Harold Aucoin CPA Inc.

Fisher - Ei - a short history:
Fishers have a number of problems wherein a solution is attempted using the same financial and legal vehicles. Most pressing and often regarded as most important are the policies and regulations of EI administration, Fisheries and Oceans Canada (commonly referred to as DFO), and CRA (commonly referred to as Revenue Canada). The history and industry practice is much the same in mining, forestry, and some types of farming.

In previous years, DFO did not issue licenses in the title of corporations. Fishers incorporated companies without fishing licenses or permits. This supported by the CRA, necessitated the fisher to “declare” a portion of the catch in the name of crewmembers for EI purposes. The principal of the company included himself as a crewmember leaving the company to report in its revenues only a portion of the catch for the season. While a sound method of reporting, this left the danger that not all of the season’s catch would be accounted for. Also Workers’ Compensation Premiums were often difficult to calculate leaving additional burdens and pseudo-responsibilities with the fish buyers.

With new EI regulations and policies coming into effect in 1997 fishers and some fish buyers changed their systems of revenue and crew expense recognition. The new regulations eliminated the “declaration” for insurable earnings and placed hourly requirements on “helpers”. These regulations required the gross catch to be reduced by 25% and all amounts paid to the crews to arrive at insurable earnings for fishers (in most cases the principal). The new EI earnings recognition also required that all catches paid by all fish buyers be subject to EI premiums. This meant that the license holder reported all of the catch for the season on his T1. The problem that was immediately identified is that the principal would be left with a T4 with all fish showing in box 78. This, reported on his T1, would then need to be eliminated in the T2121 and replaced with the actual amount of drawings from his fishing company. The amount of drawing taxed on the T1 would be the same as if the fishing company issued the standard T4 to its principal. This system would satisfy both EI and CRA requirements. In addition, Workers’ Compensation Premiums were easier to calculate and a DFO requirement that all fishers have “fishing income” was satisfied.

Another change occurring in 1997 was a new definition of “insurable earnings from a fishing source”. It should be noted that insurable earnings from fishing income is sometimes more profitable to the EI claimant. Publications issued by CRA made it clear that a fishing property needed to be held in the title of the fisher or crewmember. This means that a crewmember was no longer able to draw EI from a fishing source unless a fishing property was held in his name or that the earnings were dependent on a “fishing outcome”. This gave fishers a greater incentive to keep license in their name rather than having licenses transferred to corporations. Since DFO did not permit licenses to be owned by corporations it was at first seen as not relevant.

In 1999, CRA (then CCRA) issued a bulletin making it clear that the transfer of fishing rights to a corporation was acceptable. Because of the capital gains deduction available on the disposition of “qualified small business corporation shares”, many fishers transferred their fishing rights to their corporations. The transfers were never the licenses but rather an assignment of fishing rights under corporate and contract law. These corporations had issued shares to spouse, other family members, and “discretionary family trust”.

In recent years, DFO has changed their policy regarding title of fishing licenses. If the principal is the only shareholder, his fishing company can now own the license. This leaves one wondering if previous legal and accounting mechanisms still work. During the many changes and confusing practices in the industry, little clarity has been achieved. It seems certain that fish buyers will continue to issue cheques to fishers when they should be issuing the cheques to the fishing companies. The proper way of settling with the fish buyer is to have the landings in the fisher’s name (providing he owns the fishing license) and have the funds paid to his company. At the end of the calendar year, the T4 would be issued in the principal’s name with the entire catch in box 78.