Kayal v. M.N.R.

Kayal v. M.N.R. Court (s) Database Tax Court of Canada Judgments Date 2005-05-05 Neutral citation 2005 TCC 273 File numbers 2004-2419(EI) Judges and Taxing Officers Sylvio J. Savoie Subjects Employment Insurance Act Decision Content Dockets: 2004-2419(EI) 2004-2420(EI) BETWEEN: HALA KAYAL, Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. [OFFICIAL ENGLISH TRANSLATION] ____________________________________________________________________ Appeals heard on February 25, 2005, at Montreal, Quebec Before: The Honourable S.J. Savoie, Deputy Judge Appearances: For the Appellant: Omar Nagi Counsel for the Respondent: Marie-Claude Landry ____________________________________________________________________ JUDGMENT The appeals are dismissed and the decisions of the Minister are confirmed in accordance with the attached Reasons for Judgment. Signed at Grand-Barachois, New Brunswick, this 5th day of May 2005. S.J. Savoie Deputy Judge Savoie Certified true translation on this 28th day of February, 2006, Garth McLeod, Translator Citation: 2005CCI273 Date: 20050505 Dockets: 2004-2419(EI) 2004-2420(EI) BETWEEN: HALA KAYAL, Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. [OFFICIAL ENGLISH TRANSLATION] REASONS FOR JUDGMENT Deputy Judge Savoie [1] These appeals were heard at Montreal, Quebec on February 25, 2005. [2] The purpose was to determine whether the Appellant held insurable employment while in the service of 2796686 Canada Inc. from July 15, 1999 to July 15, 2000, and while in the service of 3103-5215 Québec Inc. from July 1, 2002 to February 22, 2003. [3] On December 22, 2003, the Minister of National Revenue (the "Minister") informed the Appellant of his decision that she did not hold insurable employment while in the service of 2796686 Canada Inc. from July 15, 1999 to July 15, 2000, and on December 9, 2003 the Minister informed the Appellant that she did not hold insurable employment either while employed by 3103-5215 Québec Inc. from July 1, 2002 to February 22, 2003. [4] In reaching his decision in docket 2004-2420(EI), the Minister relied on the following presumptions of fact: 5.a) 2796686 Canada Inc. (hereinafter the "Payor") was established in 1992. (admitted) b) The Payor's company consisted of the retail sale of sports clothing for men and women in a boutique located in the shopping centre known as Place Versailles in Montréal. (admitted) c) The shareholders of the Payor, owning equal parts thereof, were Omar Nagi and Akram Antonio Saleh. (admitted) d) In 1994, Mr. Nagi and Mr. Saleh became equal shareholders in a second company, 3103-5215 Québec Inc., with which they opened a second boutique on St. Catherine Street West in Montreal. (admitted) e) The boutique opened by 3103-5215 Québec Inc. was also engaged in the retail sale of sports clothing for men and women. (admitted) f) The Payor's business employed approximately 6 workers, including the Appellant. (denied) g) The Appellant is the wife of Omar Nagi, whom she married in July 1996. (admitted) h) The Appellant began working for the Payor in 1997. (admitted) i) She was paid by cheque for 20 hours of work per week. (approximately) j) She was paid $500, by cheque, every two weeks. (admitted) k) The duties of the Appellant consisted of entering invoices by hand in the ledgers for the accountant, checking the orders when they arrived at the store and checking the hours of the other employees. She did not make out cheques or deposit slips. (admitted with explanation) l) The Appellant gave birth to three children, in October 1998, August 2000 and May 2003. (admitted) m) In July 2000, the Appellant ceased to work in preparation for the birth of her child the following month. (admitted) n) Following the birth of her child in August 2000, the Appellant stayed at home, where she did a little accounting work, such as billing and bookkeeping. (admitted) o) The Payor continued to pay the Appellant a salary of $500. (admitted) p) The Payor exercised no control over the Appellant. (denied) q) The Appellant herself determined her work schedule. (denied) r) The Appellant herself chose her place of work. (denied) s) The duties of the Appellant were not integrated into the operations of the Payor. (denied) t) The Appellant performed little in the way of duties for the Payor and these did not justify her salary. (denied) u) The Payor ceased operations in July 2002. (admitted) v) Following the closure of the Payor, the Appellant continued to receive a salary, but through 3103-5215 Québec Inc. (admitted) OTHER RELEVANT FACTS 6. The Deputy Attorney General of Canada noted the following relevant facts: a) During her period of maternity leave, the duties of the Appellant were performed by other individuals working for the Payor. (denied) [5] With respect to docket 2004-2419(EI), the