Digest of Benefit Entitlement Principles  Chapter 5 - Section 3

5.3.0 The entire income arising out of employment

It is the entire income arising out of employment Footnote 1 that is earnings for benefit purposes. In fact, any moneys or non-pecuniary benefits received from employment cannot be removed from the broad characterization of the entire income of a claimant arising out of any employment unless expressly excluded by the regulations Footnote 2 , jurisprudence or policy. This is especially so when specific provisions exist respecting the allocation of such moneys, Footnote 3 such as vacation pay Footnote 4 . Some earnings are specifically included in Regulation 35(2) for clarity, to prevent any misinterpretation, even though they can be considered to have arisen out of employment Footnote 5 .

The concept of the entire income arising out of employment can be divided into two major components, the entire income and arising out of employment. Determination of whether moneys are part of the entire income arising out of employment examines whether the payment arises out of employment Footnote 6 and if so, whether it is income Footnote 7 for the purpose of the Act.

5.3.1 Arising out of employment

Information

EIR 35(2)

Determines as earnings the entire income of a claimant arising out of any employment

In order to determine if moneys arise out of employment, the meaning of the term employment must be examined.

Regulation 35(1) provides the meaning of the word employment:

"Employment" means

  1. any employment, whether insurable, not insurable or excluded employment, under any express or implied contract of service or other contract of employment,
    1. whether or not services are or will be provided by a claimant to any person, and
    2. whether or not income received by a claimant is from a person other than the person to whom services are or will be provided, and
  2. any self-employment whether on the claimant's own account or in partnership or co-adventure; and
  3. the tenure of an office as defined in subsection 2(1) of the Canada Pension Plan;

Employment under any express or implied contract of service requires that there be an employer-employee relationship and that the relationship involves some form of remuneration or material benefit of some kind that is direct or indirect, immediate or eventual.

Employment clearly includes the traditional situation where a claimant works under a contract of service for an employer, whether or not the employment is insurable. It also includes excluded employment as stated in the Act Footnote 8 , employment anywhere in the world Footnote 9 , employment in illegal activities Footnote 10 , or employment under a contract of service with the Reserve or Regular Armed Forces Footnote 11 .

Employment may also include situations where services are not performed. The issue to be addressed is whether there is an express or implied contract of service or other contract of employment. Claimants who, after lay-off, continue to receive their salary and most of the benefits of the other employees are under a continuing employment relationship with the employer even though no work or services are expected or performed Footnote 12 .

Employment under any other contract of employment is intended to include any other contract of employment that may not clearly be an express or implied contract of service. It includes situations where a claimant has accepted an offer of employment and the employer withdraws the offer before any actual services are performed. A contract of employment was formed and any moneys received as a result of the breach of contract of that contract are considered to be earnings as they are income arising out of employment Footnote 13 . It also includes situations where a claimant receives moneys because the employer bypassed that claimant's recall rights and hired someone else with less seniority. Footnote 14 However, employment cannot be extended to include cases where a person receives compensation for not being hired by an employer where that person has no recall rights or connection with the employer unless a contract forms by the person's being hired.

Self-employment, whether on one's own account or in a partnership or co-adventure, is included in the meaning of employment Footnote 15 . Employment exists when a claimant is found to be engaged in the operation of a business or to be operating as an independent worker or contractor Footnote 16 .

Tenure of an office as defined in subsection 2(1) of the Canada Pension Plan is included in the meaning of employment. It includes persons who hold the following office Footnote 17 :

'office' means the position of an individual entitling him to a fixed or ascertainable stipend or remuneration and includes a judicial office, the office of a minister of the Crown, the office of a lieutenant governor, the office of a member of the Senate or House of Commons, a member of a legislative assembly or a member of a legislative or executive council and any other office the incumbent of which is elected by popular vote or is elected or appointed in a representative capacity, and also includes the position of a corporation director, and 'office' means a person holding such an office;

Employment still can be said to exist even if the claimant receives the income from a person other than the person with whom the contract of service exits or existed, and for whom the services are or will be, performed Footnote 18 . This other person could be one who stands in the place of an employer or the employer's successor if the business is sold. It could also be the customer who tips a waiter or waitress. However, a clear connection must be established between the employment or employer and the other person in order for the moneys to be considered arising out of employment Footnote 19 . Examples of any other person, as envisioned by the regulation, are a Workers' Compensation Board, an insurance company paying wage-loss insurance benefits, an administrator of a pension fund, or a provincial Wage Protection Fund.

