6 December 1995 External T.I. 9526175 - EMPLOYMENT NOT SUBJECT TO UIP

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Is salary and remuneration deductible in a type of employment not subject to unemployment insurance premiums

Position: Yes

Reasons:

As long as made or incurred for the purpose of gaining or producing income

		5-952617
XXXXXXXXXX                       M. Shea-DesRosiers

Attention: XXXXXXXXXX

December 6, 1995

Dear Sir/Madam,

Re: Whether salary and remuneration are deductible in a type of employment not subject to unemployment insurance premiums

This is in reply to your letter of September 29, 1995 concerning the above-mentioned subject.

Under the Unemployment Insurance Act (UIA) payments from certain types of employment are not insurable and unemployment insurance premiums are not to be deducted from said payments. One of such employment which is mentioned at paragraph 3(2)(d) of the UIA is the employment of a person by a corporation if the person controls more than 40% of the voting shares of that corporation.

Another excepted employment which is mentioned at paragraph 3(2)(c) of the UIA is where the employer and employee are not dealing with each other at arm's length. As pointed in subparagraph 3(2)(c)(i)of the UIA, the question of whether persons are not dealing with each other at arm's length shall be determined in accordance with the provisions of the Income Tax Act. Subsection 251(1) of the Income Tax Act (the "Act") states that "persons related" are deemed not to deal with each other at arm's length and subsection 251(2) of the Act defines what is meant by "related persons".

As stated in subparagraph 3(2)(c)(ii) of the UIA, where the employer is, within the meaning of the Act, related to the employee, they shall be deemed to deal with each other at arm's length if the Minister of National Revenue is satisfied that, having regard to all the circumstances of the employment, including the remuneration paid, the terms and conditions, the duration and the nature and importance of the work performed, it is reasonable to conclude that they would have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length.

Where the two types of employment above mentioned are not subject to unemployment insurance premiums, the salary, remuneration or bonuses paid to employees in such circumstances will be deductible if the requirements of the Act are met.

We trust the above comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch