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Docket: 2002-3915(EI) |
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BETWEEN: |
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SATNAM DHEENSHAW, |
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Appellant, |
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and |
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THE MINISTER OF NATIONAL REVENUE, |
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Respondent, |
and
HARBHAJAN DHEENSHAW,
Intervenor.
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Appeal heard on May 12, 2003 at Victoria, British Columbia
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Before: The Honourable D.W. Rowe, Deputy Judge |
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Appearances: |
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Agent for the Appellant: |
Subjit Dheenshaw |
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Counsel for the Respondent: |
Michael Taylor |
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For the Intervenor: |
No one appeared |
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JUDGMENT
The appeal is dismissed and the decision of the Minister is confirmed in accordance with the attached Reasons for Judgment.
Signed at Sidney, British Columbia, this 18th day of July 2003.
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"D.W. Rowe" |
Rowe, D.J.
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Citation: 2003TCC490 |
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Date: 20030718 |
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Docket: 2002-3915(EI) |
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BETWEEN: |
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SATNAM DHEENSHAW, |
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Appellant, |
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and |
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THE MINISTER OF NATIONAL REVENUE, |
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Respondent, |
and
HARBHAJAN DHEENSHAW,
Intervenor.
REASONS FOR JUDGMENT
Rowe, D.J.
[1] The appellant, Satnam Dheenshaw - worker - appeals from a decision of the Minister of National Revenue (the "Minister") - dated May 9, 2002 - wherein it was decided his employment with Harbhajan Dheenshaw - payor or intervenor - during the period from May 15 to November 30, 2001 was not insurable because he and the payor were not dealing with each other at arm's length and the Minister was not satisfied they would have entered into a substantially similar contract of employment had they been dealing with each other at arm's length. The decision of the Minister - issued pursuant to subsection 93(3) of the Employment Insurance Act (the "Act") - was based on paragraphs 5(3)(b) and 5(2)(i) of said Act.
[2] Subjit Dheenshaw - daughter of the intervenor and sister of the appellant - conducted the appeal on behalf of the appellant.
[3] Subjit Dheenshaw testified she currently lives in North Vancouver, British Columbia and is employed as a sales agent for a pharmaceutical company. She grew up on the property - Gobind Farms - located on the Saanich Peninsula on Vancouver Island, B.C., near Victoria. That farm formed part of approximately 70 acres - either owned or leased by her father - in the course of carrying on a market farm business as a sole proprietorship. After the appellant - her brother - had received the ruling informing him that his employment with the payor was considered to have been uninsurable for purposes of the Act, Subjit Dheenshaw stated she contacted an office of Canada Customs and Revenue Agency (CCRA) in an effort to determine the sort of evidence required to demonstrate to the Minister that the parties were dealing with each other on an arm's length basis. Although she left the farm in 1994, she continued to perform the bookkeeping until 1999 and stated she continues to have an intimate knowledge of certain aspects of the payor's business including the amount of the monthly salary - $3,800 - paid by her father to the appellant. According to the books and records maintained by the payor - operating as Gobind Farms - the appellant was the only salaried employee and, before 2001, had been paid on either an hourly or piecework basis. Subjit Dheenshaw stated that from her experience on the farm, it was usual to have as many as 30 people working during strawberry season while other periods of the season might require only 3 or 4 workers. Prior to arriving at the sum of $3,800 per month as the amount of the appellant's remuneration, Subjit Dheenshaw stated she had participated in a discussion with her father and mother in an effort to establish a reasonable and appropriate salary for a Farm Manager within the context of the local farming industry. She stated that non-salaried workers also had to wait for their wages - on occasion - due to lack of cash flow but were always paid - in full - after Gobind Farms sold the last crop of pumpkins. In her experience, this was not unusual within the farming industry. Subjit Dheenshaw stated the appellant was not involved in any of the paperwork arising out of conduct of the business and did not have any signing authority on the bank account nor was he entitled to any bonus or profit sharing. During the relevant period, the only signatories on the account were herself and her father and currently her father is the only person named on said account. Prior to 2001, the intervenor - as sole proprietor - had been the manager of the farm and the appellant - who had worked previously for Save-On Foods - was an ordinary worker. Various products are sold to customers from a booth situated on the home farm property and the cash received is often used for incidental business purposes. In Subjit Dheenshaw's opinion - based on her participation in the business affairs of the farm over many years - her father always considered the payment of wages to employees to have been a priority and had borrowed money in order to meet the payroll even though he had not established a Line of Credit specifically for the business.
[4] In cross-examination by counsel for the respondent, Subjit Dheenshaw recounted the procedures required to be undertaken during a growing season. In April, machinery is repaired, supplies are ordered and thereafter planting occurs, followed by the growing season - which involves irrigation procedures to be undertaken - culminating in the harvest and sale of products. While her brother - the appellant - did not hire and fire workers, he was responsible for interviewing part-time or casual workers. In her view, decisions were made by her father and then relayed to the appellant for implementation. During the 2001 harvest, the casual pickers were paid on a daily basis by an employee of Gobind Farms assigned that task. With regard to the monthly salary in the sum of $3,800 paid to the appellant, Subjit Dheensaw stated she had undertaken some research and had determined that - in view of the long hours required during the summer - that amount was reasonable. Because the appellant was paid a monthly salary, she did not believe there was any need to record the appellant's working hours. However, in her opinion, it was not unusual for the appellant to work 5-7 days per week particularly during July and August which are always exceptionally busy months. The Record of Employment - ROE - Exhibit R-1 - issued to the appellant on December 7, 2001, indicated his insurable earnings were in the sum of $21,000, representing 1,030 insurable hours. The appellant's starting date was May 15, 2001 and the last day of work was November 30, 2001. The insurable hours were based on 28 work-weeks at less than 40 hours per week. The amount of the insurable earnings was based on 5.5 months of salary at the rate of $3,800 per month. Counsel for the respondent pointed out that the appellant had worked a total of 6.5 months and Subjit Dheenshaw responded by stating there had been no money in the farm account to pay him for the month of May, 2001. She agreed she had no first-hand knowledge of payments received by the appellant from the payor. Two sheets of photocopied cheques - Exhibit R-2 - were shown to Subjit Dheenshaw and she identified her writing in the body of cheques #1509, #1510 and #1511. The memorandum line indicated the payment was for wages. A cheque - #3083 - dated April 15, 2002 - in the sum of $1,400 - was in payment of some portion of the appellant's wages for the month of October, 2001. Subjit Dheenshaw stated she thought cheque #3062 - dated March 15, 2002 - in the sum of $2,300 - may have represented payment of the appellant's November, 2001, wages. In her experience, it was usual for the appellant - and other workers - to receive cash advances from time to time which would be taken into account at a later date when the payor issued a cheque for the full amount of outstanding wages. Although she wrote cheques #1509, #1510 and #1511, Subjit Dheenshaw could not explain why all of them were dated September 14, 2001 except that she was on holidays for 3 weeks following July 1. Her recollection was that 2001 was a difficult year for the farm - financially - but could not produce any documentation to substantiate whether any loans had been required in order to meet operational expenses. In 1994, when Subjit Dheenshaw left the farm, it had been a much smaller operation. Thereafter, she spent one week each year at Gobind Farms and was in contact with the appellant and the payor on a regular basis by means of a series of regular telephone conversations.
[5] Satnam Dheenshaw stated he is a Farm Manager residing in Brentwood Bay, British Columbia and had worked at several jobs earlier in his career. Over the course of many years, he became qualified to manage Gobind Farms and agreed his duties included ordering plants and seeds, preparing for planting, cultivation, spraying, irrigation, maintenance of farm equipment, contacting clients to sell produce, lining up contracts for the following year, delivering goods and managing employees. With regard to his salary of $3,800 per month, he stated it had not been that much at the beginning of the season and to some extent was based on his workload and the availability of funds. However, as the season drew to a close, his monthly salary was $3800. Having regard to the photocopies of cancelled cheques - Exhibit R-2 - received by him, the appellant expressed the opinion that his rate of pay seemed to depend on the amount of work done. He stated he was never paid any wages in cash but recalls there was a major loss to the cabbage crop which led to a shortage of funds and he was not able to receive his full salary, although most other workers were paid in full. The cabbage crop - grown over the winter months - is usually sold prior to spring, thereby producing revenue to be used as operating capital for the forthcoming season. He confirmed he had no signing authority on the Gobind Farms bank account. With respect to the delay in receiving his salary for October and November, the appellant stated it may have been due to problems with other crops - including pumpkins - caused by excessive moisture and lack of sunshine. He thought the delayed payment in the form of three cheques - each dated September 14, 2001 representing some portions of salary accruing during May, June and August - was due to a lack of funds during those months caused by a reduced harvest of the strawberry crop. He had spoken to his father and agreed to receive payment in September and was aware that - from time to time - other employees also had to wait for payment of wages. In the end, he and others were paid in full. Prior to 2001, he had not been responsible for management and was not required to deal with wholesalers. In 1997 and 1998, he worked on the farm and after leaving high school - in 1996 - held various jobs for different entities involved in the wholesale produce business. He stated he does not receive any share of Gobind Farm profits nor any bonuses. Prior to 2001, he had applied for - and received - employment insurance (EI) benefits. Currently, he still is employed as Manager of Gobind Farms but lives with his wife in their own residence at another location.