Alimony, lottery winnings or inheritances cannot be said to arise out of employment as these moneys are clearly not received by reason of any sort of employment relationship.

Sometimes, it is not obvious whether the moneys arise out of employment Footnote 20 . The issue to be determined is whether there is an employment relationship between the person who makes the payment and the one who receives it. It may be useful in these situations to refer to the general definition of the term employment found in the dictionary to complement the meaning of employment as stated in the regulation. The dictionary definitions generally refer to an employer-employee relationship and the fact that the employer or the person to whom the service is due both selects and compensates the employee, or person rendering the service. In other words, the person for whom the work is done has the power to hire and fire the person who is performing the service and agrees to pay that individual for the services performed. In addition, employment usually includes some degree of control by the person who is doing the employing over the product or service produced as well as the time taken to do so.

Simply being an employee of an employer is not sufficient to establish that any payment made by that employer arises out of employment. In order to be considered to arise out of employment, the payment must display the character of compensation given in return for the work done by the recipient. It must arise out of the employment itself, and not merely as a consequence of the employment status of the recipient Footnote 21 .

5.3.1.1 Barter arrangements

A barter arrangement, which is an agreement to exchange services between individuals, is considered employment because one person is providing services to another. To that extent, there is the existence of an expectation of services to be performed and an expectation of payment in the form of an exchange of services to be received. The benefits received in exchange for that service, which is the value of the service performed by the other individual, could be said to be non-pecuniary income arising out of employment Footnote 22 .

5.3.1.2 Games and sports

Employment includes situations where individuals play sports or games for payment if there is an employer-employee relationship or it can be said that the player has entered into a contract for service.

When a person plays games or sports under a contract of employment, there is clearly employment. This includes people who play professional and non-professional sports for a team or organization under contracts of service Footnote 23 .

Employment also includes situations where a person receives a guaranteed prize, no matter whether the person wins or loses, as payment for participating in an event. When a prize is guaranteed in this way in order to attract players, the prize constitutes payment by the promoters for the player's participation in the event. A contract for service has formed between the player and the promoter. In the same way, there is employment when a player contracts with a company to endorse products or to appear on their behalf.

On the other hand, employment does not include situations where an athlete competes in sports or games without any guarantee or assurance of receiving a prize. In that event, there is no contract of service or contract for service employment between the athlete and the individuals who have organized the event, as there is no assurance of material benefit Footnote 24 . However, availability may be an issue.

5.3.1.3 Strike benefits

Union members may receive strike benefits from their union during periods of unemployment. During a labour dispute, these moneys are normally paid out of a strike fund that is comprised of union dues paid by the members while employed. Strike benefits may be given to all members, or on a limited basis to members based on criteria established by the union membership. These moneys may be received for picketing or performing some other task instead of picketing, such as, distributing material, or caring for picketers' children.

The essential elements of employment are missing when individuals who are members of a union picket or perform related activities and receive strike pay. The union members are not performing any services for the union itself, nor are they receiving any form of remuneration or material benefit of any kind for services. The activities performed are only activities on the union members' own behalf in their pursuit of a contract with their employer. These activities are part of the contract negotiation process and are activities for which union members volunteer or pursue for their own benefit. The union does not have an employer-employee relationship with its members and the union is not compensating members for any services, it is merely distributing moneys set aside from union dues or other sources for later use during labour disputes.

However, any activities performed for the union itself in conducting the business of the union, such as, being part of the negotiating team for which compensation is received, are employment if it can be established that the union is paying for services performed.

5.3.1.4 Benevolent or volunteer work

Benevolent or volunteer work is generally understood to be work performed without any expectation of monetary reward. It lacks the elements of employment in that the individual is not usually selected to perform the service (they volunteer), and there is no expectation to receive any remuneration or material benefit Footnote 25 . A person engaged in such volunteer work is in no way bound under a contract of service. The absence of such contract is a decisive factor in determining whether the benevolent work is considered employment. Therefore, in the absence of a contract of service, a claimant who provides services as a benevolent gesture is considered not to be in employment. This is true even if, in some very unusual instances, the claimant may receive certain benefits by living on the premises, such as room and board without any obligation to perform services Footnote 26 .

As well, benevolent or volunteer "work" for a friend, a relative Footnote 27 or a spouse Footnote 28 is generally not considered to be employment as there is no contract of service. The performance of services is more related to the personal relationship that the individual has with the person and is not with the expectation of receiving any remuneration or material benefit. Benevolent or Volunteer "work" is considered employment only when the volunteer receives, or expects to receive, remuneration or material benefit Footnote 29 . In that situation, it can no longer be said that it is benevolent work, as on one side there is an expectation of services to be rendered, and on the other side, there is an expectation of payment. Any income, whether pecuniary or non-pecuniary, received by the claimant is then considered to be arising out of employment.

