Lloyd v. M.N.R., docket 97-1741-UI

Date: 19980427

Docket: 97-1741-UI

BETWEEN:

DEVIN LLOYD,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Judgment

Bowman, J.T.C.C.

[1] This appeal under the Unemployment Insurance Act (now the Employment Insurance Act) is from a determination by the Minister of National Revenue that the appellant was engaged in insurable employment during the period from July 17, 1995 to March 8, 1996. The appellant contends that the employment, albeit under a contract of service with the meaning of paragraph 3(1)(a) was nonetheless excepted employment under paragraph 3(2)(i), (“employment included in excepted employment by regulation under section 4”).

[2] The matter comes before the court in somewhat unusual circumstances. On July 14, 1995, the appellant entered into a self-employment agreement with the Canada Employment and Immigration Commission in accordance with the Self Employment Assistance program (“SEA”) contemplated by Division III of the Unemployment Insurance Regulations under section 26.1 of the Unemployment Insurance Act. Essentially that scheme provided for assistance to claimants in starting a business or becoming self-employed.

[3] Section 26.1 reads as follows:

26.1(1) Notwithstanding anything in this Act, but subject to section 26.2, the Commission may, with the approval of the Governor in Council, make such regulations as it deems necessary respecting the establishment and operation of schemes to provide assistance to claimants who qualify to receive benefit under this Act for any of the following purposes:

(a) for paying the costs of courses and programs mentioned in section 26;

(b) for providing supplementary training allowances to claimants who are referred to courses and programs mentioned in section 26, including allowances for

(i) the care of dependent children while the claimants are attending the courses and programs,

(ii) travelling to and from places where the courses and programs are held,

(iii) living away from home while attending the courses and programs, or

(iv) arrangements or devices to facilitate the participation of disabled person;

(c) for assisting claimants in seeking employment in areas where their opportunities for employment are greater and in moving to those places, or moving to places where they have found employment;

(d) for assisting claimants in starting a business or becoming self-employed; and

(e) for providing to claimants incentives to accept employment quickly, including bonuses and temporary earnings supplements.

(2) No decision of the Commission on an application for assistance under any scheme established under subsection (1) is subject to appeal under section 79 or 80.

(3) Any scheme established under subsection (1) may, with respect to any matter, be different from the provisions of this Act relating to that matter.

(4) Any scheme established under paragraph 1(c), (d) or (e) may provide that claimants who receive assistance under it and subsequently claim benefit are subject to eligibility requirements and benefit periods that are different from those that would otherwise apply to them under this Act.

(4.1) The Commission shall ensure that claimants who apply for assistance are informed in advance of any different eligibility requirements and benefit periods that may be applicable to them should they subsequently claim benefit.

(5) The Commission may, under any scheme established under subsection (1), pay amounts as assistance in respect of claimants who meet the requirements established by the scheme. 1990, c.40, s. 20.

[4] Division III of the Regulations deals with self-employment assistance. In section 119 of the Regulations the following two definitions appear:

“business plan” means a plan of a qualified claimant to start a business or become self-employed; (projet d’entreprise)

...

“self-employment agreement” means an agreement entered into between the Commission and a qualified claimant under which the claimant is employed in developing and implementing a business plan; (accord d’activité indépendante).

[5] The appellant prepared and submitted a business plan and, as stated above, entered into a self-employment agreement. The self-employment which the government evidently accepted for the purposes of the plan was employment with 652945 Alberta Ltd. which operated as Coach Restaurant.

[6] The appellant owned 51 shares of that company. 50 Shares were owned by an unrelated person, Darren Harbicht, who was associated with the appellant in the business of the restaurant. The remaining 50 shares were owned by 561178 Alberta Limited which was owned as to 50% by the appellant’s uncle and as to 50% by an unrelated person.

[7] In the eligibility questionnaire submitted by the appellant he stated clearly that he owned 34% of the shares of the company. He was accepted by Human Resources Development Canada (“HRDC”) and received benefits of slightly over $10,000 under the program.

