Citation: 2009 TCC 551
Date: 20091028
Docket: 2009-660(EI)
BETWEEN:
MONIQUE BABICH,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Rowe, D.J.
[1] The Appellant Monique Babich (“Babich”)
appealed from a decision by the Minister of National Revenue (the “Minister”)
dated November 27, 2008 wherein the Minister determined her employment with
Able Enterprises Ltd. (“Able”) from April 1, 2008 to April 25, 2008 was not
insurable employment pursuant to paragraph 5(2)(i) of the Employment
Insurance Act (the “Act”). As stated in the decision, the Minister,
after considering the terms and conditions of the employment, was not satisfied
the contract of employment would have been substantially similar if Able and
Babich had been dealing with each other at arm’s length.
[2] The Appellant was represented by her
husband, Earl Babich (“Earl”).
[3] Babich testified she resides in Mission, British Columbia and is employed by Fraser Valley Brain
Injury Association (the “Association”). She agreed with the assumptions
contained in subparagraphs 6a to 6d, inclusive of the Reply to the Notice of
Appeal (“Reply”) as follows:
a)
the Payor was in the construction business and sold firewood;
b)
the Payor’s sole shareholder was Earl Babich (“Earl”);
c)
the Appellant was Earl’s wife;
d)
the Payor operated year round;
[4] Babich stated she was hospitalized for 10
days in February, 2008 arising from complications in her pregnancy and missed
working some of the insurable hours required to qualify for maternity leave
benefits pursuant to the Unemployment Insurance (“UI”) benefits provisions of
the Act. The Association is a non-profit organization that relies on
grants from governments and during the period following the end of February,
2008, did not have sufficient funds to employ the Appellant for those
additional hours. Babich stated she had never been employed by Able prior to
the relevant period and during her working career had not been self-employed
and even when providing private care to brain-injured persons - to supplement
her income - did so as an employee of the care recipient. As at April 1, 2008,
Babich was 8 months pregnant and had searched for other work without success.
As stated in the letter – Exhibit A-1 – dated June 20, 2008 – sent by P.A.
Bassi – Insurance Agent employed by Human Resources and Skills Development
Canada (HRSDC) – Babich had accumulated 564 hours of insurable employment
between April 29, 2007 and April 26, 2008 but needed 600 insurable hours to
qualify for special benefits based on maternity leave. Babich stated she was
not aware – at that time – of provisions in the legislation permitting her to
apply for an extension of the benefit period based on hours of work missed
during her hospitalization in February and insurable hours lost during the
summer of 2007 when she was suffering from symptoms relating to the birth of
her first child. After February, 2008, Babich continued to work for the
Association from the office in her marital residence as she had done throughout
her employment with that organization. She also started working for Able on
April 1, 2008 and had been hired by Ernest Babich (“Ernest”), her father-in-law.
Her duties were to sort receipts and to organize paperwork that had accumulated
over the course of three or four years so Able could file the proper returns
for corporate income tax and also the Goods and Services Tax (“GST”) provisions
of the Excise Tax Act. The wage was established at $16.00 per hour, the
same rate earned from the Association and when providing care to a private
patient. Babich stated she sorted receipts into categories and used an adding
machine to create tapes of total amounts of various expenditures. She set her
own hours of work and during the relevant period devoted 78 hours to that task.
Her last day of employment with the Association - and for Able - was April 25 and
the baby was born on May 1. Babich stated she worked for Able whenever her
schedule permitted as she wanted to qualify for UI maternity leave benefits.
During this period, she continued to work about 10 hours a week for the
Association from her home office which was the same space used to perform the
work for Able. Babich stated she was not hired to complete GST returns for Able
as assumed by the Minister at paragraph 6(f) of the Reply and any failure to
file said returns – paragraph 6(g) – was not attributable to any default on her
part. Babich stated she and her husband – Earl – had not lived in the same
residence as her father-in-law – Ernest – and mother-in-law – Betty Babich
(“Betty”) – since October, 2005 and that the Minister was incorrect in assuming
– paragraph 6(h) – that her duties for Able were performed in a home shared
with her in-laws. Babich stated she pointed this out to the Rulings Officer when
interviewed by telephone. During the relevant period, Babich had a 21-month old
child living at home but care was provided often by the Appellant’s mother and
father. Babich stated her mother was on leave from her employment and her
father was retired and the child sometimes was taken to their home in North Vancouver. Babich agreed she had been trained by Betty and that
while not supervised directly, had to speak with Betty from time to time – in
person or by telephone - to clarify certain matters concerning receipts or
other documents. Babich conceded she did not have prior experience as a
bookkeeper but in the course of her employment with the Association was responsible
for writing cheques, preparing documents for signature by the Executive
Director or a member of the Board of Directors, and assembled time sheets of 5
co-workers for delivery to the organization’s accountant. She also opened and
sorted mail and filed invoices when she attended the Association office and
functioned as an administrative assistant. Babich stated Ernest was not absent
from Canada during the relevant period as he and Betty
only left on May 7 for their holiday cruise in Europe. Babich stated that for
the month of April, 2008, the primary employer in terms of insurable hours was
Able, although she continued to do some work for the Association. Details of
work done and earnings received from both Able and the Association were set
forth on the Claimant Attestation Form – Exhibit A-3 – prepared and submitted
by the Appellant to Service Canada on May 15, 2008. On that document, the
Association and Able are identified as FVBIA and Able Ent., respectively.
