Maldrik v. M.N.R.

Maldrik v. M.N.R. Court (s) Database Tax Court of Canada Judgments Date 2006-08-14 Neutral citation 2006 TCC 421 File numbers 2005-4274(EI) Judges and Taxing Officers William E. MacLatchy Subjects Employment Insurance Act Decision Content Docket: 2005-4274(EI) BETWEEN: MONICA MALDRIK, Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent, and BELA FARKAS, Intervenor. ____________________________________________________________________ Appeal heard on June 06, 2006, at Toronto, Ontario Before: The Honourable W.E. MacLatchy, Deputy Judge Appearances: Agent for the Appellant: Doug Warwick Counsel for the Respondent: Eric Sherbert Intervenor Bela Farkas ____________________________________________________________________ JUDGMENT The appeal is dismissed and the decision of the Minister is hereby confirmed in accordance with the attached Reasons for Judgment. Signed at Toronto, Ontario, this 14th day of August, 2006. "W.E. MacLatchy" MacLatchy D.J. Citation: 2006TCC421 Date:20060814 Docket: 2005-4274(EI) BETWEEN: MONICA MALDRIK, Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent, and BELA FARKAS, Intervenor. REASONS FOR JUDGMENT MacLatchy, D.J. [1] This appeal was heard at Toronto, on the 9th day of June, 2006 in the presence of the Appellant, Monika Maldrik and the Intervenor, Bela Farkas. [2] On August 8, 2005, the Appellant applied on-line for Maternity Employment Insurance benefits. As a result of a HRSDC request, G.M. Vadera, CPP/EI Coverage Officer at the Scarborough Tax Services Office determined that the Appellant was not employed in an insurable employment by virtue of paragraph 5(2)(i) of the Employment Insurance Act (the "EIA") during the period of January 3, 2005 to June 13, 2005 while working for Bela Farkas, o/a Eden Garden Restaurant (the "Payor"). Both parties were advised of the decision by letter dated September 8, 2005. [3] The Appellant disagreed with the CPP/EI Coverage Officer's decision and filed an Appeal on September 19, 2005. [4] The Appellant appealed a ruling to the Respondent for the determination of the question of whether or not the Appellant was employed in insurable employment while engaged by the Payor during the period in question, within the meaning of the Employment Insurance Act (the "EIA"). [5] By letter dated October 21, 2005, the Respondent informed the Appellant and the Payor that it had been determined that the Appellant was not employed in insurable employment, for the period referred to herein, for the reason that the Appellant and the Payor were not dealing with each other at arm's length, pursuant to paragraph 5(2)(i) of the EIA. [6] The Appellant disagreed with the Minister's decision and filed an appeal to the Tax Court of Canada on December 7, 2005. [7] Both the Appellant and the Intervenor agree with the assumptions' relied on by the Minister in making his decision subject to minor variations and amplifications that did not materially affect the basis for the assumptions. [8] The Minister reached the decision under paragraph 5(3)(b) of EIA that the Appellant and the Intervenor were not dealing with each other at arm's length. [9] The Appellant's evidence was that she replied to an advertisement in November, 2004 in a Hungarian newspaper placed by the Intervenor seeking a waitress with speaking skills in English and Hungarian for his restaurant. She had experience with serving and waiting because she assisted her parents in the operation of a Bed and Breakfast house in her native Hungary. She complimented her skills by completing a course known as "Smart Serve" and receiving a certificate of competency. During the months of November and December, the Appellant helped out as a waitress for some large parties run by the Intervenor. The Intervenor stated he was satisfied with the skills exhibited by the Appellant and agreed to hire her on a permanent basis starting January 1st, 2005. In the interim, between applying for employment and being permanently hired by the Intervenor, the Appellant commenced an intimate relationship with the Intervenor and ultimately married him April 17, 2005 and they cohabited thereafter. She became pregnant in February 2005 and the child was born September 11, 2005. [10] The Appellant worked for the Intervenor daily until the restaurant was destroyed by fire on June 4, 2005. The restaurant never reopened and the Appellant was not employed from that date forward elsewhere due to her pregnancy. Her application for maternity benefits was denied leading to this appeal. [11] The Minister's discretion cited in paragraph 5(3)(b) of the "EIA" has been repeatedly examined by the Courts as has the function of this Court in those proceedings. The issue is well stated in Légaré v. Canada(Minister of National Revenue),[1999] F.C.J. No. 878 (Fed.C.A.) by Marceau J.A. in these terms: 4. The Act requires the Minister to make a determination based on his own conviction drawn from a review of the file. The wording used introduces a form of subjective element, and while this has been called a discretionary power of the Minister, this characterization should not obscure the fact that the exercise of this power must clearly be completely and exclusively based on an objective appreciation of known or inferred facts. And the Minister's determination is subject to review. In fact, the Act