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Citation: 2004TCC778
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Date: 20041213
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Docket: 2004-581(EI)
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BETWEEN:
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ANIL KUMAR VARMA,
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Appellant,
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and
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THE MINISTER OF NATIONAL REVENUE,
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Respondent,
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and
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9036-3896 Québec Inc.,
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Intervener.
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REASONS FOR JUDGMENT
Savoie,
D.J.
[1] This
appeal was heard in Montreal (Québec) on October 28, 2004.
[2] This
is an appeal from a decision by the Minister of National Revenue (the
"Minister"), wherein he informed the Appellant that while he was
working for 9036-3896 Québec Inc., the Payer, from November 1st, 2001 to June
1st, 2002, the period under review, his employment was not insurable.
[3] The
Minister further informed the Appellant that having regard to all the
circumstances, it is not reasonable to conclude that he and the Payer would
have entered into a substantially similar contract of employment if they had
been dealing with each other at arm's length.
[4] In
making his decision, the Minister relied on the following assumptions of fact
as set forth in paragraph 5 of the Reply to the Notice of Appeal:
a) the Payer,
incorporated on May 23, 1996, operated a restaurant under the banner of "Dunkin
Donuts"; (admitted)
b) the
restaurant closed on June 1st, 2002; (admitted)
c) Raj Kumar
Varma was the sole shareholder of the Payer; (admitted)
d) the Appellant
is the son of Raj Kumar Varma; (admitted)
e) the Appellant
was related to the Payer within the meaning of the Income Tax Act;
(admitted)
f) the
Appellant worked at the Payer's place of business located at 1580, St-Hubert
Street in Montréal; (admitted)
g) the Appellant
worked for the Payer as a manager and an administrator, he ran the business on
a daily basis; (admitted)
h) the Appellant
generally worked between 40 and 60 hours per week; (admitted)
i) the
Appellant's working hours were not registered by the Payer; (admitted with some
clarification)
j) as of the
beginning of the year 2000, donuts were no longer prepared in the Payer's
restaurant but were delivered to the Payer's place by another Dunkin Donuts;
(admitted)
k) on June 7,
2002, the Payer prepared a record of employment in the name of the Appellant
indicating April 24, 2000 as first day of work, June 1st, 2002 as last day of
work, 1,200 insurable hours (30 weeks of 40 hours) and an insurable
remuneration of $29,360.00 for the last 14 periods of wage; (admitted)
l) the
Appellant was working for the Payer since the end of 1999 but he was not
registered in the payroll of the Payer prior to the last 15 bi-weekly periods
of wages ending on June 1st, 2002 (6 weeks in 2001 and 24 weeks in 2002);
(admitted with some clarification)
m) the Appellant
claimed that he received a fixed salary of $1,000.00 per week while in fact he
declared in his income tax return only $6,000.00 in earnings from the Payer in
the year 2001 and nothing from the Payer in the years 2000 and 1999; (admitted
with some clarification)
n) in the years
1999 and 2000, the Appellant declared a salary of $3,350.00 and $31,000.00
respectively received from 9014‑6150 Quebec inc., an associated
company of the Payer, which still does not represent $1,000.00 per week;
(admitted with some clarification)
o) the Appellant
claimed that he received a fixed salary of $1,000.00 per week while his
brother, Arun Kumar Varma, received $500.00 per week as the manager and
administrator of another Dunkin Donuts owned by their father; (admitted with
some clarification)
p) the record of
employment given out by the Payer in the name of the Appellant is false because
it doesn't represent the true number of hours worked nor the actual
remuneration paid to the Appellant. (denied)
[5] The
evidence disclosed that the working hours of the Appellant were not registered
by the Payer. The payroll was prepared by a firm called Seridian. The Court was
told that this firm simply assumed that the Appellant worked 40 hours per
week, unless informed otherwise. There is no evidence that any information in
this regard was provided to Seridian by either the Appellant or the Payer.
[6] The Appellant testified that he worked for an associated company of
the Payer in 1999, 2000 and 2001. He also stated that he earned $1,000 gross
per week.
[7] The evidence shows that while the Appellant's brother,
Arun Kumar Varma, earned only $500 per week, since the latter the
Appellant did not have all the responsibilities of his brother, nor did he have
to do all the paperwork, as his brother did. He also had a car and gas
allowance and was provided with food and lodging at his father's expense.
[8] The Appellant further testified that he was out of work for one year
having been dismissed by his father in the fall of 2000. When he was asked why
he did not advise the investigators of this, his response was that he was not
asked that question. Yet, he claims to have informed them that he was off work
for that period.
