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Docket: 2002-2616(EI) |
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BETWEEN: |
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CECILE SAMSON, |
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Appellant, |
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and |
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THE MINISTER OF NATIONAL REVENUE, |
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Respondent. |
____________________________________________________________________
Appeal heard on April 11 and 14, 2005 at Halifax, Nova Scotia
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Before: The Honourable Justice L.M. Little |
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Appearances: |
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Agent for the Appellant: |
Michel P. Samson |
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Counsel for the Respondent: |
Edward R. Sawa |
____________________________________________________________________
JUDGMENT
The appeal is dismissed, without costs, and the determination of the Minister is confirmed in accordance with the attached Reasons for Judgment.
Signed at Vancouver, British Columbia, this 17th day of June 2005.
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"L.M. Little" |
Little J.
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Citation: 2005TCC383 |
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Date: 20050617 |
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Docket: 2002-2616(EI) |
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BETWEEN: |
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CECILE SAMSON, |
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Appellant, |
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and |
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THE MINISTER OF NATIONAL REVENUE, |
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Respondent. |
REASONS FOR JUDGMENT
Little J.
A. FACTS:
[1] The Appellant is the spouse of Carl Samson (the "Payor").
[2] Carl Samson owns and operates a garage providing automobile service and auto body repairs in L'Ardoise, Cape Breton Island, Nova Scotia. The Payor's business commenced in 1988 and is known as "Samson's Auto Repair" (the "Business").
[3] The Appellant has provided various services to the Business since 1988. The Appellant's services to the Business consisted of dealing with customers in person and by telephone, preparing invoices, preparing all bookkeeping for the Business, preparing the payroll, paying all of the bills, making the bank deposits, preparing the GST and PST tax returns, picking up auto parts from suppliers and delivering the auto parts to the garage in which the Business carried on its operation and driving customers to and from the Business.
[4] The tax returns and financial statements of the Business were prepared by an external accountant.
[5] The Appellant maintains that she was employed in insurable employment by the Payor during the following periods:
1. April 3, 1995 to March 16, 1996 - The First Period;
2. April 30, 1996 to July 26, 1997 - The Second Period; and
3. November 3, 1997 to September 19, 1998 - The Third Period.
[6] The Appellant said that she did not work for the Payor during certain times because the Payor's Business was not that busy and the Payor was unable to pay her salary.
[7] The Payor's payroll records indicate that the Appellant worked for the Payor during the weeks that ended as follows: (Note: The Appellant was not working for the Payor during those weeks when she was not listed on the Payor's payroll.)
1996
January 6 and 20
February 10
March 2 and 16
May 4
June 8
August 10
October 12
November 16
December 14
1997
January 11
February 1 and 15
March 1, 15 and 29
April 12
May 17 and 31
June 14 and 28
July 12 and 26
November 8
1998
January 10 and 31
February 14 and 28
March 14 and 28
April 11 and 25
May 2, 16 and 30
June 13 and 27
July 11 and 25
August 8 and 22
September 5 and 19
October 14
[8] By letter dated June 11, 1999, the Minister of National Revenue (the "Minister") issued a Ruling. The Ruling contained the following statement:
Your employment as an employee performing services under a contract of service with Samson's Auto Repair during the periods under review was not insurable because under paragraph 5(2)(i) of the Employment Insurance Act and paragraph 3(2)(c) of the Unemployment Insurance Act, you are considered not to have dealt with each other at arm's length.
The reason we consider you not to have dealt with each other at arm's length is that you were related by marriage to Carl Samson and, when we reviewed your working relationship with Samson's Auto Repair, we could not reasonably conclude that:
- An unrelated worker would be employed under similar conditions.
- Your employer would have hired an unrelated person for a similar period of time.
- Your employer would have hired an unrelated person to do that type of work.
This letter was issued by Mr. W.A. Fulton, the Director of the Sydney Tax Service Office of Revenue Canada. Revenue Canada is now known as the Canada Revenue Agency (the "C.R.A.")
[9] The Appellant filed an appeal to the Ruling. By letter dated June 11, 2002 the Chief of Appeals in the Sydney Office of the C.R.A. replied as follows:
This letter concerns your appeal of rulings, for employment insurance purposes, on the insurability, of your employment with Carl Samson o/a Samson's Auto Repair for the periods April 3, 1995 to March 16, 1996, April 30, 1996 to July 26, 1997 and November 2, 1997 to September 19, 1998. It has been determined that the employment was not insurable employment as a contract of service was considered not to be [sic "in"] existence.
Also, having regard to all the circumstances of the employment including the terms and conditions, the duration, the rate of pay, the hours of work and the duties, the Minister has concluded that the parties would not have entered into a substantially similar contract of employment if they had been dealing with each other at arms length. As a result the employment was considered to be excepted/excluded employment and not insurable for purposes of the Employment Insurance and Unemployment Insurance Acts.
