For Immediate Release
October 16, 2014
Senator Ringuette questions legality of definitions used by Agriculture Canada
Last Thursday, Senator Pierrette Ringuette stood in the Senate to speak in support of her motion to study the assessment and appeals processes of the Canadian Agricultural Income Stabilization Program (CAIS), and its replacement programs; AgriStability and AgriInvest.
In particular, the Senator has requested a study of the definition and use of the terms ‘arm’s length salaries’ and ‘non-arm’s length salaries’ under the programs.
“Arm’s length” and “non-arm’s length” refers to the relationship the employee has with the employer. A typical employee would be considered “arm’s length”, while “non-arm’s length” refers to a relationship that is substantially different than a regular market relationship, generally implying a dependency between the parties.
This affects the amount that farms can claim under allowable expenses and thus affects the amount they can receive under the income stabilization programs.
Senator Ringuette has received numerous complaints for constituents that Agriculture and Agri-Food Canada (AAFC) is not using the legally established definition of these terms as used by other government entities and programs including Canada Revenue Agency, the Canada pension Plan, Employment Insurance.
The definitions used by these agencies and programs have been legally established through numerous court cases and are defined in legislation and regulation, including the Income Tax Act.
In addition, The AAFC administration in Winnipeg is not allowing appeals of decisions based on the use of these definitions. They are not allowing the appeals board to hear from those affected by the administrations decision.
Senator Ringuette’s motion seeks to determine the legal basis for the definition and use of the terms under these programs and determine why they are using one that differs from the definition legally established in all other law, regulation, application, and court precedent.
Senator Ringuette has made multiple requests to the Minister of Agriculture asking for an answer and to provide the legal basis for this discrepancy. The Minister has failed to provide Senator Ringuette with any explanation as to why the definition differs for agriculture programs and why they are denying the appeals process.
A transcript of Senator Ringuette’s remarks is attached.
For more information:
Tim Rosenburgh
Office of Senator Pierrette Ringuette
timothy.rosenburgh@sen.parl.gc.ca
(613) 943-2248
Transcript
Motion to Authorize Committee to Study Canadian Agriculture Income Stabilization Program — Debate Adjourned
Hon. Pierrette Ringuette, pursuant to notice of June 11, 2014, moved:
That the Standing Senate Committee on Agriculture and Forestry be authorized to study the following:
The assessment and appeals process of the Canadian Agricultural Income Stabilization Program (CAIS), including the replacement programs; AgriStability and AgriInvest;
The definition, including legal precedent and regulatory framework, and application of the terms "arm's length salaries" and "non-arm's length salaries" as used by CAIS and related programs, as well as a comparison of those definitions and the application used by Revenue Canada and Employment and Social Development Canada; and
That the Committee submit its final report no later than March 31, 2015, and retain all powers necessary to publicize its findings until 180 days after the tabling of the final report.
She said: Honourable senators, the motion you have before you follows from the regular consultations I held in my region, which is an agricultural area, and from the comments I received from many farmers in my region. Indeed, there were a lot of complaints about the application of the program. I would like to give you an overview of what the program is about.
[English]
AgriStability is based on margins and its federal-provincial agreements. In program margins you're allowed income minus your allowable expenses in a given year. This has been a cornerstone of making sure that we have a viable agriculture industry in this country.
As I said earlier, this is a federal-provincial agreement. My specific motion says the federal government is administering, through its Winnipeg office, the programs for Manitoba, New Brunswick, Nova Scotia and Newfoundland and Labrador, but all the other provinces administer the program. British Columbia, Saskatchewan, Alberta, Ontario, Quebec and P.E.I. administer their federal-provincial agreements.
The major cause of concern is twofold.
[Translation]
First, there is the interpretation that the department, in applying the program, makes in situations that involve costs associated with persons who deal at arm's length with the farm business and with persons dealing at non-arm's length.