Benevolent or volunteer "work" for a spouse who is under a contract of service is considered employment only if the contractual relationship applies to both of them Footnote 30 . If the spouse is self-employed, consideration is given to the nature of the duties and responsibilities carried out by each spouse in the operation of the business. If it appears that the claimant is not particularly concerned with the business, but merely gives a hand on occasion, the assistance given is not regarded as employment Footnote 31 . However, if the efforts go beyond merely giving a hand, the individual may be found to be in self-employment Footnote 32 .

When the benevolent or volunteer "work" is performed for an employer, the issue again is whether there is a contract of service. This requires the existence of an employer-employee relationship and involves some form of remuneration or material benefit of some kind, that is, direct or indirect, immediate or eventual. The very essence of the employer-employee relationship, when volunteer "work" is performed for an employer, is the fact that the worker will obtain, or hopes to obtain, a benefit or profit from his or her work. This is the case when a "volunteer" fire fighter receives remuneration, whether periodically or in a lump sum, for acting as a member of such a force. The remuneration and its expectation make this employment. Where no remuneration is promised for the "volunteer" work, the benefit that a person wishes to obtain may be just the hope of obtaining regular paid employment in the future from that employer Footnote 33 . Any income, whether pecuniary or non-pecuniary, received by the claimant where it is found that there is an employee-employer relationship, is considered to be arising out of employment. However, if the claimant receives no income, a value cannot be affixed to the services Footnote 34 . It then becomes an issue of unemployment Footnote 35 or availability Footnote 36 .

5.3.1.5 Gifts

Moneys or other material benefit of some kind, received as a gift, that are not given in consideration of services performed Footnote 37 , do not arise out of employment.

When helping out a friend or a relative, a gift is arising out of employment where the individual performs the services with the expectation or promise of these moneys or material benefit. In this case, the gift has a stronger link to the performance of service with the expectation of payment, rather than the assistance freely given to a friend or a relative Footnote 38 .

A gift is arising out of employment only if the employee receives the gift because of the employer's custom to give such gifts to all employees or the employer gives some indication that the gift is related to employment, such as, taking an income tax deduction for the gift.

A gift is not arising out of employment when an employee receives a gift, such as a wedding present, from a personal friend who also happens to be his or her employer. The gift in those cases arises out of the personal relationship that the person has with the employer and not the employer-employee relationship.

Gifts from customers, such as tips Footnote 39 arise out of employment when they occur in recognition for the service provided or work performed. If it were not for the services that were provided by the individual for the customer involved, the gift would not have been given. However, a gratuity related to a personal relationship, rather than the service or the work performed, cannot be said to be arising out of employment and is not earnings for benefit purposes.

5.3.1.6 Return on investment or on capital

A return on investment, or a return on capital, are those moneys that are derived from the ownership of an asset and the result of the "work" of the funds or property invested rather than the "work" of the investor.

A return on investment is not the result of involvement in the actual operation of a business on the owner's own account or in a partnership or co-adventure. When there is involvement in the operation of a business, there is "work" performed by the person. When there is only an investment of funds or capital and no participation by the owner, the investor is not engaged in the operation of the business and there is no element of employment. Moneys gained from a return on investment Footnote 40 or a return on capital are not considered to be arising out of employment or self-employment.

Although generally there is no "work" or labour when there is a return on investment, there may be some small element of participation by the owner in the operation of a business that is owned as an investment. As long as the nature of the participation is solely that of demonstrating a natural concern for an investment Footnote 41 , that participation is not enough to change the nature of the money arising out of the investment to that of arising out of self-employment. In determining this, it is the nature of the activities of the person in the operation of the business that is the decisive factor and not necessarily the amount of time spent. If the activities performed are in the nature of a person engaged or involved in the operation of a business, then the moneys earned arise out of employment and are not a return on investment Footnote 42 . If the activities are in the nature of concern with how others operate the business or concern with protecting the investment itself, then the moneys are a return on investment. Without the element of engagement or involvement in the operation of a business, the individual is neither engaged in self-employment nor engaged in the operation of a business on his or her own account or in a partnership or co-adventure.