Babich agreed the Minister’s assumptions were correct in paragraphs 6(r) and
6(s) of the Reply in that she was 8 months pregnant when hired by Ernest on
behalf of Able and her employment was terminated when the work was completed
before the end of April. Babich stated there was no replacement worker hired
subsequently because there was no more work to be done as the necessary
material and documentation – delivered to her in a large cardboard box - had
been sorted into taxation years, and amounts were tabulated and totals provided
for the purposes of filing both corporate income tax and GST returns. When
performing the work for Able, she thought the compilation of material and
related work product would be provided to an accountant retained by Able.
Babich stated the documentation delivered to her was in a “jumble” covering a
period of about 4 years. Often, certain receipts or other papers were difficult
to read or to understand their relevance as she had not participated in Able’s
business prior to her employment on April 1, 2008. She was aware of an audit by
Canada Revenue Agency (“CRA”) but was not told directly by Ernest, Betty or
Earl that the work to be done by her was connected to any audit. Babich stated
she was trained by Betty for about 8 hours over a period of “a couple of days.”
[5] Babich was cross-examined by counsel for
the Respondent. She acknowledged that prior to her marriage to their son – Earl
- she had lived in the same residence as Ernest and Betty but they moved out to
live in their motor home on property they owned and were residing there
throughout 2008. They did not use their former residence – now the residence of
Babich and Earl – as their mailing address. Babich stated she suffered from a
form of depression in July and August, 2007 and the following month discovered
she was pregnant with their second child. Babich stated she has a degree in
Community Rehabilitation and a Diploma in Patient Therapy. She was aware Earl
was an Officer of Able and that he controlled day-to-day operations but did not
know if there were other Officers of the corporation. Babich identified her
signature on page 11 of a Questionnaire – Exhibit R-1, dated October 8, 2008 –
that she completed and returned to CRA and agreed she was aware of the heading
– Certification - on page 11 – and confirmed the answers provided therein were
correct. Able had customers throughout the Fraser Valley and the business was operated out of the
matrimonial home she shared with Earl. The company business was conducted from
work space in a separate room and was equipped with two computers and the usual
office equipment and supplies. The same space was used to perform her duties
for the Association and – during April, 2008 – also for the work done for Able
which did not require a computer, only a calculator with printer. Babich stated
she was aware Able had been in business for about 30 years and that Earl had
taken over the shares in the corporation at some point. To her knowledge, Able
had no non-family employees in 2008 but she did not have any involvement with
any payroll records including T4 slips. The office of the Association was in
Abbotsford, about 25 miles from the Babich residence and it carried out a
variety of functions relating to persons affected by brain injury. In 2008,
Babich worked on an injury prevention program and staffed a booth at the
Abbotsford Air Show. Pursuant to a written contract with the Association,
Babich worked about 10 hours a week at rates varying from $16 and $18 per hour
depending on the task. She received a Record of Employment (“ROE”) – Exhibit
R-2 – dated April 28, 2008 - from the Association in which it stated she had
worked a total of 584 insurable hours and had insurable earnings in the sum of
$5,877.44 during the period from March 1, 2007 to April 25, 2008. Babich stated
the ROE – at box 11 – is incorrect when it showed the last day
for which she was paid as April 5, 2008 because she had worked until April 25.
Babich referred to a two-page statement issued by the Association – titled
Statement of Earnings and Deductions – filed as Exhibit R-3. Babich pointed out
the entries on page 1 of the statement pertaining to the period ending April 9th
which indicated she worked 22 hours at $16.00 per hour and 4 hours at $18.00
for a total of 26 hours. As shown on page 2 for the period ending April 25,
Babich worked 36.5 hours at $16.00 and 9 hours at $18.00. When completing the
Questionnaire – Exhibit R-1 – Babich prepared a calendar to record hours of
work performed for Able and attached it behind the signature page. Babich
stated that some of the hours included in her last pay period – from the Association
- were composed of work performed earlier that were “banked” in the sense they
were not paid for at that time, perhaps due to financial constraints during a
certain pay period or periods. As for the work done for Able, Babich stated she
recorded the number of hours worked - whether done consecutively or at
different times on the same day - but did not record start and end times. Her
young child was usually supervised by her parents or was absent from the home
but her hours of work were flexible and could accommodate his care in the
marital residence. She stated Ernest hired her about one week prior to April 1
and did so in order to present an “arm’s length” aspect to the matter since
Earl was the sole shareholder of Able. Prior to the relevant period, she had
not assisted Earl in the Able business. She had not answered the business
telephone nor performed office duties but knew that Ernest worked with Earl in
carrying on business operations. Babich stated she contacted two other
potential employers in Abbotsford that were operated by acquaintances and had
requested employment prior to April 1, 2008. She was not hired and attributed
that lack of success to her obvious pregnant condition and the impending birth
date within a month or so. Babich reiterated she was hired to compile
information from the mass of documents delivered to her but had no role in
preparing the GST returns for Able. In relation to the work performed, Babich
expressed the opinion that no special skills were required for the sorting and
tabulating tasks other than those acquired by someone familiar with office
routine and some aspects of payroll. Babich received some instruction from
Betty on the proper methods to categorize documents and to place them in a
particular order since Betty had been a bookkeeper for Able for many years.