Honourable senators, I have been in politics for 27 years. I can tell you that, in the last 27 years, these two concepts at the federal level have been viewed and reviewed by various courts in our Canadian system, for instance in cases involving Employment Insurance contributions or benefits, or the Canada Revenue Agency, with respect to whether an item could be recognized as an expense and whether a person dealt at arm's length or at non-arm's length with a particular entity. Our court system determined that there were four criteria that had to be applied in Canada, be it at the federal or provincial level, to determine whether there was an arm's length or non-arm's length relationship.
[English]
In English it's arm's length or non-arm's length.
[Translation]
Based on my discussions with the agricultural community in my region, what constitutes arm's length or non-arm's length is determined according to Canadian case law.
I therefore asked the Department of Agriculture to explain how, as a federal organization, it could fail to comply with what the EI program and Revenue Canada had to comply with. Why does the Department of Agriculture not follow Canadian case law when it comes to arm's length and non-arm's length items?
I wrote twice to the minister and twice he answered, "I received an opinion from the Department of Justice telling me that our application is correct."
At no time did the minister dare to provide me with the document from the Department of Justice. I am not a lawyer, but I have been working in the system long enough to know that all the case law from the past several decades flies in the face of the minister's statement.
The second point I must raise is that in my discussions with the program administrators in Winnipeg, it was mentioned that there is an appeal process within the process and an appeal tribunal for farm organizations.
It turns out that all appeals by farm organizations that are sent to Winnipeg and deal with those two points are automatically rejected by the administration; they are not even sent to the appeal tribunal.
Honourable senators, there is a blatant flaw, at least in terms of the two points I presented, for our labour organizations. I think that is completely unacceptable because, in my humble opinion, if we cannot provide justice and apply case law to our farm organizations, we are definitely going in the wrong direction.
Senator Baker, who usually does excellent research on the jurisprudence for all his files, would see that it is not a coincidence that Revenue Canada accepts the courts' decisions concerning the four criteria for determining whether an expense or income item is non-arm's length or arm's length. This is not a question of goodwill. It is not acting out of the goodness of its heart, but accepting the rulings of the courts in this area.
As I said, I tried to explain this to the minister two times, but I never received a response. You can see from my motion that I am asking the committee to report before the end of March because next year the federal and provincial governments will be renegotiating all these agricultural agreements as well as their application.
(1540)
I would also like to draw to your attention what I wrote to the minister.
[English]
The Canadian Agricultural Income Stabilization program cannot unilaterally declare itself exempt from Canadian case law regarding the application of facts for the concept of arm's-length wages and non-arm's-length wages. The program's managers in your department have a responsibility to recognize the case law for these concepts and apply it in their analysis, as in the case of our courts and of all public and private sector organizations in Canada. What has been happening in the private sector between corporations, and so on, has also been referred to courts. The four criteria are applicable not only in regard to government entities but also between private corporations in dealing with each other.
The analysis must be based a priori on all four of the following criteria: remuneration paid, terms and conditions of employment, duration of work performed, and nature and importance of the work performed.
I have attached 20-some pages of the most recent jurisprudence on the issue. The court has said that in regard to an expense or a payment, the fact that a person might be a relative of an entity does not necessarily mean that that person is not at arm's length — that is, a dependent — and vice versa. The fact that a person is not related to an entity does not mean that that person is not dependent.
The courts have made it clear throughout the years and have provided that the Government of Canada, the Canada Revenue Agency, the CPP — all these programs — must look at arm's length and non-arm's length with those four criteria. It is unacceptable that this federal-provincial agreement and its administration, through its Winnipeg office, would not comply with the jurisprudence that has been made throughout the years in this country.
I'm hoping that, for the sake of our farming communities and for the sake of the events that are coming in the next year in regard to the renegotiation of the AgriStability agreements, you will move this motion forward to committee as soon as possible so that we can have quite a deliberation on the issue and make sure that our farming communities are treated in an equitable and legal way.