It's not very often I openly accuse the federal government of breaking the law... but I've had a tough week, so what the heck.
Actually, it's a tough claim to make stick, since the government writes the law. So let me modify that statement to say the law and regulations that govern employment insurance are immoral and unfair and should be illegal, as they pertain to family businesses.
In a nutshell, the EI regime makes all family members involved in a business pay EI premiums, unless they are a 40 per cent or larger voting shareholder in the business.
However, when those people lose their jobs, they are routinely turned down for EI benefits.
Fair? I don't think so. The law says "pay," while the regulations give the EI Commission employees the ability to arbitrarily deny benefits.
Is a refund of premiums offered in those circumstances? No.
A recent example in the news was a fellow working for his parents' restaurant. He was paid regular wages and, likely, tips. He was not an owner.
The restaurant was sold, I believe, or additional competition moved in. At any rate, he was laid off.
His application for EI was denied.
The "logic" here appears to be a family member must have control over his or her position and whether or not to remain employed. I can tell you from my personal experience and from the experience of many others, this is often not the case.
In a related inequity, many owners don't realize they can opt out of paying premiums if they own 40 per cent or more of the voting shares of a firm.
As well, if CRA deems you to be "self-employed," you do not need to pay premiums, as you will also not be eligible for benefits.
So many people pay these premiums unnecessarily, there are businesses set up specifically to help them recover the money paid in the past. Most accounting firms will also help their clients apply to stop premiums and to get back the previous three years' premiums, the maximum allowed.
Current maximum employee EI premiums are $891, with the employer's share being $1,248 per employee per year.
To request a ruling about eligibility, file a form called CPT1, Request for Ruling of a Worker under the Canada Pension Plan or Employment Insurance Act, to the CPP/EI Rulings Division. You can send these to your local CRA office.
In time, you will get a ruling, based on a list of factors, such as employee control over the work situation, salary compared to non-family members, duties, etc. Basically, they want to avoid situations where people can pay into the program, then decide to get laid off once qualifying, and being able to go through that cycle by choice.
The rulings division may grant an exemption, from both premiums and eligibility for benefits. At least then it's clear.
David Christianson, BA, CFP, R.F.P., TEP, is a financial planner in Winnipeg, and author of the book Managing the Bull, A No-Nonsense Guide to Personal Finance.