Babich stated she was paid for the hours of training by Betty but any
subsequent contact with Betty or Ernest was for the purpose of obtaining a
response to a query about the content or significance of certain documents.
Babich stated she worked 78 hours – at $16.00 per hour – during the relevant
period and earned the sum of $1,248.00. She was paid by a cheque – dated May 1,
2008 - signed by Ernest and drawn on the Able account. The cheque was deposited
to her bank account in Abbotsford on May 8. With respect to Question 16(b) on
page 8 of the Questionnaire – Exhibit R-1 – pertaining to the bookkeeping
duties performed, Babich stated she provided that information after obtaining
it from Able records. Her ROE from Able was prepared and signed by Ernest.
Babich acknowledged she had no written contract with Able pertaining to the
work done during the relevant period and had no documentary proof currently
available to demonstrate the work at issue had been performed. She acknowledged
she was aware of the number of insurable hours required to qualify for UI
maternity leave benefits and in February and March had requested more hours of
work from the Association but it was short of funds because it relied on grants
received at irregular intervals from various sources. Babich stated she had not
specifically linked her request for more hours of work to her intention to
qualify for maternity leave benefits.
[6] Earl conducted the re-direct examination of
the Appellant. Babich stated she had some familiarity with accounting software
and explained the scope of her work for the Association required her to “wear
many hats.” She was paid travel time and those hours were included in the total
shown on the ROE issued by the Association. In 2000, the starting wage was
about $10.00 per hour but it had risen to $16.00 for some years prior to 2008.
Babich confirmed that the hours referred to as “banked” during the last part of
April, 2008 were actually worked for which she was paid. She thought she may
have attended a staff meeting at the Association office towards the latter part
of April. With regard to the work done for Able, Ernest provided her with the
documents that needed sorting and totals were prepared on an adding
machine/calculator that produced tapes. Babich stated she was able to work for
the Association and Able during the same time period. During those times when
her mother and/or father were not present to provide care or had not taken the
child with them to their home, she was able to work when the child was
sleeping. As demonstrated by the earning statements – Exhibit R-3 – Babich
stated she had worked for the Association after April 4. As for the work area
in the home, there was more than one desk and a separate computer was utilized
for the Able business.
[7] Ernest testified he resides in Harrison
Mills, a small community near Agassiz, British Columbia but had lived at the residence on Sylvester Road in Mission until he retired in October, 2005. He and
his wife – Betty – purchased a motor home and used it to travel for several
months until July, 2006 when they located it on a lot they purchased at
Harrison Mills. The State of Title
Certificate was entered as
Exhibit A-4. Ernest stated he spoke to Babich – in March - about performing
certain work for Able but she was not hired until April. With respect to the
ruling and confirmation by the Minister, Ernest recalled he spoke to someone at
CRA about the employment of Babich and later completed, signed and returned a
Questionnaire – Exhibit A-5 – dated October 8, 2008 - to CRA. He attached
various documents to the Questionnaire including a certificate of incorporation
stating Able was formed on February 14, 1979. During the relevant period,
Ernest was not a Director of Able and did not occupy the position of either
President or Secretary. However, he functioned as Business Manager and when not
absent from the area worked with Earl in the business. One of the documents attached
to the Questionnaire was a photocopy of a cheque - dated May 1, 2008 - and
drawn on the Able account at Canada Trust in Mission.
The cheque was completed and signed by Ernest and was deposited to the account
of Babich at the Royal Bank in Abbotsford on May 8. Ernest stated the Statement
of Earnings and Deductions pertaining to Babich had been prepared by Earl.
Ernest stated Betty had trained Babich how to perform the work because she had
done the bookkeeping for Able and its predecessor entity for nearly 30 years.
Ernest stated the tasks to be performed by Babich did not include preparing
and/or filing any GST returns for Able as that was the responsibility of Earl.
Ernest was a shareholder in Able from its inception in 1979 until September 12,
1995 when Earl became its sole shareholder. Ernest stated he has not been a
Director of Able since September 15, 2000. With regard to the $16.00 per hour
wage paid to Babich, Ernest stated he had spoken to some people and was
satisfied that rate was reasonable for the type of work to be performed. Ernest
stated he never received his mail at the Sylvester Road address in Mission and has used a Post Office box in Mission since 1990. Ernest stated he could have hired a
non-related person to perform the necessary work in April, 2008 but it was a
mutually beneficial arrangement to have Babich carry out the required tasks. At
that time, Able had not filed corporate income tax returns nor GST returns for
the years 2004 to 2007, inclusive. CRA had performed an audit covering the
years 2000-2005, inclusive and matters arising therefrom had not been
concluded. In order to comply with the filing requirements various bills,
receipts and other documents had to be sorted and amounts tabulated. Ernest
stated that the time spent by Babich – 78 hours – was reasonable considering
the amount of work required. In his opinion, it was convenient to obtain the
services of Babich because he and Betty were preparing to embark on a Baltic
cruise and Betty was occupied in preparing for that extended holiday. Their
departure – by air - from Vancouver was 3 or 4 days prior to the start of the
cruise and it required them to be ready to leave by May 7.
