CRA investigation should have focused on employer: Judge
The insurable earnings and hours of four orchard workers were the focus of a recent case in the Tax Court of Canada that demonstrates the importance of accurate record-keeping in informal workplaces.
In Jawanda v. R., four members of the Jawanda family (mother, father, son and daughter-in-law) appealed determinations by the Canada Revenue Agency (CRA) of their insurable earnings and insurable hours under the Employment Insurance Act.
The Jawandas did seasonal work in 2000 and 2001, tending trees and picking fruit at Bains Orchards for $9 an hour. However, their employer paid them irregularly, by cheque, money order, bank draft or in cash. Bains also had “inadequate and inconsistent records” and was having difficulties with its own taxes for which collection action was being taken, so it often used cash for sales and expenses, including payroll.
The owner issued reports of earnings to his employees for unemployment insurance (EI) purposes that did not correspond precisely to T4s, his T1 tax return, his withholding remittances or business books and records.
However, the CRA’s position is the Jawanda’s insurable earnings for EI purposes were those they could document they were paid by written evidence other than records of employment (ROEs) or T4s issued by the employer. The CRA also believed the wages were not paid in cash and were actually unpaid wages not included in insurable earnings since a claim was not filed with Employment Standards. It further contended none of the cash allegedly paid to the Jawandas was evidenced by deposits into their bank accounts.
For example, Davinder Jawanda’s 2001 ROE was for $10,935 of insurable earnings and 1,215 insurable hours. But the CRA found copies of Bains’ cheques and money orders totaling just $7,200, which grossed up to $8,563 of insurable earnings and worked out to 952 hours.
The employees, however, contended they were fully paid, although at times late, so they had no need to file labour complaints. They say they adequately tracked hours worked and amounts paid at the time to satisfy themselves they were fully and properly paid. The two husbands testified they pursued Mr. Bains regularly to ensure they were paid and he often reached for his wallet to give them cash in varying amounts. And the family said they spent most of their money right away on family expenses such as rent and groceries.
Witnesses included representatives from Human Resources and Skills Development Canada (HRSDC) and the CRA and evidence included an audit by PricewaterhouseCoopers.
In the end, the judge decided the Jawandas gave credible evidence that part of their wages was paid in cash consistent with the ROEs, T4s and tax returns.
“I do not think it is reasonable to have an absolute expectation that $9-an-hour wage labourers will keep any greater records once they are satisfied they were fully paid for the hours they had worked.”
He also cited CRA testimony that it is not uncommon in the agricultural sector for labourers to be paid in cash and Bains Orchards was motivated by tax purposes to receive cash and spend it in its business.
The judge said the onus was on the Crown to provide evidence the Jawandas were not paid in cash but they did not even attempt to do so.
“The combined investigatory, audit and search powers and resources of the CRA, HRSDC and the B.C. Labour Department’s Employment Standards Branch, aided by a PricewaterhouseCoopers forensic audit commissioned by them, and after compelling Mr. Bains’ information and records, appears to have resulted in no evidence that supports its position that no wages were paid to the appellants in cash.
“The government instead seeks the security of its favoured position of the onus of proof being on the appellants. That is not an acceptable response... The CRA’s position that further and better supporting evidence is required before they will allow any is unreasonable,” he said.
“Mr. Bains and Bains Orchards are the non-compliant rogues that were the real subject of their pursuit. The orchard labourers appear to have been more in the nature of unwitting collateral damage.”
For details, see Jawanda v. R. 2007 CarswellNat 3197 (T.C.C).
Sarah Dobson is editor of Canadian Payroll Reporter, a sister publication to Canadian HR Reporter. For more information, visit www.hrreporter.com/ccbr.
In Jawanda v. R., four members of the Jawanda family (mother, father, son and daughter-in-law) appealed determinations by the Canada Revenue Agency (CRA) of their insurable earnings and insurable hours under the Employment Insurance Act.
The Jawandas did seasonal work in 2000 and 2001, tending trees and picking fruit at Bains Orchards for $9 an hour. However, their employer paid them irregularly, by cheque, money order, bank draft or in cash. Bains also had “inadequate and inconsistent records” and was having difficulties with its own taxes for which collection action was being taken, so it often used cash for sales and expenses, including payroll.
The owner issued reports of earnings to his employees for unemployment insurance (EI) purposes that did not correspond precisely to T4s, his T1 tax return, his withholding remittances or business books and records.
However, the CRA’s position is the Jawanda’s insurable earnings for EI purposes were those they could document they were paid by written evidence other than records of employment (ROEs) or T4s issued by the employer. The CRA also believed the wages were not paid in cash and were actually unpaid wages not included in insurable earnings since a claim was not filed with Employment Standards. It further contended none of the cash allegedly paid to the Jawandas was evidenced by deposits into their bank accounts.
For example, Davinder Jawanda’s 2001 ROE was for $10,935 of insurable earnings and 1,215 insurable hours. But the CRA found copies of Bains’ cheques and money orders totaling just $7,200, which grossed up to $8,563 of insurable earnings and worked out to 952 hours.
The employees, however, contended they were fully paid, although at times late, so they had no need to file labour complaints. They say they adequately tracked hours worked and amounts paid at the time to satisfy themselves they were fully and properly paid. The two husbands testified they pursued Mr. Bains regularly to ensure they were paid and he often reached for his wallet to give them cash in varying amounts. And the family said they spent most of their money right away on family expenses such as rent and groceries.
Witnesses included representatives from Human Resources and Skills Development Canada (HRSDC) and the CRA and evidence included an audit by PricewaterhouseCoopers.
In the end, the judge decided the Jawandas gave credible evidence that part of their wages was paid in cash consistent with the ROEs, T4s and tax returns.
“I do not think it is reasonable to have an absolute expectation that $9-an-hour wage labourers will keep any greater records once they are satisfied they were fully paid for the hours they had worked.”
He also cited CRA testimony that it is not uncommon in the agricultural sector for labourers to be paid in cash and Bains Orchards was motivated by tax purposes to receive cash and spend it in its business.
The judge said the onus was on the Crown to provide evidence the Jawandas were not paid in cash but they did not even attempt to do so.
“The combined investigatory, audit and search powers and resources of the CRA, HRSDC and the B.C. Labour Department’s Employment Standards Branch, aided by a PricewaterhouseCoopers forensic audit commissioned by them, and after compelling Mr. Bains’ information and records, appears to have resulted in no evidence that supports its position that no wages were paid to the appellants in cash.
“The government instead seeks the security of its favoured position of the onus of proof being on the appellants. That is not an acceptable response... The CRA’s position that further and better supporting evidence is required before they will allow any is unreasonable,” he said.
“Mr. Bains and Bains Orchards are the non-compliant rogues that were the real subject of their pursuit. The orchard labourers appear to have been more in the nature of unwitting collateral damage.”
For details, see Jawanda v. R. 2007 CarswellNat 3197 (T.C.C).
Sarah Dobson is editor of Canadian Payroll Reporter, a sister publication to Canadian HR Reporter. For more information, visit www.hrreporter.com/ccbr.
