Citation: 2013 TCC 370
Date: 20131122
Docket: 2012-3722(EI)
BETWEEN:
JAGIR K. KHAILA,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent;
Docket: 2012-3778(EI)
AND BETWEEN:
B.B.K. CONTRACTING LTD.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1]
These appeals under the Employment
Insurance Act (the “Act”) are from a decision of the Minister of
National Revenue that Jagir Khaila (“Jagir”) was not engaged in insurable
employment when she was employed as a cook by B.B.K. Contracting Ltd. (“BBK”).
Jagir and BBK have each appealed the decision to this Court. The period at
issue is from April 18, 2010 to September 10, 2010.
[2]
Relying on subsections
5(2) and 5(3) of the Act, the Minister concluded that Jagir’s employment
was not insurable on the basis that: (1) Jagir
and BBK were related, and (2) Jagir and BBK would not have entered into a
substantially similar arrangement if they were dealing at arm’s length.
[3]
The appellants take the view that the
terms of the employment are arm’s length terms. They also submit that the
Minister should be satisfied that the terms are arm’s length because the same
working arrangements were approved by the Minister for other relatives that
were hired as cooks in previous years. The appellants also suggest that the
Minister should be held accountable for failing to properly inform them of the
legal test that has to be satisfied. For example, it was suggested that Jagir
could have kept track of her hours if she had known that this was important.
[4]
BBK was represented at the hearing
by its president, Balbir Khila (“Balbir”), who also testified on the
corporation’s behalf. Jagir was represented by her son, Gurdeep Khaila (“Gurdeep”),
who also testified on her behalf. Jagir did not testify at the hearing despite
being advised that this could adversely affect her appeal.
[5]
Testimony on behalf of the
Minister was provided by three government officials who were involved in the investigation
of this matter.
[6]
In these reasons, individuals will
be referred to by their first names for ease of reference.
Relevant legislation
[7]
Pursuant to s. 5(2)(i)
and 5(3)(b) of the Act, if an
employer and employee are related (as that term is defined), the employment is
not insurable unless the Minister is satisfied that the terms of the employment
are substantially similar to arm’s length terms.
[8]
The relevant provisions are
reproduced below.
5.
(2) Excluded employment
- Insurable employment does not include
[…]
(i) employment if the employer
and employee are not dealing with each other at arm’s length.
5. (3) Arm’s length dealing - 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.
Background
[9]
BBK operates a seasonal
silvaculture business, by which it obtains commercial contracts for tree felling,
planting and other services. The business
typically operates from about April to September.
[10]
In the period at issue, the shares
of BBK were owned equally by Balbir and his spouse, Rano Khila (“Rano”).
[11]
Jagir was employed by BBK for the
2010 season as a cook. Her spouse and two children also worked for BBK as
members of the crew. At the time of the engagement, Jagir had recently
immigrated to Canada.
[12]
The families of Jagir and Balbir lived
in a duplex that was owned by Balbir.
[13]
According to the testimony of
Balbir and/or Gurdeep, Jagir cooked East Indian food for BBK’s crew, which was
comprised of 10 to 12 persons. The food was cooked in the kitchen in Balbir’s
residence and taken to the job site, although food was also available in the
home before or after work. The testimony indicated that some of the crew did
not like the East Indian cuisine in which case BBK would provide other food.
[14]
Balbir estimates that Jagir’s
duties, which included laundry and dishes, took roughly 10 hours per day for
six or seven days each week. According to Balbir’s testimony, Jagir received $100
per day for these duties.
Are Jagir and BBK related?
[15]
The appellants submit
that the employment is insurable because the terms of the employment are
similar to arm’s length terms. The relevant provision, s. 5(3)(b), first
requires a determination that Jagir and BBK are related. The parties did not raise this as an issue, but it is
worth mentioning because the applicable legislation appears to be complex.
[16]
The following facts are
relevant in determining whether Jagir and BBK are related:
(a)
Balbir is Jagir’s
brother-in-law, that is, Jagir’s spouse and Balbir are brothers, and
(b)
the shares of BBK are
owned equally by Balbir and his spouse, Rano.