[8] Ernest was cross-examined by counsel for
the Respondent. As stated in the BC Company Summary for Able – Exhibit R-4 –
based on the last annual report filed on February 14, 2007 - Ernest
acknowledged he and Betty were listed as Officers and that the mailing address
provided to the Ministry of Finance was the one at Sylvester Road in Mission, the residence of Babich and Earl. Because
he is semi-retired and receives a private pension, Ernest stated he is
satisfied to be paid by Able on an irregular basis for work performed. In 2008,
he earned a total of $4,000.00 - paid by cheque – and no Employment Insurance
(EI) premiums were deducted. Betty earned the sum of $8,200.00 in 2008 and no
deductions were made for EI premiums or Canada Pension Plan (CPP)
contributions. Able had 3 employees in 2008 and all were persons related to the
corporation. Ernest stated Able was engaged in the business of selling firewood
and during the course of 22 years was a supplier to British Columbia provincial parks and to private buyers. During that
time, it also undertook some construction work. The wood obtained by Able from
several wood companies is known as “fall-down”, meaning it is a rejected or
salvaged product. At one time, this wood had to be purchased but recently it is
supplied to Able free of charge and delivered to their site. Able had used a
small trailer as an office at a location of Dyke Road but due to a fire in a
nearby shingle mill in 2004 the office was relocated and subsequently business
records were maintained at either his residence or at Earl’s home on Sylvester
Road. Currently, company records are kept in the motor home and Betty worked on
them there and in the office at Earl’s house where certain records were kept by
Earl on a computer. Ernest stated he and Betty started to build a home in
April, 2006 and were busy with that project and that their lives were
complicated by financial problems which led to a filing in bankruptcy in
August, 2008. Beginning in April, 2006, he and Betty were building a house
which is only 60% complete. The GST returns for the years 2004-2007, inclusive,
were filed in July, 2008 but not before CRA had garnished the Able bank account
on July 11. Ernest stated he was aware certain warning letters had been sent by
CRA to Able and was of the opinion Earl – the person in charge of daily
operations - had procrastinated in filing the necessary returns. Ernest identified
his signature on page 14 of the Questionnaire – Exhibit A-5 – and acknowledged
he provided the answer to Question 2(c) therein where he stated Earl, Betty and
himself were individuals who “control the day-to-day operations of the payor
and who make(s) the major business decisions ...”. Ernest stated Able did not
operate the firewood business during the period from 1995 to 2000, inclusive.
By way of background, Ernest stated he held a designation of Chartered Life Underwriter
(CLU) and worked as a Branch Manager for Metropolitan Life, an insurance
company for 14 years. He read an academic paper his brother had written about
the viability of the firewood industry and it appealed to him to the extent he
quit his job and started a firewood business. During the period from 1980 to
2000, the business was operated by Babich Enterprises Ltd. but later it was
transferred to Able which, although in good standing, had been inactive. The
GST returns were filed by Betty. At one point, the firewood business employed
12 people and had gross sales of $600,000.00. Returning to the employment of
Babich on April 1, 2008, Ernest stated he had approached her about doing the
work and knew she was not receiving enough hours of work from the Association.
From his standpoint, the work had to be done so Able could comply with CRA
requirements to file both income tax and GST returns and was certain it would
have cost much more than $16.00 per hour to retain the services of a commercial
bookkeeping enterprise. He estimated the training – done by Betty – occupied
about one-half day and it made sense to him for Babich to carry out the
required tasks since she needed the work, Betty was busy, and Able was in
default of its legal requirement to file both corporate income tax and GST
returns for a 4-year period. He knew the parents of Babich were available to
care for the young boy and was satisfied Babich could work at her own pace to
accommodate her advanced pregnancy. Ernest confirmed he had prepared and signed
the ROE attached to the Questionnaire – Exhibit A-5 – dated May 1, 2008. The
information provided - at Question 16 - was obtained from Betty and based on
Able business records. He, Betty, and Earl were signatories on the Able bank
account. The letter – forming part of Exhibit R-5 - directed to the Chief of
Appeals at CRA and dated August 25, 2008 – was prepared by Ernest and – at page
2 – refers to the work done by Babich as permitting Able to file “4 years of
GST remittances.”
[9] In re-direct examination, Ernest stated he
did not read the Questionnaire –Exhibit R-1 - completed by Babich.
[10] The Appellant closed her case.
[11] Counsel for the Respondent called Raj
Kandola (“Kandola”) to the witness box. Kandola testified he has been employed
by CRA since 2002 and occupied the position of Appeals Officer since July,
2008. He was assigned to handle the Babich appeal from the ruling and conducted
a review of the matter which led to the preparation of his CPT 110 – Report On
An Appeal (“Report”) – Exhibit R-6 – and preparation of the decision letter –
dated November 27, 2008 – signed by E. Jacquard (“Jacquard”), Team Leader. He
recalled speaking to Ernest and to Babich by telephone on November 25 and
referred to these conversations in Sections I and J, respectively, of his
Report. Kandola stated he set out in detail his analysis of relevant facts in
Section VI and his method of dealing with contradictions arising from
information provided at various times. He stated he chose those versions which
were capable of verification. Kandola - in Section VII, page 7 of the Report -
set forth his review of the facts concerning the employment of Babich as it
pertained to the remuneration, terms and conditions, duration and nature and
importance. Under the category titled Nature and Importance, Kandola stated he
found “the GST returns that were supposed to be completed by the worker
performing these duties were not completed until several months after the fact.
This factor points to a non-arm’s length relationship.” Kandola stated the
meaning of the latter comment was in the context of the entire paragraph
dealing with the nature and importance of the work done by Babich.
[12] Kandola was cross-examined by Earl. Kandola
stated he provided his Team Leader – Jacquard - with the entire Babich file
including his Report. He stated he was aware Babich needed an additional 36
insurable hours of employment to qualify for UI benefits based on maternity
leave but that fact did not play any part in his analysis and recommendation to
Jacquard. Kandola stated he could not recall having spoken with Earl and any
references to Earl in his Report at I – Follow-up Questions - 93 and 94 - are
not correct as the conversation – on November 25, 2008 – was with Ernest.
[13] The agent for Babich submitted the work
performed by her was genuine and the rate of pay and terms of conditions were
reasonable. The tasks performed were limited in duration due to the nature of
the employment and the work was necessary so Able could comply with income tax
and GST filing requirements since it was already in arrears and subject to some
urgency due to ongoing issues arising from a previous CRA audit. He pointed out
several instances where the assumptions of the Minister were incorrect and
submitted the evidence of Babich and Ernest was credible. In particular, the
Minister did not understand the arrangement for child care while Babich was
performing the work for Able and failed to take into account that there was
very little difference between the work environment and employment
circumstances whether she was providing services to the Association or to Able
in April. He submitted the total hours of work – 78 – was not excessive in view
of the task and that the Minister failed to take into account the contract of
employment between Babich and Able was substantially similar to one that would
have existed between parties who were not related.
[14] Counsel for the Respondent acknowledged the
Minister had decided the contract of employment was valid. However, an analysis
of the circumstances revealed Babich was the only employee of Able who had a
deduction made for UI premiums and that she had not been able to find
employment with a non-related party, probably due to her advanced pregnancy.
Counsel referred to the response to Question 16 in the Questionnaire – Exhibit
R-1 – regarding the volume of cheques written, number of clients and suppliers
and frequency of bank deposits on an annual basis and submitted there would not
have been a sufficient accumulation of papers to be sorted and categorized that
would have occupied 78 hours. Counsel noted that Betty had performed the
necessary bookkeeping work for Able and its predecessor entity for many years
prior to the relevant period and had assumed that task subsequently. In
counsel’s view of the evidence, the decision of the Minister was based on a
thorough and rational assessment of relevant facts and should be confirmed.
[15] The relevant provisions of the Act
are paragraphs 5(1)(a) and 5(2)(i) and subsection 5(3) which read
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;
…
(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.
[16] In Quigley Electric Ltd. v. Canada (Minister of National
Revenue – M.N.R.), [2003] F.C.J. No. 1789; 2003 FCA 461, the Federal Court of Appeal heard an
application for judicial review of a decision issued by a judge of the Tax
Court of Canada confirming the decision of the Minister that the appellant’s
employment with a related employer was not insurable. Malone J.A., writing for
the Court - at paragraph 7 and following – stated:
7 A legal error of law is also
said to have been committed when the Judge failed to apply the legal test
outlined by this Court in Légaré v. Canada (Minister of National Revenue) (1999) 246 N.R. 176
(F.C.A.) and Perusse v. Canada (2000) 261 N.R. 150
(F.C.A.). That test is whether, considering all of the evidence, the Minister's
decision was reasonable.
8 Specifically, it is argued
that the Judge circumscribed the scope of his review function when, after
finding that the Minister clearly did not have all the facts before him he
stated:
... That is not to say that on reviewing new
information, I am then precluded from finding that the Minister did not have,
after all, sufficient information to exercise his mandate as he did without my
interference. This would simply mean that I have found that the new factors not
considered were not relevant.
9 According to the applicant,
the proper question was not whether the Minister had sufficient information to
make a decision, notwithstanding the evidence of Mrs. Quigley; rather the
question was whether, considering all the evidence, the Minister's decision
still seemed reasonable. Instead, the applicant asserts that the Judge carried
out an irrelevant examination of whether Mrs. Quigley was a
"principal" or a "subordinate" of Quigley Electric Ltd.
10 In my analysis, the Judge
correctly followed the approach advanced by this Court in Canada (A.G.) v.
Jencan Ltd. [1998] 1 F.C. 187
(C.A.), namely, that the Minister's exercise of discretion under paragraph
5(3)(b) can only be interfered with if she acted in bad faith, failed to take
into account all relevant circumstances or took into account an irrelevant
factor.
11 Bad faith on the part of the
Minister is not an issue in this case.
12 While
the reasons for decision are lengthy, it is clear that the Judge was analysing
the oral evidence of Jean Quigley in conjunction with paragraph 5(3)(b);
namely, whether having regard to all of 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. After reviewing other
authorities in the Tax Court, the Judge rejected any suggestion that Mrs.
Quigley could be termed a principal of Quigley Electric Ltd. and in turn
dismissed her examples of special treatment within the company as arising from
her personal relationship with the controlling shareholder and not to her
employment contract.
13 He
concluded by indicating that the factors considered by the Minister, as set out
earlier in his reasons, were the relevant factors for his consideration. That,
in the context of this case, can only mean that the Minister's decision was
reasonable considering all of the evidence. I can discern no legal error in
this analysis or conclusion.
14 I would dismiss the
application for judicial review with costs.
