Judge Alban Garon of this Court, dated September 4, 1996, declaring his employment insurable for the periods from June 29 to October 9, 1992, from July 5 to October 15, 1993 and from August 1 to November 11, 1994.
[27] On May 12, 1997 he had Camil Samson, a special assistant to the Hon. Marcel Massé, President of the Treasury Board and Minister responsible for infrastructure, send the following letter (Exhibit A-4) to Claire Brouillet, senior policy advisor for Quebec:
[TRANSLATION]
The individual referred to in the heading hereto has sent me a copy of a decision of the Appeals Division dated March 27, 1997 regarding a determination of non-insurability for the purposes of unemployment insurance, dated November 29, 1995, for the period from July 10 to October 20, 1995.
I am also including a copy of a decision of the Tax Court of Canada in Mr. Tremblay's favour with respect to the same work and for the periods from June 29 to October 9, 1992, from July 5 to October 15, 1993 and from August 1 to November 11, 1994, which decision is dated September 4, 1996.
As exactly the same employment is involved and the decision was in Mr. Tremblay's favour, I find it hard to understand why the Department appears to want to take the matter to court once again and thus oblige all parties concerned to needlessly incur further expenditure. Perhaps there is some valid reason which is not apparent, but you will agree that one might well wonder.
[28] The Minister then wrote the Hon. Marcel Massé the following letter (also Exhibit A-4) on July 24, 1997:
[TRANSLATION]
Thank you for the letter of May 12, 1997 which your special assistant Camil Samson wrote to the Office of the Hon. Jane Stewart, former Minister of National Revenue, regarding decisions on insurability for the purposes of unemployment insurance in the case of Raymond Tremblay.
I understand the situation of your constituent and can assure you that the decision of March 27, 1997 was impartially examined by Revenue Canada. Unlike the preceding decision, in which the Minister of National Revenue determined that Mr. Tremblay was not an employee under s. 3(1)(a) of the Unemployment Insurance Act, this decision is based on s. 3(2)(c) of the Unemployment Insurance Act. This provision gives the Minister of National Revenue the discretion to except employment from insurable employment where he is satisfied that a substantially similar contract of employment would not have existed between the parties if they had been dealing at arm's length.
Respondent's evidence
According to the appeals officer, Sylvie Côté
[29] She was well aware of the decision of Judge Alban Garon when she wrote her report (Exhibit I-1).
[30] She had also reviewed the report of the appeals officer in the other case.
[31] In the course of her investigation she spoke to the appellant and to the counsel who had represented him before Judge Garon, namely Robert Trudel.
[32] She did not speak to the payer, who according to the solicitor, Trudel, was not able to converse.
[33] The appellant performed work for his father outside the period at issue and was not paid for doing so.
[34] There used to be a lot of activity on the farm in question but there are now only slaughter animals and the operation has been suffering losses of $9,000 or $10,000 a year since 1990.
[35] The appellant did in fact tell her that it was he who was paying the employer's unemployment insurance premium.
Appellant's rebuttal evidence
According to the appellant
[36] He never paid the employer contribution in place of his father and he did not tell the appeals officer he had either.
[37] In the appellant's words: [TRANSLATION] "At my age I am not going to start committing fraud."
[38] During the period at issue he in fact did the same work as before and this period should have been included in Judge Alban Garon's decision.
Argument
According to the appellant
[39] He had been doing the same work for 15 years; he had always earned his pay and he had a family to support.
[40] The reason his father could not converse with the appeals officer was that he suffered from severe hearing loss.
[41] The appellant had lost a day by coming to defend his case and he firmly believed he was right.
According to counsel for the respondent
[42] In Attorney General of Canada v. Jencan Ltd. (A-599-96), the Chief Justice of the Federal Court wrote for the Federal Court of Appeal (at p. 18):
The Tax Court is justified in interfering with the Minister's determination under subparagraph 3(2)(c)(ii) - by proceeding to review the merits of the Minister's 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 paragraph 3(2)(c)(ii); or (iii) took into account an irrelevant factor.