[8] Neither he nor the employer was aware that unemployment insurance premiums did not have to be paid. In fact, his employment with 652945 Alberta Ltd. was excepted employment under paragraph 3(2)(i) of the Act. Excepted employment is,

employment included in excepted employment by regulation under section 4.

[9] Paragraph 4(3)(g) of the Act provides that the Commission may make regulations excepting form from insurable employment,

any employment provided under section 25 or under regulations made under section 24.

[10] Section 130 of the regulations provides that,

The employment of a qualified claimant under a self-employment agreement is excepted from insurable employment.

[11] Section 14 also provides that,

The following employments are excepted from insurable employment:

...

(i) employment of a claimant on a job creation project approved by the Commission pursuant to subsection 25(1) of the Act.

[12] Subsection 25(1) of the Act reads:

25(1) For the purposes of this section, “job creation project” means a project that is approved by the Commission for the purposes of this section under a program designed primarily to create employment and conducted by the Government of Canada pursuant to any Act of Parliament.

[13] I have concluded that the SEA program was a job creation program contemplated by section 14 of the regulations and that the appellant was entitled to the benefits that he received under it.

[14] The problem of the appellant is that he did not know that unemployment insurance premiums were not deductible from his employment income from 652945 Alberta Ltd. Clearly the employment was excepted employment and he should not have claimed or received, in addition to benefits under the SEA program, unemployment insurance benefits.

[15] On July 8, 1997, the Department of National Revenue wrote to him as follows:

This letter concerns your appeal of the Ruling dated May 10, 1996 regarding the insurability, for employment insurance purposes, of your employment with 652945 Alberta Ltd. (o/a Coach Restaurant & Saloon), for the period July 17, 1995 to March 8, 1996.

It has been decided that this employment was insurable for the following reason: You were employed under a contract of service, and therefore you were an employee.

It has further been decided that your employment was not excepted under regulation 130 of the Unemployment Insurance Regulations because you did not control the majority of the voting shares in 652945 Alberta Ltd.

If you disagree with this decision, you may appeal to the Tax Court of Canada within 90 days of the mailing date of this letter. Information on how to proceed is attached.

The decision in this letter is issued pursuant to section 91 of the Employment Insurance Act and is based on paragraph 3(1)(a) of the Unemployment Insurance Act.

[16] Obviously, I have no jurisdiction to hear an appeal from a refusal to grant him benefits under the SEA program. I do however have jurisdiction to determine whether he was employed in insurable employment or in excepted employment. I find that his employment by 652945 Alberta Ltd. was excepted employment because his employment under the SEA program was excepted. There is of course no merit in the suggestion that because he did not own a majority of the shares he was not properly employed under the SEA program. Nothing in the Act, the regulations or the other material filed imposes such a requirement. He did in fact start the business and he was a substantial shareholder. As a matter of administrative fairness, if nothing else, it is wholly unacceptable that the Government of Canada should reverse his qualification under the SEA program subject because he, in good faith and quite innocently, mistakenly claimed and was paid about $900 in unemployment benefits.

[17] One thing seems fairly obvious. The real reason for the government’s claim to the $10,000 benefits paid to Mr. Lloyd is that he mistakenly claimed unemployment insurance benefits. Having accepted him in the SEA program with full knowledge of the extent of his interest in the company, the government now uses his failure to own over 50% of the shares as an ex post facto rationalization for asking for the return of the SEA benefits. Simply put, the Government of Canada is asking for the wrong amount back. It should be claiming the repayment of the unemployment insurance benefits. He was not entitled to those because in the period in question he was not employed in insurable employment.

[18] The appeal is allowed and the determination of the Minister of National Revenue that the appellant was employed in insurable employment is reversed.

Signed at Ottawa, Canada, this 27th day of April 1998.

"D.G.H. Bowman"

J.T.C.C.