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Citation: 2003TCC319
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Date: 20030514
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Docket: 2002-4207(EI)
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BETWEEN:
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KARIMA KABBAJ,
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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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MÉNAGE À PERFECTION INC.,
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Intervener.
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[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Deputy Judge Somers, T.C.C.
[1] This appeal was heard at Montreal,
Quebec, on March 31, 2003.
[2] The appellant appeals from the
decision of the Minister of National Revenue (the "Minister")
dated September 10, 2002, that her employment with the payer,
Ménage à Perfection Inc., during the period at
issue, namely, from December 3 to December 22, 2001, was
insurable because there was a contract of service between her and
the payer and that for this period insurable earnings totalled
$1,500.00 and insurable hours totalled 120 and, in
addition, for the period from December 24 to May 17, 2002, her
employment was not included in insurable employment because she
and the payer were dealing at arm's length.
[3] In his Reply to the Notice of
Appeal, the Minister submitted that
- the appellant's
employment was insurable during the period from December 3 to
December 22, 2001, because there was a contract of service
between her and the payer and insurable earnings for this period
totalled $1,500.00 and insurable hours totalled 120.
In addition, the Minister decided that
- the appellant did
not hold insurable employment during the week from December 23 to
28, 2001, since she provided no service and was not
remunerated;
- the appellant's
employment was not insurable during the period from December 19,
1001 to May 17, 2002, because she and the payer were not dealing
at arm's length according to the provisions of paragraph
5(2)(i) of the Employment Insurance Act (the
"Act") and sections 251 and 252 of the Income Tax
Act.
[4] Subsection5(1) of the Act
reads in part 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;
[...]
[5] Subsections 5(2) and (3) of the
Act read in part as follows:
(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.
[6] Section 251 of the Income Tax
Act reads in part as follows:
Section 251: Arm's length.
(1) For the
purposes of this Act,
(a) related
persons shall be deemed not to deal with each other at arm's
length; and
[...]
(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;
[...]
[7] The burden of proof lies with the
appellant. She must establish, on a balance of probabilities,
that the Minister's decision is wrong in fact and in law. Each
case must be decided on its own merits.
[8] In making his decision, the
Minister relied on the following assumptions of fact set out in
paragraph 5 of the Reply to the Notice of Appeal, which were
admitted or denied by the appellant or concerning which the
appellant had no knowledge:
[Translation]
(a) the payer was
incorporated on July 17, 2001; (no knowledge)
(b) the payer
operated a residential and commercial janitorial business;
(admitted)
(c) the sole
shareholder of the payer was Georges Dibé; (admitted)
(d) on December 29,
2001, the appellant married Georges Dibé; (admitted)
(e) the appellant
had been hired as director of operations; (admitted)
(f) the
appellant's tasks consisted of answering the telephone, making
appointments, preparing the employees' work schedules, preparing
invoices and fielding complaints; (denied)
(g) the appellant
had a work schedule of 40 hours a week with the payer;
(admitted)
(h) the appellant's
salary had been fixed by the payer at $26,000 a year;
(admitted)
(i) the
appellant was remunerated for three weeks in December 2001;
(denied)
(j) for the
period from December 3 to December 22, 2001, the appellant worked
120 hours and received remuneration of $1,500; (denied)
(k) for the rest of
the period at issue, the appellant was listed in the payer's
payroll journal with a salary of $1,000 every two weeks;
(denied)
(l) the
business did not operate during the week from December 23 to
December 29, 2001; (denied)
(m) after her marriage on
December 29, 2001, the appellant's salary was no longer paid;
(denied)
(n) the payer's
payroll journal does not reflect the reality; (denied)
(o) on June 19,
2002, in a signed statement to HRDC, the appellant said
[Translation] "I was not paid for all of the weeks I worked
because the company had no money to pay me"; (denied)
(p) on June 19,
2002, in a signed statement to HRDC, the appellant said:
[Translation] "since I stopped working, on 17-5-2002, I have
continued to go to the company for 4 to 5 hours a day, 5 days a
week, to look for a job on the Internet, but also to work, I
answer the telephone"; (denied)
(q) on May 22, 2002,
the payer issued a record of employment to the appellant for the
period beginning on December 3, 2001, and ending on May 17, 2002,
which showed 960 insurable hours and total insurable earnings of
$12,480.00; (admitted)
(r) following her
layoff, the appellant continued to provide services to the payer
without pay; (denied)
(s) the appellant's
record of employment does not reflect the reality as to the
remuneration and the period worked by the appellant; (denied)
(t) the period
allegedly worked by the appellant does not correspond with the
period actually worked. (denied)
[9] The payer was incorporated on July
17, 2001, and operated a residential and commercial janitorial
business. The sole shareholder of the payer, Georges Dibé,
married the appellant on December 29, 2001.