[17] In the
case of Porter v. Canada (Minister of National Revenue - M.N.R.), [2005]
T.C.J. No. 266; 2005 TCC 364, Campbell, J. reviewed the comments of Justice
Archambault in Bélanger v. Canada (Minister of National Revenue - M.N.R.),
2005 CarswellNat 3971; 2005 TCC 36 and those of Justice Bowie in Birkland v.
Canada (Minister of National Revenue - M.N.R.), [2005] T.C.J. No. 195; 2005
TCC 291 wherein both discussed the function of this Court in the context
of the decision of the Federal Court of Appeal in Légaré, supra, and
subsequent decisions of that Court. At paragraphs 12 and 13 of her Judgment,
Justice Campbell stated:
12 The Tax
Court's mandate, in Employment Insurance cases as set out in the cases of
Légaré and Pérusse, was recently reaffirmed by Letourneau J. in Livreur Plus
Inc. v. Canada, [2004] F.C.J. No. 267 at
paragraphs 12, 13 and 14:
12. As already mentioned, the Minister assumed in
support of his decision the existence of a number of facts obtained by inquiry
from workers and the business he considered to be the employer. Those facts are
taken as proven. It is for the person objecting to the Minister's decision to
refute them.
13. The function of a Tax Court of Canada judge
hearing an appeal from the Minister's decision is to verify the existence and
accuracy of those facts and the assessment of them by the Minister or his
officials, and after doing so, to decide in light of that whether the
Minister's decision still seems to be reasonable: Légaré v. Canada (Minister
of National Revenue -- M.N.R.), [1999] F.C.J. No. 878; Pérusse
v. Canada (Minister of National Revenue -- M.N.R.), [2000] F.C.J. No. 310; Massignani
v. Canada (Minister of National Revenue), 2003 FCA 172; Bélanger
v. Canada (Minister of National Revenue), 2003 FCA 455. In fact,
certain material facts relied on by the Minister may be refuted, or the view
taken of them may not stand up to judicial review, so that because of their
importance the apparent reasonableness of the Minister's decision will be
completely destroyed or seriously undermined.
14. In exercising this function the judge must
accord the Minister a certain measure of deference, as to the initial
assessment, and cannot simply substitute his own opinion for that of the
Minister unless there are new facts or evidence that the known facts were misunderstood
or wrongly assessed: Pérusse v. Canada (Minister of National Revenue - M.N.R.) supra, paragraph 15.
13
In
summary, the function of this Court is to verify the existence and accuracy of
the facts relied upon by the Minister, consider all of the facts in evidence
before the Court, including any new facts, and to then assess whether the
Minister's decision still seems "reasonable" in light of findings of
fact by this Court. This assessment should accord a certain measure of deference
to the Minister.
[18] I turn now to the facts in the within
appeal. The Appeals Officer – Kandola – as detailed in Section (VI) of his
Report – Exhibit R-6 - properly chose to rely on facts confirmed by the receipt
of subsequent information and in the course of his analysis dealt with any
confusion that may have existed at an earlier time concerning matters such as
mailing addresses, place of residence, the mistaken reference to Earl – instead
of Ernest -and the purported absence of Ernest from Canada during the relevant
period.
[19] In the Reply at paragraph 6(e) the Minister
assumed Betty was responsible for bookkeeping and paperwork of Able. That was
accurate as it related to the business operations of Able and its predecessor
in previous years and subsequent to the relevant period. However, the evidence
is clear that for many valid reasons the regular paperwork had not been
performed for a period of 3 or more years and that Betty and Ernest were
occupied with other events in their lives including having to deal with debt
problems and the onerous task of constructing a house. In April, 2008, they
were planning a major trip which involved flying from Vancouver to the port of departure in Stockholm and departed from Vancouver on or about May 7, 2008.
[20] At paragraph 6(f) of the Reply, the
Minister assumed as follows:
f) the Appellant was hired to complete GST returns for the
Payor and to sort envelopes and bills into appropriate piles;
[21] The evidence before me does not
substantiate that assumption as it pertains to GST nor do the responses to
Question 3(a) in the Questionnaire – Exhibit R-1 – completed by Babich. Her
answer therein is as follows:
Specific bookkeeping duties:
Organizing and sorting receipts into expense and revenue categories.
Organizing and sorting receipts into corporate tax years.
Determining totals for sorted receipts.
Prepared totals for four (4) tax years.
[22] In responding to Question 3 in the
Questionnaire – Exhibit A-5 – completed by Ernest, he stated the duties
performed by Babich were “specific bookkeeping duties.” In answering Question 7(a)
therein, Ernest stated Babich was “doing bookkeeping for G.S.T. and tax
returns.” Kandola noted in his Report – Exhibit R-6 – at section I. 80 – that
he was told by Ernest during the November 25 telephone interview that Babich
only did preparation work to sort four years of paperwork and – in response to
the following question – stated her “tasks were all administrative, including
sorting envelopes and bills into appropriate piles.” In speaking to Babich the
same day, Kandola noted – at Section J. 103 of his Report - that the Appellant’s
“duties were to organize, sort and total receipts from boxes to different tax
years” and that Babich had characterized those duties as “data entry type of work.”
