How To Ensure Rental Income Within Your Corporation is Active Business Income
How To Ensure Rental Income Within Your Corporation is Active Business Income May 5, 2023 Tax Question: How do you ensure your rental income within
May 5, 2023
Tax Question:
I have hired a family member to work in my corporation and want to know whether I should deduct EI or not?
Facts:
Under the Employment Insurance Act, employees who are related to their employer (individual or corporation) might not be in insurable employment. This means that they would not have EI premiums deducted from their pay and would not be able to get EI benefits. However, an employee that is related to the employer can be in insurable employment if it is reasonable to conclude that the employer would have hired a non-related person under a similar agreement (contract of employment). This means a similar contract with a person at “arm’s length”.
If the related person you employ controls more than 40% of the corporation’s voting shares, then they cannot be in insurable employment and EI is not deducted. If the related person controls less than 40% voting interest in the company then EI should be deducted if it is reasonable to conclude that you as the employer would have hired a non-related person under a similar agreement based on:
The key here is that if the related person were to leave your employment, you would have to hire an “arm’s length” person to replace them. The replacement would have to receive the same type of pay rate, hours, tasks, etc as the related person.
If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.
Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.
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