Pars Empire North American Inc. v. M.N.R.

Pars Empire North American Inc. v. M.N.R. Court (s) Database Tax Court of Canada Judgments Date 2005-03-22 Neutral citation 2005 TCC 196 File numbers 2004-1296(EI) Judges and Taxing Officers Lucie Lamarre Subjects Employment Insurance Act Decision Content Docket: 2004-1296(EI) BETWEEN: PARS EMPIRE NORTH AMERICAN INC., Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. ____________________________________________________________________ Appeal heard on March 3, 2005, at Ottawa, Ontario. Before: The Honourable Justice Lucie Lamarre Appearances: Counsel for the Appellant: George Rontiris Counsel for the Respondent: Geneviève Léveillée ____________________________________________________________________ JUDGMENT The appeal pursuant to subsection 103(1) of the Employment Insurance Act is dismissed and the decision by the Minister of National Revenue dated January 7, 2004, for the period from August 1, 2001, to August 30, 2002, is confirmed in accordance with the attached Reasons for Judgment. Signed at Ottawa, Canada, this 22nd day of March 2005. "Lucie Lamarre" Lamarre J. Citation: 2005TCC196 Date: 20050322 Docket: 2004-1296(EI) BETWEEN: PARS EMPIRE NORTH AMERICAN INC., Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. REASONS FOR JUDGMENT (Judgment delivered orally on March 4, 2005, at Ottawa, Ontario and revised on March 22, 2005.) LamarreJ. [1] This is an appeal from a determination by the Minister of National Revenue ("Minister") that Nava Vosough was not employed by the appellant in insurable employment during the period from August 1, 2001, to August 30, 2002, since Ms. Vosough and the appellant were related and were not deemed to have dealt with each other at arm's length within the meaning of paragraph 5(3)(b) of the Employment Insurance Act ("EI Act"), and thus paragraph 5(2)(i) of the EI Act applied. [2] The facts may be summarized as follows. The appellant's sole shareholder is Ali Karimi, who has been married to Ms. Vosough since March 2000. Ali Karimi immigrated to Canada from Iran in April 1987. In 1994, he started his own business through his corporation, the appellant. He opened a convenience store on Elgin Street in Ottawa. At that time, he hired approximately four employees. In 1995, he opened a second store on Clyde Avenue in Ottawa and hired seven employees. [3] At that time, Ali Karimi ran the two stores himself. He said it was too costly to hire a manager and he did not know anyone he could trust. In March 2000, he got married in Iran and was absent from Canada for a two-month period. He asked an assistant manager to take care of the stores during that period. [4] One year later, that is, in May 2001, his wife immigrated to Canada. Once here, she would accompany her husband and help him with his business. He was working 80 hours per week. Ms. Vosough, who had studied microbiology in Iran, also had experience in managing a wholesale and retail business that belonged to her father in Iran. Although she had worked with her husband all the time since her arrival in Canada, she only started to get paid in August 2001. Mr. Karimi said that she was in training prior to that. According to Ms. Vosough, from August 1, 2001, to November 18, 2001, she received $700 per week by way of advances, either in cash or by cheque. Neither Mr. Karimi nor Ms. Vosough was entered on the appellant's payroll. On November 18, 2001, on the advice of Mr. Karimi's accountant, Ms. Vosough was put on the payroll. At that time, a salary of $12,115 was recorded on the payroll register, which amount covered the period from August 1, 2001, to November 18, 2001 (Exhibit A-1, page 2). It seems that from there on, she was paid a gross salary of $1,500 biweekly and was working as the manager of the store on Elgin Street. Among other things, she was responsible for customer service, ordering merchandise, the employees' schedules, verifying the employees' shifts, counting the money, doing the paperwork and going to the bank. Mr. Karimi said that the average salary for such a position in the same industry varied between $3,000 and $5,000 per month, and Ms. Vosough was paid $3,000 per month. [5] Ms. Vosough became pregnant at the beginning of January 2002 and although the baby was expected in late September 2002, she gave birth to her son prematurely on August 31, 2002. Her last day of work was August 30, 2002. When she left, she was replaced by an assistant manager, Mr. Duy Tran, who was already working in the store. He did Ms. Vosough's work with the help of Mr. Karimi. Mr. Karimi said that he raised Mr. Tran's salary by $1 or $2 per hour. [6] In November 2002, Mr. Karimi opened a third store, on Bank Street. He had eight employees working for him there. He hired a manager for that store. At that time, he was running the second store on Clyde Avenue and was helping the assistant manager on Elgin Street. He was also acting as the "district manager" for all the stores. In January 2003, Mr. Karimi opened a fourth store on Rideau Street. He employed eight or nine employees, including a manager, at that store. The documentary evidence does not reveal how much the managers hired for the two new stores were paid. [7] Mr. Karimi used the services of Ceridian Canada Ltd. ("Ceridian") to process the appellant's payroll. According to Mr. Karimi, Ceridian made the proper deductions at source and sent him the cheques for the appellant's employees. Mr. Karimi said he was paying his employees himself. This statement contradicts, however, his answer in a questionnaire he filled out for the Minister (Exhibit R-2, question 5) in which he said that the salary was deposited directly in the employee's account. Ms. Vosough's cancelled paycheques were not provided as evidence. It is also my understanding that they were not provided to the Minister. The appellant instead provided documents called "deposit account history" (Exhibit R-5) showing deposits in Ms. Vosough's account. However, there was inconsistency between the testimony of Mr. Karimi and that of Ms. Vosough as to the source of these documents. It is not clear whether the money was deposited for Ms. Vosough in an account at the TD Bank or in an account at the Royal Bank. The documents themselves do not state their source. We can see from these documents, though, that once in a while amounts larger than her regular salary were deposited in Ms. Vosough's account. Indeed, on March 28, 2002, there was a deposit of $6,133, and on May 24, 2002, another of $7,000. These deposits do not correspond to any pay statements in the payroll register (Exhibit R-5). Neither Mr. Karimi, nor Ms. Vosough seemed to know exactly what these particular deposits represented. Ms. Vosough indicated that they could have been retroactive salary for her three-month training period, but did not look very convinced. On this point, however, it is stated in the questionnaires filled out by both Mr. Karimi and Ms. Vosough, that the training only lasted for two weeks (Exhibits R-2 and R-6, question 9.b). Moreover, Ms. Vosough was sometimes paid a bonus on top of her salary. Indeed, on June 11, 2002, she received an extra gross amount of $600 and on July 23, 2002, an extra gross amount of $500. We do not know whether the other employees were entitled to such bonuses. [8] Finally, when Ms. Vosough filed her application for employment insurance benefits (Exhibit R-7), she indicated that her salary was $1,600 biweekly. At the hearing, she explained that was referring there to her last paycheque and that she received gross earnings of $800 for her last week. This is contradicted by Exhibit A-2, which shows the payroll register for the period ending September 8, 2002, that indicates she was paid her regular gross salary of $750 for her last week of work. [9] Ms. Vosough also stated in her application that she was not related to the employer. At the hearing, she said that she had filled out this application with her husband on the Internet. She did not know why they indicated that she was not related to him. [10] The Minister concluded from his audit that the worker and the appellant would not have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length. Hence, the employment was excluded from insurable employment pursuant to paragraphs 5(2)(i) and 5(3)(b) of the EI Act. [11] The most relevant facts upon which the Minister relied in exercising his discretion as he did are stated in paragraph 9 of the Reply to the Notice of Appeal, as follows: . . . (g) the Appellant's payroll records demonstrated that the Worker was not paid on regular basis; (h) the Appellant's payroll records showed that during the year 2001, the Worker was not on regular payroll as she received a lump sum in December 2001; (i) the Appellant was not able to provide any records for the period of August 1, 2001 to November 1, 2001; . . . (n) while on maternity leave, the Worker's duties were performed by the Appellant's shareholder (the Worker's husband). [12] The recent case law on this Court's power to review a determination of the Minister under paragraph 5(3)(b) of the EI Act (formerly subparagraph 3(2)(c)(ii) of the Unemployment Insurance Act) is well summarized in Légaré v. Canada, [1999] F.C.J. No. 878 (Q.L.), and in Pérusse v. Canada, [2000] F.C.J. No. 310 (Q.L.), referred to by counsel for the respondent. In Légaré, the Federal Court of Appeal said the following at paragraph 4: ¶ 4 . . . 