[23] At paragraph 6(g) of the Reply, the
Minister assumed:
g) The Appellant did not complete GST returns for the Payor
as the GST returns were not filed until July 2008;
[24] The evidence is clear that the
responsibility to file GST returns rested upon Earl, the sole shareholder of
Able. Babich was never fixed with that duty and it is clear the nature of her
work was to sort and organize material in date order and categories and to do
necessary additions and tabulations to enable those GST returns – and income
tax returns – to be filed. Any delay in filing was not attributable to any
default on her part.
[25] The Minister relied to some extent –
paragraph 6(t) - on the fact Able did not hire a replacement worker. This is
somewhat odd because the Minister – in the previous assumption – accepted the Appellant’s
work was terminated at the end of April when it was complete.
[26] The evidence established that Babich
performed the work from an office in her home and that this work space was used
when providing services to the Association. In the Report – Exhibit R-6 –
prepared by Kandola, he took into account – at F. 61 on page 4 – the amount of
annual transactions that would require attention by a bookkeeper. However, the
scope of the Appellant’s duties covered a variety of documents accumulated over
a period of 3 or 4 years that were relevant for GST and income tax purposes.
[27] The Minister assumed – at paragraphs 6(u)
and 6(v) that:
u) the Payor and the Appellant have given false information
in relation to the employment; and
v) the Appellant was hired to
qualify her for employment insurance maternity benefits.
[28] In Section VII of his Report, Kandola
accepted that the rate of pay - $16.00 per hour – was reasonable and consistent
with industry standards.
[29] With respect to the factor of the terms and
conditions of the employment, Kandola relied on the fact Babich could set her
own hours – and days – of work to accommodate her own needs while performing
the duties in her own residence while she cared for her child and concluded
these circumstances pointed to a non-arm’s length relationship.
[30] Regarding the duration of the employment,
Kandola decided Babich was hired only for the month of April because she was
expecting a baby in early May and had not accumulated enough insurable hours to
qualify for employment insurance benefits. He further found as a fact that
Babich was not able to find employment with a non-related employer and that the
position with Able was created to allow her to work the maximum number of hours
required to qualify for those benefits. In his assessment, these factors taken
together pointed to a non-arm’s length relationship.
[31] Concerning the nature and importance of the
employment at issue, Kandola relied on the fact Betty had done the bookkeeping
work both before and after the relevant period and had trained Babich for the
sole purpose of permitting her to qualify for employment insurance. The most
significant aspect contained in the analysis of this factor is Kandola’s
assumption “the GST returns that were supposed to be completed by the worker
performing these duties were not completed until several months after the fact.
This factor points to a non-arm’s length relationship.”
[32] In my view of the evidence, Kandola did not
appreciate the arrangements in place for child care and did not understand the
work space available in the Appellant’s matrimonial residence which was used to
carry out her duties for the Association as well as for Able. He also did not
give sufficient weight to the nature of the task performed which was finite,
and consisted of a classic “lump of work” that had no prospect for extension.
Even though he was satisfied the employment with Able was genuine, his Report
demonstrates he was convinced Ernest, Betty and Earl had concocted a “make-work”
project in April, 2008, and that Betty could have done that work personally.
[33] It is apparent on a review of the entire
evidence that the overarching error on the part of the Minister was to insist
that Babich had failed in her duty to complete and file GST returns, a
relatively complex task requiring some special knowledge. There is no credible
evidence upon which to base that assumption and it skewered the rest of the
analysis. The number of insurable hours – 78 – worked was reasonable and was
more than the 36 hours needed for Babich to qualify for maternity leave
benefits. If the Appellant’s work with Able had been at the front end of the
total 12-month employment period - instead of at the end - it is doubtful the
Minister would have had the same suspicions about its insurability. In the
within case, the Minister embraced the theory that the raison d’être for
the employment of Babich was to prepare and file GST returns. The Minister
assumed Babich had failed to do so during that short period of her employment.
It is apparent this perceived default was accorded disproportionate
significance in the decision which appeared to focus on a finding that the
special employment had been created solely for the purpose of permitting her to
receive maternity benefits under the national scheme and – therefore - did not
constitute insurable employment pursuant to the provisions of paragraph 5(2)(i)
of the Act.
[34] As a result of these conclusions, I have
decided the decision of the Minister is no longer reasonable and that I must
intervene and undertake my own analysis of the relevant circumstances
pertaining to the employment at issue.
Remuneration:
[35] I concur with the conclusion of the
Minister that the rate of pay was reasonable.
Terms and
conditions:
[36] The type of work to be performed was suited
to a flexible work schedule and was undertaken in the work space within the
matrimonial home. The only tools needed were a calculator capable of printing
tapes and some usual office supplies. The computer was not utilized for the
work. The child-care arrangements were reasonable and afforded the Appellant
time to complete the required work not only for Able but to perform any
remaining tasks for the Association.
Duration:
[37] Provided one understands the nature of the
Appellant’s engagement by Able, this factor does not present any difficulty
since the work had a definite start and the termination was predicated on the
completion of the sorting, organizing, categorizing, tabulating and totalling
of 3 or 4 years of corporate business papers. Based on the evidence, the number
of hours devoted by Babich to complete this task was reasonable.
Nature and
importance:
[38] The work performed by Babich was necessary
so the GST returns and corporate income tax returns could be filed. Betty had
not been doing that routine task for several years and – in April - either was
not willing or unable to devote her time to that chore which did not require
specific bookkeeping skills. The work to be done required a minimal amount of
training and the supervision by Betty amounted mainly to providing explanations
to the Appellant about the content of certain documents due to problems with
legibility.
