Date: 19980403
Dockets: 96-1938-UI; 96-1939-UI
BETWEEN:
ALFRED BOURGET,
LUCIEN BOURGET,
Appellants,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
Tardif J.T.C.C.
[1] These are appeals from determinations dated July 5, 1996. In both determinations it was found that the work done by the appellants Lucien and Alfred Bourget for the company "Bourget & Fils Inc." was excepted from insurable employment because they and the company were not dealing at arm's length. The periods covered by the exceptions were the following:
Alfred Bourget - 96-1938(UI) - from April 29 to November 21, 1991,
from June 15 to October 23, 1992,
from March 1 to October 29, 1993,
from May 3 to September 29, 1994, and
from May 2 to September 15, 1995;
Lucien Bourget - 96-1939(UI) - from April 29 to November 15, 1991,
from June 15 to October 23, 1992,
from March 1 to October 29, 1993,
from May 3 to September 30, 1994, and
from May 8 to September 22, 1995.
[2] The two appellants asked that their respective appeals be based on common evidence; the facts alleged in the Notices of Appeal for both cases are the same. The same was true of the facts set out in the Replies to the Notices of Appeal.
[3] At the start of the common hearing the following facts were admitted:
[TRANSLATION]
(a) The payer, incorporated on August 1, 1977, operates a business as a general contractor in the construction field.
(b) Since the incorporation the payer's shareholders have been:
- Lauréat Bourget, the appellant's father
- Alfred Bourget, the appellant's brother
- the appellant
* each person held 33 1/3 percent of the payer's shares.
(g) The appellant claims that he worked four days a week, for 32 hours, which were paid at the rate prescribed by the construction decree.
(h) The appellant was paid by cheque, but his cheques were cashed irregularly and only when the payer had the necessary funds.
(l) The appellant performed services for the payer outside his alleged work periods.
(m) The appellant was related to the payer within the meaning of s. 251 of the Income Tax Act.
[4] However, the appellants denied the facts alleged in the following subparagraphs:
[TRANSLATION]
(c) The payer operates its business year-round with a reduction of activity in the winter.
(d) Lauréat Bourget was 87 years old (in 1995) and no longer worked actively for the payer.
(e) The appellant and his brother Alfred were the only employees of the payer, which hired subcontractors when the need arose.
(f) The appellant occasionally advances money to the payer when it has cashflow problems; he is generally repaid quickly.
(i) The appellant used his own vehicle for his work, but the payer reimbursed him $2,000 a year for the use of his vehicle.
(j) The appellant claims, for each of the years at issue, that he worked a little more than the minimum number of weeks necessary to enable him to qualify for unemployment insurance benefits.
(k) The payer made purchases and reported sales during months in which the appellant and his brother were not listed on the payer's payroll.
(n) The payer would never have hired an unrelated person on terms substantially similar to those offered the appellant.
[5] Alfred Bourget testified at length; he explained that Bourget & Fils Inc. was created by his father in August 1977. The capital stock was equally distributed between the appellants and their father, Lauréat, now 88 years old.
[6] All three were carpenters. The father, in view of his advanced age, was no longer working in the periods at issue. However, he was alert, active and involved, in that he helped with the preparation of bids. He also visited and went quite regularly to the sites. However, he did not receive any pay or benefit of any kind from the company, in which he still held 33 1/3 percent of the capital stock during the periods at issue.
[7] Through the company, the appellants did carpentry work exclusively; from time to time they took complete responsibility for a building site, such as the construction of a home. In such cases the company kept the key contracts and gave out some contracts to subcontractors. The appellants worked primarily on an hourly basis when they did their carpentry work. The company also did commercial and residential contracts.
[8] Alfred Bourget's testimony provided some explanations primarily about the payroll and entries on certain pages of the ledger for the periods in which he and his brother received unemployment insurance benefits; he testified at length regarding the way in which the economic activities of the company were managed.
[9] For the administration, his appellant brother's wife did most of the work but received no pay. He explained that the clerical and administrative responsibility for the company was borne by each of the appellants in turn. Each had to take that responsibility for five consecutive years free of charge.
[10] The company had no other employees except that Nicolas, Lucien's son, worked there several times, as a student and for short periods. He was a student of architectural technology and was involved in and concerned with the affairs of the company, though he received no pay apart from the periods in which he worked on the sites.
[11] The appellant also explained that outside the periods at issue, consisting of weeks in which they each worked 32 hours/week, his brother and he did several things such as meeting with people who were giving out work, preparing bids, making inquiries with a view to obtaining contracts and various activities intended to generate business activity for the good of the company. The impact of these responsibilities was significant. In his submission, it was work which they did in their capacity as shareholders (shareholder/director) and not as carpenters.
[12] Broadly speaking, his brother Lucien confirmed all of Alfred Bourget's testimony. In cross-examination Lucien Bourget added nothing new. He confirmed certain points about their active involvement during the periods in which they were receiving unemployment insurance benefits. On this important point, I strongly doubt that the appellants acted merely as directors. Their testimony suggests instead that they continued doing carpentry work, which was obviously less demanding than at busy times. Indeed, I even doubt that the appellants worked as consistently and continuously in the periods at issue as they said they did.
[13] Several of the explanations seemed to the Court to be implausible. I refer in particular to the invoices for the purchase of various materials apparently signed several weeks after the purchase and delivery of the material. I also doubt that entities like the Town of Lévis bought certain materials from them rather than buying them directly from the store, especially when no labour was connected with the purchase of the materials in question.
[14] All the evidence dealing with the company's operations outside the periods at issue is very nebulous. I strongly doubt that the appellants did any carpentry work outside the periods at issue.
[15] After observing the appellants and listening very carefully to their explanations and the descriptive account of the company's operations, I consider that the appellants were both very involved in running the company's affairs. The father's presence as a shareholder was more symbolic than real. They took the company's affairs very seriously and were able to make a distinction between their personal affairs and the company's affairs. They did not refuse any contracts or work. They were conscientious and responsible and worked very hard to get contracts. However, I think that the carpentry work which they did was organized into complete and continuous weeks so as to entitle them to unemployment insurance benefits.
[16] Their duties in connection with the accounting aspect of the company were really clerical. Responsibility had been delegated to the accountant, who quite clearly orchestrated and planned certain expenses arbitrarily. I refer in particular to the expenses for the use of the two trucks, which the appellants owned personally.
[17] The appellants explained, first, that the amounts they received depended on the kilometers driven. Since, with the exception of one year, they received the same amounts, it follows that the appellants made identical use of their trucks. That is neither plausible nor reasonable.
[18] Once they understood that this was somewhat unconvincing as an explanation, they told the Court that the allowance received for the use of their trucks depended on the company's performance. Counsel for the appellants adopted the explanation, suggesting that it was natural, reasonable and legitimate for the truck expenses to depend on the turnover.
[19] This finding, or conclusion, does not in any way follow from the financial statements:
Turnover Result
Year (Contracts) Travel expenses (profit or loss)
1991 184,439 5,704 + 15,634
1992 55,881 5,073 - 6,971
1993 95,893 5,641 - 3,784
1994 223,347 5,274 + 8,293
1995 121,949 4,523 + 3,319
[20] The same is true of the salaries, which in no way corresponded to the turnover. As salaries are a significant component in a business of this kind, there should have been some relationship between the total payroll and the turnover. That is certainly not what the financial statements show.
Turnover Wage bill
Year (Contracts) Labour Corporate charges
1991 184,439 29,155 7,832
1992 55,881 29,643 3,247
1993 95,893 25,768 5,680
1994 223,347 42,847 5,096
1995 121,949 30,780 4,368
[21] If there were any explanation or explanations for this inconsistency, they were not mentioned. As to the assertions that some customers, such as the Town of Lévis, bought certain materials from Bourget & Fils Inc. rather than buying them directly from the supplier, I find this entirely implausible. The same applies to the signatures apparently placed on certain invoices long after the date of delivery or purchase, when routine or courtesy calls were made.
[22] Before analysing the evidence in any more detail, I must first consider and analyse whether, on a balance of probabilities, the two determinations resulted from an arbitrary and unjudicial exercise of discretion.
[23] This is a fundamental point since the Federal Court of Appeal has held that the jurisdiction of the Tax Court of Canada is limited to jurisdiction in the nature of judicial review. The extent of this limited jurisdiction has been stated and explained in the following cases:
Tignish Auto Parts Inc. v. Minister of National Revenue (July 25, 1994, 185 N.R. 73)
La Ferme Émile Richard et Fils Inc. and Minister of National Revenue (December 1, 1994, 178 N.R. 361)
Attorney General of Canada and Jencan Ltd. (June 24, 1997, A-599-96, F.C.A.)
Attorney General of Canada and Jolyn Sport Inc. (April 24, 1997, A-96-96, F.C.A.)
[24] Did the appellants establish in the instant case, on a balance of probabilities, that the respondent acted unreasonably? Did they present evidence that the facts taken into account in making the determination were incomplete? Did the respondent so over-emphasize or under-emphasize certain points as to vitiate the conclusions underlying the determinations?
[25] The only objection that could have consequences for the quality of the determinations would be that highly relevant information was left out of the analysis because it was submitted late, as the appellants maintained. Here again, the person responsible for the appellants' case gave them the time allowed when the application was made. Should that person have allowed an additional grace period before deciding?
[26] The very nature of the documents required and the entirely marginal importance of the information they might contain could not alter or modify the conclusion that emerged from the available facts; nothing in the documents requested:
[TRANSLATION]
* Copies of 1994 and 1995 cheques, front and back
* Documents showing all jobs given out on subcontract and proof of payments (as discussed with you in telephone interview)
* Copy of minutes for years concerned
was likely to compromise or weaken the conclusions imposed by the other evidence.
[27] The respondent had requested this documentation in a letter dated May 31, 1996 (Exhibit A-1); the appellants were given 30 days in which to provide the documents requested. They in fact sent the documents requested on July 9, 1996 (Exhibit A-2). The respondent obviously did not take them into account since the determination was communicated in a letter dated July 5, 1996 (Exhibit A-3).
[28] It might have been reasonable for the representative to suspend analysis of the matter so as to allow for the documents requested to be sent and to arrive, if the information sought was of fundamental importance. It might perhaps have been wise to do a reminder, if only by telephone, in such a case. On the other hand, I find it hard to blame the responsible official for observing a deadline which was entirely reasonable, especially as the documents sought were of little importance; in other words, the content of the documents described was not fundamental, they essentially concerned details from which a complete picture could be obtained.
[29] Jencan, supra, provides some useful clarification in this regard:
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. In other words, it is only where the Minister's determination lacks a reasonable evidentiary foundation that the Tax Court's intervention is warranted. An assumption of fact that is disproved at trial may, but does not necessarily, constitute a defect which renders a determination by the Minister contrary to law. It will depend on the strength or weakness of the remaining evidence. The Tax Court must, therefore, go one step further and ask itself whether, without the assumptions of fact which have been disproved, there is sufficient evidence remaining to support the determination made by the Minister. If that question is answered in the affirmative, the inquiry ends. But, if answered in the negative, the determination is contrary to law, and only then is the Tax Court justified in engaging in its own assessment of the balance of probabilities.
[30] The evidence consisting of the appellants' testimony and an impressive number of documents showed on a clear balance of probabilities that the allegations whose content was denied were in fact correct.
[31] I refer in particular to the following allegations:
[TRANSLATION]
(c) The payer operates its business year-round with a reduction of activity in the winter.
(d) Lauréat Bourget was 87 years old (in 1995) and no longer worked actively for the payer.
(e) The appellant and his brother Alfred were the only employees of the payer, which hired subcontractors when the need arose.
(f) The appellant occasionally advances money to the payer when it has cashflow problems; he is generally repaid quickly.
(i) The appellant used his own vehicle for his work, but the payer reimbursed him $2,000 a year for the use of his vehicle.
(j) The appellant claims, for each of the years at issue, that he worked a little more than the minimum number of weeks necessary to enable him to qualify for unemployment insurance benefits.
(k) The payer made purchases and reported sales during months in which the appellant and his brother were not listed on the payer's payroll.
[32] The evidence also showed nothing capable of discrediting the validity of the exercise of the discretion based on the available facts. Further, the analysis and work done in the course of the exercise of that discretion were not vitiated by any major error; the relevant facts were available and were assessed in a reasonable manner, and neither too much nor too little weight was placed on any of those facts.
[33] The appellants had a duty to show on a balance of probabilities that the exercise of the discretion was vitiated by an incomplete assessment of the relevant facts. The evidence actually showed that the respondent exercised his discretion judiciously, and this Court is accordingly obliged to affirm the determinations.
[34] The appeal is accordingly dismissed in both cases.
Signed at Ottawa, Canada, April 3, 1998.
Alain Tardif
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 16th day of December 1998.
Kathryn Barnard, Revisor