A return on investment, or a return on capital, may result from the investment of moneys; the acquisition, holding, or disposal of property or securities Footnote 43 ; or the contribution of money or property to a business venture so that it may produce revenue. A return on investment is commonly in the form of interest; dividends; rent; pay out of equity Footnote 44 ; profits or capital gains.

Royalties are paid to the owner of a property for the use of that property. Whether these royalties are considered to be a return on investment depends on why these moneys were paid. Royalties paid to the creator of a property, such as, song, book or record royalties paid to the composer, author, or singer, are not a return on investment. These royalties result from the labour of the composer, author, or singer and they are earnings arising out of employment. Royalties paid to the owner of a property, based on the mere ownership of that property, are not earned by the property owner's labour and are a return on investment. Gas, oil or mining royalties, are based solely on the ownership of a particular piece of property Footnote 45 .

Interest, which is earned on a saving's account, a certificate of deposit, or a loan, arises solely from the moneys in the account, on deposit or on loan. The interest does not arise from any "labour" of the person who owns the account, placed the moneys on deposit, or made the loan. It arises exclusively from the use of the money itself. As a result, the interest earned is a return on investment. This is true even if the interest is paid by an employer to compensate for an administrative delay in payment of moneys owed to a claimant Footnote 46 .

Income earned by the investment alone is not earnings, even if the claimant spends substantial time following the progress of the investment. No matter the amount of time spent by the person, the money earned is still earned by the investment itself and not the labour, participation or involvement of the investor in the earning process. However, the issue may be one of availability if the time spent interferes with seeking or accepting employment.

5.3.1.7 Grants or subsidies

A grant is the bestowal or gift of land or money. This gift or bestowal may be given in exchange for some sort of compensation paid by the recipient Footnote 47 . A grant may also be given conditional on the production of a service or a product.

When a grant is given with the condition that the grant recipient performs some activity or supplies a product to the grant giver, a contract for service is formed. Under a contract for service, the self-employed contract worker or independent contractor is required to produce a given result within a set period of time. In these situations, the payer is not normally involved in the performance of the work and the payer has no control over the manner in which the work is performed. A contract for service falls under the definition of employment because it is self-employment.

A grant does not arise out of employment if it is bestowed as a gift and is in no way related to a service, a labour, or a product. A grant arises out of employment only if it is earned by the labour of the recipient, that is, given on the condition that a service, a labour, or a product will be provided.

Any money paid to compensate the grant recipient for his or her time or effort arises out of employment. However, any moneys paid to compensate for items unrelated to the labour of the claimant, such as, equipment purchased, and expenses incurred, cannot be said to arise out of employment.

A subsidy may be defined as a grant of money made by the government in aid of the promoters of any enterprise, work or improvement in which the government desires to participate, or which is considered a proper subject for government aid, because such purpose is likely to be of benefit to the public Footnote 48 . A subsidy, like a grant, may be given on the condition that a product or a service is provided in order to receive the subsidy. If a contract is formed between the subsidy recipient and the government, whereby there is payment per unit produced, there is an employment relationship formed. The subsidy must have some connection to the labour of the subsidy recipient or there cannot be employment.

For individuals engaged in self-employed activities in farming, income from farming is the gross income from self-employment, including any subsidies they receive under any federal or provincial program Footnote 49 remaining after deducting the operating expenses other than capital expenditures. Although all subsidies Footnote 50 could be included in the income from self-employment in farming, only income support subsidies are included Footnote 51 .

5.3.1.8 Acting as an executor or executrix

An executor or an executrix is someone appointed to carry out the directions and requests in a will and to dispose of the property according to the will's stated provisions. A person carrying out the provisions of a will may charge a fee for his or her services. If the individual acts as an executor or an executrix for a fee, a contract for service has been formed. Any moneys arising out of the services performed are arising out of employment. However, only the moneys that are paid for the services performed in connection with acting as the executor or executrix under the will are considered earnings arising out of employment.

Any bequests of property or money made under the provisions of the will to any person is an inheritance and arises out the individual's personal relationship to the deceased and not due to any employment relationship. These moneys cannot be considered to be earnings arising out of employment. This applies to the inheritance even if the person acting as an executor or executrix for a fee also receives a bequest or inheritance under the will.

5.3.1.9 Attendance at courses of instruction

Students may receive moneys from various sources while attending courses of instruction. The question to be determined is whether there is an employment relationship between the individual who makes the payment and the student who receives it. Unless an employment relationship can be established, moneys received while attending a course of instruction do not arise out of employment.