[6] In cross-examination by counsel for the respondent, Satnam Dheenshaw confirmed that 2001 was the first year during which he had been designated by his father - the payor - to perform a specific managerial function. His father informed him of the extent of his duties and the salary he would receive as Manager. The appellant stated he understood other managers earned between $50,000 and $60,000 per year particularly since some of the larger farms operated 12 months per year. Gobind Farms is comprised of approximately 70 acres of productive land out of a total holding of 90 acres. The appellant was referred to the photocopies of cancelled cheques - Exhibit R-2 - and stated he thought his rate of monthly pay was flexible to some extent in the sense he was not expecting to be paid the sum of $3,800 each and every month in 2001. Currently, he receives the same amount of salary each month in his role as Manager. He agreed the total of the cheques received by him - in 2001 - amounted to $9,010.28. He received 3 cheques on September 14, 2001 which he attributed to wages due in May and June whereas the cheque dated August 5, 2001 - in the sum of $2,200 - was applicable - probably - to July wages. Other than the cheques comprising Exhibit R-2, the appellant stated he was not able to demonstrate any other payment in 2001. He had requested his father to pay the outstanding wages "as soon as possible" and received a cheque - in the sum of $2,800 on March 15, 2002 followed by a final cheque - dated April 15, 2002 - in the sum of $1,400. Upon being advised of the ruling concerning his lack of insurability arising from his employment with Gobind Farms, the appellant objected - by letter - Exhibit R-3 - to the decision. Following his layoff on November 30, 2001, the appellant stated he assisted his mother - who lives on the farm and is confined to a wheelchair - but he did not perform any tasks for the benefit of Gobind Farms on any volunteer basis. His own residence is about a 10-minute drive from the farm.
[7] Subjit Dheenshaw, agent for the appellant submitted there must have been other cheques paid to the appellant but are not currently available for production in Court. In her view of the evidence, the appellant provided managerial services and was compensated at a reasonable rate although the cash flow of the farm prevented him from being paid on a timely basis.
[8] Counsel for the respondent submitted the decision of the Minister was correct and did not require any intervention by the Court.
[9] The relevant provision of the Act is paragraph 5(3)(b) which reads as follows:
(3) For the purpose of paragraph (2)(i),
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(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.
[10] In the case of Adolfo Elia v.Canada (Minister of National Revenue - M.N.R.), [1998] F.C.J. No. 316 - a decision of the Federal Court of Appeal dated March 3, 1998, at page 2 of the certified translation Pratte, J.A. stated:
Contrary to what the judge thought, it is not necessary, in order for the judge to be able to exercise that power, for it to be established that the Minister's decision was unreasonable or made in bad faith having regard to the evidence before the Minister. What is necessary is that the evidence presented to the judge establish that the Minister acted in bad faith, or capriciously or unlawfully, or based his decision on irrelevant facts or did not have regard to relevant facts. The judge may then substitute his decision for that of the Minister.
[11] In Légaré v. Canada (Minister of National Revenue - M.N.R.), [1999] F.C.J. No. 878 - another decision of the Federal Court of Appeal - Marceau, J.A. speaking for the Court stated at page 2 of the judgment:
In this matter, the Court has before it two applications for judicial review against two judgments by a judge of the Tax Court of Canada in related cases heard on the basis of common evidence which raise yet again the problems of interpretation and application of the saving provision, subparagraph 3(2)(c)(ii). I say yet again because since its passage in 1990, several decisions of the Tax Court of Canada and several judgments of this Court have already considered what workable meaning could be given to subparagraph 3(2)(c)(ii). In reading the text, the problems it poses beyond its deficient wording are immediately obvious, problems which essentially involve the nature of the role conferred on the Minister, the scope of the Minister's determination and, by extension, the extent of the Tax Court of Canada's general power of review in the context of an appeal under section 70 et seq. of the Act.
