The government of Canada provides Employment Insurance maternity benefits to biological mothers, including surrogate mothers, who cannot work because they are pregnant or have recently given birth. In addition, the government provides parental benefits to any parent, male or female, whether the child has entered the family through biological birth, adoption or surrogacy.
You may be eligible to receive Employment Insurance (EI) maternity or parental benefits if you are employed in insurable employment and if you have accumulated at least 600 hours of insurable employment during the qualifying period.
Stacey Goodwin
CPA, CA, LPA, Partner
Millards Chartered Professional Accountants
Stacey Goodwin, CPA, CA and LPA at Millards Chartered Professional Accountants says that while the EI maternity eligibility rules are straightforward for most employees, the relationships in family businesses can create situations where Employment Insurance maternity benefits could be denied.
“It is important to understand how insurable employment and loss of EI benefits for maternity leave is seen in the eyes of the government and of the law.”
In a January 23, 2015 Tax Court of Canada case, a worker and spouse of a sole shareholder in a company, was determined by a CPP/EI Rulings Officer to not be engaged in insurable employment with the Company because she and the Company were not dealing with each other at arm’s length.
Described by Merriam-Webster as “a distance discouraging personal contact or familiarity,” and known in contract law as “an equitable agreement that will stand up to legal scrutiny, even though the parties may have shared interests,” the arm’s length requirement can be a double edged sword.
“What this means” explains Goodwin, “is that EI contributions would not have to be remitted, however, EI benefit claims could not be received either. This is because a spouse, or family member of the shareholder of a company may earn insurable amounts only if their employment contract is substantially similar to one that would be accepted by an arm’s length party.”
Courts can consider various factors when determining if a contract is not substantially similar to one that would be accepted by an arm’s length party.
Such factors taken into consideration may include if the worker was not paid on a regular basis and was paid below market rate for her services, or, that the worker did not track her hours, nor did she receive overtime payments.
In the January 2015 case the financial performance of the Company indicates that it did not have the finances to support the worker’s position and this led to the inference that the position was introduced to provide employment to the worker.
“The court also found that the employer was unable to hire a replacement when the worker went on maternity leave which was another indication that no one other than the spouse of the shareholder would be willing to accept similar terms of employment.”
So what’s the bottom line for someone employed in a family business that hopes to take advantage of Canadian Employment Insurance maternity benefits?
“It is possible to qualify for Employment Insurance maternity benefits if you work in a family business but It’s important that you understand the arm’s length requirements and meet all of the requirements. You need to consider this well in advance of your pregnancy as some of the qualifying factors must be in place well ahead.”
If you’re a business owner who is employing family members, contact Millards Chartered Professional Accountants today to determine if their earnings are insurable.
Stacey specializes in owner managed businesses, professional and service industries, manufacturing and distribution and farming. She also provides accounting and auditing services, corporate and personal taxes, and management and advisory services.
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