[10] The appellant was hired by the payer as
director of operations. Her duties consisted of answering the
telephone, making appointments, preparing the work schedules for
three to four employees, preparing the invoices and fielding
complaints. In addition, the appellant translated documents from
English to French and managed the office generally.
[11] The appellant worked 40 hours a week
and her salary had been fixed by the payer at $26,000 a year. For
the period from December 3 to December 22, 2001, the appellant
worked 120 hours and received remuneration of $1,500. For the
remainder of the period at issue, the appellant said that she was
supposed to receive $757.48 every two weeks and that she had
received her last pay on January 12, 2002. She added that she had
worked for the payer until May 17, 2002, but that she was not
paid up to that time.
[12] The appellant was the only one who
testified in support of her appeal. In her testimony, the
appellant stated that the payer's business was operating normally
on December 23, 2001, but not on December 24 and 25, and that she
had married the sole shareholder of the payer on December 29 of
that year.
[13] In a statutory declaration dated June
19, 2002, (Exhibit I-1), the appellant stated, inter
alia:
[Translation]
...I ought to explain that I was not paid for all of the weeks
I worked because the company had no money to pay me, but the
money is owed to me; I received only six to eight weeks' salary
approximately... I stopped working because the company could no
longer pay my salary, not enough customers for the time being. I
was not replaced, my husband has voice mail and he is at the
office on 27 Grande Côte, Boisbriand. Since I stopped
working on 17-5-2002, I have continued to go to the company for 4
to 5 hours a day, 5 days a week, to look for a job on the
Internet, but also to work, I answer the telephone...I am not
paid by my husband on those days.
and, at the hearing of this appeal, the appellant made the
same statement as the one quoted above. She said that she had not
provided services to the payer after her layoff on May 17,
2002.
[14] In his testimony at the hearing of this
appeal, Clermont Poulin, an appeals officer with the Canada
Customs and Revenue Agency, stated that he had had a telephone
conversation with the appellant on August 19, 2002, and another
with the payer on August 20, 2002, and after that he had prepared
the appeal report filed as Exhibit I-2.
[15] Clermont Poulin said that the appellant
gave vague answers. Regarding the method of payment of her
salary, the appellant told him that she was paid in cash, by
cheque or by direct deposit. She also said that she had received
[Translation] "only three weeks' salary". According to the
appellant, the payer's other employees were paid every two
weeks.
[16] According to Clermont Poulin's report,
Georges Dibé told him that the appellant was employed by
him during the period at issue, that her salary had been fixed at
$26,000 a year and that her hours were not recorded.
[17] According to the sales journal filed as
Exhibit I-4, the payer's turnover for the months of February,
March and April 2002 was $3,025.35, $3,189.48 and $2,741.35
respectively. As for the turnover for June and July 2002, namely,
after the appellant's layoff, Georges Dibé told the
appeals officer that it was $4,000 and $6,000 respectively.
[18] In Ferme Émile Richard et
Fils Inc. v. M.N.R., [1994] F.C.J. No. 1859, the Federal
Court of Appeal indicated that, where the application of
subparagraph 3(2)(c)(ii) of the Unemployment Insurance
Act, now paragraph 5(3)(b) of the Employment Insurance
Act, is involved,the Court must consider whether the
Minister's decision "resulted from the proper exercise of his
discretionary authority." In the first stage, the Court must
require the appellant to present evidence of wilful or arbitrary
conduct by the Minister.
[19] The evidence showed that the appellant
and the sole shareholder of the payer were not dealing at arm's
length. The appellant's hours of work were not controlled or
recorded and she was not paid regularly for her work, whereas the
other employees of the payer were paid every two weeks. Someone
who was dealing at arm's length would not have worked for the
payer without being paid. The record of employment does not
reflect the reality.
[20] The payer's turnover increased and
almost doubled after the appellant's layoff, which implies that
the payer was much busier than it was during the months when the
appellant was employed by it. However, the appellant was not
replaced and Georges Dibé handled the duties formerly
performed by her.
[21] The Minister properly exercised his
discretion and did not act capriciously or arbitrarily.
[22] Consequently, the appeal is dismissed
and the Minister's decision is confirmed.
Signed at Ottawa, Canada, this 14th day of May 2003.
D.J.T.C.C.
Translation certified true
on this 30th day of January 2004.
Leslie Harrar, Translator
Authority consulted
Canada (Attorney General) v. Jencan Ltd. (C.A.), [1998]
1 F.C. 187
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