[9] In a statement to the appeals officer, the Appellant disclosed that
the Payer hired him as soon as the operations began in 1996 as a manager of one
of his outlets. Soon afterwards, he left his employment and was hired by the
Payer as manager of its Dunkin Donuts store at 1580 St-Hubert Street in
Montreal. He informed the appeals officer that he was paid $2,000 gross every
two weeks and that he received a vacation pay of $1,360 at the closing of the
business on June 1, 2002. He further claimed that he was working between
40 to 60 hours per week from Monday to Sunday. He had no set work schedule. He
had the entire responsibility for the restaurant seven days per week.
[10] The record of employment of the Appellant
shows a period of employment beginning on April 24, 2000 and ending on June 1,
2002 and is signed by the sole shareholder of the Payer. The employer is shown
as Dunkin Donuts, with an address at 1580 St‑Hubert, Montreal.
However, the Appellant advised that the period shown is incorrect since he
worked for the Payer starting at the end of 1999 until June 1, 2002, as
manager. He further advised that, at first glance, the earnings and insurable
hours indicated on this record of employment appear to be correct.
[11] At the hearing, both the Appellant and Raj
Kumar Varma, sole shareholder of the Payer, both stated that the 1st day of
work reported on the record of employment was incorrect. The Payer stated that
the period of employment began in November 2001 while the Appellant maintained
that the period began late in 1999.
[12] The Appellant is asking the Court to set aside the decision of the
Minister who relied on paragraphs 5(1)(a) and 5(2)(i),
subsections 5(3) and 93(3) of the Employment Insurance Act ("Act")
as applicable to the period in question and on sections 251 and 252 of the Income
Tax Act. The Minister concluded 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 not
reasonable to conclude that the Appellant and the Payer would have entered into
a substantially similar contract of employment if they had been dealing with
each other at arm's length.
[13] Having conducted his investigation, the Minister concluded that under
paragraph 5(2)(i) of the Act the employment of the Appellant was
not insurable because the Appellant and the Payer were not dealing with each
other at arm's length, since it was established that the sole shareholder of
the Payer is the father of the Appellant.
[14] For the purposes of this exercise, it is useful to refer to the
relevant provisions of the Income Tax Act and the Employment
Insurance Act.
[15] They are as follows:
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Section 251 of the Income Tax Act
reads in part as follows:
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(1) For the purposes of this Act,
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(a) related persons shall be deemed not to deal with each other at
arm's length; and
(b) it is a question of fact whether persons
not related to each other were at a particular time dealing with each other
at arm's length.
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(2) For the purposes of this Act, "related persons", or
persons related to each other, are
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a)
individuals connected by blood relationship, marriage or adoption;
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b)
a corporation and
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(i) a person who controls the corporation, if
it is controlled by one person,
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(ii) a person who
is a member of a related group that controls the corporation, or
(iii) any person related to a person
described in subparagraph (i) or (ii); and;
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Section 5 of the Insurable Employment Act reads
in part as follow:
(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 form
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] The Federal
Court of Appeal has set down guidelines to follow when dealing with a problem
such as the one in the case at bar. Marceau, J. speaking for the Court, stated
the following in the case of Légaré v. Canada (Minister of National
Revenue- M.N.R.), [1999] F.C.J. No. 878:
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.
[17] Let us
examine the facts before the Court under the criteria listed in paragraph 5(3)(b)
of the Act.
Remuneration paid
[18] Did the
Appellant actually work 40 to 60 hours per week for the Payer full time between
late 1999 until June 2, 2002. If he did then he was not paid $2,000 bi-monthly,
as alleged as a volunteer for the Payer during a good part of that period. A T4
issued by the Payer for the year 2001 reveals the Appellant's income for that
year is $6,000. This would represent, using the Appellant's own figures,
earnings for a 6-week period only.
[19] In his
statutory declaration to the Commission, (Exhibit R-2), the Appellant admitted
to his special treatment by the Payer. He stated and I quote:
If it would of [sic] been
another employee doing the same job as me, my father would of [sic] pay
[sic] him/her, I thing [sic] a bit less. I was getting this
salary because he was my father and because I was working for a family
business.
[20] The
Minister has established the earnings of the Appellant and his brother
Arun Kumar Varma over the period of 1998 to 2002 inclusive from the
Payer 9036-3896 Québec Inc. and the Payer's associated company 9014-6150 Quebec
Inc., from information found on the income tax T4 forms provided by the
employers, as illustrated on the following chart:
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T4 from. 9036-3896 Québec Inc
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D. Donuts, 1580 St-Hubert
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1998
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1999
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2000
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2001
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2002
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To
Anil Kumar Varma
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nil
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nil
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nil
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$6,000
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nil
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To
Arun Kuamr Varma
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$9,000
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nil
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$4,000
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nil
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nil
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T4 from 90146150 Québec Inc
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D. Donuts, 306 Ste-Catherine
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To
Anil Kumar Varma
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$7,578
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$3,350
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$31,000
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nil
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$1,569
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To
Arun Kuamr Varma
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nil
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$3,000
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nil
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nil
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$10,000
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[21] The
information gathered by the Commission and the Minister has proven misleading
and the evidence before the Court at the hearing has failed to clarify the
ambiguities which are still prevalent in this matter.