Moneys arise out of employment when a student has a contract of employment with the training institution, whether services are performed or not Footnote 52 . This is also true if the student receives any moneys with the requirement that the student performs research work or assists a professor in teaching or marking duties. When this occurs, there is an employer-employee relationship formed Footnote 53 . If such an employee-employer relationship cannot be found to exist, any moneys received from an educational institution do not arise out of employment.

Moneys may also be said to arise out of employment when an employer pays a living allowance to an employee or former employee while that individual is attending a course. This is so whether this occurs during a period of employment or after as part of a severance package Footnote 54 .

However, for students attending courses not sponsored by the Commission Footnote 55 , there is an additional requirement in that any allowances Footnote 56 which are paid for the attendance at the course are deducted from benefit payable.

5.3.1.10 Foster care

Foster care is acting in the place of a parent to provide a home for a child, even though that child is not related to the foster caregiver either by blood or legal ties. Foster care may be compared to benevolent or volunteer work and should not be considered to be employment unless there is remuneration or some expectation of remuneration in return for that care.

Although expenses incurred in the raising of the foster child may be reimbursed on a per diem basis by the organization or another party, this in itself, is not sufficient remuneration or expectation of remuneration to consider foster care as a form of employment. The moneys received from an agency to compensate for expenses incurred in raising a foster child cannot be considered to have arisen out of employment.

However, if an individual enters into a contract for service with another party to provide foster care for a "fee" for this service in addition to expenses or instead of them, then foster care is considered to be employment. The organization is paying the individual to care for the child and for that care, the organization is willing to provide compensation, thus an employment relationship is formed. Only the portion of the income that is the fee for the foster care would be income arising out of employment Footnote 57 . If no amount is given for expenses, the operating expenses actually incurred Footnote 58 may be deducted from any fees paid Footnote 59 .

5.3.2 The entire income

Information

EIR 35(2)

Determines earnings as being the entire income arising out of any employment

This section deals only with income that arises out of employment. Other earnings that may fit the general definition of income but do not necessarily arise directly out of employment are discussed in other sections of this chapter Footnote 60 . These earnings have been specifically included under other paragraphs of subsection 35(2) as they are either related to, or attached to, employment.

Regulation 35(1) provides the meaning of the word income:

"income" means any pecuniary or non-pecuniary income that is or will be received by a claimant from an employer or any other person, including a trustee in bankruptcy. Pecuniary is defined in the dictionary as consisting of, or measured in money Footnote 61 . Conversely non-pecuniary means consisting of, or measured in other than money Footnote 62 .

In addition to the meaning of income provided in the regulation, the Commission also relies on the common dictionary meaning of the word income. The dictionary refers to income as a gain or recurrent benefit usually measured in money that derives from capital or labour Footnote 63 . Although this definition includes moneys earned by capital, the wording of the legislation limits income to that which is "earned by labour" or that "resembles it." Footnote 64 In addition, the payment must be made to compensate for work performed or to be performed by the employee under the terms and conditions of employment and not merely as a consequence of the recipient's employment status Footnote 65 .

A clear connection must be established between the employment or the employer and the other person in order for the payment from the other person to be considered income. An example is the customer or client who makes payments to the self-employed person. Other examples of other person as envisioned by the regulation are a government who makes payment under a Wage Protection Fund, or an insurance company who pays lost wages to all employees who are unable work at the employer's premises because of fire.

The meaning given to the word income under any other legislation cannot be invoked as an authority or take preference over that stated in the EI legislation Footnote 66 .

Any moneys that arise from employment can be said to be income Footnote 67 . Generally, income is any pecuniary or non-pecuniary benefits, such as, wages, salary, and all other advantages or employment-related benefits that are related to, attached to, or arising out of employment Footnote 68 . As well, compensation for the loss of any of these benefits is income for benefit purposes.

An employment-related benefit is something given by an employer to compensate the employee for work performed in addition to the basic hourly wage or monthly salary. It is part of the total compensation package offered by an employer. It includes some items required by labour laws, such as, vacation pay and statutory holiday pay; and some items called fringe benefits Footnote 69 .

Payments that do not arise out of employment are not income for benefit purposes. This includes investment income, alimony, lottery winnings and inheritances Footnote 70 .

Any compensation for losses that are totally unrelated to the advantages arising out of employment is not income Footnote 71 . For example, settlements paid to address injury to one's health or reputation Footnote 72 or for pain or suffering resulting from an accident Footnote 73 , are not income as these settlements are not for loss of wages or employment advantages (employment-related benefits).