[39] In the case of Docherty v. Minister of
National Revenue, [2000] T.C.J. No. 690, I commented – at paragraph 25 as
follows:
[25] The
template to be utilized in making a comparison with arm’s length working
relationships does not require a perfect match. That is recognized within the
language of the legislation because it refers to a “substantially similar
contract of employment”. Any time the parties are related to each other within
the meaning of the relevant legislation, there will be idiosyncrasies arising
from the working relationship, especially if the spouse is the sole employee or
perhaps a member of a small staff. However, the object is not to disqualify
these people from participating in the national employment insurance scheme
provided certain conditions have been met. To do so without valid reasons is
inequitable and contrary to the intent of the legislation.
[40] In the case of Dancause v. Canada (Minister of National Revenue – M.N.R.), [2008] T.C.J. No. 365; 2008 TCC 320,
Tardif J. heard the case involving the spouse of the payor and her employment
with him as a hairdresser in a salon in which 7 other workers were employed.
The Minister found the employment of the appellant did not constitute insurable
employment. Tardif J. allowed the appeal as it pertained to a particular period
but it is his comments at paragraphs 37 – 45, inclusive, that are instructive:
37 In
this instance, the case raised some doubts from the start as to whether the
work done by the Appellant was comparable to the work done by the other
employees. I refer, in particular, to the duration of the periods of work,
which corresponded to the periods of work the Appellant needed in order to be
eligible for benefits.
38 In
some cases, that situation can be a matter of chance. If the scenario recurs,
however, there is no room for doubt left. If there is other evidence pointing
in the same direction, that can be sufficient to tilt the balance of
probabilities to favour the Respondent's position.
39 In
this instance, in addition to the duration of the periods of work, there is the
question of the Appellant's wage, which was reduced at one point so that it
corresponded exactly to what the Appellant required in order not to be
penalized by the employment insurance scheme. Those are objective facts, in
addition to which the numerous general and often confused explanations, and the
fact that witnesses were not called (co-workers, accountant, etc.) must also be
considered.
40 This
is a case in which the intention of taking maximum advantage of the employment
insurance scheme had the effect of creating situations that were dubious, if
not implausible.
41 There
can be no doubt that entitlement to benefits is a legitimate and fundamental
right. However, this does not mean that the right may be abused and/or used for
accommodation; when the abuses are obvious, the consequence could be a finding
that it is not reasonable to imagine a substantially similar employment
relationship between unrelated parties.
42 If
we take a reasonable and accommodating approach, some facts seem more
plausible, and ultimately more acceptable in the context of a family business.
43 The
right to benefits is indeed an important right, and it is entirely proper for
unemployed persons to want to receive benefits when they meet the requirements.
44 Meeting
the requirements of the scheme is one thing, and taking part in a subterfuge to
make a person eligible for the maximum benefits provided by the scheme is
another.
45 In
this instance, on a balance of probabilities, the parties have plainly
exaggerated. However, it is clear that because of her pregnancy, the Appellant
was entitled to the benefits associated with her maternity leave.
[41] The facts in the within appeal are a far
cry from those before Miller J. in Hatami v. Canada (Minister of National Revenue – M.N.R.), [2007] T.C.J. No, 268; 2007 TCC 428. In
that case, the spouse of the payor assisted her husband to get a business into
operation and worked sporadically without pay and held off cashing pay cheques
until the cash flow of the business permitted her to negotiate them. Justice
Miller also found that the timesheets were created after the fact and
characterized them as “window-dressing”.
[42] The work done by the Appellant in the within
appeal was limited in duration due to the specific nature of the task and she
had not performed work for Able prior to the relevant period nor thereafter.
The Appellant was entitled to perform legitimate work for an employer and did
so. The problem arose because she was related to the employer-corporation which
was a family-run business and the Minister decided the contract of employment
was not performed under circumstances that would have been present in a
substantially similar contract if the parties had been dealing with each other
at arm’s length. I disagree. The circumstances relevant to remuneration, skills
required, place of work, duration of the task, and the nature and importance of
the work under the particular – and unusual – situation during the relevant
period were consistent with those that would have been applicable to a working
relationship with a non-related party. If a neighbour down the street had
performed the task done by Babich under similar circumstances, it would have
been reasonable. That non-related worker may have been able to bring her own
infant to work – occasionally - and to have provided her services in accordance
with her own personal schedule and the physical and mental demands arising from
an advanced pregnancy. The task was not onerous and had an expiration date of
approximately 1 month.
[43] The testimony of the Appellant and Ernest
was credible. Both were candid about her desire to obtain enough hours of
employment to qualify for maternity leave benefits. As Ernest stated, “Monique
was available and we were busy.” Without more, there is nothing wrong with the
resulting contract of employment between Babich and Ernest, acting on behalf of
Able in his role as Business Manager.
[44] Based on my findings as stated earlier and
applying the relevant jurisprudence, the appeal is allowed and the decision of
the Minister – dated November 27, 2008 - is varied to find that:
Monique
Babich was engaged in insurable employment with
Able
Enterprises Ltd. from April 1, 2008 to April 25, 2008.
Signed at Sidney, British Columbia
this 28th day of October 2009.
“D.W. Rowe”
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