Conditions of employment
[22] In light of
the position, which the Appellant was holding as manager for the Payer, the
kind of restricted supervision and control to which he was subjected would
appear normal in the circumstances.
Duration of the work performed
[23] The
Appellant has maintained that he worked 40 to 60 hours a week full time from
late 1999 to June 1, 2002 but the contradictions between the parties and other
information gathered have shown that the duration of the work performed could
very well be between April 24, 2000 and June 1, 2002, according to the record
of employment of June 7, 2002 or between November 2001 to June 1, 2002,
according to the statement of Raj Kumar Varma, the sole shareholder of the
Payer.
[24] The
Appellant's statement regarding his period of employment with the Payer is
completely contradicted by the T4 issued by the Payer, which establishes his
earnings at $6,000, all of which was earned in 2001.
[25] Furthermore,
how can the Appellant's position regarding his period of employment be
reconciled with his own statement that the data contained in the record of
employment of June 7, 2002 appears to be correct, i.e., earnings of $26,360.00
and insurable hours of 1,200.
[26] The T4s
issued indicate that the Appellant did work for 9014-6150 Québec Inc., the
Payer's associated company in 1998, 1999, 2000 and 2002. This makes it
impossible to establish an accurate period of employment, or the insurable
earnings or the actual number of hours worked for the Payer.
Nature and importance of the work performed
[27] The nature
and importance of the work performed by the Appellant for the Payer has been
considerably undermined by the fact that the Payer, according to the evidence,
has failed to remunerate the Appellant his full salary of $4,000.00 bi-weekly,
over the extended period alleged by the Appellant. In other words, the nature
and importance of the work performed by the Appellant do not measure up to the
expectations of the Appellant nor of the Payer.
[28] The
Minister was asked to make a determination throughout his investigation; he was
faced with an abundance of contradictions which rendered his task most
difficult.
[29] Out of the
three periods of employment which the facts gathered revealed, the Minister did
not know which period was applicable. That made it impossible for him to
establish the insurable earnings and the exact number of hours worked by the
Appellant. During the investigation it was established that the Appellant and
the Payer disagreed with each other over the employment period of the
Appellant.
[30] The documents obtained by the Minister, in turn, disagreed with the
information received from either the Appellant or the Payer, The documents
consist of the Record of Employment, the Statutory declaration of the Appellant
and the document printout taken from the T4 forms of the Appellant establishing
his income from various sources from 1998 to 2002.
[31] The Minister, in light of the above, established that the employment
of the Appellant with the Payer was not insurable by virtue of paragraph 5(2)(i)
of the Act.
[32] In my view, the factual basis confronting the Minister made it
impossible for him to render a proper determination with respect to the period
of employment, the number of insurable hours and the amount of insurable
earnings.
[33] The onus is on the Appellant to prove that the Minister's assumptions
of fact are erroneous. This he has failed to do. Indeed, he admitted most of
these assumptions and the evidence he produced did not amount to a significant
challenge with respect to the assumptions of the Minister that he attempted to
clarify.
[34] In the absence of an important document, namely a T4, which, if
produced, could have identified his employer who paid him $26,929.00 in 2002,
the Appellant simply explained that the firm Seridian failed to produce it.
However, counsel for the Minister pointed out that the latter had contacted
Seridian in that regard, yet Seridian was unable to satisfy such request.
[35] Earlier this Court cited the decision of the Federal Court of Appeal
in Légaré, supra, and the guidelines to follow in the
determination of situations such as the one before us.
[36] The same Court again offered some guidance in this exercise in the
case of Pérusse v. Canada (Minister of National Revenue – M.N.R.),
[2000] F.C.J. No. 310 when it held as follows:
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.
[37] Having heard the evidence produced at this hearing and having examined
the documents produced, this Court is of the view that the Minister's
conclusion, when considered with the evidence brought before it at this
hearing, still seems reasonable.
[38] Therefore, this Court does not deem appropriate, in the circumstances,
to interfere with the Minister's determination.
[39] Consequently, the appeal is dismissed and the Minister's decision is
confirmed.
Signed at Grand-Barachois, New Brunswick,
this 13th day of December 2004.
Savoie,
D.J.
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