Canadian EI (Employment Insurance) and Family Members

Canadian EI rules for familyWith the T4s being processed by CRA (Canada Revenue Agency) and PIER (pensionable and insurable earnings review) reports now being mailed, this is the time of year when CRA questions if there is a conflict with EI and Family Members.

Last week a client of mine received a PIER report requesting that he pay the employee’s EI that wasn’t deducted on the earnings shown on the T4, and the employer portion of the EI. When preparing payroll in the summer of 2013 he didn’t deduct EI from his daughter’s earnings, but the T4 showed insurable earnings and no contribution.  His question to me once he received it was “Why do I have to pay EI on my daughter. She’s only 14 and I don’t have to pay it on my wife?”

My client had forgotten that we had requested a ruling 3 years ago when his wife was put on payroll. This was done by completing a CPT1 form.   It was approved by CRA and as a result she was deemed as EI exempt. This ruling was not granted until the CRA had spoken to my client and his wife separately, to determine what the relationship between them was, and the work she was doing for his company.

The general rule is that if an individual owns more than 40% of the voting shares of a Corporation, they are ineligible for EI benefits.  This means that they would not be able to collect EI benefits if the business was sold or discontinued.

When I contacted CRA on my client’s behalf and explained the situation to them, the following was the guideline they gave me for this situation.

If the daughter has employment and receives her pay because she is the daughter and he wants her to work, then she would not be eligible to collect EI and no EI deductions should be taken from her pay cheque.  But, even though she is his daughter, if she was filling a position that he would have to hire someone to do if she was not available to do the work, then EI would need to be deducted.

Each situation is different so it’s extremely important that a request for a ruling be submitted.  The fines and penalties for not deducting and remitting the correct amounts can be huge.

The CRA will not discuss a ruling based on a hypothetical or proposed employment situation.  This ruling can also be used to determine if someone you pay should be an employee or is considered self-employed.  The CPT1 can be completed by the employer, payer or authorized representative.  This is the form that can also use if you’re an employer and applying for a refund of CPP contributions or EI premiums.

By the way, my client decided to pay the $75 to the CRA and will make sure he deducts EI from his daughter’s pay cheque this summer.

I welcome your feedback. Feel free to share your experience with this with me. You can leave a comment right here on the site, connect with me via email or telephone, or click the contact tab at the bottom of the screen if you are reading this post on the website.

Until next time,

Maureen

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