Minister based his case on the following presumptions of fact: 5.a) The company 3103-5215 Québec Inc. (hereinafter the "Payor") was established in 1994. (admitted) b) The Payor's company consisted of the retail sale of sports clothing for men and women in a shop located on St. Catherine Street Westin Montreal. (admitted) c) The shareholders of the Payor, in equal parts, were Omar Nagi and Akram Antonio Saleh. (admitted) d) Mr. Nagi and Mr. Saleh became equal shareholders in another company, namely 2796686 Canada Inc. (admitted) e) The company 2796686 Canada Inc. operated a boutique which also sold sports clothes for men and women from a location in the Place Versailles shopping mall in Montreal. (admitted) f) The Appellant worked in the shop located in Place Versailles before working for the Payor. (admitted) g) The Payor's company employed approximately 6 workers, including the Appellant. (denied) h) The Appellant is the wife of Omar Nagi, whom she married in July 1996. (admitted). i) She was paid by cheque for 20 hours of work a week. (approximately) j) The Appellant received a salary of $500 every two weeks until December 2002. (admitted) k) In January 2003, the Appellant received a salary increase, to $600 every two weeks. (admitted) l) The duties of the Appellant consisted of entering invoices by hand in the ledgers for the accountant, checking orders when they arrived at the store and checking the hours of the other employees. She did not make out cheques or deposit slips. (denied) m) The Payor exercised no control over the Appellant. (denied) n) The Appellant herself determined her work schedule. (denied) o) The Appellant herself chose her place of work. (denied) p) The duties of the Appellant were not integrated into the operations of the Payor. (denied) q) The Appellant performed few duties for the Payor and these did not justify her salary. (denied) OTHER RELEVANT FACTS 6. The Deputy Attorney General of Canada noted the following relevant facts: a) Prior to July 1, 2002, the duties of the Appellant were performed out by Mr. Harati. (denied) b) Mr. Harati worked for the Payor one day a week. (admitted) c) He received the amount of $150 per week. (admitted) d) Following the hiring of the Appellant by the Payor, Mr. Harati continued the same work as before and received the same remuneration. (denied) [6] The evidence established that the two payors had between 8 and 11 employees, depending on the period or season, including the Appellant, the majority of whom were students who worked on a part-time basis. The Appellant worked either at the place of business or at her residence, at her discretion. According to the payors, the Appellant herself decided where and when she would work. She had no work schedule. She performed her duties when she wanted to. When she worked at the place of business of Payor 2796686 Canada Inc., the Appellant had no office to herself, but instead shared whatever office was available with the others. [7] The Appellant did not appear at the hearing. Her husband, Omar Nagi, testified for her as her agent. [8] At the hearing, Mr. Nagi first denied the assumptions by the Minister regarding the control over the Appellant exerted by the payors, the Appellant's work schedule and her place of work, her duties in the businesses and her salary, which could not be justified in light of the few duties she performed. In his testimony, however, he acknowledged that when she worked for 2796686 Canada Inc., she did not have to punch a time card, had no specific hours or fixed schedule, even though she was required to be present every day to perform specific duties, but did this when she was available, since she could come in at whatever time she wanted. Mr. Nagi was unable to explain the duties of the Appellant or to justify the salary he paid her. When 2796686 Canada Inc., closed in July 2002, the Appellant continued to receive her salary, although this was paid to her by 3103-5215 Québec Inc. This was admitted by Mr. Nagi in his testimony, but he denied this statement in his statutory declaration. With regard to docket 2004-2419(EI), Mr. Nagi, at the hearing, denied the Minister's assumptions set out at paragraph 6(a) and (d). However, in his statutory declaration of April 17, 2003, he stated that Mr. Harati performed the job of the Appellant before she joined the company. He stated that these duties took him one day a week, or approximately 10 hours. He added that he was paid $150 per week. With regard to the presumption set out at paragraph 6(d), Mr. Nagi initially denied it, but then admitted it, adding that, after the Appellant joined the company, Mr. Harati continued to do the same job, at the same pay, but that the Appellant was doing other tasks, which he was unable to describe in a credible manner. It is appropriate to highlight a number of other flagrant contradictions in the statements made by Mr. Nagi. He admitted the presumptions of the Minister set out in paragraphs 5(n) and (o) of docket 2004-2420(EI); these are reproduced below. n) Following the birth of her child in August 2000, the Appellant stayed at home, where she did a little accounting, such as invoicing and bookkeeping. o) The Payor continued to pay the Appellant a salary of $500. [9] These statements should be compared with the statutory declaration of Mr. Nagi, from which the following excerpt is taken: [translation] Q. Did she perform any services during her period of maternity leave? A. None Q. Who replaced her during her absence? A. The other employees who were already there. Q. During her absence, did she receive any money? A. No. [10]The company 2796686 Canada Inc. ceased operations in July 2002. However, the Appellant continued to receive her salary, although it was paid to her by the other business belonging to her husband, namely 3103-5215 Québec Inc. and, furthermore, her salary was increased in January 2003, while she was still at home. [11]From July 2002 on, the company no longer required the services of the Appellant; the business closed and Mr. Harati was there. It was further established that the duties of the Appellant were carried out by other employees prior to her arrival. The evidence revealed that Mr. Harati performed these duties in the course of one day a week, and that he was paid $150 for this work. [12]It is germane to reproduce an excerpt from the interview that the appeals officer, Jacques Rousseau, had with the representative of the payors, Omar Nagi, and with the Appellant. I have reproduced below the facts noted by the Appeals Officer in his CPT 110 report filed as Exhibit I-4: [translation] 19. The worker ceased working in July 2000 for the birth of her second child in August 2000. Following the birth, she decided to remain at home to look after the two children. She did a little accounting, including invoicing and bookkeeping. 20. She nonetheless continued to receive her salary, which increased to $300 a week or $600 every two weeks. [beginning in January 2003] 21. After the Place Versailles store closed in July 2002, the worker continued to be paid by the boutique on St. Catherine Street: 3103-5215 Québec Inc. 22. Mr. Nagi told me that she worked 25 to 30 hours a week. He revised his story, saying that she worked fewer hours than she did while working at the store. He admitted that she did no more than 10% of what she had done previously. 23. I asked him if he would have given the same salary to someone who was not related to him; he said no, and that he knew that this was favouritism, in view of the fact that it was his wife. 24. Statement by the worker: Haval Hala 25. Ms. Hala confirmed to me the facts given by her husband. 26. She added, moreover, that, after the birth of her second child, she used to go to the store either once a week or every two weeks. [13]In his report, produced at the hearing as Exhibit I-4, the appeals officer stated in his summary that: [translation] Kayal Hala is the wife of Omar Nagi, who controls 50% of 2796686 Canada Inc. The other shareholder, Akram Antonio Saleh, controls the other 50% and is not related to Mr. Nagi or to Ms. Hala. The Worker and the Payor are not related within the meaning of section 251 of the Income Tax Act. [14]However, this Court cannot concur in such a statement and must conclude, on the contrary, that the Appellant, in the two cases under review, is in fact related to both payors. [15]For the purposes of this analysis, it is instructive to refer to the text of the relevant legislation, namely the Employment Insurance Act and the Income Tax Act. [16]Subsection 5(1) of the Employment Insurance Act reads in part as follows: 5.(1) Subject to subsection (2), insurable employment is: a) employment in Canada by one or more employers, under any express or implied contract of service or apprenticeship, written or oral, whether the earnings of the employed person are received from the employer or some other person and whether the earnings are calculated by time or by the piece, or partly by time and partly by the piece, or otherwise; [...] [17] Subsections 5(2) and (3) of the Act read in part 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. (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. [18] The definition of "related persons" is found at section 251 of the Income Tax Act and reads in part as follows: 251. Arm's length. (1) For the purposes of this Act: a) related persons shall be deemed not to deal with each other at arm's length; [...] (2) Definition of "related persons". For the purposes of this Act, "related persons", or persons related to each other, are a) individuals connected by blood