If you disagree with this decision, you may appeal to the Tax Court of Canada within 90 days of the mailing date of this letter. Details on how to initiate an appeal can be found in the enclosed form entitled "How to Appeal to the Tax Court of Canada".
The decision in this letter is issued pursuant to subsection 93(3) of the Employment Insurance Act and subsection 651(3) of the Unemployment Insurance Act and is based on paragraphs 5(1)(a) and 5(2)(i) of the Employment Insurance Act and paragraphs 3(1)(a) and 3(2)(c) of the Unemployment Insurance Act.
[10] The Appellant filed a Notice of Appeal to the Tax Court of Canada.
B. ISSUES:
[11] Was the Appellant engaged by the Payor in insurable employment within the meaning of paragraph 3(1)(a) of the Unemployment Insurance Act during the periods from April 3, 1995 to March 16, 1996 and from April 30, 1996 to June 29, 1996 and within the meaning of paragraph 5(1)(a) of the Employment Insurance Act during the periods from June 30, 1996 to July 26, 1997 and from November 3, 1997 to September 19, 1998?
[12] In the alternative, if the Court is satisfied that a contract of service existed between the Appellant and the Payor the Minister maintains that the Appellant was not engaged by the Payor, in insurable employment during the periods in question as the said employment was excepted employment within the meaning of paragraph 3(2)(c) of the Unemployment Insurance Act during the periods from April 3, 1995 to March 16, 1996 and from April 30, 1996 to June 29, 1996 and within the meaning of paragraph 5(2)(i) of the Employment Insurance Act during the periods from June 30, 1996 to July 26, 1997 and from November 3, 1997 to September 19, 1998, as the Appellant and the Payor were not dealing with each other at arm's length.
[13] The Minister also submits that it was reasonable to conclude that the Appellant and the Payor would not have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length.
C. ANALYSIS:
[14] During the hearing of the appeal counsel for the Respondent called Paulette Boudreau as a witness. Ms. Boudreau testified that she has been employed by Human Resources Development Canada ("HRDC") since 1997. Ms. Boudreau said that after receiving a Third Party Report dealing with the Payor and the Appellant she reviewed the Payor's Records to determine if the Appellant was entitled to receive benefits under the Unemployment Insurance Act and the Employment Insurance Act.
[15] Ms. Boudreau testified that when she reviewed the Employment Records of the Payor she determined that the Appellant had performed a number of functions for the Payor during various times when she was not on the Payor's payroll. Ms. Boudreau gave the following examples:
Exhibit R-5 - Various bank deposits made by the Appellant for the Payor while she was not on the payroll. Note: This Exhibit indicates that the Appellant made the following deposits at St. Peter's Branch of the Royal Bank of Canada for the Payor during those periods when she was not working for the Payor:
1996 - 36 Bank Deposits
1997 - 53 Bank Deposits
1998 - 46 Bank Deposits
Total 135
Exhibit R-9 - Various cheques signed by the Appellant for the Payor while the Appellant was not on the Payor's payroll.
Note: In 1996 the Appellant prepared and signed 259 cheques for the payor while she was not on the payroll.
In 1997 the Appellant prepared and signed 209 cheques for the Payor while she was not on the payroll.
In 1998 the Appellant prepared and signed 155 cheques for the Payor while she was not on the payroll.
Exhibit R-10 - Various invoices signed by the Appellant for the Payor while the Appellant was not on the payroll.
This Exhibit indicates that the Appellant signed five invoices in 1997 and two invoices in 1998 while she was not on the Payor's payroll.
[16] Ms. Boudreau testified that the various business activities carried out by the Appellant for the Payor while the Appellant was not on the Payor's payroll was probably the main reason that convinced her to disallow the claim made by the Appellant for benefits under the Unemployment Insurance Act and the Employment Insurance Act.
[17] The Appellant had testified that during the time that she was not on the Payor's payroll she continued to do the minimum amount of bookkeeping required to ensure that cheques issued to the Payor were deposited, that the Payor's bills were signed and that invoices were signed. However, the Appellant said that during the time that she was on the Payor's payroll she performed many additional functions.
[18] The Appellant also testified that her husband, Carl, is an auto mechanic and he is unable to carry out the bookkeeping functions. She said that if she did not carry out the bookkeeping and other "office related" functions the Payor would be obliged to hire a bookkeeper.
[19] The Ruling issued under the Employment Insurance Act was based on paragraphs 5(2)(i) and 5(3)(b). Those provisions read 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.
5(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.
