Digest of Benefit Entitlement Principles Chapter 24 - Section 11
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24.11.0 Earnings
Another one of the circumstances or conditions that would reduce benefit is the receipt of moneys or non-pecuniary benefits that are earnings to be deducted from benefits. Any compensation received for the loss of employment, as well as any wages, salary and any other pecuniary or non-pecuniary benefits related to, attached to, or arising out of employment nullify the financial loss incurred by the claimant. In order to prevent double indemnification, these benefits and advantages will be deducted from benefits.
24.11.1 Earnings arising from self-employment
In an employment bearing an employer-employee relationship, workers who require special benefits commonly take a period of leave without pay from their employment. The reality for the self-employed, however, is that regardless of their need for special benefits, the business may be required to continue or it could face risk of closure. The business of farming is an example, where, despite a pregnancy or illness, the farm must be maintained. Accordingly, it is not required that self-employed persons completely cease their self-employment activities in order to be eligible. Instead, self-employed persons must first demonstrate that they have experienced an interruption of earnings, which is defined as a reduction in the time devoted to their business activities by more than 40 per cent Footnote 1 of the normal level and then continue to experience a week of unemployment Footnote 2 .
Therefore, it follows that self-employed workers who continue to perform some work during their claim will also generate income from their business during the same period for which they are seeking special benefits. In some cases even though the self-employed person ceases to perform any work, the business may still continue to generate income for them and this income must be taken into account when determining the amount of benefits payable Footnote 3 .
Any income generated from self-employment, be it from the performance of service, a transaction or any other combination thereof, including profits, commission and farming subsidies, constitute earnings to be taken into account in determining EI self-employment benefits payable Footnote 4 .
EI Regulation 35 dictates what constitutes earnings to be deducted from any benefits payable to a claimant and with respect to earnings from self-employment, including farming, it states that: "the earnings to be taken into account for the purpose of determining…the amount to be deducted from benefits payable…are the entire income of a claimant arising out of any employment…".
Therefore, the sole consideration in determining whether income is earnings for EI purposes lies in the relationship of that income to employment. Income which may be earned by a claimant during a period when self-employment special benefits are also requested will not be deducted from benefits if there is no direct correlation to employment. As an example, lottery winnings are not earnings to be deducted from benefits as the income is by virtue of luck, not work. Likewise, inheritance monies or capital gains from the sale of a personal home or cottage bear no link to employment and so are not earnings for EI purposes.
The earnings of a self-employed claimant, including farmers, are the amount remaining after deducting the operating expenses excluding capital expenditures.
The Regulations Footnote 5 dictate where to allocate self-employment earnings in a benefit period and states that the allocation of earnings depends on whether or not the earnings arose from the performance of service, or as the result of a transaction.
Earnings from self-employment (including those from farming) fall under the same Regulations Footnote 6 . The determination and allocation of all earnings arising from any self-employment are considered similarly. An exception to this exists for self-employed fishers whose earnings are determined and allocated based on the EI Fishing Regulations Footnote 7 .
Details on all elements of the determination and treatment of self-employment earnings are contained in Chapter 5.16 of the Digest of Benefit Entitlement Principles Footnote 8 . This section details such elements as what constitutes earnings, how they are allocated, what expenses (other than capital expenditures) may be deducted prior to allocation as well as other income sources that do not require declaration by a self-employed claimant.
24.11.2 Earnings arising from insured employment
Given that earnings arise from "any employment" Footnote 9 , and that a person who is self-employed may also be employed in insured employment with an employer, income arising from this type of work is also considered earnings.
The principles surrounding the determination and allocation of earnings from insured employment mirror those applicable to EI claims for benefits. Chapter 5 of the Digest of Benefit Entitlement Principles Footnote 10 provides an in-depth examination of the determination and allocation of these earnings.
24.11.2.1 Pension earnings treatment - special benefits for self-employed claims
As a form of income, pensions are earnings to be taken into account for EI purposes. There are numerous forms of pension benefits, such as periodic benefits, lump sum payments, locked-in pensions, etc. Details on the treatment of pensions are found in the Digest of Benefit Entitlement in Chapter 5 Footnote 11 .
There are types of pension earnings which are not considered income for EI purposes. Disability pension earnings, old age security pensions and supplements, etc Footnote 12 . As well, under certain circumstances, the pension earnings may be exempted from allocation.
For the purposes of self-employment special benefits, if a claimant became eligible for the pension benefit prior to the commencement of their qualifying period Footnote 13 , and a claim for self-employment special benefits is established, then that pension income is not considered as earnings and will not reduce the benefits payable Footnote 14 . Each pension received by the claimant is considered separately and tested for exemption individually, unless the pensions started simultaneously. Therefore, pension start dates as well as the start of the qualifying period are critical to this determination.
All Canada Pension Plan (CPP) and Québec Pension Plan (QPP) retirement pensions Footnote 15 can benefit from the exemption, if they became payable prior to the qualifying period.
The exemption also applies to pensions that are paid in a lump sum and have been converted to an annuity. Again, though, the annuity payments must have commenced prior to the qualifying period start date.
Disability pensions which convert to retirement pensions at a specified age under the terms of the pension plan no longer have the character of a disability pension. These pensions have become retirement pensions. The disability pensions are considered earnings from the date where they are converted to the retirement pension and are allocated unless the claimant meets the pension exempting condition, which is that the retirement pension started prior to the qualifying period for self-employment special benefits.
If a self-employed individual who has started a pension prior to their qualifying period for self-employment special benefits later becomes re-employed and chooses to repay the pension they have received and continue contributing to the pension plan then the pension will no longer be payable prior to the qualifying period and as such would not be exempt as earnings. As an example, once CPP or QPP retirement pensions commence no further contributions are made to these plans. However, CPP and QPP pensions may be cancelled by the recipient within six months of the first payment. If the CPP or QPP pension is cancelled all benefits received must be repaid and contributions must continue to be made on any new CPP or QPP pensionable earnings. If the CPP or QPP is cancelled by the claimant, any pension exemption previously granted will have to be revoked.
If a claimant has obtained an exemption of a pension amount, any subsequent increases to that pension due to an indexing provision of the pension plan would also be exempted.
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