Moneys that are paid by an employer to reimburse or to compensate specifically for a job-related expense, incurred or to be incurred by the employee, or a job-required consideration are not income as there is no gain or benefit Footnote 74 . These payments for job-related expenses and job-required considerations are not paid to compensate for the work performed by that employee, rather they are intended to reimburse for the extra costs incurred in performing the job duties.

Where no amount is paid specifically to reimburse a job-related expense or to compensate for a job-required consideration supplied by the employee, it is still possible to deduct these expenses or the value of the supplied consideration from the gross income if they were incurred or supplied for the direct purpose of earning that income Footnote 75 .

The earnings to be taken into account are the claimant's gross earnings Footnote 76 which include the usual deductions, such as, income tax, union dues, unemployment insurance premiums, the employee's own contributions to a pension or wage-loss insurance plan. The employer's share of the contributions to the pension fund is not included in the gross earnings of the claimant. The right to these employer contributions does not occur when they are earned, but rather only later when specific conditions have been fulfilled.

Earnings paid in foreign funds are converted to Canadian dollars at the rate of exchange existing at the time the earnings were paid or payable.

5.3.2.1 Non-pecuniary income

Information

EIR 35(1) and 35(10)(d) to 35(16)

These regulations provide for the inclusion of non-pecuniary income in the definition of income. They also specifically provide for the inclusion of board, living quarters and other benefits as income. They describe how to affix a value to board, living quarters and other benefits received from employment.

Not all income that arises out of employment is received in the form of money, that is, in a pecuniary form. The payment can also be made in a non-pecuniary form, that is, consisting of, or measured in, other than money.

Non-pecuniary income that is received by a claimant from an employer or any other person is included in the definition of income Footnote 77 . It includes any non-pecuniary items received by a self-employed claimant from a customer or a client.

Non-pecuniary income includes the value of board; living quarters; heat, light, telephone, or other benefits included with those living quarters; any other benefits received in respect of employment; or any considerations furnished by an employer. The meaning of a consideration furnished by an employer used with non-pecuniary income is some item furnished or provided by an employer to an employee as payment for services rendered. An example of a consideration furnished by an employer is an automobile that the employee may use for personal use as well as for business Footnote 78 .

Non-pecuniary income received from an employer may sometimes be considered an employment-related benefit. Some examples of employment-related benefits as a consideration furnished by an employer are: appliances such as a refrigerator, washer and dryer Footnote 79 ; the amount by which the rent was reduced Footnote 80 ; free meals Footnote 81 ; and free attendance at a course in exchange for services performed Footnote 82 .

The value of the board, living quarters and other non-pecuniary benefits should be fixed by agreement between the claimant and the employer. Furthermore, the amount should be reasonable. If the claimant and the employer disagree on the value or the value appears unreasonable, the value must be determined by the Commission. The Commission's determination of the value of living quarters must be based on the rental rates for similar accommodation in the same vicinity or district Footnote 83 .

However, the Commission cannot affix a dollar amount for items such as wages or salary when the claimant is providing services but not receiving any money or other non-pecuniary benefits Footnote 84 .

Often the question is not whether a payment is non-pecuniary but whether it arises out of employment Footnote 85 . When a non-pecuniary benefit arises out of employment, it is earnings to be deducted from benefit.

A written contract of employment is not required in order for non-pecuniary benefits or considerations to be income arising out of employment. It is sufficient to show that the claimant is receiving non-pecuniary income or considerations from self-employment or under an express, implied or other contract of employment Footnote 86 . In a barter situation, although there is no money exchanged for services that are rendered, the value of the items exchanged is still an income Footnote 87 . Conversely, the value of free accommodation is not income when the services provided by a claimant are of a volunteer or benevolent nature and there is no requirement to perform any services, as there is no employment Footnote 88 . Also, the value of a personal gift from an employer is not income, as it does not arise out of employment Footnote 89 .

5.3.2.2 Fringe benefits

Fringe benefits are a type of employment-related benefits or advantages that are paid by an employer in addition to basic wages. Fringe benefits form part of the entire income arising out of employment. Examples of fringe benefits are pensions, personal use of a company car, health care plan coverage, holiday trips, other prizes or incentive awards, reduced interest on loans and mortgages, staff discounts on product purchases.

Any insurance type of fringe benefit or any of the following types of fringe benefits are not allocated: savings obtained by financing or purchasing through the employer, such as, reduced interest on loans and mortgages, staff discounts on product purchases or subsidized meals; or free use of an employer's product or service, such as, free transportation for airline, rail, bus employees or car rental employees, free hotel rooms for hotel employees, free or subsidized course attendance for school employees or their dependants where this advantage is not a normal part of the wages Footnote 90 .