confers the power of review on the Tax Court of Canada on the basis of what is discovered in an inquiry carried out in the presence of all interested parties. The Court is not mandated to make the same kind of determination as the Minister and thus cannot purely and simply substitute its assessment for that of the Minister: that falls under the Minister's so-called discretionary power. However, the Court must verify whether the facts inferred or relied on by the Minister are real and were correctly assessed having regard to the context in which they occurred, and after doing so, it must decide whether the conclusion with which the Minister was "satisfied" still seems reasonable. [12] The matter was further commented on by the Federal Court of Appeal in Pérusse c. Ministre du Revenu national, [2000] F.C.J. No. 310 (Fed. C.A.), where Marceau, J. expressed himself in the following terms: [15] The function of an appellate judge is thus not simply to consider whether the Minister was right in concluding as he did based on the factual information which Commission inspectors were able to obtain and the interpretation he or his officers may have given to it. The judge's function is to investigate all the facts with the parties and witnesses called to testify under oath for the first time and to consider whether the Minister's conclusion, in this new light, still seems "reasonable" (the word used by Parliament). The Act requires the judge to show some deference towards the Minister's initial assessment and, as I was saying, directs him not simply to substitute his own opinion for that of the Minister when there are no new facts and there is nothing to indicate that the known facts were misunderstood. However, simply referring to the Minister's discretion is misleading. [13] The jurisdiction of the Tax Court of Canada relative to such an inquiry is ably and extensively covered by Porter, D.J.T.C.C. in the case of Crawford & Co. v. Minister of National Revenue, [1999] T.C.J. No. 850 (T.C.C. [Employment Insurance]) and referred to in Docherty v. Minister of National Revenue, [2000] T.C.J. No. 690 (T.C.C.) by Rowe, D.J.T.C.C. and is well repeated: [58] In the scheme established under the EI Act, Parliament has made provision for certain employment to be insurable, leading to the payment of benefits upon termination, and other employment which is "not included" and thus carrying no benefits upon termination. Employment arrangements made between persons, who are not dealing with each other at arm's length, are categorized as not included. Brothers and corporations controlled by them are deemed not to be dealing with each other at arm's length pursuant to subsection 251(1) of the Income Tax Act, which governs the situation. Quite clearly the original purpose of this legislation was to safeguard the system from having to pay out a multitude of benefits based on artificial or fictitious employment arrangements, see the comments of the Federal Court of Appeal in Paul v. The Minister of National Revenue, [1996] F.C.J. No. 682, (A-223-86), where Hugessen J. said: We are all prepared to assume, as invited by appellant's counsel, that paragraph 3(2)(c) of the Unemployment Insurance Act, 1971, and subsection 14(a) of the Unemployment Insurance Regulations have for at least one of their purposes the prevention of abuse of the Unemployment Insurance Fund through the creation of so-called "employer-employee" relationships between persons whose relationship is, in fact, quite different. That purpose finds obvious relevance and rational justification in the case of spouses who are living together in a marital relationship. But even if, as appellant would have us do, we must look only at spouses who are legally separated and may be dealing at arm's length with one another, the nature of their relationship as spouses is such as, in our view, to justify excluding from the scheme of the Act the employment of one by the other. ... We do not exclude the possibility that the provisions may have other purposes, such as a social policy decision to remove all employment within the family unit from the operation of the Unemployment Insurance Act, 1971, as was suggested by respondent's counsel. [59] The harshness of this situation has however been tempered by paragraph 5(3)(b) of the EI Act, which provides for such employment between related persons to be deemed to be at arm's length and thus in turn to be treated as insurable employment, if it meets all the other provisions, where the Minister is satisfied 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, that it is reasonable to conclude that they would have entered into a substantially similar contract if they had (in fact) been dealing with each other at arm's length. [14] The Federal Court of Appeal has clarified the present understanding of the various sections in issue in Légaré, supra, where Marceau, J.A. stated as follows: In this matter, the Court has before it two applications for judicial review against two judgments by a judge of the Tax Court of Canada in related cases heard on the basis of common evidence which raise yet again the problems of interpretation and application of the saving provision, subparagraph 3(2)(c)(ii). I say yet again because since its passage in 1990, several decisions of the Tax Court of Canada and several