Tax Question:
What is an Employment Insurance (EI) ruling and why would I need one?
Facts:
An EI ruling by the Canada Revenue Agency (CRA) is requested by an employer or employee who is not sure whether an employee is engaged in insurable employment.
In family-owned businesses, this question usually comes up when an employee is related to their employer (i.e. parents, siblings or children). When the employer and the employee are related to each other, they are by default deemed to not deal with each other at “arm’s length”. Since they are not arm’s length, any employment between them is considered to be not insurable. There are provisions that can make the employment insurable; however, CRA needs to be satisfied that the parties would have entered into a substantially similar employment agreement had they not been related. There are four factors in combination (not on their own) that CRA looks at in this situation.
One of the main considerations when determining if you need an EI ruling or not is if you are unsure if the person you are dealing with is “not at arm’s length”. Or perhaps that employee has been denied EI benefits. On the other hand, you may be concerned that they are paying contributions that are unnecessary as they are considered “not at arm’s length”.
An employee or an employer can request a ruling before June 30th of the year following the year to which the question relates. For example, if the employment took place in 2015, the ruling request has to be made before June 30, 2016. It is important to know if the employment is insurable or not, as the person’s EI contributions may not be recovered if that person ever applied for EI benefits. As well, the employer’s portion paid to CRA may not be recovered.
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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