However, moneys paid in lieu of the above fringe benefits are allocated as any other benefit arising out of employment. This happens when an employer gives an employee the cash value of the fringe benefit during a period of lay-off or on termination.

5.3.2.3 Northern allowance or isolation allowance

A Northern or Isolation Allowance is part of a person's wages or salary. It takes the form of a higher wage or salary, or is given in a lump-sum "allowance" payment. It is an employment-related benefit to attract employees to work in unusual or unfavourable circumstances. Its purpose is to assist employees in coping with the high cost of living in northern or isolated areas. It is not a reimbursement of expenses. A parallel may be drawn between a Northern Allowance or an Isolation Allowance and situations where an employer factors the cost of living in the community where the claimant works in the calculation of the wages or salary. Regardless whether the money is paid in the form of increased wages or salary, or as an allowance, it is income.

The total wages or salary must be allocated, and, if paid in the form of an allowance, it must also be allocated as earnings in the same manner as wages or salary Footnote 91 . Expenses incurred in connection with the additional costs of living in the isolated or northern areas cannot be deducted as they are not job-related expenses as they were not incurred for the direct purpose of earning the income Footnote 92 .

5.3.2.4 Moneys paid for service on juries or to appear as a witness

Any payment that a claimant receives for appearance in court to act as a juror or to provide testimony as a witness is not income arising out of employment if it is offered by the Courts to offset any expenses incurred by the juror or the witness which may be encountered in fulfilling such duty. The reimbursement of expenses incurred while performing required duties is not income as it is not a gain or a benefit.

However, if there is a continuation of a salary by an employer for the period involved, or if the witness is being paid for his or her professional testimony, this is considered income and the earnings allocated accordingly to the period for which they are payable.

5.3.3 Expenses and considerations

This section covers the effect of expenses incurred and considerations supplied by a claimant not engaged in self-employment. Expenses for persons who are engaged in self-employment and in farming are contained in other sections of this chapter Footnote 93 . In addition, more information on expenses that are compensated on termination can be found in another section Footnote 94 .

While employed, claimants may incur expenses and supply considerations. In general terms, an expense is a cost incurred and a consideration is an item provided by one person to another.

An employer may specifically compensate expenses and considerations. Job-related expenses and job-required considerations, which are specifically compensated by an employer, are not income for EI purposes as they are not a gain or a benefit Footnote 95 .

An employer may require an employee to incur an expense in the performance of the job, or to supply a consideration, yet not be willing to compensate for it. These expenses and considerations may be deducted from the entire income earned from that employment if they are job-related expenses or job-required considerations Footnote 96 .

5.3.3.1 Expenses or considerations specifically compensated by an employer

Expenses or considerations may be specifically or directly compensated by an employer. The reimbursement may occur before, at the time, or after the expense was incurred or the consideration was supplied. The compensation may take the form of a payment for actual costs incurred; a fixed amount or flat rate, such as a per diem Footnote 97 ; or monthly allowance.

Whether any compensation paid by an employer is income depends on whether it is considered to be a gain or a benefit Footnote 98 . If the expense or consideration is one that was required of the employee to perform the job, receiving compensation for that expense or consideration cannot be said to be a gain or a benefit as the employee did not profit. As a result, employees who are compensated by their employer for a job-related expense or a job-required consideration do not need to avail themselves of a deduction Footnote 99 to reduce their income. Their income is not considered to include the amount received as compensation for the job-related expense or the job-required consideration.

A job-related expense is an expense that is incurred while engaged in activities on behalf of the employer. Some job-related expenses that may be compensated by the employer are per diem allowances covering accommodation and meal costs while away from the work area on business, a tire purchased for the employer's automobile, moving costs incurred during a transfer from one work site to another, a golf club membership required to entertain clients, and job-related training courses. All these expenses do not represent a gain for the employee, nor are they paid to compensate for any work performed by the employee. They are an attempt to pay for expenses that would not have been incurred were it not for the fact that the employee was engaged in activities on behalf of the employer.

Not all expenses compensated by an employer are job-related expenses. A compensated expense incurred by the employee may be paid by the employer as an employment-related benefit. An example of this may occur where an employer reimburses the cost of addition medical or dental insurance purchased by the employee or a golf club membership purchased for recreation. In these situations, the employer is not compensating for business-related expenses that would not have occurred had it not been for the job duties or activities. Employment-related benefits are included as part of income Footnote 100 .