There is nothing in the instant case which justifies the Court in varying the Minister's determination.
[43] In the other case involving this appellant, the Minister had relied on s. 3(1)(a) of the Unemployment Insurance Act ("the Act"), whereas in the instant case he relied on s. 3(2)(c).
[44] In his decision Judge Garon wrote (at p. 6) that the Minister had not exercised his discretion, whereas in this case he has.
[45] [TRANSLATION] "We do not have all the evidence adduced before Judge Garon and we must look only at the evidence presented in the instant case."
[46] In Jencan, supra, it is also stated, at pp. 24 and 25:
The Deputy Tax Court Judge, however, erred in law in concluding that, because some of the assumptions of fact relied upon by the Minister had been disproved at trial, he was automatically entitled to review the merits of the determination made by the Minister. 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 that the parties would not have entered into a substantially similar contract of service if they had been at arm's length. 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.
[47] There is sufficient evidence here to support the Minister's decision.
[48] There were very few animals on the farm and moreover they were only sold to the payer's children.
[49] The operation was running at a loss, and despite this the appellant received a salary higher than the income from the farm.
[50] The appellant provided services to his father free of charge — as did his brothers — while he was collecting unemployment insurance benefits.
[51] The appellant's mode of remuneration was strange.
[52] Operating the farm made no sense from an economic standpoint.
According to the appellant in reply
[53] The payer was entitled to pay him to keep his farm going.
[54] He should not have been subjected to a court hearing in view of Judge Garon's decision, which had settled the matter.
Analysis
[55] The appellant's employment was held to be insurable for 1992, 1993 and 1994 and the Court is satisfied that the same work was being done in 1995.
[56] In the previous case the Minister had initially relied on s. 3(1)(a) of the Act, but in his Reply to the Notice of Appeal had also invoked s. 3(2)(c) of the Act, arguing on that basis that the appellant's employment was excepted from insurable employment because of the non-arm's-length relationship.
[57] At pages 5 and 6 of his decision Judge Garon wrote:
I now turn to the application of s. 3(2)(c) of the Unemployment Insurance Act to the facts of the instant case.
First of all, I note that the Minister of National Revenue did not exercise his discretion when he made the determination which gave rise to this appeal. However, as I indicated above, that argument was made in the Reply to the Notice of Appeal. The Court accordingly has the authority to exercise that discretion.
Taking into account the terms and conditions of the appellant's employment as a whole, including the duration of his employment, having regard to the seasonal nature of the employment, his remuneration and the other circumstances, I am of the opinion that a substantially similar contract might have been entered into by the appellant and a payer with whom he was dealing at arm's length.
For these reasons, the appeal is allowed and the appellant's employment during the periods at issue is insurable.
[58] It is thus clear that Judge Garon ruled on the two paragraphs in question.
[59] In her report the appeals officer wrote (at p. 2):
[TRANSLATION]
The appellant Raymond Tremblay appealed to the Tax Court of Canada with respect to those same periods, but also with respect to the period from July 10 to October 20, 1995, which had not yet been considered by the Minister. The appeal to the Court was brought on February 22, 1996.
When the appeal to the Tax Court was registered the DAO registered the 1995 period. The appellant was later informed that his appeal was premature. Through his counsel a motion to dismiss the appeal was filed with the T.C.C. and a discontinuance was filed at the hearing concerning the other periods.
The DAO forgot to tell our office to open a file for 1995. On December 26, 1996, Robert Trudel, representing the payer, asked the Minister to accept his appeal for 1995.
After verification, Réjean Bergeron, a technical officer in our office, accepted the appeal and considered the date of posting, i.e. February 22, 1996, to be the date of the application to the Tax Court.
[60] It is quite likely that but for this oversight Judge Garon would also have disposed of the 1995 period, which is the only one at issue in the instant case.
[61] It was also stated (at p. 4):
[TRANSLATION]
Following this decision our counsel, Karen Cooper, said in a letter: [TRANSLATION] "I do not recommend an application for judicial review of the decision. The decision is based on the judge's assessment of the appellant's credible testimony and his conviction that the employment was not artificial. However, I believe the Court's decision would have been different if the Minister had exercised his discretion under s. 3(2)(c) in arriving at his decision."
