Let's say for the sake of argument that you own a small Canadian business and you are about to employ a child of yours to work in that business. You know that you don't deduct Employment Insurance (EI) premiums from yourself, because you own more than 40% of the company. But what about your child? So you search a little and you find two official government websites (.gc.ca means Government of Canada .ca). Here is what they say:
If you are a family member, i.e. spouse or child, paid as an employee by the family enterprise —business or farm— you are like any other worker and can be paid EI benefits, as long as you meet the requirements for regular or maternity, parental, sickness and compassionate care benefits.
Even if there is a contract of service, employment is not insurable and is not subject to EI premiums in the following situations:
- casual employment if it is not for your usual trade or business;
- employment when you and your employee do not deal with each other at arm's length. There are two main categories of employees who could be affected: related persons and non-related persons.
- Related persons: These are individuals connected by blood relationship, marriage, common-law relationship, or adoption. In cases where the employer is a corporation, the employee will be related to the corporation when the employee is related to a person who either controls the corporation or is a member of a related group that controls the corporation.
That's right, HRSDC Canada says go ahead and deduct, your kids are just like anyone else and they will be eligible. But CRA-ARC, which is the organization that will punish you if you get this wrong, says don't deduct.
What do you do? You might consider phoning the government. This will be entertaining in a way, what with listening to the hold music, playing voice mail hell, and listening to government employees say "oh gee I didn't know that", but not what you might call educational. But after several such phone calls, you can discover that it is possible to request a written ruling from the tax people. And then you resolve to do whatever the ruling says to do and stop worrying your pretty little head about what makes sense or what is right. And take some satisfaction, if you're that kind of person, in knowing that many of the "I didn't know that" guys have promised to show their boss the contradictory information.