A job-required consideration is an item required by an employer to be supplied by an employee in order to perform the employee's job duties. Some job-required considerations compensated by the employer are the driver-supplied vehicle required by some pizza delivery and courier companies or the horse supplied by a ranch hand that is required by some ranchers. Payments for job-required considerations are not to compensate for the work performed by the employee, rather they are intended to reimburse for the extra costs incurred in having to supply an item required in performing the employment duties.

Not all considerations supplied by an employee that are compensated by an employer are job-required considerations. If an employer pays for a bus pass that the employee purchased where no travel on business during the day is required of the employee, this would not be considered a job-required consideration. It is an employment-related benefit and is income.

Receipts are not required when an employer compensates an employee for job-related expenses or job-required considerations. Generally employers, when reimbursing employees for expenses incurred, require sufficient proof to justify the expenditure. This proof may be that the actual expenditure was incurred or simply that the activity was performed. When paying a fixed amount or a flat rate, the employer has considered what costs, on average, the employee would reasonably incur under the circumstances.

5.3.3.2 Expenses and considerations not specifically compensated by an employer

Information

EIR 35(10)(a)(i) & (ii)

Provides for the deduction of expenses and considerations from income arising out of employment for someone who is not self-employed.

When no amount is paid specifically to reimburse an expense or a cost, it is still possible to deduct these expenses from the gross income if they were incurred for the direct purpose of earning that income Footnote 101 . This means that the expense must somehow relate to the terms and conditions of employment or to the employees' performance of duties, that is, it must be a job-related expense.

The purpose of Regulation 35(10) is to allow for deductions from income when claimants have incurred job-related expenses to earn their income or supplied job-required considerations and were not specifically compensated by their employer for that expense or consideration. A job-related expense is an expense that is incurred while engaged in activities on behalf of the employer. A job-required consideration is an item required by an employer to be supplied by an employee in order to perform the employee's job duties.

Employees may have to cover business expenses out of their wages, salary or commissions. Payments may be made by employees for such items as hotel, meals and transportation costs when performing duties for the employer away from home; gasoline purchases; entertaining current or prospective customers; or the purchase of equipment that enables them to perform their duties. In all cases where a deduction of a job-related expense from income is requested, receipts must be provided. Established job-related expenses are deducted from gross income before earnings are allocated.

Employees may incur expenses for personal well being or personal circumstances in the normal course of their employment duties. These expenses or costs are generally incurred only indirectly for the purpose of earning income. They are not related to the terms and conditions of the employment, or to the employees' performance of duties. As a result, they cannot be deducted from the gross income. Examples are childcare, transportation to and from work, presentable clothing, and healthy food Footnote 102 . However, if employees incur an expense such as childcare, for example, while performing activities that are outside the normal requirements of the employment, and are not compensated by the employer for that expense, it may be deducted from their income. Having to work overtime or to go out of town once or twice a year are examples of situations where these activities may be part of the normal requirements of the employment.

Should the claimants expend more than the amount for which the employer compensates them, this amount may be deducted from the wages or salary provided that the expense incurred is reasonable, is supported by evidence and was actually expended. In cases where the employer pays a flat rate or a fixed amount, this payment already takes into account the fluctuation in the expenses that an employee will incur. No deduction for the additional amount expended is allowed unless special circumstances are demonstrated.

When no amount is paid specifically to compensate for a consideration supplied, or the amount is inadequate compared to what employers normally pay, the value of a job-required consideration not compensated can be deducted from the gross income. This is true as long as employers customarily compensating this consideration in that occupation or industry. For instance, no deduction can be made for the tools that are customarily supplied by tradespersons or for chain saws normally provided by persons employed in cutting lumber. However, it may be possible to deduct expenses incurred to operate them. The claimant's declaration as to the value of the consideration supplied is normally sufficient if it is reasonable.

A deduction may be requested by employed individuals to cover costs incurred in obtaining someone to assist them in performing their job duties or replacing them when they do not work. However, if the contract of employment is with the claimant, any payment for wages or salary under that contract is part of the claimant's entire income arising out of employment. The person who is actually performing the duties is not the one employed by the claimant's employer as no contract of employment exists between the employer and the person assisting the claimant. Nevertheless, it may be possible to deduct any wages paid to the person who actually performed the work. If the claimant can establish that moneys were actually paid to someone else to perform the claimant's duties, these moneys fall into the category of expenses directly incurred in order to earn the income and may be deducted from the claimant's income Footnote 103 .

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