[62] With great respect for the opinion of Karen Cooper, who represented the Minister in that other case, the Court is of the view that this discretion was exercised in the Reply to the Notice of Appeal.
[63] The Court is satisfied that the conditions of employment were the same in 1995 as before.
[64] The appellant seemed to the Court to be a very sincere person who sought at all times to be truthful, and so his testimony was entirely believable.
[65] The arrangement by which the appellant went to the Caisse Populaire to cash his paycheque, paying the source deductions there, retaining his net pay and returning the surplus to his father, was strange but the bookkeeper had no objection to it: that arrangement is undoubtedly what made the appeals officer think the appellant was paying the employer's portion of the unemployment insurance premiums, but he was not.
[66] The appellant could not believe his father was paying him such a salary solely so that he would be entitled to unemployment insurance benefits, and the Court does not believe it either, as the appellant always worked longer than the minimum required.
[67] No legal inferences can be drawn from the fact that the appellant rendered his father small services without pay as, in the circumstances, it was quite natural that he do so.
[68] The matter of the "four-wheeler" was also brought up in the Reply to the Notice of Appeal for the earlier years.
[69] In his letter of July 24, 1997 (Exhibit A-4) the Minister did not say that, in the first case, he had also relied on s. 3(2)(c) of the Act in his Reply to the Notice of Appeal.
[70] In his decision Judge Garon wrote (at pp. 4 and 5):
In the instant case, I accept the appellant's version: that the work done was genuine, substantial and necessary to maintain the farming activity in question. The appellant seemed to me to be an entirely credible witness.
Counsel for the respondent argued with conviction that the payer had no economic reason to engage in this farming activity. The Court did not have the advantage of hearing the payer. On this point, detailed explanations were provided about the payer's health and hospitalization, as already indicated, and it seems reasonable to me that he was not called to testify.
It may be that the payer is misguided to engage in this farming activity. That decision belongs to the payer and to him alone. I do not have to decide whether the payer had a reasonable expectation of profit in light of the case law applicable to income tax. In those cases, the issue is entitlement to deduct losses from carrying on a particular activity.
It also may be that the payer continued this farming activity so as to ensure that the farm would not go down in value, something which might easily occur if it was not cultivated. This would be a reason of an economic nature. In any case, the issue here is the appellant's employment with the payer. What the Court must look at is the terms of the appellant's employment. It seems to me to be undeniable that there may be a contract of employment between an outsider and a payer even though the payer has no reasonable expectation of profit from carrying on a particular activity. . . .
Similarly, depending on the circumstances a related person may well be governed by a contract of employment in his business relations with a payer even though the payer is not prompted by economic considerations when engaging in a particular occupation. In making this comment, I am obviously excluding cases where there is any collusion between the payer and the alleged employee in order to continue with an unprofitable operation.
On the evidence, I conclude that the appellant was engaged in genuine and substantial employment and that there was a contract of service between him and the payer in respect of the work done by him.
[71] Having heard the evidence, I adopt these passages and also the above-cited passage from page 6 of this other judgment, where Judge Garon wrote: "Taking into account the terms and conditions of the appellant's employment as a whole, including the duration of his employment, having regard to the seasonal nature of the employment, his remuneration and the other circumstances, I am of the opinion that a substantially similar contract might have been entered into by the appellant and a payer with whom he was dealing at arm's length".
[72] The Minister took irrelevant factors into account, namely, inter alia, the small income from the farm, the fact that the appellant lived with his father, that he was paid $520 a week (which seems to be a reasonable amount) and the small services the appellant rendered his elderly father without being paid.
[73] There is not sufficient evidence to justify the decision under appeal and, making its own assessment, the Court is of the opinion that it should intervene.
[74] The appeal is accordingly allowed and the decision appealed from vacated.
Signed at Laval, Quebec, this 4th day of September 1998.
"A. Prévost"
D.J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 20th day of April 1999.
Erich Klein, Revisor