Executive Summary: Key Legal and Evidentiary Issues

• Paul Ratti, a licensed physician, appealed the CRA's denial of Canada Emergency Wage Subsidy (CEWS) benefits for five qualifying periods between March 15, 2020 and August 1, 2020.

• The CRA argued that neither employment income nor dividend income from Ratti's professional corporation qualified as "qualifying revenue" under the Income Tax Act, rendering the joint election under subsection 125.7(4)(d) invalid.

• Central to the dispute was whether "qualifying revenue" under section 125.7 must originate from business income, or whether it encompasses broader sources such as employment and dividend income.

• Salary and wages paid to a domestic worker for childcare and cleaning were challenged by the Respondent as personal expenses ineligible for the CEWS subsidy.

• The Court interpreted "consideration" using its established contract law meaning, finding employment income constitutes consideration for services rendered and thus qualifies as "qualifying revenue."

• Dividend income was found not to constitute "consideration" under the definition of qualifying revenue, though this finding did not affect the outcome of the case.

The parties and background

Paul Ratti, a licensed physician, and his wife each owned 50% of the common shares of Jillian Ratti Professional Corporation, an Alberta corporation. Beginning January 1, 2020, the Appellant was employed by the Corporation. During the relevant periods — spanning March 15, 2020 through August 1, 2020 — the Appellant also employed Marianny Henriquez as a domestic worker who performed childcare and cleaning services. The Appellant had a payroll account with the Canada Revenue Agency which he used to remit source deductions on her salary and wages, and issued her a T4 for the 2020 taxation year. For his 2020 taxation year, the Appellant reported employment income and taxable dividends from the Corporation, along with $13,352 in "other income," which both parties agreed represented the CEWS benefits he received for the Periods.

The CEWS framework and the CRA's denial

The Canada Emergency Wage Subsidy was one of a number of measures introduced in response to the COVID-19 pandemic to help employers keep and return workers to their payrolls. The benefit took the form of a deemed overpayment of tax under Part I of the Act, available to a "qualifying entity" that experienced a sufficient decline in "qualifying revenue" during specified periods compared to a pre-pandemic reference period. The Appellant made two elections: a joint election with the Corporation under paragraph 125.7(4)(d) of the Income Tax Act, and an election to use January and February 2020 as the prior reference period. The CRA denied the CEWS on two grounds — first, that the Appellant's employment and dividend income were not "qualifying revenue," which would invalidate the joint election and preclude a measurable revenue decline; and second, that the salary and wages paid to Ms. Henriquez constituted personal expenses outside the intended scope of the CEWS.

Whether employment income and dividends constitute qualifying revenue

The Respondent contended that "qualifying revenue" under subsection 125.7(1) must be revenue from a business, relying on the statutory phrase "generally from the sale of goods, the rendering of services and the use by others of resources of the eligible entity." Justice Friedlander rejected this interpretation, finding that the word "generally" indicates those activities will be the source of the qualifying revenue in most cases, but does not require that qualifying revenue originate from such activities exclusively. The Court emphasized that Parliament did not expressly limit the CEWS to business income and that the definition of "eligible entity" in subsection 125.7(1) of the Act references certain corporations and trusts, individuals, certain registered charities, certain tax-exempt persons, certain partnerships and prescribed organizations — it does not use the word "business." References in Hansard, press releases, and a "frequently asked questions" posting on the CRA website to "helping businesses" were characterized as language made in "lay" contexts that should not be used to override unambiguous legislative language.

The meaning of "consideration" and its application

The Court determined that "consideration" in the definition of qualifying revenue should be interpreted to take its meaning from contract law — something of value exchanged in a reciprocal arrangement. Drawing on the Supreme Court of Canada's reasoning in Will-Kare Paving & Contracting Ltd. v The Queen, Justice Friedlander held that settled commercial law principles should govern interpretation of this term. Under that framework, salary and wages are consideration provided to an employee under an employment contract for the services to be provided by that employee. The Respondent's own counsel conceded at trial that employment income could be characterized as consideration for services rendered, and conceded that the Appellant was providing services to the Corporation. Dividends, however, were found not to constitute "consideration," since when the Appellant acquired his shares in the Corporation for either a purchase price or upon subscription, it was shares that he acquired — not dividends.

The personal expenses argument

The Respondent's secondary argument — that the salary and wages paid to Ms. Henriquez for domestic services were personal expenses ineligible for the CEWS — was also rejected by the Court. Justice Friedlander found she was unable to ground the Respondent's position in the legislation. The only requirement regarding expenses to be incurred by an eligible entity relates to the "eligible remuneration" paid to "eligible employees," and neither of those two definitions suggests, even indirectly, that an employee who is providing personal services to an employer should be excluded. The CEWS legislation is intended to protect employees by providing benefits to employers, and the Court found no suggestion in the Backgrounders that employees providing personal services to employers should be treated differently than other types of employees.

The ruling and outcome

Having concluded that the Appellant's employment income earned in the 2020 taxation year was "qualifying revenue" and that the joint election under paragraph 125.7(4)(d) was validly made, the Court found the Revenue Decline Test satisfied for all five qualifying periods. The personal nature of the salary and wages paid to Ms. Henriquez was held not to bar the Appellant from receiving the CEWS. Justice Friedlander allowed Paul Ratti's appeal, with an opportunity for cost submissions on or before March 20, 2026, and a deadline of April 10, 2026 for the Respondent to file any response. The CEWS benefits at issue totaled $13,352 in favour of the Appellant. If no cost submissions are received, no costs shall be awarded.