
Family Businesses and Employment Insurance
When family and business intertwine, things can get rather complicated. The Tax Court of Canada’s recent decision in Tina Positano v. The Minister of National Revenue highlights the complexities that arise when determining whether a family member’s employment qualifies for Employment Insurance (“EI”) coverage.
From 2012 to 2017, Tina Positano worked for her brother’s company, 1017867 Ontario Ltd., performing various office tasks. The company specialized in asphalt paving during the summer and snow removal in the winter. While the Canada Revenue Agency (“CRA”) agreed that Positano was employed by the company, it ruled that her employment was not insurable under the Employment Insurance Act (“EIA”). The reason? The CRA believed that the arrangement wasn’t similar to what it would have been if she and her brother were dealing “at arm’s length.” In other words, Positano would have negotiated the terms of her employment much differently if they were unrelated.
Positano, along with her brother’s company, appealed the decision. However, the Tax Court of Canada (“TCC”), upheld the CRA’s original conclusion. The crux of the case lay in whether Positano’s employment terms mirrored what would have occurred between unrelated individuals. Under the EIA, employment is not considered insurable if the employer and employee are not dealing with each other at arm’s length, unless the terms are substantially similar to what they would have been in an arm’s length relationship.
Positano’s testimony revealed inconsistencies in how she was compensated. She initially claimed she was a salaried employee, earning $800 weekly, but later admitted to also being paid on an hourly basis, with her wage fluctuating from $15 to $20 per hour. Records showed irregular payments, with some periods showing no earnings and others showing varying amounts. Moreover, Positano took an unusually large amount of vacation time—up to 33 weeks in 2015—suggesting that her employment was highly discretionary.
Ultimately, the TCC concluded that Positano’s employment was not structured in a way that reflected a typical employer-employee relationship. Her flexible hours, inconsistent pay, and irregular vacations indicated that her role within the company was largely informal and likely based on familial goodwill, not standard employment practices. As a result, the court dismissed the appeals, confirming that Positano’s work for her brother’s company was not insurable under the EIA due to a lack of an arm’s length relationship.
This case underscores the importance of clearly defining employment terms, especially within family-run businesses, to ensure compliance with Employment Insurance regulations. If you need advice regarding whether your employment is insurable under the EIA, contact us today!
** Disclaimer: This article provides information of a general nature only. It does not provide legal advice, nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions, you should consult a lawyer.