Khaila et al. v. R. – TCC: Appellant Was Cooking Meals For Her Family – Not Engaged in Insurable Employment

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Khaila et al. v. The Queen[1] (November 22, 2013) involved a claim by Ms. Khaila that she was involved in insurable employment with B.B.K. Contracting Ltd. (“BBK”), a company owned by her brother-in-law and sister-in-law.  The court described the alleged employment:

[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 [the brother-in-law] and his spouse, Rano Khila (“Rano”).

[11]        Jagir [Ms. Khalia] 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.

The court first concluded that Ms. Khalia and BBK were related within the meaning of the Income Tax Act[2]:

[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.

The court then went on to determine if the terms of the employment were substantially similar to arm’s length terms:

[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 [Ms. Khalia’s son] 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.

In a result that was hardly surprising on the facts, the court dismissed the appeals.

[1] 2013 TCC 370.

[2] R.S.C. 1985, c. 1 (5th Supp.).