While the applicable principles for resolving these problems have frequently been discussed, judging by the number of disputes raised and opinions expressed, the statement of these principles has apparently not always been completely understood. For the purposes of the applications before us, we wish to restate the guidelines which can be drawn from this long line of authority, in terms which may perhaps make our findings more meaningful.
The Act requires the Minister to make a determination based on his own conviction drawn from a review of the file. The wording used introduces a form of subjective element, and while this has been called a discretionary power of the Minister, this characterization should not obscure the fact that the exercise of this power must clearly be completely and exclusively based on an objective appreciation of known or inferred facts. And the Minister's determination is subject to review. In fact, the Act confers the power of review on the Tax Court of Canada on the basis of what is discovered in an inquiry carried out in the presence of all interested parties. The Court is not mandated to make the same kind of determination as the Minister and thus cannot purely and simply substitute its assessment for that of the Minister: that falls under the Minister's so-called discretionary power. However, the Court must verify whether the facts inferred or relied on by the Minister are real and were correctly assessed having regard to the context in which they occurred, and after doing so, it must decide whether the conclusion with which the Minister was "satisfied" still seems reasonable.
[12] The Minister relied on certain assumptions of fact prior to concluding the appellant was in excluded employment while providing services to the payor during the relevant period. The assumptions reproduced below are those I consider to represent the core of the Minister's position as set forth in subparagraphs 4(g) to 4(r), inclusive, of the Reply to the Notice of Appeal (Reply).
g) during the Period the Appellant worked long hours often working from 6:30 a.m. to 11:00 p.m. 6 to 7 days per week;
h) the Appellant was in charge of writing cheques and handling paperwork before the bookkeeper is involved;
i) the Appellant worked approximately 100 hours per week on the farm during the Period;
j) the Appellant set his rate of pay;
k) the Appellant received cheques as follows: August 5, 2001, $2,200.00; September 14, 2001, $3,400.00; September 14, 2001, $2,160.00; September 14, 2001, $1,250.00; March 15, 2002, $2,800.00 and April 15, 2002, $1,400;
l) the Appellant was not paid overtime;
m) the Appellant's record of employment was based on a 40-hour week;
n) the Appellant's rate of pay was set at $3,800.00 per month as determined by the Appellant;
o) the Appellant helped himself to money in the cash register when he needed money but did not record the amounts taken;
p) the Appellant was not sure if he had received all his wages;
q) the Appellant received two paycheques after the appeal to the Minister was initiated and after he was interviewed by the Appeals Officer;
r) the Appellant provides service to Gobind outside of the period reported on the record of employment without remuneration;
[13] The assumption at subparagraph 4(h) of the Reply that the appellant was in charge of writing cheques and handling paperwork is not borne out by the evidence. It is also clear the appellant did not set his own rate of pay as stated by the Minister at subparagraph 4(j) and - curiously - re-stated in a slightly different manner at subparagraph 4(n). The appellant did not refute the allegation - subparagraph 4(o) - that he "helped himself to money in the cash register when ... needed ... but did not record the amounts taken". The appellant denied he had provided any service to Gobind Farms outside the period reported on the ROE, as assumed by the Minister as subparagraph 4(r) of said Reply.
[14] The assumptions remaining intact and the evidence before me lead to these conclusions.
1. The appellant worked extremely long hours - perhaps 100 hours per week - yet the ROE was based on less than a 40-hour week.
2. The ROE stated the appellant had been paid the sum of $21,000 during the period from May 15, 2001 to November 30, 2001.
3. The amount proved to have been received by the appellant from the payor during the relevant period was $9,010.28.
4. The total remuneration allegedly attributable to the appellant's provision of services to the payor - in 2001- including $4,200 paid by two cheques written in 2002 - amounts to only $13,210.28.
5. The total salary due and payable - at the rate of $3,800 per month - for the working period of 6.5 months would have been in the sum of $24,700.
6. The salary actually received by the appellant - in 2001- is $15,689.72 less than the sum used in the ROE and after the 2002 payments are included, the shortfall is still $11,489.72.
[15] Unless certain specific conditions apply which are not relevant to the within appeal, in order for a worker to receive EI benefits based on a certain amount of insurable earnings representing a certain number of insurable hours, there must have been remuneration paid in respect of that employment in accordance with section 10(1) of the Regulations pursuant to the Act.
[16] Apart from the assertions of Subjit Dheenshaw - in the course of her testimony - that she had undertaken some research into the matter, there is no evidence the sum of $3,800 per month is reasonable within the market farming industry in that area of Vancouver Island. It may well be fair considering the extensive hours needed during the summer months and the various duties that must be performed including supervision of employees during the busy picking seasons of different crops. However, it is difficult to imagine that a non-related person would work 5-7 days per week - and up to 100 hours per week - during the busy months and not be paid on a regular basis. The appellant worked between May 15, 2001 and September 15, 2001 - a period of 4 months - in a managerial position and was paid a total of $9,010.28 during that period with the first payment - in the sum of $2,200 - not being received until August 5, 2002. Ordinarily, a Manager would expect to receive gross pay in the sum of $15,200 in that 4-month period based on $3,800 per month. Question: Is it reasonable to expect that a stranger, after not being paid for nearly 3 months, and being owed more than $5,000 in salary at the end of 4 months hard work, would continue to provide services for another two and one-half months and then wait until March and April, 2002, for partial payment leaving a significant balance of unpaid salary for 2001. Answer: No.
[17] The appellant was unsure of the basis for his remuneration which had been established by his sister in conjunction with his parents. That is a peculiar method of negotiating a remuneration package and is not recommended for neophytes about to assume executive positions within a family-owned business. One can understand the appellant's confusion because his purported salary of $3,800 per month bore no relation to amounts actually received and the notations on the memo line of the cheques are not linked to the specific amount of salary actually earned. If the cheque dated September 14, 2001 - in the sum of $1,250 - was supposed to be payment for 15 days wages in May, then the appellant's salary must have been approximately $2,500 per month. Another cheque of same date - in the odd sum of $2,160.28 - purported to be in payment of wages for June. Perhaps that is based on a salary of $2,500 per month but it certainly is not based on the sum of $3,800. The final cheque of same date - in the sum of $3,400 - appears to be for payment of August wages. That comes closer to the mark but - after appropriate deductions - it should be much less even taking into account recent cuts to income tax by the federal government and the Province of British Columbia.
[18] The ROE misrepresented the amount of insurable earnings by a significant amount. EI benefits - had they been paid - would have been based on that sum. At that rate, the EI benefits may have amounted to nearly as much as the total remuneration actually paid to the appellant during 2001. The system is not designed to dispense benefits based on IOU's or some other form of notional compensation in accordance with the specific dynamics inherent in relationships between members of a family. Instead, it requires conformity with the Act and any relevant Regulations thereunder.
[19] Although some of the assumptions of fact relied on by the Minister were not supported by the evidence, in my opinion, there is ample remaining material to justify the decision of the Minister that the parties would not have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length. The Minister's decision is correct having regard to the circumstances within the context of the working relationship between the appellant and the payor because it is based on a proper assessment of facts either inferred or relied upon directly. As a result, the decision is reasonable and sustainable.
[20] The appeal is dismissed and the decision of the Minister is hereby confirmed.
Signed at Sidney, British Columbia, this 18th day of July 2003.
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"D.W. Rowe" |
Rowe, D.J.
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CITATION: |
2003TCC490 |
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COURT FILE NO.: |
2002-3915(EI) |
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STYLE OF CAUSE: |
Satnam Dheenshaw and M.N.R. and Harbhajan Dheenshaw |
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PLACE OF HEARING: |
Victoria, British Columbia |
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DATE OF HEARING: |
May 12, 2003 |
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REASONS FOR JUDGMENT BY: |
The Honourable D.W. Rowe, Deputy Judge |
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DATE OF JUDGMENT: |
July 18, 2003 |
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APPEARANCES: |
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Agent for the Appellant: |
Subjit Dheenshaw |
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Counsel for the Respondent: |
Michael Taylor |
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For the Intervenor: |
No one appeared |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
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Firm: |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |
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For the Intervenor: |
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Name: |
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Firm: |
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