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March 13, 2013 at 11:13 AM

INSURABLE EMPLOYMENT

                        The Employment Insurance Act (EIA) notes that insurable employment does not include the employment of a person that controls more than 40% of the voting shares of the corporation.

It also excludes employment if the employer and employee are not dealing with each other at arm’s length.  However, if the employer is related to the employee, they are deemed to deal with each other at arm’s length 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 length.

Therefore, to avoid EI, the taxpayer must show that they do not have a substantially similar contract of employment as other arm’s length employees.

Caution

If EI has been incorrectly paid for a family member and a refund is to be requested from the CRA, or a Ruling is to be asked for, this could be a lengthy process.

Tax Tips & Traps 2013