relationship, marriage or common-law partnership or adoption; b) a corporation and (i) a person who controls the corporation, if it is controlled by one person, (ii) a person who is a member of a related group that controls the corporation, or (iii) any person related to a person described in subparagraph (i) or (ii); [19]The Appellant is asking this Court to quash the decisions handed down by the Minister. [20]The decisions of the Minister are based on the insurability of the employment of the Appellant in accordance with paragraph 5(1)(a) of the Employment Insurance Act, while this Court has already determined above that the employment of the Appellant was excluded from insurable employment under subsection 5(2) of the same Act. It is incumbent on this Court to determine whether the Appellant and the payors must be deemed to be dealing with each other at arm's length in accordance with the criteria set out at paragraph 5(3)b) of the Employment Insurance Act, which stipulates that, in order to so determine, the Court must be convinced that 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, 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 difficult to imagine that the Appellant would have received such conditions of employment if she had not been related to the payors. Mr. Nagi, furthermore, stated this to the appeals officer, when he declared that he would not have paid the same salary to someone who was not related to him, adding that he knew that he was engaging in favouritism, in view of the fact that the Appellant was his wife. [21]It has been established that the Appellant had a flexible work schedule, that she came in when she wanted to and that she continued to receive her full salary after she stopped working and stayed home on maternity leave. Evidence has been submitted, moreover, that the business that hired the Appellant ceased operations and that the Appellant continued to receive her salary, which was paid to her by another company, 50% of the shares of which were held by her husband. It has further been proven that, prior to her being hired by the payors, the work of the Appellant was performed by other employees, including Mr. Harati, who needed 10 hours a week to do so. Mr. Harati was paid $150 a week to do this work, and he continued to perform these duties after the arrival of the Appellant, for the same salary. In addition, the salary of the Appellant was increased in January 2003 to $600 a week for duties that are vague, on a schedule that she set herself, while she was able to come and go as she pleased and she was more often at home than at the business. [22]The Appellant had the burden of proving that the presumptions by the Minister were wrong. She did not do so. It must be emphasized that most of the Minister's presumptions were admitted. Furthermore, the presumptions denied by the Appellant were not refuted. The only testimony at the hearing, that of Mr. Nagi, contradicted his own statutory declaration and the information he himself gave to the appeals officer. [23]Under the circumstances, we must recall that the Federal Court of Appeal in Elia v. Canada, [1998] F.C.A. No. 316 ruled that the presumptions of the Minister must be considered admitted unless they are expressly refuted by the Appellant. [24]Consequently, the employment of the Appellant with the payors is excluded from insurable employment in accordance with paragraph 5(2)(i) of the Employment Insurance Act since, in accordance with paragraph 5(3)(b) of the same Act, the Appellant and the payors were related and it is not reasonable to conclude, having regard to all the circumstances, that they would have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length. [25]For all these reasons, the appeals are dismissed and the decisions of the Minister are upheld regarding the insurability of the Appellant's employment. It must be noted that this Court reached this conclusion based on subsection 5(3) of the Employment Insurance Act, contrary to the Minister, who determined the insurability of the Appellant's employment pursuant to paragraph 5(1)(a) of the same Act. Signed at Grand-Barachois, New Brunswick, this 5th day of May 2005. S.J. Savoie Deputy Judge Savoie Translation certified true on this 28th day of February, 2006. Garth McLeod, Translator CITATION: 2005TCC273 DOCKET FILE NOS.: 2004-2419(EI) and 2004-2420(EI) STYLE OF CAUSE: Hala Kayal and M.N.R. PLACE OF HEARING: Montreal, Quebec DATE OF HEARING: February 25, 2005 REASONS FOR JUDGMENT: The Honourable S.J. Savoie, Deputy Judge DATE OF JUDGMENT: May 5, 2005 APPEARANCES: For the Appellant: Omar Nagi (agent) Counsel for the Respondent: Marie-Claude Landry SOLICITOR OF RECORD: For the Appellant: Name: Firm: For the Respondent: John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Ontario