(Note: The wording contained in subsection 5(2) of the Employment Insurance Act is virtually identical to the wording contained in subsection 3(2) of the Unemployment Insurance Act. The Unemployment Insurance Act applied in the 1995 and 1996 taxation years.)
[20] What is being challenged in this appeal is the decision of the Minister that he was not 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 the importance of the work performed, it would have been 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.
[21] The position of a Judge of the Tax Court of Canada in this type of appeal is, in my opinion, correctly outlined by Chief Justice Richard of the Federal Court of Appeal in Denis v. Canada, [2004] F.C.J. No. 400:
5. The function of the Tax Court of Canada judge in an appeal from a determination by the Minister on the exclusion provisions contained in subsections 5(2) and (3) of the Act is to inquire into all the facts with the parties and the witnesses called for the first time to testify under oath, and to consider whether the Minister's conclusion still seems reasonable. However, the judge should not substitute his or her own opinion for that of the Minister when there are no new facts and there is no basis for thinking that the facts were misunderstood (see Pérusse v. Canada (Minister of National Revenue - M.N.R.), [2000] F.C.J. No. 310, March 10, 2000).
Based on these comments, I believe that the role of the Tax Court Judge is to conduct a trial at which both parties may adduce evidence as to the terms upon which the Appellant was employed, evidence as to the terms upon which persons at arm's length doing similar work were employed by the same employer, and evidence relevant to the conditions of employment prevailing in the industry for the same kind of work at the same time and place. In the light of all that evidence, and the Judge's view of the credibility of the witnesses, the Tax Court Judge must then assess whether the Minister, if he had had the benefit of all that evidence, could reasonably have failed to conclude that the employer and a person acting at arm's length would have entered into a substantially similar contract of employment. That, as I understand it, is the degree of judicial deference that Parliament's use of the expression "... if the Minister of National Revenue is satisfied ..." in paragraph 5(3)(b) accords to the Minister's opinion.
(Note: I also agree with the comments of my colleague, Justice Bowie in Birkland v. Canada, [2005] T.C.J. No. 195.)
[22] When I apply the approach outlined above to the facts before me I am convinced that the primary evidence that justifies the position adopted by the Minister is the extensive work carried out by the Appellant for the Payor while she was not on the Payor's payroll. As is noted above during those days when the Appellant was not on the Payor's payroll she made a total of 135 separate bank deposits in 1996, 1997 and 1998. In addition the Appellant prepared and signed a total of 623 cheques for the Payor in 1996, 1997 and 1998 while she was not on the Payor's payroll. Finally, the Appellant signed a number of invoices for the Payor while she was not on the Payor's payroll. The extensive activities performed by the Appellant for the Payor while she was not on the payroll are clear evidence that a person who was at arm's length with the Payor would not have performed activities of this magnitude and nature. I have therefore concluded that the Minister was correct when he made his decision.
[23] During the hearing the Appellant was represented by Michel Samson, the Member of the Legislative Assembly of Nova Scotia. Mr. Samson maintains that the Appellant's rights under the Canadian Charter of Rights and Freedoms were violated when officials of the HRDC obtained the evidence upon which the Minister relied.
[24] Mr. Samson specifically referred to sections 7 and 8 of the Canadian Charter of Rights and Freedoms which read as follows:
7. Everyone has the right to life, liberty and security of the person and the right not to be deprived thereof except in accordance with the principles of fundamental justice.
8. Everyone has the right to be secure against unreasonable search or seizure.
[25] I have carefully considered the evidence presented by the Minister and particularly the testimony of Ms. Boudreau, of HRDC and I am not convinced that the Appellant's rights under the Canadian Charter of Rights and Freedoms were violated. In my opinion Ms. Boudreau was performing her function as an investigator in a proper manner.
[26] Before concluding my remarks I wish to note that I was very impressed with the testimony of the Appellant. She obviously provides a very important and valuable service to her husband. However, my function in this situation is to interpret the relevant law. I do not have the authority to amend the law.
[27] The appeal is dismissed, without costs.
Signed at Vancouver, British Columbia, this 17th day of June 2005.
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"L.M. Little" |
Little J.
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CITATION: |
2005TCC383 |
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COURT FILE NO.: |
2002-2616(EI) |
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STYLE OF CAUSE: |
Cecile Samson and The Minister of National Revenue |
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PLACE OF HEARING: |
Halifax, Nova Scotia |
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DATE OF HEARING: |
April 11 and 14, 2005 |
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REASONS FOR JUDGMENT BY: |
The Honourable Justice L.M. Little |
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DATE OF JUDGMENT: |
June 17, 2005 |
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APPEARANCES: |
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Agent for the Appellant: |
Michel P. Samson |
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Counsel for the Respondent: |
Edward R. Sawa |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
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Firm: |
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For the Respondent: |
John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Canada |