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Unneeded EI Premiums
Canadian Tax and
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Employment Insurance (EI) Premiums are not Payable on Some
Wages paid to some shareholders and family members are not insurable, and
these employees cannot collect employment insurance benefits. Some other
types of earnings are not subject to EI premiums, such as "direct"
tips and gratuities. See below for a link to the Canada Revenue Agency
special payments chart for more information.
a. You may not
have to pay EI premiums for employed family members.
Employment Insurance Act s. 5(2)(i), s. 5(3)
Insurance Act S. 5(2)(i) states that employment is not insurable if
the employer and employee are not dealing with each other at arm's length
(determined in accordance with the Income Tax Act).
However, the employment will be deemed to be insurable
"if the Minister of National Revenue is satisfied
that, having regard to all the circumstances of the
employment, including the remuneration paid, the terms and
conditions, the duration and the nature and importance of
the work performed, it is reasonable to conclude that they
would have entered into a substantially similar contract of
employment if they had been dealing with each other at arm's
The Judge in the McDonnell Consulting case wrote "This is
certainly not a case of employment of convenience
being created for the benefit of members of the
family so that they could take unfair advantage of
the employment insurance system. Nevertheless, the
terms of the Act are reasonably clear, and when
related parties enter into employment contracts they
must be scrupulous to see that the terms do not
differ from those on which the employer employs
other workers, or on which the workers could find
work with other employers, if they wish the
employment to be insurable under the Act."
Shareholder's wages may not be insurable.
Employment Insurance Act s. 5(2)(b)
S. 5(2)(b) of the Employment
Insurance Act states that "the employment of a
person by a corporation if the person controls more than 40%
of the voting shares of the corporation" is not
Recovery of EI Premiums or CPP
If you have been paying EI premiums on the above types of
non-insurable employment, you may be able to recover some or
all of the premiums paid. See our articles: