Posted on May 18th, 2021 in Manufacturing & Distribution, Tourism & Hospitality, Agribusiness, Construction, Domestic Tax, General Business, Healthcare & Other Professionals


inside a hair salon, chairs and mirror

In a January 10, 2020 Federal Court of Appeal case, the Court conducted a judicial review of the denial of the taxpayer’s EI benefits. While receiving benefits in 2010 and 2011, the taxpayer had incorporated a corporation and engaged in preliminary work to set up its business. In early 2015, the Canada Employment Insurance Commission (CEIC) was advised by CRA that the taxpayer had applied for a business registration number while collecting EI.

A taxpayer can operate a business while collecting EI benefits where his business activity is to such a minor extent that a person would not normally rely on that business activity as a principal means of livelihood. This is determined based on specific factors as follows:

  1. Time spent – the taxpayer spent significant time on the business but spent as much time looking for work. This did not minimize the significance of time spent setting up the business.
  2. Nature and amount of invested capital and resources – the taxpayer took on significant debt (over $100,000) to finance the business, weighing against the conclusion he was only involved to a minor extent.
  3. Financial success or failure of the business – little or no net income was generated while on EI, but the business had been open for five years by the time of the review and had become the taxpayer’s principal means of livelihood. The Court did not note what this factor indicated.
  4. Continuity of the business – the taxpayer’s continuous efforts to advance the business weighed against the conclusion that he was only involved to a minor extent.
  5. Nature of the business – the taxpayer had a strong desire to stay in his specialized industry, such as operating this business. The specific industry was not identified in the case.
  6. Intention and willingness to seek and accept alternate employment – the taxpayer’s submissions that the machines involved operated unsupervised for twelve to fourteen hours at a time, that he intended to find fulltime employment and operate the business on a parttime basis, at least for a time, and that he was willing to take on full-time work at any time were accepted.

The CEIC’s conclusion that the taxpayer was not engaged to a sufficiently minor extent to benefit from the exception was reasonable. Further, CEIC’s reasons were transparent and intelligible and adequately justified that conclusion. In particular, the Court highlighted the substantial time and capital invested by the taxpayer. The application for judicial review was dismissed. The taxpayer was not eligible to collect EI.

ACTION ITEM: If uncertain as to whether you are eligible for EI given your involvement in a business, please contact an advisor.

Article originally published in: Tax Tips & Traps 2020 Second Quarter – Issue 130