[17]
The meaning of the term
“related” for this purpose is set out in the Income Tax Act. Under this
legislation, Jagir is related to BBK only if she is related to both shareholders,
Balbir and Rano (s. 251(2) of the Income Tax Act).
[18]
I will examine separately
the relationship between Jagir and the two shareholders.
[19]
The analysis for Jagir
and Balbir being related is relatively straightforward. They are related by
marriage because Jagir is married to Balbir’s brother (s. 251(6)(b)).
[20]
The analysis as to
whether Jagir and Rano are related is more complicated and requires two steps. First,
Jagir is deemed to be Balbir’s sister and therefore related by blood because
Jagir is married to Balbir’s brother (s. 252(2)(c)(ii)). It then follows that Jagir
and Rano are related by marriage because Rano is married to a person who is
connected by blood to Jagir (s. 251(6)(b)).
[21]
Since Jagir is related
to both Balbir and Rano, and since Balbir and Rano each own 50 percent of the
shares of BBK, then Jagir and BBK are related.
[22]
The relevant provisions for
purposes of the analysis above are s. 251(2)(a) and (b), 251(6) and 252(2)(c)
of the Income Tax Act, which are reproduced in part below.
251.
(2) Definition of “related persons” - For the purpose of this Act, “related persons”,
or persons related to each other, are
(a) individuals connected by
blood relationship, marriage or common-law partnership or adoption;
(b) a corporation and
(i) a
person who controls the corporation, if it is controlled by one person,
(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
[…]
251. (6)
Blood relationship, etc.
- For the purposes of this Act, persons are connected by
(a) blood relationship if
one is the child or other descendant of the other or one is the brother or
sister of the other;
(b) marriage if one is
married to the other or to a person who is so connected by blood relationship to
the other;
[…]
252. (2) Relationships - In this Act, words
referring to
[…]
(c) a sister of a taxpayer
include a person who is
(i) the
sister of the taxpayer’s spouse or common-law partner, or
(ii) the
spouse or common-law partner of the taxpayer’s brother;
[…]
Are terms of employment
arm’s length?
[23]
The second
issue is whether it is
reasonable to conclude that the terms of the employment are substantially
similar to arm’s length terms.
Applicable principles
to be applied
[24]
In the last ten years,
the Federal Court of Appeal has consistently adopted the legal principle set
out in Pérusse v MNR, (2000), 261 NR 150. The test is summarized by
Richard C.J. in Denis v MNR, 2004 FCA 26:
[5] The function of the Tax Court of Canada judge
in an appeal from a determination by the Minister on the exclusion provisions
contained in subsections 5(2) and (3) of the Act is to inquire into all the
facts with the parties and the witnesses called for the first time to testify
under oath, and to consider whether the Minister's conclusion still seems
reasonable. However, the judge should not substitute his or her own opinion for
that of the Minister when there are no new facts and there is no basis for
thinking that the facts were misunderstood (see Pérusse v. Canada (Minister of National Revenue - M.N.R.), [2000] F.C.J. No. 310, March 10,
2000).
[25]
Based on my review of
judicial decisions since Pérusse, there appears to be some ambiguity
regarding the Pérusse test which has led to uncertainty as to the extent
to which the Tax Court of Canada must determine and analyze the facts as found
by the Minister.
[26]
At the hearing, counsel
for the respondent cited Porter v The Queen, 2005 TCC 364 in urging that
I must determine and analyse the facts as found by the Minister as well as
determining and analyzing facts based on the evidence at the hearing.
[27]
The approach suggested
by the respondent has some support in the cases but it has not been universally
followed. For a contrary approach, I note the following excerpt by Bowie J. in Birkland
v The Queen, 2005 TCC 291:
[4] […] This Court's role, as I understand it now,
following these decisions, is to conduct a trial at which both parties may adduce
evidence as to the terms upon which the Appellant was employed, evidence as to
the terms upon which persons at arm's length doing similar work were employed
by the same employer, and evidence relevant to the conditions of employment
prevailing in the industry for the same kind of work at the same time and
place. Of course, there may also be evidence as to the relationship between the
Appellant and the employer. In the light of
all that evidence, and the judge's view of the credibility of the witnesses,
this Court must then assess whether the Minister, if he had had the benefit of
all that evidence, could reasonably have failed to conclude that the employer
and a person acting at arm's length would have entered into a substantially
similar contract of employment. That,
as I understand it, is the degree of judicial deference that Parliament's use
of the expression "... if the Minister of National Revenue is satisfied
..." in paragraph 5(3)(b) accords to the Minister's opinion.
(Emphasis
added.)
[28]
It would be helpful to
have some clarification on this point because determining and analysing two
sets of evidence, one based on the Minister’s factual findings and the other on
Court’s factual findings, can lead to a protracted hearing.
[29]
Below, I have followed
the approach set out in Birkland, but my conclusion is generally
consistent with the factual findings and analysis by the Minister.
The Minister’s
decision is reasonable
[30]
In this case, the Minister assumed
that Jagir cooked food mainly for the four family members (Jagir’s two sons,
her spouse, and Balbir). The Minister also assumed that cooking for family
members would not take 10 hours per day, which was the basis of Jagir’s
remuneration.
[31]
According to the
testimony of Balbir and Gurdeep, Jagir cooked for the entire crew, which
consisted of about 12 persons. I am not
persuaded by this testimony. I accept that some of the non-family crew may have
eaten Jagir’s food from time to time, but the evidence was not persuasive
enough to overcome the Minister’s assumption that Jagir was cooking mainly for
her spouse, her two children and her brother-in-law.
[32]
In addition, I am not satisfied
that Jagir worked anywhere near 10 hours per day as the appellants suggest. As
a result, it is reasonable to conclude that BBK would not employ an arm’s
length person to perform Jagir’s duties at her rate of pay.
[33]
In reaching this conclusion, I
have taken a number of factors into account.
(a) The testimony of Balbir and Gurdeep was too
vague and incomplete to be persuasive. The evidence did not provide a detailed
picture of exactly what work Jagir performed for BBK and when she performed it.
(b) Jagir did not testify and I would conclude that
her testimony would not have been helpful to these appeals.
(c) The testimony of Balbir and Gurdeep was not
consistent with the information that they provided to the government during the
investigation and review stages. Some of the discrepancies might have been
attributable to difficulty with the English language but this is not a
satisfactory explanation for all of the inconsistencies.
(d) Gurdeep assisted Jagir in preparing a CRA
questionnaire that was entered into evidence. The questionnaire indicated that
Jagir was a “camp cook” and that she was not related to BBK’s majority
shareholders by blood or marriage. Both of those statements are inaccurate, or
at the least very misleading. In the absence of a satisfactory explanation, I
am not satisfied that these were innocent slips.
[34]
In conclusion, I am not satisfied
that Jagir worked for BBK anywhere near the 10 hours per day that was
represented, and I am also not satisfied that remuneration of $100 per day was
an arm’s length rate for the duties performed.
[35]
In light of this
conclusion, it has not been necessary to give any weight to hearsay testimony introduced by the
respondent regarding interviews that were conducted with non-related crew
members. I make no comment as to its admissibility.
[36]
The appellants submit
that the appeals should be allowed because the Minister’s decision is
inconsistent with the Minister’s prior decision regarding other relatives, and
further, that the Minister is at fault for not providing guidelines as to the
relevant legal tests.
[37]
Even if these
statements were true, they would not be sufficient grounds to allow these
appeals. Consistent treatment by the Minister is not necessary, and even if the Minister provided wrong information as to
the applicable law, this would not be grounds for allowing the appeals.
[38]
My conclusion is that the
Minister’s decision is reasonable and that the appeals should be dismissed.
Signed at Toronto, Ontario this 22nd day of November
2013.
“J. M. Woods”
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