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. [13] In Pérusse, Marceau J.A., in a majority decision of the Federal Court of Appeal, added the following at paragraph 15: ¶ 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. [14] Accordingly, this Court must verify whether the facts relied on by the Minister are real and whether they were correctly assessed having regard to the context in which they occurred and then decide whether the Minister's conclusion was reasonable. Furthermore, this Court must also investigate all other facts put in evidence and consider whether the Minister's conclusion still seems reasonable. [15] Here, some of the facts relied upon by the Minister are confirmed by the evidence. Indeed, it is confirmed that Ms. Vosough was not on the regular payroll from August 1, 2001, to November 1, 2001, and no records for that period were provided. Furthermore, although it would seem that starting November 1, 2001, or thereabouts, she was paid on a regular basis, the evidence also disclosed that she received once in a while larger amounts or lump sum payments that did not match her regular salary. Finally, the Minister was not totally wrong in inferring that Ms. Vosough's duties were performed by her husband while she was on maternity leave. However, it seems that there was also an employee named Duy Tran who, with the help of Mr. Karimi, replaced her during that period. [16] Furthermore, some other facts that were apparently not considered by the Minister appear to me to be important. Although Mr. Karimi said in his testimony that the two managers hired in the two new stores opened since November 2002 were paid approximately $16 an hour, it would have been helpful for the appellant to point out, using the payroll register prepared by Ceridian, who those managers were and how much exactly they were paid. Indeed, those two managers appear to me to have been the employees whose work was the most comparable to that done by Ms. Vosough. Unfortunately, there is no evidence on this point. [17] Furthermore, we see from the payroll register (Exhibit A-1, page 2) that Mr. Duy Tran, who replaced Ms. Vosough in November 2002, was paid a salary of $9.25 an hour in November 2001 while Ms. Vosough's salary is shown as being $21 an hour in the same period. [18] For the period ending August 25, 2002, Mr. Tran was paid at an hourly rate of $10 while Ms. Vosough's hourly rate is shown to be $18.75 (Exhibit A-2). Even if I accept without any corroborating documentary evidence the testimony of Mr. Karimi that the other two managers were paid $16 an hour, this is still more than $2 per hour less than was paid to Ms. Vosough. [19] Moreover, Ms. Vosough could not really explain why she occasionally received lump sum payments or amounts greater than her regular pay. Nor do we know whether other employees were entitled to bonuses. [20] Finally, there were quite a few contradictions in the evidence. In their questionnaires (Exhibits R-2 and R-6), both Mr. Karimi and his wife said that there was a two-week training period, while in Court they spoke of three months. Mr. Karimi also said in his questionnaire that the pay was directly deposited in his wife's account, but in Court he stated that there was no direct deposit for any employee. In the application for employment insurance benefits, Ms. Vosough and her husband indicated a salary of $1,600 biweekly, while the payroll register indicates $1,500. They also said that Ms. Vosough was not related to the employer. [21] Bearing this in mind, I have difficulty believing Mr. Karimi when he says that he made the same kind of advances as he did to his wife to other employees at the beginning of their employment, while they were not yet entered on the payroll. In my view, this special treatment, that lasted for more than two months, was reserved for his wife alone, or at least, I am not at all convinced that he did the same thing for other employees. [22] Considering all these elements, I find that the determination of the Minister is all the more reasonable in the context of the evidence presented before me. Indeed, having regard to all the circumstances of the employment, in my view it is reasonable to conclude that Ms. Vosough was treated differently than the other employees and that the appellant would not have entered into a substantially similar contract of employment with her if they had been dealing with each other at arm's length. Consequently, they cannot be deemed to have dealt with each other at arm's length within the meaning of paragraph 5(3)(b) of the EI Act, and Ms. Vosough's employment for the period at issue is therefore excluded from insurable employment pursuant to paragraph 5(2)(i) of the EI Act. [23] The appeal is dismissed. Signed at Ottawa, Canada, this 22nd day of March 2005. "Lucie Lamarre" Lamarre J. CITATION: 2005TCC196 COURT FILE NO.: 2004-1296(EI) STYLE OF CAUSE: Pars Empire North American Inc. v. M.N.R. PLACE OF HEARING: Ottawa, Ontario DATE OF HEARING: March 3, 2005 REASONS FOR JUDGMENT BY: The Honourable Justice Lucie Lamarre DATE OF JUDGMENT: March 22, 2005 APPEARANCES: Counsel for the Appellant: George Rontiris Counsel for the Respondent: Geneviève Léveillée COUNSEL OF RECORD: For the Appellant: Name: George Rentiris Firm: Emond Harnden For the Respondent: John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Canada