judgments of this Court have already considered what workable meaning could be given to subparagraph 3(2)(c)(ii). In reading the text, the problems it poses beyond its deficient wording are immediately obvious, problems which essentially involve the nature of the role conferred on the Minister, the scope of the Minister's determination and, by extension, the extent of the Tax Court of Canada's general power of review in the context of an appeal under section 70 et seq. of the Act. While the applicable principles for resolving these problems have frequently been discussed, judging by the number of disputes raised and opinions expressed, the statement of these principles has apparently not always been completely understood. For the purposes of the applications before us, we wish to restate the guidelines which can be drawn from this long line of authority, in terms which may perhaps make our findings more meaningful. The Act requires the Minister to make a determination based on his own conviction drawn from a review of the file. The wording used introduces a form of subjective element, and while this has been called a discretionary power of the Minister, this characterization should not obscure the fact that the exercise of this power must clearly be completely and exclusively based on an objective appreciation of known or inferred facts. And the Minister's determination is subject to review. In fact, the Act confers the power of review on the Tax Court of Canada on the basis of what is discovered in an inquiry carried out in the presence of all interested parties. The Court is not mandated to make the same kind of determination as the Minister and thus cannot purely and simply substitute its assessment for that of the Minister: that falls under the Minister's so-called discretionary power. However, the Court must verify whether the facts inferred or relied on by the Minister are real and were correctly assessed having regard to the context in which they occurred, and after doing so, it must decide whether the conclusion with which the Minister was "satisfied" still seems reasonable. [15] In the case of Elia c. Ministre du Revenu national, [1998] R.C.J. No. 316 (Fed. C.A.), a decision of the Federal Court of Appeal, the comments of Pratte, J.A. are worth repeating: Contrary to what the judge thought, it is not necessary, in order for the judge to be able to exercise that power, for it to be established that the Minister's decision was unreasonable or made in bad faith having regard to the evidence before the Minister. What is necessary is that the evidence presented to the judge establish that the Minister acted in bad faith, or capriciously or unlawfully, or based his decision on irrelevant facts or did not have regard to relevant facts. The judge may then substitute his decision for that of the Minister. [16] No evidence was presented to this Court that the Minister acted in bad faith or capriciously or unlawfully. However, the Appellant and Intervenor gave evidence to attempt to convince this Court that in exercising his discretion, the Minister did not take into account certain relevant facts relating to the employment arrangement and their interpretation of the meaning of "at arm's length". Based on the evidence presented and on the applicable legislation the Appellant and the Intervenor were deemed not to be dealing with each other at arm's length. They are related parties in accordance with the Income Tax Act. 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 was reasonable for the Minister not to exercise his discretion and conclude that the parties would have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length. [17] The Appellant was paid at a rate that was lower than the average in the industry and without any source deductions being made as required. No vacation pay was available. If was only after the fire, when her application was made for benefits under the EIA, did deductions at source get remitted. The Appellant's hours of work were irregular and provided no consistent pattern on which she could rely for continuing income. The Appellant would operate the business when the Intervenor was absent from the restaurant as well as making payments to suppliers when approved by the Intervenor. The Appellant was the only waitress/hostess in this business as the clientele of the restaurant had diminished over the last year or two. The Minister took into account all relevant facts and reached the conclusion that the parties to this employment relationship would not have entered into this type of employment had they been dealing with each other at arm's length. [18] This appeal is dismissed and the decision of the Minister is hereby confirmed. Signed at Toronto, Ontario, this 14th day of August, 2006. "W.E. MacLatchy" MacLatchy D.J. CITATION: 2006TCC421 COURT FILE NO.: 2005-4274(EI) STYLE OF CAUSE: MONICA MALDRIK AND M.N.R. AND BELA FARKAS PLACE OF HEARING: Toronto, Ontario DATE OF HEARING: June 06, 2006 REASONS FOR JUDGMENT BY: The Honourable W.E. MacLatchy, Deputy Judge DATE OF JUDGMENT: August 14, 2006 APPEARANCES: Agent for the Appellant: Doug Warwick Counsel for the Respondent: Eric Sherbert Intervenor Bela Farkas COUNSEL OF RECORD: For the Appellant: Name: Firm: For the Respondent: John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Canada