Kabbaj v. MNR

Kabbaj v. MNR Court (s) Database Tax Court of Canada Judgments Date 2003-05-14 Neutral citation 2003 TCC 319 File numbers 2002-4207(EI) Judges and Taxing Officers Jerome F. Somers Subjects Employment Insurance Act Decision Content Docket: 2002-4207(EI) BETWEEN: KARIMA KABBAJ, Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent, and MÉNAGE À PERFECTION INC., Intervener. ____________________________________________________________________ Appeal heard on March 31, 2003, at Montreal, Quebec Before: the Honourable Deputy Judge J.F. Somers Appearances For the Appellant: The Appellant herself Counsel for the Respondent: Me Marie-Aimée Cantin For the Intervener: No one appeared ____________________________________________________________________ [OFFICIAL ENGLISH TRANSLATION] JUDGMENT The appeal is dismissed and the Minister's decision is confirmed in accordance with the attached Reasons for Judgment. Signed at Ottawa, Canada, this 14th day of May 2003. "J.F. Somers" D.J.T.C.C. Translation certified true on this 30th day of January 2004. Leslie Harrar, Translator Citation: 2003TCC319 Date: 20030514 Docket: 2002-4207(EI) BETWEEN: KARIMA KABBAJ, Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent, and MÉNAGE À PERFECTION INC., Intervener. [OFFICIAL ENGLISH TRANSLATION] REASONS FOR JUDGMENT Deputy Judge Somers, T.C.C. [1] This appeal was heard at Montreal, Quebec, on March 31, 2003. [2] The appellant appeals from the decision of the Minister of National Revenue (the "Minister") dated September 10, 2002, that her employment with the payer, Ménage à Perfection Inc., during the period at issue, namely, from December 3 to December 22, 2001, was insurable because there was a contract of service between her and the payer and that for this period insurable earnings totalled $1,500.00 and insurable hours totalled 120 and, in addition, for the period from December 24 to May 17, 2002, her employment was not included in insurable employment because she and the payer were dealing at arm's length. [3] In his Reply to the Notice of Appeal, the Minister submitted that - the appellant's employment was insurable during the period from December 3 to December 22, 2001, because there was a contract of service between her and the payer and insurable earnings for this period totalled $1,500.00 and insurable hours totalled 120. In addition, the Minister decided that - the appellant did not hold insurable employment during the week from December 23 to 28, 2001, since she provided no service and was not remunerated; - the appellant's employment was not insurable during the period from December 19, 1001 to May 17, 2002, because she and the payer were not dealing at arm's length according to the provisions of paragraph 5(2)(i) of the Employment Insurance Act (the "Act") and sections 251 and 252 of the Income Tax Act. [4] Subsection5(1) of the 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; [...] [5] Subsections 5(2) and (3) of the Act read in part as follows: (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. [6] Section 251 of the Income Tax Act reads in part as follows: Section 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; and [...] (2) Definition of "related persons". For the purpose 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; [...] [7] The burden of proof lies with the appellant. She must establish, on a balance of probabilities, that the Minister's decision is wrong in fact and in law. Each case must be decided on its own merits. [8] In making his decision, the Minister relied on the following assumptions of fact set out in paragraph 5 of the Reply to the Notice of Appeal, which were admitted or denied by the appellant or concerning which the appellant had no knowledge: [Translation] (a) the payer was incorporated on July 17, 2001; (no knowledge) (b) the payer operated a residential and commercial janitorial business; (admitted) (c) the sole shareholder of the payer was Georges Dibé; (admitted) (d) on December 29, 2001, the appellant married Georges Dibé; (admitted) (e) the appellant had been hired as director of operations; (admitted) (f) the appellant's tasks consisted of answering the telephone, making appointments, preparing the employees' work schedules, preparing invoices and fielding complaints; (denied) (g) the appellant had a work schedule of 40 hours a week with the payer; (admitted) (h) the appellant's salary had been fixed by the payer at $26,000 a year; (admitted) (i) the appellant was remunerated for three weeks in December 2001; (denied) (j) for the period from December 3 to December 22, 2001, the appellant worked 120 hours and received remuneration of $1,500; (denied) (k) for the rest of the period at issue, the appellant was listed in the payer's payroll journal with a salary of $1,000 every two weeks; (denied) (l) the business did not operate during the week from December 23 to December 29, 2001; (denied) (m) after her marriage on December 29, 2001, the appellant's salary was no longer paid; (denied) (n) the payer's payroll journal does not reflect the reality; (denied) (o) on June 19, 2002, in a signed statement to HRDC, the appellant said [Translation] "I was not paid for all of the weeks I worked because the company had no money to pay me"; (denied) (p) on June 19, 2002, in a signed statement to HRDC, the appellant said: [Translation] "since I stopped working, on 17-5-2002, I have continued to go to the company for 4 to 5 hours a day, 5 days a week, to look for a job on the Internet, but also to work, I answer the telephone"; (denied) (q) on May 22, 2002, the payer issued a record of employment to the appellant for the period beginning on December 3, 2001, and ending on May 17, 2002, which showed 960 insurable hours and total insurable earnings of $12,480.00; (admitted) (r) following her layoff, the appellant continued to provide services to the payer without pay; (denied) (s) the appellant's record of employment does not reflect the reality as to the remuneration and the period worked by the appellant; (denied) (t) the period allegedly worked by the appellant does not correspond with the period actually worked. (denied) [9] The payer was incorporated on July 17, 2001, and operated a residential and commercial janitorial business. The sole shareholder of the payer, Georges Dibé, married the appellant on December 29, 2001. [10] The appellant was hired by the payer as director of operations. Her duties consisted of answering the telephone, making appointments, preparing the work schedules for three to four employees, preparing the invoices and fielding complaints. In addition, the appellant translated documents from English to French and managed the office generally. [11] The appellant worked 40 hours a week and her salary had been fixed by the payer at $26,000 a year. For the period from December 3 to December 22, 2001, the appellant worked 120 hours and received remuneration of $1,500. For the remainder of the period at issue, the appellant said that she was supposed to receive $757.48 every two weeks and that she had received her last pay on January 12, 2002. She added that she had worked for the payer until May 17, 2002, but that she was not paid up to that time. [12] The appellant was the only one who testified in support of her appeal. In her testimony, the appellant stated that the payer's business was operating normally on December 23, 2001, but not on December 24 and 25, and that she had married the sole shareholder of the payer on December 29 of that year. [13] In a statutory declaration dated June 19, 2002, (Exhibit I-1), the appellant stated, inter alia: [Translation] ...I ought to explain that I was not paid for all of the weeks I worked because the company had no money to pay me, but the money is owed to me; I received only six to eight weeks' salary approximately... I stopped working because the company could no longer pay my salary, not enough customers for the time being. I was not replaced, my husband has voice mail and he is at the office on 27 Grande Côte, Boisbriand. Since I stopped working on 17-5-2002, I have continued to go to the company for 4 to 5 hours a day, 5 days a week, to look for a job on the Internet, but also to work, I answer the telephone...I am not paid by my husband on those days. and, at the hearing of this appeal, the appellant made the same statement as the one quoted above. She said that she had not provided services to the payer after her layoff on May 17, 2002. [14] In his testimony at the hearing of this appeal, Clermont Poulin, an appeals officer with the Canada Customs and Revenue Agency, stated that he had had a telephone conversation with the appellant on August 19, 2002, and another with the payer on August 20, 2002, and after that he had prepared the appeal report filed as Exhibit I-2. [15] Clermont Poulin said that the appellant gave vague answers. Regarding the method of payment of her salary, the appellant told him that she was paid in cash, by cheque or by direct deposit. She also said that she had received [Translation] "only three weeks' salary". According to the appellant, the payer's other employees were paid every two weeks. [16] According to Clermont Poulin's report, Georges Dibé told him that the appellant was employed by him during the period at issue, that her salary had been fixed at $26,000 a year and that her hours were not recorded. [17] According to the sales journal filed as Exhibit I-4, the payer's turnover for the months of February, March and April 2002 was $3,025.35, $3,189.48 and $2,741.35 respectively. As for the turnover for June and July 2002, namely, after the appellant's layoff, Georges Dibé told the appeals officer that it was $4,000 and $6,000 respectively. [18] In Ferme Émile Richard et Fils Inc. v. M.N.R., [1994] F.C.J. No. 1859, the Federal Court of Appeal indicated that, where the application of subparagraph 3(2)(c)(ii) of the Unemployment Insurance Act, now paragraph 5(3)(b) of the Employment Insurance Act, is involved,the Court must consider whether the Minister's decision "resulted from the proper exercise of his discretionary authority." In the first stage, the Court must require the appellant to present evidence of wilful or arbitrary conduct by the Minister. [19] The evidence showed that the appellant and the sole shareholder of the payer were not dealing at arm's length. The appellant's hours of work were not controlled or recorded and she was not paid regularly for her work, whereas the other employees of the payer were paid every two weeks. Someone who was dealing at arm's length would not have worked for the payer without being paid. The record of employment does not reflect the reality. [20] The payer's turnover increased and almost doubled after the appellant's layoff, which implies that the payer was much busier than it was during the months when the appellant was employed by it. However, the appellant was not replaced and Georges Dibé handled the duties formerly performed by her. [21] The Minister properly exercised his discretion and did not act capriciously or arbitrarily. [22] Consequently, the appeal is dismissed and the Minister's decision is confirmed. Signed at Ottawa, Canada, this 14th day of May 2003. "J.F. Somers" D.J.T.C.C. Translation certified true on this 30th day of January 2004. Leslie Harrar, Translator Authority consulted Canada (Attorney General) v. Jencan Ltd. (C.A.), [1998] 1 F.C. 187